7. Eastern Interconnect Project

Acquisition of Eastern Interconnect Project

On June 30, 2011, the Company purchased 100 percent ownership of a 40 percent undivided interest in the EIP for approximately $15.6 million, including the assumption of $3.4 million of debt. The acquisition of the EIP was accounted for as a business combination, in accordance with ASC 805. The Company incurred costs of approximately $600,000 in connection with the acquisition which were expensed during the year ended November 30, 2011. The transaction resulted in the acquisition of assets and liabilities as follows:

Physical Assets:

The EIP transmission assets move electricity across New Mexico between Albuquerque and Clovis. The physical assets include 216 miles of 345 kilovolts transmission lines, towers, easement rights, converters and other grid support components. Originally, the assets were depreciated for book purposes over an estimated useful life of 20 years.

The amount of depreciation of leased property reflected during the year ended November 30, 2012 and 2011 was $837,371 and $294,309, respectively. The 2012 amount includes one month of incremental depreciation of $131,028 (see second paragraph under Pending Sale heading below).

Lease:

EIP is leased on a triple net basis through April 1, 2015 to PNM, an independent electric utility company serving approximately 500,000 customers in New Mexico. Public Service Company of New Mexico is a subsidiary of PNM Resources (NYSE: PNM). Per the Lease Agreement, at the time of expiration of the lease, the Company could choose to renew the lease with the lessee, the lessee could offer to repurchase the EIP, or the lease could be allowed to expire and the Company could find another lessee. Under the terms of the Lease Agreement, the Company was to receive semi-annual lease payments.

At the time of acquisition, the rate of the lease was determined to be above market rates for similar leased assets and the Company recorded an intangible asset of $1,094,771 for this premium which is being amortized as contra-lease income over the remaining lease term. See Note 10 below for further information as to the intangible asset.

Debt

The Company assumed a note with an outstanding principal balance of $3.4 million. The debt was collateralized by the EIP transmission assets. The note matured on October 1, 2012 and accrued interest at an annual rate of 10.25 percent, with principal and interest payments due on a semi-annual basis. At the time of acquisition, the interest rate on the assumed debt was determined to be above market rates for similar debt and the Company recorded an intangible of $186,493 for this premium, which was fully amortized as of November 30, 2012, and was a contra-interest expense over the remaining debt term.

Pending Sale of Eastern Interconnect Project

On November 1, 2012 the Company entered into a definitive Asset Purchase Agreement (“Purchase Agreement”) with PNM to sell the Company’s 40 percent undivided interest in the EIP upon lease termination on April 1, 2015 for $7.68 million. Per the Purchase Agreement, PNM will also accelerate its remaining lease payments to the Company. Both lease payments due in 2013 were paid to the Company upon execution of the Purchase Agreement on November 1, 2012. In addition, per the Purchase Agreement, PNM paid $100,000 during the fourth quarter to compensate the Company for legal costs resulting from its filings with the Federal Energy Regulatory Commission. The three remaining lease payments due April 1, 2014, October 1, 2014 and April 1, 2015 will be paid on January 1, 2014 in full.

The Company changed its estimated residual value used to calculate depreciation of the EIP, which will result in higher depreciation expenses beginning in November of 2012 through the expiration of the lease in April 2015. The incremental depreciation amounts to approximately $393,000 per quarter.

The negotiation of the end-of-lease purchase option was prompted in part by a directive from the Federal Energy Regulatory Commission (“FERC”). FERC directed PNM, in consultation with the Company, to identify the party that would provide transmission service over the leased portion of the EIP beyond the lease expiration in 2015. The Purchase Agreement completes the response to FERC’s order.