Condensed Consolidated Balance Sheets

~~(Unaudited)~~

~~See accompanying notes to Condensed Consolidated Financial Statements.~~

					June 30, 2006		December 31, 2005
					(Unaudited)
ASSETS	March 31, 2006		December 31, 2005

Current assets
Cash and bank balances	$	888,269	$	613,391	$	1,285,438	$	613,391
Bank fixed deposits - pledged (Note11)		75,450		120,813
Bank fixed deposits - pledged (Note 12)						129,698		120,813
Notes and accounts receivable, net (Notes 5)		2,537,982		2,593,276		3,009,621		2,593,276
Inventories, net (Note 6)		1,658,229		2,069,492		1,553,396		2,069,492
Other receivables (Notes 7)		317,049		223,063		271,769		223,063
Prepayments and other current assets (Note 8)		704,345		411,526		319,025		411,526
Pledged notes receivable (Note11)		992,274		849,704
Pledged notes receivable (Note 12)						650,383		849,704
Deferred income tax assets		77,630		72,992		123,006		72,992
Total current assets		7,251,228		6,954,257		7,342,336		6,954,257
Deferred income tax assets		71,059		46,382		48,609		46,382
Long-term investments (Note 9)		62,998		71,158		62,719		71,158
Property and equipment, net		1,798,411		1,808,411		1,765,360		1,808,411
Intangible assets, net of amortization (Note 11)		665,716		699,246		625,284		699,246
Long-term notes receivable		898,885		482,483		875,663		482,483
Pledged notes receivable (Note 12)		74,902		357,825		188,784		357,825
Other assets		368,983		563,175		346,883		563,175
Total assets	$	11,192,182	$	10,982,937	$	11,255,638	$	10,982,937
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Bank borrowings - short-term and maturing within one year (Note 12)	$	1,393,674	$	1,516,906	$	1,046,430	$	1,516,906
Notes and accounts payable		1,441,303		1,385,478		1,369,230		1,385,478
Accrued expenses		835,978		560,733		728,868		560,733
Amounts due to stockholders/officers (Note 10)		840,789		977,838
Amounts due to related parties (Note 10)						841,437		977,838
Other payables (Note 14)		914,320		1,057,161		801,372		1,057,161
Deposits received		837,673		462,007		599,761		462,007
Receipts in advance (Note13)		2,069,591		2,353,680
Receipts in advance (Note 13)						2,887,189		2,353,680
Income tax payable		195,561		122,481		226,735		122,481
Obligation under capital leases due within one year		8,010		—
Other Current Liabilities						95,079		—
Total current liabilities		8,536,899		8,436,284		8,596,101		8,436,284
Bank borrowings maturing after one year (Note 12)		1,307,211		1,640,391		1,347,655		1,640,391
Receipts in advance (Note13)		1,661,955		1,130,207
Obligation under capital leases		5,340		—
Receipts in advance (Note 13)						1,542,355		1,130,207
Deposits received		422,828		864,196		789,236		864,196
Deferred Liability		35,650		35,416
Deferred liability						35,757		35,416
Accrued pension liabilities (Note 15)		173,203		174,387		183,145		174,387
Total liabilities		12,143,086		12,280,881		12,494,249		12,280,881

~~-2-~~1

Condensed Consolidated Balance Sheets - Continued

~~(Unaudited)~~

See accompanying notes to Condensed Consolidated Financial Statements.

							June 30, 2006			December 31, 2005
	March 31, 2006			December 31, 2005			(Unaudited)
Commitments and contingencies (Note 17)

Minority interest		47,823			28,627			42,549			28,627

Shareholders’ equity
Common stock, no par share :
25,000,000 shares authorized; 18,999,703 shares issued and outstanding at March 31, 2006 and December 31, 2005		7,669,308			7,669,308
Common stock, no par share:
25,000,000 shares authorized; 18,999,703 shares issued and outstanding at June 30, 2006 and December 31, 2005								7,669,308			7,669,308
Additional paid-in capital		194,021			194,021			194,021			194,021
Legal reserve		65,320			65,320			65,320			65,320
Accumulated deficit		(8,652,497	)		(9,010,356	)		(8,925,276	)		(9,010,356	)
Accumulated other comprehensive loss		(274,879	)		(244,864	)		(284,533	)		(244,864	)
Total shareholders’ equity		(998,727	)		(1,326,571	)		(1,281,160	)		(1,326,571	)
Total liabilities and shareholders’ equity	$	11,192,182		$	10,982,937		$	11,255,638		$	10,982,937

~~-3-~~2

Condensed Consolidated Statements of Operations

See accompanying notes to Condensed Consolidated Financial Statements.

	Three months ended June 30,
	2006			2005
	(Unaudited)
Operating Revenue
Sales of goods	$	1,309,033		$	1,174,176
Franchising income		688,141			710,121
Other operating revenue		(70,988	)		156,436
Total net operating revenue		1,926,186			2,040,733
Operating costs
Cost of goods sold		(562,738	)		(579,442	)
Cost of franchising		(91,242	)		(63,042	)
Other operating costs		(39,326	)		(103,075	)
Total operating costs		(693,306	)		(745,559	)
Gross profit		1,232,880			1,295,174
Advertising costs		(14,747	)		(23,491	)
Other operating expenses		(1,429,510	)		(1,465,044	)
(Loss) income from operations		(211,377	)		(193,361	)
Interest expenses, net		(86,752	)		(56,730	)
Share of income (loss) of investments		(491	)		—
Other non-operating income (loss), net		38,910			102,563
(Loss) income before income taxes		(259,710	)		(147,528	)
Benefit (provision) for taxes		(18,428	)		( 41,297	)
(Loss) income after income taxes		(278,138	)		(188,825	)
Minority interest income		5,359			(19,202	)
Net (loss) income	$	(272,779	)	$	(208,027	)
(Loss) earnings per share - basic and diluted	$	(0.014	)	$	( 0.01	)
Weighted-average shares used to compute (loss) earnings per share - basic and diluted		18,999,703			18,999,703

Three months ended March 31,
2006 2005
(Unaudited)
Operating Revenue
Sales of goods
$
2,220,496

$
2,375,155

Franchising income
506,547

597,925

Other operating revenue
245,484

149,912

Total net operating revenue
2,972,527

3,122,992

Operating costs
Cost of goods sold
(807,487
)

