UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-QSB


        |X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2006


       |_| TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

               For the transition period from _______ to ________

                        Commission file number: 0-24374


                                FANTATECH, INC.
    -----------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

             Delaware                                   62-1690722
-----------------------------------           -----------------------------
  (State or other jurisdiction of                   (I.R.S. Employer
   incorporation or organization)                 Identification Number)

  Suite 1801A, Tower 1, China Hong Kong City, Tsimshatsui, Kowloon, Hong Kong
  ---------------------------------------------------------------------------
                    (Address of principal executive offices)

                                (852) 2302 1636
                -----------------------------------------------
                           (Issuer's telephone number)

     -----------------------------------------------------------------------
   (Former name, former address and former fiscal year, if changed since last
                                    report)

Check  whether  the issuer (1) filed all reports required to be filed by Section
13  or  15(d) of the Exchange Act during the past 12 months (or for such shorter
period  that  the  Company  was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
                                 [X] Yes    [ ] No

As  of  July  31, 2006, the Company had 30,096,117 shares of common stock issued
and  outstanding.

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

Transitional  Small Business Disclosure Format:          [ ] Yes    [X] No


<PAGE>
<TABLE>
<CAPTION>
                        FANTATECH, INC. AND SUBSIDIARIES

                                   FORM 10-QSB

                                      Index


Part  I  -  Financial  Information                                                         Page
<S>                                                                                         <C>

Item 1.     Financial Statements                                                             3
            Condensed Consolidated Balance Sheets - June 30, 2006 (Unaudited) and
                December 31, 2005                                                            3
            Condensed Consolidated Statements of Operations (Unaudited) -Three Months
                and Six Months Ended June 30, 2006 and 2005                                  4
            Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) -
                Three Months and Six Months Ended June 30, 2006 and 2005                     6
            Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months
            Ended June 30, 2006 and 2005                                                     7
                Notes to Condensed Consolidated Financial Statements (Unaudited) -
            Three Months and Six Months Ended June 30, 2006 and 2005                         8

Item 2.     Management's Discussion and Analysis or Plan of Operation                       21

Item 3.     Controls and Procedures                                                         33

Part II - Other Information

Item 1.     Legal Proceedings                                                               34

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds                     34

Item 3.     Defaults upon Senior Securities                                                 34

Item 4.     Submission of Matters to a Vote of Security Holders                             34

Item 5.     Other Information                                                               34

Item 6.     Exhibits                                                                        34

Signatures                                                                                  35
</TABLE>


                                        2
<PAGE>
<TABLE>
<CAPTION>
                         PART I - FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS
-------------------------------------------------------------------------------------------------------------

                        FANTATECH, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                          June 30, 2006    December 31, 2005
                                                                         ---------------  -------------------
                                      ASSETS                                 (Unaudited)        (Audited)
<S>                                                                       <C>             <C>
Current assets
  Cash and cash equivalents                                               $    1,925,654  $         2,365,921
  Deposit at an affiliate's financial clearing center                              7,019              321,728
  Guaranteed trust fund deposit                                                    9,150                9,330
  Trade receivables, net of allowance for doubtful accounts                    1,031,691            1,939,434
  Related party receivables                                                       92,466              193,721
  Inventories                                                                  3,357,053            3,037,087
  Costs and estimated earnings in excess of
    billings on uncompleted contracts                                            921,515              722,526
  Deposits and prepayments                                                     1,103,489            1,607,725
  Other receivables                                                              302,322              243,176
                                                                         ---------------  -------------------

Total current assets                                                           8,750,359           10,440,648

Interest in an associated company, accounted for using the equity method               -               18,587
Property, plant and equipment, net                                            14,394,275            6,661,869
Construction in progress                                                         130,724            2,576,520
                                                                         ---------------  -------------------

Total assets                                                              $   23,275,358  $        19,697,624
                                                                         ===============  ===================
                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Short-term bank loans                                                   $    2,500,000  $         2,478,315
  Accounts payable                                                               583,423            1,585,030
  Accrued liabilities and other payables                                       2,451,960            1,155,197
  Related party payables                                                       2,135,209              778,349
  Billings in excess of cost and estimated earnings
    on uncompleted contracts                                                     317,716              608,104
  Deposits received                                                            4,046,913            1,811,743
                                                                         ---------------  -------------------

Total current liabilities                                                     12,035,221            8,416,738

Minority interests                                                             4,243,451            4,289,988
                                                                         ---------------  -------------------

Total liabilities                                                             16,278,672           12,706,726
                                                                         ---------------  -------------------

Commitments and contingencies

Stockholders' equity
  Preferred stock; $0.001 par value; 10,000,000 shares
    authorized; shares issued and outstanding - none                                   -                    -
  Common stock; $0.001 par value; 100,000,000 shares
    authorized, 30,096,117 shares issued and outstanding                          30,096               30,096
  Additional paid-in capital                                                   4,587,190            4,587,190
  Retained earnings                                                            1,975,425            1,915,800
  Reserve funds                                                                  145,347              145,347
  Accumulated other comprehensive income                                         258,628              312,465
                                                                         ---------------  -------------------

Stockholders' equity                                                           6,996,686            6,990,898
                                                                         ---------------  -------------------

Total liabilities and stockholders' equity                                $   23,275,358  $        19,697,624
                                                                         ===============  ===================
</TABLE>

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


                                        3
<PAGE>
<TABLE>
<CAPTION>
                                FANTATECH, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

                                                       Three Months Ended    Three Months Ended
                                                         June 30, 2006         June 30, 2005
                                                      --------------------  --------------------
<S>                                                   <C>                   <C>
REVENUE :                                             $                     $
  Contracted sales                                              1,294,535             2,332,517
  Design services                                                       -                     -
  Revenue sharing operations                                    1,164,334               242,826
                                                      --------------------  --------------------
TOTAL REVENUE                                                   2,458,869             2,575,343
                                                      --------------------  --------------------

COST OF REVENUE:
  Cost of sales                                                   869,789             1,701,548
  Cost of design service                                                -                     -
  Cost of revenue sharing operations                              738,412               213,538
                                                      --------------------  --------------------
TOTAL COST OF REVENUE                                           1,608,201             1,915,086
                                                      --------------------  --------------------

GROSS PROFIT                                                      850,668               660,257
                                                      --------------------  --------------------

OPERATING EXPENSES:
  Selling and marketing                                           341,472               212,011
  General and administrative                                      330,895               538,166
  Impairment of trademarks                                              -               170,950
  Loss on disposal of property, plant and equipment                   858                     -
                                                      --------------------  --------------------
TOTAL OPERATING EXPENSES                                          673,225               921,127
                                                      --------------------  --------------------

INCOME (LOSS) FROM OPERATIONS                                     177,443              (260,870)

OTHER INCOME (EXPENSES)
  Interest expense                                                (35,251)              (33,025)
  Other income                                                    150,361                13,978
  Interest income                                                   2,596                     -
  Foreign exchange loss                                              (295)                    -
                                                      --------------------  --------------------

INCOME (LOSS) BEFORE INCOME TAX, MINORITY INTERESTS
  AND EQUITY IN LOSS OF AN ASSOCIATED COMPANY                     294,854              (279,917)

MINORITY INTERESTS                                                (84,041)              (81,672)

INCOME TAX                                                         33,315                     -
                                                      --------------------  --------------------

INCOME (LOSS) BEFORE EQUITY IN LOSS OF AN
  ASSOCIATED COMPANY                                              345,580              (198,245)

EQUITY IN LOSS OF AN ASSOCIATED COMPANY                                 -                     -
                                                      --------------------  --------------------

NET INCOME (LOSS)                                     $           345,580   $          (198,245)
                                                      ====================  ====================

WEIGHTED AVERAGE SHARES OUTSTANDING
  BASIC AND DILUTED                                            30,096,117            30,096,117
                                                      ====================  ====================

INCOME (LOSS) PER COMMON SHARE
  - BASIC AND DILUTED                                 $              0.01   $             (0.01)
                                                      ====================  ====================
</TABLE>

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


                                        4
<PAGE>
<TABLE>
<CAPTION>
                              FANTATECH, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

                                                       Six Months Ended    Six Months Ended
                                                        June 30, 2006       June 30, 2005
                                                      ------------------  ------------------
<S>                                                   <C>                 <C>
REVENUE :                                             $                   $
  Contracted sales                                            1,987,407           2,790,867
  Design services                                                     -                   -
  Revenue sharing operations                                  1,491,048             458,942
                                                      ------------------  ------------------
TOTAL REVENUE                                                 3,478,455           3,249,809
                                                      ------------------  ------------------

COST OF REVENUE:
  Cost of sales                                               1,405,183           2,034,320
  Cost of design service                                              -                   -
  Cost of revenue sharing operations                          1,052,319             395,028
                                                      ------------------  ------------------
TOTAL COST OF REVENUE                                         2,457,502           2,429,348
                                                      ------------------  ------------------

GROSS PROFIT                                                  1,020,953             820,461
                                                      ------------------  ------------------

OPERATING EXPENSES:
  Selling and marketing                                         562,056             401,413
  General and administrative                                    652,943             883,416
  Impairment of trademarks                                            -             170,950
  Loss on disposal of property, plant and equipment               2,144                   -
                                                      ------------------  ------------------
TOTAL OPERATING EXPENSES                                      1,217,143           1,455,779
                                                      ------------------  ------------------

LOSS FROM OPERATIONS                                           (196,190)           (635,318)

OTHER INCOME (EXPENSES)
  Interest expense                                              (69,842)            (65,333)
  Other income                                                  168,459              29,915
  Interest income                                                 4,610               3,271
  Foreign exchange loss                                          (1,855)                  -
                                                      ------------------  ------------------

LOSS BEFORE INCOME TAX, MINORITY INTERESTS
  AND EQUITY IN LOSS OF AN ASSOCIATED COMPANY                   (94,818)           (667,465)

MINORITY INTERESTS                                             (206,677)            (68,267)

INCOME TAX                                                       33,577                  33
                                                      ------------------  ------------------

INCOME (LOSS) BEFORE EQUITY IN LOSS OF AN
  ASSOCIATED COMPANY                                             78,282            (599,231)

EQUITY IN LOSS OF AN ASSOCIATED COMPANY                         (18,657)                  -
                                                      ------------------  ------------------

NET INCOME (LOSS)                                     $          59,625   $        (599,231)
                                                      ==================  ==================

WEIGHTED AVERAGE SHARES OUTSTANDING
  BASIC AND DILUTED                                          30,096,117          30,096,117
                                                      ==================  ==================

INCOME (LOSS) PER COMMON SHARE
   - BASIC AND DILUTED                                $            0.00   $           (0.02)
                                                      ==================  ==================
</TABLE>

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


                                        5
<PAGE>
<TABLE>
<CAPTION>
                                         FANTATECH, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

                                               Three Months Ended June 30,         Six Months Ended June 30,
                                                 2006              2005              2006              2005
                                            ---------------  ----------------  ----------------  ----------------
<S>                                         <C>              <C>               <C>               <C>
Net income (loss)                           $       345,580  $      (198,245)  $        59,625   $      (599,231)

Other comprehensive income:
  foreign currency translation gain (loss)           17,714                -           (53,837)                -
                                            ---------------  ----------------  ----------------  ----------------

Comprehensive income (loss)                 $       363,294  $      (198,245)  $         5,788   $      (599,231)
                                            ===============  ================  ================  ================
</TABLE>

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


                                        6
<PAGE>
<TABLE>
<CAPTION>
                                       FANTATECH, INC. AND SUBSIDIARIES
                          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

                                                                                   Six Months Ended June 30,
                                                                                     2006            2005
                                                                                --------------  --------------
<S>                                                                             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                                               $      59,625   $    (599,231)

Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
  Depreciation expense                                                                798,420         505,045
  Impairment of trademarks                                                                  -         170,950
  Provision for doubtful accounts                                                      14,106          95,021
  Loss on disposal of property, plant and equipment                                     2,144               -
  Foreign exchange loss                                                                 1,855               -
  Minority interests                                                                 (206,677)        (68,267)
  Equity in loss of an associated company                                              18,657               -
Change in operating assets and liabilities:
  (Increase) decrease in --
  Guaranteed unit trust fund                                                              180          (9,330)
  Trade receivables                                                                   893,637          94,843
  Bills receivable                                                                          -         554,217
  Related party receivables                                                           101,255         415,405
  Inventories                                                                        (319,966)       (848,846)
  Costs and estimated earnings in excess of billings on uncompleted contracts        (198,989)       (761,301)
  Deposits and prepayments                                                            504,236        (241,029)
  Other receivables                                                                   (59,146)       (297,447)
  (Decrease) increase in --
  Accounts payable, accrued liabilities and other payables                            295,156         611,250
  Related party payables                                                            1,356,860         (10,987)
  Billings in excess of costs and estimated earnings on uncompleted contracts        (290,388)       (576,905)
  Deposits received                                                                 2,235,170        (120,373)
                                                                                --------------  --------------
Net cash provided by (used in) operating activities                                 5,206,135      (1,086,985)
                                                                                --------------  --------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property, plant and equipment                                        (8,472,614)     (2,181,348)
  Deposit at an affiliate's financial clearing center                                 314,709       3,721,496
  Decrease (increase) in construction in progress                                   2,445,796        (351,483)
                                                                                --------------  --------------
Net cash (used in) provided by investing activities                                (5,712,109)      1,188,665
                                                                                --------------  --------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                65,707               -
                                                                                --------------  --------------

NET (DECREASE) INCREASE IN CASH                                                      (440,267)        101,680

Cash and cash equivalents, at beginning of period                                   2,365,921          65,794
                                                                                --------------  --------------
Cash and cash equivalents, at end of period                                     $   1,925,654   $     167,474
                                                                                ==============  ==============

Supplementary disclosures of cash flow information:
  Interest paid                                                                 $      70,262   $      65,333
                                                                                ==============  ==============

  Tax paid                                                                      $     194,120   $      56,181
                                                                                ==============  ==============

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

  Nil
</TABLE>

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


                                        7
<PAGE>
                        FANTATECH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
            THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005

1.   ORGANIZATION  AND  PRINCIPAL  ACTIVITIES

Fantatech,  Inc., formerly Lucas Educational Systems, Inc. (hereinafter referred
to as the "Company", which term shall include, when the context so requires, its
subsidiaries  and affiliates) was incorporated in the State of Delaware in 1996.
During  November  2002,  the  Company acquired all of the issued and outstanding
shares  of Intsys Share Limited ("Intsys") in a reverse acquisition. The Company
is  engaged  in  the  design,  manufacturing,  sale  and  operation  of  hi-tech
entertainment and amusement attractions for group audiences including simulation
attractions  and  equipment,  3D/4D  theatres,  indoor  entertainment  centers
("FunPlex") and outdoor theme parks. The Company's operations are located in the
People's  Republic  of  China (the "PRC" or "China"). The Company's wholly owned
subsidiaries  include  Intsys,  Shenzhen  Digitainment  Co.,  Ltd. ("SDCL"), and
Megabase  Investment  Limited  ("Megabase"). In addition, the Company's majority
controlled  companies  include  Hytechnology  Inc.  ("Hytech  US"),  Chongqing
FantaWild FunPlex Tour Co. Ltd. ("Chongqing FTC") and Fantatech Development Inc.
("FDI").

