UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q/A

Amendment No. 1

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

		For the quarterly period ended March 31, 2006

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		(IRS Employer Identification No.)
incorporation or organization)

Unit 6-7, 32/F., Laws Commercial Plaza
788 Cheung Sha Wan Road
Kowloon, Hong Kong		N/A
(Address of principal executive offices)		(Zip Code)

011 (852) 2385.8789

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former

fiscal year, if changed since last report)

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.

Yes ý No. o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes ý No

The number of shares of the registrant’s common stock outstanding as of May 12, 2006 was 22,907,889.

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

INTAC INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(expressed in U.S. dollars)

	March 31, 2006		September 30, 2005
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	2,250,149	$	2,635,868
Trade accounts receivable (net of allowance for doubtful accounts of $0 at March 31, 2006 and September 30, 2005)	20,938,644		21,000,362
Supplier rebate receivable	2,369,130		2,485,267
Other receivables	366,472		416,770
Inventories	4,433,079		1,158,641
Deposits paid	—		26,820

Total current assets	30,357,474		27,723,728

Property and equipment, net	1,542,600		1,547,863
Other assets	1,339,618		519,932
Advances to officers of subsidiaries and employees	88,030		27,090
Internet portal database gateway, net	274,647		305,096
Acquired software, net	1,031,552		1,409,460
Goodwill	16,801,487		12,858,790

Total assets	$	51,435,408	$	44,391,959

Liabilities and Stockholders’ Equity
Current liabilities
Trade accounts payable	$	9,188,401	$	5,949,452
Accrued expenses	1,430,266		1,090,145
Income taxes payable	469,182		604,481
Other liabilities	229,415		311,979
Deferred revenue	8,120		32,479
Due to stockholder	116,661		116,661
Deposits received	—		51,283

Total current liabilities	11,442,045		8,156,480
Commitments and contingencies
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; 22,865,727 and 22,189,455 shares issued and outstanding, respectively	22,866		22,189
Additional paid-in capital	37,680,158		33,399,433
Retained earnings	2,262,475		2,786,610
Accumulated other comprehensive income	27,864		27,247

Total stockholders’ equity	39,993,363		36,235,479

Total liabilities and stockholders’ equity	$	51,435,408	$	44,391,959

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

INTAC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

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

	Three Months Ended March 31,						Six Months Ended March 31,
	2006			2005			2006			2005

Revenues
Distribution business	$	23,931,918		$	12,973,988		$	40,974,004		$	59,593,505
Career development services	1,310,253			1,685,145			2,500,883			5,857,246

Total revenues	25,242,171			14,659,133			43,474,887			65,450,751

Cost of revenues
Distribution business	22,633,091			12,058,359			39,219,634			54,474,794
Career development services	193,212			335,480			410,997			1,568,970

Total cost of revenues	22,826,303			12,393,839			39,630,631			56,043,764

Total gross profit	2,415,868			2,265,294			3,844,256			9,406,987

Operating expenses
Product development	610,074			872,126			1,372,328			1,570,408
Distribution expenses	214,716			133,908			352,252			243,628
Selling, general and administrative expenses	1,288,903			1,488,699			2,758,111			2,350,321

Total operating expenses	2,113,693			2,494,733			4,482,691			4,164,357

Income (loss) from operations	302,175			(229,439		)	(638,435		)	5,242,630

Other income (expenses)
Foreign currency exchange gain (loss)	(93,596		)	357			(48,497		)	(395		)
Interest income (expense), net	1,053			1			6,230			7,457
Other income (expense), net	15,222			4,633			33,877			(30,771		)

Total other income (expense), net	(77,321		)	4,991			(8,390		)	(23,709		)

Income (loss) before income taxes	224,854			(224,448		)	(646,825		)	5,218,921

Income taxes	(14,559		)	49,319			122,690			(551,882		)

Net income (loss)	$	210,295		$	(175,129	)	$	(524,135	)	$	4,667,039

Net income (loss) per share – basic	$	0.01		$	(0.01	)	$	(0.02	)	$	0.22

Net income (loss) per share – diluted	$	0.01		$	(0.01	)	$	(0.02	)	$	0.21

Weighted average shares outstanding - basic	22,284,993			22,141,455			22,242,925			21,631,455

Weighted average shares outstanding - diluted	23,059,999			22,141,455			22,242,925			21,920,678

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

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

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

	Six Months Ended March 31,
	2006			2005

Cash flow from operating activities:
Net income (loss)	$	(524,135	)	$	4,667,039
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation of property and equipment	228,551			195,784
Amortization of internet portal database gateway and acquired software	408,360			282,388
Compensation in connection with restricted stock award	—			116,670
Stock-based compensation expense	76,522			—
Other comprehensive income	617			8,999
Changes in operating assets and liabilities:
Trade accounts receivable	61,718			3,546,201
Supplier rebate receivable	116,137			—
Other receivables	50,298			(38,434		)
Inventories	(3,274,438		)	(8,024,881		)
Deposits paid	26,820			158,717
Other assets	37,631			—
Advances to officers of subsidiaries and employees	—			(319,831		)
Trade accounts payable and accrued expenses	2,721,753			(7,795,875		)
Income taxes payable	(135,299		)	659,350
Other liabilities	(82,564		)	—
Deferred revenue	(24,359		)	(207,050		)
Deposits received	(51,283		)	143,650
Net cash used in operating activities	(363,671		)	(6,608,273		)

Cash flow from investing activities:
Purchase of property and equipment	(223,282		)	(375,003		)
Purchase of other assets	—			(466,214		)
Cash included in purchase of subsidiary	—			192,528
Collection of short term note receivable	—			365,370
Advances to officers of subsidiaries and employees	(60,940		)	(29,150		)
Repayments from officers of subsidiaries and employees	—			313,158
Net cash provided by (used in) investing activities	(284,222		)	689

Cash flow from financing activities:
Proceeds from issuance of common stock, net	—			(656		)
Proceeds from exercise of stock options	262,174			—
Borrowings from stockholder, net	—			(30,093		)
Net cash provided by (used in) financing activities	262,174			(30,749		)

Net decrease in cash and cash equivalents	(385,719		)	(6,638,333		)

Cash and cash equivalents at beginning of period	2,635,868			8,545,479

Cash and cash equivalents at end of period	$	2,250,149		$	1,907,146

Supplemental disclosure of cash flow information:

Cash paid for interest	$	—		$	37,481

Non-cash Investing and financing activities:

Additional stock issued in Huana Xinlong acquisition	$	3,942,701		$	—
Merger transaction costs in connection with HSW	624,317			—
Insurance premiums financed	233,000			—

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

INTAC INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2006
(Unaudited)

1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Description of Business and Basis of Presentation

INTAC International, Inc. (“INTAC”, “we”, “us” “our” 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 revenues were derived primarily from the distribution of premium brand wireless handsets from wholesalers, manufacturers and other distributors to equipment wholesalers, agents, retailers and other distributors (referred to as our Distribution Segment), mainly in Hong Kong, The Company announced the shift in focus of its business plan and is now focused on the expansion and maturation of its career development services 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 has been made exclusively available to Intac Purun. Intac Purun intends to provide comprehensive employment information over its Internet portal to facilitate these graduates’ employment search and future career development. This Internet portal will also offer employers a platform to list open positions available to final year graduates contained within this database. This fee-based service will be 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 indirect 15% interest in Intac Purun from Putian. This additional 15% indirect ownership interest increases INTAC’s total indirect ownership in Intac Purun to 60%. INTAC’s ownership in Intac Purun is held indirectly through PRC nominees.

In December 2004, INTAC acquired Beijing Huana Xinlong Information and Technology Development Co., Ltd. (“Huana Xinlong”), which INTAC is in the process of assigning to INTAC International Holdings Limited (“Holdings”), a Hong Kong corporation and a wholly-owned subsidiary of INTAC. Huana Xinlong, a leading Chinese developer of management software for educational institution administration, is located in Beijing, China.