(927,731
)
Cost of franchising
(80,125
)

(113,613
)
Other operating costs
(42,251
)

(74,196
)
Total operating costs
(929,863
)

(1,115,540
)
Gross profit
2,042,664

2,007,452

Advertising costs (2,541 )
(33,363
)
Other operating expenses
(1,415,130
)

(1,785,500
)
Income from operations
624,993

188,589

Interest expenses, net
(33,373
)

(59,253
)
Share of income (loss) of investments
(8,594
)

12,483

Other non-operating income (loss), net
(37,735
)

(48,939
)
Income before income taxes
545,291

92,880

Benefit (provision) for taxes
(168,481
)

(143,453
)
(Loss) income after income taxes
376,810

(50,573
)
Minority interest income
(18,951
)

143

Net (loss) income
$
357,859

$
(50,430
)
(Loss) earnings per share - basic and diluted $ 0.019 $ (0.003 )
Weighted-average shares used to compute (loss) earnings per share - basic and diluted
18,999,703

18,999,703

~~-4-~~3

Condensed Consolidated Statements of Operations

See accompanying notes to Condensed Consolidated Financial Statements.

	Six months ended June 30,
	2006			2005
	(Unaudited)
Operating Revenue
Sales of goods	$	3,529,529		$	3,549,331
Franchising income		1,194,688			1,308,046
Other operating revenue		174,496			306,348
Total net operating revenue		4,898,713			5,163,725
Operating costs
Cost of goods sold		(1,370,225	)		(1,507,173	)
Cost of franchising		(171,367	)		(176,655	)
Other operating costs		(81,577	)		(177,271	)
Total operating costs		(1,623,169	)		(1,861,099	)
Gross profit		3,275,544			3,302,626
Advertising costs		(17,288	)		(56,854	)
Other operating expenses		(2,844,640	)		(3,250,544	)
(Loss) income from operations		413,616			(4,772	)
Interest expenses, net		(120,125	)		(115,983	)
Share of income (loss) of investments		(9,085	)		12,483
Other non-operating income (loss), net		1,175			53,624
(Loss) income before income taxes		285,581			(54,648	)
Benefit (provision) for taxes		(186,909	)		( 184,750	)
(Loss) income after income taxes		98,672			(239,398	)
Minority interest income		(13,592	)		(19,059	)
Net (loss) income	$	85,080		$	(258,457	)
(Loss) earnings per share - basic and diluted	$	0.004		$	( 0.01	)
Weighted-average shares used to compute (loss) earnings per share - basic and diluted		18,999,703			18,999,703

Kid Castle Educational Corporation

Condensed Consolidated Statements of Stockholders’ Equity

See accompanying notes to Condensed Consolidated Financial Statements.

	Common Stock
	Number of shares		Amount		Additional paid-in capital		Legal reserve		Accumulated deficit			Accumulated other comprehensive loss			Total			Common Stock				Additional							Accumulated other
																		Number of shares		Amount		paid-in capital		Legal reserve		Accumulated deficit			comprehensive loss			Total
Balance, December 31, 2004		18,999,703	$	7,669,308	$	194,021	$	65,320	$	(7,312,074	)	$	(222,650	)	$	393,925			18,999,703	$	7,669,308	$	194,021	$	65,320	$	(7,312,074	)	$	(222,650	)	$	393,925
Net loss for 2005		-		-		-		-		(1,698,282	)		-			(1,698,282	)		-		-		-		-		(1,698,282	)		-			(1,698,282	)
Cumulative translation adjustment		-		-		-		-		-			(22,214	)		(22,214	)		-		-		-		-		-			(22,214	)		(22,214	)
Comprehensive loss																(1,720,496	)																(1,720,496	)

Balance, December 31, 2005		18,999,703	$	7,669,308	$	194,021	$	65,320	$	(9,010,356	)	$	(244,864	)	$	(1,326,571	)		18,999,703	$	7,669,308	$	194,021	$	65,320	$	(9,010,356	)	$	(244,864	)	$	(1,326,571	)
Net income for the three months ended March 31, 2006 (Unaudited)		-		-		-		-		357,859			-			357,859
Net income for the six months ended June 30, 2006 (Unaudited)																			-		-		-		-		85,080			-			85,080
Cumulative translation adjustment (Unaudited)		-		-		-		-		-			(30,015	)		(30,015	)		-		-		-		-		-			(39,669	)		(39,669	)
Comprehensive loss (Unaudited)																327,844																	45,411

Balance, March 31, 2006 (Unaudited)		18,999,703	$	7,669,308	$	194,021	$	65,320	$	(8,652,497	)	$	(274,879	)	$	(998,727	)
Balance, June 30, 2006 (Unaudited)																			18,999,703	$	7,669,308	$	194,021	$	65,320	$	(8,925,276	)	$	(284,533	)	$	(1,281,160	)

~~-5-~~5

~~Kid~~Kid Castle Educational Corporation

Condensed Consolidated Statements of Cash Flows

See accompanying notes to Condensed Consolidated Financial Statements.

Three months ended March 31,
2006 2005
(Unaudited)

Cash flows from operating activities
Net (loss) income
$
357,859

$
(50,430
)
Adjustments to reconcile net (loss) income to net cash provided by operating activities
Depreciation of property and equipment
48,094

66,681

Amortization of intangible assets
41,813

42,835

Allowance for sales returns
97,042

95,267

Allowance for doubtful debts
220,814

284,537

Provision (reversal) of allowance for loss on inventory obsolescence and slow-moving items
48,514

6,452

Loss (gain) on disposal of property and equipment
-—

(9,010
)
Minority interests
18,951

(143
)
Share of loss (gain) of investments
8,594

(12,483
)
(Increase)/decrease in:
Notes and accounts receivable
(1,052,873
)

(775,674
)
Inventories
388,817

4,514

Other receivables
315,763

(129,129
)
Prepayments and other current assets
(202,414
)

41,002

Deferred income tax assets
(28,074
)

(32,194
)
Other assets
201,692

46,591

Increase/(decrease) in:
Notes and accounts payable
40,016

60,036

Accrued expenses
284,644

148,876

Other payables
(426,355
)

124,933

Receipts in advance
208,438

(147,307
)
Income taxes payable
72,020

115,635

Deferred Liability (181 )
—

Deposits received
388,235

67,207

Accrued pension liabilities
(15,599
)

