BANK LOANS AND NOTES PAYABLE

9 Months Ended

Mar. 31, 2012

Notes to Financial Statements

BANK LOANS AND NOTES PAYABLE

NOTE 9 – BANK LOANS AND NOTES PAYABLE

The Company's debt consisted of the following as of March 31, 2012 and June 30, 2011:

	March 31, 2012		June 30, 2011
Bank loans and notes payable-current	$	1,126,832	$	779,088
Bank loans and notes payable-long term		3,060,039		3,937,056
Total	$	4,186,871	$	4,716,144

On January 21, 2011 the Company entered into a promissory note for $1,350,000 with TE Holdings Group, LLC in connection with the acquisition of the net assets of Tier Electronics LLC.    The principal balance of the note is payable in three equal installments of $450,000 on the first, second and third anniversaries of the promissory note.  Interest accrues at a rate of 8% and is payable monthly. The promissory note is collateralized by the Company’s membership interest in its wholly owned subsidiary Tier Electronics LLC.  If the federal capital gains tax rate exceeds 15% and or the State of Wisconsin capital gains tax rate exceeds 5.425% at any time prior to the payment in full of the unpaid principal balance and accrued interest on the promissory note, then the principal amount of the promissory note (retroactive to January 21, 2011) shall be increased by an amount equal to the product of (a) the aggregate amount of federal and state capital gain realized by the Seller or Seller’s sole member, as applicable, in connection with the acquisition, multiplied by (b) the difference between (i) the combined federal and State of Wisconsin capital gains tax rate as of the date of calculation, minus (ii) the combined federal and State of Wisconsin capital gains tax rate of 20.425% as of January 21, 2011.  Any adjustment to the principal amount of the promissory note shall be effected by increasing the amount of the last payment due under the promissory note without affecting the next regularly scheduled payment(s) under the promissory note.  The loan was amended in January 2012 and the initial payment of $450,000 due on January 21, 2012 was deferred and paid in three equal installments of $150,000 on February 21, March 21 and April 7, 2012.  Interest continues to accrue at a rate of 8% and is payable monthly.  The outstanding principal balance was $1,050,000 and $1,350,000 at March 31, 2012 and June 30, 2011, respectively.

On April 7, 2010 the Company entered into a loan agreement for $1,300,000 with the Wisconsin Department of Commerce.  Payments of principal and interest under this loan are deferred until May 31, 2012.  The interest rate is 2%.  Payments of $22,800 per month are required starting June 1, 2012 with a final payment due on May 1, 2017.  Borrowings were not received until July 2010.  The loan is collateralized by the equipment purchased with the loan proceeds and substantially all assets of the Company not otherwise collateralized.  The Company is required to maintain and increase a specified number of employees, and the interest rate is increased in certain cases for failure to meet this requirement.  The outstanding principal balance was $1,300,000 at March 31, 2012 and June 30, 2011 respectively.

On July 1, 2009 the Company entered into a loan agreement to finance new production equipment.  The $156,000 bank note was collateralized by specific equipment, interest at 5.99%.  The note with a balance of $107,155 as of June 30, 2010 was paid off during June 2011.

On May 14, 2008 the Company entered into two loan agreements to refinance its building and land in Menomonee Falls, Wisconsin:

The first loan requires a fixed monthly payment of principal and interest at a rate of .25% below the prime rate, subject to a floor of 5% as of June 30, 2011 and 2010 with any principal balance due at maturity on June 1, 2018 and collateralized by the building and land.  The outstanding principal balance was $730,741 and $763,338 at March 31, 2012 and June 30, 2011, respectively.

The second loan is a secured promissory note guaranteed by the U.S. Small Business Administration, requiring monthly payments of principal and interest at a rate of 5.5% until May 1, 2028.   The outstanding principal balance was $772,406 and $794,074 at March 31, 2012 and June 30, 2011, respectively.  The loan is collateralized by a mortgage on the building and land.

On November 28, 2008 the Company entered into a loan agreement with a bank.  The note is collateralized by specific equipment, requiring monthly payments of $21,000 of principal and interest; rate equal to the prime rate subject to a floor of 4.25%; maturity date of December 1, 2013. The outstanding principal balance was $333,724 and $508,733 at March 31, 2012 and June 30, 2011, respectively.

An equipment loan with a balance of $48,900 as of June 30, 2010 was paid in full in November 2010.

Maximum aggregate annual principal payments for fiscal periods subsequent to March 31, 2012 are as follows:

2012	$	249,036
2013		1,022,832
2014		815,907
2015		346,461
2016		356,321
2017 and thereafter		1,396,314
	$	4,186,871

The loan agreements with the bank require the Company to meet certain operating ratios.  The Company was not in compliance with such covenants as of March 31, 2012, for which a waiver was obtained from the bank on June 27, 2011 which waived the covenants through June 29, 2012.