**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**

**011-886-2-2218      5996**

**NONE**

| Large                accelerated filer  ̈           |         | Accelerated                filer  ̈    |
|---------------------------------------------------------|--------------|--------------------------------------------|
|                                                    |         |                                       |
| Non-accelerated                filer    ̈ |    | Smaller                reporting company x |

** **
** **

----

**FORM      10-Q**

**KID      CASTLE EDUCATIONAL CORPORATION**

**TABLE      OF CONTENTS**

|                    |                                                                                                                                                                 |   | Page   |
|-------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| PART                I   | FINANCIAL                INFORMATION                                                                                                                                 |   |   |
|                    | Item                1.        Condensed Consolidated                Financial Statements                                          |   | 2      |
|                    | a)                Condensed Consolidated Balance Sheets as of June 30, 2008 (unaudited)                and                December 31, 2007                          |   | 2      |
|                    | b)                Condensed Consolidated Statements of Operations for the six months                ended                June 30, 2008 and June 30, 2007 (unaudited) |   | 4      |
|                    | c)                Condensed Consolidated Statements of Stockholders’ Equity                (unaudited)                                                         |   | 6      |
|                    | d)                Condensed Consolidated Statements of Cash Flows for the six months                ended                June 30, 2008 and June 30, 2007 (unaudited) |   | 7      |
|                    | e)                Notes to Condensed Consolidated Financial Statements                                                                                               |   | 9      |
|                    | Item                2. Management’s Discussion and Analysis of Financial Condition and Results                of Operations                                    |   | 19     |
|                    | Item                3. Quantitative and Qualitative Disclosures About Market                Risk                                                                     |   | 25     |
|                    | Item                4. Controls and Procedures                                                                                                                       |   | 26     |
| PART                II. | OTHER                INFORMATION                                                                                                                                     |   | 25     |
|                    | Item                1. Legal Proceedings                                                                                                                             |   | 26     |
|                    | Item                1A Risk Factors                                                                                                                             |   | 26     |
|                    | Item                2. Unregistered Sales of Equity Securities and Use of                Proceeds                                                                    |   | 27     |
|                    | Item                3. Defaults upon Senior Securities                                                                                                               |   | 27     |
|                    | Item                4. Submission of Matters to a Vote of Security Holders                                                                                           |   | 27     |
|                    | Item                5. Other Information                                                                                                                             |   | 27     |
|                    | Item                6 Exhibits and Reports on Form 8-K                                                                                                               |   | 27     |
| SIGNATURES              |                                                                                                                                                                 | 28     |

----

***PART      I. FINANCIAL INFORMATION***

**ITEM      1.**
**CONDENSED      CONSOLIDATED FINANCIAL STATEMENTS**

**Kid      Castle Educational Corporation**

**Condensed      Consolidated Balance Sheets**

|                                                                                         |   | (Unaudited)June 30,2008 |       | December 31,2007 |   |
|---------------------------------------------------------------------------------------------------|--------|------------------------------|------------|-----------------------|--------|
|                                                                                              |   |                         |       |                  |   |
| ASSETS                                                                                            |   |                         |       |                  |   |
| Current                assets                                                                     |   |                         |       |                  |   |
| Cash                and bank balances                                                             |   | $                            | 1,556,642  |                  | $      | 1,238,212 |   |
| Bank                fixed deposits - pledged (Note11)                                             |   |                         | 27,752     |                  |   | 363,562 |   |
| Notes                and accounts receivable, net (Note 5)                                        |   |                         | 3,034,520  |                  |   | 2,453,868 |   |
| Inventories,                net (Note 6)                                                          |   |                         | 1,993,402  |                  |   | 2,008,739 |   |
| Other                receivables (Note 7)                                                         |   |                         | 175,881    |                  |   | 88,139 |   |
| Prepayments                and other current assets (Note 8)                                      |   |                         | 733,143    |                  |   | 542,794 |   |
| Pledged                notes receivable (Note 11)                                                 |   |                         | 476,317    |                  |   | 557,983 |   |
| Deferred                income tax assets                                                         |   |                         | 48,621     |                  |   | 42,335 |   |
| Total                current assets                                                               |   |                         | 8,046,278  |                  |   | 7,295,632 |   |
| Deferred                income tax assets                                                         |   |                         | 54,062     |                  |   | 50,481 |   |
| Long-term                investments (Note 9)                                                     |   |                         | 93,099     |                  |   | 58,625 |   |
| Property                and equipment, net                                                        |   |                         | 2,484,622  |                  |   | 2,312,065 |   |
| Intangible                assets, net of amortization (Note 10)                                   |   |                         | 477,259    |                  |   | 572,005 |   |
| Long-term                notes receivable                                                         |   |                         | 552,916    |                  |   | 420,636 |   |
| Pledged                notes receivable (Note 11)                                                 |   |                         | 319,841    |                  |   | 183,453 |   |
| Other                assets                                                                       |   |                         | 339,074    |                  |   | 268,388 |   |
| Total                assets                                                                       |   | $                            | 12,367,151 |                  | $      | 11,161,285 |   |
| LIABILITIES                AND STOCKHOLDERS’ EQUITY                                         |   |                         |            |                  |   |  |   |
| Current                liabilities                                                                |   |                         |            |                  |   |  |   |
| Bank                borrowings - short-term and maturing within one year (Note                11) |   | $                            | 390,697    |                  | $      | 1,212,534 |   |
| Notes                and accounts payable                                                         |   |                         | 1,134,870  |                  |   | 389,639 |   |
| Accrued                expenses                                                                   |   |                         | 1,200,891  |                  |   | 985,764 |   |
| Other                payables                                                                     |   |                         | 283,203    |                  |   | 573,237 |   |
| Deposits                received                                                                  |   |                         | 213,726    |                  |   | 912,535 |   |
| Receipts                in advance (Note 12)                                                      |   |                         | 2,897,296  |                  |   | 2,372,403 |   |
| Income                taxes payable                                                               |   |                         | 110,099    |                  |   | 124,418 |   |
| Total                current liabilities                                                          |   |                         | 6,230,782  |                  |   | 6,570,530 |   |
| Bank                borrowings maturing after one year (Note 11)                                  |   |                         | 1,794,214  |                  |   | 1,752,776 |   |
| Receipts                in advance (Note 12)                                                      |   |                         | 1,308,286  |                  |   | 1,034,260 |   |
| Deposits                received                                                                  |   |                         | 1,504,380  |                  |   | 680,694 |   |
| Deferred                liability                                                                 |   |                         | 41,425     |                  |   | 38,787 |   |
| Accrued                pension liabilities (Note 13)                                              |   |                         | 429,724    |                  |   | 401,893 |   |
| Total                liabilities                                                                  |   |                         | 11,308,811 |                  |   | 10,478,940 |   |

