NOTE—13 CONCENTRATIONS OF RISK

The Company is exposed to the following concentrations of risk:

(a)

Major customers

Approximately 90% and 85% of the Company’s revenues for the three and six months ended June 30, 2014, respectively, were from a single customer (Customer A) and $4,302,851 of accounts and retention receivable at June 30, 2014 were due from this customer.

Approximately 93% and 75% of the Company’s revenues for the three and six months ended June 30, 2013, respectively, were from a single customer (Customer A) and $6,031,930 of accounts and retention receivable at June 30, 2013 were due from this customer.

All customers are located in the PRC.

(b)

Major vendors

For the three and six months ended June 30, 2014 and 2013, the vendor who accounts for 10% or more of the Company’s purchases and its outstanding balances as at period-end dates, are presented as follows:

	Three months ended June 30, 2014						June 30, 2014
Vendors	Purchases		Percentage of purchases				Accounts payable

Vendor F	$	240,325		10	%		$	197,684
Vendor G		330,616		13	%			204,324

Total:	$	570,941		23	%	Total:	$	402,008

	Six months ended June 30, 2014						June 30, 2014
Vendors	Purchases		Percentage of purchases				Accounts payable

Vendor F	$	377,101		14	%		$	197,684
Vendor G		330,616		12	%			204,324

Total:	$	707,717		26	%	Total:	$	402,008

	Three months ended June 30, 2013						June 30, 2013
Vendors	Purchases		Percentage of purchases				Accounts payable

Vendor C	$	142,679		11	%		$	14,170
Vendor E		178,621		14	%			1,523
Vendor F		188,663		15	%			4,740
Vendor H		142,220		11	%			14,438
Vendor I		105,720		8	%			-

Total:	$	757,903		59	%	Total:	$	34,871

	Six months ended June 30, 2013						June 30, 2013
Vendors	Purchases		Percentage of purchases				Accounts payable

Vendor C	$	440,178		18	%		$	14,170
Vendor E		274,889		11	%			1,523
Vendor F		273,783		11	%			4,740

Total:	$	988,850		40	%	Total:	$	20,433

All vendors are located in the PRC.

(c)

Credit risk

Financial instruments that are potentially subject to credit risk consist principally of trade receivables. The Company believes the concentration of credit risk in its trade receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

(d)	Interest rate risk

As the Company has no significant interest-bearing assets, the Company’s income and operating cash flows are substantially independent of changes in market interest rates.

The Company’s interest-rate risk arises from borrowing under notes and bank borrowings. The Company manages interest rate risk by varying the issuance and maturity dates variable rate debt, limiting the amount of variable rate debt, and continually monitoring the effects of market changes in interest rates. As of June 30, 2014, borrowings under related party notes were at fixed rates and short-term bank borrowings were at variable rates.

(e)

Exchange rate risk

The reporting currency of the Company is US$, to date the majority of the revenues and costs are denominated in RMB and a significant portion of the assets and liabilities are denominated in RMB. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between US$ and RMB. If RMB depreciates against US$, the value of RMB revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.

(f)

Economic and political risks

The Company's operations are conducted in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

The Company's operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.