NOTE 6 –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 2014, 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 $5.6 million in the form of notes payable as of September 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 September 30, 2014, the credit exposure of $7.3 million has been fully used. The credit line expires in November 2015. The Company repaid the note payable due in October 2014. After September 30, 2014, the bank agreed to renew the credit line.

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 September 30, 2014, the total outstanding loans under this credit line were $1.1 million. The loans are due separately in November 2014 and February 2015 respectively. The annual interest rates are 8.89% and 8.93% respectively. 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 September 30, 2014, a total credit exposure of $2.4 million has been used. The Company repaid the loan due in October 2014. The credit line has not renewed as of November 14, 2014.

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 September 30, 2014, $6.9 million was drawn down as notes payable. 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%. In July 2014, Jonway borrowed an 11 months short-term loan of $1.2 million at interest rate of 7.2%. As of September 30, 2014, the credit exposure of $4.5 million has been fully used. The credit line expires in December 2014 and not yet renewed as of November 14, 2014. The Company repaid the note payable due in October 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 September 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 5.0% to 7.2%. The loans are due in various dates from October 2014 to September 2015. Jonway also drew down $0.49 million in the form of a note payable as of June 2014. We deposited 100% cash as restricted cash for the note payable. As of September 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 and not yet renewed as of November 14, 2015. The Company repaid the loan due in October 2014.

In October 2014, Jonway repaid the short term debts of $2.27 million and bank acceptance notes of $7.4 million when they became due. Except for the aforesaid repayment, there are no short term loan and bank acceptance notes due by November 14, 2014. There is no bank acceptance notes issued after September 30, 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 September 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 was repaid 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. In August, Jonway borrowed a short-term loan of $0.3 million at the annual interest rate of 8.93% which is due in February 2015. In October 2014, Jonway repaid $0.81 million of a short term loan to Taizhou Bank when it became due. In October 2014, Jonway borrowed $0.81 million of a short term loan from Taizhou Bank. The loan expires in April 2015 and the annual interest rate is 8.496%

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%. It was due and repaid. 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-month short-term loan of $0.8 million with 100% cash deposited as collateral for the loans. The annual interest rate is 5.6% and repaid when 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%. In August 2014, Jonway borrowed a one year short-term loan of $1.1 million at the annual interest rate of 6.92%. In September 2014, Jonway borrowed a 6-month short-term loan of $0.8 million at the annual interest rate of 5.04%. 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 $3.58 million with ICBC and $1.6 million of restricted cash of September 30, 2014 . In October 2014, Jonway repaid $1.46 million of a short term loan to ICBC when it became due. In October 2014, Jonway borrowed $1.46 million of a short term loan from ICBC. The loan expires in October 2015 and the annual interest rate is 6.6%

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. In July 2014, Jonway borrowed a 11 months short-term loan of $1.2 million at the annual interest rate of 7.2%. The loans were 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%., the weighted average annual interest rate for the first three quarters of 2014 was 6.95%, 7.45% and 7.0% respectively.

(in thousands)

	September 30, 2014		December 31, 2013
Loan from CITIC bank	$	6,752		6,381
Loan from ICBC		6,476		6,381
Loan from Taizhou Bank		1,137		2,127
Loan from China Everbright Bank		1,527		-
Loan from Pay-Ins Prem		200		72
	$	16,092		14,961

Bank acceptance notes

As of September 30, 2014, the Company has bank acceptance notes payable in the amount of $16.2 million. The notes are guaranteed to be paid by the banks and are usually for a short-term period of nine 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 September 30, 2014, the restricted cash for the notes was $11.4 million.

– 3 to 6 month term for each note issued (in thousands)

	September 30, 2014		December 31, 2013
a) Bank acceptance notes payable to China Everbright bank	$	6,856	$	8,891
b) Bank acceptance notes payable to Taizhou bank		3,246		3,927
c) Bank acceptance notes payable to CITIC bank		5,566		2,700
d) Bank acceptance notes payable to ICBC		487		177
	$	16,155	$	15,695

Notes payable to China Everbright bank have various maturity dates from October 2014 to March 2015. 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. In October 2014, the company repaid the note payable when it became due .

Notes payable to Taizhou bank have various maturity dates from October 2014 to February, 2015. The Company is required to maintain cash deposits at 50% to 100% of the notes payable with the bank, in order to ensure future credit availability. In October 2014, the company repaid the note payable when it became due.

Notes payable to CITIC bank will be due from October 2014 to March 2015. Except for a note payable utilizing credit exposure of $1.12 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. In October 2014, the company repaid the note payable when it became due.

Notes payable to ICBC will be due in December 2014. The Company is required to maintain cash deposits at 50% to 100% of the notes payable with the bank, in order to ensure future credit availability.

In October 2014, approximately $7.4 million of notes payable matured and repaid. There is no notes payable issued after September 30, 2014.