In  August  2003, SDCL, Shenzhen Huaqiang Industry Company Limited ("SHICL") and
Shenzhen  Huaqiang  Venture Capital Company Limited ("SHVCCL") incorporated FDI.
Each  of SDCL and SHICL hold a 40% equity interest in FDI with the remaining 20%
equity  interest  held by SHVCCL.   FDI is engaged in the sales and marketing of
the products of SDCL in China and assists SDCL with soliciting contracts for the
development  of  hi-tech  entertainment  and  amusement centers and theme parks.
Subsequent  to  its formation, SHVCCL assigned all of its management and control
rights  in  FDI  to  SDCL.  SHICL and SHVCCL are affiliates of Shenzhen Huaqiang
Holdings  Limited  ("SHQ").  The  Chairman and the President of SHQ are also the
Chairman and the Chief Executive Officer ("CEO") of the Company.

In  June  2005,  the  Company resolved to set up two management companies in the
cities  of  Chongqing and Tianjin in China, in order to manage the operations of
the  theme park in Chongqing and the large-size attraction "Dino-Rampage" in the
Tianjin  FunPlex,  respectively.  These  management  companies  are  intended to
facilitate the operations of the aforesaid large-size revenue sharing operations
and  will  be  budgeted  to  operate at a break-even level. In late August 2005,
Chongqing FTC, with registered capital of approximately $620,000, which is owned
90%  by  SDCL and 10% by FDI, formally commenced its operations of assisting and
coordinating  the  establishment  of  the Chongqing Theme Park. In late November
2005,  Tianjin  Longqiao  FantaWild  Kepu  Ltd. ("Tianjin LFK"), with registered
capital  of  approximately $37,000, which is owned 50% by FDI and 50% by Tianjin
Longqiao  Property  Development  Co.  Ltd. ("Longqiao PDL"), a third party local
partner, formally commenced its operations. There are seven members of the Board
of Directors of Tianjin LFK, to which FDI has appointed two directors.

2.   BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

BASIS  OF  PRESENTATION  AND  CONSOLIDATION  -  The  interim unaudited condensed
consolidated  financial  statements  include  the  financial  statements  of the
Company,  its  subsidiaries  in  which  the Company has an effective controlling
interest,  including  its  effectively  controlled  associated company, FDI. The
Company's  investment in Tianjin LFK is accounted for using the equity method of
accounting  as  the  Company does not have effective control over its Board. All
material  intercompany balances and transactions, including intercompany profits
and unrealized profits and losses are eliminated on consolidation.

The interim unaudited condensed consolidated financial statements as of June 30,
2006  and  for  the three months and six months ended June 30, 2006 and 2005, in
the  opinion of the management of the Company, reflect all adjustments of normal
and  recurring  nature,  which  are  necessary  for  a  fair presentation of the
Company's  financial  position,  results  of  operations  and cash flows for the
interim


                                        8
<PAGE>
periods  presented.  Certain  information  and  footnote  disclosures  normally
included  in  financial  statements  have  been condensed or omitted pursuant to
rules  and  regulations  of  the  Securities  and  Exchange Commission, although
management of the Company believes that the disclosures are adequate to make the
information  presented  herein  not  misleading.  Accordingly,  these  unaudited
interim  financial  statements  should  be  read in conjunction with the audited
consolidated  financial  statements  and  the  notes  thereto  included  in  the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2005. The
results  of  operations  for  the  interim periods presented are not necessarily
comparable  to or indicative of the results of any other interim period or to be
expected  for  the  entire  year  ending  December  31,  2006.

RECLASSIFICATIONS  -  Certain prior period amounts in the accompanying unaudited
condensed consolidated financial statements have been reclassified to conform to
the  current  period  presentation. These reclassifications had no effect on the
results of operations or financial position for any period presented.

USE  OF  ESTIMATES  - The preparation of financial statements in conformity with
accounting  principles  generally  accepted  in  the  United  States  of America
requires  management  to  make certain estimates and assumptions that affect the
reported  amounts  of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the respective reporting period.  Actual results
could  differ  from  those  estimates.  Significant estimates made by management
are,  among  others,  those related to costs and estimated earnings in excess of
billings  on  uncompleted  contracts,  billings in excess of costs and estimated
earnings  on  uncompleted  contracts,  and  the allowance for doubtful accounts.
Actual  results  could  differ  from  those  estimates.

FOREIGN  CURRENCY  TRANSLATION - All of the Company's production and most of its
business  operations are located in China and are conducted in Renminbi ("RMB"),
which  is  the  official  currency  of China. The Company's Chinese subsidiaries
maintain  their financial records and the statutory financial statements in RMB.
Revenue and expenditures denominated in currencies other than RMB are translated
into RMB at the prevailing exchange rate when recognized and recorded in the PRC
financial  records.  Monetary  assets  and  liabilities  denominated  in  other
currencies  are  also  translated  into and recorded in RMB at the balance sheet
date.  Any transaction gain or loss is charged to the statement of operations of
the  PRC  subsidiaries in the period in which such gain or loss occurs.  The PRC
accounts  denominated  in  RMB  are  then  translated  into United States Dollar
("USD"),  the  reporting  currency  of  the  Company,  using  the  exchange rate
prevailing at the balance sheet date for consolidation and presentation.

On  July  21,  2005,  the  People's Bank of China ("PBC") announced that the RMB
would  no  longer  be tied directly to the USD but against a 'basket' of foreign
currencies  under  a managed floating exchange rate regime, and the new official
parity  exchange rate of USD to RMB was set at USD 1.00 to RMB 8.11 (previously,
USD1.00  to  RMB  8.3),  to  be  allowed to float within a band of +-0.3 percent
around  the  central  parity  rate  as  published  by the PBC daily. The Company
recorded  and  adjusted  its  exchange  rate  applicable  to  the translation of
financial  information  in  accordance  with  the  announced  change  as  of the
effective  date.  Accordingly,  as  of  June  30,  2006,  the  Chinese financial
statements  were translated from RMB to USD at the new prevailing exchange rate.
For  assets  and  liabilities  (other than equity and reserves) translation, the
published  closing  exchange rate of USD 1.00 to RMB 8.00 was applied, while for
revenues,  expenses,  gains and losses, the weighted average rate of USD 1.00 to
RMB  8.03  was  used  for translation. The resulting translation gains or losses
were recorded as a separate component of stockholders' equity.

This  quotation  of the exchange rates does not imply free convertibility of RMB
to USD. All foreign exchange transactions in China continue to take place either
through  the  Bank  of  China  or other banks authorized to buy and sell foreign
currencies  at  the  exchange  rate  quoted by PBC. Approval of foreign currency
payments  by  the  Foreign  Exchange  Management  Bureau  or  other institutions
requires  submitting  a  payment  application  together  with invoices, shipping
documents, signed contracts and other relevant documentation.


                                        9
<PAGE>
The  Company's  other  subsidiaries  in the United States of America and British
Virgin  Islands  ("BVI")  adopted USD as their functional currency. Transactions
denominated  in  currencies  other  than  the  functional  currency  of  these
subsidiaries  are  converted  into  their  functional currency at the prevailing
exchange  rates  at  the  date  of  transaction  or  settlement.

EARNINGS  PER  SHARE  -  Statement  of  Financial  Accounting  Standard No. 128,
"Earnings  per  share"  ("SFAS No. 128") requires dual presentation of basic and
diluted  earnings  per  share ("EPS") with a reconciliation of the numerator and
denominator  of the EPS computations. Basic EPS excludes the dilutive effects of
stock  options,  warrants and convertible securities, if any, and is computed by
dividing  net  income  (loss)  available  to common stockholders by the weighted
average  number  of  common  shares  outstanding during the period.  Diluted EPS
reflects  the  potential  dilution  that  could  occur  if  securities  or other
contracts  to  issue common stock (such as convertible preferred stock, warrants
to  purchase  common stock and common stock options) were exercised or converted
into  common  stock  (see  Note  9).

CHANGE  IN METHOD OF ACCOUNTING FOR INVENTORY VALUATION FOR LOW VALUE ITEMS - On
January  1,  2006,  the  Company elected to change its accounting method for low
value  inventory/stock  (i.e.  small parts, bolt and nut and consumables) to the
weighted  average  method.  In  all  prior years, inventory was valued using the
first-in, first-out ("FIFO") method.  The new method of accounting for low value
inventory/stock  was  adopted  to  enhance  operating  efficiency  and  resource
utilization.  The numerous categories of low value items only constitute a small
portion  of  the  overall product costs. Management believes that maintenance of
such  low  value  inventory  with  the  FIFO  method reduced warehouse operating
efficiency  as  well  as  resource utilization in relation to inventory control.

In  addition, based on the fast inventory turnover and stable unit price of such
low  value  inventory,  the  difference  between  the  two  methods would not be
material. Therefore, the new accounting method of weighted average is preferable
to  the  FIFO  method  in  relation  to  low  value  inventory.

Based  on  the estimated average price change within different categories of low
value  stock,  the  adoption  of  the  accounting principle would reduce the net
income for the year ended December 31, 2005 by $4,293 or 0.35%, while increasing
the  net  loss by $1,247 or 0.63% and $895 or 0.15% for the three months and six
months  ended  June  30,  2005,  respectively.  The  effect  of adopting the new
accounting  principle  would  reduce  the  inventory and retained earnings as of
December  31,  2005  by $4,293.  Statement of Financial Accounting Standards No.
154, Accounting Changes and Error Corrections - A Replacement of APB Opinion No.
20 and FASB Statement No. 3 ("SFAS No. 154") demands a retrospective application
of  changes  in accounting principles. However, because the impact of the change
in  accounting  principle on the financial statements is immaterial as described
above,  the  Company  has  not  taken  this  action.

The  new  accounting  principle,  affecting only low value stock, was adopted by
management  and  approved  by  the  Audit  Committee.


3.   DEPOSIT AT AN AFFILIATE'S FINANCIAL CLEARING CENTER

Cash  on  deposit  at  the  financial  clearing  center  ("FCC")  operated by an
affiliate as at June 30, 2006 and December 31, 2005 is summarized as follows:

<TABLE>
<CAPTION>
                                         June 30, 2006    December 31, 2005
                                          (Unaudited)         (Audited)
                                        ---------------  -------------------
<S>                                     <C>              <C>
Financial clearing center operated by:
  Shenzhen Huaqiang Holdings Limited    $         7,019  $           321,728
                                        ===============  ===================
</TABLE>


                                       10
<PAGE>
The  Company's  Chinese subsidiaries are members of the FCC operated by Shenzhen
Huaqiang Technology Co., Ltd. ("SHT"), a significant shareholder (35.53%) of the
Company,  and  SHQ.  As  described  below, the role of each of SHT and SHQ is to
primarily  coordinate  the financial arrangement of its members via the FCC. The
Company  has  cash  on  deposit at the FCC. As of June 30, 2005, the Company has
reclassified  the  presentation of cash on deposit at financial clearing centers
from  cash  and cash equivalents to a separate category on its statement of cash
flows  entitled  deposit  at  affiliate's  financial  clearing  center.  The
reclassification had no impact on the Company's working capital resources.

A FCC resembles an internal bank which accepts deposits from and grants loans to
its  members at the prevailing market rate of interest. A FCC also obtains loans
from  external  commercial  banks  and  then in turn sub-lends to its members in
order  to  meet  their  working  capital  requirements  with  less  complicated
application  procedures and no attendant financial charges. The cash deposits at
the  FCC  can  be  withdrawn  any time without any restrictions, except that the
respective  FCC can collect directly from the Company's account any overdue loan
principal  and  accrued  interest  in  case  the  Company  is  in default in its
repayment  obligations.


