10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

ý   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

OR

o   TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to                

COMMISSION FILE NUMBER   000-32621

INTAC INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

NEVADA	98-0336945
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

Unit 6-7, 32/F., Laws Commercial Plaza

788 Cheung Sha Wan Road

Kowloon, Hong Kong

 (Address of principal executive offices)

011 (852) 2385.8789

(Issuer’s telephone number)

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 preceding 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.  ý  Yes  o  No.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  o  Noý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  20,989,455 shares of $.001 par value Common Stock outstanding as of August 16, 2004.

PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements

INTAC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(expressed in U.S. Dollars)

	June 30, 2004			December 31, 2003
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	11,360,550		$	2,810,574
Restricted cash	—			2,800,000
Trade accounts receivable (net of allowance for doubtful accounts of $0 for both periods)	4,590,797			4,000,286
Inventories	667,060			232,371
Foreign sales tax receivable	420,449			335,993
Deposits paid	117,257			250,133
Advances to officers of subsidiaries and employees	33,286			—
Total current assets	17,189,399			10,429,357
Equipment, net	989,266			883,061
Other assets	503,329			499,682
Advances to officers of subsidiaries and employees	—			346,090
Internet portal database gateway, net	284,188			304,487
Goodwill	1,230,327			59,021
Total assets	$	20,196,509		$	12,521,698
Liabilities and Stockholders’ Equity
Current liabilities
Trade accounts payable	$	315,497		$	1,577,408
Short-term note payable to bank	—			2,728,202
Accrued expenses	488,909			480,069
Due to shareholder	140,377			—
Income taxes payable	100,283			99,084
Deposits received	14,103			221,389
Total current liabilities	1,059,169			5,106,152
Minority interest in consolidated joint venture	48,412			695,408
Stockholders’ Equity
Preferred stock, $0.001 par value, 10,000,000 shares authorized; none issued and outstanding	—			—
Common stock, $0.001 par value, 100,000,000 shares authorized; 20,989,455 and 20,189,455 shares issued and outstanding, respectively	20,989			20,189
Additional paid-in capital	20,148,507			8,062,801
Accumulated deficit	(1,209,014		)	(1,563,505		)
Accumulated other comprehensive income	128,446			200,653
Total stockholders’ equity	19,088,928			6,720,138
Total liabilities and stockholders’ equity	$	20,196,509		$	12,521,698

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

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INTAC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

(expressed in U.S. Dollars)
(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Revenues	$	22,770,899		$	26,163,360		$	31,206,069		$	34,175,452
Cost of goods sold	20,441,721			25,065,237			28,517,488			32,850,060
Gross profit	2,329,178			1,098,123			2,688,581			1,325,392
Operating expenses
Distribution expenses	272,800			182,221			403,212			250,728
Selling, general and administrative expenses	1,249,687			709,600			2,120,774			1,361,037
Total expenses	1,522,487			891,821			2,523,986			1,611,765
Income (loss) from operations	806,691			206,302			164,595			(286,373		)
Other income (expenses)
Foreign currency exchange gain (loss)	(28,858		)	7,528			902			3,131
Interest income (expense), net	16,870			(3,886		)	(8,679		)	(7,305		)
Minority interest in loss of consolidated joint venture	204,644			—			318,303			—
Other income, net	2,960			14,196			8,315			22,491
Total other income	195,616			17,838			318,841			18,317
Income (loss) before income taxes	1,002,307			224,140			483,436			(268,056		)
Income taxes	(128,945		)	—			(128,945		)	—
Net income (loss)	$	873,362		$	224,140		$	354,491		$	(268,056	)
Net income (loss) per share – basic	$	0.04		$	0.01		$	0.02		$	(0.01	)
Net income (loss) per share – diluted	$	0.04		$	0.01		$	0.02		$	(0.01	)
Weighted average number of shares outstanding  – basic	20,456,122			19,189,455			20,322,788			19,189,455
Weighted average number of shares outstanding  – diluted	20,898,939			19,479,034			20,767,863			19,189,455

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

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INTAC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(expressed in U.S. Dollars)
(Unaudited)

	Six Months Ended June 30,
	2004			2003
Cash flows from operating activities:
Net income (loss) for the period	$	354,491		$	(268,056	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation of equipment	102,046			43,154
Amortization of internet portal database gateway	20,299			—
Minority interest in loss of consolidated joint venture	(318,303		)	—
Compensation in connection with restricted stock award	116,664			116,664
Other comprehensive income (loss)	(72,207		)	24,720
Loss on sale of equipment	15,695			—
Changes in operating assets and liabilities:
Trade accounts receivable	(590,511		)	(1,026,979		)
Inventories	(434,689		)	730,779
Foreign sales tax receivable	(84,456		)	442,667
Deposits paid	132,876			230,386
Advances to officers of subsidiaries and employees	312,804			—
Trade accounts payable and accrued expenses	(1,253,071		)	(23,646		)
Income taxes payable	100,283			(39,598		)
Deposits received	(207,286		)	(18,910		)
Net cash provided by (used in) operating activities	(1,805,365		)	211,181
Cash flows from investing activities:
Restricted cash deposit	2,800,000			—
Purchase of equipment	(223,946		)	(22,246		)
Purchase of other assets	(3,647		)	(21,851		)
Net cash provided by (used in) investing activities	2,572,407			(44,097		)
Cash flows from financing activities:
Proceeds from issuance of common stock, net	11,969,843			—
Incremental purchase of Intac Purun shares	(1,500,000		)	—
Borrowings from (payments to) shareholder, net	41,293			(50,041		)
Repayments to bank	(2,728,202		)	—
Net cash provided by (used in) financing activities	7,782,934			(50,041		)
Net increase in cash and cash equivalents	8,549,976			117,043
Cash and cash equivalents at beginning of period	2,810,574			589,572
Cash and cash equivalents at end of period	$	11,360,550		$	706,615
Supplemental disclosure of cash flow information:
Cash paid for interest	$	37,481		$	8,385
Cash paid for taxes	$	—		$	39,598

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

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INTAC INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2004
(Unaudited)

1.GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)Description of Business and Basis of Presentation

INTAC International, Inc. (“INTAC” or the “Company”) is a U.S. holding company focused on the exploitation of strategic business opportunities available in China and the Asia-Pacific Rim.  The Company currently maintains offices in China (Hong Kong, Beijing and Tianjin), Germany (Frankfurt) and the United States (Dallas, Texas).  During the periods reported, the Company’s principal operations involved the distribution of premium brand wireless handsets from wholesalers, manufacturers and other distributors to network operators, agents, resellers, dealers and retailers and, to a much lesser extent, automobile distribution from Europe into mainland China.   The Company has announced the redirection of its business plan from the traditional distribution of wireless handsets to the Internet portal business in China.

In October 2003, INTAC formed a new Internet joint venture, Beijing Intac Purun Educational Development Ltd. (“Intac Purun”), with China Putian Corporation (“Putian”) and the Ministry of Education in The People’s Republic of China (“PRC”).  Intac Purun was established to meet the growing need for expanding the employment opportunities for graduates of higher level education institutions in the PRC. The Ministry of Education has already established a database of graduates which is being made exclusively available to Intac Purun. Intac Purun provides comprehensive employment information over its Internet portal to facilitate these graduates’ employment search and future career development. This Internet portal also offers employers a platform to list open positions available to final year graduates contained within this database. This fee-based service is primarily made available to final year graduates; however, it is anticipated that in the future, the portal will be developed further to offer a variety of premium products and services to subscribers.  At the time of formation, the joint venture was owned 45% by INTAC, 15% by Putian, 30% by a private investor group and 10% by the Ministry of Education.  In June 2004, INTAC purchased an additional 15% interest in Intac Purun from Putian.  This additional 15% indirect interest brings INTAC’s total ownership in Intac Purun to 60%.

The accompanying consolidated financial statements, which should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-KSB for the year ended December 31, 2003, are unaudited (except for the December 31, 2003 balance sheet, which was derived from the Company’s audited consolidated financial statements). The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“USGAAP”). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation have been included.

Operating results for the three and six months ended June 30, 2004, are not necessarily indicative of the results that may be expected for the entire fiscal year.

(b)Principles of Consolidation

The accompanying consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries, INTAC International Holdings Limited, New Tech Handels GmbH, INTAC Holdco Corp., FUTAC Group Limited, Global Creative International Limited, INTAC Telecommunications Limited and Intac (Tianjin) International Trading Co., formerly “Intac Auto Mobile Trading Company Limited”.  The Company has also consolidated the financial statements of Intac Purun from inception because it has been controlled by the Company.  All intercompany balances and transactions have been eliminated in consolidation.

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In consolidating Intac Purun from inception, the Company applied the guidance in Statement of Financial Accounting Standards (“SFAS”) No. 94 “Consolidation of All Majority-Owned Subsidiaries”, and by analogy the guidance in EITF 96-16 “Investor’s Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Shareholder or Shareholders have Certain Approval or Veto Rights.” INTAC is designated as the operating partner for the joint venture and has had effective control through control of the Board of Directors since inception.  INTAC appoints the majority of the Board of Directors which hires management and controls the day to day activities of Intac Purun making it the primary controlling shareholder.  Accordingly, management has concluded that it is necessary to consolidate Intac Purun in order to properly reflect the substance of the Company’s control position.

(c)Liquidity

As of June 30, 2004 and December 31, 2003, INTAC had an accumulated deficit of $1,209,014 and $1,563,505, respectively, primarily due to net losses from operations and a distribution to its principal shareholder made in 2001. The Company raised equity financing of $4.5 million in September 2003.  Proceeds of the $4.5 million private placement were used to fund the Company’s participation in Intac Purun, as well as for working capital.  The Company also raised equity financing of $12.0 million in May 2004.  Proceeds from the $12.0 million private placement will be used to expand Intac Purun’s Internet portal business, for strategic acquisitions or business alliances and for general working capital purposes.  The Company filed a registration statement in May 2004 with the Securities and Exchange Commission, registering the resale by the selling shareholders of the 1,800,000 private placement shares plus 2,000,000 additional shares for possible future issuance by the Company.  The registration statement became effective on July 29, 2004.

As of June 30, 2004 and December 31, 2003, INTAC maintained unrestricted cash of $11,360,550 and $2,810,574, respectively.  The Company measures liquidity through working capital (measured by current assets less current liabilities).  As of June 30, 2004 and December 31, 2003, INTAC maintained working capital of $16,130,230 and $5,323,205, respectively.  The increase in working capital is primarily due to the equity financing of $12.0 million raised in May 2004 and the net income of the Company partially offset by the decrease in trade accounts payable.

The Company believes that it currently has adequate capital for at least the next twelve months; however, longer-term plans may require the Company to obtain additional financing through the issuance of debt, equity, other securities or a combination thereof in order to take advantage of the Company’s other strategic agreements and business alliances.  In addition, the Company may seek to obtain a working capital or other traditional loan facilities from banks or other lending sources.  Unless the Company is able to continue to improve its operating performance, additional outside financing required to execute its longer-term business plan would be difficult to obtain on acceptable terms, if at all.  As of the date of this Report, the Company does not have any other financing arrangements, nor does the Company have any commitments to obtain such an arrangement with any bank or other third party.  If the Company raises capital by issuing equity or convertible debt securities, the percentage ownership of its stockholders will be reduced.  Any new securities may have rights, preferences or privileges senior to those of its common shareholders.  There can be no assurances that the Company will be able to obtain additional financing on terms which are acceptable to it.

(d)Concentration of Credit Risk and Accounts Receivable

The Company establishes an allowance for doubtful accounts receivable based upon factors surrounding the credit risk of specific customers.  The Company’s accounts receivable are not collateralized.  At June 30, 2004 and December 31, 2003 there was no allowance for uncollectible accounts.

(e)Revenue Recognition For Internet Portal Business

Non-advertising revenues are derived from e-subscription fees, e-commerce services, and e-technology services. E-subscriptions are derived principally from providing value added short messaging services.  The Company contracts with third party mobile operators for certain services related to e-subscriptions transmitted to the its users and records the fee charged by third party mobile phone operators as cost of revenues. E-subscription revenues and e-commerce

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services are recognized in the month in which the service is performed. Other e-technology revenues from providing access to our database or providing online service are generally recognized over the life of the contract.

(f)Foreign Currency Translation

The functional currency of the Company is the Hong Kong dollar (“HK$”). The accompanying consolidated financial statements have been expressed in United States dollars, the reporting currency of the Company.

