Financing Obligation Arising from Sale Leaseback Transaction

9 Months Ended

Sep. 30, 2020

Leases [Abstract]

Financing Obligation Arising from Sale Leaseback Transaction

Note 14: Financing Obligation Arising from Sale Leaseback Transaction

On March 16, 2018, the Company sold land and a building for $4,080,000 and concurrently entered into an agreement to lease the property back for ten years at $408,000 per year for two years through March 31, 2020. The lease payments will increase 2.5% per year for the next three years through March 31, 2023 and the lease payments will increase 3% for the remaining five years through March 31, 2028. The sale of the property includes an option to repurchase the property at fair value which does not permanently transfer all the risks and rewards of ownership to the buyer. The option to repurchase the property also would be at a higher price than the sales price and is considered likely based upon the Company’s plans going forward. Because the sale of the property includes the option to repurchase the property and includes the above attributes, the transaction was accounted for as a financing transaction whereby the Company debited cash for the amount of cash received and credit financing obligation. The Company will continue to report the property as an asset and the property will continue to be depreciated. The fair value repurchase option is accounted for similar to a share appreciation mortgage. Accordingly, the guidance in ASC 470-30 related to participating mortgage loans would be applied to the liability. If the option expires unused, the sale is recognized at that time. The gain on the sale would be the excess of the liability (current fair value of the property) over its carrying amount. As part of the sale of this building, warrants were provided to the buyer for the purchase of up to 73,314 shares of Company common stock for a period of five years at an exercise price of $17.05 per share, 125% of the closing price of the common stock on the NYSE American on the date of execution of the letter of intent for the purchase. The warrants cannot be exercised to the extent that any exercise would result in the purchaser owning in excess of 4.99% of our issued and outstanding shares of common stock.

The Property and Equipment in Note 7 above are the property and equipment involved in this transaction. Depreciation on the building will continue until a sale has been recognized.

Future minimum payments required under the Financing Obligation and the balance of the Finance Obligation as of September 30, 2020 are as follows:

During the year:

	(in thousands)
2020	$	105
2021		426
2022		437
2023		449
2024		463
Thereafter		1,567
Total of payments		3,447
Less deferred issuance costs		(199	)
Less discount on debt instrument		(852	)
Less imputed interest		(236	)
Total balance		2,160
Less current portion		(226	)
Long term portion	$	1,934

Interest expense relating to this financing agreement was $46,000 for the nine months ended September 30, 2020 and $51,000 for the nine months ended September 30, 2019.