4.   INVENTORIES

Inventories at June 30, 2006 and December 31, 2005 are summarized as follows:

<TABLE>
<CAPTION>
                              June 30, 2006    December 31, 2005
                               (Unaudited)         (Audited)
                             ---------------  -------------------
<S>                          <C>              <C>
     Raw Materials           $     1,363,330  $         1,766,203
     Work-in-process               1,868,441            1,140,725
     Finished Goods                  125,282              130,159
                             ---------------  -------------------
                             $     3,357,053  $         3,037,087
                             ===============  ===================
</TABLE>


5.   COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS

Costs  and  estimated earnings in excess of billings on uncompleted contracts as
of  June  30,  2006  and  December  31,  2005  are  summarized  as  follows:

<TABLE>
<CAPTION>
                                                     June 30, 2006    December 31, 2005
                                                      (Unaudited)         (Audited)
                                                    ---------------  -------------------
<S>                                                 <C>              <C>
Cumulative costs incurred on uncompleted contracts  $   14,026,895   $       12,127,482

Cumulative estimated earnings to date                    3,293,698            2,808,758
                                                    ---------------  -------------------
                                                        17,320,593           14,936,240

Less: Billings to date                                 (16,716,794)         (14,821,818)
                                                    ---------------  -------------------
                                                    $      603,799   $          114,422
                                                    ===============  ===================
</TABLE>


                                       11
<PAGE>
Included in the accompanying balance sheets under the following captions are the
following:

<TABLE>
<CAPTION>
                                            June 30, 2006    December 31, 2005
                                             (Unaudited)         (Audited)
                                           ---------------  -------------------
<S>                                        <C>              <C>
Costs and estimated earnings in excess
  of billings on uncompleted contracts     $      921,515   $          722,526
Billings in excess of costs and estimated
  earnings on uncompleted contracts              (317,716)            (608,104)
                                           ---------------  -------------------
                                           $      603,799   $          114,422
                                           ===============  ===================
</TABLE>

6.   PROPERTY, PLANT AND EQUIPMENT

Property,  plant,  and  equipment  as  at  June  30,  2006 and December 31, 2005
consisted  of  the  following:

<TABLE>
<CAPTION>
                                              June 30, 2006    December 31, 2005
                                               (Unaudited)         (Audited)
                                             ---------------  -------------------
<S>                                          <C>              <C>
Leasehold improvements                       $      470,162   $          441,465
Plant and machinery                                 566,055              528,648
Furniture and fixtures                              112,641              110,829
Equipment for revenue sharing operations         14,770,492            6,330,547
Computers and equipment                           1,036,297            1,059,747
Motor vehicles                                      329,866              285,462
                                             ---------------  -------------------
                                                 17,285,513            8,756,698
Less: Accumulated depreciation and
amortization (net of write off on disposal)      (2,891,238)          (2,094,829)
                                             ---------------  -------------------
                                             $   14,394,275   $        6,661,869
                                             ===============  ===================
</TABLE>

Depreciation  expense  was $460,756 and $266,627 for the three months ended June
30,  2006  and  2005, respectively, and $798,420 and $505,045 for the six months
ended  June  30,  2006  and  2005,  respectively.


7.   INTEREST IN AN ASSOCIATED COMPANY

The  investment  consists  of  the Company's 50% equity interest in Tianjin LFK,
which  is  held  by  FDI  (a  40%  owned  but  effectively controlled associated
company).  Tianjin  LFK  was  established in November 2005 to manage the Tianjin
FunPlex  entertainment  center  which commenced its formal operation in February
2006.  Although  Tianjin  LFK  is  budgeted  to  operate  at  a break-even level
annually,  actual  profitability,  especially  on  an  interim  basis and at the
initial stage of operation in particular, is subject to substantial variability.
The  Company  has  no  contractual obligation for any losses incurred by Tianjin
LFK.

The  unaudited  condensed  statements of operations of Tianjin LFK for the three
months and six months ended June 30, 2006 are as follows:

<TABLE>
<CAPTION>
                                              Three months ended    Six months ended
                                                June 30, 2006        June 30, 2006
                                             --------------------  ------------------
<S>                                          <C>                   <C>
Net sales                                    $           134,174   $         316,644
                                             ====================  ==================
Net loss                                                (115,079)           (300,479)
                                             ====================  ==================
The Company's share of net loss                                -             (18,657)
                                             ====================  ==================
Loss in excess of investment (unrecognized)              (57,540)           (131,583)
                                             ====================  ==================
</TABLE>


                                       12
<PAGE>
Reconciliation of the investment in Tianjin LFK is as follow:

<TABLE>
<CAPTION>
                                                     Interest in an
                                                   associated company
                                                   ------------------
<S>                                                <C>
     As at January 1, 2006                         $          18,587
     Effect of exchange rate change on investment                 70
     Equity in loss of an associated company                 (18,657)
                                                   ------------------
                                                                   -
                                                   ==================
</TABLE>

Based  on  the  agreement  with  Longqiao  PDL, the local venture partner of the
Tianjin  FunPlex, revenue income from the FunPlex will be shared equally between
the  Company  and  Longqiao PDL net of the rental and administrative expenses of
the  FunPlex.  For  the  three  months  and  six months ended June 30, 2006, the
Company  recorded no income from the Tianjin FunPlex due to the loss incurred by
Tianjin  LFK.


8.  STOCK  BASED  COMPENSATION

On  January  7,  2004, the Company granted a total of 2,000,000 stock options to
its  key  employees  to  purchase common stock at an exercise price of $1.00 per
share.  Market  price  of the Company's common stock at the grant date was $0.80
per share. The stock options vest and are exercisable as follows:

<TABLE>
<CAPTION>
     Scale        Vested and exercisable
     -----        ----------------------
<S>               <C>
      50%         On or after January 7, 2007
      80%         On or after January 7, 2008
     100%         On or after January 7, 2009
</TABLE>

All  unexercised  options  will  expire  on January 6, 2014 and options would be
cancelled  one  month  after  termination  of  employment.

Prior  to  October  10, 2005, the Company followed SFAS No. 123, which defined a
fair-value  method  of  accounting  for  stock  based  employee compensation and
transaction  in  which  an entity issued its equity instruments to acquire goods
and services from non-employee. The provisions of SFAS No. 123 allowed companies
to either record an expense in the financial statements to reflect the estimated
fair value of stock options to employees, or to continue to follow the intrinsic
value  method  set  forth  in  Accounting  Principles  Board  Opinion  No.  25,
"Accounting  for  Stock Issued to Employees", but to disclose on an annual basis
the  pro  forma  effect on net income (loss) and net income (loss) per share had
the  fair  value of the stock options been recorded in the financial statements.

SFAS  No.  123  was  amended  by  SFAS  No. 148, which now requires companies to
disclose  in  interim  financial  statements  the pro forma effect on net income
(loss)  and income (loss) per common share of the estimated fair market value of
stock  options  issued  to  employees.  Accordingly, compensation cost for stock
options to employees is measured as the excess, if any, of the fair market price
of  the Company's common stock at the date of grant above the amount an employee
must  pay  to  acquire  the  common  stock.

In  accordance  with SFAS No. 123, the cost of stock options and warrants issued
to  non-employees  was measured at the grant date based on the fair value of the
award.  The fair value of the stock-based award at the grant date was determined
using  the  Black-Scholes option-pricing model. The resulting amount was charged
to  expense  on  the  straight-line  basis  over the period in which the Company
expected to receive benefit, which was generally the vesting period.


                                       13
<PAGE>
Pro  forma  Disclosure  - The fair value of stock options granted by the Company
has  been  estimated  on  the  grant date using the Black-Scholes option-pricing
model.  Had  such stock options been accounted for pursuant to SFAS No. 123, the
effect  on  the  Company's  results  of operations and earnings per common share
would  have  been  as  follow:

<TABLE>
<CAPTION>
                                               (Unaudited)                    (Unaudited)
                                        Three months ended June 30,     Six months ended June 30,
                                      ------------------------------  ------------------------------
                                           2006            2005            2006            2005
                                      ------------------------------  ------------------------------
<S>                                   <C>             <C>             <C>             <C>
Net income (loss)
  As reported                         $      345,580       (198,245)  $       59,625       (599,231)
    Compensation expense for stock
      options based on fair value,
      net of taxes                                --        (69,047)              --       (138,094)
                                      ------------------------------  ------------------------------
    Pro forma net loss                $      345,580       (267,292)  $       59,625       (737,325)
                                      ------------------------------  ------------------------------
Net income (loss) per share
    As reported - Basic and diluted   $         0.01          (0.01)  $         0.00          (0.02)
                                      ------------------------------  ------------------------------
    Pro forma - Basic and diluted     $         0.01          (0.01)  $         0.00          (0.02)
                                      ------------------------------  ------------------------------
</TABLE>

Effective  October  10,  2005, the Board of Directors of the Company resolved to
cancel  all  of  the  issued and outstanding stock options which were previously
granted  to  the  Company's  key  employees.  In October 2005, all of the option
holders  entered  into  Option  Surrender  and  Cancellation Agreements with the
Company  and agreed to surrender unconditionally and irrevocably the options for
cancellation with no additional monetary compensation from the Company.


9.  EARNINGS  PER  SHARE

On  January  7,  2004,  the  Company granted stock options to purchase 2,000,000
shares  common  stock to certain officers and key employees of the Company at an
exercise  price  of $1.00 per share. Effective from October 10, 2005, all of the
Company's  outstanding  options  were  cancelled.  As at June 30, 2006 and 2005,
there  were  0 and 2,000,000 stock options issued and outstanding, respectively.

These  stock  options were not considered to be potentially dilutive securities,
and  were not included in the calculation of loss per share for the three months
and  six  months  ended June 30, 2005 because the Company incurred losses during
the  period and thus their effect would have been anti-dilutive. As no option is
outstanding  as  of  June  30,  2006,  basic and diluted EPS is the same for all
periods  presented.


10.  IMPAIRMENT OF INTANGIBLE ASSETS

During  the  three  months  ended June 30, 2005, in view of the reduced business
activities  of  Hytech US, including the fact that there were no sales contracts
secured  in  2004  and  2005,  the  Company  conducted  a  re-evaluation  of the
intangible assets associated with the trademarks registered by Hytech US and the
related  expected future cash flows. As a result of this evaluation, the Company
recorded  a full provision for impairment of $170,950 for the three months ended
June  30,  2005.  In 2006, no impairment of intangible assets has been recorded.


11.  RELATED PARTY TRANSACTIONS AND ARRANGEMENTS

(a)  Agreement with associated company
     ---------------------------------


                                       14
<PAGE>
On  June  1, 2004, SDCL and FDI entered into an Agreement pursuant to which SDCL
engaged  FDI,  its  controlled  associated  company,  as its sales agent for the
marketing  and  distribution of its amusement and simulation equipment and 3D/4D
theatres  in  China.

Commencing  January 1, 2005 and thereafter, FDI will be entitled to a commission
ranging  from 10% to 20% of the contract price, depending on the gross margin of
the specific contract and the size of the related project under the contract. In
addition, a 5% advertising and promotional incentive will be provided to FDI for
each contract solicited by FDI. The aforesaid commissions and incentives will be
reflected in the ex-factory price (reduced selling price) and transferred to FDI
through  its  purchase  from  SDCL  of  the  related equipment and products. The
agreement  can be terminated at any time with 60 days notice to the other party.

FDI  will  be  responsible for its own operating costs including staff salaries,
marketing  and  promotional  expenses, general office administrative expenses as
well  as  the  associated  sales  taxes  and  income  tax.

In  addition,  the  agreement  also  provides  that FDI may include in its sales
contracts  a  provision  for  the cooperative operation of any hi-tech amusement
center  "FunPlex" or theme park "FantaWild" when the proposed operating venue is
suitable  for the business. However, FDI will only act as the agent in such part
of the contract on behalf of SDCL.  FDI will have no direct or indirect economic
or  legal  interest  in the revenue sharing operations, which will be solely the
business of SDCL and SDCL will be responsible for contributing the equipment and
fixed  assets required for the cooperative operation. All revenues generating by
such  cooperated  businesses  will  be  received  by  SDCL,  and all the related
expenses  as  stipulated  in  such  cooperation contracts will be borne by SDCL.

In practice, the advertising and promotional incentives and commissions are paid
to  FDI  through  a  price reduction. SDCL reduces the sales price to FDI by the
amount  of the agreed percentage of incentives and commissions, which represents
a reduction in the revenue of SDCL. FDI can capture such portion of revenue from
its  onward  sales  to  the  ultimate  customers.  In  this  regard, the revenue
recognized  by  SDCL  is  in  compliance  with  EITF  No.  01-9, "Accounting for
Consideration  Given  by  a  Vendor  to  a Customer (Including a Reseller of the
Vendor's  Products)".

When FDI receives the commissions and incentives, which are reflected as reduced
costs  of  sales  for  FDI,  the income is included in FDI's gross profit, which
supports  FDI's  selling,  administrative  and  other  operating  functions.  No
further incentives are passed on to the ultimate customers from FDI.

The  revenue recognized by SDCL and the reduced costs of sales for FDI, however,
are  eliminated  in  preparing  the  consolidated  financial  statements  of the
Company.  Accordingly, the commission and incentive received by FDI are included
in  the  consolidated  gross  profit  only.

During  the  three  months  and  six  months  ended  June 30, 2006, SDCL did not
recorded any sale of its products to FDI for resale to end customers. During the
three  months  and  six  months  ended  June  30,  2005, total sales to FDI were
$149,328  and  $445,379,  respectively.  During  the three months and six months
ended  June  30,  2006,  FDI collected for SDCL a total of $31,947 and $115,894,
respectively,  of  the  net  revenue  shared  from  the  revenue sharing centers
operated  for  SDCL. During the three months and six months ended June 30, 2005,
FDI collected for SDCL a total of $81,180 and $149,328, respectively.

