(3) Related Party Transactions

During the three month periods ending July 31, 2013 and 2012, the Company purchased inventories for resale totaling approximately $858,000 and $1,225,000, respectively, from Sheerr Memory, LLC (“Sheerr Memory”). Sheerr Memory’s owner (“Mr. Sheerr”) is employed by the Company as the general manager of the acquired MMB business unit described in Note 3 and is an executive officer of the Company. When the Company acquired certain assets of MMB, it did not acquire any of its inventories. However, the Company informally agreed to purchase such inventory on an as needed basis, provided that the offering price was a fair market value price. The inventory acquired was purchased subsequent to the acquisition of MMB at varying times and consisted primarily of raw materials and finished goods used to produce products sold by the MMB business unit. Approximately $597,000 and $438,000 of accounts payable in the Company’s consolidated balance sheets as of July 31, 2013 and 2012, respectively, is payable to Sheerr Memory. Sheerr Memory offers the Company trade terms of net 30 days and all invoices are settled in the normal course of business. No interest is paid. The Company has made further purchases from Sheerr Memory subsequent to July 31, 2013 and management anticipates that the Company will continue to do so, although the Company has no obligation to do so.

On December 14, 2011, the Company entered into a Note and Security Agreement with Mr. Sheerr. The Note provides for secured financing of up to $2,000,000. The Company is obligated to pay monthly interest equal to 10% per annum calculated on a 360 day year of the outstanding loan balance. Principal is payable in sixty equal monthly installments, beginning on July 15, 2012. The Company may prepay any or all sums due under this Note at any time without penalty. At closing, the Company borrowed $1,500,000 under the Note and repaid in full the $1,500,000 due under a previous Note with Mr. Sheerr. The Company has borrowed the full $2,000,000 available under the Note agreement. Principal amounts due under the Note are $33,333 per month which began on July 15, 2012. For the fiscal year ending April 30, 2013, the principal amount due under the Note was $333,333. In each of four fiscal periods from May 1, 2013 through April 30, 2017, the principal amounts due under this obligation are $400,000. In the fiscal period from May 1, 2017 through June 30, 2017, the principal amount due on this obligation is $66,667. Until fully paid, the Note is subordinated to the Company’s existing senior lender and Mr. Sheerr must approve any change in the Company’s existing senior lender. This provision may limit the Company’s ability to raise additional capital from such financing. Interest payable to Mr. Sheerr on July 31, 2013 was $13,490. Interest expense recorded for Mr. Sheerr in the first quarter of fiscal 2014 was $40,889. Interest expense recorded for Sheerr Memory in the first quarter of fiscal 2013 was $50,824. Interest payable to Sheerr Memory at July 31, 2012 was $16,935.