FORM 10-K
--------------------------------------------------------------------------------
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
--------------------------------------------------------------------------------
                                   (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, 2003

                                       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)

                      236 AVENUE ROAD
                 TORONTO, ONTARIO, CANADA               M5R 2J4
          ----------------------------------------     ----------
          (Address of Principal Executive Offices)     (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (416) 963-3999

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 or any amendment to this Form 10-K [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act.)
                                                        Yes [ ] No [ X ]

     On October 1, 2003, the aggregate market value of the voting common equity
of Tengtu International Corp. held by non-affiliates was $29,350,934.25 based on
the closing price of $0.55 for its common stock on said date as reported on the
Nasdaq over-the-counter Bulletin Board. On such date, Tengtu International Corp.
had 72,441,238 shares of common stock outstanding


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<PAGE>


                                     PART I

   CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" STATEMENT UNDER THE
                PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995


     Our disclosure and analysis in this report contains some forward-looking
statements. Certain of the matters discussed concerning our operations, cash
flows, financial position, economic performance and financial condition,
including, in particular, future sales, product demand, growth of e-education
business in China, competition, exchange rate fluctuations and the effect of
economic conditions and technological difficulties include forward-looking
statements within the meaning of section 27A of the Securities Act of 1933,
referred to herein as the Securities Act, and Section 21E of the Securities
Exchange Act.

     Statements that are predictive in nature, that depend upon or refer to
future events or conditions or that include words such as "expects,"
"anticipates," "intends," "plans," "believes," "estimates" and similar
expressions are forward-looking statements. Although we believe that these
statements are based upon reasonable assumptions, including projections of
orders, sales, operating margins, earnings, cash flow, research and development
costs, working capital, capital expenditures and other projections, they are
subject to several risks and uncertainties, and therefore, we can give no
assurance that these statements will be achieved.

     Investors are cautioned that our forward-looking statements are not
guarantees of future performance and the actual results or developments may
differ materially from the expectations expressed in the forward-looking
statements.

     As for the forward-looking statements that relate to future financial
results and other projections, actual results will be different due to the
inherent uncertainty of estimates, forecasts and projections and may be better
or worse than projected. Given these uncertainties, you should not place any
reliance on these forward-looking statements. These forward-looking statements
also represent our estimates and assumptions only as of the date that they were
made. We expressly disclaim a duty to provide updates to these forward-looking
statements, and the estimates and assumptions associated with them, after the
date of this filing to reflect events or changes in circumstances or changes in
expectations or the occurrence of anticipated events.

     We undertake no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any additional disclosures we make in our
Forms 10-K, Form 10-Q and Form 8-K reports to the SEC.




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<PAGE>


ITEM 1.  BUSINESS


                               CORPORATE OVERVIEW

     Tengtu International Corp. was incorporated on May 6, 1988, under the laws
of the State of Delaware, under the name of Galway Capital Corporation. Galway
was formed for the purpose of seeking potential business ventures.

     On May 24, 1996, in connection with a change in management, we changed our
name from Tower Broadcast, Inc. to Tengtu International Corp. We changed our
name to reflect a change in business direction and affiliation with certain
Chinese firms in the Chinese educational software industry.

     Effective as of June 30, 1996, we entered into a purchase agreement with
Blue Lake Industries Limited and Tengtu Enterprises Limited, to acquire their
combined 49% interest in Beijing Tengtu United Electronics Development Co., Ltd.
("Tengtu United") a Sino-foreign Cooperative Joint Venture.

     Our joint venture partner in Tengtu United is Beijing Tengtu Culture and
Education Electronics Co., Ltd. ("Tengtu China"). Tengtu China also acts as
agent for Tengtu United. In 1996, three Chinese state owned computer companies
owned Tengtu China: Legend Computer Co., Great Wall Computer Group Co. and Taiji
Computer Corporation. On March 26, 1998, we and Tengtu China agreed to amend the
Tengtu United joint venture agreement to provide us with a 57% interest in
Tengtu United.

     In 1999, Beijing Oriental Lian Fa Technology and Trade Group Co., Ltd.
became a shareholder in Tengtu China. Our shareholders subsequently elected Fan
Qi Zhang, the owner of Lian Fa, as one of our directors. In late 2000 and early
2001, Beijing Jiade Tengtu Technology Group Co. Ltd. and Beijing Oriental Tai He
Technology Development Co., Ltd., both of which Mr. Zhang directly or indirectly
controls, acquired 100% of Tengtu China.

     On March 6, 2002 and July 1, 2003, we entered into a letter of intent and
Terms Memorandum which resulted in a restructuring agreement signed on September
15, 2003. Pursuant to the restructuring agreement, which is subject to
shareholder approval and other requirements, Tengtu International Corp. is to
acquire 100% of Tengtu United and all of the profits generated by its business
in China, in exchange for 30 million shares of our common stock (the
"Restructuring"). See "Restructuring," below.

     Tengtu International Corp. functions as the North American base for Tengtu
United. Exclusive of our subsidiaries, we have a total of eight full time
employees or consultants and focus on obtaining strategic relationships for the
provision of educational resources to the Chinese educational market through
Tengtu United and raising capital.

     Our principal and executive office is located at 236 Avenue Road, Toronto,
Ontario, Canada. Our telephone number is (416) 963-3999.

INTERCORPORATE RELATIONSHIPS

     The following is a description of our current structure and relationships.
This structure and these relationships will change if the Restructuring is
consummated. See "Restructuring," below.

     We have three subsidiaries that are no longer active. TIC Beijing Digital
Pictures Co. Ltd. was engaged in the television post-production business until
1999. It continues to lease its equipment to another company, but has no active
operations. e-biztengtu.com, Inc. was incorporated for a proposed business
venture that was never completed. Edsoft Platforms (Canada), Ltd. held a 60.2%
interest in a Hong Kong educational software business, Edsoft Platforms (H.K.),
Ltd. that we plan to dissolve.


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<PAGE>


     The figure below illustrates our current intercorporate relationships
(exclusive of the subsidiaries being wound up or that are inactive):


                                [GRAPHIC OMITTED]




TENGTU UNITED AND THE JOINT VENTURE AGREEMENT

     Tengtu United was formed pursuant to the laws of China on June 12, 1995.
The municipal government of Beijing approved the formation as a Sino-foreign
Cooperative Joint Venture.

     Tengtu China and Tengtu Enterprises Limited entered into a joint venture
agreement on July 30, 1996 effective as of June 30, 1996 to govern the
relationship between the parties regarding the joint venture entity, Tengtu
United. Effective as of June 30, 1996, Tengtu International Corp. acquired the
interest of Tengtu Enterprises Limited in Tengtu United. On March 26, 1998 we
amended the joint venture agreement to reflect changes in the business
environment and the decision to switch from a focus on the production of
educational CD-ROMs to developing application software platforms for the K-12
educational market. On January 1, 2003, we amended the joint venture agreement
to increase our right to board representation on Tengtu United's Board of
Directors to three (from two) out of five directors. Our current appointees are
William O. S. Ballard, John Watt and Yong Sheng Dai, one of our former
directors. The Tengtu China appointees are Fan Qi Zhang and Xiaofeng Lin.

     The joint venture agreement requires, among other things, that Tengtu China
assign all material contracts in its business to Tengtu United, assist Tengtu
United in securing the future rights that relate to its business and assist
Tengtu United to maintain good relations between Tengtu United and all
governmental and state agencies. Because the Chinese government restricts
foreign investment in business related to education, and all government
contracts for the use of educational software in Chinese schools must be with
other Chinese governmental entities or Chinese-owned entities, we, Tengtu United
and Tengtu China have determined that it is not advisable for Tengtu China to
actually assign contracts to Tengtu United pursuant to the joint venture
agreement. As a result of these business constraints, Tengtu United appointed
Tengtu China to act as its agent and conduct the business on behalf of Tengtu
United. Tengtu China, and its affiliated companies, will continue to conduct the
business on behalf of Tengtu United should the Restructuring be consummated. See
"Restructuring," below.




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<PAGE>


     Under the joint venture agreement, Tengtu China has the responsibility to:

     (a) transfer and assign certain licenses and rights to Tengtu United;

     (b) transfer and assign its electronic educational software titles to
         Tengtu United;

     (c) transfer and assign all material contracts in connection with the
         production and distribution of educational software in China to the
         elementary, middle and junior school levels;

     (d) allow Tengtu United to use its equipment, including computer work
         stations, at no cost;

     (e) stop all operational activities in connection with the production and
         distribution of educational software in China to the elementary, middle
         and junior school levels; and

     (f) assist Tengtu United in securing future rights that relate to its
         business and assist Tengtu United to maintain good relations between
         Tengtu United and governmental and state agencies.


     Based on a March 26, 1998 amendment to the joint venture agreement, the
parties to the joint venture agreement agreed that Tengtu China's contribution
to Tengtu United was the assignment of its contract with People's Education
Press to supply text books, educational software and other educational materials
for use in or by elementary, middle and high school and junior colleges in
China. According to that amendment, no other intangible assets were to be
contributed by Tengtu China to Tengtu United.


     The initial joint venture agreement required the Company to contribute $12
million to Tengtu United as follows:

     (a) $6 million on or before July 30, 1996; and

     (b) $6 million on or before July 30, 1997, failing which interest was
         payable to Tengtu United at 1% over the LIBOR rate and if such funds
         were not paid by January 1, 1998, Tengtu Enterprises Limited's interest
         in Tengtu United was to fall by the percentage of the amount
         contributed less interest over $12 million.

     We paid the initial $6 million to Tengtu United prior to July 30, 1998. We
were unable to make the second $6 million payment by January 1, 1998, and under
the March 26, 1998 amendment, the outstanding $6 million was to be paid upon our
next major financing. No time limit was provided and the term "major financing"
was not defined under the amendment. Nevertheless, the outstanding $6 million
was paid in 2000. At the same time, our interest in Tengtu United was increased
from 49% to 57%. The March 26, 1998 amendment also provides that Tengtu China
shall not be required to share or be responsible for any losses incurred by
Tengtu United and after-tax profits may not be distributed to either Tengtu
China or to us unless the losses from previous years have been recouped by
Tengtu United and we have received back all of our cash contributions, without
interest, made to Tengtu United. Thereafter, profits shall be allocated 43% to
Tengtu China and 57% to us.

     As of June 30, 2003, we contributed approximately $20.4 million to Tengtu
United (including contributions to CBERC and LBERCs). In the year ended June 30,
2002, Tengtu United's net profits exceeded its accumulated losses. Therefore,
profits are now allocated, but have not yet been distributed to Tengtu China and
Tengtu. We have not yet received back all of our capital contributions. See
"Selected Consolidated Financial Information and Management's Discussion and
Analysis".

     The joint venture agreement also restricts Tengtu China from engaging in,
or having any interest in, any other business of any nature or description that
competes directly or indirectly with Tengtu United. Further, Tengtu United
retains absolute ownership to all rights contributed pursuant to the joint
venture agreement and any rights or technologies acquired or developed during
the term of the agreement.

     The occurrence of any of the following events constitute an event of
default under the joint venture agreement:

     (a) the failure by a party to make any contribution required;

     (b) any transfer by a party of its interest unless as provided by the joint
         venture agreement (in essence, to an affiliate);

     (c) a general assignment by a party for the benefit of creditors;



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<PAGE>


     (d) the filing by a party of a petition of bankruptcy which petition
         remains undismissed and undischarged for a period of 90 days; or

     (e) the default in performance of any other material agreements of a party
if the default continues for a period of 60 days following written notice of
such default, except that an event of default shall not be deemed to have
occurred if any such default is of a non-material nature or that it recently
requires more than 60 days to cure, and is capable of being fully cured within a
reasonable time, and that the defaulting party is diligently proceeding to cure
said default.

     If an event of default has occurred, the non-defaulting party may terminate
the agreement if the other party notifies the defaulting party within 30 days
after having acquired knowledge of such event of default.

     The laws of China govern the joint venture agreement. The term of the joint
venture agreement is for no less than 20 years unless sooner terminated in
accordance with the provisions of the joint venture agreement. The agency
relationship between Tengtu China and Tengtu United is additionally reflected in
two April, 2001 letter agreements, described below. See "Business of the Company
- CBERC, LBERCs and Turn-Key Solutions."

TENGTU CHINA

     Tengtu China is part of a group of companies called the "Tengtu Group,"
controlled, directly or indirectly, by Fan Qi Zhang, one of our Directors. The
Tengtu Group currently employs approximately 400 people. The Tengtu Group is
made up of the following entities, divisions and branch offices, with the
following functions:

     o   Tengtu China - Tengtu China focuses on software development and sales,
         and CBERC and LBERC portal development. In anticipation of the
         Restructuring, the Tengtu China software development employees are in
         the process of being transferred to Tengtu United.

     o   Beijing Tengtu Tian Di Network Co., Ltd - Tian Di focuses on hardware
         sales, systems integration and satellite transmission.

     o   Tengtu Electronic Publishing House - Tengtu Electronic Publishing House
         publishes educational materials, teacher training materials, cartoons
         and games on CD ROM. Tengtu China has advised us that Tengtu Electronic
         Publishing House is only one of eight companies in China, and the only
         private company granted an electronic publishing license for
         educational materials. While Tengtu China has use of its electronic
         publishing license, Tengtu Electronic Publishing House does not operate
         exclusively on behalf of Tengtu United. In the event the Restructuring
         is consummated, it will remit its net profits to Tengtu United.

         There are four shareholders in Tengtu Electronic Publishing House,
         including Tengtu China and three other entities that Mr. Zhang
         controls, which own a total of 80% of the company.

     o   Beijing Fengati District Teacher Training Center - Tengtu Teacher
         Training trains teachers in the use of Tengtu United's products and
         services.

     o   Branch Offices - Tengtu China owns branch offices in the following
         locations throughout China which are sales and marketing centers for
         Tengtu United's products and services, and also install, update and
         service Tengtu United's software and products and provide systems
         integration services. It is anticipated that we will consolidate some
         of the branch offices in order to save operating expenses. This will be
         possible because of our agreement with the Agricultural Bank of China
         pursuant to which the bank will collect monies from individual schools
         (see "Business Overview," below):

     -   Neimeng Branch Office South Xingan Street, Huhehaote City, Neimeng
         Province
     -   Shanxi Branch Office Banpodong Street 168, Taiyuan City, Shanxi
         Province
     -   Shandong Branch Office Room 401, Entrance 3, Building 8, Block 5, Lixia
         District, Jinan City, Shandong Province
     -   Shanxi Branch Office Yaowangdong 164, Xi'an City, Shanxi Province
     -   Yingchuan Branch Office Jinliantong Mansion 509, Xinhua Dong Street 53,
         Yinchuan City, Ningxia Province
     -   Sichuan Branch Office Xinghui Xi Street 5, Jingniu District, Chengdu
         City, Sichuan Province
     -   Guangzhou Branch Office Jinshan Mansion North Tower, 6th Floor, Tianhe
         District, Guangzhou City, Guangdong Province
     -   Hubei Branch Office Wuge Street 460, Wuchang District, Wuhan City,
         Hubei Province
     -   Fuzhou Branch Office Hudong Street 168, Fuzhou City, Fujian Province
     -   Anhui Branch Office Room 102, Building 203, Hupo Garden, Hefei City,
         Anhui Province



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<PAGE>


     -   Guizhou Branch Office North Wengchang Street 102, Guiyang City, Guizhou
         Province
     -   Hainan Branch Office Binghai Street, Haikou City, Hainan Province
     -   Hunan Branch Office Wenyun Street 23, Changsha City, Hunan Province
     -   Liaoning Branch Office Dongbeiguoshi Mansion 711, ChongShandong Street
         71, Huanggu District, Shengyang City, Liaoning Province
     -   Jiangxi Branch Office Huisheng Mansion 1011, Jianggangshan Street 1028,
         Nanchang City, Jiangxi Province
     -   Jilin Branch Office Yongchang Lane 21-1-303, Changchun City, Jilin
         Province
     -   Jiangsu Branch Office Zhongqing Mansion 1602, Caochangmeng Street 96,
         Nanjing City, Jiangsu Province
     -   Guangxi Branch Office Zhiwu Street 50-1, Nanning City, Guangxi Province
     -   Hebei Branch Office Jingyi Business Center A-317, Gongnong Street 230,
         Shijiazhuang City, Hebei Province
     -   Henan Branch Office Huayuan Street 3-116, Zhengzhou City, Henan
         Province
     -   Beijing Branch Office Building 8, Fucheng Street, Beijing

     o   LBERC Companies - We operate the LBERC projects typically through
         separate joint venture companies formed with the applicable Provincial
         Center for Audio/Visual Education.

     o   We operate the CBERC project through a joint venture with the National
         Center for Audio/Video Education division of the Ministry of Education.
         The joint venture is called Beijing HuaXiaBo Xiu Education Software
         Co., Ltd.




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<PAGE>

The figure below illustrates the Tengtu Group's ownership structure:




                                [GRAPHIC OMITTED]



OUR BUSINESS

BUSINESS OVERVIEW

     We  are currently, indirectly through Tengtu United and its agent, Tengtu
China, engaged in the following lines of business:

     o   sales of educational content software to Chinese K-12 schools;

     o   sales of special software products for learning applications, resources
         management, distance learning and web/internet applications contained
         in the "Total Solution" software package;

     o   development of the Central Broadband Education Resource Center
         ("CBERC") with a division of the Chinese Ministry of Education, the
         National Center for Audio/Video Education. CBERC is an electronic
         resource centre and portal containing educational materials that are
         transmitted to schools that download them daily via satellite and that
         are to be accessible by Internet;


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<PAGE>

     o   development of Local Broadbank Education Resource Centers ("LBERCs")
         with several Chinese provinces. It is anticipated that the LBERCs will
         connect with CBERC and contain their own educational and other
         materials as mandated by the provincial branches of the Chinese
         Ministry of Education. Like CBERC, content will be transmitted to
         schools daily via satellite and will also be available via Internet.
         LBERCs include our turn-key electronic resource centers and portals;

     o   sales of computer hardware and systems integration services to Chinese
         schools; and

     o   the provision of information technology training to teachers.

     We have instructed Tengtu China to conduct all of Tengtu United's business
with all Chinese government entities. Tengtu China, as Tengtu United's agent,
administers the daily operations of Tengtu United, such as paying operating
expenses, collecting receivables and remitting net operating profits to Tengtu
United.

     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. In cooperation with the Chinese National Center for
Audio/Video Education, we designed the Total Solution platform to accommodate
broadband Internet connections via satellite and cable.

     Tengtu China began installing the Total Solution platforms under Operation
Morning Sun, a project that the Chinese Government awarded to Tengtu China as
agent for the Chinese Ministry of Education and through contracts with
Provincial education ministries. See "The Chinese Educational and Distance
Learning Market".

     In April 2001, Tengtu China (on behalf of Tengtu United) entered into a
cooperation agreement with the Chinese Ministry of Education under which Tengtu
China agreed to be the Ministry's operating and development partner for its (1)
distance learning network in China and (2) CBERC. Tengtu China entered into
cooperation agreements with provinces such as Shandong, Sichuan, Shaanxi and
Fujian for the development of Provincial LBERCs. These agreements have not
proceeded beyond the beginning stages, however, because, as set forth below, our
focus has shifted to the development of local and district LBERCs in the form of
turn-key portals. We believe that the turn-key portals provide us with greater
market penetration as opposed to Provincial LBERCs, which would require
marketing to these local and district authorities anyway. The success of Tengtu
United's Total Solution application platform provided an initial basis for
Tengtu United to establish its position in the China K-12 market as a leader in
education solutions while enabling it to meet the Ministry of Education policy
objectives for IT education at the individual school level. The software
application enabled schools in less-advantaged areas to provide a computerized
learning environment in parity with schools in economically advanced regions. We
believe the software application succeeded in addressing the important priority
objectives for the modernization of China's education system, while providing an
initial profitable core business for us.

     When Tengtu China was awarded the cooperative agreements to be the Chinese
Ministry of Education's operating and development partner for the national
e-education portal and distance learning network (CBERC), and the key strategic
Provincial portals (LBERCs), this development required major readjustments to
the business and the manner in which to engage the marketplace. Accordingly,
now, instead of selling products to individual schools, our focus is on selling
products to entire school districts all at once.

     We are working to create distribution channels for our products and
services that will encompass a nation-wide satellite system and an education
portal infrastructure at the Provincial, local and city/district levels. We
believe that the new distribution channels can enable Tengtu United to rapidly
and more efficiently increase the number of client schools for its software and
services by Province and create captive markets for its products and services
under a system-wide marketing approach.

     While Tengtu United will still sell its Total Solution software application
platform, it is evolving to offer a greater product mix of not only platforms,
but e-portals, satellite connectivity, "campus-end" software and product for
administration and e-learning in WAN and LAN systems, system integration
services, e-publishing content and training centers.

     These changes required a major effort and commitment of significant
resources in fiscal 2003 to re-engineer product lines and to develop the portal
infrastructure to support new business opportunities. At the same time, previous
marketing and accounts payable policies and strategies have been adjusted to the
requirements of the anticipated growth of the business. Specifically, Tengtu
China has focused on the collection of past due receivables and e-portal design
and development. This has caused a slow-down of platform and satellite
installations and implementation of new marketing and distribution channels. We
are completing this work to ensure that platform sales and new streams of
revenue will be available to Tengtu United as it engages the market at
significant new levels.


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<PAGE>


     With respect to our focus on the collection of receivables, in October
2002, the Tengtu Group, through Beijing Jiade Tengtu Technology Group Co. Ltd.,
entered into an agreement with the Agricultural Bank of China to provide an
$18.5 million buyer's credit line for the purchase of Tengtu United's products
and services. The Tengtu Group entered into the agreement to make the credit
line available to Tengtu United's customers (K-12 and vocational schools).
Pursuant to the agreement, the Agricultural Bank provides a loan for up to 80%
of the cost of the products and services we sell. The Tengtu Group guarantees
each loan that the schools draw from the credit line. Use of the Agricultural
Bank credit facility also required Tengtu United to adjust its marketing
strategy from school-by-school to district-by-district to efficiently use the
Agricultural Bank line. In this way, we can collect larger amounts of money from
fewer entities as opposed to collecting from each individual school. This
strategy is in alignment with our overall system wide marketing strategy. We
believe that this credit facility will reduce our receivable balances in the
future and allow for a "pay as you go" client payment policy at Tengtu United.
We anticipate that the credit facility can give Tengtu United access to greater
cash flow to sustain its operations and growth in the market.


     As a result of the foregoing activities, our revenues were less than those
achieved during the fiscal year ended June 30, 2002. However, our new business
model began to produce significant results in the third and forth quarters of
fiscal 2003 despite the closure of schools from April until Summer recess due to
the impact of SARS. Tengtu United's sales for the six months ended June 30, 2003
were $3,859,325. This total included sales of equipment supported by buyer's
credit line through the Agricultural Bank of China of $2,042,243, 11 Portals for
$536,166, 1,242 sets of Satellite connectivity equipment for $470,515, System
integration for $721,702, Total Solution Platforms for $36,458, CDs for $52,141.