Reported assets and liabilities of INTAC’s foreign subsidiaries have been translated at the rate of exchange at the end of each period. Revenues and expenses have been translated at the weighted average rate of exchange in effect during the respective period. Gains and losses resulting from translation are accumulated in other comprehensive income in stockholders’ equity. Realized and unrealized translation gain (loss) on currency transactions between foreign entities is included in other income (expenses) in the accompanying statements of operations.

(g)Net Loss Per Share – Basic and Diluted

Basic income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of common shares and dilutive potential common shares, if any, outstanding during the period.  Computation of diluted income per share for the three and six months ended June 30, 2004 and three months ended June 30, 2003 includes dilutive stock options and a restricted stock award granted under the terms of the Company’s 2001 Long Term Incentive Plan.  Stock options and the restricted stock award were not included in the computation of diluted net loss per share for the six months ended June 30, 2003 as their effect would be anti-dilutive.

(h)Use of Estimates

Management of INTAC has made various estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses to prepare these consolidated financial statements in conformity with USGAAP. Actual results could differ from those estimates.

(i)Software Development Costs

In accordance with SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,” internally-generated software development costs associated with new products and significant enhancements to existing software products are expensed as incurred until technological feasibility has been established.  Software development costs that qualify for capitalization include the salaries and benefits of the software engineers assigned to the products, internal and external quality assurance testing costs, overhead allocations primarily associated with rent and facilities costs and the costs of outsourced development activity and independent product testing and certification labs.  Software development costs not qualifying for capitalization are recorded as selling, general and administrative expense.  Capitalized software development costs, including purchased software, if any, are amortized after being put into use, using the greater of the revenue method or the straight-line method generally with useful lives of three years or less.  At each balance sheet date, the Company evaluates the estimated net realizable value of each software product and when required, records write-downs of net book value to net realizable value of any product for which the net book value is in excess of net realizable value.  The net realizable value is the estimated future gross revenue of each product reduced by the estimated future costs of completing and disposing of that product, including the costs of completing in process development and customer support.  No software development costs have been incurred through June 30, 2004.

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(j)Research and Development Costs

The Company incurs research and development costs that relate primarily to the development of new software and web development.  Research and development costs are comprised primarily of salaries and related benefits expenses, contract labor and prototype, and other related expenses and are charged to expense as incurred. No research and development costs have been incurred through June 30, 2004.

(k)Stock Option Plans and Stock-Based Compensation

The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, in accounting for its fixed plan stock options. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123,” established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123 (as amended), the Company has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of SFAS No. 123 (as amended).

For purposes of proforma disclosure, the estimated fair value of the option is amortized to expense over the option’s vesting period.  Had the Company determined compensation based on the fair value at the date of grant for its options under SFAS No. 123 (as amended), net income (loss) and net income (loss) per share for the three and six months ended June 30, 2004 and 2003, would have changed as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Net income (loss), as reported	$	873,362		$	224,140		$	354,491		$	(268,056	)
Add:  Total stock-based employee compensation expense included in reported net income (loss)	58,332			58,332			116,664			116,664
Deduct:  Total stock-based employee compensation expense determined under fair value based method	(174,516		)	(108,681		)	(278,619		)	(217,361		)
Pro forma net income (loss)	$	757,178		$	173,791		$	192,536		$	(368,753	)
Net income (loss) per share:
Basic and diluted —
As reported	$	0.04		$	0.01		$	0.02		$	(0.01	)
Proforma	$	0.04		$	0.01		$	0.01		$	(0.02	)

2.INVENTORIES

Inventories for wireless handsets are stated at the lower of cost or net realizable value, calculated on the first-in, first-out basis, and are comprised of finished goods.  Net realizable value is determined on the basis of anticipated sales proceeds less estimated costs for selling expenses.  Inventories for vehicles are stated at the actual amount paid to manufacturers or market, if lower.  At June 30, 2004, inventory consisted of wireless handsets totaling $259,484 and vehicles totaling $407,576.

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3.             INVESTMENT IN INTAC PURUN

On January 15, 2004, INTAC announced the redirection of its business plan from the traditional distribution of premium brand wireless handsets to its new Internet joint venture, Intac Purun.  Intac Purun was formed in October 2003 with China Putian Corporation and the Ministry of Education in The People’s Republic of China (“PRC”).  The Company initially invested $2.3 million cash in the newly founded Internet joint venture which at inception was owned 45% by INTAC, 15% by Putian, 30% by a private investor group and 10% by the Ministry of Education.

In June 2004, INTAC purchased an additional 15% interest in Intac Purun from Putian for $1.5 million There exist ownership requirements under PRC law which restrict or prohibit foreign investors from operating in certain industries such as Internet content provider, online stock trading and Internet access; .  In order to meet these requirements, in June 2004 the Company made loans of $1.5 million to Mr. Zou Jingchen and Ms. Tian Jinmei.  Mr. Jingchen and Ms. Jinmei are the equity investors of Tianjin Chengtai International Trading Limited (“Chengtai”), a company incorporated in the PRC.  These loans were made to finance Mr. Jingchen and Ms. Jinmei, on behalf of the Company, for the purpose of establishing Chengtai which purchased the 15% interest in Intac Purun in June 2004 from Putian.  A total of 15% of the outstanding shares of Intac Purun, representing the 15% ownership, were pledged as collateral for these loans from INTAC and all operating, economic, voting and other rights were assigned to INTAC by Chengtai.  As further described in the Company’s accounting policies, the results of Intac Purun operations have been included in the consolidated financial statements since the incorporation of Intac Purun.  This additional 15% interest increases INTAC’s total ownership in Intac Purun to 60% with $3.8 million of invested cash.  Intac Purun is incorporated and domiciled in PRC.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of the date of acquisition of the 15% incremental ownership in Intac Purun.

Current assets	$	256,290
Non-current assets	145,420
Total assets acquired	401,710
Current liabilities assumed	(73,016		)
Net assets acquired	328,694
Purchase price	1,500,000
Excess purchase price	$	1,171,306

The excess of the purchase price over the fair value of the net assets acquired represents goodwill.  The allocation of goodwill was based on preliminary estimates and may be revised at a later date, although management does not expect such adjustments to be material in nature.  The actual allocation will be based on the valuation of the Intac Purun Internet portal database gateway that will be performed in the second half of the year.

4.OTHER ASSETS

As of June 30, 2004 and December 31, 2003, other assets consisted of the following:

	2004		2003
Deposit for software development costs	$	218,926	$	218,926
Deposits and memberships	138,611		167,988
Miscellaneous	145,792		112,768
	$	503,329	$	499,682

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5.INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the period in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

For the three and six months ended June 30 2003, there was no income tax expense due to net operating losses in each of the tax jurisdictions and the availability of previous net operating losses to offset future taxable income.  In the three and six months ended June 30, 2004, income tax expense totaled $128,945 and related to taxable income.  A deferred tax asset related to the net operating losses available in certain tax jurisdictions has not been recorded as the ability of the Company to generate taxable income to utilize these losses is uncertain.

6.ADVANCES FROM SHAREHOLDER

As of June 30, 2004, Mr. Zhou (President, CEO and Director of the Company) had made net advances of $140,377 to the Company.   Mr. Zhou made net advances of $41,293 to the Company during the six months ended June 30, 2004.

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7.STOCKHOLDERS’ EQUITY

(a)Common Stock

In May 2004, the Company sold 800,000 shares of its unregistered, restricted common stock to an accredited investor in a private placement transaction for proceeds of $12.0 million.  This transaction was exempt from the registration requirements of the Securities Act under Rule 506 of Regulation D promulgated thereunder.  In May 2004, the Company filed a registration statement with the Securities and Exchange Commission, registering the resale by the selling shareholder of these shares plus 1,000,000 shares by a different selling shareholder from the private placement completed in September 2003.  Also, the registration statement registered an additional 2,000,000 shares for possible future issuance by the Company.  The registration statement became effective on July 29, 2004.

(b)Stock Options

On March 2, 2004 and March 11, 2004, the Company completed a stock option grant to four of its Directors to purchase 50,000 shares of the Company’s common stock (an aggregate of 200,000 shares) at an exercise price of $15.75 per share for three of the Directors and $14.72 per share for the remaining Director, representing the market values on the date of each grant.  These stock options vest in three equal annual installments on the first three anniversary dates of the date of grant.  The per share fair value of the stock options granted on March 2, 2004 and March 11, 2004, estimated on the date of grant using the Black-Scholes options pricing model, was $6.44 and $6.02, respectively.  The fair value of the option grant was estimated on the date of grant using the following assumptions: no dividend yield; expected volatility of 59%; risk-free interest rate of 2.0%; and expected life of three years.  For purposes of proforma disclosure, the estimated fair value of the option is amortized to expense over the option’s vesting period.

On November 3, 2003, the Company made a stock option grant to one of its Directors to purchase 50,000 shares of the Company’s common stock at an exercise price of $9.89 per share representing the market value on the date of grant.  This stock option vests in three equal annual installments on the first three anniversary dates of the date of grant.  The per share fair value of the stock options granted in 2003, estimated on the date of grant using the Black-Scholes options pricing model, was $3.85.  The fair value of the option grant was estimated on the date of grant using the following assumptions: no dividend yield; expected volatility of 66%; risk-free interest rate of 2.1%; and expected life of three years.  For purposes of proforma disclosure, the estimated fair value of the option is amortized to expense over the option’s vesting period.

On July 29, 2002, the Company made the following stock option grant and restricted stock award to its Senior Vice President and Chief Financial Officer:  (i) a stock option to purchase 300,000 shares of the Company’s common stock at an exercise price of $3.50 per share representing the market value on the date of grant and (ii) a restricted stock award of 200,000 shares of the Company’s common stock.  This stock option and restricted stock award vest in three equal annual installments on the first three anniversary dates of the date of grant.  As a result of the restricted stock award, a non-cash compensation charge of $58,322 and $116,664 was recorded in the statement of operations for the three and six months ended June 30, 2004 and 2003, respectively. The per share fair value of the stock options granted in 2002, estimated on the date of grant using the Black-Scholes options pricing model, was $2.01.  The fair value of the option grant is estimated on the date of grant using the following assumptions: no dividend yield; expected volatility of 86%; risk-free interest rate of 4.7%; and expected life of three years.  For purposes of proforma disclosure, the estimated fair value of the option is amortized to expense over the option’s vesting period.

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(c)Earnings Per Share

The Company has 100,000,000 common shares authorized. The Company has granted options to purchase common shares to employees and directors of the Company. Certain options have a dilutive effect on the calculation of earnings per share. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations.

	Three months ended June 30,				Six months ended June 30,
	2004		2003		2004		2003
Basic earnings per share:
Net income (loss)	$	873,362	$	224,140	$	354,491	$	(268,056	)
Weighted average shares outstanding	20,456,122		19,189,455		20,322,788		19,189,455
Basic earnings (loss) per share	$	0.04	$	0.01	$	0.02	$	(0.01	)
Diluted earnings per share:
Net income (loss)	$	873,362	$	224,140	$	354,491	$	(268,056	)
Weighted average shares outstanding	20,456,122		19,189,455		20,322,788		19,189,455
Dilutive Stock options and restricted stock award	442,817		289,579		445,075		—
Total common shares and dilutive securities	20,898,939		19,479,034		20,767,863		19,189,455
Diluted earnings (loss) per share	$	0.04	$	0.01	$	0.02	$	(0.01	)

For the six months ended June 30, 2003, shares attributable to outstanding stock options and the restricted stock award were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive.