In January 2006, INTAC established Intac International Management Consultancy Beijing Limited to carry out business management and advisory activities.

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 necessary for a fair presentation have been included.

In August of 2005, the Company changed its fiscal year end from December 31^st to September 30^th.

(b) Principles of Consolidation

The accompanying consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries, Holdings, INTAC Deutschland GmbH, INTAC Holdco Corp., FUTAC Group Limited, Global Creative International Limited, INTAC Telecommunications Limited, Intac (Tianjin) International Trading Co., Beijing Intac Media Advertising Company Limited, Beijing Intac Meidi Technology Development Company Limited, Intac International Management Consultancy Beijing Limited, Huana Xinlong and its 60% owned subsidiary Intac Purun. All intercompany balances and transactions have been eliminated in consolidation.

In consolidating the Company’s 45% indirect ownership interest in Intac Purun during the period from October 2003 (formation) through the period that INTAC acquired the additional 15% indirect ownership interest in June 2004, 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 Stockholder or Stockholders have Certain Approval or Veto Rights”. INTAC is designated as the operating partner for the joint venture, has effective control of the Board of Directors and 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 stockholder since the inception of Intac Purun. Accordingly, management concluded that it was necessary to consolidate Intac Purun since the acquisition of its 45% ownership interest in order to properly reflect the substance of the Company’s control position.

Certain prior year balances have been reclassified to conform to the current year presentation.

(d) Liquidity

As of March 31, 2006 and September 30, 2005, INTAC maintained cash of $2,250,149 and $2,635,868, respectively. The Company measures liquidity through working capital (measured by current assets less current liabilities). As of March 31, 2006, and September 30, 2005, INTAC maintained working capital of $18,915,429 and $19,567,248, respectively. The decrease in working capital is primarily due to the net loss for the six months. The Company raised equity financing of $12.0 million in May 2004. Proceeds from the private placement are being used to expand the Company’s career development services business, for strategic acquisitions or business alliances as well as for working capital.

Although there is a significant amount of working capital as of March 31, 2006, a substantial portion is tied up in trade receivables and may not all necessarily be readily available to satisfy short-term obligations. Our Distribution Segment business model has historically relied on customers paying on a cash basis. However, since inception as our sales volume and customer size have increased, it has become necessary to grant credit terms to major customers. Within our Distribution Business segment, a large portion of trade accounts receivable is attributable to our largest customer – Mr. Lam, from whom we derived substantially all of our distribution revenue for the six months. The amount of the receivable balance with this customer has increased over time and we expect this balance to remain high for the foreseeable future. Although we believe that this receivable balance is all collectible, we do not anticipate reducing the outstanding balance ($14.5 million) significantly in the near future.

We entered into an installment payment plan agreement with Mr. Lam to pay his balance outstanding at September 30, 2005 over a period of nine months. Monthly payments of $1.7 million are being made in accordance with this agreement. As part of this installment payment plan agreement, we have agreed that all future sales to Mr. Lam are due and payable within 45 days. The volume of sales in our Distribution Business segment relies on our keeping Mr. Lam as a customer.

Additionally, our Career Development Services trade receivable balance has decreased to $5.7 million at March 31, 2006 from $5.8 million at September 30, 2005. These amounts relate primarily to Huana Xinlong and the sale of educational software to school districts within China. These school districts pay for their software purchases using funds supplied by the Chinese government. Historically, this funding takes many months, which is typical of the business process in China. As of March 31, 2006, approximately $3.5 million of our trade receivable balance relates to sales of educational software completed over 365 days ago. We believe these accounts to be fully collectible; however, the timing of the collections cannot be estimated with certainty. We collected approximately $700,000 of the over 365 days account receivable subsequent to March 31, 2006.

Included as part of the obligations assumed in the acquisition of Huana Xinlong is a commitment to complete the required capitalization of that company in accordance with PRC laws and regulations. A total of $1.6 million must be invested in Huana Xinlong by December 24, 2006 to complete the PRC capitalization requirements.

We believe that the Company will have sufficient capital for the next twelve months if we are able to collect our trade receivables in a timely manner. However, if Mr. Lam does not pay timely or if the Chinese government does not fund our school district customers in a reasonable amount of time, it could have a material adverse effect on our liquidity. With timely payment, we believe that we currently have adequate capital for the next twelve months; however, long-term plans will require that we obtain additional financing through the issuance of debt, equity, other securities or a combination thereof in order to take advantage of other strategic agreements and business alliances. 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 career development services operating performance with which we have limited experience, additional outside financing required to execute our long-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 current stockholders will be reduced. Any new securities may have rights, preferences or privileges senior to those of our current common stockholders. There can be no assurances that we will be able to obtain additional financing on terms which are acceptable to us.

(e) Net Income (Loss) Per Share – Basic and Diluted

Basic income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares and dilutive potential common shares, if any, outstanding during the period. Stock options and the restricted stock award (to the extent not vested) were not included in the computation of diluted loss per share for the three months ended March 31, 2005 and six months ended March 31, 2006 because their effects are anti-dilutive. Computation of diluted income per share for the three months end March 31, 2006 and six months ended March 31, 2005 includes dilutive stock options and restricted stock awards granted under the terms of the Company’s 2001 Long Term Incentive Plan.

(f) Revenue Recognition

Our revenue is derived from primarily two sources (i) integrated educational and career development services which includes software license maintenance and support, training, consulting, and subscription revenue delivered to customers in China, and (ii) distribution revenue, which includes wireless handsets distribution primarily into Hong Kong and distribution of other telecommunication products in China.

Career Development Services:

The Company licenses software products including access to its student database and education materials under two and three-year term licenses. The software licenses provide for updates to new versions if and when made available. No express rights of return are granted. The Company sells its products and services via a direct sales force, sales agents and its Internet portals www.phrbank.com and www.joyba.com.

Product revenue from the license of our software products is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 104 when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed or determinable, and collection of the resulting receivable is reasonably assured, and, if applicable, upon acceptance when acceptance criteria are specified or upon expiration of the acceptance period. Maintenance and support revenue for customer support is deferred and recognized ratably over the service period unless it is included in the initial license fee, provided for less than one year and is not a significant portion of the total license revenue. In this case, maintenance support revenue is recognized when all revenue recognition criteria under SOP 97-2, SOP 98-9 and SAB 104 have been met. Product upgrades and enhancement revenue is deferred and recognized ratably over the service period unless it is included in the initial license fee and is not significant. Training and consulting revenue is recognized as services are performed and billable according to the terms of the service arrangement.

We apply the provisions of Statement of Position 97-2, “Software Revenue Recognition,” (“SOP 97-2”) as amended by Statement of Position 98-9 “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions” to all transactions involving the sale of all its software products. For all sales of software products except those completed via the Internet, we use either a binding purchase order or signed license agreement as evidence of an arrangement. For sales over the Internet, we use a credit card authorization as evidence of an arrangement.

For arrangements with multiple obligations (e.g. undelivered maintenance and support bundled with term licenses), we allocate revenue to each component of the arrangement using the residual value method based on evidence of the fair value of the undelivered elements, which is specific to the Company. The vendor specific objective evidence of fair values for the ongoing maintenance and support obligations for term licenses are based upon the prices paid for the separate renewal of these services by the customer or upon substantive renewal rates stated in the contractual arrangements. In this case, maintenance support revenue is recognized when all revenue recognition criteria under SOP 97-2, SOP 98-9 and SAB 104 have been met. Vendor specific objective evidence of the fair value of other services, primarily consulting and training services, is based upon separate sales of these services.

