----

----

**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

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

**SECURITIES      EXCHANGE ACT OF 1934**

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

**SECURITIES      EXCHANGE ACT OF 1934**

**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) |

** **
** **

| Large Accelerated Filer ** o**** **  | Accelerated Filer ** o**** ** | Non-accelerated filer x |
|----------------------------------------------------------|----------------------------------------------|-------------------------|

** o**
** **

----

**FORM      10-Q **

**KID      CASTLE EDUCATIONAL CORPORATION **

**TABLE      OF CONTENTS**

|                      |                                                                                                                                                              | Page   |
|---------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| PART                  I   | FINANCIAL                  INFORMATION                                                                                                                            |   |
|                      | Item                  1.Unaudited                  Condensed Consolidated Financial Statements                                                               |   |
|                      | a)                  Condensed Consolidated Balance Sheet as of June 30, 2007 and December                  31,                  2006                              | 2-3    |
|                      | b)                  Condensed Consolidated Statements of Operations for the three months                  ended                  June 30, 2007 and June 30, 2006  | 4      |
|                      | c)                  Condensed Consolidated Statements of Operations for the six months                  ended                  June 30, 2007 and June 30, 2006    | 5      |
|                      | d)                  Condensed Consolidated Statements of Stockholders’ Equity                                                                               | 6      |
|                      | e)                  Condensed Consolidated Statements of Cash Flows for the six months                  ended June 30, 2007 and June 30, 2006                     | 7-8    |
|                      | f)                  Notes to Condensed Consolidated Financial Statements                                                                                          | 9      |
|                      | Item                  2.Management’s                  Discussion and Analysis of Financial Condition and Results of                  Operations        | 24     |
|                      | Item                  3.Quantitative                  and Qualitative Disclosures About Market Risk                                                               | 30     |
|                      | Item                  4.Controls                  and Procedures                                                                                             | 30     |
| PART                  II. | OTHER                  INFORMATION                                                                                                                                |   |
|                      | Item                  1.Legal Proceedings                                                                                                                    | 32     |
|                      | Item                  1ARisk                  Factors                                                                                                        | 32     |
|                      | Item                  2.Changes                  in Securities,                  Use of Proceeds and                  Issuer Purchases of Equity Securities  | 32     |
|                      | Item                  3.Defaults                  upon Senior Securities                                                                                     | 32     |
|                      | Item                  4.Submission                  of Matters to a Vote of Security Holders                                                                 | 32     |
|                      | Item                  5.Other                  Information                                                                                                   | 32     |
|                      | Item                  6Exhibits                  and Reports on Form 8-K                                                                                     | 33     |
| SIGNATURES                | 34                                                                                                                                                                |

----

***PART      I. FINANCIAL INFORMATION***

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

**Kid      Castle Educational      Corporation**

**Condensed      Consolidated Balance      Sheets**

| ASSETS                                                                                               |   | June                  30,2007 |       | December                  31,2006 |   |
|------------------------------------------------------------------------------------------------------|--------|-------------------------------|------------|-----------------------------------|--------|
|                                                                                                 |   |                          |       |                              |   |
| Current                  assets                                                                      |   |                          |       |                              |   |
| Cash                  and bank balances                                                              |   | $                             | 1,172,317  |                              | $      | 1,419,873 |   |
| Bank                  fixed deposits - pledged (Note12)                                              |   |                          | 429,215    |                              |   | 75,210 |   |
| Notes                  and accounts receivable, net (Note 5)                                         |   |                          | 2,242,935  |                              |   | 2,001,145 |   |
| Inventories,                  net (Note 6)                                                           |   |                          | 1,726,680  |                              |   | 1,636,020 |   |
| Other                  receivables (Notes 7)                                                         |   |                          | 408,492    |                              |   | 127,062 |   |
| Prepayments                  and other current assets (Note 8)                                       |   |                          | 182,704    |                              |   | 141,620 |   |
| Pledged                  notes receivable (Note 13)                                                  |   |                          | 510,086    |                              |   | 430,415 |   |
| Deferred                  income tax assets                                                          |   |                          | 81,566     |                              |   | 105,426 |   |
| Total                  current assets                                                                |   |                          | 6,753,995  |                              |   | 5,936,771 |   |
| Deferred                  income tax assets                                                          |   |                          | 51,150     |                              |   | 49,909 |   |
| Prepayment                  of long-term investments                                                 |   |                          | 306,802    |                              |   | ó |   |
| Long-term                  investments (Note 9)                                                      |   |                          | 50,203     |                              |   | 33,295 |   |
| Property                  and equipment, net                                                         |   |                          | 1,944,746  |                              |   | 1,755,992 |   |
| Intangible                  assets, net of amortization (Note 12)                                    |   |                          | 451,121    |                              |   | 538,638 |   |
| Long-term                  notes receivable                                                          |   |                          | 843,648    |                              |   | 812,809 |   |
| Pledged                  notes receivable (Note 13)                                                  |   |                          | 231,447    |                              |   | 13,851 |   |
| Other                  assets                                                                        |   |                          | 355,336    |                              |   | 231,958 |   |
| Total                  assets                                                                        |   | $                             | 10,988,448 |                              | $      | 9,373,223 |   |
| LIABILITIES                  AND STOCKHOLDERS’ EQUITY                                          |   |                          |       |                              |   |   |   |
| Current                  liabilities                                                                 |   |                          |       |                              |   |   |   |
| Bank                  borrowings - short-term and maturing withinone                  year (Note 13) |   | $                             | 931,062    |                              | $      | 808,037 |   |
| Notes                  and accounts payable                                                          |   |                          | 934,502    |                              |   | 925,577 |   |
| Accrued                  expenses                                                                    |   |                          | 781,210    |                              |   | 975,396 |   |
| Amounts                  due to stockholders/officers (Note 11)                                      |   |                          | 360,499    |                              |   | 355,653 |   |
| Other                  payables                                                                      |   |                          | 448,681    |                              |   | 381,647 |   |
| Deposits                  received                                                                   |   |                          | 852,717    |                              |   | 752,597 |   |
| Receipts                  in advance (Note 14)                                                       |   |                          | 1,866,617  |                              |   | 2,402,624 |   |
| Income                  tax payable                                                                  |   |                          | 172,756    |                              |   | 143,771 |   |
| Total                  current liabilities                                                           |   |                          | 6,348,044  |                              |   | 6,745,302 |   |
| Bank                  borrowings maturing after one year (Note 13)                                   |   |                          | 1,253,699  |                              |   | 979,323 |   |
| Receipts                  in advance (Note 14)                                                       |   |                          | 2,121,703  |                              |   | 1,275,638 |   |
| Deposits                  received                                                                   |   |                          | 581,461    |                              |   | 629,165 |   |
| Deferred                  liability                                                                  |   |                          | 37,439     |                              |   | 36,624 |   |
| Accrued                  pension liabilities (Note 15)                                               |   |                          | 291,435    |                              |   | 287,363 |   |
| Total                  liabilities                                                                   |   |                          | 10,633,781 |                              |   | 9,953,415 |   |