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8.SEGMENT REPORTING

The Company has historically been considered to be comprised of three reportable segments:  (i) career development services through the Company’s Internet portal, (ii) distribution of wireless handsets and (iii) distribution of automobiles.  In June 2004, the Company made the decision to phase-out the automobile distribution segment in order to devote more time and resources to the Internet portal business.  The Company believes that the phase-out will not have a material adverse impact on the results of operations of the Company.  The segment assets will be redeployed to the other reporting segments.  The Company measures segment profit (loss) as operating profit (loss) before depreciation.  The reportable segments are components of the Company which offer different products or services and are separately managed, with separate financial information available that is separately evaluated regularly by the Company in determining the performance of the business.  Information regarding operating segments as of and for the three and six months ended June 30, 2004 and 2003, is presented in the following tables:

	Revenues		Segment income (loss)
Three months ended June 30, 2004
Wireless handset distribution segment	$	22,668,520	$	1,377,581
Automobile distribution segment	82,820		(24,809		)
Internet portal segment	19,559		(505,680		)
Total	$	22,770,899	$	847,092
Three months ended June 30, 2003
Wireless handset distribution segment	$	25,125,981	$	319,106
Automobile distribution segment	1,037,379		(94,129		)
Internet portal segment	—		—
Total	$	26,163,360	$	224,977

	Revenues		Segment income (loss)
Six months ended June 30, 2004
Wireless handset distribution segment	$	31,006,254	$	1,033,050
Automobile distribution segment	180,256		(60,509		)
Internet portal segment	19,559		(705,900		)
Total	$	31,206,069	$	266,641
Six months ended June 30, 2003
Wireless handset distribution segment	$	32,441,358	$	(124,502	)
Automobile distribution segment	1,734,094		(118,717		)
Internet portal segment	—		—
Total	$	34,175,452	$	(243,219	)

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A reconciliation from the segment information to the net income (loss) for the three and six months ended June 30, 2004 and 2003, is as follows:

	Three months ended June 30, 2004			Three months ended June 30, 2003
Segment income	$	847,092		$	224,977
Depreciation	(40,401		)	(18,675		)
	806,691			206,302
Other income (expense)	(25,898		)	21,724
Minority interest	204,644			—
Interest income (expense) (net)	16,870			(3,886		)
Income taxes	(128,945		)	—
Net income	$	873,362		$	224,140

	Six months ended June 30, 2003			Six months ended June 30, 2002
Segment income (loss)	$	266,641		$	(243,219	)
Depreciation	(102,046		)	(43,154		)
	164,595			(286,373		)
Other income	9,217			25,622
Minority interest	318,303			—
Interest expense (net)	(8,679		)	(7,305		)
Income taxes	(128,945		)	—
Net income (loss)	$	354,491		$	(268,056	)

Total assets for the operating segments at June 30, 2004 and December 31, 2003, are as follows:

	2004		2003
Wireless handset distribution segment	$	17,005,225	$	5,880,004
Automobile distribution segment	408,909		852,243
Internet portal segment	2,782,375		5,789,451
Total	$	20,196,509	$	12,521,698

Total assets based on their geographic location at June 30, 2004 and December 31, 2003, are as follows:

	2004		2003
Europe	$	818,198	$	537,660
Asia	19,293,290		11,933,000
United States	85,021		51,038
Total	$	20,196,509	$	12,521,698

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Statement Regarding Forward-Looking Statements

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements.  These statements include, without limitation, the following:

•our ability to effectively execute the business plan;

•our status as an early-stage company with an evolving, unproven and unpredictable business model;

•our ability to continue to raise additional working capital, the lack of which would likely have a significant negative impact on our long-term business plan and our ability to take advantage of our strategic alliances and to successfully execute our expansion plan;

•statements made concerning the revenues or operating performance expected for the year ending December 31, 2004;

•the increased expense structure assumed by us as a U.S. public company;

•our plans for future expansion;

•our ability to achieve satisfactory operating performance;

•the viability of our business model;

•our expansion into other businesses and pursuit of other business opportunities;

•the results of our intended diversification into other industries and geographic regions;

•the impact of the SARS virus on the economic environment;

•the PRC government which may prevent us from conducting business in China;

•political and economic events and conditions in China and other geographic markets in which we operate;

•the anticipated benefits of our industry contacts and strategic relationships;

•our ability to establish and take advantage of contacts and strategic relationships;

•our ability to offset increased operating expenses by increasing revenues and operating efficiencies;

•our ability to react to market opportunities;

•the advent of new technology;

•complex regulations that apply to us as an operating company in China and elsewhere;

•changes in interest rates, foreign currency fluctuations and capital market conditions, particularly those that may affect the availability of credit for our products and services;

•statements that contain the words “may,” “will,” “expect,” “believe,” “plan,” “intend,” “anticipate,” “estimate,” “continue,” and similar expressions; and

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•other factors including those detailed under the heading “Business Risk Factors”.

You should also be aware that those “forward-looking” statements in regards to our Internet portal business are subject to a number of further risks, assumptions and uncertainties, such as:

•our ability to capitalize on the Internet portal business joint venture;

•our lack of prior experience with the Internet portal business and our ability to develop and execute an effective business plan;

•our ability to develop the fee-based services of the Internet portal business, including assembling an experienced management team;

•the high cost of Internet access that may limit the growth of the Internet in China and impede our growth;

•e-commerce customers that have only limited experience using the Internet for advertising or commerce purposes;

•the acceptance of the Internet as a commerce platform in China which depends in part on the resolution of problems relating to fulfillment and electronic payment;

•concerns about security of e-commerce transactions and confidentiality of information on the Internet that may increase our costs, reduce the use of our portal and impede our growth;

•our network operations that may be vulnerable to hacking, viruses and other disruptions, which may make our products and services less attractive and reliable;

•PRC Internet laws and regulations that are unclear and will likely change in the near future;

•restrictions on foreign investment in the PRC Internet sector that are imposed by the PRC government; and

•regulation and censorship of information distribution in China which may adversely affect our business.

You should also be aware that those “forward-looking” statements in regards to our distribution business are subject to a number of further risks, assumptions and uncertainties, such as:

•the low-margin nature of our distribution businesses;

•changes in general business conditions or distribution channels in the wireless handset or automobile industries, and our ability to react to these changes;

•the impact of competition in the wireless handset distribution and automobile distribution industries, as well as in industries that we may operate in the future;

•our ability to continue to sell products outside of traditional distribution channels;

•our ability to continue to purchase sufficient inventory on terms favorable to us;

•our small number of current suppliers and customers;

•our lack of supply contracts with our vendors or distribution contracts with our customers;

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•the concentration of a significant portion of our wireless handset distribution business with a few large customers;

•the highly competitive and constantly changing nature of the international wireless and automobile distribution industries; and

•other factors including those detailed under the heading “Business Risk Factors” in our Annual Report on Form 10-KSB for the year ended December 31, 2003.

This list is only an example of some of the risks that may affect these forward-looking statements.  If any of these risks or uncertainties materialize (of if they fail to materialize), or if the underlying assumptions are incorrect, then actual results may differ materially from those projected in the forward-looking statements. Readers of this report should recognize that an investment in INTAC is particularly risky.

You should not unduly rely on these forward-looking statements, which speak only as of the date of this filing. Except as required by law, we are not obligated to publicly release any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this filing or to reflect the occurrence of unanticipated events. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the forward-looking statements set forth in this report.

Overview

You should read the following discussion with our consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003.

On January 15, 2004, we announced the redirection of our business plan from the traditional distribution of premium brand wireless handsets to our new Internet joint venture, Beijing Intac Purun Educational Development Ltd. (“Intac Purun”).  Intac Purun was formed in October 2003 with China Putian Corporation (“Putian”) and the Ministry of Education in The People’s Republic of China (“PRC”).  At the time of formation, the Internet joint venture was owned 45% by INTAC, 15% by Putian, 30% by a private investor group and 10% by the Ministry of Education.

In June 2004, INTAC purchased an additional 15% interest in Intac Purun from Putian for $1.5 million There exist ownership requirements under PRC law which restrict or prohibit foreign investors from operating in certain industries such as Internet content provider, online stock trading and Internet access; .  In order to meet these requirements, in June 2004 the Company made loans of $1.5 million to Mr. Zou Jingchen and Ms. Tian Jinmei.  Mr. Jingchen and Ms. Jinmei are the equity investors of Tianjin Chengtai International Trading Limited (“Chengtai”), a company incorporated in the PRC.  These loans were made to finance Mr. Jingchen and Ms. Jinmei, on behalf of the Company, for the purpose of establishing Chengtai which purchased the 15% interest in Intac Purun in June 2004 from Putian.  A total of 15% of the outstanding shares of Intac Purun, representing the 15% ownership, were pledged as collateral for these loans from INTAC and all operating, economic, voting and other rights were assigned to INTAC by Chengtai.  As further described in the Company’s accounting policies, the results of Intac Purun operations have been included in the consolidated financial statements since the incorporation of Intac Purun.  This additional 15% interest increases INTAC’s total ownership in Intac Purun to 60% with $3.8 million of invested cash.  Intac Purun is incorporated and domiciled in the PRC.

Our initial objective in 2002 was to focus on our wireless handset distribution business and establish customer relationships and supply channels in China and the Asia-Pacific Rim.  Our objective in 2003 was to continue to expand our distribution business and improve gross profit margins.  Also in 2003, our strategy was to establish relationships with Chinese telecommunications enterprises and Chinese Government entities which might lead to opportunities in other fields of interest.

Our objective in 2004 is to further enhance the business prospects and opportunities afforded by the unique database of graduate students available to Intac Purun.  The Company is exploring an array of premium products and services which will be made available through our Internet portal business.  The portal is being tailored to meet the growing student demand for these types of products and services.

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Intac Purun has been exclusively selected by the Education Management Information Center (“EMIC”), a department under China’s Education Ministry, to establish and operate the “Career Service Centers” for Chinese students.  These Career Service Centers will provide Chinese students exclusively with a full-range of career development services, which will assist these students in finding jobs and managing their careers.

Although we will de-emphasize the wireless handset and automobile distribution business, a significant portion of short-term revenues will be generated by this business.  In June 2004, the Company made the decision to phase-out the automobile distribution segment in order to devote more time and resources to the Internet portal business.  The phase-out will not have a material adverse impact on the results of operations.  The segment assets will be redeployed to the other reporting segments.

At the present time, we are focusing on generating revenues at Intac Purun through the development of new products and services, continuing to assemble an experienced management team for Intac Purun in order to execute an effective business plan and insuring that the joint venture has adequate capital to accomplish its goals.  The emphasis for the remainder of 2004 and beyond will be on the comprehensive career development services provided through Intac Purun’s Internet portal, joyba.com (www.joyba.com), and the student guidance through its Career Service Centers.

We were incorporated under the name “Commodore Minerals, Inc.” under the laws of the State of Nevada on September 20, 2000, as a development stage corporation. Our initial business operations concentrated on mineral exploration. Although we never conducted any mineral exploration activities directly, we partnered with others in mineral exploration activities.

On September 28, 2001, Mr. Zhou acquired a controlling interest in us by purchasing 7,000,000 shares of our stock in a private transaction with one of the organizers of Commodore Minerals, Inc. (“Commodore”). On October 13, 2001, we entered into a Reorganization Agreement with INTAC International Holdings Limited (“Holdings”) and the shareholders of Holdings, including Mr. Zhou, pursuant to which Mr. Zhou and the other shareholders of Holdings conveyed their stock in Holdings to us in exchange for the issuance of an aggregate of 5,000,000 shares of our common stock (the “Reorganization”). Pursuant to that transaction, Holdings became our wholly owned subsidiary and New Tech, previously a subsidiary of Holdings, became our indirect subsidiary. For more detailed information on the Change of Control, please see our Current Report on Form 8-K, filed with the U.S. Securities and Exchange Commission (“SEC”) on October 15, 2001.  For accounting purposes, the Reorganization was treated as a recapitalization of Holdings, with the effect that our historical financial statements reflect the business operations of Holdings.

We operate through sevendirect and indirect wholly-owned subsidiaries, including:

•INTAC International Holdings Limited, a Hong Kong corporation formed on January 3, 2001, which acts as our primary distributor of telecommunications products into the Asia-Pacific Rim;

•New Tech Handels GmbH, a German corporation formed on January 20, 2000 and acquired by Holdings in October 2001, which acts as our primary purchasing agent and distributor of products into Europe;

•INTAC Holdco Corp., a Delaware corporation formed on October 10, 2001, which holds certain of the shares of INTAC International Holdings Limited;

•FUTAC Group Limited, a British Virgin Islands corporation formed on January 2, 2002, which imports automobiles for distribution into mainland China;

•Global Creative International Limited, a Hong Kong corporation formed on March 15, 2002, which acts as a distributor of refurbished telecommunications products into the Asia-Pacific Rim;

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•INTAC Telecommunications Limited, a Hong Kong corporation formed on March 8, 2002, which acts as a distributor of telecommunications products into the Asia-Pacific Rim; and

•Intac (Tianjin) International Trading Co., formerly “Intac Auto Mobile Trading Company Limited”, a China corporation formed on April 9, 2002, which imports automobiles for distribution into mainland China.

We also operate through a 60% owned subsidiary:

•Beijing Intac Purun Educational Development Limited, a China corporation formed in October 2003, which provides comprehensive employment information over its Internet portal to facilitate graduates’ employment search and future career development.

