10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from____________  to_____________

Commission file number 001-37568

Edge Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

Delaware	26-4231384
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

300 Connell Drive, Suite 4000, Berkeley Heights, NJ 07922

(Address of principal executive offices)

(800) 208-3343

(Registrant’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller Reporting Company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐  No ☒

The number of shares of the registrant’s Common Stock, par value $0.00033 per share, outstanding as of October 28, 2016 was 28,917,419.

Table of Contents

Edge Therapeutics, Inc.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2016

INDEX

			Page
Part I —	Financial Information
	Item 1.	Financial Statements (Unaudited):
		Balance Sheets	3
		Statements of Operations and Comprehensive Loss	4
		Statements of Cash Flows	5
		Notes to Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
	Item 4.	Controls and Procedures	22
Part II —	Other Information		23
	Item 1.	Legal Proceedings	23
	Item 1A.	Risk Factors	23
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
	Item 3.	Defaults Upon Senior Securities	23
	Item 4.	Mine Safety Disclosures	23
	Item 5.	Other Information	23
	Item 6.	Exhibits	23
SIGNATURE			24
EXHIBIT INDEX			25

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PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EDGE THERAPEUTICS, INC.

Balance Sheets

	September 30, 2016			December 31, 2015
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	112,784,622		$	130,189,421
Prepaid expenses and other current assets		359,863			1,081,084
Total current assets		113,144,485			131,270,505
Property and equipment, net		3,291,873			2,766,992
Other assets		142,870			55,161
Total assets	$	116,579,228		$	134,092,658
LIABILITIES AND STOCKHOLDERS'  EQUITY
LIABILITIES
Current liabilities:
Accounts payable	$	1,963,350		$	2,584,249
Accrued expenses		2,290,249			3,734,348
Short term debt		-			2,271,111
Total current liabilities		4,253,599			8,589,708
Noncurrent liability:
Long term debt		14,817,482			3,025,423
STOCKHOLDERS'  EQUITY
Common stock, $0.00033 par value, 75,000,000 shares authorized at September 30, 2016 and December 31, 2015, 28,915,226 shares and 28,810,845 shares issued and outstanding at September 30, 2016 and  December 31, 2015, respectively		9,754			9,720
Additional paid-in capital		189,058,164			184,721,777
Accumulated deficit		(91,559,771	)		(62,253,970	)
Total stockholders' equity		97,508,147			122,477,527
Total liabilities and stockholders' equity	$	116,579,228		$	134,092,658

See accompanying notes to the financial statements.

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EDGE THERAPEUTICS, INC.

Statements of Operations and Comprehensive Loss

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Operating expenses:
Research and development expenses	$	6,724,503		$	6,507,972		$	18,046,572		$	12,574,455
General and administrative expenses		3,552,289			1,976,888			10,526,775			5,052,983
Total operating expenses		10,276,792			8,484,860			28,573,347			17,627,438
Loss from operations		(10,276,792	)		(8,484,860	)		(28,573,347	)		(17,627,438	)
Other income (expense):
Warrant remeasurement		-			(1,433,502	)		-			(1,879,823	)
Other expense		(163,463	)		-			(163,463	)		-
Interest income		56,082			1,333			148,272			2,810
Interest expense		(375,089	)		(213,021	)		(717,263	)		(615,047	)
Net loss and comprehensive loss		(10,759,262	)		(10,130,050	)		(29,305,801	)		(20,119,498	)
Cumulative dividend on Series C , C-1 and C-2  convertible preferred stock		-			(1,827,568	)		-			(4,257,083	)
Net loss attributable to common stockholders	$	(10,759,262	)	$	(11,957,618	)	$	(29,305,801	)	$	(24,376,581	)
Loss per share attributable to common stockholders basic and diluted	$	(0.37	)	$	(7.08	)	$	(1.02	)	$	(14.44	)
Weighted average common shares outstanding basic and diluted		28,896,941			1,688,475			28,848,842			1,688,475

See accompanying notes to the financial statements.

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EDGE THERAPEUTICS, INC.

Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2016			2015
Cash flows from operating activities:
Net loss	$	(29,305,801	)	$	(20,119,498	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		4,029,326			1,566,562
Warrant remeasurement		-			1,879,823
Depreciation expense		60,331			38,360
Loss on disposal of fixed assets		102,789			-
Amortization of debt discount		60,206			79,400
Amortization of debt issuance costs		63,699			-
Non-cash interest expense		82,357			28,667
Changes in assets and liabilities:
Prepaid expenses and other assets		633,513			78,814
Accounts payable		(399,708	)		(126,415	)
Accrued expenses		(1,469,109	)		1,604,432
Net cash used in operating activities		(26,142,397	)		(14,969,855	)
Cash flows from investing activities:
Purchases of property and equipment		(339,410	)		(799,424	)
Net cash used in investing activities		(339,410	)		(799,424	)
Cash flows from financing activities:
Proceeds from issuance of debt		11,022,286			3,000,000
Proceeds from exercise of stock options		293,988			-
Proceeds from exercise of warrants		13,107			-
Payments for issuance costs		(544,773	)		(474,357	)
Payments for debt issuance costs		(219,042	)		-
Repayment of debt		(1,488,558	)		-
Proceeds from issuance of preferred stock, net of issuance costs		-			52,394,571
Net cash provided by financing activities		9,077,008			54,920,214
Net (decrease) increase in cash		(17,404,799	)		39,150,935
Cash and cash equivalents at beginning of period		130,189,421			13,728,972
Cash and cash equivalents at end of period	$	112,784,622		$	52,879,907
Supplemental disclosure of cash flow information:
Cash paid for:
Interest	$	443,464		$	412,717
Supplemental cash flow information:
Deferred issuance costs included in accrued expenses and accounts payable	$	-		$	552,410
Non-cash financing costs	$	-		$	175,114
Accrued capital expenditures included in accrued expenses and accounts payable	$	348,591		$	576,839

See accompanying notes to the financial statements.

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Edge Therapeutics, Inc.

Notes to Financial Statements (Unaudited)

Note 1 - Nature of Operations

Edge Therapeutics, Inc. (the “Company”) is a clinical-stage biotechnology company that discovers, develops and seeks to commercialize novel, hospital-based therapies capable of transforming treatment paradigms in the management of acute, life-threatening neurological conditions. The Company’s product candidates utilize its proprietary, programmable, biodegradable polymer-based development platform (the Precisa Platform ^TM), and a novel delivery mechanism that seeks to enable targeted and sustained drug exposure and avoid the dose-limiting side effects associated with the current standard of care.

From the Company’s inception, it has devoted substantially all of its efforts to business planning, engaging regulatory, manufacturing and other technical consultants, acquiring operating assets, planning and executing clinical trials and raising capital. The Company’s future operations are highly dependent on a combination of factors, including (i) the success of its research and development, (ii) the development of competitive therapies by other biotechnology and pharmaceutical companies, and, ultimately, (iii) regulatory approval and market acceptance of the Company’s proposed future products.

On October 6, 2015, the Company completed an initial public offering (the “IPO”) of 8,412,423 shares of its common stock which included 1,097,272 shares of common stock issued upon the exercise in full by the underwriters of their over-allotment option at a price of $11.00 per share for aggregate gross proceeds of approximately $92.5 million. The Company received approximately $82.8 million in net proceeds after deducting underwriting discounts and commissions and other offering costs of approximately $9.7 million. Immediately prior to the closing of the IPO, all of the Company’s outstanding shares of convertible preferred stock, including shares issued for accrued dividends, automatically converted into 18,566,856 shares of common stock at the applicable conversion ratio then in effect. There are no shares of preferred stock outstanding. In connection with the IPO, the Company amended and restated its Seventh Amended and Restated Certificate of Incorporation to change the authorized capital stock to 75,000,000 shares designated as common stock and 5,000,000 shares designated as preferred stock, all with a par value of $0.00033 per share.

Note 2 - Summary of Significant Accounting Policies

(A) Unaudited interim financial statements:

The interim balance sheet at September 30, 2016, the statements of operations and comprehensive loss for the three and nine months ended September 30, 2016 and 2015, and cash flows for the nine months ended September 30, 2016 and 2015 are unaudited. The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), and following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of its financial information. The results of operations for the nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016 or for any other future annual or interim period. The balance sheet as of December 31, 2015 included herein was derived from the audited financial statements as of that date. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2015.

(B) Use of estimates:

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(C) Significant risks and uncertainties:

The Company’s operations are subject to a number of factors that may affect its operating results and financial condition. Such factors include, but are not limited to: the results of clinical testing and trial activities of the Company’s product candidates, the Company’s ability to obtain regulatory approval to market its products, the Company’s intellectual property, competition from products manufactured and sold or being developed by other companies, the price of, and demand for, Company products if approved for sale, the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, and the Company’s ability to raise capital.

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The Company currently has no commercially approved products and there can be no assurance that the Company’s research and development programs will be successfully commercialized. Developing and commercializing a product requires significant time and capital and is subject to regulatory review and approval as well as competition from other biotechnology and pharmaceutical companies. The Company operates in an environment of rapid change and is dependent upon the continued services of its employees and consultants and obtaining and protecting its intellectual property.

(D) Cash equivalents and concentration of cash balance:

The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits.

(E) Research and development:

Costs incurred in connection with research and development activities are expensed as incurred. These costs include licensing fees to use certain technology in the Company’s research and development projects as well as fees paid to consultants and various entities that perform certain research and testing on behalf of the Company.

Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data, such as patient enrollment, clinical site activations or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred.

(F) Stock-based compensation:

The Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award.

Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including, for stock options, the expected life of the option, and expected stock price volatility. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.

The expected life of stock options was estimated using the “simplified method,” as the Company has limited historical information to develop reasonable expectations about future exercise patterns and employment duration for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate the fair value of options grants. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option.

The estimation of the number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised.

(G) Net loss per common share:

Basic and diluted net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted average common shares outstanding during the period. For all periods presented, the common shares underlying the preferred stock, common stock options and warrants have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted average shares outstanding used to calculate both basic and diluted loss per common share are the same.

The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding as they would be anti-dilutive:

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	As of September 30,
	2016		2015
Stock options to purchase Common Stock		5,166,511		4,227,022
Convertible preferred stock to purchase Common Stock		-		17,497,815
Warrants to purchase Common Stock		544,705		99,401
Warrants to purchase Series C Preferred Stock		-		338,534
Warrants to purchase Series C-1 Preferred Stock		-		332,480
Total		5,711,216		22,495,252

(H) Recently adopted standards:

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842).” The new standard requires organizations that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. This standard is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact of adoption.

In March 2016, the FASB issued ASU No. 2016-09 which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Public companies will be required to adopt this standard in annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period provided that the entire standard is adopted. The Company does not expect adoption of the ASU will have a material impact on the financial statements based upon preliminary evaluation.

Note 3 – Fair Value of Financial Instruments

There were no transfers between Levels 1, 2, or 3 during 2016 or 2015.

	Fair Value Measurements at Reporting Date Using
	Total		Quoted Prices in Active Markets (Level 1)		Quoted Prices in Inactive Markets (Level 2)		Significant Unobservable Inputs (Level 3)
As of September 30, 2016: (unaudited)
Cash and cash equivalents	$	112,784,622	$	112,784,622	$	-	$	-
As of December 31, 2015:
Cash and cash equivalents	$	130,189,421	$	130,189,421	$	-	$	-

Prior to our IPO, which closed on October 6, 2015, Level 3 instruments consisted of the Company’s Series C and Series C-1 convertible preferred stock warrant liability and common stock warrant liability. The fair values of the outstanding warrants were measured using the Black-Scholes option-pricing model (Note 5). Inputs used to determine estimated fair value of the warrant liabilities include the estimated fair value of the underlying stock at the valuation date, the estimated term of the warrants, risk-free interest rates, expected dividends and the expected volatility of the underlying stock. The significant unobservable inputs used in the fair value measurement of the warrant liabilities were the fair value of the underlying stock at the valuation date and the estimated term of the warrants. Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement. After the IPO, the warrants were no longer liability classified and were no longer considered Level 3 instruments.

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Note 4 – Accrued Expenses

Accrued expenses and other liabilities consist of the following:

	As of September 30,		As of December 31,
	2016		2015
Accrued research and development costs	$	377,294	$	1,874,126
Accrued professional fees		440,799		258,568
Accrued compensation		1,300,793		1,510,430
Accrued other		169,385		56,835
Deferred rent		1,978		34,389
Total	$	2,290,249	$	3,734,348

Note 5 - Stock Options

The Company has three equity compensation plans: the 2010 Equity Incentive Plan, the 2012 Equity Incentive Plan and the 2014 Equity Incentive Plan (the “Plans”). Originally, the Company was able to grant up to 548,206 and 1,096,411 shares of Common Stock as both incentive stock options (“ISOs”) and nonqualified stock options (“NQs”) under the 2010 Equity Incentive Plan and the 2012 Equity Incentive Plan, respectively. In 2013, the Company’s stockholders approved an increase to 1,279,146 shares authorized for issuance under the 2010 Equity Incentive Plan. In 2014, the Board of Directors of the Company (the “Board”) approved an increase to 1,350,412 shares authorized for issuance under the 2010 Equity Incentive Plan.

In 2014, the Company’s stockholders approved the 2014 Equity Incentive Plan pursuant to which the Company may grant up to 1,827,351 shares as both ISOs and NQs (the “Plan Limit”). However, on January 1, 2015 and each January 1 thereafter prior to the termination of the 2014 Equity Incentive Plan, pursuant to the terms of the 2014 Equity Incentive Plan, the Plan Limit was and shall be increased by the lesser of (x) 4% of the number of shares of Common Stock outstanding as of the immediately preceding December 31 and (y) such lesser number as the Board of Directors may determine in its discretion. On January 1, 2015 and January 1, 2016 the Plan Limit was increased to 1,894,890 and 3,047,323 shares, respectively.

Pursuant to the terms of the Plans, ISOs have a term of ten years from the date of grant or such shorter term as may be provided in the option agreement. Unless specified otherwise in an individual option agreement, ISOs generally vest over a four year term and NQs generally vest over a three or four year term. Unless terminated by the Board, the Plans shall continue to remain effective for a term of ten years or until such time as no further awards may be granted and all awards granted under the Plans are no longer outstanding.

On November 16, 2015, the Company issued non-qualified options to purchase a total of 80,000 shares of common stock to W. Bradford Middlekauff, its newly appointed Senior Vice President, General Counsel and Secretary. The award was granted outside of the Company’s 2014 Equity Incentive Plan and vests over four years with 25% vesting on October 30, 2016, which is one year following Mr. Middlekauff’s date of hire, and the remaining 75% vesting in 36 equal monthly installments thereafter, subject to Mr. Middlekauff’s continued service to the Company through each vesting date and subject to acceleration or forfeiture upon the occurrence of certain events as set forth in Mr. Middlekauff’s option agreement and employment agreement. The foregoing grant award was made pursuant to the NASDAQ inducement grant exception as a material component of Mr. Middlekauff’s employment compensation.

On July 1, 2016, the Company issued non-qualified options to purchase a total of 85,000 shares of common stock to Harry J. Sacks, its newly appointed Vice President, Clinical Development. The award was granted outside of the Company’s 2014 Equity Incentive Plan and vests over four years with 25% vesting on June 20, 2017, which is one year following Dr. Sack’s date of hire, and the remaining 75% vesting in 36 equal monthly installments thereafter, subject to Dr. Sack’s continued service to the Company through each vesting date and subject to acceleration or forfeiture upon the occurrence of certain events as set forth in Dr. Sack’s option agreement. The foregoing grant award was made pursuant to the NASDAQ inducement grant exception as a material component of Dr. Sack’s employment compensation.

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 The Company’s stock-based compensation expense was recognized in operating expense as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
	(unaudited)				(unaudited)
Stock-Based Compensation
Research and development	$	567,452	$	273,782	$	1,609,683	$	702,322
General and administrative		665,579		338,096		2,419,643		864,240
Total	$	1,233,031	$	611,878	$	4,029,326	$	1,566,562

The fair value of options and warrants granted during the three and nine months ended September 30, 2016 and 2015 was estimated using the Black-Scholes option valuation model utilizing the following assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
	Weighted Average			Weighted Average			Weighted Average			Weighted Average
	(unaudited)						(unaudited)
Volatility		71.80	%		79.80	%		77.96	%		79.80	%
Risk-Free Interest Rate		1.19	%		1.59	%		1.38	%		1.74	%
Expected Term in Years		6.07			6.08			6.02			6.08
Dividend Rate		0.00	%		0.00	%		0.00	%		0.00	%
Fair Value of Option on Grant Date	$	6.78		$	7.51		$	5.24		$	5.22

The following table summarizes the number of options outstanding and the weighted average exercise price:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Options outstanding at December 31, 2015		4,302,267		$	5.19
Granted		1,061,400			7.81
Exercised		(63,639	)		4.62
Forfeited		(133,517	)		5.79
Options outstanding at September 30, 2016		5,166,511		$	5.72		7.78	$	24,994,623
Vested and expected to vest at September 30, 2016		5,077,867		$	5.68		7.76	$	24,747,792
Exercisable at September 30, 2016		2,810,161		$	4.22		6.94	$	17,557,732

At September 30, 2016 there was approximately $10,353,101 of unamortized stock compensation expense, which is expected to be recognized over a remaining average vesting period of 1.39 years.

Note 6 – Income Taxes

In assessing the realizability of the net deferred tax assets, the Company considers all relevant positive and negative evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of the gross deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards. There was a full valuation allowance against the net deferred tax assets as of September 30, 2016 and December 31, 2015.

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At December 31, 2015, the Company had federal net operating loss (“NOL”) carryforwards of approximately $47.5 million which expire between 2029 and 2035. At December 31, 2015, the Company had federal research and development credits carryforwards of approximately $0.8 million and an orphan drug credit carryover of approximately $4.0 million. The Company may be subject to the net operating loss utilization provisions of Section 382 of the Internal Revenue Code. The effect of an ownership change would be the imposition of an annual limitation on the use of NOL carryforwards attributable to periods before the change. The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Company’s capital during a specified period prior to the change, and the federal published interest rate. Although the Company has not completed an analysis under Section 382 of the Code, it is likely that the utilization of the NOLs would be limited.

At December 31, 2015, the Company had approximately $23.3 million of NJ NOL’s which expire between 2030 and 2035. At December 31, 2015, the Company had approximately $0.3 million of the State of New Jersey research development credits carryforwards.

Entities are also required to evaluate, measure, recognize and disclose any uncertain income tax provisions taken on their income tax returns. The Company has analyzed its tax positions and has concluded that as of December 31, 2015, there were no uncertain positions. The Company’s U.S. federal and state net operating losses have occurred since its inception in 2009 and as such, tax years subject to potential tax examination could apply from that date because the utilization of net operating losses from prior years opens the relevant year to audit by the IRS and/or state taxing authorities. Interest and penalties, if any, as they relate to income taxes assessed, are included in the income tax provision. There was no income tax related interest and penalties included in the income tax provision for the nine months ended September 30, 2016 and 2015.

Note 7 – Commitments and Contingencies

Evonik

The Company entered into an agreement with SurModics Pharmaceuticals, Inc. (“SurModics”) in October 2010 for the exclusive worldwide licensing of certain technology, patent rights and know-how rights related to the production of EG-1962, the Company’s lead product candidate (the “Evonik Agreement”). This agreement was later transferred to Evonik Industries AG (“Evonik”) when it purchased substantially all the assets of SurModics.

Pursuant to the Evonik Agreement, in exchange for the license, the Company agreed to make milestone payments totaling up to $14.75 million upon the achievement of certain development, regulatory and sales milestones detailed in the Evonik Agreement. The Company paid $0.25 million upon execution of the Evonik Agreement.  In August 2016, the Company paid a milestone of $1.0 million after the first patient in the Phase 3 clinical trial of EG-1962 was dosed.  In addition, the Evonik Agreement calls for the Company to pay royalties on certain products based on a mid-single digit percentage of net sales. The Evonik Agreement provides for the reduction of royalties in certain limited circumstances.

In September 2015, the Company and Evonik entered into Amendment No. 1 to the Evonik Agreement. This amendment clarified the Company’s obligations to pay Evonik certain royalty and milestone payments in respect of certain products whether or not manufactured by Evonik and removed the Company’s obligation to negotiate exclusively with Evonik for Phase 3 and commercial supply of EG-1962. The term of the Evonik Agreement will continue until the expiration of the Company’s obligation to pay royalties to Evonik. Either party may terminate the Evonik Agreement due to material breach by the other party. Evonik may terminate the Evonik Agreement or convert it to a non-exclusive license, in either case upon giving the Company written notice, if the Company fails to use commercially reasonable efforts to hit certain specified development, regulatory and commercial milestones.