----

**Kid      Castle Educational Corporation**

**Condensed      Consolidated Balance Sheets - Continued**

|                                                                                                                                           |   | June                  30,2007 |       | December                  31,2006 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|------------|-----------------------------------|--------|
|                                                                                                                                           |   |                          |       |                              |   |
| Commitments                  and contingencies (Note 17)                                                                                       |   |                          |       |                              |   |
|                                                                                                                                           |   |                          |       |                              |   |
| Minority                  interest                                                                                                             |   |                          | 105,224    |                              |   | 54,561 |   |
|                                                                                                                                           |   |                          |       |                              |   |   |   |
| Shareholders’                  equity                                                                                                    |   |                          |       |                              |   |   |   |
| Common                  stock, no par share:                                                                                                   |   |                          |       |                              |   |   |   |
| 25,000,000                  shares authorized; issued and outstanding at June 30, 2007 and                  December                  31, 2006 |   |                          | 8,592,138  |                              |   | 8,592,138 |   |
| Additional                  paid-in capital                                                                                                    |   |                          | 194,021    |                              |   | 194,021 |   |
| Legal                  reserve                                                                                                                 |   |                          | 65,320     |                              |   | 65,320 |   |
| Accumulated                  deficit                                                                                                           |   |                          | (8,069,238 | )                                 |   | (9,056,567 | ) |
| Accumulated                  other comprehensive loss                                                                                          |   |                          | (435,093   | )                                 |   | (330,713 | ) |
| Net                  loss not recognized as pension cost                                                                                       |   |                          | (97,705    | )                                 |   | (98,952 | ) |
| Total                  shareholders’ equity                                                                                              |   |                          | 249,443    |                              |   | (634,753 | ) |
| Total                  liabilities and shareholders’ equity                                                                              |   | $                             | 10,988,448 |                              | $      | 9,373,223 |   |

----

**Kid      Castle Educational Corporation**

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

|                                                                                                                    |   | Three                  months ended June 30, |       |
|-------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|------------|
|                                                                                                                    |   | 2007                                         |       | 2006 |   |
|                                                                                                                    |   |                                         |       |
| Operating                  Revenue                                                                                      |   |                                         |       |   |   |
| Sales                  of goods                                                                                         |   | $                                            | 1,262,190  |   | $ | 1,309,033 |   |
| Franchising                  income                                                                                     |   |                                         | 536,686    |   |   | 688,141 |   |
| Other                  operating revenue                                                                                |   |                                         | 84,277     |   |   | (70,988 | ) |
| Total                  net operating revenue                                                                            |   |                                         | 1,883,153  |   |   | 1,926,186 |   |
| Operating                  costs                                                                                        |   |                                         |       |   |   |   |   |
| Cost                  of goods sold                                                                                     |   |                                         | (613,973   | ) |   | (562,738 | ) |
| Cost                  of franchising                                                                                    |   |                                         | (10,643    | ) |   | (91,242 | ) |
| Other                  operating costs                                                                                  |   |                                         | (147,784   | ) |   | (39,326 | ) |
| Total                  operating costs                                                                                  |   |                                         | (772,400   | ) |   | (693,306 | ) |
| Gross                  profit                                                                                           |   |                                         | 1,110,753  |   |   | 1,232,880 |   |
| Advertising                  costs                                                                                      |   |                                         | (88        | ) |   | (14,747 | ) |
| Other                  operating expenses                                                                               |   |                                         | (1,099,786 | ) |   | (1,429,510 | ) |
| Income                  (loss) from operations                                                                          |   |                                         | 10,879     |   |   | (211,377 | ) |
| Interest                  expenses, net                                                                                 |   |                                         | (20,948    | ) |   | (86,752 | ) |
| Share                  of income (loss) of investments                                                                  |   |                                         | 4,521      |   |   | (491 | ) |
| Other                  non-operating income, net                                                                        |   |                                         | 238,628    |   |   | 38,910 |   |
| Income                  (loss) before income taxes                                                                      |   |                                         | 233,080    |   |   | (259,710 | ) |
| Benefit                  (provision) for taxes                                                                          |   |                                         | (20,069    | ) |   | (18,428 | ) |
| Income                  (loss) after income taxes                                                                       |   |                                         | 213,011    |   |   | (278,138 | ) |
| Minority                  interest income (loss)                                                                        |   |                                         | (5,384     | ) |   | 5,359 |   |
| Net                  income (loss)                                                                                      |   | $                                            | 207,627    |   | $ | (272,779 | ) |
| Earnings                  (loss) per share - basic and diluted                                                          |   | $                                            | 0.008      |   | $ | (0.014 | ) |
| Weighted-average                  shares used to compute earnings (loss) per share - basic and                  diluted |   |                                         | 25,000,000 |   |   | 18,999,703 |   |

----

**Kid      Castle Educational Corporation**

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

|                                                                                                             |   | Six                  months ended June 30, |       |
|------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|------------|
|                                                                                                             |   | 2007                                       |       | 2006 |   |
|                                                                                                             |   |                                       |       |
| Operating                  Revenue                                                                               |   |                                       |       |   |   |
| Sales                  of goods                                                                                  |   | $                                          | 3,696,348  |   | $ | 3,529,529 |   |
| Franchising                  income                                                                              |   |                                       | 1,090,178  |   |   | 1,194,688 |   |
| Other                  operating revenue                                                                         |   |                                       | 337,587    |   |   | 174,496 |   |
| Total                  net operating revenue                                                                     |   |                                       | 5,124,113  |   |   | 4,898,713 |   |
| Operating                  costs                                                                                 |   |                                       |       |   |   |   |   |
| Cost                  of goods sold                                                                              |   |                                       | (1,530,628 | ) |   | (1,370,225 | ) |
| Cost                  of franchising                                                                             |   |                                       | (111,785   | ) |   | (171,367 | ) |
| Other                  operating costs                                                                           |   |                                       | (196,366   | ) |   | (81,577 | ) |
| Total                  operating costs                                                                           |   |                                       | (1,838,779 | ) |   | (1,623,169 | ) |
| Gross                  profit                                                                                    |   |                                       | 3,285,334  |   |   | 3,275,544 |   |
| Advertising                  costs                                                                               |   |                                       | (18,173    | ) |   | (17,288 | ) |
| Other                  operating expenses                                                                        |   |                                       | (2,382,518 | ) |   | (2,844,640 | ) |
| Income                  from operations                                                                          |   |                                       | 884,643    |   |   | 413,616 |   |
| Interest                  expenses, net                                                                          |   |                                       | (42,617    | ) |   | (120,125 | ) |
| Share                  of income (loss) of investments                                                           |   |                                       | 15,989     |   |   | (9,085 | ) |
| Other                  non-operating income (loss), net                                                          |   |                                       | 371,229    |   |   | 1,175 |   |
| Income                  before income taxes                                                                      |   |                                       | 1,229,244  |   |   | 285,581 |   |
| Benefit                  (provision) for taxes                                                                   |   |                                       | (193,011   | ) |   | (                  186,909 | ) |
| Income                  after income taxes                                                                       |   |                                       | 1,036,233  |   |   | 98,672 |   |
| Minority                  interest income                                                                        |   |                                       | (48,904    | ) |   | (13,592 | ) |
| Net                  income                                                                                      |   | $                                          | 987,329    |   | $ | 85,080 |   |
| Earnings                  per share - basic and diluted                                                          |   | $                                          | 0.039      |   | $ | 0.004 |   |
| Weighted-average                  shares used to compute earnings per share - basic and                  diluted |   |                                       | 25,000,000 |   |   | 18,999,703 |   |

