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Financing with Sale-Leaseback

12 Months Ended

Dec. 31, 2021

Financing with Sale-Leaseback [Abstract]

Financing with Sale-Leaseback

(7) Financing with Sale-Leaseback

The Company entered into a sale-leaseback arrangement (the “Lease Financing Agreement”) with TAC Leasing Co., Ltd.(“TLCL”) on August 6, 2020, for a total financing proceeds in the amount of RMB 16 million (approximately US$2.5 million). Under the sale-leaseback arrangement, Hebei Tengsheng sold the Leased Equipment to TLCL for 16 million (approximately US$2.5 million). Concurrent with the sale of equipment, Hebei Tengsheng leases back the equipment sold to TLCL for a lease term of three years. At the end of the lease term, Hebei Tengsheng may pay a nominal purchase price of RMB 100 (approximately $15) to TLCL and buy back the Leased Equipment. The Leased Equipment in amount of $2,349,452 was recorded as right of use assets and the net present value of the minimum lease payments was recorded as lease liability and calculated with TLCL’s implicit interest rate of15.6% per annum and stated at $567,099 at the inception of the lease on August 17, 2020.

Hebei Tengsheng made payments due according to the schedule. As of December 31, 2021 and 2020, the balance of Leased Equipment net of amortization was $2,286,459 and $2,397,653, respectively. The lease liability were $362,394 and $536,959, and its current portion in the amount of $210,161 and $182,852 as of December 31, 2021 and 2020, respectively.

Amortization of the Leased Equipment was $165,441 and $51,574 for the year ended December 31, 2021 and 2020, respectively. Total interest expenses for the sale lease back arrangement was $71,798 and $28,083 for the year ended December 31, 2021 and 2020, respectively.

As a result of the sale and leaseback, a deferred gain in the amount of $430,695 was recorded. The deferred gain is amortized over the lease term and as an offset to amortization of the Leased Equipment.

The future minimum lease payments of the capital lease as of December 31, 2021 were as follows:

December 31,		Amount
2022			259,736
2023			151,513
Less: unearned discount			(48,855	)
			362,394
Less: Current portion lease liability			(210,161	)
		$	152,233