UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

þ

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31,June 30, 2005
or

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 333-61286

KID CASTLE EDUCATIONAL CORPORATION

Florida

59-2549529

(State or other jurisdiction of          (IRS Employer

incorporation or organization)          Identification No.)

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

Taipei, Taiwan ROC

(Address of principal executive offices)

Registrant’s telephone number, including area code:  011-886-22218 5996

Securities registered pursuant to Section 12(b) of the Act:

Securities registered under Section 12(g) of the Act:

Title of class

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the last ninety days. Yes [X]     No _

Yesþ      Noo

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). [ ] Yes     [X] No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

Yeso     Noþ

As of May 10,August 19, 2005, there were 18,999,703 shares of the Registrant’s common stock outstanding.

#

Documents incorporated by reference: None.

FORM 10-Q

KID CASTLE EDUCATIONAL CORPORATION

TABLE OF CONTENTS

 i

KID CASTLE EDUCATIONAL CORPORATION

UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTSSTATEMENTS.

AS OF MARCH 31, 2005 AND DECEMBER 31, 2004
AND
FOR THE THREE MONTHS ENDED
MARCH 31, 2005 AND 2004

KID CASTLE EDUCATIONAL CORPORATION
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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Kid Castle Educational Corporation

Condensed Consolidated Balance Sheets

(Expressed in US Dollars)

-3-

(Unaudited)

(Audited)

Current Assets:

   Cash and bank balances

          $

    766,626

                     $

    213,564  

   Bank fixed deposits – pledged

    355,850

    294,331

   Notes and accounts receivable, net  

 4,570,800

 2,401,904

   Inventories

 3,024,509   

 2,979,738    

   Other receivables

    426,502

    337,848

   Prepayments and other currant assets

    672,309    

    478,752

   Pledged notes receivable

            ---

 1,218,356

   Deferred income tax assets

    256,105

    218,574

Total current assets

10,072,701

 8,143,067

Deferred income tax assets

     167,093

                   170,477

Prepaid interest in associates

             ---

      24,165

Interest in associates

     137,213

      99,467

Property and equipment, net

  2,189,853

 2,188,092

Intangible assets, net of amortization

     834,743

    894,419

Long-term notes receivable

           --

    240,971

Pledged notes receivable

           --

    407,149

Other assets

  620,127

    613,617

Total Assets

         $    14,021,730

                   $        12,781,424

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

   Borrowings – short-term and maturing

      within one year

                        $    2,177,097

                      $     2,632,982

   Notes and accounts payable

 2,282,930

1,506,543

   Accrued expenses

    856,836

   703,407           

   Other payables

    511,361

   283,080

   Deposits received

    350,801

   498,266

   Receipts in advance

 4,316,920

2,996,558    

   Income tax payable

    180,864

     97,142

   Obligation under capital leases due within one year

             ---

       8,659

Total current liabilities

10,676,809

 8,726,637

Borrowings maturing after one year

  1,848,709

 1,651,825

Receipts in advance

             ---

 1,124,809

Obligation under capital leases

             ---

             ---

Deposits received

     939,546

    689,530

Accrued pension liabilities

     219,917

160,907

Total liabilities

13,684,981

12,353,708

Minority Interests

53,139

33,791

Kid Castle Educational Corporation

Condensed Consolidated Balance Sheets - Continued

(cont.)

(Expressed in US Dollars)

(Unaudited)

June 30, 2005

December  31, 2004

(Unaudited)

(Audited)

Stockholders’ Equity:

Capital Stock

  7,669,308

 7,669,308

Additional paid in capital

     194,021

    194,021

Statutory reserve

       65,320

      65,320

Retained deficit

(7,570,531)

(7,312,074)

Accumulated other comprehensive

loss

     (74,508)

(222,650 )

Total stockholders’ equity

     283,610

393,925

Total Liabilities and Stockholders’ Equity

     $

14,021,730

     $

12,781,424

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

#

Kid Castle Educational Corporation

Condensed Consolidated Balance Sheets

(Expressed in US Dollars)

(Unaudited)

Six Month Periods Ended June 30,

2005

2004

Operating Revenue:

   Sales of goods

                     $

 3,549,331

      $

 3,216,779

   Franchising income

 1,308,046

 1,192,740

  Other operating revenue

    306,348

    203,914

      Total net operating revenue

5,163,725

4,613,433

Operating costs:

      Cost of goods sold

 1,507,173

 1,324,923

      Cost of franchising

    176,655

    245,504

      Other operating costs

    177,271

    135,739

      Total operating costs

1,861,099

1,706,166

Gross profit

  3,302,626

  2,907,267

Advertising costs

     (56,854)

   ( 454,492)

Other operating expenses

(3,250,544)

 (3,430,104)

Loss from operations

        (4,772)

    (977,329)

Interest expenses, net

    (115,983)

      (64,936)

Share of income of investments

        12,483

        31,425

Other non-operating  income, net

53,624

81,770

Loss before income taxes                  

and minority interest

      (54,648)              

    (929,070)

Provision for taxes

   ( 184,750)

     (1,222)

Loss before minority interest

   (239,398)

     (930,292)

Minority interest

in income

     (19,059)

             ---

Net loss

      $

(258,457)

       $

     (930,292)

Loss per share – basic and diluted

 $ (     .01)

$ (    .05)

Weighted-average shares used to compute                                                                                                                        loss per share – basic and diluted

18,999,703

18,999,703

 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Kid Castle Educational Corporation

Condensed Consolidated Balance Sheets

(Expressed in US Dollars)

(Unaudited)

Three Month Periods Ended June 30,

2005

2004

Operating Revenue

  Sales of goods

$

1,174,176

$

 1,186,926

  Franchising income

     710,121

    664,608

  Other operating revenue

     156,436

    151,561

   Total net operating revenue

 2,040,733

2,003,095

Operating costs

   Cost of goods sold

    579,442

    650,418

   Cost of franchising

      63,042

    113,403

   Other operating costs

103,075

      78,544

   Total operating costs

745,559

842,365

Gross profit

 1,295,174

 1,160,730

Advertising costs

     (23,491)

   (327,850)

Other operating expenses

(1,465,044 )

 (1,413,680)

Loss from operations

    (193,361)

    (580,800)

Interest expenses, net

      (56,730)

      (43,171)

Share of loss of investments

---

      (15,542)

Other non-operating (loss) income, net

102,563

38,097

Loss before income taxes and

  minority interest income

    (147,528)

  (601,416)

Provision for taxes

(41,297)

(  1,222)

Loss before minority interest

    (188,825)

   (602,638)

Minority interest  income

(19,202 )

                                      ---

Net loss

$   (208,027)

        $

  (602,638)

Loss per share – basic and diluted

 $    (   .01)

         $

  (    .03)

Weighted-average shares used to computer loss

 per share-basic and diluted

18,999,703

 18,999,703

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Kid Castle Educational Corporation

Condensed Consolidated Statements of OperationsBalance Sheets

(Expressed in US Dollars)

(Unaudited)

Six Month Periods Ended June 30 ,

2005

2004

Cash flows from operating activities:

Net loss

$

  (258,457)

$

  (930,292)

   Adjustments to reconcile net loss to net cash

      used in  operating activities:

   Depreciation and amortization

    223,862

    188,553

   Allowance for sales returns

      92,463

    (13,126)

   Allowance for doubtful debts

    110,063

   130,866

   Provision for (reversal of) allowance for loss

      on inventory obsolescence and slow-moving items

      95,147

     34,970

   Minority interest in income

      19,059  

         ---

   Share of gain of investments

     (12,483)

    (31,425)

   (Increase)/decrease in:

      Notes and accounts receivable

(2,371,422)

    402,524

      Inventories

    (139,918)

  (185,880)

      Other receivables

     (88,654)

  (202,283)

      Prepayments and other current assets

   (169,392)

       9,484

      Deferred income tax assets

     (34,147)

       3,306

      Other assets

     (  6,510)

   (86,257)

   Increase/(decrease) in:

      Notes and accounts payable

     776,387

  219,374

      Accrued expenses

     153,429

   ( 36,063)

      Other payables

     228,281

   205,497

      Receipts in advance

     195,553

  (202,230)

      Income taxes payable

       83,722

      (3,306)