THE TOTAL SOLUTION AND SOFTWARE

     Despite the recent slowdown in installations described above, we believe
that sales of the Total Solution will continue to be a significant source of
revenues. We continue to sell the Total Solution pursuant to assist in
fulfilling the policy goals of the Chinese Ministry of Education to further IT
education. To date, we have installed the Total Solution in approximately 10,725
schools. The current backlog of Total Solution installations is approximately
600, the result of shortages in installation capacity at Tengtu China. The
average cost of the Total Solution is approximately $1,500, but the cost varies
greatly depending on certain incentives and promotions that Tengtu United
afforded for the purposes of market entry.

     The Total Solution software platform is a package of bundled software
consisting of specialized application software and subject-specific courseware.
We believe it is one of the few IT solutions in China that integrates
applications for teaching/learning, home-school connectivity, school resource
management, global inter-school communication, and resource sharing. The network
and software are designed with data security to prevent unauthorized access and
manipulation. The system also features easy, flexible and inexpensive
implementation, modification and upgrading.

     The individual components of the Total Solution, which we can sell
separately or all together, fall under three categories: Teaching Platform,
Resources Platform and Information Management Systems.

                                TEACHING PLATFORM

     The components of the Teaching Platform of the Total Solution are each
briefly described below:

     o  MULTIMEDIA ELECTRONIC CLASSROOM. The Multimedia Electronic Classroom
        allows for the conduct of classes electronically through networked
        computers by allowing the transmission of audio, video and text content
        from teacher to student. The Multimedia Electronic Classroom has 23
        functions including electronic hand raising, dialogue between a teacher
        and individual student, or with the entire class, video and audio
        broadcasting, document delivery and screen monitoring. Key technical
        features available for use in the Multimedia Electronic Classroom are:
        dynamic screen capture, audio and video shunt control, audio compression
        and superposition and network flow detection control. In June, 2000, the
        Chinese Ministry of Education advised Tengtu China that the Multimedia
        Electronic Classroom component of the Total Solution is the only
        multimedia electronic classroom that it recommends. However, the Chinese
        provincial and local educational agencies do not require the purchase of
        the Multimedia Electronic Classroom.



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<PAGE>

     o  INTERNET NETWORK CLASSROOM. The Internet Network Classroom allows
        students to learn to use the Internet and computer networks in a virtual
        environment. We designed it to satisfy information technology teaching
        requirements of the Chinese Ministry of Education. The Internet Network
        Classroom emulates web browsing, e-mail, home page creation and chat
        rooms. It can also acquire resources from a school's network or the
        Internet and make them available to students, provide a forum for school
        announcements and news, and make available a test question bank and
        other resources.

     o  VIDEO ON DEMAND SYSTEM OR VOD. The VOD system allows users to obtain and
        view video and other multimedia programming. Teachers and students can
        use it to construct multimedia and electronic reading rooms on a school
        network.

     o  VIRTUAL CD ROM SYSTEM. The Virtual CD ROM system allows each stand-alone
        computer in a school's network to share a single courseware CD.

     o  SATELLITE LIVE BROADCASTING CLASSROOM. The Satellite Live Broadcasting
        Classroom is similar to the Multimedia Electronic Classroom except that
        it allows for the reception of classes, using a satellite broadcast from
        a central classroom.

     o  TENGTU DISTANCE LEARNING SYSTEM. The Tengtu Distance Learning System
        functions like an Internet based school where teachers can create
        interactive courseware and students can select from various subjects.


                               RESOURCES PLATFORM

     We briefly describe each of the components of the Resources Platform of the
Total Solution below:

     o  TEACHING SERVICE SYSTEM. The Teaching Service System allows teacher
        access to educational resources to prepare specific lectures and
        classes. It allows teachers to coordinate preparation with each other,
        as well as to add key points, questions and highlights for students.

     o  TEACHING RESOURCES DATABASE. The Teaching Resources Database provides
        teachers and students with teaching and self-learning materials. It
        includes 100 gigabytes of video, audio, and textual course materials. In
        addition, it includes 100 CD ROM educational courseware titles.

     o  TENGTU RESOURCES SERVICE SYSTEM 5.0. The Tengtu Resources Service System
        allows for easy introduction of new educational content that schools
        receive and can migrate to the Internet or a LAN without any revision.
        The Tengtu Resources Service System has an easy to use interface similar
        to that of Internet web browsers with available on-line help. The Tengtu
        Resources Service System provides a tool to manage the educational
        resources in the CBERC and LBERC portals and provide administrative
        functions to local education commissions through LBERCs. It allows
        access to, and search and storage of, various resources.

                         INFORMATION MANAGEMENT SYSTEMS

     We briefly describe each of the components of the Information Management
System of the Total Solution below:

     o  LIBRARY MANAGEMENT SYSTEM. The Library Management System allows for the
        management of paper-based and electronic school libraries. With respect
        to paper-based books, the Library Management System allows for indexing
        and searching of available titles; recording information about students
        who borrow or read titles; circulation management allowing schools to
        track loans, renewals, late fees and book losses; and system inquiries
        about titles, new arrivals, circulation and readers, and gathers
        statistics and analytical data. With respect to electronic books, the
        Library Management System allows access through an internet web browser
        to available titles.

     o  SATELLITE RECEIVING SYSTEM. We designed the Satellite Receiving System
        to receive and organize content. It receives the content through
        satellite transmissions and makes it available for use. Specifically, it
        provides the following features: program guide production, program guide
        distribution, dynamic news distribution, dynamic advertisement
        distribution (HTML, GIF and other formats), station production and
        broadcasting, multiple file production and broadcasting and multiple
        program timing verification, news received in MS Word format, Dynamic
        Video File Reception, automatic updating of programs and satellite
        recording of live classroom coverage.

     o  TEACHING INFORMATION MANAGEMENT SYSTEM. We designed the Teaching
        Information Management System to assist teachers and administrators in
        the management of schools. It serves as a database for teacher and
        student information. It also allows for teacher salary management, class
        scheduling, and the management of access rights to various applications
        on a school network.



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<PAGE>



     o  GENERAL INFORMATION SYSTEM FOR WEB SCHOOLS. The General Information
        System for Web Schools allows for information exchange among teachers,
        administrators, students and parents.

CBERC, LBERCS AND TURN-KEY SOLUTIONS

GENERAL

     As a result of the relationship developed with the National Center for
Audio/Video Education through Operation Morning Sun Phases I and II, the Chinese
Ministry of Education selected Tengtu China to establish the CBERC and LBERCs,
which include local and district turn-key portals. CBERC and LBERCs are part of
a national initiative developed in late 2000 under the "School to School" link
project to provide content to computerized classrooms across China. The National
Center for Audio/Video Education recognized at that time that electronic
classrooms and school computer networks, while able to allow a school to share
its internal information technology resources, could not allow for the sharing
of national and regional educational resources. The goal of the School-to-School
link program is to have approximately 90% of all elementary and secondary
schools in China connected to national and local education resource centers
(CBERC and LBERCs), through a satellite network, within 5 to 10 years of 2000.

     Schools that sign up for CBERC pay for the necessary satellite and other
equipment and receive the first year of service for free. Currently, of the
approximately 33,000 schools that have signed up for CBERC service, about 2,500
are in their second year of service and pay license fees averaging approximately
$240 per year.

     We anticipate that we will connect CBERC and the LBERCs to the China
Education Resources Information Network, known as CERNET, using a high-speed
fiber optic network or a satellite. We maintain a central website for CBERC in
Beijing. It contains educational resources that the National Center for
Audio/Video Education and Tengtu China provide. It will also contain education
resources from LBERCs, which it will upload through CERNET. We plan to provide
schools with access to their local LBERC and to CBERC resources through the
LBERCs utilizing the Total Solution or similar platform software.

     We anticipate that CBERC will have the following functions:

     o   Organization of Educational Resources - LBERCs will upload their
         educational resources through CERNET to the CBERC central website which
         will process and organize it using database management software;

     o   Active Server Pages, or ASP, Services - CBERC will provide ASP Services
         to allow schools to develop their own websites;

     o   Educational Information Announcement Platform - will allow for the
         broadcasting of educational information and educational policies by the
         Chinese Ministry of Education;

     o   Video Conferencing; and

     o   Virtual Teaching Community - will provide students with on and
         off-campus education services.

         We anticipate that the LBERCs will have the following functions:

     o   Organization and Uploading of Teaching Resources - each LBERC will
         collect and organize its educational materials into local resources for
         uploading and sharing on CBERC;

     o   Teaching Resources for Schools - LBERC will combine, organize and make
         available local and CBERC educational content;

     o   Educational Information Announcement Platform - will allow local
         Ministries of Education to broadcast educational information and
         policies to local education committees, schools and students;

     o   Video Conference System - will allow local Ministries of Education to
         conduct real time and interactive remote video conferences with local
         education committees;

     o   Virtual Teaching Community - will provide students with on and
         off-campus education services;

     o   VOD - will allow teachers and students to view on-line real-time video
         educational information or download documents;

     o   Web-based examination system;


                                       12
<PAGE>


     o   Course Preparation for Teachers - Teachers will be able to manipulate
         the CBERC and LBERC content in order to prepare lesson plans and
         teaching materials;

     o   Web-based Academic Subjects Teaching/Research Center - will provide
         teachers with the means of engaging in academic exchanges and
         discussions with other teachers; and

     o   Software Downloading.

     We also anticipate that both CBERC and LBERCs will be used for education
related e-commerce and adult continuing education.

     While the CBERC portal is not yet in its final form, CBERC is sending, via
satellite, approximately six hours of educational content daily to approximately
33,000 schools across China. The content consists of required educational
coursework in a number of areas which schools downloaded and modify and utilize
using our Total Solution, or similar software.

     During the year ended June 30, 2003, Tengtu China began selling turn-key
portal systems on behalf of Tengtu United to individual school districts and
sold and installed 11 turn-key portals at the following locations: Jinzhou City
of Liaoning Province, Sanyuan County of Xianyang City of Shanxxi Province, Baoji
City of Shanxxi Province, Liwan District of Guanzhou City of Guangdong Province,
Yulin City of Guangxi Province, Nanjin City of Jiangsu Province, Xinyu City of
Jiangxi Province, Kunming City of Yunnan Province, Gansu Province, Yanqing
district of Beijing, and Huairu district of Beijing.

     The sale of turn-key portals represents a shift in the focus from LBERC
projects, which require significant capital costs and the negotiation of complex
joint venture agreements with local ministries of education for portal
development and content, to one-time sales of portals that can be used to
immediately link with the CBERC. Once the portals are in place, we believe that
we will be in a position, through Tengtu China, to sell content to the portal
owners and collect CBERC fees.

     The turn-key portals' functions are similar to those of the LBERC portals,
except that they are tailored to be used by individual school districts and
allow for the school districts to customize content and function based on their
needs.

     The price of each turn-key portal varies based on the extent to which the
school districts customize the content with the average price being
approximately RMB 300,000 (approximately $36,000), with a profit margin of
approximately 30%.

     We believe that once the CBERC, LBERCs and turn-key systems are fully
operational, they will generate the bulk of Tengtu United's revenues. Revenues
are expected from system access fees and sales of ancillary products.

                                      CBERC

     The establishment of CBERC is governed by an agreement to create a joint
venture to operate CBERC, dated July 22, 2002, between the National Center for
Audi/Video Education and Beijing Jiade Tengtu Technology Group Co. Ltd., a
shareholder of Tengtu China that Mr. Zhang controls.

     In addition, there are two amending agreements that attempt to solidify our
interest in CBERC dated April 17, 2001 and April 25, 2001. The April 25, 2001
agreement is among us, Tengtu China and Tian Di, and the April 17, 2001
agreement is between us and Tengtu China. These agreements are designed to
address the fact that neither we nor Tengtu United are a party to the CBERC
agreement and to document that Tengtu China operates as agent on behalf of
Tengtu United. In the event that the Restructuring is consummated, Tengtu United
is to receive Jiade's share of the net profits generated by the CBERC joint
venture and Tengtu International Corp. is to receive a proxy over Jiade's
interest in CBERC. In addition, it is anticipated that Jiade's interest in CBERC
will be transferred to Tengtu China or Tengtu United, if possible. See
"Restructuring," below.

     Pursuant to the agreement with the Chinese National Center for Audio/Video
Education, for those schools that already have the Total Solution, Tengtu China
is to furnish one free upgrade to schools that become a subscriber to CBERC. For
those schools which have not yet purchased the Total Solution as part of Phases
I or II of Operation Morning Sun, Tengtu China is required to provide the
necessary satellite equipment free of charge to the schools that sign-up and pay
for the first year's annual base subscription fee to permit usage of the CBERC
distributed materials and products. We believe that this will set the stage for
these schools to become purchasers of the Total Solution and other Tengtu United
products available for use on that platform.


                                       13
<PAGE>


     For schools in disadvantaged regions that cannot afford any computer
networking equipment, Tengtu China is to donate the satellite reception
equipment and sell them 100 CD ROM titles at a reduced cost. Tengtu United'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 and
subscribers to CBERC.

     The agreement with the National Center for Audio/Video Education also calls
for the sale of up to 30,000 sets of educational software.

     The CBERC joint venture agreement calls for the creation of a new
corporation to operate the CBERC joint venture. The agreement requires Beijing
Jiade Tengtu Technology Group Co. Ltd to contribute 71 million Yuan for a 70%
interest for the first two years after the establishment of the joint venture
company, and 53% thereafter. To date, we have funded approximately 21 million
Yuan of the 71 million Yuan contribution that the agreement requires. The
agreement requires an additional 30 million Yuan contribution within 12 months
after the establishment of the new joint venture company. Also, Beijing Jiade
must contribute a further 20 million Yuan within 18 months of the creation of
the new joint venture company. Pursuant to the agreement, the joint venture
company will distribute profits in accordance with ownership percentages. The
new joint venture company, Hua Xia Bo Xiu Education Software Co., Ltd. was
established on January 13, 2003.

     While not formalized in a written document, it is our belief that, in the
event the Restructuring is not consummated, Beijing Jiade's rights in the CBERC
joint venture agreement are held for the benefit of Tengtu United and have
confirmed this with Fan Qi Zhang, the beneficial owner of Beijing Jiade and one
of our Directors.

                                     LBERCS

     Local Broadband Education Resource Centers (LBERCs), which include turn-key
portals, will operate at the Provincial, district and county levels. At the
Provincial level, the LBERC would typically be formed under a joint venture
agreement with Tian Di, on behalf of Tengtu United, and between the provincial
Center for Audio/Video Education (CAVE). The agreements require that we
contribute capital for the creation of the LBERC joint-venture company. At the
district and county level Tengtu can establish a turn-key portal sold to a local
CAVE authority to operate. This does not require the capital investment of a
provincial joint-venture and allows for quicker penetration of the market at the
level of the client users.

     Subsequent to entering into letters of intent to form Provincial LBERCS
Tengtu concluded an arrangement with the Agricultural Bank of China establishing
a line of credit for client users of Tengtu products and services including its
turn-key portal. This enabled Tengtu to change its business strategy to more
quickly penetrate its market on a district by district basis versus school by
school. This strategy has led to the installation of eleven turn-key portals to
date and has shifted the our near term business priorities from establishing
capital-intensive Provincial LBERC joint-ventures to district and county level
LBERCS using turn-key portals. Money already invested in the Shandong provincial
LBERC is in the process of being returned to the us. A strategy for
incorporating provincial level LBERCs will be determined as the market matures.

SYSTEMS INTEGRATION SERVICES, TEACHER TRAINING

     TianDi performs Tengtu United's systems integration services. The services
offered include everything necessary to create electronic and web-based
classrooms from software installation to network cabling and sales of hardware
and hardware and e-portal set-up.

     In connection with Tengtu United's software sales, Tengtu United currently
offers training services to instruct teachers in the use of information
technology and Tengtu United's products through Tengtu Group's Tengtu Teacher
Training division. The Tengtu Teacher Training Division has assisted the Chinese
Government in setting up teacher training centers in XinJiang, Inner Mongolia,
Shanxi, Shandong, Shaanxi, Sichuan, Fujian, Anwei, Guizhou, Guangdong, and
Hainan. To date, the Tengtu Group has trained more than 10,000 teachers at no
cost to the teachers or the Chinese Government. Our strategy is to train
teachers on our software system so that any future purchases by schools will be
of Tengtu products.


                                       14
<PAGE>


     In the future, Tengtu United plans to offer information technology teacher
training as a fee-based service.

OUR MARKETING AND SALES STRATEGY

     Tengtu United recently changed its focus from marketing on a
school-by-school basis to selling products and services to entire school
districts all at once. We refer to Tengtu United's marketing strategy as the
"Tengtu Pattern". Under the Tengtu Pattern, the goal is to make customers into
cooperative and joint venture partners. To this end, through Operation Morning
Sun Phases I and II, Tengtu United was able to establish, through Tengtu China,
a close working relationship with the Chinese central Ministry of Education and
the National Center for Audio/Video Education as partners in the sale and
distribution of products and services. Tengtu United, through Tengtu China,
performed necessary services and received approximately 35% of the income
generated. Operation Morning Sun Phase I and II has also allowed Tengtu China to
work closely with Centers for Audio/Video Education at the Provincial, city and
county levels providing a sales channel that cover almost all of China.

     Once we sign a cooperation or joint venture agreement through Tengtu China
with a central or local government entity for the provision of products or
services, it becomes very difficult for other companies to compete because the
agreements tend to be exclusive.

     In order to coordinate marketing activities, Tengtu China has a marketing
division. Most of the sales force is full-time employees who are paid a salary
plus a commission based on sales.

     In the future, we plan to target parents and students as customers. Tengtu
United plans to do this by having branch office personnel recruit teachers in
charge of information technology to sell products in exchange for a 5%
commission to be paid to the teacher and 20% to the school. The teachers can
recommend Tengtu products to the school principal, who could then recommend them
to other teachers and students. The branch office personnel may also bring
products to the schools and school districts for demonstrations.

     In the three months ended June 30, 2003, Tengtu China has engaged local
distributors to distribute products on a limited basis in certain provinces
where such distributors operate.

     In the nine months ended June 30, 2003, Tengtu China has begun limited
advertising in publications catering to the Chinese educational system. However,
advertising is not a focus of the growth strategy.

     In early 2003, Tengtu China took a new approach to address the growth in
outstanding accounts receivable. First, Tengtu China is focused on the
collection of past-due receivables. Since November 2002, Tengtu China has been
able to collect an average of RMB 3 million (approximately $362,000) per month.
Tengtu China has done this by committing more personnel to collections,
providing up-grades to software and training to schools that owe money and by
encrypting satellite transmissions so that schools that are behind in payments
cannot receive them. Second, Tengtu China has instituted a new policy whereby
products and services will not be provided until paid in full. While many
schools and school districts do not have funds available to pay right away, the
line of credit made available through the Agricultural Bank permitted this
flexibility. See "Our Business."

INTELLECTUAL PROPERTY

     We, Tengtu United and Tengtu China rely primarily on trade secrets to
protect proprietary software products. Tengtu China executes confidentiality and
non-disclosure agreements with its software development employees and limits
access to and distribution of proprietary information and source code. Of the 14
current software products that have been developed, Tengtu China has applied for
copyright protection in China for eight and received copyrights for seven.

     On September 12, 2001, Tengtu China applied to the Trademark Office of
State Bureau of Industry and Commerce of PRC to register the "Tengtu" name as a
trademark. Tengtu United has not yet received a response to its pending
application.

LICENSES

     In order to operate the business in China, Tengtu China, or a member of the
Tengtu Group, use or possess licenses issued by the Chinese Government.

     The transmission of content via satellite for CBERC and LBERCs requires the
use of a satellite license. The National Center for Audio/Video Education
provides Tengtu China with the use of a satellite license pursuant to the CBERC
Agreement. However, sufficient bandwidth for transmissions is not always
available. Therefore, TianDi entered into a cooperation agreement with Beijing
Yu Xin Electronics Company ("Beijing Yu Xin"), the holder of a satellite license
which terminates in 2004, that allows Tian Di to use Beijing Yu Xin's satellite
delivery platform to deliver K-12 and adult continuing education content.


                                       15
<PAGE>


     Tengtu Electronic Publishing House, a company owned in part by Tengtu
China, has an electronic publishing license for educational materials that is
required to renew every two years. Tengtu China makes use of the electronic
publishing license, in order to publish educational content for CBERC and
LBERCs. Its renewal is currently pending, however, Tengtu China has been advised
that Tengtu Electronic Publishing House may continue using the license during
this period. We believe that Tengtu Electronic Publishing House is only one of
eight companies in China, and the only private company, granted an electronic
publishing license for educational materials.

     In the event that the electronic publishing license is lost, or is not
renewed, Tengtu China would not be able to make retail sales of books, CD ROMs
and tapes in the Chinese retail market unless it is able to obtain access to
another license. Sales of the Total Solution and related products to Chinese
K-12 schools would be unaffected. While we plan to expand into the retail market
in the future, current activities in the retail market are minimal.

     The loss or failure to obtain a renewal of the electronic publishing
license would also prevent Tengtu China from providing educational information
and e-business content through CBERC, LBERCs and turn-key portals, and
therefore, from deriving any revenues from CBERC and LBERC user fees for
electronically published content. We expect that these user fees will be a major
source of revenues in the future. However, because the Chinese Ministry of
Education also has an electronic publishing license, it is likely that Tengtu
United would be permitted to use that license in the event its joint venture
partner's license is not renewed.

     In September, 2000, the State Council of China and the Chinese Ministry of
Information Industry issued regulations requiring that all commercial internet
content providers obtain an Internet Content Provider License. Such a license
will be necessary once we complete any of the CBERC or LBERC web portals because
they will disseminate information over the internet through the portals.

     TianDi has an Internet Content Provider License that is subject to annual
review.

COMPETITION

     With respect to the Total Solution, Tengtu United could face significant
competition. IBM has already entered the Chinese market and we believe it has
set an objective to capture 25% of the worldwide education market. IBM offers
software similar to the VOD component of the Total Solution and is involved in
developing resource centers and satellite projects.

     With respect to the sale of educational software, the main competition
comes from Beijing Kelihua (Clever) Co., a Chinese public company, which
currently has a large percentage of the educational software market. We believe
Kelihua is currently China's largest K-12 educational software company, and,
like Tengtu China, it cooperates closely with the Chinese government and has
also been in the educational software business longer than Tengtu China. Another
major competitor is Hangzhou Zheda Huatai Science & Technology Co. (which has
been in business longer than Tengtu and sells products similar to the Total
Solution). We believe that there are five or six other companies that offer
software that has some, but not all, of the functions of the Total Solution.
Quinghua Tongfang, a Chinese public company that produces Internet platforms for
online education and vocational training, is another major competitor. The
company is partially owned by the Quinghua University and also works in
conjunction with the Chinese Ministry of Education. And finally, Bainianshuren,
is a Chinese company which produces software for university entrance exam
preparation and focuses on distance education. It too has a relationship with
the Chinese Ministry of Education.

     With respect to the CBERC project, Tengtu United does not face any
significant competition at the current time because the National Center for
Audio/Video Education has chosen Tengtu China as its partner for the project.
With respect to LBERCs, the main competition is from Kelihua, Legend Computer
Co., a large public company in China, and Bainianshuren. There are also several
other smaller competitors for the LBERC and turn-key solutions projects.

     Tengtu United also faces competition from educational resource providers
that provide information in other formats. First, there are several companies,
including Kelihua, which set up local web schools via the Internet. Because
broadband connections are generally not available in China, the types of
multimedia content available is limited. Second, several companies provide
educational content to schools by means of a teletype machine. While this is a
cheap alternative for many schools, the educational resources in a text format
are not compatible with a computer network. Third, several companies provide
educational content via a satellite network only, which allows for transmission
of multimedia materials. The price for these materials tends to be high, but
these companies do not have as much quality content as is currently available
through CBERC.



