Subsequent Events

9 Months Ended

Jun. 30, 2018

Note 12 – Subsequent Events

On July 20, 2018, Xcede received a notice of termination from CBI, its collaboration partner with respect to the Xcede Patch currently under development. CBI asserted its termination rights under the Services Agreement dated November 16, 2016 and Development Agreement dated January 6, 2016 between Xcede and CBI, claiming that the results of a recent animal study showed that it is not commercially reasonable, in CBI’s assessment, to continue to the next development phase of the Xcede Patch. Upon a valid termination, CBI has no obligation to conduct further developmental activities with respect to the Xcede Patch, including any further in-kind funding under the Loan Agreement dated November 16, 2016 between Xcede and CBI. In addition, CBI has asserted that these study results trigger an immediate repayment of the $500,000 promissory note owed by Xcede to CBI under the Loan Agreement, which otherwise has a stated maturity of December 31, 2025. The Xcede promissory note is collateralized by a security interest which CBI has in all of Xcede’s intellectual property. While Xcede vigorously contests this assertion, at this time it is unclear how this matter will be resolved between Xcede and CBI. See Note 3 for additional information.

On July 31, 2018, the Company converted the outstanding balance on the equipment line of credit with Middlesex Savings Bank (“Middlesex”) of approximately $750,000, of which $281,000 was outstanding on June 30, 2018, into a five year term note with an interest rate of 5.66%. Additionally, on August 9, 2018, the Company’s equipment line of credit was renewed for $750,000 through April 30, 2019, at which time the outstanding balance will be converted into a five year term note. As part of the renewal process and due to the additional credit being extended to the Company, the Middlesex loan and security agreement was amended on August 9, 2018 to decrease the maximum debt leverage ratio covenant to 2.5x from 3.0x.

On both March 31, 2018 and June 30, 2018, the Company was in compliance with all but one of the financial covenants contained in the loan agreement with Middlesex that require us to maintain certain ratios of earnings before interest, taxes, depreciation and amortization to fixed charges and to total debt and senior debt. On August 9, 2018, Middlesex issued a waiver for these events, as this circumstance arose due to the timing of equipment purchases as the Company invests for the future. The current year forecast shows Dynasil quickly resolving this situation and coming back into compliance with this covenant for the end of the fiscal year.

The Company has evaluated subsequent events through the date the financial statements were released.