IKONICS Corporation

2017 Annual Report

Through processes based in photochemistry, abrasive etching, chemical etching and other technologies, IKONICS participates in a diverse spectrum of markets. From traditional and high-tech screen printing, to decorative and industrial etching.

Issue link: http://ikonics.uberflip.com/i/955776

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Page 34 of 46

33 monthly, and matures on April 1, 2041. Including debt costs of approximately $139,000, the Loan's effective interest rate was 2.77% at December 31, 2017. As a result of the Tax Reform Act described in Note 2, the Company estimates the future effective interest rate will be approximately 3.23% beginning in March 2018, resulting in an approximate $15,000 increase in interest payments annually. The Loan is subject to mandatory purchase provisions, under which any owners of the Bonds (the "Owners") may tender the Bonds to the Issuer on April 1, 2021, which would result in the Company repaying the outstanding loan principal and any outstanding accrued and unpaid interest to the Issuer at that time. If in the event the Bonds are not repurchased on April 1, 2021, the Bonds shall be subject to the interest rate and redemption provisions set forth in the associated covenant agreement. Subject to limitations in the associated covenant agreement, the Company may cause a redemption of the Bonds, in whole or in part, in authorized denominations at the redemption prices set forth in the Financing Agreement, together with any accrued or unpaid interest to the date of redemption. The Bonds are also subject to redemption in whole in the event of certain extraordinary events related to the Project. The Company is subject to certain customary covenants set forth in the associated covenant agreement, including a requirement that the Company maintain a debt service coverage ratio as of the end of each calendar quarter of not less than 1.25 to 1.00 on a rolling four-quarter basis. The remaining principal payments required under the agreement for years ended December 31, and the current and long-term portion of the principal, are as follows: 2018 143,000 2019 146,000 2020 149,000 2021 152,000 2022 156,000 Thereafter 2,450,000 Total Principal 3,196,000 Less: Unamortized debt issuance costs 118,000 Less: Current portion 131,000 Long-term portion $ 2,947,000 In connection with the agreement, the Company incurred debt issuance costs of approximately $139,000 during 2016, which were deferred and are being amortized over the term of the Financing Agreement. Amortization of debt issuance costs was approximately $12,000 for 2017 and $9,000 for 2016 and is included in interest expense. Debt issuance costs of $106,000 and $12,000 are netted against long-term debt and current portion of long-term debt, respectively as of December 31, 2017. Amortization of debt costs is expected to be approximately $10,000 annually for each of the next five years. In addition to the $3,415,000 in indebtedness pursuant to the Loan, the Company has a bank line of credit providing for borrowings of up to $2,050,000, expiring on June 30, 2019 that bears interest at 1.8 percentage points over the 30-day LIBOR rate. The Company did not utilize this line of credit during 2017 or 2016 and there were no borrowings outstanding as of December 31, 2017 and 2016. There are no financial covenants related to the line of credit and the Company expects to obtain a similar line of credit when the current line of credit expires. Both the $3,415,000 financing pursuant to the Loan and the line of credit are collateralized by substantially all assets of the Company. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.

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