29,115

Net cash provided by (used in) operating activities
1,015,810

(22,689
)

Cash flows from investing activities
Purchase of property and equipment
(17,050
)

(104,562
)
Proceeds from disposal of property and equipment
—

72,795

Amount due from stockholder/director
—

—

Prepayment of long-term investments
—

—

Acquisition of long-term investments
—

—

Bank fixed deposits - pledged
46,990

(58,629
)
Pledged notes receivable
155,067

29,990

Advances to ex-CFO
—
(544,244 )
Repayments of advances to ex-CFO
—
544,244

Net cash provided by (used in) investing activities
185,007

(60,406
)

	Six months ended June 30,
	2006			2005
	(Unaudited)

Cash flows from operating activities
Net (loss) income	$	85,080		$	(258,457	)
Adjustments to reconcile net (loss) income to net cash provided by operating activities
Depreciation of property and equipment		93,908			223,862
Amortization of intangible assets		83,873
Allowance for sales returns		2,356			92,463
Allowance for doubtful debts		609,912			110,063
Provision (reversal) of allowance for loss on inventory obsolescence and slow-moving items		90,588			95,147
Minority interests		13,592			19,059
Share of loss (gain) of investments		9,085			(12,483	)
(Increase)/decrease in:
Notes and accounts receivable		(1,369,563	)		(2,371,422	)
Inventories		456,634			(139,918	)
Other receivables		104,051			(88,654	)
Prepayments and other current assets		98,622			(169,392	)
Deferred income tax assets		(50,939	)		(34,147	)
Other assets		225,219			( 6,510	)
Increase/(decrease) in:
Notes and accounts payable		(35,104	)		776,387
Accrued expenses		176,759			153,429
Other payables		(541,031	)		228,281
Receipts in advance		904,189			195,553
Income taxes payable		103,224			83,722
Deferred liability		(137	)		—
Deposits received		516,262			102,551
Other current liabilities		95,652			—
Accrued pension liabilities		(5,971	)		59,010

Net cash provided by (used in) operating activities		1,666,261			(941,456	)

Cash flows from investing activities
Purchase of property and equipment	(26,115	)	(165,947	)
Proceeds from disposal of property and equipment	—		—
Amount due from stockholder/director	—		—
Prepayment of long-term investments	—		—
Acquisition of long-term investments	—		—
Collection of long term notes			240,971
Increase in interest in associates			( 24,977	)
Bank fixed deposits - pledged	(7,302	)	(61,519	)
Pledged notes receivable	386,928		1,625,505
Advances to ex-CFO	—		(1,544,244	)
Repayments of advances to ex-CFO	—		1,544,244
Net cash provided by investing activities	353,511		1,614,033

~~-6-~~6

K~~id Castle Educational Corporation~~

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

~~(Expressed in US Dollars)~~

Three months ended March 31,
2006 2005
(Unaudited)
Cash flows from financing activities
Proceeds from bank borrowings
$
(40,370
)
$
795,968

Proceeds from loan from a stockholder — —
Proceeds from capital leases —
57,089

Repayment of bank borrowings
(454,960
)

(781,513
)
Repayment of capital leases
13,415

(10,910
)
Repayment of loan from officers/stockholders
(423,336
)

—

Net cash provided by (used in) financing activities
(905,251
)

60,634

Net increase (decrease) in cash and cash equivalents
295,566

(22,461
)

Effect of exchange rate changes on cash and cash equivalents
(20,688
)

(17,934
)

Cash and cash equivalents at beginning of period
613,391

213,564

Cash and cash equivalents at end of period
$
888,269

$
173,169

Supplemental disclosure of significant non-cash transactions

Increase (decrease) of notes receivable and pledged notes receivable corresponding to the increase (decrease) in the following accounts:

Deposits received
$
—

$
1,586

Other payables
$
—

$
6,473

Receipts in advance
$
—

$
258,156

		Six months ended June 30,
		2006			2005
		(Unaudited)

Cash flows from financing activities
Proceeds from bank borrowings	$	215,463		$	795,968
Proceeds from loan from a stockholder		—			—
Repayment of bank borrowings		(1,026,017	)		(1,054,969	)
Proceeds from capital leases		—			57,086
Repayment of capital leases		—			(65,748	)
Repayment of loan from officers/stockholders		(509,847	)		—

Net cash used in financing activities		(1,320,401	)		(267,657	)

Net increase in cash and cash equivalents		699,371			404,920

Effect of exchange rate changes on cash and cash equivalents		(27,324	)		148,142

Cash and cash equivalents at beginning of period		613,391			213,564

Cash and cash equivalents at end of period	$	1,285,438		$	766,626

~~-7-~~7

Kid Castle Educational Corporation

Notes to Condensed Consolidated Financial Statements

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Kid Castle Internet Technologies Limited (“KCIT”) was incorporated on December 17, 1999 under the provisions of the Company Law of the Republic of China (“ROC”) as a limited liability company. KCIT is engaged in the business of children’s education focusing on the English language. The business comprises publication, sales and distribution of related books, magazines, audio and videotapes and compact disc, franchising and sales of merchandises complementary to the business. KCIT commenced operations in April 2000 when it acquired the above business from a related company, Kid Castle Enterprises Limited (“KCE”), which was owned by two directors and stockholders of KCIT.

On March 9, 2001, KCIT formed a wholly-owned subsidiary, Premier Holding Investment Property Limited incorporated in the British Virgin Islands, which held the entire common stock of Higoal Developments Limited (“Higoal”) incorporated in the Cayman Islands on March 8, 2001. On September 10, 2001, Higoal established a wholly owned subsidiary, Kid Castle Educational Software Development Company Limited (“KCES”) in the People’s Republic of China (the “PRC”). The existing operations of Higoal are principally located in Taiwan and are being expanded in the PRC. In June 2002, after KCIT undertook a series of group restructurings, KCIT became the direct owner of the outstanding shares of Higoal. Premier Holding Investment Property Limited was then liquidated in June 2003.