Employment Agreements

The Company has entered into employment agreements with each of its executives. The agreements generally provide for, among other things, salary, bonus and severance payments. The employment agreements provide for between 12 months and 18 months of severance benefits to be paid to an executive (as well as certain potential bonus, COBRA and equity award benefits), subject to the effectiveness of a general release of claims, if the executive terminates his or her employment for good reason or if the Company terminates the executive’s employment without cause. The continued provision of severance benefits is conditioned on each executive’s compliance with the terms of the Company’s confidentiality and invention and assignment agreement as well as his or her release of claims.

Leases

Effective December 13, 2013 the Company entered into a 63 month lease for approximately 8,000 square feet of office space in Berkeley Heights, New Jersey. On February 18, 2016, the Company entered into a new 63 month lease for approximately 20,410 square feet of office space within the same office complex in Berkeley Heights, New Jersey. The terms of the new lease were structured so that the termination date of the December 13, 2013 lease coincided with the commencement date of the new lease on August 13, 2016. As a result of the lease termination, the Company wrote off $67,118 of leasehold improvements.

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Rent expense is recognized on a straight line basis where there are escalating payments, and was approximately $82,163 and $58,271 for the three months ended September 30, 2016 and 2015, respectively and $196,322 and $149,371 for the nine months ended September 30, 2016 and 2015, respectively.

The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of September 30, 2016:

Year ended December 31,
2016 (remaining)	$	148,799
2017		592,256
2018		602,461
2019		604,541
2020		603,371
2021 and after		530,384
Total minimum payments required	$	3,081,812

Note 8 - Debt

On August 28, 2014, the Company entered into a loan and security agreement with Hercules Technology Growth Capital, Inc., (the “Original Loan Agreement”). The Original Loan Agreement provided funding for an aggregate principal amount of up to $10,000,000 in three separate term loans. The first term loan was funded on August 28, 2014 in the amount of $3,000,000. The second tranche of $3,000,000 was funded on January 29, 2015. Both the first and second tranches were due to mature on March 1, 2018. The Company elected not to draw the third tranche of $4.0 million, the availability of which expired on June 30, 2015. Initially, the loans bore interest at a rate per annum equal to the greater of (i) 10.45% or (ii) the sum of (a) 10.45% plus (b) the prime rate (as reported in The Wall Street Journal) minus 4.50%. On April 6, 2015, the second milestone event was met where the Company received gross cash proceeds in an amount greater than $55,000,000 which lowered the base interest rate on all loans to the greater of (i) 9.95% or (ii) the sum of (a) 9.95% plus (b) the prime rate (as reported in The Wall Street Journal ) minus 4.50%. The Company was required to make interest-only payments on each term loan through September 2015.

Commencing in October 2015, the term loans began amortizing in equal monthly installments of principal and interest over 30 months. On the maturity date or the date the loans otherwise became due, the Company was also required to pay additional interest equal to 1.5% of the total amounts funded under the Original Loan Agreement.

On August 1, 2016, the Company entered into an Amended and Restated Loan and Security Agreement (the “Amended Loan Agreement”) with Hercules Capital, Inc., formerly known as Hercules Technology Growth Capital, Inc., pursuant to which the Company may borrow a term loan up to $20,000,000.  The Amended Loan Agreement amends and restates the Original Loan Agreement.  At closing, the Company borrowed $15,000,000 available for draw under the Amended Loan Agreement (and received proceeds net of the current amount outstanding under the Original Loan Agreement, fees and expenses). The Amended Loan Agreement allows the Company, at its option, to drawn down a second tranche of $5 million on or before June 15, 2017.  Amounts drawn under the Amended Loan Agreement bear interest at a rate per annum equal to the greater of either (i) the sum of (a) 9.15%, plus (b) the prime rate as reported in The Wall Street Journal minus 4.50% or (ii) 9.15%. The effective interest rate at September 30, 2016 was 9.15%.  Pursuant to the terms of the Amended Loan Agreement, the Company will make interest-only payments for 18 months, and then repay the principal balance of the loan in 24 equal monthly payments of principal and interest through the scheduled maturity date on February 3, 2020. The period of interest-only payments and the maturity date may be extended if the Company satisfies certain conditions as described in the Amended Loan Agreement.

Pursuant to the Original Loan Agreement, in March 2018, the Company must pay additional interest of $90,000, which is equal to 1.5% of the total amounts funded under the Original Loan Agreement.  On the maturity date or the date the term loan otherwise becomes due, under the Amended Loan Agreement the Company must also pay additional interest of $900,000, which is equal to 4.5% of the total amounts available under such agreement.  In addition, if the Company prepays the term loan during the first year following the initial closing, the Company must pay a prepayment charge equal to 2% of the amount being prepaid, if the Company prepays the term loan during the second year following the closing, the Company must pay a prepayment charge equal to 1% of the amount being prepaid, and if the Company prepays the term loan after the second year following the closing, the Company must pay a prepayment charge equal to 0.5% of the amount being prepaid.

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The term loan is secured by substantially all of the Company’s assets, other than intellectual property, which is the subject of a negative pledge. Under the Amended Loan Agreement, the Company is subject to certain customary covenants that limit or restrict its ability to, among other things, incur additional indebtedness, investments, distributions, transfer assets, make acquisitions, grant any security interests, pay cash dividends, repurchase its common stock, make loans, or enter into certain transactions without prior consent. The Amended Loan Agreement contains several events of default, including, among others, payment defaults, breaches of covenants or representations, material impairment in the perfection of Hercules’ security interest or in the collateral and events related to bankruptcy or insolvency. Upon an event of default, Hercules may declare all outstanding obligations immediately due and payable (along with a prepayment charge), a default rate of an additional 5.0% may be applied to the outstanding loan balances, and Hercules may take such further actions as set forth in the Amended Loan Agreement, including collecting or taking such other action with respect to the collateral pledged in connection with the Amended Loan Agreement.

Future principal payments on the note as of September 30, 2016 were as follows:

Year Ending in December 31:	(000's)
remaining 2016	$	-
2017		-
2018		5,912
2019		7,716
2020		1,372
	$	15,000

The estimated fair value of the debt (categorized as a Level 2 liability for fair value measurement purposes) is determined using current market factors and the ability of the Company to obtain debt at comparable terms to those that are currently in place. The Company believes the estimated fair value at September 30, 2016 approximates the carrying amount.

Note 9- Subsequent Events

Subsequent events have been evaluated through the date these financial statements were issued.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”) and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015 (the “Annual Report”) filed with the SEC on March 8, 2016. Except as otherwise indicated herein or as the context otherwise requires, references in this Quarterly Report to “Edge,” “the Company,” “we,” “us” and “our” refer to Edge Therapeutics, Inc.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described under the heading “Risk Factors” contained in the Annual Report. In light of these risks, uncertainties and assumptions, actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements in this quarterly report and you should not place undue reliance on these forward-looking statements.

These forward-looking statements may include, but are not limited to, statements about:

• our plans to manufacture, develop and commercialize our product candidates;

• our ability to complete our ongoing clinical trials and to advance our product candidates into additional clinical trials, including pivotal clinical trials, and successfully complete such clinical trials;

• regulatory developments in the United States and foreign countries;

• our ability to obtain and maintain intellectual property protection for our proprietary assets;

• the size of the potential markets for our product candidates and our ability to serve those markets;

• the rate and degree of market acceptance of our product candidates for any indication once approved;

• the performance of our third-party manufacturers and contract research organizations;

• the success of competing products that are or become available for the indications that we are pursuing;

• the loss of key scientific or management personnel;

• our ability to obtain additional financing;

• the accuracy of our estimates regarding expenses, future revenues and capital requirements;

• our use of the net proceeds from our initial public offering (“IPO”) of common stock and future financings, if any;

• our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”); and

• other risks and uncertainties, including those listed under Part II, Item 1A. Risk Factors.

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.  Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

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Overview

We are a clinical-stage biotechnology company that discovers, develops and seeks to commercialize novel, hospital-based therapies capable of transforming treatment paradigms in the management of acute, life-threatening neurological conditions. Our initial product candidates target rare, acute, life-threatening neurological conditions for which we believe the approved existing therapies, if any, are inadequate.

On October 6, 2015, we completed the IPO of 8,412,423 shares of our common stock which included 1,097,272 shares of common stock issued upon the exercise in full by the underwriters of their over-allotment option at a price of $11.00 per share for aggregate gross proceeds of approximately $92.5 million. We received approximately $82.8 million in net proceeds after deducting underwriting discounts and commissions and other offering costs of approximately $9.7 million. Immediately prior to the closing of the IPO, all of the outstanding shares of convertible preferred stock, including shares for accrued dividends, automatically converted into 18,566,856 shares of common stock at the applicable conversion ratio then in effect. There are no shares of preferred stock outstanding. In connection with the IPO, we amended and restated our Seventh Amended and Restated Certificate of Incorporation to change the authorized capital stock to 75,000,000 shares designated as common stock and 5,000,000 shares designated as preferred stock, all with a par value of $0.00033 per share.

We believe EG-1962, our lead product candidate, can fundamentally improve patient outcomes and transform the management of aneurysmal subarachnoid hemorrhage, or aSAH, which is bleeding around the brain due to a ruptured brain aneurysm. A single dose of EG-1962 delivers a high concentration of nimodipine, the current standard of care, directly to the brain with sustained drug exposure over 21 days. EG-1962 utilizes our proprietary, programmable, biodegradable polymer-based development platform, or our Precisa Platform^TM, a novel delivery mechanism that enables targeted and sustained drug exposure while potentially avoiding the dose-limiting side effects associated with currently available formulations of nimodipine. EG-1962 has been granted orphan drug designation and Fast Track designation by the U.S. Food and Drug Administration (the “FDA”) for the treatment of patients with subarachnoid hemorrhage, and orphan drug designation by the European Commission for the treatment of patients with aneurysmal subarachnoid hemorrhage.

In July 2015, the 90-day outcome data were available for analysis for our Phase 1/2 clinical study of EG-1962 in North America, which we refer to as our NEWTON North America study. The NEWTON North America study met its primary and secondary endpoints of safety, tolerability, maximum tolerated dose (“MTD”) and pharmacokinetics. The results of the principal exploratory endpoint from the 90-day follow-up available for patients in the NEWTON North America study cohorts demonstrated that 60% (27 of 45) of patients treated with EG-1962 experienced a favorable clinical outcome (a score of 6 − 8 on the extended Glasgow Outcome Scale, or GOSE) versus only 28% (5 of 18) of patients treated with the standard of care, oral nimodipine. At final assessment, of the 45 patients treated with EG-1962 in NEWTON North America, 29% (13 of 45) of patients across 17 sites achieved the highest clinical outcome score (GOSE = 8, Upper Good Recovery) versus only 6% (1 of 18) of patients treated with the standard of care, oral nimodipine.

In July 2016, we commenced the Phase 3 NEWTON 2 trial.  NEWTON 2 is a Phase 3, multi-center, multi-national, randomized, double-blind, placebo-controlled, parallel-group study comparing the efficacy and safety of EG-1962 to standard of care oral nimodipine in adults with an aneurysmal subarachnoid hemorrhage resulting from a ruptured brain aneurysm.  The primary endpoint of the NEWTON 2 trial is the proportional difference in the rate favorable clinical outcome (a score of 6 – 8 on the GOSE) between EG-1962 and the standard of care oral nimodipine.  The key secondary endpoint is the subject’s score on the Montreal Cognitive Assessment scale, or MoCA.  We expect the results of an interim analysis to be completed in early 2018 with the results of the full study to be available in late 2018.

We have also initiated a study of the safety, pharmacokinetics and clinical outcomes of EG-1962 administered directly into the basal cisterns of the brain in patients with aSAH who do not receive an external-ventricular drain (“EVD”) but remain at risk for delayed neurological complications following surgical repair of a ruptured aneurysm. This study is a US multicenter, randomized, controlled, open-label study in which nine patients are expected to receive EG-1962 via intracisternal administration and three patients are expected to receive standard of care oral nimodipine.  We expect data to be available from this study during 2017.

In addition to EG-1962, we are using our Precisa^TM development platform to develop additional product candidates targeting other acute, serious conditions where limited or no effective therapies currently exist. We are developing our second product candidate, EG-1964, as a potential prophylactic treatment in the management of chronic subdural hematoma, or cSDH, to prevent recurrent bleeding on the surface of the brain. A cSDH is a liquefied hematoma that has accumulated on the surface of the brain in an area referred to as the subdural space and is often caused by minor head trauma. Following neurosurgical intervention to drain the hematoma, recurrent bleeding occurs in up to 30% of cSDH patients, requires repeat neurosurgical intervention and is associated with risks of serious complications, including death. There are currently no approved pharmacological treatments that reduce the risk of recurrent bleeding after cSDH. By way of a single administration at the time of the initial neurosurgical intervention, we are formulating EG-1964 to deliver a high concentration of aprotinin, a pancreatic trypsin inhibitor, directly to the subdural space with sustained drug exposure over 21 to 28 days. Aprotinin preserves the ability for blood to clot by inhibiting plasminogen, a naturally produced enzyme that breaks down blood clots, thereby limiting recurrent bleeding. If approved, we believe that EG-1964 can become the standard of care as a prophylactic treatment in the management of cSDH to prevent recurrent bleeding. We intend to complete formulation development activities and commence non-clinical studies of EG-1964 in 2017.  Based on the results of those studies, we may submit an Investigational New Drug Application, or IND, for EG-1964 in 2018.

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From our inception in 2009, we have devoted substantially all of our efforts to business planning, engaging regulatory, manufacturing and other technical consultants, developing operating assets, planning and executing clinical trials and raising capital.

We have never generated any revenue and have incurred net losses in each year since inception. Our net losses were $28.1 million for the year ended December 31, 2015 and $29.3 million for the nine months ended September 30, 2016.  As of September 30, 2016, we had an accumulated deficit of approximately $91.6 million. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future as we continue to develop and conduct clinical trials, and seek regulatory approval for, our product candidates, as well as to scale-up manufacturing capabilities, protect and expand our intellectual property portfolio and hire additional personnel. Our net losses may fluctuate significantly from quarter to quarter and year to year.

We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years. We initiated our Phase 3 program for EG-1962 for the treatment of aSAH in July 2016. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution.

Furthermore, as a result of the IPO in 2015, we expect to incur additional costs associated with operating as a public company. Accordingly, at least until we can generate significant revenue from product sales, we will seek to fund our operations through public or private equity or debt financings or other sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all and could be forced to relinquish valuable rights to our product candidates, or grant licenses on terms that are not favorable to us in strategic partnerships and alliances and licensing arrangements. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and ability to develop our product candidates.

As of September 30, 2016, we had $112.8 million in cash and cash equivalents.

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KEY COMPONENTS OF OUR STATEMENT OF OPERATIONS

Revenue

We have not generated any revenues from commercial product sales and do not expect to generate any such revenue in the near future.  We may generate revenue in the future from a combination of research and development payments, license fees and other upfront payments or milestone payments.

Research and Development

Research and development expenses include employee-related expenses, licensing fees to use certain technology in our research and development projects, costs of acquiring, developing and manufacturing clinical trial materials, as well as fees paid to consultants and various entities that perform certain research and testing on our behalf. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued expenses. Costs incurred in connection with research and development activities are expensed as incurred.

We expect our research and development expenses to increase for the foreseeable future as we advance our product candidates through preclinical studies and clinical trials. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. Successful development of future product candidates from our research and development programs is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each future product candidate and are difficult to predict. We anticipate we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the scientific and clinical success of each product candidate as well as ongoing assessments as to the commercial potential of our product candidates. We will need to raise additional capital and may seek collaborations in the future in order to advance our various product candidates. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates or one or more of our other research and development initiatives. We also could be required to seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves. Our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy.

Results of Operations

Comparison of the Three Months Ended September 30, 2016 and 2015

The following table summarizes the results of our operations for the three months ended September 30, 2016 and 2015:

	Three Months Ended September 30,						Increase (Decrease)
	2016			2015			$			%
	(in thousands)
Operating expenses:
Research and development expenses	$	6,725		$	6,508		$	217		3	%
General and administrative expenses		3,552			1,977			1,575		80	%
Total operating expenses		10,277			8,485			1,792		21	%
Loss from operations		(10,277	)		(8,485	)		(1,792	)	21	%
Warrant remeasurement		-			(1,434	)		1,434		-100	%
Other Expense		(163	)		-			(163	)	100	%
Interest income (expense), net		(318	)		(211	)		(107	)	51	%
Net loss and comprehensive loss	$	(10,758	)	$	(10,130	)	$	(628	)	6	%

Research and Development Expenses

Research and development (R&D) expenses increased to $6.7 million in the three months ended September 30, 2016 from $6.5 million for the same period in 2015. The increase of $0.2 million in 2016 was primarily attributable to an increase in internal R&D personnel and departmental costs of $0.6 million offset by a decrease in external expenses for clinical trial costs of $0.4 million.

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General and Administrative Expenses

General and administrative expenses increased to $3.6 million in the three months ended September 30, 2016 from $2.0 million for the same period in 2015. The $1.6 million increase was due primarily to increases in personnel costs of $0.3 million, stock based compensation of $0.3 million, facilities expense of $0.3 million, professional fees of $0.4 million and $0.3 million additional fees associated with being a public company.

Warrant Remeasurement

Warrant remeasurement reflects adjustments to fair value of our liability-classified warrants. As of December 31, 2015 we no longer had liability classified warrants.

Other Expense

Other expense reflects the loss on asset disposal representing the book value of leasehold improvements at our former location due to the Company’s relocation of its corporate office and debt issuance costs on our new loan.

Interest Income and Expense, net

Interest income and expense, net increased primarily due to interest expense for our loan offset by an increase in interest income from interest earned on our cash and cash equivalents.

Comparison of the Nine Months Ended September 30, 2016 and 2015

The following table summarizes the results of our operations for the nine months ended September 30, 2016 and 2015:

	Nine Months Ended September 30,						Increase (Decrease)
	2016			2015			$			%
	(in thousands)
Operating expenses:
Research and development expenses	$	18,047		$	12,574		$	5,473		44	%
General and administrative expenses		10,527			5,053			5,474		108	%
Total operating expenses		28,574			17,627			10,947		62	%
Loss from operations		(28,574	)		(17,627	)		(10,947	)	62	%
Warrant remeasurement		-			(1,880	)		1,880		-100	%
Other Expense		(163	)		-			(163	)	100	%
Interest income (expense), net		(568	)		(611	)		43		-7	%
Net loss and comprehensive loss	$	(29,305	)	$	(20,118	)	$	(9,187	)	46	%

Research and Development Expenses

Research and development (R&D) expenses increased to $18.0 million in the nine months ended September 30, 2016 from $12.6 million for the same period in 2015. The increase of $5.4 million in 2016 was primarily attributable to an increase in external expenses for clinical trials of $3.1 million and additional internal R&D personnel and departmental costs of $2.3 million.

General and Administrative Expenses

General and administrative expenses increased to $10.5 million in the nine months ended September 30, 2016 from $5.1 million for the same period in 2015. The $5.4 million increase was due primarily to increases in personnel costs of $0.9 million, stock based compensation of $1.6 million, facilities expense of $0.6 million, professional fees of $1.6 million and $0.7 million additional fees associated with being a public company.

Warrant Remeasurement

Warrant remeasurement reflects adjustments to fair value of our liability-classified warrants. As of December 31, 2015 we no longer had liability classified warrants.

Other Expense

Other expense reflects the loss on asset disposal representing the book value of leasehold improvements at our former location due to the Company’s relocation of its corporate office and debt issuance costs on our new loan.

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Interest Income and Expense, net

Interest income and expense, net decreased primarily due to interest expense for our loan offset by an increase in interest income from interest earned on our cash and cash equivalents.

Liquidity and Capital Resources

Since our inception and through September 30, 2016, we have raised aggregate net proceeds of $185.5 million to fund our operations, primarily $82.8 million from the sale of common stock, $87.5 million from the sale of preferred stock and $15.0 million from a loan. As of September 30, 2016, we had total cash and cash equivalents of $112.8 million as compared to $130.2 million as of December 31, 2015. The $17.4 million decrease in total cash, net of proceeds from new debt of $10.8 million, was due primarily to funding of operations, which mainly consisted of research and development activities, general and administrative expenses and payments for debt principal reduction offset by proceeds from the issuance of debt.

On October 6, 2015, we completed the IPO of our common stock for aggregate gross proceeds of approximately $92.5 million. We received approximately $82.8 million in net proceeds after deducting underwriting discounts and commissions and other offering costs of approximately $9.7 million. In connection with the IPO, all preferred stock was converted into common stock. There is no preferred stock outstanding as of September 30, 2016, nor are there any preferred stock dividends accrued or payable.

Hercules Loan and Security Agreement

On August 28, 2014, we entered into a loan and security agreement with Hercules Technology Growth Capital, Inc., (the “Original Loan Agreement”). The Original Loan Agreement provided funding for an aggregate principal amount of up to $10.0 million in three separate term loans. The first term loan was funded on August 28, 2014 in the amount of $3.0 million. The second tranche of $3.0 million was funded on January 29, 2015. Both the first and second tranches were due to mature on March 1, 2018. We elected not to draw the third tranche of $4.0 million, the availability of which expired on June 30, 2015. Initially, the loans bore interest at a rate per annum equal to the greater of (i) 10.45% or (ii) the sum of (a) 10.45% plus (b) the prime rate (as reported in The Wall Street Journal ) minus 4.50%. On April 6, 2015, the second milestone event was met where we received gross cash proceeds in an amount greater than $55.0 million which lowered the base interest rate on all loans to the greater of (i) 9.95% or (ii) the sum of (a) 9.95% plus (b) the prime rate (as reported in The Wall Street Journal ) minus 4.50%. We were required to make interest-only payments on each term loan through September 2015.