Subscription revenue which will be earned primarily through our Internet portal business is recognized on a straight line basis over the term of the service contract provided. We may also contract with third-party mobile operators for the transmission of wireless short messages and subscriptions as well as for the billing and collection of service fees from customers. Revenues are recorded as the services are provided monthly or on a per usage basis. We recognize the net amount received from the mobile operator as revenue. To date we have generated minimal revenue from subscription services.

Our wireless handset revenues are generally generated from a quick turn of product. We recognize revenue upon delivery of product to our customers. Products are sold “as is” and we do not provide servicing of the wireless handsets, nor do we receive any usage revenue from the wireless handsets distributed.

Revenue is recognized when customers take delivery of the goods, which is taken to be the point in time where the customer has accepted the goods and the related risks and rewards of ownership. Certain sales arrangements provide the Company the right to receive a contingent payment based on sales made by the customers. Contingent payment revenue for these arrangements is recognized as the cash is received.

Receipts of cash in advance of shipment or delivery are recorded as deposits received.

License fee revenue is derived from the sale to customers of rights to sell products under arrangements in which the Company is the distributor. These arrangements consist of an up-front, nonrefundable license fee, as well as contingent payments based on a percentage of the customer revenues. The services provided by the Company after the receipt of the up-front license fee are not significant. The up-front, non-refundable license fee is recognized as revenue at the time the agreement is entered into, and the contingent payments are recognized when received. The Company has considered the relevant provisions of SAB 104 and Emerging Issues Task Force No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” in accounting for license fee revenue.

(g) Use of Estimates

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. The significant estimates and related assumptions include the assessment of the provision for doubtful accounts, the assessment of the impairment of tangible and intangible long-lived assets, the assessment of the valuation allowance on deferred tax assets, the purchase price allocation on acquisitions and the assessment of criteria related to revenue recognition. Actual results could differ from those estimates.

(h) Stock Option Plans and Stock-Based Compensation

Effective October 1, 2005, the Company adopted Statement of Financial Accounting Standard No. 123 (revised) “Share Based Payment” (“SFAS 123-R”), using the modified prospective transition method. Under this transition method, compensation cost for all share-based payments granted prior to, but not yet vested as of October 1, 2005, is based on the grant date fair value estimated in accordance with the original provisions of SFAS 123 and compensation cost for all share-based payments granted subsequent to October 1, 2005 is based on the grant date fair value estimated in accordance with the provisions of SFAS 123-R. During the three and six months ended March 31, 2006, the Company recognized share-based compensation cost totaling $38,261 and $76,522, respectively.

As a result of adopting SFAS 123-R on October 1, 2005, the Company’s income (loss) before income taxes and net income (loss) for the three and six months ended March 31, 2006 is $38,261 lower and $76,522 higher, respectively, than if the Company had continued to account for share-based compensation under APB Opinion No 25 “Accounting for Stock Issued to Employees.” Basic earnings (loss) per share for the three and six months ended March 31, 2006 would have been $0.01 and $(0.02), respectively, if the Company had not adopted SFAS 123-R, compared to the reported basic earnings (loss) per share of $0.01 and $(0.02), respectively. Diluted earnings per share for the three months ended March 31, 2006 would have been $0.01 if the Company had not adopted SFAS 123-R compared to the reported diluted earnings per share of $0.01. The adoption of SFAS 123-R had no effect on cash flows.

The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS 123 to options granted under the Company’s stock option plan in all periods presented. For purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes option pricing model and amortized over the options’ vesting periods.

	For the three months ended March 31, 2005			For the six months ended March 31, 2005

Net income (loss), as reported	$	(175,129	)	$	4,667,039
Add: Total stock-based employee compensation expense included in reported net income (loss)	58,332			116,669
Deduct: Total stock-based employee compensation expense determined under fair value based method	(235,446		)	(450,723		)
Pro forma net income (loss)	$	(352,243	)	$	4,332,985

Net income (loss) per share:
Basic
As reported	$	(0.01	)	$	0.22

Pro forma	$	(0.02	)	$	0.20

Diluted
As reported	$	(0.01	)	$	0.21

Pro forma	$	(0.02	)	$	0.20

On August 28, 2005, the Board of Directors of INTAC approved the acceleration of vesting of all unvested options to acquire shares of the Company’s common stock. These options were previously awarded in 2003 and 2004 under the Company’s 2001 Long Term Incentive Plan and were to vest in three equal annual installments after the date of grant. Options to purchase 200,000 shares of common stock at exercise prices between $9.50 and $15.75, prices that were above the current market price of the Company’s

common stock, are subject to this acceleration. The acceleration of the vesting of these options was undertaken primarily to eliminate the related future stock-based compensation expense resulting from the adoption of SFAS 123R.

(i) Recent Events

On April 20, 2006, the Company entered into an Agreement and Plan of Merger, referred to as the merger agreement, with HowStuffWorks Inc. (“HSW”), HSW International, Inc. (“HSW International”) and HSW International Merger Corporation (“merger sub”). Pursuant to the merger agreement, merger sub will merge with and into INTAC, with INTAC continuing as the surviving corporation (the “merger”). As a result of the merger, INTAC will become a wholly owned subsidiary of HSW International. Pursuant to the terms of the merger agreement, each outstanding share of Company common stock, par value $0.001 per share, will be converted into the right to receive one share of HSW International common stock, par value $0.001 per share.

In connection with the merger (i) HSW has agreed to contribute certain assets, properties and rights to HSW International in exchange for shares of HSW International common stock (the “contributed assets”) and (ii) certain investors have agreed to purchase shares of HSW International common stock with an aggregate value of approximately $22.5 million (the “equity financing”). At the closing of the merger, but prior to the completion of the equity financing, INTAC stockholders will own 50% of the total issued and outstanding shares of HSW International common stock and HSW will own the remaining 50% of the total issued and outstanding shares of HSW International common stock. The merger, the merger agreement, and the transactions contemplated by the merger agreement have been approved by our board of directors, and are subject to various closing conditions, including approval by our stockholders.

Prior to the closing of the merger, it is contemplated that HSW International will use its best efforts to obtain approval for listing of HSW International common stock on either the Nasdaq National Market or the Nasdaq Capital Market, and following the closing of the merger, it is contemplated that Intac will file with the SEC to terminate registration of our common stock.

In connection with the merger, INTAC and HSW International plan to file a proxy statement/prospectus on Form S-4 with the SEC which will contain detailed information regarding the merger and the special meeting of stockholders at which our stockholders will consider the merger, the merger agreement and the transactions contemplated by the merger agreement. It is currently anticipated that the merger will close in the fourth quarter of fiscal year 2006.

2. INVENTORIES

As of March 31, 2006 and September 30, 2005, inventories totaled $4,433,079 and $1,158,641, respectively, consisting of $4,420,906 and $1,148,981 respectively, for the distribution business segment (wireless handsets) and $12,173 and $9,660, respectively for the career development services segment (training materials).

3. INVESTMENT IN INTAC PURUN

On January 15, 2004, INTAC announced the shift in focus of its business plan from the traditional distribution of premium brand wireless handsets to its new career development services and Internet joint venture, 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”). The Company indirectly invested a total of $2.3 million in cash in the newly founded Internet joint venture in September 2003 and October 2003, owned 45% indirectly by INTAC, 15% by Putian, 30% by a private investor group and 10% by the Ministry of Education.