In May 2004, the Company sold 800,000 shares of its unregistered, restricted common stock to an accredited investor in a private placement transaction for proceeds of $12.0 million.  This transaction was exempt from the registration requirements of the Securities Act under Rule 506 of Regulation D promulgated thereunder. Proceeds from the $12.0 million private placement will be used to expand Intac Purun’s Internet portal business, for strategic acquisitions or business alliances and for general working capital purposes.  In May 2004, the Company filed a registration statement with the Securities and Exchange Commission, registering the resale of these shares plus 1,000,000 shares from the private placement to a different shareholder completed in September 2003.  Also, the registration statement registered an additional 2,000,000 shares for possible future issuance by the Company.  The registration statement became effective on July 29, 2004.

We believe that we currently have adequate capital for at least the next twelve months; however, longer-term plans may require us to obtain additional financing through the issuance of debt, equity, other securities or a combination thereof in order to take advantage of our strategic agreements and business alliances.  Growing our business requires additional working capital.  Our inventory purchases, including purchases of wireless handsets and automobiles, generally require full payment for the products prior to delivery.  Also in some cases, we will give minimal credit terms to customers for the balance outstanding, if they have an established and good payment history with us.  In addition, we must absorb the losses of our Internet portal business until such time as its revenue levels allow it to reach and sustain a breakeven point.  Total losses of the Internet portal business were approximately $409,000 and $637,000 for the three and six months ended June 30, 2004.  Our inability to obtain additional acceptable financing would likely have a significant negative impact on our longer-term growth plans.

In addition, we may seek to obtain a working capital or other traditional loan facility from a bank or other lending source.  Unless we are able to continue to improve our operating performance, additional outside financing required to execute our longer-term business plan would be difficult to obtain on acceptable terms, if at all.  As of the date of this Report, we do not have any financing arrangements, nor do we have any commitments to obtain such an arrangement with any bank or other third party.  If we raise capital by issuing equity or convertible debt securities, the percentage ownership of our stockholders will be reduced.  Any new securities may have rights, preferences or privileges senior to those of our common shareholders.  There can be no assurances that we will be able to obtain additional financing on terms which are acceptable to us.

In addition to our current obligations, we continue to negotiate other strategic agreements and business alliances many of which will be dependent upon our obtaining additional working capital, or whose value will be materially less to the Company if we do not have the financial resources to fully exploit such opportunities.

Our forecast of the period of time through which our financial resources will be adequate to support our operations under our current plan of operation is a forward-looking statement that is subject to risks and uncertainties, and we may be required to raise additional capital prior to that time and subsequently.

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

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Results of Operations for the Three and Six Months Ended June 30, 2004 and 2003

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Revenues	$	22,770,899		$	26,163,360		$	31,206,069		$	34,175,452
Cost of goods sold	20,441,721			25,065,237			28,517,488			32,850,060
Gross profit	2,329,178			1,098,123			2,688,581			1,325,392
Operating expenses
Distribution expenses	272,800			182,221			403,212			250,728
Selling, general and administrative expenses	1,249,687			709,600			2,120,774			1,361,037
Total expenses	1,522,487			891,821			2,523,986			1,611,765
Income (loss) from operations	806,691			206,302			164,595			(286,373		)
Other income (expenses)
Foreign currency exchange gain (loss)	(28,858		)	7,528			902			3,131
Interest income (expense), net	16,870			(3,886		)	(8,679		)	(7,305		)
Minority interest in loss of consolidated joint venture	204,644			—			318,303			—
Other income, net	2,960			14,196			8,315			22,491
Total other income	195,616			17,838			318,841			18,317
Income (loss) before income taxes	1,002,307			224,140			483,436			(268,056		)
Income taxes	(128,945		)	—			(128,945		)	—
Net income (loss)	$	873,362		$	224,140		$	354,491		$	(268,056	)
Net income (loss) per share – basic	$	0.04		$	0.01		$	0.02		$	(0.01	)
Net income (loss) per share – diluted	$	0.04		$	0.01		$	0.02		$	(0.01	)
Weighted average number of shares outstanding  – basic	20,456,122			19,189,455			20,322,788			19,189,455
Weighted average number of shares outstanding  – diluted	20,898,939			19,479,034			20,767,863			19,189,455

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Results of Operations for the Three and Six Months Ended June 30, 2004, Compared to the Three and Six Months Ended June 30, 2004

Revenue:  Revenue decreased by $3.4 million, or 13%, to $22.8 million for the three months ended June 30, 2004, from $26.2 million for the same quarter in 2003. Revenue decreased by $3.0 million, or 9%, to $31.2 million for the six months ended June 30, 2004 from $34.2 million for the same period in 2003.  The decreases in revenues are due to a decrease in sales volume and no material increase in sales prices.  The Company concentrated on higher margin wireless handset products for profitability as opposed to sales volume during the three months ended June 30, 2004.  The 2004 revenue was comprised of the distribution of wireless handsets ($22.7 million and $31.0 million, respectively, for the three and six months ended June 30, 2004), the Internet portal business ($20,000 for both the three and six months ended June 30, 2004) and the distribution of automobiles ($83,000 and $180,000, respectively, for the three and six months ended June 30, 2004).  The 2003 revenue was comprised of the distribution of wireless handsets ($25.1 million and $32.4 million, respectively, for the three and six months ended June 30, 2003) and the distribution of automobiles ($1.0 million and $1.7 million, respectively, for the three and six months ended June 30, 2003).   The first quarter is typically negatively affected by seasonality issues associated with the wireless handset market in China. Based upon the prior year and Company projections, we anticipate revenues for the remaining six months as compared to the prior six months to increase for the remainder of 2004.

Gross Profit: Gross profit increased by $1.2 million to $2.3 million for the three months ended June 30, 2004 from $1.1 million for the same quarter in 2003. Gross profit increased by $1.4 to $2.7 million for the six months ended June 30, 2004 from $1.3 million for the same period in 2003.  The gross margin increased by 6.0% to 10.2% for the three months ended June 30, 2004 from 4.2% for the same quarter in 2003.  The gross margin increased by 4.7% to 8.6% for the six months ended June 30, 2004 from 3.9% for the same period in 2003.  The increase is due to the focus on higher margin wireless handset products as opposed to sales volume during the three months ended June 30, 2004.

Operating Expenses:  Distribution expenses increased by $90,579 to $272,800 for the three months ended June 30, 2004 from $182,221 for the same quarter in 2003, and as a percentage of revenue, increased to 1.2% in 2004 from 0.7% in 2003.  Distribution expenses increased by $152,484 to $403,212 for the six months ended June 30, 2004 from $250,728 for the same period in 2003, and as a percentage of revenue, increased to 1.3% in 2004 from 0.7% in 2003.  These costs increased due to overall price increases from common carriers and special logistics arrangements required for delivery of certain products.

Selling, general and administrative expenses increased by $504,087 to $1,249,687 for the three months ended June 30, 2004 from $709,600 for the same quarter in 2003, and as a percentage of revenue, increased to 5.5% in 2004 from 2.7% in 2003.  Selling, general and administrative expenses increased by $759,737 to $2,120,774 for the six months ended June 30, 2004 from $1,361,037 for the same period in 2003, and as a percentage of revenue, increased to 6.8% in 2004 from 4.0% in 2003.  This overall increase in total expense has been primarily due to the formation of our new Internet joint venture, Intac Purun, in October 2003.  The overall impact of increased costs from Intac Purun in the three and six months ended June 30, 2004 was $409,000 and $637,000, respectively.  Specifically, for the six months ended June 30, 2004, the significant components of the overall cost increase are $225,000 that relates to increased salary and staff costs, $166,000 that relates to increased promotion and business development costs, $128,000 that relates to increased equipment costs, $118,000 that relates to increased rents and occupancy costs, and $113,000 that relates to increased professional and banking services.

Income (loss) from operations:  Income from operations for the three months ended June 30, 2004 was $806,691 as compared to $206,302 for the three months ended June 30, 2003.  The income from operations for the six months ended June 30, 2004 was $164,595 as compared to the loss of ($286,373) for the six months ended June 30, 2003.  The improvement in income (loss) from operations is primarily due to the improved gross profit margins partially offset by the increased costs from our new Internet joint venture, Intac Purun, in 2004.

Other income (expenses): Foreign currency exchange for the three months ended June 30, 2004 was a loss of $28,858 and for the six months ended June 30, 2004 was a gain of $902, as compared to a gain of $7,528 and $3,131 for the same periods in 2003. These fluctuations are due to the movement in the Euro, in which many of our inventory purchases are made.

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Interest income (expense), net was income of $16,870 for the three months ended June 30, 2004 and an expense of $8,679 for the six months ended June 30, 2004, as compared to an expense of $3,886 and $7,305 for the same periods in 2003. This increased income was due to the increase in invested cash as a result of the recent private placement.

Minority interest in the loss of the consolidated joint venture was $204,644 and $318,303 for the three and six months ended June 30, 2004, as compared to $0 for the both periods in 2003. This relates to Intac Purun and represents the portion of Purun’s loss attributable to the other joint venture partners.

Net income (loss):  Net income for the three months ended June 30, 2004 and 2003 was $873,362 and $224,140, respectively.  The net income for the six months ended June 30, 2004 was $354,491 as compared to a net loss of ($268,056) for the six months ended June 30, 2003.  The improved net income was primarily due to the improved gross margins and was attained even with absorbing net losses related to Intac Purun.

Liquidity and Capital Resources

We maintained unrestricted cash of $11,360,550 as of June 30, 2004 and working capital of $16,130,230 as of that date.

Our wireless handset and automobile revenues are primarily generated from a quick turn of product.  We do not maintain any inventory of wireless handsets; however, due to the timing of the products being received and then being shipped to customers, we may hold the products for a minimal time period, commonly a few days.  Furthermore generally our customers will pay within a few days of receiving and inspecting the product.  Our business model generally requires a deposit by the customer; however, in some cases, we will give minimal credit terms to customers for the balance outstanding if they have an established and good payment history with us.  Similarly for a significant portion of our purchases, we are required to pay deposits to our suppliers for down payments for wireless handsets and vehicles.

The Company measures liquidity through working capital (measured by current assets less current liabilities).  As of June 30, 2004 and December 31, 2003, INTAC maintained working capital of $16,130,230 and $5,323,205, respectively.  The increase in working capital is primarily due to the equity financing of $12.0 million raised in May 2004 and the net income of the Company partially offset by the decrease in trade accounts payable.

For the six months ended June 30, 2004, cash used in operating activities totaled $1,805,365.  The use of funds was primarily due to non-cash items, the increase in trade accounts receivable, foreign sales tax receivable and inventories, and a decrease in trade accounts payable and accrued expenses and deposits received, partially offset by the net income of the Company, a decrease in deposits paid and advances to officers of subsidiaries and employees, and an increase in income taxes payable.  For the six months ended June 30, 2003, cash provided by operating activities totaled $211,181. The cash provided was primarily due to the decrease in inventories, foreign sales tax receivable, deposits paid and non-cash charges, partially offset by the net loss of the Company and an increase in trade accounts receivable.

For the six months ended June 30, 2004, cash provided by investing activities amounted to $2,572,407 due to the decrease in the restricted cash deposit partially offset by the purchase of equipment.  For the six months ended June 30, 2003, cash used in investing activities amounted to $44,097 due to the purchase of equipment and other assets.

For the six months ended June 30, 2004, cash provided by financing activities amounted to $7,782,934 primarily due to the proceeds from issuance of common stock partially offset by the repayment of the borrowings from bank and the additional investment in Intac Purun.  For the six months ended June 30, 2003, cash used in financing activities amounted to $50,041 and was due to the repayment of borrowings from a shareholder.

In May 2004, the Company sold 800,000 shares of its unregistered, restricted common stock to an accredited investor in a private placement transaction for proceeds of $12.0 million.  This transaction was exempt from the registration requirements of the Securities Act under Rule 506 of Regulation D promulgated thereunder.  Proceeds

22

from the $12.0 million private placement will be used to expand Intac Purun’s Internet portal business, for strategic acquisitions or business alliances and for general working capital purposes. The Company filed a registration statement in May 2004 with the Securities and Exchange Commission, registering the resale of these shares plus 1,000,000 shares from the private placement completed in September 2003.  Also, the registration statement registered an additional 2,000,000 shares for possible future issuance by the Company.  The registration statement became effective on July 29, 2004.

