Report (Draft) on the Controlling Shareholder Kebang Telecom Group Co., Ltd. and Other Related Parties Using Assets to Offset Debts

Special Reminder

1. Due to historical reasons, the controlling shareholder Kebang Telecom Group Co., Ltd.'s related party Chengdu Kebang Postal Construction Engineering Co., Ltd. has non-operationally occupied funds from Lianyungang Zhongao Education Investment Co., Ltd. (the company's controlling subsidiary). As of June 30, 2006, Chengdu Kebang Postal Construction Engineering Co., Ltd. occupied 13.08 million yuan of funds from Lianyungang Zhongao Education Investment Co., Ltd., all of which are non-operational. Due to the deteriorating operations, heavy debts, and cash shortages of Chengdu Kebang Postal Construction Engineering Co., Ltd., it is unable to repay in cash or sell assets. Therefore, it is proposed to use assets to offset the non-operationally occupied funds to quickly resolve this issue, improve the company's asset quality, enhance the company's sustainability, and protect the interests of the company and minority shareholders. The board of directors agrees that Chengdu Kebang Postal Construction Engineering Co., Ltd. will use non-cash assets to offset the debts of the listed company's controlling subsidiary (hereinafter referred to as Lianyungang Zhongao).

2. There are risks that this asset offset may not be approved by regulatory authorities or may not be passed by the shareholders' meeting. This asset offset requires review by the China Securities Regulatory Commission (CSRC) and its dispatched agencies, so there is a possibility of non-approval. After regulatory approval, this asset offset must also be submitted to the shareholders' meeting for approval, hence there is also a possibility of not obtaining approval from the shareholders' meeting.

3. The assets to be used for debt offset are the land located in Sanyi Village, Yongsheng Town, Wenjiang District, with an area of 77,680 square meters. This asset is not related to the company's main business and is temporarily idle.

4. The debt offset assets have not been subject to any other rights. The land use rights to be used for debt offset were mortgaged in November 2001, as evidenced by the "Wenjiang County Other Item (2001) No. 0069" Land Other Rights Certificate, with a mortgage amount of 7.88 million yuan and a mortgage term of 3 years: from November 8, 2001, to November 7, 2004; the mortgage on this land expired on November 7, 2004, and currently, there are no mortgage issues concerning this land.

5. The legal representative of Chengdu Kebang Postal Construction Engineering Co., Ltd. is Sun Fucheng; the company is located at Room 6-1, Office Building of the Management Committee of Lianyungang Development Zone. The business term is from August 16, 2002, to July 18, 2062. The financial statements for 2004 and 2005 audited by Beijing Zhonghe Zhengxin Accounting Firm are summarized as follows.