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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** |
|------------------------------------------------------------------------------------------------------|
| (Address                of principal executive offices)                                              |

| **011-886-22218                5996**                                                                            |
|------------------------------------------------------------------------------------------------------------------|
| (Registrant’s                telephone number, including area code)                                        |
| **NONE**                                                                                                         |
| (Former                name, former address and former fiscal year, if changed since last                report) |

** **
** **

** **
** **
** **
**                          **

** **
** **

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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, 2006 and December                31,                2005                                       | 2-3    |
|                    | b)                Condensed Consolidated Statements of Operations for the three months                ended                March 31, 2006 and March 31, 2005          | 4      |
|                    | c)                Condensed Consolidated Statements of Stockholders’ Equity                                                                                     | 5      |
|                    | d)                Condensed Consolidated Statements of Cash Flows for the three months                ended                March 31, 2006 and March 31, 2005          | 6-7    |
|                    | e)                Notes to Condensed Consolidated Financial Statements                                                                                                | 8-24   |
|                    | Item                2.   Management’s                Discussion and Analysis of Financial Condition and Results of                Operations     | 24     |
|                    | Item                3.   Quantitative                and Qualitative Disclosures About Market Risk                                                     | 34     |
|                    | Item                4.   Controls                and Procedures                                                                                        | 35     |
| PART                II. | OTHER                INFORMATION                                                                                                                                      |   |
|                    | Item                1.   Legal                Proceedings                                                                                              | 36     |
|                    | Item                2.   Changes                in Securities,                Use of Proceeds and                Issuer Purchases of Equity Securities | 36     |
|                    | Item                3.   Defaults                upon Senior Securities                                                                                | 36     |
|                    | Item                4.   Submission                of Matters to a Vote of Security Holders                                                            | 36     |
|                    | Item                5.   Other                Information                                                                                              | 36     |
|                    | Item                6    Exhibits                and Reports on Form 8-K                                                                          | 37     |
| SIGNATURES              |                                                                                                                                                                  |

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***PART              I. FINANCIAL INFORMATION***

**ITEM              1. FINANCIAL STATEMENTS**

**Kid              Castle Educational Corporation**

**Condensed              Consolidated Balance Sheets**

| ASSETS                                                                                                                  |   | March                        31,2006 |       | December                        31,2005 |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|------------|-----------------------------------------|--------|
|                                                                                                                    |   |                                 |       |                                    |   |
| Current                        assets                                                                                   |   |                                 |       |                                    |   |
| Cash                        and bank balances                                                                      |   | $                                    | 888,269    |                                    | $      | 613,391 |   |
| Bank                        fixed deposits - pledged (Note11)                                                      |   |                                 | 75,450     |                                    |   | 120,813 |   |
| Notes                        and accounts receivable, net (Notes 5)                                                |   |                                 | 2,537,982  |                                    |   | 2,593,276 |   |
| Inventories,                        net (Note 6)                                                                   |   |                                 | 1,658,229  |                                    |   | 2,069,492 |   |
| Other                        receivables (Notes 7)                                                                 |   |                                 | 317,049    |                                    |   | 223,063 |   |
| Prepayments                        and other current assets (Note 8)                                               |   |                                 | 704,345    |                                    |   | 411,526 |   |
| Pledged                        notes receivable (Note11)                                                           |   |                                 | 992,274    |                                    |   | 849,704 |   |
| Deferred                        income tax assets                                                                  |   |                                 | 77,630     |                                    |   | 72,992 |   |
| Total                        current assets                                                                        |   |                                 | 7,251,228  |                                    |   | 6,954,257 |   |
| Deferred                        income tax assets                                                                  |   |                                 | 71,059     |                                    |   | 46,382 |   |
| Long-term                        investments (Note 9)                                                              |   |                                 | 62,998     |                                    |   | 71,158 |   |
| Property                        and equipment, net                                                                 |   |                                 | 1,798,411  |                                    |   | 1,808,411 |   |
| Intangible                        assets, net of amortization (Note 11)                                            |   |                                 | 665,716    |                                    |   | 699,246 |   |
| Long-term                        notes receivable                                                                  |   |                                 | 898,885    |                                    |   | 482,483 |   |
| Pledged                        notes receivable (Note 12)                                                          |   |                                 | 74,902     |                                    |   | 357,825 |   |
| Other                        assets                                                                                |   |                                 | 368,983    |                                    |   | 563,175 |   |
| Total                        assets                                                                                |   | $                                    | 11,192,182 |                                    | $      | 10,982,937 |   |
| LIABILITIES                        AND STOCKHOLDERS’ EQUITY                                                       |   |                                 |       |                                    |   |   |   |
| Current                        liabilities                                                                              |   |                                 |       |                                    |   |   |   |
| Bank                        borrowings - short-term and maturing within one year (Note                        12)  |   | $                                    | 1,393,674  |                                    | $      | 1,516,906 |   |
| Notes                        and accounts payable                                                                  |   |                                 | 1,441,303  |                                    |   | 1,385,478 |   |
| Accrued                        expenses                                                                            |   |                                 | 835,978    |                                    |   | 560,733 |   |
| Amounts                        due to stockholders/officers (Note 10)                                              |   |                                 | 840,789    |                                    |   | 977,838 |   |
| Other                        payables (Note 14)                                                                    |   |                                 | 914,320    |                                    |   | 1,057,161 |   |
| Deposits                        received                                                                           |   |                                 | 837,673    |                                    |   | 462,007 |   |
| Receipts                        in advance (Note13)                                                                |   |                                 | 2,069,591  |                                    |   | 2,353,680 |   |
| Income                        tax payable                                                                          |   |                                 | 195,561    |                                    |   | 122,481 |   |
| Obligation                        under capital leases due within one year                                         |   |                                 | 8,010      |                                    |   | — |   |
| Total                        current liabilities                                                                   |   |                                 | 8,536,899  |                                    |   | 8,436,284 |   |
| Bank                        borrowings maturing after one year (Note 12)                                           |   |                                 | 1,307,211  |                                    |   | 1,640,391 |   |
| Receipts                        in advance (Note13)                                                                |   |                                 | 1,661,955  |                                    |   | 1,130,207 |   |
| Obligation                        under capital leases                                                             |   |                                 | 5,340      |                                    |   | — |   |
| Deposits                        received                                                                           |   |                                 | 422,828    |                                    |   | 864,196 |   |
| Deferred                        Liability                                                                          |   |                                 | 35,650     |                                    |   | 35,416 |   |
| Accrued                        pension liabilities (Note 15)                                                       |   |                                 | 173,203    |                                    |   | 174,387 |   |
| Total                        liabilities                                                                           |   |                                 | 12,143,086 |                                    |   | 12,280,881 |   |

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**Kid                Castle Educational Corporation**

**Condensed                Consolidated Balance Sheets - Continued**

|                                                                                                                                                                                      |   | March                          31,2006 |       | December                          31,2005 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|------------|-------------------------------------------|--------|
| Commitments                          and contingencies (Note 17)                                                                                                                          |   |                                   |       |                                      |   |   |   |
|                                                                                                                                                                                      |   |                                   |       |                                      |   |   |   |
| Minority                          interest                                                                                                                                                |   |                                   | 47,823     |                                      |   | 28,627 |   |
|                                                                                                                                                                                      |   |                                   |       |                                      |   |   |   |
| Shareholders’                          equity                                                                                                                                       |   |                                   |       |                                      |   |   |   |
| Common                          stock, no par share :                                                                                                                                     |   |                                   |       |                                      |   |   |   |
| 25,000,000                          shares authorized; 18,999,703 shares issued and outstanding                          at March 31,                          2006 and December 31, 2005 |   |                                   | 7,669,308  |                                      |   | 7,669,308 |   |
| Additional                          paid-in capital                                                                                                                                       |   |                                   | 194,021    |                                      |   | 194,021 |   |
| Legal                          reserve                                                                                                                                                    |   |                                   | 65,320     |                                      |   | 65,320 |   |
| Accumulated                          deficit                                                                                                                                              |   |                                   | (8,652,497 | )                                         |   | (9,010,356 | ) |
| Accumulated                          other comprehensive loss                                                                                                                             |   |                                   | (274,879   | )                                         |   | (244,864 | ) |
| Total                          shareholders’ equity                                                                                                                                 |   |                                   | (998,727   | )                                         |   | (1,326,571 | ) |
| Total                          liabilities and shareholders’ equity                                                                                                                 |   | $                                      | 11,192,182 |                                      | $      | 10,982,937 |   |
|                                                                                                                                                                                      |   |                                   |       |                                      |   |   |   |