----

**Kid      Castle Educational Corporation**

**Condensed      Consolidated Balance Sheets - Continued**

|                                                                                                                                           |   | (Unaudited)June 30,2008 |       | December 31,2007 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|------------|-----------------------|--------|
|                                                                                                                                                |   |                         |       |                  |   |
| Commitments                and contingencies (Note 15)                                                                                              |   |                         |       |                  |   |
|                                                                                                                                                |   |                         |       |                  |   |
| Minority                interest                                                                                                                    |   |                         | 202,724    |                  |   | 162,343 |   |
|                                                                                                                                                |   |                         |       |                  |   |  |   |
| Shareholders’                equity                                                                                                           |   |                         |       |                  |   |  |   |
| Common                stock, no par share :                                                                                                         |   |                         |       |                  |   |  |   |
| 60,000,000                shares authorized; 25,000,000 issued and outstanding at June 30,                2008 and                December 31, 2007 |   |                         | 8,592,138  |                  |   | 8,592,138 |   |
| Additional                paid-in capital                                                                                                           |   |                         | 194,021    |                  |   | 194,021 |   |
| Legal                reserve                                                                                                                        |   |                         | 65,320     |                  |   | 65,320 |   |
| Accumulated                deficit                                                                                                                  |   |                         | (6,713,965 | )                     |   | (7,179,418 | ) |
| Accumulated                other comprehensive loss                                                                                                 |   |                         | (1,042,693 | )                     |   | (932,027 | ) |
| Net                loss not recognized as pension cost                                                                                              |   |                         | (239,205   | )                     |   | (220,032 | ) |
| Total                shareholders’ equity                                                                                                     |   |                         | 855,616    |                  |   | 520,002 |   |
| Total                liabilities and shareholders’ equity                                                                                     |   | $                            | 12,367,151 |                  | $      | 11,161,285 |   |

----

**Kid      Castle Educational Corporation**

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

|                                                                                          |   | Three months ended June 30, |       |
|--------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|------------|
|                                                                                                         |   | 2008                                            |       | 2007 |   |
|                                                                                                         |   |                                            |       |
| Operating                Revenue                                                                             |   |                                            |       |   |   |
| Sales                of goods                                                                                |   | $                                               | 1,590,509  |   | $ | 1,262,190 |   |
| Franchising                income                                                                            |   |                                            | 584,614    |   |   | 536,686 |   |
| Other                operating revenue                                                                       |   |                                            | 489,939    |   |   | 84,277 |   |
| Total                net operating revenue                                                                   |   |                                            | 2,665,062  |   |   | 1,883,153 |   |
| Operating                costs                                                                               |   |                                            |       |   |   |  |   |
| Cost                of goods sold                                                                            |   |                                            | (714,218   | ) |   | (613,973 | ) |
| Cost                of franchising                                                                           |   |                                            | (88,487    | ) |   | (10,643 | ) |
| Other                operating costs                                                                         |   |                                            | (629,212   | ) |   | (147,784 | ) |
| Total                operating costs                                                                         |   |                                            | (1,431,917 | ) |   | (772,400 | ) |
| Gross                profit                                                                                  |   |                                            | 1,233,145  |   |   | 1,110,753 |   |
| Advertising                costs                                                                             |   |                                            | (1,567     | ) |   | (88 | ) |
| Other                operating expenses                                                                      |   |                                            | (1,508,823 | ) |   | (1,099,786 | ) |
| Income(loss)                from operations                                                                  |   |                                            | (277,245   | ) |   | 10,879 |   |
| Interest                expense, net                                                                         |   |                                            | (25,643    | ) |   | (20,948 | ) |
| Share                of income of investments                                                                |   |                                            | 31,856     |   |   | 4,521 |   |
| Other                non-operating income (loss), net                                                        |   |                                            | 28,690     |   |   | 238,628 |   |
| Income(loss)                before income taxes                                                              |   |                                            | (242,342   | ) |   | 233,080 |   |
| Provision                for taxes                                                                           |   |                                            | (22,468    | ) |   | (20,069 | ) |
| Income(loss)                after income taxes                                                               |   |                                            | (264,810   | ) |   | 213,011 |   |
| Minority                interest income                                                                      |   |                                            | 36         |   |   | (5,384 | ) |
| Net                income(loss)                                                                              |   | $                                               | (264,774   | ) | $ | 207,627 |   |
| Earnings(loss)                per share - basic and diluted                                                  |   | $                                               | (0.01      | ) | $ | 0.008 |   |
| Weighted-average                shares used to compute earnings per share - basic and                diluted |   |                                            | 25,000,000 |   |   | 25,000,000 |   |

