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Loans Payable | 9 Months Ended
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Sep. 30, 2016
Loans Payable [Abstract] |
Loans Payable | (8) Loans Payable Short-term bank loans
|  |  |  |  | September 30, |  |  | December 31, |
|  |  |  |  | 2016 |  |  | 2015 |
Industrial & Commercial Bank of China ("ICBC") Loan 1 |  |  | (a) |  |  | $ | - |  |  | $ | 3,079,956 |
The Commercial Bank of the City of Zhangjiakou |  |  | (b) |  |  |  | 7,487,496 |  |  |  | 7,699,888 |
ICBC Loan 2 |  |  | (c) |  |  |  | 2,994,998 |  |  |  | 3,079,956 |
ICBC Loan 3 |  |  | (d) |  |  |  | 1,197,999 |  |  |  |  |
Bank of Hebei |  |  | (e) |  |  |  | 2,246,249 |  |  |  |  |
Total short-term bank loans |  |  |  |  |  | $ | 13,926,742 |  |  | $ | 13,859,800 |
(a) | On September 7, 2015, the Company entered into a working capital loan agreement with the ICBC, with a balance of $2,994,998 and $3,079,956 as of September 30, 2016 and December 31, 2015, respectively. The loan borne an interest rate of 5.06% per annum, which was 110% of the primary lending rate of the People’s Bank of China at the time of funding. The loan was due on September 6, 2016. The working capital loan was guaranteed by Hebei Tengsheng Paper Co. Ltd (“Hebei Tengsheng”), an independent 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, with its land use right and real property pledged by Hebei Tengsheng as collateral for the benefit of the bank. The loan was repaid on September 6, 2016.
(b) | On October 15, 2015, the Company entered into a working capital loan agreement with the Commercial Bank of the City of Zhangjiakou, with a balance of $7,487,496 and $7,699,888 as of September 30, 2016 and December 31, 2015, respectively. The loan bears a fixed interest rate of 11.88% per annum. The loan was due on October 15, 2016. The working capital loan was guaranteed by the Company’s CEO and his wife, as well as secured by Hebei Tengsheng’s land use right and real property as collateral for the benefit of the bank.
(c) | On December 11, 2015, the Company entered into a working capital loan agreement with the ICBC, with a balance of $2,994,998 and $3,079,956 as of September 30, 2016 and December 31, 2015, respectively. The loan bears a fixed interest rate of 4.785% per annum. The loan is due on December 9, 2016. The working capital loan is secured by Hebei Tengsheng’s land use right and real property.
(d) | On June 1, 2016, the Company entered into a working capital loan agreement with the ICBC, with a balance of $1,197,999 as of September 30, 2016. The loan bears a fixed interest rate of 4.62% per annum. The loan is due on December 31, 2016. The working capital loan is guaranteed by Hebei Tengsheng’s land use right and real property.
(e) | On July 8, 2016, the Company entered into a working capital loan agreement with the Bank of Hebei, with a balance of $2,246,249 as of September 30, 2016. The loan bears a fixed interest rate of 5.22% per annum. The loan is due on July 8, 2017. The working capital loan was guaranteed by the Company’s CEO and his wife, as well as Hebei Tengsheng with its land use right and real property pledged by Hebei Tengsheng as collateral for the benefit of the bank.