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**Kid              Castle Educational Corporation**

|                                                                                                                                                             |   | Three                          months ended March 31, |       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|------------|
|                                                                                                                                                             |   | 2006                                                  |       | 2005 |   |
|                                                                                                                                                             |   | (Unaudited)                                           |       |
| Operating                          Revenue                                                                                                                       |   |                                                  |       |   |   |
| Sales                          of goods                                                                                                                          |   | $                                                     | 2,220,496  |   | $ | 2,375,155 |   |
| Franchising                          income                                                                                                                      |   |                                                  | 506,547    |   |   | 597,925 |   |
| Other                          operating revenue                                                                                                                 |   |                                                  | 245,484    |   |   | 149,912 |   |
| Total                          net operating revenue                                                                                                             |   |                                                  | 2,972,527  |   |   | 3,122,992 |   |
| Operating                          costs                                                                                                                         |   |                                                  |       |   |   |   |   |
| Cost                          of goods sold                                                                                                                      |   |                                                  | (807,487   | ) |   | (927,731 | ) |
| Cost                          of franchising                                                                                                                     |   |                                                  | (80,125    | ) |   | (113,613 | ) |
| Other                          operating costs                                                                                                                   |   |                                                  | (42,251    | ) |   | (74,196 | ) |
| Total                          operating costs                                                                                                                   |   |                                                  | (929,863   | ) |   | (1,115,540 | ) |
| Gross                          profit                                                                                                                            |   |                                                  | 2,042,664  |   |   | 2,007,452 |   |
| Advertising                          costs                                                                                                                       |   |                                                  | (2,541     | ) |   | (33,363 | ) |
| Other                          operating expenses                                                                                                                |   |                                                  | (1,415,130 | ) |   | (1,785,500 | ) |
| Income                          from operations                                                                                                                  |   |                                                  | 624,993    |   |   | 188,589 |   |
| Interest                          expenses, net                                                                                                                  |   |                                                  | (33,373    | ) |   | (59,253 | ) |
| Share                          of income (loss) of investments                                                                                                   |   |                                                  | (8,594     | ) |   | 12,483 |   |
| Other                          non-operating income (loss), net                                                                                                  |   |                                                  | (37,735    | ) |   | (48,939 | ) |
| Income                          before income taxes                                                                                                              |   |                                                  | 545,291    |   |   | 92,880 |   |
| Benefit                          (provision) for taxes                                                                                                           |   |                                                  | (168,481   | ) |   | (143,453 | ) |
| (Loss)                          income after income taxes                                                                                                        |   |                                                  | 376,810    |   |   | (50,573 | ) |
| Minority                          interest income                                                                                                                |   |                                                  | (18,951    | ) |   | 143 |   |
| Net                          (loss) income                                                                                                                       |   | $                                                     | 357,859    |   | $ | (50,430 | ) |
| (Loss)                          earnings per share - basic and diluted                                                                                           |   | $                                                     | 0.019      |   | $ | (0.003 | ) |
| Weighted-average                          shares used to compute (loss) earnings per share - basic                          and                          diluted |   |                                                  | 18,999,703 |   |   | 18,999,703 |   |
|                                                                                                                                                             |   |                                                  |       |   |   |   |   |

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**Kid              Castle Educational Corporation**

**Condensed              Consolidated Statements of Stockholders’ Equity**

|                                                                                                               |   | Common                          Stock     |       |   |   |
|--------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|------------|--------|--------|
|                                                                                                               |   | Number                          of shares |       | Amount |   | Additional                          paid-incapital |   | Legalreserve |   | Accumulateddeficit |   | Accumulated                          other comprehensive loss |   | Total |   |
|                                                                                                               |   |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                          December 31, 2004                                                                |   |                                      | 18,999,703 |   | $      | 7,669,308 |   | $ | 194,021 |   | $ | 65,320 |   | $ | (7,312,074 | ) | $ | (222,650 | ) | $ | 393,925 |   |
| Net                          loss for 2005                                                                         |   |                                      | -          |   |   | - |   |   | - |   |   | - |   |   | (1,698,282 | ) |   | - |   |   | (1,698,282 | ) |
| Cumulative                          translation adjustment                                                         |   |                                      | -          |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (22,214 | ) |   | (22,214 | ) |
| Comprehensive                          loss                                                                        |   |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (1,720,496 | ) |
|                                                                                                               |   |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                          December 31, 2005                                                                |   |                                      | 18,999,703 |   | $      | 7,669,308 |   | $ | 194,021 |   | $ | 65,320 |   | $ | (9,010,356 | ) | $ | (244,864 | ) | $ | (1,326,571 | ) |
| Net                          income for the three months ended March 31, 2006                          (Unaudited) |   |                                      | -          |   |   | - |   |   | - |   |   | - |   |   | 357,859 |   |   | - |   |   | 357,859 |   |
| Cumulative                          translation adjustment (Unaudited)                                             |   |                                      | -          |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (30,015 | ) |   | (30,015 | ) |
| Comprehensive                          loss (Unaudited)                                                            |   |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 327,844 |   |
|                                                                                                               |   |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                          March 31, 2006 (Unaudited)                                                       |   |                                      | 18,999,703 |   | $      | 7,669,308 |   | $ | 194,021 |   | $ | 65,320 |   | $ | (8,652,497 | ) | $ | (274,879 | ) | $ | (998,727 | ) |

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**Kid              Castle Educational Corporation**