Commencing in October 2015, the term loans began amortizing in equal monthly installments of principal and interest over 30 months. On the maturity date or the date the loans otherwise became due, we are also required to pay additional interest equal to 1.5% of the total amounts funded under the Original Loan Agreement.

On August 1, 2016, we entered into an Amended and Restated Loan and Security Agreement (the “Amended Loan Agreement”) with Hercules Capital, Inc., formerly known as Hercules Technology Growth Capital, Inc., pursuant to which we may borrow a term loan up to $20.0 million.  The Amended Loan Agreement amends and restates the Original Loan Agreement.  At closing, we borrowed $15.0 million available for draw under the Amended Loan Agreement (and received proceeds net of the current amount outstanding under the Original Loan Agreement, fees and expenses). The Amended Loan Agreement allows us, at our option, to draw down a second tranche of $5 million on or before June 15, 2017.  Amounts drawn under the Amended Loan Agreement bear interest at a rate per annum equal to the greater of either (i) the sum of (a) 9.15%, plus (b) the prime rate as reported in The Wall Street Journal minus 4.50% or (ii) 9.15%. The effective interest rate at September 30, 2016 was 9.15%.  Pursuant to the terms of the Amended Loan Agreement, we will make interest-only payments for 18 months, and then repay the principal balance of the loan in 24 equal monthly payments of principal and interest through the scheduled maturity date on February 3, 2020. The period of interest-only payments and the maturity date may be extended if we satisfy certain conditions as described in the Amended Loan Agreement.

Pursuant to the Original Loan Agreement, in March 2018, we must pay additional interest of $90,000 which is equal to 1.5% of the total amounts funded under the Original Loan Agreement.  On the maturity date or the date the term loan otherwise becomes due, under the Amended Loan Agreement we must also pay additional interest of $900,000, which is equal to 4.5% of the total amounts available under such agreement.  In addition, if we prepay the term loan during the first year following the initial closing, we must pay a prepayment charge equal to 2% of the amount being prepaid, if we prepay the term loan during the second year following the closing, we must pay a prepayment charge equal to 1% of the amount being prepaid, and if we prepay the term loan after the second year following the closing, we must pay a prepayment charge equal to 0.5% of the amount being prepaid.

The term loan is secured by substantially all of our assets, other than intellectual property, which is the subject of a negative pledge. Under the Amended Loan Agreement, we are subject to certain customary covenants that limit or restrict its ability to, among other things, incur additional indebtedness, investments, distributions, transfer assets, make acquisitions, grant any security interests, pay cash dividends, repurchase its common stock, make loans, or enter into certain transactions without prior consent. The Amended Loan Agreement contains several events of default, including, among others, payment defaults, breaches of covenants or representations, material impairment in the perfection of Hercules’ security interest or in the collateral and events related to bankruptcy or insolvency. Upon an event of default, Hercules may declare all outstanding obligations immediately due and payable (along with a prepayment charge), a default rate of an additional 5.0% may be applied to the outstanding loan balances, and Hercules may take such further actions as set forth in the Amended Loan Agreement, including collecting or taking such other action with respect to the collateral pledged in connection with the Amended Loan Agreement.

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Cash flows

The following table shows a summary of our cash flows for each of the periods indicated (in thousands):

	Nine Months Ended September 30,
	2016			2015
Net cash used in operating activities	$	(26,143	)	$	(14,970	)
Net cash used in investing activities		(339	)		(799	)
Net cash provided by financing activities		9,077			54,920
Net (decrease) increase in cash	$	(17,405	)	$	39,151

Net Cash Used in Operating Activities

Net cash used in operating activities was $26.1 million and $15.0 million for the nine months ended September 30, 2016 and 2015, respectively. The increase in cash used in operating activities of $11.1 million was primarily due to an increase in our research and development expenses as well as general and administrative expenses.

Net Cash Used in Investing Activities

Net cash used in investing activities relates entirely to purchases of property and equipment.

Net Cash Provided by Financing Activities

Net cash provided by financing activities of $9.1 million for the nine months ended September 30, 2016 was primarily due to the receipt of net proceeds from the issuance of debt of $11.0 million less payments of our existing debt obligations of $1.5 million and deferred offering costs of $0.5 million.

Net cash provided by financing activities of $54.9 million for the nine months ended September 30, 2015 was due to the net proceeds from the issuance of preferred stock of $52.4 and issuance of debt of $3.0 million less debt issuance costs of $0.5 million.

Operating Capital Requirements

We expect that our primary uses of capital will continue to be third-party clinical research, development and manufacturing services, compensation and related expenses, laboratory and related supplies, legal and other regulatory expenses and general administrative costs. We believe that our existing cash and cash equivalents as of September 30, 2016, will be sufficient to meet our anticipated cash requirements through the full data readout of our current planned Phase 3 pivotal trial of EG-1962 for the treatment of aSAH which is anticipated to occur in 2018.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our future capital requirements are difficult to forecast and will depend on many factors, including:

• the initiation, progress, timing, costs and results of the clinical trials for our product candidates to meet regulatory approval, particularly whether the FDA requires us to complete a second Phase 3 trials for EG-1962 or requires changes to the anticipated design of our Phase 3 program, such as changes in the required control arm of any such trial;

• the outcome of planned interactions with the FDA and other non-U.S. health authorities that may alter our proposed Phase 3 program for EG-1962 that is required to meet the standards of a marketing authorization approval in aSAH;

• the clinical development plans we establish for these product candidates;

• the number and characteristics of product candidates that we develop or may in-license;

• the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;

• the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates;

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• the effect of competing technological and market developments;

• the cost and timing of completion of commercial-scale outsourced manufacturing activities; and

• the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own.

Please see the section titled “Risk Factors” in the Annual Report for additional risks associated with our substantial capital requirements.

Until such time, if ever, that we generate product revenue, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings and research collaboration and license agreements. We may be unable to raise capital or enter into such other arrangements when needed or on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed may have a negative impact on our financial condition and our ability to develop our product candidates.

Contractual Obligations and Commitments

The following is a summary of our contractual obligations as of the date indicated:

As of  September 30, 2016	Total		Less than one year		1-3 Years		3-5 Years		More than 5 Years
	(in thousands)
Debt principal and interest	$	18,464	$	347	$	16,727	$	1,390	$	-
Operating lease obligations		3,082		149	$	1,799		1,134		-
Total contractual obligations	$	21,546	$	496	$	18,526	$	2,524	$	-

This table above does not include (a) any milestone payments which may become payable to third parties under our license agreements as the timing and likelihood of such payments are not known, or (b) contracts that are entered into in the ordinary course of business which are not material in the aggregate in any period presented above.

Purchase Commitments

We have no material non-cancelable purchase commitments with service providers as we have generally contracted on a cancelable, purchase order basis.

Milestone and Royalty-based Commitments

Pursuant to the Evonik Agreement, in exchange for the license, the Company agreed to make milestone payments totaling up to $14.75 million upon the achievement of certain development, regulatory and sales milestones detailed in the Evonik Agreement. We paid $0.25 million upon execution of the agreement.  In August 2016, we paid a milestone of $1.0 million after we dosed the first patient in the Phase 3 clinical trial of EG-1962.  In addition, the Evonik Agreement calls for the Company to pay royalties on certain products based on a mid-single digit percentage of net sales. The Evonik Agreement provides for the reduction of royalties in certain circumstances.

Critical Accounting Polices and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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We consider our critical accounting policies and estimates to be related to stock-based compensation. There have been no material changes to our critical accounting policies and estimates during the nine months ended September 30, 2016 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

Off-balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

ITEM 3: Quantitative and Qualitative Disclosure about Market Risk

The primary objectives of our investment activities are to ensure liquidity and to preserve principal, while at the same time maximizing the income we receive from our cash and marketable securities without significantly increasing risk. As of September 30, 2016, we had cash equivalents of $112.8 million that were held in a non-interest-bearing money operating account and an institutional U.S. Treasury money market fund. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term maturities of our cash equivalents and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents. To minimize the risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in institutional market funds that are comprised of U.S. Treasury and Treasury backed repurchase agreements.

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out, under the supervision of and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15 (e)) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this report. Based on the evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that the information required to be disclosed by us in the reports we file or submit under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) identified in connection with the evaluation identified above that occurred during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We currently are not a party to any material litigation or other material legal proceedings.

ITEM 1A. RISK FACTORS.

There have been no material changes from our risk factors as previously reported in our Annual Report on Form 10-K for the year ended December 31, 2015.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Sales of Unregistered Securities

There were no unregistered sales of the Company’s equity securities during the quarter ended September 30, 2016.

Use of Proceeds

On October 6, 2015, we issued and sold 8,412,423 shares of our Common Stock, including 1,097,272 shares of our Common Stock sold pursuant to the underwriters’ full exercise of their option to purchase additional shares, for aggregate gross offering proceeds of $92.5 million at a price to the public of $11.00 per share. All of the shares issued and sold in the IPO were registered under the Securities Act pursuant to a Registration Statement on Form S-1, as amended (File No. 333-206416), which was declared effective by the SEC on September 30, 2015 and a Registration Statement on Form S-1 (File No. 333-207217) filed pursuant to Rule 462(b) of the Securities Act.  The IPO commenced on September 30, 2015 and did not terminate until the sale of all of the shares offered.

We received aggregate net proceeds from our IPO of approximately $82.8 million, after deducting underwriting discounts and commissions and other offering expenses payable by us.

We intend to use our net proceeds from the IPO for the overall development of our product candidates. We have invested the net proceeds of the IPO in short-term, investment-grade, interest-bearing securities. There has been no material change in our planned use of the net proceeds from the IPO described in the IPO prospectus.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

A list of exhibits filed with this Quarterly Report or incorporated herein by reference is set forth in the Exhibit Index immediately following the signature page of this report and is incorporated into this Item 6 by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Edge Therapeutics, Inc.
November 1, 2016	By: /s/ Brian A. Leuthner
	Brian A. Leuthner
	President and Chief Executive Officer
	(Principal Executive Officer)
November 1, 2016	By: /s/ Andrew J. Einhorn
	Andrew J. Einhorn
	Chief Financial Officer
	(Principal Financial Officer)

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EXHIBIT INDEX

Exhibit Number	Exhibit Description
10.1	Amended and Restated Loan and Security Agreement, dated as of August 1, 2016, by and between the Company and Hercules Capital, Inc. (filed herewith).
31.1	Principal Executive Officer’s Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Principal Financial Officer’s Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1(1)	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2(1)	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

(1) This certification is deemed not filed for purpose of section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

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EX-10.1

Exhibit 10.1

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is made and dated as of August 1, 2016 and is entered into by and among EDGE THERAPEUTICS, INC., a Delaware corporation (the “Borrower”), the several banks and other financial institutions or entities from time to time parties to this Agreement (collectively, referred to as “Lender”) and HERCULES CAPITAL, INC. formerly known as Hercules Technology Growth Capital, Inc., a Maryland corporation, in its capacity as administrative agent and collateral agent for itself and Lender (in such capacity, “Agent”).

RECITALS

A.          WHEREAS, Borrower, Lender, and Agent are party to that certain Loan and Security Agreement dated as of August 28, 2014 (the “Original Closing Date”), as amended by that certain Amendment No. 1 to Loan and Security Agreement dated as of January 23, 2015 (as the same may have been amended, modified, supplemented or restated and in effect from time to time, the “Existing Loan and Security Agreement”).

B.           WHEREAS, immediately prior to the effectiveness of this Agreement, there are Term Loan Advances outstanding under the Existing Loan and Security Agreement in the aggregate principal amount of $3,977,714.17 (the “Existing Term Loan Advances”);

C.           WHEREAS, Borrower desires to obtain financing to increase the aggregate amount of the Term Loan Advances up to an aggregate principal amount of $20,000,000 (inclusive of the Existing Term Loan Advances) for general corporate purposes permitted pursuant to the terms and conditions of this Agreement;

D.           WHEREAS, the parties hereto desire to amend and restate the Existing Loan and Security Agreement upon the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree that the Existing Loan and Security Agreement shall be amended and restated in its entirety to read as follows (it being agreed that this Agreement shall not be deemed to evidence or result in a novation or repayment or reborrowing of the Existing Term Loan Advances under the Existing Loan and Security Agreement):

SECTION 1. DEFINITIONS AND RULES OF CONSTRUCTION

1.1          Unless otherwise defined herein, the following capitalized terms shall have the following meanings:

“2016 End of Term Charge” shall have the meaning assigned to such term in Section 2.6.

“Account Control Agreement(s)” means any agreement entered into by and among Agent, Borrower and a third party Bank or other institution (including a Securities Intermediary) in which Borrower maintains a Deposit Account or an account holding Investment Property and which grants Agent a perfected first priority security interest in the subject account or accounts.

“ACH Authorization” means the ACH Debit Authorization Agreement in substantially the form of Exhibit I, which account numbers shall be redacted for security purposes if and when filed publicly by Borrower.

“ACH Failure” means the failure of the Automated Clearing House (ACH) system to effect a transfer of the funds due to an administrative error in connection with the institution and execution of the ACH Authorization.

“Advance(s)” means a Term Loan Advance.

“Advance Date” means the funding date of any Advance.

“Advance Request” means a request for an Advance submitted by Borrower to Agent in substantially the form of Exhibit A, which account numbers shall be redacted for security purposes if and when filed publicly by Borrower.

“Affiliate” means (a) any Person that directly or indirectly controls, is controlled by, or is under common control with the Person in question, (b) any Person directly or indirectly owning, controlling or holding with power to vote ten percent (10%) or more of the outstanding voting securities of another Person, (c) any Person ten percent (10%) or more of whose outstanding voting securities are directly or indirectly owned, controlled or held by another Person with power to vote such securities, or (d) any Person related by blood or marriage to any Person described in subsection (a), (b) or (c) of this paragraph.  As used in the definition of “Affiliate,” the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

“Agent” has the meaning given to it in the preamble to this Agreement.

“Agreement” means this Amended and Restated Loan and Security Agreement, as amended, restated, supplemented or otherwise modified from time to time.

“Amortization Date” means March 1, 2018; provided however, if the First Interest Only Extension Conditions are satisfied, then September 1, 2018; and provided further however, if the Second Interest Only Extension Conditions are satisfied then March 1, 2019.

“Assignee” has the meaning given to it in Section 11.13.

“Board” means Borrower’s board of directors.

“Borrower Products” means all products, software, service offerings, technical data or technology currently being designed, manufactured or sold by Borrower or which Borrower intends to sell, license, or distribute in the future including any products or service offerings under development, collectively, together with all products, software, service offerings, technical data or technology that have been sold, licensed or distributed by Borrower since its incorporation.

“Business Day” means any day other than Saturday, Sunday and any other day on which banking institutions in the State of California are closed for business.

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“Cash” means all cash, cash equivalents and liquid funds.

“Change in Control” means any reorganization, recapitalization, consolidation or merger (or similar transaction or series of related transactions) of Borrower, sale or exchange of outstanding shares (or similar transaction or series of related transactions) of Borrower in which the holders of Borrower’s outstanding shares immediately before consummation of such transaction or series of related transactions do not, immediately after consummation of such transaction or series of related transactions, retain shares representing more than fifty percent (50%) of the voting power of the surviving entity of such transaction or series of related transactions (or the parent of such surviving entity if such surviving entity is wholly owned by such parent), in each case without regard to whether Borrower is the surviving entity, provided that none of the following shall constitute a Change in Control: (i) any consolidation or merger effected exclusively to change the domicile of Borrower, or (ii) the sale and issuance by Borrower it its equity securities to investors in a bona fide equity financing.

“Claims” has the meaning given to it in Section 11.10.

“Closing Date” means the date of this Agreement.

“Collateral” means the property described in Section 3.

“Confidential Information” has the meaning given to it in Section 11.12.

“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any Indebtedness, lease, dividend, letter of credit or other obligation of another, including any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant services issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business.  The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

 “Copyright License” means any written agreement granting any right to use any Copyright or Copyright registration, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.

“Copyrights” means all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof, or of any other country.

3

“Deposit Accounts” means any “deposit accounts,” as such term is defined in the UCC, and includes any checking account, savings account, or certificate of deposit.

“Domestic Subsidiary” means any Subsidiary that is not a Foreign Subsidiary.

“Due Diligence Fee” means $25,000, which fee is due to Lender on or prior to the Closing Date, and shall be deemed fully earned on such date regardless of the early termination of this Agreement.

“Eligible Foreign Subsidiary” means any Foreign Subsidiary whose execution of a Joinder Agreement would not result in a Tax Impact to Borrower.

“End of Term Charge” shall have the meaning assigned to such term in Section 2.6.

“Equity Event” means any sale or issuance of Borrower securities for financing purposes (whether in a private placement, registered offering or otherwise).

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

“Event of Default” has the meaning given to it in Section 9.

“Facility Charge” means 0.85% percent of the Maximum Term Loan Amount.

“Financial Statements” has the meaning given to it in Section 7.1.

“First Interest Only Extension Conditions” shall mean satisfaction of each of the following events: (a) no default or Event of Default shall have occurred; and (b) delivery by Borrower to Agent of a written communication to Borrower from the data monitoring committee or body performing a similar function that Borrower’s pivotal study of EG-1962 can continue.

“Foreign Subsidiary” means any Subsidiary other than a Subsidiary organized under the laws of any state within the United States.

“GAAP” means generally accepted accounting principles in the United States of America, as in effect from time to time.

“Indebtedness” means indebtedness of any kind, including (a) all indebtedness for borrowed money or the deferred purchase price of property or services (excluding trade credit entered into in the ordinary course of business due (i) one hundred twenty (120) days for Evonik Industries, MPI Research, Nature America, Whitehouse Laboratories, and Dechert LLP, and (ii) sixty (60) days for all other creditors), including reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations as defined by GAAP on the date hereof, and (d) all Contingent Obligations.

4

“Insolvency Proceeding” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

“Intellectual Property” means all of Borrower’s Copyrights; Trademarks; Patents; Licenses; trade secrets and inventions; mask works; Borrower’s applications therefor and reissues, extensions, or renewals thereof; and Borrower’s goodwill associated with any of the foregoing, together with Borrower’s rights to sue for past, present and future infringement of Intellectual Property and the goodwill associated therewith.

“Investment” means any beneficial ownership (including stock, partnership or limited liability company interests) of or in any Person, or any loan, advance or capital contribution to any Person or the acquisition of all, or substantially all, of the assets of another Person.

“Joinder Agreements” means for each Qualified Subsidiary, a completed and executed Joinder Agreement in substantially the form attached hereto as Exhibit G.

“Key Intellectual Property” means any material Intellectual Property necessary in Borrower’s business as presently conducted, or anticipated to be conducted.

“Lender” has the meaning given to it in the preamble to this Agreement.

“License” means any Copyright License, Patent License, Trademark License or other license of rights or interests.

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, and any lease in the nature of a security interest.

“Loan” means the Advances made under this Agreement.

“Loan Documents” means this Agreement, the Notes (if any), the ACH Authorization, the Account Control Agreements, the Joinder Agreements, all UCC Financing Statements, the Warrant, any subordination agreement, and any other documents executed in connection with the Secured Obligations or the transactions contemplated hereby, as the same may from time to time be amended, modified, supplemented or restated.

“Material Adverse Effect” means a material adverse effect upon: (i) the business, operations, properties, assets or financial condition of Borrower and its Subsidiaries taken as a whole; or (ii) the ability of Borrower to perform or pay the Secured Obligations in accordance with the terms of the Loan Documents, or the ability of Agent or Lender to enforce any of its rights or remedies with respect to the Secured Obligations; or (iii) the Collateral or Agent’s Liens on the Collateral or the priority of such Liens.

“Maximum Term Loan Amount” means Twenty Million Dollars ($20,000,000).

“Maximum Rate” shall have the meaning assigned to such term in Section 2.3.

5

“Note(s)” means promissory note or promissory notes to evidence Lender’s Loans substantially in the form of Exhibit B.

“Patent License” means any written agreement granting any right with respect to any invention on which a Patent is in existence or a Patent application is pending, in which agreement Borrower now holds or hereafter acquires any interest.

“Patents” means all letters patent of, or rights corresponding thereto, in the United States or in any other country, all registrations and recordings thereof, and all applications for letters patent of, or rights corresponding thereto, in the United States or any other country.

