10-Q/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

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

For the quarterly period ended: June 30, 2004

or

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

Commission File Number: 333-61286

KID CASTLE EDUCATIONAL CORPORATION

(Exact name of Registrant as specified in its charter)

Florida
(State or other jurisdiction of
incorporation or organization) 59-2549529
(IRS Employer
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:

Title of each class	Name of each exchange on which registered
Common Stock	N/A

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

Title of class
None

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 o

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

As of July 31, 2004, there were 18,999,703 shares of the Registrant’s common stock outstanding.

Documents incorporated by reference: None.

FORM 10-Q/A

KID CASTLE EDUCATIONAL CORPORATION

TABLE OF CONTENTS

	Page
PART I            FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements		1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3. Quantitative and Qualitative Disclosures About Market Risk		36
Item 4. Controls and Procedures		36
PART II. OTHER INFORMATION		38
Item 1. Legal Proceedings		38
Item 2. Changes in Securities		38
Item 3. Defaults upon Senior Securities		38
Item 4. Submission of Matters to a Vote of Security Holders		38
Item 5. Other Information		39
Item 6. Exhibits and Reports on Form 8-K		39
SIGNATURES		41
EXHIBIT 3.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

i

KID CASTLE EDUCATIONAL CORPORATION
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2004 AND DECEMBER 31, 2003
AND
FOR THE THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 2004 AND 2003

	Pages
Condensed Consolidated Balance Sheet	2 –3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Stockholders’ Equity	5
Condensed Consolidated Statements of Cash Flows	6 – 8
Notes to Condensed Consolidated Financial Statements	9 – 23

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Kid Castle Educational Corporation

Condensed Consolidated Balance Sheets

(Expressed in US Dollars)

	June 30,		December 31,
	2004		2003
	(Unaudited)
ASSETS
Current assets
Cash and bank balances	$	542,188	$	1,273,723
Bank fixed deposits – pledged (Note 12)		317,660		204,889
Notes and accounts receivable, net (Notes 5 and 10)		1,868,207		2,334,385
Inventories, net (Note 6)		2,162,633		1,991,951
Other receivables (Notes 7 and 10)		557,505		524,974
Prepayments and other current assets (Note 8)		114,188		122,292
Pledged notes receivable (Note 12)		955,675		1,062,406
Deferred income tax assets		604,617		615,286
Total current assets		7,122,673		8,129,906
Deferred income tax assets		135,577		120,335
Prepaid long-term investments		—		60,323
Long-term investments (Note 9)		309,313		114,200
Property and equipment, net		1,955,349		1,993,849
Intangible assets, net of amortization (Note 11)		920,390		989,865
Long-term notes receivable		576,815		505,091
Pledged notes receivable (Note 12)		320,328		444,302
Other assets		271,724		184,345
Total assets	$	11,612,169	$	12,542,216
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Bank borrowings – short-term and maturing within one year (Note 12)	$	1,695,956	$	1,317,690
Notes and accounts payable		1,301,253		1,072,584
Accrued expenses		777,300		805,556
Amounts due to officers (Note 10)		—		572,160
Other payables		331,407		266,276
Deposits received		514,915		421,734
Receipts in advance (Note 13)		2,568,872		2,924,636
Income tax payable		41,263		44,067
Obligation under capital leases due within one year		24,611		32,468
Total current liabilities		7,255,577		7,457,171
Bank borrowings maturing after one year (Note 12)		1,328,992		1,166,781
Receipts in advance (Note 13)		1,471,034		1,467,025
Obligation under capital leases		—		5,534
Deposits received		640,715		603,635
Accrued pension liabilities		144,298		134,073
Total liabilities		10,840,616		10,834,219

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Kid Castle Educational Corporation

Condensed Consolidated Balance Sheets - Continued

(Expressed in US Dollars)

	June 30,			December 31,
	2004			2003
	(Unaudited)
Commitments and contingencies (Note 16)
Stockholders’ equity
Common stock, no par share:
25,000,000 shares authorized; 18,999,703 shares issued and outstanding at June 30, 2004 and December 31, 2003		7,669,308			7,669,308
Additional paid-in capital		194,021			194,021
Legal reserve		65,320			65,320
Accumulated deficit		(6,987,774	)		(6,057,482	)
Accumulated other comprehensive loss		(169,322	)		(163,170	)
Total stockholders’ equity		771,553			1,707,997
Total liabilities and stockholders’ equity	$	11,612,169		$	12,542,216

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 Operations

(Expressed in US Dollars)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Operating Revenue
Sales of goods	$	1,186,926		$	712,735		$	3,216,779		$	2,987,448
Franchising income		664,608			415,298			1,192,740			846,949
Other operating revenue		151,561			79,791			203,914			135,519
Total net operating revenue		2,003,095			1,207,824			4,613,433			3,969,916
Operating costs
Cost of goods sold		(650,418	)		(346,036	)		(1,324,923	)		(1,070,083	)
Cost of franchising		(113,403	)		(165,606	)		(245,504	)		(269,394	)
Other operating costs		(78,544	)		(47,248	)		(135,739	)		(104,835	)
Total operating costs		(842,365	)		(558,890	)		(1,706,166	)		(1,444,312	)
Gross profit		1,160,730			648,934			2,907,267			2,525,604
Advertising costs		(327,850	)		(154,772	)		(454,492	)		(198,747	)
Other operating expenses		(1,413,680	)		(1,474,346	)		(3,430,104	)		(3,122,693	)
Income (loss) from operations		(580,800	)		(980,184	)		(977,329	)		(795,836	)
Interest expenses, net		(43,171	)		(80,451	)		(64,936	)		(154,472	)
Share of profit (loss) of an investment		(15,542	)		—			31,425			(12,681	)
Loss on write-off of an investment		—			(132,116	)		—			(132,116	)
Other non-operating income (loss), net		38,097			18,108			81,770			74,208
Loss before income taxes		(601,416	)		(1,174,643	)		(929,070	)		(1,020,897	)
Provision for taxes		(1,222	)		(34,184	)		(1,222	)		(182,681	)
Net loss	$	(602,638	)	$	(1,208,827	)	$	(930,292	)	$	(1,203,578	)
Loss per share – basic and diluted	$	(0.032	)	$	(0.080	)	$	(0.049	)	$	(0.080	)
Weighted-average shares used to compute loss per share – basic and diluted		18,999,703			15,074,329			18,999,703			15,074,329

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)

	Common Stock
												Accumulated
					Additional							other
	Number of				paid-in		Legal		Accumulated			comprehensive
	shares		Amount		capital		reserve		deficit			loss			Total
Balance, December 31, 2002		15,074,329	$	4,654,880	$	194,021	$	65,320	$	(4,116,891	)	$	(160,764	)	$	636,566
Net loss for 2003		—		—		—		—		(1,940,591	)		—			(1,940,591	)
Cumulative translation adjustment		—		—		—		—		—			(2,406	)		(2,406	)
Comprehensive loss																(1,942,997	)
Issuance of common stock for cash		3,592,040		2,514,428		—		—		—			—			2,514,428
Repayment of a liability by issuance of common stock		333,334		500,000		—		—		—			—			500,000
Balance, December 31, 2003		18,999,703		7,669,308		194,021		65,320		(6,057,482	)		(163,170	)		1,707,997
Net loss for the six months ended June 30, 2004 (Unaudited)		—		—		—		—		(930,292	)		—			(930,292	)
Cumulative translation adjustment (Unaudited)		—		—		—		—		—			(6,152	)		(6,152	)
Comprehensive loss (Unaudited)																(936,444	)
Balance, June 30, 2004 (Unaudited)		18,999,703	$	7,669,308	$	194,021	$	65,320	$	(6,987,774	)	$	(169,322	)	$	771,553

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)

	Six months ended June 30,
	2004			2003
	(Unaudited)
Cash flows from operating activities
Net (loss) income	$	(930,292	)	$	(1,203,578	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation of property and equipment		107,729			81,549
Amortization of intangible assets		80,824			77,753
(Reversal of) provision for allowance for sales returns		(13,126	)		44,617
Allowance for doubtful debts		130,866			28,785
Provision for (reversal of) loss on inventory obsolescence and slow-moving items		34,970			(168,989	)
Share of (profit) loss of investments		(31,425	)		12,681
Loss on write-off of an investment		—			132,116
(Increase)/decrease in:
Notes and accounts receivable		402,524			(606,246	)
Inventories		(185,880	)		(339,939	)
Other receivables		(202,283	)		(32,527	)
Prepayments and other current assets		9,484			(123,391	)
Deferred income tax assets		3,306			182,030
Other assets		(86,257	)		(39,644	)
Increase/(decrease) in:
Notes and accounts payable		219,374			(235,045	)
Accrued expenses		(36,063	)		30,899
Other payables		205,497			454,737
Receipts in advance		(202,230	)		31,030
Income taxes payable		(3,306	)		—
Deposits received		99,576			167,098
Accrued pension liabilities		8,882			29,102
Net cash used in operating activities		(387,830	)		(1,476,962	)
Cash flows from investing activities
Purchase of property and equipment		(47,371	)		(87,809	)
Amount due from stockholder/director		—			122,300
Acquisition of long-term investments		(103,346	)		—
Bank fixed deposits – pledged		(111,678	)		(65,381	)
Pledged notes receivable		11,407			37,873
Net cash (used in) provided by investing activities		(250,988	)		6,983

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Kid Castle Educational Corporation

Condensed Consolidated Statements of Cash Flows – Continued

(Expressed in US Dollars)

	Six months ended June 30,
	2004			2003
	(Unaudited)
Cash flows from financing activities
Proceeds from bank borrowings	$	2,865,929		$	618,415
Repayment of bank borrowings		(2,346,878	)		(201,489	)
Repayment of capital leases		(13,933	)		(6,585	)
Proceeds from loan from officers/stockholders		—			31,427
Repayment of loan from officers/stockholders		(585,006	)		—
Stock subscriptions received in advance		—			2,181,578
Net cash provided by financing activities		(79,888	)		2,623,346
Net (decrease) increase in cash and cash equivalents		(718,706	)		1,153,367
Effect of exchange rate changes on cash and cash equivalents		(12,829	)		3,033
Cash and cash equivalents at beginning of period		1,273,723			125,806
Cash and cash equivalents at end of period	$	542,188		$	1,282,206
Supplemental disclosure of cash flow information Interest paid	$	32,885		$	247,149
Income taxes paid	$	1,222		$	1,729
Supplemental disclosure of significant non-cash transactions
Capital lease of transportation equipment	$	—		$	57,571
Increase (decrease) of notes receivable and pledged notes receivable corresponding to the increase (decrease) in the following accounts:
Other receivables – related parties	$	—		$	(259,308	)
Accrued expenses	$	—		$	5,181
Deposits received	$	20,924		$	—
Other payables	$	32,900		$	—
Receipts in advance	$	(200,303	)	$	533,472

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Kid Castle Educational Corporation

Condensed Consolidated Statements of Cash Flows – Continued

(Expressed in US Dollars)

	Six months ended June 30,
	2004		2003
	(Unaudited)
Write-off of an associate investment against deferred income
Balance of an associate investment	$	—	$	298,113
Balance of deferred income		—		(165,997	)
Loss on write-off of an associate investment	$	—	$	132,116

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 Statements

(Expressed in US Dollars)

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 subsidiary of Higoal. On October 1, 2002, Kid Castle Educational Corporation, formerly King Ball International Technology Limited Corporation (the “Company”) 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. 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 accompanying financial data as of June 30, 2004 and for the six months and three months ended June 30, 2004 and 2003 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

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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, 2003.

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 June 30, 2004, the balance of accumulated deficit was $6,987,774. 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.

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.

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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

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)

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

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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 six months ended June 30, 2004 and 2003, the Group did not have any potential common stock shares.

RECLASSIFICATION

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

NOTE 4 – RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No.46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”). FIN 46 clarifies when a company should consolidate in its financial statements the assets, liabilities and activities of a variable interest entity. FIN 46 provides general guidance as to the definition of a variable interest entity and requires a variable interest entity to be consolidated if a company absorbs the majority of the variable interest entity’s expected losses, or is entitled to receive a majority of the variable interest entity’s residual returns, or both. In December 2003, the FASB issued a revised interpretation of FIN 46 (“FIN 46-R”), which supersedes FIN 46 and clarifies and expands current accounting guidance for variable interest entities. FIN 46 and FIN 46-R are effective immediately for all variable interest entities created after January 31, 2003, and for variable interest entities created prior to February 1, 2003, no later than the end of the first reporting period after March 15, 2004. We have performed a review of all entities created prior to and subsequent to January 31, 2003, and determined the adoption of FIN 46 and FIN 46-R did not have a material impact on the Group’s financial reporting and disclosures.

On April 30, 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.”(“SFAS No. 149”) SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. The new guidance amends SFAS No. 133 for decisions made as part of the Derivatives Implementation Group (“DIG”) process that effectively required amendments to SFAS No. 133, and decisions made in connection with other FASB projects dealing with financial instruments and in connection with implementation issues raised in relation to the application of the definition of a derivative and characteristics of a derivative that contains financing components. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Group does not expect SFAS No. 149 to have a material impact on the Group’s consolidated financial statements upon adoption.

In May 2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS No. 150”). SFAS No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 is effective for all financial instruments created or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Group does not expect SFAS No. 150 to have a material impact on the Group’s consolidated financial statements upon adoption.

In December 2003, the Staff of the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,” which supersedes SAB 101, “Revenue

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Recognition in Financial Statements.” SAB 104’s primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements and revises the SEC’s “Revenue Recognition in Financial Statements Frequently Asked Questions and Answers” that have been codified in Topic 13. SAB 104 was effective immediately and did not have a material impact on the Group’s financial reporting and disclosures.

In December 2003, the FASB revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This Statement revises employers’ disclosures about pension plans and other postretirement benefit plans. It requires additional disclosures to those in the original SFAS No. 132 about the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The required information should be provided separately for pension plans and for other postretirement benefit plans. This Statement, which also requires new disclosures for interim periods beginning after December 15, 2003, is effective for fiscal years ended after December 15, 2003. The Group has adopted this Statement since the year ended December 31, 2003.

NOTE 5 – NOTES AND ACCOUNTS RECEIVABLE

	June 30,			December 31,
	2004			2003
	(Unaudited)
Notes and accounts receivable
– Third parties	$	2,080,179		$	2,140,073
– Related parties		84,504			631,153
Total		2,164,683			2,771,226
Allowance for doubtful accounts and sales returns		(296,476	)		(436,841	)
Notes and accounts receivable, net	$	1,868,207		$	2,334,385

NOTE 6 – INVENTORIES

	June 30,			December 31,
	2004			2003
	(Unaudited)
Work in process	$	60,173		$	53,756
Finished goods and other merchandises		2,795,835			2,589,990
		2,856,008			2,643,746
Less: Allowance for obsolete inventories and lower of cost or market		(693,375	)		(651,795	)
	$	2,162,633		$	1,991,951

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NOTE 7 – OTHER RECEIVABLES

	June 30,		December 31,
	2004		2003
	(Unaudited)
Other receivables – third parties:
Tax paid on behalf of landlord	$	1,340	$	1,442
Advances to staff		80,658		43,242
Penalties receivables		—		14,658
Receivables from Shanghai Wonderland Educational Resources Co., Ltd. (“Shanghai Wonderland”) (Note (i))		70,824		105,847
Other receivables		87,887		43,622
Sub-total		240,709		208,811
Other receivables – related parties (Note (ii))		316,796		316,163
	$	557,505	$	524,974

Note:

 (i) Shanghai Wonderland was established in October 2003 as a distributor of the Group. The Group has loaned Shanghai Wonderland RMB$450,000 (approximately $54,000) for operations, which is unsecured and bears no interest and has paid certain pre-operating costs on behalf of Shanghai Wonderland. Shanghai Wonderland will have to repay the loan of RMB$450,000 on or before January 23, 2005.

(ii) The amount due from related parties consists of the loan of RMB$1,000,000 (approximately $120,000) from the Group to 21^st Century Publishing House (“Publishing House”) for the incorporation of Jiangxi 21^st Century Kid Castle Culture Media Co., Ltd. (“Culture Media”). According to the agreement, the loan is unsecured and bears no interest. Pursuant to the terms of the loan, if Publishing House did not repay the loan on or before June 27, 2004, it would transfer 40% of its ownership in Culture Media to the Group. On July 2, 2004, as the loan was not repaid by Publishing House, the board decided to take over the 40% ownership, and the Group’s ownership in Culture Media increased to 90%. As of June 30, 2004, in addition to the loan of RMB$1,000,000 to Publishing House, the amount due from related parties also includes the payment of certain pre-operating costs paid by the Group on behalf of Culture Media for $176,296. The amount due from this related party has no fixed repayment term and bears no interests. In addition, the Group also paid on behalf of its related party, 21^st Century Kid Castle Language and Education Center (“Education Center”), for inventory purchases. The amount due from this related party amounted to $2,463 as of June 30, 2004 and has no fixed repayment term and bears no interests.