On September 18, 2002, Higoal issued 11,880,000 shares of common stock to the stockholders of KCIT in exchange for 100% of the outstanding common stock of KCIT. As a result of this reorganization, KCIT became a ~~wholly owned~~wholly-owned subsidiary of Higoal. On October 1, 2002, Kid Castle Educational Corporation (the “Company”), formerly King Ball International Technology Limited Corporation, entered into an exchange agreement with Higoal whereby the Company issued to the stockholders of Higoal 11,880,000 shares of common stock of the Company in exchange for 100% of the issued and fully paid up capital of Higoal.

As a result of the share exchange, the former stockholders of Higoal hold a majority of the Company’s outstanding capital stock. Generally accepted accounting principles require in certain circumstances that a company whose stockholders retain the majority voting interest in the combined business to be treated as the acquirer for financial reporting purposes. Accordingly, the acquisition has been accounted for as a “reverse acquisition” whereby Higoal is deemed to have purchased the Company. However, the Company remains the legal entity and the Registrant for Securities and Exchange Commission reporting purposes.

In July 2003, KCES entered into an agreement with 21^st Century Publishing House to incorporate Jiangxi 21^st Century Kid Castle Culture Media Co., Ltd (“Culture Media”). It was agreed that KCES and 21^st Century Publishing House each owned 50% ownership and that each party contributed RMB$1 million for the incorporation. On July 2, 2004, KCES acquired additional 40% of ownership in Culture Media from 21^st Century Publishing House. KCES now owns 90% of Culture Media.

The Company, Higoal and its subsidiaries collectively are referred to as the “Group”. The operations of the Group are principally located in Taiwan and the PRC.

~~-8-~~8

NOTE 2 - BASIS OF PRESENTATION

The accompanying financial data as of ~~March 31,~~June 30, 2006 and for the ~~three~~six months ended ~~March 31,~~June 30, 2006 and 2005 have been prepared by the Group, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. However, the Group believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Group’s audited annual financial statements for the year ended December 31, 2005.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates.

The Group has incurred operating losses since inception and hence, as of ~~March 31,~~June 30, 2006, the balance of accumulated deficit was ~~$8,652,497.~~$8,925,276. The Group plans to fund its working capital needs by obtaining new credit lines from financial institutions and raising capital through the sale of equity securities. If the Group is unable to meet its current operating plan, it will be required to obtain additional funding. Management believes such funding will be available, but there can be no assurances that such funding will be available, or if it is available, on terms acceptable to the Group. Management believes that if funding is not available, other actions can and will be taken to reduce costs. These actions may ~~entail~~require the Group to reduce headcount, sales and marketing efforts or other expansion activities, which may affect the future growth of the Group’s operations.

NOTE 3.1 - RESTATEMENT

During the ~~three~~six months ended ~~March 31,~~June 30, 2005, the Company’s then Chief Financial Officer (referred to as “ex-CFO”) made fund withdrawals from and repayments to the Company and returned the full withdrawn amount of cash by ~~March 31,~~June 30, 2005. The Company’s condensed consolidated statement of cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2005 will be restated to disclose the resulting cash flow impact on the Condensed Consolidated Statement of Cash Flows. ~~For~~(For further information related to such transaction, please refer to 2004 Form 10-K/A and 2005 Form 10-K filed on March 8, ~~2007~~2007)

The impact of the restatement on the Condensed Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2005 is as follows:

	As Previously Reported			Restated Amount			As Previously Reported		Restated Amount
Advances to ex-CFO		ó			(544,244	)		—		(1,544,244	)
Repayments of advances to ex-CFO		ó			544,244			—		1,544,244
Net cash (used in) provided by investing activities		(60,406	)		(60,406	)		1,614,033		1,614,033

~~-9-~~

NOTE 3.2 - SUMMARY OF IMPORTANT ACCOUNTING POLICIES

REVENUE RECOGNITION

Sales of books, magazines, audio and video tapes, compact ~~disc~~discs and other merchandises are recognized as revenue on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and title has passed. Provision is made for expected future sales returns and allowances when revenue is recognized.

Franchise fees are the annual licensing fees for franchisees to use the Group’s brand name and consulting services. Franchising income is recognized on a straight-line basis over the terms of the relevant franchise agreements.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

An allowance for doubtful accounts is provided based on the evaluation of collectibility and aging analysis of notes and accounts receivables.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost includes all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition, and is calculated using the weighted average method. Market value is determined by reference to the sales proceeds of items sold in the ordinary course of business after the balance sheet date or to management estimates based on prevailing market conditions.

PROPERTY AND EQUIPMENT AND DEPRECIATION

Property and equipment are stated at cost. Depreciation is computed using the straight-line method to allocate the cost of depreciable assets over the estimated useful lives of the assets as follows:

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

Maintenance, repairs and minor renewals are charged directly to the statement of operations as incurred. When assets are disposed of, the related cost and accumulated depreciation thereon are removed from the financial statements and any resulting gain or loss is included in the statement of operations.

LONG-LIVED ASSETS

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. The Group does not perform a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Group measures fair value based on quoted market prices or based on discounted estimates of future cash flows.

INCOME TAXES

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and tax loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are subject to valuation allowances based upon management’s estimates of reliability. Actual results may differ significantly from management’s estimate.

~~-10-~~10

~~INCOME TAXES~~

The Company and its subsidiaries account for income taxes in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109 “Accounting for Income Taxes”. Under SFAS No. 109, deferred tax liabilities or assets at the end of each period are determined using the currently enacted tax rate. Valuation allowances are established when it is considered more likely than not that the deferred tax assets will not be realized.

INTANGIBLE ASSETS

Franchises and copyrights are stated at cost and amortized on the straight-line method over their estimated useful lives of 10 years.

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. Comprehensive income (loss) is disclosed in the condensed consolidated statement of stockholders’ equity.

NET EARNINGS (LOSS) PER COMMON SHARE

The Group computes net earnings (loss) per share in accordance with SFAS No. 128, “Earnings per Share”. Under the provisions of SFAS No. 128, basic net earnings (loss) per share is computed by dividing the net earnings (loss) available to common shareholders for the period by the weighted average number of shares of common stock outstanding during the period. The calculation of diluted net earnings (loss) per share gives effect to common stock equivalents. For the ~~three~~six months ended ~~March 31,~~June 30, 2006 and 2005, ~~and 2004,~~ the Group did not have any potential common stock shares.

RECLASSIFICATION

The presentation of certain prior information has been reclassified to conform to current presentation.

NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS

In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151, “Inventory Costs (as amended) an amendment of ARB No. 43. This statement clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. This statement requires that those items be recognized as current period charges regardless of whether they meet the criterion of ~~“ so~~“so abnormal.” It is effective for all fiscal years beginning after June 15, 2005. The Company does not expect the implementation of this statement to have a material impact on its consolidated financial statements.

NOTE 5 - NOTES AND ACCOUNTS RECEIVABLE

	March 31, 2006			December 31, 2005			June 30, 2006			December 31, 2005
	(Unaudited)						(Unaudited)

Notes and accounts receivable
- Third parties	$	3,216,678		$	2,944,574		$	3,959,039		$	2,944,574
- Related parties (NOTE 10)		396,755			401,184			421,793			401,184

Total		3,613,433			3,345,758			4,380,832			3,345,758
Allowance for doubtful accounts and sales returns		(1,075,451	)		(752,482	)		(1,371,211	)		(752,482	)

Notes and accounts receivable, net	$	2,537,982		$	2,593,276		$	3,009,621		$	2,593,276

~~-11-~~11

NOTE 6 - INVENTORIES

	March 31, 2006			December 31, 2005			June 30, 2006			December 31, 2005
	(Unaudited)						(Unaudited)

Work in process	$	109,263		$	127,001		$	107,138		$	127,001
Finished goods and other merchandises		2,360,409			2,696,942			2,300,907			2,696,942

		2,469,672			2,823,943			2,408,045			2,823,943
Less: Allowance for obsolete inventories and decline of market value		(811,443	)		(754,451	)		(854,649	)		(754,451	)

	$	1,658,229		$	2,069,492		$	1,553,396		$	2,069,492

NOTE 7 - OTHER RECEIVABLES

March 31,
2006

December 31,
2005

(Unaudited)
Other receivables - third parties:
Tax paid on behalf of landlord
$
—

$
2,013

Advances to staff
128,484

125,590

Grants from Market Information Center
—

—

Receivables from Shanghai Wonderland Educational
Resources Co., Ltd. (“Shanghai Wonderland”) (Note (i))
370,915 368,528
Other receivables
154,594

86,141

Less : Allow for doubtful accounts (370,915 ) (368,528 )

Sub-total
283,078

213,744

Other receivables - related parties (NOTE 10)
33,971

9,319

$
317,049

$
223,063

	June 30, 2006			December 31, 2005
	(Unaudited)
Other receivables - third parties:
Tax paid on behalf of landlord	$	—		$	2,013
Advances to staff		192,687			125,590
Grants from Market Information Center		—			—
Receivables from Shanghai Wonderland Educational Resources Co., Ltd. (“Shanghai Wonderland”) (Note (i))		372,065			368,528
Other receivables		69,396			86,141
Less : Allow for doubtful accounts		(372,065	)		(368,528	)

Sub-total		262,083			213,744
Other receivables - related parties (NOTE 10)		9,686			9,319
	$	271,769		$	223,063

(i)

Shanghai Wonderland was a distributor of the Group. The Group loaned Shanghai Wonderland RMB$450,000 (approximately $54,000), RMB$500,000 (approximately $60,000) and RMB$2,500,000 (approximately $310,000) for operations in December 2003, July ~~2004~~2005 and August 2005, ~~respectively,~~respectively. The identified loans were unsecured and bore no interest. Shanghai Wonderland has fully repaid the loan of RMB$450,000 in December 2004 and January 2005. As of ~~March 31,~~June 30, 2006, Shanghai Wonderland still owes the Group a balance of RMB$~~3,000,000(approximately $370,915)~~3,000,000 (approximately $372,065). Such sum has now been itemized and recorded as "allowance for doubtful accounts" compared to its prior recognition as "Other receivables".

~~-12-~~

NOTE 8 - PREPAYMENTS AND OTHER CURRENT ASSETS

	March 31, 2006		December 31, 2005		June 30, 2006		December 31, 2005
	(Unaudited)				(Unaudited)

Prepayments	$	669,820	$	399,659	$	287,922	$	399,659
Temporary payments		1,059		11,038		4,409		11,038
Tax recoverable		—		—		—		—
Prepaid interest		22,440		—		59		—
Others		11,026		829		26,635		829

	$	704,345	$	411,526	$	319,025	$	411,526

~~NOTE 9-~~NOTE 9 - INTEREST IN ASSOCIATES

March 31,
2006

December 31,
2005

(Unaudited)

21^st Century Kid Castle Language and Education Center (“Education Center”) (Note (i))

Investment cost
$
93,544

$
92,942

Share of loss
(38,512
)

(40,803
)

$
55,032

$
52,139

Tianjin Kid Castle Educational Investment Consulting Co., Ltd. (“Tianjin Consulting”) (Note (ii))
Investment cost
$
87,308

$
86,746

Share of loss
(91,171
)

(80,360
)

$
(3,863
)
$
6,386

Lanbeisi Education &Culture Industrial Co., Ltd (“Lanbeisi”) (Note (iii))
Investment cost
$
44,901

$
44,612

Share of loss
(33,072
)

(31,979
)

$
11,829

$
12,633

Total $ 62,998
$
71,158

~~-13-~~

~~Note:~~

	June 30, 2006			December 31, 2005
	(Unaudited)

21^st Century Kid Castle Language and Education Center (“Education Center”) (Note (i))
Investment cost	$	93,834		$	92,942
Share of loss		(32,873	)		(40,803	)

	$	60,961		$	52,139

Tianjin Kid Castle Educational Investment Consulting Co., Ltd. (“Tianjin Consulting”) (Note (ii))
Investment cost	$	87,579		$	86,746
Share of loss		(94,997	)		(80,360	)

	$	(7,418	)	$	6,386

Lanbeisi Education &Culture Industrial Co., Ltd (“Lanbeisi”) (Note (iii))
Investment cost	$	45,040		$	44,612
Share of loss		(35,864	)		(31,979	)

	$	9,176		$	12,633

Total	$	62,719		$	71,158

For the ~~three~~six months ended ~~March 31,~~June 30, 2006 and 2005, the Group recognized investment income accounted for under the equity method in Education Center of ~~$2,549~~$8,042 and ~~33,084,~~$8,337, respectively.

(i)

In October 2003, the Group obtained the 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.