“Permitted Indebtedness” means: (i) Indebtedness of Borrower in favor of Lender or Agent arising under this Agreement or any other Loan Document; (ii) Indebtedness existing on the Closing Date which is disclosed in Schedule 1A; (iii) Indebtedness of up to $500,000 outstanding at any time secured by a Lien described in clause (vii) of the defined term “Permitted Liens,” provided such Indebtedness does not exceed the lesser of the cost or fair market value of the Equipment financed with such Indebtedness (determined as of the date on which such Equipment is financed); (iv) Indebtedness to trade creditors incurred in the ordinary course of business, including Indebtedness incurred in the ordinary course of business with corporate credit cards; (v) Indebtedness consisting of capitalized lease obligations or other leasehold interests required by GAAP as in effect on the date thereof to be reflected as a liability on Borrower’s balance sheet; (vi) Indebtedness that also constitutes a Permitted Investment; (vii) Subordinated Indebtedness; (viii) reimbursement obligations in connection with letters of credit that are secured by Cash and issued on behalf of Borrower or a Subsidiary thereof in an amount not to exceed $500,000 at any time outstanding, (ix) other Indebtedness in an amount not to exceed $500,000 at any time outstanding, (x) intercompany Indebtedness as long as either (A) each of the Subsidiary obligor and the Subsidiary obligee under such Indebtedness is a Qualified Subsidiary that has executed a Joinder Agreement; (B) Indebtedness incurred as a result of an Investment permitted under clause (x) of the defined term “Permitted Investments,” or (C) such amount does not exceed $1,000,000 in the aggregate during any fiscal year, (xi) Indebtedness consisting solely of fees, royalties, advances for research and development activities, and other amounts paid by third parties to Borrower, in each case in the ordinary course of Borrower’s business and which, by the express terms of the applicable agreement, license, contract or other instrument to which they relate, are payable in advance, and with respect to the payment of which Borrower may have contingent liabilities; provided that the Indebtedness of Borrower to such third parties shall not exceed $500,000 in the aggregate, (xii) Indebtedness consisting solely of pre-paid fees, royalties, advances for research and development activities, and other amounts payable by or obligations of Borrower to third parties, in each case in the ordinary course of Borrower’s business and in an amount not to exceed $1,000,000 in the aggregate under in-bound and out-bound licenses of Intellectual Property used to improve Borrower’s product portfolio and competitive position; (xiii) lease obligations for real property including obligations in connection with leasehold improvements in an amount not to exceed $1,000,000 at any time outstanding; and (xiv) extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose materially more burdensome terms upon Borrower or its Subsidiary, as the case may be.

6

“Permitted Investment” means: (i) Investments existing on the Closing Date which are disclosed in Schedule 1B; (ii) (a) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one year from the date of acquisition thereof, (b) commercial paper maturing no more than one year from the date of creation thereof and currently having a rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (c) certificates of deposit issued by any bank with assets of at least $500,000,000 maturing no more than one year from the date of investment therein, and (d) money market accounts; (iii) repurchases of stock from former employees, directors, or consultants of Borrower under the terms of applicable repurchase agreements at the original issuance price of such securities in an aggregate amount not to exceed $250,000 in any fiscal year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases; (iv) Investments accepted in connection with Permitted Transfers; (v) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrower’s business; (vi) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business, provided that this subparagraph (vi) shall not apply to Investments of Borrower in any Subsidiary; (vii) Investments consisting of loans not involving the net transfer on a substantially contemporaneous basis of cash proceeds to employees, officers or directors relating to the purchase of capital stock of Borrower pursuant to employee stock purchase plans or other similar agreements approved by Borrower’s Board; (viii) Investments consisting of travel advances and Investments consisting of employee relocation loans and other employee loans and advances not to exceed $50,000 in the aggregate, and in each case in the ordinary course of business; (ix) Investments in newly-formed Domestic Subsidiaries, provided that each such Domestic Subsidiary enters into a Joinder Agreement promptly after its formation by Borrower and execute such other documents as shall be reasonably requested by Agent; (x) Investments in Foreign Subsidiaries, so long as an Event of Default does not existing at the time of such Investment and would not exist after giving effect to such Investment: (A) to pay fees and current ordinary and necessary operating expenses of such Foreign Subsidiary and provided that: (1) such Investments are actually used to pay the applicable fees and current ordinary and necessary operating expenses and not for any other purpose, (2) Agent shall have received notice of the amount of such Investment at least two (2) Business Days prior to the making of such Investment and (3) such Investment shall be promptly returned to Borrower in the event it is not used to pay such fees and current ordinary and necessary operating expenses within ten (10) Business Days following the making of such investment, or (B) in an amount not to exceed $1,000,000 in the aggregate; (xi) joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the nonexclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrower do not exceed $500,000 in the aggregate in any fiscal year; (xii) Investments consisting of Permitted Subsidiary Transactions; (xiii) expenditures of Cash in a manner that is not prohibited by the terms of this Agreement; and (xiv) additional Investments that do not exceed $500,000 in the aggregate.

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“Permitted Liens” means any and all of the following: (i) Liens in favor of Agent or Lender; (ii) Liens existing on the Closing Date which are disclosed in Schedule 1C; (iii) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings; provided, that Borrower maintains adequate reserves therefor in accordance with GAAP; (iv) Liens securing claims or demands of materialmen, artisans, mechanics, carriers, warehousemen, landlords and other like Persons arising in the ordinary course of Borrower’s business and imposed without action of such parties; provided, that the payment thereof is not yet delinquent; (v) Liens arising from judgments, decrees or attachments in circumstances which do not constitute an Event of Default hereunder; (vi) the following deposits, to the extent made in the ordinary course of business:  deposits under worker’s compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations (other than Liens arising under ERISA or environmental Liens) or surety or appeal bonds, or to secure indemnity, performance or other similar bonds; (vii) Liens on Equipment or software or other intellectual property constituting purchase money Liens and Liens in connection with capital leases securing Indebtedness permitted in clause (iii) of “Permitted Indebtedness” with respect to such Equipment with a fair market value (determined as of the date on which such Equipment is financed) not in excess of $500,000 outstanding at any time;  (viii) Liens incurred in connection with Subordinated Indebtedness; (ix) leasehold interests in leases or subleases and licenses granted in the ordinary course of business and not interfering in any material respect with the business of the licensor; (x) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of custom duties that are promptly paid on or before the date they become due; (xi) Liens on insurance proceeds securing the payment of financed insurance premiums that are promptly paid on or before the date they become due (provided that such Liens extend only to such insurance proceeds and not to any other property or assets); (xii) statutory and common law rights of set-off and other similar rights as to deposits of cash and securities in favor of banks, other depository institutions and brokerage firms; (xiii) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business so long as they do not materially impair the value or marketability of the related property; (xiv) (A) Liens on Cash securing obligations permitted under clause (vii) of the definition of Permitted Indebtedness and (B) security deposits in connection with real property leases, the combination of (A) and (B) in an aggregate amount not to exceed $500,000 at any time; (xv) Liens limited to leasehold improvements, that do not constitute Collateral, made to Borrower’s and its Subsidiaries’ facilities permitted under subsection (xiii) of Permitted Indebtedness; and (xvi) Liens incurred in connection with the extension, renewal or refinancing of the Indebtedness secured by Liens of the type described in clauses (i) through (xi) above; provided, that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced (as may have been reduced by any payment thereon) does not increase.

“Permitted Subsidiary Transactions” means any transaction pursuant to which Borrower (i) forms a Foreign Subsidiary and (ii) provides such Foreign Subsidiary with a license or sublicense of Borrower’s Intellectual Property, which does not result in the assignment, sale, disposition or other legal transfer of title of the licensed Intellectual Property, for the sole purpose of researching, developing, manufacturing, commercialization and/or marketing of one or more of Borrower’s Products; provided that the aggregate value of the property and assets (including Cash, but excluding the license or sublicense and the Intellectual Property covered by such license or sublicense) maintained with such Foreign Subsidiaries, individually and in the aggregate (for (i) and (ii)), shall not at any such time exceed ten percent (10%) of Borrower’s property and assets.

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“Permitted Transfers” means (i) sales of Inventory in the ordinary course of business, (ii) (x) licenses, sublicenses and similar arrangements for the use of Intellectual Property and related assets owned or controlled by Borrower or any Subsidiary and/or (y) provision of a right of reference to regulatory filings and applications with governmental health authorities, and/or (z) provision of rights with respect to pre-clinical and clinical data, in each case ((x), (y) or (z)) to one or more third parties in connection with research, clinical development, regulatory activities, manufacturing, commercialization and/or marketing of one or more Borrower’s or any Subsidiary’s products or product candidates provided that such arrangements are in the ordinary course of business and that could not result in the assignment, sale, disposition or other legal transfer of title of the licensed property, (iii) dispositions of worn-out, obsolete or surplus Equipment at fair market value in the ordinary course of business, (iv) other transfers of assets having a fair market value of not more than $500,000 in the aggregate in any fiscal year, (v) dispositions of the type described in and expressly permitted under Section 7.7, (vi) dispositions arising from the abandonment of fixtures and other similar tenant improvements in connection with office relocations in the ordinary course of business, (vii) abandonment of Intellectual Property that is not Key Intellectual Property in the exercise of Borrower’s reasonable business judgment, (viii) Permitted Investments; and (ix) sales by Borrower of its equity securities in an Equity Event.  For the avoidance of doubt, any action described in clause (ii) above for purposes of granting rights outside of the United States shall be deemed to be “in the ordinary course of business”.

“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, other entity or government.

“Prepayment Charge” shall have the meaning assigned to such term in Section 2.5.

“Prime Rate” means the “prime rate” as reported in The Wall Street Journal, and if not reported, then the prime rate most recently reported in The Wall Street Journal.

“Qualified Subsidiary” means any direct or indirect Domestic Subsidiary or Eligible Foreign Subsidiary.

“Required Lenders” means at any time, the holders of more than 50% of the aggregate unpaid principal amount of the Term Loan Advances then outstanding.

“SEC” means the Securities and Exchange Commission.

“Second Interest Only Extension Conditions” shall mean satisfaction of each of the following events:  (a) no default or Event of Default shall have occurred; and (b) Lender elects, in its sole and absolute discretion and based upon Lender’s then-existing underwriting criteria and approval, to extend the Amortization Date.

“Secured Obligations” means Borrower’s obligations under this Agreement and any Loan Document (other than the Warrant), including any obligation to pay any amount now owing or later arising (including, without limitation, the 2016 End of Term Charge, the End of Term Charge and the Prepayment Charge).  Notwithstanding the foregoing, the “Secured Obligations” shall not include any of Borrower’s obligations, liabilities or duties under the Warrant.

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“Securities Act” means the Securities Act of 1933, as amended.

“Subordinated Indebtedness” means Indebtedness subordinated to the Secured Obligations in amounts and on terms and conditions satisfactory to Agent in its sole discretion.

“Subsequent Financing” means the sale and issuance by Borrower, after the date hereof, of its equity securities to one or more investors for cash for financing purposes in a transaction or series of related transactions not registered under the Securities Act of 1933, as amended, pursuant to a broadly marketed offer to multiple investors and in which Borrower receives aggregate cash proceeds of at least Ten Million Dollars ($10,000,000).

“Subsidiary” means an entity, whether corporate, partnership, limited liability company, joint venture or otherwise, in which Borrower owns or controls 50% or more of the outstanding voting securities, including each entity listed on Schedule 1 hereto.

“Tax Impact” means a material adverse income tax liability to Borrower taking into account actual or anticipated repatriation of funds, foreign tax credits, and other relevant factors.

“Term Commitment” means as to any Lender, the obligation of such Lender, if any, to make a Term Loan Advance to Borrower in a principal amount not to exceed the amount set forth under the heading “Term Commitment” opposite such Lender’s name on Schedule 1.1.

“Term Loan Advance” and “Term Loan Advances” means the Existing Term Loan Advances and any term loan funds advanced under this Agreement.

“Term Loan Interest Rate” means for any day a per annum rate of interest equal to the greater of either (i) the sum of (a) 9.15%, plus (b) Prime Rate minus 4.50% and (ii) 9.15%.

 “Term Loan Maturity Date” means February 3, 2020; provided however, that if the First Interest Only Extension Conditions are satisfied, then August 3, 2020.

 “Trademark License” means any written agreement granting any right to use any Trademark or Trademark registration, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.

“Trademarks” means all trademarks (registered, common law or otherwise) and any applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof.

“UCC” means the Uniform Commercial Code as the same is, from time to time, in effect in the State of New York; provided, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Agent’s Lien on any Collateral is governed by the Uniform Commercial Code as the same is, from time to time, in effect in a jurisdiction other than the State of California, then the term “UCC” shall mean the Uniform Commercial Code as in effect, from time to time, in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.

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 “Warrant” means the Warrant Agreement dated as of August 28, 2014 by and between Hercules Technology Growth Capital, Inc. and Borrower, as may be amended, restated or modified from time to time.

Unless otherwise specified, all references in this Agreement or any Annex or Schedule hereto to a “Section,” “subsection,” “Exhibit,” “Annex,” or “Schedule” shall refer to the corresponding Section, subsection, Exhibit, Annex, or Schedule in or to this Agreement.  Unless otherwise specifically provided herein, any accounting term used in this Agreement or the other Loan Documents shall have the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed in accordance with GAAP, consistently applied. Unless otherwise defined herein or in the other Loan Documents, terms that are used herein or in the other Loan Documents and defined in the UCC shall have the meanings given to them in the UCC.

SECTION 2. THE LOANS

2.1          Reserved.

2.2          Term Loan.

(a)          Advances.  Subject to the terms and conditions of this Agreement, (i) Lender made and Borrower drew the Existing Term Loan Advances on August 28, 2014 and January 30, 2015 (which Existing Term Loan Advances remain outstanding on the Closing Date), (ii) Lender will severally (and not jointly) make, and Borrower agrees to draw on the Closing Date, a Term Loan Advance (exclusive of the Existing Term Loan Advances) of $11,022,285.85, and (iii) beginning on the Closing Date and continuing through June 15, 2017, Borrower may request and Lender will severally (and not jointly) make one (1) additional Term Loan Advance in the amount of $5,000,000.  The aggregate outstanding Term Loan Advances may be up to the Maximum Term Loan Amount. Proceeds of any Term Loan Advance shall be deposited into an account that is subject to a first priority perfected security interest in favor of Agent perfected by an Account Control Agreement.

(b)          Advance Request.  To obtain a Term Loan Advance, Borrower shall complete, sign and deliver to Agent an Advance Request (at least three (3) Business Days before the Advance Date provided that for the Term Loan Advance to be made on the Closing Date, Borrower need only deliver an Advance Request one (1) Business Day prior to such date).  Lender shall fund the Term Loan Advance in the manner requested by the Advance Request provided that each of the conditions precedent to such Term Loan Advance is satisfied as of the requested Advance Date.

(c)          Interest.  The principal balance of each Term Loan Advance shall bear interest thereon from such Advance Date at the Term Loan Interest Rate based on a year consisting of 360 days, with interest computed daily based on the actual number of days elapsed.  The Term Loan Interest Rate will float and change on the day the Prime Rate changes from time to time.

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(d)          Payment.  Borrower will pay interest on each Term Loan Advance on the first Business Day of each month, beginning the month after the Advance Date.  Borrower shall repay the aggregate Term Loan Advances principal balance that is outstanding on the day immediately preceding the Amortization Date, in equal monthly installments of principal and interest (mortgage style) beginning on the Amortization Date and continuing on the first Business Day of each month thereafter until the Secured Obligations (other than inchoate indemnity obligations) are repaid.  The entire Term Loan Advances principal balance and all accrued but unpaid interest hereunder and all other Secured Obligations with respect to the Term Loan Advances, shall be due and payable on Term Loan Maturity Date.  Borrower shall make all payments under this Agreement without setoff, recoupment or deduction, except as required by law, and regardless of any counterclaim or defense. Lender will initiate debit entries to Borrower’s account as authorized on the ACH Authorization (i) on each payment date of all periodic obligations payable to Lender under each Term Loan Advance and (ii) out-of-pocket legal fees and costs incurred by Agent or Lender in connection with Section 11.11 of this Agreement. Once repaid, a Term Loan Advance or any portion thereof may not be reborrowed.

2.3          Maximum Interest.  Notwithstanding any provision in this Agreement or any other Loan Document, it is the parties’ intent not to contract for, charge or receive interest at a rate that is greater than the maximum rate permissible by law that a court of competent jurisdiction shall deem applicable hereto (which under the laws of the State of California shall be deemed to be the laws relating to permissible rates of interest on commercial loans) (the “Maximum Rate”).  If a court of competent jurisdiction shall finally determine that Borrower has actually paid to Lender an amount of interest in excess of the amount that would have been payable if all of the Secured Obligations had at all times borne interest at the Maximum Rate, then such excess interest actually paid by Borrower shall be applied as follows:  first, to the payment of the Secured Obligations consisting of the outstanding principal amount of the Advances; second, after all principal is repaid, to the payment of Lender’s accrued interest, costs, expenses, professional fees and any other Secured Obligations; and third, after all Secured Obligations are repaid, the excess (if any) shall be refunded to Borrower.

2.4          Default Interest.  In the event any payment is not paid on the scheduled payment date (other than due to an ACH Failure), an amount equal to five percent (5%) of the past due amount shall be payable on demand. In addition, upon the occurrence and during the continuation of an Event of Default hereunder, all Secured Obligations, including principal, interest, compounded interest, and Lender’s and Agent’s fees and expenses set forth in Section 11.11, shall bear interest at a rate per annum equal to the rate set forth in Section 2.2(c), as applicable, plus five percent (5%) per annum.  In the event any interest is not paid when due hereunder, delinquent interest shall be added to principal and shall bear interest on interest, compounded at the rate set forth in Section 2.2(c) or Section 2.4, as applicable.

2.5          Prepayment.  At Borrower’s option upon at least seven (7) Business Days prior notice to Agent, Borrower may prepay all, or any portion, of the outstanding Advances by paying the entire principal balance, or any portion thereof, all accrued and unpaid interest on the portion prepaid, all unpaid Agent’s and Lender’s fees and expenses accrued to the date of the repayment (including the End of Term Charge), together with a prepayment charge on the portion prepaid equal to the following percentage of the Advance amount being prepaid: if such Advance amounts are prepaid in any of the first twelve (12) months following the Closing Date, two percent (2.00%); after twelve (12) months but prior to twenty four (24) months, one percent (1.00%); and thereafter, one half a percent (0.50%) (each, a “Prepayment Charge”).  Borrower agrees that the Prepayment Charge is a reasonable calculation of Lender’s lost profits in view of the difficulties and impracticality of determining actual damages resulting from an early repayment of the Advances.  Upon the occurrence of a Change in Control, Borrower shall prepay the outstanding amount of all principal and accrued interest through the prepayment date and all unpaid Agent’s and Lender’s fees and expenses accrued to the date of the repayment (including the 2016 End of Term Charge and the End of Term Charge) together with the applicable Prepayment Charge. Notwithstanding the foregoing, Agent and Lender agree to waive the Prepayment Charge if Agent and Lender (in its sole and absolute discretion) agree in writing to refinance the Advances prior to the Term Loan Maturity Date.

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2.6          End of Term Charge.  On the earliest to occur of (i) March 1, 2018, (ii) the date that Borrower prepays all of the outstanding Secured Obligations (other than any inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) in full, or (iii) the date that the Secured Obligations become due and payable, Borrower shall pay Lender a charge equal to one and one-half of one percent (1.50%) of the aggregate original principal amount of the Existing Term Loan Advances (i.e. 1.50% of $6,000,000 ($90,000)) (the “End of Term Charge”).  In addition, on the earliest to occur of (i) Term Loan Maturity Date, (ii) the date that Borrower prepays all of the outstanding Secured Obligations (other than any inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) in full, or (iii) the date that the Secured Obligations become due and payable, Borrower shall pay Lender a charge equal to four and one-half of one percent (4.50%) of the Maximum Term Loan Amount (i.e. 4.50% of $20,000,000 ($900,000)) (the “2016 End of Term Charge”). Notwithstanding the required payment date of such charge, it shall be deemed earned by Lender as of the Closing Date.

2.7          Notes.  If so requested by Lender by written notice to Borrower, then Borrower shall execute and deliver to Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of Lender pursuant to Section 11.13) (promptly after Borrower’s receipt of such notice) a Note or Notes to evidence Lender’s Loans.

2.8          Pro Rata Treatment. Each payment (including prepayment) on account of any fee and any reduction of the Term Loan Advances shall be made pro rata according to the Term Commitments of the relevant Lender.

SECTION 3. SECURITY INTEREST

3.1          As security for the prompt and complete payment when due (whether on the payment dates or otherwise) of all the Secured Obligations, Borrower grants to Agent a security interest in all of Borrower’s right, title, and interest in and to the following personal property whether now owned or hereafter acquired (collectively, the “Collateral”):  (a) Receivables; (b) Equipment; (c) Fixtures; (d) General Intangibles (other than Intellectual Property); (e) Inventory; (f) Investment Property; (g) Deposit Accounts; (h) Cash; (i) Goods; and all other tangible and intangible personal property of Borrower whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Borrower and wherever located, and any of Borrower’s property in the possession or under the control of Agent; and, to the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing; provided, however, that the Collateral shall include all Accounts and General Intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the Intellectual Property (the “Rights to Payment”).  Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of the date of this Agreement, include the Intellectual Property to the extent necessary to permit perfection of Agent’s security interest in the Rights to Payment.

