Income Tax

6 Months Ended

Nov. 30, 2011

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

17.  Income Tax

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the six months ended November 30, 2011 and 2010:

	2011			2010
U.S. Statutory rates		34.0	%		34.0	%
Foreign income not taxable in USA		(34.0	)%		(34.0	)%
China income taxes		25.0	%		25.0	%
China income tax exemption		-			(19.1	)%
Accruals in foreign jurisdictions		4.9	%		-
Total provision for income taxes		29.9	%		5.9	%

USA

The Company and its subsidiaries are subject to income taxes on an entity basis on income arising in, or derived from, the tax jurisdiction in which they operate. As the Group has only net loss generated in the United States, there was no tax expense or tax liability due to the Internal Revenue Service of the United States as of November 30, 2011 and May 31, 2011. The Group believes that the realization of the benefits arising from this loss appears to be uncertain due to its limited operating history and continuing losses for United States income tax purposes. Accordingly, the Company has provided 100% valuation allowance at the period end for its United States operation.

Hong Kong

As the Group has no income generated in Hong Kong, there was no tax expense or tax liability due to the tax rule of Hong Kong as of November 30, 2011 and May 31, 2011.

People’s Republic of China (PRC)

Under the Income Tax Laws of the PRC, the Company’s subsidiaries are generally subject to an income tax at an effective rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. The Company is charged at 25% from January 1, 2011 to November 30, 2011 and 0% income tax expense for calendar year 2010. The exemption of income tax to the Company lasted until December 31, 2010 and from year 2011, the Company is subject to an income tax at an effective rate of 25%. The Company over accrued income tax and therefore total provision for income tax is over 25%. The current income tax expense and deferred tax expense for the six months ended November 30, 2011 and 2010 are as follows:

	November 30, 2011		November 30, 2010
Current income tax	$	2,130,575	$	580,930
Deferred tax expense		137,084		-
Income tax	$	2,267,659	$	580,930

The Company adopted accounting policies in accordance with U.S. GAAP with regard to provisions, reserves, inventory valuation method, and depreciation that are consistent with requirements under Chinese income tax laws. The Company had deferred tax assets of $1,939,110 and $2,038,913 as of November 30, 2011 and May 31, 2011, respectively, from its Chinese operations, mainly due to bad debt allowance.

	2011		2010
Deferred tax assets, China subsidiary	$	1,939,110	$	2,038,913
bad debt allowance		-		-
Valuation allowance		-		-
Total	$	1,939,110	$	2,038,913

The exemption of income tax to the Company lasted until December 31, 2010 and from year 2011, the Company is subject to an income tax. As such, the estimated tax savings due to the tax exemption for the six months ended November 30, 2011 and 2010 amounted to approximately $0 and $2,800,486, respectively. The net effect on earnings per share if the income tax had been applied would decrease the basic and diluted earnings per share for the six months ended November 30, 2011 and 2010 by $0.00 and $0.22, respectively.