For the ~~three~~six months ended ~~March 31,~~June 30, 2006 and 2005, the Group recognized an investment loss of ~~$10,262~~$13,399 and ~~$15,649~~$24,756 respectively, accounted for under the equity method, in Tianjin Consulting.

(iii)

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

For the ~~three~~six months ended ~~March 31,~~June 30, 2006 and 2005, the Group recognized an investment loss of ~~$844~~$3,458 and ~~$4,952~~$6,345 respectively, accounted for under the equity method, in Lanbeisi.

~~-14-~~14

NOTE ~~10-~~10 - RELATED PARTY TRANSACTIONS

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

Names of related parties		Relationship with the Company

Mr. Kuo-An Wang		~~He is a director, shareholder and in~~In October 2005 resigned as chairman of the board of directors, president and chief executive officer of the Company. On October 18, 2006 resigned as director of the board of directors.

Mr. Yu-En Chiu		~~He is a director, shareholder and on~~On June 1, 2006 resigned as chief financial officer and director of the board of directors. Mr. Chiu remained the Chairman of PRC operation until February 28, 2007,

Mr. Min-Tan Yang		Director and chief executive officer of the Company since November 2, ~~2005~~2005.

Mr. Suang-Yi Pai		Director and ~~appointed as~~ chairman of the board of directors since November 2, 2005.

~~Kid Castle Enterprises Limited (“KCE”)~~		~~Its two directors and stockholders are Mr.~~ ~~Kuo-An Wang and Mr. Yu-En Chiu~~

~~Chevady Culture Enterprise Limited (“CCE”)~~		~~Its chairman is Mr. Yu-En Chiu~~

Private Kid Castle Short Term Language Cram School (“PKC Language”)		Its chairman of the board of directors is Mr. Yu-En ~~Chiu~~Chiu.

Taipei Country Private Kid Castle Short Term Language Cram School (“TCP PKC”)		Its chairman of the board of directors is Mr. Yu-En ~~Chiu~~Chiu.

Taipei Country Private Chevady Preschool (“TCP Chevady”)		Its chairman of the board of directors is Mr. Yu-En ~~Chiu~~Chiu.

Taipei Country Private Chung-hua Preschool (“TCP Chung-hua”)		Its chairman of the board of directors is Mr. Yu-En ~~Chiu~~Chiu.

Taipei Country Private Wonderland Preschool (“TCP Wonderland”)		Its chairman of the board of directors is Mr. Yu-En ~~Chiu~~Chiu.

Taipei City Private Kid Castle Preschool (“TCP Kid ~~Castle)~~Castle”)		Its ~~director~~chairman of the board of directors is Mr. Yu-En ~~Chiu~~Chiu.

~~-15-~~

Taipei Country Private Kid’s Castle Yin Cyun ~~Pre-school(~~Preschool(“TCP Yin Cyun”)		Its chairman of the board of directors is Mr. Min-Tan ~~Yang~~Yang.

Taipei Country Private Yin Tzu Preschool (“TCP Yin Tzu”)		Its chairman of the board of directors is Mr. Min-Tan ~~Yang~~Yang.

Private Kuan Lung Short Term Language Cram School (“Kuan Lung Language”)		Its chairman of the board of directors is Mr. Min-Tan ~~Yang~~Yang.

Taipei City Private Chu Sheng Preschool (“TCP Chu Sheng”)		Its chairman of the board of directors is Mr. Min-Tan ~~Yang~~Yang.

Taipei Country Private Chu Yao Preschool (“TCP Chu Yao”)		Its chairman of the board of directors is Mr. Min-Tan ~~Yang~~Yang.

Private Liang Yu Language & Computer School ("Liang Yu Language")		Its chairman of the board of directors is Mr. Min-Tan ~~Yang~~Yang.

21st Century Publishing House (“Publishing House”)		A joint venture partner (third-party after July 2004).

Jiangxi 21st Century Kid Castle Culture Media Co., Ltd (“Culture Media”)		An investment accounted for under the equity method before July 2, 2004. It has become a consolidated entity after July 2, 2004.

21st Century Kid Castle Language and Education Center (“Education Center”)		An investment accounted for under the equity method.

Tianjin Kid Castle Educational Investment Consulting Co., Ltd.(“ (“Tianjin Consulting”)		An investment accounted for under the equity ~~method~~method.

Sichuan Lanbeisi Kid Castle Education Development Co., Ltd. (“Lanbeisi”)		An investment accounted for under the equity ~~method~~
		method.

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

Three months ended March 31,

2006

2005

(Unaudited)
(i) Sales to:

- PKC Language
$
-

$
3,030

- TCP PKC - 3,030
- TCP Chevady 1,729 7,614
- TCP Chung-hua 1,729 7,614
- TCP Wonderland - 5,349
- TCP Kid Castle
-

4,996

- Kuan Lung Language 5,416 -
- TCP Chu Yao 8,035 -
- TCP Chu Sheng 3,816 -
- TCP Yin Cyun 8,957 -
- TCP Yin Tzu 3,425 -
- Liang Yu Language 16,502 -
- English School 5,233 6,034
- Tianjin Consulting 9,984 4,589
- Lanbeisi
6,920

26,793

$
71,746

$
69,049

		Six months ended June 30,
		2006		2005
		(Unaudited)
(i)	Sales to:
	- PKC Language	$	—	$	5,425
	- TCP PKC		—		5,425
	- TCP Chung-hua		3,468		15,508
	- TCP Chevady		—		4,917
	- TCP Wonderland		—		4,917
	- TCP Kid Castle		—		9,823
	- Kuan Lung Language		7,924		—
	- TCP Chu Yao		18,212		—
	- TCP Chu Sheng		7,636		—
	- TCP Yin Cyun		41,636		—
	- TCP Yin Tzu		21,835		—
	- Liang Yu Language		27,197		—
	- English School		10,532		1,838
	- Tianjin Consulting		16,802		176
	- Lanbeisi		9,907		3,947

		$	165,149	$	51,976

(ii)	Rental income from:
	- CCE	$	1,242	$	951

		$	1,242	$	951

(iii)	Franchising income from:
	- TCP Kid Castle	$	—	$	6,811
	- TCP Chung-Hua		—		—
	- TCP Wonderland		—		3,406
	- TCP Chu Sheng		5,810		—
	- TCP Yin Cyun		2,556		—
	- TCP Yin Tzu		5,577		—
	- Liang Yu Language	$	1,242	$	—

		$	15,185	$	10,217

~~-16-~~

(ii)  Rental income from:

- CCE
$
-

$
476

$
-

$
476

(iii)  Franchising income from:

- PKC Language
$
-

$
136
- TCP PKC - 136
- TCP Kid Castle
-

1,854

- TCP Chung-Hua - -
- TCP Chevady - 927
- TCP Wonderland - 927
- TCP Chu Sheng 1,763 -
- TCP Chu Yao 1,764 -
- TCP Yin Cyun 637 -
- TCP Yin Tzu
3,400

-

$
7,564

$
3,980

(iv)  Purchase from:

- Publishing House
-

319,640

$
-

$
319,640

~~(v)~~(iv)

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

The management of the Group is of the opinion that the above transactions were carried out in the normal course of business at agreed upon terms.

