Note 7 - Leases and Related Party Transactions

12 Months Ended

Mar. 31, 2014

7. LEASES AND RELATED PARTY TRANSACTIONS

As part of the assets and liabilities acquired as a result of the AVID acquisition, the Company assumed a capital lease obligation for the AVID facility located in Toano, Virginia. The facility, which includes a 185,000 square foot manufacturing and warehouse building and approximately 12 acres of land, is owned by an affiliate of Micpar Realty, LLC (“Micpar”). AVID’s founder, former CEO and former principal stockholder, is a part owner of Micpar and subsequent to the acquisition of AVID was appointed to the Company’s board of directors. As of August 2012, he no longer served on the Company’s board of directors. As of March 31, 2014, the capital lease requires monthly payments of $129 with increases of 2% per annum. The lease contains provisions for an option to buy January 2015 and expires in March 2029. The effective rate on the capital lease obligation is 9.9%.

The gross and net book value of the assets under the capital lease are as follows:

	March 31,
	2014			2013
Capital lease, gross	$	11,409		$	11,409
Less: accumulated amortization		(2,200	)		(1,586	)
Capital lease, net	$	9,209		$	9,823

The amortization expense associated with the capital lease amounted to $614, of which $141 is included in cost of sales and the remaining $473 is recorded in selling, general and administrative expenses.

The Company also leases certain equipment, vehicles and office facilities under non-cancelable operating leases expiring in various years though fiscal 2020.

As of March 31, 2014, the Company was obligated under non-cancelable operating leases and capital leases for equipment, vehicles and office, warehousing and manufacturing facilities for minimum annual rental payments as follows:

Fiscal Year	Capital Lease			Operating Leases
2015	$	1,549		$	1,030
2016		1,580			791
2017		1,611			75
2018		1,643			63
2019		1,676			30
Thereafter		18,722			-
Total minimum lease payments	$	26,781			1,989
Less: Amounts representing interest		(13,310	)
Present value of minimum lease payments		13,471
Less: Current portion of capital lease obligations		(226	)
Long-term portion of capital lease obligations	$	13,245

Rental expense under operating leases amounted to $628, $579, and $488 during fiscal 2014, 2013, and 2012, respectively.

A current member of our board of directors is currently a minority shareholder of Custom Healthcare Systems (“CHS”), an assembler and packager of Class 1 medical products. CHS is a supplier to our AVID facility located in Toano, Virginia for small kits and trays. They also purchase sterile instruments from our facility located in Arden, North Carolina.

During the twelve months ended March 31, 2014 and 2013, the amounts sold to and purchased from CHS are as follows:

	March 31,
	2014		2013

Sold to CHS	$	1,074	$	964
Purchased from CHS		1,729		1,861

The following table represents the amounts due from and due to CHS:

	March 31,
	2014		2013

Due from CHS	$	330	$	265
Due to CHS		14		45