In order to meet ownership requirements under PRC law which restrict or prohibit INTAC from operating in certain industries such as Internet content providers, INTAC made loans of $1,233,000 and $123,000 to two China nationals, Miss Zhang Wanqin and Miss Li Min, respectively. Miss Zhang and Miss Li are the equity owners of Tianjin Weilian, a company incorporated in the PRC. These loans were made to finance Miss Zhang and Miss Li, on behalf of INTAC, for the purpose of establishing Tianjin Weilian to hold the 45% interest in Purun. Subsequently in October 2003, Tianjin Weilian, Tianjin Chengtai International Trading Ltd., or Tianjin Chengtai, a PRC corporation, Tianjin Yingfeng Technology Development Co., Ltd., a PRC corporation, and EMIC established Intac Purun, with 45%, 15%, 30% and 10% equity interests, respectively. Tianjin Weilian pledged as collateral the 45% ownership of Intac Purun against these loans from INTAC. Furthermore Tianjin Weilian assigned all operating rights, title and interest they had in Intac Purun to INTAC, including all interest held, all rights to capital accounts, distributions and/or allocations of cash, property and income, and all rights to participate in management and to vote with regard to affairs relating to Intac Purun. When permitted under applicable laws, Tianjin Weilan will transfer ownership of Intac Purun directly into INTAC.

In June 2004, INTAC purchased an additional 15% interest in Intac Purun from Putian for $1.5 million. The incremental acquired

ownership was accounted for using the purchase method of accounting. INTAC made loans of $1.5 million to two China nationals, Mr. Zou Jingchen and Ms. Tian Jinmei. Mr. Zou is the brother of Mr. Zhou, our Chief Executive Officer. 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 INTAC, 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 securities 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. This additional 15% interest increases INTAC’s total indirect ownership in Intac Purun to 60%, for which the Company has paid or invested $3.8 million. Intac Purun is incorporated and domiciled in PRC.

Aggregate minority interest in losses have been recorded by the Company (since inception $432,524 at March 31, 2006) to reduce the minority interest in Intac Purun to zero. The Company will record 100% of income related to the minority interest, if any, until the amount of the previously reported losses of the minority interests in stockholders’ equity (deficit) in Intac Purun by the Company have been restored.

4. PURCHASE OF HUANA XINLONG

In December 2004, the Company acquired Beijing Huana Xinlong Information and Technology Development Co., Ltd. (“Huana Xinlong”). Huana Xinlong, a leading Chinese developer of management software for educational institution administration, is located in Beijing, China. The acquisition was accounted for using the purchase method of accounting. The acquisition consideration issued by the Company in the transaction consisted of up to 2,000,000 shares of Company common stock, including 1,000,000 shares issued on closing and up to an additional 1,000,000 shares contingent upon achieving net income of $13,000,000 during the thirteen month period ending December 31, 2005 (and the Company would issue a lesser number of shares on a pro rate basis in the event net income is less than $13,000,000). For the thirteen month period ended December 31, 2005, Huana Xinlong earned less than $13,000,000 and received 341,272 shares of common stock valued at $1,958,901 based on the closing price of our common stock on December 31, 2005. In addition, in accordance with an amendment to the original stock for stock exchange agreement, an additional 260,000 shares of common stock, valued at $1,983,800 based on the closing price of our stock on March 22, 2006 (the date of the amendment), were issued. These additional shares are reflected in the increased purchase price below.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of the date of acquisition:

	March 31, 2006		September 30, 2005
Current assets	$	306,333	$	306,333
Acquired software	2,039,307		2,039,307
Other non-current assets	192,801		192,801
Total assets acquired	2,538,441		2,538,441
Current liabilities assumed	1,274,097		1,274,097
Net assets acquired	1,264,344		1,264,344
Purchase price	16,942,701		13,000,000
Excess purchase price	$	15,678,357	$	11,735,656

The excess of the purchase price over the fair value of the net identifiable assets acquired represents goodwill and is not deductible for income tax purposes. The allocation of the purchase price includes an independent valuation of the software which was completed in December 2004.

5. OTHER ASSETS

As of March 31, 2006 and September 30, 2005, other assets consisted of the following:

	March 31, 2006		September 30, 2005

Deposits and memberships	$	238,833	$	194,225
Deposit for software development costs	109,743		99,490
Prepaid administrative and professional costs	338,711		122,163
Merger transaction costs	624,317		—
Other	28,014		104,054
	$	1,339,618	$	519,932

6. 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 months ended March 31, 2006, income tax expense of $14,559 was recorded, and for the six months ended March 31, 2006 an income tax benefit of $122,690 was recorded representing the carryback of current income tax losses in certain entities offset partially by provision for income tax in other entities. For the three months ended March 31, 2005, an income tax benefit of $49,319 was recorded, and for the six months ended March 31, 2005, income tax expense of $551,882 was recorded related to taxable income.

7. ADVANCES FROM STOCKHOLDER

As of March 31, 2006, Mr. Zhou (President, CEO and Director of the Company) had made net advances of $116,661 to the Company. There has been no change in this balance during the six months ended March 31, 2006.

8. STOCKHOLDERS’ EQUITY

(a) COMMON STOCK

In December 2004, the Company entered into a Stock for Stock Exchange Agreement to acquire all of the outstanding equity securities of Huana Xinlong, a company organized under the laws of the PRC. The acquisition consideration issued by the Company in the transaction consisted of 1,000,000 shares of the Company’s common stock issued on closing and 341,272 shares issued as a result of the acquired business meeting certain net income thresholds for the thirteen month period ending December 31, 2005. In addition, in accordance with an amendment to the original stock for stock exchange agreement, an additional 260,000 shares were issued.

(b) STOCK OPTIONS AND STOCK AWARDS

On November 28, 2001, INTAC adopted a stock purchase plan entitled the “2001 Long Term Incentive Plan” to attract, retain and motivate its management and other persons, to encourage and reward their contributions to the performance of the Company and to align their interests with the interests of the Company’s stockholders. The Company authorized 2,500,000 shares to be available for grant as part of the long term incentive plan. Options are generally granted at fair value on the date of issuance.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option pricing model. Expected volatilities are based on historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. There were no options granted during the six months ended March 31, 2006.

A summary of stock option activity and related information as of March 31, 2006 and changes during the six months then ended is presented below:

Options	Number of options		Weighted- average exercise price		Weighted average remaining contract term (yrs)	Aggregate intrinsic value

Outstanding at October 1, 2005	600,000		$	6.80
Granted	—
Forfeited or expired	—
Exercised	(75,000	)	$	3.50
Total Outstanding at March 31, 2006	525,000		$	7.27	4.6	$	1,518,750
Options exercisable at March 31, 2006	375,000		$	7.62	3.9	$	1,172,250

The total intrinsic value of options exercised during the six months ended March 31, 2006 was $231,153. As of March 31, 2006 there was $216,812 of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 1.5 years.

The Company has 100,000,000 common shares authorized. The Company has granted options to purchase common stock 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 March 31,					Six months ended March 31,
	2006		2005			2006			2005
Basic earnings per share:
Net income (loss)	$	210,295	$	(175,129	)	$	(524,135	)	$	4,667,039

Weighted average shares outstanding	22,284,993		22,141,455			22,242,925			21,631,455

Basic earnings (loss) per share	$	0.01	$	(0.01	)	$	(0.02	)	$	0.22

Diluted earnings per share:
Net income (loss)	$	210,295	$	(175,129	)	$	(524,135	)	$	4,667,039

Weighted average shares outstanding	22,284,993		22,141,455			22,242,925			21,631,455

Dilutive stock options and restricted stock award	775,006		—			—			289,223

Total common shares and dilutive securities	23,059,999		22,141,455			22,242,925			21,920,678

Diluted earnings (loss) per share	$	0.01	$	(0.01	)	$	(0.02	)	$	0.21

9. SEGMENT REPORTING

The Company is currently considered to be comprised of two reportable segments: (i) career development services and (ii) distribution of wireless handsets and other telecommunications products. 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 chief financial officer in determining the performance of the business. Information regarding operating segments as of and for the three and six months ended March 31, 2006 and 2005, is presented in the following tables:

	Revenues		Segment Profit (loss)
Three months ended March 31, 2006
Distribution business segment	$	23,931,918	$	322,973
Career development services segment	1,310,253		95,552
Total	$	25,242,171	$	418,525

Three months ended March 31, 2005
Distribution business segment	$	12,973,988	$	(47,251	)
Career development services segment	1,685,145		(95,543		)
Total	$	14,659,133	$	(142,794	)

	Revenues		Segment Profit (loss)
Six months ended March 31, 2006
Distribution business segment	$	40,974,004	$	(258,824	)
Career development services segment	2,500,883		(151,063		)
Total	$	43,474,887	$	(409,887	)

Six months ended March 31, 2005
Distribution business segment	$	59,593,505	$	4,823,475
Career development services segment	5,857,246		614,939
Total	$	65,450,751	$	5,438,414

Revenue for the distribution business segment for the three and six months ended March 31, 2006 includes license fee revenue of $385,000. In 2005, the Company entered into an arrangement with a telecommunications company whereby it obtained the exclusive right to sell that company’s calling cards in China. The Company sold those exclusive rights to another party in March 2006 in exchange for a nonrefundable license fee of $385,000.