The Company currently has adequate capital for at least the next twelve months; however, longer-term plans may require the Company to obtain additional financing through the issuance of debt, equity, other securities or a combination thereof in order to take advantage of our other strategic agreements and business alliances.  In addition, the Company may seek to obtain a working capital or other traditional loan facility from a bank or other lending source.  Unless the Company is able to continue to improve its operating performance, additional outside financing required to execute its longer-term business plan would be difficult to obtain on acceptable terms, if at all. As of the date of this Report, we do not have any other financing arrangements, nor do we have any commitments to obtain such an arrangement with any bank or other third party. If the Company raises capital by issuing equity or convertible debt securities, the percentage ownership of its stockholders will be reduced. Any new securities may have rights, preferences or privileges senior to those of its common shareholders. There can be no assurances that the Company will be able to obtain additional financing on terms which are acceptable to it.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For information regarding our exposure to certain market risks, see “Business Risk Factors” in INTAC International, Inc.’s Annual Report on Form 10-KSB for the year ended December 31, 2003.

Item 4. Controls and Procedures

Under the supervision and with the participation of our Management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d -15(e) under the Securities Exchange Act of 1934, as of June 30, 2004. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q such that the material information required to be included in our Securities and Exchange Commission (“SEC”) reports is recorded, processed,  summarized and reported within the time periods specified in SEC rules and forms relating to the Company,  including our consolidated subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared.  In addition, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, these controls during the quarter or from the date of our review.

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PART II - OTHER INFORMATION

Item 1.Legal Proceedings.

None

Item 2.Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

In May 2004, INTAC sold 800,000 shares of unregistered, restricted common stock to an accredited investor in a private placement transaction under Rule 506 of Regulation D of the Securities Act, for proceeds of $12.0 million.  Proceeds of the private placement will be used to fund INTAC’s participation in Intac Purun, as well as for working capital. In May 2004, the Company filed a registration statement with the Securities and Exchange Commission, registering the resale by the selling shareholder of these shares plus 1,000,000 shares by a different selling shareholder from the private placement completed in September 2003.  Also, the registration statement registered an additional 2,000,000 shares for possible future issuance by the Company.  The registration statement became effective on July 29, 2004.

Item 3.Defaults Upon Senior Securities.

None

Item 4.Submission of Matters to a Vote of Security Holders.

At our Corporation’s Annual Stockholders’ Meeting on June 8, 2004, stockholders elected each of the director nominees and ratified the selection of our independent auditors.

	Number of Shares
	Voted For	Voted Against	Abstain	Broker Non - Votes
1. To elect a board of directors to hold office until the next annual stockholders’ meeting or until their respective successors have been elected or appointed.
W. Zhou	12,016,883	—	15,669	—
D. Darnell	12,016,883	—	15,669	—
T. Botts	12,016,883	—	15,669	—
Q. Feng	12,016,883	—	15,669	—
K. Jones	12,016,883	—	15,669	—
H. Stein	12,016,883	—	15,669	—
L. Weil	12,016,883	—	15,669	—

	Number of Shares
	Voted For	Voted Against	Abstain	Broker Non - Votes
2. To ratify selection of KBA Group LLP as our independent auditors.	12,016,883	40,000	6,038	—

Item 5.Other Information.

None

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Item 6.Exhibits and Reports on Form 8-K.

(a)	Exhibits
	Exhibit 10.1	Share Transfer Agreement (filed herewith).
	Exhibit 10.2	Loan and Interest Pledge Agreement (filed herewith).
	Exhibit 10.3	Subscription and Investment Representation Agreement, dated as of May 13, 2004, between INTAC International, Inc. and an accredited investor (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 26, 2004 and incorporated by reference herein).
	Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	Exhibit 32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b)	Reports on Form 8-K.
	On May 26, 2004, we filed a Current Report on Form 8-K in connection with a press release regarding our announcement that INTAC had sold 800,000 shares of its unregistered, restricted common stock to an accredited investor in a private placement transaction for proceeds of $12.0 million.

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SIGNATURES

In accordance with the requirements 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.

	INTAC INTERNATIONAL, INC.
Date:  August 16, 2004
	By:	/s/ J. David Darnell
		J. David Darnell Senior Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)

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INDEX TO EXHIBITS

EXHIBIT NO.	DOCUMENT
10.1	Share Transfer Agreement (filed herewith).
10.2	Loan and Interest Pledge Agreement (filed herewith).
10.3	Subscription and Investment Representation Agreement, dated as of May 13, 2004, between INTAC International, Inc. and an accredited investor (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 26, 2004 and incorporated by reference herein).
31.1	Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Principal Executive Officer and Principal Financial Officer 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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EX-10.1

Exhibit 10.1

SHARE TRANSFER AGREEMENT

THIS SHARE TRANSFER AGREEMENT (the “Agreement”) is made and entered as of 16^th June 2004, by and among:

Mr. Zou Jingchen (“Zou”):	Addresss: Rm 5, Blk 18, No.14 DongFeng EastRoad, PanLong District, KunMing, YunNan, China
	ID No. 530103620606291
	Tel: 13302068348
Ms. Tian Jinmei (“Tian”):	Addresss:No.19 BaiTa Road, PanLong District, KunMing, YunNan. China
	ID No. 530103780603298
	Tel: 0086871-4603928
Mr, Li Yin (“Li”)	Addresss:Rm1-7, Blk 9, No.14 DongFeng EastRoad, PanLong District, KunMing, YunNan, China
	ID No. 530103711220297
	Tel:  13820906603
Ms.Wu Fengzheng (“Wu”):	Addresss:Blk 12, worker new-village, WuHua & PanLong District, KunMing, YunNan, China
	ID No. 530102196212052427
	Tel:  13888878870

DEFINITIONS

A.“Company” shall mean Tianjin Chengtai International Trading Ltd., a corporation organized and existing under the laws of China, having its registered office at Room 503, No.18 Guo Mao Road, Free Trade Zone, Tianjin China , which is jointly invested by Tian and Li.

RECITALS

A.Zou desires to acquire, and Tian desires to sell to Zou, all of her shares in the Company.

B.Li, as a shareholder of the Company, agree to renounce his preempt interest in acquiring the shares. The Board of Directors of the Company has determined that

transferring the shares owned by Tian to Zou (the “Transactions”) are fair to, and in the best interests of, the Company and its shareholders, and agreed to pursuant to the terms and condition as stated in this Agreement.

C.Wu desires to acquire, and Li desires to sell to Wu, all of his shares in the Company

D.Tian, as a shareholder of the Company, agree to renounce his preempt interest in acquiring the shares. The Board of Directors of the company has determined that transferring the shares owned by Li to Wu (the “Transactions”) are fair to, and in the best interests of, the Company and its shareholders, and agreed to pursuant to the terms and condition as stated in this Agreement.

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties agree as follows:

AGREEMENT

1.Organization of the Company

The Company has a register capital of 7.50 Millions Reminbi, which Tian and Li invested and owned 90% and 10% of the shares respectively.

2.Representations and Warranties of Tian

2.1.Tian hereby warrants that all the representation and warranties shall be correct and true as follows:

2.1.1.Tian has the right and power to own, lease or otherwise hold its properties and assets and to carry on its business as now conducted, and has the right to legal transfer its shares to Zou.

2.1.2.The Company is duly qualified or licensed to do business according the law of China, PRC, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary.  It is in compliance with the terms of all Authorizations and all laws, ordinances regulations and decrees which to the Company’s knowledge are applicable to the Business

2.1.3.The Company shall renew its business licenses every year from the related business administration department.

2.1.4.All shareholders have invested their shares of equity capital to the Company

2.1.5.The audited consolidated balance sheets of the Company as of December 31, 2003, and the related audited statements of operations, consolidated changes in shareholders’ equity and consolidated statements of cash flows for the year then ended, together with all related notes and schedules thereto represents true and complete financial status of the the Company

2.1.6.The Company controls all rights on its assets and capitals. No third parties hold any remedy, claim, liability, reimbursement, cause of action, or any other right.

2.1.7.The Company does not have any debts, liabilities or obligations of any nature as of the date of signed of this Agreement and transfer of the shares of the Company to Zou.

2.1.8.With respect to all leased property that the Company lease, the Company has good and clear record and marketable title to such parcel, free and clear of any Lien, easement, covenant or other restriction. The Company shall continue to hold the rights to use and lease the property after the transfer of shares.

2.1.9.The Company has timely paid and will timely pay all Taxes required to be paid on or before the Transaction for all periods up to.  There is no taxation liability as of the date of signed of the Agreement.

2.1.10.There are no disputes or collective labor negotiation involving the Company as of the date of signed of the Agreement.

2.1.11.To the Company’s knowledge after reasonable investigation, the Company has not been sued or charged or been a defendant in any claim, suit, action or proceeding which involves a claim of infringement of any intellectual property rights.

2.1.12.There is no litigation, grievance, suit, claim, action, proceeding or investigation pending or, to the knowledge of the Company, threatened against the Company or any property or asset owned or used by the Company.

2.1.13.The Company shall continue its operations and daily business activities carefully during the period between sign of the Agreement and registration on changes of shareholders of the Company, and Zou takes over of the company seal and account book.

2.1.14.During the period between sign of the Agreement and registration on changes of shareholders of the Company, and Zou takes over of the company seal and account book, Tian and the Company shall not engage in sale and mortgage of any fixed assets of the Company.

2.1.15.Tian and company invested by Tian, including subsidiaries and joint venture companies, shall not involve directly or indirectly in the same businesses of the Company after its withdrawal of the Company.

3.Representations and Warranties of Li

Li hereby warrants that all the representation and warranties shall be correct and true as of the Representations and Warranties of Tian as set forth.

4.Declaration of Other Shareholders of the Company

Li agrees to amend the constitution of the Company at the time when applying for change of company’s shareholders.  The amendment shall include but not limited to the followings:

4.1.Set up an Executive Director position, and Zou shall take this position with a tenure of 3 years.

4.2.Set up a General Manager position under the employment of the Company, which Zou shall assign the candidate.

4.3.Set us a Chief Financial Officer position under the employment of the Company, which Zou shall assign the candidate.

Tian agrees to amend the constitution of the Company at the time when applying for change of company’s shareholders, which Wu become the new shareholder of the Company  The amendment shall include but not limited to the provisions same as above.

5.Purchase and Sale of Stock

5.1.Tians agrees to sale and transfer all its interests of the Company to Zou.

Upon the transaction is completed, Zou shall possess 90% shares of the Company and Tian will no longer hold any rights of the Company.

Zou shall obtain all the rights and interests from the shares upon the signed of this Agreement.

5.2.Li agrees to sale and transfer all its interests of the Company to Wu

Upon the transaction is completed, Wu shall possess 10% shares of the Company and Li will no longer hold any rights of the Company.

Wu shall obtain all the rights and interests from the shares upon the signed of this Agreement.

6.Purchase Price and Payment

6.1.Tian sells all her shares of the Company for a total purchase price of 1.35

Millions USD; Li sells all his shares of the Company for a total purchase price of 0.15 Millions USD.

6.2.Zou and Wu shall own all the rights and interests according to the ratio of its shareholding of the Company upon the date of the execution of this Agreement, where Tian and Li will no longer possess any rights set forth.

6.3.Zou shall provide one time payment to Tian and Wu shall also provide one time payment to Li for acquisition of the shares of the Company within 30 days after the signed of this Agreement.

7.Fees and Expenses

7.1.Each party will pay all of his, her or its own expenses in connection with the negotiation of this Agreement, the performance of his, her or its obligations hereunder the consummation of the transactions contemplated hereby.

7.2.Tian and Li shall be responsible all charges imposed on examining the documentation of this Agreement.

8.Tax and Legal Matters

8.1.Tian and Li shall be responsible for all tax liability prior to the signed of the Agreement, which has not been account in the taxpaying reserve.

8.2.Tian and Li understands that according to the laws of China, PRC, they shall be responsible for their own tax liability that may arise as a result of the sale of stocks transfer.

9.Indemnification

Shall failure by such Tian and Li failed to perform any of his or her covenants or agreements contained in this Agreement, Zou and Wu shall have to right to terminate this Agreement.

10.Confidentiality

Confidential Information of each party will be used by the other party solely for the purposes permitted by the Agreement.  All confidential Information will be received and held in confidence by the receiving party, subject to the provisions of this agreement. Unless other provided for in writing by the other Parties, each of the parties shall, during the term of this agreement, thereafter, maintain in confidence, and shall use only in furtherance of the purpose of this Agreement, all confidential and trade secret information supplied to it and indicated as such by the other Party, known as such by it or commonly treated as such by commercial enterprises.

