NOTE6 -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. In April, the company partially repaid $0.56 million. 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 $4.3 million in the form of notes payable as of June 30, 2014. Except for a note payable utilizing the credit exposure of $0.56 million, we deposited 100% cash as restricted cash as collateral for these notes payable. These notes are due in October, 2014. As of June 30, 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 June 30, 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 August and November 2014. A credit exposure of $1.2 million was used in the form of notes payable of $3.2 million with restricted cash of $2.0 million being deposited with the bank. As of June 30, 2014, a total credit exposure of $2.3 million has been used.

In December 2013, we were approved for 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 June 30, 2014, $8.1 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 $3.8 million. In June 2014, Jonway borrowed a 6 months short-term loan of $0.31 million at interest rate of 7.28%. As of June 30, 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 June 30, 2014, the total outstanding loan under this credit line was $6.5 million with $1.6 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 August 2014 to June 2015. Jonway also drew down $0.49 million in form of a note payable as of June 2014. We deposited 100% cash as restricted cash for the note payable. As of June 30, 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 April 2014, Jonway partially repaid $0.56 million. 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 $6.1 million as of June 30, 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 was repaid 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. Jonway borrowed a short-term loan of $0.8 million in May 2014 at the annual interest rate of 8.89% which is due in November 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 at the annual interest rate of 6.9%. The loan was due and repaid in June 2014. 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 6month 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. In April 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 6%. In June 2014, Jonway borrowed a one year short-term loan of $1.1 million at the annual interest rate of 6.256%. 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 $3.61 million with ICBC.

In June 2014, the company borrowed a 6 month short-term loan of $0.31 million at an interest rate of 7.28% from China Everbright Bank. The loan was guaranteed by the shareholder Wang Huaiyi, as well as a building and land use right with a carrying value of $2.1 million.

The weighted average annual interest rate during 2013 was 7.04%. In first and the second quarter of 2014, the weighted average annual interest rate was 6.95% and 7.45%. respectively

(in thousands)

	June 30, 2014		December 31, 2013
Loan from CITIC bank	$	6,750	$	6,381
Loan from ICBC		6,476		6,381
Loan from Taizhou Bank		1,137		2,127
Loan from China Everbright Bank		309		0
Loan from Pay-Ins Prem		12		72
	$	14,684	$	14,961

As of June 30, 2014, the Company has bank acceptance notes payable in the amount of $16.1 million. The notes are guaranteed to be paid by the banks and are usually for a short-term period of six 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 June 30, 2014, the restricted cash for the notes was $10.1 million.

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

	June 30, 2014		December 31, 2013
a) Bank acceptance notes payable to China Everbright bank	$	8,075	$	8,891
b) Bank acceptance notes payable to Taizhou bank		3,246		3,927
c) Bank acceptance notes payable to CITIC bank		4,326		2,700
d) Bank acceptance notes payable to ICBC		487		177
	$	16,134	$	15,695

Notes payable to China Everbright bank have various maturity dates from July 2014 to November 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 August 2014 to December, 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 October 2014. Except for a note payable utilizing credit exposure of $0.56 million, 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 will be due in December 2014. The Company was required to maintain cash deposits at 100% of the notes payable with the bank, in order to ensure future credit availability.