8.	LONG-TERM DEBT

April

2016,

the Company entered into a financing agreement (the “Financing Agreement”) under which the Duluth Economic Development Authority (the “Issuer”) agreed to sell

$3,415,000

of its Tax Exempt Industrial Revenue Bonds, Series

2016

(IKONICS Project) (the “Bonds”) to Wells Fargo Bank, National Association (the “Bank”), and the Bank agreed to lend to the Company the proceeds received from the sale of the Bonds (the “Loan”).

The closing of the sale of the Bonds occurred on

April

29,

2016.

The proceeds from the Loan were used to finance the construction of a

27,300

-square foot building as well as related equipment for use in the Company’s manufacture of sound deadening technology used in the aerospace industry and products consisting of etched composites, ceramics, glass and silicon wafers, to be located in Duluth, Minnesota (the “Project”).

The Loan requires monthly payments of approximately

$18,000,

including interest. The Loan bears interest at a rate of

2.60%

per year, subject to change based upon changes to the maximum federal corporate tax rate, and matures on

April

2041.

Including debt costs of approximately

$139,000,

the Loan’s effective interest rate was

3.23%

December 31, 2019.

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

1.00

on a rolling

four

-quarter basis. As of

December 31, 2019

the Company was

not

in compliance with the debt service coverage ratio covenant

but has obtained a waiver for the non-compliance. There is

certainty that a waiver can be obtained in the future if similar violations occur. The Company amended the covenant terms in

February

2020

to change the debt service coverage ratio calculation from a rolling quarterly calculation to an annual calculation beginning

December 31, 2020.

If th

e Company has

future violations of its covenants, and is unable to obtain appropriate waivers, it could have a significant adverse effect on the Company's liquidity. The Company believes that any adverse effect of such a possible outcome is mitigated by it strong working capital including cash, cash equivalents, and short-term investments of

$3.2

million along with the Company's

$2.0

million available line of credit as of

December 31

2019.

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:

2020		144,000
2021		148,000
2022		151,000
2023		156,000
2024		160,000
Thereafter		2,158,000
Total Principal		2,917,000
Less: Unamortized debt issuance costs		96,000
Less: Current portion		133,000
Long-term portion	$	2,688,000

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

$11,000

for

2019

and

$12,000

for

2018

and is included in interest expense. Debt issuance costs of

$85,000

and

$11,000

are netted against long-term debt and current portion of long-term debt, respectively as of

December 31, 2019.

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

August 30, 2021

that bears interest at

1.8

percentage points over the

-day LIBOR rate. The Company did

not

utilize this line of credit during

2019

2018

and there were

borrowings outstanding as of

December 31, 2019

and

2018.

There are

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.