(b)  Contracts with related party
     ----------------------------

On  January  24,  2006,  SDCL entered into an Equipment Sale Contract (the "Sale
Contract")  and an Equipment Installation Contract (the "Installation Contract")
with  Wuhu Huaqiang Tour City Development Co., Ltd. ("Wuhu Huaqiang").  Pursuant
to the Sale Contract, Wuhu Huaqiang will purchase from SDCL 22 sets of amusement
attractions/equipment  (the  "Equipment") for use in a specific theme park to be
built  in  the  City  of Wuhu, Anhui Province, China.  The consideration for the
Equipment  is  RMB  126,730,000  (approximately $15,650,000) (the "Sale Price"),
plus a right to receive 8% of the theme park's Distributable Income for a period
of  15  years  from  commencement  of  theme


                                       15
<PAGE>
park  operations.  "Distributable  Income" means the theme park's Gross Revenue,
less  certain  limited  expenses  (including  sales tax and the purchase cost of
souvenirs,  beverages, foods and other commodities sold in the theme park). Wuhu
Huaqiang  has  made  an  initial  deposit  of approximately 6% of the Sale Price
(approximately  $938,000)  within  one  month  of the effective date of the Sale
Contract. The balance of the Sale Price is payable in five separate installments
to  be  made  through  May  30, 2007. Under the Sale Contract, Wuhu Huaqiang has
guaranteed  that  the  8%  revenue  share  from  the  theme  park's  aggregate
Distributable  Income  during  such 15-year period shall in no case be less than
RMB  50,000,000  (approximately  $6,170,000).

The  Installation Contract provides for the installation of the Equipment at the
theme  park  by  SDCL.  Total  consideration for the installation service is RMB
10,000,000  (approximately  $1,230,000)  payable  in  five  equal  installments
beginning one month after the signing of the Installation Contract and ending 10
days  after  completion  of the installation services. The installation services
are  scheduled  to  be  completed  by  July  18,  2007.

Management  believes  that  these  arrangements  with  Wuhu  Huaqiang  will  be
advantageous  to  the Company and that its participation in the large-size theme
park  business  will  enhance  its  reputation  in  the  industry with a minimum
investment.  Both the Sale and Installation Contracts were reviewed and approved
by  the  Company's  Audit  Committee  and  Board  of  Directors.

Wuhu  Huaqiang  is  a joint venture company incorporated in the City of Wuhu and
controlled  75%  by  SHQ,  a  related party of the Company. The Chairman and the
President of SHQ are also the Chairman and the CEO of the Company, respectively.
Neither  the  Chairman  nor  the CEO participated in the discussion regarding or
eventual  Board approval of the Sale and Installation Contracts. The CEO and the
Chief  Operating  Officer ("COO") of the Company are also each directors of Wuhu
Huaqiang.

(c)  Purchases of digital films and related components
     -------------------------------------------------

During  the  three  months  and  six  months  ended  June  30, 2006, the Company
purchased  certain  components  for its products from Hyvision Digital Film Inc.
("Hyvision"),  an  affiliate  of  SHQ,  having  a  total  value  of $314,287 and
$687,421,  respectively.  During  the three months and six months ended June 30,
2005,  total  purchases  from Hyvision were $337,349 and $409,538, respectively.
The  CEO  and  COO  of  the  Company are also each directors of Hyvision. SHT, a
significant  shareholder  of the Company, has a 20% equity interest in Hyvision.

(d)  Sales to related parties
     ------------------------

During  the  three  months  and six months ended June 30, 2006, the Company sold
equipment to Hytechnology Limited ("Hytech HK") for an aggregate price of $0 and
$8,750,  respectively,  and  $0 and $100,000 for the three months and six months
ended  June  30, 2005, respectively. Hytech HK is beneficially owned by Top Link
Development  Limited  ("TLD"),  a  company  controlled  by  SHQ.

(e)  Related party receivables and payables
     --------------------------------------

As  at  June  30, 2006 and December 31, 2005, the amounts payable and receivable
from  related  parties  are  summarized  as  follows:


                                       16
<PAGE>
<TABLE>
<CAPTION>
                                  June 30, 2006    December 31, 2005
                                   (Unaudited)         (Audited)
                                 ---------------  -------------------
<S>                              <C>              <C>
Amounts due from:
-----------------
Hytech HK (1)                    $            -   $          159,988
Shenzhen Huaqiang Industrial
  and Trading Co. Ltd. (2)                7,859                7,791
Chunren Xie (3)                           1,500                1,500
Directors (4)                            28,737               24,442
Wuhu Huaqiang (5)                        54,370                    -
                                 ---------------  -------------------
                                 $       92,466   $          193,721
                                 ===============  ===================

Amounts due to:
---------------
Hytech HK (1)                    $     (232,262)  $         (141,506)
TLD (6)                                (280,000)            (280,000)
Dehou Fang (6)                          (20,000)             (20,000)
Bilibest Industries Limited (7)        (402,947)            (336,843)
Wuhu Huaqiang (5)                    (1,200,000)                   -
                                 ---------------  -------------------
                                 $   (2,135,209)  $         (778,349)
                                 ===============  ===================
</TABLE>

(1)  The  amount  due  to Hytech HK represents the payment made on behalf of the
     Company in respect of its administrative expenses incurred outside the PRC.
     These amounts are unsecured, non-interest bearing and have no definite term
     of repayment. The amount due from Hytech HK represents the trade receivable
     arising  from  the  sales  of  the  Company's  products.

(2)  Shenzhen  Huaqiang Industrial and Trading Co., Ltd. ("HIT") is an affiliate
     of  SHQ.  This amount represents a payment made by the Company on behalf of
     HIT in connection with one of the revenue sharing operations that has since
     been  terminated  and  moved  to another location. The amount is unsecured,
     non-interest  bearing  and  has  no  definite  term  of  repayment.

(3)  Chunren Xie is a 30% minority shareholder of Hytech US.

(4)  Amounts  due from directors represent cash advances made for business trips
     and  trade  fairs.

(5)  The  amount  due  to  Wuhu Huaqiang was the deposits paid to the Company in
     respect  of  the  Sale  Contract and Installation Contract as stated in (b)
     above.  The amount due from Wuhu Huaqiang represents the balance of advance
     payment  made  by  the  Company  related  to  a  study  tour on theme parks
     organized  for  the  senior  management  of  Wuhu  Huaqiang, as well as the
     payment made by the Company on behalf of Wuhu Huaqiang related to the IAAPA
     exhibition  in  Shanghai.

(6)  The  amounts  due to TLD and Mr. Dehou Fang represent the amounts loaned to
     Intsys  in  2002  for the acquisition of Hytech US and other administrative
     expenses  of  the Company. TLD is controlled by SHQ and Mr. Dehou Fang is a
     director  of  Intsys.  These  related  party loans aggregating $300,000 are
     unsecured,  non-interest  bearing  and  have no definite term of repayment.

(7)  The  amount  due  to  Bilibest  Industries  Limited,  an  affiliate of SHQ,
     represents  payments  made  on  behalf  of  the  Company  for  certain
     administrative  expenses  incurred  outside  China.  These  amounts  are
     unsecured,  non-interest  bearing  and  have no definite term of repayment.


                                       17
<PAGE>
(f)  Deposit at financial clearing center operated by an affiliate - See Note 3.
     -------------------------------------------------------------


12.   SEGMENT  REPORTING

The  following segment information is presented in accordance with SFAS No. 131,
"Disclosure  About  Segments  of  an  Enterprise and Related Information," which
requires  companies to report selected segment information and to report certain
entity-wide  disclosures  about  products and services, major customers, and the
material  countries  in  which the entity holds assets and reports revenue which
were assessed by the management separately.  The segment information is based on
the  management  approach adopted in the Company's internal organization and the
reported  revenue  and  operating  income for the measured segments are based on
information  provided  to  the  chief  operating  decision maker for performance
review  and  resources  allocation.

Management  of  the  Company monitors the performance of the operations in three
segments  with  respect to the nature of revenue generated from the sales of its
products  and  services,  which  are  divided  into  three main categories:  (1)
contract  sales  of equipment or facilities used in hi-tech amusement centers or
theme  parks, 3D/4D theaters and the related products; (2) contracts in relation
to  the  design of 4D theater, amusement center, large-size attraction and theme
park  -  newly  developed  business in 2005; and (3) revenue sharing operations.
During  the  three months and six months ended June 30, 2006 and 2005, there was
no revenue recorded from segment in relation to the design services.

Each  segment involves different marketing strategies and business techniques as
well  as  different  resource allocation. The Company's chief operating decision
maker  evaluates  performance  based  on EBIT (earnings or loss before interest,
taxes,  impairment  losses,  and  minority  interests).  The segments related to
contracted  sales,  design  and revenue sharing operations are assessed based on
the  net income after deducting the relevant direct costs of sales, depreciation
expenses, selling, administrative and management costs. Other corporate expenses
consist  of general administrative expenses that are not directly related to the
operations  of  this  segment  are  classified  to  corporate.

The following tables summarize revenues and EBIT by segment for the three months
and six months ended June 30, 2006 and 2005.

<TABLE>
<CAPTION>
                                             Three months ended June 30, 2006 (Unaudited)
                                           ------------------------------------------------
                                                                     Revenue
                                           Contracted    Design      Sharing
                                              Sales     Services   Operations      Total
                                           -----------  ---------  -----------  -----------
<S>                                        <C>          <C>        <C>          <C>

REVENUE                                    $ 1,294,535  $       -  $ 1,164,334  $2,458,869
                                           -----------  ---------  -----------  -----------

Direct costs of production                     843,142          -      215,210   1,058,352
Salaries, wages and
   related personnel expenses                  102,460          -      109,958     212,418
Selling and marketing expenses                  92,143          -      172,709     264,852
Depreciation expenses                            5,363          -      408,688     414,051
                                           -----------  ---------  -----------  -----------
   Total Operating Expenses                  1,043,108          -      906,565   1,949,673
                                           -----------  ---------  -----------  -----------

INCOME FROM OPERATIONS                         251,427          -      257,769     509,196
Corporate administrative
   and other expenses                                -          -            -     181,687
                                           -----------  ---------  -----------  -----------

EBIT                                                                               327,509

Reconciliation of EBIT to net income:
  Minority interests                                                               (84,041)
  Interest (income) expenses, net                                                   32,655
  Income tax expenses                                                               33,315
  Equity in loss of an associated company                                                -
                                                                                -----------
NET INCOME                                                                      $  345,580
                                                                                ===========


                                             Six months ended June 30, 2006 (Unaudited)
                                           -----------------------------------------------
                                                                    Revenue
                                           Contracted   Design      Sharing
                                             Sales     Services   Operations      Total
                                           ----------  ---------  -----------  -----------
<S>                                        <C>         <C>        <C>          <C>

REVENUE                                     1,987,407  $       -  $ 1,491,048  $3,478,455
                                           ----------  ---------  -----------  -----------

Direct costs of production                  1,351,385          -      215,210   1,566,595
Salaries, wages and
   related personnel expenses                 204,043          -      164,486     368,529
Selling and marketing expenses                207,096          -      193,109     400,205
Depreciation expenses                           8,353          -      675,876     684,229
                                           ----------  ---------  -----------  -----------
   Total Operating Expenses                 1,770,877          -    1,248,681   3,019,558
                                           ----------  ---------  -----------  -----------

INCOME FROM OPERATIONS                        216,530          -      242,367     458,897
Corporate administrative
   and other expenses                               -          -            -     488,483
                                           ----------  ---------  -----------  -----------

EBIT                                                                              (29,586)

Reconciliation of EBIT to net income:
  Minority interests                                                             (206,677)
  Interest (income) expenses, net                                                  65,232
  Income tax expenses                                                              33,577
  Equity in loss of an associated company                                          18,657
                                                                               -----------
NET INCOME                                                                     $   59,625
                                                                               ===========
</TABLE>


                                       18
<PAGE>
<TABLE>
<CAPTION>
                                                  Three months ended June 30, 2005 (Unaudited)
                                                ------------------------------------------------
                                                                          Revenue
                                                Contracted    Design      Sharing
                                                   Sales     Services   Operations      Total
                                                -----------  ---------  -----------  -----------
<S>                                             <C>          <C>        <C>          <C>

REVENUE                                         $ 2,332,517  $       -  $   242,826  $2,575,343
                                                -----------  ---------  -----------  -----------

Direct costs of production                          836,913          -            -     836,913
Salaries, wages and related personnel expenses      822,772          -       17,229     840,001
Selling and marketing expenses                      114,845          -       22,753     137,598
Depreciation expenses                               117,681          -      194,904     312,585
                                                -----------  ---------  -----------  -----------
  Total Operating Expenses                        1,892,211          -      234,886   2,127,097
                                                -----------  ---------  -----------  -----------


INCOME FROM OPERATIONS                              440,306          -        7,940     448,246

Corporate administrative and other expenses               -          -            -     524,188
                                                -----------  ---------  -----------  -----------


EBIT                                                                                    (75,942)

Reconciliation of EBIT to net loss:
  Minority interests                                                                    (81,672)
  Interest (income) expenses, net                                                        33,025
  Income tax expenses                                                                         -
  Impairment on trademarks                                                              170,950

                                                                                     -----------
NET LOSS                                                                             $ (198,245)
                                                                                     ===========


                                                  Six months ended June 30, 2005  (Unaudited)
                                                -----------------------------------------------
                                                                         Revenue
                                                Contracted   Design      Sharing
                                                  Sales     Services   Operations      Total
                                                ----------  ---------  -----------  -----------
<S>                                             <C>         <C>        <C>          <C>

REVENUE                                          2,790,867  $       -  $   458,942  $3,249,809
                                                ----------  ---------  -----------  -----------

Direct costs of production                       1,034,216          -            -   1,034,216
Salaries, wages and related personnel expenses     976,916          -       35,783   1,012,699
Selling and marketing expenses                     245,363          -       44,926     290,289
Depreciation expenses                              132,466          -      361,091     493,557
                                                ----------  ---------  -----------  -----------
  Total Operating Expenses                       2,388,961          -      441,800   2,830,761
                                                ----------  ---------  -----------  -----------

INCOME FROM OPERATIONS                             401,906          -       17,142     419,048

Corporate administrative and other expenses              -          -            -     853,501
                                                ----------  ---------  -----------  -----------

EBIT                                                                                  (434,453)

Reconciliation of EBIT to net loss:
  Minority interests                                                                   (68,267)
  Interest (income) expenses, net                                                       62,062
  Income tax expenses                                                                       33
  Impairment on trademarks                                                             170,950
                                                                                    -----------
NET LOSS                                                                            $ (599,231)
                                                                                    ===========
</TABLE>


The  following  table reconciles each reporting segment's assets to total assets
reported  on  the  Company's consolidated balance sheets as of June 30, 2006 and
December  31,  2005,  respectively.

