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Lease

9 Months Ended

Sep. 30, 2022

9. Lease

(a)	Prepaid land use rights

	Prepaid land lease payments
Balance as of January 1, 2021	$	7,500,780
Addition for the year		6,188,764
Amortization charge for the year		(189,044	)
Foreign exchange adjustment		296,730
Balance as of December 31, 2021		13,797,230
Amortization charge for the period		(258,973	)
Foreign exchange adjustment		(1,456,289	)
Balance as of September 30, 2022	$	12,081,968

In August 2014 and November 2021, the Group acquired land use rights to build factories of the Company in Dalian, PRC and Zhejiang, PRC.

Lump sum payments were made upfront to acquire the leased land from the owners with lease periods of 36 to 50 years, and no ongoing payments will be made under the terms of these land leases.

Amortization expenses of the prepaid land use rights were $43,409 and $83,066 for the three months ended September 30, 2021 and 2022 and $130,211 and $258,973 for the nine months ended September 30, 2021 and 2022, respectively.

No impairment loss was made to the carrying amounts of the prepaid land use right for the three and nine months ended September 30, 2021 and 2022.

(b)	Company as Lessor

The Company derives a portion of its revenue from leasing arrangements of these vehicles to end users. Such arrangements provide for monthly payments covering the vehicles sales and interest. These arrangements meet the criteria to be accounted for as sales-type leases. Accordingly, vehicle sale net of cost is recorded as other income and recognized upon delivery of the vehicle and its acceptance by the end user. Upon the recognition of such revenue, an asset is established for the investment in sales-type leases. Interests are recognized monthly over the lease term. The components of the net investment in sales-type leases as of December 31, 2021 and September 30, 2022 are as follows:

	December 31,			September 30,
	2021			2022
Total future minimum lease payments receivable	$	1,737,817		$	1,203,502
Less: unearned income, representing interest		(108,773	)		(71,210	)
Present value of minimum lease payments receivables		1,629,044			1,132,292
Less: Current portion		(790,516	)		(815,013	)
Non-current portion	$	838,528		$	317,279

Loss on vehicle sale net of cost recognized in other income from vehicle leasing was $6 and nil for the three months ended September 30, 2021 and 2022, respectively.

Loss on vehicle sale net of cost recognized in other income from vehicle leasing was $91,999 and nil for the nine months ended September 30, 2021 and 2022, respectively.

Interest income from vehicle leasing was $25,674 and nil for the three months ended September 30, 2021 and 2022, respectively.

Interest income from vehicle leasing was $96,702 and $27,969 for the nine months ended September 30, 2021 and 2022, respectively.

The future minimum lease payments receivable for sales type leases are as follows:

	Total
	Minimum
	Lease				Net
	Payments		Amortization		Investment
	to be		of Unearned		in Sales
Fiscal years ending	Received		Income		Type Leases
Remainder of 2022	$	422,153	$	40,172	$	381,981
2023		610,464		28,743		581,721
2024		170,885		2,295		168,590
2025		-		-		-
2026		-		-		-
Thereafter		-		-		-
	$	1,203,502	$	71,210	$	1,132,292

(c)	Company as lessee - Operating lease

On April, 2018, Hitrans entered into a lease agreement for staff quarters spaces in Zhejiang with a five year term, commencing on May 1, 2018 and expiring on April 30, 2023 The monthly rental payment is approximately RMB18,000 ($2,530) per month. In 2018, lump sum payments were made to landlord for the rental of staff quarter spaces and no ongoing payments will be made under the terms of these leases.

On January 14, 2021, Nanjing Daxin entered into a lease agreement for manufacturing, warehouse and office space in Tianjing with a three year term, commencing on March 1, 2021 and expiring on February 29, 2024. The monthly rental payment is approximately $10,279 (RMB73,143) per month. On February 28, 2022, Nanjing Daxin early terminated the lease after one-year non-cancellable period.