      Deposits received

     102,551

     99,576

      Accrued pension liabilities

59,010

       8,882

Net cash used in operating activities

(941,456)

 (387,830)

Cash flows from investing activities

   Purchases of property and equipment

   (165,947)

   ( 47,371)

   Proceeds from disposal of property and equipment

           ---

         ---

   Bank fixed deposits – pledged

     (61,519)

 (111,678)    

   Pledged notes receivable

  1,625,505

      11,407

   Collection of long term notes

     240,971

          ---

   Increase in interest in associates

   (  24,977)

          ---

   Acquisition of long term investments

          ---

   (103,346)

Net cash used in investing activities

1,614,033

   (250,988)

Kid Castle Educational Corporation

Condensed Consolidated Balance Sheets

(Expressed in US Dollars)

(Unaudited)

Six Months Periods Ended June 30 ,

2005

2004

Cash flows from financing activities

   Proceeds from bank borrowings

    795,968

   2,865,929

   Repayment of bank borrowings

(1,054,969)

  (2,346,878)

   Proceeds from capital leases

       57,086

      (13,933)

   Repayment of capital leases

      (65,748

          ---

        Repayment of loan from officers/stockholders

             ----

 (585,006)

Net cash consumed by financing activities

(267,657)

(79,888)

Net increase (decrease) in cash and cash equivalents   

    404,920

    (718,706)

Effect of changes in exchange rate on cash and

    148,142

        (12,829)

   cash equivalents

Cash and cash equivalents at beginning of period

213,564

   1,273,723

Cash and cash equivalents at end of period

$   766,626

      $

     542,188

Supplemental disclosure of cash flows information:

Cash payments for income taxes were $86,801for  the 2005 period and  $ 1,222  in the 2004 period. Cash payments for interest were $ 106,178  in  the 2005 period and $ 64,936 in the 2004 period. None of the interest was capitalized.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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#

Kid Castle Educational Corporation

Condensed Consolidated Statements of Stockholders’ Equity

(Expressed in US Dollars)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Kid Castle Educational Corporation

Condensed Consolidated Statements of Cash Flows

(Expressed in US Dollars)

-7-

Kid Castle Educational Corporation

Condensed Consolidated Statements of Cash Flows – Continued

(Expressed in US Dollars)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Kid Castle Educational Corporation

Notes to Condensed Consolidated Financial StatementsBalance Sheets

(Expressed in US Dollars)

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS(Unaudited)

     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 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.1.

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     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.

NOTE 2 - BASIS OF PRESENTATION

The accompanyingunaudited interim condensed consolidated financial datastatements of Kid Castle Education Corporation (“the Company”) as of March 31,June 30, 2005, and for the six month and three monthsmonth periods ended March 31,June 30, 2005 and 2004, 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 AmericaAmerica.  In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such periods.  The results of operations for the quarter ended June 30, 2005 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2005.

Certain information and disclosures normally included in the notes to financial statements have been condensed or omitted pursuant to suchas permitted by the rules and regulations. However,regulations of the GroupSecurities and Exchange Commission, although the Company believes that the disclosures aredisclosure is adequate to make the information presented not misleading.  TheseThe accompanying unaudited financial statements should be read in conjunction with the financial statements andof the notes theretoCompany included in the Group’s audited annual financial statementsreport on Form 10-K for the year ended December 31, 2004.

     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, 2005, the balance of accumulated deficit was $7,362,504. 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 the Group to reduce headcount, sales and marketing, other expansion activities, which may affect the future growth of the Group’s operations.

NOTE 3 - SUMMARY OF IMPORTANT ACCOUNTING POLICIES

#

REVENUE RECOGNITION

     Sales of books, magazines, audio and video tapes, compact disc 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.

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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:

     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

     The Company and its subsidiaries accounts 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 tax rate expected to be in effect when taxes are actually paid or recovered. 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)

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     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 months ended March 31, 2005 and 2004, the Group did not have any potential common shares.