NOTE 8 – PREPAYMENTS AND OTHER CURRENT ASSETS

	June 30,		December 31,
	2004		2003
	(Unaudited)
Prepayments	$	59,000	$	51,990
Temporary payments		213		4,989
VAT tax recoverable		4,926		—
Tax recoverable		33,573		29,208

-14-

	June 30,		December 31,
	2004		2003
	(Unaudited)
Prepaid interest		3,221		19,856
Others		13,255		16,249
	$	114,188	$	122,292

NOTE 9 – LONG-TERM INVESTMENTS

	June 30,			December 31,
	2004			2003
	(Unaudited)
Jiangxi 21st Century Kid Castle Culture Media Co., Ltd (“Culture Media”) (Note (i))
Investment cost	$	120,446		$	120,646
Share of profit (loss)		21,707			(11,326	)
	$	142,153		$	109,320
21st Century Kid Castle Language and Education Center (“Education Center”) (Note (ii))
Investment cost	$	90,334		$	30,161
Share of loss		(26,757	)		(25,281	)
	$	63,577		$	4,880
Tianjin Kid Castle Educational Investment Consulting Co., Ltd. (Note (iii))
Investment cost	$	60,223			—
Lanbeisi Education &Culture Industrial Co., Ltd (“Lanbeisi”) (Note (iv))
Investment cost	$	43,360			—
Total	$	309,313		$	114,200

Note:

(i)	In July 2003, the Group entered into an agreement with 21st Century Publishing House to incorporate Culture Media. It is agreed in the agreement that KCES, the Group’s wholly owned PRC subsidiary, and 21st Century Publishing House each has 50% ownership and that each party contributed RMB$1 million for the incorporation. As the Group’s ownership accounts for 50% equity interest in Culture Media and that the Group has significant influence and should therefore account for its interest on the equity method.
	For the six months ended June 30, 2004, the Group recorded an investment gain accounted for under the equity method in Culture Media of $32,939 in the current period’s operation results.
	On July 2, 2004, the Group has decided to take over the other 40% of the ownership from Publishing House, and therefore starting from July 2, 2004, the Group’s ownership in Culture Media increased to 90%.
(ii)	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 KCEC and 21st Century Publishing House each owns 50% of

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	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 six months ended June 30, 2004, the Group recognized an investment loss accounted for under the equity method in Education Center of $1,514 in the current period’s operation results.
(iii)	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. The operations had not commenced as of June 30, 2004.
(iv)	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. However, through June 30, 2004, the joint venture was non-operational.

NOTE 10 – RELATED PARTY TRANSACTIONS

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

Names of related parties	Relationship with the Company
Mr. Kuo-An Wang	He is a director, stockholder and chairman of the Company
Mr. Yu-En Chiu	He is a director, stockholder and vice chairman of the Company
Global International Education Investment Ltd. (“Global International”)	It was an equity investee prior to August 2003 and one of its stockholders and directors is Mr. Kuo-An Wang
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. Kuo-An Wang
Private Kid Castle Short Term Language Cram School (“PKC Language”)	Its chairman is Mr. Yu-En Chiu
Taipei Country Private Kid Castle Short Term Language Cram School (“TCP PKC”)	Its chairman is Mr. Yu-En Chiu
Taipei Country Private Chevady Preschool (“TCP Chevady”)	Its chairman is Mr. Yu-En Chiu

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Names of related parties	Relationship with the Company
Taipei Country Private Chung-hua Preschool (“TCP Chung-hua”)	Its chairman is Mr. Yu-En Chiu
Taipei Country Private Wonderland Preschool (“TCP Wonderland”)	Its chairman is Mr. Yu-En Chiu
Taipei City Private Kid Castle Preschool (“ TCP Kid Castle)	Its chairman is Mr. Yu-En Chiu
21st Century Publishing House (“Publishing House”)	A joint venture
Jiangxi 21st Century Kid Castle Culture Media Co., Ltd (“Culture Media”)	An investment accounted for under the equity method.
21st Century Kid Castle Language and Education Center (“Education Center”)	An investment accounted for under the equity method.
Tianjin Foreign Enterprises & Experts Service Corp.	An investment accounted for under the equity method
Lanbeisi Education &Culture Industrial Co., Ltd (“Lanbeisi”)	An investment accounted for under the equity method

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

		Six months ended June 30,
		2004		2003
		(Unaudited)
(i)	Sales to:
	- PKC Language	$	6,944	$	6,442
	- TCP PKC		6,944		6,442
	- TCP Chevady		6,631		8,088
	- TCP Chung-hua		11,669		13,304
	- TCP Wonderland		6,631		8,203
	- TCP Kid Castle		6,554		11,386
		$	45,373	$	53,865
(ii)	Rental income from:
	- KCE	$	—	$	864
	- CCE		898		864
		$	898	$	1,728
(iii)	Franchising income from:
	- PKC Language	$	425	$	1,119
	- TCP PKC		465		—
	- TCP Kid Castle		4,887		4,222
	- TCP Chung-Hua		1,468		768
	- TCP Chevady		2,444		2,111
	- TCP Wonderland		2,444		2,111
		$	12,133	$	10,331

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(iv)	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 – Bank Borrowings.
	Our management is of the opinion that the above transactions were carried out in the normal course of business at agreed upon terms.

(v) Accounts and notes receivable – related parties:

	June 30,		December 31,
Name of related parties	2004		2003
	(Unaudited)
- KCE	$	3,556	$	571,755
- PKC Language		8,439		3,358
- TCP PKC		8,200		3,358
- TCP Chung-hua		16,571		2,863
- TCP Chevady		12,181		2,537
- TCP Wonderland		12,181		2,537
- TCP Kid Castle		10,896		—
- Publishing House		12,480		—
- Culture Media		—		42,646
- Education Center		—		2,099
	$	84,504	$	631,153

(vi) Other receivables – related parties:

	June 30,		December 31,
Name of related parties	2004		2003
	(Unaudited)
Amount due from Publishing House (Note 1)	$	128,840	$	135,513
Amount due from Culture Media (Note 2)		176,460		178,331
Amount due from Education Center (Note 3)		2,463		2,319
Amount due from Lanbeisi (Note 4)		9,033		—
	$	316,796	$	316,163

Note:

1. The amount due from Publishing House is mainly a result of the loan of RMB$1,000,000 (approximately $120,000 from the Group to Publishing House for the incorporation of Culture Media). According to the agreement, the loan is unsecured and bears no interest. Pursuant to the terms of the loan, Publishing House must repay the loan on or before June 27, 2004 or give up 40% of its ownership in Culture Media to the Group. On July 2, 2004, the Group decided to take over the 40% ownership from

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Publishing House, and therefore, the Group’s ownership in Culture Media increased to 90%.

2. Culture Media was incorporated in December 2003. The Group paid certain pre-operating costs on behalf of Culture Media. The amount due from this related party has no fixed repayment term and bears no interests.

3. 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 interests.

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 interests.

(vii) Amount due to officers:

	June 30,		December 31,
	2004		2003
	(Unaudited)
Mr. Kuo-An Wang and Mr. Yu-En Chiu (Note 1)	$	—	$	572,160
	$	—	$	572,160

Note:

1. As of December 31, 2002, the outstanding balance of amount due to Mr. Hsi-Ming Pai, a stockholder, which was unsecured and bears interests at 25.2% per annum, was $606,208 (including the principal of $600,000 and related interests). On November 15, 2003, the Group entered into a liability transfer agreement with the stockholder to transfer its liability to Mr. Kuo-An Wang and Mr. Yu-En Chiu. According to the agreement, it is stated that the Group would transfer its original liability of $600,000 and the interest thereon separately in two lump sum payments. The first transfer was completed on December 30, 2003 for $70,000, and the remaining balance, including the principal of $530,000 and related interests, which had yet to be transferred, amounted to $572,160 as of December 31, 2003. The Group completed the transfer subsequent to December 31, 2003.

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NOTE 11 – INTANGIBLE ASSETS

	June 30,			December 31,
	2004			2003
	(Unaudited)
Gross carrying amount
Franchise	$	1,008,086		$	997,446
Copyrights		592,592			586,338
		1,600,678			1,583,784
Less: Accumulated amortization
Franchise		(428,436	)		(374,042	)
Copyrights		(251,852	)		(219,877	)
		(680,288	)		(593,919	)
Net	$	920,390		$	989,865

Amortization charged to operations was $80,824 and $77,753 for the six months ended June 30, 2004 and 2003, respectively.

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

2005	$	161,648
2006		161,648
2007		161,648
2008		161,648
2009		161,648
	$	808,240

NOTE 12 – BANK BORROWINGS

				June 30,		December 31,
	Notes			2004		2003
				(Unaudited)
Bank term loans		(i	)	$	633,323	$	986,280
Short-term unsecured bank loans	(ii)				681,481		234,535
Mid-term loan	(iii)				761,996		325,515
Mid-term secured bank loan	(iv)				948,148		938,141
					3,024,948		2,484,471
Less: Balances maturing within one year included in current liabilities
Bank term loans					484,054		757,640
Short-term unsecured bank loans					681,481		234,535
Mid-term loan					475,085		325,515
Mid-term secured bank loan					55,336		—
					1,695,956		1,317,690
Bank borrowings maturing after one year				$	1,328,992	$	1,166,781

-20-

Note:

(i) The balance represents bank loans with which are pledged by post-dated checks amounting to $1,276,003 and $1,506,708 received from franchisees and the Group’s bank deposits of $36,179 and $87,621 as of June 30, 2004 and December 31, 2003, 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 applicable interest rates ranged from 5.61% to 7.60% per annum as of June 30, 2004. For the six months ended June 30, 2004 and 2003, the interest expenses charged to operations amounted to $22,158 and $38,512, respectively.

(ii)	In August 2003, KCIT obtained an unsecured short-term loan with principal amount of $237,037, which is guaranteed by two directors and stockholders of the Group, to finance the Group’s operations. The loan that bears interest at the Taiwan basic borrowing rate plus 1.20% per annum is wholly repayable in August 2004. The applicable interest rate is approximately 4.50% per annum as of June 30, 2004.
	In March 2004, KCIT obtained an unsecured short-term loan with principal amount of $296,296, which is guaranteed by two directors and stockholders of the Group, to finance the Group’s operations. The loan that bears interest at the Taiwan basic borrowing rate plus 1.65% per annum is wholly repayable in September 2004. The applicable interest rate is approximately 5.16% per annum as of June 30, 2004.
	In April 2004, KCIT obtained another unsecured short-term loan with principal amount of $148,148, which is also guaranteed by two directors and stockholders of the Group, to finance the Group’s operations. The loan that bears interest at the Taiwan basic borrowing rate plus 1.24% per annum is wholly repayable in April 2005. The applicable interest rate is approximately 4.75% per annum as of June 30, 2004.
	For the six months ended June 30, 2004, the interest expenses charged to operations from the above three unsecured short-term loans amounted to $12,007.

(iii)	In March 2003, KCIT obtained a loan of $592,593 from a financial institution, which bears interest at 13.5% per annum and is repayable by 18 equal monthly installments, to finance the Group’s operations. The last installment is due on September 30, 2004. As of June 30, 2004 and December 31, 2003, the loan was pledged by KCIT’s deposits of $59,259 and $117,268, respectively, and guaranteed by two directors and stockholders of the Group. As of June 30, 2004, the Group repaid $485,357 of the loan.
	In March 2004, KCIT obtained a new bank loan of $740,741, which bears interest at 5.25% per annum and is repayable in 24 equal monthly installments, to finance the Group’s operations. The last installment is due on March 31, 2006. As of June 30, 2004, the loan was pledged by the KCIT’s deposits of $222,222, and guaranteed by two directors and stockholders of the Group. As of June 30, 2004, the Group repaid $88,404.
	For the six months ended June 30, 2004 and 2003, the interest expenses charged to operations from the aforementioned loans amounted to $25,042 and $0, respectively.

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(iv) In August 2003, KCIT obtained a loan with principal amount of $948,148 from a bank to repay its mortgage loan that was originally granted by a bank on October 5, 2001, as well as to finance its operations. The loan is secured by the Group’s land and buildings and personal guarantees provide by two directors and stockholders of the Group. The loan, which carries interest at the lending bank’s basic borrowing rate plus 1.45% per annum. On July 19, 2004, the bank extended the term of the loan and the Group will have to repay the loan by 168 equal monthly installments starting July 30, 2004. As of June 30, 2004, the applicable interest rate was approximately 3.00% per annum. For the six months ended June 30, 2004, the interest expenses charged to operations amounted to $22,747.

NOTE 13 – RECEIPTS IN ADVANCE

The balance comprises:

				June 30,		December 31,
	Notes			2004		2003
				(Unaudited)
Current liabilities:
Sales deposits received		(i	)	$	367,780	$	356,575
Franchising income received	(ii)				1,574,199		1,703,426
Subscription fees received	(iii)				599,957		842,509
Others					26,936		22,126
					2,568,872		2,924,636
Long-term liabilities:
Franchising income received	(ii)				1,438,850		1,432,343
Others					32,184		34,682
					1,471,034		1,467,025
				$	4,039,906	$	4,391,661

Note:

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

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

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

NOTE 14 – RETIREMENT PLANS

The Group has a defined benefit retirement plan (the “Plan”) covering all regular employees of KCIT, its ROC subsidiary in Taiwan. Under the funding policy of the Plan, commencing from September 2003, KCIT contributes monthly an amount equal to 2% of the employees’ total salaries and wages, to an independent retirement trust fund deposited with the Central Trust of China in accordance with the ROC Labor Standards Law in Taiwan. The retirement fund is not included in the Group’s financial statements. Net periodic pension cost is based on annual actuarial valuations which use the projected

-22-

unit credit cost method of calculation and is charged to the consolidated statement of operations on a systematic basis over the average remaining service lives of current employees. Under the plan, the employees are entitled to receive retirement benefits upon retirement in the manner stipulated by the ROC Labor Standard Law in Taiwan. The benefits under the plan are based on various factors such as years of service and the final base salary preceding retirement.

The net periodic pension cost is as follows:

	Six months ended June 30,
	2004			2003
	(Unaudited)
Service cost	$	30,775		$	26,396
Interest cost		3,456			2,231
Expected return on assets		(733	)		—
Amortization of unrecognized loss		643			475
Net periodic pension cost	$	34,141		$	29,102

The Group previously disclosed in its financial statements for the year ended December 31, 2003, that it expected to contribute $54,355 to the Plan in 2004. As of June 30, 2004, $25,260 of contributions had been made. The Group presently anticipates contributing an additional $34,047 to fund the Plan in 2004 for a total of $54,355.

NOTE 15 – GEOGRAPHICAL SEGMENTS

The Group is principally engaged in the business of child educational teaching materials and related services focusing on English language in Taiwan and the PRC. Accordingly, the Group has two reportable geographic segments: Taiwan and the PRC. The Group evaluates the performance of each geographic segment based on its net income or loss. The Group also accounts for inter-segment sales as if the sales were made to third parties. Information concerning the operations in these geographical segment is as follows:

	Taiwan					The PRC						Total
	Six months ended			Six months ended		Six months ended			Six months ended			Six months ended			Six months ended
	June 30,			June 30,		June 30,			June 30,			June 30,			June 30,
	2004			2003		2004			2003			2004			2003
Revenue
External revenue	$	3,817,279		$	3,583,706	$	796,154		$	386,210		$	4,613,433		$	3,969,916
Inter-segment revenue		1,949			26,893		—			—			1,949			26,893
	$	3,819,228		$	3,610,599	$	796,154		$	386,210		$	4,615,382		$	3,996,809
Profit (loss) from Operations	$	(324,680	)	$	64,675	$	(552,785	)	$	(398,834	)	$	(877,465	)	$	(334,159	)
Capital expenditures	$	32,957		$	133,164	$	14,414		$	12,216		$	47,371		$	145,380

[Additional columns below]

[Continued from above table, first column(s) repeated]

	Corporate						Eliminations						Consolidated
	Six months ended			Six months ended			Six months ended			Six months ended			Six months ended			Six months ended
	June 30,			June 30,			June 30,			June 30,			June 30,			June 30,
	2004			2003			2004			2003			2004			2003
Revenue
External revenue	$	—		$	—		$	—		$	—		$	4,613,433		$	3,969,916
Inter-segment revenue		—			—			(1,949	)		(26,893	)		—			—
	$	—		$	—		$	(1,949	)	$	(26,893	)	$	4,613,433		$	3,969,916
Profit (loss) from Operations	$	(145,311	)	$	(386,194	)	$	45,447		$	(75,483	)	$	(977,329	)	$	(795,836	)
Capital expenditures	$	—		$	—		$	—		$	—		$	47,371		$	145,380

	June 30,		December 31,		June 30,		December 31,		June 30,		December 31,
	2004		2003		2004		2003		2004		2003
Total assets	$	10,618,773	$	10,614,292	$	1,182,101	$	2,053,029	$	11,800,874	$	12,667,321

[Additional columns below]

[Continued from above table, first column(s) repeated]

	June 30,		December 31,		June 30,			December 31,			June 30,		December 31,
	2004		2003		2004			2003			2004		2003
Total assets	$	639,081	$	7,487	$	(827,786	)	$	(132,592	)	$	11,612,169	$	12,542,216

NOTE 16 – COMMITMENT

(i) On May 28, 2004, the Group signed a joint venture agreement with Zhangjhou Yu Hua Educational Investment Co., Ltd. in Henan Province, PRC to establish a company, Henan Kid Castle Education Development Co., Ltd. with registered capital of RMB$300,000. Pursuant to this joint venture agreement, the Group and Zhangjhou Yu Hua Educational Investment Co., Ltd. each owns 65% and 35% interests in Henan Kid Castle Education Development Co., Ltd. No capital contribution has yet been made for the joint venture as of June 30, 2004.