On April 6, 2021, Nanjing CBAK entered into a lease agreement for warehouse space in Nanjing with a three year term, commencing on April 15, 2021 and expiring on April 14, 2024. The monthly rental payment is approximately $13,736 (RMB97,743) per month.

On June 1, 2021, Nanjing Daxin entered into a lease agreement for manufacturing, warehouse and office space in Wuxi with a three year term, commencing on June 1, 2021 and expiring on May 31, 2024. The monthly rental payment is approximately $33,460 (RMB238,095) per month for the first year and approximately $39,036 (RMB277,778) per month from the second year.

On June 1, 2021, Hitrans entered into a lease agreement with liquid gas supplier for a five year term for supplying liquid nitrogen and oxygen, commencing on July 1, 2021. The monthly rental payment is approximately RMB5,310 ($746) per month. In May, 2022, Nanjing Daxin early terminated the lease after one-year non-cancellable period.

On December 9, 2021, Hitrans entered into a lease agreement for extra staff quarters spaces in Zhejiang with a three year term, commencing on December 10, 2021 and expiring on December 9, 2024. The monthly rental payment is approximately RMB9,905 ($1,392) per month for the first year, RMB10,103 ($1,420) and RMB10,305 ($1,448) per month from the second year and third year, respectively.

On March 1, 2022, Hitrans entered into a lease agreement for extra staff quarters spaces in Zhejiang with a five year term, commencing on March 1, 2022 and expiring on February 28, 2027. The monthly rental payment is approximately RMB15,840 ($2,226) per month for the first year, with 2% increase per year.

On August 1, 2022, Hitrans entered into a lease agreement for warehouse spaces in Zhejiang with a one and half years term, commencing on August 1, 2022 and expiring on January 31, 2024. The monthly rental payment is RMB60,394 ($8,487) per month.

Operating lease expenses for the three and nine months ended September 30, 2021 and 2022 for the capitation agreement was as follows:

	Three months ended September 30,				Nine months ended September 30,
	2021		2022		2021		2022
Operating lease cost – straight line	$	175,932	$	78,845	$	290,051	$	437,502
Total lease expense	$	175,932	$	78,845	$	290,051	$	437,502

(d)	Company as lessee - Finance lease

	December 31,		September 30,
	2021		2022
Property, plant and equipment, at cost	$	-	$	1,835,458
Accumulated depreciation		-		(197,441	)
Property, plant and equipment, net under finance lease		-		1,638,017

Finance lease liabilities, current		-		1,173,589
Finance lease liabilities, non-current		-		-
Total finance lease liabilities	$	-	$	1,173,589

The components of finance lease expenses were as follows:

	Three months ended September 30,				Nine months ended September 30,
	2021		2022		2021		2022
Finance lease cost:
Depreciation of assets	$	-	$	31,343	$	-	$	31,343
Interest of lease liabilities		-		6,235		-		6,235
Total lease expense	$	-	$	37,578	$	-	$	37,578

The following is a schedule, by years, of maturities of lease liabilities as of September 30, 2022:

	Operating leases			Finance leases

Remainder of 2022	$	19,276		$	356,245
2023		320,255			831,237
2024		36,746			-
2025		37,301			-
2026		33,390			-
Thereafter		-			-
Total undiscounted cash flows		446,968			1,187,482
Less: imputed interest		(22,293	)		(13,893	)
Present value of lease liabilities	$	424,675		$	1,173,589

Lease term and discount rate:

	December 31, 2021			September 30, 2022
Weighted-average remaining lease term
Land use rights		38.9			38.2
Operating leases		2.32			2.33
Finance leases		-			0.75

Weighted-average discount rate
Land use rights		Nil			Nil
Operating leases		5.88	%		5.15	%
Finance leases		-			2.52	%

Supplemental cash flow information related to leases where the Company was the lessee for the three and nine months ended September 30, 2021 and 2022 was as follows:

	Nine months ended September 30,
	2021		2022
Operating cash outflows from operating assets	$	290,051	$	268,740