RECLASSIFICATION

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

NOTE 4 – RECENT ACCOUNTING PRONOUNCEMENTS

     In September 2004, the EITF delayed the effective date for the recognition and measurement guidance previously discussed under EITF Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF 03-01”) as included in paragraphs 10-20 of the proposed statement. The proposed statement will clarify the meaning of other-than-temporary impairment and its application to investments in debt and equity securities, in particular investments within the scope of FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and investment accounted for under the cost method. The Group is currently evaluating the effect of this proposed statement on its financial position and results of operations.

     In November 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 151,Inventory Costs, which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. SFAS No. 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not believe the adoption of SFAS No. 151 will have a material impact on our financial statements.

     In December 2004, the FASB issued SFAS No. 153,Exchanges of Nonmonetary Assets, which eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153 will be effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. We do not believe the adoption of SFAS No. 153 will have a material impact on our financial statements.

NOTE 5 – NOTES AND ACCOUNTS RECEIVABLE

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NOTE 6 – INVENTORIES

NOTE 7 – OTHER RECEIVABLES

Note:

(i)

Shanghai Wonderland is a distributor of the Group. The Group loaned Shanghai Wonderland RMB$500,000 (approximately $60,000), RMB$250,000 (approximately $30,477), and RMB$500,000 each for operations in July 2004, January 2005, and March 2005, respectively, which are all unsecured and bear no interest. These loans are due in one year.

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NOTE 8 – INTEREST IN ASSOCIATES

Note:

(i)		In October 2003, the Group obtained the government’s approval to co-found Education Center with 21st Century Publishing House in the PRC. In 2004, Education Center registered the total capital as RMB$1,500,000, and KCES and 21st Century Publishing House each owns 50% of the investee. It has been determined that the Group has significant influence and should therefore account for its investee on the equity method.
		For the three months ended March 31, 2005 and 2004, the Group recognized investment income (loss) accounted for under the equity method in Education Center of $33,084 and ($41), respectively.
(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 months ended March 31, 2005, the Group recognized an investment loss of $15,649, 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,

-14-

NOTE 9 – INCOME TAXES

     The income taxes of the Group are substantially attributable to the operations in Taiwan and the PRC whose statutory tax rates are 25% and 15%, respectively. The principal differences between taxes on income computed at the applicable statutory income tax rates and recorded income tax expense are as follows:

     At March 31, 2005, KCESD had net operating loss of approximately US$1,587,730, available to be carried forward to offset future taxable income which will expire in the period from 2006 to 2010. KCESD’s net operating loss carry-forwards to offset future taxable income is insignificant.

NOTE 10 – RELATED PARTY TRANSACTIONS

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

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

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(v)	The two directors and stockholders, Mr. Kuo-An Wang and Mr. Yu-Eng Chiu, have given personal guarantees to certain bank loans and borrowings. Please see the details as described in Note 12 – 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)	Accounts and notes receivable – related parties:

(vii)

Other receivables – related parties:

Note:

1.	As of March 31, 2005 and December 31, 2004, the amounts due from Publishing House consist primarily of certain operating expenses paid on behalf of Publishing House.
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.

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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)

Prepayments and other current assets

     Prepayments to Publishing House are mainly for inventory ordered by Culture Media. According to the purchase agreements signed with Publishing House, Culture Media has to prepay a certain percentage of inventories purchased upon the effectiveness of the contracts. The remaining payments are to be made three months after the initial payment.

(ix)	Accounts payable – related parties:

NOTE 11 – INTANGIBLE ASSETS

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     Amortization charged to operations was $42,835 and $40,509 for the three months ended March 31, 2005 and 2004, respectively.

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

NOTE 12 – BORROWINGS

Note:

(i)		This line item represents bank loans that have been secured by a pledge of post-dated checks amounting to $1,794,314 and $1,625,505 that we have received from franchisees and the Group’s bank deposits of $113,275 and $57,813 as of March 31, 2005 and December 31, 2004, 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. The weighted average interest rates were 5,88% and 5.66% per annum as of March 31, 2005 and 2004, respectively. For the three months ended March 31, 2005 and 2004, the interest expenses charged to operations amounted to $14,758 and $12,177, respectively.
(ii)		In August 2003, KCIT obtained an unsecured short-term loan in the amount of $253,565, which is 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 1.20% per annum

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NOTE 13 – RECEIPTS IN ADVANCE

The balance comprises: