NOTE 7 – LINE OF CREDIT, SHORT TERM DEBT AND BANK ACCEPTANCE NOTES

Line of credit (Credit Exposure)

In March 2014, the Company has obtained up to an aggregate of $15.7 million of credit line with the credit exposure of $5.8 million from CITIC Sanmen Branch through Jonway Auto. The line is secured by land and building owned by Jonway Auto and guaranteed by the related party – Jonway Group. In March 2014, Jonway Auto borrowed a one year short-term loan of $1.0 million. The annual interest rate was 7.08% and the loan was due in March 2015. The company then early settled the loan in December 2014. The company borrowed a one year short term loan in December 2014 of $0.9 million at an annual interest rate of 6.69% with an expiration date in December 2015. We have also drawn down $8.8 million in the form of notes payable as of September 30, 2015. For certain notes payables utilizing the credit exposure of $4.9 million, we deposited 50% to 100% cash as restricted cash as collateral for these notes payable. These notes are due from November, 2015 to March, 2016. As of September 30, 2015, the credit exposure of $5.8 million has been used. The credit line expires in March 2016.

In March 2014, we were approved up to an aggregate of $5.2 million of a credit line from ICBC. This credit line was secured by land and buildings owned by Jonway Auto and guaranteed by related parties. As of September 30, 2015, the total outstanding loan under this credit line was $4.7 million with $0.8 million of restricted cash deposited with the bank. The annual interest rates are from 5.0% to 6.9%. The loans are due in various dates from October 2015 to July 2016. As of September 30, 2015, a credit exposure of $3.9 million has been used, and $1.3 million was still available for use. The credit line expires in March 2017.

In June 2015, we were approved for up to an aggregate of $7.2 million of a credit line from Everbright Bank, with 50% restricted cash deposited and credit exposure of $3.6 million. The credit line expires in April 2016. As of September 30, 2015, $7.2 million was drawn down as notes payable. The amount of restricted cash deposited with the bank was $3.6 million. In July 2014, the Company borrowed an 11 months short-term loan of $1.2 million at an interest rate of 7.2%. The loan was repaid when due in June 2015. As of September 30, 2015, the credit exposure of approximately $3.6 million has been used.

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, and expired in January, 2015. This credit line was guaranteed by related parties. As of December 31, 2014, the total outstanding loans from Taizhou Bank under this credit line were $1.1 million. The loans were extended and due separately in February and April 2015, respectively, and have been settled in February 2015.

Short term loans

Short term loans as of September 30, 2015 and December 31, 2014 are presented below:

		September 30, 2015		December 31, 2014

Loan from CITIC bank	(a)	$	942	$	976
Loan from ICBC	(b)		4,715		6,484
Loan from China Everbright Bank	(c)		-		1,220
Loan from Taizhou Bank	(d)		-		1,139
Loan from Pay-Ins Prem			-		30
		$	5,657	$	9,849

(a)

In December 2014, the company borrowed a one year short term loan of $1.0 million from CITIC at the annual interest rate of 6.69%. The loans are secured by a Maximum Amount Mortgage Contract between Jonway Auto and CITIC dated November 3, 2014, in which a land use right and a building with a total carrying amount of $5.1 million as of September 30, 2015 has been pledged as security for this loan. The shareholder and Co-CEO Alex Wang also personally guaranteed these loans.

(b)

In April 2014, the company borrowed a one year short-term loan from ICBC of $0.8 million with 100% cash deposited as collateral for the loans. The annual interest rate is 6%. The loan was repaid when due in April 2015. In June 2014, the company borrowed a one year short-term loan from ICBC of $1.1 million at the annual interest rate of 6.26%. The loan was repaid when due in June 2015. In August 2014, the company borrowed a one year short-term loan from ICBC of $1.1 million at the annual interest rate of 6.92%, the loan has been fully repaid in July 2015. In March 2014, the company borrowed a 6-month short-term loan from ICBC of $0.8 million at the annual interest rate of 5.04%. The loan of $0.8 million has been paid when due in March, 2015. In October 2014, the company borrowed $1.5 million of a short term loan from ICBC. The loan will expire in October 2015 with the annual interest rate is 6.6% and the loan was repaid subsequent to September 30, 2015. The company borrowed a one year short term loan of $1.1 million in November 2014 at an annual interest of 6.6%. In March 2015, the company borrowed a one year short-term loan of $0.8 million from ICBC at an annual interest of 5.6%. In June 2015, the company borrowed a one year short-term loan of $0.3 million from ICBC at an annual interest rate of 6.07%. In July 2015, the Company borrowed a one year short-term loan of $1.1 million from ICBC at an annual interest rate of 6.7%. 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 $3.3 million with ICBC and $0.8 million of restricted cash was deposited of September 30, 2015.

(c)

In July 2014, the company borrowed an 11 months short-term loan of $1.2 million from China Everbright Bank 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 $2.0 million. The loan has been fully repaid in June 2015 upon maturity.

(d)

In August 2014, the company borrowed a short-term loan from Taizhou Bank of $0.3 million at the annual interest rate of 8.93% which is due in February 2015. The loan was repaid when due. In October 2014, the company borrowed $0.81 million of a short term loan from Taizhou Bank. The loan expired in April 2015 and the annual interest rate is 8.496%.The loan was settled early in February 2015.

The weighted average interest rates were 6.6% and 7.0% for the three and nine months ended September 30, 2015 and 2014, respectively.

Bank acceptance notes

As of September 30, 2015, the Company has bank acceptance notes payable in the amount of $16.9 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 bank, in order to ensure future credit availability. As of September 30, 2015, the restricted cash for the notes was $8.4 million.

Bank acceptance notes are presented below:

		September 30, 2015		December 31, 2014

Bank acceptance notes payable to China Everbright Bank	(a)	$	7,228	$	11,372
Bank acceptance notes payable to Taizhou Bank	(b)		477		651
Bank acceptance notes payable to CITIC Bank	(c)		8,757		5,724
Bank acceptance notes payable to China Merchants Banks	(d)		157		-
Bank acceptance notes payable to Shanghai Pudong Development bank	(e)		287		-
		$	16,906	$	17,747

(a)

Notes payable to China Everbright bank have various maturity dates in December 2015. The notes payable are guaranteed by a land use right and a building with a total carrying value of $2.0 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.

(b)

Notes payable to Taizhou bank will be due in December 2015. The Company is required to maintain cash deposits at 100% of the notes payable with the bank.

(c)

Notes payable to CITIC bank will be due from November 2015 to March 2016. Except for the note payable utilizing credit exposure of $4.9 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.

(d)

Notes payable to China Merchants Bank have maturity date in October 2015. The company is required to maintain cash deposits at 100% of the notes payable with the bank.

(e)

Notes payable to Shanghai Pudong Development Bank will be due from October 2015 to January 2016. The company is required to maintain cash deposits at 100% of the notes payable with the bank.