Note 14 - Variable Interest Entities ("vies")

9 Months Ended

Feb. 28, 2013

Notes

Note 14 - Variable Interest Entities ("vies")

NOTE 14 – VARIABLE INTEREST ENTITIES (“VIEs”)

As of February 28, 2013, 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:

	February 28, 2013		May 31, 2012
Assets
Cash and cash equivalents	$	2,039,586	$	3,466,743
Inventories		10,451		18,385
Accounts receivable		758,872		633,009
Tax recoverable		22,950		22,755
Other receivables and deposits		1,024,701		237,490
Goodwill		610,386		610,386
Property, plant and equipment, net		292,622		454,875
Total assets (not include amount due from intra-group companies)	$	4,759,568	$	5,443,643
Liabilities
Deferred income	$	1,082,519	$	1,441,347
Accounts payable		1,550,778		694,626
Accrued expenses and other payables		509,837		467,246
Tax payables		11,812		44,424
Total liabilities	$	3,154,946	$	2,647,643

The statements of income of the consolidated VIEs for the nine months ended February 28, 2013 and February 29, 2012 are as follows, and are included in the consolidated statements of income of the Company:

	Nine months ended February 28, 2013		Nine months ended February 29, 2012
Revenue	$	5,347,191	$	6,079,597
Other income and gains		32,949		92,372
Service costs		(3,875,423)		(3,889,162)
Administrative and other expenses		(280,298)		(674,514)
Personnel cost		(538,180)		(692,676)
Depreciation expense		(164,736)		(166,439)
Income before provision for income taxes (Not including service costs payable to intra-group companies)		521,503		749,178
Provision for income taxes		(28,136)		(52,166)
Net income	$	493,367	$	697,012