As of September 30, 2016, there were guaranteed short-term borrowings of $13,926,742 and unsecured bank loans of $nil. As of December 31, 2015, there were guaranteed short-term borrowings of $13,859,800 and unsecured bank loans of $nil. The average short-term borrowing rates for the nine months ended September 30, 2016 and 2015 were approximately 8.53% and 7.93%, respectively. The average short-term borrowing rates for the three months ended September 30, 2016 and 2015 were approximately 8.19% and 6.65%, respectively. Long-term loans from credit union As of September 30, 2016 and December 31, 2015, loans payable to Rural Credit Union of Xushui County, amounted to $5,031,597 and $5,174,325, respectively. On April 16, 2014, the Company entered into a loan agreement with the Rural Credit Union of Xushui County for a term of 5 years, which is payable in various installments from June 21, 2014 to November 18, 2018. The loan is guaranteed by an independent third party. Interest payment is due quarterly and bears the rate of 0.72% per month. In August 2015, after giving the required notice to the Rural Credit Union of Xushui County in accordance with the terms on the agreement, the Company repaid a portion of the loan in an amount of $187,187, of which $112,312 was paid ahead of its original repayment schedule as of September 30, 2016. As of September 30, 2016 and December 31, 2015, total outstanding loan balance was $1,287,849 and $1,324,380 respectively, which is presented as non-current liabilities in the condensed consolidated balance sheet. On July 15, 2013, the Company entered into a loan agreement with the Rural Credit Union of Xushui County for a term of 5 years, which is due and payable in various installments from December 21, 2013 to July 26, 2018. The loan is secured by certain of the Company’s manufacturing equipment with net book value of $10,802,842 and $14,236,083 as of September 30, 2016 and December 31, 2015, respectively. Interest payment is due quarterly and bears a fixed rate of 0.72% per month. In August 2015, after giving the required notice to the Rural Credit Union of Xushui County in accordance with the terms on the agreement, the Company repaid a portion of the loan in an amount of $194,675, of which $104,825 was paid ahead of its original repayment schedule as of September 30, 2016. As of September 30, 2016 and December 31, 2015, the total outstanding loan balance was $3,743,748 and $3,849,945 respectively, which is presented as non-current liabilities in the condensed consolidated balance sheet. Total interest expenses for the short-term bank loans and long-term loans for the three months ended September 30, 2016 and 2015 were $354,011 and $184,748, respectively. Total interest expenses for the short-term bank loans and long-term loans for the nine months ended September 30, 2016 and 2015 were $1,172,692 and $845,751, respectively. Financing with Sale-Leaseback The Company entered into a sale-leaseback arrangement (the “Lease Financing Agreement”) with China National Foreign Trade Financial & Leasing Co., Ltd ("CNFTFL") on June 16, 2013, for a total financing proceeds in the amount of RMB 150 million (approximately US$22 million). Under the sale-leaseback arrangement, Orient Paper HB sold the Leased Equipment to CNFTFL for RMB 150 million (approximately US$22 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 $2,246) 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. Orient Paper HB made all payments due according to the modified schedule prior to June 20, 2016. On June 21, 2016, Orient Paper HB only made a partial payment of RMB 2,300,000 (US$349,385) out of the payment schedule of RMB 22,300,000 (US$3,387,513) due on June 20, 2016. The Company made interest payment due according to the modified schedule, as well as a payment of interest $141,695 on the overdue amount RMB 20,000,000 (US$3,038,128), at a rate of 18.25% per annum on September 20, 2016 in accordance with the 2015 Agreement. The Company is currently in negotiation with the CNFTFL regarding a potential modification on the payment schedule for the remaining obligations. During the course of negotiations, Orient Paper HB continues to accrue interest at a rate of 18.25% per annum for the overdue portion and 15% per annum for the remaining portion in accordance with the 2015 Agreement. 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) and the present balance of the obligation, which is approximately $1,617,574 at the date of the 2015 Agreement. The balance of the long-term obligations under capital lease were nil and $3,217,785 as of September 30, 2016 and December 31, 2015, and its current portion in the amount of $9,265,227 and $6,860,412, respectively. Included in the current portion, balance of RMB 20,000,000 (US$2,994,998) was overdue as of September 30, 2016. The Company is currently negotiating with the CNFTEL regarding the potential modification on the payment schedule. Total interest expenses for the sale-leaseback arrangement for the three months ended September 30, 2016 and 2015 were $237,053 and $169,742, respectively. Total interest expenses for the sale-leaseback arrangement for the nine months ended September 30, 2016 and 2015 were $526,912 and $1,024,866, 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. In term of the extension of the new payment schedule, the deferred gain is being amortized over the remaining lease term up to June 21, 2017. 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 $6,476,591 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 $25,209,525 and $28,745,628 as of September 30, 2016 and December 31, 2015, respectively. The future minimum lease payments of the capital lease as of September 30, 2016 were as follows:
September 30, |  |  | Amount |
2017 |  |  |  | $ | 9,439,236 |
Less: unearned discount |  |  |  |  | (174,009 | )
|  |  |  |  | 9,265,227 |
Less: Current portion of obligation under capital lease, net |  |  |  |  | (9,265,227 | )
|  |  |  | $ | - |

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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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