                                       16
<PAGE>


     With respect to systems integration services, there are numerous companies
engaged in this business, some of which are larger than us, and many of which
are smaller. The smaller companies have an advantage in that they can get
information more rapidly in their local markets and tend to have personal
relationships with their local customers.

BUSINESS PARTNERS

     In May, 2002, Tengtu China entered into an agreement with Beijing Stone
Lifang Information Technology Co., Ltd., also known as "SINA". SINA is a
well-known Chinese network application software provider and internet company.
Pursuant to the contract, SINA is to design and develop a CBERC portal and
provide such services to the portal as installation, commissioning, inspection
testing and training. This SINA-designed portal is to serve as a template that
we will use for each of the LBERC and turn-key portals.

     On August 27, 2002, the Tengtu Group entered into a cooperation agreement
with the Kingston Education Group for the formation of a joint venture company
called the Beijing Tengtu Kingston Education Service, Ltd. Kingston Education
Group is a group of educational companies based in Canada which, in cooperation
with several universities, offers educational services and degree programs using
distance learning. Pursuant to the agreement, the joint venture is to offer
Chinese and Canadian high school and university programs and degrees to both
students in China and Canada through an "international school". The Tengtu Group
is to provide all funding for the joint venture company, as well as all
necessary equipment. Kingston is to provide all educational resources and
services. The term of the agreement is ten years. The international school is in
the pilot stage. A Canadian curriculum has been delivered to a Beijing high
school and an exchange program has been set up allowing students to study in
Canada.

     As set forth above, the National Center for Audio/Video Education is also
our business partner with respect to CBERC and the sale of the Total Solution.

THE CHINESE EDUCATIONAL AND DISTANCE LEARNING MARKET

     The information in this section "The Chinese Educational and Distance
Learning Market" is from CERNET, the first nationwide education and research
computer network in China, and is available at www.edu.cn. The Chinese
government provides funding for the CERNET project and the Chinese Ministry of
Education directly manages it. Access to CERNET as a broadband distribution
channel has been incorporated into CBERC.

     CERNET has a four-layer hierarchy (the nation-wide backbone, regional
networks, provincial networks and campus networks). CERNET National Centre is
located in Tsinghua University, which is responsible for operation and
management of the CERNET backbone nationwide. The ten regional network centers
and main nodes are distributed in Tsinghua University, Beijing University,
Beijing University of Post and Telecommunication, Shanghai Jiaotong University,
Xi'an Jiaotong University, Central China University of Science and Technology,
South China Institute of Technology, China University of Electronic Science,
Southeast University and Northeast University, which are responsible for
operation, management, planning and construction of CERNET regional backbones.

THE CHINESE EDUCATIONAL SYSTEM AND RECENT POLICIES

     While education has always been a driving force in China's culture and
society, it has become a much greater priority with the emergence of a market
economy. Education is now seen as critical to enable China to compete in the
world economy.

     The Chinese central government, through the Ministry of Education, manages
education in China at a macro level, providing policy guidance and basic
educational requirements that must be taught. To a large degree, the provincial
governments are left to implement basic education through development of
teaching plans to supplement the required coursework from the central Ministry
of Education and the funding of basic education in poorer areas. County level
governments have the main responsibilities for implementing basic education on a
day to day basis.

     In China, primary and secondary education takes 12 years to complete.
Primary education generally lasts 6 years, and junior middle school and senior
middle schools 3 years each. Children generally begin primary school at the age
of 6. In 1986, China passed the Compulsory Education Law of the People's
Republic of China (the "Compulsory Education Law"), which dictates that nine
years of compulsory education (grades 1 through 9) is to become mandatory and
requires that Provincial and local governments take the necessary steps to
ensure that all students receive at least the required 9 years of education. The
goal of the Compulsory Education Law, as well as the subsequent Guidelines for
the Reform and Development of Education in China, put forth by the Chinese State
Education Commission in 1993, was to universalize compulsory education and to
eliminate illiteracy among the Chinese people. According to the Bulletin of
Statistics on National Educational Development in 1999 issued by the Chinese
Ministry of Education, the nine year compulsory education has covered 80% of
China's population since its inception.



                                       17
<PAGE>

     In 1999, the Chinese Government ratified an Action Plan for Invigorating
Education in the 21st Century, which was formulated by the Chinese Ministry of
Education. The plan recognizes the need to make China competitive in the world
economy, particularly through technology. The plan lays out a strategy to
"Invigorate China through Science, Technology and Education" and states:

     [T]he comprehensive strength and international competitiveness of the
     nation will increasingly depend on the level of education development and
     innovation in science and technology and knowledge and educational
     development will remain a strategic priority.

     The plan emphasizes the use of information technology in education stating:

     The extensive use of modern information technology in education will
     engender profound changes in the educational sector.

     According to the Xinhuanet news agency, in 2001, the Chinese Government
announced that by 2005, information technology will be a compulsory course in
all middle schools as well as in the primary schools in cities and other well
developed areas. It also announced that before 2010, approximately 90% of all
primary and middle schools will gain access to the Internet and broadband net,
and that for the remaining 10%, multimedia teaching facilities and other
resources will be made available.

     The plan also places a strong emphasis on modern distance education and
states:

     Modern distance education is a new type of education that has come into
     being with the development of modern information technology. It is a major
     means to build up a lifelong learning system meeting the needs of people
     living in an era of knowledge economy. The `Modern Distance Education
     Project' implemented on the basis of existing distance education facilities
     and making full use of modern information technology can effectively take
     full advantage of available educational resources. This is inline with the
     international trend of developing science and technology education. In view
     of the shortage of educational resources, this is a strategic step to
     extend access to education for the large population of our country and
     therefore the development of this important infrastructure must be
     intensified. The demonstrative network CERNET and the existing satellite
     video transmission system can serve as our basis of development and it is
     desirable to raise the transmission speed of the backbone network of
     CERNET, and make full use of the telecommunication resources of the country
     to further enlarge the transmission capacity and network size of CERNET. We
     should strive to link all higher education institutions offering bachelor's
     degree programs and over 1000 secondary schools with CERNET and make access
     to network possible at home to 50,000 university faculty members by the
     year 2000. We should develop an integrated information system based on
     CERNET for online enrollment of students admitted to [college],
     computer-aided management of students, record and status, and network
     service for new graduates seeking employment.

     Satellite-relayed television education programs will continue to function
     in modern distance education. However, the existing TV education
     transmission network needs to be reformed by setting up a central station,
     achieving its high-speed connection with CERNET, and connecting a part of
     distance education sites to computer networks. It is envisaged by the year
     2000 most schools in rural areas will be enabled to receive TV educational
     programs. Excellent teachers and modern teaching methods should be involved
     to ensure the quality of TV educational programs in an endeavour to meet
     the educational needs of remote, insular, mountainous, forestry and
     pastoral areas.

     The outmoded model of distance education software development, which
     suffers from unnecessary duplication of efforts, should be discarded. Here
     the government should exercise its function of macro-level regulation and
     full advantage should be taken of the educational resources possessed by
     schools of various types and levels. Competition and the market mechanisms


                                       18
<PAGE>


     also should have their role in software development. All the
     above-mentioned measures will contribute to the development of high-quality
     educational software. The Ministry of Education is in charge of the
     development of our modern distance education program and is responsible for
     organizing the formulation and implementation of the national `Plan for
     Developing Modern Distance Education'. The strategy for developing the
     `Modern Distance Education Project' is characterized by governmental
     support at the initial stage and self-financed operation in the long run.
     The advanced means of information technology should be adopted in light of
     China's actual conditions to keep upgrading modern distance education.

     To create a favourable condition for the development of modern distance
     education, it is desirable for the telecommunications companies to give
     preferential treatment to the operation of the modern distance education
     network by reducing the rates of fees in accordance with current
     international practice. Besides, tariff concession should be accorded to
     imported equipment, including both donated and purchased items, in
     accordance with applicable legal provisions.

     The plan also calls for an increase in financing for education. It contains
a commitment by the Ministry of Education to raise educational appropriations in
the budgets of the Provinces and that these increases would be used to cover
portions of expenses created by the plan.


HISTORY OF DISTANCE LEARNING IN CHINA

     While Internet based "modern" distance learning is new to China, as it is
to most countries, China has utilized distance learning for many years.
According to materials available from the CERNET, available at WWW.EDU.CN:

     Chinese educational technology first started with college audio-visual
     programs in 1920's in the School of Agriculture of Jinling University. In
     1922, they used slides and films with oral explanations recorded on
     phonograph to publicize the scientific methods for cotton-planting.
     Audio-visual education was developed in various schools at all levels after
     1949. Radio and television universities were successively established in
     Beijing, Shanghai, and Shenyang in 1960. Educational technology was greatly
     developed after the implementation of reform and open to the outside world
     policies. The State Council approved to set up the Central Radio and
     Television University (CRTVU) and the Central Audio-visual Center in China
     in 1978. After that radio and television universities and audio-visual
     centers were restored or established in provinces, autonomous regions, and
     municipalities directly under the Central Government and separate planning
     cities except Tibet China Educational Television Station was set up in 1986
     and provincial educational television stations were established in
     Liaoning, Jilin, Shanghai, Jiangsu, Fujian, Jiangxi, Ningxia, Xinjiang and
     other provinces, cities and autonomous regions.

     As at January 1, 2001, China had approximately 44 radio and television
universities, 831 municipal radio and television university branches, and 1699
county level branches. In 1987, China began using satellite transmissions in its
system of television universities. According to CERNET, by 1997, over 10,000
satellite stations had been established in the Chinese education system.

                          RECENT BUSINESS DEVELOPMENTS

RESTRUCTURING

     On September 15, 2003, Tengtu International Corp. entered into an agreement
with Tengtu China, Beijing Jiade Tengtu Technology Group Co., Ltd., Fan Qi Zhang
and Beijing Oriental Tai He Technology Development Co., Ltd. ("collectively the
"Tengtu China Group"), pursuant to a July 1, 2003 Terms Memorandum for a
restructuring pursuant to which Tengtu International Corp. is to acquire 100% of
Tengtu United and all of the profits generated by its business in China while
the Tengtu Group continues to operate that business (the "Restructuring
Agreement"). Specifically, in exchange for 30 million shares of Tengtu
International Corp. common stock, the Restructuring Agreement provides for the
following:

     - an Equity Interest Transfer Agreement pursuant to which the 43% of Tengtu
United owned by Tengtu China will be transferred to Tengtu International Corp.;


                                       19
<PAGE>


                - an Assignment of Intangible Assets Agreement pursuant to which
Tengtu China is to assign the rights to trademark the "Tengtu" name in China and
the copyrighted software used in Tengtu United's business as well as any other
software developed, or underdevelopment by Tengtu China which are not yet
copyrighted;

- Proxies which are to be delivered to Tengtu International Corp. giving it
voting control over the following:

                - 70% of the equity interests in the Hua Xia Bo Xiu Education
Software Co., Ltd. (CBERC), held by Beijing Jiade Tengtu Technology Group Co.
Ltd.;

                - 100% of the equity interests in Tengtu China held by Beijing
Jiade Tengtu Technology Group Co. Ltd. and Beijing Oriental Tai He Technology
Development Co., Ltd.;

               - 70% of the equity interests in Beijing Tengtu Electronic
Publishing Co., Ltd. ("Tengtu Electronic Publishing House") held by Beijing
Jiade Tengtu Technology Group Co. Ltd. and Beijing Oriental Tai He Technology
Development Co., Ltd. (10% of Tengtu Electronic Publishing House is owned by
Tengtu China for which Tengtu International Corp. is to obtain a proxy over 100%
of its equity interests bringing its control to 80% of the company);

                - 100% of the equity interests in Beijing Tengtu TianDi Network
Co., Ltd. owned by Beijing Jiade Tengtu Technology Group Co. Ltd. and Beijing
Oriental Tai He Technology Development Co., Ltd.;

                - 100% of the rights Tengtu Training Center has to recommend
School Committee members held by Beijing Jiade Tengtu Technology Group Co. Ltd.

     Each proxy has a term concurrent with the term of the company to which it
relates and provides for a renewal of the proxy upon expiration. In the event
that a proxy is revoked, at any time, Tengtu International Corp. shall have the
right to immediately cancel any of the shares of its common stock conveyed as
consideration in the Restructuring.

     - a Restructuring Framework Agreement and Service Agreements. The
Restructuring Framework Agreement requires the delivery of the Equity Interest
Transfer Agreement, Assignment of Intangible Assets and Proxies. It also
requires that the following companies enter into Long Term Business Cooperation
Contracts with Tengtu United: CBERC, Tengtu China, Beijing Tengtu TianDi Network
Co., Ltd., Tengtu Electronic Publishing House and Tengtu Training Center.
Pursuant to these contracts, each entity will conduct TUC's business in China
and remit the net profits to Tengtu United in exchange for licensing
arrangements and services to be provided by Tengtu United.

     The following are the material conditions to closing of the Restructuring
which must occur, unless waived:

     - The representations and warranties of the Tengtu China Group are true and
correct;

     - There are no legal proceedings threatened or commenced against any
member of the Tengtu China Group seeking to restrain or materially and adversely
alter the transactions contemplated by the Agreement;

     - Tengtu International Corp. shall have received from Beijing Tianyuan Law
Firm, its PRC counsel, a legal opinion, dated on the Closing Date in a form
agreed upon by the parties;

     - The Tengtu China Group shall have received, each in form and substance
satisfactory to Tengtu International Corp., all authorizations, consents, orders
and approvals reasonably necessary or desirable for the consummation of the
Restructuring;

     - Tengtu International Corp. shall have received a fairness opinion
concerning the Restructuring which is reasonably satisfactory to it and its
counsel;

     - The interest in CBERC shall have been transferred to Tengtu China or
Tengtu United; and

     - The Tengtu International Corp. shareholders shall have approved the
Restructuring. We plan to present the Restructuring for shareholder approval at
our next annual meeting.

     In the opinion of our Chinese counsel, the Restructuring will comply with
existing Chinese laws and regulations


                                       20
<PAGE>


NEW CONTRACTS AND OPPORTUNITIES

     The Basic Education Bureau of the Ministry of Education released a
statement on June 23, 2003 regarding the New Compulsory Education and Standard
Classroom Material in the Primary and Middle Schools across China and attached a
catalog of authorized products titled "Introduction to the New Standard
Classroom Materials" which includes 119 Tengtu titles of the total 185 titles.
The Basic Bureau of the Ministry of Education is the highest-level authority
overseeing the Ministry's curriculum reform and standards for the modernization
of China's K-12 education system. The following is an English translation of the
statement:

     Ref # (2003) 35 of Basic Education Bureau of Ministry of Education

     On Forwarding the Document regarding Adopting Teachers Training CDs for the
New Compulsory Education and Standard Classroom Material in the Primary and
Middle Schools Across the Country.

     To the Education Bureau of each province, autonomous region, and
municipality:

     There will be more than half of the primary and middle schools starting to
use the new compulsory education materials across the country in this fall. This
requires that a nationwide training program be set up for the teachers. Because
SARS impacted the schools in the earlier months of this year, it is hard to
congregate teachers for large-scale training sessions. Based on instructions
from the senior officials of the Ministry, we selected some experienced
education experts and teachers and prepared teacher training CDs for the new
compulsory education materials and standard classroom materials---"Introduction
to the New Standard Classroom Materials". The CDs include the reports from the
senior officials of the Ministry, the special seminars of those expert teachers,
and standard study and usage suggestions for each subject.

     The CDs provide the basic studying materials for the teachers to enforce
the new compulsory education materials cross the country. Each education bureau
and related schools must organize teachers to follow the training program. The
CDs are published by the Central Broadcast and TV University Press House, Tengtu
Electronic Publishing House, and FangYuan Electronic Music and Picture Press
House. (CD catalogue and order method is attached)

         Basic Education Bureau of Ministry of Education
         June 23rd, 2003
         (Stamp of Basic Education Bureau of Ministry of Education)

     If the Restructuring is consummated, we will receive a substantial portion
of the net profits generated by these sales. In addition, we believe that these
sales are likely to provide us with entry into additional schools and school
districts to market and sell other products and services.

     During the quarter ended June 30, 2003, Tengtu China signed contracts for
approximately RMB 20 million under the Agricultural Bank credit facility to
provide products and services to the school system of Chi Feng City, Inner
Mongolia. In addition, through a public tendering process, Tengtu China won
contracts for systems integration services for 140 schools in the Dongshan and
Liwan Districts of Guangzhou Province.

WEB SITE ACCESS TO OUR PERIODIC SEC REPORTS

     Our Internet address is www.tengtu.com. We make our periodic SEC Reports
(Forms 10-Q and Forms 10-K) and current reports (Form 8-K) available free of
charge through our website as soon as reasonably practicable after they are
filed electronically with the SEC. Other information contained on our website is
not part of this report or any other report filed with the SEC.


Item 2.  DESCRIPTION OF PROPERTY

     We do not own any physical properties. We have a lease for office space in
Toronto, Canada with annual rental payments of CDN$41,667 per year or
approximately U.S.$30,340. We also pay monthly rent of approximately U.S.$12,000
per month for office space in China to support our operations in China.



                                       21
<PAGE>


Item 3.  LEGAL PROCEEDINGS

     In January, 2002, Hecht & Associates, P.C., our former counsel, served us
with a summons and verified complaint which it filed as plaintiff in the United
States District Court for the Southern District of New York. We are the
defendant in the action. The verified complaint alleges that we did not pay
Hecht & Associates, P.C. for certain legal services provided to us and seeks a
judgment in the amount of $133,334.12, plus interest at the rate of 1.25%, the
costs of the action and such other relief as the court deems proper. We believe
that we have meritorious defenses to the claims in the verified complaint and
have moved to dismiss the complaint in its entirety. That motion is currently
pending before the court.

     In January, 2002, Charles J. Hecht, a principal of Hecht & Associates,
P.C., served us with a verified complaint which he filed as plaintiff in the
Supreme Court of the State of New York, County of New York. We are the defendant
in the action. The verified complaint alleges that Mr. Hecht submitted a check
in the amount of the exercise price of certain stock options granted to Hecht &
Associates, P.C. but that we did not deliver the stock. Plaintiff seeks a
mandatory injunction requiring delivery to plaintiff of 114,166 shares of our
common stock. Plaintiff further seeks (1) damages in the sum of $51,941.34, (2)
additional damages for diminution in the value of the common stock from the time
it should have been delivered and (3) punitive damages. We believe we have
meritorious defenses to the claims in the verified complaint and have moved to
dismiss the complaint in its entirety. That motion is currently pending before
the court.

     On August 30, 2002, VIP Tone, Inc. served us with a summons and complaint
it filed as plaintiff in the Superior Court for the State of California for the
County of Alameda. VIP Tone, Inc. is a company with which we had an agreement to
provide services relating to the development of CBERC. We are the defendant in
the action.

     The complaint alleges that VIP entered into an agreement with us on
November 16, 2001 and that we attempted to terminate the agreement on January
23, 2002. The complaint further alleges that the termination was ineffective and
therefore, continuing payments are due to it.

     VIP has alleged causes of action for breach of contract, fraudulent
misrepresentation, fraud/promise without intent to perform, breach of implied
covenant of good faith and fair dealing, promissory estoppel and quantum meruit.
VIP seeks damages, in an amount to be proved at trial, which it alleges exceed
$1,784,700, plus punitive damages and attorney's fees.

     We believe that we have meritorious defenses to the claims and have filed
an answer denying the allegations of the complaint, along with counterclaims for
breach of contract and fraud.

     On or about September 25, 2002 Pak Kwan Cheung and Comadex Industries, Ltd.
commenced an arbitration against us at the American Arbitration Association
pursuant to a Consultant Agreement by an among Cheung, Comadex and us dated as
of October 15, 1999. The Statement of Claim filed in the arbitration alleges
that Cheung and Comadex performed their obligations under the Consultant
Agreement that Cheung was terminated without cause and that Cheung and Comadex
are entitled to the benefits and entitlements under the Consultant Agreement.

     The Statement of Claim seeks the following relief: (1) a declaration that
Comadex is the beneficial owner of 3,000,000 shares it already holds which were
issued to it in March, 2000; (2) an order for the payment of base compensation
of $620,000; (3) an order directing that we issue Comadex an option to purchase
1,000,000 shares of common stock at $.60 per share; (4) an order directing the
payment of incentive compensation equal to 1% of all capital raised in excess of
$3,000,000 by Cheung which is claimed by Cheung and Comadex to be $155,646.58;
(5) an order for the payment of incentive compensation equal to 1% of our
pre-tax net profits; (6) a declaration that Cheung and/or Comadex is entitled to
issuance by us of 300,000 options which have already been granted to him; (7) an
order for payment of Cheung's and Comadex's costs and expenses, including
attorney's fees; (8) pre-judgment and post-judgment interest; and (9) any
additional relief to which Cheung and Comadex may be entitled pursuant to the
Consultant Agreement or at law.

     In March, 2003, B.D. Clark & Associates, Ltd. served us with a statement of
claim which was issued in the Ontario Superior Court of Justice. The plaintiff
in the action is B.D. Clark & Associates, Ltd. and we are the defendant. The
statement of claim alleges that plaintiff did not receive certain payments due
to it under two contracts beginning March 21, 1997 and ending June, 2001 which
obligated plaintiff to provide consulting services to us. Plaintiff seeks the
following relief: (1) declarations that we have breached our obligations under
both contracts; (2) approximately $9,028,998 in damages for breach of both
contracts; (3) pre- and post-judgment interest; (4) costs of the action; and (5)
other relief as the Court deems appropriate.

     We believe that we have meritorious defenses to the statement of claim and
intend to vigorously defend the action.


                                       22
<PAGE>


     Except as set forth above, neither we nor our subsidiaries are currently a
party to any material pending legal proceeding, nor do we know of any proceeding
that any governmental authority may be contemplating against us.

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

     No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.


                                     PART II


ITEM 5. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
        RELATED STOCKHOLDER MATTERS

     Our common stock is quoted on the NASDAQ over-the-counter Bulletin Board.
The high and low bid prices of our common stock for each quarter within the
period April 1, 2001 through June 30, 2003 were:

DATE                                            HIGH/ASK    LOW/BID     VOLUME
--------------------------------------------    --------    -------   ---------
Qtr. ended 06/29/2001.......................      1.36        0.25    8,222,800
Qtr. ended 09/28/2001.......................      1.88        0.77    6,306,800
Qtr. ended 12/31/2001.......................      1.55        0.77    3,871,800
Qtr. ended 03/29/2002.......................      1.24        0.53    5,945,900
Qtr. ended 06/28/2002.......................      0.74        0.41    4,363,800
Qtr. ended 09/30/2002.......................      0.51        0.28    2,791,500
Qtr. ended 12/31/2002.......................      0.60        0.35    3,907,000
Qtr. ended 03/31/03.........................      0.73        0.35    4,844,000
Qtr ended 06/30/03..........................      0.70        0.49    3,802,500

     The high and low bid prices for our common stock on September 30, 2003
were: $0.48 and $0.62.

     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. We obtained these high and low
bid quotation and volume information from Yahoo Finance.