----

**Kid      Castle Educational Corporation**

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

|                                                                                                    |   | Six months ended June 30, |       |
|--------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|------------|
|                                                                                                         |   | 2008                                          |       | 2007 |   |
|                                                                                                         |   |                                          |       |
| Operating                Revenue                                                                             |   |                                          |       |   |   |
| Sales                of goods                                                                                |   | $                                             | 3,954,618  |   | $ | 3,696,348 |   |
| Franchising                income                                                                            |   |                                          | 1,140,843  |   |   | 1,090,178 |   |
| Other                operating revenue                                                                       |   |                                          | 969,125    |   |   | 337,587 |   |
| Total                net operating revenue                                                                   |   |                                          | 6,064,586  |   |   | 5,124,113 |   |
| Operating                costs                                                                               |   |                                          |       |   |   |  |   |
| Cost                of goods sold                                                                            |   |                                          | (1,721,454 | ) |   | (1,530,628 | ) |
| Cost                of franchising                                                                           |   |                                          | (186,796   | ) |   | (111,785 | ) |
| Other                operating costs                                                                         |   |                                          | (699,169   | ) |   | (196,366 | ) |
| Total                operating costs                                                                         |   |                                          | (2,607,419 | ) |   | (1,838,779 | ) |
| Gross                profit                                                                                  |   |                                          | 3,457,167  |   |   | 3,285,334 |   |
| Advertising                costs                                                                             |   |                                          | (23,080    | ) |   | (18,173 | ) |
| Other                operating expenses-                                                                     |   |                                          | (3,022,494 | ) |   | (2,382,518 | ) |
| Income                from operations                                                                        |   |                                          | 411,593    |   |   | 884,643 |   |
| Interest                expense, net                                                                         |   |                                          | (48,744    | ) |   | (42,617 | ) |
| Share                of income of investments                                                                |   |                                          | 29,787     |   |   | 15,989 |   |
| Other                non-operating income (loss), net                                                        |   |                                          | 160,848    |   |   | 371,229 |   |
| Income                before income taxes                                                                    |   |                                          | 553,484    |   |   | 1,229,244 |   |
| Provision                for taxes                                                                           |   |                                          | (59,365    | ) |   | (193,011 | ) |
| Income                after income taxes                                                                     |   |                                          | 494,119    |   |   | 1,036,233 |   |
| Minority                interest income                                                                      |   |                                          | (28,666    | ) |   | (48,904 | ) |
| Net                income                                                                                    |   | $                                             | 465,453    |   | $ | 987,329 |   |
| Earnings                per share - basic and diluted                                                        |   | $                                             | 0.019      |   | $ | 0.039 |   |
| Weighted-average                shares used to compute earnings per share - basic and                diluted |   |                                          | 25,000,000 |   |   | 25,000,000 |   |