(ii) On June 29, 2004, the Group signed a joint venture agreement with Li Kai and Zhang Wuen Shou in PRC to establish a company, Shanxi Kid Castle Education Development Co., Ltd. with registered capital of RMB$500,000. Pursuant to this joint venture agreement, the Group, Li Kai and Zhang Wuen Shou own, respectively, 51%, 30% and 19% interests in Shanxi Kid Castle Education Development Co., Ltd. No capital contribution has yet been made for the joint venture as of June 30, 2004.

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

This report contains certain forward-looking statements and information relating to us that are based on the beliefs and assumptions made by our management as well as information currently available to the management. When used in this document, the words “anticipate”, “believe”, “estimate”, and “expect” and similar expressions, are intended to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. Certain of these risks and uncertainties are discussed under the caption “Factors That May Affect Our Future Results And Financial Condition” contained herein and other factors disclosed in our filings with the Securities and Exchange Commission including, but not limited to our Annual Report on Form 10-KSB for the year ended December 31, 2003. We do not intend to update these forward-looking statements.

GENERAL

We are engaged in the business of children’s education, focusing on the publication and sale of kindergarten language school and primary school teaching materials and magazines. We also provide management and consulting services to our franchised kindergarten and language schools. Our teaching materials include books, audio tapes, video tapes and compact discs. A major portion of our educational materials focuses on English language education. We also sell educational tools and equipment that are complementary to our business. Currently, our major business is in Taiwan. In 2001, we started to expand our business in the People’s Republic of China (“PRC”). We officially launched our operations in Shanghai in April 2002. As in Taiwan, we offer advanced teaching materials and tools, and monthly and bi-weekly magazines to provide children ranging from two to twelve years of age a chance to learn exceptional English language and computer skills, and to provide a pre-school education program.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to product returns, bad debts, inventories, equity investments, income taxes, financing operations, pensions and commitment and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.

Revenue Recognition. We recognize sales of teaching materials and educational tools and equipment as revenue when title of the product and risk of ownership are transferred to the customer, which occurs at the time of delivery, or when the goods arrive at the customer designated location, depending on the associated shipping terms. Additionally, we deliver products sold by our distributors directly to the distributors’ customers and as such the delivered goods are recognized as revenue similar to sales to our direct customers. We estimate sales returns and discounts based on historical experience and record as reductions to revenues.

-24-

If market conditions were to decline, we may take actions to increase sales discounts, possibly resulting in an incremental reduction of revenue at the time when revenues are recognized.

Allowance for doubtful accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Allowance for obsolete inventories and lower of cost or market. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about inventory aging, future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Investment impairments. We hold equity interests in companies having operations in areas within our strategic focus. We record an investment impairment charge when we believe an investment has experienced a decline in value that is not temporary. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment’s current carrying value, thereby possibly requiring an impairment charge in the future.

Fixed assets and depreciation. Our fixed assets are stated at cost. Major improvements and betterments to existing facilities and equipment are capitalized. Expenditures for maintenance and repairs that do not extend the life of the applicable asset are charged to expense as incurred. Buildings are depreciated over a 50-year term. Fixtures and equipment are depreciated using the straight-line method over their estimated useful lives, which range from two-and-a-half years to ten years.

Impairment of long-lived assets. We review our fixed assets and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset over its remaining useful life. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. The estimate of fair value is generally based on quoted market prices or on the best available information, including prices for similar assets and the results of using other valuation techniques.

As of June 30, 2004, the balance of our amortizable intangible assets was $920,390, including franchise-related intangible assets of $579,650 and copyrights of $340,740. The amortizable intangible assets are amortized on a straight-line basis over estimated useful lives of 10 years. In determining the useful lives and recoverability of the intangibles, assumptions must be made regarding estimated future cash flows and other factors to determine the fair value of the assets, which may not represent the true fair value. If these estimates or their related assumptions change in the future, there may be significant impact on our results of operations in the period of the change incurred.

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

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management’s estimates of realizability. Actual results may differ significantly from management’s estimate.

Currency Risk

Our transactions with suppliers and customers are primarily effected in New Taiwan dollars, which is the functional currency of our Taiwanese subsidiary, Kid Castle Internet Technologies Limited. As a result of our expansion in the PRC, our transactions denominated in Renminbi, which is the functional currency of our PRC subsidiary, Kid Castle Educational Software Development Company Limited, are increasing. Our financial statements are reported in U.S. dollars. As a result, fluctuations in the relative exchange rate among the U.S. dollar, the New Taiwan dollar and the Renminbi will affect our reported financial results. Such impacts could be meaningful and are independent of the underlying performance of the business. The market price of our securities could be significantly harmed based on unfavorable changes in exchange rates. We do not actively manage our exposure to currency exchange rate fluctuations.

RESULTS OF OPERATIONS

The six months ended June 30, 2004 and 2003

Total net operating revenues increased by $643,517, or 16%, to $4,613,433 for the six months ended June 30, 2004 from $3,969,916 for the six months ended June 30, 2003, including the increase in sales of goods of $229,331 and the franchising income of $345,791 and other operating revenues of $68,395. The increase in sales of goods, from $2,987,448 for the six months ended June 30, 2003 to $3,216,779 for the six months ended June 30, 2004, or 8%, was mainly due to the increase in net sales of goods generated from our Shanghai operations of $265,027, or 117%, to $490,764 for the six months ended June 30, 2004 from $225,737 for the six months ended June 30, 2003. The increase in franchising income, from $846,949 for the six months ended June 30, 2003 to $1,192,740 for the six months ended June 30, 2004, or 41%, was mainly due to the increase in numbers of our franchised schools and the increase in the annual franchising fees. Our other operating revenues represent revenues from other activities and services such as training of teachers, arranging for personal English language tutors, organizing field trips and educational fairs, and designing the school layout for franchised schools. Other operating revenues increased by $68,395, or 50%, to $203,914 for the six months ended June 30, 2004 from $135,519 for the six months ended June 30, 2003. The increase was mainly due to the fees paid by our franchised schools for our services in connection with the construction and decoration of those franchised schools and the income resulting from the sales of education related equipments to our franchised schools.

Gross profit increased by $381,663, or 15%, to $2,907,267 for the six months ended June 30, 2004 from $2,525,604 for the six months ended June 30, 2003. The increase in gross profit was attributable to the fact that the rate of increase in franchising costs from June 30, 2003 to June 30, 2004 was lower than the rate of increase in franchising income for the same period. In addition, our advertising campaign during this period particularly helped to boost franchising income in both Taiwan and Shanghai, PRC.

Total operating expenses increased by $563,156, or 17%, to $3,884,596 for the six months ended June 30, 2004 from $3,321,440 for the six months ended June 30, 2003. Advertising costs increased by $255,745, or 129%, to $454,492 for the six months ended June 30, 2004 from $198,747 for the six months ended June 30, 2003. The increase was mainly due to the additional expenses incurred with respect to the filming of commercials for our new promotional campaign for our products and franchised schools. Other operating expenses increased by $307,411, or 10%, to $3,430,104 for the six months ended June 30, 2004 from $3,122,693 for the six months ended June 30, 2003, principally due to increases in commission fees from monthly magazines and in expenses as a result of the expansion in Shanghai, PRC. Commission fees increased by $206,484, or 182%, to $320,175 for the six months ended June 30, 2004

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from $113,691 for the six months ended June 30, 2003, which was mainly due to the increase in volume of commission fees incurred from the new promotional campaign of our monthly magazines sold to pre-schools. In addition, our personnel expenses and other relevant expenses increased as a result of the continued expansion of our business and workforce in Shanghai.

Net interest expenses decreased by $89,536, or 58%, to $64,936 for the six months ended June 30, 2004 from $154,472 for the six months ended June 30, 2003, primarily due to a loan from a stockholder in April 2002 (please refer to Note 10 to the condensed consolidated financial statements for more information) that had a monthly interest rate of 2.1%. The loan was fully repaid subsequent to December 31, 2003.

Share of profit (loss) of investments increased by $44,106, or 348%, to $31,425 for the six months ended June 30, 2004 from ($12,681) for the six months ended June 30, 2003, primarily due to our new investment in Culture Media on July 8, 2003 that incurred an investment gain of $32,939 (please refer to Note 9 to our condensed consolidated financial statements for more information) for the six months ended June 30, 2004.

Loss on write-off of an investment in the six months ended June 30, 2003, was due to a special resolution adopted by our board of directors on June 5, 2003. We resolved to amend the agreement we entered into on May 16, 2001 with Global International to change our cooperation relationship from equity ownership to strategic alliance. As a result, during the six months ended June 30, 2003, we recognized a loss of $132,116 in the operating results.

Other non-operating income increase by $7,562, or 10%, to $81,770 for the six months ended June 30, 2004 from $74,208 for the six months ended June 30, 2003, primarily because of the fluctuation in exchange rate.

The income tax expenses of $1,222 for the six months ended June 30, 2004 represents the additional income tax paid for 2002. Income tax provision for the six months ended June 30, 2003 was $182,681. This income tax provision mainly represents an increase in the valuation allowance against deferred tax assets generated from our Shanghai operations so as to reduce the deferred tax assets to the extent that the tax benefit is more than likely to be realized.

The three months ended June 30, 2004 and 2003

Total net operating revenues increased by $795,271, or 66%, to $2,003,095 for the three months ended June 30, 2004 from $1,207,824 for the three months ended June 30, 2003, including the increase in sales of goods of $474,191, franchising income of $249,310 and other operating revenues of $71,770. The increase in sales of goods, from $712,735 for the three months ended June 30, 2003 to $1,186,926 for the three months ended June 30, 2004, or 67%, was mainly due to the net sales of goods generated from our Shanghai operations increased by $101,346, or 96%, to $193,013 or the three months ended June 30, 2004 from $91,667 for the three months ended June 30, 2003. In addition, because we sold the educational materials for the first semester of 2004 to our franchise schools in Taiwan in June, which was earlier than 2003, the sales revenue in the first six months of 2004 increased by approximately $206,335, compared with the same period in 2003. The increase in franchising income, from $415,298 for the three months ended June 30, 2003 to $664,608 for the three months ended June 30, 2004, was mainly due to the increase in numbers of our franchised schools and the increase in the annual franchising fees. Our other operating revenues represent revenues from other activities and services such as training of teachers, arranging for personal English language tutors, organizing field trips and educational fairs, and designing the school layout for franchised schools. Other operating revenues increased to $151,561 for the three

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months ended June 30, 2004 from $79,791 for the three months ended June 30, 2003, mainly due to the fees paid by our franchised schools for our services in connection with the construction and decoration of those franchised schools and the income resulting from the sales of education related equipments to our franchised schools.

Gross profit increase by $511,796, or 79%, to $1,160,730 for the three months ended June 30, 2004 from $648,934 for the three months ended June 30, 2003. The increase was mainly attributable to an increase in the annual franchising fees as well as an improved utilization of our consulting and management resources provided to our franchised schools.

Total operating expenses increased by $112,412, or 7%, to $1,741,530 for the three months ended June 30, 2004 from $1,629,118 for the three months ended June 30, 2003. Advertising costs increased by $173,078, or 112%, to $327,850 for the three months ended June 30, 2004 from $154,772 for the three months ended June 30, 2003. The increase was mainly because we spent additional cost in filming our new commercials on the promotion of our products and franchised schools. Other operating expenses decreased by $60,666, or 4%, to $1,413,680 for the three months ended June 30, 2004 from $1,474,346 for the three months ended June 30, 2003, primarily because we saved some personnel expenses by closing down our direct-marketing department in April, 2004.

Net interest expenses decreased by $37,280, or 46%, to $43,171 for the three months ended June 30, 2004 from $80,451 for the three months ended June 30, 2003, primarily due to a loan from a stockholder in April 2002 (please refer to Note 10 to the condensed consolidated financial statements) that had a monthly interest rate of 2.1%. The loan was fully repaid in January, 2004.

Share of loss of investments was $15,542 for the three months ended June 30, 2004, primarily due to our new investments in Culture Media on July 8, 2003, and Education Center in October 2003, which incurred investment losses of $14,068 and $1,474 (please refer to Note 9 to our condensed consolidated financial statements for more information) for the three months ended June 30, 2004, respectively.

Loss on write-off of an investment in the three months ended June 30, 2003, was due to a special resolution adopted by our board of directors on June 5, 2003. We resolved to amend the agreement we entered into on May 16, 2001 with Global International to change our cooperation relationship from equity ownership to strategic alliance. As result, during the three months ended June 30, 2003, we recognized a loss of $132,116 in the operation results.

Other non-operating income increase by $19,989, or 110%, to $38,097 for the three months ended June 30, 2004 from $18,108 for the three months ended June 30, 2003, primarily because of the fluctuation in exchange rates of the primary currencies in which we conduct our operations, the New Taiwan (NT) Dollars and Renminbi (RMB), against the US Dollar.

Income tax expenses of $1,222 for the three months ended June 30, 2004 represents the additional income tax paid for 2002. Income tax provision for the three months ended June 30, 2003 was $34,184. This income tax provision mainly represents an increase in the valuation allowance against deferred tax assets generated from our Shanghai operations so as to reduce the deferred tax assets to the extent that the tax benefit is more than likely to be realized.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2004, our principal sources of liquidity included cash and bank balances of $542,188, which decreased from $1,273,723 at December 31, 2003. The decrease was mainly due to the

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expenditures to fund the daily operations and the new investments in our Shanghai operations (please refer to note 9 to our condensed consolidated financial statement for more information).

Net cash used in operating activities was $387,830 and $1,476,962 during the six months ended June 30, 2004 and 2003, respectively. Net cash used in operating activities during the six months ended June 30, 2004 was primarily attributed to net loss, that was partially offset by an increase in notes and accounts payable, an increase of deposit received, and an increase in other payables.

Net cash (used in) provided by investing activities was $(250,988) and $6,983 during the six months ended June 30, 2004 and 2003, respectively. The $257,971 difference was primarily attributable to the collections of amount due from stockholder/director of $122,300 during the six months ended June 30, 2003 and the payment of long-term investments of $103,346 in Shanghai.

Net cash (used in) provided by financing activities during the six months ended June 30, 2004 was $(79,888) as compared to $2,623,346 during the six months ended June 30, 2003. The $2,703,234 difference was primarily attributable to the net proceeds of $2,181,578 we received from the issuance of 3,116,540 shares of common stock during the six months ended June 30, 2003, and the repayment of loans from officers/stockholders of $585,006 during the six months ended June 30, 2004.

As of June 30, 2004, the Company has a total line of credit of $2,518,519 from certain banks and the unused credit facility was $255,566.

Off-Balance Sheet Arrangement

The Securities and Exchange Commission (“SEC”) has described various characteristics to identify contractual arrangements that would fall within the SEC’s definition of off-balance sheet arrangements.

The following table represents the Group’s contractual obligations:

	Payments Due By Period (Thousand dollars)
	Total		2004		2005		2006		2007		2008		Thereafter
Contractual obligations
Bank borrowing	$	2,187		909		1,097		181		—		—		—
Pension Benefit		41		—		—		—		—		—		41
Operating leases		393		118		100		82		54		39		—
Total	$	2,621		1,027		1,197		263		54		39		41

Bank borrowing

One of our financing sources is from bank borrowings. As of June 30, 2004 and December 31, 2003, the balances of bank borrowings, including current and non-current portions, were $3,024,948 and $2,484,471, respectively.

