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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

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**FORM      10-Q**

**x QUARTERLY      REPORT      PURSUANT TO SECTION 13 OR 15(d) OF THE **

**SECURITIES      EXCHANGE ACT OF 1934**

**o**
**TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIES      EXCHANGE ACT OF 1934**

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**KID      CASTLE EDUCATIONAL CORPORATION**

| **Florida**                                                                   | **59-2549529**                                   |
|-------------------------------------------------------------------------------|--------------------------------------------------|
| (State                or other jurisdiction of incorporation or organization) | (IRS                Employer Identification No.) |

**8th      Floor, No. 98 Min Chuan Road, Hsien Tien**

**Taipei,      Taiwan ROC**

**011-886-22218      5996**

**NONE**

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**FORM      10-Q **

**KID      CASTLE EDUCATIONAL CORPORATION **

**TABLE      OF CONTENTS**

|                      |                                   | Page                                                                                                                                                       |
|---------------------------|----------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
| PART                  I   | FINANCIAL                  INFORMATION |                                                                                                                                                       |
|                      | Item                  1.               | Unaudited                  Condensed Consolidated Financial Statements                                                                                | 2 |
|                      |                                   | a)                  Condensed Consolidated Balance Sheet as of March 31, 2007 and                  December 31, 2006                                  | 2 |
|                      |                                   | b)                  Condensed Consolidated Statements of Operations for the three months                  ended March 31, 2007 and March 31, 2006     | 3 |
|                      |                                   | c)                  Condensed Consolidated Statements of Stockholders’ Equity                                                                        | 4 |
|                      |                                   | d)                  Condensed Consolidated Statements of Cash Flows for the three months                  ended March 31, 2007 and March 31, 2006     | 6 |
|                      |                                   | e)                  Notes to Condensed Consolidated Financial Statements                                                                                   | 8 |
|                      | Item                  2.               | Management’s                  Discussion and Analysis of Financial Condition and Results                  of Operations                         | 23 |
|                      | Item                  3.               | Quantitative                  and Qualitative Disclosures About Market Risk                                                                                | 28 |
|                      | Item                  4.               | Controls                  and Procedures                                                                                                              | 29 |
| PART                  II. | OTHER                  INFORMATION     |                                                                                                                                                       |
|                      | Item                  1.               | Legal                  Proceedings                                                                                                                    | 30 |
|                      | Item                  1A          | Risk                  Factors                                                                                                                              | 30 |
|                      | Item                  2.               | Changes                  in Securities,                  Use of Proceeds and                  Issuer Purchases of Equity                  Securities  | 31 |
|                      | Item                  3.               | Defaults                  upon Senior Securities                                                                                                           | 31 |
|                      | Item                  4.               | Submission                  of Matters to a Vote of Security Holders                                                                                       | 31 |
|                      | Item                  5.               | Other                  Information                                                                                                                         | 31 |
|                      | Item                  6                | Exhibits                  and Reports on Form 8-K                                                                                                          | 31 |
| SIGNATURES           |                                   | 32                                                                                                                                                         |

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***PART        I. FINANCIAL INFORMATION***

**ITEM        1. **
**FINANCIAL        STATEMENTS**

**Kid        Castle Educational Corporation**

**Condensed        Consolidated Balance Sheets**

|                                                                                                  |   |   | March                  31,2007 |   |   | December                  31,2006 |   |
|-------------------------------------------------------------------------------------------------------|--------|--------|--------------------------------|--------|--------|-----------------------------------|--------|
| ASSETS                                                                                           |   |   |                           |   |   |                              |   |
| Current                  assets                                                                       |   |   |                           |   |   |                              |   |
| Cash                  and bank balances                                                               |   | $      | 1,225,810                      |   | $      | 1,419,873                         |   |
| Bank                  fixed deposits - pledged (Note12)                                               |   |   | 74,260                         |   |   | 75,210                            |   |
| Notes                  and accounts receivable, net (Note 5)                                          |   |   | 3,036,266                      |   |   | 2,001,145                         |   |
| Inventories,                  net (Note 6)                                                            |   |   | 1,265,512                      |   |   | 1,636,020                         |   |
| Other                  receivables (Notes 7)                                                          |   |   | 142,856                        |   |   | 127,062                           |   |
| Prepayments                  and other current assets (Note 8)                                        |   |   | 192,525                        |   |   | 141,620                           |   |
| Pledged                  notes receivable (Note 12)                                                   |   |   | 367,045                        |   |   | 430,415                           |   |
| Deferred                  income tax assets                                                           |   |   | 102,108                        |   |   | 105,426                           |   |
| Total                  current assets                                                                 |   |   | 6,406,382                      |   |   | 5,936,771                         |   |
| Deferred                  income tax assets                                                           |   |   | 50,153                         |   |   | 49,909                            |   |
| Long-term                  investments (Note 9)                                                       |   |   | 45,079                         |   |   | 33,295                            |   |
| Property                  and equipment, net                                                          |   |   | 1,734,971                      |   |   | 1,755,992                         |   |
| Intangible                  assets, net of amortization (Note 11)                                     |   |   | 490,939                        |   |   | 538,638                           |   |
| Long-term                  notes receivable                                                           |   |   | 687,832                        |   |   | 812,809                           |   |
| Pledged                  notes receivable (Note 12)                                                   |   |   | —                        |   |   | 13,851                            |   |
| Other                  assets                                                                         |   |   | 228,781                        |   |   | 231,958                           |   |
| Total                  assets                                                                         |   | $      | 9,644,137                      |   | $      | 9,373,223                         |   |
| LIABILITIES                  AND STOCKHOLDERS’ EQUITY                                           |   |   |                           |   |   |                              |   |
| Current                  liabilities                                                                  |   |   |                           |   |   |                              |   |
| Bank                  borrowings - short-term and maturing within one                  year (Note 12) |   | $      | 735,747                        |   | $      | 808,037                           |   |
| Notes                  and accounts payable                                                           |   |   | 638,593                        |   |   | 925,577                           |   |
| Accrued                  expenses                                                                     |   |   | 713,002                        |   |   | 975,396                           |   |
| Amounts                  due to stockholders/officers (Note 10)                                       |   |   | 354,484                        |   |   | 355,653                           |   |
| Other                  payables                                                                       |   |   | 562,169                        |   |   | 381,647                           |   |
| Deposits                  received                                                                    |   |   | 813,206                        |   |   | 752,597                           |   |
| Receipts                  in advance (Note 13)                                                        |   |   | 1,942,531                      |   |   | 2,402,624                         |   |
| Income                  tax payable                                                                   |   |   | 312,295                        |   |   | 143,771                           |   |
| Total                  current liabilities                                                            |   |   | 6,072,027                      |   |   | 6,745,302                         |   |
| Bank                  borrowings maturing after one year (Note 12)                                    |   |   | 915,785                        |   |   | 979,323                           |   |
| Receipts                  in advance (Note 13)                                                        |   |   | 1,528,699                      |   |   | 1,275,638                         |   |
| Deposits                  received                                                                    |   |   | 564,952                        |   |   | 629,165                           |   |
| Deferred                  liability                                                                   |   |   | 36,934                         |   |   | 36,624                            |   |
| Accrued                  pension liabilities (Note 14)                                                |   |   | 213,153                        |   |   | 287,363                           |   |
| Total                  liabilities                                                                    |   |   | 9,331,550                      |   |   | 9,953,415                         |   |