     Because the trading price of our common stock is less than $5.00 per share,
trading in our common stock is subject to the requirements of Rule 15g-9 under
the Securities Exchange Act of 1934, as amended. Under this rule, broker-dealers
who recommend such low-priced securities to persons other than established
customers and accredited investors must satisfy special sales practice
requirements, including a requirement that they make an individualized written
suitability determination for the purchase and receive the purchaser's written
consent prior to the transaction. Our common stock is also subject to the
Securities Enforcement Remedies and Penny Stock Reform Act of 1990, which
requires additional disclosure in connection with any trades involving a stock
defined as a "penny stock" (generally, any equity security not traded on an
exchange or quoted on Nasdaq that has a market price of less than $5.00 per
share, subject to certain exceptions), including the delivery, prior to any
penny stock transaction, of a disclosure schedule explaining the penny stock
market and the associated risks. Such requirements could severely limit the
market liquidity of the common stock and the ability of purchasers in this
offering to sell their securities in the market.

     We have one class of common equity held by approximately 2,700 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 our ability
to pay dividends in the future. However, we do not expect to pay dividends in
the foreseeable future.



                                       23
<PAGE>

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

     The following table contains information regarding securities authorized
and available for issuance under our equity compensation plans for employees,
Officers, Directors and consultants. Each of the options listed were issued
under our 1997 or 1999 Stock Option Incentive Plans, or pursuant to an
individual agreement. Our 1997 and 1999 Stock Option Plans have expired and
therefore, no further option issuances will be made from those plans. The
Company has no current stock option incentive plan.

<TABLE>
<CAPTION>
                      EQUITY COMPENSATION PLAN INFORMATION

Plan category                  Number of securities to be issued     Weighted average exercise     Number of securities
                                 upon exercise of outstanding          price of outstanding        remaining available
                                 options, warrants, and rights     options, warrants, and rights   for future issuance
<S>                                    <C>                          <C>                            <C>
Equity compensation plans                1,760,000                          $.218                           0
approved by security
holders (1)
Equity compensation plans                2,187,382                          $.551                           0
not approved by security
holders (2)
Total                                    3,947,382                          $.403                           0
</TABLE>


     (1) Represents options to purchase the Company's common stock issued under
our 1997 and 1999 Stock Option Incentive Plans.

     (2) Represents Warrants granted to former investor relations firms.

                     RECENT SALES OF UNREGISTERED SECURITIES

     The Company sold the following unregistered securities during the fiscal
quarter ended June 30, 2002, and the subsequent period through the date of
filing of this report, in reliance upon exemptions from registration provided by
Section 4(2) of the Securities Act and Regulation S promulgated thereunder.

     On April 24, 2003, we sold 250,000 units consisting of two Special Warrants
per unit for $250,000. The Special Warrants were sold in a private placement
transaction. This issuance of the Special Warrants was conducted pursuant to
Regulation S under the Securities Act. The Special Warrant purchaser is a
non-U.S. person as defined under Regulation S.

     On May 3, 2003, we sold 640,000 units consisting of two Special Warrants
per unit for $640,000 to Orion Capital Incorporated. Orion Capital Incorporated
is owned by the Chairman of our Board of Directors, William O.S. Ballard. The
Special Warrants were sold in a private placement transaction. This issuance of
the Special Warrants was conducted pursuant to Regulation S under the Securities
Act. The Special Warrant purchaser, Orion, is a non-U.S. person as defined under
Regulation S.

     The Special Warrants entitle the holders to acquire, for no additional
consideration, one share of our common stock and one-half of one purchase
warrant to acquire a share of our common stock for $0.75.

ITEM 6. SELECTED FINANCIAL DATA

     The following is selected summary financial information for the past five
years of our operations presented on a consolidated basis. The summary financial
data should be read in conjunction with the consolidated financial statements
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this report.


                                       24
<PAGE>

<TABLE>
<CAPTION>
                                                                FOR THE FISCAL YEAR ENDED JUNE 30,
                                               2003          2002         2001        2000        1999        1998
<S>                                     <C>           <C>            <C>              <C>            <C>          <C>
Total Sales                             5,343,783     14,255,417     5,566,039        358,026        624,121      3,223,170
Income (loss) from Continuing          (1,977,947)     1,578,108      (293,169)    (4,701,285)    (1,866,399)    (4,402,014)
Operations
Income (loss) from Continuing              (0.033)         0.032        (0.012)        (0.225)        (0.100)        (0.234)
Operations per Common Share
Total Assets                           23,638,042     27,734,300     8,833,335      2,407,842      1,911,912      2,871,926
Total Liabilities                       3,966,520     10,829,337     5,039,508      5,488,865      3,776,010      2,662,230
Dividends Declared per Common Share             0              0             0              0              0              0
</TABLE>
     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.

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

                                    OVERVIEW

     We are currently, indirectly through Tengtu United and its agent, Tengtu
China, engaged in the following lines of business:

     o sales of educational content software to Chinese K-12 schools;

     o  sales of special software products for learning applications, resources
        management, distance learning and web/internet applications contained in
        the "Total Solution" software package;

     o  development of the CBERC with a division of the Chinese Ministry of
        Education, the National Center for Audio/Video Education. CBERC is an
        electronic resource centre and portal containing educational materials
        that are transmitted to schools that download them daily via satellite
        and that are to be accessible by Internet;

     o  development of Provincial LBERCs with several Chinese Provinces and
        sales of turn-key portals and electronic resource centers. It is
        anticipated that the LBERCs will connect with CBERC and contain their
        own educational and other materials as mandated by the provincial
        branches of the Chinese Ministry of Education. Like CBERC, content will
        be transmitted to schools daily via satellite and will also be available
        via Internet;

     o  sales of computer hardware and systems integration services to Chinese
        schools; and

     o  the provision of information technology training to teachers.

     We have instructed Tengtu China to conduct all of Tengtu United's business
with all Chinese government entities. Tengtu China, as Tengtu United's agent,
administers the daily operations of Tengtu United, such as paying operating
expenses, collecting receivables and remitting net operating profits to Tengtu
United.

     During the fiscal year ended June 30, 2003, we underwent an internal
refocusing of our business in order to engage the educational market in China on
a broader basis and to lay the foundation to increase our collections and cash
flow. First, while we previously engaged the market on a school by school basis,
we are now working to engage the market on a system wide basis from the
Provincial, local and city/district levels. We believe that this approach will
lead to increased sales volume with lower marketing costs. In addition, by
utilizing the Agricultural Bank of China credit facility, we do not need to
maintain contacts with individual schools in order to collect monies owned to us
as schools using the facility make payments to the bank, which is responsible
for collection.

     Second, we focused on the development of the CBERC portal and turn-key
portals. We believe that these portals will be a the source of a substantial
amount of our future revenues.

     Third, we focused on the collection of outstanding receivables. Since
November 2002, Tengtu China has been able to collect an average of RMB 3 million
(approximately $362,000) per month.



                                       25
<PAGE>

     Because of the refocusing of our business, our sales for the fiscal year
ended June 30, 2003 were less than anticipated and less than those for the
fiscal year ended June 30, 2002. However, we believe that this refocusing will
allow us to increase our revenues in the future.

LIQUIDITY AND CAPITAL RESOURCES FOR THE FISCAL YEAR ENDED JUNE 30, 2003, 2002,
AND 2001

FISCAL YEAR ENDED JUNE 30, 2003

CHANGES IN CASH FLOW

     For the fiscal year ended June 30, 2003, net cash used by operating
activities totaled $3,138,009. The net loss for the year, $(1,862,412), includes
non-cash charges for depreciation and amortization of $139,772, equity loss on
investment of $76,807, non-cash compensation expenses associated with the
issuance of common shares for services of $50,835, and non-cash interest expense
of $93,820 related to a convertible debenture held by Top Eagle Holdings, Ltd.

     Cash was further decreased by the increase of $1,014,450 in due from Tengtu
China, which represents 57% of Tengtu International Corp.'s share of Tengtu
United's earnings for the fiscal year ended June 30, 2003. An increase of
$131,814 in other receivables further decreased cash. A decrease in prepaid
expenses resulted in a favorable change of $205,689 to operating cash flow.

     We used net cash raised in private placements to reduce our outstanding
accounts payable and accrued expenses. For the year ended June 30, 2003,
accounts payable and accrued expenses have been decreased by $639,265.

     We did not make any investments during the fiscal year ended June 30, 2003.

     On July 5, 2002, we paid $249,200 to Quest Ventures, Ltd. to reduce the
outstanding principal of a loan made on June 6, 2002, to $1,500,000.
Subsequently, this balance of $1,500,000 was paid in full to Quest on November
30, 2002.

     The net cash flow from financing activities was $3,394,238. The primary
source of these funds was private placements to purchase units consisting of two
Special Warrants per unit, and Common Shares, at a price of $1.00 per Unit or
$0.50 per Common Share.

     In June 2003, Min Sheng Bank of China terminated an agreement relating to a
$4 million restricted U.S. dollar denominated deposit used to secure a RMB31
million (U.S.$3,744,800) long-term loan from the same bank. The loan was repaid
with the $4 million.

CONTRACTUAL OBLIGATIONS

         The following summarizes our contractual obligations at June 30, 2003:

<TABLE>
<CAPTION>
                                                                              PAYMENT DUE BY PERIOD
                                                                              ---------------------
                                                                                                                    AFTER 5
CONTRACTUAL OBLIGATION             TOTAL             LESS THAN 1 YEAR                   1-3 YEARS     4-5 YEARS     YEARS
----------------------             -----             ----------------                   ---------     ---------     -----
<S>                           <C>                    <C>                                <C>           <C>           <C>
Short-term loans                $1,454,404(1)        $1,454,404(1)
Total Contractual Obligation    $1,454,404(1)        $1,454,404(1)
Notes:

Notes:

<FN>
(1)  The short-term loan is the $1,500,000 convertible debenture issued to Top
     Eagle Holdings, Ltd. The loan is due December 15, 2003.

</FN>
</TABLE>



                                       26



<PAGE>

         In addition to the foregoing, we are committed to fund CBERC as
follows: RMB 30 million (approximately $3,624,000) within twelve months after
the establishment of CBERC and RMB 20 million (approximately $2,416,000) within
eighteen months after the establishment of CBERC. CBERC was established on
January 13, 2003. While, as set forth above, we have shifted our focus from the
Provincial LBERCs, we are also committed to fund approximately RMB 110 million
for them. We are planning to raise additional funds to meet the cash
requirements for CBERC project and the needs of our operations for the next 12
months. There can be no assurance that such financing will be available, or if
available, that it will be on acceptable terms.


FISCAL YEAR ENDED JUNE 30, 2002

CHANGES IN CASH FLOW

         For the fiscal year ended June 30, 2002, net cash used by operating
activities totaled $3,435,798. The net income for the year, $1,578,108, included
non-cash gains on loan forgiveness of $236,559, plus non-cash charges for
depreciation and amortization of $357,512, non-cash compensation expenses
associated with the issuance of common shares for services and fees of $518,615,
non-cash interest expense of $86,555 related to convertible debentures, and
impaired assets write-off of $246,732, resulting in a net cash increase of
$2,550,963.

         This increase in cash was offset by the increase of $6,155,603 in due
from Tengtu China for the installation of Total Solution Platforms and the sales
of other Tengtu products. The increase in prepaid expense related to advances to
a third party for software products, which negatively impacted operating cash
flow by $516,876. The decreases in accounts receivable, inventories, notes
receivables, and other receivables resulted in a favorable change of $152,846 to
operating cash flow.

         In order to conserve working capital, we continued to defer part of our
consulting fees and management compensation which contributed to the increase of
due to related party consultants of $387,496. The increase of $133,209 in
accounts payable and $28,822 in accrued expenses are related to normal operating
activities.

         The net change from investing activities was a decrease of $13,094,349
in cash. We advanced $9,059,902 (RMB 74,999,185) to Tengtu China, of which
$1,208,000 (RMB 10,000,000) was invested in the Shandong LBERC and $724,800 (RMB
6,000,000) was invested in the Shaanxi LBERC as a long term investment,
$2,536,800 (RMB 21,000,000) was invested to CBERC as a long term investment, and
the balance was used to provide the working capital for Operation Morning Sun
and other provincial LBERC projects. We also deposited $4,000,000 with Min Sheng
Bank as collateral for a long-term loan with that bank (see "Financial
Statements - Note 6"). The net cash flow generated from financing activities
totaled $16,425,160. On June 6, 2002, we closed a $4,000,000 loan with Quest
Ventures, Ltd. Pursuant to the terms of the loan agreement, we issued a
$4,000,000 promissory note to Quest due November 30, 2002 with an interest rate
of 12%. The note was secured by a general security agreement, pursuant to which
we gave Quest a security interest in all of our assets. The note was also
secured by 10,015,812 shares of our common stock pledged by Orion Capital
Incorporated, a guarantee from Orion limited to the pledged stock and a personal
guarantee from William O.S. Ballard as to $2,500,000. The Quest loan was, in
part, a bridge loan until the closing of the private placement on June 20, 2002.
Pursuant to the terms of the loan agreement and note, the $2,500,000 personally
guaranteed by Mr. Ballard was repaid to Quest by July 5, 2002 extinguishing the
personal guarantee. $2,250,800 of the $2,500,000 repaid to Quest was raised in a
private placement of Special Warrants which closed on June 20, 2002.

         The principal balance of $1,749,200 remained outstanding on the Quest
loan as of June 30, 2002. On July 3, 2002, an additional $249,200 was repaid to
Quest leaving a principal balance of $1,500,000. The Quest loan proceeds were
used to fund CBERC start-up and portal building and development costs. With
respect to the $1,500,000 outstanding loan balance due to Quest on November 30,
2002, Tengtu China had committed to pay it when due from monies collected in
China. The remaining amount outstanding to Quest was paid with proceeds of
additional private placements.

         We borrowed, on a short term basis, $675,560 from Orion for general
corporate administrative use. $541,332 of the $675,560 was converted to Special
Warrants on June 20, 2002.

         We borrowed approximately 3,745,000 in Chinese renminbi from Min Sheng
Bank on June 26, 2002. This line of credit bears interest at 5.58% and is
payable in full on June 26, 2007. This line of credit is fully secured by
$4,000,000 in restricted U.S. dollar denominated deposits at the Min Sheng Bank.
The funds were used to fund CBERC start-up and portal building and development
costs.



                                       27



<PAGE>

         In the fiscal year ended June 30, 2002, the total cash received from
common stock and options issued and exercised was $10,891,082. Between August 1,
2001 and June 30, 2002, we sold a total of 7,872,113 shares of common stock and
1,066,667 attached warrants for $7,832,600 through a series of private
placements. As part of the private placements, we sold 1,300,000 shares of
common stock and 216,667 attached warrants with the exercise price of $1.20 per
share for $1,300,000 on October 31, 2001 and 700,000 shares of common stock and
116,667 attached warrants with the exercise price of $1.20 per share for
$700,000 on November 15, 2001 to Orion.

         The total cash received from warrants and options issued and exercised
was $3,058,482. On June 20, 2002, we sold 2,991,332 units in a private placement
for gross proceeds of $2,991,332. The units consisted of two Special Warrants
each. 541,332 of the Special Warrants were sold to Orion, a company wholly owned
by the Chairman of our Board of Directors, William O.S. Ballard. 50,000
previously issued stock warrants were exercised at $0.218 per common share for
$10,900. 100,000 warrants were also exercised by Swartz at $0.285 per common
share for $28,500. In addition, $16,350 was received to exercise 75,000
previously issued options, but shares have not been issued as of June 30, 2002.
On June 12, 2002, we received $250,000 from Fan Qi Zhang pursuant to a stock
purchase agreement. Subsequently, we received another $250,000 from Mr. Zhang in
July 2002. Pursuant to a July 30, 2002 amended stock purchase agreement, we sold
1,000,000 Common Shares to Mr. Zhang for the $500,000 received. The sale
included 500,000 attached warrants to purchase common stock at $.75 per share.
Mr. Zhang is a member of our Board of Directors and is the Chief Executive
Officer and principal owner of our joint venture partner. See "Directors and
Executive Officers" and "Certain Relationships and Related Party Transactions".

         In addition to shares issued for cash, the non-cash transactions
involving issuing common stock are described below: Pursuant to a May 15, 2002
agreement, we issued 213,011 Common Shares to Ng Sau Hang in connection with the
winding down of the business of our subsidiary, Edsoft Platforms. Of the total
shares issued, 43,011 shares were issued as full payment of a loan and we
recorded a $236,559 gain on the forgiveness of debt, 120,000 shares were issued
in payment of the accrued interest of $60,000 on the loan, and 50,000 shares
were issued for the consulting services for which the cost was recorded in 2001.

         In connection with a bridge loan to us by Quest Ventures, Ltd. that
closed on June 6, 2002, we issued 375,000 shares of common stock to Quest, which
resulted in a charge of $187,500 for a financing expense that was reflected in
the cash flow from operating activities.

         Pursuant to a contract between us and Orion, William O.S. Ballard
provided consulting services to us. As compensation for the services, we agreed
to issue Orion 20,834 shares of common stock each month. During the fiscal year
ended June 30, 2002, 250,008 shares were issued to Orion and a charge to
compensation expense of $231,257 was recorded and reflected in the cash flow
from operating activities. The contract expired in December 2002.

         Subsequent to the year-end, we issued 250,000 Common Shares to 1334945
Ontario Limited on July 18, 2002 pursuant to a settlement agreement with Gregory
Mavroudis and 1334945 Ontario Limited.

         The net cash flow generated from financing activities was less than the
funds used to support Operation Morning Sun, the CBERC and LBERC projects, and
other corporate activities by $104,988. After taking into consideration a
negative foreign exchange effect of $6,574, cash decreased by $111,561 to
$914,838.

         Pursuant to a $1,500,000 convertible debenture issued to Top Eagle in
December, 1999 and due December, 2003, we make quarterly interest payments at a
rate equal to the best lending rate of The Hong Kong and Shanghai Banking
Corporation plus two percent (approximately 7% and 9% at June 30, 2002 and 2001,
respectively). The total of those payments for the fiscal year ended June 30,
2002 was $115,969. During the fiscal quarter ended March 31, 2002, we defaulted
on our quarterly interest payment to Top Eagle which was due on December 15,
2001. While the amount due was subsequently paid, the failure to timely pay
interest is an "Event of Default" which gave Top Eagle the right, at its option,
and in its sole discretion, to consider the Debenture immediately due and
payable, without presentment, demand, protest or notice of any kind. Upon an
Event of Default, the amounts due under the Debenture may be paid in cash, or
stock, at the prevailing conversion price set forth in the Debenture.

         To date, Top Eagle has not exercised its option to declare the
Debenture immediately due and payable and, in fact, has advised the Company's
auditors that there is no current default with respect to the Debenture.



                                       28



<PAGE>

CONTRACTUAL OBLIGATIONS

         The following table summarizes our contractual obligations at June 30,
2002:


<TABLE>
<CAPTION>


                                                                   PAYMENTS DUE BY PERIOD
                                    -------------------------------------------------------------------------
CONTRACTUAL OBLIGATION                TOTAL       LESS THAN 1 YEAR  1 - 3 YEARS      4 - 5 YEARS    AFTER 5 YEARS
----------------------                -----       ----------------  -----------      -----------    -------------
<S>                               <C>            <C>               <C>             <C>              <C>
Short-term loans..............      $1,883,428     $1,883,428(1)
Long-term loans...............      $5,244,800                      $1,500,000(2)    $3,744,800(3)
Total Contractual Obligations.      $7,128,228     $1,883,428       $1,500,000       $3,744,800

-----------
<FN>
Notes:
(1)  The short-term loan consists of $1,749,200 from Quest and $134,228 from
     Orion. Both debts have now been repaid.
(2)      The $1,500,000 convertible debenture issued to Top Eagle is due December 15, 2003.
(3)  The $3,744,800 long-term loan secured by $4,000,000 deposited in the same
     bank, Min Sheng Bank, is due June 26, 2007 (see Financial Statements Note
     6).
</FN>
</TABLE>

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 $5,160,337 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. In addition to the working
capital required for Operation Morning Sun, we advanced $1,000,000 to start work
on the CBERC project.

         Prepaid expenses increased due to the recording of a prepaid financing
expense. Other receivables increased because of recoverable taxes paid by Tengtu
United on certain purchases. 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 a loan agreement with Orion, we borrowed
$1,000,000 from Orion, until December 31, 2001, with an interest rate of 10%. In
connection with the loan, we granted Orion a warrant to purchase 670,000 shares
of common stock with an exercise price of $0.30. In March 2001, we borrowed an
additional $1,000,000 from Orion, pursuant to a second Orion loan agreement,
pursuant to 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.

         On June 14, 2001, we 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
share. Concurrently, the first and second Orion loans were converted at a
conversion price of $0.30 per share into an aggregate of 6,666,666 Common Shares
and all warrants issued or issuable in connection with the loans were cancelled.

         Other transactions involving issuing our common stock 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 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 O.S. Ballard to us between
October 2000 and April 2001, we issued 333,333 shares of common stock to Orion,
at Mr. Ballard's direction.


                                       29



<PAGE>

         Pursuant to a contract between us and Orion, William O.S. Ballard
provided consulting services to us. As compensation for the services, we agreed
to issue Orion 20,834 shares of 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 was recorded. Pursuant to a contract with the
our former Controller, Simon Hui, Mr. Hui was issued 491,033 Common Shares 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 $107,308 to $1,026,400.
Fiscal Year Ended June 30, 2000.


<TABLE>
<CAPTION>

FISCAL YEAR 2003, 2002 AND 2001 COMPARATIVE OPERATING RESULTS

                                2003                 2002               2001
                                ----                 ----               ----
<S>                         <C>                 <C>                 <C>
Revenues...................  $5,343,783          $14,255,417         $5,566,039
</TABLE>



         During the fiscal year ended June 30, 2003, Tengtu United's marketing
strategy and product mix underwent a major restructuring. Tengtu China will now
engage the marketplace on a system-wide basis versus school-by-school, as was
done previously based on the platform sales to individual schools. At the same
time, Tengtu China has been focusing on re-engineering the product lines and
developing the portal infrastructure to support new business opportunities going
forward.

         In addition, the system wide marketing strategy is consistent with the
requirements of the Agricultural Bank credit facility. The restructuring
required a significant effort and commitment of resources in the first and
second quarter of fiscal 2003, thereby contributing to a slow-down of sales in
those two quarters.

         As a result of the new business model, marketing strategy and product
mix, sales started to increase in the third quarter of 2003. Tengtu United's
sales for the year ended June 30, 2003 were $5,252,639. This total included
sales of equipment supported by the Agricultural Bank credit facility for
$2,042,243, eleven turn-key solutions for $536,166, satellite connectivity
equipment for $1,056,619, Total Solution Platforms for $398,076, system
integration for $721,702, Educational CD-ROMS for $132,229, Microsoft products
for $192,625, technical support revenue of $152,836 and other products for
$20,142. Total Tengtu United/Tengtu China operations accounted for 98% of the
consolidated sales. Other miscellaneous revenue from TIC Beijing accounted for
the remaining $91,144 in revenue.

         We experienced rapid growth in 2002 with the sales exceeding $14
million, a 150% increase from 2001 sales. The continued success with the
Operation Morning Sun project in China provided the majority of sales. In fiscal
2002, Tengtu China installed 7,292 Total Solution platforms at the average unit
price of $1,549 for total revenue of $11,293,251 or 79% of sales. Tengtu China
also installed 3,245 sets of satellite equipment for $1,675,197 and 1,748
resource CDs for $109,892. Sales of other e-education products and services,
such as system integration projects, through Tengtu China, were $1,067,753. The
total Tengtu United/Tengtu China operations accounted for 99% of sales.