Equity investments in joint ventures

On May 28, 2004, KCES signed a joint venture agreement with Zhangjhou Yu Hua Educational Investment Co., Ltd. in Henan Province, PRC. Pursuant to this joint venture agreement, the Group and

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Zhangjhou Yu Hua Educational Investment Co., Ltd. each owns 65% and 35% interests in Henan Kid Castle Education Development Co., Ltd.

On June 29, 2004, KCES signed a joint venture agreement with Li Kai and Zhang Wuen Shou in PRC. Pursuant to this joint venture agreement, the Group, Li Kai and Zhang Wuen Shou own, respectively, 51%, 30% and 19% interests in Shanxi Kid Castle Education Development Co., Ltd.

As of June 30, 2004, no operations had commenced yet for Henan Kid Castle Education Development Co., Ltd., and Shanxi Kid Castle Education Development Co., Ltd. In addition, no capital injection had made for Henan Kid Castle Education Development Co., Ltd. and Shanxi Kid Castle Education Development Co., Ltd.

Pension Benefit

We have a defined benefit retirement plan (the “Plan”) covering all regular employees of KCIT, our subsidiary in Taiwan, as described in Note 14 to the Consolidated Financial Statements. The benefits expected to be paid in each of the next five fiscal years, and in the aggregate for the five fiscal years thereafter are $0 and $40,913, respectively. We also make defined contributions to a retirement benefits plan for its employees in the PRC in accordance with local regulations. The contributions made by us for the six months ended June 30, 2004 and 2003 amounted to $70,454 and $45,290, respectively.

Operating Leases

We have entered into several non-cancelable lease arrangements for administrative office space, warehouse space and sales offices in various periods.

NEW ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. Management is currently evaluating the effect of adopting FIN 46 on its results of operations and financial position.

On April 30, 2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS No. 149”). SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. The new guidance amends SFAS No. 133 for decisions made as part of the Derivatives Implementation Group (“DIG”) process that effectively required amendments to SFAS No. 133, and decisions made in connection with other FASB projects dealing with financial instruments and in connection with implementation issues raised in relation to the application of the definition of a derivative and characteristics of a derivative that contains financing components. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. We believe that the adoption of SFAS No. 149 will have no material impact on our consolidated financial statements.

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In May 2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS No. 150”). SFAS No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 is effective for all financial instruments created or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We believe that the adoption of SFAS No. 150 will have no material impact on our consolidated financial statements.

In December 2003, the Staff of the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,” which supersedes SAB 101, “Revenue Recognition in Financial Statements.” SAB 104’s primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements and revises the SEC’s “Revenue Recognition in Financial Statements Frequently Asked Questions and Answers” that have been codified in Topic 13. SAB 104 was effective immediately and did not have a material impact on our financial reporting and disclosures.

In December 2003, the FASB revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This Statement revises employers’ disclosures about pension plans and other postretirement benefit plans. It requires additional disclosures to those in the original SFAS No. 132 about the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The required information should be provided separately for pension plans and for other postretirement benefit plans. This Statement, which also requires new disclosures for interim periods beginning after December 15, 2003, is effective for fiscal years ended after December 15, 2003. We have adopted this Statement since the year ended December 31, 2003, and the adoption of this Statement has no impact on our consolidated financial statements.

FACTORS THAT MAY AFFECT OUR FUTURE RESULTS AND FINANCIAL CONDITION

Investing in our securities involves a high degree of risk. In addition to the other information contained in this quarterly report, you should consider the following factors before investing in our securities.

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

Our operating subsidiaries are a Taiwanese company and a People’s Republic of China company, our officers and directors are residents of various jurisdictions outside the United States. All or a substantial portion of the assets of our business and of such persons are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon such persons or to enforce in the United States courts judgments obtained against such persons in United States courts and predicated upon the civil liability provisions of the Securities Act.

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

Our primary competitors have significant financial, technical and marketing resources, and/or name recognition, including Giraffe, G-Telp and Jia Yin. Some of these competitors have a longer operating history and greater overall resources than we do. These companies also have established customer support and professional services organizations. As a result, our competitors may be able to adapt more quickly to changes in customer needs, offer products and services at lower prices than us, devote greater resources

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than us to development and sale of teaching/learning products and services, which could result in reducing our market share.

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

Our success is dependent upon the personal efforts and abilities of our executive officers, Kuo-An Wang, our Chief Executive Officer, and Yu-En Chui, our Chief Financial Officer. If these key officers cease employment with us before we find qualified replacements, it would have a significant negative impact on our operations. We do not have employment agreements with any of our executive officers.

Moreover, our growth and success depend on our ability to attract, hire and retain additional highly qualified management, educators, technical, marketing and sales personnel. These individuals are in high demand and we may not be able to attract the staff we need. The hiring process is intensely competitive, time consuming and may divert the attention of our management from our operations. Competitors and others have in the past, and may in the future, attempt to recruit our employees. If we lose the services of any of our senior management or key education personnel, or if we fail to continue to attract qualified personnel, our business could suffer.

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

Our transactions with suppliers and customers are effected in New Taiwan dollars, the functional currency of our Taiwanese subsidiary, KCIT, and increasingly in RMB, the functional currency of our PRC subsidiary, KCES, as a result of our expansion in the PRC. Our financial statements are reported in U.S. dollars. As a result, fluctuations in the relative exchange rate among the U.S. dollar, the NT dollar and the RMB will affect our reported financial results from one period to the next. Such impacts could be meaningful and are independent of the underlying performance of our business. The market price of our securities could be significantly harmed based on unfavorable changes in exchange rates. We do not actively manage our exposure to such effects.

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

Our markets are new, rapidly evolving and highly competitive, and we expect this competition to persist and intensify in the future. This increase in competition could lead to price reductions, decreased sales-volume, under-utilization of employees, reduced operating margins and loss of market share. There can be no assurance that we will be able to successfully compete for customers in our targeted markets.

Our failure to maintain and enhance our competitive position could seriously harm our business and operating results. We encounter current or potential competition from a number of sources, including:

• branches and franchises of international language instruction companies;

• public institutions and private schools; and

• private tutors.

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

Although the market for English language instruction and education is growing rapidly, we cannot be certain that this growth will continue in its present form, or at all. We believe our success ultimately will depend upon, among other things, our ability to:

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• increase awareness of our brand and the availability of our products and services;

• continue to attract and develop relationships with educational institutions and regulatory authorities in our targeted geographic markets; and

• continue to attract and retain customers.

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

Our ability to attain a positive cash flow and become profitable depends on our ability to generate and maintain greater revenues while incurring reasonable expenses. This, in turn, depends, among other things, on the development of our business of child educational teaching materials and related services focusing on English language in Taiwan and the PRC, and we may be unable to achieve and maintain profitability if we fail to do any of the following:

• maintain and improve our current products and services and develop or license new ones on a timely basis;

• compete effectively with existing and potential competitors;

• further develop our business activities;

• manage expanding operations; and

• attract and retain qualified personnel.

We have incurred operating losses since inception and hence, as of June 30, 2004, the balance of accumulated deficit was $6,987,774. We incurred net losses of $(1,940,591), $(1,906,996), and $(2,500) for the years ended December 31, 2003, 2002 and 2001, respectively, and had cash flow from operations of $(2,689,688), 33,886 and $0 in 2003, 2002 and 2001, respectively. If we are unable to achieve and maintain a positive cash flow and profitability, we may be unable to continue our operations. Even if we do achieve a positive cash flow and profitability, we cannot be certain that we will be able to sustain or increase them on a quarterly or annual basis in the future

Our inability to achieve or maintain profitability or positive cash flow could result in disappointing financial results, impede implementation of our growth strategy or cause the market price of our common stock to decrease. Specifically, if we cannot effectively maintain, improve and develop products and services we may not be able to recover our fixed costs or otherwise turn profitable. We may not be able to develop and introduce new products, services and enhancements that respond to technological changes, evolving education industry standards or customer needs and trends on a timely basis. We may experience difficulties that could delay or prevent the successful development, introduction or marketing of new products, services and service enhancements. These new products, services and service enhancements may not achieve market acceptance or our competitors may develop alternative technologies and methods that gain broader market acceptance than our products and services. Accordingly, we cannot assure you that we will be able to generate the cash flow and profits necessary to sustain our business expectations, which makes our ability to successfully implement our business plan uncertain.

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

If we fail to protect our intellectual property, we may be exposed to expensive litigation or risk jeopardizing our competitive position. The steps we have taken may be inadequate to protect our

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intellectual property. We may have to litigate to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. This litigation could result in substantial costs and the diversion of our management and technical resources which could harm our business.

In addition, laws in the PRC have traditionally been less protective of intellectual property rights and enforcement relating to the protection of intellectual property in the PRC has been sporadic at best. Deterioration in compliance with existing legal protections or reductions in the legal protection for intellectual property rights in the PRC could adversely affect our revenue as we continue to expand into the PRC market.

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

Although we have taken steps to avoid infringement claims from others, these measures may not be adequate to prevent others from claiming that we violated their copyrights, other trademarks or other proprietary rights. Any claim of infringement could cause us to incur substantial costs defending against the claim, even if the claim is invalid, and could distract our management from our business. A party making a claim could secure a judgment that requires us to pay substantial damages.

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

As we expand our operations outside of Taiwan, we will be subject to the risks of conducting business in foreign countries, including:

• our inability to adapt our products and services to local cultural traits, customs and mobile user preferences;

• our inability to locate qualified local employees, partners and suppliers;

• difficulties managing foreign operations;

• the potential burdens of complying with a variety of foreign laws;

• trade standards and regulatory requirements;

• geopolitical risks, such as political and economic instability and changes in diplomatic and trade relationships;

• legal uncertainties or unanticipated changes regarding regulatory requirements, liability, export and import restrictions, tariffs and other trade barriers;

• uncertainties of laws and enforcement relating to the protection of intellectual property;

• political, economic and social conditions in the foreign countries where we conduct operations;

• currency risks and exchange controls;

• potential inflation in the applicable foreign economies; and

• foreign taxation of earnings and payments received by us from our franchisees and affiliates.

We cannot be certain that the risks associated with our anticipated foreign operations will not negatively affect our operating results or prospects, particularly as these operations expand in scope, scale and significance.

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

Our operations and assets in the PRC are subject to significant political, regulatory and economic uncertainties. Changes in laws and regulations, or their interpretation, or the imposition of confiscatory

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taxation, restrictions on currency conversion, imports and sources of supply, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business, results of operations and financial condition. Under its current leadership, the PRC government has been pursuing economic reform policies that encourage private economic activity and greater economic decentralization. There is no assurance, however, that the PRC government will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice.

In addition, our subsidiary, KCES, entered into agreements in July 2003 to establish two joint ventures, Culture Media and Education Center, with a local Chinese party, 21^st Century Publishing House, in Jiangxi Province. We established Culture Media and Education Center to engage mainly in the publication and distribution of English language education materials, the operation of kindergarten and language schools, and the running of cooperative schools in China. We intend to use these joint ventures as one of our primary vehicles for our expansion in the PRC market. Although we have received, on January 19, 2004 and October 31, 2003, licenses from the applicable government authorities to conduct the business of Culture Media and Education Center, respectively, in the PRC, the regulations with respect to operation of businesses by foreign-owned entities are still in flux. There is no assurance that the licenses will not be challenged by the PRC authorities.

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

Unlike the U.S., the PRC has a civil law system based on written statutes in which judicial decisions have little precedential value. The PRC government has enacted some laws and regulations dealing with matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, their experience in implementing, interpreting and enforcing these laws and regulations is limited, and our ability to enforce commercial claims or to resolve commercial disputes is unpredictable. These matters may be subject to the exercise of considerable discretion by agencies of the PRC government, and forces unrelated to the legal merits of a particular matter or dispute may influence their determination.

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

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share. Our common stock may fall within the definition of penny stock and subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual incomes exceeding $200,000 or $300,000, together with their spouse).

For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our common stock and may affect the ability of investors to sell our common stock in the secondary market.

-35-

An outbreak of Severe Acute Respiratory Syndrome (“SARS”) may adversely affect our results of operations.

In March 2003, Guangdong Province of the PRC, Hong Kong, Singapore, Taiwan and several other Asian countries encountered in outbreak of SARS, a highly contagious form of atypical pneumonia. Although the SARS epidemic now appears to become under control, some experts fear that the SARS epidemic might resurface as number of isolated SARS cases have been reported recently. In the future, if any of our employees or students is suspected to have contracted SARS, under certain circumstances such employees, students and affected areas of our premises may have to be quarantined. As a result, we may have to temporarily suspend all or part of our operations. Furthermore, a future outbreak of SARS may negatively impact our ability to attract foreign teachers, who may be less inclined to come to Taiwan, and students, whose parents may choose to have them taught at home by an individual.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may affect us due to adverse changes in financial market prices and rates. Our market risk exposure is primarily fluctuations in foreign exchange rates and interest rates. We have not entered into derivative or hedging transactions to manage risk in connection with such fluctuations.

Interest rate exposure

We are exposed to fluctuating interest rates related to variable rate bank borrowings. It is estimated that if interest rates were to increase by 1%, the result would be an annual increase in our interest expense of $30,523. However, due to the uncertainty of the actions that would be taken and their possible effects, this analysis assumes no such action. Further, this analysis does not consider the effect of the change in the level of overall economic activity that could exist in such an environment.

Foreign currency exposure

We have operations in both Taiwan and the PRC. The functional currency of Higoal and its subsidiaries other than KCES is NT Dollars and the financial records are maintained and the financial statements are prepared for these entities in NT$. The functional currency of KCES is RMB and the financial records are maintained and the financial statements are prepared for KCES in RMB. In the normal course of business, these operations are not exposed to fluctuations in currency values. We do not generally enter into derivative financial instruments in the normal course of business, nor are such instruments used for speculative purposes. However, fluctuations in the relative exchange rate will affect our reported financial results. The translation from the applicable local currency assets and liabilities to the US dollar is performed using exchange rates in effect at the balance sheet date except for stockholders’ equity, which is translated at historical exchange rates. Revenue and expense accounts are translated using average exchange rates during the period. Gains and losses resulting from such translations are recorded as a cumulative translation adjustment, a separate component of stockholders’ equity.

ITEM 4. CONTROLS AND PROCEDURES

We are in the process of identifying, developing and implementing measures to improve the effectiveness of our disclosure controls and procedures, and, in particular, internal controls, including plans to enhance our resources, systems and training with respect to our financial reporting and disclosure responsibilities, and to review our actions with the audit committee and independent auditors. Based on this evaluation as of June 30, 2004, our CEO and our CFO have concluded that steps can be taken to improve our disclosure controls and procedures. Nevertheless, our CEO and CFO believe that, subject to the limitations noted

-36-

above, our disclosure controls and procedures are effective to ensure that material information required to be included in this report is made known to them on a timely basis.

During the quarter ended June 30, 2004, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

-37-

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We have no material pending legal proceedings.

ITEM 2. CHANGES IN SECURITIES

Pursuant to a stock purchase agreement dated August 18, 2003, Globe Wisdom Investments Limited (“GWIL”), a Samoan international business company, subscribed for 175,500 shares of our common stock at an aggregate purchase price of $122,850 in a private offering. As of June 30, 2004, we had not yet issued any shares to GWIL pursuant to the August 18, 2003 stock purchase agreement.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At our Annual Meeting of Shareholders held on June 28, 2004, the following proposals were adopted by the margins indicated:

PROPOSAL 1: Annual Election of Directors. The nominees for election as directors were Kuo-An Wang, Yu-En Chiu, Suang-Yi Pai, Chin-Chen Huang, Yu-Fang Lin, Ming-Tsung Shih, Yuanchau Liour and Robert Theng. Each of these nominees was elected to serve for a one-year term, by the following margins of votes:

Nominees	For		Withheld
Kuo-An Wang		13,963,212		760,520
Yu-En Chiu		13,963,212		760,520
Suang-Yi Pai		13,963,212		760,520
Chin-Chen Huang		13,963,212		760,520

-38-

Nominees	For		Withheld
Yu-Fang Lin		13,963,212		760,520
Ming-Tsung Shih		13,963,212		760,520
Yuanchau Liour		13,963,212		760,520
Robert Theng		13,963,212		760,520

PROPOSAL 2: Ratification of the selection of PricewaterhouseCoopers LLP to serve as our independent auditors for the fiscal year ending December 31, 2004.

For	Against	Abstain
1,3963,212	0	760,520

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

A.	Exhibits
3.1	Amended Bylaws
31.1	Certification of Kuo-An Wang, Chief Executive Officer of the registrant, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Yu-En Chiu, Chief Financial Officer of the registrant, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

-39-

32.1	Certification of Kuo-An Wang, Chief Executive Officer of the registrant, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Yu-En Chiu, Chief Financial Officer of the registrant, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
B.	Reports on Form 8-K
	Not applicable.