<TABLE>
<CAPTION>
                             June 30, 2006    December 31, 2005
                            ---------------  -------------------
                              (Unaudited)         (Audited)
<S>                         <C>              <C>
Contracted sales            $     2,624,304  $         3,299,046
Revenue sharing operations       13,339,595            5,631,597
Shared assets *                   7,311,459           10,766,981
                            ---------------  -------------------
Total Assets                $    23,275,358  $        19,697,624
                            ===============  ===================
</TABLE>

*  Shared assets represent assets that provide benefit  to  all of the Company's
   operating  segments.
   Shared assets are not allocated to operating segments for  internal reporting
   or  decision-making  purposes.

There  were  no  intersegment  revenues  generated  for the three months and six
months  ended  June  30,  2006  and  2005,  respectively.

Over 90% of the Group's revenue and result are derived from the PRC and over 90%
of  the  Group's  assets  are  located  at  the  PRC.


13.  MINORITY  INTERESTS

As  of June 30, 2006, the Company's minority interest balance was $4,243,451. It
was  comprised  of  the  minority shares of effectively controlled subsidiaries,
including  FDI,  Chongqing  FTC  and  Hytech  US.  As  of December 31, 2005, the
minority  interest  balance  was $4,289,987, which was comprised of the minority
shares of FDI, Chongqing FTC and Hytech US, which the Company did not own. As of
June  30, 2006, the Company owned a 70% interest in Hytech US, a 94% interest in
Chongqing  FTC  and  a  40%  interest  in  FDI.

For  the  three  months and six months ended June 30, 2006, the Company recorded
the  minority  interests share of loss of $84,041 and $206,677, respectively, as
compared  to the minority interests share of loss of $81,672 and $68,267 for the
three  months  and  six  months  ended  June  30,  2005,  respectively.


                                       19
<PAGE>
14. COMMITMENTS AND CONTINGENCIES

Operating  leases

The  following  are  the approximate minimum lease payments that will have to be
made  in the years as indicated below based on the operating leases in effect as
of  June  30,  2006:

<TABLE>
<CAPTION>
                                           Total
                                           -----
<S>                                      <C>
          June 30, 2007                  $  312,709
          June 30, 2008                     243,457
          June 30, 2009                     213,144
          June 30, 2010                     213,144
          June 30, 2011                     194,528
          Thereafter till June 30, 2018   1,231,388
                                         ----------
          Minimum lease payment          $2,408,370
                                         ==========
</TABLE>

Capital  expenditures

At  June  30,  2006 and December 31, 2005, the Company's commitments for capital
expenditures  were  approximately $9,280,000 and $6,200,000, respectively.  This
commitment relates to costs to acquire machinery and equipment which are used in
the  Company's  revenue  sharing  operations.


Legal  proceedings

The  Company  is  periodically  subject  to various pending and threatened legal
actions  which arise in the normal course of business.  The Company's management
believes that the impact of any such litigation will not have a material adverse
impact  on  the  Company's  financial  position  or  results  of  operations.


                                       20
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Cautionary  Statement  Pursuant  to  Safe  Harbor  Provisions  of  the  Private
Securities  Litigation  Reform  Act  of  1995:

This  Quarterly  Report  on  Form 10-QSB for the quarterly period ended June 30,
2006  contains "forward-looking" statements within the meaning of Section 27A of
the  Securities  Act  of  1933,  as  amended,  and Section 21E of the Securities
Exchange  Act  of  1934, as amended, including statements that include the words
"believes",  "expects",  "anticipates",  "intends",  "plans",  "may",  "will" or
similar  expressions  that  are intended to identify forward-looking statements.
In  addition,  any  statements  that refer to expectations, projections or other
characterizations  of  future  events or circumstances, including any underlying
assumptions,  are  forward-looking statements.  These forward-looking statements
may  include,  among  others,  statements  concerning the Company's expectations
regarding  its  business,  growth  prospects, sales trends, gross margin trends,
operating  costs,  the availability of funds to finance capital expenditures and
operations,  facility  expansion plans, competition, operating results and other
statements  of  expectations,  beliefs, future plans and strategies, anticipated
events  or  trends,  and  similar  expressions  concerning  matters that are not
historical  facts.  The  forward-looking  statements in this Quarterly Report on
Form  10-QSB  for  the  quarterly  period  ended June 30, 2006 involve known and
unknown  risks,  uncertainties  and  other  factors  that could the cause actual
results,  performance  or  achievements of the Company to differ materially from
those  expressed  in  or  implied  by  the  forward-looking statements contained
herein.

Each  forward-looking  statement  should  be  read  in context with, and with an
understanding  of,  the  various  disclosures  of concerning the Company and its
business  made  elsewhere  in  this  Quarterly  Report  on  Form  10-QSB for the
quarterly period ended June 30, 2006, as well as other public reports filed with
the  United  States  Securities  and  Exchange Commission.  Investors should not
place  undue reliance on any forward-looking statement as a prediction of actual
results  or  developments.  Except  as required by applicable law or regulation,
the  Company  undertakes  no  obligation to update or revise any forward-looking
statement  contained  in  this Quarterly Report on Form 10-QSB for the quarterly
period  ended  June  30,  2006,  whether  as a result of new information, future
events  or  otherwise.

OVERVIEW

Fantatech,  Inc.,  (the  "Company"), through its subsidiaries and affiliates, is
engaged  in  the  design,  development,  manufacturing,  and  sale  of  hi-tech
entertainment  and amusement products and their related operations, including 4D
theaters,  indoor  entertainment  centers  ("FunPlexes"),  large  size  outdoor
attractions and theme parks, each which are designed and manufactured to provide
virtual  reality  and  simulation entertainment. The Company's technical team is
experienced  in  the  design  and  manufacturing  of  comprehensive, integrated,
computerized  entertainment  products.

The Company's wholly owned subsidiaries include Intsys Share Limited ("Intsys"),
Shenzhen  Digitainment  Co.,  Ltd.  ("SDCL"),  and  Megabase  Investment Limited
("Megabase").  In  addition, the Company's majority controlled companies include
Hytechnology  Inc.  ("Hytech  US"),  Chongqing  FantaWild FunPlex Tour Co., Ltd.
("Chongqing  FTC")  and  Fantatech  Development  Inc.  ("FDI").

The  Company  both  manufactures  and  sells hi-tech amusement equipment for its
proprietary  FantaWild  FunPlexes, FantaWild 4D Theaters, large-size attractions
and FantaWild Theme Parks. The Company also participates in the success of these
attractions  through revenue-sharing operating arrangements. The Company is also
becoming  increasingly  involved in the development of theme parks since, in the
opinion  of  management,  there  are  attractive  growth  opportunities for such
ventures  in  the Chinese market. The Company provides its products to customers
both  directly  and  through  local  partners  in  revenue-sharing  operations.

Most  of  the  Company's  customers  are  located  in  China,  and sales to such
customers  are  generally  on  an open account basis with a deposit collected in
advance. The Company purchases raw materials and certain components from various
suppliers  located  in  China.  The  Company  has  not  encountered  any


                                       21
<PAGE>
significant difficulties in obtaining the required raw materials and it does not
rely  on  suppliers  that  cannot  be  easily  replaced.

As  for  revenue-sharing operations, the Company supplies the equipment for each
of  its  4D  theaters,  FunPlex indoor entertainment centers, large size outdoor
attractions  and  theme  parks  (each,  a  "Revenue-Sharing  Center")  through
cooperation  agreements with local venture partners in different Chinese cities.
The  Company  selects  appropriate  partners  and  sells  them  a portion of the
amusement  equipment  and  machines required to set up a Revenue-Sharing Center.
The  Company  generally  provides the balance of the amusement and entertainment
equipment  required for the Revenue-Sharing Center to its local venture partners
in  exchange  for approximately 30% to 50% share of such Center's gross revenue.
The  local  partners  are  responsible  for  operating, promoting, and providing
suitable  venues  for  the  Revenue-Sharing  Centers.  In general, the amount of
equipment required to be purchased by a local venture partner is calculated such
that  the  Company's gross margin on the purchased equipment covers its internal
cost  for  the balance of the required equipment. The Company also considers the
credibility  of  the  local  partner and the costs associated with the operating
venues.  The  Revenue-Sharing  Centers  therefore  require  only  a minimal cash
investment  on  the  part  of the Company, related primarily to the provision of
maintenance  services  after  commencement  of  the  Revenue-Sharing  Center
operations.  With  respect to 4D theaters, the Company generally contributes all
of  the  equipment  necessary  for the theaters while the local partners provide
suitable  venues.  The Company retains all title to the equipment it provides to
the  Revenue-Sharing  Centers  (except  for  equipment  purchased by the venture
partner)  and  may  repossess  and  relocate such equipment if its local venture
partners  cannot fulfill their obligations under the cooperation agreements. The
Revenue-Sharing  Center  arrangements generally have terms of five to ten years,
which  are  approximately  equal  to  the estimated useful life of the equipment
provided  by  the  Company.

During  the  six  months  ended  June 30, 2006, two FunPlex indoor entertainment
centers  in the cities of Tianjin and Urumchi, respectively, and two 4D theatres
in  the  cities of Changchun and Beijing, respectively, commenced operations. In
late  April  2006,  the first theme park built by the Company which features ten
large-size  attractions,  commenced its operations in the city of Chongqing. The
Company  has  a  revenue-sharing interest in this facility. As at June 30, 2006,
there  were  a  total  of  twenty-four Revenue-Sharing Centers (fourteen FunPlex
centers,  nine  4D  theaters, and one theme park) operating in different Chinese
cities  (including,  in addition to the cities as mentioned above, the cities of
Langfang,  Taiyuan,  Nanning,  Yantai,  Chifeng,  Shenyang,  Zhongshan, Nanjing,
Huaian,  Zhuhai,  Changzhi,  Dalian,  Datong,  Wuhan,  Hangzhou,  Dongguan  and
Guangzhou).  The  first  4D  Ride  Dino-Rampage  attraction built by the Company
commenced  its  operation  in  the  Beijing FunPlex amusement center in November
2004.  The  large-size  Dino-Rampage  attraction  in  the  Tianjin  FunPlex  was
completed  in  December  2005, and commenced its operation in February 2006. Two
Floating  Sphere  4D  theatres named "Sky Trailer" in Beijing and Chongqing were
put  into  operation  in  late  April  2006.

During  the  six  months  ended  June  30,  2006,  the  Company  commenced  the
construction  of  two  large-sized theme parks located in the cities of Wuhu and
Shantou, respectively. The Company expects to complete the theme park located in
the  city  of Shantou by the end of 2006, while the Wuhu Theme Park is scheduled
to  be  completed  by  the  middle  of  2007.

The unaudited condensed consolidated financial statements of the Company include
the accounts of the Company and its wholly-owned and majority-owned subsidiaries
as  well  as  the  controlled  associated  entities.  All  material intercompany
balances  and  transactions  are  eliminated  on consolidation. The consolidated
financial  statements  have  been prepared in accordance with generally accepted
accounting  principles  in  the  United  States  of America and are reported and
presented  in  U.S.  Dollars  ("$"  or  "USD").

All  of the Company's production and most of its business operations are located
in  China and are conducted in Renminbi ("RMB"), which is the currency of China.
Prior  to  July  21,  2005,  the  exchange rate remained stable at approximately
US$1.00  to  RMB  8.30.  On  July  21,  2005, the People's Bank of China ("PBC")
announced  that  RMB  would no longer be valued with respect to the U.S. Dollar,
but


                                       22
<PAGE>
against  a 'basket' of foreign currencies under a managed floating exchange rate
regime,  and  the  new  official  parity  exchange rate of USD to RMB was set at
US$1.00  to  RMB  8.11,  to  be  allowed to float within a band of +-0.3 percent
around  the  central  parity  rate  as  published  by  the  PBC  daily.

For  the  six  months ended June 30, 2005, the Chinese financial statements were
translated from RMB to USD at a single exchange rate of US 1.00 to RMB 8.3 since
the  exchange  rate remained fixed during such periods. As of December 31, 2005,
the  Chinese  financial  statements  were  translated from RMB to USD at the new
prevailing  closing  exchange  rate  of  US 1.00 to RMB 8.07. For the six months
ended  June  30, 2006, the Chinese financial statements were translated from RMB
to  USD  at  the  new  prevailing closing exchange rate.  For the translation of
assets  and  liabilities (other than equity and reserves), the published closing
exchange  rate of US 1.00 to RMB 8.00 was applied, while for revenues, expenses,
gains  and  losses,  the  weighted  average  rate of US 1.00 to RMB 8.03 for the
period  was  used.  The resulting translation gains or losses were recorded as a
separate  component  of  stockholders'  equity.

