Note 14 - Variable Interest Entities ("vies")

12 Months Ended

May 31, 2013

Notes

Note 14 - Variable Interest Entities ("vies")

NOTE 14 – VARIABLE INTEREST ENTITIES (“VIEs”)

Hongsheng, Huitong, Nanjing Jiatong, QBA and Jiamao were all VIEs of the Company. The status of these VIEs has not changed since the date of the combination.

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:

	2013	2012
Assets
Cash and cash equivalents	1,945,614	3,466,743
Inventories	10,621	18,385
Accounts receivable	2,392,819	633,009
Tax recoverable	23,323	22,755
Other receivables and deposits	283,603	237,490
Goodwill	610,386	610,386
Property, plant and equipment, net	285,823	454,875
Available-for-sale investment
Total assets (not include amount due from intra-group companies)	5,552,189	5,443,643
Liabilities
Deferred income	867,804	1,441,347
Accounts payable	3,730,907	694,626
Accrued expenses and other payables	379,035	467,246
Tax payables	31,188	44,424
Total liabilities	5,008,934	2,647,643

The statements of income of the consolidated VIEs for the years ended May 31, 2013 and 2012 are as follows, and are included in the consolidated statements of income of the Company:

	2013	2012
Revenue	6,620,495	8,380,973
Other income and gains	84,882	189,213
Service costs	4,688,240	5,169,715
Personnel cost	663,613	1,231,423
Depreciation expense	220,243	647,444
Administrative and other operating expenses	363,008	663,076
Income before provision for income taxes (Not including service costs payable to intra-group companies)	770,273	858,528
Provision for income taxes	284,680	329,938
Net income	485,593	528,590

Under the contractual arrangements with the VIEs, the Company has the power to direct activities of the VIEs and can have assets transferred freely out of the VIEs without restrictions. Therefore, the Company considers that there is no asset of VIEs that can only be used to settle obligations of the respective VIEs, except for registered capital and PRC statutory reserves of VIEs as of May 31, 2013. Since the VIEs are incorporated as limited liability companies under the PRC Company Law, creditors of the VIEs do not have recourse to the general credit of the Company. There is currently no contractual arrangement that would require the Company to provide additional financial support to the VIEs. As the Company is conducting certain businesses mainly through its VIEs, the Company may provide such support on a discretionary basis in the future, which could expose the Company to a loss.