Segment profit (loss) for the distribution business segment for the three and six months ended March 31, 2006 reflects a $190,000 credit memo issued from a vendor related to product purchased during the three months ended March 31, 2006. The credit memo may be applied to future product purchases. The Company recorded a reduction to distribution business cost of revenues of $190,000, and a reduction to accounts payable of the same amount.

A reconciliation from the segment information to the net income (loss) for the three and six months ended March 31, 2006 and 2005, is as follows:

	Three months ended March 31, 2006			Three months ended March 31, 2005

Segment income (loss)	$	418,525		$	(142,794	)
Depreciation	(116,350		)	(86,645		)
	302,175			(229,439		)
Other income (expense), net	(78,374		)	4,990
Interest income (expense), net	1,053			1
Income taxes	(14,559		)	49,319
Net income (loss)	$	210,295		$	(175,129	)

	Six months ended March 31, 2006			Six months ended March 31, 2005

Segment income (loss)	$	(409,887	)	$	5,438,414
Depreciation	(228,548		)	(195,784		)
	(638,435		)	5,242,630
Other income (expense), net	(14,620		)	(31,166		)
Interest income (expense), net	6,230			7,457
Income taxes	122,690			(551,882		)
Net income (loss)	$	(524,135	)	$	4,667,039

Total assets for the operating segments at March 31, 2006, and September 30, 2005, are as follows:

	March 31, 2006		September 30, 2005

Distribution business segment	$	48,204,952	$	21,554,481
Career development services segment	3,230,456		22,837,478
Total	$	51,435,408	$	44,391,959

Total assets based on their geographic location at March 31, 2006, and September 30, 2005, are as follows:

	March 31, 2006		September 30, 2005

Europe	$	4,122,552	$	2,703,556
Asia	46,336,418		41,523,590
United States	976,438		164,813
Total	$	51,435,408	$	44,391,959

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 contains forward-looking statements that we believe are within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by such acts. These statements describe our attempt to predict future events, such as 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, and our intent to focus our business operations in specific geographic markets. The words “may,” “expect,” “believe,” “plan,” “intend,” “anticipate,” “estimate,” “continue,” and similar expressions, as well as discussions of our strategy and pending transactions, are intended to identify forward-looking statements. Although we believe that these forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will in fact occur and caution that actual results may differ materially from those in the forward-looking statements. You should be aware that the occurrence of the events described in these factors and elsewhere in this quarterly report could have an adverse effect on our business, results of operations or financial condition. You should also be aware that the ”forward-looking” statements are subject to a number of risks, assumptions and uncertainties, such as:

• our merger with HSW International, Inc., announced on April 21, 2006, and anticipated to close in the fourth quarter of fiscal 2006;

• our ability to effectively execute our business plan;

• the early-stage status of our career development and training business segment and its evolving, unproven and unpredictable business model;

• our ability to collect our accounts receivable;

• 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 business plan;

• statements made concerning the revenues or operating performance expected beyond the six months ended March 31, 2006;

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

• 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 health risks on the economic environment;

• the PRC government 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 INTAC or its affiliates as an operating company in China and elsewhere;

• our ability to successfully remediate our internal control weaknesses; and

• 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.

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

• our ability to capitalize on our career development services joint venture, Intac Purun;

• our ability to timely complete courseware and facilities for the IMTI and to successfully open institutes, license our courseware and market our corporate training;

• our ability to attract trainees for the IMTI;

• a significant delay by the PRC government in issuing 3G telecommunications licenses to telecommunications service providers;

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

• our ability to develop the fee-based services of the career development and training services and Internet portal business including assembling an experienced management team and retaining key personnel;

• any adverse change in our relationship with the EMIC and MOE which may affect our ability to maintain the use for commercial purposes of the database of student information compiled by the MOE in the PRC as well as our other databases and the continued utilization and adoption of our education software;

• the state of the telecommunications and Internet infrastructure in China may limit 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/ telecommunications business are subject to a number of further risks, assumptions and uncertainties, such as:

• the low-margin nature of our distribution business;

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

• the impact of competition in the wireless handset distribution industry, 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;

• 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 distribution industry; and

• our ability to compete in the prepaid calling card market, in which we have not previously participated.

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 International, Inc., or the Company, 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 Transition Report on Form 10-K for the fiscal year ended September 30, 2005.

Career Development and Training Services Segment

On January 15, 2004, we announced that we were shifting the emphasis of our business from the traditional distribution of premium brand wireless handsets to various career development services. On November 23, 2005, we announced the further refinement of this shift in focus. Under the refined focus of this business segment, we will operate primarily in three business units:

• INTAC Mobile Telecommunications Institute,

• Education Management Software Business Unit, and

• Database Management Business Unit.

INTAC Mobile Telecommunications Institute (“IMTI”)

Through IMTI, we seek to become a leading provider of mobile telecommunications technology training in China. IMTI will offer training to information technology professionals, with a primary focus in the area of third generation digital mobile systems, or “3G”, mobile telecommunications technology. New courses will be developed in the future to reflect technological advancement. This training will consist of IMTI’s Mobile Telecommunications Software Engineering training program, which will initially be offered through company-owned institutes and later offered through franchises, university courses and corporate training. We expect to open the first institute in Beijing in our third quarter of fiscal 2006.

Education Management Software Business Unit

INTAC, through its indirect wholly-owned subsidiary Beijing Huana Xinlong Information and Technology Development Co., Ltd. (“Huana Xinlong”), is a leading provider of education management software in China. Huana Xinlong offers software for the administration of elementary and middle schools and colleges. Huana Xinglong’s software has been designated by the Education Management Information Center (“EMIC”) as the standard of the China School Administration System (for primary and middle schools). Additionally, Huana Xinlong enjoys an exclusive contractual relationship with the Ministry of Education of The People’s Republic of China (the “MOE”) for use of certain of its products. Huana Xinglong’s products have been installed in over 10,000 elementary and middle schools and over 50% of colleges throughout China.

Database Management Business Unit

We have, and are continuing to develop, databases containing information on individuals which we will utilize to offer a one-stop marketing solution to a wide range of businesses with products and services tailored to the specific needs of the education market.

Beijing Intac Purun Educational Development Ltd. (“Intac Purun”), an indirect 60% owned subsidiary of INTAC, develops the databases utilizing information from several sources. Intac Purun is exclusively authorized by the MOE to collect resumes and profiles for all graduating college and graduate school students in China and has recently begun collecting this information. The EMIC has chosen Intac Purun as its exclusive partner in developing and maintaining the MyJob database, compiled through EMIC’s website www.myjob.edu.cn, which helps graduates of higher education institutions obtain employment. Intac Purun has also been granted exclusive access to the database on university graduates maintained by the EMIC for use by Intac Purun in providing job training and placement services. Initially, Intac Purun will collect list rental fees and direct marketing service fees utilizing these databases. Ultimately, integrated database marketing solutions and consulting services will be offered.

