5. NOTES PAYABLE

The Company in the course of funding its oil and gas and other activities, from time to time, enters into private notes primarily from its major shareholders.

 

		Jan 31, 2012				July 31, 2011
John Ryer, secured promissory note, dated December 8, 2010, due July 25, 2011, interest at 10%		$	—			$	20,000
William Stratton, secured by 10% of proceeds at Coquille Bay, dated June 6, 2011 due July 31, 2012, interest at 8%			—				50,000
Trinity Industries, secured promissory note, dated January 1, 2010, interest at 6%, collateralized by rail cars, currently in default.			500,139				597,484
Various unsecured promissory notes of e-biofuels, dated July 1, 2006 through September 11, 2009, interest varying from 5.5% to 14%			265,827				627,707
JAK Financial LLC, unsecured promissory note, dated December 7, 2011 due in 60 equal daily installments of$23,000			933,167				—
Mortgage note due a Bank, dated July 1, 2006, secured by facility and real estate of e-biofuels, variable interest rate at 5.125% as of July 31, 2011. Due in monthly payments through December of 2031.			1,540,026				1,560,589
Various equipment capital leases due to Stark Equipment, principal due from August 2011 to May 2014 plus interest at a variable rates range from 9.3% to 18.2% as of 7/31/11. Collateralized by the equipment.			61,537				384,662
Equipment note due a SBA, dated October 8, 2007, principal matures on November 2017 plus interest at a variable rate, 6.5% as of 7/31/11. Collateralized by certain equipment.			497,981				533,945
Term Note Payable to a Bank, debt due 1/31/12, monthly. Interest due monthly at 8%. Collateralized by the assets of e-biofuels.			1,535,283				2,079,944
Term Note Payable to a Bank, debt due 1/31/12, monthly. Interest due monthly at 9%. Collateralized by the assets of e-biofuels.			2,764,842				4,728,224
Term Note Payable to a Bank, debt due 1/31/12, monthly. Interest due monthly at 12%. Collateralized by the assets of e-biofuels.			3,065,042				3,115,167
Total			11,163,844				13,697,722
Less: current portion			9,201,912				11,162,479
Long-term notes payable			1,961,932				2,535,243

Current maturities of notes payable are as follows:

 

7/31/12			9,201,912
7/31/13			143,770
7/31/14			148,871
7/31/15			136,206
7/31/16			140,320
Thereafter			1,392,765
Total		$	11,163,844

 

Notes Payable – Related Party

 

		Jan 31, 2012				July 31, 2011
Officer—9.0% demand note			538,786				540,286
Employee—8% demand note			0				0
Total			538,786				540,286
Less Current			538,786				540,286
Long Term			0				0

DEBT

As of January 31, 2012, the Company currently has no debt facilities in place other than as noted in the tables above.

In connection with the acquisition of e-biofuels, LLC as a wholly-owned subsidiary, the Company assumed senior debt under the following facilities: (1.) First Merchants Bank, N.A. Term Loans; (2.) Cienna Capital/Small Business Administration (“SBA”) Mortgage Note; (3.) SBA facilitated equipment loan and (4.) certain Capital Leases for vehicles. The following is a description of the terms and conditions of each facility as of January 31, 2012:

First Merchants Bank, N.A. Term Loans: The Company has three term loans with First Merchants Bank: Term Loan A has a balance due of $1,535,283 and an interest rate of 8%; Term Loan B has a balance due of $2,764,842 with an interest rate of 9%; and Term Loan C has a balance due of $3,065,042 with an interest rate of 12%. The Term loans expired on January 31, 2012, are currently in default, and are secured by all of the assets of e-biofuels; the personal guarantees of Craig Ducey and Chad Ducey and by a corporate guarantee of the Company. The amended loan agreements call for a continuation fee of $50,000 per month commencing as of October 31, 2011. The Company must pay the fee for each month they have not paid the loan in full on or before the last day of the month.

Cienna Capital/ Small Business Administration Mortgage Note: The Company has a mortgage secured by the real estate and facility located in Middletown, Indiana. The balance due is $1,540,026 with an interest rate of 5.125%. The note is further secured by the personal guarantees of Mr. Craig Ducey and Mr. Chad Ducey. The term of the note is 25.5 years from December 2007.

SBA Equipment Loan: The Company obtained a loan for the purchase of equipment through the issuance of a Debenture in December 2007 in the original amount of $772,000. The balance due is $497,982 with an interest rate of 6.5%. The note is secured by certain equipment located at the Middletown, Indiana plant and further secured by the personal guarantees of Mr. Craig Ducey and Mr. Chad Ducey. The term of the note is 120 months.

Capital Leases: The Company has capital leases related to equipment used in the operation of the facility at Middletown, Indiana which total $61,537 and have varying market based interest rates and varying maturity dates. See the table above.

During the six months ended January 31, 2012, the Company entered into an agreement to assign capital leases to another party. Fixed assets with a net book value of $337,453 were assigned along with capital lease payable in the amount of $228,358. The Company recognized a net loss on the assignment transaction of $109,095.

JAK Financial: In December 2011, the Company entered into an unsecured promissory note with JAK Financial LLC to fund the payment of a Severance, Confidentiality and Nondisclosure Agreement with a former consultant (See Note 4 for further details). The original amount of the note was $1,200,000 and the effective interest rate on the note was 96.5%. The note was to be paid with 60 daily payments of $23,000 beginning on December 20, 2011 and continuing for the next 60 business days. The Company made 16 such payments before it was no longer able to do so. The balance due as of January 31, 2012 was $933,167 with accrued interest of $85,202. The company is currently in default on this note.

Other Debt: The Company has private notes and debt with various individuals, small companies and its former Chairman that totals $765,965 as of January 31, 2012. Generally this debt is unsecured and bear market interest rates and flexible terms.

Interest expense relating to the above notes was $1,644,961 and $803,063 for the six months ended January 31, 2012 and 2011, respectively.