----

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

**Condensed        Consolidated Statements of Stockholders’ Equity **

|                                                                           |   |  Common                  Stock |                    |   |        |                                       |        |              |              |               |   |              |                                                  |        |              |                                                          |        |
|--------------------------------------------------------------------------------|--------|-------------------------------------|--------------------|--------|--------|--------------------------------------------|--------|--------------|--------------|--------------------|--------|--------------|-------------------------------------------------------|--------|--------------|----------------------------------------------------------|--------|
|                                                                           |   | Number                  of shares   |               | Amount |   | Additional                  paid-incapital |   | Legalreserve |         | Accumulateddeficit |   |         | Accumulated                  other comprehensive loss |   |         | Net                  loss not recognized as pension cost |   | Total |   |
|                                                                           |   |                                |               |   |   |                                       |   |         |         |               |   |         |                                                  |   |         |                                                     |   |   |   |
| Balance,                  December 31, 2005                                    |   |                                | 18,999,703         |   | $      | 7,669,308                                  |   | $            | 194,021      |               | $      | 65,320       |                                                  | $      | (9,010,356   | )                                                        |   | $ | (244,864 | ) |   |   | - |   | $ | (1,326,571 | ) |
| Net                  loss for 2006                                             |   |                                | -                  |   |   | **-**                                      |   |         | -            |               |   | -            |                                                  |   | (46,211      | )                                                        |   |   | - |   |   |   | - |   |   | (46,211 | ) |
| Cumulative                  translation adjustment                             |   |                                | **-**              |   |   | -                                          |   |         | -            |               |   | -            |                                                  |   | -            |                                                     |   |   | (85,849 | ) |   |   | - |   |   | (85,849 | ) |
| Comprehensive                  loss                                            |   |                                |               |   |   |                                       |   |         |         |               |   |         |                                                  |   |         |                                                     |   |   |   |   |   |   |   |   |   | (132,060 | ) |
| Repayment                  of a liability by issuance of common stock          |   |                                | 6,000,297          |   |   | 922,830                                    |   |         | -            |               |   | -            |                                                  |   | -            |                                                     |   |   | - |   |   |   | - |   |   | 922,830 |   |
| Net                  loss not recognized as pension cost                       |   |                                | -                  |   |   | -                                          |   |         | -            |               |   | -            |                                                  |   | -            |                                                     |   |   | - |   |   | $ | (98,952 | ) |   | (98,952 | ) |
| Balance,                  December 31, 2006                                    |   |                                | 25,000,000         |   | $      | 8,592,138                                  |   | $            | 194,021      |               | $      | 65,320       |                                                  | $      | (9,056,567   | )                                                        |   | $ | (330,713 | ) |   | $ | (98,952 | ) | $ | (634,753 | ) |
| Net                  income for the six months ended June 30, 2007 (Unaudited) |   |                                | -                  |   |   | -                                          |   |         | -            |               |   | -            |                                                  |   | 987,329      |                                                     |   |   | - |   |   |   | - |   |   | 987,329 |   |
| Cumulative                  translation adjustment (Unaudited)                 |   |                                | -                  |   |   | -                                          |   |         | -            |               |   | -            |                                                  |   | -            |                                                     |   |   | (104,380 | ) |   |   | - |   |   | (104,380 | ) |
| Comprehensive                  income (Unaudited)                              |   |                                |               |   |   |                                       |   |         |         |               |   |         |                                                  |   |         |                                                     |   |   |   |   |   |   |   |   |   | 882,949 |   |
| Net                  income not recognized as pension cost                     |   |                                | -                  |   |   | -                                          |   |         | -            |               |   | -            |                                                  |   | -            |                                                     |   |   | - |   |   | $ | 1,247 |   |   | 1,247 |   |
|                                                                           |   |                                |     |   |   |                                  |   |         |    |               |   |    |                                                  |   |    |                                                     |   |   |    |   |   |   |    |   |   |    |   |
| Balance,                  June 30, 2007 (Unaudited)                            |   |                                | 25,000,000         |   | $      | 8,592,138                                  |   | $            | 194,021      |               | $      | 65,320       |                                                  | $      | (8,069,238   | )                                                        |   | $ | (435,093 | ) |   | $ | (97,705 | ) | $ | 249,443 |   |