Distribution/Telecommunications Segment

Our Distribution/Telecommunications Segment includes our wireless handset and other telecommunication products distribution business, which we operate through INTAC International Holdings Limited, a Hong Kong corporation and wholly-owned subsidiary of INTAC (“Holdings”) and its wholly-owned subsidiaries, Global Creative International Limited, a Hong Kong corporation (“Global Creative”), and INTAC Telecommunications Limited, a Hong Kong corporation (“INTAC Telecom”). Through these subsidiaries, we distribute wireless handset products to mobile communications equipment wholesalers, agents, retailers and other distributors mainly in Hong Kong. These products are then sold primarily to local customers in Hong Kong or customers in China. Additionally, we are working with Primus Telecommunications Ltd, a global telecommunications services provider (Nasdaq: PRTL), to develop products which involve originating international voice and data traffic from within China throughout Southeast Asia for termination around the world. The first product to be offered under this relationship is a global prepaid calling card, an Internet Protocol (“IP”) calling card that provides access to over fifty countries.

We historically have derived substantially all of our revenue from our Distribution Segment. Although we intend to emphasize our Career Development and Training Services Segment going forward, we anticipate that a significant portion of short-term revenues will continue to be generated by our wireless handset distribution business.

Other Business Opportunities. We continually evaluate investment opportunities in other business segments within China, the Asia-Pacific Rim and, to a lesser extent, Europe. Our entry into these new business segments is contingent upon our identifying both favorable investment opportunities and strategic partners with expertise in such business segments as well as available capital. Many of these opportunities will be dependent upon our obtaining additional capital, or their value will be materially less to us if we do not have the financial resources to fully exploit such opportunities.

RECENT EVENTS

On April 20, 2006, we entered into an Agreement and Plan of Merger, referred to as the merger agreement, with HowStuffWorks Inc., (“HSW”), HSW International, Inc. (“HSW International”) and HSW International Merger Corporation (“merger sub”). Pursuant to the merger agreement, merger sub will merge with and into us, with INTAC continuing as the surviving corporation (the “merger”). As a result of the merger, INTAC will become a wholly owned subsidiary of HSW International. Pursuant to the terms of the merger agreement, each outstanding share of Company common stock, par value $0.001 per share, will be converted into the right to receive one share of HSW International common stock, par value $0.001 per share.

Prior to the closing of the merger, it is contemplated that HSW International will use its best efforts to obtain approval for listing of HSW International common stock on either the Nasdaq National Market or the Nasdaq Capital Market, and following the closing of the merger, it is contemplated that we will file with the SEC to terminate registration of our common stock.

CRITICAL ACCOUNTING POLICIES

INTAC’s discussion and analysis of its financial condition and results of operations are based upon INTAC’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires INTAC to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, INTAC evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity:

• Revenue recognition;

• Inventory;

• Concentration of credit risk, accounts receivable and related provision for doubtful accounts;

• Impairment of long lived assets other than goodwill;

• Foreign currency exchange;

• Goodwill;

• Product and software development expenses;

• Research and development costs; and

• Purchase price allocations.

A complete description of all of our accounting policies is included in Note 1, “General and Summary of Significant Accounting Policies” in our consolidated financial statements included in Item 8 of our Transition Report on Form 10-K for the fiscal year ended September 30. 2005

Revenue Recognition:

Career Development Services:

elements, which is specific to the Company. The vendor specific objective evidence of fair values for the ongoing maintenance and support obligations for term licenses are based upon the prices paid for the separate renewal of these services by the customer or upon substantive renewal rates stated in the contractual arrangements. In this case, maintenance support revenue is recognized when all revenue recognition criteria under SOP 97-2, SOP 98-9 and SAB 104 have been met. Vendor specific objective evidence of the fair value of other services, primarily consulting and training services, is based upon separate sales of these services.

Receipts of cash in advance of shipment or delivery are recorded as deposits received.

Inventory:

Generally, we do not maintain any inventory of wireless handsets; however, due to the timing of the inventory being received and then being shipped to customers, we may hold inventory for a minimal time period, commonly a few days. We purchase products only upon the receipt of an order. Once an order is received, we solicit additional orders to gain greater discounts from suppliers. Aggregate orders are then delivered in bulk to be allocated among customers.

Inventories for wireless handsets are stated at the lower of cost and 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.

Concentration of Credit Risk, Accounts Receivable and Related Provision for Doubtful Accounts:

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments, and trade receivables. We are exposed to credit risks in the event of default by the financial institutions or issuers of investments to the extent of amounts recorded on the balance sheet. We are also exposed to credit risks in the event of non-payment by customers to the extent of amounts recorded on the balance sheet. We limit our exposure to credit risk by performing ongoing credit evaluations of our customers’ financial condition and generally require no collateral. We are exposed to credit risks in the event of insolvency by our customers and manage such exposure to accounting losses by limiting the amount of credit extended whenever deemed necessary.

Impairment of Long Lived Assets other than Goodwill: We review long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the long-lived assets, the carrying value is reduced to the estimated fair value as measured by the discounted cash flows. We have not experienced any events or changes that would indicate that the carrying amounts of any of our assets may not be recoverable.

Foreign Currency Exchange: We are subject to fluctuations in foreign currencies, as distribution business customer orders may involve multi-currency product and delivery transactions before the sale is complete. Additionally, a period of up to three months’ time may lapse between when an order is placed until revenue and costs are recognized and the supplier is paid. We do not engage in hedging activities nor in the use of financial derivatives.

The functional currencies of the Company are the People’s Republic of China Renminbi (“RMB”) and 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 reporting period. Revenues and expenses have been translated at the weighted average rate of exchange in effect during the respective reporting period. Gains and losses resulting from translation are accumulated in other comprehensive income (loss) in stockholders’

equity.

Realized and unrealized gains (losses) on currency transactions between foreign entities are included in other income (expense) in the statements of operations.

Goodwill: We assess the carrying value of goodwill annually and when factors are present that indicate an impairment may have occurred. Goodwill is considered impaired and a loss is recognized when its carrying value exceeds its implied fair value. We may use a number of valuation methods including quoted market prices, discounted cash flows and revenue multiples to determine fair value. The carrying value of goodwill amounted to $16,801,487 and $12,858,790 as of March 31, 2006 and September 30, 2005, respectively. No impairment charge has been made.

Factors that we consider important which could trigger an impairment review include the following:

• significant underperformance relative to expected historical or projected future operating results;

• significant changes in the manner or use of the acquired assets or the strategy for our overall business;

• significant negative industry or economic trends;

• significant decline in stock price for a sustained period; and

• our market capitalization relative to net book value.

If we determine that the carrying value of identifiable intangibles and goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, we assess whether the carrying value of the asset is greater than the undiscounted future operating cash flow of the acquired operations. Any impairment is measured based on a projected discounted cash flow method using a discount rate reflecting our average cost of funds.

Product and Software Development Expenses: Product and software development expenses primarily include payroll and other employee benefit costs. For software to be marketed or sold, financial accounting standards require the capitalization of development costs after technological feasibility is established. Due to the relatively short period between technological feasibility and the completion of product development, the insignificance of related costs and the immaterial nature of these costs, we generally do not capitalize software development costs. All products and software development costs are expensed when incurred. Research and development costs to date have not been material.

Purchase Price Allocations: We account for our acquisitions using the purchase method of accounting. This method requires that the acquisition cost be allocated to the assets and liabilities we acquired based on their fair values. We make estimates and judgments in determining the fair value of the acquired assets and liabilities. We base our determination on independent appraisal reports as well as our internal judgments based on the existing facts and circumstances. If we were to use different judgments or assumptions, the amounts assigned to the individual assets or liabilities could be materially different.

