Long-term Financing Obligation

12 Months Ended

Mar. 31, 2013

Notes

Long-term Financing Obligation

I.        Long-Term Financing Obligation

On December 22, 2011, the Company entered into an agreement with an independent third-party under which we sold and leased back our land and building generating gross proceeds of $2,000,000.  Pursuant to a lease agreement, the initial minimum lease term is 15 years.  At the end of the initial minimum lease term, we have the option to renew the lease for three periods of five years each.  Under the terms of the lease, we were required to place $280,000 of the net proceeds in escrow as a prepayment of the calendar year 2012 lease payments.  As of March 31, 2012, the balance of the prepaid lease payment was $210,000 and is included in prepaid expenses and other current assets of the consolidated balance sheets.  In addition, we provided, as collateral, a security interest in all furnishings, fixtures and equipment owned and used by us, having a net book value of approximately $146,000 as of March 31, 2012.  For accounting purposes, the provision of such collateral constitutes continuing involvement with the associated property.  Due to this continuing involvement, this sale-leaseback transaction is accounted for under the financing method, rather than as a completed sale.  Under the financing method, we include the sales proceeds received as a financing obligation.  As of March 31, 2013 and March 31, 2012, the total financing obligation was $1,986,000, respectively.  The building, building improvements and land remain on the consolidated balance sheet and the building and building improvements will continue to be depreciated over their remaining useful lives.  Payments made under the lease are applied as payments of imputed interest and deemed principal on the underlying financing obligation.

The following table summarizes the financing transaction:

Gross proceeds from sale of land and building	$2,000,000
Less:
Repayment of promissory note	(800,000)
Prepayment penalty on promissory note	(99,000)
Transaction costs	(102,000)
Net proceeds from sale of land and building	$999,000

The future minimum lease payments as of March 31, 2013 are as follows:

Fiscal Years Ending March 31,
2014	$335,000
2015	335,000
2016	335,000
2017	345,000
2018	355,000
Thereafter	3,255,000
	$4,960,000