Convertible Notes Receivable

3 Months Ended

Oct. 31, 2011

Convertible Notes Receivable

Convertible Notes Receivable

Note 16.                 Convertible Notes Receivable

In February 2009, we invested an initial $200,000 in a senior subordinated convertible promissory note issued by BIOSAFE, Inc. (“BIOSAFE”), in connection with BIOSAFE’s grant to us of certain exclusive and non-exclusive license rights to BIOSAFE’s antimicrobial additive. BIOSAFE is the owner of a patented and proprietary antimicrobial agent that is built into the manufacturing of end-products to achieve long-lasting microbial protection on such end-products’ surface. As a result of BIOSAFE’s successful raising of a minimum incremental amount of cash following our investment, we invested an additional $300,000 in notes of BIOSAFE in January 2010 bringing the aggregate investment in BIOSAFE notes to $500,000, as obligated under our agreement with BIOSAFE. We are not obligated to invest any additional funds.

The maturity date of the notes, originally June 30, 2011, was extended to December 31, 2011 (“Maturity Date”). The extension was in consideration for (i) an increase in the interest rate of the notes from 8% to 12% per annum (commencing from the effective date of the amendment), (ii) decreasing the Discount Rate (described below) from 70% to 60% and (iii) certain other benefits to the note holders. The entire principal amount and accrued interest are automatically payable in a newly-created series of preferred stock issued upon the closing of BIOSAFE’s next round financing on or before the Maturity Date (“Next Round Financing”) based on a conversion formula.

If the Next Round Financing fails to occur by the Maturity Date, the notes, both principal and interest, will be payable in cash and the automatic conversion will no longer apply. Additionally, during the 30-day period following the Maturity Date, we may elect to convert the principal and all accrued interest into shares of common stock of BIOSAFE at a price per share equal to 60% of the fair market value (the “Discount Rate”). No further interest will accrue if we make such election. As of November 30, 2011, the Next Round Financing has not occurred.

In connection with our investment, we entered into a license agreement with BIOSAFE under which we will pay BIOSAFE a fixed royalty percentage of sales of our products containing BIOSAFE’s antimicrobial formulation. This investment, together with the accrued interest, is included within other assets in our Condensed Consolidated Balance Sheets at October 31, 2011 and July 31, 2011. At October 31, 2011, we evaluated this investment for potential impairment and determined that no impairment exists at such date since the carrying value of this investment approximates fair value.