Notes Payable - Related Party

3 Months Ended

Jul. 31, 2011

Related Party Disclosures

Related Party Transactions Disclosure [Text Block]

3. Notes Payable – Related Party

Effective November 1, 2008, the Company entered into an agreement, renewing and extending the term of the $13,815,000 notes payable due to G.S. Beckwith Gilbert, the Company’s significant shareholder and Chairman, from one year to three years with a maturity of November 1, 2011. Under the agreement, effective February 1, 2009 through October 31, 2011, the interest rate was increased from 4.5% to 9%, payable as follows: interest at the annual rate of 6%, payable in cash, and the remaining interest, at the annual rate of 3%, payable at the option of the Company in cash or “paid in kind” and added to the principal of the notes payable. Annual interest payments were due at October 31 of each fiscal year. During October 2009, the Company entered into an agreement to extend the interest payment due to Mr. Gilbert on October 31, 2009 to December 31, 2009. This interest payment was paid in full by the Company prior to the extended due date. During fiscal year 2009, Mr. Gilbert loaned the Company an additional $100,000, bringing the principal amount of the notes payable due to Mr. Gilbert to $13,915,000 on October 31, 2009.

In fiscal year 2010, Mr. Gilbert loaned the Company an additional $1,150,000, used in part to fund the prior fiscal year’s interest payment, increasing the principal balance of the notes payable to $15,065,000. During fiscal year 2010, the Company paid fiscal year 2010 interest to Mr. Gilbert of $914,000, representing the entire cash portion of the fiscal year 2010 interest due, thereby meeting the cash payment requirements of the loan agreement. Total cash payments for interest made to Mr. Gilbert in fiscal year 2010 were $2,037,000, including the remaining fiscal year 2009 interest payment. The balance of the fiscal year 2010 interest payable of $446,000 was accrued. In October 2010, the Company made a $250,000 principal payment, reducing the loan principal to $14,815,000, resulting in a total of $15,261,000 due to Mr. Gilbert on October 31, 2010.

On May 9, 2011, as a result of the transactions described in Note 4, “Private Placement” below, the Company’s outstanding notes payable to Mr. Gilbert were reduced by $10,000,000, and a new note payable was issued to Mr. Gilbert in the amount of $4,815,000. The new note payable bears a maturity date of November 1, 2014 and the annual interest rate is 9%, payable as follows: interest at the annual rate of 6% will be payable in cash, and the remaining interest, at the annual rate of 3%, payable at the option of the Company in cash or "paid in kind" and added to the principal of the note payable. Interest payments will be made annually on October 31 of each year. On September 6, 2011, the Company entered into an amendment reducing the annual interest rate of the note payable, as described in Note 5, “Subsequent Event” below.

The accrued interest balance on the notes payable was $287,000 as of July 31, 2011, resulting in a total of $5,102,000 due to Mr. Gilbert on July 31, 2011.

The Company has received a commitment from Mr. Gilbert, dated September 6, 2011, that if the Company, at any time, is unable to meet its obligations through September 6, 2012, Mr. Gilbert will provide the necessary continuing financial support to the Company in order for the Company to meet such obligations. Such commitment for financial support may be in the form of additional advances or loans to the Company, in addition to the deferral of principal and/or interest payments due on the existing loans, if deemed necessary. The note payable is secured by the Company’s assets.