----

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

**Condensed        Consolidated Statements of Cash Flows **

**(Unaudited)**

|                                                                                                                                          |   | Six                  months ended June 30, |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|------------|
|                                                                                                                                          |   | 2007                                       |       | 2006 |   |
|                                                                                                                                          |   |                                       |       |
|                                                                                                                                          |   |                                       |       |   |   |
| Cash                  flows from operating activities                                                                                         |   |                                       |       |   |   |
| Net                  income                                                                                                                   |   | $                                          | 987,329    |   | $ | 85,080 |   |
| Adjustments                  to reconcile net income to net                  cash provided by operating activities                            |   |                                       |       |   |   |   |   |
| Depreciation                  of property and equipment                                                                                       |   |                                       | 103,364    |   |   | 93,908 |   |
| Amortization                  of intangible assets                                                                                            |   |                                       | 81,818     |   |   | 83,873 |   |
| Allowance                  for sales returns                                                                                                  |   |                                       | 2,229      |   |   | 2,356 |   |
| Allowance                  for doubtful debts                                                                                                 |   |                                       | 12,065     |   |   | 609,912 |   |
| Provision                  (reversal) of allowance for loss on inventory obsolescence and                  slow-moving                  items |   |                                       | (199,792   | ) |   | 90,588 |   |
| Loss                  on disposal of assets                                                                                                   |   |                                       | 2,579      |   |   | ó |   |
| Minority                  interests                                                                                                           |   |                                       | 48,904     |   |   | 13,592 |   |
| Share                  of loss (gain) of investments                                                                                          |   |                                       | (15,989    | ) |   | 9,085 |   |
| (Increase)/decrease                  in:                                                                                                      |   |                                       |       |   |   |   |   |
| Notes                  and accounts receivable                                                                                                |   |                                       | (321,355   | ) |   | (1,369,563 | ) |
| Inventories                                                                                                                                   |   |                                       | 96,853     |   |   | 456,634 |   |
| Other                  receivables                                                                                                            |   |                                       | 146,021    |   |   | 104,051 |   |
| Prepayments                  and other current assets                                                                                         |   |                                       | (41,895    | ) |   | 98,622 |   |
| Deferred                  income tax assets                                                                                                   |   |                                       | 20,982     |   |   | (50,939 | ) |
| Other                  assets                                                                                                                 |   |                                       | (54,065    | ) |   | 225,219 |   |
| Increase/(decrease)                  in:                                                                                                      |   |                                       |       |   |   |   |   |
| Notes                  and accounts payable                                                                                                   |   |                                       | 145,541    |   |   | (35,104 | ) |
| Accrued                  expenses                                                                                                             |   |                                       | (204,368   | ) |   | 176,759 |   |
| Other                  payables                                                                                                               |   |                                       | 32,420     |   |   | (445,379 | ) |
| Receipts                  in advance                                                                                                          |   |                                       | 347,284    |   |   | 904,189 |   |
| Income                  taxes payable                                                                                                         |   |                                       | 30,376     |   |   | 103,224 |   |
| Deferred                  Liability                                                                                                           |   |                                       | 1,186      |   |   | (137 | ) |
| Deposits                  received                                                                                                            |   |                                       | 66,348     |   |   | 516,262 |   |
| Accrued                  pension liabilities                                                                                                  |   |                                       | 6,987      |   |   | (5,971 | ) |
|                                                                                                                                          |   |                                       |       |   |   |   |   |
| Net                  cash provided by operating activities                                                                                    |   |                                       | 1,294,822  |   |   | 1,666,261 |   |
|                                                                                                                                          |   |                                       |       |   |   |   |   |
| Cash                  flows from investing activities                                                                                         |   |                                       |       |   |   |   |   |
| Purchase                  of property and equipment                                                                                           |   |                                       | (65,597    | ) |   | (26,115 | ) |
| Change                  in investments in associated company                                                                                  |   |                                       | (25,759    | ) |   | — |   |
| Acquisition,                  net of cash acquired                                                                                            |   |                                       | 46,607     |   |   | — |   |
| Proceeds                  from disposal of property and equipment                                                                             |   |                                       | 118        |   |   | — |   |
| Amount                  due from stockholder/director                                                                                         |   |                                       | —    |   |   | — |   |
| Prepayment                  of long-term investments                                                                                          |   |                                       | (306,040   | ) |   | — |   |
| Acquisition                  of long-term investments                                                                                         |   |                                       | (544,135   | ) |   | — |   |
| Bank                  fixed deposits - pledged                                                                                                |   |                                       | (353,890   | ) |   | (7,302 | ) |
| Pledged                  notes receivable                                                                                                     |   |                                       | (301,050   | ) |   | 386,928 |   |
|                                                                                                                                          |   |                                       |       |   |   |   |   |
| Net                  cash provided by (used in ) investing activities                                                                         |   |                                       | (1,549,746 | ) |   | 353,511 |   |

----

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

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

|                                                                                                      |   | Six                  months ended June 30, |      |
|-----------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|-----------|
|                                                                                                      |   | 2007                                       |      | 2006 |   |
|                                                                                                      |   |                                       |      |
| Cash                  flows from financing activities                                                     |   |                                       |      |   |   |
| Proceeds                  from bank borrowings                                                            |   | $                                          | 684,836   |   | $ | 215,463 |   |
| Proceeds                  from loan from a stockholder                                                    |   |                                       | 4,846     |   |   | — |   |
| Proceeds                  from capital leases                                                             |   |                                       | —   |   |   | — |   |
| Repayment                  of bank borrowings                                                             |   |                                       | (270,231  | ) |   | (1,026,017 | ) |
| Repayment                  of capital leases                                                              |   |                                       | —   |   |   | — |   |
| Repayment                  of loan from stockholders and transactions of related                  parties |   |                                       | (297,262  | ) |   | (509,847 | ) |
|                                                                                                      |   |                                       |      |   |   |   |   |
| Net                  cash provided by (used in) financing activities                                      |   |                                       | 122,189   |   |   | (1,320,401 | ) |
|                                                                                                      |   |                                       |      |   |   |   |   |
| Net                  increase (decrease) in cash and cash equivalents                                     |   |                                       | (132,735  | ) |   | 699,371 |   |
|                                                                                                      |   |                                       |      |   |   |   |   |
| Effect                  of exchange rate changes on cash and cash equivalents                             |   |                                       | (114,821  | ) |   | (27,324 | ) |
|                                                                                                      |   |                                       |      |   |   |   |   |
| Cash                  and cash equivalents at beginning of period                                         |   |                                       | 1,419,873 |   |   | 613,391 |   |
|                                                                                                      |   |                                       |      |   |   |   |   |
| Cash                  and cash equivalents at end of period                                               |   | $                                          | 1,172,317 |   | $ | 1,285,438 |   |

----

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

**Notes      to Condensed Consolidated Financial Statements**

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

----

**NOTE      2 - BASIS OF PRESENTATION**

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

----

|                                      | Estimated                  useful life(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**

|                                                               |   | **June                  30,****2007** |       | **December                  31,****2006** |   |
|--------------------------------------------------------------------|--------|---------------------------------------|------------|-------------------------------------------|--------|
|                                                               |   | (Unaudited)                           |       |                                      |   |
|                                                               |   |                                  |       |                                      |   |
| Notes                  and accounts receivable                     |   |                                  |       |                                      |   |
| -                  Third parties                                   |   | $                                     | 3,251,143  |                                      | $      | 2,995,538 |   |
| -                  Related parties (NOTE 11)                       |   |                                  | 106,274    |                                      |   | 113,928 |   |
|                                                               |   |                                  |       |                                      |   |   |   |
| Total                                                              |   |                                  | 3,357,417  |                                      |   | 3,109,466 |   |
| Allowance                  for doubtful accounts and sales returns |   |                                  | (1,114,482 | )                                         |   | (1,108,321 | ) |
|                                                               |   |                                  |       |                                      |   |   |   |
| Notes                  and accounts receivable, net                |   | $                                     | 2,242,935  |                                      | $      | 2,001,145 |   |