11.Force Majeure

Neither party shall be held responsible for any delay or failure in performance of any part of this Agreement to the extent such delay norfailure is caused by causes beyond its control and without the fault or negligence of the delayed or non performing party orits subcontractors.

12.Arbitration

12.1.This Agreement shall be governed in all respects by the laws of China, PRC with regard to principles of conflicts of law.

12.2.The parties will attempt in good faith to resolve any dispute arising out of or relating to this agreement promptly by negotiation between or among representatives who have authority to settle the controversy.  All disputes, claims, and questions regarding the rights and obligations of the parties under the terms of this agreement are subject to arbitration.

13.General Provisions

13.1.This Agreement constitutes the entire agreement and understanding of the Parties with respect to the subject matter hereof and supersedes all prior negotiations, promises, supplementary documentations and/or agreements entered into prior to this Agreement with respect to the subject matter hereof.

13.2.No other agreement hereafter in any way modifying or supplementing this Agreement will be binding unless confirmed in writing by the Parties or as otherwise stipulated in this Agreement.

13.3.Shall any provisions of this Agreement be invalid or unenforceable, both parties shall attempt in good faith to negotiate and come into an agreement on a valid and enforceable provision, which is on the verge of the objectives of the original invalidate and unenforceable provisions.

13.4.If any changes in laws and regulation which causes any provision of this Agreement to be invalid, such invalidity or unenforceability shall not invalidate or render unenforceable the entire Agreement, but rather the entire Agreement shall be construed as if not containing the particular invalid or unenforceable provision or provisions, and the rights and obligations of both parties shall be construed and enforced accordingly.

13.5.Either party’s failure to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party thereafter from enforcing each and every other provision of this Agreement.

14.Miscellaneous

14.1.There are six (6) copies of this Agreement.  Each party shall retain one (1) copy and whereas each copy shall have the same legal binding subsequent to the endorsement of the Agreement.  Two (2) copies are for application of approval and change of registry.

14.2.This Agreement shall be effective upon the fulfillment of the conditions hereunder:

14.2.1.This agreement shall be signed by the duly authorized representatives of the Company.

14.2.2.This Agreement shall be approved by related government department. There shall not be any amendment or any additional terms and provisions being added after approval.

14.2.3.If the related government department tables an amendment proposal, both parties shall start negotiation to resolve the problems.  The new term shall not be limited to the suggested proposal of the government department.  The amended Agreement shall be submitted to the government department for approval according to the requirement as set forth in 14.2.2 before signed and implemented by both parties.

14.2.4.Shall the approval being granted by the government department, Zou, Tian and the Other Shareholders of the Company shall promptly apply for change of shareholders and new business license from the Commerce Department.

15.Notices

Any notice, demand or request required or permitted to be given by the Seller, the Purchaser or the Company pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally or, if sent by mail, at the earlier of its receipt.

Any changes of the notify address, tel. no., fax. No. and contact person as set forth in the Agreement, the party shall inform the other parties in writing 15 days before the validity of new contact information.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date first above written.

/s/ Zou, Jingchen

Zou, Jingchen

/s/ Ms. Tian Jinmei

Ms. Tian Jinmei

/s/ Mr, Li Yin

Mr, Li Yin

/s/ Ms.Wu Fengzheng

Ms.Wu Fengzheng

EX-10.2

Exhibit 10.2

LOAN AND INTEREST PLEDGE AGREEMENT

This Loan and Interest Pledge Agreement (the” Agreement”) is made to be effective as of the 21^st day of June 2004, by Zou Jingchen [CHINESE SYMBOLS](“Zou”), Wu Fengzheng [CHINESE SYMBOLS] (“Wu”) and Intac International Holdings Ltd.(“INTAC”)

WHEREAS, INTAC desires to loan One Million and Five Hundred Thousand US Dollars (US$1,500,000) to two individuals, Zou and Wu;

WHEREAS Zou and Wu intend to use this USD $1,500,000 to purchase a one hundred percentage (100%) ownership share (the “Interest”) of Tianjin Chengtai International Trading Ltd [CHINESE SYMBOLS](“Chengtai”)  which has fifteen percentage (15%) ownership share in a joint venture called Beijing Intac Purun Educational Development Ltd (“Beijing Joint Venture”)

WHEREAS Zou and Wu intend to transfer such Interest to INTAC upon INTAC’s request.

WHEREAS, Zou and Wu and INTAC intend to secure the loan from INTAC to Zou and Wu with a security interest in the Interest.

NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual promises herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Zou, Wu and INTAC agree as follows:

1.AMOUNT AND REPAYMENT OF THE LOAN

1.1Loan Amount. INTAC agrees, subject to the terms and conditions of this Agreement, to extend a loan to Zou and Wu in a total amount of One Million and Five Hundred Thousand US Dollars (US$1,500,000) (the”Loan”). The Loan shall be interest-free. The Loan amount shall be provided to Zou and Wu on 23 June , 2004.

1.2Date of Repayment. The Loan, together with any other monies owing under this Agreement by Zou and Wu, shall become repayable upon the earliest to occur of any of the following events (each a “Repayement Date”)

1

1.2.1in full, on the occurrence of an Event of Default;

1.2.2in full or in part, at INTAC’s sole discretion upon any date selected by INTAC.

1.3Loan Repayment. Without INTAC’s further written consent, repayment will be made by means of assigning all rights, title and interest in the Interest to INTAC by execution of an Assignment reasonably acceptable to INTAC. Zou and Wu hereby agree to assign and / or to cause Chentai to assign, all right, title and interest in the Interest to INTAC immediately upon INTAC’s request as set forth below.

2.REPRESENTATIONS AND WARRANTIES OF ZOU AND WU

2.1Representations and Warranties. Each of Zou and Wu hereby represents and warrants to INTAC that:

2.1.1the Loan will be used solely for the purpose of purchasing the Interest

2.1.2they have and shall maintain the full power and authority to enter into this Agreement, to borrow the Loan and to perform their obligations hereunder;

2.1.3there are no civil or criminal, claims, actions, suits, investigations or proceedings pending or, to their knowledge, threatened against them;

2.1.4there is no provision of any agreement, enforceable judgment or order of any court binding on them or affecting their property, which would in any way prevent or materially adversely affect their execution or performance of this agreement

2.1.5the execution and performance of this Agreement and the realization of INTAC’s rights hereunder will not violate any mortgage right, contract judgment, decree or law that is binding upon it or its assets;

2.1.6the Loan and/ or transfer of the Interest as contemplated herein will not result in the violate any state, federal, international or other law;

2.1.7they shall not, directly or indirectly, engage in any business activities that compete with the Beijing Joint Venture for a period of two (2) years from the effective date of this Agreement.

2.1.8They will, at any time, defend the Interest against any third party claims;

2.1.9Without the consent of INTAC, except as expressly permitted hereunder, they will not arrange or otherwise permit or cause the issuance of any new interests in the Beijing Joint Venture.

2.1.10They shall so or cause to be done all such acts, and execute or cause to be executed any necessary documents and registrations, such that the

2

conversion of the Loan, the Interest Transfer (defined below) and all other transactions contemplated hereunder are effected in a legal and valid manner; and

2.1.11They shall maintain as strictly confidential the existence and provisions of this Agreement, as well as of any correspondence, resolutions, ancillary agreements and any other documentation associated herewith.

3.CONVENANTS

3.1   Affirmative Covenants   Each of Zou and Wu hereby covenants that she will furnish to INTAC, within 10 days after the end of each month after Chengtai and Beijing Joint Venture have been established, with financial statements of such entities and such additional information as INTAC may from time to time reasonably request.

3.2   Further Covenants   Each of Zou and Wu further covenants that, from the effective date hereof until full repayment of the Loan has been effected, she will not, directly or indirectly, and will ensure that Beijing Joint Venture does not, except with the prior written consents of INTAC:

3.2.1 incur or assume any debt that is not due and payable in the ordinary course of its business;

3.2.2 incur or assume any mortgage, pledge or other encumbrance of any kind upon any assets of Beijing Joint Venture, whether now owned or hereafter acquired;

3.2.3 enter into any agreement, arrangement, commitment or understanding to, or actually, acquire all or part of the substantial assets of any third party;

3.2.4 enter into any agreement, arrangement, commitment or understanding to, or actually, sell, lease, or otherwise dispose of any assets of Beijing Joint Venture, except in the ordinary course of business;

3.2.5 enter into any agreement, arrangement, commitment or understanding to, or actually, make loans or advances to any third party;

3.2.6 enter into any agreement, arrangement, commitment or understanding to, or actually, assume, guarantee, endorse or otherwise become liable for the obligation of any third party or other entity; or

3.2.7 permit the Beijing Joint Venture to conduct any business other than obtaining a nationwide content provider license for China from the Chinese Ministry of Information Industry and offering information services over mobile and internet networks pursuant to such license.

3.3   Rights of INTAC.  Zou and Wu agree that they shall obtain INTAC’s written approval prior to undertaking any of the following, directly or indirectly:

3

3.3.1appointing or removing the directors of the Beijing Joint Venture;

3.3.2appointing or removing the general manager of the Beijing Joint Venture;

3.3.3approving the terms of employment of the Beijing Joint Venture;

3.3.4appointing or removing any of the senior management personnel and any key personnel of the Beijing Joint Venture;

3.3.5approving the terms of employment of the senior management personnel and key personnel of the Beijing Joint Venture; and/or

3.3.6approving or authorizing any other operations of the business conducted by the Beijing Joint Venture.

4.INTEREST PLEDGE/ASSIGNMENT OF RIGHTS

4.1   Interest Pledge.  As security for the performance in full of the obligations of Zou and Wu under this Agreement, Zou and Wu each hereby pledges to INTAC (and will cause ChengTai to pledge to INTAC), and creates (and will cause Chengtai to create) in favor of INTAC or INTAC’s designee (as appropriate), a first priority security interest in all of the rights, title and interest in and to:

4.1.1the Interest; and

4.1.2all of her incidental rights with respect to the Interest, now or hereafter acquired.

Such security interest shall be perfected by such actions by Zou and Wu, individually, or on behalf of Chengtai, as may be reasonably requested by INTAC from time to time.

4.2   Power of Attorney.  Each of Zou and Wu hereby irrevocably grants and will cause Chengtai to grant to INTAC or its designee (as appropriate) full power of attorney for the purpose of carrying out the provisions of this Agreement, as well as taking any action and executing any instrument that INTAC in good faith deems necessary to accomplish for purposes of this Agreement.

4.3   Rights Assignment.  As of the Effective Date, and without actually assigning or transferring the Interest, Zou and Wu agree to assign or agree to cause Chengtai, as the case may be, to assign all of their respective rights whether economic, voting, operational or otherwise, in the Beijing Joint Venture to INTAC.

4

5.EVENTS OF DEFAULT

5.1   The occurrence of any of the following events shall constitute a default of the Loan hereunder and a breach of this Agreement by Zou and/or Wu (as appropriate) (an “Event of Default”):

5.1.1Interest Transfer (as defined below) has not been effected within ten (10) working days after the corresponding Conversion Date (as defined below) or such time as may otherwise be agreed upon by the Parties;

5.1.2either Zou or Wu is in breach of any of the terms and conditions hereof, and such breach has not been cured within 10 days after receipt of INTAC’s written notice of such breach;

5.1.3any representation or warranty made by either Zou or Wu herein shall prove to have been false or misleading in any material respect;

5.1.4Zou or Wu makes any arrangement with her respective creditors or takes or suffers any similar action in consequence of debt; or

5.1.5Any judgment is made under any applicable law against Zou or Wu that exceeds Fifty Thousand United States Dollars ($50,000.00).

6.LOAN CONVERSION

6.1   Share Conversion.    As of the Repayment Date, the Loan shall be convertible into the Interest on the basis that 100 percent of the Loan amount equals 100 percent of the Interest. For the avoidance of doubt, if 10 percent of the Loan were repayable by Zou and/or Wu, then such Party or Parties, as the case may be, would be required to transfer 10% of the Interest to INTAC. The Loan shall become repayable to such extent as INTAC may from time to time request, until the entire Loan amount has been repaid. INTAC shall request to convert all or a percentage of the Loan by means of a written notice to Zou and Wu that specifies the percentage of the Loan to be converted into part of the Interest (“Conversion Notice”).

6.2   Interest Transfer.

6.2.1  Immediately upon receipt of a Conversion Notice (“ConversionDate”), Zou and Wu shall effect or cause Chengtai to effect the transfer of the portion of the Interest designated in the Conversion Notice, either to INTAC directly or to the designee specified by INTAC in the Conversion Notice (each an “Interest Transfer”).