CRITICAL  ACCOUNTING  POLICIES

The  discussion and analysis of the Company's financial condition and results of
operations  is  based  upon  the  Company's  unaudited  condensed  consolidated
financial  statements,  which  have  been prepared in accordance with accounting
principles  generally  accepted in the United States of America. The preparation
of these financial statements requires the use of estimates and assumptions that
affect  the  reported  amounts  of  assets and liabilities and the disclosure of
contingent  assets  and  liabilities at the date of the financial statements and
the  reported  amount  of  revenues  and  expenses  during the reporting period.
Management  periodically  evaluates  the estimates and judgments made, including
those  related  to  revenue  and cost recognition, inventories, income taxes and
impairment  of  assets.  Management  bases  their  estimates  and  judgments  on
historical  experience and on various factors that are believed to be reasonable
under  the  circumstances.  Actual  results may differ from these estimates as a
result  of  different  assumptions  or  conditions.

The following critical accounting policies affect the more significant judgments
and  estimates  used  in  the  preparation  of the Company's unaudited condensed
consolidated  financial  statements.

Revenue  and  cost  recognition:
--------------------------------

The  Company  principally derives its revenue from (1) the sale of entertainment
and  amusement  products,  (2)  long-term  contracts  related  to  designing and
manufacturing  and  assembling  of  4-D  screen  system,  simulation  amusement
equipment,  large-size  attractions,  and  theme  parks  and  (3) admission fees
generated  from  revenue  sharing  operations.

Revenue is recognized when the following four criteria are met:

1)   persuasive evidence of an arrangement exists,
2)   delivery has occurred or services have been rendered,
3)   the price is fixed, and
4)   collectibility is reasonably assured.

(1)  Sale of entertainment and amusement products

Revenue from the sale of entertainment and amusement products is recognized when
the  products  are delivered to the customers, installed and tested.  Revenue is
adjusted  for  any reduction in sales due to change in product specifications or
sales  discounts  offered  to  the  customers.

(2)  Long-term construction contract revenue and costs

Long-term  contract revenues and costs are recognized as revenue and expenses in
the  statement  of  operations  by  reference  to  the  stage of completion of a
contract  (i.e.  the  percentage  of  completion method) when the outcome of the
contract  can  be  estimated  reliably.  The  stage  of  completion  of  a


                                       23
<PAGE>
contract  is determined based on the proportion of costs incurred at the balance
sheet  date  compared  to  total  estimated  costs.  A  loss  on  a  contract is
recognized  as  an  expense  immediately when it is probable that total contract
costs  will  exceed  total  contract  revenue.

Costs  attributable  to  unpriced change orders are treated as costs of contract
performance  in the period in which the costs are incurred if it is not probable
that  the costs will be recovered through a change in the contract price.  If it
is  probable  that  the costs will be recovered through a change in the contract
price,  those  costs  would  be  treated as costs of contract performance in the
period  in  which they are incurred, and contract revenue would be recognized to
the  extent  of  the  costs incurred.  If it is probable that the contract price
will  be adjusted by an amount that exceeds the costs attributable to the change
order  and  the  amount  of  the  excess can be reliably estimated, the original
contract  price  would  also  be  adjusted  for  that  amount when the costs are
recognized  as  costs  of  contract  performance if its realization is probable.

During  the  process  of  recognizing  the  revenue  generated from the sales of
products  as  described  in  (1)  and  (2)  above, the Company has evaluated the
criteria  for  multiple  deliverables  in  using separate unit of accounting for
identifiable  delivered  items  in  accordance  with  EITF  No.  00-21  "Revenue
Arrangements  with  Multiple Deliverables", and concluded that the amusement and
entertainment  products  designed,  manufactured and installed by the Company do
not  meet the stand-alone test since no part of the products will be or are sold
in  the market by the Company or by other similar vendors.  There is no reliable
evidence of fair value of the undelivered items and the contracts for sales have
no  general  right  of  return  relative  to  the  delivered  items.

In  addition,  the Company has evaluated the scope and applicability of SOP 97-2
"Software  Revenue  Recognition"  and  determined that the revenue earned on the
Company's  amusement  products containing software is incidental to the products
as  a whole.  The Company does not engage in businesses of licensing, selling or
leasing,  or  otherwise  marketing  computer  software.  The  software  does not
require  significant  production,  modification and customization and is not the
focus of the marketing efforts, nor is it what the customer perceives to obtain.
The post-contract services associated with the Company's products do not involve
multiple  element  arrangements  and the estimated cost for the one year product
warranty  is  insignificant,  and  there are no upgrades/enhancements offered to
customers currently or historically.  Accordingly, the Company believes that its
revenue  requires  no  software  revenue  recognition.

The  Company considers that profits on contracts are derived from its efforts in
all  phases  of  operations, including areas such as procurement and management.
Costs  incurred  closely  relate  to  contract  performance  and  are  therefore
considered  the  best  measure  to  determine  recognition  of  contracted sales
revenue.  The  Company  periodically  reviews  its  calculation  methodology  to
evaluate  the  accuracy  of  the  results  of  the  input  measures.

(3)  Revenue generated from revenue sharing operations

Income  is recognized based on the agreed percentage of revenue when the revenue
from  Revenue-Sharing  Centers becomes due and receivable.  The Company recorded
$1,164,334  and  $1,491,048  in revenue from its Revenue-Sharing Centers for the
three  months and six months ended June 30, 2006, respectively, and $242,826 and
$458,942  for the three months and six months ended June 30, 2005, respectively.

Asset  Impairment:
------------------

The  Company  reviews its long-lived assets, including its production facilities
and  the  amusement  and  entertainment  equipment  used  in the Revenue-Sharing
Centers,  as  well as identifiable intangibles for impairment whenever events or
changes  in  circumstances indicate that the carrying amount of an asset may not
be  recoverable  based  upon undiscounted cash flows expected to be generated by
such  assets  over their expected useful lives. If such assets are considered to
be  impaired, the impairment to be recognized is measured by the amount by which
the  carrying  amount  of  the  assets  exceeds  the  fair


                                       24
<PAGE>
value of the assets. During the three months ended June 30, 2005, in view of the
fact  that  the business activities of Hytech US reduced substantially and there
were  no  sales  contracts secured in 2005, the Company recorded a provision for
impairment  of $170,950 for the three months and six months ended June 30, 2005.
During the three months and six months ended June 30, 2006, no impairment charge
was  recorded.

Change in Method of Accounting for Inventory Valuation for Low Value Items:
---------------------------------------------------------------------------

On  January 1, 2006, the Company elected to change its accounting method for low
value  inventory/stock  (i.e.  small parts, bolt and nut and consumables) to the
weighted  average  method.  In  all  prior years, inventory was valued using the
first-in, first-out ("FIFO") method. Management believes that the new accounting
method  is preferable to the FIFO method in relation to accounting for low value
inventory,  since  the  adoption  of  the  new accounting principle will enhance
operating  efficiency  and  resource  utilization.

Based  on  the estimated average price change within different categories of low
value  stock,  the  adoption  of  the  accounting principle would reduce the net
income for the year ended December 31, 2005 by $4,293 or 0.35%, while increasing
the  net  loss by $1,247 or 0.63% and $895 or 0.15% for the three months and six
months  ended  June  30,  2005,  respectively.  The  effect  of adopting the new
accounting  principle  would  reduce  the  inventory and retained earnings as of
December  31,  2005  by $4,293.  Statement of Financial Accounting Standards No.
154,  Accounting  Changes  and  Error  Corrections  -  SFAS  No.  154  demands a
retrospective application of changes in accounting principles in the comparative
prior  period financial statements. However, because the impact of the change in
accounting  principle  on  the  financial  statements is immaterial as described
above,  the  Company  chose  not  to  apply  such  retrospective  presentation.


CONSOLIDATED RESULTS OF OPERATIONS

The  unaudited  condensed  consolidated  statements  of operations for the three
months and six months ended June 30, 2005 have been adjusted in order to provide
comparisons  for  segment  performance.  This  adjustment  had  no effect on the
operating  results  for  the  period  presented.

Three months ended June 30, 2006 and 2005:

REVENUE

For  the three months ended June 30, 2006, net sales were $2,458,869 as compared
to  net  sales  of  $2,575,343  for  the  three  months  ended  June  30,  2005.
Approximately 47.4% and 9.4% of the net sales during the three months ended June
30,  2006  and  2005,  respectively,  were  from the revenues generated from the
revenue  sharing  operations.

During  the  three months ended June 30, 2006, net contracted sales decreased by
$1,037,982  or  44.5%  to  $1,294,535,  as  compared to $2,332,517 for the three
months  ended June 30, 2005. This was primarily due to the normal fluctuation of
the business since the recognition of revenue from contracted sales was based on
actual  costs  incurred  in  relation  to  the  stages of completion. During the
period,  the  Company  was mainly involved in the initial construction stages of
the  two  large-size theme park projects in Wuhu and Shantou, respectively. As a
result,  no  significant revenue was recorded in relation to these two projects.
In  view of the Company's current sales contracts, especially in relation to the
theme  parks  in  Wuhu  and  Shantou, the Company expects that the revenue to be
recognized  as  net  contracted sales will increase during the remainder of 2006
when  construction  stages  in  progress  are  completed.

During  the three months ended June 30, 2006, the Company recorded revenues from
its  Revenue-Sharing Centers totaling $1,164,334 as compared to $242,826 for the
three  months  ended  June  30,  2005,  representing  an increase of $921,508 or
379.5%. The increase was mainly attributable to the increased numbers of FunPlex
amusement  centers  (from  eight  to  fourteen)  and  4D  theaters  (from


                                       25
<PAGE>
two  to  nine) as at June 30, 2006, as compared to the number of Revenue-Sharing
Centers as at June 30, 2005. In addition, the official opening of the theme park
in  Chongqing  in  late  April  2006  contributed  ($735,323) to the increase in
revenues  from  Revenue-Sharing Centers. With the scheduled opening of the theme
park  in  Shantou  by the end of 2006, the Company anticipates that revenue from
Revenue-Sharing  Centers  will  continue  to  increase.

GROSS PROFIT

For  the  three  months  ended June 30, 2006, total gross profit was $850,668 or
34.6% of total net sales, as compared to total gross profit of $660,257 or 25.6%
of  total net sales for the three months ended June 30, 2005. Net of the revenue
from  the  Revenue-Sharing Centers, gross profit margin increased by 5.7% due to
an  increase  in  contract  profitability.  It  is  anticipated  that due to the
contracted  lower  profit margin from the Equipment Sale Contract related to the
Wuhu  Theme  Park,  gross  profit  may  decline during the relevant construction
period  when revenue is recognized. The Company, however, has obtained the right
to  receive 8% of the theme park's Distributable Income for a period of 15 years
from  commencement  of  theme  park operation. (See Note 11 (b) to the Condensed
Consolidated  Financial  Statements)

Cost  of  revenue  in relation to contracted sales during the three months ended
June 30, 2006 consisted of raw materials, electronic parts, factory consumables,
sub-contracting  charges  and  related  supplies  purchased  for fabrication and
assembling of the amusement equipment, factory rent, workers wages and salaries,
and  the  depreciation  of  production  facilities.  Costs  to  revenue-sharing
operations  included  cost  of  souvenirs  sold,  equipment  and  venues rental,
depreciation  for  the  fixed  assets used in the operations, maintenance costs,
salaries  for  staffs and engineers, administrative expenses, and the associated
traveling  and  lodging  expenses.

During  the  three  months  ended  June  30,  2006,  total  gross  profit  from
Revenue-Sharing  Centers was $425,922 or 36.6% of the total segment revenues, as
compared to total gross profit of $29,288 or 12.1% of the total segment revenues
for  the  three months ended June 30, 2005. The increase in segment gross profit
margin  was  attributable  to  the higher profit contribution from certain newly
launched  Revenue-Sharing  Centers,  such as the Chongqing Theme Park and the 4D
theatre  located  in  the Beijing Amusement Park, which were partially offset by
some  other  less  profitable  Revenue-Sharing  Centers.  As  most  of  the
Revenue-Sharing Centers are relatively new and have been operating for less than
two  years  (about  half  of the Revenue-Sharing Centers have been operating for
less  than  one  year),  these  centers  are still subject to fluctuation in the
numbers  of  patron  visits  and  thus  admission  revenue, especially for those
Revenue-Sharing  Centers located in newly developed business districts which are
subject to a temporarily low flow of shoppers and patrons. The local partners of
the  Revenue-Sharing  Centers  are  adjusting and continuously fine-tuning their
promotional  and  marketing  strategies  in  order to stimulate and maintain the
local  demand  for  their  respective  amusement  Revenue-Sharing  Centers.

In  addition,  since  November  2005,  the  operation  of  the FunPlex center in
Dongguan  was temporarily suspended due to the local partner's failure to secure
a  valid  license  from the local cultural department.  It is estimated that the
approval  process  may  require approximately nine months.  In the meantime, the
Company  has  taken  possession of certain high value equipment from FunPlex for
immediate  use  in  other sales or cooperation contracts, while the depreciation
for  the  remaining equipment in the FunPlex continued and was charged to costs.

The  Company anticipates that the gross profit from Revenue-Sharing Centers will
improve  gradually with more efficient management and operations of the existing
FunPlex amusement centers due to economies of scale and increased experience. In
view  of  the  operation  of the Chongqing Theme Park and the gradual opening of
theme  parks  located  in  Shantou  and  Wuhu  scheduled  by the end of 2006 and
mid-2007, respectively, the Company anticipates that the revenue from theme park
operations  will  eventually  increase  due  to the relatively large size of the
operation.