**Condensed              Consolidated Statements of Cash Flows**

|                                                                                                                                                                  |   | Three                          months ended March 31, |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|------------|
|                                                                                                                                                                  |   | 2006                                                  |       | 2005 |   |
|                                                                                                                                                                  |   | (Unaudited)                                           |       |
|                                                                                                                                                                  |   |                                                  |       |   |   |
| Cash                          flows from operating activities                                                                                                         |   |                                                  |       |   |   |
| Net                          (loss) income                                                                                                                            |   | $                                                     | 357,859    |   | $ | (50,430 | ) |
| Adjustments                          to reconcile net (loss) income to net                          cash provided by operating activities                             |   |                                                  |       |   |   |   |   |
| Depreciation                          of property and equipment                                                                                                       |   |                                                  | 48,094     |   |   | 66,681 |   |
| Amortization                          of intangible assets                                                                                                            |   |                                                  | 41,813     |   |   | 42,835 |   |
| Allowance                          for sales returns                                                                                                                  |   |                                                  | 97,042     |   |   | 95,267 |   |
| Allowance                          for doubtful debts                                                                                                                 |   |                                                  | 220,814    |   |   | 284,537 |   |
| Provision                          (reversal) of allowance for loss on inventory obsolescence                          and slow-moving                          items |   |                                                  | 48,514     |   |   | 6,452 |   |
| Loss                          (gain) on disposal of property and equipment                                                                                            |   |                                                  | -—   |   |   | (9,010 | ) |
| Minority                          interests                                                                                                                           |   |                                                  | 18,951     |   |   | (143 | ) |
| Share                          of loss (gain) of investments                                                                                                          |   |                                                  | 8,594      |   |   | (12,483 | ) |
| (Increase)/decrease                          in:                                                                                                                      |   |                                                  |       |   |   |   |   |
| Notes                          and accounts receivable                                                                                                                |   |                                                  | (1,052,873 | ) |   | (775,674 | ) |
| Inventories                                                                                                                                                           |   |                                                  | 388,817    |   |   | 4,514 |   |
| Other                          receivables                                                                                                                            |   |                                                  | 315,763    |   |   | (129,129 | ) |
| Prepayments                          and other current assets                                                                                                         |   |                                                  | (202,414   | ) |   | 41,002 |   |
| Deferred                          income tax assets                                                                                                                   |   |                                                  | (28,074    | ) |   | (32,194 | ) |
| Other                          assets                                                                                                                                 |   |                                                  | 201,692    |   |   | 46,591 |   |
| Increase/(decrease)                          in:                                                                                                                      |   |                                                  |       |   |   |   |   |
| Notes                          and accounts payable                                                                                                                   |   |                                                  | 40,016     |   |   | 60,036 |   |
| Accrued                          expenses                                                                                                                             |   |                                                  | 284,644    |   |   | 148,876 |   |
| Other                          payables                                                                                                                               |   |                                                  | (426,355   | ) |   | 124,933 |   |
| Receipts                          in advance                                                                                                                          |   |                                                  | 208,438    |   |   | (147,307 | ) |
| Income                          taxes payable                                                                                                                         |   |                                                  | 72,020     |   |   | 115,635 |   |
| Deferred                          Liability                                                                                                                           |   |                                                  | (181       | ) |   | — |   |
| Deposits                          received                                                                                                                            |   |                                                  | 388,235    |   |   | 67,207 |   |
| Accrued                          pension liabilities                                                                                                                  |   |                                                  | (15,599    | ) |   | 29,115 |   |
|                                                                                                                                                                  |   |                                                  |       |   |   |   |   |
| Net                          cash provided by (used in) operating activities                                                                                          |   |                                                  | 1,015,810  |   |   | (22,689 | ) |
|                                                                                                                                                                  |   |                                                  |       |   |   |   |   |
| Cash                          flows from investing activities                                                                                                         |   |                                                  |       |   |   |   |   |
| Purchase                          of property and equipment                                                                                                           |   |                                                  | (17,050    | ) |   | (104,562 | ) |
| Proceeds                          from disposal of property and equipment                                                                                             |   |                                                  | —    |   |   | 72,795 |   |
| Amount                          due from stockholder/director                                                                                                         |   |                                                  | —    |   |   | — |   |
| Prepayment                          of long-term investments                                                                                                          |   |                                                  | —    |   |   | — |   |
| Acquisition                          of long-term investments                                                                                                         |   |                                                  | —    |   |   | — |   |
| Bank                          fixed deposits - pledged                                                                                                                |   |                                                  | 46,990     |   |   | (58,629 | ) |
| Pledged                          notes receivable                                                                                                                     |   |                                                  | 155,067    |   |   | 29,990 |   |
| Advances                          to ex-CFO                                                                                                                           |   |                                                  | —    |   |   | (544,244 | ) |
| Repayments                          of advances to ex-CFO                                                                                                             |   |                                                  | —    |   |   | 544,244 |   |
|                                                                                                                                                                  |   |                                                  |       |   |   |   |   |
| Net                          cash provided by (used in) investing activities                                                                                          |   |                                                  | 185,007    |   |   | (60,406 | ) |
|                                                                                                                                                                  |   |                                                  |       |   |   |   |   |

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

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

|                                                                                                                                                                                                          |   | Three                        months ended March 31, |     |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|----------|
|                                                                                                                                                                                                          |   | 2006                                                |     | 2005 |   |
|                                                                                                                                                                                                          |   | (Unaudited)                                         |     |
| Cash                        flows from financing activities                                                                                                                                                   |   |                                                |     |   |   |
| Proceeds                        from bank borrowings                                                                                                                                                          |   | $                                                   | (40,370  | ) | $ | 795,968 |   |
| Proceeds                        from loan from a stockholder                                                                                                                                                  |   |                                                | —  |   |   | — |   |
| Proceeds                        from capital leases                                                                                                                                                           |   |                                                | —  |   |   | 57,089 |   |
| Repayment                        of bank borrowings                                                                                                                                                           |   |                                                | (454,960 | ) |   | (781,513 | ) |
| Repayment                        of capital leases                                                                                                                                                            |   |                                                | 13,415   |   |   | (10,910 | ) |
| Repayment                        of loan from officers/stockholders                                                                                                                                           |   |                                                | (423,336 | ) |   | — |   |
|                                                                                                                                                                                                          |   |                                                |     |   |   |   |   |
| Net                        cash provided by (used in) financing activities                                                                                                                                    |   |                                                | (905,251 | ) |   | 60,634 |   |
|                                                                                                                                                                                                          |   |                                                |     |   |   |   |   |
| Net                        increase (decrease) in cash and cash equivalents                                                                                                                                   |   |                                                | 295,566  |   |   | (22,461 | ) |
|                                                                                                                                                                                                          |   |                                                |     |   |   |   |   |
| Effect                        of exchange rate changes on cash and cash equivalents                                                                                                                           |   |                                                | (20,688  | ) |   | (17,934 | ) |
|                                                                                                                                                                                                          |   |                                                |     |   |   |   |   |
| Cash                        and cash equivalents at beginning of period                                                                                                                                       |   |                                                | 613,391  |   |   | 213,564 |   |
|                                                                                                                                                                                                          |   |                                                |     |   |   |   |   |
| Cash                        and cash equivalents at end of period                                                                                                                                             |   | $                                                   | 888,269  |   | $ | 173,169 |   |
|                                                                                                                                                                                                          |   |                                                |     |   |   |   |   |
| **Supplemental                        disclosure of significant non-cash transactions**                                                                                                                       |   |                                                |     |   |   |   |   |
|                                                                                                                                                                                                          |   |                                                |     |   |   |   |   |
| Increase                        (decrease) of notes receivable and pledged notes receivable                        corresponding                        to the increase (decrease) in the following accounts: |   |                                                |     |   |   |   |   |
|                                                                                                                                                                                                          |   |                                                |     |   |   |   |   |
| Deposits                        received                                                                                                                                                                      |   | $                                                   | —  |   | $ | 1,586 |   |
|                                                                                                                                                                                                          |   |                                                |     |   |   |   |   |
| Other                        payables                                                                                                                                                                         |   | $                                                   | —  |   | $ | 6,473 |   |
|                                                                                                                                                                                                          |   |                                                |     |   |   |   |   |
| Receipts                        in advance                                                                                                                                                                    |   | $                                                   | —  |   | $ | 258,156 |   |

----

**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              3.1 - RESTATEMENT**

|                                                                       |   | As                        Previously Reported |            | Restated                        Amount |   |
|----------------------------------------------------------------------------|--------|-----------------------------------------------|-----------------|----------------------------------------|--------|
| Advances                        to ex-CFO                                  |   |                                          | ó          |                                   |   | (544,244 | ) |
| Repayments                        of advances to ex-CFO                    |   |                                          | ó          |                                   |   | 544,244 |   |
| Net                        cash (used in) provided by investing activities |   |                                          | (60,406  | )                                      |   | (60,406 | ) |

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**NOTE              3.2 - SUMMARY OF IMPORTANT ACCOUNTING POLICIES**