----

**NOTE      6 - INVENTORIES**

|                                                                                                   |   | **June                  30,****2007** |      | **December                  31,****2006** |   |
|--------------------------------------------------------------------------------------------------------|--------|---------------------------------------|-----------|-------------------------------------------|--------|
|                                                                                                   |   | (Unaudited)                           |      |                                      |   |
|                                                                                                   |   |                                  |      |                                      |   |
| Work                  in process                                                                       |   | $                                     | 192,263   |                                      | $      | 145,110 |   |
| Finished                  goods and other merchandises                                                 |   |                                  | 2,103,890 |                                      |   | 2,268,608 |   |
|                                                                                                   |   |                                  |      |                                      |   |   |   |
|                                                                                                   |   |                                  | 2,296,153 |                                      |   | 2,413,718 |   |
| Less:                  Allowance for obsolete inventories and decline                  of market value |   |                                  | (569,473  | )                                         |   | (777,698 | ) |
|                                                                                                   |   |                                  |      |                                      |   |   |   |
|                                                                                                   |   | $                                     | 1,726,680 |                                      | $      | 1,636,020 |   |

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

|                                                                                                                                                                       |   | **June                  30,****2007** |     | **December                  31,****2006** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|----------|-------------------------------------------|--------|
|                                                                                                                                                                       |   | (Unaudited)                           |     |                                      |   |
| Other                  receivables - third parties:                                                                                                                        |   |                                  |     |                                      |   |
| Tax                  paid on behalf of landlord                                                                                                                            |   | $                                     | -        |                                      | $      | - |   |
| Advances                  to staff                                                                                                                                         |   |                                  | 94,734   |                                      |   | 55,438 |   |
| Grants                  from Market Information Center                                                                                                                     |   |                                  | -        |                                      |   | - |   |
|                  Receivables                  from Shanghai Wonderland EducationalResources                  Co., Ltd. (“Shanghai Wonderland”) (Note (i)) |   |                                  | 386,440  |                                      |   | 381,092 |   |
| Other                  receivables                                                                                                                                         |   |                                  | 232,228  |                                      |   | 42,480 |   |
| Less                  : Allowance for doubtful accounts                                                                                                                    |   |                                  | (386,440 | )                                         |   | (381,092 | ) |
|                                                                                                                                                                       |   |                                  |     |                                      |   |   |   |
| Sub-total                                                                                                                                                                  |   |                                  | 326,962  |                                      |   | 97,918 |   |
| Other                  receivables - related parties (NOTE 11)                                                                                                             |   |                                  | 81,530   |                                      |   | 29,144 |   |
|                                                                                                                                                                       |   | $                                     | 408,492  |                                      | $      | 127,062 |   |

| (i) | Shanghai                Wonderland was a distributor for the Group. The Group loaned Shanghai                Wonderland RMB$450,000 (approximately $54,000), RMB$500,000 and                RMB$2,500,000 (approximately $310,000) for operations in December                2003,                July 2004 and August 2005, respectively. The identified loans were                unsecured and bore no interest. Shanghai Wonderland has fully repaid                the                loan of RMB$450,000 in December 2004 and January 2005. As of June                30,                2007, Shanghai Wonderland still owes the Group a balance of                RMB$3,000,000(approximately $386,440). 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**

|                              |   | **June                30,****2007** |    | **December 31,****2006** |   |
|-----------------------------------|--------|-------------------------------------|---------|-------------------------------|--------|
|                              |   | (Unaudited)                         |    |                          |   |
|                              |   |                                |    |                          |   |
| Prepayments                       |   | $                                   | 177,767 |                          | $      | 139,582 |   |
| Temporary                payments |   |                                | 1,099   |                          |   | 1,084 |   |
| Tax                recoverable    |   |                                | — |                          |   | — |   |
| Prepaid                interest   |   |                                | 3,239   |                          |   | 54 |   |
| Others                            |   |                                | 599     |                          |   | 900 |   |
|                              |   |                                |    |                          |   |   |   |
|                              |   | $                                   | 182,704 |                          | $      | 141,620 |   |

**NOTE      9- INTEREST IN ASSOCIATES**

|                                                                                                                                            |   | **June                  30,****2007** |     | **December                  31,****2006** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|----------|-------------------------------------------|--------|
|                                                                                                                                            |   | (Unaudited)                           |     |                                      |   |
|                                                                                                                                            |   |                                  |     |                                      |   |
| 21st                  Century Kid Castle Language and Education Center (“Education                  Center”) (Note (i))        |   |                                  |     |                                      |   |
| Investment                  cost                                                                                                                |   | $                                     | 98,249   |                                      | $      | 96,111 |   |
| Share                  of loss                                                                                                                  |   |                                  | (33,770  | )                                         |   | (52,091 | ) |
|                                                                                                                                            |   |                                  |     |                                      |   |   |   |
|                                                                                                                                            |   | $                                     | 64,479   |                                      | $      | 44,020 |   |
|                                                                                                                                            |   |                                  |     |                                      |   |   |   |
| Tianjin                  Kid Castle Educational Investment Consulting Co., Ltd. (“Tianjin                  Consulting”) (Note (ii)) |   |                                  |     |                                      |   |   |   |
| Investment                  cost                                                                                                                |   | $                                     | 91,699   |                                      | $      | 89,704 |   |
| Share                  of loss                                                                                                                  |   |                                  | (105,730 | )                                         |   | (104,693 | ) |
|                                                                                                                                            |   |                                  |     |                                      |   |   |   |
|                                                                                                                                            |   | $                                     | (14,031  | )                                         | $      | (14,989 | ) |
|                                                                                                                                            |   |                                  |     |                                      |   |   |   |
| Lanbeisi                  Education &Culture Industrial Co., Ltd (“Lanbeisi”) (Note                  (iii))                     |   |                                  |     |                                      |   |   |   |
| Investment                  cost                                                                                                                |   | $                                     | 47,160   |                                      | $      | 46,133 |   |
| Share                  of loss                                                                                                                  |   |                                  | (47,405  | )                                         |   | (41,869 | ) |
|                                                                                                                                            |   |                                  |     |                                      |   |   |   |
|                                                                                                                                            |   | $                                     | (245     | )                                         | $      | 4,264 |   |
|                                                                                                                                            |   |                                  |     |                                      |   |   |   |
| Total                                                                                                                                           |   | $                                     | 50,203   |                                      | $      | 33,295 |   |

| (i) | In                October 2003, the Group obtained the PRC 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 - ACQUISITION**