SELLING AND MARKETING EXPENSES


                                       26
<PAGE>
Selling  and  marketing  expenses increased by $129,461 or 61.1% to $341,472 for
the  three  months  ended  June  30, 2006, as compared to $212,011 for the three
months ended June 30, 2005. This was primarily due to the increase in marketing,
promotional,  sales  representative  offices  and exhibition related expenses in
2006,  as  a  result  of  expanded operations. The Company plans to continue its
marketing  and  promotional  efforts in order increase its business in China and
also  in  overseas  markets.

GENERAL AND ADMINISTRATIVE EXPENSES

General  and  administrative expenses ("G&A Expenses") consist of the management
office  operating  costs  of  SDCL,  FDI, Hytech US, Chongqing FTC and the costs
associated  with the operation of the Company's executive offices, and the legal
and  accounting costs associated with the operation of a public company. For the
three months ended June 30, 2006, G&A Expenses decreased by $207,271 or 38.5% to
$330,895  as compared to the G&A Expenses of $538,166 for the three months ended
June  30,  2005.  This  was primarily attributable to a reduction in the general
provision  for  doubtful  accounts  as  a  result  of  an improvement in account
receivables collectibility, as well as a decrease in personnel related expenses.

IMPAIRMENT OF INTANGIBLE ASSETS

During  the  three  months  ended  June  30,  2005,  in  view of the substantial
reduction  of  business  activities  in  Hytech  US  and  the fact that no sales
contracts  were  secured  by  Hytech US in 2004 or 2005, the Company conducted a
re-evaluation of the intangible assets associated with Hytech US and the related
expected future cash flows. As a result of this evaluation, the Company recorded
a full provision for impairment of $170,950 for the intangible assets. There was
no  impairment  of  intangible  assets  recorded  in  2006.

INCOME (LOSS) FROM OPERATIONS

Income  from  operations  for  the three months ended June 30, 2006 increased by
$438,313  to  $177,443,  as compared to the loss from operations of $260,870 for
the  three  months  ended  June  30,  2005. The increase in operating income was
primarily  attributable  to the increase in gross profit and the decrease in G&A
Expenses  as well as the provision for impairment of intangible property, offset
partially  by  the  increase  in selling and marketing expenses during the three
months  ended  June  30,  2006.

OTHER INCOME (EXPENSE)

For  the  three months ended June 30, 2006, the Company recorded interest income
of  $2,596  as  compared  to  $0  for  the three months ended June 30, 2005, due
primarily  to  the  increase  in  the  average bank deposit balance in 2006 as a
result  of  the  increase  in  deposits  received  from  customers.

For  the  three  months  ended  June  30,  2006, interest expense was $35,251 as
compared to $33,025 for the three months ended June 30, 2005.

Other  income  was $150,361 for the three months ended June 30, 2006 as compared
to  other  income  of  $13,978  for  the three months ended June 30, 2005. Other
income  is comprised of miscellaneous income earned from the sub-letting of part
of  the  Company's  factory  space  temporarily  available  and the receipt of a
discretionary  incentive  subsidy  from  the  local government.  The increase in
other  income  was  primarily  attributable to discretionary incentive subsidies
(described  below)  of approximately $132,000 received by the Company during the
three  months  ended  June  30,  2006.

As  the  Company successfully developed a set of innovative simulation games, it
received  the  recognition  of  the  Shenzhen Technology Bureau. The Company was
eligible  and  applied  for  an  incentive subsidy under the Bureau's Technology
Subsidy Scheme. The Shenzhen Technical Bureau granted a subsidy of approximately
$76,000 to the Company as an encouragement for enterprises in China to invest in
products  with  high  technology content. In addition, the Company's proprietary
Fantawild  4D  digital  broadcasting system also received high appreciation from
the  Ministry of Finance and was granted a subsidy of approximately $50,000. The
Company  also  received  an  incentive  income


                                       27
<PAGE>
of approximately $6,000 from Shenzhen Trade and Industry Bureau to recognize the
Company's success in exporting self-developed high-tech products to the overseas
market, No incentive subsidy income was recorded for the three months ended June
30,  2005.

MINORITY INTERESTS

During  the  three months ended June 30, 2006, the Company recorded the minority
interests' share of loss of $84,041 as compared to the minority interests' share
of  loss  of  $81,672  for  the three months ended June 30, 2005. As of June 30,
2006,  the  minority  interests  represented effectively the 60% shareholding in
FDI,  30%  in  Hytech  US  and  6%  in  Chongqing  FTC.

INCOME TAX EXPENSE

The  Company  is subject to income taxes on an entity basis on income arising or
derived  from  the tax jurisdiction in which each entity is domiciled. Fantatech
Inc.  and  Hytech  US  are  both  Delaware  corporations  and are subject to the
corporation  income  taxes  of the United States of America. Intsys and Megabase
are  not  liable  for  income  taxes  in BVI. The Company's Chinese subsidiaries
(SDCL)  and  associates  (FDI)  located  in  the City of Shenzhen are subject to
Enterprise  Income  Tax  ("EIT")  in China at a rate of 15% on net income, while
Chongqing  FTC is subject to an EIT rate of 33%. Based on the local tax rules in
Shenzhen,  SDCL  was  entitled  to  a tax holiday for the first two years of its
operations  (years  1999 and 2000) and a 50% reduction of the rate for the third
through  eighth  years  (years  2001  to  2006)  of  operations  due to its high
technology  content  of  businesses.  The provision for taxes on earnings of the
Chinese subsidiaries, calculated based on the prevailing accounting standards in
China,  for  the  three months ended June 30, 2006 and 2005 were $33,315 and $0,
respectively.

NET INCOME (LOSS)

The  Company  recorded  a net income of $345,580 for the three months ended June
30,  2006  as compared to a net loss of $198,245 for the three months ended June
30,  2005. The increase in net income is primarily the result of the increase in
the  income from operation and other income from governmental incentive subsidy,
offset  partially  by  the  increase in income tax during the three months ended
June  30,  2006.


Six months ended June 30, 2006 and 2005:

REVENUE

For the six months ended June 30, 2006, net sales were $3,478,455 as compared to
net  sales  of  $3,249,809 for the six months ended June 30, 2005. Approximately
42.9%  and  14.1% of the net sales during the six months ended June 30, 2006 and
2005,  respectively,  were  from the revenues generated from the Revenue-Sharing
Centers.

During  the  six  months  ended June 30, 2006, net contracted sales decreased by
$803,460  or  28.8%  to $1,987,407, as compared to $2,790,867 for the six months
ended  June  30,  2005.  This was primarily due to the normal fluctuation of the
business  since  the  recognition  of revenue from contracted sales was based on
actual  costs  incurred  in  relation  to  the  stages of completion. During the
period,  the  Company  was mainly involved in the initial construction stages of
the  two  large-size theme park projects in Wuhu and Shantou, respectively. As a
result,  no  significant revenue was recorded in relation to these two projects.
In  view of the Company's current sales contracts, especially in relation to the
theme  parks  in  Wuhu  and  Shantou, the Company expects that the revenue to be
recognized  as  net  contracted sales will increase during the remainder of 2006
when  construction  stages  in  progress  are  completed.

During  the  six  months ended June 30, 2006, the Company recorded revenues from
its  Revenue-Sharing Centers totaling $1,491,048 as compared to $458,942 for the
six  months  ended  June  30,  2005,  representing  an increase of $1,032,106 or
224.9%.  The  increase  was  mainly  attributable  to  the


                                       28
<PAGE>
increased  numbers  of FunPlex amusement centers (from eight to fourteen) and 4D
theaters  (from  two  to nine) as at June 30, 2006, as compared to the number of
Revenue-Sharing  Centers  as at June 30, 2005. In addition, the official opening
of  the theme park in Chongqing in late April 2006 contributed ($735,323) to the
increase in revenues from Revenue-Sharing Centers. With the scheduled opening of
the  theme  park  in  Shantou  by  the end of 2006, the Company anticipates that
revenue  from  Revenue-Sharing  Centers  will  continue  to  increase.

GROSS PROFIT

For  the  six  months  ended June 30, 2006, total gross profit was $1,020,953 or
29.4% of total net sales, as compared to total gross profit of $820,461 or 25.2%
of  total  net  sales for the six months ended June 30, 2005. Net of the revenue
from  the  Revenue-Sharing Centers, gross profit margin increased by 2.2% due to
an  increase  in  contract  profitability.  It  is  anticipated  that due to the
contracted  lower profit margins from the Equipment Sale Contract related to the
Wuhu  Theme  Park,  the  gross  profit  may suffer a decline pressure during the
relevant  construction  period when revenue is recognized. The Company, however,
has  obtained  the  right to receive 8% of the theme park's Distributable Income
for  a  period  of 15 years from commencement of theme park operation. (See Note
11(b)  to  the  Condensed  Consolidated  Financial  Statements)

During  the  six  months  ended  June  30,  2006,  total  gross  profit  from
Revenue-Sharing  Centers was $438,729 or 29.4% of the total segment revenues, as
compared to total gross profit of $63,914 or 13.9% of the total segment revenues
for  the  six  months  ended June 30, 2005. The increase in segment gross profit
margin  was  attributable  to  the higher profit contribution from certain newly
launched  Revenue-Sharing  Centers,  such as the Chongqing Theme Park and the 4D
Theatre  located in the Beijing Amusement Park, but was partially offset by some
other  less  profitable  Revenue-Sharing  Centers As most of the Revenue-Sharing
Centers  are  relatively  new  and  have  been operating for less than two years
(about half of the Revenue-Sharing Centers have been operating for less than one
year),  these  centers are still subject to fluctuation in the numbers of patron
visits  and thus admission revenue, especially for those Revenue-Sharing Centers
located in the newly developed business districts which, in turn, are subject to
temporary  lower-than-normal flow of shoppers and patrons. The local partners of
the  Revenue-Sharing  Centers  are  continually  adjusting  and  continuously
fine-tuning their promotional and marketing strategies in order to stimulate and
maintain  the  local  demand  for  their  respective  amusement  Revenue-Sharing
Centers.

In  addition,  since  November  2005,  the  operation  of  the FunPlex center in
Dongguan  was temporarily suspended due to the local partner's failure to secure
a  valid  license  from the local cultural department.  It is estimated that the
approval  process  may  require approximately nine months.  In the meantime, the
Company  has  taken  possession of certain high value equipment from FunPlex for
immediate  use  in  other sales or cooperation contracts, while the depreciation
for  the  remaining  equipment  in  the FunPlex has continued and was charged to
costs.

The  Company anticipates that the gross profit from Revenue-Sharing Centers will
improve  gradually with more efficient management and operations of the existing
FunPlex amusement centers due to economies of scale and increased experience. In
view  of  the  operation  of the Chongqing Theme Park and the gradual opening of
theme  parks  located  in  Shantou  and  Wuhu  scheduled  by the end of 2006 and
mid-2007, respectively, the Company anticipates that the revenue from theme park
operations  will  eventually  increase  due to the relatively large size of such
operation.

SELLING AND MARKETING EXPENSES

Selling  and  marketing  expenses increased by $160,643 or 40.0% to $562,056 for
the  six  months ended June 30, 2006, as compared to $401,413 for the six months
ended  June  30,  2005.  This  was  primarily  due to the increase in marketing,
promotional,  sales  representative  offices  and exhibition related expenses in
2006,  as  a  result  of  expanded operations. The Company plans to continue its
marketing  and  promotional  efforts in order increase its business in China and
also  in  overseas  markets.


                                       29
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES

For  the  six  months ended June 30, 2006, G&A Expenses decreased by $230,473 or
26.1% to $652,943 as compared to the G&A Expenses of $883,416 for the six months
ended  June  30,  2005.  This was primarily attributable to the reduction in the
general  provision  for  doubtful accounts as a result of improvement in account
receivables  collectibility,  as  well  as the decrease in personnel related and
other  administrative  expenses.

IMPAIRMENT OF INTANGIBLE ASSETS

During  the six months ended June 30, 2005, in view of the substantial reduction
of  business  activities  in Hytech US and the fact that no sales contracts were
secured  by  Hytech US in 2004 or 2005, the Company conducted a re-evaluation of
the  intangible assets associated with Hytech US and the related expected future
cash  flows.  As  a  result  of  this  evaluation,  the  Company recorded a full
provision  for  impairment  of  $170,950 for the intangible assets. There was no
impairment  of  intangible  assets  recorded  in  2006.

LOSS FROM OPERATIONS

Loss  from  operations  for  the  six  months  ended  June 30, 2006 decreased by
$439,084  to  $196,190,  as compared to the loss from operations of $635,318 for
the  six months ended June 30, 2005. The reduction was primarily attributable to
the  increase  in  gross  profit and the decrease in G&A Expenses as well as the
provision  for  impairment  of  intangible  property,  offset  partially  by the
increase  in selling and marketing expenses during the six months ended June 30,
2006.

OTHER INCOME (EXPENSE)

For  the six months ended June 30, 2006, the Company recorded interest income of
$4,610  as  compared  to  $3,271  for  the  six  months ended June 30, 2005, due
primarily  to  the  increase  in  the  average bank deposit balance in 2006 as a
result of the increase in deposits received from customers.

For the six months ended June 30, 2006, interest expense was $69,842 as compared
to $65,333 for the six months ended June 30, 2005.

Other  income was $168,459 for the six months ended June 30, 2006 as compared to
other  income of $29,915 for the six months ended June 30, 2005. Other income is
comprised  of  miscellaneous  income  earned from the sub-letting of part of the
Company's  factory  space temporarily available and the receipt of discretionary
incentive subsidies from the local government.  The increase in other income was
primarily  attributable  to the discretionary incentive subsidy of approximately
$132,000  received  by  the  Company  during the six months ended June 30, 2006.