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In addition, notwithstanding the broad grant of the security interest set forth in Section 3.1, above, the Collateral shall not include (a) more than 65% of the presently existing and hereafter arising issued and outstanding shares of capital stock owned by Borrower (which shares entitle the holder thereof to vote for directors or any other matter) of any (A) Foreign Subsidiary (other than an Eligible Foreign Subsidiary) or (B) any Domestic Subsidiary substantially all of the assets of which consist of the capital stock of a Foreign Subsidiary (other than an Eligible Foreign Subsidiary).

SECTION 4. CONDITIONS PRECEDENT TO LOAN

The obligation of Lender to make the Term Loan Advances hereunder is subject to the satisfaction by Borrower of the following conditions:

4.1          Initial Advance.  On or prior to the Closing Date, Borrower shall have delivered to Agent the following:

(a)          executed copies of the Loan Documents, Account Control Agreements, and all other documents and instruments reasonably required by Agent to effectuate the transactions contemplated hereby or to create and perfect the Liens of Agent with respect to all Collateral, in all cases in form and substance reasonably acceptable to Agent;

(b)          certified copy of resolutions of Borrower’s Board evidencing approval of the Loan and other transactions evidenced by the Loan Documents;

(c)          certified copies of the Certificate of Incorporation and the Bylaws, as amended through the Closing Date, of Borrower;

(d)          a certificate of good standing for Borrower from its state of incorporation and similar certificates from all other jurisdictions in which it does business and where the failure to be qualified would have a Material Adverse Effect;

(e)          payment of the Due Diligence Fee (receipt of which is hereby acknowledged by Agent), the Facility Charge and reimbursement of Agent’s and Lender’s current expenses reimbursable pursuant to this Agreement, which amounts may be deducted from the initial Advance; and

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(f)          such other documents as Agent may reasonably request.

4.2          All Advances.  On each Advance Date:

(a)          Agent shall have received an Advance Request for the relevant Advance duly executed by Borrower’s Chief Executive Officer or Chief Financial Officer.

(b)          The representations and warranties set forth in this Agreement shall be true and correct in all material respects on and as of the Advance Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date.

(c)          Borrower shall be in compliance with all the terms and provisions set forth herein and in each other Loan Document on its part to be observed or performed, and at the time of and immediately after such Advance no Event of Default shall have occurred and be continuing.

(d)          Each Advance Request shall be deemed to constitute a representation and warranty by Borrower on the relevant Advance Date as to the matters specified in paragraphs (b) and (c) of this Section 4.2 and as to the matters set forth in the Advance Request.

4.3          No Default.  As of the Closing Date and each Advance Date, (i) no fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute an Event of Default and (ii) no event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing.

SECTION 5. REPRESENTATIONS AND WARRANTIES OF BORROWER

Borrower represents and warrants that:

5.1          Corporate Status.  Borrower is a corporation duly organized, legally existing and in good standing under the laws of the State of Delaware, and is duly qualified as a foreign corporation in all jurisdictions in which the nature of its business or location of its properties require such qualifications and where the failure to be qualified could reasonably be expected to have a Material Adverse Effect.  Borrower’s present name, former names (if any), locations, place of formation, tax identification number, organizational identification number and other information are correctly set forth in Exhibit C, as may be updated by Borrower in a written notice (including any Compliance Certificate) provided to Agent after the Closing Date.

5.2          Collateral.  Borrower owns the Collateral and the Intellectual Property, free of all Liens, except for Permitted Liens.  Borrower has the power and authority to grant to Agent a Lien in the Collateral as security for the Secured Obligations.

5.3          Consents.  Borrower’s execution, delivery and performance of the Note(s) (if any), this Agreement and all other Loan Documents (i) have been duly authorized by all necessary corporate action of Borrower, (ii) will not result in the creation or imposition of any Lien upon the Collateral, other than Permitted Liens and the Liens created by this Agreement and the other Loan Documents, (iii) do not violate any provisions of Borrower’s Certificate or Articles of Incorporation (as applicable), bylaws, or any, law, regulation, order, injunction, judgment, decree or writ to which Borrower is subject and (iv) except as described on Schedule 5.3, do not violate any contract or agreement or require the consent or approval of any other Person which has not already been obtained.  The individual or individuals executing the Loan Documents and the Warrant are duly authorized to do so.

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5.4          Material Adverse Effect.  No event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing. Borrower is not aware of any event likely to occur that is reasonably expected to result in a Material Adverse Effect.

5.5          Actions Before Governmental Authorities.  There are no actions, suits or proceedings at law or in equity or by or before any governmental authority now pending or, to the knowledge of Borrower, threatened against or affecting Borrower or its property, which if adversely determined against Borrower or its property, would be reasonably expected to result in a Material Adverse Effect.

5.6          Laws.  Borrower is not in violation of any law, rule or regulation, or in default with respect to any judgment, writ, injunction or decree of any governmental authority, where such violation or default is reasonably expected to result in a Material Adverse Effect.  Borrower is not in default in any manner under any provision of any agreement or instrument evidencing material Indebtedness, or any other material agreement to which it is a party or by which it is bound. Borrower, its Subsidiaries and, to the knowledge of Borrower and its Subsidiaries, any agent or other party acting on behalf of Borrower or its Subsidiaries are in compliance with all applicable anti-money laundering, economic sanctions and anti-bribery laws and regulations, and none of the funds to be provided under this Agreement will be used, directly or indirectly, for any activities in violation of such laws and regulations.

5.7          Information Correct and Current.  No information, report, Advance Request, financial statement, exhibit or schedule furnished, by or on behalf of Borrower to Agent in connection with any Loan Document or included therein or delivered pursuant thereto when taken as a whole, contains or will contain any material misstatement of fact or, when taken together with all other such information or documents, omitted, omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not materially misleading at the time such statement was made or deemed made. Additionally, any and all financial or business projections provided by Borrower to Agent, whether prior to or after the Closing Date, shall be (i) provided in good faith and based on the most current data and information available to Borrower, and (ii) the most current of such projections provided to Borrower’s Board of Directors (it being understood that such projections are subject to significant uncertainties and contingencies, many of which are beyond the control of Borrower, that no assurance is given that any particular projections will be realized, and that actual results may differ).

5.8          Tax Matters.  Except as described on Schedule 5.8 and except those being contested in good faith with adequate reserves under GAAP, (a) Borrower has filed all material federal, state and local tax returns that it is required to file except with respect to taxes that do not exceed Fifty Thousand Dollars ($50,000) in the aggregate, (b) Borrower has duly paid or fully reserved for all taxes or installments thereof (including any interest or penalties) as and when due, which have or may become due pursuant to such returns, except with respect to taxes that do not exceed Fifty Thousand Dollars ($50,000) in the aggregate, and (c) Borrower has paid or fully reserved for any tax assessment received by Borrower for the three (3) years preceding the Closing Date.

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5.9          Intellectual Property Claims.  Borrower is the sole owner of, or otherwise has the right to use, the Intellectual Property material to Borrower’s business.  Except as described on Schedule 5.9 to Borrower’s knowledge (i) each of the material Copyrights, Trademarks and Patents is valid and enforceable, (ii) no material part of the Intellectual Property has been judged invalid or unenforceable, in whole or in part, and (iii) no claim has been made to Borrower that any material part of the Intellectual Property violates the rights of any third party. Exhibit D is a true, correct and complete list of each of Borrower’s Patents, registered Trademarks, registered Copyrights, and material agreements under which Borrower licenses Intellectual Property from third parties (other than shrink-wrap software licenses), together with application or registration numbers, as applicable, owned by Borrower or any Subsidiary, in each case as of the Closing Date. Borrower is not in material breach of, nor has Borrower failed to perform any material obligations under, any of the foregoing contracts, licenses or agreements and, to Borrower’s knowledge, no third party to any such contract, license or agreement is in material breach thereof or has failed to perform any material obligations thereunder.

5.10        Intellectual Property.  Except as described on Schedule 5.10, Borrower has all material rights with respect to Intellectual Property necessary in the operation or conduct of Borrower’s business as currently conducted, and to Borrower’s knowledge, proposed to be conducted by Borrower.  Without limiting the generality of the foregoing, and in the case of Licenses, except for restrictions that are unenforceable under Division 9 of the UCC, Borrower has the right, to the extent required to operate Borrower’s business, to freely transfer, license or assign Intellectual Property necessary in the operation or conduct of Borrower’s business as currently conducted and, to Borrower’s knowledge, proposed to be conducted by Borrower, without condition, restriction or payment of any kind (other than license payments in the ordinary course of business) to any third party, and Borrower owns or has the right to use, pursuant to valid licenses, all software development tools, library functions, compilers and all other third-party software and other items that are material to Borrower’s business and used in the design, development, promotion, sale, license, manufacture, import, export, use or distribution of Borrower Products except customary covenants in inbound license agreements and equipment leases where Borrower is the licensee or lessee.

5.11        Borrower Products.  Except as described on Schedule 5.11, no Intellectual Property owned by Borrower or Borrower Product has been or is subject to any actual or, to the knowledge of Borrower, threatened litigation, proceeding (including any proceeding in the United States Patent and Trademark Office or any corresponding foreign office or agency) or outstanding decree, order, judgment, settlement agreement or stipulation that restricts in any manner Borrower’s use, transfer or licensing thereof or that may affect the validity, use or enforceability thereof. There is no decree, order, judgment, agreement, stipulation, arbitral award or other provision entered into in connection with any litigation or proceeding that obligates Borrower to grant licenses or ownership interest in any future Intellectual Property related to the operation or conduct of the business of Borrower or Borrower Products.  Borrower has not received any written notice or claim, or, to the knowledge of Borrower, oral notice or claim, challenging or questioning Borrower’s ownership in any Intellectual Property (or written notice of any claim challenging or questioning the ownership in any licensed Intellectual Property of the owner thereof) or suggesting that any third party has any claim of legal or beneficial ownership with respect thereto nor, to Borrower’s knowledge, is there a reasonable basis for any such claim.  To Borrower’s knowledge, neither Borrower’s use of its Intellectual Property nor the production and sale of Borrower Products infringes any valid claim of any Intellectual Property or other rights of others.

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5.12        Financial Accounts.  Exhibit E, as may be updated by Borrower in a written notice provided to Agent after the Closing Date, is a true, correct and complete list of (a) all banks and other financial institutions at which Borrower or any Subsidiary maintains Deposit Accounts and (b) all institutions at which Borrower or any Subsidiary maintains an account holding Investment Property, and such exhibit correctly identifies the name, address and telephone number of each bank or other institution, the name in which the account is held, a description of the purpose of the account, and the complete account number therefor.

5.13        Employee Loans.  Borrower has no outstanding loans to any employee, officer or director of Borrower nor has Borrower guaranteed the payment of any loan made to an employee, officer or director of Borrower by a third party.

5.14        Subsidiaries. Borrower does not own any stock, partnership interest or other securities of any Person, except for Permitted Investments.  Attached as Schedule 1, as may be updated by Borrower in a written notice provided after the Closing Date, is a true, correct and complete list of each Subsidiary.

SECTION 6. INSURANCE; INDEMNIFICATION

6.1          Coverage.  Borrower shall cause to be carried and maintained commercial general liability insurance, on an occurrence form, against risks customarily insured against in Borrower’s line of business.  Such risks shall include the risks of bodily injury, including death, property damage, personal injury, advertising injury, and contractual liability per the terms of the indemnification agreement found in Section 6.3.  Borrower must maintain a minimum of $2,000,000 of commercial general liability insurance for each occurrence.  Borrower has and agrees to maintain a minimum of $2,000,000 of directors’ and officers’ insurance for each occurrence and $5,000,000 in the aggregate.   So long as there are any Secured Obligations outstanding, Borrower shall also cause to be carried and maintained insurance upon the Collateral, insuring against all risks of physical loss or damage howsoever caused, in an amount not less than the full replacement cost of the Collateral, provided that such insurance may be subject to standard exceptions and deductibles.

6.2          Certificates.  Borrower shall deliver to Agent certificates of insurance that evidence Borrower’s compliance with its insurance obligations in Section 6.1 and the obligations contained in this Section 6.2.  Borrower’s insurance certificate shall state Agent is an additional insured for commercial general liability, a loss payee for all risk property damage insurance, subject to the insurer’s approval, and a loss payee for property insurance and additional insured for liability insurance for any future insurance that Borrower may acquire from such insurer.  Attached to the certificates of insurance will be additional insured endorsements for liability and lender’s loss payable endorsements for all risk property damage insurance.  Notwithstanding the foregoing, (a) so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy up to Five Hundred Thousand Dollars ($500,000) in the aggregate for all losses under all casualty policies in any one year, toward the replacement or repair of destroyed or damaged property; provided that any such replaced or repaired property (i) shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Agent has been granted a first priority security interest, and (b) after the occurrence and during the continuance of an Event of Default, all proceeds payable under such casualty policy shall, at the option of Agent or Lender, be payable to Lender on account of the Obligations.  All certificates of insurance will provide for a minimum of thirty (30) days advance written notice to Agent of cancellation (other than cancellation for non-payment of premiums, for which ten (10) days’ advance written notice shall be sufficient) or any other change adverse to Agent’s interests.  Any failure of Agent to scrutinize such insurance certificates for compliance is not a waiver of any of Agent’s rights, all of which are reserved.

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6.3          Indemnity.  Borrower agrees to indemnify and hold Agent, Lender and their officers, directors, employees, agents, in-house attorneys, representatives and shareholders (each, an “Indemnified Person”) harmless from and against any and all claims, costs, expenses, damages and liabilities (including such claims, costs, expenses, damages and liabilities based on liability in tort, including strict liability in tort), including reasonable attorneys’ fees and disbursements and other costs of investigation or defense (including those incurred upon any appeal) (collectively, “Liabilities”), that may be instituted or asserted against or incurred by such Indemnified Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents or the administration of such credit, or in connection with or arising out of the transactions contemplated hereunder and thereunder, or any actions or failures to act in connection therewith, or arising out of the disposition or utilization of the Collateral, excluding in all cases Liabilities to the extent resulting solely from any Indemnified Person’s gross negligence or willful misconduct. Borrower agrees to pay, and to save Agent and Lender harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all excise, sales or other similar taxes (excluding taxes imposed on or measured by the net income of Agent or Lender) that may be payable or determined to be payable with respect to any of the Collateral or this Agreement.  In no event shall any Indemnified Person be liable on any theory of liability for any special, indirect, consequential or punitive damages (including any loss of profits, business or anticipated savings).  This Section 6.3 shall survive the repayment of indebtedness under, and otherwise shall survive the expiration or other termination of, the Agreement.

SECTION 7. COVENANTS OF BORROWER

Borrower agrees as follows:

7.1           Financial Reports.  Borrower shall furnish to Agent the financial statements and reports listed hereinafter (the “Financial Statements”):

(a)          as soon as practicable (and in any event within 30 days) after the end of each month, unaudited interim and year-to-date financial statements as of the end of such month (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows accompanied by a report detailing any material contingencies (including the commencement of any material litigation by or against Borrower) or any other occurrence that would reasonably be expected to have a Material Adverse Effect, all certified by Borrower’s Chief Executive Officer or Chief Financial Officer to the effect that they have been prepared in accordance with GAAP, except (i) for the absence of footnotes, (ii) that they are subject to normal year-end adjustments, and (iii) they do not contain certain non-cash items that are customarily included in quarterly and annual financial statements;

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(b)          as soon as practicable (and in any event within 45 days) after the end of each calendar  quarter, unaudited interim and year-to-date financial statements as of the end of such calendar quarter (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows accompanied by a report detailing any material contingencies (including the commencement of any material litigation by or against Borrower) or any other occurrence that would reasonably be expected to have a Material Adverse Effect,  certified by Borrower’s Chief Executive Officer or Chief Financial Officer to the effect that they have been prepared in accordance with GAAP, except (i) for the absence of footnotes, and (ii) that they are subject to normal year-end adjustments;

(c)          as soon as practicable (ninety (90) days) after the end of each fiscal year, unqualified audited financial statements as of the end of such year (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows, and setting forth in comparative form the corresponding figures for the preceding fiscal year, certified by a firm of independent certified public accountants selected by Borrower and reasonably acceptable to Agent, accompanied by any management report from such accountants;

(d)          as soon as practicable (and in any event within 30 days) after the end of each month, a Compliance Certificate in the form of Exhibit F;

(e)          as soon as practicable (and in any event within 7 days) after the end of each month, a report showing agings of accounts payable;

(f)          [Reserved];

(g)          As soon as practicable following Board approval (and in any event within thirty (30) days after Board approval), copies of the minutes of each meeting of the Board, provided that in all cases Borrower may redact from such copies information that (i) presents a potential conflict of interest with Lender, (ii) relates to executive sessions, (iii) is an attorney-client communication, (iv) relates to confidential compensation information, or (v) is subject to confidentiality agreements; and

(h)          financial and business projections promptly following their approval by Borrower’s Board, and in any event, within 30 days following approval by the Board of the budget of Borrower, but at least annually, as well as budgets, operating plans and other financial information reasonably requested by Agent.

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Borrower shall not make any change in its (a) accounting policies or reporting practices, except as required by GAAP or (b) fiscal years or fiscal quarters. The fiscal year of Borrower shall end on December 31.

The executed Compliance Certificate may be sent via email to Agent at legal@herculestech.com.  All Financial Statements required to be delivered pursuant to clauses (a), (b) and (c) shall be sent via e-mail to financialstatements@herculestech.com with a copy to legal@herculestech.com provided, that if e-mail is not available or sending such Financial Statements via e-mail is not possible, they shall be sent via facsimile to Agent at: (866) 468-8916, attention Chief Credit Officer.

Notwithstanding anything to the contrary in this Section 7.1, documents required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower posts such documents, or provides a link thereto, on Borrower’s website on the Internet at Borrower’s website address.

7.2          Management Rights. Borrower shall permit any representative that Agent or Lender authorizes, including its attorneys and accountants, to inspect the Collateral and examine and make copies and abstracts of the books of account and records of Borrower at reasonable times and upon reasonable notice during normal business hours; provided, however, that so long as no Event of Default has occurred and is continuing, such examinations shall be limited to no more often than twice per fiscal year.  In addition, any such representative shall have the right to meet with management and officers of Borrower to discuss such books of account and records.  In addition, Agent or Lender shall be entitled at reasonable times and intervals to consult with and advise the management and officers of Borrower concerning significant business issues affecting Borrower.  Such consultations shall not unreasonably interfere with Borrower’s business operations.  The parties intend that the rights granted Agent and Lender shall constitute “management rights” within the meaning of 29 C.F.R. Section 2510.3-101(d)(3)(ii), but that any advice, recommendations or participation by Agent or Lender with respect to any business issues shall not be deemed to give Agent or Lender, nor be deemed an exercise by Agent or Lender of, control over Borrower’s management or policies.

7.3          Further Assurances.  Borrower shall from time to time execute, deliver and file, alone or with Agent, any financing statements, security agreements, collateral assignments, notices, control agreements, or other documents to perfect or give the highest priority to Agent’s Lien on the Collateral.  Borrower shall from time to time procure any instruments or documents as may be reasonably requested by Agent, and take all further action that may be necessary, or that Agent may reasonably request, to perfect and protect the Liens granted hereby and thereby.  In addition, and for such purposes only, Borrower hereby authorizes Agent to execute and deliver on behalf of Borrower and to file such financing statements (including an indication that the financing statement covers “all assets or all personal property (other than Intellectual Property)” of Borrower in accordance with Section 9-504 of the UCC), collateral assignments, notices, control agreements, security agreements and other documents without the signature of Borrower either in Agent’s name or in the name of Agent as agent and attorney-in-fact for Borrower.  Borrower shall protect and defend Borrower’s title to the Collateral and Agent’s Lien thereon against all Persons claiming any interest adverse to Borrower or Agent other than Permitted Liens.

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7.4          Indebtedness.  Borrower shall not create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any Indebtedness, except for (a) the conversion of Indebtedness into equity securities and the payment of cash in lieu of fractional shares in connection with such conversion, (b) purchase money Indebtedness pursuant to its then applicable payment schedule, (c) prepayment by any Subsidiary of (i) intercompany Indebtedness owed by such Subsidiary to any Borrower, or (ii) if such Subsidiary is not a Borrower, intercompany Indebtedness owed by such Subsidiary to another Subsidiary that is not a Borrower or (d) as otherwise permitted hereunder or approved in writing by Agent.