----

**NOTE      **
**11-      RELATED PARTY TRANSACTIONS**

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

----

|                                                    | **Six                months ended June 30,** |    |
|---------------------------------------------------------|----------------------------------------------|---------|
|                                                    | **2007**                                     |    | **2006** |   |
|                                                    | (Unaudited)                                  |    |
| (i)                  Sales                to: |                                         |    |   |   |
| -                TCP Chevady                            | $                                            | -       |   | $ | 1,729 |   |
| -                TCP Chung-hua                          |                                         | -       |   |   | 1,729 |   |
| -                Kuan Lung Language                     |                                         | 9,060   |   |   | 7,924 |   |
| -                TCP Chu Yao                            |                                         | 23,510  |   |   | 18,212 |   |
| -                TCP                Chu Sheng           |                                         | 5,844   |   |   | 7,636 |   |
| -                TCP Yin Cyun                           |                                         | 74,077  |   |   | 41,636 |   |
| -                Yin Cyun Language                      |                                         | 15,726  |   |   | ó |   |
| -                TCP Yin Tzu                            |                                         | 37,551  |   |   | 21,835 |   |
| -                Liang Yu Language                      |                                         | 19,504  |   |   | 27,197 |   |
| -                English School                         |                                         | 22,391  |   |   | 10,532 |   |
| -                Tianjin Consulting                     |                                         | 8,764   |   |   | 16,802 |   |
| -                Lanbeisi                               |                                         | 23,953  |   |   | 9,907 |   |
|                                                    |                                         |    |   |   |   |   |
|                                                    | $                                            | 240,380 |   | $ | 165,149 |   |

|                                                                    |   |   |   |   |   |
|-------------------------------------------------------------------------|--------|--------|--------|--------|--------|
| (ii)                  Franchising                income from: |   |   |   |   |   |
| -                Kuan Lung Language                                     |   | $      | 3,408  |   | $      | - |   |
| -                TCP Chu Sheng                                          |   |   | 9,635  |   |   | 5,810 |   |
| -                TCP Chu Yao                                            |   |   | 9,635  |   |   | ó |   |
| -                TCP Yin Cyun                                           |   |   | 9,635  |   |   | 2,556 |   |
| -                Liang Yu Language                                      |   |   | 1,212  |   |   | 1,242 |   |
| -                TCP Yin Tzu                                            |   |   | 16,322 |   |   | 5,577 |   |
|                                                                    |   |   |   |   |   |   |   |
|                                                                    |   | $      | 49,847 |   | $      | 15,185 |   |

|                                               |   | **June                30,** |    | **December                31,** |   |
|----------------------------------------------------|--------|-----------------------------|---------|---------------------------------|--------|
| Name                of related parties             |   | **200****7**                |    | **200****6**                    |   |
|                                               |   | (Unaudited)                 |    |                            |   |
|                                               |   |                        |    |                            |   |
| -                TCP Yin Cyun                      |   | $                           | 39,563  |                            | $      | 19,888 |   |
| -                Yin Cyun Language                 |   |                        | 1,286   |                            |   | 5,967 |   |
| -                Kuan Lung Language                |   |                        | 4,250   |                            |   | 6,684 |   |
| -                TCP Chu Yao                       |   |                        | 17,121  |                            |   | 18,565 |   |
| -                TCP Chu Sheng                     |   |                        | 11,101  |                            |   | 17,937 |   |
| -                TCP Yin Tzu                       |   |                        | 12,520  |                            |   | 1,132 |   |
| -                Liang Yu Language                 |   |                        | 7,186   |                            |   | 4,530 |   |
| -                Education Center                  |   |                        | -       |                            |   | - |   |
| -                Tianjin                Consulting |   |                        | 101     |                            |   | 16,631 |   |
| -                Lanbeisi                          |   |                        | 13,146  |                            |   | 22,594 |   |
|                                               |   |                        |    |                            |   |   |   |
|                                               |   | $                           | 106,274 |                            | $      | 113,928 |   |

----

|                                                       |   | **June                30,** |   | **December                31,** |   |
|------------------------------------------------------------|--------|-----------------------------|--------|---------------------------------|--------|
| Name                of related parties                     |   | **200****7**                |   | **200****6**                    |   |
|                                                       |   | (Unaudited)                 |   |                            |   |
|                                                       |   |                        |   |                            |   |
| Amount                due from Education Center (Note A)   |   | $                           | 19,941 |                            | $      | 19,507 |   |
| Amount                due from Tianjin Consulting (Note B) |   |                        | 665    |                            |   | 16 |   |
| Amount                due from Lanbeisi (Note C)           |   |                        | 60,924 |                            |   | 9,621 |   |
|                                                       |   |                        |   |                            |   |   |   |
|                                                       |   | $                           | 81,530 |                            | $      | 29,144 |   |

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

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

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

|  **Name                of Related Parties** |   | **June                30,****2007** |    | **December 31,****2006** |   |
|--------------------------------------------------|--------|-------------------------------------|---------|-------------------------------|--------|
|                                             |   |                                |    |                          |   |
| TCP                Yin Cyun                      |   | $                                   | — |                          | $      | 61,357 |   |
|                                             |   |                                |    |                          |   |   |   |
| Mr. Kuo-An                Wang              |   | $                                   | — |                          | $      | 67,493 |   |
|                                             |   |                                |    |                          |   |   |   |
|                                             |   | $                                   | — |                          | $      | 128,850 |   |

|  **Name                of Related Parties** |   | **June                30,****2007** |    | **December 31,****2006** |   |
|--------------------------------------------------|--------|-------------------------------------|---------|-------------------------------|--------|
|                                             |   |                                |    |                          |   |
| Lanbeisi                                         |   | $                                   | — |                          | $      | 7,689 |   |
|                                             |   |                                |    |                          |   |   |   |
|                                             |   | $                                   | — |                          | $      | 7,689 |   |

----

|  **Name                of Related Parties** |   | **June                30,****2006** |   | **December 31,****2005** |   |
|--------------------------------------------------|--------|-------------------------------------|--------|-------------------------------|--------|
|                                             |   |                                |   |                          |   |
| Educational                Center                |   | $                                   | 178    |                          | $      | 436 |   |
|                                             |   |                                |   |                          |   |   |   |
| Tianjin                                          |   | $                                   | 151    |                          | $      | 130 |   |
|                                             |   |                                |   |                          |   |   |   |
| Lanbeisi                                         |   | $                                   | ó |                          | $      | 130 |   |
|                                             |   |                                |   |                          |   |   |   |
|                                             |   | $                                   | 329    |                          | $      | 566 |   |

|  **Name                of Related Parties** |   | **June                30,****2007** |    | **December 31,****2006** |   |
|--------------------------------------------------|--------|-------------------------------------|---------|-------------------------------|--------|
|                                             |   |                                |    |                          |   |
| Mr. Min-Tan                Yang (Note A)    |   | $                                   | 249,099 |                          | $      | 245,627 |   |
|                                             |   |                                |    |                          |   |   |   |
| Mr. Suang-Yi                Pai (Note A)    |   | $                                   | 111,400 |                          | $      | 110,026 |   |
|                                             |   |                                |    |                          |   |   |   |
|                                             |   | $                                   | 360,499 |                          | $      | 355,653 |   |