----

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

**Condensed      Consolidated Statements of Stockholders’ Equity**

|                                                            |   | Common Stock          |                                                                                 | Additional |   |                                                               |   |         |                                                                                       | Accumulatedother   |   | Net loss not                                                         |   |                                |                                                                     |
|--------------------------------------------------------------------------------|--------|----------------------------|--------------------------------------------------------------------------------------|------------|--------|--------------------------------------------------------------------|--------|--------------|--------------------------------------------------------------------------------------------|--------------------|--------|--------------------------------------------------------------------------------|--------|-------------------------------------|--------------------------------------------------------------------------|
|                                                                 |   | Number of shares |                                                                                 | Amount     |   | paid-incapital                                                     |   | Legalreserve |                                                                                       | Accumulateddeficit |   | comprehensiveloss                                                              |   | recognized aspension cost |                                                                     | Total |   |
|                                                                           |   |                       |                                                                                 |       |   |                                                               |   |         |                                                                                       |               |   |                                                                           |   |                                |                                                                     |   |   |
| 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 2007                                           |   |                       |                                                                                      |       |   |                                                                    |   |         |                                                                                            |               |   |                                                                                |   |                                | 1,877,149                                                                |   |   |  |   |   |  |   |   | 1,877,149 |   |
| Cumulative                  translation adjustment                             |   |                       |                                                                       |       |   |                                                          |   |         |                                                                                  |               |   |                                                       |   |                                |                                                           |   |   | (601,314 | ) |   |       |   |   | (601,314 | ) |
| Comprehensive                  loss                                            |   |                       |                                                                  |       |   |                                           |   |         |                                                                        |               |   |                                                       |   |                                |                                            |   |   |                        |   |   |         |   |   | 1,275,835 |   |
| Repayment                  of a liability by issuance of common stock_    |   |                       |                                                                       |       |   |                                 |   |         |                 |               |   |                                        |   |                                |                        |   |   |           |   |   |            |   |   |          |   |
| Net                  loss not recognized as pension cost                       |   |                       |                                                                            |       |   |                                                |   |         |                           |               |   |                         |   |                                |                                       |   |   |             |   | $ | (121,080 | ) | $ | (121,080 | ) |
| Balance,                  December 31, 2007                                    |   |                       | 25,000,000                                                                           |       | $      | 8,592,138                                                          |   | $            | 194,021                                                                                    |          | $      | 65,320                                                                         |   | $                                   | (7,179,418                                                               | )  | $ | (932,027 | )  | $ | (220,032 | )  | $ | 520,002 |   |
| Net                  income for the six months ended June 30, 2008 (Unaudited) |   |                       |                                         |       |   |                                                          |   |         |                                |               |   |               |   |                                | 465,453                                                                  |   |   |              |   |   |            |   |   | 465,453 |   |
| Cumulative                  translation adjustment (Unaudited)                 |   |                       |                               |       |   |                            |   |         |                                                    |               |   |                         |   |                                |                   |   |   | (110,666 | ) |   |     |   |   | (110,666 | ) |
| Comprehensive                  loss (Unaudited)                                |   |                       |                |       |   |                                 |   |         |                                |               |   |                    |   |                                |                             |   |   |       |   |   |    |   |   | 354,787 |   |
| Net                  loss not recognized as pension cost                       |   |                       |                                                                       |       |   |                                                          |   |         |                                                                             |               |   |                                                                      |   |                                |                                                           |   |   |    |   | $ | (19,173 | ) |   | (19,173 | ) |
|                                                                           |   |                       |                     |       |   |             |   |         |                                |               |   |                         |   |                                |              |   |   |            |   |   |            |   |   |                |   |
| Balance,                  June 30, 2008 (Unaudited)                            |   |                       | 25,000,000                                                                           |       | $      | 8,592,138                                                          |   | $            | 194,021                                                                                    |               | $      | 65,320                                                                         |   | $                                   | (6,713,965                                                               | ) | $ | (1,042,693 | ) | $ | (239,205 | ) | $ | 855,616 |   |

----

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

**Condensed      Consolidated Statements of Cash Flows**

**(Unaudited)**

|                                                                                                 |   | Six months ended June 30, |      |
|----------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|-----------|
|                                                                                                           |   | 2008                                          |      | 2007 |   |
|                                                                                                           |   |                                          |      |   |   |
| Cash                flows from operating activities                                                            |   |                                          |      |   |   |
| Net                income                                                                                      |   | $                                             | 465,453   |   | $ | 987,329 |   |
| Adjustments                to reconcile net income to net cash provided by operating                activities |   |                                          |      |   |   |  |   |
| Depreciation                of property and equipment                                                          |   |                                          | 112,392   |   |   | 103,364 |   |
| Impairment                of goodwill                                                                          |   |                                          | 11,386    |   |   | - |   |
| Amortization                of intangible assets                                                               |   |                                          | 87,179    |   |   | 81,818 |   |
| Allowance                for sales returns                                                                     |   |                                          | 15,460    |   |   | 2,229 |   |
| Allowance                for doubtful debts                                                                    |   |                                          | 42,341    |   |   | 12,065 |   |
| Reversal                of allowance for loss on inventory obsolescence and slow-moving                items   |   |                                          | (27,657   | ) |   | (199,792 | ) |
| Loss                on disposal of PP&E                                                                    |   |                                          | 728       |   |   | 2,579 |   |
| Minority                interests                                                                              |   |                                          | 28,666    |   |   | 48,904 |   |
| Share                of income of investments                                                                  |   |                                          | (29,787   | ) |   | (15,989 | ) |
| (Increase)/decrease                in:                                                                         |   |                                          |      |   |   |  |   |
| Notes                and accounts receivable                                                                   |   |                                          | (521,104  | ) |   | (321,355 | ) |
| Inventories                                                                                                    |   |                                          | 175,657   |   |   | 96,853 |   |
| Other                receivables                                                                               |   |                                          | (231,287  | ) |   | 146,021 |   |
| Prepayments                and other current assets                                                            |   |                                          | (150,623  | ) |   | (41,895 | ) |
| Deferred                income tax assets                                                                      |   |                                          | (3,527    | ) |   | 20,982 |   |
| Other                assets                                                                                    |   |                                          | (51,511   | ) |   | (54,065 | ) |
| Increase/(decrease)                in:                                                                         |   |                                          |      |   |   |  |   |
| Notes                and accounts payable                                                                      |   |                                          | 704,574   |   |   | 145,541 |   |
| Accrued                expenses                                                                                |   |                                          | 156,927   |   |   | (204,368 | ) |
| Other                payables                                                                                  |   |                                          | (276,747  | ) |   | 32,420 |   |
| Receipts                in advance                                                                             |   |                                          | 556,481   |   |   | 347,284 |   |
| Income                taxes payable                                                                            |   |                                          | (22,270   | ) |   | 30,376 |   |
| Deferred                liability                                                                              |   |                                          | 18        |   |   | 1,186 |   |
| Deposits                received                                                                               |   |                                          | 16,921    |   |   | 66,348 |   |
| Accrued                pension liabilities                                                                     |   |                                          | 673       |   |   | 6,987 |   |
|                                                                                                           |   |                                          |      |   |   |  |   |
| Net                cash provided by operating activities                                                       |   |                                          | 1,060,343 |   |   | 1,294,822 |   |
|                                                                                                           |   |                                          |           |   |   |  |   |
| Cash                flows from investing activities                                                            |   |                                          |           |   |   |  |   |
| Purchase                of property and equipment                                                              |   |                                          | (131,431  | ) |   | (65,597 | ) |
| Change                in investments in associated company                                                     |   |                                          | -         |   |   | (25,759 | ) |
| Acquisition,                net of cash acquired                                                               |   |                                          | -         |   |   | 46,607 |   |
| Proceeds                from disposal of property and equipment                                                |   |                                          | 2,241     |   |   | 118 |   |
| Prepayment                of long-term investments                                                             |   |                                          | (26,535   | ) |   | (306,040 | ) |
| Acquisition                of long-term investments                                                            |   |                                          | -         |   |   | (544,135 | ) |
| Bank                fixed deposits-pledged                                                                     |   |                                          | 353,178   |   |   | (353,890 | ) |
| Pledged                notes receivable                                                                        |   |                                          | (4,551    | ) |   | (301,050 | ) |
|                                                                                                           |   |                                          |      |   |   |  |   |
| Net                cash provided by (used in) investing activities                                             |   |                                          | 192,902   |   |   | (1,549,746 | ) |