7.5          Collateral.  Borrower shall at all times keep the Collateral, the Intellectual Property and all other property and assets used in Borrower’s or any Subsidiary’s business or in which Borrower or any Subsidiary now or hereafter holds any interest free and clear from any Liens whatsoever (except for Permitted Liens), and shall give Agent prompt written notice of any legal process affecting the Collateral, the Intellectual Property, such other property and assets, or any Liens thereon, provided however, that the Collateral and such other property and assets may be subject to Permitted Liens except that there shall be no Liens whatsoever on Intellectual Property.  Borrower shall not enter into or suffer to exist or become effective any agreement that prohibits or limits the ability of any Borrower to create, incur, assume or suffer to exist any Lien upon any of its Intellectual Property, whether now owned or hereafter acquired, to secure its obligations under the Loan Documents to which it is a party other than (a) this Agreement and the other Loan Documents, (b) any agreements governing any purchase money Liens or capital lease obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby), (c) customary restrictions on the assignment of leases, licenses and other agreements, and (d) encumbrances and restrictions constituting Permitted Investments.  Borrower shall cause its Subsidiaries to protect and defend such Subsidiary’s title to its assets from and against all Persons claiming any interest adverse to such Subsidiary, and Borrower shall cause its Subsidiaries at all times to keep such Subsidiary’s property and assets free and clear from any Liens whatsoever (except for Permitted Liens, provided however, that there shall be no Liens whatsoever on Intellectual Property), and shall give Agent prompt written notice of any legal process affecting such Subsidiary’s assets. Borrower shall not agree with any Person other than Agent or Lender not to encumber its property.

7.6          Investments.  Borrower shall not directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments.

7.7          Distributions.  Borrower shall not, and shall not allow any Subsidiary to, (a) repurchase or redeem any class of stock or other equity interest other than pursuant to employee, director or consultant repurchase plans or other similar agreements, provided, however, in each case the repurchase or redemption price does not exceed the original consideration paid for such stock or equity interest, or (b) declare or pay any cash dividend or make a cash distribution on any class of stock or other equity interest, except that a Subsidiary may pay dividends or make distributions to Borrower, or (c) lend money to any employees, officers or directors or guarantee the payment of any such loans granted by a third party in excess of $250,000 in the aggregate or (d) waive, release or forgive any Indebtedness owed by any employees, officers or directors in excess of $250,000 in the aggregate.

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7.8          Transfers. Except for Permitted Transfers, Borrower shall not, and shall not allow any Subsidiary to, voluntarily or involuntarily transfer, sell, lease, license, lend or in any other manner convey any equitable, beneficial or legal interest in any material portion of its assets.

7.9          Mergers or Acquisitions.  Without Agent’s prior written consent, which consent shall not be unreasonably withheld, Borrower shall not merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization (other than mergers or consolidations of (a) a Subsidiary which is not a Borrower into another Subsidiary or into Borrower or (b) a Borrower into another Borrower), or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person.

7.10        Taxes.  Borrower and its Subsidiaries shall pay when due all material taxes, fees or other charges of any nature whatsoever (together with any related interest or penalties) now or hereafter imposed or assessed against Borrower, Agent, Lender or the Collateral or upon Borrower’s ownership, possession, use, operation or disposition thereof or upon Borrower’s rents, receipts or earnings arising therefrom (other than taxes imposed on or measured by the net income of Agent or Lender).  Borrower shall file on or before the due date therefor all personal property tax returns in respect of the Collateral.  Notwithstanding the foregoing, Borrower may contest, in good faith and by appropriate proceedings, taxes for which Borrower maintains adequate reserves therefor in accordance with GAAP.

7.11        Corporate Changes. Neither Borrower nor any Subsidiary shall change its corporate name, legal form or jurisdiction of formation without twenty (20) days’ prior written notice to Agent.  Neither Borrower nor any Subsidiary shall suffer a Change in Control. Neither Borrower nor any Subsidiary shall relocate its chief executive office or its principal place of business unless: (i) it has provided prior written notice to Agent; and (ii) such relocation shall be within the continental United States, it being acknowledged that Borrower has given notice of its planned move to 300 Connell Drive, Berkeley Heights, New Jersey 07922 in August 2016.  Neither Borrower nor any Qualified Subsidiary shall relocate any item of Collateral (other than (x) sales of Inventory in the ordinary course of business, (y) relocations of Equipment having an aggregate value of up to $200,000 in any fiscal year, and (z) relocations of Collateral from a location described on Exhibit C to another location described on Exhibit C) unless (i) it has provided prompt written notice to Agent, (ii) such relocation is within the continental United States and, (iii) if such relocation is to a third party bailee, it has delivered a bailee agreement in form and substance reasonably acceptable to Agent.

7.12        Deposit Accounts. Neither Borrower nor any Qualified Subsidiary shall maintain any Deposit Accounts (other than Deposit Accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Agent by Borrower as such), or accounts holding Investment Property, except with respect to which Agent has an Account Control Agreement.

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7.13      Subsidiaries. Borrower shall notify Agent of each Subsidiary formed subsequent to the Closing Date and, within 15 days of formation, shall cause any such Qualified Subsidiary to execute and deliver to Agent a Joinder Agreement.

7.14       Notification of Event of Default. Borrower shall notify Agent immediately of the occurrence of any Event of Default.

7.15       Post-closing Deliverables. Borrower shall deliver to Agent and Lenders within thirty (30) days after the Effective Date, (i) a bailee’s waiver from Central States Industrial Equipment in form and substance acceptable to Agent and Lender, together with the duly executed original signatures thereto; (ii) landlord’s consent for Borrower’s leased location at 300 Connell Drive, Suite 1600, Berkeley Heights, New Jersey 07922, in form and substance acceptable to Agent and Lender, together with the duly executed original signatures thereto, and (iii) endorsements to the Borrower’s property and liability policies, which endorsements shall name Agent as lender loss payee and additional insured, and (iv) an Account Control Agreement with each of (x) Bank of America and (y) Merrill Lynch, in each case in form and substance acceptable to Agent and Lender.

SECTION 8. RIGHT TO INVEST

8.1          At all times when any Secured Obligations (other than any inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) shall be outstanding to Lender hereunder, Lender or its assignee or nominee shall have the right, in its discretion, to participate in any Subsequent Financing in an amount of up to Two Million Dollars ($2,000,000) on substantially the same terms, conditions and pricing afforded to others participating in any such Subsequent Financing.

SECTION 9. EVENTS OF DEFAULT

The occurrence of any one or more of the following events shall be an Event of Default:

9.1          Payments.  Borrower fails to pay any amount due under this Agreement, the Note(s), or any of the other Loan Documents on the due date (or within three (3) Business Days of the due date, provided that such late payment is due to an ACH Failure); provided, however, that an Event of Default shall not occur on account of a failure to pay due solely to an administrative or operational error of Agent, Lender or Borrower’s bank if Borrower had the funds to make the payment when due and makes the payment within three (3) Business Days following Borrower’s knowledge of such failure to pay; or

9.2          Covenants.  Borrower breaches or defaults in the performance of any covenant or Secured Obligation under this Agreement, or any of the other Loan Documents or any other agreement among Borrower, Agent and Lender, and (a) with respect to a default under any covenant under this Agreement (other than under Sections 6, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.12, 7.14, and 7.15), any other Loan Document or any other agreement among Borrower, Agent and Lender, such default continues for more than ten (10) days after the earlier of the date on which (i) Agent or Lender has given notice of such default to Borrower and (ii) Borrower has actual knowledge of such default or (b) with respect to a default under any of Sections 6, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.12, 7.14,and 7.15 the occurrence of such default; or

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9.3          Material Adverse Effect. A circumstance has occurred that would reasonably be expected to have a Material Adverse Effect; or

9.4          Representations.  Any representation or warranty made by Borrower in any Loan Document or in the Warrant shall have been false or misleading in any material respect when made or when deemed made; or

9.5          Insolvency.  Borrower (A) (i) shall make an assignment for the benefit of creditors; or (ii) shall be unable to pay its debts as they become due, or be unable to pay or perform under the Loan Documents, or shall become insolvent; or (iii) shall file a voluntary petition in bankruptcy; or (iv) shall file any petition, answer, or document seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation pertinent to such circumstances; or (v) shall seek or consent to or acquiesce in the appointment of any trustee, receiver, or liquidator of Borrower or of all or any substantial part (i.e., 33-1/3% or more) of the assets or property of Borrower; or (vi) shall cease operations of its business as its business has normally been conducted, or terminate substantially all of its employees; or (vii) Borrower or its directors or majority shareholders shall take any action initiating any of the foregoing actions described in clauses (i) through (vi); or (B) either (i) forty-five (45) days shall have expired after the commencement of an involuntary action against Borrower seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, without such action being dismissed or all orders or proceedings thereunder affecting the operations or the business of Borrower being stayed; or (ii) a stay of any such order or proceedings shall thereafter be set aside and the action setting it aside shall not be timely appealed; or (iii) Borrower shall file any answer admitting or not contesting the material allegations of a petition filed against Borrower in any such proceedings; or (iv) the court in which such proceedings are pending shall enter a decree or order granting the relief sought in any such proceedings; or (v) forty-five (45) days shall have expired after the appointment, without the consent or acquiescence of Borrower, of any trustee, receiver or liquidator of Borrower or of all or any substantial part of the properties of Borrower without such appointment being vacated; or

9.6          Attachments; Judgments.  Any portion of Borrower’s assets is attached or seized, or a levy is filed against any such assets, or a judgment or judgments is/are entered for the payment of money (not covered by independent third party insurance as to which liability has not been rejected by such insurance carrier), individually or in the aggregate, of at least $250,000, or Borrower is enjoined or in any way prevented by court order from conducting any part of its business; or

9.7          Other Obligations.  The occurrence of any default (beyond any applicable grace, appeal or cure period, if any) under any agreement or obligation of Borrower involving any Indebtedness in excess of $250,000.

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9.8          Stop Trade.  At any time, an SEC stop trade order or NASDAQ market trading suspension of the Common Stock shall be in effect for five (5) consecutive days or five (5) days during a period of ten (10) consecutive days, excluding in all cases a suspension of all trading on a public market, provided that Borrower shall not have been able to cure such trading suspension within thirty (30) days of the notice thereof or list the Common Stock on another public market within sixty (60) days of such notice.

SECTION 10. REMEDIES

10.1        General.  Upon and during the continuance of any one or more Events of Default, (i) Agent may, and at the direction of the Required Lenders shall, accelerate and demand payment of all or any part of the Secured Obligations together with a Prepayment Charge and declare them to be immediately due and payable (provided, that upon the occurrence of an Event of Default of the type described in Section 9.5, all of the Secured Obligations shall automatically be accelerated and made due and payable, in each case without any further notice or act), (ii) Agent may, at its option, sign and file in Borrower’s name any and all collateral assignments, notices, control agreements, security agreements and other documents it deems necessary or appropriate to perfect or protect the repayment of the Secured Obligations, and in furtherance thereof, Borrower hereby grants Agent an irrevocable power of attorney coupled with an interest, and (iii) Agent may notify any of Borrower’s account debtors to make payment directly to Agent, compromise the amount of any such account on Borrower’s behalf and endorse Agent’s name without recourse on any such payment for deposit directly to Agent’s account.  Agent may, and at the direction of the Required Lenders shall, exercise all rights and remedies with respect to the Collateral under the Loan Documents or otherwise available to it under the UCC and other applicable law, including the right to release, hold, sell, lease, liquidate, collect, realize upon, or otherwise dispose of all or any part of the Collateral and the right to occupy, utilize, process and commingle the Collateral.  All Agent’s rights and remedies shall be cumulative and not exclusive.

10.2        Collection; Foreclosure.  Upon the occurrence and during the continuance of any Event of Default, Agent may, and at the direction of the Required Lenders shall, at any time or from time to time, apply, collect, liquidate, sell in one or more sales, lease or otherwise dispose of, any or all of the Collateral, in its then condition or following any commercially reasonable preparation or processing, in such order as Agent may elect.  Any such sale may be made either at public or private sale at its place of business or elsewhere.  Borrower agrees that any such public or private sale may occur upon ten (10) calendar days’ prior written notice to Borrower.  Agent may require Borrower to assemble the Collateral and make it available to Agent at a place designated by Agent that is reasonably convenient to Agent and Borrower.  The proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be applied by Agent in the following order of priorities:

First, to Agent and Lender in an amount sufficient to pay in full Agent’s and Lender’s reasonable costs and professionals’ and advisors’ fees and expenses as described in Section 11.11;

Second, to Lender in an amount equal to the then unpaid amount of the Secured Obligations (including principal, interest, and the Default Rate interest), in such order and priority as Agent may choose in its sole discretion; and

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Finally, after the full and final payment in Cash of all of the Secured Obligations (other than inchoate obligations), to any creditor holding a junior Lien on the Collateral, or to Borrower or its representatives or as a court of competent jurisdiction may direct.

Agent shall be deemed to have acted reasonably in the custody, preservation and disposition of any of the Collateral if it complies with the obligations of a secured party under the UCC.

10.3        No Waiver.  Agent shall be under no obligation to marshal any of the Collateral for the benefit of Borrower or any other Person, and Borrower expressly waives all rights, if any, to require Agent to marshal any Collateral.

10.4        Cumulative Remedies.  The rights, powers and remedies of Agent hereunder shall be in addition to all rights, powers and remedies given by statute or rule of law and are cumulative.  The exercise of any one or more of the rights, powers and remedies provided herein shall not be construed as a waiver of or election of remedies with respect to any other rights, powers and remedies of Agent.

SECTION 11. MISCELLANEOUS

11.1        Severability.  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent and duration of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

11.2        Notice. Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other communication (including the delivery of Financial Statements) that is required, contemplated, or permitted under the Loan Documents or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given, delivered, and received upon the earlier of: (i) the day of transmission by electronic mail or hand delivery or delivery by an overnight express service or overnight mail delivery service; or (ii) the third calendar day after deposit in the United States of America mails, with proper first class postage prepaid, in each case addressed to the party to be notified as follows:

If to Agent:	HERCULES CAPITAL, INC.
	Legal Department
	Attention:  Chief Legal Officer and
	Mr. Bryan Jadot
	400 Hamilton Avenue, Suite 310
	Palo Alto, CA  94301
	Email :  legal@herculestech.com and
	bjadot@herculestech.com
	Telephone:  650-289-3060

If to Lender:	HERCULES CAPITAL, INC.
	Legal Department
	Attention:  Chief Legal Officer and
	Mr. Bryan Jadot
	400 Hamilton Avenue, Suite 310
	Palo Alto, CA  94301
	Email :  legal@herculestech.com and
	bjadot@herculestech.com
	Telephone:  650-289-3060

If to Borrower:	EDGE THERAPEUTICS, INC.
	Attention: Andrew Einhorn and W. Bradford Middlekauff
	300 Connell Drive, Suite 1600
	Berkeley Heights, New Jersey 07922
	Facsimile:  (908) 790-1212
	Telephone:  (800) 208-3343
	Email: aeinhorn@edgetherapeutics.com and bmiddlekauff@edgetherapeutics.com

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or to such other address as each party may designate for itself by like notice.

11.3        Entire Agreement; Amendments.

(a)          This Agreement and the other Loan Documents constitute the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and thereof, and supersede and replace in their entirety any prior proposals, term sheets, non-disclosure or confidentiality agreements, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof or thereof (including Agent’s revised proposal letter dated July 13, 2016).

(b)          Neither this Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 11.3(b).  The Required Lenders and Borrower party to the relevant Loan Document may, or, with the written consent of the Required Lenders, Agent and Borrower party to the relevant Loan Document may, from time to time, (i) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of Lenders or of Borrower hereunder or thereunder or (ii) waive, on such terms and conditions as the Required Lenders or Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (A) forgive the principal amount or extend the final scheduled date of maturity of any Loan, extend the scheduled date of any amortization payment in respect of any Term Loan Advance, reduce the stated rate of any interest or fee payable hereunder, or extend the scheduled date of any payment thereof, or increase the amount or extend the expiration date of any Term Loan Advance, in each case without the written consent of each Lender directly affected thereby; (B) eliminate or reduce the voting rights of any Lender under this Section 11.3(b) without the written consent of such Lender; (C) reduce any percentage specified in the definition of Required Lenders, consent to the assignment or transfer by Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release all or substantially all of the Collateral or release a Borrower from its obligations under the Loan Documents, in each case without the written consent of all Lenders; or (D) amend, modify or waive any provision of Section 11.17 without the written consent of Agent.  Any such waiver and any such amendment, supplement or modification shall apply equally to each Lender and shall be binding upon Borrower, Lender, Agent, and all future holders of the Loans.

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11.4        No Strict Construction.  The parties hereto have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

11.5        No Waiver.  The powers conferred upon Agent and Lender by this Agreement are solely to protect its rights hereunder and under the other Loan Documents and its interest in the Collateral and shall not impose any duty upon Agent or Lender to exercise any such powers.  No omission or delay by Agent or Lender at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by Borrower at any time designated, shall be a waiver of any such right or remedy to which Agent or Lender is entitled, nor shall it in any way affect the right of Agent or Lender to enforce such provisions thereafter.

11.6        Survival. All agreements, representations and warranties contained in this Agreement and the other Loan Documents or in any document delivered pursuant hereto or thereto shall be for the benefit of Agent and Lender and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement.

11.7        Successors and Assigns.

(a)          The provisions of this Agreement and the other Loan Documents shall inure to the benefit of and be binding on Borrower and its permitted assigns (if any).  Borrower shall not assign its obligations under this Agreement or any of the other Loan Documents without Agent’s express prior written consent, and any such attempted assignment shall be void and of no effect.  Agent and Lender may assign, transfer, or endorse its rights hereunder and under the other Loan Documents without prior notice to Borrower, and all of such rights shall inure to the benefit of Agent’s and Lender’s successors and assigns; provided that as long as no Event of Default has occurred and is continuing, neither Agent nor any Lender may assign, transfer or endorse its rights hereunder or under the Loan Documents to any party that is a direct competitor of Borrower (as reasonably determined by Agent), it being acknowledged that in all cases, any transfer to an Affiliate of any Lender or Agent shall be allowed.  Notwithstanding the foregoing, so long as no Event of Default has occurred and is continuing, Agent and Lender shall not assign any interest in the Loan Document to an operating company which is a direct competitor of Borrower; and

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(b)          The Agent, acting for this purpose as an agent of Borrower, shall maintain at one of its offices in the United States a register for the recordation of the names and addresses of the Lenders, and the principal amount (and stated interest) of the Loans owing to each Lender pursuant to the terms hereof from time to time (the “Register”).  The entries in the Register shall be conclusive absent manifest error and Borrower may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement.

11.8        Governing Law.  This Agreement and the other Loan Documents have been negotiated and delivered to Agent and Lender in the State of New York, and shall have been accepted by Agent and Lender in the State of New York.  Payment to Agent and Lender by Borrower of the Secured Obligations is due in the State of New York.  This Agreement and the other Loan Documents shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.

11.9        Consent to Jurisdiction and Venue.  All judicial proceedings (to the extent that the reference requirement of Section 11.10 is not applicable) arising in or under or related to this Agreement or any of the other Loan Documents may be brought in any state or federal court located in the State of New York.  By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to nonexclusive personal jurisdiction in New York County, State of New York; (b) waives any objection as to jurisdiction or venue in New York County, State of New York; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement or the other Loan Documents.  Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if given in accordance with the requirements for notice set forth in Section 11.2, and shall be deemed effective and received as set forth in Section 11.2.  Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction.

11.10      Mutual Waiver of Jury Trial / Judicial Reference.  Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert Person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws.  EACH OF BORROWER, AGENT AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, “CLAIMS”) ASSERTED BY BORROWER AGAINST AGENT, LENDER OR THEIR RESPECTIVE ASSIGNEE OR BY AGENT, LENDER OR THEIR RESPECTIVE ASSIGNEE AGAINST BORROWER.  This waiver extends to all such Claims, including Claims that involve Persons other than Agent, Borrower and Lender; Claims that arise out of or are in any way connected to the relationship among Borrower, Agent and Lender; and any Claims for damages, breach of contract, tort, specific performance, or any equitable or legal relief of any kind, arising out of this Agreement, any other Loan Document.

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11.11     Professional Fees. Borrower promises to pay Agent’s and Lender’s documented fees and expenses necessary to finalize the loan documentation, including but not limited to reasonable documented attorneys’ fees, UCC searches, filing costs, and other miscellaneous expenses. In addition, Borrower promises to pay any and all documented reasonable attorneys’ and other professionals’ fees and expenses incurred by Agent and Lender after the Closing Date in connection with or related to:  (a) the Loan; (b) the administration, collection, or enforcement of the Loan; (c) the amendment or modification of the Loan Documents; (d) any waiver, consent, release, or termination under the Loan Documents; (e) the protection, preservation, audit, field exam, sale, lease, liquidation, or disposition of Collateral or the exercise of remedies with respect to the Collateral; (f) any legal, litigation, administrative, arbitration, or out of court proceeding in connection with or related to Borrower or the Collateral, and any appeal or review thereof; and (g) any bankruptcy, restructuring, reorganization, assignment for the benefit of creditors, workout, foreclosure, or other action related to Borrower, the Collateral, the Loan Documents, including representing Agent or Lender in any adversary proceeding or contested matter commenced or continued by or on behalf of Borrower’s estate, and any appeal or review thereof.

11.12      Confidentiality.  Agent and Lender acknowledge that certain items of Collateral and information provided to Agent and Lender by Borrower are confidential and proprietary information of Borrower, if and to the extent such information either (x) is marked as confidential by Borrower at the time of disclosure, or (y) should reasonably be understood to be confidential (the “Confidential Information”).  Accordingly, Agent and Lender agree that any Confidential Information it may obtain in the course of acquiring, administering, or perfecting  Agent’s security interest in the Collateral shall not be disclosed to any other Person or entity in any manner whatsoever, in whole or in part, without the prior written consent of Borrower, except that Agent and Lender may disclose any such information:  (a) to its own directors, officers, employees, accountants, counsel and other professional advisors and to its Affiliates if Agent or Lender in their sole discretion determines that any such party should have access to such information in connection with such party’s responsibilities in connection with the Loan or this Agreement and, provided that such recipient of such Confidential Information either (i) agrees to be bound by the confidentiality provisions of this paragraph or (ii) is otherwise subject to confidentiality restrictions that reasonably protect against the disclosure of Confidential Information; (b) if such information is generally available to the public; (c) if required in any report, statement or testimony submitted to any governmental authority having or claiming to have jurisdiction over Agent or Lender; (d) if required in response to any summons or subpoena or in connection with any litigation, to the extent permitted or deemed advisable by Agent’s or Lender’s counsel; (e) to comply with any legal requirement or law applicable to Agent or Lender; (f) to the extent reasonably necessary in connection with the exercise of any right or remedy under any Loan Document, including Agent’s sale, lease, or other disposition of Collateral after default; (g) to any participant or assignee of Agent or Lender or any prospective participant or assignee; provided, that such participant or assignee or prospective participant or assignee agrees in writing to be bound by this Section prior to disclosure; or (h) otherwise with the prior consent of Borrower; provided, that any disclosure made in violation of this Agreement shall not affect the obligations of Borrower or any of its Affiliates or any guarantor under this Agreement or the other Loan Documents.

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11.13      Assignment of Rights.  Subject to the provisions of Section 11.7, Borrower acknowledges and understands that Agent or Lender may, subject to Section 11.7, sell and assign all or part of its interest hereunder and under the Loan Documents to any Person or entity (an “Assignee”).  After such assignment the term “Agent” or “Lender” as used in the Loan Documents shall mean and include such Assignee, and such Assignee shall be vested with all rights, powers and remedies of Agent and Lender hereunder with respect to the interest so assigned; but with respect to any such interest not so transferred, Agent and Lender shall retain all rights, powers and remedies hereby given.  No such assignment by Agent or Lender shall relieve Borrower of any of its obligations hereunder.  Lender agrees that in the event of any transfer by it of the Note(s)(if any), it will endorse thereon a notation as to the portion of the principal of the Note(s), which shall have been paid at the time of such transfer and as to the date to which interest shall have been last paid thereon.

11.14      Revival of Secured Obligations.  This Agreement and the Loan Documents shall remain in full force and effect and continue to be effective if any petition is filed by or against Borrower for liquidation or reorganization, if Borrower becomes insolvent or makes an assignment for the benefit of creditors, if a receiver or trustee is appointed for all or any significant part of Borrower’s assets, or if any payment or transfer of Collateral is recovered from Agent or Lender.  The Loan Documents and the Secured Obligations and Collateral security shall continue to be effective, or shall be revived or reinstated, as the case may be, if at any time payment and performance of the Secured Obligations or any transfer of Collateral to Agent, or any part thereof is rescinded, avoided or avoidable, reduced in amount, or must otherwise be restored or returned by, or is recovered from, Agent, Lender or by any obligee of the Secured Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment, performance, or transfer of Collateral had not been made.  In the event that any payment, or any part thereof, is rescinded, reduced, avoided, avoidable, restored, returned, or recovered, the Loan Documents and the Secured Obligations shall be deemed, without any further action or documentation, to have been revived and reinstated except to the extent of the full, final, and indefeasible payment to Agent or Lender in Cash.

11.15      Counterparts.  This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument.

11.16      No Third Party Beneficiaries.  No provisions of the Loan Documents are intended, nor will be interpreted, to provide or create any third-party beneficiary rights or any other rights of any kind in any Person other than Agent, Lender and Borrower unless specifically provided otherwise herein, and, except as otherwise so provided, all provisions of the Loan Documents will be personal and solely among Agent, Lender and Borrower.

11.17      Agency.

(a)          Lender hereby irrevocably appoints Hercules Capital, Inc. to act on its behalf as Agent hereunder and under the other Loan Documents and authorizes Agent to take such actions on its behalf and to exercise such powers as are delegated to Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto.

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(b)          Lender  agrees to indemnify Agent in its capacity as such (to the extent not reimbursed by Borrower and without limiting the obligation of Borrower to do so), according to its respective Term Commitment percentages (based upon the total outstanding Term Loan Commitments) in effect on the date on which indemnification is sought under this Section 11.17, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time be imposed on, incurred by or asserted against Agent in any way relating to or arising out of, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by Agent under or in connection with any of the foregoing; The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder.

(c)          Agent in Its Individual Capacity.  The Person serving as Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not Agent and the term “Lender” shall, unless otherwise expressly indicated or unless the context otherwise requires, include each such Person serving as Agent hereunder in its individual capacity.

(d)          Exculpatory Provisions.  Agent shall have no duties or obligations except those expressly set forth herein and in the other Loan Documents.  Without limiting the generality of the foregoing, Agent shall not:

(i)          be subject to any fiduciary or other implied duties, regardless of whether any default or any Event of Default has occurred and is continuing;

(ii)         have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that Agent is required to exercise as directed in writing by Lender, provided that Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose Agent to liability or that is contrary to any Loan Document or applicable law; and

(iii)        except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and Agent shall not be liable for the failure to disclose, any information relating to Borrower or any of its Affiliates that is communicated to or obtained by any Person serving as Agent or any of its Affiliates in any capacity.

(e)          Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of Lender or as Agent shall believe in good faith shall be necessary, under the circumstances or (ii) in the absence of its own gross negligence or willful misconduct.

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(f)          Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Section 4 or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to Agent.

(g)          Reliance by Agent.  Agent may rely, and shall be fully protected in acting, or refraining to act, upon, any resolution, statement, certificate, instrument, opinion, report, notice, request, consent, order, bond or other paper or document that it has no reason to believe to be other than genuine and to have been signed or presented by the proper party or parties or, in the case of cables, telecopies and telexes, to have been sent by the proper party or parties.  In the absence of its gross negligence or willful misconduct, Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to Agent and conforming to the requirements of the Agreement or any of the other Loan Documents.  Agent may consult with counsel, and any opinion or legal advice of such counsel shall be full and complete authorization and protection in respect of any action taken, not taken or suffered by Agent hereunder or under any Loan Documents in accordance therewith.  Agent shall have the right at any time to seek instructions concerning the administration of the Collateral from any court of competent jurisdiction.  Agent shall not be under any obligation to exercise any of the rights or powers granted to Agent by this Agreement, the Agreement and the other Loan Documents at the request or direction of Lenders unless Agent shall have been provided by Lender with adequate security and indemnity against the costs, expenses and liabilities that may be incurred by it in compliance with such request or direction.

11.18       Publicity.  None of the parties hereto nor any of its respective member businesses and Affiliates shall, without the other parties’ prior written consent (which shall not be unreasonably withheld or delayed), publicize or use (a) the other party's name (including a brief description of the relationship among the parties hereto), logo or hyperlink to such other parties’ web site, separately or together, in written and oral presentations, advertising, promotional and marketing materials, client lists, public relations materials or on its web site (together, the " Publicity Materials"); (b) the names of officers of such other parties in the Publicity Materials; and (c) such other parties’ name, trademarks, servicemarks in any news or press release concerning such party; provided however, notwithstanding anything to the contrary herein, no such consent shall be required (i) to the extent necessary to comply with the requests of any regulators, legal requirements, laws applicable to such party or pursuant to any listing agreement with any national securities exchange (so long as such party provides prior notice to the other party hereto to the extent reasonably practicable), (ii) in any public or private offering materials or other investor relations information produced by Borrower (including a brief description of the relationship among Borrower, Agent and Lender) and (iii) to comply with Section 11.12.

(SIGNATURES TO FOLLOW)

IN WITNESS WHEREOF, Borrower, Agent and Lender have duly executed and delivered this Loan and Security Agreement as of the day and year first above written.

BORROWER:

EDGE THERAPEUTICS, INC.

Signature:

Print Name:

Title:

Accepted in Palo Alto, California:

AGENT:

HERCULES CAPITAL, INC.

Signature:

Print Name:

Title:

LENDER:

HERCULES CAPITAL, INC.

Signature:

Print Name:

Title:

(Signature Page to Loan and Security Agreement)

Table of Exhibits and Schedules

Exhibit A:	Advance Request
	Attachment to Advance Request
Exhibit B:	Term Note
Exhibit C:	Name, Locations, and Other Information for Borrower
Exhibit D:	Borrower’s Patents, Trademarks, Copyrights and Licenses
Exhibit E:	Borrower’s Deposit Accounts and Investment Accounts
Exhibit F:	Compliance Certificate
Exhibit G:	Joinder Agreement
Exhibit H:	Borrowing Base Certificate
Exhibit I:	ACH Debit Authorization Agreement
Exhibit J:	Conversion Election Notice

Schedule 1	Subsidiaries
Schedule 1.1	Commitments
Schedule 1A	Existing Permitted Indebtedness
Schedule 1B	Existing Permitted Investments
Schedule 1C	Existing Permitted Liens
Schedule 5.3	Consents, Etc.
Schedule 5.5	Actions Before Governmental Authorities
Schedule 5.8	Tax Matters
Schedule 5.9	Intellectual Property Claims
Schedule 5.10	Intellectual Property
Schedule 5.11	Borrower Products
Schedule 5.14	Capitalization

EXHIBIT A

ADVANCE REQUEST

To:	Agent:	Date:	__________, 2016
	Hercules Capital, Inc. (the “Agent”)
	400 Hamilton Avenue, Suite 310
	Palo Alto, CA 94301
	Email: legal@herculestech.com
	Attn:

Edge Therapeutics, Inc. (“Borrower”) hereby requests from Hercules Capital, Inc. (“Lender”) an Advance in the amount of _____________________ Dollars ($________________) on ______________, _____ (the “Advance Date”) pursuant to the Loan and Security Agreement among Borrower, Agent and Lender (the “Agreement”). Capitalized words and other terms used but not otherwise defined herein are used with the same meanings as defined in the Agreement.

Please:

(a)	Issue a check payable to Borrower
	or
(b)	Wire Funds to Borrower’s account

Bank:

Address:

ABA Number:

Account Number:

Account Name:

Contact Person:

Phone Number

To Verify Wire Info:

E-mail Address:

Borrower represents that the conditions precedent to the Advance set forth in the Agreement are satisfied and shall be satisfied upon the making of such Advance, including but not limited to:  (i) that no event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing; (ii) that the representations and warranties set forth in the Agreement and in the Warrant are and shall be true and correct in all material respects on and as of the Advance Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date; (iii) that Borrower is in compliance with all the terms and provisions set forth in each Loan Document on its part to be observed or performed; and (iv) that as of the Advance Date, no fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute an Event of Default under the Loan Documents.  Borrower understands and acknowledges that Agent has the right to review the financial information supporting this representation and, based upon such review in its sole discretion, Lender may decline to fund the requested Advance.

Borrower hereby represents that Borrower’s corporate status and locations have not changed since the date of the Agreement or, if the Attachment to this Advance Request is completed, are as set forth in the Attachment to this Advance Request.

Borrower agrees to notify Agent promptly before the funding of the Loan if any of the matters which have been represented above shall not be true and correct on the Borrowing Date and if Agent has received no such notice before the Advance Date then the statements set forth above shall be deemed to have been made and shall be deemed to be true and correct as of the Advance Date.

Executed as of [              ], 20[   ].

BORROWER:

EDGE THERAPEUTICS, INC.

SIGNATURE:

TITLE:

PRINT NAME:

ATTACHMENT TO ADVANCE REQUEST

Dated:

Borrower hereby represents and warrants to Agent that Borrower’s current name and organizational status is as follows:

Name:	Edge Therapeutics, Inc.
Type of organization:	Corporation
State of organization:	Delaware
Organization file number:

Borrower hereby represents and warrants to Agent that the street addresses, cities, states and postal codes of its current locations are as follows:

EXHIBIT B

SECURED TERM PROMISSORY NOTE

$[  ],000,000	Advance Date:  ___ __, 20[  ]
	Maturity Date:  ___ __, 20[  ]

FOR VALUE RECEIVED, Edge Therapeutics, Inc. a Delaware corporation, for itself and each of its Qualified Subsidiaries (the “Borrower”) hereby promises to pay to the order of Hercules Capital, Inc., a Maryland corporation or the holder of this Note (the “Lender”) at 400 Hamilton Avenue, Suite 310, Palo Alto, CA 94301 or such other place of payment as the holder of this Secured Term Promissory Note (this “Promissory Note”) may specify from time to time in writing, in lawful money of the United States of America, the principal amount of [  ] Million Dollars ($[  ],000,000) or such other principal amount as Lender has advanced to Borrower, together with interest at a rate as set forth in Section 2.2(c) of the Agreement based upon a year consisting of 360 days, with interest computed daily based on the actual number of days in each month.

This Promissory Note is the Note referred to in, and is executed and delivered in connection with, that certain Loan and Security Agreement dated [              ], 2016, by and among Borrower, Hercules Capital, Inc., a Maryland corporation (the “Agent”) and the several banks and other financial institutions or entities from time to time party thereto as lender (as the same may from time to time be amended, modified or supplemented in accordance with its terms, the “Agreement”), and is entitled to the benefit and security of the Agreement and the other Loan Documents (as defined in the Agreement), to which reference is made for a statement of all of the terms and conditions thereof.  All payments shall be made in accordance with the Agreement.  All terms defined in the Agreement shall have the same definitions when used herein, unless otherwise defined herein.  An Event of Default under the Agreement shall constitute a default under this Promissory Note.

Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest under the UCC or any applicable law.   Borrower agrees to make all payments under this Promissory Note without setoff, recoupment or deduction and regardless of any counterclaim or defense.  This Promissory Note has been negotiated and delivered to Lender and is payable in the State of New York.  This Promissory Note shall be governed by and construed and enforced in accordance with, the laws of the State of New York, excluding any conflicts of law rules or principles that would cause the application of the laws of any other jurisdiction.

BORROWER FOR ITSELF AND
ON BEHALF OF ITS QUALIFIED SUBSIDIARIES:
	EDGE THERAPEUTICS, INC.
	By:
	TITLE:

EXHIBIT C

NAME, LOCATIONS, AND OTHER INFORMATION FOR BORROWER

1.  Borrower represents and warrants to Agent that Borrower’s current name and organizational status as of the Closing Date is as follows:

Name:	Edge Therapeutics, Inc.
Type of organization:	Corporation
State of organization:	Delaware
Organization file number:

2.  Borrower represents and warrants to Agent that for five (5) years prior to the Closing Date, Borrower did not do business under any other name or organization or form except the following:

Name:

Used during dates of:

Type of Organization:

State of organization:

Organization file Number:

Borrower’s fiscal year ends on _____

Borrower’s federal employer tax identification number is: _______________

3.  Borrower represents and warrants to Agent that its chief executive office is located at _______________.

EXHIBIT D

BORROWER’S PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES

EXHIBIT E

BORROWER’S DEPOSIT ACCOUNTS AND INVESTMENT ACCOUNTS

EXHIBIT F

COMPLIANCE CERTIFICATE

Hercules Capital, Inc. (as “Agent”)

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

Reference is made to that certain Loan and Security Agreement dated [               ], 2016 and the Loan Documents (as defined therein) entered into in connection with such Loan and Security Agreement all as may be amended from time to time (hereinafter referred to collectively as the “Agreement”) by and among Hercules Capital, Inc., as agent for Lender (the “Agent”), the several banks and other financial institutions or entities from time to time party thereto (collectively, the “Lender”) and Edge Therapeutics, Inc. (the “Borrower”) as Borrower. All capitalized terms not defined herein shall have the same meaning as defined in the Agreement.

The undersigned is an Officer of Borrower, knowledgeable of all Borrower financial matters, and is authorized to provide certification of information regarding Borrower; hereby certifies, in such capacity, that in accordance with the terms and conditions of the Agreement, Borrower is in compliance for the period ending ___________ of all covenants, conditions and terms and hereby reaffirms that all representations and warranties contained therein are true and correct on and as of the date of this Compliance Certificate with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date, after giving effect in all cases to any standard(s) of materiality contained in the Agreement as to such representations and warranties.  Attached are the required documents supporting the above certification.  The undersigned further certifies that these are prepared in accordance with GAAP (except (i) for the absence of footnotes with respect to unaudited financial statements, (ii) that they are subject to normal year-end adjustments, and (iii) they do not contain certain non-cash items that are customarily included in quarterly and annual financial statements) and are consistent from one period to the next except as explained below.

REPORTING REQUIREMENT	REQUIRED	CHECK IF ATTACHED
Interim Financial Statements	Monthly within 30 days
Interim Financial Statements	Quarterly within 45 days
Audited Financial Statements	FYE within 90 days

The undersigned hereby also confirms the below disclosed accounts represent all depository accounts and securities accounts presently open in the name of each Borrower or Borrower Subsidiary/Affiliate, as applicable.

		Depository AC #	Financial Institution	Account Type  (Depository /  Securities)	Last Month Ending Account Balance	Purpose of Account
BORROWER Name/Address:
	1
	2
	3
	4
	5
	6
	7
BORROWER SUBSIDIARY / AFFILIATE COMPANY Name/Address
	1
	2
	3
	4
	5
	6
	7

Very Truly Yours,

EDGE THERAPEUTICS, INC.

By:

Name:

Its:

EXHIBIT G

FORM OF JOINDER AGREEMENT

This Joinder Agreement (the “Joinder Agreement”) is made and dated as of [          ], 20[  ], and is entered into by and between__________________., a ___________ corporation (“Subsidiary”), and HERCULES CAPITAL, INC., a Maryland corporation (as “Agent”).

RECITALS

A.  Subsidiary’s Affiliate, Edge Therapeutics, Inc. (“Borrower”) has entered into that certain Loan and Security Agreement dated [         ], 2016, with the several banks and other financial institutions or entities from time to time party thereto as lender (collectively, the “Lender”) and Agent, as such agreement may be amended (the “Agreement”), together with the other agreements executed and delivered in connection therewith;

B.  Subsidiary acknowledges and agrees that it will benefit both directly and indirectly from Borrower’s execution of the Agreement and the other agreements executed and delivered in connection therewith;

AGREEMENT

NOW THEREFORE, Subsidiary and Agent agree as follows:

1. The recitals set forth above are incorporated into and made part of this Joinder Agreement.  Capitalized terms not defined herein shall have the meaning provided in the Agreement.

2. By signing this Joinder Agreement, Subsidiary shall be bound by the terms and conditions of the Agreement the same as if it were Borrower (as defined in the Agreement) under the Agreement, mutatis mutandis, provided however, that (a) with respect to (i) Section 5.1 of the Agreement, Subsidiary represents that it is an entity duly organized, legally existing and in good standing under the laws of [        ], (b) neither Agent nor Lender shall have any duties, responsibilities or obligations to Subsidiary arising under or related to the Agreement or the other agreements executed and delivered in connection therewith, (c) that if Subsidiary is covered by Borrower’s insurance, Subsidiary shall not be required to maintain separate insurance or comply with the provisions of Sections 6.1 and 6.2 of the Agreement, and (d) that as long as Borrower satisfies the requirements of Section 7.1 of the Agreement, Subsidiary shall not have to provide Agent separate Financial Statements.  To the extent that Agent or Lender has any duties, responsibilities or obligations arising under or related to the Agreement or the other agreements executed and delivered in connection therewith, those duties, responsibilities or obligations shall flow only to Borrower and not to Subsidiary or any other Person or entity.  By way of example (and not an exclusive list): (i) Agent’s providing notice to Borrower in accordance with the Agreement or as otherwise agreed among Borrower, Agent and Lender shall be deemed provided to Subsidiary; (ii) a Lender’s providing an Advance to Borrower shall be deemed an Advance to Subsidiary; and (iii) Subsidiary shall have no right to request an Advance or make any other demand on Lender.

3. Subsidiary agrees not to certificate its equity securities without Agent’s prior written consent, which consent may be conditioned on the delivery of such equity securities to Agent in order to perfect Agent’s security interest in such equity securities.

