Variable Interest Entities ("VIEs")

3 Months Ended

Aug. 31, 2011

Variable Interest Entities ("VIEs")

Variable Interest Entities ("VIEs")

NOTE 15 – VARIABLE INTEREST ENTITIES (“VIEs”)

During the three months ended August 31, 2010, Hongsheng, Huitong and Jiamao were all VIEs of the Company. The status of these VIEs has not changed since the date of the combination. During the three months ended August 31, 2011, Nantong Jiatong, Hongsheng, Huitong, QBA and Jiamao were VIEs of the Company.  Nantong Jiatong and QBA were acquired during the fourth quarter of fiscal year 2011.

Although the Company is not the shareholder of Nantong Jiatong, Hongsheng, Huitong, QBA and Jiamao, the Company has determined that it is the primary beneficiary of these entities, as the Company has 100% voting powers and entitled to receive all the benefit from operations of these entities. Hence, these entities are identified as VIEs and are consolidated as if wholly-owned subsidiaries of the Company.

We did not identify any additional VIEs in which we hold a significant interest.

The total consolidated VIE assets and liabilities reflected on the Company’s balance sheet are as follows:

	August 31, 2011		May 31, 2011
Assets
Cash and cash equivalents	$	2,430,796	$	4,003,765
Inventories		6,700		6,679
Accounts receivable		187,668		642,843
Tax recoverable		23,300		81,086
Amount due from a related company		532,221		-
Other receivables and deposits		283,507		363,823
Goodwill		610,386		610,386
Property, plant and equipment, net		644,508		646,972
Available-for-sale investments		313,925		-

Total assets (not include amount due from intra-group companies)	$	5,033,011	$	6,355,554
Liabilities
Deferred income	$	2,377,008	$	1,857,752
Accounts payable		151,648		913,504
Accrued expenses and other payables		81,733		314,925
Tax payables		-		15,560
Total liabilities	$	2,610,389	$	3,101,741

The statements of income of the consolidated VIEs for the three months ended August 31, 2011 and 2010 are as follows, and are included in the consolidated statements of income of the Company:

	Three months ended August 31,
	2011			2010
Revenue	$	963,045		$	1,206,595
Other income and gains		19,663			246
Service costs		(365,126	)		(557,360	)
Administrative and other expenses		(234,347	)		(102,166	)
Personnel cost		(229,031	)		(115,178	)
Depreciation expense		(54,429	)		(4,433	)
Income before provision for income taxes (Not including service costs payable to intra-group companies)		99,775			427,704
Provision for income taxes		(2,266	)		(72,675	)
Net income	$	97,509		$	355,029