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

----

**NOTE              4 - RECENT ACCOUNTING PRONOUNCEMENTS**

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

|                                                                       |   | **March                          31,****2006** |       | **December                          31,****2005** |   |
|----------------------------------------------------------------------------|--------|------------------------------------------------|------------|---------------------------------------------------|--------|
|                                                                       |   | (Unaudited)                                    |       |                                              |   |
|                                                                       |   |                                           |       |                                              |   |
| Notes                          and accounts receivable                     |   |                                           |       |                                              |   |
| -                          Third parties                                   |   | $                                              | 3,216,678  |                                              | $      | 2,944,574 |   |
| -                          Related parties (NOTE 10)                       |   |                                           | 396,755    |                                              |   | 401,184 |   |
|                                                                       |   |                                           |       |                                              |   |   |   |
| Total                                                                      |   |                                           | 3,613,433  |                                              |   | 3,345,758 |   |
| Allowance                          for doubtful accounts and sales returns |   |                                           | (1,075,451 | )                                                 |   | (752,482 | ) |
|                                                                       |   |                                           |       |                                              |   |   |   |
| Notes                          and accounts receivable, net                |   | $                                              | 2,537,982  |                                              | $      | 2,593,276 |   |

----

**NOTE                6 - INVENTORIES**

|                                                                                                                   |   | **March                          31,****2006** |      | **December                          31,****2005** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|-----------|---------------------------------------------------|--------|
|                                                                                                                   |   | (Unaudited)                                    |      |                                              |   |
|                                                                                                                   |   |                                           |      |                                              |   |
| Work                          in process                                                                               |   | $                                              | 109,263   |                                              | $      | 127,001 |   |
| Finished                          goods and other merchandises                                                         |   |                                           | 2,360,409 |                                              |   | 2,696,942 |   |
|                                                                                                                   |   |                                           |      |                                              |   |   |   |
|                                                                                                                   |   |                                           | 2,469,672 |                                              |   | 2,823,943 |   |
| Less:                          Allowance for obsolete inventories and decline                          of market value |   |                                           | (811,443  | )                                                 |   | (754,451 | ) |
|                                                                                                                   |   |                                           |      |                                              |   |   |   |
|                                                                                                                   |   | $                                              | 1,658,229 |                                              | $      | 2,069,492 |   |

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

|                                                                                                                                                                 |   | **March                          31,****2006** |     | **December                          31,****2005** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|----------|---------------------------------------------------|--------|
|                                                                                                                                                                 |   | (Unaudited)                                    |     |                                              |   |
| Other                          receivables - third parties:                                                                                                          |   |                                           |     |                                              |   |
| Tax                          paid on behalf of landlord                                                                                                              |   | $                                              | —  |                                              | $      | 2,013 |   |
| Advances                          to staff                                                                                                                           |   |                                           | 128,484  |                                              |   | 125,590 |   |
| Grants                          from Market Information Center                                                                                                       |   |                                           | —  |                                              |   | — |   |
| Receivables                          from Shanghai Wonderland EducationalResources                          Co., Ltd. (“Shanghai Wonderland”) (Note (i)) |   |                                           | 370,915  |                                              |   | 368,528 |   |
| Other                          receivables                                                                                                                           |   |                                           | 154,594  |                                              |   | 86,141 |   |
| Less                          : Allow for doubtful accounts                                                                                                          |   |                                           | (370,915 | )                                                 |   | (368,528 | ) |
|                                                                                                                                                                 |   |                                           |     |                                              |   |   |   |
| Sub-total                                                                                                                                                            |   |                                           | 283,078  |                                              |   | 213,744 |   |
| Other                          receivables - related parties (NOTE 10)                                                                                               |   |                                           | 33,971   |                                              |   | 9,319 |   |
|                                                                                                                                                                 |   | $                                              | 317,049  |                                              | $      | 223,063 |   |

| (i) | Shanghai                        Wonderland was a distributor of 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,                        2006, Shanghai Wonderland still owes the Group a balance                        of                        RMB$3,000,000(approximately $370,915). 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,****2006** |    | **December 31,****2005** |   |
|-------------------------------------------|--------|----------------------------|---------|-------------------------------|--------|
|                                      |   | (Unaudited)                |    |                          |   |
|                                      |   |                       |    |                          |   |
| Prepayments                               |   | $                          | 669,820 |                          | $      | 399,659 |   |
| Temporary                        payments |   |                       | 1,059   |                          |   | 11,038 |   |
| Tax                        recoverable    |   |                       | — |                          |   | — |   |
| Prepaid                        interest   |   |                       | 22,440  |                          |   | — |   |
| Others                                    |   |                       | 11,026  |                          |   | 829 |   |
|                                      |   |                       |    |                          |   |   |   |
|                                      |   | $                          | 704,345 |                          | $      | 411,526 |   |

**NOTE              9- INTEREST IN ASSOCIATES**

|                                                                                                                                                                                     |   | **March                          31,****2006** |    | **December                          31,****2005** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|---------|---------------------------------------------------|--------|
|                                                                                                                                                                                     |   | (Unaudited)                                    |    |                                              |   |
|                                                                                                                                                                                     |   |                                           |    |                                              |   |
| 21st                          Century Kid Castle Language and Education Center (“Education                          Center”) (Note (i))                                      |   |                                           |    |                                              |   |
| Investment                          cost                                                                                                                                                 |   | $                                              | 93,544  |                                              | $      | 92,942 |   |
| Share                          of loss                                                                                                                                                   |   |                                           | (38,512 | )                                                 |   | (40,803 | ) |
|                                                                                                                                                                                     |   |                                           |    |                                              |   |   |   |
|                                                                                                                                                                                     |   | $                                              | 55,032  |                                              | $      | 52,139 |   |
|                                                                                                                                                                                     |   |                                           |    |                                              |   |   |   |
| Tianjin                          Kid Castle Educational Investment Consulting Co., Ltd.                          (“Tianjin                          Consulting”) (Note (ii)) |   |                                           |    |                                              |   |   |   |
| Investment                          cost                                                                                                                                                 |   | $                                              | 87,308  |                                              | $      | 86,746 |   |
| Share                          of loss                                                                                                                                                   |   |                                           | (91,171 | )                                                 |   | (80,360 | ) |
|                                                                                                                                                                                     |   |                                           |    |                                              |   |   |   |
|                                                                                                                                                                                     |   | $                                              | (3,863  | )                                                 | $      | 6,386 |   |
|                                                                                                                                                                                     |   |                                           |    |                                              |   |   |   |
| Lanbeisi                          Education &Culture Industrial Co., Ltd (“Lanbeisi”) (Note                          (iii))                                              |   |                                           |    |                                              |   |   |   |
| Investment                          cost                                                                                                                                                 |   | $                                              | 44,901  |                                              | $      | 44,612 |   |
| Share                          of loss                                                                                                                                                   |   |                                           | (33,072 | )                                                 |   | (31,979 | ) |
|                                                                                                                                                                                     |   |                                           |    |                                              |   |   |   |
|                                                                                                                                                                                     |   | $                                              | 11,829  |                                              | $      | 12,633 |   |
|                                                                                                                                                                                     |   |                                           |    |                                              |   |   |   |
| Total                                                                                                                                                                                    |   | $                                              | 62,998  |                                              | $      | 71,158 |   |

----

| (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**

| A. | Names                        of related parties and relationship with the Group are as                        follows: |
|----|------------------------------------------------------------------------------------------------------------------------|

| Names                        of related parties                                                                                                                |   | Relationship                        with the Company                                                                                                                                                                                                                                                                                                                  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                  |
| Mr.                        Kuo-An Wang                                                                                                                         |   | He                        is a director, shareholder and 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 of the board of                        directors. |
|                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                  |
| Mr.                        Yu-En Chiu                                                                                                                          |   | He                        is a director, shareholder and on June 1, 2006 resigned as                        chief financial                        officer and director of the board of directors. Mr. Chiu                        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 appointed as chairman of the board since November 2,                        2005.                                                                                                                                                                                                                                                 |
|                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                  |
| Kid                        Castle Enterprises Limited (“KCE”)                                                                                      |   | Its                        two directors and stockholders are Mr.Kuo-An                        Wang and Mr. Yu-En Chiu                                                                                                                                                                                                                                                |
|                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                  |
| Chevady                        Culture Enterprise Limited (“CCE”)                                                                                  |   | Its                        chairman is Mr. Yu-En Chiu                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                  |
| Private                        Kid Castle Short Term LanguageCram                        School (“PKC Language”)                                   |   | Its                        chairman is Mr. Yu-En Chiu                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                  |
| Taipei                        Country Private Kid Castle Short Term Language Cram School                        (“TCP                        PKC”) |   | Its                        chairman is Mr. Yu-En Chiu                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                  |
| Taipei                        Country Private ChevadyPreschool                        (“TCP Chevady”)                                              |   | Its                        chairman is Mr. Yu-En Chiu                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                  |
| Taipei                        Country Private Chung-huaPreschool                        (“TCP Chung-hua”)                                          |   | Its                        chairman is Mr. Yu-En Chiu                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                  |
| Taipei                        Country Private WonderlandPreschool                        (“TCP Wonderland”)                                        |   | Its                        chairman is Mr. Yu-En Chiu                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                  |
| Taipei                        City Private Kid Castle Preschool (“ TCP Kid Castle)                                                                       |   | Its                        director is Mr. Yu-En Chiu                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                  |