         Other miscellaneous revenue from TIC Beijing accounted for the
remaining $109,324 in revenue. Sales of educational software and services by
Edsoft was minimal as these subsidiaries were essentially inactive during the
period. In January 2002 the operations of Edsoft were closed.

         Our 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 84% of sales. Sales of other
e-education products and services through Tengtu China were $539,437 or 10% of
sales. Tengtu United's operations accounted for 94% of sales.

         Sales of educational software and services by Edsoft HK were $218,643
or 4% of sales. Other miscellaneous revenue from TIC Beijing accounted for the
remaining $140,805 in revenue.

<TABLE>
<CAPTION>

                                              2003                 2002               2001
                                              ----                 ----               ----
<S>                                      <C>                  <C>                <C>
Gross Profit/Loss......................    $1,977,947           $9,213,132         $2,410,196

</TABLE>


                                       30



<PAGE>


         For the year ended June 30, 2003, the overall gross margin associated
with Tengtu United's sales was 37%. The low overall gross margins were primarily
due to sales of satellite equipment supported by the Agricultural Bank credit
facility for $2,042,243 (22% gross margins) and systems integration projects
obtained through competitive bidding processes for $721,702 (8% gross margin).
The objective of sales of equipment and systems integration services supported
by the Agricultural Bank credit facility is to build a base of school users
which will pay content and licensing fees in the future.

         In the fiscal year ended June 30, 2002, the overall gross margin
associated with sales under Operation Morning Sun was 65% of which $8,422,529
was for Total Solution platforms at 75% or $1,155 per platform, $495,034 was for
satellite equipment at 30%, $11,234 was for educational CD-ROMs at 10%, and
$460,845 was for other educational software and services at 43%. Costs of Total
Solution platforms were lower in fiscal 2002 compared to fiscal 2001 primarily
because the Microsoft operating system was not needed in most platforms sold.
Most of the school computers where the platforms were installed were already
equipped with appropriate operating software. The reduction of platform costs
contributed to the improvement in gross margins.

         Gross profit in 2001 was attributable primarily to the 3,017 Total
Solution platforms sold. The gross margin for these items, at 41%, was
$1,897,487 or $629 per platform. Gross margins on the other e-education products
and services was $512,709 or 57%.

<TABLE>
<CAPTION>

                                                  2003                 2002               2001
                                                  ----                 ----               ----
<S>                                             <C>               <C>                   <C>
Research and Development Expenses...............   $0                $971,111              $0

</TABLE>


         We recorded no research and development expenses in 2003. In fiscal
2002, $971,111 research and development expenses were incurred with respect to a
portal software project and educational content software for China's educational
market. We undertook no research and development expenses in 2001 as we focused
our activities on launching of Operation Morning Sun.

<TABLE>
<CAPTION>

                                                    2003                 2002               2001
                                                    ----                 ----               ----
<S>                                             <C>                  <C>                <C>
General and Administrative Expenses............. $1,924,695           $2,511,430         $2,014,899

</TABLE>


         For the fiscal year ended June 30, 2003, general and administrative
expenses decreased $586,735 compared to the same period in 2002. The decrease
was mainly due to an expense credit of $335,529 from Tengtu China. The total
general and administrative expenses incurred by Tengtu United amounted to
$547,570. At our principal office in Toronto, a majority of the expenses were
legal and professional fees of $804,078 and financing related expenses of
$439,630.

         General and administrative expenses increased 25% in the fiscal year
ended June 30, 2002 from 2001 due to the higher legal and financing fees
associated with raising capital to support Operation Morning Sun and the CBERC
and LBERC projects.

         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.


<TABLE>
<CAPTION>

                                                   2003                 2002               2001
                                                   ----                 ----               ----
<S>                                             <C>                  <C>                <C>
Related Party Consultants....................... $488,877             $865,202           $829,772

</TABLE>


         Related party consultants' expense relates to staff that manages
technical developments and financing activities in North America. Related party
consultants' expense decreased due to the elimination of some executive
positions and the lower market values for the shares issued as compensation for
consulting services.

         Related party consultants' expense during the fiscal year ended June
30, 2002 was consistent with the fiscal 2001 amount.


<TABLE>
<CAPTION>

                                                   2003                 2002               2001
                                                   ----                 ----               ----
<S>                                            <C>                  <C>               <C>
Collection Provision............................ $119,337             $444,031          $ 163,684

</TABLE>


         The provision for the fiscal year ended June 30, 2003 represents an
estimate of potential uncollectible accounts associated with sales by Tengtu
United during the year. Compared to the period in 2002, the lower amount in 2003
was primarily due to the lower sales. This provision is included in due from
related party.

                                       31


<PAGE>

         The collection provision for the fiscal year ended June 30, 2002 is
related to possible uncollected receivables for products and services sold under
Operation Morning Sun. The increase in collection provision in fiscal 2002 is
due to the higher sales compared to fiscal 2001 sales.

<TABLE>
<CAPTION>

                                                 2003                 2002               2001
                                                 ----                 ----               ----
<S>                                           <C>                  <C>                <C>
Advertising Expense..........................  $16,891              $31,885            $39,406

</TABLE>



         Limited amounts of advertising expenses were spent in 2003, 2002 and
2001 on advertising to promote the sales in China.

<TABLE>
<CAPTION>

                                                  2003                 2002               2001
                                                  ----                 ----               ----
<S>                                          <C>                  <C>                <C>
Selling Expense............................... $1,387,135           $1,837,924         $ 602,132

</TABLE>




         For the year ended June 30, 2003, selling expense was lower compared
with the same period of 2002. It is primarily due to lower sales in China.

         Since the start of Operation Morning Sun, selling expenses have
increased significantly due to the rapid growth in sales. Revenue in fiscal 2002
grew 150% from the 2001 level, and selling expenses increased accordingly.
Selling expense is 13% of total sales in fiscal 2002 compared to 11% in fiscal
2001. This percentage increase is due to the expansion of sales teams and new
markets serviced. Salespersons' compensation, travel, and new product training
are the main components of the selling expenses in fiscal 2002 and 2001.


<TABLE>
<CAPTION>

                                                    2003                 2002               2001
                                                    ----                 ----               ----
<S>                                             <C>                  <C>                <C>
Depreciation and Amortization.................... $122,413             $81,741            $55,910

</TABLE>



         As Tengtu China manages our joint venture in China, we have not made
any significant purchases of equipment in past years and depreciation and
amortization expenses have remained at consistent and low levels. The 2003
amount included $64,036 charged to general and administrative expenses and
$58,377 charged to cost of sales. TIC Beijing's only income was rental income.
The main cost associate with the revenue generated was amortization expense on
the equipments. We included this amortization expense in the cost of goods sold
applying the accounting matching principle.


<TABLE>
<CAPTION>

                                                   2003                 2002               2001
                                                   ----                 ----               ----
<S>                                             <C>                      <C>             <C>
Equity Earnings in Investee...................  $(76,807)                $0              $219,488

</TABLE>


         The equity losses in investee in 2003 relate to our investment in the
Shaanxi LBERC joint venture. The joint venture was established at the end of
fiscal 2002. The loss was primarily due to the high start-up expenses for the
joint venture.

         The equity earnings in investee in 2001 relate to our investment in
Iconix, our former investee. The 2001 balance reflects a distribution received
from Iconix on the sale of its assets of $219,488. The investment in Iconix was
written off in the fiscal year ended June 30, 2001.

<TABLE>
<CAPTION>


                                                  2003                 2002               2001
                                                  ----                 ----               ----
<S>                                           <C>                   <C>                <C>
Interest Income..............................   $250,615              $3,871             13,100

</TABLE>

         The interest income was earned by a $4,000,000 restricted cash deposit
at Min Sheng Bank. On June 26, 2002, we borrowed approximately $3,745,000 in
Chinese renminbi from Min Sheng Bank. This line of credit was fully secured by
$4,000,000 in restricted dollar denominated deposits at the Min Sheng Bank. The
restricted cash deposit earned interest at 6.15% annually and the interest
income was paid on a semi-annual basis. The interest earned for the fiscal year
2003 was $249,889.


<TABLE>
<CAPTION>


                                                  2003                 2002               2001
                                                  ----                 ----               ----
<S>                                           <C>                  <C>                <C>
Interest Expense............................... $477,054             $254,029           $176,111

</TABLE>



                                       32



<PAGE>


         For the year ended June 30, 2003, interest expense consists of $267,079
interest on a convertible debenture issued to Top Eagle Holdings, Ltd. and a
loan from Quest Ventures, Ltd., and $209,974 of interest on the Min Sheng Bank
loan in China.

         Interest expense increased in fiscal 2002 from 2001 due to interest
payments made on a short-term loan from Quest Ventures, Ltd. In addition, fiscal
2002 is the first full year for interest on the Top Eagle loan, as there was an
interest holiday to December 2000. See "Financial Statements - Note 6".

<TABLE>
<CAPTION>


                                                2003                 2002               2001
                                                ----                 ----               ----
<S>                                         <C>                  <C>                <C>
Other Income..............................   $1,257,877           $2,045,902         $ 947,692

</TABLE>



         Other income in fiscal 2003 includes a credit for value added tax (VAT)
paid in China for Tengtu United's sales of $290,274, a $210,000 reversal of over
accrual of consulting fees, a $720,208 of reversal of old legal and accounting
fees and $36,310 in cash recovered from the sale of the assets of Iconix, our
former investee.

         Other income in fiscal 2002 included a $236,559 non-cash gain on debt
forgiveness related to the Edsoft transaction and a $1,803,079 VAT tax credit in
China. The increase of VAT tax credit is associated with the increase of sales
from operations in China.

         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, a VAT tax credit in China of $314,718 was
recorded as other income in 2001.

<TABLE>
<CAPTION>

                                                2003                 2002               2001
                                                ----                 ----               ----
<S>                                          <C>                  <C>                <C>
Other Expense..............................   $704,801             $263,352           $ 1,731

</TABLE>


         Other expense in fiscal 2003 are related to an accrual for a settlement
of our litigation with Swartz Private Equity, LLC of $679,287. "See Financial
Statements--Note 12."

         The majority of other expenses in fiscal 2002 related to asset
write-offs, which consisted of $75,000 for a software license fee and $171,732
of idled assets in China.


<TABLE>
<CAPTION>

                                                2003                 2002               2001
                                                ----                 ----               ----
<S>                                         <C>                 <C>                   <C>
Minority Interest........................     $89,218             $2,424,092            $ 0

</TABLE>


         Minority interest represents Tengtu China's 43% interest in the
operating profits of Tengtu United.

         In fiscal 2003, Tengtu United's net profit was $194,216. Therefore, 43%
of Tengtu United net profits were allocated to Tengtu China and $89,218 of
minority interest was recorded.

         In fiscal 2002, Tengtu United's net profit exceeded its accumulated
losses from prior years. Therefore, 43% of Tengtu United net profits were
allocated to Tengtu China and $2,424,092 in minority interest was recorded.

         No minority interest in Tengtu United's operating profit or Edsoft
losses was recorded in 2001 as these two subsidiaries had deficits.

 CRITICAL ACCOUNTING POLICIES

         The discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles or GAAP in
the United States. The preparation of those financial statements requires us to
make estimates and judgments that affect the reported amount of assets and
liabilities at the date of our financial statements. Actual results may differ
from these estimates under different assumptions or conditions.



                                       33



<PAGE>

         Critical accounting policies are those that reflect significant
judgments or uncertainties, and potentially result in materially different
results under different assumptions and conditions. We have described below what
we believe are our most critical accounting policies.

1.    Consolidated Financial Statements

         Our principal activities are carried out through Tengtu United, a 57%
owned Chinese joint venture company. In the opinion of management, we control
Tengtu United because the protective rights enjoyed by the minority interest
holder do not rise to the level of participating rights as described in EITF
96-16. Therefore, Tengtu United is consolidated into our financial statements.

2. Equity Method for Investments in CBERC & LBERC

         Tengtu China, our joint venture partner in Tengtu United, established
two joint ventures on behalf of Tengtu United: one with a division of the
Chinese Ministry of Education, CBERC, and second, the Shaanxi Province Broadband
Education Resource Center, an LBERC. We, through Tengtu United, have advanced
$4,469,600 for the formation of CBERC and LBERCs. We account for these
investments using equity method. Although our equity interest in each of the
joint ventures is over 50%, we do not control the joint ventures due to
participating rights exercised by the minority interest holders in the
management of the joint ventures. We have the ability to exercise significant
influence, but not control, over the investees.

3. Due from Related Party

         We have engaged Tengtu China, as our agent, to conduct all of Tengtu
United's business with any Chinese government entity. As agent, Tengtu China and
its affiliated and related companies administer the daily operations of Tengtu
United: paying operating expenses, collecting receivables and remitting net
operating profits to us. In order to support the continuous expansion of China
operations, we do not expect the repayment of working capital advances made to
Tengtu China in the near term. So we use the term "Due from related party" to
describe the amount due from Tengtu China.

         Payment processes slower than those experienced in North America are
not unusual in China, especially when dealing with different levels of
government. In recognizing the environment in which it is operating in China, we
have classified $9,906,907 of due from Tengtu China to long-term assets as of
June 30, 2003.


Item 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

         We operate through subsidiaries located in Beijing, China and grant
credit to customers in this geographic region. Our administrative office is
located in Toronto, Canada.

         We perform certain credit evaluation procedures and do not require
collateral. We believe that credit risk is limited because we routinely assess
the financial strength of customers, and based upon factors surrounding the
credit risk of customers, established an allowance for uncollectible accounts.
Therefore, we believe our accounts receivable credit risk exposure beyond such
allowances is limited.

         We established an allowance for doubtful accounts of $727,052 at June
30, 2003, which are reserves against related party receivables. We believe any
credit risk beyond this amount would be negligible. At June 30, 2003, we had
approximately $215,342 of cash in banks uninsured.

         We do not require collateral or other securities to support financial
instruments that are subject to credit risk. For the fiscal years ended June 30,
2002 and 2001, while we recorded sales pursuant to agreements with the Chinese
Ministry of Education in our financial statements, no single school customer
accounted for more than 10% of total sales. Receivables related to these sales
transactions are grouped together with amounts due from a related party, Tengtu
China.


                                       34



<PAGE>


MARKET RISK SENSITIVE INSTRUMENTS

<TABLE>
<CAPTION>

FINANCIAL INSTRUMENT                                CARRYING VALUE           FAIR VALUE
--------------------                                --------------           ----------
Instruments entered into for trading purposes
NONE
Instruments entered into for other than trading purposes
<S>                                               <C>                   <C>
Cash and Cash equivalents
         United States                                   $ --                   $ --
         Foreign                                         183,802                183,802
         Total                                         $ 183,802              $ 183,802
Accounts and Other Receivables, Net
         United States                                   $ --                   $ --
         Foreign                                       3,658,400              3,658,400
         Total                                         3,658,400              3,658,400
Accounts payable
         United States                                 $ 591,987              $ 591,987
         Foreign                                      $3,374,533             $3,374,533
         Total                                        $3,966,520             $3,966,520
</TABLE>

         The 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, we have 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.

         Our financial statements described below and the report of our
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, 2003 and 2002              F-2

Consolidated statements of operations and comprehensive
income (loss) for each of the three years in the
period ended June 30, 2003                                         F-3

Consolidated statements of shareholders' equity for each of
the three years in the period ended June 30, 2003                  F-4

Consolidated statements of cash flows for each of the three
years in the period ended June 30, 2003                            F-5

Notes to consolidated financial statements                         F-6 - F-26

SELECTED QUARTERLY FINANCIAL DATA

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


<TABLE>
<CAPTION>

SUPPLEMENTARY FINANCIAL INFORMATION

                              30-Jun-03   31-Mar-03    31-Dec-02     30-Sep-02    30-Jun-02   31-Mar-02
                              ---------   ---------    ---------     ---------    ---------   ---------

<S>                       <C>          <C>          <C>          <C>          <C>          <C>
Revenues                     $1,945,640  $1,913,585     $534,187      $628,646   $3,959,491  $2,993,603
Gross Profit                   $792,146  $1,116,395     $321,319      $462,902   $2,605,005  $2,196,126
   Gross Profit Margin              41%         58%          60%           74%          66%         72%
 Operating Income (Loss)        $57,822  ($210,280)   ($753,992)  ($1,104,090)   $1,365,729    $379,632
    Net Income (Loss)           $30,425     $62,223   ($714,875)  ($1,125,648)     $670,679     $50,554
    Earnings Per Share
     Basic                        $0.00       $0.00      ($0.01)       ($0.02)        $0.01       $0.00
     Diluted                      $0.00       $0.00      ($0.01)       ($0.02)        $0.01       $0.00

                              31-Dec-01   30-Sep-01    30-Jun-01     31-Mar-01    31-Dec-00   30-Sep-00
Revenues                     $4,061,008  $3,241,315   $2,612,335    $1,450,879     $359,379  $1,143,446
Gross Profit                 $2,379,319  $2,059,682   $1,437,678      $818,748      $46,291    $107,479
   Gross Profit Margin              59%         64%          55%           56%          13%          9%
 Operating Income (Loss)       $147,465    $576,982     $887,078    ($143,496)  ($1,496,927) ($542,262)
    Net Income (Loss)          ($7,237)    $864,112   $2,110,188    ($238,776)  ($1,566,746) ($597,835)
    Earnings Per Share
     Basic                        $0.00       $0.02       $0.08*       ($0.01)      ($0.07)     ($0.03)
     Diluted                      $0.00       $0.02       $0.08*       ($0.01)      ($0.07)     ($0.03)

</TABLE>


*    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.




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

         There has been no change in our independent auditors during the
previous two fiscal years. Nor have there been any disagreements with our
independent auditors during the previous two fiscal years.


ITEM 9A.          EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

           As of September 22, 2003, an evaluation was performed under the
supervision and with the participation of our management for the effectiveness
of the design and operation of our disclosure controls and procedures. Based on
that evaluation, our management concluded that our disclosure controls and
procedures were effective in ensuring that material information relating to the
Company with respect to the period covered by this report was made known to
them.

           Based upon their evaluation of our internal controls within 90 days
of the date of this report, our management has determined that changes are
necessary in the format of financial reports from our joint venture partner in
China so that they are more clearly understandable and more easily converted
from reflecting financial information using a cash method to an accrual method.
We plan to take steps with its joint venture partner to improve the financial
reports. On September 25, 2003, we announced the appointment of a new Vice
President of Corporate Finance for both Tengtu International Corp. and Tengtu
United, who is designing a new weekly reporting system to improve financial
reporting.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

         The name and positions with us of each of our Directors and Executive
Officers are as follows:

<TABLE>
<CAPTION>
                                                          DIRECTOR
NAME                                 POSITION              SINCE       AGE
----                                 --------              -----       ---
<S>                           <C>                       <C>        <C>
WILLIAM O.S. BALLARD (1), (2)   Director and Chairman      2001         56

BIN HUANG (3)                   Director                   2001         36

JING LIAN                       Vice President                          52

JOHN MCBRIDE (1), (3)           Director                   2001         45

JOHN WATT (2)                   Director and President     1996         57

JUDY YE                         Chief Financial Officer                 38

FAN QI ZHANG (1)                Director                   2001         45

SHENXING YAO                    Director                   2003         43

PETER JI                        Vice President,                         36
                                Corporate Finance


<FN>
------------
Notes:
(1) Member of the Compensation Committee. (2) Member of the Executive Committee.
(3) Member of the Audit Committee.
</FN>
</TABLE>


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

         WILLIAM O.S. BALLARD is the Chairman of our Board of Directors, and the
Chairman of the Executive Committee of our Board of Directors. Mr. Ballard's
investment company, Orion Capital Incorporated, is currently our largest
shareholder. Mr. Ballard has a law degree from Osgoode Hall, Toronto, Canada and
is a Canadian entrepreneur and lawyer. Mr. Ballard currently serves as a
Director of three Canadian public companies, Devine Entertainment, Northfield
Capital Corporation and Southern Star Resources Inc. Until 1998, Mr. Ballard was
a partner in The Next Adventure Inc., an international entertainment company and
has, for many years, been involved in the concert promotion business. Mr.
Ballard is the founder and past President of the Toronto Entertainment District
Association, one of Canada's largest business associations and the founder and
co-chairman of Canada's prestigious Walk of Fame. He also served on the
President's Council at Sir Wilfred Laurier University and the Senate of York
University. Mr. Ballard's principal occupation for the past two years has
been providing consulting services to us. Prior to that time and starting in
1998, Mr. Ballard's principal occupation was acting as President of Orion (a
position he still holds). Mr. Ballard was elected to our Board of Directors on
November 27, 2001. As a result of Devine Entertainment's failure to file its
annual financial statement for the year ended December 31, 2002, the Ontario
Securities Commission issued a temporary cease order against Devine
Entertainment, Mr. Ballard and certain other individuals prohibiting these
parties from trading in securities of Devine Entertainment.

         BIN HUANG is a member of our Board of Directors. Mr. Huang is currently
the General Manager of Beijing Pan-Pacific Investment Co., Ltd., a China based
investment company, where he serves as an investment analyst and portfolio
manager. From 1997 through 2001, Mr. Huang served as a Senior Manager in the
Investment Banking Department of Haitong Securities Co., Ltd., a China based
securities company. Mr. Huang previously served as a Deputy Director in the
Investment Department of China Zhonghong Group Corp., a China based investment
bank. Mr. Huang has a Masters Degree in Economics from the Graduate School of
Xiamen (Amoy) University in China. Mr. Huang was elected to our Board of
Directors on November 27, 2001.

         JOHN MCBRIDE is a member of our Board of Directors. Over the past five
years, Mr. McBride has acted as the Managing Partner of CC Capital Partners, a
merchant banking group (1999 to present), and President of Charmac Capital
Corp., a private investment company (1992 to present). Mr. McBride is a Director
of Integrative Proteomics Inc., a Toronto, Canada based, biotechnology company
involved in the field of determining the structure and function of the human
proteome. Mr. McBride is also a director of Northfield Capital Corporation and a
founding partner of Charleswood Investments, both Toronto, Canada based merchant
banking and venture capital companies. Mr. McBride was elected to our Board of
Directors on November 27, 2001.


                                       37



<PAGE>


         JOHN WATT is a member of our Board of Directors, a member of the
Executive Committee of the Board of Directors and our President. Mr. Watt has
served as a Director since June, 1996 and was appointed Executive Vice President
on September 17, 2000, prior to being appointed President on July 1, 2001. Mr.
Watt was President of John D. Watt & Associates, Ottawa, Canada, a consulting
firm specializing in media and entertainment industries, from 1995 to July 1,
2001. Between 1980 and 1990, Mr. Watt served as a Director General for the
Government of Canada, overseeing federal policies in cultural industries,
broadcasting, and telecommunications. He was also an advisor to the NAFTA
negotiations. Mr. Watt was responsible for regulated foreign investment policies
and negotiating bilateral treaties with 26 countries including China. Mr. Watt
graduated with a B.A. degree from Sir Wilfred Laurier University before earning
his L.L.Th. in post-graduate studies at University of Toronto and a Marketing
Management Diploma from George Brown College, Toronto.