As  the  Company successfully developed a set of innovative simulation games, it
received  the  recognition  of  the  Shenzhen Technology Bureau. The Company was
eligible  and  applied  for  an  incentive subsidy under the Bureau's Technology
Subsidy Scheme. The Shenzhen Technical Bureau granted a subsidy of approximately
$76,000 to the Company as an encouragement for enterprises in China to invest in
products  with  high  technology content. In addition, the Company's proprietary
Fantawild  4D  digital  broadcasting system also received high appreciation from
the  Ministry of Finance and was granted a subsidy of approximately $50,000. The
Company  also received an incentive income of approximately $6,000 from Shenzhen
Trade  and  Industry  Bureau  to  recognize  the  Company's success in exporting
self-developed  high-tech  products to the overseas market. No incentive subsidy
income  was  recorded  for  the  six  months  ended  June  30,  2005.

MINORITY INTERESTS

During  the  six  months  ended June 30, 2006, the Company recorded the minority
interests'  share  of  loss


                                       30
<PAGE>
of $206,677, as compared to the minority interests' share of loss of $68,267 for
the  six months ended June 30, 2005. As of June 30, 2006, the minority interests
represented  effectively the 60% shareholding in FDI, 30% in Hytech US and 6% in
Chongqing  FTC.

INCOME TAX EXPENSE

The  Company  is subject to income taxes on an entity basis on income arising or
derived  from  the tax jurisdiction in which each entity is domiciled. Fantatech
Inc.  and  Hytech  US  are  both  Delaware  corporations  and are subject to the
corporation  income  taxes  of the United States of America. Intsys and Megabase
are  not  liable  for  income  taxes  in BVI. The Company's Chinese subsidiaries
(SDCL)  and  associates  (FDI)  located  in  the City of Shenzhen are subject to
Enterprise  Income  Tax  ("EIT")  in China at a rate of 15% on net income, while
Chongqing  FTC is subject to an EIT rate of 33%. Based on the local tax rules in
Shenzhen,  SDCL  was  entitled  to  a tax holiday for the first two years of its
operations  (years  1999 and 2000) and a 50% reduction of the rate for the third
through  eighth  years  (years  2001  to  2006)  of  operations  due to its high
technology  content  of  businesses.  The provision for taxes on earnings of the
Chinese subsidiaries, calculated based on the prevailing accounting standards in
China,  for  the  six  months ended June 30, 2006 and 2005 were $33,577 and $33,
respectively.

EQUITY LOSS RELATED TO AN ASSOCIATED COMPANY

For  the  six  months  ended  June 30, 2006, the Company recorded a $18,657 loss
reflecting  the Company's share of the net loss incurred by Tianjin LFK (limited
to  the  total  amount of investment) during the six months ended June 30, 2006.
(See Note 7 to the Condensed Consolidated Financial Statements.)

NET INCOME (LOSS)

The  Company  recorded a net income of $59,625 for the six months ended June 30,
2006  as  compared  to  a net loss of $599,231 for the six months ended June 30,
2005.  The increase in net income is primarily the result of the increase in the
share  of  losses  by minority interest, the reduction in loss from operation as
well  as  the increase in incentive subsidy, offset partially by the increase in
the income tax and the equity loss of an associated company.


FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

General
-------

The Company anticipates that, based on current plans and assumptions relating to
its  existing operations, its projected cash flow from operations, combined with
cash  on  hand, bank lines of credit, and other external credit sources, and the
credit  facilities  provided  by  affiliates  or  related parties, its financial
resources  are  sufficient to support the Company's working capital requirements
for  its  planned  operations  for the next twelve months, although there may be
temporarily  lower  levels of working capital at certain times during the course
of  its  business.  Depending on the future rate of growth, the Company may seek
additional capital in the future to support its expansion in operations.

In view of the continue growth of it's operations, the Company will continue its
efforts  in  arranging additional external short term bank loans for its working
capital  requirements.  The  Company is also monitoring the process of invoicing
its  customers  for  project  progress  payments in order to reduce the carrying
amounts  of  work  in  progress  and the costs incurred in excess of billings on
uncompleted  contracts.  Based  on  management's  evaluation  of  the  Company's
short-term  cash  requirements  and  liquidity resources, management anticipates
that  the  pressure  on the Company's cash flows will not be substantial for the
next  twelve  months. In addition, the projected progress payment related to the
sale  of  equipment to the theme parks in Wuhu and Shantou, respectively, should
provide  a stable source of working capital for the Company during the remainder
of  2006.


                                       31
<PAGE>
Operations
----------

During  the  six  months  ended June 30, 2006, the Company's operations provided
cash  resources  of  $5,206,134,  as  compared to the net cash used by operating
activities of $1,086,985 for the six months ended June 30, 2005.  During the six
months  ended June 30, 2006, the Company's cash balance decreased by $440,267 to
$1,925,654  at  June  30,  2006, as compared to $2,365,921 at December 31, 2005.
Taking into account the cash deposited at affiliates' financial clearing centers
("FCCs")  (defined in Note 3 to the Condensed Consolidated Financial Statements)
the Company's total cash balance decreased by $754,976 to $1,932,673 at June 30,
2006,  as  compared  to  $2,687,649  at December 31, 2005. During the six months
ended  June  30, 2006, the Company's net working capital decreased by $5,308,772
to  a  shortfall  of  -$3,284,862 at June 30, 2006, as compared to $2,023,910 at
December  31,  2005,  and  the Company had a current ratio of 0.73:1 at June 30,
2006, as compared to 1.24:1 at December 31, 2005, representing the total current
assets  were  insufficient to cover the total current liabilities during the six
months  ended  June  30,  2006.

The  decrease  in  the  Company's  net  working capital was due primarily to the
increase  in  customer  deposits  received by the Company in relation to the two
large-size  theme  park  projects  in Wuhu and Shantou, as well as the Company's
continuing  investment in fixed assets for Revenue Sharing Centers, including 4D
theaters,  FunPlex centers and theme parks. During the six months ended June 30,
2006,  the  Company  recorded  an  increase  in  fixed  assets  of approximately
$8,470,000  for revenue sharing operations, and an increase in deposits received
from  customers and related parties of approximately $3,500,000 for construction
of  the  theme  parks, which largely accounted for the increase in total current
liabilities, and in turn temporarily affecting the Company's current ratio as of
June  30,  2006.

The  Company  has  tightened  its criteria with respect to partner selection for
establishment  of additional revenue sharing operations in order to make sure it
has  sufficient  resources to administer its current revenue sharing centers and
to  complete  the contracts on hand, in particular, the contracts related to the
two  theme  parks  in Wuhu and in Shantou. Potential partners without self-owned
commercial  property  at  a  prime  city  location for potential revenue-sharing
operation  will  not  be considered. This is to avoid the possible disputes that
may  arise  between  the  local  partner and the landlord, which may require the
Company to relocate its equipment to other suitable sites. With the operation of
the  theme park in Chongqing and the scheduled commencement of the Shantou theme
park  by the end of 2006, together with the revenue generated from the contracts
on  hand  as well as other Revenue-Sharing Centers, the Company expects that its
net working capital will gradually improved through 2006 and thereafter.

Trade receivables, net of allowance for doubtful debts, decreased by $907,743 or
46.8%  to $1,031,691 at June 30, 2006, as compared to $1,939,434 at December 31,
2005,  which  was  attributable  to  the  repayment  by customers of outstanding
amounts  and  the  difference  in  timing  of  invoicing in the normal course of
business. The Company provided a general allowance for doubtful debts of $46,133
and $32,027 as at June 30, 2006 and December 31, 2005, respectively.

As  of  June  30,  2006,  costs  and estimated earnings in excess of billings on
uncompleted contracts increased by $198,989 or 27.5% to $921,515, as compared to
$722,526  at  December  31,  2005,  which  was  attributable  to the increase in
resources  utilized  in  projects  under construction. The billings in excess of
costs  and estimated earnings decreased by $290,388 or 47.8% to $317,716 at June
30, 2006, as compared to $608,104 at December 31, 2005.

Deposits  and  prepayments made by the Company decreased by $504,236 or 31.4% to
$1,103,489 at June 30, 2006, as compared to $1,607,725 at December 31, 2005, due
to  the  settlement  with  the  suppliers  for  completed  projects.

During the six months ended June 30, 2006, the total amount of accounts payable,
accrued  liabilities  and  other  payables  increased by $295,156 or 10.8% to an
aggregate  of  $3,035,383, as compared to $2,740,227 at December 31, 2005, which
was  due  primarily  to  the  increase  in  accrued  costs  related  to


                                       32
<PAGE>
certain completed projects, especially the theme park in Chongqing.

The  amounts  receivable  from related parties decreased by $101,255 or 52.3% to
$92,466  at  June  30,  2006,  as  compared to $193,721 at December 31, 2005 due
primarily  to  the repayment of a trade receivable by Hytech HK partially offset
by an increase in amount due from Wuhu Huaqiang in relation to an exhibition fee
of  approximately  $50,000  paid  by the Company on behalf of Wuhu Huaqiang. The
amount  payable  to  related  parties  increased  by  $1,356,860  or  174.3%  to
$2,135,209 at June 30, 2006, as compared to $778,349 at December 31, 2005, which
was mainly attributable to the deposit received from Wuhu Huaqiang regarding its
purchase  of  equipment  for  the  theme  park  in  Wuhu.

Investing
---------

For the six months ended June 30, 2006, the Company's investment activities used
cash  resources  of  $5,712,109,  as  compared  to  $1,188,665  cash provided by
investment activities for the six months ended June 30, 2005.

Additions  to property, plant and equipment during the six months ended June 30,
2006  aggregated  $8,472,614,  of  which  $8,396,000  was  for investment in the
Company's  Revenue-Sharing  Centers.  In  addition,  there  was  a  decrease  in
construction  in progress of $2,445,796 or 94.9% at June 30, 2006 to $130,724 as
compared  to  $2,576,520  at  December  31,  2005  as the Company has materially
completed the construction of the equipment used in the Chongqing Theme Park and
other  Revenue-Sharing  Centers.  At  June  30,  2006,  the  Company had capital
expenditure  requirements  of  approximately $9,280,000 in order to complete the
contracts  on  hand for the coming six to nine months. The Company believes that
it will be able to fund expected capital expenditures through internal cash flow
and  external  resources.

As  at June 30, 2006 and December 31, 2005, the Company maintained cash deposits
of  $7,019  and  $321,728 at the FCCs operated by SHT and SHQ, respectively. The
cash  deposits  at  the FCCs can be withdrawn any time without any restrictions.

Financing
---------

During  the  six  months  ended June 30, 2006, short-term bank loan increased by
$21,685  to $2,500,000, as compared to $2,478,315 as of December 31, 2005, which
was  purely due to the effect of exchange rate change. The Loan is unsecured and
accrues  interest  at  a  rate of 5.58% per annum.  The short-term bank loan was
guaranteed  by  SHQ.

As  at June 30, 2006 and December 31, 2005, the Company had no off-balance sheet
arrangements.


ITEM 3. CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures

Members  of  the  Company's  management,  including  its principal executive and
financial officers, have evaluated the effectiveness of the Company's disclosure
controls  and  procedures,  as  defined  by  paragraph (e) of Exchange Act Rules
13a-15  or  15d-15,  as  of June 30, 2006, the end of the period covered by this
report.  Based  upon  that  evaluation,  the  Company's  principal executive and
financial  officers  have  concluded  that the Company's disclosure controls and
procedures  are  effective.

(b)  Changes in Internal Controls

There were no changes in the Company's internal control over or in other factors
identified  in  connection  with  the  evaluation  required  by paragraph (d) of
Exchange  Act  Rules  13a-15 or 15d-15 that occurred during the quarterly period
ended  June  30, 2006 that have materially affected, or are reasonably likely to
materially  affect,  our  internal  control  over  financial  reporting.


                                       33
<PAGE>
PART  II  -  OTHER  INFORMATION


ITEM 1. LEGAL PROCEEDINGS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

A  list of the exhibits required to be filed as part of this report is set forth
in  the  Index  to  Exhibits,  which  immediately precedes such exhibits, and is
incorporated  herein  by  reference.


                                       34
<PAGE>
                                   SIGNATURES


Pursuant  to  the  requirements  of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.


                                                          FANTATECH, INC.
                                                   -----------------------------
                                                           (Registrant)


Date:  August 12, 2006                             By: /s/ GUANGWEI LIANG
                                                   -----------------------------
                                                   Guangwei Liang
                                                   Chief Executive Officer


Date:  August 12, 2006                             By: /s/ GARY LUI
                                                   -----------------------------
                                                   Gary Lui
                                                   Chief Financial Officer


                                       35
<PAGE>
<TABLE>
<CAPTION>
                                Index to Exhibits

Exhibit
Number    Description of Document
--------  -----------------------
<S>       <C>
3.1(i)    Certificate of Incorporation, as amended (1)
3.1(ii)   Bylaws of Registrant (2)
31.1      Certification of the Chief Executive Officer pursuant to Section 302 of the
          Sarbanes-Oxley Act of 2002
31.2      Certification of the Chief Financial Officer pursuant to Section 302 of the
          Sarbanes-Oxley Act of 2002
32.1      Certification by the Chief Executive Officer pursuant to Section 906 of the
          Sarbanes-Oxley Act of 2002
32.2      Certification by the Chief Financial Officer pursuant to Section 906 of the
          Sarbanes-Oxley Act of 2002
</TABLE>

(1)  Incorporated by Reference from Company's report on Schedule 14C on December
     30, 2002.

(2)  Incorporated by Reference from Company's Annual Report on Form 10KSB for
     the year ended March 31, 1999.


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