Note 4 - Leases and Gain On Disposal of Building Assets

12 Months Ended

Dec. 31, 2015

Notes

Note 4 - Leases and Gain On Disposal of Building Assets

Note 4 – Leases and gain on disposal of building assets

The Company occupies real property and uses certain equipment under lease arrangements that are accounted for as operating leases.  The Company's real property leases contain escalation clauses.  Rental expense for all operating leases for 2015 and 2014 was $216 and $230, respectively.

On November 4, 2014, the Company agreed to an extension of its real estate lease for its corporate office buildings for a term of 5 years. The previous lease term included a repurchase option and was recorded as a financing obligation (see Note 6). Under the lease extension, the repurchase option expired and the extended lease term is recorded as an operating lease. Base annual rent for the extended 5-year term is $549.

The extension of the lease for five years without a repurchase option was recorded as a disposal of building assets with a book value of $2,532. The extinguishment of the lease obligation recorded as debt in the amount of $3,152 represented consideration received for the disposal. The disposal of the building assets and extinguishment of the lease financing obligation resulted in a gain on the disposal of the building assets in the amount of $620. Accounting for a sale leaseback transaction was applied and, as a result, the $620 gain on the disposal of the building assets was deferred and will be recognized ratably, as a credit against rent expense, over the five-year term of the new operating lease. The amount of the gain on the building asset disposal recognized in 2014 was $21.

There was also a deferred rent credit of $1,526 which was extinguished as a result of the new operating lease. The deferred rent credit represented previously recorded but unpaid rent expense for the prior long-term land lease in accordance with straight-line lease accounting. Because, under the new five-year operating lease, the Company will no longer be obligated or expected to pay the unpaid rent expense reflected in the deferred rent credit, the $1,526 balance is extinguished and represents additional gain as a result of the new lease extension.  The $1,526 gain from the extinguishment of the deferred rent credit will be recognized ratably over the five-year term as a credit against rent expense of the new operating lease. The amount of the gain from the extinguishment of the deferred rent credit recognized in 2014 was $51305.

Future minimum rent expense payments under the new operating lease and the remaining deferred gain from the disposal of the building assets and deferred rent credit to be recognized are as follows:

Years Ending December 31,	Rent Expense	Gain on Building	Deferred Rent Credit	Net Rent  Expense
2016	$549	$(124)	$(305)	$120
2017	549	(124)	(305)	120
2018	565	(124)	(305)	136
2019	475	(106)	(260)	109
Total	$2,138	$(478)	$(1,175)	$485

There are no other lease obligations that have initial or remaining non-cancelable lease terms in excess of one year.