5

6.2.2  For the avoidance of doubt, upon the completion of the conversion of the Loan and the transfer of all of the Interest of Zou, Wu and/or Chengtai, as applicable, (whether pursuant to this Article 6 or an Event of Default), INTAC shall hold as much of the Interest as is permissible under any published and available laws and regulations of the People’s Republic of China (“PRC”), and the remainder of the Interest (if applicable) shall be held by the designees of INTAC, with Zou, Wu and/or Chengtai no longer holding any part of the Interest. At such time, this Agreement shall be deemed to have terminated, and the obligations of Zou and Wu hereunder to have been fulfilled (with the exception of those under 2.1.10 and 2.1.11).

6.3   Delay.    Zou and Wu each agrees to notify INTAC immediately of any delay in effecting an Interest Transfer or completing the procedures described in Article 6.2 above, together with the reason for such delay and revised effective date of the Interest Transfer.

6.4   Repayment of Loan.    The corresponding portion of the Loan shall be deemed to have been repaid as of the effective date of each Interest Transfer. Once Zou, Wu and/or Chengtai have completed the Interest Transfers in accordance with the provisions of this Article 6, the Loan shall be deemed to have been repaid in full and Zou and Wu shall be deemed to have performed their repayment obligations hereunder.

7.MISCELLANEOUS

7.1   Notices and Delivery.    All notices and communications among the Parties shall be made in writing and in the English or Chinese language by facsimile transmission with confirmation of transmission, delivery in person (including courier service) or registered airmail letter to the appropriate correspondence addresses set forth below:

If to Zou:	No.502 MINGZHU Garden B2
	NANHAI 11 ROAD, TEDA, TIANJIN
	Tel	:0086-13302068348
	Post code: 300457
If to Wu:	No.502 MINGZHU Garden B2
	NANHAI 11 ROAD, TEDA, TIANJIN
	Tel	:0086-133888878870
	Post code: 300457
If to INTAC:	Unit 6-7, 32/F., Laws Commercial Plaza
	788 Cheung Sha Wan Road, Kowloon, Hong Kong

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7.2   Timing.    The time of receipt of the notice or communication shall be deemed to be:

7.2.1  If by facsimile transmission with confirmation of transmission, at the time displayed in the corresponding transmission record, unless such facsimile is sent after 5:00 p.m. or on a non-business day in the place where it is received, in which case the date of receipt shall be deemed to be the following business day;

7.2.2  if in person (including express mail), on the date that the receiving Party or a person at the receiving Party’s address signs for the document; or

7.2.3  if by registered mail, on the 10^th day after the date that is printed on the receipt of the registered mail.

7.3   Foreign Exchange.  All amounts payable by Zou and Wu hereunder, if paid in cash pursuant to the terms of this Agreement, shall be paid in United States Dollars.  If, as a result of foreign exchange restrictions in the PRC, it becomes illegal for either Zou or Wu to make any payment to INTAC in United States Dollars, then she shall make that payment in any other currency permitted for such purposes, as shall be stipulated by INTAC at its sole discretion.

7.4   Amendments.    The provisions of this Agreement may not be waived, modified or amended except by an instrument in writing signed by the Parties (which instrument shall be attached as an Appendix hereto).

7.5   No Waiver.    Failure or delay on the part of any Party to exercise any right under this Agreement shall not operate as a waiver thereof.

7.6   Severability.    The invalidity of any provision of this Agreement shall not affect the validity of any other provision of this Agreement that is unrelated to that provision.

7.7   Survival.    The confidentiality obligations of the Parties hereunder shall remain in full force and effect regardless of the termination of this Agreement for any reason.

7.8   Successors.    This Agreement shall be binding upon the Parties and upon their respective successors and assigns (if any).

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7.9   Assignment.    Neither Zou nor Wu may assign or otherwise transfer her rights or obligations under this Agreement without the prior written consent of INTAC.

7.10Governing Law.    The execution, validity, interpretation and implementation of this Agreement and the settlement of disputes hereunder shall be governed by the laws of the PRC.  The parties hereby irrevocably consent to the jurisdiction of the state and federal courts located in Beijing, PRC, in any action arising out of or relating to this Agreement, and waive any other venue to which either party might be entitled by domicile or otherwise.

7.11Arbitration.    All disputes arising out of or in connection with this Agreement shall be finally settled under such arbitration rules as selected by INTAC in such location as selected by INTACby a sole arbitrator appointed in accordance with the selected rules conducted in the Chinese or English language.

7.12Entire Agreement.    This Agreement constitutes the entire agreement between the Parties and supersedes all prior discussions, negotiations and agreements.

7.13Language.     This Agreement will be signed in 3 sets of originals in the Chinese and English language, with 1 original for each Party.  The two language versions shall have equal validity and the wording of each version shall be deemed to carry the same meaning.  In the event of any discrepancy between the wordings of the said two versions, such discrepancy shall be interpreted according to the purpose of this Agreement and based on the Chinese text.

IN WITNESS WHEREOF, this Loan and Interest Pledge Agreement is executed follows:

PARTIES:	/s/ Zou Jingchen
	Zou Jingchen
	/s/ Wu Fengzheng
	Wu Fengzheng
	INTAC International Holding Ltd.
	By:	/s/ Wei Zhou
	Its:		President and Chief Executive Officer

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EX-10.3

Exhibit 10.3

SUBSCRIPTION AND INVESTMENT REPRESENTATION AGREEMENT

INTAC International, Inc.

Unit 6-7, 32/F., Laws Commercial Plaza

788 Cheung Sha Wan Road

Kowloon, Hong Kong

Attention:  Wei Zhou, Chief Executive Officer

Dear Mr. Zhou:

This Subscription and Investment Representation Agreement (this “Agreement”) is entered into as of the date set forth on the signature page hereof by and between INTAC International, Inc., a Nevada corporation (together with its successors and permitted assigns, the “Company”), and the undersigned accredited investor (together with its successors and permitted assigns, the “Investor”).

The Investor desires to purchase from the Company and the Company desires to sell to the Investor, on the terms and conditions set forth in this Agreement, eight hundred thousand (800,000) shares of the common stock, $.001 par value per share (the “Common Stock”), of th e Company.

On the terms and conditions of this Subscription and Investment Representation Agreement (the “Agreement”), the Investor proposes to make an investment in the Company as follows:

1.  Subscription.   Subject to the terms and conditions hereof, Investor hereby irrevocably subscribes to purchase eight hundred thousand (800,000) shares (the “Shares”) of Common Stock of the Company at a price of U.S.$15.00 per share.  In so doing, Investor is hereby delivering to the Company, for the Company’s benefit, a check, draft, money order or wire transfer payable to the order of “INTAC International, Inc.” in the amount of U.S.$12,000,000.00, the aggregate purchase price payable in respect of the purchase of the Shares.  The Company will deliver a stock certificate representing the Shares purchased by the Investor within ten business days after receipt of the purchase price.

2.  Representations and Warranties of the Company.  The Company represents and warrants to the Investor as follows:

(a)  The Company is a corporation duly orga nized and validly existing under the laws of the State of Nevada.

(b)  As of the date hereof, the entire authorized capital stock of the Company consists of (1) One Hundred Million (100,000,000) shares of Common Stock, of which Twenty Million One Hundred Eighty-Nine Thousand Four Hundred and Fifty-Five (20,189,455) shares are issued and outstanding on the date hereof prior to the offering made hereby, and (2) Ten Million

(10,000,000) shares of Preferred Stock, of which no shares are issued and outstanding on the date hereof.  All of the issued and outstanding shares are duly authorized, validly issued, fully paid, and nonassessable. The Shares to be issued to the Investor in the offering will be, when issued and paid for in accordance with the terms of this Agreement, validly issued, fully paid and nonassessable.

(c)  The Company has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder.  This Agreement constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms and conditions.

3.  Representations and Warranties of Investor.  Investor hereby represents and warrants to the Company as follows:

(a)  The offer and sale of the Shares to Investor is made in reliance upon Investor’s representation to the Company, which, by Investor’s execution of this Agreement, Investor hereby confirms, that the Shares are being acquired for investment for Investor’s own account, not as a nominee or agent, and not with a view to the sale or distribution of any part ther eof, and that Investor has no present intention of selling, granting any participation in, or otherwise distributing the same.  By executing this Agreement, Investor further represents that Investor has no contract, undertaking, agreement or arrangement with any person to sell, transfer, or grant participation rights to such person or to any third person, with respect to any of the Shares and has no present intention to enter into any such contract, undertaking, agreement or arrangement.

(b)  Investor understands and acknowledges that the Offering of the Shares has not and will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), on the grounds that the offering and sale of the Shares are exempt from registration pursuant to the provisions of Section 4(2) and/or Rule 506 of Regulation D of the Securities Act, and that the Company’s reliance upon such exemption is, in part, predicated upon Investor’s representations set forth in this Agreement.

(c)  Investor covenants that in no event will Investor dispose of any of the Shares, or any part thereof, unless and until (i) there is an effective Registration Statement under the Securities Act covering the proposed disposition and such disposition is made in accordance with such Registration Statement, and (ii) Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed dispositio n, and, if reasonably requested by the Company, Investor shall have furnished the Company with an opinion of counsel satisfactory in form and substance to the Company and the Company’s counsel to the effect that (A) such disposition will not require registration under the Securities Act and (B) appropriate action necessary for compliance with the Securities Act and any applicable state, local or foreign law has been taken. In addition, the Investor agrees that the Investor will comply with the contractual lock-up period imposed upon Investor under this Agreement.

(d)  Investor represents that Investor (i) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of Investor’s pr ospective

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investment in the Shares; (ii) has received from the Company all the information he has requested and considers necessary or appropriate for deciding whether to purchase the Shares; (iii) has had an opportunity to ask questions and receive answers from the Company regarding the Company, its business, operations, market potential, capitalization, financial condition and prospects, and the terms and conditions of the offering of the Shares; (iv) has the ability to bear the economic risks of Investor’s prospective investment; and (v) is able, without materially impairing his financial condition, to hold the Shares for an indefinite period of time and to suffer complete loss on his investment.

(e)  Investor represents that he is a bona fide resident of the state or country indicated herein, and if Investor is an individual, Investor is at least 21 years of age. Investor further represents that he has no present intention of becoming a resident of any other state or jurisdiction.

(f)  If Investor’s purchase of the Shares is subject to regulation by the government of a sovereign jurisdiction other than the United States, Investor has complied with all laws and regulations governing the purchase and sale of the Shares imposed by such sovereign jurisdiction.

(g)  Investor has received and read or reviewed, and is thoroughly familiar with, the Company’s filings with the Securities and Exchange Commission (the “SEC Filings”), particularly the information set forth under the captions “Business Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” found in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003 and Investor is aware of the high degree of risk involved in making an investment in the Company; it being understood, however, that this representation does not constitute a waiver of any rights that Investor has under the Securities Act, any applicable state securities act or the rules and regulations promulgated thereunder.

(h)  Investor has had the opportunity to review, at the Company’s offices or otherwise, any materials available to the Company relating to the Company or any other matters or items discussed in or accompanying the SEC Filings.  The Company has answered all inquiries from Investor, and given Investor the opportunity to obtain any additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) requested by the Investor necessary to verify the accuracy of any information set forth in this Agreement, the SEC Filings, or otherwise.

(i)   Investor understands that he is purchasing the Shares only in reliance upon the information set forth in this Agreement.  Investor acknowledges that, except as set forth in this Agreement, no representations or warranties have been made to Investor or the Investor’s advisors by the Company or by any persons acting on their behalf with respect to the business of the Company, the financial condition of the Company or any other aspect of or related to a purchase of the Shares, and that Investor has not relied upon any information concerning this transaction, written or oral.

(j)  Investor acknowledges and is aware of the following:

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(i)  The Shares are a highly speculative investment that involves a substantial risk of loss by Investor of his entire investment in the Company.

(ii) There are substantial restrictions on the transferability of the Shares.  The Shares will only be registered under the Securities Act only pursuant to the terms and conditions of Section 8 of this Agreement; accordingly, there may be no public market for the Shares; Investor may not be able to avail himself of the provisions of Rule 144 under the Securities Act with respect to the resale of the Shares; and the Investor may have to hold the Shares indefinitely and may not be abl e to liquidate his investment in the Company.

(iii)     No federal or state agency has made any finding or determination as to the fairness of the offering of the Shares for investment or any recommendation or endorsement of the Shares.

