NOTE 9 - LINE OF CREDIT, SHORT TERM DEBT AND BANK ACCEPTANCE NOTES

Lines of Credit

(a)

China Everbright Bank

In June 2015, the Company was approved for up to an aggregate of $6.9 million of a credit line from China Everbright Bank with 50% restricted cash deposited and credit exposure of $3.5 million. The Company renewed the agreement in June 2016 and the renewed agreement expires in June 2017, which may subject to renewal. In accordance with the renewed agreement, the Company was approved for up to an aggregate of $5.8 million of a credit line from China Everbright Bank with 50% restricted cash deposited and credit exposure of $2.9 million. The credit line is secured by a land use right and a building with a total carrying amount of $1.8 million. As of December 31, 2016, $5.8 million was drawn down as notes payable from China Everbright Bank. The amount of restricted cash deposited with the bank was $2.9 million. As of December 31, 2016, there was no unused line of credit from China Everbright Bank. The credit line expires in June 2017.

(b)

CITIC Bank Sanmen Branch

In March 2016, the Company was approved by CITIC Bank Sanmen Branch for up to an aggregate of $11.3 million of a credit line with 100% restricted cash deposited and credit exposure of $11.3 million through Jonway Auto and Fu Xing. As of December 31, 2016, total outstanding loans under this line of credit agreement were $5.3 million, with annual interest of 5.96%. The loans are due in various dates from March 25, 2017 to April 26, 2017. As of December 31, 2016, $5.0 million was drawn down as notes payable and $5.0 million restricted cash was deposited with the bank, with unused credit line of $5.9 million. The credit line has a term of two years and expires in March 2018.

In March 2014, the Company has obtained up to an aggregate of $15.4 million of credit line with the credit exposure of $5.7 million from CITIC Bank 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. As of December 31, 2015, Jonway Auto borrowed a half year short-term loan of $3.0 million at annual interest rate of 5.9%. The loan was due on April 28, 2016. The Company has also drawn down $6.4 million in the form of notes payable as of December 31, 2015. For certain notes payables utilizing the credit exposure of $2.6 million, the Company deposited 50% to 100% cash as restricted cash as collateral for these notes payable. These notes were due from March 2016 to April, 2016. As of December 31, 2015, the credit exposure of $5.7 million has been used. The credit line expired in March 2016.

(c)

ICBC Bank

In March 2014, the Company was approved up to an aggregate of $4.7 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 December 31, 2015, the total outstanding loan under this credit line was $4.6 million with $0.8 million of restricted cash deposited with the bank. The annual interest rates range between 5.0% and 6.9%. The loans were due in various dates from April 2015 to November 2016. During the year ended December 31, 2016, the loans were renewed.

As of December 31, 2016, total outstanding loans under this line of credit agreement was $4.3 million with annual interest rate from 4.36% to 5.0%. The loans are due in various dates from June 3, 2017 to October 20, 2017. As of December 31, 2016, total credit exposure of $4.3 million has been used. The credit line expired in March 2017. The Company is in the process of renewing this line of credit, which is expected to be approved by May 2017.

Short term loans

Short term loans as of December 31, 2016 and 2015 are presented below:

		December 31, 2016		December 31, 2015
Loan from CITIC bank	(a)	$	5,328	$	3,081
Loan from ICBC	(b)		4,320		4,621
Loan from Hangzhou Hengzhong Machinery Ltd.	(c)		794		-
		$	10,442	$	7,702

(a)

From March 25, 2016 to April 26, 2016, the Company entered multiple loan agreements through Jonway Auto with CITIC Bank Sanmen Brank for a total amount of approximately $5.3 million. The loans have annual interest of 5.96% and are due in various dates from March 25, 2017 to April 26, 2017. The loans are also secured by a land use right and a building with a total carrying amount of $4.4 million. One shareholder and CEO Alex Wang personally guaranteed these loans as well.

In October 2015, Jonway Auto borrowed a half year short-term loan of $3.1 million at annual interest rate of 5.9%. The loan was repaid upon maturity in April 2016.

(b)

On June 8, 2016, the Company entered into a one year short-term loan of $0.3 million at an annual interest rate of 5%. On July 22, 2016, the Company entered into a one year short-term loan of $1.0 million at an annual interest rate of 5%. On October 12, 2016, the Company entered into a one year short-term loan of $1.3 million at an annual interest rate of 5%. On October 13, 2016, the Company entered into a one year short-term loan of $1.0 million at an annual interest rate of 5%. These loans with aggregated amount of $4.3 million are secured by a land use right and a building with a total carrying amount of $2.9 million. One shareholder, Wang Huaiyi, and CEO Alex Wang also personally guaranteed these loans.

On June 22, 2016, the Company entered into a one year short-term loan of $0.7 million at an annual interest rate of 4.4%. The loan is secured by a restricted cash deposit of $0.7 million.

The Company fully repaid five loans totaling $4.6 million during 2016.

(c)

On July 28, 2016, the Company entered into an agreement with Hangzhou Zhongheng Machinery Ltd. (“Zhongheng”). Pursuant to the agreement, Zhongheng paid off one loan on behalf of the Company, and the Company would repay the outstanding payable due to Zhongheng within two months after Zhongheng made the payment on behalf of the Company. In exchange for the service, the Company agreed to pay a monthly interest of 1.5% on the payment made by Zhongheng. The 1.5% monthly interest is equivalent to a compound annual interest rate of about 9.34%.

The weighted average interest rates were 5.8% and 6.4% for the years ended December 31, 2016 and 2015, respectively.

Bank acceptance notes

As of December 31, 2016 and 2015, the Company had bank acceptance notes payable in the amount of $10.7 million and $14.4 million, respectively. 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 bank, in order to ensure future credit availability. As of December 31, 2016 and 2015, the restricted cash for the notes was approximately $8.6 million and $9.0 million, respectively. Bank acceptance notes are presented below:

	(In thousands)
	December 31, 2016		December 31, 2015
a) Bank acceptance notes payable to China Everbright bank	$	5,760	$	7,086
b) Bank acceptance notes payable to CITIC bank		4,967		6,428
c) Bank acceptance notes payable to Shanghai Pudong Development bank		-		852
	$	10,727	$	14,366

Notes payable to China Everbright bank have various maturity dates in June 2017. 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.

Notes payable to CITIC bank have various maturity dates in March and April 2017, and subsequently renewed. 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 Shanghai Pudong Development Bank was due and repaid in January and May 2016. The Company was required to maintain cash deposits at 100% of the notes payable with the bank.