-40-

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 16, 2004

By:	/s/ Kuo-An Wang
	Name:	Kuo-An Wang
	Title:	Chief Executive Officer

-41-

EX-3.1

EXHIBIT 3.1

                              AMENDED AND RESTATED

                                     BYLAWS

                                       OF

                       KID CASTLE EDUCATIONAL CORPORATION

                             (A FLORIDA CORPORATION)

                           AS AMENDED ON APRIL 7, 2004

Exhibit 3.1                           -1-


                                TABLE OF CONTENTS
                                                                            
ARTICLE 1 DEFINITIONS.....................................................     2

ARTICLE 2 OFFICERS........................................................     2

ARTICLE 3 SHAREHOLDERS....................................................     2
      Section 3.1 Annual Meeting                                               2
      Section 3.2  Special Meetings                                            2
      Section 3.3  Place of Meeting                                            2
      Section 3.4  Notice of Meeting                                           2
      Section 3.5 Waiver of Notice                                             2
      Section 3.6 Fixing of Record Date                                        2
      Section 3.7 Shareholders' List for Meetings                              2
      Section 3.8 Quorum                                                       2
      Section 3.9 Voting of Shares                                             2
      Section 3.10 Vote Required                                               2
      Section 3.11 Conduct of Meeting                                          2
      Section 3.12 Inspectors of Election                                      2
      Section 3.13 Proxies                                                     2
      Section 3.14 Action by Shareholders Without Meeting                      2
      Section 3.15 Acceptance of Instruments Showing Shareholder Action        2

ARTICLE 4 BOARD OF DIRECTORS..............................................     2
      Section 4.1 General Powers and Number                                    2
      Section 4.2 Qualifications                                               2
      Section 4.3 Duties of Directors                                          2
      Section 4.4 Term of Office                                               2
      Section 4.5 Nominations of Directors                                     2
      Section 4.6 Removal                                                      2
      Section 4.7 Resignation                                                  2
      Section 4.8 Vacancies                                                    2
      Section 4.9 Compensation                                                 2
      Section 4.10 Regular Meetings                                            2
      Section 4.11 Special Meetings                                            2
      Section 4.12 Notice                                                      2
      Section 4.13 Waiver of Notice                                            2
      Section 4.14 Quorum and Voting                                           2
      Section 4.15 Conduct of Meetings                                         2
      Section 4.16 Committees                                                  2
      Section 4.17 Audit Committee                                             2
      Section 4.18 Compensation Committee ("Compensation Committee")           2
      Section 4.19 Corporate Governance/Nominating Committee ("Corporate
      Governance Committee")                                                   2
      Section 4.20 Executive Committee                                         2
      Section 4.21 Action Without Meeting                                      2



Exhibit 3.1                           -2-


                                                                            
ARTICLE 5 OFFICERS........................................................     2
      Section 5.1 Number                                                       2
      Section 5.2 Election and Term of Office                                  2
      Section 5.3 Removal                                                      2
      Section 5.4 Resignation                                                  2
      Section 5.5 Vacancies                                                    2
      Section 5.6 Chairman of the Board                                        2
      Section 5.7 Chief Executive Officer                                      2
      Section 5.8. President                                                   2
      Section 5.9 Vice Presidents                                              2
      Section 5.10 Secretary                                                   2
      Section 5.11 Treasurer                                                   2
      Section 5.12 Assistant Secretaries and Assistant Treasurers              2
      Section 5.13 Other Assistants and Acting Officers                        2
      Section 5.14 Salaries                                                    2

ARTICLE 6 CONTRACTS, CHECKS AND DEPOSITS, SPECIAL CORPORATE ACTS..........     2
      Section 6.1 Contracts                                                    2
      Section 6.2 Checks, Drafts, etc                                          2
      Section 6.3 Deposits                                                     2
      Section 6.4 Voting of Securities Owned by Corporation                    2

ARTICLE 7 CERTIFICATES FOR SHARES, TRANSFER OF SHARES.....................     2
      Section 7.1 Consideration for Shares                                     2
      Section 7.2 Certificates for Shares                                      2
      Section 7.3 Transfer of Shares                                           2
      Section 7.4 Restrictions on Transfer                                     2
      Section 7.5 Lost, Destroyed, or Stolen Certificates                      2
      Section 7.6 Registered Shareholders                                      2
      Section 7.7 Stock Regulations                                            2

ARTICLE 8 BOOKS AND RECORDS...............................................     2
      Section 8.1 Books and Records                                            2
      Section 8.2 Shareholders' Inspection Rights                              2
      Section 8.3 Distribution of Financial Information                        2
      Section 8.4 Other Reports                                                2

ARTICLE 9 INDEMNIFICATION.................................................     2
      Section 9.1 Provision of Indemnification                                 2
      Section 9.2 Survival of Indemnification                                  2
      Section 9.3 Insurance                                                    2

ARTICLE 10 DIVIDENDS AND RESERVES.........................................     2
      Section 10.1 Declaration and Payment                                     2
      Section 10.2 Record Date for Dividends                                   2
      Section 10.3 Reserves                                                    2



Exhibit 3.1                           -3-


                                                                            
ARTICLE 11 MISCELLANEOUS..................................................     2
      Section 11.1 Fiscal Year                                                 2
      Section 11.2 Seal                                                        2
      Section 11.3 Books and Records                                           2
      Section 11.4 Power to Amend                                              2
      Section 11.5 Invalid Provisions                                          2

CERTIFICATE OF ADOPTION...................................................     23



Exhibit 3.1                           -4-


                                    ARTICLE 1
                                   DEFINITIONS

      Section 1.1 Definitions. The following terms shall have the following
meanings for purposes of these Bylaws:

      "Articles" means the Amended and Restated Articles of Incorporation of the
Corporation.

      "Act" means the Florida Business Corporation Act, as it may be amended
from time to time, or any successor legislation thereto.

      "Board" means the Corporation's Board of Directors.

      "Bylaws" means these Amended and Restated Bylaws.

      "Corporation" means Kid Castle Educational Corporation, a Florida
corporation.

      "Deliver" or "delivery" includes delivery by hand; United States mail;
facsimile, telegraph, teletype or other form of electronic transmission, with
written confirmation or other acknowledgment of receipt; and private mail
carriers handling nationwide mail services.

      "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

      "Principal Office" means the office (within or without the State of
Florida) where the Corporation's principal executive offices are located, as
designated in the Articles until an annual report has been filed with the
Florida Department of State, and thereafter as designated in the annual report.

      Any terms not defined under this Article 1 shall have the meanings
specified in the section of these Bylaws in which they first appear.

                                    ARTICLE 2
                                     OFFICES

      Section 2.1 Principal and Business Offices. The Corporation may have such
principal and other business offices, either within or without the State of
Florida, as the Board may designate or as the business of the Corporation may
require from time to time.

      Section 2.2 Registered Office. The registered office of the Corporation
required by the Act to be maintained in the State of Florida may but need not be
identical with the Principal Office if located in the State of Florida, and the
address of the registered office may be changed from time to time by the Board
or by the registered agent. The business office of the registered agent of the
Corporation shall be identical to such registered office.

                                    ARTICLE 3
                                  SHAREHOLDERS

      Section 3.1 Annual Meeting.

      (a) Call by Directors. The annual meeting of shareholders shall be held
within six (6) months

Exhibit 3.1                           -5-


after the close of each fiscal year of the Corporation on a date and at a time
and place designated by the Board, for the purpose of electing directors and for
the transaction of such other business as may come before the meeting. If the
election of directors shall not be held on the day fixed as herein provided for
any annual meeting of shareholders, or at any adjournment thereof, the Board
shall cause the election to be held at a special meeting of shareholders as soon
thereafter as is practicable. The failure to hold the annual meeting of the
shareholders within the time stated in these Bylaws shall not affect the terms
of office of the officers or directors of the Corporation or the validity of any
corporate action.

      (b) Business At Annual Meeting. At an annual meeting of the shareholders
of the Corporation, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be: (1) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board, (2) otherwise
properly brought before the meeting by or at the direction of the Board, or (3)
otherwise properly brought before the meeting by a shareholder. For business to
be properly brought before an annual meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice shall be received at the
principal business office of the Corporation no later than the date designated
for receipt of shareholders' proposals in a prior public disclosure made by the
Corporation. If there has been no such prior public disclosure, then to be
timely, a shareholder's notice must be delivered to or mailed and received at
the principal business office of the Corporation not less than sixty (60) days
nor more than ninety (90) days prior to the annual meeting of shareholders;
provided, however, that in the event that less than seventy (70) days' notice of
the date of the meeting is given to shareholders by notice or prior public
disclosure, notice by the shareholders, to be timely, must be received by the
Corporation not later than the close of business on the tenth day following the
day on which the Corporation gave notice or made a public disclosure of the date
of the annual meeting of the shareholders. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting: (a) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they appear on the
Corporation's stock books, of the shareholder(s) proposing such business, (c)
the class and number of shares of the Corporation which are beneficially owned
by such shareholder(s), (d) any material interest of the shareholder(s) in such
business, and (e) the same information required by clauses (b), (c) and (d)
above with respect to any other shareholder that, to the knowledge of the
shareholder(s) proposing such business, supports such proposal. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at an
annual meeting except in accordance with the procedures set forth in this
Section. The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the annual meeting that a matter of business was not
properly brought before the meeting in accordance with the provisions of this
Section, and if the Chairman shall so determine, the Chairman shall so declare
at the meeting and any such business not properly brought before the meeting
shall not be transacted.

      Section 3.2 Special Meetings.

      (a) Call by Directors or Executive Officers. Special meetings of
shareholders of the Corporation, for any purpose or purposes, may be called by
the Chairman of the Board ("Chairman").

      (b) Call by Shareholders. The Corporation shall call a special meeting of
shareholders in the event that the holders of not less than fifty percent (50%)
of the total number of votes of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, sign, date, and deliver to the Secretary one or more
written demands for the meeting describing one or more purposes for which it is
to be held. The Corporation shall give notice of such a special meeting within
sixty (60) days after the date that the demand is delivered to the Corporation.

Exhibit 3.1                           -6-


      Section 3.3 Place of Meeting. The Board may designate any place, either
within or without the State of Florida, as the place of meeting for any annual
or special meeting of shareholders. If no designation is made, the place of
meeting shall be the Principal Office of the Corporation.

      Section 3.4 Notice of Meeting.

      (a) Content and Delivery. Written notice stating the date, time, and place
of any meeting of shareholders and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten (10) days nor more than sixty (60) days before the date of the meeting
by or at the direction of the Chief Executive Officer, the President, the Senior
or Executive Vice Presidents, or the Secretary, or the officer or persons duly
calling the meeting, to each shareholder of record entitled to vote at such
meeting and to such other persons as required by the Act. Unless the Act
requires otherwise, notice of an annual meeting need not include a description
of the purpose or purposes for which the meeting is called. If mailed, notice of
a meeting of shareholders shall be deemed to be delivered when deposited in the
United States mail, addressed to the shareholder at his or her address as it
appears on the stock record books of the Corporation, with postage thereon
prepaid. Except as otherwise provided by the Act, notice by electronic
transmission constitutes written notice and may be transmitted to the
shareholder in a manner authorized by the shareholder.

      (b) Notice of Adjourned Meetings. If an annual or special meeting of
shareholders is adjourned to a different date, time, or place, the Corporation
shall not be required to give notice of the new date, time or place if the new
date, time or place is announced at the meeting before adjournment; provided,
however, that if a new record date for an adjourned meeting is or must be fixed,
the Corporation shall give notice of the adjourned meeting to persons who are
shareholders as of the new record date who are entitled to notice of the
meeting.

      (c) No Notice Under Certain Circumstances. Notwithstanding the other
provisions of this Section, no notice of a meeting of shareholders need be given
to a shareholder if: (1) an annual report and proxy statement for two
consecutive annual meetings of shareholders, or (2) all, and at least two,
checks in payment of dividends or interest on securities during a twelve-month
period have been sent by first-class, United States mail, addressed to the
shareholder at his or her address as it appears on the share transfer books of
the Corporation, and returned undeliverable. The obligation of the Corporation
to give notice of a shareholders' meeting to any such shareholder shall be
reinstated once the Corporation has received a new address for such shareholder
for entry on its share transfer books.

      (d) Common Address. Except as otherwise provided under Section 607.0141 of
the Act, any notice to shareholders provided by the Corporation pursuant to the
Articles, or these Bylaws, shall be effective if given by a single written
notice to shareholders who share an address if consented to by the shareholders
at that address to whom such notice is given. Any such consent shall be
revocable by a shareholder by written notice to the Corporation. Any shareholder
who fails to object in writing to the Corporation, within sixty (60) days after
having been given written notice by the Corporation of its intention to send the
single notice permitted under this subparagraph (d), shall be deemed to have
consented to receiving such single written notice.

      Section 3.5 Waiver of Notice.

      (a) Written Waiver. A shareholder may waive any notice required by the Act
or these Bylaws before or after the date and time stated for the meeting in the
notice. The waiver shall be in writing and signed by the shareholder entitled to
the notice, and be delivered to the Corporation for inclusion in the minutes or
filing with the corporate records. Neither the business to be transacted at nor
the purpose of

Exhibit 3.1                           -7-


any regular or special meeting of shareholders need be specified in any written
waiver of notice.

      (b) Waiver by Attendance. A shareholder's attendance at a meeting, in
person or by proxy, waives objection to all of the following: (1) lack of notice
or defective notice of the meeting, unless the shareholder at the beginning of
the meeting objects to holding the meeting or transacting business at the
meeting; and (2) consideration of a particular matter at the meeting that is not
within the purpose or purposes described in the meeting notice, unless the
shareholder objects to considering the matter when it is presented.

      Section 3.6 Fixing of Record Date.

      (a) General. The Board may fix in advance a date as the record date for
the purpose of determining shareholders entitled to notice of a shareholders'
meeting, entitled to vote, or take any other action. In no event may a record
date fixed by the Board be a date preceding the date upon which the resolution
fixing the record date is adopted or a date more than seventy (70) days before
the date of meeting or action requiring a determination of shareholders.

      (b) Special Meeting. The record date for determining shareholders entitled
to demand a special meeting shall be the close of business on the date the first
shareholder delivers his or her notice to the Corporation.

      (c) Shareholder Action by Written Consent. If no prior action is required
by the Board pursuant to the Act, the record date for determining shareholders
entitled to take action without a meeting shall be the close of business on the
date the first signed written consent with respect to the action in question is
delivered to the Corporation, but if prior action is required by the Board
pursuant to the Act, such record date shall be the close of business on the date
on which the Board adopts the resolution taking such prior action unless the
Board otherwise fixes a record date. Any action of the shareholders of the
Corporation taken without a meeting shall be effected only upon the written
consent of the holders of outstanding capital stock of the Corporation of each
voting group entitled to vote thereon having not less than the minimum number of
votes with respect to each voting group that would be necessary to authorize or
take such action at a meeting at which all voting groups and shares entitled to
vote thereon were present and voted.

      (d) Absence of Board Determination for Shareholders' Meeting. If the Board
does not determine the record date for determining shareholders entitled to
notice of and to vote at an annual or special shareholders' meeting, such record
date shall be the close of business on the day before the first notice with
respect thereto is delivered to shareholders.

      (e) Adjourned Meeting. A record date for determining shareholders entitled
to notice of or to vote at a shareholders' meeting is effective for any
adjournment of the meeting unless the Board fixes a new record date, which it
must do if the meeting is adjourned to a date more than one hundred twenty (120)
days after the date fixed for the original meeting.

      Section 3.7 Shareholders' List for Meetings.

      (a) Preparation and Availability. After a record date for a meeting of
shareholders has been fixed, the Corporation shall prepare an alphabetical list
of the names of all of the shareholders entitled to notice of the meeting. The
list shall be arranged by class or series of shares, if any, and show the
address of and number of shares held by each shareholder. Such list shall be
available for inspection by any shareholder for a period of ten days prior to
the meeting or such shorter time as exists between the record date and the
meeting date, and continuing through the meeting, at the Corporation's Principal
Office, at a

Exhibit 3.1                           -8-


place identified in the meeting notice in the city where the meeting will be
held, or at the office of the Corporation's transfer agent or registrar, if any.
A shareholder or his or her agent may, on written demand, inspect the list,
subject to the requirements of the Act, during regular business hours and at his
or her expense, during the period that it is available for inspection pursuant
to this Section. A shareholder's written demand to inspect the list shall
describe with reasonable particularity the purpose for inspection of the list,
and the Corporation may deny the demand to inspect the list if the Secretary
determines that the demand was not made in good faith and for a proper purpose
or if the list is not directly connected with the purpose stated in the
shareholder's demand, all subject to the requirements of Section 607.1602(3) of
the Act. Notwithstanding anything herein to the contrary, the Corporation shall
make the shareholders' list available at any annual meeting or special meeting
of shareholders and any shareholder or his or her agent or attorney may inspect
the list at any time during the meeting or any adjournment thereof.

