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Variable Interest Entities ("VIEs")

3 Months Ended

Nov. 30, 2011

NOTE 14 – VARIABLE INTEREST ENTITIES (“VIEs”)

During the six months ended November 30, 2010, Hongsheng, Huitong and Jiamao were VIEs of the Company. The status of these VIEs has not changed since the date of the combination. During six months ended November 30, 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 is entitled to receive all the benefit from operations of these entities. Hence, these entities are identified as VIEs and are consolidated as if they are 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:


	November 30, 2011		May 31, 2011
Assets
Cash and cash equivalents	$	2,394,242	$	4,003,765
Inventories		6,609		6,679
Accounts receivable		122,098		642,843
Tax recoverable		19,120		81,086
Other receivables and deposits		334,811		363,823
Goodwill		610,386		610,386
Property, plant and equipment, net		559,104		646,972
Total assets (not include amount due from intra-group companies)	$	4,046,370	$	6,355,554

Liabilities
Deferred income	$	1,866,301	$	1,857,752
Accounts payable		537,280		913,504
Accrued expenses and other payables		352,474		314,925
Tax payables		31,100		15,560
Total liabilities	$	2,787,155	$	3,101,741

The statements of income of the consolidated VIEs for the six months ended November 30, 2011 and 2010 are as follows, and are included in the consolidated statements of income of the Company:

	Six months ended November 30,
	2011			2010

Revenue	$	3,827,643		$	2,311,550
Other income and gains		45,321			1,981
Service costs		(2,484,147	)		(1,101,201	)
Administrative and other expenses		(425,885	)		(177,189	)
Personnel cost		(458,475	)		(238,469	)
Depreciation expense		(109,678	)		(10,720	)

Income before provision for income taxes (Not including service costs payable to intra-group companies)		394,779			785,952

Provision for income taxes		(14,366	)		(31,631	)

Net income	$	380,413		$	754,321

- Definition

Disclosures of variable interest entities (VIE) in aggregate, including how similar entities are aggregated, if separate reporting would not provide more useful information, distinguished between (1) VIEs that are not consolidated because the enterprise is not the primary beneficiary but has a significant variable interest or is the sponsor that holds a variable interest, and (2) VIEs that are consolidated. Presented in a manner that clearly and fully explains to financial statement users the nature and extent of an enterprise's involvement with variable interest entities.

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