----

| Taipei                        Country Private Kid’s Castle Yin Cyun Pre-school(“TCP Yin                        Cyun”)        |   | 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                                                                                                                            |
|                                                                                                                                           |   |                                                                                                                                                                                                  |

| B. | Significant                        transactions and balances with related parties are as                        follows: |
|----|--------------------------------------------------------------------------------------------------------------------------|

|                                                              |   | **Three                          months ended March 31,** |   |
|-------------------------------------------------------------------|--------|-----------------------------------------------------------|--------|
|                                                              |   | **2006**                                                  |   | **2005** |   |
|                                                              |   | (Unaudited)                                               |   |
| (i)   Sales                          to:           |   |                                                      |   |   |   |   |   |
| -                          PKC Language                           |   | $                                                         | -      |   | $ | 3,030 |   |
| -                          TCP PKC                                |   |                                                      | -      |   |   | 3,030 |   |
| -                          TCP Chevady                            |   |                                                      | 1,729  |   |   | 7,614 |   |
| -                          TCP Chung-hua                          |   |                                                      | 1,729  |   |   | 7,614 |   |
| -                          TCP Wonderland                         |   |                                                      | -      |   |   | 5,349 |   |
| -                          TCP Kid Castle                         |   |                                                      | -      |   |   | 4,996 |   |
| -                          Kuan Lung Language                     |   |                                                      | 5,416  |   |   | - |   |
| -                          TCP Chu Yao                            |   |                                                      | 8,035  |   |   | - |   |
| -                          TCP                          Chu Sheng |   |                                                      | 3,816  |   |   | - |   |
| -                          TCP Yin Cyun                           |   |                                                      | 8,957  |   |   | - |   |
| -                          TCP Yin Tzu                            |   |                                                      | 3,425  |   |   | - |   |
| -                          Liang Yu Language                      |   |                                                      | 16,502 |   |   | - |   |
| -                          English School                         |   |                                                      | 5,233  |   |   | 6,034 |   |
| -                          Tianjin Consulting                     |   |                                                      | 9,984  |   |   | 4,589 |   |
| -                          Lanbeisi                               |   |                                                      | 6,920  |   |   | 26,793 |   |
|                                                              |   |                                                      |   |   |   |   |   |
|                                                              |   | $                                                         | 71,746 |   | $ | 69,049 |   |

----

|                                                                     |   |   |   |    |         |
|--------------------------------------------------------------------------|--------|--------|--------|--------------|--------------|
| (ii)  Rental                                income from:       |   |   |   |         |         |   |   |
| -                                CCE                                     |   | $      | -      |         | $            | 476 |   |
|                                                                     |   |   |   |         |         |   |   |
|                                                                     |   | $      | -      |         | $            | 476 |   |
|                                                                     |   |   |   |         |         |   |   |
| (iii)  Franchising                                income from: |   |   |   |         |         |   |   |
| -                                PKC Language                            |   | $      | -      |         | $            | 136 |   |
| -                                TCP PKC                                 |   |   | -      |         |         |  136 |   |
| -                                TCP Kid Castle                          |   |   | -      |         |         |  1,854 |   |
| -                                TCP Chung-Hua                           |   |   | -      |         |         |  - |   |
| -                                TCP Chevady                             |   |   | -      |         |         | 927 |   |
| -                                TCP Wonderland                          |   |   | -      |         |         | 927 |   |
| -                                TCP Chu Sheng                           |   |   | 1,763  |         |         | - |   |
| -                                TCP Chu Yao                             |   |   | 1,764  |         |         | - |   |
| -                                TCP Yin Cyun                            |   |   | 637    |         |         | - |   |
| -                                TCP Yin Tzu                             |   |   | 3,400  |         |         | - |   |
|                                                                     |   |   |   |         |         |   |   |
|                                                                     |   | $      | 7,564  |         | $            | 3,980 |   |
|                                                                     |   |   |   |         |         |   |   |
| (iv)  Purchase                                from:            |   |   |   |         |         |   |   |
| -                                Publishing House                        |   |   | -      |         |         |  319,640 |   |
|                                                                     |   | $      | -      |         | $            | 319,640 |   |
|                                                                     |   |   |   |         |    |

| (v) | The                        two directors and stockholders, Mr. Min-Tan Yang and Mr.                        Suang-Yi Pai,                        have given personal guarantees to certain bank loans and                        borrowings.                        Please see the details as described in Note 12 - Bank                        Borrowings. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (vi) | Accounts                        and notes receivable - related                        parties: |
|------|------------------------------------------------------------------------------------------------|

|                                                               |   | **March                        31,** |    | **December                        31,** |   |
|--------------------------------------------------------------------|--------|--------------------------------------|---------|-----------------------------------------|--------|
| Name                        of related parties                     |   | **200****6**                         |    | **200****5**                            |   |
|                                                               |   | (Unaudited)                          |    |                                    |   |
|                                                               |   |                                 |    |                                    |   |
| -                        PKC Language                              |   | $                                    | 38,934  |                                    | $      | 26,147 |   |
| -                        TCP PKC                                   |   |                                 | 38,934  |                                    |   | 52,294 |   |
| -                        TCP Chung-hua                             |   |                                 | 51,350  |                                    |   | 53,665 |   |
| -                        TCP Chevady                               |   |                                 | 48,199  |                                    |   | 48,685 |   |
| -                        TCP Wonderland                            |   |                                 | 48,199  |                                    |   | 48,685 |   |
| -                        TCP Kid Castle                            |   |                                 | 56,425  |                                    |   | 58,172 |   |
| -                        TCP Yin Cyun                              |   |                                 | 19,485  |                                    |   | 33,585 |   |
| -                        Kuan Lung Language                        |   |                                 | 170     |                                    |   | ─ |   |
| -                        TCP Chu Yao                               |   |                                 | 18,540  |                                    |   | ─ |   |
| -                        TCP Chu Sheng                             |   |                                 | 18,333  |                                    |   | ─ |   |
| -                        TCP Yin Tzu                               |   |                                 | 13,950  |                                    |   | 29,062 |   |
| -                        Liang Yu Language                         |   |                                 | 5,718   |                                    |   | 12,071 |   |
| -                        Education Center                          |   |                                 | 39      |                                    |   | ó |   |
| -                        Tianjin                        Consulting |   |                                 | 17,023  |                                    |   | 20,826 |   |
| -                        Lanbeisi                                  |   |                                 | 21,456  |                                    |   | 17,992 |   |
|                                                               |   |                                 |    |                                    |   |   |   |
|                                                               |   | $                                    | 396,755 |                                    | $      | 401,184 |   |