----

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

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

**(Unaudited)**

|                                                                                   |   | Six months ended June 30, |       |
|-------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|------------|
|                                                                                                  |   | 2008                                          |       | 2007 |   |
|                                                                                                  |   |                                          |       |
| Cash                flows from financing activities                                                   |   |                                          |       |    |   |
| Proceeds                from bank borrowings                                                          |   |                                          | 108,569    |   |   | 684,836 |   |
| Proceeds                from loan from related parties                                                |   |                                          | 100,049    |   |   | 4,846 |   |
| Repayment                of bank borrowings                                                           |   | $                                             | (1,069,693 | ) | $ | (270,231 | ) |
| Repayment                of loan from stockholders and transactions of related                parties |   |                                          | (42,196    | ) |   | (297,262 | ) |
|                                                                                                  |   |                                          |       |   |   |  |   |
| Net                cash used in financing activities                                                  |   |                                          | (903,271   | ) |   | 122,189 |   |
|                                                                                                  |   |                                          |       |   |   |  |   |
| Net                increase (decrease) in cash and cash equivalents                                   |   |                                          | 349,974    |   |   | (132,735 | ) |
|                                                                                                  |   |                                          |       |   |   |  |   |
| Effect                of exchange rate changes on cash and cash equivalents                           |   |                                          | (31,544    | ) |   | (114,821 | ) |
|                                                                                                  |   |                                          |       |   |   |  |   |
| Cash                and cash equivalents at beginning of period                                       |   |                                          | 1,238,212  |   |   | 1,419,873 |   |
|                                                                                                  |   |                                          |       |   |   |  |   |
| Cash                and cash equivalents at end of period                                             |   | $                                             | 1,556,642  |   | $ | 1,172,317 |   |

----

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

----

**NOTE      4 - RECENT ACCOUNTING PRONOUNCEMENTS**

----

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

|                                                     |   | **June 30,****2008**      |      | **December 31,****2007**  |   |
|--------------------------------------------------------------------|--------|--------------------------------|-----------|--------------------------------|--------|
|                                                               |   | (Unaudited)                    |      |                           |   |
|                                                               |   |                           |      |                           |   |
| Notes                  and accounts receivable                     |   |                      |      |                      |   |
| -                  Third parties                                   |   | $                              | 3,313,594 |                           | $      | 2,757,425 |   |
| -                  Related parties                                 |   |                           | 206,613   |                           |   | 150,363 |   |
|                                                               |   |                           |           |                           |   |  |   |
| Total                                                              |   |                           | 3,520,207 |                           |   | 2,907,788 |   |
| Allowance                  for doubtful accounts and sales returns |   |                           | (485,687  | )                              |   | (453,920 | ) |
|                                                               |   |                           |           |                           |   |  |   |
| Notes                  and accounts receivable, net                |   | $                              | 3,034,520 |                           | $      | 2,453,868 |   |

**NOTE      6 - INVENTORIES**

|                                                                                              |   | **June 30, ****2008** |      | **December 31,****2007** |   |
|--------------------------------------------------------------------------------------------------------|--------|---------------------------------|-----------|-------------------------------|--------|
|                                                                                                   |   | (Unaudited)                     |      |                          |   |
|                                                                                                   |   |                            |      |                          |   |
| Work                  in process                                                                       |   | $                               | 109,501   |                          | $      | 180,985 |   |
| Finished                  goods and other merchandises                                                 |   |                            | 2,201,788 |                          |   | 2,151,962 |   |
|                                                                                                   |   |                            |           |                          |   |  |   |
|                                                                                                   |   |                            | 2,311,289 |                          |   | 2,332,947 |   |
| Less:                  Allowance for obsolete inventories and decline of market                  value |   |                            | (317,887  | )                             |   | (324,208 | ) |
|                                                                                                   |   |                            |           |                          |   |  |   |
|                                                                                                   |   | $                               | 1,993,402 |                          | $      | 2,008,739 |   |