         FAN QI ZHANG is a member of our Board of Directors. Since 1999, Mr.
Zhang has been the Chief Executive Officer of Tengtu China. Since 1997, he been
the Chairman of Tai He, one of the owners of Tengtu China. Mr. Zhang has a
Master of Arts degree from Beijing University. He has extensive management and
banking experience in China, having founded the only civil publishing enterprise
in China (Tengtu Electronic Publishing Co.) and Beijing Jiade Pharmaceutical Co.
Ltd. (a pharmaceutical manufacturer). He is the Vice President of the Medical
Funds Association of China and an Executive of the Association of Entrepreneurs
of China. Fan Qi Zhang has served as a Director since August, 1999.

         SHENXING YAO was added as a member of our Board of Directors in
September, 2003 and was also appointed as the President of Tengtu United. During
the past five years, Mr. Yao has served as Chairman of the Beijing Pan Pacific
Investment Co., Ltd., Vice President, Investment Banking, Guangfa Securities
Co., Ltd. and the President of Zhongxin International Storage and Transportation
Corp. From 1984 to 1988, Mr. Yao also served as an Officer of the Central
Discipline Committee for the Central Communist Part of China. Mr. Yao, as
President of Tengtu United, has been charged with administration of the
Restructuring and oversight of Tengtu United's business.

         The following is a description of the qualifications and experience of
Tengtu's Vice Presidents and Chief Financial Officer:

         JING "JACK" LIAN is 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 Vice President since June 1996 and was one of our
Directors from June 1996 until November, 2002. Mr. Lian is also a founder and
former 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 also a visiting scholar at the University of Washington, Seattle,
Washington.

         PETER JI serves as our Vice President of Corporate Finance and was
appointed to that position in September, 2003. During the past five years, Mr.
Ji has served as an Investment Officer of the International Finance Corporation,
Beijing and a Vice President of Bank One Capital Markets, Inc. in Chicago with
responsibility for Asian and European markets. Mr. Ji has a B.A. Degree from
Beijing University and an M.B.A from the Kellogg Graduate School of Business,
Northwestern University.

         JUDY YE serves as our Chief Financial Officer. Ms. Ye joined Tengtu in
March 2003. Ms. Ye is a Certified Public Accountant and has a Certified General
Accountant Designation from the Certified General Accounting Association of
Ontario. Prior to joining us in 2003, Ms. Ye was a corporate accountant for
Bluenotes Limited (from 2001 until joining us) and a financial analyst and
corporate accountant for International Financial Corp. (from 1998 to 2000). Ms.
Ye graduated from China's Guilin Management Institute in 1985 with degrees in
Accounting and Statistics.

         To our knowledge, based solely on a review of such materials as are
required by the Securities and Exchange Commission, none of our officers,
directors or beneficial holders of more than ten percent of our issued and
outstanding shares of Common Stock has failed to timely file with the Securities
and Exchange Commission any form or report required to be so filed pursuant to
Section 16(a) of the Securities Exchange Act of 1934 during the fiscal year
ended June 30, 2003.


<PAGE>


ITEM 11.      EXECUTIVE COMPENSATION

COMPENSATION OF DIRECTORS AND OFFICERS

DIRECTORS

         We did not pay cash compensation to any of our Directors during the
fiscal year ended June 30, 2003. Pursuant to a resolution passed by our 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. For the fiscal years ended June 30, 2000 and 1999, we
granted each member of our Board of Directors options to purchase our common
stock in lieu of a cash payment.

OFFICERS

         We paid cash compensation of $386,637 to our executive officers during
the fiscal year ended June 30, 2003. On March 29, 1999, we adopted a deferred
compensation plan for future payment of past due amounts. Pursuant to the
deferred compensation plan, we deferred all compensation to certain executive
officers until we receive certain amounts of financing. At that time, we 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, we paid $144,000 to Jack
Lian, a former Director and Vice President. The total compensation deferred as
of June 30, 2003 was $1,837,202, net of amounts paid to Mr. Lian.

SUMMARY COMPENSATION TABLE

         The following table provides information relating to compensation for
the fiscal years ended June 30, 2001, 2002 and 2003 for our former Chief
Executive Officer and compensation payable to other highly compensated executive
officers whose total salary and bonus (as determined pursuant to SEC rules)
exceeded $100,000 (determined by reference to fiscal 2003). The amounts shown
include compensation for services in all capacities provided to us. With respect
to our former Chief Executive Officer, Pak Kwan Cheung, the salary listed
represents the amount set forth in an agreement between us and Comadex
Industries Ltd., a company owned by Pak Kwan Cheung, but not amounts received by
Comadex. Comadex received $20,000 for the fiscal year ended June 30, 2002 (see
also "Legal Matters"). With respect to John Watt, his compensation was deferred
in 1999 and 2000. In 2001 $90,000 was paid to Mr. Watt and $30,000 was deferred.
For the fiscal year ended June 30, 2002, $161,089 was paid to Mr. Watt in salary
and advances, which have been repaid. For the fiscal year ended June 30, 2003,
Mr. Watt received $120,000 in salary.


<TABLE>
<CAPTION>

                                           ANNUAL COMPENSATION                         LONG TERM COMPENSATION
                                           -------------------                         ----------------------
                                                                                      AWARDS               PAYOUTS
                                                                                      ------               -------
                                                                              RESTRICTED   SECURITIES
                                                              OTHER ANNUAL      STOCK      UNDERLYING    LTIP     ALL
                                         SALARY      BONUS    COMPENSATION     AWARD(S)     OPTIONS/   PAYOUTS   OTHER
NAME AND PRINCIPAL POSITION    YEAR       ($)         ($)          ($)           ($)        SARS (#)     ($)     COMP.
---------------------------    ----       ---         ---          ---           ---        --------     ---     -----

<S>                         <C>        <C>            <C>          <C>     <C>                <C>    <C>       <C>
John Watt, President          2003       $120,000       0            0       $        0         0      $  0      $  0
                              2002       $120,000       0       41,089            0             0         0         0
                              2001       $120,000       0            0            0             0         0         0
Pak Kwan Cheung(1)            2003              0       0            0            0             0         0         0
                              2002       $128,400       0            0            0             0         0         0
                              2001       $128,400       0            0            0             0         0         0
Gregory Mavroudis(3)          2003             --      --           --           --            --        --        --
Exec. Vice President          2002              0       0            0            0             0         0         0
                              2001       $124,000       0            0       75,000(4)          0         0         0

<FN>
----------
Notes:
(1)  We retained Pak Kwan Cheung's services through a consulting contract with
     Comadex entered into in October 1999. Comadex was not been paid any monies
     during the fiscal years ended June 30, 2000 and 2001 under the contract.
     However, in fiscal 2002 Comadex was paid $20,000. The amount listed
     represents compensation stated in the agreement. See "Legal Matters".

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


                                       39



<PAGE>


(3)  We retained Gregory Mavroudis' services through a consulting agreement with
     1334945 Ontario Limited dated April 1, 2000. Mr. Mavroudis is no longer
     performing services for us pursuant to a settlement agreement entered into
     in May, 2002. Pursuant to the settlement, 1334945 Ontario Limited received
     250,000 shares of common stock, $70,000 and we paid $30,000 for legal fees.

(4)  We granted 75,000 options to purchase our common stock 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>

EMPLOYMENT OR CONSULTING CONTRACT WITH EXECUTIVE OFFICERS AND DIRECTORS

JING LIAN

         We 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.

ORION CAPITAL INCORPORATED

         Between December 21, 2000 and December 21, 2002, Orion acted as a
consultant to us providing, among other things, the services by William O.S.
Ballard (who is the Chairman of our Board of Directors). Pursuant to the
agreement, Mr. Ballard provided strategic and business consulting services to
us. As compensation for these services, we issued to Orion a total of 500,016
shares of common stock, in monthly installments of 20,834 shares. The agreement
has expired and we do not plan to enter into a new agreement.

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

         None of the members of the Compensation Committee of our Board of
Directors (the "Committee") served as an officer or employee during the fiscal
year ended June 30, 2003.

          BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION


         During the fiscal year ended June 30, 2003, the Compensation Committee
of the Board of Directors did not meet and no new compensation was granted to
any officer. Accordingly, the Compensation Committee has not issued a report on
Executive Compensation for the fiscal year ended June 30, 2003. We currently do
not have a Chief Executive Officer, but an Executive Committee of the Board of
Directors instead. Our highest ranking officer is John Watt, our President, who
receives a salary of $120,000 per year pursuant to a previously existing
arrangement with us.

                               PERFORMANCE TABLE

         The following tables show the cumulative performance for our common
stock over our last five fiscal years compared with the performance of the
Nasdaq Composite and Technology Industry Group Performance Composite. The first
table assumes $100 invested as of June 30, 1998 in our 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
----------------------------------------------------------------------------
     6/30/1998             100               100               100
     6/30/1999             68                142               158
     6/30/2000             528               210                85
     6/30/2001             690               113                54
     6/30/2002             235               78                 30
     6/30/2003             292               87                 32





                                       40
<PAGE>


<TABLE>
<CAPTION>

                         Tengtu            Change
                          Stock          from prior                            Calculated
       Date               Price            period             % chg.             Return
----------------------------------------------------------------------------------------------
   <S>               <C>                <C>                 <C>            <C>
     6/30/1998            0.19                                 Base               100
     6/30/1999            0.13              -0.06            -31.58%               68
     6/30/2000            1.01              0.88             676.92%              528
     6/30/2001            1.32              0.31              30.69%              690
     6/30/2002            0.45              -0.87            -65.91%              235
     6/30/2003            0.56              0.11              24.44%              292

                         NASDAQ            Change
                        Composite        from prior                            Calculated
       Date               Index            period             % chg.             Return
----------------------------------------------------------------------------------------------
     6/30/1998            1895                                 Base               100
     6/30/1999            2686               791              41.74%              142
     6/30/2000            3967              1281              47.69%              210
     6/30/2001            2130              -1837            -46.31%              113
     6/30/2002            1463              -667             -31.31%               78
     6/30/2003            1623               160              10.94%               87

                        Industry
                          Group            Change
                       Performance       from prior                            Calculated
       Date            Technology          period             % chg.             Return
----------------------------------------------------------------------------------------------
     6/30/1998            1123                                 Base               100
     6/30/1999            1773               650              57.88%              158
     6/30/2000             959              -814             -45.91%               85
     6/30/2001             608              -351             -36.60%               54
     6/30/2002             343              -265             -43.59%               30
     6/30/2003             366               23               6.71%                32


</TABLE>



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth information furnished to us with respect
to the beneficial ownership of Common Shares by each executive officer and
Director named below, and by all Directors and executive officers as a group,
each as of July 1, 2003. Unless otherwise indicated, each of the persons listed
has sole voting and dispositive power with respect to the shares shown as
beneficially owned.

<TABLE>
<CAPTION>


                                                                 AMOUNT AND NATURE
                                                                   OF BENEFICIAL
TITLE OF CLASS                  NAME OF BENEFICIAL OWNER             OWNERSHIP                % OF CLASS
--------------                  ------------------------             ---------                ----------
<C>                          <C>                                 <C>                         <C>
$.01 par common                 William O.S. Ballard(1)             17,285,238                   23.5%
$.01 par common                 Jing Lian(2)                         1,170,750                    1.8%
$.01 par common                 John Watt (3)                          112,000                    *
$.01 par common                 Fan Qi Zhang (4)                     2,537,714                    3.8%
$.01 par common                 John McBride                           416,000                    *
$.01 par common                 Bin Huang                                    0                    0
$.01 par common                 Shenxing Yao(5)                        120,000                    *
$.01 par common                 Peter Ji                                     0                    0


----------------------------------------------------------------------------------------------------------
Total                                                               21,521,702                   29.9%

<FN>
* Less than 1%
----------
Notes:
(1)  Orion Capital Incorporated owns Mr. Ballard's shares which include 640,000
     warrants, exercisable at $0.75 per share, 333,334 warrants with an exercise
     price of $1.20 per share and 595,465 warrants exercisable at $0.75 per
     share. Includes 70,000 Common Shares pledged to Orion as security for a
     loan made by it to a Tengtu officer and director. Mr. Ballard disclaims
     beneficial ownership as to these shares. .
(2)  Includes 300,000 shares of common stock issuable upon exercise of stock
     options at $0.218 per share granted on March 29, 1999 under the Company's
     Incentive Stock Option Plan.


                                       41



<PAGE>


(3)  Includes 77,000 shares of common stock issuable upon exercise of stock
     options at $0.218 per share granted on March 29, 1999 under the Company's
     Incentive Stock Option Plan.
(4)  Includes 500,000 shares of common stock issuable upon exercise of share
     purchase warrants acquired in a financing which closed in July, 2002.
(5)  Includes 120,000 shares of common stock issuable upon exercise of warrants
     at $1.353 per share granted for consulting services in 2001.
</FN>
</TABLE>

         The following table shows the holdings of all persons who are not
executive officers, Directors or nominees, known by us to beneficially own more
than five percent of our outstanding common stock as of July 1, 2003.


<TABLE>
<CAPTION>

                                                          AMOUNT AND NATURE
                                                            OF BENEFICIAL
TITLE OF CLASS             NAME OF BENEFICIAL OWNER          OWNERSHIP        % OF CLASS
--------------             ------------------------          ---------        ----------
<S>                    <C>                                <C>                 <C>
$.01 par common          Orion Capital Incorporated(1)       17,285,238           23.5%

$.01 par common          Pat Kwan Cheung(2)                   4,170,750           6.5%

<FN>
----------
Notes:
(1)  Includes 70,000 shares of common stock owned by an officer and director,
     which are pledged as collateral for a mortgage Orion has on a residence
     recently purchased by him. Orion has disclaimed any beneficial interest in
     those common shares.
(2)  Includes 300,000 shares of common stock issuable upon exercise of stock
     options at $0.218 per share.
</FN>
</TABLE>


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

         Tengtu China, our agent, carries out our operations and collection of
receivables. Fan Qi Zhang, one of our Directors, controls Tengtu China. As of
June 30, 2003, Tengtu United has an amount due from a related party, Tengtu
China, of approximately $18,193,007.

         During fiscal 2003, 2002 and 2001, respectively, we incurred consulting
and related expenses of approximately $386,637, $865,000, and $830,000 from
officers and Directors or companies controlled by these officers and Directors.
$386,637, $356,192 and $375,504 were paid for the years ended June 30, 2003,
2002 and 2001, respectively.

         We have entered into consulting agreements to secure the services of
certain officers and Directors. See "Directors and Executive Officers".

         On June 6, 2002, we closed a loan agreement with Quest Ventures, Ltd.
for a $4,000,000 loan. Pursuant to the terms of the loan agreement, we issued a
$4,000,000 promissory note to Quest due November 30, 2002 with an interest rate
of 12%. The note was secured by a general security interest in all of our
assets. The note was also secured by 10,015,812 Common Shares pledged by Orion
Capital Incorporated, a guarantee from Orion limited to the pledged stock and a
personal guarantee from William O.S. Ballard as to $2,500,000. Mr. Ballard is
one of our Directors and the owner of Orion. Neither Mr. Ballard, nor Orion,
received any consideration for their pledge of common stock or guarantees. The
Quest loan was, in part, a bridge loan until the closing of the private
placement on June 20, 2002. Pursuant to the terms of the loan agreement and
note, we repaid the $2,500,000 personally guaranteed by Mr. Ballard by July 5,
2002 which extinguished the personal guarantee. The balance of $1,500,000 was
paid out from proceeds financing transactions. We used the Quest loan proceeds
to fund CBERC and LBERCs start-up and portal building and development costs.

         Pursuant to a December 21, 2001 letter of intent, as amended by a loan
agreement on July 22, 2002, we acquired the rights to use and license the
following software products owned by Lifelong.com, Inc.: NeuraLab and Blast Off.
Pursuant to the terms of the July 22, 2002 loan agreement, we loaned CDN $55,000
to Lifelong.com, Inc. Pursuant to that agreement, if Lifelong did not repay the
loan within six months, or there was a default in the payment of interest for
more than two months, we would own all rights to the software mentioned above.

         Because Lifelong.com, Inc. required additional capital to complete
development of NeuraLab, Orion Capital Incorporated , a company wholly owned by
William O.S. Ballard, Chairman of our Board of Directors, advanced an additional
CDN$145,000 to Lifelong.com, Inc. on August 20, 2002. In exchange for the
advance, Lifelong.com, Inc. agreed to transfer to Orion all of its right title
and interest in NeuraLab, subject to the encumbrance of the July 22, 2002 loan
agreement which allows us to use and license the software.

         The Lifelong loan agreement was amended and restated as of November 29,
2002 at which time, Lifelong granted us a lien on substantially all of its
property and assets through a general security agreement to secure a total of
$75,000 in advances made by Orion Capital Incorporated, through us, to that
date.

                                       42



<PAGE>


         On December 31, 2002, we assigned the Lifelong loan agreements and
general security agreement to Orion while retaining all right, title and
interest to the Lifelong software products. On June 6, 2003, in consideration of
additional software development services, we entered into a software license
agreement with Lifelong, pursuant to which we have a royalty free right to use,
copy, reproduce, modify, enhance, sell, distribute, maintain, create derivative
works and commercially exploit the Lifelong software and any future developments
relating to that software in all countries of the world where Chinese is the
predominantly spoken language. Our rights to the software are subject only to
the general security agreement held by Orion.

         From time to time, Orion Capital Incorporated has made interest free
advances to us to fund our operations. On June 20, 2002, in satisfaction of
Orion's advances to that date ($541,332), we issued Orion 541,332 units
consisting of two Special Warrants each pursuant to a private placement which
closed on that date. On or about April 24, 2003, we repaid Orion $250,000 of a
total of $890,000 of outstanding advances on that date. On May 4, 2003, we
issued Orion 640,000 units consisting of two Special Warrants each in
satisfaction of the remaining $640,000 in advances from Orion outstanding on
that date. Each Special Warrant is convertible, for no additional consideration,
into two shares of our common stock and a share warrant to purchase one share of
our common stock for $0.75.

         On July 30, 2002 we sold 1,000,000 shares of common stock and 500,000
attached warrants to Fan Qi Zhang in a private placement for $500,000.

         On September 15, 2003 we entered into the Restructuring Agreement with
Fan Qi Zhang and entities owned or controlled by him. See "Restructuring,"
above.

ITEM 14.     PRINCIPAL ACCOUNTING FEES AND SERVICES.

       NOT APPLICABLE.

ITEM 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

       (a)(1) FINANCIAL STATEMENTS

         The following financial statements of Tengtu International Corp. are
         included:


         Consolidated balance sheets at June 30, 2003 and 2002

         Consolidated statements of operations and comprehensive income (loss)
for each of the three years in the period ended June 30, 2003

         Consolidated statements of shareholders' equity for each of the three
years in the period ended June 30, 2003

         Consolidated statements of cash flows for each of the three years in
the period ended June 30, 2003



       (2) OTHER SCHEDULES

       All other schedules are omitted since the required information is not
       present or is not present in an amount sufficient to require submission
       of schedules, or because the information required is included in the
       financial statements and notes thereto.

       (3) EXHIBITS

       See (c) below.

       (b) REPORTS ON FORM 8-K

       We did not file any reports on Form 8-K in the quarter ended June 30,
       2003.



                                       43




<PAGE>

       (c) EXHIBITS


3.1      Articles of Incorporation (filed as part of our Form 10 filed on May
         25, 2000 and incorporated herein by reference);

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

4.3      Form of Special Warrant issued to investors in a private placements
         which closed in June, 2002 through May, 2003 (filed as part of our Form
         10-K filed on October 15, 2002 and incorporated herein by reference);

10.1     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 our Form 10-Q filed on
         November 14, 2000 and incorporated herein by reference);

10.2     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 our Form 10-Q filed on
         November 14, 2000 and incorporated herein by reference);

10.10    Tengtu United Joint Venture Agreement and the amendment thereto (filed
         as part of our Form 10 filed on May 25, 2000 and incorporated herein by
         reference);

10.12    Consulting agreement between Comadex Industries, Ltd. and Tengtu (filed
         as part of our Form 10 filed on May 25, 2000 and incorporated herein by
         reference);

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

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

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

10.16    Top Eagle Holdings, Ltd. Common Stock Warrant (filed as part of our
         Form 8-K dated December 23, 1999 and Incorporated herein by reference);

10.17    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 our Form 10-Q filed on May
         15, 2001 and incorporated herein by reference);

10.19    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 us (filed as part of our Form 10-Q
         filed on May 15, 2001 and incorporated herein by reference);

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

10.21    Additional Supplemental Agreement between Tengtu China and us dated
         April 25, 2001 (filed as part of our Form S-1/A filed on August 7, 2001
         and incorporated herein by reference);

10.22    ShanDong Province Cooperation Agreement dated August 17, 2001 (English
         translation) (filed as part of our Form 10-K on September 28, 2001 and
         incorporated herein by reference);


                                       44



<PAGE>



10.24    December 21, 2001 Agreement between Tengtu International Corp. and
         Lifelong.com, Inc. (filed as part of our Form 10-Q filed on May 20,
         2002 and incorporated herein by reference);

10.25    English Translation of Cooperation Agreement effective September 1,
         2001 between the Ministry of Education of the ShanDong Province and
         Beijing Tengtu Tian Di Network Co., Ltd. (filed as part of our Form
         10-Q filed on May 20, 2002 and incorporated herein by reference);

10.26    English Translation of September 18, 2001 Memorandum of Cooperation,
         Establishment of Shaanxi Provincial Education Resources Center by and
         among Li Gen Juan, Director of Shaanxi Provincial Center for
         Audio/Visual Education, Suan Pai Yau, Tin Pang and Wu Oi Juan, Deputy
         Directors of Shaanxi Provincial Center for Audio/Visual Education, and
         Lin Xiao Feng, President of Tengtu Culture & Education Electronics
         Development Co., Ltd. (filed as part of our Form 10-Q filed on February
         19, 2002 and incorporated herein by reference);

10.27    English Translation of Cooperation Agreement between the Center for
         Audio/Visual Education, Department of Education, Fujian Province and
         Tengtu TianDi Network Co., Ltd. (filed as part of our Form 10-Q filed
         on May 20, 2002 and incorporated herein by reference);

10.29    July 22, 2002 Supplemental Agreement between Tengtu International Corp.
         and Lifelong.com, Inc. (filed as part of our registration statement on
         Form S-1 filed on August 14, 2002 and incorporated herein by
         reference);

10.30    English Translation of July 22, 2002 Cooperation Agreement between the
         National Center for Audio and Visual Education and Beijing Jiade Tengtu
         Science and Technology Group Companies (filed as part of our
         registration statement on Form S-1 filed on August 14, 2002 and
         incorporated herein by reference);

10.31    English translation of December 18, 2002 Framework Agreement between
         Shaanxi Provincial Center for Audio Visual Education and Beijing Tengtu
         TianDi Network Co., Ltd. (filed as part of our registration statement
         on Form S-1 filed on August 14, 2002 and incorporated herein by
         reference);

10.32    Amended understanding between Tengtu China and Tengtu International
         Corp. Governing Activities in China Relating to Operation Morning Sun
         National Center For Audio/Visual Education and the Ministry of
         Education, dated as of April 25, 2001 (filed as part of our
         registration statement on Form S-1 filed on August 14, 2002 and
         incorporated herein by reference);

10.33    English translation of Cooperation Agreement between the Agriculture
         Bank of China and Beijing Jiade Tengtu Scientific and Technology Group
         entered into in September, 2002 (filed as part of our Form 10-K/A filed
         on February 20, 2003 and incorporated herein by reference);

10.34    English translation of Strategic Cooperation Agreement dated July 16,
         2002 between Lan Chao (Beijing Electronics Information Industry Co.,
         Ltd.) and Beijing Tengtu Science & Technology Group Co., Ltd. (filed as
         part of our Form 10-K/A filed on February 20, 2003 and incorporated
         herein by reference);

10.35    English version of January 1, 2003 Amendment to Joint Venture Agreement
         between Tengtu International Corp. and Tengtu China. (filed as part of
         our Form 10-Q filed on March 19, 2003 and incorporated herein by
         reference).

