Mortgages payable

12 Months Ended

Oct. 31, 2011

Note 15- Mortgages payable

In January 2010, K&K acquired land and a building for $1,525,000. The purchase was financed through mortgage notes payable as follows:

Mortgage payable with TFCU in the amount of $800,000. The loan bears interest at a rate per annum of 6.625% with minimum monthly payments due of principal and interest of $5,490 commencing March 1, 2010 through February 2020. The agreement includes a financial covenant which requires K&K to maintain a minimum debt service coverage ratio. The note is guaranteed by Cables Unlimited and collateralized by K&K’s real property. In November 2011, TFCU released Cables Unlimited as a guarantor on the mortgage. In addition, the mortgage was paid in full through a refinancing in January 2012. The outstanding balance of $777,155 has been classified as current in the consolidated balance sheets at October 31, 2011.

Second mortgage payable to a bank in the amount of $640,000 due in monthly installments of interest only of $3,485 from February 2010 through April 2010, at a rate per annum of 6.625%, and then due in monthly installments of $8,197 of principal and interest at 9.25% from May 2010 through September 2010. The mortgage was collateralized by K&K’s building. This mortgage was paid in full in September 2010 with the proceeds received through the financing noted below.

In September 2010, K&K entered into a mortgage payable with the Small Business Administration (“SBA”) in the amount of $643,000. The loan bears interest at a rate per annum of 4.605% with minimum monthly payments due of principal and interest of $4,236 commencing October 1, 2010 through September 2030. The note is guaranteed by Cables Unlimited and the former owner of Cables Unlimited and is collateralized by K&K’s real property. The note includes two provisions that require the prior written consent of the SBA for significant changes in ownership structure and/or the sale of property or assets not in the ordinary course of business. The former shareholder of Cables Unlimited did not obtain prior written consent prior to selling 100% of his interest. As a result, the loan was in default and was paid in full on November 7, 2011. The outstanding balance of $617,075 has been classified as current in the consolidated balance sheet at October 31, 2011.

The following summarizes the information relative to the outstanding VIE debt at October 31, 2011:

Note payable - TFCU	$	777,155
Note payable - SBA		617,075
Total	$	1,394,230

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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