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

|                                                 |   | **June                30, ****2008** |    | **December 31,****2007** |   |
|------------------------------------------------------|--------|-------------------------------------------|---------|-------------------------------|--------|
|                                                 |   | (Unaudited)                               |    |                          |   |
| Other                receivables - third parties:    |   |                                 |    |                     |   |
| Tax                paid on behalf of landlord        |   | $                                         |    |                          | $      |   |   |
| Advances                to staff                     |   |                                      | 108,120 |                          |   | 87,188 |   |
| Grants                from Market Information Center |   |                                      |         |                          |   |  |   |
| Other                receivables                     |   |                                      | 66,704  |                          |   | 633 |   |
|                                                 |   |                                      |         |                          |   |  |   |
| Sub-total                                            |   |                                      | 174,824 |                          |   | 87,821 |   |
| Other                receivables - related parties   |   |                                      | 1,057   |                          |   | 318 |   |
|                                                 |   | $                                         | 175,881 |                          | $      | 88,139 |   |

----

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

|                         |   | **June 30,****2008** |        | **December 31,****2007** |   |
|-----------------------------------|--------|---------------------------|-------------|-------------------------------|--------|
|                              |   | (Unaudited)               |        |                          |   |
|                              |   |                      |        |                          |   |
| Prepayments                       |   | $                         | 704,468     |                          | $      | 523,199 |   |
| Temporary                payments |   |                      | 134         |                          |   | 15,598 |   |
| Prepaid                interest   |   |                      | **—** |                          |   | 2,713 |   |
| Others                            |   |                      | 28,541      |                          |   | 1,284 |   |
|                              |   |                      |             |                          |   |  |   |
|                              |   | $                         | 733,143     |                          | $      | 542,794 |   |

**NOTE      9- INTEREST IN ASSOCIATES**

|                                                                                                                                   |   | **June 30,****2008**    |     | **December 31,****2007** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|----------|-------------------------------|--------|
|                                                                                                                                        |   | (Unaudited)                  |     |                          |   |
|                                                                                                                                        |   |                         |     |                          |   |
| 21                st Century Kid Castle Language and Education Center (“Education                Center”) (Note (i))            |   |                    |     |                     |   |
| Investment                cost                                                                                                              |   | $                            | 108,709  |                          | $      | 101,787 |   |
| Share                of loss                                                                                                                |   |                         | (716     | )                             |   | (39,641 | ) |
|                                                                                                                                        |   |                         |          |                          |   |  |   |
|                                                                                                                                        |   | $                            | 107,993  |                          | $      | 62,146 |   |
|                                                                                                                                        |   |                         |          |                          |   |  |   |
| Tianjin                Kid Castle Educational Investment Consulting Co., Ltd. (“Tianjin                Consulting”) (Note (ii)) |   |                         |          |                          |   |  |   |
| Investment                cost                                                                                                              |   | $                            | 101,462  |                          | $      | 95,000 |   |
| Share                of loss                                                                                                                |   |                         | (116,356 | )                             |   | (98,521 | ) |
|                                                                                                                                        |   |                         |          |                          |   |  |   |
|                                                                                                                                        |   | $                            | (14,894  | )                             | $      | (3,521 | ) |
|                                                                                                                                        |   |                         |          |                          |   |  |   |
| Total                                                                                                                                       |   | $                            | 93,099   |                          | $      | 58,625 |   |

|  | (i) | In                October 2003, the Group obtained the PRC government’s approval to co-found                Education Center with 21 st                Century Publishing House in the PRC. In 2004, Education Center registered                the total capital as RMB 1,500,000, and KCES and 21 st                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) | As                of August 1, 2007, the Group acquired 100% interest in Sichuan Lanbeisi                Kid Castle Education Development Co., Ltd, which became a consolidated                entity. For the six monts ended June 30, 2007, the Group recognized                an                investment loss accounted for under the equity method in Lanbeisi                of                $4,554. |
|--|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE**
**10      - INTANGIBLE ASSETS**

|                                     |   | **June 30,****2008** |       | **December 31,****2007** |   |
|-----------------------------------------------|--------|---------------------------|------------|-------------------------------|--------|
|                                          |   | (Unaudited)               |       |                          |   |
|                                          |   |                      |       |                          |   |
| Gross                carrying amount          |   |                      |       |                          |   |
| Franchise                                     |   | $                         | 1,120,428  |                          | $      | 1,049,538 |   |
| Copyrights                                    |   |                      | 658,631    |                          |   | 616,960 |   |
| Goodwill                                      |   |                      | 233,069    |                          |   | 218,227 |   |
|                                          |   |                      |       |                          |   |  |   |
| Less:                Accumulated amortization |   |                      |       |                          |   |  |   |
| Franchise                                     |   |                      | (924,352   | )                             |   | (813,392 | ) |
| Copyrights                                    |   |                      | (543,371   | )                             |   | (478,144 | ) |
|                                          |   |                      | (1,467,723 | )                             |   | (1,291,536 | ) |
| Less:                Impairment of goodwill   |   |                      |       |                          |   |   |   |
| Goodwill                                      |   |                      | (67,146    | )                             |   | (21,184 | ) |
|                                          |   |                      |       |                          |   |  |   |
| **Net**                                       |   | $                         | 477,259    |                          | $      | 572,005 |   |

| 2009   |   | $      | 177,906 |   |
|--------|--------|--------|---------|--------|
| 2010   |   |   | 49,972  |   |
|   |   |   |         |   |
|   |   | $      | 277,878 |   |

