NOTE - 13

CONCENTRATIONS OF RISK

 

The Company is exposed to the following concentrations of risk:

 

(a)

Major customers

 

For the three and six months ended June 30, 2012 and 2011, the customers who accounted for 10% or more of the Company’s revenues and its outstanding accounts receivable balances as at period-end dates, are presented as follows:

 

						Three months ended June 30, 2012												June 30, 2012
Customers						Revenues				Percentage of revenues								Accounts and retention receivable
Customer A						$	1,341,070				41	%						$	7,357,048
Customer B							1,252,399				38	%							1,466,652
			Total:			$	2,593,469				79	%			Total:			$	8,823,700

 

						Six months ended June 30, 2012												June 30, 2012
Customers						Revenues				Percentage of revenues								Accounts and retention receivable
Customer A						$	1,748,841				39	%						$	7,357,048
Customer B							1,252,399				28	%							1,466,652
			Total:			$	3,001,240				67	%			Total:			$	8,823,700

 

						Three months ended June 30, 2011												June 30, 2011
Customers						Revenues				Percentage of revenues								Accounts receivable
Customer A						$	1,961,891				40	%						$	6,574,768
Customer B							1,958,109				40	%							3,871,052
Customer C							506,981				10	%							277,986
			Total:			$	4,426,981				90	%			Total:			$	10,723,806

 

						Six months ended June 30, 2011												June 30, 2011
Customers						Revenues				Percentage of revenues								Accounts receivable
Customer A						$	3,078,458				41	%						$	6,574,768
Customer B							1,958,109				26	%							3,871,052
Customer D							1,310,872				18	%							3,783,450
			Total:			$	6,347,439				85	%			Total:			$	14,229,270

 

All customers are located in the PRC.

 

(b)

Major vendors

 

For the three and six months ended June 30, 2012 and 2011, the vendors who accounted for 10% or more of the Company’s purchases and its outstanding accounts payable balances as at period-end dates, are presented as follows:

 

						Three months ended June 30, 2012												June 30, 2012
Vendors						Purchases				Percentage of purchases								Accounts payable
Vendor A						$	1,093,738				44	%						$	10,495
Vendor B							622,756				25	%							729,293
Vendor C							339,938				14	%							317,428
			Total:			$	2,056,432				83	%			Total:			$	1,057,216

 

						Six months ended June 30, 2012												June 30, 2012
Vendors						Purchases				Percentage of purchases								Accounts payable
Vendor A						$	1,216,076				37	%						$	10,495
Vendor B							622,756				19	%							729,293
Vendor C							339,938				10	%							317,428
			Total:			$	2,178,770				66	%			Total:			$	1,057,216

 

						Three months ended June 30, 2011												June 30, 2011
Vendors						Purchases				Percentage of purchases								Accounts payable
Vendor A						$	1,955,098				59	%						$	487,231
Vendor D							327,328				10	%							448,774
			Total:			$	2,282,426				69	%			Total:			$	936,005

 

						Six months ended June 30, 2011												June 30, 2011
Vendors						Purchases				Percentage of purchases								Accounts payable
Vendor A						$	3,049,023				57	%						$	487,231
Vendor D							681,216				13	%							448,774
			Total:			$	3,730,239				70	%			Total:			$	936,005

 

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 note payable, finance lease and short-term 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.

 

(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.