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**Kid        Castle Educational Corporation**

**Condensed        Consolidated Balance Sheets - Continued**

|                                                                                                                                            |   | March                  31,2007 |       | December                  31,2006 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|------------|-----------------------------------|--------|
| Commitments                  and contingencies (Note 16)                                                                                        |   |                           |       |                              |   |   |   |
|                                                                                                                                            |   |                           |       |                              |   |   |   |
| Minority                  interest                                                                                                              |   |                           | 98,675     |                              |   | 54,561 |   |
|                                                                                                                                            |   |                           |       |                              |   |   |   |
| Shareholders’                  equity                                                                                                     |   |                           |       |                              |   |   |   |
| Common                  stock, no par share :                                                                                                   |   |                           |       |                              |   |   |   |
| 25,000,000                  shares authorized; issued and outstanding at March 31, 2007 and                  December                  31, 2006 |   |                           | 8,592,138  |                              |   | 8,592,138 |   |
| Additional                  paid-in capital                                                                                                     |   |                           | 194,021    |                              |   | 194,021 |   |
| Legal                  reserve                                                                                                                  |   |                           | 65,320     |                              |   | 65,320 |   |
| Accumulated                  deficit                                                                                                            |   |                           | (8,276,865 | )                                 |   | (9,056,567 | ) |
| Accumulated                  other comprehensive loss                                                                                           |   |                           | (337,078   | )                                 |   | (330,713 | ) |
| Net                  loss not recognized as pension cost                                                                                        |   |                           | (23,624    | )                                 |   | (98,952 | ) |
| Total                  shareholders’ equity                                                                                               |   |                           | 213,912    |                              |   | (634,753 | ) |
| Total                  liabilities and shareholders’ equity                                                                               |   | $                              | 9,644,137  |                              | $      | 9,373,223 |   |

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**Kid            Castle Educational Corporation**

**Condensed            Consolidated Statements of Operations (Unaudited)**

|                                                                                                                     |   | Three                      months ended March 31, |       |
|--------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|------------|
|                                                                                                                     |   | 2007                                              |       | 2006 |   |
| Operating                      Revenue                                                                                   |   |                                              |       |   |   |   |   |
| Sales                      of goods                                                                                      |   | $                                                 | 2,434,158  |   | $ | 2,220,496 |   |
| Franchising                      income                                                                                  |   |                                              | 553,492    |   |   | 506,547 |   |
| Other                      operating revenue                                                                             |   |                                              | 253,310    |   |   | 245,484 |   |
| Total                      net operating revenue                                                                         |   |                                              | 3,240,960  |   |   | 2,972,527 |   |
| Operating                      costs                                                                                     |   |                                              |       |   |   |   |   |
| Cost                      of goods sold                                                                                  |   |                                              | (916,655   | ) |   | (807,487 | ) |
| Cost                      of franchising                                                                                 |   |                                              | (101,142   | ) |   | (80,125 | ) |
| Other                      operating costs                                                                               |   |                                              | (48,582    | ) |   | (42,251 | ) |
| Total                      operating costs                                                                               |   |                                              | (1,066,379 | ) |   | (929,863 | ) |
| Gross                      profit                                                                                        |   |                                              | 2,174,581  |   |   | 2,042,664 |   |
| Advertising                      costs                                                                                   |   |                                              | (18,085    | ) |   | (2,541 | ) |
| Other                      operating expenses                                                                            |   |                                              | (1,282,732 | ) |   | (1,415,130 | ) |
| Income                      from operations                                                                              |   |                                              | 873,764    |   |   | 624,993 |   |
| Interest                      expenses, net                                                                              |   |                                              | (21,669    | ) |   | (33,373 | ) |
| Share                      of income (loss) of investments                                                               |   |                                              | 11,468     |   |   | (8,594 | ) |
| Other                      non-operating income (loss), net                                                              |   |                                              | 132,601    |   |   | (37,735 | ) |
| Income                      before income taxes                                                                          |   |                                              | 996,164    |   |   | 545,291 |   |
| Benefit                      (provision) for taxes                                                                       |   |                                              | (172,942   | ) |   | (168,481 | ) |
| Income                      after income taxes                                                                           |   |                                              | 823,222    |   |   | 376,810 |   |
| Minority                      interest income                                                                            |   |                                              | (43,520    | ) |   | (18,951 | ) |
| Net                      income                                                                                          |   | $                                                 | 779,702    |   | $ | 357,859 |   |
| Earnings                      per share - basic and diluted                                                              |   | $                                                 | 0.031      |   | $ | 0.019 |   |
| Weighted-average                      shares used to compute earnings per share - basic and                      diluted |   |                                              | 25,000,000 |   |   | 18,999,703 |   |

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**K**
**id        Castle Educational Corporation**

**Condensed        Consolidated Statements of Stockholders’ Equity **

|                                                                                               |   | Common                  Stock     |       |   |   |                                       |   |         |    |               |   |                                                  |   |                                                                      |       |
|----------------------------------------------------------------------------------------------------|--------|-----------------------------------|------------|--------|--------|--------------------------------------------|--------|--------------|---------|--------------------|--------|-------------------------------------------------------|--------|---------------------------------------------------------------------------|------------|
|                                                                                               |   | Number                  of shares |       | Amount |   | Additional                  paid-incapital |   | Legalreserve |    | Accumulateddeficit |   | Accumulated                  other comprehensive loss |   | Net                  loss not                  recognized as pension cost |       | Total |   |
| Balance,                  December 31, 2005                                                        |   |                              | 18,999,703 |   | $      | 7,669,308                                  |   | $            | 194,021 |               | $      | 65,320                                                |   | $                                                                         | (9,010,356 | ) | $ | (244,864 | ) |   | — |   | $ | (1,326,571 | ) |
| Net                  loss for 2006                                                                 |   |                              | —    |   |   | —                                    |   |         | — |               |   | —                                               |   |                                                                      | (46,211    | ) |   | — |   |   | — |   |   | (46,211 | ) |
| Cumulative                  translation adjustment                                                 |   |                              | —    |   |   | —                                    |   |         | — |               |   | —                                               |   |                                                                      | —    |   |   | (85,849 | ) |   | — |   |   | (85,849 | ) |
| Comprehensive                  loss                                                                |   |                              |       |   |   |                                       |   |         |    |               |   |                                                  |   |                                                                      |       |   |   |   |   |   |   |   |   | (132,060 | ) |
| Repayment                  of a liability by issuance of common stock                              |   |                              | 6,000,297  |   |   | 922,830                                    |   |         | — |               |   | —                                               |   |                                                                      | —    |   |   | — |   |   | — |   |   | 922,830 |   |
| Net                  loss not recognized as pension cost                                           |   |                              | —    |   |   | —                                    |   |         | — |               |   | —                                               |   |                                                                      | —    |   |   | — |   | $ | (98,952 | ) |   | (98,952 | ) |
| Balance,                  December 31, 2006                                                        |   |                              | 25,000,000 |   | $      | 8,592,138                                  |   | $            | 194,021 |               | $      | 65,320                                                |   | $                                                                         | (9,056,567 | ) | $ | (330,713 | ) | $ | (98,952 | ) | $ | (634,753 | ) |
| Net                  income for the three months ended March 31, 2007                  (Unaudited) |   |                              | —    |   |   | —                                    |   |         | — |               |   | —                                               |   |                                                                      | 779,702    |   |   | — |   |   | — |   |   | 779,702 |   |
| Cumulative                  translation adjustment (Unaudited)                                     |   |                              | —    |   |   | —                                    |   |         | — |               |   | —                                               |   |                                                                      | —    |   |   | (6,365 | ) |   | — |   |   | (6,365 | ) |
| Comprehensive                  loss (Unaudited)                                                    |   |                              |       |   |   |                                       |   |         |    |               |   |                                                  |   |                                                                      |       |   |   |   |   |   |   |   |   | 773,337 |   |
| Net                  loss not recognized as pension cost                                           |   |                              | —    |   |   | —                                    |   |         | — |               |   | —                                               |   |                                                                      | —    |   |   | — |   | $ | 75,328 |   |   | 75,328 |   |
|                                                                                               |   |                              |       |   |   |                                       |   |         |    |               |   |                                                  |   |                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| Balance,                  March 31, 2007 (Unaudited)                                               |   |                              | 25,000,000 |   | $      | 8,592,138                                  |   | $            | 194,021 |               | $      | 65,320                                                |   | $                                                                         | (8,276,865 | ) | $ | (337,078 | ) | $ | (23,624 | ) | $ | 213,912 |   |