----

**NOTE      **
**12      - INTANGIBLE ASSETS**

|                                            |   | **June                  30,****2007** |       | **December                  31,****2006** |   |
|-------------------------------------------------|--------|---------------------------------------|------------|-------------------------------------------|--------|
|                                            |   | (Unaudited)                           |       |                                      |   |
|                                            |   |                                  |       |                                      |   |
| Gross                  carrying amount          |   |                                  |       |                                      |   |
| Franchise                                       |   | $                                     | 1,033,126  |                                      | $      | 1,043,775 |   |
| Copyrights                                      |   |                                  | 607,312    |                                      |   | 613,572 |   |
|                                            |   |                                  |       |                                      |   |   |   |
|                                            |   |                                  | 1,640,438  |                                      |   | 1,657,347 |   |
| Less:                  Accumulated amortization |   |                                  |       |                                      |   |   |   |
| Franchise                                       |   |                                  | (749,016   | )                                         |   | (704,548 | ) |
| Copyrights                                      |   |                                  | (440,301   | )                                         |   | (414,161 | ) |
|                                            |   |                                  |       |                                      |   |   |   |
|                                            |   |                                  | (1,189,317 | )                                         |   | (1,118,709 | ) |
|                                            |   |                                  |       |                                      |   |   |   |
| **Net**                                         |   | $                                     | 451,121    |                                      | $      | 538,638 |   |

| 2008   |   | $      | 164,043 |   |
|--------|--------|--------|---------|--------|
| 2009   |   |   | 164,043 |   |
| 2010   |   |   | 41,013  |   |
|   |   |   |    |   |
|   |   | $      | 369,099 |   |

**NOTE      13 - BANK BORROWINGS**

|                                                                                                      |   | Notes  |   | **June                  30,****2007** |   | **December                  31,****2006** |   |
|-----------------------------------------------------------------------------------------------------------|--------|--------|--------|---------------------------------------|--------|-------------------------------------------|--------|
|                                                                                                      |   |   |   | (Unaudited)                           |   |                                      |   |
|                                                                                                      |   |   |   |                                  |   |                                      |   |
| Bank                  term loans                                                                          |   |   | (i)    |                                  | $      | 422,968                                   |   | $ | 108,922 |   |
| Short-term                  unsecured bank loans                                                          |   |   | (ii)   |                                  |   | 667,677                                   |   |   | 446,086 |   |
| Mid-term                  secured bank loan                                                               |   |   | (iii)  |                                  |   | 1,094,116                                 |   |   | 1,232,352 |   |
|                                                                                                      |   |   |   |                                  |   |                                      |   |   |   |   |
|                                                                                                      |   |   |   |                                  |   | 2,184,761                                 |   |   | 1,787,360 |   |
| Less:                  Balances maturing within one year included in current                  liabilities |   |   |   |                                  |   |                                      |   |   |   |   |
| Bank                  term loans                                                                          |   |   |   |                                  |   | 58,581                                    |   |   | 103,523 |   |
| Short-term                  unsecured bank loans                                                          |   |   |   |                                  |   | 667,677                                   |   |   | 446,086 |   |
| Mid-term                  secured bank loan                                                               |   |   |   |                                  |   | 204,804                                   |   |   | 258,428 |   |
|                                                                                                      |   |   |   |                                  |   |                                      |   |   |   |   |
|                                                                                                      |   |   |   |                                  |   | 931,062                                   |   |   | 808,037 |   |
|                                                                                                      |   |   |   |                                  |   |                                      |   |   |   |   |
| Bank                  borrowings maturing after one year                                                  |   |   |   |                                  | $      | 1,253,699                                 |   | $ | 979,323 |   |

----

| (i) | This                line item represents bank loans that have been secured by a pledge                of                post-dated checks amounting to $606,567 and $261,142 that we have                received                from franchisees and the Group’s bank deposits of $12,368 and $1,963 as of                June 30, 2007 and December 31, 2006, respectively, for the purpose                of                financing operations. The repayment dates of the loans coincided                with the                maturity dates of the corresponding pledged post-dated checks, and                was                extended on October 18, 2006. The weighted average interest rates                were                5.37% and 6.055% per annum as of June 30, 2007 and 2006,                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 collateralized                by                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, which was extended in February                2007 and                is due on February 2008. A portion of the principal of the loan amounting                to $146,186 is repayable in 12 equal monthly installments and the                remaining principal amount of $158,367 will be repayable at maturity.                The                applicable interest rate is approximately 5.51% and 5% per annum                as of                June 30, 2007 and 2006,                respectively. |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (iii) | In                August 2005, KCIT obtained a bank loan in the principal amount of                $944,115                to repay its mortgage loan that was originally granted by a bank                on August                10, 2003 and to finance its operations. The loan is secured by the                Group’s                land and buildings and personal guarantees provide by two directors                of the                Group. The loan bears interest at the lending bank’s basic fixed deposit                rate plus 0.69% per annum for the two-year period from 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 June 30,                2006, the applicable interest rate is approximately 2.7% and the                Group has                repaid $95,226. |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOTE      14 - RECEIPTS IN ADVANCE**

|                                               |   | Notes  |   | **June                  30,****2007** |   | **December                  31,****2006** |   |
|----------------------------------------------------|--------|--------|--------|---------------------------------------|--------|-------------------------------------------|--------|
|                                               |   |   |   | (Unaudited)                           |   |                                      |   |
|                                               |   |   |   |                                  |   |                                      |   |
| Current                  liabilities:              |   |   |   |                                  |   |                                      |   |
| Sales                  deposits received           |   |   | (i)    |                                  | $      | 641,132                                   |   | $ | 481,334 |   |
| Franchising                  income received       |   |   | (ii)   |                                  |   | 579,600                                   |   |   | 1,608,066 |   |
| Subscription                  fees received        |   |   | (iii)  |                                  |   | 619,283                                   |   |   | 285,531 |   |
| Related                  parties (Note 11 B(viii)) |   |   |   |                                  |   | 329                                       |   |   | 566 |   |
| Others                                             |   |   |   |                                  |   | 26,273                                    |   |   | 27,127 |   |
|                                               |   |   |   |                                  |   | 1,866,617                                 |   |   | 2,402,624 |   |
|                                               |   |   |   |                                  |   |                                      |   |   |   |   |
| Long-term                  liabilities:            |   |   |   |                                  |   |                                      |   |   |   |   |
| Franchising                  income received       |   |   | (ii)   |                                  |   | 2,121,703                                 |   |   | 1,275,638 |   |
|                                               |   |   |   |                                  |   |                                      |   |   |   |   |
|                                               |   |   |   |                                  | $      | 3,988,320                                 |   | $ | 3,678,262 |   |

