Leases

6 Months Ended

Jun. 30, 2024

Leases [Abstract]

Leases

(7) Leases

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$2.3 million). Under the sale-leaseback arrangement, Tengsheng Paper sold the Leased Equipment to TLCL for 16 million (approximately US$2.3 million). Concurrent with the sale of equipment, Tengsheng Paper leases back the equipment sold to TLCL for a lease term of three years. At the end of the lease term, Tengsheng Paper may pay a nominal purchase price of RMB 100 (approximately $14) 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.

Tengsheng Paper made payments due according to the schedule. On July 17, 2023, the Company made a final payment on outstanding obligations and bought back the Lease Equipment at nominal price according to the agreement. The lease assets were reclassified as own assets and balance of Leased Equipment net of amortization were $nil as of June 30, 2024 and December 31, 2023.

Amortization of the Leased Equipment was $nil and $37,661 for the three months ended June 30, 2024 and 2023. Amortization of the Leased Equipment was $nil and $76,526 for the six months ended June 30, 2024 and 2023. Total interest expenses for the sale-leaseback arrangement was $nil and $2,182 for the three months ended June 30, 2024 and 2023. Total interest expenses for the sale-leaseback arrangement was $nil and $6,671 for the six months ended June 30, 2024 and 2023.

Operating lease lessor

The Company has a non-cancellable agreement to lease plant to tenant under operating lease for 1 year from November 2023 to November 2024. The lease does not contain contingent payments. The rental income of the year was paid in advance by the tenant in December 2023.

Operating lease as lessee

The Company leases space under non-cancelable operating leases for plant and production equipment. The lease does not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Further, the lease does not contain contingent rent provisions.

The lease include option to renew in condition that it is agreed by the landlord before expiry. Therefore, the majority of renewals to extend the lease terms are not included in its right-of-use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluate the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term.

As the Company’s leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments.

The components of the Company’s lease expense are as follows:

	Six Months Ended
	June 30, 2024
	RMB
Operating lease cost		70,158
Short-term lease cost		-
Lease cost		70,158

Supplemental cash flow information related to its operating leases was as follows for the period ended June 30, 2024:

Cash paid for amounts included in the measurement of lease liabilities:

	Six Months Ended
	June 30, 2024
	RMB
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow from operating leases		-

Maturities of its lease liabilities for all operating leases are as follows as of June 30, 2024:

June 30,	Amount
2025		140,315
2026		140,315
2027		140,315
2028		140,315
2029		140,315
Thereafter		-
Total operating lease payments	$	701,577
Less: Interest		(99,291	)
Present value of lease liabilities		602,286
Less: current portion, record in current liabilities		(103,568	)
Present value of lease liabilities		498,718

The weighted average remaining lease terms and discount rates for all of its operating leases were as follows as of June 30, 2024:

	June 30,
	2024
	RMB
Remaining lease term and discount rate:
Weighted average remaining lease term (years)		4.1
Weighted average discount rate		7.56	%