10.36    September 15, 2003 Restructuring Agreement (filed as exhibit 10.1 to
         our Form 8-K/A filed on September 18, 2003 and incorporated herein by
         reference);

11.1     Statement re: Computation of Per Share Earnings for the Fiscal Years
         Ended June 30, 2003 and 2002;

12.1     Statement re: Computation of Ratios for the Fiscal Years Ended June 30,
         2003, 2002 and 2001;

21.1     List of Subsidiaries;




                                       45




<PAGE>


31.1     Certification of John D. Watt pursuant to Exchange Act Rules 13a-14(a)
         and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
         Act of 2002;

31.2     Certification of Judy Ye pursuant to Exchange Act Rules 13a-14(a) and
         15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
         of 2002;

32.1     Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
         to Section 906 of the Sarbanes-Oxley Act of 2002.



                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                TENGTU INTERNATIONAL CORP.

                                                 By: /S/ John D. Watt
                                                ------------------
                                                John D. Watt
                                                President

Dated:   October 14, 2003

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.

/S/ JUDY YE
-------------------------------     October 14, 2003
Judy Ye
Chief Financial Officer


/S/ FAN QI ZHANG
-------------------------------     October 14, 2003
Fan Qi Zhang
Director


/S/ WILLIAM O.S. BALLARD
-------------------------------     October 14, 2003
William O.S. Ballard
Director


/S/ JOHN McBRIDE
-------------------------------     October 14, 2003
John McBride
Director


/S/ BIN HUANG
-------------------------------     October 14, 2003
Bin Huang
Director


/S/ SHENXING YAO                    October 14, 2003
-------------------
Shenxing Yao
Director


                                       47

<PAGE>

                   TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES

                          INDEX TO FINANCIAL STATEMENTS

                                    CONTENTS


Report of independent auditors                                               F-1

Consolidated balance sheets at June 30, 2003 and 2002                        F-2

Consolidated statements of operations
     for each of the three years in the
     period ended June 30, 2003                                              F-3

Consolidated statements of stockholders' equity for each of
     the three years in the period ended June 30, 2003                       F-4

Consolidated statements of cash flows for each of the three
     years in the period ended June 30, 2003                                 F-5




Notes to consolidated financial statements                            F-6 - F-26







<PAGE>


                          INDEPENDENT AUDITOR'S REPORT



TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
TENGTU INTERNATIONAL CORP.


We have audited the accompanying consolidated balance sheets of Tengtu
International Corp. and its subsidiaries as of June 30, 2003 and 2002 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the fiscal three years in the period ended June 30, 2003.
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, 2003 and 2002, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended June 30, 2003 in conformity with accounting principles generally
accepted in the United States of America.


                                                  Moore Stephens, P.C.
                                                  Certified Public Accountants
                                                  New York, New York
                                                  September 1, 2003, except
                                                  for Note 17, as to which
                                                  the date is September 15, 2003






                                      F-1
<PAGE>
<TABLE>
<CAPTION>


                   TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                                             JUNE 30,
                                     ASSETS
CURRENT ASSETS                                          2003          2002
                                                       -----          ----
<S>                                                <C>             <C>
    Cash and cash equivalents                      $    183,802    $    914,838
    Due from related party                            3,593,607       2,579,157
    Prepaid expenses                                    811,269       1,016,958
    Other receivables                                   154,011          22,197
                                                   ------------    ------------
  Total Current Assets                                4,742,689       4,533,150
                                                   ------------    ------------
PROPERTY AND EQUIPMENT, net                              82,688         222,460
                                                   ------------    ------------

OTHER ASSETS
  Due from Related Party                             14,497,209      14,497,209
    Notes receivable                                     11,881          11,881
    Long-term Investment                              4,392,793       4,469,600
    Restricted Cash                                        --         4,000,000
                                                   ------------    ------------
                                                     18,901,883      22,978,690
                                                   ------------    ------------
TOTAL ASSETS                                       $ 23,727,760    $ 27,734,300
                                                   ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable                                $    752,647    $  1,092,231
   Accrued expenses                                       1,446         301,127
   Due to related party consultants                   1,207,714       2,012,522
   Short-term loan                                    1,454,404       1,883,428
   Other liabilities                                    550,310         434,644
                                                   ------------    ------------
      Total Current Liabilities                       3,966,520       5,723,952
                                                   ------------    ------------

OTHER LIABILITIES
   Long-term debt                                          --         3,744,800
   Convertible debentures, net of discount                 --         1,360,585
                                                   ------------    ------------
                                                           --         5,105,385
                                                   ------------    ------------

COMMITMENTS [Note 9]

STOCKHOLDERS' EQUITY
 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
   60,265,292 shares (2002-54,201,609);
   outstanding 60,186,872 shares
    (2002-54,123,189)                                   601,869         541,232
 Additional paid in capital                          34,937,162      30,281,737
 Accumulated deficit                                (15,848,767)    (13,899,433)
 Accumulated other comprehensive income (loss):
  Cumulative translation adjustment                     (17,958)        (17,788)
                                                   ------------    ------------
                                                     19,672,306      16,905,748
Less: Treasury stock, at cost,
   78,420 common shares                                    (784)           (784)
                                                   ------------    ------------
  Total Stockholders' Equity                         19,671,522      16,904,963
                                                   ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY         $ 23,638,042    $ 27,734,300
                                                   ============    ============



The accompanying notes are an integral part of these
consolidated financial statements
</TABLE>


                                      F-2
<PAGE>

<TABLE>
<CAPTION>


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


                                             2003           2002           2001
                                             -----          -----          ----
                                                                         RESTATED

<S>                                         <C>           <C>             <C>
SALES                                       5,343,783     14,255,417      5,566,039
COST OF SALES                               3,365,836      5,042,285      3,155,843
                                           ----------------------------------------
                                            1,977,947      9,213,132      2,410,196
                                           ----------------------------------------

OPERATING EXPENSES
   Research and development                      --          971,111           --
   General and administrative               1,924,695      2,511,430      2,014,899
   Related party consultants                  488,877        865,202        829,772
   Collection Provision                       119,337        444,031        163,684
   Advertising                                 16,891         31,885         39,406
   Selling                                  1,387,135      1,837,924        602,132
   Depreciation                                64,036         81,741         55,910
                                           ----------------------------------------
                                            4,000,971      6,743,324      3,705,803
                                           ----------------------------------------

   Operating Income                        (2,023,024)     2,469,808     (1,295,607)

OTHER INCOME (EXPENSE)
   Equity earnings (loss) in investee         (76,807)          --          219,488
   Interest income                            250,615          3,871         13,100
   Interest expense                          (477,054)      (254,029)      (176,111)
   Other income                             1,257,877      2,045,902        947,692
   Other expense                             (704,801)      (263,352)        (1,731)
                                           ----------------------------------------
                                              249,830      1,532,392      1,002,438
                                           ----------------------------------------
Income (Loss) before minority interests    (1,773,194)     4,002,201       (293,169)


INCOME TAX                                                      --             --

INCOME (LOSS) BEFORE MINORITY INTERESTS                    4,002,201       (293,169)

Minority interest in subsidiarys'-
  Income (Loss)                                89,218      2,424,092           --
                                           ----------------------------------------
Net Income (Loss)                          (1,862,412)     1,578,108       (293,169)
                                           ========================================



WEIGHTED AVERAGE NUMBER OF SHARES:
Basic                                      56,800,676     49,880,494     24,977,353
Common stock equivalents                    1,587,512      3,171,912      1,637,441
                                           ----------------------------------------
Diluted                                    58,388,188     53,052,406     26,614,794
                                           ========================================

EARNINGS (LOSS) PER COMMON SHARE:
Basic                                          (0.033)         0.032         (0.012)
Diluted                                        (0.033)         0.030         (0.011)

The accompanying notes are an integral part of these
consolidated financial statements
</TABLE>



                                      F-3
<PAGE>
<TABLE>
<CAPTION>



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

                                                          2003           2002             2001
                                                         -----           -----            ----
                                                                                        RESTATED
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                    <C>             <C>             <C>
Net Income (loss)                                      (1,862,412)     1,578,108       (293,169)
Adjustments to reconcile net income
  (loss) to net cash
 Used by operating activities:
 Depreciation and amortization                            139,772        357,512        286,468
 Loss on investment at equity                              76,807           --             --
 Noncash Gain on Loan forgiveness                                       (236,559)          --
 Noncash financing expenses on shares issued                             187,500         61,259
 Noncash compensation expense on shares
   issued for services                                     50,835        331,115        926,587
 Noncash interest expense -
   convertible debenture                                   93,820         86,555         79,695
 Impaired Assets Write Off                                  2,662        246,732           --
 Changes in operating assets and liabilities:

 Accounts receivable                                                      16,578         19,431
 Due from related party                                (1,014,450)    (6,155,603)    (6,160,337)
 Prepaid expenses                                         205,689       (516,876)      (496,368)
 Inventories                                                               2,452         15,619
 Other receivables                                       (131,814)        73,757        (68,448)
 Advance to director                                                      60,059           --
 Other assets                                                               --           30,454

 Accounts payable                                        (339,584)       133,209       (731,636)
  Accrued expenses                                       (299,681)        28,822        (38,476)
   Due to related party consultants                      (175,319)       387,496        270,011
   Other liabilities                                      115,666        (16,655)       131,252
                                                      -----------------------------------------
   Net Cash Used by Operating Activities               (3,138,009)    (3,435,798)    (5,967,658)
                                                      -----------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Investing in Related Parties                                       (4,590,302)          --
   Long-term Investment                                               (4,469,600)          --
   Compensating deposit on bank loan                    4,000,000     (4,000,000)          --
   Purchase of property and equipment                                    (34,447)        (5,013)
                                                      -----------------------------------------
   Net Cash Used by Investing Activities              (13,094,349)     4,000,000         (5,013)
                                                      -----------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from Short-term loans                         753,717      1,883,428      2,107,000
   Cash paid on  from Long-term loans                  (3,744,800)     3,744,800           --
   Cash paid on short-term loan                        (1,999,200)       (94,150)          --
   Cash received for shares and options issued          3,394,238     10,891,082      3,978,200
                                                      -----------------------------------------
Net Cash Provided by Financing Activities              (1,596,045)    16,425,160      6,085,200
                                                      -----------------------------------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                     3,019         (6,575)        (5,220)
                                                      -----------------------------------------

 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS        (731,035)      (111,562)       107,309
                                                      -----------------------------------------

 CASH AND CASH EQUIVALENTS, beginning of the period       914,838      1,026,400        919,091

CASH AND CASH EQUIVALENTS, end of the period              183,803        914,838      1,026,400
                                                      =========================================


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

</TABLE>



                                      F-4
<PAGE>

<TABLE>
<CAPTION>




                   TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
          FOR THE YEARS ENDED JUNE 30, 2003,2002, 2001(RESTATED) , 2000

                                                                                               ACCUMULATED
                                                                                                  OTHER
                                      COMMON STOCK        ADDITIONAL   COMPRE-       ACCUMU-    COMPREHEN-
                                      ------------          PAID-IN    HENSIVE        LATED    SIVE INCOME
                                   SHARES       AMOUNT      CAPITAL   INCOME (LOSS)   DEFICIT     (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


Other Comprehensive Income:
  Foreign currency adjustment          --            0             0       2,583              0     2,583

Comprehensive Income:
  Net loss                             --            0             0  (1,886,399)    (1,886,399)        0

                                                                      ----------
Comprehensive Income                                                  (1,883,816)
                                --------------------------------------==========-------------------------
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       --             --          --

Amortization of deferred
  compensation related to
  stock options and common
  stock for services                  --         --             --          --            --          --
Other Comprehensive Income:
  Foreign currency adjustment         --         --             --         2,583          --        2,583

Comprehensive Income:
  Net loss                            --         --             --    (1,886,399)    (1,886,399)      --
                                                                      ----------
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
  for cash                          963,000      9,630       166,095       --            --           --
Issuance of common stock
  for promissory notes              330,000      3,300        68,640       --            --           --
Issuance of common stock
  for services                    3,120,000     31,200       733,800       --            --           --

Amortization of deferred
  compensation related to
  stock options and common
  stock for services                 --         --             --          --            --          --
Issuance of common stock
  options for services -
  at fair value                      --         --             --          --            --          --

Paid-in capital related to
  convertible debenture           1,153,846     --             --          --            --          --
Paid-in capital related to
  detachable warrant-
  debenture                         346,154     --             --          --            --          --
Other Comprehensive Income:
  Foreign currency adjustment         --        --             --            536         --           536

Comprehensive Income:
  Net loss                            --         --             --    (4,701,285)    (4,701,285)     --

Comprehensive Income
                                -------------------------------------------------------------------------
Balance - June 30, 2000          23,890,607    238,907    11,871,444  (4,700,749)   (15,184,372)   (6,216)
                                =========================================================================


Issuance of common stock            636,871      6,369       140,144      --             --          --

Loan conversion                   7,301,526     73,015     2,139,400      --             --          --

Issuance of common stock
   for cash                      13,260,669    132,606     3,845,592      --             --          --

Paid-in capital related to
  granted options & services        --           --          214,908      --             --          --

Common Shares
  To be issued for interest
  expense                           --           --           56,515      --             --          --

Paid-in capital related to
  warrents issued                   --           --          564,466      --             --          --
Other Comprehensive Income:
  Foreign currency adjustment       --           --          --           (4,998)        --        (4,998)

Comprehensive Income:
  Net Income                        --           --          --         (293,169)      (293,169)     --

Comprehensive Income
                                -------------------------------------------------------------------------
Balance - June 30, 2001          45,089,673    450,897    18,832,469    (298,167)   (15,477,541)  (11,214)
                                =========================================================================

Issuance of common stock
  for services                      360,008      3,600       300,058     --             --          --

Loan conversion                      43,011        430        21,075     --             --          --

Issuance of common stock
  for financing and interest
  expenses                          495,000      4,950       242,550

Issuance of common stock          8,060,497     80,605     7,751,995     --             --          --
  for cash net of financing
  expenses

Issuance of common stock
  for options & services             75,000        750        18,000     --             --          --

Common Shares
  To be issued for cash &
  options                             --        --         3,058,482     --             --          --

Paid-in capital related to
  service                             --        --            57,107     --             --          --

  Foreign currency adjustment         --        --             --         (6,574)       --         (6,574)

Comprehensive Income:
  Net income                          --        --             --      1,578,108      1,578,108     --

Comprehensive Income
                                -------------------------------------------------------------------------
Balance - June 30, 2002          54,123,189    541,232    30,281,736   1,571,534    (13,899,433)  (17,788)
                                =========================================================================

Issuance of common stock
  for services                      125,004      1,250        50,836     --             --          --

Issuance of common stock from
  exercise of warrants            3,178,679     31,787      (58,724)     --             --          --

Issuance of common stock
  for cash                        2,760,000     27,600     1,326,357     --             --          --

Foreign currency adjustment          --         --           --             (170)       --           (170)

Issuance of common stock
            for Special Warrants                --         2,707,468      --            --          --

Paid-in capital adjustment
  for deferred compensation                                  629,488

Comprehensive Income(Loss)                                            (1,862,412)    (1,862,412)

                                -------------------------------------------------------------------------
BALANCE - JUNE 30, 2003          60,186,872    601,869    34,937,161  (1,862,582)   (15,761,845)  (17,958)
                                =========================================================================





                                 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, 1998                (784)  (476,563)      504,251

Issuance of common stock
  related to deferred
  compensation                         --         --          10,063

Amortization of deferred
  compensation related to
  stock options and common
  stock for services                   --      293,750       293,750
Other Comprehensive Income:
  Foreign currency adjustment          --        --            2,583

Comprehensive Income:
  Net loss                             --        --       (1,886,399)



Comprehensive Income

Balance - June 30, 1999                (784)  (182,813)   (1,075,752)


Issuance of common stock
  for cash                             --        --          175,725
Issuance of common stock
  for promissory notes                 --        --           71,940
Issuance of common stock
  for services                         --        --          765,000

Amortization of deferred
  compensation related to
  stock options and common
  stock for services                   --      182,813       182,813
Issuance of common stock
  options for services -
  at fair value                        --       --             --

Paid-in capital related to
  convertible debenture                --       --         1,153,846
Paid-in capital related to
  detachable warrant-
  debenture                            --       --           346,154
Other Comprehensive Income:
  Foreign currency adjustment          --       --               536

Comprehensive Income:
  Net loss                             --       --        (4,701,285)

Comprehensive Income

                                ------------------------------------
Balance - June 30, 2000                (784)    --        (3,081,021)
                                ====================================

Issuance of common stock              --       --            146,513

Loan conversion                       --       --          2,212,415

Issuance of common stock for cash     --       --          3,978,198

Paid-in capital related to
  granted options & services          --       --            214,908

Common Shares
  To be issued for interest expense   --       --             56,515

Paid-in capital related to
  warrents issued                     --       --            564,466
Other Comprehensive Income:
  Foreign currency adjustment         --       --             (4,998)

Comprehensive Income:
  Net Income                          --       --           (293,169)

Comprehensive Income
                                ------------------------------------
Balance - June 30, 2001                (784)   --          3,793,827
                                ====================================

Issuance of common stock
  for services                       --       --             303,658

Loan conversion                      --       --              21,505

Issuance of common stock
  for financing and interest
  expenses                                                   247,500

Issuance of common stock for cash    --       --           7,832,600
  net of financing expenses

Issuance of common stock
  for options & services             --       --              18,750

Common Shares
  To be issued for cash & options    --       --           3,058,482

Paid-in capital related to service                            57,107

  Foreign currency adjustment        --       --              (6,574)

Comprehensive Income:
  Net income                         --       --           1,578,108

Comprehensive Income
                                ------------------------------------
Balance - June 30, 2002                (784)  --          16,904,963
                                ====================================

Issuance of common stock
  for services                      --       --               52,086

Issuance of common stock from
  exercise of warrants                                       (26,937)

Issuance of common stock
  for cash                          --       --            1,353,957

Foreign currency adjustment         --       --                 (170)

Issuance of common stock
            for Special Warrants    --       --            2,707,468

Paid-in capital adjustment
  for deferred compensation                                  629,488

Comprehensive Income(Loss)                                (1,862,412)

                                ------------------------------------
BALANCE - JUNE 30, 2003                (784)         0    19,758,444
                                ====================================



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

</TABLE>




                                      F-5
<PAGE>




                          NOTES TO 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, are the development and marketing of e-educational system software
and sourcing and distribution of e-education course content in China.

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.

Tengtu's business is focused on China through a joint venture entity, Tengtu
United China ("TUC"), in which Tengtu has a 57% equity interest. According to
the terms of the joint venture agreement, Tengtu is allocated 57% and Beijing
Tengtu Culture and Education Electronics Co., Ltd. ("Tengtu China"), its joint
venture partner, 43% of the profits of TUC. Tengtu, however, is entitled to 100%
of any distributed profits of TUC until all of Tengtu's capital contributions
are repaid. Thereafter, Tengtu would be entitled to 57% of the distributed
profits and Tengtu China would be entitled to 43%. Tengtu is also responsible
for 100% of the losses incurred by the joint venture entity. Tengtu China acts
as agent for TUC through a series of agreements which sets out the nature of
this agency relationship. Many of TUC's material contracts are in the name of
Tengtu China, as are virtually all of the assets utilized to operate TUC.
Although Tengtu and its joint venture entity do not directly own or operate any
of the material assets, nor are they a party to many of the material contracts,
TUC retains beneficial interest in and control over the material assets and
material contracts by virtue of its agency relationship with Tengtu China. As a
result of the control and its majority equity interest in the joint venture,
Tengtu consolidates its financial statements with TUC.



                                      F-6
<PAGE>


The Company contributed capital of $20,430,000 to TUC. No portion of the
$20,430,000 has been allocated to the minority as the joint venture agreement
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 interest that is in excess of the minority's interest
in the equity capital of the joint venture, including any guarantees or
commitments from the minority venturer for further capital contributions.

In the case of TUC, 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 TUC 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, 2003 and 2002,
and reported amounts of revenues and expenses during each of the three fiscal
years ended June 30, 2003. Actual results could differ from those estimates.

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.



                                      F-7
<PAGE>


d)       LONG-LIVED ASSETS

Long-lived assets are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The Statement requires that long-lived assets to
be disposed of other than by sale be considered held and used until they are
disposed of. SFAS No. 144 requires that long-lived assets to be disposed of by
sale be measured at the lower of carrying amounts or fair value less cost to
sell and to cease depreciation (amortization). SFAS No. 144 requires a
probability-weighted cash flow estimation approach in situations where
alternative courses of action to recover the carrying amount of a long-lived
asset are under consideration or a range of possible future cash flow amounts
are estimated. Additionally, goodwill will no longer be required to be allocated
to long-lived assets to be tested for impairment.

Property and equipment are stated at cost. Depreciation is provided primarily by
the straight-line method over the estimated useful lives of the assets.

e)       CASH EQUIVALENTS

The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents. The Company had no cash
equivalents at June 30, 2003 and 2002.

f)       INCOME TAXES

The Company accounts for income taxes in accordance with 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 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.

g)       INCOME/LOSS PER SHARE

Income or loss per common and common equivalent share is computed based on the
weighted average number of common shares outstanding. Due to the anti-dilutive
effect of the assumed exercise of outstanding common stock equivalents at June
30, 2003 and 2001, loss per share does not give effect to the exercise of these
common stock equivalents in that year, but they are dilutive for the year ended
June 30, 2002.



                                      F-8
<PAGE>


h)       ADVERTISING EXPENSE

The Company expenses advertising costs as incurred.

i)       FOREIGN CURRENCY TRANSACTIONS/TRANSLATION

The functional currency of the Company's subsidiary and joint venture in China
is the Chinese renminbi ("RMB"). The Company's Canadian subsidiary uses the
Canadian dollar as its functional currency and its Hong Kong subsidiary used the
Hong Kong dollar as its functional currency until the subsidiary was dissolved
during the year ended June 30, 2002. 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.

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.

j)       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.

k)       STOCK-BASED COMPENSATION

The Company applies 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 continues 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.


                                      F-9
<PAGE>


l)       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 under the straight-line method over the lesser of five years or the
useful life of the related product. During the year ended June 30, 2003,
approximately $178,500 was capitalized and is being amortized over its estimated
useful life of two years. Amortization for the year was approximately $66,460
and is included in the cost of sales. The remaining balance of approximately
$112,100 is included in prepaid expenses. As of June 30,2003, $112,088 was
capitalized for the costs related to Portal production and is being amortized
over its estimated useful life of two years.

m)       LONG TERM INVESTMENT

Tengtu China has entered into a joint venture, the China Broadband Education
Resource Center ("CBERC"), with a division of the Chinese Ministry of Education
on behalf of TUC. CBERC is established for the transmission of various
educational tools to individual schools for an annual fee.

