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Loans Payable | 9 Months Ended
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Sep. 30, 2015
Loans Payable [Abstract] |
Loans Payable | (8) Loans Payable Short-term bank loans
|  |  |  | September 30, 2015 |  |  | December 31, 2014 |
Industrial & Commercial Bank of China (“ICBC”) Loan 1 |  | (a) |  | $ | - |  |  | $ | 2,451,381 |
The Commercial Bank of the City of Zhangjiakou |  | (b) |  |  | - |  |  |  | 3,268,508 |
ICBC Loan 2 |  | (c) |  |  | - |  |  |  | 817,127 |
ICBC Loan 3 |  | (d) |  |  | 3,144,011 |  |  |  | 3,268,508 |
ICBC Loan 4 |  | (e) |  |  | 3,144,011 |  |  |  | - |
Total short-term bank loans |  |  |  | $ | 6,288,022 |  |  | $ | 9,805,524 |
(a) | On June 26, 2014, the Company obtained an accounts receivable factoring facility from the ICBC for $2,451,381 as of December 31, 2014. Under the factoring agreement, the bank has recourse against the Company if the receivables, which remain in the Company’s books at all times, are not fully collected. The factoring facility was expired on June 24, 2015 and bore an interest rate of 110% of the primary lending rate of the People’s Bank of China and was at 6.6% per annum at the time of funding. The Company paid off the principal balance and interest by June 24, 2015. Concurrent with the signing of the new factoring agreement, the Company also entered into a financial service agreement with the ICBC, which provides accounts receivable management services to the Company during the terms of the underlying factoring facility.
(b) | On June 9, 2014, the Company obtained from the Commercial Bank of the City of Zhangjiakou a banking facility on bank loans and notes payable, which is guaranteed by the Company’s CEO and Shijiazhuang Baode Guarantee Service Company. In obtaining the guarantee from Shijiazhuang Baode Guarantee Service Company, Hebei Tengsheng Paper Co. Ltd (“Hebei Tengsheng”), a third party which owns the land use rights of about 330 acres (or 1.33 million square meters) of land in the Wei County and leases about one-fourth of the premises to Orient paper HB as our production bases of tissue paper and other future facilities, and an independent third party provided a guarantee with the land use rights and buildings pledged by Hebei Tengsheng as collateral. On July 18, 2014, the Company entered into a working capital loan agreement with the bank for $3,268,508 as of December 31, 2014. The loan was repaid subsequently on July 16, 2015 and borne a fixed interest rate of 11.88% per annum.
(c) | On August 19, 2014, the Company obtained an accounts receivable factoring facility from the ICBC for $817,127 as of December 31, 2014. Under the factoring agreement, the bank has recourse against the Company if the receivables, which remain in the Company’s books at all times, are not fully collected. The factoring facility was expired on June 10, 2015 and borne an interest rate of 110% of the primary lending rate of the People’s Bank of China and was at 6.6% per annum at the time of funding. The Company paid off the principal balance and interest by June 10, 2015.
(d) | On November 20, 2014, the Company entered into a working capital loan agreement with the ICBC for$3,144,011 and $3,268,508 as of September 30, 2015 and December 31, 2014, respectively. The loan bears an interest rate of 110% over the primary lending rate of the People’s Bank of China and was at 6.16% per annum at the time of funding. The loan will be repayable on December 3, 2015. The working capital loan was guaranteed by Hebei Tengsheng with its land use right and real estates pledged by Hebei Tengsheng as collateral for the benefit of the bank.
(e) | On September 7, 2015, the Company entered into a working capital loan agreement with the ICBC for $3,144,011 as of September 30, 2015. The loan bears an interest rate of 110% over the primary lending rate of the People’s Bank of China and was at 5.06% per annum at the time of funding. The loan will be repayable on September 6, 2016. The working capital loan was guaranteed by Hebei Tengsheng with its land use right and real estates pledged by Hebei Tengsheng as collateral for the benefit of the bank.
As of September 30, 2015, there were guaranteed short-term borrowings of $6,288,022. As of December 31, 2014, there were guaranteed short-term borrowings of $3,268,508 and secured bank loans of $6,537,016. The factoring facility was secured by the Company’s accounts receivable in the amount of $nil and $3,730,123 as of September 30, 2015 and December 31, 2014, respectively. The average short-term borrowing rates for the nine months ended September 30, 2015 and 2014 were approximately 7.93% and 7.24%, respectively. The average short-term borrowing rates for the three months ended September 30, 2015 and 2014 were approximately 6.65% and 8.20%, respectively. Long-term loans from credit union As of September 30, 2015 and December 31, 2014, loans payable to Rural Credit Union of Xushui County, amounted to $5,281,939 and $5,907,828, respectively. On April 16, 2014, the Company entered into an agreement with the Rural Credit Union of Xushui County for an amount that is $1,548,426 and $1,609,740 as of September 30, 2015 and December 31, 2014, respectively. The loan is guaranteed by an independent third party. Interest payment is due quarterly and bears the rate of 0.72% per month. The loan balance would be repayable by various installments from June 21, 2014 to November 18, 2018. In August 2015, after making proper notice to the bank in accordance with the terms on the agreement, the Company repaid a portion of the loan amounted to $196,501, within which $78,600 were due before the payment date and $117,901 were paid ahead of its original repayment schedule. Early repayment is allowed as long as the Company gives a 10-day notice to the bank. As of September 30, 2015, total outstanding loan balance was $1,351,925 and presented as non-current liabilities in the consolidated balance sheet. As of December 31, 2014, total outstanding loan balance was $1,609,740 with $65,370 becoming due within one year and presented as current portion of long term loans from credit union in the consolidated balance sheet. On July 15, 2013, the Company entered into a new agreement with the Rural Credit Union of Xushui County for a term of 5 years, which is due and payable on various scheduled repayment dates between December 21, 2013 and July 26, 2018. The loan is secured by certain of