      (b) Prima Facie Evidence. The shareholders' list is prima facie evidence
of the identity of shareholders entitled to examine the shareholders' list or to
vote at a meeting of shareholders.

      (c) Failure to Comply. If the requirements of this Section have not been
substantially complied with, or if the Corporation refuses to allow a
shareholder or his or her agent or attorney to inspect the shareholders' list
before or at the meeting, on the demand of any shareholder, in person or by
proxy, who failed to get such access, the meeting shall be adjourned until such
requirements are complied with.

      (d) Validity of Action Not Affected. Refusal or failure to prepare or make
available the shareholders' list shall not affect the validity of any action
taken at a meeting of shareholders.

      Section 3.8 Quorum.

      (a) What Constitutes a Quorum. Shares entitled to vote as a separate
voting group may take action on a matter at a meeting only if a quorum of those
shares exists with respect to that matter. If the Corporation has only one class
of stock outstanding, such class shall constitute a separate voting group for
purposes of this Section. Except as otherwise provided in the Act, a majority of
the votes entitled to be cast on the matter, represented in person or by proxy,
shall constitute a quorum of the voting group for action on that matter.

      (b) Presence of Shares. Once a share is represented for any purpose at a
meeting, other than for the purpose of objecting to holding the meeting or
transacting business at the meeting, it is considered present for purposes of
determining whether a quorum exists for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for the
adjourned meeting.

      (c) Adjournment in Absence of Quorum. Where a quorum is not present, the
holders of a majority of the shares represented and who would be entitled to
vote at the meeting if a quorum were present may adjourn such meeting from time
to time.

      Section 3.9 Voting of Shares. Except as provided in the Articles or the
Act, each outstanding share, regardless of class, is entitled to one vote on
each matter voted on at a meeting of shareholders.

      Section 3.10 Vote Required.

      (a) Matters Other Than Election of Directors. If a quorum exists, except
in the case of the election of directors, action on a matter shall be approved
by a majority of the votes cast at such meeting, unless the Act or the Articles
require a greater number of affirmative votes.

      (b) Election of Directors. Except as otherwise provided in the Articles,
each director shall be

Exhibit 3.1                           -9-


elected by a plurality of the votes cast by the shares entitled to vote in the
election of directors at a meeting at which a quorum is present. Each
shareholder who is entitled to vote at an election of directors has the right to
vote the number of shares owned by him or her for as many persons as there are
directors to be elected. Shareholders do not have a right to cumulate their
votes for directors.

      Section 3.11 Conduct of Meeting. The Chairman, or the Chief Executive
Officer, or in their absence, the President, or in his or her absence, a Vice
President in the order provided under the Section of these Bylaws titled "Vice
Presidents," or in their absence, any person chosen by the shareholders present
shall call a shareholders' meeting to order and shall act as presiding officer
of the meeting, and the Secretary of the Corporation shall act as secretary of
all meetings of the shareholders, but, in the absence of the Secretary, the
presiding officer may appoint any other person to act as secretary of the
meeting. The presiding officer of the meeting shall have broad discretion in
determining the order of business at a shareholders' meeting. The presiding
officer's authority to conduct the meeting shall include, but in no way be
limited to, recognizing shareholders entitled to speak, calling for the
necessary reports, stating questions and putting them to a vote, calling for
nominations, and announcing the results of voting. The presiding officer also
shall take such actions as are necessary and appropriate to preserve order at
the meeting. The rules of parliamentary procedure need not be observed in the
conduct of shareholders' meetings.

      Section 3.12 Inspectors of Election. Inspectors of election may be
appointed by the Board to act at any meeting of shareholders at which any vote
is taken. If inspectors of election are not so appointed, the presiding officer
of the meeting may, and on the request of any shareholder shall, make such
appointment. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his or her ability. The inspectors of election shall determine the number of
shares outstanding, the voting rights with respect to each, the shares
represented at the meeting, the existence of a quorum, and the authenticity,
validity, and effect of proxies; receive votes, ballots, consents, and waivers;
hear and determine all challenges and questions arising in connection with the
vote; count and tabulate all votes, consents, and waivers; determine and
announce the result; and do such acts as are proper to conduct the election or
vote with fairness to all shareholders. No inspector, whether appointed by the
Board or by the person acting as presiding officer of the meeting, need be a
shareholder. The inspectors may appoint and retain other persons or entities to
assist the inspectors in the performance of the duties of the inspectors. On
request of the person presiding at the meeting, the inspectors shall make a
report in writing of any challenge, question or matter determined by them and
execute a certificate of any fact found by them.

      Section 3.13 Proxies.

      (a) Appointment. At all meetings of shareholders, a shareholder may vote
his or her shares in person or by proxy. A shareholder may appoint a proxy to
vote or otherwise act for the shareholder by signing an appointment form, either
personally or by his or her attorney-in-fact. If an appointment form expressly
provides, any proxy holder may appoint, in writing, a substitute to act in his
or her place. A telegraph, telex, or a cablegram, a facsimile transmission of a
signed appointment form, or a photographic, photostatic, or equivalent
reproduction of a signed appointment form is a sufficient appointment form.

      (b) When Effective. An appointment of a proxy is effective when received
by the Secretary or other officer or agent of the Corporation authorized to
tabulate votes. An appointment is valid for up to eleven (11) months unless a
longer period is expressly provided in the appointment form. An appointment of a
proxy is revocable by the shareholder unless the appointment form conspicuously
states that it is irrevocable and the appointment is coupled with an interest.

Exhibit 3.1                           -10-


      Section 3.14 Action by Shareholders Without Meeting.

      (a) Requirements for Written Consent. Any action required or permitted by
the Act to be taken at any annual or special meeting of shareholders may be
taken without a meeting, without prior notice, and without a vote if one or more
written consents describing the action taken shall be signed and dated by the
holders of outstanding capital stock of the Corporation of each voting group
entitled to vote thereon having not less than the minimum number of votes with
respect to each voting group that would be necessary to authorize or take such
action at a meeting at which all voting groups and shares entitled to vote
thereon were present and voted. Such consents must be delivered to the Principal
Office of the Corporation, the Corporation's principal place of business, the
Secretary, or another officer or agent of the Corporation having custody of the
books in which proceedings of meetings of shareholders are recorded. No written
consent shall be effective to take the corporate action referred to therein
unless, within sixty (60) days of the date of the earliest dated consent
delivered in the manner required herein, written consents signed by the number
of holders required to take action are delivered to the Corporation by delivery
as set forth in this Section.

      (b) Revocation of Written Consents. Any written consent may be revoked
prior to the date that the Corporation receives the required number of consents
to authorize the proposed action. No revocation is effective unless in writing
and until received by the Corporation at its Principal Office or its principal
place of business, or received by the Secretary or other officer or agent having
custody of the books in which proceedings of meetings of shareholders are
recorded.

      (c) Same Effect as Vote at Meeting. A consent signed under this Section
has the effect of a meeting vote and may be described as such in any document.
Whenever action is taken by written consent pursuant to this Section, the
written consent of the shareholders consenting thereto or the written reports of
inspectors appointed to tabulate such consents shall be filed with the minutes
of proceedings of shareholders.

      Section 3.15 Acceptance of Instruments Showing Shareholder Action. If the
name signed on a vote, consent, waiver, or proxy appointment corresponds to the
name of a shareholder, the Corporation, if acting in good faith, may accept the
vote, consent, waiver, or proxy appointment and give it effect as the act of a
shareholder. If the name signed on a vote, consent, waiver, or proxy appointment
does not correspond to the name of a shareholder, the Corporation, if acting in
good faith, may accept the vote, consent, waiver, or proxy appointment and give
it effect as the act of the shareholder if any of the following apply:

      (a) The shareholder is an entity and the name signed purports to be that
of an officer or agent of the entity;

      (b) The name signed purports to be that of a administrator, executor,
guardian, personal representative, or conservator representing the shareholder
and, if the Corporation requests, evidence of fiduciary status acceptable to the
Corporation is presented with respect to the vote, consent, waiver, or proxy
appointment;

      (c) The name signed purports to be that of a receiver or trustee in
bankruptcy, or assignee for the benefit of creditors of the shareholder and, if
the Corporation requests, evidence of this status acceptable to the Corporation
is presented with respect to the vote, consent, waiver, or proxy appointment;

      (d) The name signed purports to be that of a pledgee, beneficial owner, or
attorney-in-fact of the shareholder and, if the Corporation requests, evidence
acceptable to the Corporation of the signatory's

Exhibit 3.1                           -11-


authority to sign for the shareholder is presented with respect to the vote,
consent, waiver, or proxy appointment; or

      (e) Two or more persons are the shareholder as co-tenants or fiduciaries
and the name signed purports to be the name of at least one of the co-owners and
the person signing appears to be acting on behalf of all co-owners. The
Corporation may reject a vote, consent, waiver, or proxy appointment if the
Secretary or other officer or agent of the Corporation who is authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.

                                    ARTICLE 4
                               BOARD OF DIRECTORS

      Section 4.1 General Powers and Number. All corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
Corporation managed under the direction of, the Board. The number of directors
of the Corporation shall be fixed from time to time, within any limits specified
by the Articles and the Act, by resolution of the Board of Directors; provided,
however, no director's term shall be shortened by reason of a resolution
reducing the number of directors.

      Section 4.2 Qualifications. Directors must be natural persons who are 18
years of age or older but need not be residents of the State of Florida,
shareholders of the Corporation or citizens of the United States.

      Section 4.3 Duties of Directors. A Director shall perform his duties as a
director, including his or her duties as a member of any committee of the Board
upon which he or she may serve, in good faith, in a manner he or she reasonably
believes to be in the best interests of the Corporation, and with such care as
an ordinarily prudent person in a like position would use under similar
circumstances.

      In performing his or her duties, a director shall be entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, in each case prepared or presented by:

      (a) one or more officers or employees of the Corporation whom the director
reasonably believes to be reliable and competent in the matters presented;

      (b) counsel, public accountants or other persons as to matters which the
director reasonably believes to be within such person's professional or expert
competence, or

      (c) a committee of the board upon which he does not serve, duly designated
in accordance with a provision of the Articles or these Bylaws, as to matters
within its designated authority which committee the director reasonably believes
to merit confidence.

      A director shall not be considered to be acting in good faith if he or she
has actual knowledge concerning the matter in question that would cause such
reliance described above to be unwarranted.

      A person who performs his or her duties in compliance with this Section
shall have no liability by reason of being or having been a director of the
Corporation.

      Section 4.4 Term of Office. The directors shall be elected at the annual
meeting of the shareholders, except as provided in Section 4.8 of this Article,
and each director elected shall hold office

Exhibit 3.1                           -12-


for the term for which he or she is elected and until his or her successor is
elected and qualified or until his or her earlier resignation, removal from
office or death.

      Section 4.5 Nominations of Directors. Except as otherwise provided
pursuant to the provisions of the Articles or Articles of Amendment relating to
the rights of the holders of any class or series of Preferred Stock, voting
separately by class or series, to elect directors under specified circumstances,
nominations of persons for election to the Board may be made by the Chairman on
behalf of the Board, the Chief Executive Officer, or by any shareholder of the
Corporation entitled to vote for the election of directors at the annual meeting
of the shareholders who complies with the notice provisions set forth in this
Section 4.5. To be timely, a shareholder's notice shall be received at the
principal business office of the Corporation no later than the date designated
for receipt of shareholders' proposals in a prior public disclosure made by the
Corporation. If there has been no such prior public disclosure, then to be
timely, a shareholder's nomination must be delivered to or mailed and received
at the principal business office of the Corporation not less than sixty (60)
days nor more than ninety (90) days prior to the annual meeting of shareholders;
provided, however, that in the event that less than seventy (70) days' notice of
the date of the meeting is given to the shareholders or prior public disclosure
of the date of the meeting is made, notice by the shareholder to be timely must
be so received not later than the close of business on the tenth day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made. A shareholder's notice to the Secretary shall
set forth: (a) as to each person the shareholder proposes to nominate for
election or re-election as a director, (i) the name, age, business address and
residence address of such proposed nominee, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of capital stock
of the Corporation which are beneficially owned by such person, and (iv) any
other information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A of the Exchange Act, as amended (including
without limitation such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (b) as to
the shareholder giving notice (i) the name and address, as they appear on the
Corporation's books, of the shareholder proposing such nomination, and (ii) the
class and number of shares of stock of the Corporation which are beneficially
owned by the shareholder. No person shall be eligible for election as a director
of the Corporation unless nominated in accordance with the procedures set forth
in this Section 4.4. The chairman of the meeting shall, if the facts warrant,
determine and declare to the annual meeting that a nomination was not made in
accordance with the provisions of this Section 4.4, and if the chairman shall so
determine, the chairman shall so declare at the meeting and the defective
nomination shall be disregarded.

      Section 4.6 Removal. At a meeting of shareholders called expressly for
that purpose, any director or the entire Board of Directors may be removed, with
or without cause, by a vote of the holders of two-thirds (2/3rds) of the shares
then entitled to vote at an election of directors..

      Section 4.7 Resignation. A director may resign at any time by delivering
written notice to the Board, the Chairman, or the Chief Executive Officer of the
Corporation. A director's resignation is effective when the notice is delivered
unless the notice specifies a later effective date.

      Section 4.8 Vacancies.

      (a) Who May Fill Vacancies. Except as provided below, whenever any vacancy
occurs on the Board, including a vacancy resulting from an increase in the
number of directors, it may be filled by the affirmative vote of a majority of
the remaining directors though less than a quorum of the Board. Any director
elected in accordance with the preceding sentence shall hold office until his or
her successor is duly elected and qualified, and such successor shall complete
such director's remaining term.

Exhibit 3.1                           -13-


      (b) Prospective Vacancies. A vacancy that will occur at a specific later
date, because of a resignation effective at a later date or otherwise, may be
filled before the vacancy occurs, but the new director may not take office until
the vacancy occurs.

      Section 4.9 Compensation. The Board, irrespective of any personal interest
of any of its members, may establish reasonable compensation of all directors
for services to the Corporation as directors, officers, or otherwise, or may
delegate such authority to an appropriate committee. The Board also shall have
authority to provide for or delegate authority to an appropriate committee to
provide for reasonable pensions, disability or death benefits, and other
benefits or payments, to directors, officers, and employees and to their
families, dependents, estates, or beneficiaries on account of prior services
rendered to the Corporation by such directors, officers, and employees.
Directors shall be entitled to reimbursement for reasonable expenses incurred in
connection with attending meetings of the Board (and committees thereof) and
performing their duties as directors, including reimbursement of expenses
attributable to air travel and hotel occupancy while traveling on corporate
business.

      Section 4.10 Regular Meetings. A regular meeting of the Board shall be
held without other notice than this bylaw immediately after the annual meeting
of shareholders and each adjourned session thereof. The place of such regular
meeting shall be the same as the place of the meeting of shareholders which
precedes it, or such other suitable place as may be announced at such meeting of
shareholders. The Board may provide, by resolution, the date, time, and place,
either within or without the State of Florida, for the holding of additional
regular meetings of the Board without notice other than such resolution.

      Section 4.11 Special Meetings. Special meetings of the Board may be called
by the Chairman, Chief Executive Officer, or not less than three (3) members of
the Board. The person or persons calling the meeting may fix any place, either
within or without the State of Florida, as the place for holding any special
meeting of the Board, and if no other place is fixed, the place of the meeting
shall be the Principal Office of the Corporation.

      Section 4.12 Notice. Special meetings of the Board must be preceded by at
least two (2) days' notice of the date, time, and place of the meeting. The
notice need not describe the purpose of the special meeting.

      Section 4.13 Waiver of Notice. Notice of a meeting of the Board need not
be given to any director who signs a waiver of notice either before or after the
meeting. Attendance of a director at a meeting shall constitute a waiver of
notice of such meeting and waiver of any and all objections to the place of the
meeting, the time of the meeting, or the manner in which it has been called or
convened, except when a director states, at the beginning of the meeting or
promptly upon arrival at the meeting, any objection to the transaction of
business because the meeting is not lawfully called or convened.

      Section 4.14 Quorum and Voting. A quorum of the Board consists of a
majority of the number of directors prescribed by these Bylaws (or if no number
is prescribed, the number of directors in office immediately before the meeting
begins). If a quorum is present when a vote is taken, the affirmative vote of a
majority of directors present is the act of the Board. A director who is present
at a meeting of the Board or a committee of the Board when corporate action is
taken is deemed to have assented to the action taken unless: (a) he or she
objects at the beginning of the meeting (or promptly upon his or her arrival) to
holding it or transacting specified business at the meeting; or (b) he or she
votes against or abstains from the action taken.