----

| (vii) | Other                            receivables - related                            parties: |
|-------|--------------------------------------------------------------------------------------------|

|                                                               |   |   |   | **March                        31,** |   | **December                        31,** |   |
|--------------------------------------------------------------------|--------|--------|--------|--------------------------------------|--------|-----------------------------------------|--------|
| Name                        of related parties                     |   |        |   | **200****6**                         |   | **200****5**                            |   |
|                                                               |   |   |   | (Unaudited)                          |   |                                    |   |
|                                                               |   |   |   |                                 |   |                                    |   |
| Amount                        due from Publishing House (Note 1)   |   |   |   |                                 | $      | ─                                 |   | $ | ─ |   |
| Amount                        due from Education Center (Note 2)   |   |   |   |                                 |   | 277                                     |   |   | ─ |   |
| Amount                        due from Tianjin Consulting (Note 3) |   |   |   |                                 |   | 633                                     |   |   | 15 |   |
| Amount                        due from Lanbeisi (Note 4)           |   |   |   |                                 |   | 33,061                                  |   |   | 9,304 |   |
|                                                               |   |   |   |                                 |   |                                    |   |   |   |   |
|                                                               |   |   |   |                                 | $      | 33,971                                  |   | $ | 9,319 |   |

| 1. | As                        of December 31, 2003, the amount due from Publishing House                        consists                        primarily of amounts due under a loan of RMB$1,000,000 (approximately                        $120,000 from the Group to Publishing House for the incorporation                        of                        Culture Media). The loan is unsecured and bears no interest.                        Pursuant to                        the terms of the loan, Publishing House was obligated to                        repay the loan on                        or before June 27, 2004 or it would be required to transfer                        its 40%                        ownership interest in Culture Media to the Group. On July                        2, 2004, as                        Publishing House did not repay the loan, the Group decided                        to take over                        the 40% ownership from Publishing House, and therefore, the                        Group’s                        ownership in Culture Media has increased to 90% and Culture                        Media has                        become a consolidated entity. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2. | 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. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | 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. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4. | 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,****2006** |    | **December 31,****2005** |   |
|----------------------------------------------------------|--------|----------------------------|---------|-------------------------------|--------|
|                                                     |   |                       |    |                          |   |
| Mr. Kuo-An                        Wang              |   | $                          | — |                          | $      | 60,911 |   |
|                                                     |   |                       |    |                          |   |   |   |
| Mr. Min-Tan                        Yang (note 1)    |   | $                          | 840,789 |                          | $      | 840,789 |   |
|                                                     |   |                       |    |                          |   |   |   |
| Mr. Suang-Yi                        Pai             |   | $                          | — |                          | $      | 76,138 |   |
|                                                     |   |                       |    |                          |   |   |   |
|                                                     |   | $                          | 840,789 |                          | $      | 977,838 |   |

| Note1                      : | In                        the fourth quarter of 2005, Mr. Yang loaned $1,050,000 to                        the Company, and                        third parties, Olympic Well International Ltd.(“Olympic”) and Chen-Chen                        Shih (“Shih”), procured by Mr. Pai loaned $690,000 and $60,089,                        respectively. The loans were treated as short-term loans,                        due in three                        months, with a per annum interest rate of 7%. A portion of                        the loan made                        by Olympic in the amount of US$342,364 was assigned to Mr.                        Pai on or about                        December 30, 2005. That amount, along with $209,211 which                        was owed Mr.                        Yang were forgiven in exchange for the Company’s forgiveness of Mr. Chiu’s                        debt to the Company of the amount of $551,575 (NT$18,500,000,                        the currency                        has been translated at the exchange rates at the time of                        the loans) at the                        end of 2005. Outstanding loans of $347,636 (Olympic), $60,089                        (Shih) are                        recorded as other payables, and $840,789 due to Mr. Yang                        was recorded as                        related parties. |
|------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                                                    |   | **March                          31,****2006** |      | **December                          31,****2005** |   |
|---------------------------------------------------------|--------|------------------------------------------------|-----------|---------------------------------------------------|--------|
|                                                    |   | (Unaudited)                                    |      |                                              |   |
|                                                    |   |                                           |      |                                              |   |
| Gross                          carrying amount          |   |                                           |      |                                              |   |
| Franchise                                               |   | $                                              | 1,048,148 |                                              | $      | 1,036,178 |   |
| Copyrights                                              |   |                                           | 616,143   |                                              |   | 609,106 |   |
|                                                    |   |                                           |      |                                              |   |   |   |
|                                                    |   |                                           | 1,664,291 |                                              |   | 1,645,284 |   |
| Less:                          Accumulated amortization |   |                                           |      |                                              |   |   |   |
| Franchise                                               |   |                                           | (628,889  | )                                                 |   | (595,802 | ) |
| Copyrights                                              |   |                                           | (369,686  | )                                                 |   | (350,236 | ) |
|                                                    |   |                                           |      |                                              |   |   |   |
|                                                    |   |                                           | (998,575  | )                                                 |   | (946,038 | ) |
|                                                    |   |                                           |      |                                              |   |   |   |
| **Net**                                                 |   | $                                              | 665,716   |                                              | $      | 699,246 |   |

----

| 2007   |   | $      | 164,528 |   |
|--------|--------|--------|---------|--------|
| 2008   |   |   | 164,528 |   |
| 2009   |   |   | 164,528 |   |
| 2010   |   |   | 41,138  |   |
|   |   |   |    |   |
|   |   | $      | 534,722 |   |

**NOTE                12 - BANK BORROWINGS**

|                                                                                                  |   | Notes  |   | **March                          31,****2006** |   | **December                          31,****2005** |   |
|-------------------------------------------------------------------------------------------------------|--------|--------|--------|------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                                                                  |   |   |   | (Unaudited)                                    |   |                                              |   |
|                                                                                                  |   |   |   |                                           |   |                                              |   |
| Bank                          term loans                                                              |   |   | (i)    |                                           | $      | 443,787                                           |   | $ | 564,704 |   |
| Short-term                          unsecured bank loans                                              |   |   | (ii)   |                                           |   | 521,840                                           |   |   | 539,583 |   |
| Mid-term                          loan                                                                |   |   | (iii)  |                                           |   | 313,840                                           |   |   | 586,436 |   |
| Mid-term                          secured bank loan                                                   |   |   | (iv)   |                                           |   | 1,421,418                                         |   |   | 1,466,574 |   |
|                                                                                                  |   |   |   |                                           |   |                                              |   |   |   |   |
|                                                                                                  |   |   |   |                                           |   | 2,700,885                                         |   |   | 3,157,297 |   |
| Less: Balances                          maturing within one year included in current liabilities |   |   |   |                                           |   |                                              |   |   |   |   |
| Bank                          term loans                                                              |   |   |   |                                           |   | 308,112                                           |   |   | 145,042 |   |
| Short-term                          unsecured bank loans                                              |   |   |   |                                           |   | 521,840                                           |   |   | 539,583 |   |
| Mid-term                          loan                                                                |   |   |   |                                           |   | 313,841                                           |   |   | 586,436 |   |
| Mid-term                          secured bank loan                                                   |   |   |   |                                           |   | 249,881                                           |   |   | 245,845 |   |
|                                                                                                  |   |   |   |                                           |   |                                              |   |   |   |   |
|                                                                                                  |   |   |   |                                           |   | 1,393,674                                         |   |   | 1,516,906 |   |
|                                                                                                  |   |   |   |                                           |   |                                              |   |   |   |   |
| Bank                          borrowings maturing after one year                                      |   |   |   |                                           | $      | 1,307,211                                         |   | $ | 1,640,391 |   |