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**K**
**id        Castle Educational Corporation**

**Condensed        Consolidated Statements of Cash Flows **

**(Unaudited)**

|                                                                                                                                                |   | Three                    months ended March 31, |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|------------|
|                                                                                                                                                |   |                                            | 2007       |   |   | 2006 |   |
| Cash                    flows from operating activities                                                                                             |   |                                            |       |   |   |   |   |
| Net                    income                                                                                                                       |   | $                                               | 779,702    |   | $ | 357,859 |   |
| Adjustments                    to reconcile net income to net                    cash provided by operating activities                              |   |                                            |       |   |   |   |   |
| Depreciation                    of property and equipment                                                                                           |   |                                            | 49,605     |   |   | 48,094 |   |
| Amortization                    of intangible assets                                                                                                |   |                                            | 41,031     |   |   | 41,813 |   |
| Allowance                    for sales returns                                                                                                      |   |                                            | 85,270     |   |   | 97,042 |   |
| Allowance                    for doubtful debts                                                                                                     |   |                                            | 10,991     |   |   | 220,814 |   |
| Provision                    (reversal) of allowance for loss on inventory obsolescence and                    slow-moving                    items |   |                                            | (134,081   | ) |   | 48,514 |   |
| Minority                    interests                                                                                                               |   |                                            | 43,520     |   |   | 18,951 |   |
| Share                    of loss (gain) of investments                                                                                              |   |                                            | (11,468    | ) |   | 8,594 |   |
| (Increase)/decrease                    in:                                                                                                          |   |                                            |       |   |   |   |   |
| Notes                    and accounts receivable                                                                                                    |   |                                            | (1,074,483 | ) |   | (1,052,873 | ) |
| Inventories                                                                                                                                         |   |                                            | 484,994    |   |   | 388,817 |   |
| Other                    receivables                                                                                                                |   |                                            | 143,735    |   |   | 315,763 |   |
| Prepayments                    and other current assets                                                                                             |   |                                            | (52,731    | ) |   | (202,414 | ) |
| Deferred                    income tax assets                                                                                                       |   |                                            | 1,120      |   |   | (28,074 | ) |
| Other                    assets                                                                                                                     |   |                                            | 255        |   |   | 201,692 |   |
| Increase/(decrease)                    in:                                                                                                          |   |                                            |       |   |   |   |   |
| Notes                    and accounts payable                                                                                                       |   |                                            | (148,526   | ) |   | 40,016 |   |
| Accrued                    expenses                                                                                                                 |   |                                            | (255,080   | ) |   | 284,644 |   |
| Other                    payables                                                                                                                   |   |                                            | 185,280    |   |   | (426,355 | ) |
| Receipts                    in advance                                                                                                              |   |                                            | (160,588   | ) |   | 208,438 |   |
| Income                    taxes payable                                                                                                             |   |                                            | 170,833    |   |   | 72,020 |   |
| Deferred                    Liability                                                                                                               |   |                                            | 774        |   |   | (181 | ) |
| Deposits                    received                                                                                                                |   |                                            | 13,426     |   |   | 388,235 |   |
| Accrued                    pension liabilities                                                                                                      |   |                                            | 3,504      |   |   | (15,599 | ) |
| Net                    cash provided by operating activities                                                                                        |   |                                            | 177,083    |   |   | 1,015,810 |   |
| Cash                    flows from investing activities                                                                                             |   |                                            |       |   |   |   |   |
| Purchase                    of property and equipment                                                                                               |   |                                            | (50,716    | ) |   | (17,050 | ) |
| Proceeds                    from disposal of property and equipment                                                                                 |   |                                            | —    |   |   | — |   |
| Amount                    due from stockholder/director                                                                                             |   |                                            | —    |   |   | — |   |
| Prepayment                    of long-term investments                                                                                              |   |                                            | —    |   |   | — |   |
| Acquisition                    of long-term investments                                                                                             |   |                                            | —    |   |   | — |   |
| Bank                    fixed deposits - pledged                                                                                                    |   |                                            | 2          |   |   | 46,990 |   |
| Pledged                    notes receivable                                                                                                         |   |                                            | 71,831     |   |   | 155,067 |   |
| Net                    cash provided by investing activities                                                                                        |   |                                            | 21,117     |   |   | 185,007 |   |

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**K**
**id        Castle Educational Corporation**

**Condensed        Consolidated Statements of Cash Flows - Continued**

|                                                                                                          |   | Three                    months ended March 31, |      |
|---------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|-----------|
|                                                                                                          |   | 2007                                            |      | 2006 |   |
| Cash                    flows from financing activities                                                       |   |                                            |      |   |   |   |   |
| Proceeds                    from bank borrowings                                                              |   | $                                               | —   |   | $ | 138,098 |   |
| Proceeds                    from loan from a stockholder                                                      |   |                                            | —   |   |   | — |   |
| Proceeds                    from capital leases                                                               |   |                                            | —   |   |   | — |   |
| Repayment                    of bank borrowings                                                               |   |                                            | (113,635  | ) |   | (633,428 | ) |
| Repayment                    of capital leases                                                                |   |                                            | —   |   |   | 13,415 |   |
| Repayment                    of loan from stockholders and transactions of related                    parties |   |                                            | (262,343  | ) |   | (423,336 | ) |
| Net                    cash used in financing activities                                                      |   |                                            | (375,978  | ) |   | (905,251 | ) |
| Net                    increase (decrease) in cash and cash equivalents                                       |   |                                            | (177,778  | ) |   | 295,566 |   |
| Effect                    of exchange rate changes on cash and cash equivalents                               |   |                                            | (16,285   | ) |   | (20,688 | ) |
| Cash                    and cash equivalents at beginning of period                                           |   |                                            | 1,419,873 |   |   | 613,391 |   |
| Cash                    and cash equivalents at end of period                                                 |   | $                                               | 1,225,810 |   | $ | 888,269 |   |

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**K**
**id        Castle Educational Corporation**

**Notes        to Condensed Consolidated Financial Statements**

**NOTE        1 - ORGANIZATION AND DESCRIPTION OF BUSINESS**

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**NOTE        2 - BASIS OF PRESENTATION**

**NOTE        3 - SUMMARY OF IMPORTANT ACCOUNTING POLICIES**

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|                                        |   | Estimated                    useful life (in                    years) |
|---------------------------------------------|--------|------------------------------------------------------------------------|
| Land                                        |   | Indefinite                                                             |
| Buildings                                   |   | 50                                                                     |
| Furniture                    and fixtures   |   | 3-10                                                                   |
| Transportation                    equipment |   | 2.5-5                                                                  |
| Miscellaneous                    equipment  |   | 5-10                                                                   |

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**NOTE          **
**4          - RECENT ACCOUNTING PRONOUNCEMENTS**

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**NOTE            **
**5            - NOTES AND ACCOUNTS RECEIVABLE**

|                                                                     |   | **March                        31,****2007** |       | **December                        31,****2006** |   |
|--------------------------------------------------------------------------|--------|----------------------------------------------|------------|-------------------------------------------------|--------|
|                                                                     |   | (Unaudited)                                  |       |                                            |   |
| Notes                        and accounts receivable                     |   |                                         |       |                                            |   |   |   |
| -                        Third parties                                   |   | $                                            | 4,160,090  |                                            | $      | 2,995,538 |   |
| -                        Related parties (NOTE 10)                       |   |                                         | 82,712     |                                            |   | 113,928 |   |
| Total                                                                    |   |                                         | 4,242,802  |                                            |   | 3,109,466 |   |
| Allowance                        for doubtful accounts and sales returns |   |                                         | (1,206,536 | )                                               |   | (1,108,321 | ) |
| Notes                        and accounts receivable, net                |   | $                                            | 3,036,266  |                                            | $      | 2,001,145 |   |

**NOTE        **
**6        - INVENTORIES**

|                                                                                                   |   | **March                  31,****2007** |      | **December                  31,****2006** |   |
|--------------------------------------------------------------------------------------------------------|--------|----------------------------------------|-----------|-------------------------------------------|--------|
|                                                                                                   |   | (Unaudited)                            |      |                                      |   |
| Work                  in process                                                                       |   | $                                      | 160,911   |                                      | $      | 145,110 |   |
| Finished                  goods and other merchandises                                                 |   |                                   | 1,738,807 |                                      |   | 2,268,608 |   |
|                                                                                                   |   |                                   | 1,899,718 |                                      |   | 2,413,718 |   |
| Less:                  Allowance for obsolete inventories and decline                  of market value |   |                                   | (634,206  | )                                         |   | (777,698 | ) |
|                                                                                                   |   | $                                      | 1,265,512 |                                      | $      | 1,636,020 |   |

**NOTE        **
**7        - OTHER RECEIVABLES**

|                                                                                                                                                                                     |   | **March                    31,****2007** |     | **December                    31,****2006** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|----------|---------------------------------------------|--------|
|                                                                                                                                                                                     |   | (Unaudited)                              |     |                                        |   |
| Other receivables - third parties:                                                                                                                                   |   |                                     |     |                                        |   |   |   |
| Tax paid on behalf of landlord                                                                                                                                  |   | $                                        | —  |                                        | $      | — |   |
| Advances to staff                                                                                                                                                              |   |                                     | 29,204   |                                        |   | 55,438 |   |
| Grants from Market Information Center                                                                                                                                |   |                                     | —  |                                        |   | — |   |
| Receivables from Shanghai Wonderland Educational                    Resources Co., Ltd. (“Shanghai Wonderland”) (Note (i)) |   |                                     | 381,227  |                                        |   | 381,092 |   |
| Other receivables                                                                                                                                                                   |   |                                     | 59,068   |                                        |   | 42,480 |   |
| Less : Allowance for doubtful accounts                                                                                                                          |   |                                     | (381,227 | )                                           |   | (381,092 | ) |
| Sub-total                                                                                                                                                                                |   |                                     | 88,272   |                                        |   | 97,918 |   |
| Other receivables - related parties (NOTE 10)                                                                                                              |   |                                     | 54,584   |                                        |   | 29,144 |   |
|                                                                                                                                                                                     |   | $                                        | 142,856  |                                        | $      | 127,062 |   |

| (i) | Shanghai                  Wonderland was a distributor for the Group. The Group loaned Shanghai                  Wonderland RMB$450,000 (approximately $54,000), RMB$500,000 and                  RMB$2,500,000 (approximately $310,000) for operations in December                  2003,                  July 2004 and August 2005, respectively. The identified loans were                  unsecured and bore no interest. Shanghai Wonderland has fully repaid                  the                  loan of RMB$450,000 in December 2004 and January 2005. As of March                  31,                  2007, Shanghai Wonderland still owes the Group a balance of                  RMB$3,000,000(approximately $381,227). Such sum has now been itemized                  and                  recorded as “Allowance for doubtful accounts” compared to its prior                  recognition as “Other receivables”. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOTE        8 **
**-        PREPAYMENTS AND OTHER CURRENT ASSETS**

|                                |   | **March 31,****2007** |    | **December 31,****2006** |   |
|-------------------------------------|--------|----------------------------|---------|-------------------------------|--------|
|                                |   | (Unaudited)                |    |                          |   |
| Prepayments                         |   | $                          | 147,009 |                          | $      | 139,582 |   |
| Temporary                  payments |   |                       | 1,099   |                          |   | 1,084 |   |
| Tax                  recoverable    |   |                       | — |                          |   | — |   |
| Prepaid                  interest   |   |                       | 55      |                          |   | 54 |   |
| Others                              |   |                       | 44,362  |                          |   | 900 |   |
|                                |   | $                          | 192,525 |                          | $      | 141,620 |   |

**NO**
**TE        9- INTEREST IN ASSOCIATES**

|                                                                                                                                            |   | **March                  31,****2007** |     | **December                  31,****2006** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|----------|-------------------------------------------|--------|
|                                                                                                                                            |   | (Unaudited)                            |     |                                      |   |
| 21st                  Century Kid Castle Language and Education Center (“Education                  Center”) (Note (i))             |   |                                   |     |                                      |   |   |   |
| Investment                  cost                                                                                                                |   | $                                      | 96,924   |                                      | $      | 96,111 |   |
| Share                  of loss                                                                                                                  |   |                                   | (38,193  | )                                         |   | (52,091 | ) |
|                                                                                                                                            |   | $                                      | 58,731   |                                      | $      | 44,020 |   |
| Tianjin                  Kid Castle Educational Investment Consulting Co., Ltd. (“Tianjin                  Consulting”) (Note (ii)) |   |                                   |     |                                      |   |   |   |
| Investment                  cost                                                                                                                |   | $                                      | 90,462   |                                      | $      | 89,704 |   |
| Share                  of loss                                                                                                                  |   |                                   | (106,650 | )                                         |   | (104,693 | ) |
|                                                                                                                                            |   | $                                      | (16,188  | )                                         | $      | (14,989 | ) |
| Lanbeisi                  Education &Culture Industrial Co., Ltd (“Lanbeisi”) (Note                  (iii))                     |   |                                   |     |                                      |   |   |   |
| Investment                  cost                                                                                                                |   | $                                      | 46,524   |                                      | $      | 46,133 |   |
| Share                  of loss                                                                                                                  |   |                                   | (43,988  | )                                         |   | (41,869 | ) |
|                                                                                                                                            |   | $                                      | 2,536    |                                      | $      | 4,264 |   |
| Total                                                                                                                                           |   | $                                      | 45,079   |                                      | $      | 33,295 |   |

----

| (i) | In                  October 2003, the Group obtained the government’s approval to co-found                  Education Center with 21st                  Century Publishing House in the PRC. In 2004, Education Center                  registered                  the total capital as RMB$1,500,000, and KCES and 21st                  Century Publishing House each owns 50% of the investee. It has                  been                  determined that the Group has significant influence and should                  therefore                  account for its investee on the equity                  method. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (ii) | On                  April 1, 2004, the Group signed a joint venture agreement with                  Tianjin                  Foreign Enterprises & Experts Service Corp., in Tianjin City, PRC.                  Pursuant to this joint venture agreement, the Group and Tianjin                  Foreign                  Enterprises & Experts Service Corp. each owns a 50% interest in                  Tianjin Kid Castle Educational Investment Consulting Co., Ltd.                  It has been                  determined that the Group has significant influence and should                  therefore                  account for its investee on the equity method. |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (iii) | On                  April 28, 2004, the Group signed a joint venture agreement with                  Lanbeisi                  Education & Culture Industrial Co., Ltd in Sichuan Province, PRC and                  Sichuan Province Education Institutional Service Center in Sichuan                  Province, PRC. Pursuant to this joint venture agreement, the Group,                  Lanbeisi Education & Culture Industrial Co., Ltd and Sichuan Province                  Education Institutional Service Center own, respectively, 45%,                  45% and 10%                  interests in Sichuan Lanbeisi Kid Castle Education Development                  Co., Ltd.                  It has been determined that the Group has significant influence                  and should                  therefore account for its investee using the equity method. |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOTE          **
**10-          RELATED PARTY TRANSACTIONS**

| Names                    of related parties                                                                                            |   | Relationship                    with the Company                                                                                                                                                                                                                                                        |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| Mr.                    Kuo-An Wang                                                                                                     |   | Was                    a director, officer and shareholder. In October 2005 resigned                    as chairman                    of the board of directors, president and chief executive officer                    of the                    Company. On October 18, 2006 resigned as director. |
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| Mr.                    Yu-En Chiu                                                                                                      |   | Was                    a director, officer and shareholder. On June 1, 2006 resigned                    as chief                    financial officer and director. Remained the Chairman of PRC                    operation                    until February 28, 2007.                               |
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| Mr.                    Min-Tan Yang                                                                                                    |   | Director                    and chief executive officer of the Company since November 2,                    2005                                                                                                                                                                                        |
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| Mr.                    Suang-Yi Pai                                                                                                    |   | Director                    and Chairman of the Board since November 2, 2005.                                                                                                                                                                                                                           |
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| Taipei                    Country Private Chevady Preschool (“TCP Chevady”)                                                |   | Its                    chairman was Mr. Yu-En Chiu and TCP Chevady ceased operations                    on April 10,                    2006.                                                                                                                                                           |
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| Taipei                    Country Private Chung-hua Preschool (“TCP Chung-hua”)                                            |   | Its                    chairman was Mr. Yu-En Chiu and TCP Chung-hua ceased operations                    in March                    2006.                                                                                                                                                             |
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| Taipei                    Country Private Kid’s Castle Yin Cyun Pre-school (“TCP Yin                    Cyun”)       |   | Its                    chairman is Mr. Min-Tan Yang                                                                                                                                                                                                                                                     |
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| Yin                    Cyun Language & Computer School (“Yin Cyun Language”)                                           |   | Its                    chairman is Mr. Min-Tan Yang                                                                                                                                                                                                                                                     |
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| Taipei                    Country Private Yin Tzu Preschool (“TCP Yin Tzu”)                                                |   | Its                    chairman is Mr. Min-Tan Yang                                                                                                                                                                                                                                                     |
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| Private                    Kuan Lung Short Term Language Cram School (“Kuan Lung                    Language”)             |   | Its                    chairman is Mr. Min-Tan Yang                                                                                                                                                                                                                                                     |
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| Taipei                    City Private Chu Sheng Preschool (“TCP Chu Sheng”)                                               |   | Its                    chairman is Mr. Min-Tan Yang                                                                                                                                                                                                                                                     |
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| Taipei                    Country Private Chu Yao Preschool (“TCP Chu Yao”)                                                |   | Its                    chairman is Mr. Min-Tan Yang                                                                                                                                                                                                                                                     |
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| Private                    Liang Yu Language & Computer School (“Liang Yu                    Language”)                |   | Its                    chairman is Mr. Min-Tan Yang                                                                                                                                                                                                                                                     |
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| 21st                    Century Publishing House (“Publishing House”)                                                      |   | A                    joint venture partner (third-party after July 2004).                                                                                                                                                                                                                               |
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| Jiangxi                    21st Century Kid Castle Culture Media Co., Ltd (“Culture                    Media”)             |   | An                    investment accounted for under the equity method before July                    2, 2004. It                    has become a consolidated entity after July 2, 2004.                                                                                                               |
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| 21st                    Century Kid Castle Language and Education Center (“Education                    Center”)           |   | An                    investment accounted for under the equity method.                                                                                                                                                                                                                                 |
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| Tianjin                    Kid Castle Educational Investment Consulting Co., Ltd.(“Tianjin                    Consulting”) |   | An                    investment accounted for under the equity method                                                                                                                                                                                                                                  |
|                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                    |
| Sichuan                    Lanbeisi Kid Castle Education Development Co., Ltd.                    (“Lanbeisi”)             |   | An                    investment accounted for under the equity                    method                                                                                                                                                                                                               |

----

|                                                                                                              |   | **Three                    months ended March 31,** |    |
|-------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|---------|
|                                                                                                              |   | **2007**                                            |    | **2006** |   |
|                                                                                                              |   | (Unaudited)                                         |    |
| (i)                               Sales to:                |   |                                                |    |   |   |   |   |
| -                    TCP Chevady                                                                                  |   | $                                                   | — |   | $ | 1,729 |   |
| -                    TCP Chung-hua                                                                                |   |                                                | — |   |   | 1,729 |   |
| -                    Kuan Lung Language                                                                           |   |                                                | 5,579   |   |   | 5,416 |   |
| -                    TCP Chu Yao                                                                                  |   |                                                | 14,801  |   |   | 8,035 |   |
| -                    TCP                    Chu Sheng                                                             |   |                                                | 3,495   |   |   | 3,816 |   |
| -                    TCP Yin Cyun                                                                                 |   |                                                | 38,019  |   |   | 8,957 |   |
| -                    Yin Cyun Language                                                                            |   |                                                | 3,294   |   |   | — |   |
| -                    TCP Yin Tzu                                                                                  |   |                                                | 19,019  |   |   | 3,425 |   |
| -                    Liang Yu Language                                                                            |   |                                                | 9,906   |   |   | 16,502 |   |
| -                    English School                                                                               |   |                                                | 8,451   |   |   | 5,233 |   |
| -                    Tianjin Consulting                                                                           |   |                                                | 7,395   |   |   | 9,984 |   |
| -                    Lanbeisi                                                                                     |   |                                                | 12,000  |   |   | 6,920 |   |
|                                                                                                              |   | $                                                   | 121,959 |   | $ | 71,746 |   |
|                                                                                                              |   |                                                |    |   |   |   |   |
| (ii)           Franchising                    income from: |   |                                                |    |   |   |   |   |
| -                    TCP Chu Sheng                                                                                |   | $                                                   | 7,958   |   | $ | 1,763 |   |
| -                    TCP Chu Yao                                                                                  |   |                                                | 7,958   |   |   | 1,764 |   |
| -                    TCP Yin Cyun                                                                                 |   |                                                | 7,958   |   |   | 637 |   |
| -                    Liang Yu Language                                                                            |   |                                                | 608     |   |   | — |   |
| -                    TCP Yin Tzu                                                                                  |   |                                                | 13,642  |   |   | 3,400 |   |
|                                                                                                              |   | $                                                   | 38,124  |   | $ | 7,564 |   |

----

| Name                  of related parties               |   | March                  31, **2007** |    | **December                  31,****2006** |   |
|--------------------------------------------------------|--------|-------------------------------------|---------|-------------------------------------------|--------|
|                                                   |   | (Unaudited)                         |    |                                      |   |
| -                  TCP Yin Cyun                        |   | $                                   | 14,283  |                                      | $      | 19,888 |   |
| -                  Yin Cyun Language                   |   |                                | 2,605   |                                      |   | 5,967 |   |
| -                  Kuan Lung Language                  |   |                                | 7,930   |                                      |   | 6,684 |   |
| -                  TCP Chu Yao                         |   |                                | 11,413  |                                      |   | 18,565 |   |
| -                  TCP Chu Sheng                       |   |                                | 9,257   |                                      |   | 17,937 |   |
| -                  TCP Yin Tzu                         |   |                                | 3,152   |                                      |   | 1,132 |   |
| -                  Liang Yu Language                   |   |                                | 8,401   |                                      |   | 4,530 |   |
| -                  Education Center                    |   |                                | — |                                      |   | ─ |   |
| -                  Tianjin                  Consulting |   |                                | 16,060  |                                      |   | 16,631 |   |
| -                  Lanbeisi                            |   |                                | 9,611   |                                      |   | 22,594 |   |
|                                                   |   | $                                   | 82,712  |                                      | $      | 113,928 |   |

| Name                  of related parties                     |   | **March                  31,****2007** |   | **December                  31,****2006** |   |
|--------------------------------------------------------------|--------|----------------------------------------|--------|-------------------------------------------|--------|
|                                                         |   | (Unaudited)                            |   |                                      |   |
| Amount                  due from Education Center (Note A)   |   | $                                      | 19,672 |                                      | $      | 19,507 |   |
| Amount                  due from Tianjin Consulting (Note B) |   |                                   | 655    |                                      |   | 16 |   |
| Amount                  due from Lanbeisi (Note C)           |   |                                   | 34,257 |                                      |   | 9,621 |   |
|                                                         |   | $                                      | 54,584 |                                      | $      | 29,144 |   |

| A. | Education                  Center was founded in October 2003. The amount due from the associate                  is                  mainly inventory purchases paid by the Group on behalf of Education                  Center. The amount due from this related party has no fixed repayment                  term                  and bears no interest. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| B. | Tianjin                  Consulting was incorporated in April 2004. The Group paid certain                  pre-operating costs on behalf of Tianjin Consulting. The amount                  due from                  this related party has no fixed repayment term and bears no                  interest. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| C. | Lanbeisi                  was incorporated in April 2004. The Group paid pre-operating costs                  of                  RMB$75,000 (approximately $9,000) on behalf of Lanbeisi. The amount                  due                  from this related party has no fixed repayment term and bears no                  interest. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  **Name                    of Related Parties** |   | **March 31,****2007** |    | **December 31,****2006** |   |
|------------------------------------------------------|--------|----------------------------|---------|-------------------------------|--------|
| TCP                    Yin Cyun                      |   | $                          | — |                          | $      | 61,357 |   |
| Mr. Kuo-An                    Wang              |   | $                          | — |                          | $      | 67,493 |   |
|                                                 |   | $                          | — |                          | $      | 128,850 |   |

|  **Name                  of Related Parties** |   | **March 31,****2007** |   | **December 31,****2006** |   |
|----------------------------------------------------|--------|----------------------------|--------|-------------------------------|--------|
| Lanbeisi                                           |   | $                          | 7,754  |                          | $      | 7,689 |   |
|                                               |   | $                          | 7,754  |                          | $      | 7,689 |   |

|  **Name                    of Related Parties** |   | **March 31,****2006** |   | **December 31,****2005** |   |
|------------------------------------------------------|--------|----------------------------|--------|-------------------------------|--------|
| Educational                    Center                |   | $                          | 289    |                          | $      | 436 |   |
| Lanbeisi                                             |   | $                          | 132    |                          | $      | 130 |   |
|                                                 |   | $                          | 421    |                          | $      | 566 |   |

|  **Name                    of Related Parties** |   | **March 31,****2007** |    | **December 31,****2006** |   |
|------------------------------------------------------|--------|----------------------------|---------|-------------------------------|--------|
| Mr. Min-Tan                    Yang (Note A)    |   | $                          | 244,944 |                          | $      | 245,627 |   |
| Mr. Suang-Yi                    Pai (Note A)    |   | $                          | 109,540 |                          | $      | 110,026 |   |
|                                                 |   | $                          | 354,484 |                          | $      | 355,653 |   |

----

**NOTE        **
**11        - INTANGIBLE ASSETS**

|                                              |   | **March                    31,****2007** |       | **December                    31,****2006** |   |
|---------------------------------------------------|--------|------------------------------------------|------------|---------------------------------------------|--------|
|                                              |   | (Unaudited)                              |       |                                        |   |
| Gross                    carrying amount          |   |                                     |       |                                        |   |   |   |
| Franchise                                         |   | $                                        | 1,030,622  |                                        | $      | 1,043,775 |   |
| Copyrights                                        |   |                                     | 605,840    |                                        |   | 613,572 |   |
|                                              |   |                                     | 1,636,462  |                                        |   | 1,657,347 |   |
| Less:                    Accumulated amortization |   |                                     |       |                                        |   |   |   |
| Franchise                                         |   |                                     | (721,435   | )                                           |   | (704,548 | ) |
| Copyrights                                        |   |                                     | (424,088   | )                                           |   | (414,161 | ) |
|                                              |   |                                     | (1,145,523 | )                                           |   | (1,118,709 | ) |
| **Net**                                           |   | $                                        | 490,939    |                                        | $      | 538,638 |   |

| 2008   |   | $      | 164,124 |   |
|--------|--------|--------|---------|--------|
| 2009   |   |   | 164,124 |   |
| 2010   |   |   | 39,598  |   |
|   |   |   |    |   |
|   |   | $      | 367,846 |   |

----

**NOTE      12 - BANK BORROWINGS**

|                                                                                                          |   | Notes  |   | **March                    31,****2007** |   | **December                    31,****2006** |   |
|---------------------------------------------------------------------------------------------------------------|--------|--------|--------|------------------------------------------|--------|---------------------------------------------|--------|
|                                                                                                          |   |   |   | (Unaudited)                              |   |                                        |   |
| Bank                    term loans                                                                            |   |   | (i)    |                                     | $      | 94,312                                      |   | $ | 108,922 |   |
| Short-term                    unsecured bank loans                                                            |   |   | (ii)   |                                     |   | 262,847                                     |   |   | 446,086 |   |
| Mid-term                    secured bank loan                                                                 |   |   | (iii)  |                                     |   | 1,294,373                                   |   |   | 1,232,352 |   |
|                                                                                                          |   |   |   |                                     |   | 1,651,532                                   |   |   | 1,787,360 |   |
| Less:                    Balances maturing within one year included in current                    liabilities |   |   |   |                                     |   |                                        |   |   |   |   |
| Bank                    term loans                                                                            |   |   |   |                                     |   | 88,696                                      |   |   | 103,523 |   |
| Short-term                    unsecured bank loans                                                            |   |   |   |                                     |   | 262,847                                     |   |   | 446,086 |   |
| Mid-term                    secured bank loan                                                                 |   |   |   |                                     |   | 384,204                                     |   |   | 258,428 |   |
|                                                                                                          |   |   |   |                                     |   | 735,747                                     |   |   | 808,037 |   |
|                                                                                                          |   |   |   |                                     |   |                                        |   |   |   |   |
| Bank                    borrowings maturing after one year                                                    |   |   |   |                                     | $      | 915,785                                     |   | $ | 979,323 |   |

| (i) | This                  line item represents bank loans that have been secured by a pledge                  of                  post-dated checks amounting to $205,131 and $261,142 that we have                  received                  from franchisees and the Group’s bank deposits of $6,130 and $1,963 as of                  March 31, 2007 and December 31, 2006, respectively, for the purpose                  of                  financing operations. The repayment dates of the loans coincided                  with the                  maturity dates of the corresponding pledged post-dated checks,                  and was                  extended on October 18, 2006. The weighted average interest rates                  were                  5.37% and 5.83% per annum as of March 31, 2007 and 2006,                  respectively. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (iii) | In                  August 2005, KCIT obtained a bank loan in the principal amount                  of $944,115                  to repay its mortgage loan that was originally granted by a bank                  on August                  10, 2003 and to finance its operations. The loan is secured by                  the Group’s                  land and buildings and personal guarantees provide by two directors                  of the                  Group. The loan bears interest at the lending bank’s basic fixed deposit                  rate plus 0.69% per annum for the year 2005 to 2007, and plus 1.69%                  per                  annum for the year 2008.  On August 10, 2005, the bank extended                  the term of the loan and it is now repayable in 84 equal monthly                  installments starting on August 10, 2012. As of March 31, 2006,                  the applicable interest rate is approximately 2.7% and the Group                  has                  repaid $82,395 |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE        13 - RECEIPTS IN ADVANCE**

|                                                 |   | Notes  |   | **March                    31,****2007** |   | **December                    31,****2006** |   |
|------------------------------------------------------|--------|--------|--------|------------------------------------------|--------|---------------------------------------------|--------|
|                                                 |   |   |   | (Unaudited)                              |   |                                        |   |
| Current                    liabilities:              |   |   |   |                                     |   |                                        |   |   |   |   |
| Sales                    deposits received           |   |   | (i)    |                                     | $      | 495,228                                     |   | $ | 481,334 |   |
| Franchising                    income received       |   |   | (ii)   |                                     |   | 917,116                                     |   |   | 1,608,066 |   |
| Subscription                    fees received        |   |   | (iii)  |                                     |   | 501,028                                     |   |   | 285,531 |   |
| Related                    parties (Note 10 B(viii)) |   |   |   |                                     |   | 421                                         |   |   | 566 |   |
| Others                                               |   |   |   |                                     |   | 28,738                                      |   |   | 27,127 |   |
|                                                 |   |   |   |                                     |   | 1,942,531                                   |   |   | 2,402,624 |   |
| Long-term                    liabilities:            |   |   |   |                                     |   |                                        |   |   |   |   |
| Franchising                    income received       |   |   | (ii)   |                                     |   | 1,528,699                                   |   |   | 1,275,638 |   |
|                                                 |   |   |   |                                     | $      | 3,471,230                                   |   | $ | 3,678,262 |   |

| (i) | The                  balance represents receipts in advance from customers for goods                  sold to                  them. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------|

| (ii) | The                  balance mainly represents franchising income received in advance                  which is                  attributable to the periods after the respective period end                  dates.  |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (iii) | The                  balance represents                  subscription fees received in advance for subscription of magazines                  published by the Group. |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOTE        14 - RETIREMENT PLANS**

|                                                 |   | **Three                    months ended March 31,** |    |
|------------------------------------------------------|--------|-----------------------------------------------------|---------|
|                                                 |   | **2007**                                            |    | **2006** |   |
|                                                 |   | (Unaudited)                                         |    |
| Service                    cost                      |   | $                                                   | — |   | $ | — |   |
| Interest                    cost                     |   |                                                | 3,054   |   |   | 3,081 |   |
| Expected                    return on assets         |   |                                                | (606    | ) |   | (612 | ) |
| Amortization                    of unrecognized loss |   |                                                | 739     |   |   | 746 |   |
| Net                    periodic pension cost         |   | $                                                   | 3,187   |   | $ | 3,215 |   |