Results of Operations for the Three and Six Months Ended March 31, 2006 and 2005

	Three Months Ended March 31,						Six Months Ended March 31,
	2006			2005			2006			2005
Revenues
Distribution business	$	23,931,918		$	12,973,988		$	40,974,004		$	59,593,505
Career development services	1,310,523			1,685,145			2,500,883			5,857,246
Total revenues	25,242,171			14,659,133			43,474,887			65,450,751
Cost of revenue
Distribution business	22,633,,091			12,058,359			39,219,634			54,474,794
Career development services	193,212			335,480			410,997			1,568,970
Total cost of revenue	22,826,303			12,393,839			39,630,631			56,043,764
Total gross profit	2,415,868			2,265,294			3,844,256			9,406,987
Operating expenses
Product development	610,074			872,126			1,372,328			1,570,408
Distribution expenses	214,716			133,908			352,252			243,628
Selling, general and administrative expenses	1,288,903			1,488,699			2,758,111			2,350,321
Total operating expenses	2,113,693			2,494,733			4,482,691			4,164,357
Income (loss) from operations	302,175			(229,439		)	(638,435		)	5,242,630
Total other income (expense), net	(77,321		)	4,991			(8,390		)	(23,709		)
Income (loss) before income taxes	224,854			(224,448		)	(646,825		)	5,218,921
Income taxes	(14,559		)	49,319			122,690			(551,882		)
Net income (loss)	$	210,295		$	(175,129	)	$	(524,135	)	$	4,667,039

Results of Operations for the Three and Six Months Ended March 31, 2006, Compared to the Three and Six Months Ended March 31, 2005

Career Development Services Revenue: Revenue decreased by $374,892 to $1.3 million for the three months ended March 31, 2006, from $1.7 million for the same period in 2005. Revenue decreased by $3.4 million to $2.5 million for the six months ended March 31, 2006 from $5.9 million for the same prior period. This decrease in revenue results from lower sales of our education and administration software due to slower than anticipated orders from the Chinese school districts. We expect career development and training services revenue to grow during the remainder of fiscal 2006.

Distribution Business Revenue: Revenue increased by $11.0 million to $23.9 million for the three months ended March 31, 2006 from $12.9 million for the same period in 2005. Revenue decreased by $18.6 million to $41.0 million for the six months ended March 31, 2006 from $59.6 million for the same prior year period. The increase in revenues for the three month period is due to increased sales from our wireless handset distribution business in Germany in response to increased demand and our first calling card distribution revenue. The decrease in revenue for the six month period is due to unusually high sales in the fourth quarter of calendar 2004 with the introduction of certain wireless handset technology advances, as well as a large amount of sales for used phones, partially offset by our first calling card distribution revenues in the current year. This decrease also results from our redirected focus from the distribution business to career development services, and from increased competition in the wireless handset distribution industry in China. Additionally, while demand for cell phones has increased consistently, the number of distributors has also increased to meet this demand. The increase in Chinese cellular phone manufacturers has negatively impacted our revenue where we have traditionally dealt with large, international manufacturers who have higher manufacturing costs. We expect distribution business revenue to remain relatively constant throughout fiscal 2006 as compared to the prior year.

Distribution business revenue for the three and six months ended March 31, 2006 includes license fee revenue of $385,000, which represents the nonrefundable license fee received from a customer for the right to sell the calling cards of a third party telecommunications company in China.

Career Development Services Gross Profit: Gross profit decreased by $232,624 to $1.1 million for the three months ended March 31, 2006, from $1.3 million for the same period in 2005 and the gross margin increased by 5.2% to 85.3% for the three months ended March 31, 2006, from 80.1% for the same period in 2005. Gross profit decreased by $2.2 million to $2.1 million for the six months ended March 31, 2006, from $4.3 million for the comparable prior period in 2005 and the gross margin increased by 10.4% to 83.6% for the six months ended March 31, 2005, from 73.2% for the six months ended March 31, 2005. The decrease in gross profit is mainly due to lower sales volume. We expect margins to remain high due to the nature of this service business. Unlike the distribution business which has product costs in cost of revenue, our career development services’ cost of revenues does not have these types of product costs and therefore produces higher margins.

Distribution Business Gross Profit: Gross profit increased by $383,198 to $1.3 million for the three months ended March 31, 2006, from $915,629 for the same period in 2005 and the gross margin decreased by 1.6% to 5.5% for the three months ended March 31, 2006, from 7.1% for the same period in 2005. Gross profit decreased by $3.4 million to $1.7 million for the six months ended March 31, 2005, from $5.1 million for the comparable prior period in 2005 and gross margin decreased by 4.3% to 4.3% for the six months ended March 31, 2005, from 8.6% for the six months ended March 31, 2005. The increase in gross profit for the three month period is mainly due to the calling card distribution revenue, partially offset by higher distribution product costs. The decrease in gross profit for the six month period is mainly due to lower sales volume resulting from increased competition in the wireless handsets distribution industry in China and lower gross margins, partially offset by calling card distribution revenue. The decrease in gross margin is caused by pricing pressures from increased competition, partially offset by volume incentive rebates from a major supplier in the amount of $1,085,220 and $1,693,720 received in the third and second quarters of fiscal 2005, respectively.

Operating Expenses: Product development expense was $610,074 and $1.4 million the three and six months ended March 31, 2006, as compared to $872,126 and $1.6 million respectively, for the same prior year periods. Product development expense is principally comprised of costs directly attributable to the development, production and delivery of our career development services, such as salaries and facility costs. These costs have decreased due to lower headcount and fewer product development projects during the periods. We expect to continue to incur significant product development costs in future years.

Distribution expenses increased by $80,808 to $214,716 for the three months ended March 31, 2006, from $133,908 for the same period in 2005, and decreased slightly as a percentage of distribution revenue to .9% in 2006 from 1% in 2005. Distribution expense increased by $108,624 to $352,252 for the six months ended March 31, 2006, from $243,628 for the six months ended March 31, 2005, and increased as a percentage of distribution revenue to .8% in the current year from .4% in the prior year. Distribution expenses are principally comprised of costs attributable to the shipping and handling of our wireless handset products, such as delivery, transportation, salaries and facility costs. Distribution expenses have increased in the current year due to increased common carrier and warehousing costs.

Selling, general and administrative expenses decreased by $199,796 to $1.3 million for the three months ended March 31, 2006, from $1.5 million for the same period in 2005, and decreased as a percentage of revenue to 5.1 % in 2006 from 10.2% in 2005. This

decrease is primarily due to higher costs in the quarter ended March 31, 2005 for fees related to the audit and Sarbanes Oxley compliance services for the year ended December 31, 2004. The Company subsequently changed its year-end to September 30^th and did not incur such fees in the quarter ended March 31, 2006. Selling, general and administrative expenses increased by $407,790 to $2.8 million for the six months ended March 31, 2006, from $2.3 for the same period in 2005, and increased as a percentage of revenue to 6.5% in 2006 from 3.6% in 2005. The increase in SG&A during the six month period is mainly a result of costs incurred during the October through December 2005 period for the audit of our September 30, 2005 financial statements including increased costs associated with being a public company including Sarbanes Oxley compliance, stock-based compensation and other professional fees. These costs are expected to increase with the Company’s continued public entity compliance related matters. Specifically, for the three months ended March 31, 2006 the significant components of the overall decrease are $202,000 that relates to decreased professional legal and audit costs, $82,000 that relates to decreased business development costs and $47,000 in lower occupancy costs, partially offset by $113,000 in increased staff costs, and $18,000 in increased miscellaneous operating expenses. For the six months ended March 31, 2006, the components of the increase are $473,000 that relates to increased professional legal and audit costs and $289,000 that relates to increased salary and staff costs partially offset by $251,000 in decreased business development costs, $33,000 in lower occupancy costs and a $70,000 decrease in miscellaneous operating expenses.