Tengtu China is also forming joint ventures with various Chinese Provinces on
behalf of TUC. One of these has already been formed in Shanxii and three others
are in the process of being organized. Each of these joint ventures is a Local
Broadband Education Resource Center ("LBERC"). They will connect to CBERC and
will contain their own educational and other materials mandated by the
Provinces. This content will also be transmitted to individual schools for an
annual fee.

The Company, through TUC, has advanced $4,469,600 for the formation of CBERC and
the LBERCs. For CBERC and the Shanxii LBERC, Tengtu China is the majority owner
and it is anticipated that it will be the majority owner of every LBERC to be
formed. CBERC did not have material operations during the year ended June 30,
2003. Shanxii LBERC was established at the end of fiscal 2002 and incurred an
equity loss of $76,807 for the year ended June 30, 2003 .

3.       PROPERTY AND EQUIPMENT

Property and equipment is comprised as follows:

                                                            JUNE 30,
                                                    2003                2002
                                                      $                 $
     Computer hardware                              63,203             59,778
     Computer software                                   0                  0
     Furniture and fixtures                          8,755              8,755
     Automobiles                                   206,553            206,553
     Office equipment                               67,198             67,198
     Idle equipment                                      -                  -
     Production equipment                        1,052,868          1,052,868
                                                ----------         ----------
     Total at Cost                               1,398,577          1,395,152
     Less: accumulated depreciation             (1,315,889)        (1,172,692)
                                                ----------         ----------
     Net Property and Equipment                     82,688            222,460
                                                ==========         ==========



                                      F-10
<PAGE>


Depreciation charged to operations for the years ended June 30, 2003, 2002 and
2001 was $122,413, $357,512, and $261,471, respectively, of which $58,377,
$248,072, and $192,342 was included in cost of sales for the years ended June
30, 2003, 2002 and 2001, 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 cost of the agreement of $125,000 was to be amortized
on a straight-line basis over five years. During the year ended June 30, 2002,
this license was determined to have no remaining value, and the balance of the
asset was amortized immediately. Amortization for the years ended June 30, 2002
and 2001 was $100,000 and $25,000, respectively. No license fee was recorded for
the year ended June 30, 2003.


5.       SHORT-TERM DEBT

At June 30, 2003, short-term debt consists of the current portion of the
long-term debt described in Note 6. At June 30, 2002, short-term debt consisted
of $1,749,200, which represented the balance of a bridge loan of $4,000,000 from
Quest, and an advance of $134,228 from Orion Capital Incorporated ("Orion"), the
Company's largest shareholder. The Quest loan, which was paid on its due date of
November 30, 2002, earned interest at 12% annually, compounded monthly. The loan
was collateralized by a security interest in all of the Company's property and a
pledge of 10,015,812 of the Company's common stock owned by Orion. Orion also
guaranteed the loan. The advance from Orion was made to the Company for working
capital purposes. The advance, which was due on demand and was interest free,
was paid back during the current year.



                                      F-11
<PAGE>



6.       LONG-TERM DEBT

Pursuant to a $1,500,000 convertible debenture issued to Top Eagle Holdings,
Ltd. ("Top Eagle") in December 1999 and due December 2003, the Company makes
quarterly interest payments at a rate equal to the best lending rate of The Hong
Kong and Shanghai Banking Corporation plus two percent (approximately 7% at
June 30, 2003 and June 30, 2002, respectively).

          During the fiscal quarter ended March 31, 2002, the Company defaulted
on its quarterly interest payment to Top Eagle which was due on December 15,
2001. While the amount due was subsequently paid, the failure to timely pay
interest is an "Event of Default" which gives Top Eagle the right, at its
option, and in its sole discretion, to consider the Debenture immediately due
and payable, without presentment, demand, protest or notice of any kind. Upon an
Event of Default, the amounts due under the Debenture may be paid in cash, or
stock, at the prevailing conversion price set forth in the Debenture.

           As of the date of this report, Top Eagle has not taken any action
based on any Event of Default. However, it has the right to do so at any time.


         On June 26, 2002, the Company borrowed approximately $3,745,000 in
Chinese renminbi from Min Sheng Bank (of China). This line of credit bore
interest at 5.58%, was payable in full on June 26, 2007 and was fully secured by
$4,000,000 in restricted US dollar denominated deposit ("the deposit") at the
Min Sheng Bank. In June 2003, Min Sheng Bank of China terminated the loan
agreement resulting in the return of the deposit which was used to repay the
RMB31 million (U.S.$3,744,800) long-term loan from Min Sheng Bank.


7.       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 $17,780,000 of net operating losses
that may be used to offset future federal taxable income. The utilization of the
losses expires in years from 2006 to 2022.



                                      F-12
<PAGE>


Due to an ownership change in the year ended June 30, 1996, annual utilization
of approximately $265,000 of the net operating 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, 2003, 2002 and 2001,
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
$5,885,000 at June 30, 2003 and $5,274,000 at June 30, 2002 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 $1,576,000 and $619,500 during the years ended June 30,
2003 and 2002, respectively. The Company's Hong Kong subsidiary had recorded a
deferred tax asset of approximately $73,500 at June 30, 2001 that was totally
offset by a valuation allowance due to the uncertainty of realization. The tax
asset and related valuation allowance of the Company's Hong Kong subsidiary were
written off during the year ended June 30, 2002 when all operations ceased and
the subsidiary was dissolved.

TUC has an income tax "holiday" for its first profitable and four subsequent
years as computed on a Chinese Tax basis, which is a hybridized cash basis of
accounting. This holiday reduces income taxes by 100% for years one and two, and
by 50% for years three through five. The Company has not accrued any tax assets,
liabilities or expenses due to the tax holiday. Chinese tax law allows the
carry-forward of operating losses for up to five years, but no tax assets for
prior operating losses has been recorded due to the tax holiday.

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.

8.       CONCENTRATION OF CREDIT RISK

The Company operates through subsidiaries located principally in Beijing, China
and an administrative office in 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.

At June 30, 2003 and 2002, there are no non-related party accounts receivable.
For related party accounts receivable, an allowance of $727,052 and $607,715 at
June 30, 2003 and 2002, respectively, has been established (see Notes 11 and
17). The Company believes any credit risk beyond this amount would be
negligible.



                                      F-13
<PAGE>


At June 30, 2003 and 2002, the Company had approximately $221,000 and $4,923,800
of cash in banks over insurance limits, respectively. 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, 2003 and 2002,
approximately 98% and 99% of sales were generated through the contract (and
successors to the contract) contributed to TUC (see Note 2a), respectively. The
customers for all sales created by the contributed contract and its successors
are the schools governed by the Chinese Ministry of Education. Receivables
related to these sales transactions are grouped together with due from related
party. For the fiscal year ended June 30, 2003, no customer accounted for more
than 10% of total sales.

9.       COMMITMENTS AND CONTINGENCIES

a)       The Company has entered into operating leases for office space, on a
         month-to-month basis. There are no minimum rental payments on these
         leases.

         Rent expense for the years ended June 30, 2003, 2002 and 2001 has been
         charged as follows:

                                               YEAR ENDED JUNE 30,
                                           2003           2002         2001
                                            $              $             $
General and administrative expense        71,096         66,409       94,207
Selling expense                          103,244        142,860       69,747
Cost of sales                                  0         94,858       35,433
                                         -------        -------      -------
Total rent expense                       174,340        304,127      199,387
                                         =======        =======      =======

b)       The Company is committed 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. During the year ended June 30, 2003, two
         of these consultants, who are also officers and directors of the
         Company, agreed to waive approximately $629,500 of the compensation due
         to them. The Company has reduced the liability and increased paid-in
         capital for this amount.



                                      F-14
<PAGE>


c)       The Company is party to litigation in the normal course of business,
         including a suit bought by a Company that provided consulting services
         to the Company from March 1997 to June 2001. The Company was owned by a
         former Director and President of the Company. The suit alleges breach
         of contract and damages totaling approximately $9,000,000. The suit is
         in the preliminary stage and the Company intends to contest this action
         vigorously. In the opinion of management and its counsel, the monetary
         effect of any potential negative outcome cannot be estimated at this
         time.

d)       The Company intends, but is not under any contractual obligation, to
         fund CBERC and the three LBERCs being formed as follows: 1) CBERC - RMB
         30 million (approximately $3,624,000) within twelve months after the
         establishment of CBERC and RMB 20 million (approximately $2,416,000)
         within eighteen months after the establishment of CBERC; 2) LBERCs -
         RMB 20 million (approximately $2,416,000) was due on December 31, 2001
         and RMB 40 million (approximately $4,832,000) with no definitive due
         date. The total commitment is RMB 110 million (approximately
         $13,288,000). During the year ended June 30, 2003, the Company did not
         provide any of this funding to the CBERC or LBERCs. The Company is
         negotiating with the Chinese Provinces to determine if the funding will
         still be required.

e)       The Company has contracted with China Agriculture Bank ("CAB") to have
         CAB provide financing to eligible customers of the Company. CAB will
         provide up to 80% of the contracted selling price of the Company to the
         customer. The Company provides a guaranty to the bank for any financing
         provided. As of June 30, 2003, CAB has not extended any financing to
         the Company's customers.


10.        FOREIGN OPERATIONS

The Company operates principally in China and Canada. Following is a summary of
information by area for the years ended June 30, 2003 and 2002.

                 NET SALES TO UNAFFILIATED CUSTOMERS:     2003           2002
                                                         ($000)         ($000)
                            China                         5,344         14,255
                            Canada                            0              0
                                                         ------         ------
                                                          5,344         14,255
                                                         ======         ======
                 Income (loss) from operations:
                            China                          (149)         3,842
                            Canada                            0              0

                 Other income                               250          2,046
                 General corporate expenses               (1963)        (4,310)
                                                         ------         ------
                 Net income (loss) as reported           (1,862)         1,578
                 in the accompanying statements          ======         ======

                 Identifiable assets:
                            China                        23,372         26,495

                 General corporate assets                   266          1,239
                                                         ------         ------
                 Total assets as reported                23,638         27,734
                 in the accompanying balance sheet       ======         ======

           There were no inter-area sales in 2003 and 2002. 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 prepayments. Sales are attributed to
           areas based on location of customers.


11.      RELATED PARTY TRANSACTIONS

As explained in Note 2a, the operations of the joint venture during the years
ended June 30, 2003, 2002 and 2001 were carried out by its agent and joint
venture partner, Tengtu China. At June 30, 2003 and 2002, TUC has a balance due
from Tengtu China of approximately $18,001,600 and $12,288,300, respectively.
The receivables represent funds collected or to be collected from customers of
TUC by Tengtu China in its capacity as agent operating the business of TUC. As
explained in Note 8, the principal customer is the Chinese Ministry of
Education. These amounts are net of an allowance for doubtful accounts of
$727,052 and $607,715 at June 30, 2003 and 2002, respectively (see Notes 8 and
17). The minority interest allocated to Tengtu China of $89,218 and $2,424,092
for the years ended June 30, 2003 and 2002, respectively, also offsets this
receivable.

During fiscal 2003, 2002, and 2001, respectively, the Company incurred
consulting and related expenses of approximately $488,877, $857,000, and
$800,000 from officers and directors of the Company or its subsidiaries or
companies controlled by these officers and directors. $438,042, $356,192 and
$375,504 were paid for the years ended June 30, 2003, 2002 and 2001,
respectively.

Of the total expenses incurred, approximately $50,800 in 2003,$250,000 in 2002,
and $84,700 in 2001 represent the value of common shares issued for services to
officers, shareholders or companies controlled by shareholders.




                                      F-15
<PAGE>


12.      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.

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 prices determined by a formula until October 25, 2005. The
warrant was valued using the Black-Scholes option valuation model. The charge to
operations for the years ended June 30, 2002 and 2001 was approximately $186,200
and $93,100, respectively.

On August 28, 2001, the Company notified Swartz that the agreements and warrants
issued to Swartz are void and unenforceable. On September 12, 2001, the Company
was served a complaint filed by Swartz in state court in Fulton County, Georgia.
In October 2001, the Company made a motion to dismiss the suit. On September 30,
2002, the Company's motion to dismiss Swartz's complaint was denied. THIS ACTION
WAS SETTLED ON JUNE 10, 2003. THE COMPANY WILL PAY SWARTZ $400,000 IN MONTHLY
$40,000 INSTALLMENTS, BEGINNING JULY 1, 2003. ON THAT DATE, SWARTZ RECEIVED
500,000 SHARES OF THE COMPANY'S COMMON STOCK IN A CASHLESS EXERCISE OF ITS
WARRANT AND THE INVESTMENT AGREEMENT WITH SWARTZ WAS TERMINATED. AS SECURITY
AGAINST PAYMENT OF THE $400,000 CASH PORTION OF THE SETTLEMENT, THE COMPANY HAS
ESCROWED 1,770,000 OF ITS COMMON SHARES. THE TOTAL CHARGED TO OPERATIONS FOR
2003 IS APPROXIMATELY $679,300.

13.      STOCK OPTIONS AND WARRANTS

The Company has established two stock option plans for its employees,
consultants and directors totaling 5,000,000 common shares. The maximum number
of shares granted to any individual under the plans is 300,000. 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.



                                      F-16
<PAGE>


The following table summarizes information concerning currently outstanding and
exercisable stock options and warrants
<TABLE>
<CAPTION>

                                                                       WEIGHTED AVERAGE
            CONTRACTUAL LIFE     OUTSTANDING AT      EXERCISE PRICE    CONTRACTUAL LIFE
                 (YEAR)          JUNE 30, 2003       AT JUNE 30, 2003        (YEAR)
<S>                <C>             <C>                    <C>                <C>
Options            10              1,760,000              0.218              6.64
Options             5                 75,000              0.25               0.14
Options             5                165,542              0.285              0.31
Options             5                216,817              0.67               0.41
Options            10                114,196              0.191              0.43
Warrants            5                 50,000              0.75               0.09
Warrants            5                 50,000               1.5               0.09
Warrants            5                 50,000                3                0.09
Options             5                120,000              1.35               0.23
Options             5                 49,027              0.76               0.09
Total                              2,650,582                                 8.54
</TABLE>

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 were valued using the Black-Scholes option pricing model
and resulted in a charge to operations of approximately $152,500 for the year
ended June 30, 2001.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 common shares of the Company.


The Company uses the Black-Scholes valuation model to calculate compensation
expense for all options granted to employees in order to comply with the
pro-forma disclosure requirements of SFAS No. 123. 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. No employee stock options were granted during the
years ended June 30, 2003, 2002 and 2001, therefore, no pro-forma disclosure is
presented in these notes to the financial statements.



                                      F-17
<PAGE>


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 that
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 its
carrying value.

14.      STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES


For the years ended June 30, 2003, 2002 and 2001, the Company issued shares of
common stock or common stock equivalents in lieu of cash payments for services
rendered. The value of such services was $50,835, $331,115, and $925,887,
respectively.

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 that
same year, the Company received $3,107,000 in loan proceeds. The loans with
accrued interest, totaling $3,168,259, were converted to 10,537,529 shares of
common stock during the year.

During the year ended June 30, 2003, two officers and directors waived their
rights to $429,488 of consulting fees owed to them for prior years. The Company
credited this amount to paid-in capital.
                                                JUNE 30,
                                 2003             2002               2001
                                   $               $                  $
Interest Paid                  $382,631         150,654            158,824
Income Tax Paid                    -               -                  -




                                      F-18
<PAGE>

15.      AUTHORITATIVE PRONOUNCEMENTS

         o     ON APRIL 30, 2002, THE FINANCIAL ACCOUNTING STANDARDS BOARD
               ("FASB") ISSUED STATEMENT NO. 145, "RESCISSION OF FASB STATEMENT
               NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND
               TECHNICAL CORRECTIONS". STATEMENT 145 RESCINDS STATEMENT 4, WHICH
               REQUIRED ALL GAINS AND LOSSES FROM EXTINGUISHMENT OF DEBT TO BE
               AGGREGATED AND, IF MATERIAL, CLASSIFIED AS AN EXTRAORDINARY ITEM,
               NET OF RELATED INCOME TAX EFFECT. AS A RESULT, THE CRITERIA IN
               ACCOUNTING PRINCIPLES BOARD OPINION NO. 30 WILL NOW BE USED TO
               CLASSIFY THOSE GAINS AND LOSSES. STATEMENT 64 AMENDED STATEMENT
               4, AND IS NO LONGER NECESSARY BECAUSE STATEMENT 4 HAS BEEN
               RESCINDED. STATEMENT 145 AMENDS STATEMENT 13 TO REQUIRE THAT
               CERTAIN LEASE MODIFICATIONS THAT HAVE ECONOMIC EFFECTS SIMILAR TO
               SALE-LEASEBACK TRANSACTIONS BE ACCOUNTED FOR IN THE SAME MANNER
               AS SALE-LEASEBACK TRANSACTIONS. THIS AMENDMENT IS CONSISTENT WITH
               THE FASB'S GOAL OF REQUIRING SIMILAR ACCOUNTING TREATMENT FOR
               TRANSACTIONS THAT HAVE SIMILAR ECONOMIC EFFECTS. THIS STATEMENT
               ALSO MAKES TECHNICAL CORRECTIONS TO EXISTING PRONOUNCEMENTS.
               WHILE THOSE CORRECTIONS ARE NOT SUBSTANTIVE IN NATURE, IN SOME
               INSTANCES THEY MAY CHANGE ACCOUNTING PRACTICE.

         o     IN JULY 2002, THE FASB ISSUED SFAS NO. 146, "ACCOUNTING FOR COSTS
               ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES", WHICH ADDRESSES THE
               RECOGNITION, MEASUREMENT, AND REPORTING OF COSTS ASSOCIATED WITH
               EXIT OR DISPOSAL ACTIVITIES, AND SUPERCEDES EMERGING ISSUES TASK
               FORCE ISSUE NO. 94-3, "LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE
               TERMINATION BENEFITS AND OTHER COSTS TO EXIT AN ACTIVITY
               (INCLUDING CERTAIN COSTS INCURRED IN A RESTRUCTURING)" ("EITF
               94-3"). THE PROVISIONS OF SFAS NO. 146 ARE EFFECTIVE FOR EXIT OR
               DISPOSAL ACTIVITIES THAT ARE INITIATED AFTER DECEMBER 31, 2002,
               WITH EARLY APPLICATION ENCOURAGED. THE COMPANY EXPECTS TO ADOPT
               SFAS NO. 146, EFFECTIVE JANUARY 1, 2003.

         o     In October 2002, the FASB issued SFAS No. 147, "Acquisitions of
               Certain Financial Institutions". SFAS No. 147 provides guidance
               on the accounting for the acquisition of a financial institution.
               SFAS No. 147 applies to all financial institution acquisitions
               except those between two or more mutual enterprises.

         o     In December 2002, the FASB issued SFAS No. 148, "Accounting for
               Stock-Based Compensation-Transition and Disclosure". SFAS No. 148
               amends SFAS No. 123, "Accounting for Stock-Based Compensation" to
               provide alternative methods of transition for a voluntary change
               to the fair value based method of accounting for stock-based
               employee compensation. In addition, SFAS No. 148 amends the
               disclosure requirements of SFAS No. 123 to require prominent
               disclosures in both annual and interim financial statements about
               the method of accounting for stock-based employee compensation
               and the effect of the method used on reported results. SFAS No.
               148 is effective for fiscal periods beginning after December 15,
               2002.

         o     In April 2003, the Financial Accounting Standards Board issued
               SFAS No. 149, "Amendment of Statement 133 on Derivative
               Instruments and Hedging Activities", which clarifies financial
               accounting and reporting for derivative instruments, including
               certain derivative instruments embedded in other contracts and
               for hedging activities under SFAS No. 133, "Accounting for
               Derivative Instruments and Hedging Activities." SFAS No. 149 is
               effective for contracts entered into or modified after June 30,
               2003 and for hedging relationships designated after June 30,
               2003.



                                      F-19
<PAGE>


               The Company expects that the adoption of the new Statements
               will not have a significant impact on its financial statements.

16.      ALLOWANCE FOR BAD DEBTS

                                         CHARGED TO OTHER
FOR THE YEAR       BALANCE -    CHARGED      ACCOUNTS   DEDUCTIONS    BALANCE -
ENDED JUNE 30,     BEGINNING    TO EXPENSE                             ENDING
2003                $ -            $ -         $ -         $ -          $ -
2002                $200,097       $ -         $ -       $200,097       $ -
2001                $200,097       $ -         $ -         $ -


ALSO SEE NOTES 8 AND 11


17.      SUBSEQUENT EVENTS

         On September 25, 2003, the Company signed an agreement with the
beneficial owner of Tengtu China that allows the Company to purchase the 43%
interest of Tengtu China in TUC for 30 million common shares of the Company. The
agreement would also give proxy control to the Company of a number of other
entities in China owned by Tengtu China's beneficial owner. The agreement is
subject to approval by the Company's shareholders and other requirements.



18.      EQUITY INVESTMENT

            Tengtu China entered into a joint venture with a division of the
Chinese Ministry of Education, on behalf of TUC, for the creation of the China
Broadband Education Resource Center ("CBERC"), CBERC was established in January
2003 for the transmission of various educational content and tools to schools
for an annual fee.

           Tengtu China is also forming joint ventures with various Chinese
provinces on behalf of TUC. One of these has already been formed in Shaanxi and
three others are in the process of being organized. Each of these joint ventures
is a local Broadband Education Resource Center ("LBERC"). They will connect to
CBERC and will contain their own educational and other materials mandated by the
provinces. This content will also be transmitted to individual schools for an
annual fee.

           Although TUC's equity interest in each of the joint ventures is over
50%, it does not control the joint ventures due to participating rights
exercised by the minority interest holders in the management of the joint
ventures. The investments, therefore, are accounted for using the equity method
of accounting as TUC has the ability to exercise significant influence, but not
control, over the investees.

           The Company, through Tengtu United, has advanced $4,469,000 for the
formation of CBERC and the LBERCs. CBERC was officially established in January
2003, but there were no operations for the year ended June 30, 2003, and
therefore, no equity earnings or losses were recorded. For the year ended June
30, 2003, Shaanxi LBERC had limited operations which resulted in an equity loss
of $(76,807) for the year ended June 30, 2003. This loss reduces the investment
to $4,392,793 as at June 30, 2003.



                                      F-20
<PAGE>

19.        QUARTERLY FINANCIAL DATA (UNAUDITED)

20.        OTHER INCOME

         Other income in fiscal 2003 includes a credit of $290,274 for value
added tax (VAT) paid in China for Tengtu United's sales and a reversal of a
prior year accrual of $210,000 deemed to no longer be an obligation of the
Company. In addition, other income includes a $720,208 reversal of legal and
accounting fees totaling $120,200 which were included in accounts payable in
years prior to June 30, 2003 and for which the statute of limitations has
expired for the entities that rendered these services to claim payment for them
and $36,310 in cash recovered from the sale of the assets of Iconix, our former
investee.

Other income also included VAT tax credits of $1,752,309 and $314,718 for the
years ended June 30, 2002 and 2001, respectively. For the year ended June 30,
2001, the Company settled a lawsuit with a landlord, resulting in a reduction of
liability of $527,603.



21.        JUNE 30, 2001 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 was
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-21
<PAGE>