Short-Term and Long-Term Borrowings

6 Months Ended

Jun. 30, 2018

Short-Term and Long-Term Borrowings [Abstract]

SHORT-TERM AND LONG-TERM BORROWINGS

NOTE 7 – SHORT-TERM AND LONG-TERM BORROWINGS

Short-term Borrowings

Short-term borrowings represent amounts due to various banks and other companies normally maturing within one year. The principal of the borrowings is due at maturity. Accrued interest is due either monthly or quarterly.

Short-term borrowings consisted of the following:

		As of		As of
		June 30, 2018		December 31, 2017
Agricultural Bank of China (“ABC”)	(1)	$	10,427,529	$	11,831,148
China Merchants Bank (“CMB”)	(2)		4,547,357		3,073,424
PingAn Bank (“PAB”)	(3)		1,511,236		1,536,712
Industrial and Commercial Bank of China (“ICBC”)	(4)		4,715,857		4,019,908
Bank of China (“BOC”)	(5)		2,695,568		3,017,381
East West Bank  (“EWB”)	(6)		2,000,000		2,000,000
Postal Savings Bank of China (“PSBC”)	(7)		4,003,697		4,046,597
Pennsylvania Industrial Development Authority – current portion of long-term borrowing (see “long-term borrowing” below)			89,115		88,339
East West Bank loan – current portion of long-term borrowing (see “long-term borrowing” below)			158,333		83,333
Total		$	30,148,692	$	29,696,842

(1) During the six months ended June 30, 2018, Taizhou Fuling entered into a series of short-term bank loan agreements with ABC for a total amount of $3,853,652. The terms of these loans are six months with variable interest rates based on the prevailing interest rates, respectively. The effective rates are from 4.90% to 5.15% per annum.

During fiscal year 2017, Taizhou Fuling entered into a series of short-term bank loan agreements with ABC for a total amount of $11,831,148. The terms of these loans are six to twelve months with variable interest rates based on the prevailing interest rates. The effective rates were from 4.57% to 4.90% per annum. As of June 30, 2018, $5,146,449 of them had been repaid upon maturity.

In February 2017, Great Plastics entered into a short-term bank loan agreement with ABC for $691,520. The terms of the loan are twelve months with a variable interest rate based on the prevailing interest rate. The effective rates are 5.66% per annum. This loan was fully repaid in July 2017 prior to its maturity.

These loans were guaranteed by the assets of a third party guaranty company and a shareholder of the Company. The third party guaranty company charges 2% of total loan amount.

(2) During six months ended June 30, 2018, Taizhou Fuling entered into a series of short-term bank borrowing agreements with CMB for a total amount of approximately $3.7 million (RMB 24.5 million). The terms of these loans are five to twelve months with variable interest rates based on the prevailing interest rates. The effective rates were from 2.40% to 6.09% per annum. The loans are guaranteed by Special Plastics and Taizhou Fuling’s general manager and Chair of the Board. As of June 30, 2018, $1,428,345 had been repaid in full upon maturity.

In January, March, July and December 2017, Taizhou Fuling entered into four short-term bank borrowing agreements for approximately $4.5 million (RMB 29.4 million) with CMB for twelve, six, six and twelve months, respectively. The effective rates were 6.09%, 2.67%, 1.99% and 6.09% per annum, respectively. The loans are guaranteed by Special Plastics and Taizhou Fuling’s general manager and Chair of the Board. As of June 30, 2018, $2,167,326 had been repaid in full upon maturity. 

(3) In April and May 2018, Great Plastics entered into two short-term bank borrowing agreements with PAB with a total amount of $1,511,236 for ten and nine months. The loans bear a variable interest rate based on the prevailing interest rate set by the People’s Bank of China at the time of borrowing, which equals 180% of the prevailing interest rate. The effective rate is 7.82%. The loans are guaranteed by the assets of Great Plastics.

In March 2017, Great Plastics entered into a short-term bank borrowing agreement with PAB with a total amount of $1,536,712 for twelve months. The loan bears a variable interest rate based on the prevailing interest rate set by the People’s Bank of China at the time of borrowing, which equals 180% of the prevailing interest rate. The effective rate is 7.83%. The loan is guaranteed by the assets of Great Plastics. As of June 30, 2018, this loan was fully repaid in full upon maturity.

(4) During the six months ended June 30, 2018, Taizhou Fuling entered into a series of short-term loan agreements with ICBC for a total amount of $2,600,126. The terms of these loans are five to twelve months with the interest rates ranged from 3.47% to 5.22% per annum.

During 2017, Taizhou Fuling entered into a series of short-term loan agreements with ICBC for a total amount of $7,092,174. The terms of these loans are five to twelve months with the interest rates ranged from 2.14% to 5.00% per annum. As of June 30, 2018, $4,893,414 of them had been repaid upon maturity.

(5) During the six months ended June 30,  2018 and the year ended December 31, 2017, Taizhou Fuling entered into a series of short-term bank borrowing agreements and other financing agreements with BOC. The terms of the loans are three to twelve months, with fixed interest rates based on London InterBank Offered Rate (“LIBOR”) (for loans dominated in USD) or prime loan rates issued by People’s Bank of China (for loans dominated in RMB), plus certain base points. The effective interest rates vary from 3.30% to 5.44% per annum. The loans to Taizhou Fuling are guaranteed by the Chief Executive Officer (“CEO”).