----

**NOTE      11 - BANK BORROWINGS**

|                                                                                                 |   | Notes  |   | **June 30,****2008** |   | **December 31,****2007** |   |
|-----------------------------------------------------------------------------------------------------------|--------|--------|--------|---------------------------|--------|-------------------------------|--------|
|                                                                                                      |   |   |   | (Unaudited)               |   |                          |   |
|                                                                                                      |   |   |   |                      |   |                          |   |
| Bank                  term loans                                                                          |   |   | (i)    |                      | $      | 653,593                       |   | $ | 580,553 |   |
| Short-term                  unsecured bank loans                                                          |   |   | (ii)   |                      |   | —                       |   |   | 1,027,446 |   |
| Mid-term                  secured bank loan                                                               |   |   | (iii)  |                      |   | 1,531,318                     |   |   | 1,357,311 |   |
|                                                                                                      |   |   |   |                      |   |                               |   |   |  |   |
|                                                                                                      |   |   |   |                      |   | 2,184,911                     |   |   | 2,965,310 |   |
| Less:                  Balances maturing within one year included in current                  liabilities |   |   |   |                      |   |                               |   |   |  |   |
| Bank                  term loans                                                                          |   |   |   |                      |   | 110,779                       |   |   | 185,088 |   |
| Short-term                  unsecured bank loans                                                          |   |   |   |                      |   | —                       |   |   | 1,027,446 |   |
| Mid-term                  secured bank loan                                                               |   |   |   |                      |   | 279,918                       |   |   | — |   |
|                                                                                                      |   |   |   |                      |   |                               |   |   |  |   |
|                                                                                                      |   |   |   |                      |   | 390,697                       |   |   | 1,212,534 |   |
|                                                                                                      |   |   |   |                      |   |                               |   |   |  |   |
| Bank                  borrowings maturing after one year                                                  |   |   |   |                      | $      | 1,794,214                     |   | $ | 1,752,776 |   |

|  | (i) | This                line item represents bank loans that have been secured by a pledge                of                post-dated checks amounting to $904,682 and $753,962 that we have                received                from franchisees and the Group’s bank deposits of $27,752 and $22,053 as                of June 30, 2008 and December 31, 2007, 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, which                were                extended on October 18, 2007 and will be due on September 30, 2008.                The                weighted average interest rates were 5.86% and 5.85% per annum as of                June 30, 2008 and 2007,                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 the loan balance, and guaranteed by two directors and stockholders                of the Group. The loan bore interest at the lending bank’s basic fixed                deposit rate plus 3.29% per annum, which was extended in February                2007 and                was due in February 2008. Of the principal, $146,186 is repayable                in 12                equal monthly installments. The loan was fully repaid on November                28,                2007. |
|--|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | (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 was secured by the                Group’s land and buildings and personal guarantees provide by two                directors of the Group. The loan bore interest at the lending bank’s basic                fixed deposit rate plus 0.69% per annum for the years 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 was repayable in 84 equal                monthly installments starting on August 10, 2012. The loan was fully                repaid on November 28, 2007. |
|--|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE      12 - RECEIPTS IN ADVANCE**

|                                    |   | Notes                          |   | **June 30,****2008**      |   | **December 31,****2007**  |   |
|----------------------------------------------|--------|--------------------------------|--------|--------------------------------|--------|--------------------------------|--------|
|                                         |   |                           |   | (Unaudited)                    |   |                           |   |
|                                         |   |                           |   |                           |   |                           |   |
| Current                  liabilities:        |   |                      |   |                      |   |                      |   |
| Sales                  deposits received     |   |                           | (i)    |                           | $      | 735,118                        |   | $ | 303,258 |   |
| Franchising                  income received |   |                           | (ii)   |                           |   | 1,455,755                      |   |   | 1,456,267 |   |
| Subscription                  fees received  |   |                           | (iii)  |                           |   | 683,456                        |   |   | 516,136 |   |
| Others                                       |   |                           |        |                           |   | 21,950                         |   |   | 96,742 |   |
| Related                  parties             |   |                           |   |                           |   | 1,017                          |   |   | — |   |
|                                         |   |                           |        |                           |   | 2,897,296                      |   |   | 2,372,403 |   |
|                                         |   |                           |        |                           |   |                                |   |   |  |   |
| Long-term                  liabilities:      |   |                           |        |                           |   |                                |   |   |  |   |
| Franchising                  income received |   |                           | (ii)   |                           |   | 1,308,286                      |   |   | 1,034,260 |   |
|                                         |   |                           |        |                           |   |                                |   |   |  |   |
|                                         |   |                           |        |                           | $      | 4,205,582                      |   | $ | 3,406,663 |   |

----

| (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      13 - RETIREMENT PLANS**

|                                   |   | **Six months ended June 30,** |   |
|--------------------------------------------------|--------|---------------------------------------------------|--------|
|                                             |   | **2008**                                          |   | **2007** |   |
|                                             |   | (Unaudited)                                       |   |
| Service                cost                      |   | $                                                 |   |   | $ |   |   |
| Interest                cost                     |   |                                              | 6,456  |   |   | 6,108 |   |
| Expected                return on assets         |   |                                              | (1,046 | ) |   | (1,212 | ) |
| Amortization                of unrecognized loss |   |                                              | 1,616  |   |   | 1,478 |   |
|                                             |   |                                              |   |   |   |  |   |
| Net                periodic pension cost         |   | $                                                 | 7,026  |   | $ | 6,374 |   |