      Section 4.15 Conduct of Meetings.

      (a) Presiding Chairman. The Chairman shall preside at meetings of the
Board. In the absence of

Exhibit 3.1                           -14-


the Chairman, the Chief Executive Officer, or in his or her absence, any
director delegated by the Chairman or chosen by the directors present, shall
call meetings of the Board to order and shall act as presiding officer of the
meeting.

      (b) Minutes. The Secretary of the Corporation shall act as secretary of
all meetings of the Board but in the absence of the Secretary, the presiding
officer may appoint any other person present to act as secretary of the meeting.
Minutes of any regular or special meeting of the Board shall be prepared and
distributed to each director.

      (c) Adjournments. A majority of the directors present, whether or not a
quorum exists, may adjourn any meeting of the Board to another time and place.
Notice of any such adjourned meeting shall be given to the directors who are not
present at the time of the adjournment and, unless the time and place of the
adjourned meeting are announced at the time of the adjournment, to the other
directors.

      (d) Participation by Conference Call or Similar Means. The Board may
permit any or all directors to participate in a regular or a special meeting by,
or conduct the meeting through the use of, any means of communication by which
all directors participating may simultaneously hear each other during the
meeting. A director participating in a meeting by this means is deemed to be
present in person at the meeting.

      Section 4.16 Committees. The Board, by resolution adopted by a majority of
the full Board, may designate from among its members one or more committees,
with each such committee consisting of one or more of the directors of the
Corporation as provided herein. In the absence or disqualification of a member
of a committee, the Board, by resolution adopted in accordance with this
Section, may unanimously appoint another member of the Board to act at the
meeting in the place of any such absent or disqualified member, provided,
however, that any such appointment shall satisfy the independence, composition
and experience requirements of the rules of any stock exchange to which the
Corporation is subject by virtue of its securities being listed or traded on
such exchange, if any (collectively "Stock Exchange Rules") and any applicable
federal or state securities laws, rules or regulations, including but not
limited to the Exchange Act and the Sarbanes-Oxley Act of 2002
("Sarbanes-Oxley"), to the extent necessary. Each committee shall hold such
regular or special meetings as its members shall deem necessary or appropriate
and shall keep regular minutes of its meetings and regularly report the same to
the Board.

      To the extent provided in the resolution of the Board establishing and
constituting such committees, such committees, including without limitation
those committees set forth under Sections 4.17, 4.18, 4.19 and 4.20 herein,
shall have and may exercise all the authority of the Board, except that no such
committee shall have the authority to:

      (a) approve or recommend to shareholders actions or proposals required by
the Act to be approved by shareholders;

      (b) fill vacancies on the Board or any committee thereof;

      (c) adopt, amend, or repeal these Bylaws;

      (d) authorize or approve the reacquisition of shares unless pursuant to a
general formula or method specified by the Board; or

      (e) authorize or approve the issuance or sale or contract for the sale of
shares, or determine the designation and relative rights, preferences, and
limitations of a voting group except that the Board may

Exhibit 3.1                           -15-


authorize a committee (or a senior executive officer of the Corporation) to do
so within limits specifically prescribed by the Board.

      Notwithstanding the foregoing, except with respect to each of the Audit
Committee, the Compensation Committee, the Corporate Governance and the
Executive Committee, the Board, by resolution adopted in accordance with this
Section may appoint one or more non-directors to serve as members of any
committee, provided that director members of any such committee must constitute
a majority of the membership of such committee.

      The Board, by resolution adopted in accordance with this Section, may
designate one or more directors as alternate members of any such committee, who
may act in the place and stead of any absent member or members at any meeting of
such committee. The provisions of these Bylaws which govern meetings, notice and
waiver of notice, and quorum and voting requirements of the Board apply to
committees and their members as well. Notwithstanding the foregoing sentence,
all directors (i) shall be entitled to receive notice of all meetings of the
Compensation Committee and the Audit Committee, (ii) may attend any committee
meeting, unless the committee has voted to go into executive session, and (iii)
shall be entitled to receive copies of the minutes of all committee meetings.

      Section 4.17 Audit Committee. The Audit Committee shall be composed of
three or more members of the Board, each of whom satisfies the independence,
experience and composition requirements (as applicable to the Corporation) of
the Stock Exchange Rules, the Exchange Act, and Sarbanes-Oxley. The Audit
Committee shall be responsible for reviewing and maintaining the Audit Committee
Charter to the standards of the Stock Exchange Rules, the Exchange Act, and
Sarbanes-Oxley. The Audit Committee shall have the sole authority to engage and
discharge, review the independence, qualifications, activities and compensation
of the Corporation's independent certified public accountants and recommend to
the Board the appointment of the independent certified public accountants. The
Audit Committee shall assure regular rotation of the lead and concurring audit
partners and shall be responsible for the Corporation's financial policies,
control procedures, accounting staff, internal audit function and reviews and
approval of the Corporation's financial statements. The Audit Committee shall
also be responsible for the review of transactions between the Corporation and
any Corporate officer, director or entity in which an officer or director of the
Corporation has a material interest. The Audit Committee shall develop and
maintain procedures for the submission of complaints and concerns about
accounting and auditing matters, and shall assure that Chief Executive Officer
and Chief Financial Officer certifications meet their obligations by performing
a review and evaluation of the Corporation's disclosure controls and procedures.
The Audit Committee shall have the authority to engage the services of an
outside advisor when required and shall receive reports from the outside auditor
on critical accounting policies, significant accounting judgments and estimates,
off-balance sheet transactions and non-GAAP financial measures.

      Section 4.18 Compensation Committee. The Compensation Committee shall be
composed of three or more members of the Board, each of whom satisfies the
independence, experience and composition requirements of the Stock Exchange
Rules, the Exchange Act, and Sarbanes-Oxley. The Compensation Committee shall be
responsible for establishing the compensation of the Corporation's directors,
Chief Executive Officer and all other executive officers, including salaries,
bonuses, severance arrangements, and other executive officer benefits. The
Compensation Committee's duties may include, but are not limited to: (i) review
of key employee compensation policies, plans and programs, (ii) review and
approval of the compensation of the executive officers of the Corporation, (iii)
review and approval of any employment contracts, severance arrangements, change
of control arrangements or similar arrangements between the Corporation and any
executive officer of the Corporation, (iv) administering the Corporation's stock
option plans, incentive compensation plan programs and any such plans that the
Board may from time to time adopt and to exercise all the powers, duties and
responsibilities delegated by

Exhibit 3.1                           -16-


the Board with respect to such plans, and (v) any other duties set forth in the
Compensation Committee's Charter and policies.

      Section 4.19 Corporate Governance/Nominating Committee ("Corporate
Governance Committee"). The Corporate Governance Committee shall be composed of
three or more members of the Board, each of whom satisfies the independence,
experience and composition requirements of the Stock Exchange Rules, the
Exchange Act and Sarbanes-Oxley. The Corporate Governance Committee shall review
the Corporation's policies and practices to meet the standards suggested by
various groups or authorities active in corporate governance and practices of
other public companies and shall select nominees for election as directors of
the Corporation.

      Section 4.20 Executive Committee. The Executive Committee shall be
composed of three or more members of the Board, each of whom satisfies the
independence, experience and composition requirements of the Stock Exchange
Rules, the Exchange Act and Sarbanes-Oxley. The Executive Committee shall be
responsible for performing all tasks of the Board on behalf of the Board between
meetings of the Board to the extent permitted by these Bylaws and applicable
law.

      Section 4.21 Action Without Meeting. Any action required or permitted by
the Act to be taken at a meeting of the Board or a committee thereof may be
taken without a meeting if the action is taken by all members of the Board or of
the committee. The action shall be evidenced by one or more written consents
describing the action taken, signed by each director or committee member and
retained by the Corporation. Such action shall be effective when the last
director or committee member signs the consent, unless the consent specifies a
different effective date. A consent signed under this Section has the effect of
a vote at a meeting and may be described as such in any document.

                                    ARTICLE 5
                                    OFFICERS

      Section 5.1 Number. The principal officers of the Corporation shall be a
Chief Executive Officer, a President, the Executive Vice Presidents, the Senior
Vice Presidents, the Vice Presidents, a Secretary, and a Treasurer, each of whom
shall be elected by the Board. Such other officers and assistant officers as may
be deemed necessary may be elected or appointed by the Board. The Board may also
authorize any duly appointed officer to appoint one or more officers or
assistant officers. The same individual may simultaneously hold more than one
office.

      Section 5.2 Election and Term of Office. The officers of the Corporation
to be elected by the Board shall be elected annually by the Board at the first
meeting of the Board held after each annual meeting of the shareholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as is practicable. Each officer shall hold office until
his or her successor shall have been duly elected or until his or her prior
death, resignation, or removal.

      Section 5.3 Removal. The Board may remove any officer and, unless
restricted by the Board, an officer may remove any officer or assistant officer
appointed by that officer, at any time, with or without cause and
notwithstanding the contract rights, if any, of the officer removed. The
appointment of an officer does not of itself create contract rights.

      Section 5.4 Resignation. An officer may resign at any time by delivering
notice to the Corporation. The resignation shall be effective when the notice is
delivered, unless the notice specifies a later effective date and the
Corporation accepts the later effective date. If a resignation is made effective
at a later date and the Corporation accepts the future effective date, the
pending vacancy may be filled

Exhibit 3.1                           -17-


before the effective date but the successor may not take office until the
effective date.

      Section 5.5 Vacancies. Any vacancy occurring in any office of the
Corporation because of death, resignation, removal, disqualification, or
otherwise, shall be filled as soon thereafter as practicable by the Board for
the unexpired portion of the term.

      Section 5.6 Chairman of the Board. The Chairman shall be a member of the
Board and shall preside over all meetings of the Board and shareholders of the
Corporation. In the absence of the Chairman or in the event for any reason it
shall be impracticable for the Chairman to act personally, the Chief Executive
Officer shall preside at all meetings of the Board. The Chairman shall perform
such other powers and duties as may from time to time be assigned to him or her
by the Board, or as may be prescribed by these Bylaws.

      Section 5.7 Chief Executive Officer. The Chief Executive Officer shall be
the principal executive officer of the Corporation and, subject to the direction
of the Board, shall in general supervise and control all of the business and
affairs of the Corporation. The Chief Executive Officer shall have authority,
subject to such rules as may be prescribed by the Board, to appoint such agents
and employees of the Corporation as he or she shall deem necessary, to prescribe
their powers, duties and compensation, and to delegate authority to them. Such
agents and employees shall hold office at the discretion of the Chief Executive
Officer. The Chief Executive Officer shall have authority to sign certificates
for shares of the Corporation, the issuance of which shall have been authorized
by resolution of the Board, and to execute and acknowledge, on behalf of the
Corporation, all deeds, mortgages, bonds, contracts, leases, reports, and all
other documents or instruments necessary or proper to be executed in the course
of the Corporation's regular business, or which shall be authorized by
resolution of the Board; and, except as otherwise provided by law or the Board,
the Chief Executive Officer may authorize the Chairman, the President, any Vice
President or other officer or agent of the Corporation to execute and
acknowledge such documents or instruments in his or her place and stead. In
general he or she shall perform all duties incident to the office of Chief
Executive Officer and such other duties as may be prescribed by the Board from
time to time.

      Section 5.8. President. In the absence of the Chief Executive Officer, or
in the event of his or her death, inability or refusal to act, or in the event
for any reason it shall be impracticable for the Chief Executive Officer to act
personally, the President shall perform the duties of the Chief Executive
Officer, and when so acting, shall have all the powers of and be subject to all
the restrictions upon the Chief Executive Officer. If the Chief Executive
Officer is not present, the President shall preside at all meetings of the Board
and shareholders. The President shall have authority, subject to such rules as
may be prescribed by the Board, to appoint such agents and employees of the
Corporation as he or she shall deem necessary, to prescribe their powers, duties
and compensation, and to delegate authority to them. Such agents and employees
shall hold office at the discretion of the President. The President shall have
authority to sign certificates for shares of the Corporation the issuance of
which shall have been authorized by resolution of the Board, and to execute and
acknowledge, on behalf of the Corporation, all deeds, mortgages, bonds,
contracts, leases, reports, and all other documents or instruments necessary or
proper to be executed in the course of the Corporation's regular business, or
which shall be authorized by resolution of the Board; and, except as otherwise
provided by law or the Board, the President may authorize any Vice President or
other officer or agent of the Corporation to execute and acknowledge such
documents or instruments in his or her place and stead. In general he or she
shall perform all duties incident to the office of President and such other
duties as may be prescribed by the Board from time to time.

      Section 5.9 Vice Presidents. In the absence of the President or in the
event of the President's death, inability or refusal to act, or in the event for
any reason it shall be impracticable for the President to

Exhibit 3.1                           -18-


act personally, the Vice President, (or in the event there be more than one Vice
President, the Vice Presidents in the order designated by the Board, or in the
absence of any designation, then in the order of their election), shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. Each Vice President
shall perform such duties and have such authority as from time to time may be
delegated or assigned to him or her by the Chairman, the Chief Executive
Officer, the President, or by the Board. The execution of any instrument of the
Corporation by any Vice President shall be conclusive evidence, as to third
parties, of his or her authority to act in the stead of the President. The
Corporation may have one or more Senior Vice Presidents and Executive Vice
Presidents, who shall be Vice Presidents for purposes hereof.

      Section 5.10 Secretary. The Secretary shall: (a) keep, or cause to be
kept, minutes of the meetings of the shareholders and of the Board (and of
committees thereof) in one or more books provided for that purpose (including
records of actions taken by the shareholders or the Board (or committees
thereof) without a meeting); (b) be custodian of the corporate records and of
the seal of the Corporation, if any, and if the Corporation has a seal, see that
it is affixed to all documents the execution of which on behalf of the
Corporation under its seal is duly authorized; (c) authenticate the records of
the Corporation; (d) maintain a record of the shareholders of the Corporation,
in a form that permits preparation of a list of the names and addresses of all
shareholders, by class or series of shares and showing the number and class or
series of shares held by each shareholder; (e) have general charge of the stock
transfer books of the Corporation; and (f) in general perform all duties
incident to the office of Secretary and have such other duties and exercise such
authority as from time to time may be delegated or assigned by the Chief
Executive Officer, or by the Board.

      Section 5.11 Treasurer. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the Corporation; (b)
maintain appropriate accounting records; (c) receive and give receipts for
moneys due and payable to the Corporation from any source whatsoever, and
deposit all such moneys in the name of the Corporation in such banks, trust
companies, or other depositaries as shall be selected in accordance with the
provisions of these Bylaws; and (d) in general perform all of the duties
incident to the office of Treasurer and have such other duties and exercise such
other authority as from time to time may be delegated or assigned by the Chief
Executive Officer, or by the Board. If required by the Board, the Treasurer
shall give a bond for the faithful discharge of his or her duties in such sum
and with such surety or sureties as the Board shall determine.

      Section 5.12 Assistant Secretaries and Assistant Treasurers. There shall
be such number of Assistant Secretaries and Assistant Treasurers as the Board
may from time to time authorize. The Assistant Treasurers shall respectively, if
required by the Board, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the Board shall determine. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such duties and
have such authority as shall from time to time be delegated or assigned to them
by the Secretary or the Treasurer, respectively, or by the Chief Executive
Officer or the Board.

      Section 5.13 Other Assistants and Acting Officers. The Board shall have
the power to appoint, or to authorize any duly appointed officer of the
Corporation to appoint, any person to act as assistant to any officer, or as
agent for the Corporation in his or her stead, or to perform the duties of such
officer whenever for any reason it is impracticable for such officer to act
personally, and such assistant or acting officer or other agent so appointed by
the Board or an authorized officer shall have the power to perform all the
duties of the office to which he or she is so appointed to be an assistant, or
as to which he or she is so appointed to act, except as such power may be
otherwise defined or restricted by the Board or the appointing officer.

      Section 5.14 Salaries. The salaries of the principal officers shall be
fixed from time to time by the

Exhibit 3.1                           -19-


Board or by a duly authorized committee thereof, and no officer shall be
prevented from receiving such salary by reason of the fact that he or she is
also a director of the Corporation.

                                    ARTICLE 6
             CONTRACTS, CHECKS AND DEPOSITS; SPECIAL CORPORATE ACTS

      Section 6.1 Contracts. The Board may authorize any officer or officers, or
any agent or agents to enter into any contract or execute or deliver any
instrument in the name of and on behalf of the Corporation, and such
authorization may be general or confined to specific instances. In the absence
of other designation, all deeds, mortgages, and instruments of assignment or
pledge made by the Corporation shall be executed in the name of the Corporation
by the Chief Executive Officer, or the President; the Secretary or an Assistant
Secretary, when necessary or required, shall attest and affix the corporate
seal, if any, thereto; and when so executed no other party to such instrument or
any third party shall be required to make any inquiry into the authority of the
signing officer or officers.