**NOTE        **
**15        - GEOGRAPHICAL SEGMENTS**

|                                             |   | Taiwan |                                                                                      | The                    PRC |   | Total                                                                                     |   | Corporate |                                                                                      | Eliminations |   | Consolidated                                                                              |   |
|--------------------------------------------------|--------|--------|-------------------------------------------------------------------------------------------|----------------------------|--------|-------------------------------------------------------------------------------------------|--------|-----------|-------------------------------------------------------------------------------------------|--------------|--------|-------------------------------------------------------------------------------------------|--------|
|                                             |   |   | Three                    months endedMarch                    31,                    2007 |                       |   | Three                    months endedMarch                    31,                    2006 |   |      | Three                    months endedMarch                    31,                    2007 |         |   | Three                    months endedMarch                    31,                    2006 |   |   | Three                    months endedMarch                    31,                    2007 |   |   | Three                    months endedMarch                    31,                    2006 |   |   | Three                    months endedMarch31,                    2007 |   |   | Three                    months endedMarch                    31,                    2006 |   |   | Three                    months endedMarch                    31,                    2007 |   |   | Three                    months endedMarch                    31,                    2006 |   |   | Three                    months endedMarch                    31,                    2007 |   |   | Three                    months endedMarch                    31,                    2006 |   |
| Revenue                                          |   |   |                                                                                      |                       |   |                                                                                      |   |      |                                                                                      |         |   |                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| External                    revenue              |   | $      | 2,058,567                                                                                 |                       | $      | 1,948,125                                                                                 |   | $         | 1,182,393                                                                                 |         | $      | 1,024,402                                                                                 |   | $ | 3,240,960 |   | $ | 2,972,527 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 3,240,960 |   | $ | 2,972,527 |   |
| Inter-segment                    revenue         |   |   | —                                                                                   |                       |   | —                                                                                   |   |      | —                                                                                   |         |   | —                                                                                   |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |
|                                             |   | $      | 2,058,567                                                                                 |                       | $      | 1,948,125                                                                                 |   | $         | 1,182,393                                                                                 |         | $      | 1,024,402                                                                                 |   | $ | 3,240,960 |   | $ | 2,972,527 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 3,240,960 |   | $ | 2,972,527 |   |
| Profit                    (loss) from Operations |   | $      | 552,648                                                                                   |                       | $      | 678,738                                                                                   |   | $         | 383,403                                                                                   |         | $      | 66,338                                                                                    |   | $ | 936,051 |   | $ | 745,076 |   | $ | (62,287 | ) | $ | (120,083 | ) | $ | — |   | $ | — |   | $ | 873,764 |   | $ | 624,993 |   |
| Capital                    expenditures          |   | $      | 5,083                                                                                     |                       | $      | 18,669                                                                                    |   | $         | 38,325                                                                                    |         | $      | 1,619                                                                                     |   | $ | 43,408 |   | $ | 20,288 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 43,408 |   | $ | 20,288 |   |
|                                             |   |   |                                                                                      |                       |   |                                                                                      |   |      |                                                                                      |         |   |                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                             |   |   | March                    31,                    2007                                      |                       |   | December                    31,2006                                                       |   |      | March                    31,                    2007                                      |         |   | December                    31, 2006                                                      |   |   | March                    31,                    2007 |   |   | December                    31, 2006 |   |   | March                    31,                    2007 |   |   | December                    31, 2006 |   |   | March                    31,                    2007 |   |   | December                    31, 2006 |   |   | March                    31,                    2007 |   |   | December                    31, 2006 |   |
| Total                    assets                  |   | $      | 7,463,309                                                                                 |                       | $      | 7,409,359                                                                                 |   | $         | 2,350,090                                                                                 |         | $      | 1,960,446                                                                                 |   | $ | 9,813,399 |   | $ | 9,369,805 |   | $ | 263,740 |   | $ | 359,772 |   | $ | (226,247 | ) | $ | (356,354 | ) | $ | 9,850,892 |   | $ | 9,373,223 |   |

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**NOTE        16 - COMMITMENT AND CONTINGENCIES**

**A.        Lease Commitment**

| Years                    ending December 31, |   |   |         |   |
|----------------------------------------------|--------|--------|---------|--------|
| 2008                                         |   | $      | 194,130 |   |
| 2009                                         |   |   | 53,545  |   |
| 2010                                         |   |   | — |   |
| 2011                                         |   |   | — |   |
| 2012                                         |   |   | — |   |
|                                         |   | $      | 247,675 |   |

**B.        Going concern**

**ITEM        2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF        OPERATION** 

**OVERVIEW**

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**CRITICAL        ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES**

**Revenue        Recognition. **

**Allowance        for Doubtful Accounts. **

**Allowance        for Obsolete Inventories and Lower of Cost or Market. **

**Investment        Impairments. **

**Fixed        Assets and Depreciation. **

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**Impairment        of Long-Lived Assets. **

**Income        Taxes. **

**RESULTS        OF OPERATIONS**

**Three        Months Ended March 31, 2007 compared to Three Months Ended March 31,        2006**

**Total        Net Operating Revenue. **

**Sales        of goods. **

**Franchising        income. **

**Other        operating revenue. **

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**Gross        Profit. **

**Total        Operating Expenses. **

**Other        Operating Expenses. **

**Interest        Expenses, Net. **

**Other        Non-operating Income, Net.**

**Provision        for Taxes. **

**LIQUIDITY        AND CAPITAL RESOURCES**

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**Off-Balance        Sheet Arrangements**

**Bank        Borrowing**

**Pension        Benefit**

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**NEW        ACCOUNTING PRONOUNCEMENTS**

**Non-GAAP        Financial Measures**

**ITEM        3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET        RISK** 

***Interest        rate exposure***

***Foreign        currency exposure***

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**ITEM        4. CONTROLS AND PROCEDURES** 

***Conclusion        Regarding the Effectiveness of Disclosure Controls and        Procedures***

***Internal        Control Over Financial Reporting***
* *

|   | · | Maintain                  detailed records and produce comprehensive financial statements                  on a                  periodic basis allowing management to review and detect irregular                  financial activities. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | Place                  different check-points on the progression of ordinary monetary                  activities                  of the business. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Delineate                  individual unit/departmental responsibilities and effectively separate                  respective departmental transactions so as to avoid intentional                  misappropriation of funds from taking place. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | All                  departments requesting funds must obtain written approval from                  the Chief                  Executive Officer or the Chairman of the Board before the accounting                  department may commence processing payments. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | All                  fund transfer applications must be approved by the applicable department                  supervisor before the application may be processed. No one can                  authorize                  their own application. This is applicable to all staff including                  staff at                  the managerial level. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Fund                  transfer applications in the PRC must additionally be approved                  by the                  headquarters in Taiwan. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | All                  fund transfer applications must be accompanied by supporting                  documentation, such as a copy of the relevant contract copy of                  the                  relevant invoice or stock pre-payment statement. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Stock                  purchases require the approval of the supervisor or manager of                  the                  relevant department, the approval of the accounts department, and                  a stock                  receipt and suppliers’ certification. Finally the application must be                  approved by the Chairman of the Board before funds may be released. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | All                  pre-payments must be tracked by the fund applicant and the payments                  must                  be cleared within the month of payment or in accordance with the                  date                  stipulated in the relevant contract. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**PART        II OTHER INFORMATION** 

**ITEM        1. LEGAL PROCEEDINGS** 

**ITEM        1A. **
**RISK        FACTORS**

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**ITEM        2. CHANGES IN SECURITIES**

**ITEM        3. DEFAULTS UPON SENIOR SECURITIES** 

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

**ITEM        5. OTHER INFORMATION** 

**ITEM        6. EXHIBITS**

| A.   |   | Exhibits                                                                                                                             |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------|
| 31.1 |   | Rule 13a-14(a)                    Certification of Principal Executive Officer                                                  |
| 31.2 |   | Rule 13a-14(a)                    Certification of Principal Financial Officer                                                  |
| 32.1 |   | Section 1350                    Certification of Principal Executive Officer and Principal Financial                    Officer |

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**SIGNATURES**

| By:      | /s/                    Suang-Yi Pai                                      |
|--------------------|--------------------------------------------------------------------------|
|     | Name:                      Suang-Yi                      Pai             |
|               | Title:                      Chief                      Financial Officer |

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