NOTE 5 -LINE OF CREDIT, SHORT TERM DEBT AND BANK ACCEPTANCE NOTES

Line of credit (Credit Exposure)

In November 2013, we were approved up to an aggregate of $24.3 million of a credit line, with the credit exposure of $6.3 million from the Sanmen Branch of CITIC Bank ("CITIC") through Jonway. In March 2014, the credit exposure increased by $1.0 million to $7.3 million. When drawn down, the credit line is secured by land and buildings owned by Jonway and guaranteed by the related party Jonway Group. Jonway borrowed one year short-term loans in the aggregate amount of $6.3 million in November 2013. The annual interest rate is 6.6%, and the loans are due in November 2014. In March 2014, Jonway borrowed one year short-term loan of $1.0 million. The annual interest rate is 7.08% and the loan is due in March 2015. We have also drawn down $2.7 million in the form of notes payable as of March 31, 2014. We deposited 100% cash as restricted cash as collateral for these notes payable. These notes are due on April 24 and April 29, 2014. As of March 31, 2014, the credit exposure of $7.3 million has been fully used. The credit line expires in November 2015.

In December 2012, we were approved up to an aggregate of $4.1 million of a credit line from Taizhou Bank. This credit line was reduced to $2.4 million in early 2014 when it was renewed. This credit line was guaranteed by related parties. As of March 31, 2014, the total outstanding under this credit line was $1.1 million. The annual interest rate is 8.89%.The loans are due separately in May and August 2014. A credit exposure of $1.0 million was used in the form of notes payable of $2.0 million with restricted cash of $1.0 million being deposited with the bank. As of March 31, 2014, a total credit exposure of $2.1 million has been used.

In December 2013, we were approved up to an aggregate of $9.1 million of a credit line from Everbright Bank. This credit line can only been used in the form of notes payable with 50% restricted cash deposited. Thus, we were approved a credit exposure of $4.5 million. This credit line was guaranteed by the shareholder Wang Huaiyi, as well as a building and land use right at the carrying value of $2.1 million. As of March 31, 2014, $7.9 million was drawn down as notes payable in which $1.2 million was without a restricted cash deposit. The amount of restricted cash deposited with the bank was $3.4 million. As of March 31, 2014, the credit exposure of $4.5 million has been fully used. The credit line expires in December 2014.

In December 2013, we were approved up to an aggregate of $5.4 million of a credit line from Industrial and Commercial Bank of China (ICBC). This credit line was secured by land and buildings owned by Jonway and guaranteed by related parties. As of March 31, 2014, the total outstanding loan under this credit line was $5.7 million with $0.8 million of restricted cash deposited with the bank. The annual interest rates are from 5.6% to 7.2%. The loans are due in various dates from June 2014 to November 2014. As of March 31, 2014, a credit exposure of $4.9 million has been used, and $0.5 million was still available for use. The credit line expires in December 2014.

Short term debt

In November 2013, Jonway borrowed one year short-term loans in the aggregate amount of $6.3 million from CITIC. The annual interest rate is 6.6%, and the loans are due in November 2014. In March 2014, Jonway borrowed $0.98 million from CITIC Bank. The loan expires in March 2015 and the annual interest rate is 7.08%. The loans are secured by a Maximum Amount Mortgage Contract between Jonway and CITIC dated November 11, 2013, in which a land use right and a building with a total carrying amount of $6.2 million as of March 31, 2014 has been pledged as security for this loan. The shareholder and Co-CEO Alex Wang also personally guaranteed these loans.

In July, August and November 2013, the company borrowed a total of $2.1 million of short term loans at interest rates of 8.46% and 8.89% from Taizhou Bank. The loans are guaranteed by related parties including Jonway Group, the shareholder Wang Huayi and other individuals. Loans of $1.3 million were due in January and February 2014, and were repaid when due. The remaining balance of $0.8 million will be due in May 2014. Jonway borrowed a short-term loan of $0.3 million in February 2014 at the annual interest rate of 8.89% which is due in August 2014.

The Company also borrowed loans from Industrial and Commercial Bank of China (ICBC) during 2013. In June 2013, Jonway borrowed a one year short-term loan of $1.1 million. The annual interest rate was 6.9%. In August 2013, Jonway borrowed a 6 months short-term loan of $0.8 million. The annual interest rate was 5.6%. The loan was repaid when due in February 2014. In August 2013, Jonway borrowed a one year short-term loan of $ 1.1 million. The annual interest rate was 6.9%. In September 2013, Jonway borrowed a 6 months short-term loan of $0.7 million. The annual interest rate was 5.6%. The loan was repaid when due in March 2014. In November 2013, Jonway borrowed a one year short term loan of $1.5 million. The annual interest rate was 7.2%. In December 2013, Jonway borrowed a one year short term loan of $1.1 million. The annual interest rate was 7.2%.In March 2014, Jonway borrowed a 6 months short-term loan of $0.8 million with 100% cash deposited as collateral for the loans. The annual interest rate is 5.6% and is due in September 2014. These loans were guaranteed by related parties including Jonway Group, the shareholder Wang Huaiyi and the shareholder and Co-CEO Alex Wang. The Company also pledged buildings and a land use right with a carrying value of $3.65 million with ICBC.

The weighted average annual interest rate during 2013 was 7.04%. In the first quarter of 2014, the weighted average annual interest rate was 6.95%.

(in thousands)

	3/31/2014		12/31/2013
Loan from CITIC bank	$	7,301		6,381
Loan from ICBC		5,656		6,381
Loan from Taizhou Bank		1,136		2,127
Loan from Pay-Ins Prem		23		72
	$	14,116	$	14,961

As of March 31, 2014, the Company has bank acceptance notes payable in the amount of $12.5 million. The notes are guaranteed to be paid by the banks and are usually for a short-term period of six (6) months. The Company is required to maintain cash deposits of 50% or 100% of the notes payable with these banks, in order to ensure future credit availability. As of March 31, 2014, the restricted cash for the notes was $7.0 million.

Bank acceptance notes - 3 to 6 month term for each note issued (in thousands)

	3/31/2014		12/31/2013
a) Bank acceptance notes payable to China Everbright bank	$	7,870	$	8,891
b) Bank acceptance notes payable to Taizhou bank		1,947		3,927
c) Bank acceptance notes payable to CITIC bank		2,677		2,700
d) Bank acceptance notes payable to ICBC		-		177
	$	12,494	$	15,695

Notes payable to China Everbright bank have various maturity dates from May 2014 to September 2014. The notes payable are guaranteed by a land use right and a building with a total carrying value of $2.1 million. The Company is also required to maintain cash deposits at 50% of the notes payable with the bank, in order to ensure future credit availability.

Notes payable to Taizhou bank have various maturity dates from April 2014 to August, 2014. The Company is required to maintain cash deposits at 50% of the notes payable with the bank, in order to ensure future credit availability.

Notes payable to CITIC bank will be due in April 2014. The Company is required to maintain cash deposits at 100% of the notes payable with the bank, in order to ensure future credit availability.

Notes payable to ICBC were due in March 2014 and repaid. The Company was required to maintain cash deposits at 100% of the notes payable with the bank, in order to ensure future credit availability.