| (i) | This                        line item represents bank loans that have been secured by                        a pledge of                        post-dated checks amounting to $883,303 and $873,215 that                        we have received                        from franchisees and the Group’s bank deposits of $13,834 and $46,456 as                        of March 31, 2006 and December 31, 2005, 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 March 21, 2005. The weighted average interest                        rates were 5.83%                        and 5.88% per annum as of March 31, 2006 and 2005, respectively.                        For the three months ended March 31, 2006 and 2005, the interest                        expenses                        charged to operations amounted to $7,301 and $14,758,                        respectively. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (ii) | In                        August 2005, KCIT obtained an unsecured short-term loan to                        finance the                        Group’s operations in the amount of $304,553, which was extended                        on                        February 2006, collateralized by the KCIT’s refundable deposits of $60,911                        and notes receivables approximating 30% of loan balance,                        and guaranteed by                        two directors and stockholders of the Group. The loan bears                        interest at                        the lending bank’s basic fixed deposit rate plus 3.29% per annum and is                        due and payable in August 2006. The applicable interest rate                        is                        approximately 5.3% per annum as of March 31,                        2006. |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (iii) | In                        June 2005, KCIT obtained from a financial institution a loan,                        which bore                        interest at 5% per annum and was repayable in 18 equal monthly                        installments, to finance the Group’s operations in the amount of $609,106.                        The last installment was due on December 13, 2006.The loan                        was                        collateralized by the KCIT’s refundable deposits of $121,821 and notes                        receivables approximating 20% of loan balance, and the Group                        repaid                        $302,303. |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (iv) | 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, 2005 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 $30,934 |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE              13 - RECEIPTS IN ADVANCE**

|                                                 |   | Notes  |   | **March                          31,****2006** |   | **December                          31,****2005** |   |
|------------------------------------------------------|--------|--------|--------|------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                 |   |   |   | (Unaudited)                                    |   |                                              |   |
|                                                 |   |   |   |                                           |   |                                              |   |
| Current                          liabilities:        |   |   |   |                                           |   |                                              |   |
| Sales                          deposits received     |   |   | (i)    |                                           | $      | 420,398                                           |   | $ | 682,553 |   |
| Franchising                          income received |   |   | (ii)   |                                           |   | 1,399,542                                         |   |   | 1,391,625 |   |
| Subscription                          fees received  |   |   | (iii)  |                                           |   | 237,044                                           |   |   | 234,342 |   |
| Others                                               |   |   |   |                                           |   | 12,607                                            |   |   | 45,160 |   |
|                                                 |   |   |   |                                           |   | 2,069,591                                         |   |   | 2,353,680 |   |
|                                                 |   |   |   |                                           |   |                                              |   |   |   |   |
| Long-term                          liabilities:      |   |   |   |                                           |   |                                              |   |   |   |   |
| Franchising                          income received |   |   | (ii)   |                                           |   | 1,661,955                                         |   |   | 1,130,207 |   |
|                                                 |   |   |   |                                           |   |                                              |   |   |   |   |
|                                                 |   |   |   |                                           | $      | 3,731,546                                         |   | $ | 3,483,887 |   |

----

| (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**
**-**
**OTHER              PAYABLES**

**NOTE              15 - RETIREMENT PLANS**

----

|                                                     |   |                                                    |         |      |   |
|----------------------------------------------------------|--------|---------------------------------------------------------|--------------|----------------|--------|
|                                                     |   | **Three                        months ended March 31,** |         |
|                                                     |   | **2006**                                                |         |  **2005** |   |
|                                                     |   | (Unaudited)                                             |         |
|                                                     |   |                                                    |         |
| Service                        cost                      |   | $                                                       | -            |           | $      | 25,500 |   |
| Interest                        cost                     |   |                                                    | 3,081        |           |   | 4,884 |   |
| Expected                        return on assets         |   |                                                    | (612         | )              |   | (1,697 | ) |
| Amortization                        of unrecognized loss |   |                                                    | 746          |           |   | 428 |   |
|                                                     |   |                                                    |         |           |   |  |   |
|                                                     |   |                                                    |    |           |   |   |   |
| Net                        periodic pension cost         |   | $                                                       | 3,215        |           | $      | 29,115 |   |

**NOTE              **
**16              - GEOGRAPHICAL SEGMENTS**

|                                                    |   | Taiwan                                                                                |      | The                            PRC                                                    |   | Total                                                                                 |   | Corporate                                                                             |      | Eliminations                                                                          |   | Consolidated                                                                          |   |
|---------------------------------------------------------|--------|---------------------------------------------------------------------------------------|-----------|---------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|-----------|---------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|--------|
|                                                    |   | Three                            months endedMarch                            31,2006 |      | Three                            months endedMarch                            31,2005 |   | Three                            months endedMarch                            31,2006 |   | Three                            months endedMarch                            31,2005 |      | Three                            months endedMarch                            31,2006 |   | Three                            months endedMarch                            31,2005 |   | Three                            months endedMarch                            31,2006 |   | Three                            months endedMarch                            31,2005 |   | Three                            months endedMarch                            31,2006 |   | Three                            months endedMarch                            31,2005 |   | Three                            months endedMarch                            31,2006 |   | Three                            months endedMarch                            31,2005 |   |
|                                                    |   |                                                                                  |      |                                                                                  |   |                                                                                  |   |                                                                                  |      |                                                                                  |   |                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                 |   |                                                                                  |      |                                                                                  |   |                                                                                  |   |                                                                                  |      |                                                                                  |   |                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| External                            revenue             |   | $                                                                                     | 1,948,125 |                                                                                  | $      | 2,313,293                                                                             |   | $                                                                                     | 1,024,402 |                                                                                  | $      | 805,513                                                                               |   | $ | 2,972,527 |   | $ | 3,118,806 |   | $ | — |   | $ | 4,186 |   | $ | — |   | $ | — |   | $ | 2,972,527 |   | $ | 3,122,992 |   |
| Inter-segment                            revenue        |   |                                                                                  | —   |                                                                                  |   | 522                                                                                   |   |                                                                                  | —   |                                                                                  |   | —                                                                               |   |   | — |   |   | 522 |   |   | — |   |   | — |   |   | — |   |   | (522 | ) |   | — |   |   | — |   |
|                                                    |   |                                                                                  |      |                                                                                  |   |                                                                                  |   |                                                                                  |      |                                                                                  |   |                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                    |   | $                                                                                     | 1,948,125 |                                                                                  | $      | 2,313,815                                                                             |   | $                                                                                     | 1,024,402 |                                                                                  | $      | 805,513                                                                               |   | $ | 2,972,527 |   | $ | 3,119,328 |   | $ | — |   | $ | 4,186 |   | $ | — |   | $ | (522 | ) | $ | 2,972,527 |   | $ | 3,122,992 |   |
|                                                    |   |                                                                                  |      |                                                                                  |   |                                                                                  |   |                                                                                  |      |                                                                                  |   |                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Profit                            (loss) fromOperations |   | $                                                                                     | 678,738   |                                                                                  | $      | 452,556                                                                               |   | $                                                                                     | 66,338    |                                                                                  | $      | (206,377                                                                              | )      | $ | 745,076 |   | $ | 246,178 |   | $ | (120,083 | ) | $ | (57,590 | ) | $ | — |   | $ | — |   | $ | 624,993 |   | $ | 188,589 |   |
|                                                    |   |                                                                                  |      |                                                                                  |   |                                                                                  |   |                                                                                  |      |                                                                                  |   |                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital                            expenditures         |   | $                                                                                     | 18,669    |                                                                                  | $      | 11,475                                                                                |   | $                                                                                     | 1,619     |                                                                                  | $      | 3,208                                                                                 |   | $ | 20,288 |   | $ | 14,683 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 20,288 |   | $ | 14,683 |   |
|                                                    |   |                                                                                  |      |                                                                                  |   |                                                                                  |   |                                                                                  |      |                                                                                  |   |                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                    |   | March                            31,2006 |      | December                            31,2005 |   | March                            31,2006 |   | December                            31,2005 |      | March                            31,2006 |   | December                            31,2005 |   | March                            31,2006 |       | December                            31,2005 |   | March                            31,2006 |   | December                            31,2005 |   | March                            31,2006 |   | December                            31,2005 |   |
|-----------------------------------------|--------|------------------------------------------|-----------|---------------------------------------------|--------|------------------------------------------|--------|---------------------------------------------|-----------|------------------------------------------|--------|---------------------------------------------|--------|------------------------------------------|------------|---------------------------------------------|--------|------------------------------------------|--------|---------------------------------------------|--------|------------------------------------------|--------|---------------------------------------------|--------|
|                                    |   |                                     |      |                                        |   |                                     |   |                                        |      |                                     |   |                                        |   |                                     |       |                                        |   |                                     |   |                                        |   |                                     |   |                                        |   |
| Total                            assets |   | $                                        | 9,015,906 |                                        | $      | 8,503,513                                |   | $                                           | 2,555,267 |                                     | $      | 2,311,798                                   |   | $                                        | 11,571,173 |                                        | $      | 10,815,311                               |   | $                                           | 79,389 |                                     | $      | 299,141                                     |   | $ | (458,380 | ) | $ | (131,515 | ) | $ | 11,192,182 |   | $ | 10,982,937 |   |