----

**NOTE**
**14      - GEOGRAPHICAL SEGMENTS**

|                             |   | Taiwan                                |         | The PRC                                |   | Total                                       |   | Corporate                                   |      | Eliminations                                |   | Consolidated                                |   |
|---------------------------------------|--------|---------------------------------------|--------------|---------------------------------------------|--------|---------------------------------------------|--------|---------------------------------------------|-----------|---------------------------------------------|--------|---------------------------------------------|--------|
|                                  |   | Six monthsendedJune 30,2008 |         | Six months endedJune 30,2007 |   | Six months endedJune 30,2008 |   | Six months endedJune 30,2007 |      | Six months endedJune 30,2008 |   | Six months endedJune 30,2007 |   | Six months endedJune 30,2008 |   | Six months endedJune 30,2007 |   | Six months endedJune 30,2008 |   | Six months endedJune 30,2007 |   | Six months endedJune 30,2008 |   | Six months endedJune 30,2007 |   |
|                                  |   |                                  |         |                                        |   |                                        |   |                                        |      |                                        |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue                               |   |                                  |         |                                        |   |                                        |   |                                        |      |                                        |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| External                revenue       |   | $                                     | 3,116,020    |                                        | $      | 3,255,979                                   |   | $                                           | 2,948,566 |                                        | $      | 1,868,134                                   |   | $ | 6,064,586 |   | $ | 5,124,113 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 6,064,586 |   | $ | 5,124,113 |   |
| Inter-segment                revenue  |   |                                  | —      |                                        |   | —                                     |   |                                        | —   |                                        |   | —                                     |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |
|                                  |   |                                  |    |                                        |   |                                   |   |                                        |      |                                        |   |                                   |   |   |   |   |   |    |   |   |   |   |   |    |   |   |    |   |   |     |   |   |    |   |   |    |   |
|                                  |   | $                                     | 3,116,020    |                                        | $      | 3,255,979                                   |   | $                                           | 2,948,566 |                                        | $      | 1,868,134                                   |   | $ | 6,064,586 |   | $ | 5,124,113 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 6,064,586 |   | $ | 5,124,113 |   |
|                                  |   |                                  |              |                                        |   |                                             |   |                                        |           |                                        |   |                                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Profit                from Operations |   | $                                     | 297,645      |                                        | $      | 562,771                                     |   | $                                           | 186,397   |                                        | $      | 413,827                                     |   | $ | 484,042 |   | $ | 976,598 |   | $ | (72,449 | ) | $ | (91,955 | ) | $ | — |   | $ | — |   | $ | 411,593 |   | $ | 884,643 |   |
|                                  |   |                                  |              |                                        |   |                                             |   |                                        |           |                                        |   |                                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Capital                expenditures   |   | $                                     | 60,609       |                                        | $      | 6,084                                       |   | $                                           | 71,209    |                                        | $      | 39,639                                      |   | $ | 131,818 |   | $ | 45,723 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 131,818 |   | $ | 45,723 |   |

|                   |   | June 30,2008 |      | December 31,2007 |   | June 30,2008 |   | December 31,2007 |      | June 30,2008 |   | December 31,2007 |   | June 30,2008 |       | December 31,2007 |   | June 30,2008 |   | December 31,2007 |   | June 30,2008 |   | December 31,2007 |   |
|-----------------------------|--------|-------------------|-----------|-----------------------|--------|-------------------|--------|-----------------------|-----------|-------------------|--------|-----------------------|--------|-------------------|------------|-----------------------|--------|-------------------|--------|-----------------------|--------|-------------------|--------|-----------------------|--------|
| Total                assets |   | $                 | 8,439,617 |                  | $      | 7,495,418         |   | $                     | 4,459,852 |              | $      | 4,063,399             |   | $                 | 12,899,469 |                  | $      | 11,558,817        |   | $                     | 2,968  |              | $      | 2,597                 |   | $ | (535,286 | ) | $ | (400,129 | ) | $ | 12,367,151 |   | $ | 11,161,285 |   |

**NOTE      15 - COMMITMENT AND CONTINGENCIES** 

**A.      Lease Commitment**

| Years                ending December 31,        |   |     |      |
|-------------------------------------------------|--------|--------------------|-----------|
| 2009                                  |   | $                  | 509,371   |   |
| 2010                                  |   |               | 291,001   |   |
| 2011                                  |   |               | 360,940   |   |
| 2012                                  |   |               | 749,827   |   |
| Years                2013 to 2017     |   |               | 1,330,513 |   |
|                                  |   |               |           |   |
|                                  |   | $                  | 3,241,652 |   |

**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, 2008 compared to Three Months Ended June 30,      2007**

**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, 2008 compared to Six Months Ended June 30,      2007**

**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***

***Changes      in 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; and |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

|  |  ̈ | Delineate                  individual and/departmental responsibilities and effectively separate                  respective departmental transactions so as to prevent occurrence                  of                  intentional misappropriation of                  funds. |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**PART      II OTHER INFORMATION** 

**ITEM      1. LEGAL PROCEEDINGS** 

**ITEM      1A. RISK FACTORS**

----

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

**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 |

----