Short-Term Loans

3 Months Ended

Mar. 31, 2013

Interest Expense, Short-Term Borrowings [Abstract]

Short-Term Loans

9. Short-Term Loans

The components of the Company’s short-term loans are as follows:

	March 31,		December 31,
	2013		2012
Short-term loans:
Loans due to financial institutions	$	28,956,691	$	24,037,073

At March 31, 2013, the Company has fourteen loans with seven different banks that are due within one year. The weighted average interest rates are 7.147% and 7.571% for the three month periods ended March 31, 2013 and 2012, respectively. Eight of the short-term loans (with an outstanding balance of approximately $16,755,000 at March 31, 2013) are guaranteed by third parties, Beijing Annec, Alex Industrial Investment Limited Company, or Fuchao Li, chairman of the Company’s board of directors (the chairman). One of these eight loans is $4,787,285 due to Bank of Zhengzhou. Four of the loans (with an outstanding balance of approximately $6,536,000 at March 31, 2013) are collateralized by the Company’s office building, land, or machinery and equipment. Two of the loans (with an outstanding balance of approximately $5,665,000 at March 31, 2013) are secured by cash deposits of the Company.

In 2013, the Company borrowed $4,787,285 (RMB 30 million) from the Bank of Zhengzhou. This loan was guaranteed by a third party (Note 14) similar to the other short term bank loans of the Company. Additionally, consistent with local Chinese banking practices, the Bank of Zhengzhou requested that the chairman also borrow funds from the bank in a separate transaction and that such borrowings be collateralized by a cash security deposit to be held in Bank of Zhengzhou. The Company’s chairman borrowed $4,492,662 (RMB 28.2 million) from the Bank of Zhengzhou under a one year loan agreement with interest at 5.4%. The chairman loaned this amount to the Company. This amount is included in “Other payable” on the balance sheet. In order to provide the cash security deposit required by the chairman’s loan from the Bank of Zhengzhou, the Company loaned an employee $4,787,285 (RMB 30 million) and the employee established the cash security deposit with the Bank of Zhengzhou. The receivable from the employee is due in one year. The Bank of Zhengzhou pays interest on the security deposit at 3.3%. This receivable is classified as a component of “Other Receivables – individuals and employees” (Note 5). The Company, the chairman and the employee have agreed that: 1). The Company has the rights to the cash security deposit and any interest earnings on such deposit. Upon the Company receiving the security deposit, all obligations of the employee to the Company are fulfilled. 2). The Company is obligated to repay the $4,492,662 loan and interest expense on behalf of the chairman. Upon repayment of the chairman’s loan to the Bank of Zhengzhou, all of the Company’s obligations to the chairman are fulfilled.