~~(vi)~~(v)

Accounts and notes receivable - related parties:

March 31,

December 31,

Name of related parties

2006

2005

(Unaudited)

- PKC Language $ 38,934 $ 26,147
- TCP PKC 38,934 52,294
- TCP Chung-hua 51,350 53,665
- TCP Chevady 48,199 48,685
- TCP Wonderland 48,199 48,685
- TCP Kid Castle 56,425 58,172
- TCP Yin Cyun 19,485 33,585
- Kuan Lung Language 170 ─
- TCP Chu Yao 18,540 ─
- TCP Chu Sheng 18,333 ─
- TCP Yin Tzu 13,950 29,062
- Liang Yu Language 5,718 12,071
- Education Center 39 ó
- Tianjin Consulting 17,023 20,826
- Lanbeisi 21,456 17,992

$ 396,755 $ 401,184

~~-17-~~

Name of related parties		June 30, 2006		Decenber 31, 2005
		(Unaudited)

- PKC Language		39,007		26,147
- TCP PKC		39,007		52,294
- TCP Chung-hua		51,131		53,665
- TCP Chevady		48,290		48,685
- TCP Wonderland		48,290		48,685
- TCP Kid Castle		56,531		58,172
- Kuan Lung Language		2,050		—
- TCP Chu Yao		20,260		—
- TCP Chu Sheng		12,706		—
- TCP Yin Cyun		39,443		33,585
- TCP Yin Tzu		14,451		29,062
- Liang Yu Language		9,145		12,071
- Education Center		—		—
- Tianjin Consulting		18,193		20,826
- Lanbeisi		23,289		17,992

	$	421,793	$	401,184

(vii)

Other receivables - related parties:

March 31,

December 31,

Name of related parties

2006

2005

(Unaudited)

Amount due from Publishing House (Note 1)
$
─

$
─

Amount due from Education Center (Note 2)
277

─

Amount due from Tianjin Consulting (Note 3)
633

15

Amount due from Lanbeisi (Note 4)
33,061

9,304

$
33,971

$
9,319

Name of related parties		June 30, 2006		December 31, 2005
		(Unaudited)

Amount due from Publishing House (Note 1)	$	—	$	—
Amount due from Education Center (Note 2)		278		—
Amount due from Tianjin Consulting (Note 3)		15		15
Amount due from Lanbeisi (Note 4)		9,393		9,304

	$	9,686	$	9,319

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

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

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

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

(viii)

Significant transactions and balances with related parties are as follows:

1. Other payables - Amount due to directors/related parties:

Name of Related Parties		June 30, 2006		December 31, 2005

Mr. Kuo-An Wang	$	—	$	60,911

Mr. Min-Tan Yang (note 1)	$	840,789	$	840,789

Mr. Suang-Yi Pai	$	—	$	76,138

Education Center	$	520	$	—

Lanbeisi	$	128	$	—

	$	841,437	$	977,838

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

~~-18-~~18

~~(viii) Significant transactions and balances with related parties are as follows:~~

~~1. Amount due to officers/directors:~~

~~Note1 :~~

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

NOTE 11 - INTANGIBLE ASSETS

	March 31, 2006			December 31, 2005			June 30, 2006			December 31, 2005
	(Unaudited)						(Unaudited)

Gross carrying amount
Franchise	$	1,048,148		$	1,036,178		$	1,050,122		$	1,036,178
Copyrights		616,143			609,106			617,303			609,106

		1,664,291			1,645,284			1,667,425			1,645,284
Less: Accumulated amortization
Franchise		(628,889	)		(595,802	)		(656,326	)		(595,802	)
Copyrights		(369,686	)		(350,236	)		(385,815	)		(350,236	)

		(998,575	)		(946,038	)		(1,042,141	)		(946,038	)

Net	$	665,716		$	699,246		$	625,284		$	699,246

Amortization charged to operations was ~~$41,813~~$83,873 and ~~$42,835 for~~$85,669for the ~~three~~six months ended ~~March 31,~~June 30, 2006 and 2005, respectively.

~~-19-~~

The estimated aggregate amortization expenses for each of the five succeeding fiscal years are as follows:

2007	$	164,528	$	167,747
2008		164,528		167,747
2009		164,528		167,747
2010		41,138		38,170

	$	534,722	$	541,411

NOTE 12 - BANK BORROWINGS

	Notes		March 31, 2006		December 31, 2005		Notes		June 30, 2006		December 31, 2005
			(Unaudited)						(Unaudited)

Bank term loans		(i)	$	443,787	$	564,704	(i)	$	318,870	$	564,704
Short-term unsecured bank loans		(ii)		521,840		539,583	(ii)		498,493		539,583
Mid-term loan		(iii)		313,840		586,436	(iii)		268,957		586,436
Mid-term secured bank loan		(iv)		1,421,418		1,466,574	(iv)		1,307,765		1,466,574

				2,700,885		3,157,297			2,394,085		3,157,297
Less: Balances maturing within one year included in current liabilities
Bank term loans				308,112		145,042			82,038		145,042
Short-term unsecured bank loans				521,840		539,583			498,493		539,583
Mid-term loan				313,841		586,436			157,248		586,436
Mid-term secured bank loan				249,881		245,845

				1,393,674		1,516,906

Bank borrowings maturing after one year			$	1,307,211	$	1,640,391

	Notes	June 30, 2006		December 31, 2005
		(Unaudited)

