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Financing with Sale-Leaseback

3 Months Ended

Mar. 31, 2022

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 $16) 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 of 15.6% 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. The balance of Leased Equipment net of amortization was $2,254,357 and $2,286,459 as of March 31, 2022 and December 31, 2021, respectively. The lease liability was $312,255 and $362,394, and its current portion in the amount of $228,051 and $210,161 as of March 31, 2022 and December 31, 2021, respectively.

Amortization of the Leased Equipment was $42,006 and $40,997for the three months ended March 31, 2022 and 2021. Total interest expenses for the sale-leaseback arrangement was $13,507 and $20,418 for the three months ended March 31, 2022 and 2021.

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 March 31, 2022 were as follows:

March 31,		Amount
2023			260,861
2024			86,954
Less: unearned discount			(35,560	)
			312,255
Less: Current portion lease liability			(228,051	)
		$	84,204