(6) On March 9, 2017, Direct Link entered into a line of credit agreement with East West Bank for $2,000,000 for one year. The annual interest rate is equivalent to LIBOR rate plus 2.75%. Direct Link was required to make restricted deposit of $41,900 for one year (which was released in June 2018) with an initial interest rate of 3.76% per annum. The line of credit is guaranteed by Fuling Global. The agreements require Direct Link to comply with certain financial covenants and ratios, including to maintain minimum debt service coverage ratio of 1.40 times and to maintain maximum total debt to equity ratio of 3.0 times etc. Direct Link will be measured semi-annually at June 30th and December 31st.  Direct Link was not in compliance as of June 30, 2018. On April 7, 2017, Direct Link drew down $1,500,000 with the effective rate of 3.86% per annum. On December 1, 2017, Direct Link drew down another $500,000 with the effective rate of 4.45% per annum. Interest expense incurred on this loan for the six months ended June 30, 2018 and 2017 were $47,955 and $14,942, respectively. On March 14, 2018, East West Bank approved to extend the loan to June 9, 2018. On June 26, 2018, East West Bank again approved to extend the loan to June 9, 2019. East West Bank waived financial covenant violations at June 30, 2018.

(7) In January 2018, Taizhou Fuling entered into a short-term bank loan agreement with PSBC for $1,026,771. The terms of the loan are twelve months. The effective rates are 2.95% per annum.

In November and December 2017, Taizhou Fuling entered into a series of short-term bank loan agreements with PSBC for $2,975,004 and $1,071,593, respectively. The terms of these loans are twelve and five months, respectively. The effective rates are 2.65% and 4.15% per annum, respectively. As of June 30, 2018, $1,071,593 of them had been repaid upon maturity.

Long-term Borrowings 

Long-term borrowings represent amounts due to various banks and other companies normally maturing over one year. The principal of the borrowings is due at maturity. Accrued interest is due either monthly or quarterly.

Long-term borrowings consisted of the following:

		As of		As of
		June 30, 2018		December 31, 2017
Pennsylvania Industrial Development Authority – long term	(1)	$	703,379	$	748,132
Agricultural Bank of China (“ABC”)	(2)		2,569,102		137,088
East West Bank  (“EWB”) – long term	(3)		827,089		916,667
Total		$	4,099,570	$	1,801,887

(1) On September 28, 2016, Fuling USA entered into a ten-year Machinery and Equipment Loan Agreement with the Pennsylvania Industrial Development Authority for $937,600, with fixed interest rate of 1.75%. This loan has been collateralized by the machinery and equipment, worth approximately $1.72 million. As of June 30, 2018, the amount of long-term borrowing was $792,494, and it consists of $89,115 of which is due within a year and $703,379 which is due over a year.

Future obligations for payments of this long-term loan are as below:

Twelve months ended June 30,
2018	$	89,115
2019		90,687
2020		92,287
2021		93,915
2022		95,572
Thereafter		330,918
Total	$	792,494

(2) On October 31, 2016, Fuling USA entered into a buyer’s credit Loan Agreement with Agricultural Bank of China Limited for a line of credit in the amount of $5,903,723 (RMB 41 million) for 18 months. The loan bears a variable interest rate based on the prevailing interest rate set by the People’s Bank of China at the time of borrowing, plus 6% of the prevailing interest rate. As of December 31, 2017, the amount of long-term borrowing was $137,088, and the effective rate was 5.30% per annum. The line of credit’s purpose is to acquire equipment. China Export & Credit Insurance Corporation provides insurance for the line of credit. The line of credit is effective for the period from first day of loan to 18 months after the first day of loan. As of June 30, 2018, this loan was fully repaid in full upon maturity.

In June 2018, Taizhou Fuling entered into two buyer’s credit Loan Agreements with Agriculture Bank of China Limited for total of $2,569,102 (RMB 17 million) for 36 months. The loan bear variable interest rates based on the prevailing interest rate set by the People’s Bank of China at the time of borrowing, plus 13% of the prevailing interest rate. As of June 30, 2018, the amount of long-term borrowing was $2,569,102, and the effective rates were 5.37% per annum. The line of credit’s purpose is for inventory purchase. The line of credit is effective for the period from first day of loan to 36 months after the first day of loan . 

(3) On March 9, 2017, Fuling USA entered into a Delayed Draw Term Loan agreement with East West Bank for $1,000,000. The amount drawn will be turned into a 5-year term loan at LIBOR rate plus 3.00%. The loan is guaranteed by Fuling Global. Fuling USA is required to make a restricted deposit of $73,336 for one year with an initial interest rate of 4.19% per annum. The restricted deposit was increased to $121,639 in June 2018. The agreement requires Fuling USA to comply with certain financial covenants and ratios, including to maintain minimum debt service coverage ratio of 1.25 times and to maintain maximum total debt to equity ratio of 3.0 times etc. Fuling USA’s compliance with these covenants will be reviewed semi-annually at June 30th and December 31th. Fuling USA was in compliance as of June 30, 2018. On April 7 and December 1, 2017, Fuling USA drew down $500,000 (April 2017 Loan) and $500,000 (December 2017 Loan), respectively. April 2017 loan will expire April 7, 2023 and December 2017 loan will expire on December 1, 2023. Both April 2017 loan and December 2017 loan require interest only payment for the first year and require interest and principal payments for years from second year to sixth year. The effective rate was 4.11% per annum. As of June 30, 2018, the amount of long-term borrowing was $985,422, and it consists of $158,333 of which is due within a year and $827,089 which is due over a year.

Future obligations for payments of this long-term loan are as below:

Twelve months ended June 30,
2018	$	158,333
2019		200,000
2020		200,000
2021		200,000
2022		175,000
Thereafter		52,089
Total	$	985,422

As of June 30, 2018 and December 31, 2017, land use rights in the amount of $9,266,801 and $9,523,546, and property and buildings in the amount of $18,653,416 and $19,453,877, respectively, were pledged for all the above short term and long term borrowings.