Note 8 – Debt

As of September 30, 2016, the Company is in compliance with the financial covenants included in its outstanding indebtedness.

Senior Debt

On May 1, 2014, the Company entered into a loan and security agreement (the “Bank Loan Agreement”) and line of credit note (the “Note”) with Middlesex Savings Bank, pursuant to which it agreed to provide up to $4.0 million, subject to the availability restrictions described below, under a revolving line of credit loan to the Company for general corporate purposes. The Bank Loan Agreement provides that the loan expires on May 1, 2017, at which time all outstanding principal and unpaid interest shall become due and payable.

The Bank Loan Agreement and the Note are secured by (i) a security interest in substantially all of the Company’s personal property and (ii) sixty-five percent (65%) of Dynasil’s equity interests in its U.K. subsidiary, Hilger Crystals, Ltd. Under the Note, the borrowing base is determined monthly based on eligible billed and unbilled accounts receivable and eligible inventory. The interest rate under the Note is equal to the Prime Rate, but in no event less than 3.25%. As of September 30, 2016, there were no outstanding borrowings and the total availability under the Company’s line of credit was $4.0 million.

The Bank Loan Agreement also contains other terms, conditions and provisions that are customary for commercial lending transactions of this sort. The Bank Loan Agreement requires Dynasil, at the close of each fiscal quarter, to maintain a Debt Service Coverage ratio, as defined, of at least 1.20 to 1.00 on a trailing four quarter basis.

The Bank Loan Agreement provides for events of default customary for credit facilities of this type, including but not limited to non-payment, defaults on other debt, misrepresentation, breach of covenants, representations and warranties, insolvency and bankruptcy, change of management, as defined and the occurrence of a material adverse change, as defined.

The Bank Loan Agreement was amended on September 29, 2015 to permit the Company to repay up to $3 million of the subordinated debt owed Massachusetts Capital Resources Company (“MCRC”) and also provided the Company, if it met certain conditions, to convert up to $2.0 million of the advances under the line of credit to a fixed rate note with the principal amortizing monthly over a five year term.

On February 1, 2016, the Company entered into a $2.0 million Term Note with Middlesex Savings Bank. The Company converted $2.0 million of outstanding advances under the Company’s Middlesex Bank Line of Credit Note to a new five-year term note bearing interest at the fixed annual rate of 4.5%. Immediately following this conversion, the total availability under the Company’s line of credit increased by $2.0 million to $3.8 million. As a result of a material adverse clause in the Middlesex Term Note Agreement, all Middlesex outstanding debt is classified as short-term.

Subordinated Debt

On July 31, 2012, the Company entered into a Note Purchase Agreement (the “Agreement”) with Massachusetts Capital Resource Company (“MCRC”). Pursuant to the terms of the Agreement, the Company issued and sold to MCRC a $3.0 million subordinated note (the “Subordinated Note”) for a purchase price of $3.0 million.

The Subordinated Note initially matured on July 31, 2017, unless accelerated pursuant to an event of default. The Subordinated Note provided for interest at the rate of ten percent (10%) per annum, with interest to be payable monthly on the last day of each calendar month and principal payments of $130,000 beginning on September 30, 2015, and on the last day of each calendar month thereafter through and including July 31, 2017.

Effective October 1, 2015, in connection with a prepayment of $2.0 million of the Subordinated Note, MCRC agreed to adjust the interest rate to 6% per annum and to amend the principal repayment terms such that beginning on September 30, 2016, the Company will redeem monthly, without premium, $43,478 in principal amount of Subordinated Note together with all accrued and unpaid interest then due on the amount redeemed through and including July 31, 2018.

Other Debt

The Company’s RMD and Optometrics subsidiaries entered into equipment financing notes payable in connection with the purchase of certain equipment. Optometrics entered into equipment financing notes payable with two government entities for up to $0.5 million. The notes bear interest at 5% to 5.25% and are repayable in monthly installments over a five year period. RMD entered into equipment financing notes payable with a private equipment funding source. The notes bear interest at 8.7% to 14.59% and are repayable in monthly installments through July 2019.