**NOTE              17 - COMMITMENT AND CONTINGENCIES**

**A.              Lease Commitment**

|                                             |   |   |    |   |
|--------------------------------------------------|--------|--------|---------|--------|
| Years                        ending December 31, |   |   |    |   |
| 2007                                             |   | $      | 244,127 |   |
| 2008                                             |   |   | 61,300  |   |
| 2009                                             |   |   | 20,433  |   |
| 2010                                             |   |   | ó  |   |
| 2011                                             |   |   | ó  |   |
|                                             |   |   |    |
|                                             |   | $      | 325,860 |   |
|                                             |   |   |    |

----

**B.              Going concern**

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

**GENERAL**

**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. **

**Impairment              of Long-Lived Assets. **

----

**Income              Taxes. **

**RESULTS              OF OPERATIONS**

**Comparison              of The Three Months Ended March 31, 2006 and 2005**

**Total              Net Operating Revenue. **

**Sales              of goods. **

**Franchising              income. **

**Other              operating revenue. **

**Gross              Profit. **

**Total              Operating Expenses. **

----

**Other              Operating Expenses. **

**Interest              Expenses, Net. **

**Provision              for Taxes. **

**LIQUIDITY              AND CAPITAL RESOURCES**

**Comparison              of Fiscal Years 2006 and 2005**

**Off-Balance              Sheet Arrangements**

**Bank              Borrowing**

----

**Pension              Benefit**

**Going              Concern**

**NEW              ACCOUNTING PRONOUNCEMENTS**

**Non-GAAP              Financial Measures**

**Risks              Relating to Our Business**

*    *
* *
***We              have a history of operating losses and we anticipate losses and negative              cash              flow to continue for the foreseeable future, and unless we are able              to generate              profits and positive cash flow on a consistent basis we may not be              able to              continue operations.***
* *

----

| ·   | maintain                      and improve our current products and services and develop or                      license new                      products on a timely basis; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | compete                      effectively with existing and potential                      competitors; |
|--------------------|--------------------------------------------------------------------------------------------------------|
| ·   | further                      develop our business activities; |
|--------------------|---------------------------------------------------------------|
| ·   | manage                      expanding operations; or |
|--------------------|------------------------------------------------------|
| ·   | attract                      and retain qualified personnel. |
|--------------------|--------------------------------------------------------------|

***We              cannot predict whether demand for our products and services will continue              to              develop, particularly at the volume or prices that we need to become              profitable.***
* *

| ·   | increase                      awareness of our brand and the availability of our products                      and                      services |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | continue                      to attract and develop relationships with educational institutions                      and                      regulatory authorities in our targeted geographic markets;                      and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | continue                      to attract and retain customers. |
|--------------------|----------------------------------------------------------------|

***Because              our operating results are tied, in part, to the success of our franchisees,              the              failure of our franchisees could adversely affect our operating              results.***
* *

----

***An              increase in market competition could have a negative impact on our              business.***
* *

| ·   | branches                      and franchises of international language instruction companies; |
|--------------------|-----------------------------------------------------------------------------------------------|
| ·   | public                      institutions and private schools; and |
|--------------------|-------------------------------------------------------------------|
| ·   | private                      tutors. |
|--------------------|--------------------------------------|

***Because              we face competition from established competitors, we may be unable              to maintain              the market share.***
* *

***Because              we intend to expand internationally, we will be subject to risks of              conducting              business in foreign countries.***
* *

| ·   | our                      inability to adapt our products and services to local cultural                      traits and                      customs; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | our                      inability to locate qualified local employees, partners and                      suppliers; |
|--------------------|----------------------------------------------------------------------------------------------------------------------|
| ·   | difficulties                      managing foreign operations; |
|--------------------|----------------------------------------------------------------|
| ·   | the                      potential burdens of complying with a variety of foreign                      laws; |
|--------------------|--------------------------------------------------------------------------------------------------------------|
| ·   | trade                      standards and regulatory requirements; |
|--------------------|-------------------------------------------------------------------|
| ·   | geopolitical                      risks, such as political and economic instability and changes                      in                      diplomatic and trade relationships; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | legal                      uncertainties or unanticipated changes regarding regulatory                      requirements,                      liability, export and import restrictions, tariffs and other                      trade                      barriers; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | uncertainties                      of laws and enforcement relating to the protection of intellectual                      property; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------|
| ·   | political,                      economic and social conditions in the foreign countries where                      we conduct                      operations; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | currency                      risks and exchange controls; |
|--------------------|------------------------------------------------------------|
| ·   | potential                      inflation in the applicable foreign economies;                      and |
|--------------------|--------------------------------------------------------------------------------------------------------|
| ·   | foreign                      taxation of earnings and payments received by us from our franchisees                      and                      affiliates. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

***Because              we may not be able to protect our proprietary rights on a global basis,              we may              incur substantial costs to defend or protect our business and intellectual              property.***
* *

***Because              we may not be able to avoid claims that we infringed the proprietary              rights of              others, we may incur substantial costs to defend or protect our business              and              intellectual property.***
* *

***We              rely substantially on bank loans and our inability to obtain sufficient              funding              may adversely affect our liquidity and financial              condition.***
* *

| ·   | our                      financial condition; |
|--------------------|-----------------------------------------------|
| ·   | general                      economic and capital market conditions; |
|--------------------|----------------------------------------------------------------------|
| ·   | availability                      of credit from banks or lenders and conditions in the financial                      markets; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------|
| ·   | investor                      confidence in us; and |
|--------------------|-----------------------------------------------------|
| ·   | economic,                      political and other conditions in Taiwan and the                      PRC. |
|--------------------|-----------------------------------------------------------------------------------------------------------|

----

***Because              we conduct operations in New Taiwan Dollars and Renminbi (RMB), we              are subject              to risk from exchange rate fluctuations.***
* *

***Because              our officers and directors are not U.S. persons, and our operating              subsidiaries              are Taiwan and People’s Republic of China companies, you may be unable to              enforce judgments under the Securities Act.***
* *

***Our              internal controls and management systems are not currently consistent              with              international practices in certain respects and we are in the process              of              improving these controls to enable us to certify the effectiveness              of our              internal controls under the Sarbanes-Oxley Act of 2002. Our failure              to timely              and successfully upgrade these controls and systems could subject us              to              regulatory actions and harm the price of our stock.***
* *

----

***If              we lose key management or other personnel, we may experience delays              in our              product development and other negative effects on our              business.***
* *

***“Penny              Stock” regulations may impose certain restrictions on marketability of our              common stock.***
* *

**Risks              Relating to The People’s Republic of China**

***Our              operations in the PRC are subject to political, regulatory and economic              uncertainties.***
* *

----

***The              lack of remedies and impartiality under the PRC’s legal system could negatively              impact us.***
* *

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

***Interest              rate exposure***

***Foreign              currency exposure***

----

**ITEM              4. CONTROLS AND PROCEDURES** 

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

***Management’s              Report on 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. |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | 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              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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