Income (loss) from operations: Income from operations was $302,175 for the three months ended March 31, 2006 and a loss from operations of $638,435 for the six months ended March 31, 2006, as compared to loss from operations of $229,439 for the three months ended March 31, 2005 and income from operations of $5.2 million for the six months ended March 31, 2005. The increase in income from operations for the quarter is primarily due to higher sales and lower product development and selling, general and administrative expenses, partially offset by lower gross margins and higher distribution expenses discussed above. The decline in income from operations for the six month period is primarily due to lower sales volumes, lower gross margins and higher selling, general and administrative and distribution expenses discussed above, partially offset by lower product development costs.

Net income (loss): Net income for the three months ended March 31, 2006 was $210,295 and net loss for the six months ended March 31, 2006 was $524,135 as compared to net loss for the three months ended March 31, 2005 of $175,129 and net income of $4.7 million for the first six months of 2005. The increase in net income for the quarter is primarily due to higher sales and lower product development and selling, general and administrative expenses, partially offset by lower gross margins and higher distribution expenses discussed above. The increase in net loss for the six month period is due to lower sales volumes, lower gross margins and higher selling, general and administrative and distribution expenses discussed above, partially offset by lower product development costs.

Liquidity and Capital Resources

Unrestricted cash at March 31, 2006 was $2,250,149 and was $2,635,868 at September 30, 2005.

Working capital (measured by current assets less current liabilities) at March 31, 2006, was $18,915,429 and at September 30, 2005, was $19,567,248. The decrease in working capital is primarily due to the net loss for the six months.

For the six months ended March 31, 2006, cash used in operating activities totaled $363,671. This was primarily due to the net loss for the period and the timing of inventory purchases which was sold in the following weeks, partially offset by an increase in trade accounts payable. For six months ended March 31, 2005, cash used in operating activities totaled $6.6 million. The use of funds was primarily due to an increase in inventory due to the timing of purchases and a decrease in accounts payable offset by a decrease in trade accounts receivable and net income for the period.

For the six months ended March 31, 2006, cash used in investing activities was $284,222 which included $223,283 in purchases of property and equipment and $60,940 of advances to officers of subsidiaries and employees. For six months ended March 31, 2005, cash used in investing activities amounted to $689. This was comprised of purchases of property and equipment totaling $375,003 mostly related to the recent acquisition of Huana Xinlong, and purchases of other assets totaling $466,214. This was offset by $192,528 of cash included in the purchase of a subsidiary, $365,370 in collections of a short-term note receivable and $313,158 in repayment of loans to officers and employees of subsidiaries.

For the six months ended March 31, 2006, cash provided by financing activities was $262,174 consisting of proceeds from the exercise of stock options. For the six months ended March 31, 2005, cash used in financing activities was $30,749 which primarily included net borrowings from a stockholder.

Inventories increased by $3.3 million to $4.4 million at March 31, 2006, compared to $1.1 million at September 30, 2005. The balance relates primarily to wireless handsets which will be subsequently sold during fiscal 2006. Trade accounts payable increased in relation to inventory purchases.

Goodwill increased by $3.9 million during the quarter ended March 31, 2006 due to additional shares issued in accordance with the Huana Xinlong acquisition agreement. See note 4 to the condensed consolidated financial statements.

Although there is a significant amount of working capital as of March 31, 2006, a substantial portion is tied up in trade accounts receivables and may not all necessarily be readily available to satisfy short-term obligations. Our Distribution Segment business model has historically relied on customers paying on a cash basis. However, in the last two years as our sales volume and customer size have increased, it has become necessary to grant credit terms to major customers. Within our Distribution Business segment, a large portion of trade accounts receivable is attributable to our largest customer – Mr. Lam, from whom we derive substantially all of our revenue. The amount of the receivable balance with this customer has increased over time and we expect this balance to remain high for the foreseeable future. Although we believe that this receivable balance is all collectible, we do not anticipate reducing the outstanding balance significantly in the near future.

Additionally, our Career Development Services trade receivable balance has decreased to $5.7 million at March 31, 2006 from $5.8 million at September 30, 2005. The trade receivable balance relates primarily to Huana Xinlong and the sale of educational software to school districts within China. These school districts pay for their software purchases using funds supplied by the Chinese government. Historically, this funding takes many months, which is typical of the business process in China. As of March 31, 2006, approximately $3.4 million of our trade receivable balance relates to sales of educational software completed over 365 days ago. We believe these accounts to be fully collectible; however, the timing of the collections cannot be estimated with certainty. We collected approximately $700,000 of the over 365 days account receivable subsequent to March 31, 2006.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

While our reporting currency is the U.S. Dollar, most of our consolidated revenues, expenses and assets are denominated in Hong Kong Dollars. Because the value of the Hong Kong Dollar is pegged to the U.S. Dollar, we are not exposed to material foreign exchange risk with respect to our Hong Kong Dollar denominated revenues, expenses and assets. However, some of our consolidated revenues, expenses and assets are denominated in Renminbi (“RMB”). As a result, we are exposed to foreign exchange risk with respect to RMB denominated revenues, expenses and assets as our revenues and results of operations may be affected by fluctuations in the exchange rate between U.S. Dollars and RMB. If the RMB depreciates against the U.S. Dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. Dollar financial statements will decline. We have not entered into any hedging transactions or market sensitive instruments in an effort to reduce our exposure to foreign exchange risk.

Item 4. Controls and Procedures

As previously reported in our Transition Report on Form 10-K for the nine month period ended September 30, 2005, our management assessed the effectiveness of the Company’s internal control over financial reporting, as defined in Securities Exchange Commission Act Rule 13a-15(f), as of September 30, 2005, and this assessment identified the following material weaknesses in the Company’s internal control over financial reporting:

1. Deficiencies existed in our information technology (“IT”) environment due to inadequate procedures and controls which, when considered in the aggregate, constitute a material weakness over financial reporting. These deficiencies included: general

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.

	None

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.

	None

Item 3.	Defaults Upon Senior Securities.

	None

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

	None

Item 5.	Other Information.

	None

Item 6.	Exhibits.

	Exhibits

		Exhibit 31.1	Certification of Chief Executive Officer Pursuant to the Sarbanes-Oxley Act of 2002 (filed herewith).

		Exhibit 31.2	Certification of Chief Financial Officer Pursuant to the Sarbanes-Oxley Act of 2002 (filed herewith).

		Exhibit 32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

		Exhibit 32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

	INTAC INTERNATIONAL, INC.

Date: May 23, 2006
	By:	/s/ J. David Darnell
		J. David Darnell
		Senior Vice President and
		Chief Financial Officer

Dated: May 23, 2006
		/s/ WEI ZHOU
	Wei Zhou
	President and Chief Executive Officer

Dated: May 23, 2006
		/s/ J. DAVID DARNELL
	J. David Darnell
	Senior Vice President and Chief Financial Officer

Dated: May 23, 2006
		/s/ WEI ZHOU
	Wei Zhou
	President and Chief Executive Officer

Dated: May 23, 2006

		/s/ J. DAVID DARNELL
		J. David Darnell
		Senior Vice President and Chief Financial Officer

EXHIBIT NO.		DOCUMENT

Exhibit 31.1		Certification of Chief Executive Officer Pursuant to the Sarbanes-Oxley Act of 2002 (filed herewith).

Exhibit 31.2		Certification of Chief Financial Officer Pursuant to the Sarbanes-Oxley Act of 2002 (filed herewith).

Exhibit 32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

Exhibit 32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).