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

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

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

**NOTE      15 - RETIREMENT PLANS**

----

|                                             |   |                                         |   |      |   |
|--------------------------------------------------|--------|----------------------------------------------|--------|----------------|--------|
|                                             |   | **Six                months ended June 30,** |   |
|                                             |   | **2007**                                     |   |  **2006** |   |
|                                             |   |  (Unaudited)                  |   |
| Service                cost                      |   | $                                            | -      |           | $      | - |   |
| Interest                cost                     |   |                                         | 6,108  |           |   | 6,181 |   |
| Expected                return on assets         |   |                                         | (1,212 | )              |   | (2,455 | ) |
| Amortization                of unrecognized loss |   |                                         | 1,478  |           |   | 1,496 |   |
|                                             |   |                                         |   |           |   |   |   |
|                                             |   |                                         |   |           |   |   |   |
| Net                periodic pension cost         |   | $                                            | 6,374  |           | $      | 5,222 |   |

**NOTE      **
**16      - GEOGRAPHIC SEGMENTS**

|                                           |   | Taiwan                                                         |                          | The                  PRC                                       |   | Total                                                          |   | Corporate                                                      |                          | Eliminations                                                   |   | Consolidated                                                   |   |
|------------------------------------------------|--------|----------------------------------------------------------------|-------------------------------|----------------------------------------------------------------|--------|----------------------------------------------------------------|--------|----------------------------------------------------------------|-------------------------------|----------------------------------------------------------------|--------|----------------------------------------------------------------|--------|
|                                           |   | Six                  months endedJune                  30,2007 |                          | Six                  months endedJune                  30,2006 |   | Six                  months endedJune                  30,2007 |   | Six                  months endedJune                  30,2006 |                          | Six                  months endedJune                  30,2007 |   | Six                  months endedJune                  30,2006 |   | Six                  months endedJune                  30,2007 |   | Six                  months endedJune                  30,2006 |   | Six                  months endedJune                  30,2007 |   | Six                  months endedJune                  30,2006 |   | Six                  months endedJune                  30,2007 |   | Six                  months endedJune                  30,2006 |   |
|                                           |   |                                                           |                          |                                                           |   |                                                           |   |                                                           |                          |                                                           |   |                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue                                        |   |                                                           |                          |                                                           |   |                                                           |   |                                                           |                          |                                                           |   |                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| External                  revenue              |   | $                                                              | 3,255,979                     |                                                           | $      | 3,436,956                                                      |   | $                                                              | 1,868,134                     |                                                           | $      | 1,462,323                                                      |   | $ | 5,124,113 |   | $ | 4,899,279 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 5,124,113 |   | $ | 4,899,279 |   |
| Inter-segment                  revenue         |   |                                                           | —                       |                                                           |   | (566                                                           | )      |                                                           | —                       |                                                           |   | —                                                        |   |   | — |   |   | (566 | ) |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | (566 | ) |
|                                           |   |                                                           |                          |                                                           |   |                                                           |   |                                                           |                          |                                                           |   |                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   | $                                                              | 3,255,979                     |                                                           | $      | 3,436,390                                                      |   | $                                                              | 1,868,134                     |                                                           | $      | 1,462,323                                                      |   | $ | 5,124,113 |   | $ | 4,898,713 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 5,124,113 |   | $ | 4,898,713 |   |
|                                           |   |                                                           |                          |                                                           |   |                                                           |   |                                                           |                          |                                                           |   |                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Profit                  (loss) from Operations |   | $                                                              | 562,771                       |                                                           | $      | 425,672                                                        |   | $                                                              | 413,827                       |                                                           | $      | 113,846                                                        |   | $ | 976,598 |   | $ | 539,518 |   | $ | (91,955 | ) | $ | (125,902 | ) | $ | — |   | $ | — |   | $ | 884,643 |   | $ | 413,616 |   |
|                                           |   |                                                           |                          |                                                           |   |                                                           |   |                                                           |                          |                                                           |   |                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital                  expenditures          |   | $                                                              | 6,084                         |                                                           | $      | 18,669                                                         |   | $                                                              | 39,639                        |                                                           | $      | 1,619                                                          |   | $ | 45,723 |   | $ | 25,959 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 45,723 |   | $ | 25,959 |   |
|                                           |   |                                                           |                          |                                                           |   |                                                           |   |                                                           |                          |                                                           |   |                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |                                                           | June                  30,2007 |                                                           |   | December                  31,2006                              |   |                                                           | June                  30,2007 |                                                           |   | December                  31,2006                              |   |   | June                  30,2007 |   |   | December                  31,2006 |   |   | June                  30,2007 |   |   | December                  31,2006 |   |   | June                  30,2007 |   |   | December                  31,2006 |   |   | June                  30,2007 |   |   | December                  31,2006 |   |
|                                           |   |                                                           |                          |                                                           |   |                                                           |   |                                                           |                          |                                                           |   |                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  assets                  |   | $                                                              | 7,781,063                     |                                                           | $      | 7,409,359                                                      |   | $                                                              | 3,286,861                     |                                                           | $      | 1,960,446                                                      |   | $ | 11,067,924 |   | $ | 9,369,805 |   | $ | 2,510 |   | $ | 359,772 |   | $ | (81,986 | ) | $ | (356,354 | ) | $ | 10,988,448 |   | $ | 9,373,223 |   |

----

**NOTE      17 - COMMITMENT AND CONTINGENCIES**

**A.      Lease Commitment**

|                                     |   |    |    |   |
|------------------------------------------|--------|---------|---------|--------|
| Years                ending December 31, |   |    |    |   |
| 2008                                     |   | $  | 194,089 |   |
| 2009                                     |   |    | 53,534  |   |
| 2010                                     |   |    | -       |   |
| 2011                                     |   |    | -       |   |
| 2012                                     |   |    | -       |   |
|                                     |   |    |    |   |
|                                     |   | $       | 247,623 |   |

**B.      Going concern**

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

**OVERVIEW**

**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**

**Three      Months Ended June 30, 2007 compared to Three Months Ended June 30,      2006**

**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. **

**Six      Months Ended June 30, 2007 compared to Six Months Ended June 30,      2006**

**Total      Net Operating Revenue. **

**Sales      of goods. **

**Franchising      income. **

**Other      operating revenue. **

**Gross      Profit. **

**Total      Operating Expenses. **

**Other      Operating Expenses. **

**Interest      Expenses, Net. **

----

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

**Provision      for Taxes. **

**LIQUIDITY      AND CAPITAL RESOURCES**

----

**Off-Balance      Sheet Arrangements**

**Bank      Borrowing**

**Pension      Benefit**

**NEW      ACCOUNTING PRONOUNCEMENTS**

----

**Non-GAAP      Financial Measures**

**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***

----

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

**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 |

----

**SIGNATURES** 

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

----