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Tengtu International Plans To Increase Reserve For Outstanding Receivables

Business Wire - May 26, 2004

Business Editors/High-Tech Writers

TORONTO & BEIJING, China--(BUSINESS WIRE)--May 26, 2004

Shareholder's Meeting Adjourned for Two Weeks until June 9th

Tengtu International Corp. ("Tengtu" or "the Company") (OTCBB:TNTU), a developer, marketer, distributor, and integrator of distance learning solutions and e-education software in China, today announced that it is adjourning the shareholders meeting scheduled for May 26, 2004 at 9:00 a.m. (EDST) at the National Club, 303 Bay Street, Toronto, Ontario, Canada until June 9, 2004 at 9:00 a.m. (EDST) at the same location.

At March 31, 2004, the Company had a US $22.06 million total receivable due from a related party, Beijing China Culture and Education Electronics Development Co., Ltd. ("Tengtu China"), its former joint venture partner, which was owned and controlled by its CEO, Fan Qi Zhang, and is currently owned and controlled by his estate. This receivable is comprised of advances made by the Company, as well as undistributed profits from the joint venture, Tengtu United.

The collectibility of the Company's receivable due from Tengtu China has always been evaluated by the Company based on Tengtu China's ability to collect receivables owed to it for services provided and products sold in China. At all times prior to the closing of the restructuring transaction described below, the Company believed Tengtu China could collect the full amount of the Tengtu China Receivables based on:

1. Confirmations from Fan Qi Zhang;

2. Mr. Zhang's relationships with Ministry of Education officials; and

3. Ongoing collection of some amount of those receivables.

On October 24, 2003, Fan Qi Zhang died. Mr. Zhang had a principal role in collecting Tengtu China's receivables because of the relationships he had built over several years with PRC local, provincial and central Ministry of Education officials, as well as school and school district officials.

On April 5, 2004, the Company closed its Restructuring whereby it purchased the 43% of Tengtu United, that it did not already own, in exchange for 30 million shares of the Company's common stock. Prior to this Restructuring, Tengtu China conducted all of Tengtu United's business with all Chinese government entities. Tengtu United is now dealing directly with these entities and the Company plans to have all of its business in China, with the exception of electronic publishing, and joint ventures such as CEBERC, run directly through Tengtu United

After the Restructuring closed, Tengtu United began to actively take steps to assist collecting Tengtu China's receivables and assigned staff to collect the receivables. Based upon attempts to collect the receivables since then, and after making a preliminary evaluation of the receivables, Tengtu United has advised the Company that most of the receivables may not be collectible without Mr. Zhang. Tengtu United will continue its collection efforts and evaluation to make a determination as to how much can be collected.

In view of this preliminary evaluation of the collectibility of these receivables, the Company believes that the receivables owed to it by Tengtu China may be materially impaired and will increase its reserve for doubtful accounts. The shareholders meeting scheduled for May 26, 2004 has been adjourned for two weeks in order to give shareholders an opportunity to reconsider any proxies given to date and to provide additional time to submit proxies.

The amount of the increase in the reserve will be dependent on a number of factors, including the ultimate collectibility of Tengtu China's receivables and the amount of proceeds that the Company estimates may result from the sale of 15 million shares of Company common stock bequeathed by Mr. Fan Qi Zhang to "solve the funding difficulties" of Tengtu China and other companies affiliated with it.

The Company is in the process of determining the amount that the sale of the 15 million shares is likely to yield and the timing of potential share sales, as well as assessing the collectibility of the Tengtu China receivables. In dealing with the Tengtu China receivables, the Company will consider the practicality of pursuing a more aggressive collection process as well as the potential impact this may have in creating adversarial relationships in a segment of the market that is still maturing under government programs and direct subsidies.

The largest portion of these receivables represents sales and installations of the Company's software applications under "Operation Morning Sun" a national government initiative launched over four years ago. Tengtu China sold the "Total Solution" package to individual schools, many of which were in the less advantaged rural regions. These rural schools were identified by the Ministry of Education and required Tengtu China to service rural communities in more than 20 provinces. The Company and its partner, Tengtu China, believed the penetration of this market under these original conditions would be advantageous in establishing Tengtu's position as the leading provider of distance learning solutions in China's basic education sector.

Tengtu United's current business model, collection, sales and marketing practices are significantly different from those used by Tengtu China in connection with "Operation Morning Sun". Tengtu United has stronger customer credit evaluations and requires down payments upon order placement and additional payments upon delivery or installation. Tengtu has also developed new generations of products, significant strategic relationships, and expanded its distribution and sales channels to additional market segments. In particular, the Company has established relationships with Microsoft and Hewlett-Packard and has expanded its e-education portal network.

The Company has derived significant benefit from the original sales and installation of its "Total Solution" software application and satellite systems products to the extent Tengtu was chosen by the Ministry of Education to be the operating partner with the National Center for Education Technology (NCET) of China's national education resources center (CBERC) for the K-12 school system. Tengtu gained approximately 10,000 schools for its satellite network as a result of this initiative. The Company's products have also been recognized as the standard for addressing China's new curriculum reform needs in teacher training and classroom instruction.

As noted in the Company's investor conference call of May 14, 2004, the Company expects net sales of between $3.5 and $3.8 million for the Fourth Quarter of fiscal year 2004 including:

- Approximately $300 thousand in sales of the Tengtu Education Resource for Microsoft(R) Office;

- Approximately $700 thousand in turn-key portal sales; and

- Approximately $1.4 million from Phase II of the Jiangxi Project

Also during this conference call, the Company's management reported that it is implementing a plan to introduce a national educational portal to generate direct end user fees from students, parents and teachers by providing educational applications and resource materials.

Madeline Wong has been appointed Vice-President at both Tengtu International Corp. and Tengtu United to oversee the business development of this portal and on-line services for the Company. Ms. Wong holds an honours (BSc) degree from Stanford University, California, and is a graduate from the Kellogg Graduate School of Management (MBA) at Northwestern University, Illinois.

Prior to joining Tengtu Ms. Wong was an Associate at Fidelity Ventures, Boston, Massachusetts specializing in the technology sector; a Sr. Product Manager for Veritas Software, Mountain View, California; and a Vice-President of Business Development for Asperon Corporation, Belmont, California specializing in web applications. She has also held positions in Microsoft Corporation in business development both in Beijing and Redmond, Washington.

Ms. Wong represents the latest appointment to the senior management team at Tengtu that is responsible for driving the Company's growth strategy in China.

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