Variable Interest Entities ("vies")

3 Months Ended

Aug. 31, 2012

Variable Interest Entities ("vies"):

Variable Interest Entities ("vies")

NOTE 14 – VARIABLE INTEREST ENTITIES (“VIEs”)

During three months ended August 31, 2012, Nantong Jiatong, Hongsheng, Huitong, QBA and Jiamao were VIEs of the Company.

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:

	August 31, 2012		May 31, 2012
Assets
Cash and cash equivalents	$	2,197,038	$	3,466,743
Inventories		22,627		18,385
Accounts receivable		938,225		633,009
Tax recoverable		22,754		22,755
Other receivables and deposits		289,714		237,490
Goodwill		610,386		610,386
Property, plant and equipment, net		400,547		454,875
Total assets (not include amount due from intra-group companies)	$	4,481,291	$	5,443,643
Liabilities
Deferred income	$	1,072,169	$	1,441,347
Accounts payable		1,101,045		694,626
Accrued expenses and other payables		454,989		467,2465
Tax payables		59,553		44,424
Total liabilities	$	2,686,756	$	2,647,643

The statements of income of the consolidated VIEs for the three months ended August 31, 2012 and August 31, 2011 are as follows, and are included in the consolidated statements of income of the Company:

	Three months ended August 31, 2012		Three months ended August 31, 2011
Revenue	$	1,961,932	$	963,045
Other income and gains		(3,071)		19,663
Service costs		(1,460,892)		(365,126)
Administrative and other expenses		(134,617)		(234,347)
Personnel cost		(181,555)		(229,031)
Depreciation expense		(55,049)		(54,429)
Income before provision for income taxes (Not including service costs payable to intra-group companies)		126,748		99,775
Provision for income taxes		(3,303)		(2,266)
Net income	$	123,445	$	97,509