the Company’s manufacturing equipment in the amount of $13,896,033 and $19,300,765 as of September 30, 2015 and December 31, 2014, respectively. Interest payment is due quarterly and bears a fixed rate of 0.72% per month. In August 2015, after making proper notice to the bank in accordance with the terms on the agreement, the Company repaid a portion of the loan amounted to $204,361, within which $94,320 were due before the payment date and $110,041 were paid ahead of its original repayment schedule. Early repayment is allowed as long as the Company gives a 10-day notice to the bank. As of September 30, 2015, the total outstanding loan balance was $3,930,014 and presented as non-current liabilities in the consolidated balance sheet. As of December 31, 2014, the total outstanding loan balance was $4,298,088, with $81,713 becoming due within one year and presented as current portion of long term loans from credit union in the consolidated balance sheet. Total interest expenses for the short-term bank loans and long-term loans for the three months ended September 30, 2015 and 2014 were $184,748 and $307,746, respectively. Total interest expenses for the short-term bank loans and long-term loans for the nine months ended September 30, 2015 and 2014 were $845,751 and $778,472, respectively. Financing with Sale-Leaseback The Company entered into a sale-leaseback arrangement (the “Lease Financing Agreement”) with CNFTFL on June 16, 2013, for a total financing proceeds in the amount of RMB 150 million (approximately US$24 million). Under the sale-leaseback arrangement, Orient Paper HB sold the Leased Equipment to CNFTFL for RMB 150 million (approximately US$24 million). Concurrent with the sale of equipment, Orient Paper HB leases back all of the equipment sold to CNFTFL for a lease term of three years. At the end of the lease term, Orient Paper HB may pay a nominal purchase price of RMB 15,000 (approximately $2,400) to CNFTFL and buy back all of the Leased Equipment. The sale-leaseback is treated by the Company as a mere financing and capital lease transaction, rather than a sale of assets (under which gain or loss is immediately recognized) under ASC 840-40-25-4. All of the Leased Equipment are included as part of the property, plant and equipment of the Company for the periods presented; while the net present value of the minimum lease payment (including a lease service charge equal to 5.55% of the amount financed, i.e. approximately US$1.36 million) was recorded as obligations under capital lease and was calculated with CNFTFL’s implicit interest rate of 6.15% per annum and stated at $25,750,170 at the inception of the lease on June 16, 2013. Orient Paper HB made all payments due according to the schedule prior to December 15, 2014. On December 15, 2014, Orient Paper HB stopped making principal payments and entered into negotiations with the CNFTFL regarding a modified payment schedule for the remaining obligations. During the course of negotiations, Orient Paper HB continued to make interest payments due (as well as a payment of a liquidated damage of approximately $9,200 on December 26, 2014). No remedial measures were taken by the lessor or its parent company. On May 19, 2015 and June 15, 2015, the Company made payments to the lessor of RMB 5,000,000 (approximately $0.8 million) and RMB 20,000,000 (approximately $3 million), respectively. On July 1, 2015, Orient Paper HB, China Orient, and other guarantors of Lease Financing Agreement, entered into the 2015 Agreement, to amend and restate the Lease Financing Agreement entered into in 2013. The 2015 Agreement sets forth a modified and extended payment schedule with respect to the remaining payment obligation, with the final repayment date extended to June 21, 2017. Under the 2015 Agreement, the interest accrues at a rate of 15% per annum starting on June 16, 2015, and is payable on the 20th of every March, June, September and December until the principal is paid off, except for the first payment, which is due on July 31, 2015. The Company made all the payments on time according to the modified payment schedule under the 2015 Agreement in this period. In accordance with ASC 840-30-35, the present balances of the capital lease assets and obligations under capital lease were adjusted by an amount equal to the difference between the present value of the future minimum lease payments under the revised agreement (computed using the interest rate used to recognize the lease initially), which is approximately $1,617,574 at the date of the 2015 Agreement. The balance of the long-term obligations under capital lease were $6,568,399 and $4,090,413 as of September 30, 2015 and December 31, 2014, which is net of its current portion in the amount of $6,323,396 and $12,258,488, respectively. Total interest expenses for the sale-leaseback arrangement for the three months ended September 30, 2015 and 2014 were $169,742 and $207,830, respectively. Total interest expenses for the sale-leaseback arrangement for the nine months ended September 30, 2015 and 2014 were $1,024,866 and $717,058, respectively. As a result of the sale and leaseback of equipment on June 16, 2013, a deferred gain in the amount of $1,379,282 was recorded. The deferred gain is being amortized over the lease term and as an offset to depreciation of the Leased Equipment. As part of the sale-leaseback transaction, Orient Paper HB entered into a Collateral Agreement with CNFTFL and pledged the land use right in the amount of approximately $6,947,979 on some 58,566 square meters of land as collateral for the lease. In addition to Orient Paper HB’s collateral, Orient Paper Shengde also entered into a Guarantee Contract with CNFTFL on June 16, 2013. Under the Guarantee Contract, Orient Paper Shengde agrees to guarantee Orient Paper HB’s performance under the lease and to pledge all of its production equipment as additional collateral. The net book value of Orient Paper Shengde’s asset guarantee was $30,012,436 and $33,287,324 as of September 30, 2015 and December 31, 2014, respectively. The future minimum lease payments of the capital lease as of September 30, 2015 were as follows:
Year Ending September 30, |  | Amount |
2016 |  | $ | 6,909,293 |
2017 |  |  | 6,764,865 |
Totals |  |  | 13,674,158 |
Less: unearned discount |  |  | (782,363 | )
|  | $ | 12,891,795 |

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 + Details
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