      Section 6.2 Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by or under the authority of a resolution of the Board.

      Section 6.3 Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies, or other depositaries as may be selected by or under the
authority of a resolution of the Board.

      Section 6.4 Voting of Securities Owned by Corporation. Subject always to
the specific directions of the Board, (a) any shares or other securities issued
by any other corporation and owned or controlled by the Corporation may be voted
at any meeting of security holders of such other corporation by the Chairman,
the Chief Executive Officer, or the President, or an Executive or Senior Vice
President, and (b) whenever, in the judgment of the Chairman, the Chief
Executive Officer, or the President, or an Executive or Senior Vice President,
it is desirable for the Corporation to execute a proxy or written consent in
respect of any such shares or other securities, such proxy or consent shall be
executed in the name of the Corporation by the Chairman, the Chief Executive
Officer, or the President, or an Executive or Senior Vice President, without
necessity of any authorization by the Board, affixation of corporate seal, if
any, or countersignature or attestation by another officer. Any person or
persons designated in the manner above stated as the proxy or proxies of the
Corporation shall have full right, power, and authority to vote the shares or
other securities issued by such other corporation and owned or controlled by the
Corporation the same as such shares or other securities might be voted by the
Corporation.

                                    ARTICLE 7
                   CERTIFICATES FOR SHARES; TRANSFER OF SHARES

      Section 7.1 Consideration for Shares. The Board may authorize shares to be
issued for consideration consisting of any tangible or intangible property or
benefit to the Corporation, including cash, promissory notes, services
performed, promises to perform services evidenced by a written contract, or
other securities of the Corporation. Before the Corporation issues shares, the
Board shall determine that the consideration received or to be received for the
shares to be issued is adequate. The determination of the Board is conclusive
insofar as the adequacy of consideration for the issuance of shares relates to
whether the shares are validly issued, fully paid, and nonassessable. The
Corporation may place in escrow shares issued for future services or benefits or
a promissory note, or make other arrangements to restrict

Exhibit 3.1                           -20-


the transfer of the shares, and may credit distributions in respect of the
shares against their purchase price, until the services are performed, the note
is paid, or the benefits are received. If the services are not performed, the
note is not paid, or the benefits are not received, the Corporation may cancel,
in whole or in part, the shares escrowed or restricted and the distributions
credited.

      Section 7.2 Certificates for Shares. Every holder of shares in the
Corporation shall be entitled to have a certificate representing all shares to
which he or she is entitled unless the Board authorizes the issuance of some or
all shares without certificates. Any such authorization shall not affect shares
already represented by certificates until the certificates are surrendered to
the Corporation. If the Board authorizes the issuance of any shares without
certificates, within a reasonable time after the issue or transfer of any such
shares, the Corporation shall send the shareholder a written statement of the
information required by the Act or the Articles to be set forth on certificates,
including any restrictions on transfer. Certificates representing shares of the
Corporation shall be in such form, consistent with the Act, as shall be
determined by the Board. Such certificates shall be signed (either manually or
in facsimile) by the Chief Executive Officer, the President, or any other
persons designated by the Board and may be sealed with the seal of the
Corporation or a facsimile thereof. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation. Unless the Board authorizes shares without certificates, all
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except as provided in
these Bylaws with respect to lost, destroyed, or stolen certificates. The
validity of a share certificate is not affected if a person who signed the
certificate (either manually or in facsimile) no longer holds office when the
certificate is issued.

      Section 7.3 Transfer of Shares. Prior to due presentment of a certificate
for shares for registration of transfer, the Corporation may treat the
registered owner of such shares as the person exclusively entitled to vote, to
receive notifications, and otherwise to have and exercise all the rights and
power of an owner. Where a certificate for shares is presented to the
Corporation with a request to register a transfer, the Corporation shall not be
liable to the owner or any other person suffering loss as a result of such
registration of transfer if: (a) there were on or with the certificate the
necessary endorsements and (b) the Corporation had no duty to inquire into
adverse claims or has discharged any such duty. The Corporation may require
reasonable assurance that such endorsements are genuine and effective and
compliance with such other regulations as may be prescribed by or under the
authority of the Board.

      Section 7.4 Restrictions on Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation as required by
the Act or the Articles of the restrictions imposed by the Corporation upon the
transfer of such shares.

      Section 7.5 Lost, Destroyed, or Stolen Certificates. Unless the Board
authorizes shares without certificates, where the owner claims that certificates
for shares have been lost, destroyed, or wrongfully taken, a new certificate
shall be issued in place thereof if the owner: (a) so requests before the
Corporation has notice that such shares have been acquired by a bona fide
purchaser, (b) files with the Corporation a sufficient indemnity bond if
required by the Board or any principal officer and (c) satisfies such other
reasonable requirements as may be prescribed by or under the authority of the
Board.

      Section 7.6 Registered Shareholders. The Corporation shall be entitled to
recognize the exclusive rights of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Florida.

Exhibit 3.1                           -21-


      Section 7.7 Stock Regulations. The Board shall have the power and
authority to make all such further rules and regulations not inconsistent with
law as they may deem expedient concerning the issue, transfer, and registration
of shares of the Corporation.

                                    ARTICLE 8
                                BOOKS AND RECORDS

      Section 8.1 Books and Records.

      (a) The Corporation shall keep as permanent records minutes of all
meetings of the shareholders and Board, a record of all actions taken by the
shareholders or Board without a meeting, and a record of all actions taken by a
committee of the Board in place of the Board on behalf of the Corporation.

      (b) The Corporation shall maintain accurate accounting records.

      (c) The Corporation or its agent shall maintain a record of the
shareholders in a form that permits preparation of a list of the names and
addresses of all shareholders in alphabetical order by class of shares showing
the number and series of shares held by each.

      (d) The Corporation shall keep a copy of all written communications within
the preceding three (3) years to all shareholders generally or to all
shareholders of a class or series, including the financial statements required
to be furnished by the Act, and a copy of its most recent annual report
delivered to the Department of State.

      Section 8.2 Shareholders' Inspection Rights. Shareholders are entitled to
inspect and copy records of the Corporation as permitted by the Act.

      Section 8.3 Distribution of Financial Information. The Corporation shall
prepare and disseminate financial statements to shareholders as required by the
Act and, as applicable, the Exchange Act and Stock Exchange Rules.

      Section 8.4 Other Reports. The Corporation shall disseminate such other
reports to shareholders as are required by the Act, including reports regarding
indemnification in certain circumstances and reports regarding the issuance or
authorization for issuance of shares in exchange for promises to render services
in the future, and, as applicable, the Exchange Act and Stock Exchange Rules.

                                    ARTICLE 9
                                 INDEMNIFICATION

      Section 9.1 Provision of Indemnification. The Corporation shall, to the
fullest extent permitted or required by the Act, including any amendments
thereto (but in the case of any such amendment, only to the extent such
amendment permits or requires the Corporation to provide broader indemnification
rights than prior to such amendment), indemnify its Directors and Executive
Officers against any and all Liabilities, and advance any and all reasonable
Expenses, incurred thereby in any Proceeding to which any such Director or
Executive Officer is a Party or in which such Director or Executive Officer is
deposed or called to testify as a witness because he or she is or was a Director
or Executive Officer of the Corporation. The rights to indemnification granted
hereunder shall not be deemed exclusive of any other rights to indemnification
against Liabilities or the advancement of Expenses which a Director or Executive
Officer may be entitled under any written agreement, Board resolution, vote of
shareholders,

Exhibit 3.1                           -22-


the Act, or otherwise. The Corporation may, but shall not be required to,
supplement the foregoing rights to indemnification against Liabilities and
advancement of Expenses by the purchase of insurance on behalf of any one or
more of its Directors or Executive Officers whether or not the Corporation would
be obligated to indemnify or advance Expenses to such Director or Executive
Officer under this Article. For purposes of this Article, the term "Directors"
includes former directors of the Corporation and any director who is or was
serving at the request of the Corporation as a director, officer, employee, or
agent of another Corporation, partnership, joint venture, trust, or other
enterprise, including, without limitation, any employee benefit plan (other than
in the capacity as an agent separately retained and compensated for the
provision of goods or services to the enterprise, including, without limitation,
attorneys-at-law, accountants, and financial consultants). The term "Executive
Officers" includes those individuals who are or were at any time "executive
officers" of the Corporation as defined in Securities and Exchange Commission
Rule 3b-7 promulgated under the Securities Exchange Act of 1934, as amended. All
other capitalized terms used in this Article and not otherwise defined herein
have the meaning set forth in Section 607.0850 of the Act. The provisions of
this Article are intended solely for the benefit of the indemnified parties
described herein, their heirs and personal representatives and shall not create
any rights in favor of third parties. No amendment to or repeal of this Article
shall diminish the rights of indemnification provided for herein prior to such
amendment or repeal.

      Section 9.2 Survival of Indemnification. The Corporation shall and does
hereby, indemnify any person, if the requirements of this Article have been met,
without affecting any other rights to which those indemnified may be entitled
under the Articles, these Bylaws, agreement, vote of shareholders or
disinterested directors or recommendation of counsel or otherwise, both as to
actions in such person's official capacity and as to actions in another capacity
while holding such office, and such indemnity shall continue as to a person who
has ceased to be a director, officer, employee or agent, and shall inure to the
benefit of the heirs, executors and administrators of such a person.

      Section 9.3 Insurance .INSURANCE. The Corporation may, if approved by the
Board, purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation or other enterprise, against any liability asserted against
him or her and incurred by him or her in any such capacity or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
him or her against such liability under the provisions of this Article or
applicable Florida law.

                                   ARTICLE 10
                             DIVIDENDS AND RESERVES

      Section 10.1 Declaration and Payment. Subject to provision contained in
the Act or the Articles, if any, dividends may be declared by the Board at any
regular or special meeting and may be paid in cash, property, or in shares of
the Corporation. Such declaration and payment shall be at the discretion of the
Board.

      Section 10.2 Record Date for Dividends. The Board may fix in advance a
record date for the purpose of determining shareholders entitled to receive
payment of any dividend, such record date to be not more than sixty (60) days
and not less than ten (10) days prior to the payment date of such dividend. In
the absence of any action by the Board, the date upon which the Board adopted
the resolution declaring such dividend shall be the record date.

      Section 10.3 Reserves. There may be created by resolution of the Board out
of the earned

Exhibit 3.1                           -23-


surplus of the Corporation such reserve or reserves as the Board from time to
time, in its sole discretion, thinks proper to provide for contingencies, to pay
dividends, or to repair or maintain any property of the Corporation, or for such
other purposes as the Board shall think beneficial to the Corporation, and the
Board may modify or abolish any such reserve in the manner in that it was
created.

                                   ARTICLE 11
                                  MISCELLANEOUS

      Section 11.1 Fiscal Year. The fiscal year of the Corporation shall be
fixed by a resolution of the Board.

      Section 11.2 Seal. The corporate seal shall be in such form as may be
determined by the Board. Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced otherwise.

      Section 11.3 Books and Records. The Corporation shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its shareholders and the Board of Directors, and shall keep at its registered
office or principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by each. Any books,
records and minutes may be in written form or in any other form capable of being
converted into written form within a reasonable time. Any person who shall have
been a holder of record of shares for at least six (6) months immediately
preceding demand, or shall be the holder of record of at least five persons (5%)
of all the outstanding shares of a corporation, upon written demand stating the
purpose thereof, shall have the right to examine, in person or by agent,
accountant, or attorney, at any reasonable time or times, for any proper
purposes, its relevant books and records of account, minutes and records, of
shareholders, and to make copies thereof, all at such persons expenses.

      Section 11.4 Power to Amend . These Bylaws may be amended or repealed by
either the Board or the shareholders, unless the Act reserves the power to amend
these Bylaws generally or any particular bylaw provision, as the case may be,
exclusively to the shareholders or unless the shareholders, in amending or
repealing these Bylaws generally or any particular bylaw provision, provide
expressly that the Board may not amend or repeal these Bylaws or such bylaw
provision, as the case may be. The shareholders of the Corporation may adopt or
amend a bylaw provision which fixes a greater quorum or voting requirement for
shareholders (or voting groups of shareholders) than is required by the Act. The
adoption or amendment of a bylaw provision that adds, changes or deletes a
greater quorum or voting requirement for shareholders must meet the same quorum
or voting requirement and be adopted by the same vote and voting groups required
to take action under the quorum or voting requirement then in effect or proposed
to be adopted, whichever is greater.

      Section 11.5 Invalid Provisions . In any part of these Bylaws shall be
held invalid or inoperative for any reason, the remaining parts, so far as
possible and reasonable, shall be valid and operative.

Exhibit 3.1                           -24-


                             CERTIFICATE OF ADOPTION

      The undersigned Secretary of Kid Castle Educational Corporation does
hereby certify that the above and foregoing Amended and Restated Bylaws of said
Corporation were adopted by the directors as the Bylaws of said Corporation and
that the same do now constitute the Bylaws of this Corporation.

      DATED as of April 7, 2004.

                                /s/ Yu-En Chiu
                               ------------------------------------------------
                               Yu-En Chiu
                               Chief Financial Officer, Secretary and Director

Exhibit 3.1                          -25-

EX-31.1

                                  EXHIBIT 31.1
                  CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
                PURSUANT TO RULE 15d-14(a) (17 CFR 240.15d-14(a))

          (AUTHORIZED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)

I, KUO-AN WANG, President and Chief Executive Officer (principal executive
officer) of Kid Castle Educational Corporation (the "Registrant"), certifies
that:

1.    I have reviewed this quarterly report on Form 10-Q/A of Kid Castle
Educational Corporation.

2.    Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;

4.    The Registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:

a)    Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;

b)    Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

c)    Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the Registrant's
most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over financial
reporting; and

5.    The Registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the small business issuer's auditors and the audit committee of the Registrant's
board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant's ability to record, process,
summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal control over
financial reporting.

                                         /s/ Kuo-an Wang
                                  --------------------------------------------
                                  Name:  Kuo-An Wang
                                  Title: President and Chief Executive Officer
                                  Date:  August 16, 2004

Exhibit 31.1                          -1-

EX-31.2

                                  EXHIBIT 31.2
                  CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
                PURSUANT TO RULE 15d-14(a) (17 CFR 240.15d-14(a))

          (AUTHORIZED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)

I, YU-EN CHIU, Chief Financial Officer (principal financial officer) of Kid
Castle Educational Corporation (the "Registrant"), certifies that:

1.    I have reviewed this quarterly report on Form 10-Q/A of Kid Castle
Educational Corporation.

2.    Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as
of, and for, the periods presented in this report;

4.    The Registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:

a)    Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

b)    Evaluated the effectiveness of Registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

c)    Disclosed in this report any change in the Registrant's internal control
over financial reporting that occurred during the Registrant's most recent
fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the small business issuer's internal control over financial reporting;
and

5.    The Registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the Registrant's auditors and the audit committee of the Registrant's board of
directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant's ability to record, process,
summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal control over
financial reporting.

                                                   /s/ Yu-En Chiu
                                            -----------------------------------
                                            Name:  Yu-En Chiu
                                            Title: Chief Financial Officer
                                            Date:  August 16, 2004

Exhibit 31.2                          -1-

EX-32.1

                                  EXHIBIT 32.1
                  CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350

                 (SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)

I, KUO-AN WANG, President and Chief Executive Officer (principal executive
officer) of Kid Castle Educational Corporation (the "Registrant"), certify
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, based upon a review of the Quarterly Report on
Form 10-Q/A for the period ended June 30, 2004 of the Registrant (the "Report"):

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended; and

(2)   The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.

A signed original of this written statement required by Section 906 has been
provided to the Registrant and will be retained by the Registrant and furnished
to the Securities and Exchange Commission or its staff upon request.

                                                         /s/ Kuo-An Wang
                                                   ----------------------------
                                                   Name: Kuo-An Wang
                                                   Date: August 16, 2004

Exhibit 32.1                          -1-

EX-32.2

                                  EXHIBIT 32.2
                  CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350

                 (SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)

I, YU-EN CHIU, Chief Financial Officer (principal financial officer) of Kid
Castle Educational Corporation (the "Registrant"), certify pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that, based upon a review of the Quarterly Report on Form 10-Q/A for the
period ended June 30, 2004 of the Registrant (the "Report"):

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended; and

(2)   The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.

A signed original of this written statement required by Section 906 has been
provided to the Registrant and will be retained by the Registrant and furnished
to the Securities and Exchange Commission or its staff upon request.

                                                   /s/ Yu-En Chiu
                                       -------------------------------------
                                       Name: Yu-En Chiu
                                       Date: August 16, 2004

Exhibit 32.2                          -1-