(iv) The Company, its officers, directors, agents or employees or any other person, have not represented, guaranteed or warranted to Investor, expressly or by implication, any of the following:

*    the approximate or exact length of time that Investor will be required to remain an owner of the Shares;

*    the amount of or type of consideration, profit or loss to be realized, if any, as a result of an investment in the Company; or

*    th e likelihood that the Company’s business plan will succeed.

(k)  Investor has neither distributed nor disclosed, directly or indirectly, any of the Company’s confidential information, including, without limitation, the information contained in any contract or agreement to which the Company is a party, to anyone other than his legal, tax, accounting or other advisors for their use solely in that capacity for Investor, and no one other than the undersigned and his legal, tax, accounting or other advisors, if any, has used the confidential information.

(l)  Investor represents and warrants to the Company that he is an “accredited investor” within the meaning of SEC Rule 501(a) of Regulation D, as presently in effect, under the definition set forth in the box initialed below by the Investor.

o  1. Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(13) of the Act; any investment company registered unde r the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for

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the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;

o  2. Any private business development company as defined in section 202(a)22 of the Investment Advisers Act of 1940;

o  3. Any organization described in section 501(c)3 of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

o  4. Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;

o  5. Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds $1,000,000;

o  6. Any natural person who had an individual income in excess of $200,000 in each of the two mo st recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

o  7. Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) and

ý  8. Any entity in which all of the equity owners are accredited inves tors.

The foregoing statements are true and accurate to the best of my information and belief, and I will promptly notify the Company of any changes.

(m)At no time was Investor presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the Shares.

(n) In addition, Investor has been advised that Rule 144 promulgated by the SEC under the Securities Act, which permits certain limited sales of unregistered securities, may not be presently available with respect to the Shares and, in any event, requires that the Shares be held for a minimum of one (1) year, and in certain cases two (2) years, after they have been purchased and paid for (within the meaning of SEC Rule 144), before they may be resold under SEC Rule 144.

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(o)  Investor agrees that the Company may rely on the representations found in this Section 3.  Investor further agrees that he will furnish to the Company such further information as the Company may deem relevant in determining whether the undersigned is an “accredited investor” within the meaning of Rule 501(a) and whether the undersigned’s proposed investment may have any adverse legal effects, and the undersigned authorizes the Company and its agents to confirm, as necessary, with the undersigned’s tax adviser, investment counselor, lawyer, accountant, banker or other financial representative named below, such information as the Company may deem relevant in making such determination.

(p)  The foregoing representations and warranties are true and accurate as of the date hereof and shall survive the Closing of the purchase of the Shares.  If in any respect such representations and warranties shall not be true and accurate prior to the Closing Date, Investor shall give written notice of such fact to the Company, specifying which representations and warranties are not true and accurate and the reasons therefor.

4.   Indemnification.  Investor recognizes that the sale of the Shares to Investor will be based upon his representations and warranties set forth in Paragraph 3 hereof, and Investor agrees to indemnify and to hold harmless the Company, each of its officers and directors, and each person who controls the Company, from and against any and all loss, damage, liability or expense, including costs and reasonable attorneys’ fees, to which they may be subject or which they may incur by reason of, or in connection with, any misrepresentation made by Investor in this Agreement, any breach by Investor of his warranties or failure by Investor to fulfill any covenants or agreements set forth herein or arising out of the sale or distribution of any such shares by Investor in violation of the Securities Act or other applicable securities laws.  All representations, warranties, and covenants and the indemnification contained in this Agreement shall survive the acceptance of this subscription and the issuance to Investor of the Shares.

5.   Confidentiality.  Investor hereby covenants and agrees to maintain the confidential status of all Confidential Information (as defined below), and not to use, directly or indirectly, any such Confidential Information for any purpose other than to evaluate an investment in the Company, and not to disclose, directly or indirectly, any such Confidential Information to any third party.  For the purposes of this Agreement, “Confidential Information” means all business, financial, technical and other information about the Company, designated as confidential or proprietary, or information which, by the nature of the circumstances surrounding the disclosure, ought in good faith to be treated as confidential, including, without limitation, the confidential information provided to the Investor.

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6.   Acknowledgment.  Investor acknowledges and understands that he may receive or may be provided confidential or otherwise non-public information about the Company that may constitute material, non-public information concerning the Company, and that he is obligated to refrain from (a) selling any shares of common stock beneficially owned or held by him and (b) otherwise trading in the Company’s securities, at any time during which Investor is in possession of non-public, material information concerning the Company.

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7.   Restrictive Legends.  Investor understands and agrees that the following restrictions and limitations are applicable to his purchase and any resale or other transfer he may make of the Shares:

(a)  The Shares shall not be sold or otherwise transferred unless they are registered under the Securities Act and applicable state securities laws or are exempt therefrom.

(b)  Legends in substantially the following form will be placed on each certificate evidencing the Shares:

THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW.  THE SHARES HAVE BEEN ACQUIRED FOR PRIVATE INVESTMENT AND MAY NOT BE OFFERED FOR SALE OR SOLD IN THE ABSENCE OF  (i) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR (ii) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THE SHARES REPRESENTED HEREBY ARE SUBJECT TO A SUBSCRIPTION AND INVESTMENT REPRESENTATION AGREEMENT AND MAY NOT BE SOLD, PLEDGED, ENCUMBERED OR OTHERWISE TRANSFERRED OR DISPO SED OF, EXCEPT IN ACCORDANCE WITH THE TERMS THEREOF, COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE PROVIDED UPON REQUEST TO THE COMPANY.

8.   (a)  Registration Rights.  As soon as practicable, but in no event later than the forty-fifth day following the Closing Date, as such term is defined in Section 13 of this Agreement (the “Filing Deadline”), the Company shall prepare and file with the Securities and Exchange Commission (the “Commission”) a Registration Statement on Form S-3 as a “shelf” registration statement under Rule 415 under the Securities Act (“Rule 415”) covering the resale of the Shares.

(b)  Effectiveness.  The Company shall use its best efforts to cause the Registration Statement to become effective as soon as practicable following the filing thereof.  The Company shall respond promptly to any and all comments made by the staff of the Commission on the Registration Statement, and shall promptly submit to the Commission, within two (2) business days after the Company learns that no review of the Registration Statement will be made by the staff of the Commission or that the staff of the Commission has no further comments on the Registration Statement, as the case may be, a request for acceleration of the effectiveness of the Registration Statement to a time and date not later than three (3) Business Days after the submission of such request; provided that at any time prior to the end of the Registration Deadline, the Company may delay its request for effectiveness for a period of up to ten days if the Company is required to file an Exchange Act report within such ten (10) day period that would require an amendment to the Registration Statement or a supplement to the Prospectus to be used in connection with the Registration Statement.  The Company will maintain the

7

effectiveness of the Registration Statement until the earlier to occur of (i) the date on which all of the Registrable Securities eligible for resale thereunder have been publicly sold pursuant to either the Registration Statement or Rule 144 and (ii) the date on which all of the Registrable Securities remaining to be sold under the Registration Statement (in the reasonable opinion of counsel to the Holder) may be immediately sold to the public under Rule 144 or 144(k) or any successor provision within a three month period (the period beginning on the Closing Date and ending on the earlier to occur of (i) or (ii) above being referred to herein as the “Registration Period”).

(c)Allowed Delay.  The Company may delay the disclosure of material non-public information, and suspend the availability of the Registration Statement, for no more than (i) five (5) consecutive Business Days or (ii) twenty (20) calendar days in any twelve (12) month period, in the event of a proposed merger, reorganization or similar transaction involving the Company, as long as its board of directors (A) has determined, upon the advice of counsel, that such information would be required to be disclosed in an offering registered under the Securities Act and (B) reasonably deems it in the Company’s best interests not to disclose such information publicly (an “Allowed Delay”). The Company shall promptly (i) notify each Holder in writing of the existence of material non-public information giving rise to an Allowed Delay (but in no event, without the prior written consent of such Holder, shall the Company disclose to such Holder any of the facts or circumstances regarding any material non-public information), (ii) advise each Holder in writing to cease all sales under the Registration Statement until the termination of the Allowed Delay and (iii) notify each Holder in writing immediately upon the termination or expiration of an Allowed Delay.

9.   No Waiver. Notwithstanding any of the representations, warranties, acknowledgments or agreements made herei n by Investor, Investor does not thereby or in any other manner waive any rights granted to Investor under federal or state securities laws.

10.  Assignment.  Investor agrees not to transfer or assign this Agreement, or any of his interest therein.

11.  No Revocation.  Investor acknowledges and agrees that his subscription for Shares, made by the execution and delivery of this Agreement by Investor, is irrevocable and shall survive the death or incapacity of Investor.

12.  Closing.  The closing of the purchase and sale of the Shares (the “Closing”) shall take place contemporaneously with the parties’ execution of this Agreement (the “Closing Date”). Execution by the Company hereunder shall constitute its written acknowledgment of the receipt of and payment for the full purchase price for the Shares.

13.  Miscellaneous.

(a)  All notices or other communications to the Company given or made hereunder shall be in writing and shall be delivered or mailed by registered or certified mail, return receipt requested, postage prepaid, to Chief Executive Officer, INTAC International, Inc., Unit 6-7, 32/F., Laws Commercial Plaza, 788 Cheung Sha Wan Road, Kowloon, Hong Kong, with a copy to the Chief Financial Officer, 12221 Merit Drive, Suite 1350, Dallas, Texas  75251, or such

8

other principal executive offices of the Company as shall then be in existence.  All notices or other communications to the Investor given or made hereunder shall be in writing and shall be delivered to Investor by registered or certified mail, return receipt requested, postage prepaid, to the Investor’s address as set forth on the signature page to this Agreement.

(b)  Notwithstanding the place where this Agreement may be executed by any of the parties hereto, the parties expressly agree that all of the terms and provisions hereof shall be construed in accordance with and governed by the laws of the State of Nevada applicable to agreements m ade and to be wholly performed therein.

(c)  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and may be amended only by an instrument in writing executed by all parties.

(d)  This Agreement shall be binding upon the heirs, estates, legal representatives, successors and assigns of the parties hereto.

(e)  All terms used herein shall be deemed to include the masculine, feminine and neuter, and the singular and plural as the context requires.  Captions herein are for convenience of reference only and shall not alter or affect the meaning or construction of the paragraphs hereof to which they relate.

(f)  Each of the parties hereto agree to execute such other documents, instruments or agreements as shall be reasonably necessary, appropriate or required to evidence the intent of the parties hereto.

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IN WITNESS WHEREOF, the undersigned have executed, or caused to be executed, this Subscription and Investment Representation Agreement this 12 day of May, 2004.

INVESTOR
Thomas Crown Investments Limited
By:	/s/ Geraldo Cesar Mercer Guimaraes
Name:	Geraldo Cesar Mercer Guimaraes
Title:	Directors
Address:			Unit 3, 20th Floor, Golden Centre
			188 Des Voeux Road Central
			Hong Kong, China
Agreed and Accepted:
INTAC INTERNATIONAL, INC.
By:	/s/ Wei Zhou
		Wei Zhou, Chief Executive Officer

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EX-31.1

Exhibit 31.1

Certification
Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002.

I, Wei Zhou, certify that:

1.             I have reviewed this quarterly report on Form 10-Q of INTAC International, Inc.;

2.Based on my knowledge, this  report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.The registrant’s other certifying officers and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d -15(e)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c)disclosed in this quarterly report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:     August 16, 2004
		/s/ Wei Zhou
	Wei Zhou
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification
Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002.

I, J. David Darnell, certify that:

1.             I have reviewed this quarterly report on Form 10-Q of INTAC International, Inc.;

2.Based on my knowledge, this  report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.The registrant’s other certifying officers and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d -15(e)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c)disclosed in this quarterly report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:     August 16, 2004
		/s/ J. David Darnell
	J. David Darnell
	Senior Vice President and Chief Financial Officer

EX-32

Exhibit 32

Certification of Principal Executive Officer and Principal Financial Officer

18 U.S.C. Section 1350

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

The und ersigned, the Principal Executive Officer (CEO) and the Principal Financial Officer (Chief Financial Officer) of INTAC International, Inc. (the “Company”), each hereby certifies that to his knowledge on the date hereof:

(a)           The Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2004, filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and

(b)           Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:     August 16, 2004
			/s/ Wei Zhou
	Wei Zhou
	President and Chief Executive Officer
		/s/ J. David Darnell
	J. David Darnell
	Senior Vice President and Chief Financial Officer

This certification accompanies the Report pursuant to the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.