Mid-term secured bank loan			308,651		245,845

			1,046,430		1,516,906

Bank borrowings maturing after one year		$	1,347,655	$	1,640,391

This line item represents bank loans that have been secured by a pledge of post-dated checks amounting to ~~$883,303~~$590,761 and $873,215 that we have received from franchisees and the Group’s bank deposits of ~~$13,834~~$47,301 and $46,456 as of ~~March 31,~~June 30, 2006 and December 31, 2005, respectively, for the purpose of financing operations. The repayment dates of the loans coincided with the maturity dates of the corresponding pledged post-dated ~~checks, and was extended on March 21, 2005.~~checks. The weighted average interest rates were ~~5.83%~~6.055% and 5.88% per annum as of ~~March 31,~~June 30, 2006 and 2005, respectively. For the ~~three~~six months ended ~~March 31,~~June 30, 2006 and 2005, the interest expenses charged to operations amounted to ~~$7,301~~$12,887 and ~~$14,758,~~$27,775, respectively.

(i)

(ii)

In August 2005, KCIT obtained an unsecured short-term loan ~~to finance the Group’s operations~~ in the amount of $304,553 ~~which~~and was extended on February 2006, which was collateralized by notes receivables in the amount approximately the loan balance, the KCIT’s refundable deposits of $60,911 and notes receivables approximating 30% of loan balance, and guaranteed by two directors and stockholders of the ~~Group.~~Group, to finance the Group’s operations. The loan bears interest at the lending bank’s basic ~~fixed deposit~~borrowing rate plus 3.29% per annum and is due and payable in August 2006. The applicable interest rate is approximately ~~5.3%~~5% per annum as of ~~March 31,~~June 30, 2006.

~~-20-~~

In March 2005, KCIT obtained an unsecured short-term loan to finance the Group’s operations in the amount of $304,553, which was extended on April 7, 2006, guaranteed by two directors and stockholders of the Group. The loan bears interest at the Taiwan basic borrowing rate plus 1.65% per annum and was fully settled in September 2006.

In April 2006, KCIT obtained an unsecured short-term loan in the amount of $214,173, which was guaranteed by two directors and stockholders of the Group, to finance the Group’s operations. The loan bears interest at the Taiwan basic borrowing rate plus 1.65% per annum and was fully settled in March 2007.

~~For the three months ended March 31, 2006 and 2005, the interest expense charged to operations from the above three unsecured short-term loans amounted to $7,192 and $11,840~~

For the six months ended June 30, 2006 and 2005, the interest expense charged to operations from the above six unsecured short-term loans amounted to $14,622 and $28,504, respectively.

(iii)

In June 2005, KCIT obtained a loan of $609,106 from a financial institution, ~~a loan,~~ which bore interest at 5% per annum and was repayable in 18 equal monthly installments, to finance the Group’s ~~operations in the amount of $609,106.~~operations. The last installment was due on December 13, ~~2006.The~~2006. As of June 30, 2006, the loan was collateralized by the KCIT’s refundable deposits of ~~$121,821~~121,821 and notes receivables approximating 20% of loan balance, and the Group repaid ~~$302,303.~~$406,376.

~~For the three months ended March 31, 2006 and 2005, the interest expenses charged to operations from the aforementioned loan amounted to $5,061 and $19,550,~~

For the six months ended June 30, 2006 and 2005, the interest expenses charged to operations from the aforementioned loans amounted to $8,600 and $34,836, respectively.

(iv)

In August 2005, KCIT obtained a bank loan in the principal amount of $944,115 to repay its mortgage loan that was originally granted by a bank on August 10, 2005 and to finance its operations. The loan is secured by the Group’s land and buildings and personal guarantees provide by two directors of the Group. The loan bears interest at the lending bank’s basic fixed deposit rate plus 0.69% ~~per~~between annum for the year 2005 to 2007, and plus 1.69% ~~per~~from the annum for the year 2008. On August 10, 2005, the bank extended the term of the loan and itthe Group repays the loan, which is now repayable in 84 equal monthly installments starting on August 10, 2012. As of ~~March 31,~~June 30, 2006, the applicable interest rate is approximately ~~2.7% and~~2.4%, the Group ~~has~~ repaid ~~$30,934~~$44,287

In February 2005, KCIT obtained a new bank loan of $456,830, which bears interest at 6% per annum and is repayable in 36 equal monthly installments. The last installment will be due on February 2, 2008, was collateralized by notes receivables in 30% approximating the loan balance, and guaranteed by two directors of the Group. As of March 31, 2006, the Group repaid $158,166.

In August 2005, KCIT obtained a new bank loan of $213,187, which bears interest at 3.8% per annum, and is repayable in 60 equal monthly installments. The last installment will be due on August 10, 2010, and guaranteed by two directors of the Group. As of March 31, 2006, the Group repaid $23,308

~~For the three months ended March 31, 2006 and 2005, the interest expenses charged to operations amounted to $12,860 and $14,335,~~

In August 2005, KCIT obtained a new bank loan of $213,187, which bears interest at 3.7% per annum, and is repayable in 60 equal monthly installments. The last installment will be due on August 10, 2010, and guaranteed by two directors of the Group. As of June 30, 2006, the Group repaid $33,511

For the six months ended June 30, 2006 and 2005, the interest expense charged to operations amounted to $25,378 and $29,298, respectively.

NOTE 1313 - RECEIPTS IN ADVANCE

The balance comprises:

Notes
March 31,
2006

December 31,
2005

(Unaudited)

Current liabilities:
Sales deposits received (i)
$
420,398

$
682,553

Franchising income received (ii)
1,399,542

1,391,625

Subscription fees received (iii)
237,044

234,342

Others
12,607

45,160

2,069,591

2,353,680

Long-term liabilities:
Franchising income received (ii)
1,661,955

1,130,207

$
3,731,546

$
3,483,887

~~-21-~~

	Notes		June 30, 2006		December 31, 2005
			(Unaudited)

Current liabilities:
Sales deposits received	(i)	$	964,227	$	682,553
Franchising income received	(ii)		1,592,603		1,391,625
Subscription fees received	(iii)		308,058		234,342
Others			22,301		45,160
			2,887,189		2,353,680

Long-term liabilities:
Franchising income received	(ii)		1,542,355		1,130,207

		$	4,429,544	$	3,483,887