NOTE 8 – CONSTRUCTION LOAN FACILITY

The Company obtained a construction loan facility in the amount of RMB 80,000,000 (approximately $13 million) from a construction loan facility dated June 21, 2013. The loan facility is for an eight-year term, which commenced on July 11, 2013, the initial draw-down date. The proceeds of the loan were used for and are collateralized by the construction of the Company’s new production facility and the included production line equipment and machinery. At June 30, 2017, the loan bears weighted interest at 5.73%, based upon 110% of the PRC government’s eight-year term rate effective on the actual draw-down date, subject to annual adjustments based on 110% of the floating rate for the same type of loan on the anniversary from the draw-down date and its subsequent anniversary dates. On July 10, 2015 the interest rate was adjusted to 5.94% and on July 10, 2016 the rate was further adjusted to 5.39%. The loan required interest only payments for the first two years. Beginning July 11, 2015, the balance of the principal is due in at least two (2) annual installments with the first annual payment being due within the six-month period after July 10, 2015 and the second annual payment being due July 10, 2016 and each following year over the next five years through July 11, 2022 on the identical terms as described above for 2015. During the first quarter of 2017, the Company made a principal payment in the amount of approximately $145,000 (RMB1,000,000) with the remaining annual principal payment of approximately $1,320,000 (9,000,000 RMB) being due in July 2017. As of June 30, 2017, the Company had no additional amounts available to it under this facility. During July of 2017, the Company made the required payment of RMB 9,000,000 (approximately $1,320,000).

Principal payments required for the next five years as of June 30, 2017 are as follows:

Twelve Months Ending June 30,	Amount
2018		1,328,043
2019		2,213,405
2020		2,213,405
2021		2,213,405
2022		2,213,407
	$	10,181,665

Fair Value of Construction Loan Facility – Based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities, the carrying amounts of the construction loan facility outstanding as of June 30, 2017 and December 31, 2016 approximated its fair value because the underlying instrument bears an interest rate that approximated current market rates.