COMMITMENTS AND CONTINGENCIES

3 Months Ended

Sep. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

9. COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

In June 2014, the Company and Varilease Finance, Inc. (“Varilease”), entered into six Sale Leaseback Agreements (the “Sale Leaseback Agreements” or a “Sale Leaseback Agreement”) pursuant to which Varilease purchased ePort equipment owned by the Company and used by the Company in its JumpStart program. As of June 30, 2014, Varilease completed the purchase from the Company, the ePort equipment under the first two of the Sale Leaseback Agreements as described in our Annual Report on Form 10-K for the year ended June 30, 2014.

In the quarter ended September 30, 2014, Varilease completed the purchase from the Company of the ePort equipment described in the last four of the Sale Leaseback Agreements.

Upon the completion of the sale under these agreements, the Company computed a gain on the sale of its ePort equipment, which is deferred and will be amortized in proportion to the related gross rental charged to expense over the lease terms in accordance with the FASB topic ASC 840-40, “Sale Leaseback Transactions”. The computed gain on the sale will be recognized ratably over the 36-month term and charged as a reduction to the Company’s JumpStart rent expense included in costs of services in the Company’s consolidated statement of operations. The Company is accounting for the Sale Leaseback as an operating lease and is obligated to pay to Varilease a base monthly rental for this equipment during the 36-month lease term.

Upon the completion of the sale, the Company computed a gain on the sale of its ePort equipment as follows:

	Three months ended
	June 30, 2014			September 30, 2014			Total
Rental equipment sold, cost	$	1,918,920		$	3,873,275		$	5,792,195
Rental equipment sold, accumulated depreciation upon sale		(76,032	)		(331,069	)		(407,101	)
Rental equipment sold, net book value		1,842,888			3,542,206			5,385,094
Proceeds from sale		2,995,095			4,993,879			7,988,974
Gain on sale of rental equipment	$	1,152,207		$	1,451,673		$	2,603,880

The following table summarizes the changes in deferred gain for the three months ended September 30, 2014 from the sale-leaseback transactions:

	Three months ended
	September 30, 2014
Beginning balance, June 30, 2014	$	1,142,685
Gain on sale of rental equipment		1,451,673
Recognition of deferred gain		(188,327	)
Ending balance, September 30, 2014		2,406,031
Less current portion		860,390
Non-current portion of deferred gain	$	1,545,641

The Company is obligated to pay Varilease a base monthly rental of approximately $220,000 for this equipment during the 36-month lease term. Future minimum lease payments subsequent to September 30, 2014 are as follows:

	Operating Leases
	from Sale Leaseback
2015 (remaining nine months)	$	1,980,867
2016		2,641,155
2017		2,641,155
2018		137,731
Total minimum lease payments	$	7,400,908

2015 STI PLAN

On August 28, 2014, the Board of Directors approved the Fiscal Year 2015 Short-Term Incentive Plan (the “2015 STI Plan”) covering Stephen P. Herbert, Chairman and Chief Executive Officer, and David M. DeMedio, Chief Financial Officer.

The 2015 STI Plan provides that each executive officer would earn a cash bonus in the event that the Company achieved during the 2015 fiscal year certain annual financial goals and certain annual specific performance goals relating to the executive officer which are to be established by the Compensation Committee.

If none of the minimum threshold target goals are achieved, the executive officers would not earn a cash bonus. If all of the target goals are achieved, the executive officers would earn a cash bonus as follows: Mr. Herbert – $136,500 (40% of base salary); and Mr. DeMedio – $59,469 (25% of base salary). If all of the maximum distinguished target goals are achieved, the executive officers would earn a cash bonus as follows: Mr. Herbert – $273,000 (80% of base salary); and Mr. DeMedio – $118,938 (50% of base salary). Assuming the minimum threshold target goal would be achieved for a particular metric, the amount of the cash bonus to be earned would be determined on a pro rata basis, provided that the bonus would not exceed the maximum distinguished award for that metric.

During the three months ended September 30, 2014, the Company recorded expense of $26,461 and a corresponding liability for the 2015 STI Plan.

LITIGATION

From time to time, the Company is involved in various legal proceedings arising during the normal course of business which, in the opinion of the management of the Company, will not have a material adverse effect on the Company’s financial position and results of operations or cash flows.

As of September 30, 2014, the Company has accrued approximately $690,000 representing estimated obligations of the Company in connection with a customer billing dispute and is included in Accounts Payable in the Consolidated Balance Sheets. Approximately $280,000 of this amount was recorded in fiscal 2014 and $410,000 of this amount was recorded in the three months ended September 30, 2014 and is reflected in Cost of Services in the Consolidated Statements of Operations.