Since its inception in October of 2013, the Company’s Xcede joint venture raised $2.9 million through the issuance of convertible notes to external investors, including certain officers and directors of the Company, which bear interest at 5%, due on demand after June 30, 2017. In November 2016, the notes and accrued interest were converted into 5,394,120 shares of preferred stock of Xcede at a 20% discount to the price per share of the investments the Company has committed to make in Xcede, in accordance with the provisions of the notes. See Note 3 – Xcede Technologies, Inc. Joint Venture.

Debt at September 30, 2016 and 2015 is summarized as follows:

	2016		2015
Note payable to Middlesex Savings Bank for revolving line of credit. The note expires May 2017 at which time any and all outstanding principal and unpaid interest shall become due and payable. The interest rate is equal to the Prime Rate, but in no event less than 3.25%. The rate at September 30, 2016 was 3.50% and the note is secured by an interest in substantially all of the Company's personal property and sixty-five percent of the Company's equity interests in its UK subsidiary, Hilger Crystals, Ltd.	$	-	$	1,455,000

Term note payable to Middlesex Savings Bank. The note payable to Middlesex is in monthly installments $37,000 for principal and interest through February, 2021. The interest rate is 4.52% and the note is secured by an interest in substantially all of the Company's personal property and sixty-five percent of the Company's equity interests in its UK subsidiary, Hilger Crystals, Ltd.		1,790,000		-

Note payable to Town of Ayer Industrial Development Finance Authority (Ayer) for an equipment line of credit made with Dynasil subsidiary Optometrics. The note payable to Ayer is in monthly installments totaling $17,000 per year and will be amortized over ten years with a balloon payment at five years from the date of the note. The interest rate is 5.00%. The note is secured by an interest in the equipment purchased with the line.		158,000		175,000

Note payable to Massachusetts Development Finance Agency (MBDC) for promissory note made with Dynasil subsidiary Optometrics. The note payable to MBDC is in monthly installments of $6,000 for principal and interest through March, 2019. The interest rate is 5.25%. The note is secured by an interest in substantially all of Optometric's personal property.		168,000		237,000

Convertible notes issued by Xcede, a 83% owned subsidiary, payable on demand after June 30, 2017. The interest rate is 5.00%. The notes were converted into equity in Xcede in November 2016 (See Note 3 - Xcede Technologies, Inc. Joint Venture), inclusive of the convertible notes and interest.		3,085,000		2,123,000

Subordinated note payable to Masschusetts Capital Resource Corporation in monthly installments of $5,000 through August 2016 for interest only, followed by monthly payments of $48,000 of interest and principal through July 2018. The interest rate is fixed at 6.00%.		957,000		1,000,000

Note payable to Leaf Capital Funding, LLC (Leaf) for equipment financing with Dynasil subsidiary RMD. The note payable to Leaf is in monthly installments of $7,000 for principal and interest through February 2018. The interest rate is 14.59%. The note is secured by an interest in the financed equipment.		100,000		-

Note payable to Leaf Capital Funding, LLC (Leaf) for equipment financing with Dynasil subsidiary RMD. The note payable to Leaf is in monthly installments of $1,000 for principal and interest through July 2019. The interest rate is 8.70%. The note is secured by an interest in the financed equipment.		43,000		-

Total Debt	$	6,301,000	$	4,990,000
Less current portion		(2,477,000)		(1,568,000)
Less convertible notes		(3,085,000)		(2,123,000)
Long term portion		739,000		1,299,000
Less unamortized debt issuance costs		(3,000)		(12,000)
Long term portion less unamortized debt issuance costs	$	736,000	$	1,287,000

The aggregate maturities of debt based on the payment terms of the agreement are as follows:

For the years ending on September 30:

2017		1,064,000
2018		963,000
2019		575,000
2020		429,000
2021		185,000
Thereafter		-
	$	3,216,000

The convertible notes issued by Xcede have been excluded from the aggregate maturities of debt above as they have been converted into equity in Xcede in November 2016. See Note 3 – Xcede Technologies, Inc. Joint Venture.

Unamortized debt issuance costs of $64,000 and $260,000 are net of accumulated amortization of $61,000 and $248,000 at September 30, 2016 and 2015, respectively. Amortization expense for the years ended September 30, 2016 and 2015 was $9,000 and $28,000, respectively, and included in interest expense. Future amortization will be $3,000 in fiscal year 2017.