4. Subsidiary acknowledges that it benefits, both directly and indirectly, from the Agreement, and hereby waives, for itself and on behalf on any and all successors in interest (including without limitation any assignee for the benefit of creditors, receiver, bankruptcy trustee or itself as debtor-in-possession under any bankruptcy proceeding) to the fullest extent provided by law, any and all claims, rights or defenses to the enforcement of this Joinder Agreement on the basis that (a) it failed to receive adequate consideration for the execution and delivery of this Joinder Agreement or (b) its obligations under this Joinder Agreement are avoidable as a fraudulent conveyance.

 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

[SIGNATURE PAGE TO JOINDER AGREEMENT]

SUBSIDIARY:

.

By:

Name:

Title:

Address:

Telephone:

Email:

AGENT:

HERCULES CAPITAL, INC.

By:

Name:

Title:

Address:

400 Hamilton Ave., Suite 310

Palo Alto, CA 94301

Email: legal@herculestech.com

Telephone:  650-289-3060

ACH DEBIT AUTHORIZATION AGREEMENT

Hercules Capital, Inc.

400 Hamilton Avenue, Suite 310

Palo Alto, CA  94301

Re:  Loan and Security Agreement dated _______________  (the “Agreement”) by and among Edge Therapeutics, Inc. (“Borrower”) and Hercules Capital, Inc., as agent (“Agent”) and the lenders party thereto (collectively, the “Lender”)

In connection with the above referenced Agreement, Borrower hereby authorizes Agent to initiate debit entries for (i) the periodic payments due under the Agreement and (ii) out-of-pocket legal fees and costs incurred by Agent or Lender pursuant to Section 11.11 of the Agreementto Borrower’s account indicated below.  Borrower authorizes the depository institution named below to debit to such account.

DEPOSITORY NAME	BRANCH
CITY	STATE AND ZIP CODE
TRANSIT/ABA NUMBER	ACCOUNT NUMBER

This authority will remain in full force and effect so long as any amounts are due under the Agreement.

EDGE THERAPEUTICS, INC.

By:

Date:

Acknowledged and agreed to:

AGENT:

HERCULES CAPITAL, INC.

By:

Name:

Title:

LENDER:

HERCULES CAPITAL, INC.

By:

Name:

Title:

Address:

400 Hamilton Ave., Suite 310

Palo Alto, CA 94301

Facsimile: (650) 473-9194

Telephone: (650) 289-3060

SCHEDULE 1.1

COMMITMENTS

LENDER	TERM COMMITMENT
Hercules Capital, Inc.	$15,000,000 (Term Loan I)
Hercules Capital, Inc.	$5,000,000 (Term Loan II)
TOTAL COMMITMENTS	$20,000,000

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Brian A. Leuthner, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Edge Therapeutics, Inc. for the period ended September 30, 2016;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 1, 2016	/s/ Brian A. Leuthner
	Brian A. Leuthner
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Andrew J. Einhorn, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Edge Therapeutics, Inc. for the period ended September 30, 2016;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 1, 2016	/s/ Andrew J. Einhorn
	Andrew J. Einhorn
	Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report of Edge Therapeutics, Inc. (the “Company”), on Form 10-Q for the quarter ended September 30, 2016 (the “Report”), I, Brian A. Leuthner, President and Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that:

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 1, 2016	/s/ Brian A. Leuthner
	Brian A. Leuthner
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report of Edge Therapeutics, Inc. (the “Company”), on Form 10-Q for the quarter ended September 30, 2016 (the “Report”), I, Andrew J. Einhorn, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that:

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 1, 2016	/s/ Andrew J. Einhorn
	Andrew J. Einhorn,
	Chief Financial Officer
	(Principal Financial Officer)

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Oct. 28, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	Edge Therapeutics, Inc.
Entity Central Index Key	0001472091
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		28,917,419
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016

XML

Balance Sheets (Unaudited) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 112,784,622	$ 130,189,421
Prepaid expenses and other current assets	359,863	1,081,084
Total current assets	113,144,485	131,270,505
Property and equipment, net	3,291,873	2,766,992
Other assets	142,870	55,161
Total assets	116,579,228	134,092,658
Current liabilities:
Accounts payable	1,963,350	2,584,249
Accrued expenses	2,290,249	3,734,348
Short term debt	0	2,271,111
Total current liabilities	4,253,599	8,589,708
Noncurrent liability:
Long term debt	14,817,482	3,025,423
STOCKHOLDERS' EQUITY
Common stock, $0.00033 par value, 75,000,000 shares authorized at September 30, 2016 and December 31, 2015, 28,849,446 shares and 28,810,845 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively	9,754	9,720
Additional paid-in capital	189,058,164	184,721,777
Accumulated deficit	(91,559,771)	(62,253,970)
Total stockholders' equity	97,508,147	122,477,527
Total liabilities and stockholders' equity	$ 116,579,228	$ 134,092,658

XML

Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
STOCKHOLDERS' EQUITY
Common stock, par value (in dollars per share)	$ 0.00033	$ 0.00033
Common stock, shares authorized (in shares)	75,000,000	75,000,000
Common stock, shares issued (in shares)	28,915,226	28,810,845
Common stock, shares outstanding (in shares)	28,915,226	28,810,845

XML

Statements of Operations and Comprehensive Loss (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Operating expenses:
Research and development expenses	$ 6,724,503	$ 6,507,972	$ 18,046,572	$ 12,574,455
General and administrative expenses	3,552,289	1,976,888	10,526,775	5,052,983
Total operating expenses	10,276,792	8,484,860	28,573,347	17,627,438
Loss from operations	(10,276,792)	(8,484,860)	(28,573,347)	(17,627,438)
Other income (expense):
Warrant remeasurement	0	(1,433,502)	0	(1,879,823)
Other expense	(163,463)	0	(163,463)	0
Interest income	56,082	1,333	148,272	2,810
Interest expense	(375,089)	(213,021)	(717,263)	(615,047)
Net loss	(10,759,262)	(10,130,050)	(29,305,801)	(20,119,498)
Comprehensive loss	(10,759,262)	(10,130,050)	(29,305,801)	(20,119,498)
Cumulative dividend on Series C , C-1 and C-2 convertible preferred stock	0	(1,827,568)	0	(4,257,083)
Net loss attributable to common stockholders	$ (10,759,262)	$ (11,957,618)	$ (29,305,801)	$ (24,376,581)
Loss per share attributable to common stockholders basic and diluted (in dollars per share)	$ (0.37)	$ (7.08)	$ (1.02)	$ (14.44)
Weighted average common shares outstanding basic and diluted (in shares)	28,896,941	1,688,475	28,848,842	1,688,475

XML

Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities:
Net loss	$ (29,305,801)	$ (20,119,498)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	4,029,326	1,566,562
Warrant remeasurement	0	1,879,823
Depreciation expense	60,331	38,360
Loss on disposal of fixed assets	102,789	0
Amortization of debt discount	60,206	79,400
Amortization of debt issuance costs	63,699	0
Non-cash interest expense	82,357	28,667
Changes in assets and liabilities:
Prepaid expenses and other assets	633,513	78,814
Accounts payable	(399,708)	(126,415)
Accrued expenses	(1,469,109)	1,604,432
Net cash used in operating activities	(26,142,397)	(14,969,855)
Cash flows from investing activities:
Purchases of property and equipment	(339,410)	(799,424)
Net cash used in investing activities	(339,410)	(799,424)
Cash flows from financing activities:
Proceeds from issuance of debt	11,022,286	3,000,000
Proceeds from exercise of stock options	293,988	0
Proceeds from exercise of warrants	13,107	0
Payments for issuance costs	(544,773)	(474,357)
Payments for debt issuance costs	(219,042)	0
Repayment of debt	(1,488,558)	0
Proceeds from issuance of preferred stock, net of issuance costs	0	52,394,571
Net cash provided by financing activities	9,077,008	54,920,214
Net (decrease) increase in cash	(17,404,799)	39,150,935
Cash and cash equivalents at beginning of period	130,189,421	13,728,972
Cash and cash equivalents at end of period	112,784,622	52,879,907
Cash paid for:
Interest	443,464	412,717
Supplemental cash flow information:
Deferred issuance costs included in accrued expenses and accounts payable	0	552,410
Non-cash financing costs	0	175,114
Accrued capital expenditures included in accrued expenses and accounts payable	$ 348,591	$ 576,839

XML

Nature of Operations

9 Months Ended

Sep. 30, 2016

Nature of Operations [Abstract]

Nature of Operations

Note 1 - Nature of Operations

Edge Therapeutics, Inc. (the “Company”) is a clinical-stage biotechnology company that discovers, develops and seeks to commercialize novel, hospital-based therapies capable of transforming treatment paradigms in the management of acute, life-threatening neurological conditions. The Company’s product candidates utilize its proprietary, programmable, biodegradable polymer-based development platform (the Precisa Platform ^TM), and a novel delivery mechanism that seeks to enable targeted and sustained drug exposure and avoid the dose-limiting side effects associated with the current standard of care.

From the Company’s inception, it has devoted substantially all of its efforts to business planning, engaging regulatory, manufacturing and other technical consultants, acquiring operating assets, planning and executing clinical trials and raising capital. The Company’s future operations are highly dependent on a combination of factors, including (i) the success of its research and development, (ii) the development of competitive therapies by other biotechnology and pharmaceutical companies, and, ultimately, (iii) regulatory approval and market acceptance of the Company’s proposed future products.

On October 6, 2015, the Company completed an initial public offering (the “IPO”) of 8,412,423 shares of its common stock which included 1,097,272 shares of common stock issued upon the exercise in full by the underwriters of their over-allotment option at a price of $11.00 per share for aggregate gross proceeds of approximately $92.5 million. The Company received approximately $82.8 million in net proceeds after deducting underwriting discounts and commissions and other offering costs of approximately $9.7 million. Immediately prior to the closing of the IPO, all of the Company’s outstanding shares of convertible preferred stock, including shares issued for accrued dividends, automatically converted into 18,566,856 shares of common stock at the applicable conversion ratio then in effect. There are no shares of preferred stock outstanding. In connection with the IPO, the Company amended and restated its Seventh Amended and Restated Certificate of Incorporation to change the authorized capital stock to 75,000,000 shares designated as common stock and 5,000,000 shares designated as preferred stock, all with a par value of $0.00033 per share.

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2016

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 2 - Summary of Significant Accounting Policies

(A) Unaudited interim financial statements:

The interim balance sheet at September 30, 2016, the statements of operations and comprehensive loss for the three and nine months ended September 30, 2016 and 2015, and cash flows for the nine months ended September 30, 2016 and 2015 are unaudited. The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), and following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of its financial information. The results of operations for the nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016 or for any other future annual or interim period. The balance sheet as of December 31, 2015 included herein was derived from the audited financial statements as of that date. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2015.

(B) Use of estimates:

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(C) Significant risks and uncertainties:

The Company’s operations are subject to a number of factors that may affect its operating results and financial condition. Such factors include, but are not limited to: the results of clinical testing and trial activities of the Company’s product candidates, the Company’s ability to obtain regulatory approval to market its products, the Company’s intellectual property, competition from products manufactured and sold or being developed by other companies, the price of, and demand for, Company products if approved for sale, the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, and the Company’s ability to raise capital.

The Company currently has no commercially approved products and there can be no assurance that the Company’s research and development programs will be successfully commercialized. Developing and commercializing a product requires significant time and capital and is subject to regulatory review and approval as well as competition from other biotechnology and pharmaceutical companies. The Company operates in an environment of rapid change and is dependent upon the continued services of its employees and consultants and obtaining and protecting its intellectual property.

(D) Cash equivalents and concentration of cash balance:

The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits.

(E) Research and development:

Costs incurred in connection with research and development activities are expensed as incurred. These costs include licensing fees to use certain technology in the Company’s research and development projects as well as fees paid to consultants and various entities that perform certain research and testing on behalf of the Company.

Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data, such as patient enrollment, clinical site activations or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred.

(F) Stock-based compensation:

The Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award.

Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including, for stock options, the expected life of the option, and expected stock price volatility. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.

The expected life of stock options was estimated using the “simplified method,” as the Company has limited historical information to develop reasonable expectations about future exercise patterns and employment duration for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate the fair value of options grants. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option.

The estimation of the number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised.

(G) Net loss per common share:

Basic and diluted net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted average common shares outstanding during the period. For all periods presented, the common shares underlying the preferred stock, common stock options and warrants have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted average shares outstanding used to calculate both basic and diluted loss per common share are the same.

The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding as they would be anti-dilutive:

	As of September 30,
	2016		2015
Stock options to purchase Common Stock		5,166,511		4,227,022
Convertible preferred stock to purchase Common Stock		-		17,497,815
Warrants to purchase Common Stock		544,705		99,401
Warrants to purchase Series C Preferred Stock		-		338,534
Warrants to purchase Series C-1 Preferred Stock		-		332,480
Total		5,711,216		22,495,252

(H) Recently adopted standards:

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842).” The new standard requires organizations that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. This standard is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact of adoption.

In March 2016, the FASB issued ASU No. 2016-09 which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Public companies will be required to adopt this standard in annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period provided that the entire standard is adopted. The Company does not expect adoption of the ASU will have a material impact on the financial statements based upon preliminary evaluation.

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Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2016

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

Note 3 – Fair Value of Financial Instruments

There were no transfers between Levels 1, 2, or 3 during 2016 or 2015.

	Fair Value Measurements at Reporting Date Using
	Total		Quoted Prices in Active Markets (Level 1)		Quoted Prices in Inactive Markets (Level 2)		Significant Unobservable Inputs (Level 3)
As of September 30, 2016: (unaudited)
Cash and cash equivalents	$	112,784,622	$	112,784,622	$	-	$	-
As of December 31, 2015:
Cash and cash equivalents	$	130,189,421	$	130,189,421	$	-	$	-

Prior to our IPO, which closed on October 6, 2015, Level 3 instruments consisted of the Company’s Series C and Series C-1 convertible preferred stock warrant liability and common stock warrant liability. The fair values of the outstanding warrants were measured using the Black-Scholes option-pricing model (Note 5). Inputs used to determine estimated fair value of the warrant liabilities include the estimated fair value of the underlying stock at the valuation date, the estimated term of the warrants, risk-free interest rates, expected dividends and the expected volatility of the underlying stock. The significant unobservable inputs used in the fair value measurement of the warrant liabilities were the fair value of the underlying stock at the valuation date and the estimated term of the warrants. Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement. After the IPO, the warrants were no longer liability classified and were no longer considered Level 3 instruments.

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Accrued Expenses

9 Months Ended

Sep. 30, 2016

Accrued Expenses [Abstract]

Accrued Expenses

Note 4 – Accrued Expenses

Accrued expenses and other liabilities consist of the following:

	As of September 30,		As of December 31,
	2016		2015
Accrued research and development costs	$	377,294	$	1,874,126
Accrued professional fees		440,799		258,568
Accrued compensation		1,300,793		1,510,430
Accrued other		169,385		56,835
Deferred rent		1,978		34,389
Total	$	2,290,249	$	3,734,348

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Stock Options

9 Months Ended

Sep. 30, 2016

Stock Options [Abstract]

Stock Options

Note 5 - Stock Options

The Company has three equity compensation plans: the 2010 Equity Incentive Plan, the 2012 Equity Incentive Plan and the 2014 Equity Incentive Plan (the “Plans”). Originally, the Company was able to grant up to 548,206 and 1,096,411 shares of Common Stock as both incentive stock options (“ISOs”) and nonqualified stock options (“NQs”) under the 2010 Equity Incentive Plan and the 2012 Equity Incentive Plan, respectively. In 2013, the Company’s stockholders approved an increase to 1,279,146 shares authorized for issuance under the 2010 Equity Incentive Plan. In 2014, the Board of Directors of the Company (the “Board”) approved an increase to 1,350,412 shares authorized for issuance under the 2010 Equity Incentive Plan.

In 2014, the Company’s stockholders approved the 2014 Equity Incentive Plan pursuant to which the Company may grant up to 1,827,351 shares as both ISOs and NQs (the “Plan Limit”). However, on January 1, 2015 and each January 1 thereafter prior to the termination of the 2014 Equity Incentive Plan, pursuant to the terms of the 2014 Equity Incentive Plan, the Plan Limit was and shall be increased by the lesser of (x) 4% of the number of shares of Common Stock outstanding as of the immediately preceding December 31 and (y) such lesser number as the Board of Directors may determine in its discretion. On January 1, 2015 and January 1, 2016 the Plan Limit was increased to 1,894,890 and 3,047,323 shares, respectively.

Pursuant to the terms of the Plans, ISOs have a term of ten years from the date of grant or such shorter term as may be provided in the option agreement. Unless specified otherwise in an individual option agreement, ISOs generally vest over a four year term and NQs generally vest over a three or four year term. Unless terminated by the Board, the Plans shall continue to remain effective for a term of ten years or until such time as no further awards may be granted and all awards granted under the Plans are no longer outstanding.

On November 16, 2015, the Company issued non-qualified options to purchase a total of 80,000 shares of common stock to W. Bradford Middlekauff, its newly appointed Senior Vice President, General Counsel and Secretary. The award was granted outside of the Company’s 2014 Equity Incentive Plan and vests over four years with 25% vesting on October 30, 2016, which is one year following Mr. Middlekauff’s date of hire, and the remaining 75% vesting in 36 equal monthly installments thereafter, subject to Mr. Middlekauff’s continued service to the Company through each vesting date and subject to acceleration or forfeiture upon the occurrence of certain events as set forth in Mr. Middlekauff’s option agreement and employment agreement. The foregoing grant award was made pursuant to the NASDAQ inducement grant exception as a material component of Mr. Middlekauff’s employment compensation.

On July 1, 2016, the Company issued non-qualified options to purchase a total of 85,000 shares of common stock to Harry J. Sacks, its newly appointed Vice President, Clinical Development. The award was granted outside of the Company’s 2014 Equity Incentive Plan and vests over four years with 25% vesting on June 20, 2017, which is one year following Dr. Sack’s date of hire, and the remaining 75% vesting in 36 equal monthly installments thereafter, subject to Dr. Sack’s continued service to the Company through each vesting date and subject to acceleration or forfeiture upon the occurrence of certain events as set forth in Dr. Sack’s option agreement. The foregoing grant award was made pursuant to the NASDAQ inducement grant exception as a material component of Dr. Sack’s employment compensation.

The Company’s stock-based compensation expense was recognized in operating expense as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
	(unaudited)				(unaudited)
Stock-Based Compensation
Research and development	$	567,452	$	273,782	$	1,609,683	$	702,322
General and administrative		665,579		338,096		2,419,643		864,240
Total	$	1,233,031	$	611,878	$	4,029,326	$	1,566,562

The fair value of options and warrants granted during the three and nine months ended September 30, 2016 and 2015 was estimated using the Black-Scholes option valuation model utilizing the following assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
	Weighted Average			Weighted Average			Weighted Average			Weighted Average
	(unaudited)						(unaudited)
Volatility		71.80	%		79.80	%		77.96	%		79.80	%
Risk-Free Interest Rate		1.19	%		1.59	%		1.38	%		1.74	%
Expected Term in Years		6.07			6.08			6.02			6.08
Dividend Rate		0.00	%		0.00	%		0.00	%		0.00	%
Fair Value of Option on Grant Date	$	6.78		$	7.51		$	5.24		$	5.22

The following table summarizes the number of options outstanding and the weighted average exercise price:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Options outstanding at December 31, 2015		4,302,267		$	5.19
Granted		1,061,400			7.81
Exercised		(63,639	)		4.62
Forfeited		(133,517	)		5.79
Options outstanding at September 30, 2016		5,166,511		$	5.72		7.78	$	24,994,623
Vested and expected to vest at September 30, 2016		5,077,867		$	5.68		7.76	$	24,747,792
Exercisable at September 30, 2016		2,810,161		$	4.22		6.94	$	17,557,732

At September 30, 2016 there was approximately $10,353,101 of unamortized stock compensation expense, which is expected to be recognized over a remaining average vesting period of 1.39 years.

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Income Taxes

9 Months Ended

Sep. 30, 2016

Income Taxes [Abstract]

Income Taxes

Note 6 – Income Taxes

In assessing the realizability of the net deferred tax assets, the Company considers all relevant positive and negative evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of the gross deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards. There was a full valuation allowance against the net deferred tax assets as of September 30, 2016 and December 31, 2015.

At December 31, 2015, the Company had federal net operating loss (“NOL”) carryforwards of approximately $47.5 million which expire between 2029 and 2035. At December 31, 2015, the Company had federal research and development credits carryforwards of approximately $0.8 million and an orphan drug credit carryover of approximately $4.0 million. The Company may be subject to the net operating loss utilization provisions of Section 382 of the Internal Revenue Code. The effect of an ownership change would be the imposition of an annual limitation on the use of NOL carryforwards attributable to periods before the change. The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Company’s capital during a specified period prior to the change, and the federal published interest rate. Although the Company has not completed an analysis under Section 382 of the Code, it is likely that the utilization of the NOLs would be limited.

At December 31, 2015, the Company had approximately $23.3 million of NJ NOL’s which expire between 2030 and 2035. At December 31, 2015, the Company had approximately $0.3 million of the State of New Jersey research development credits carryforwards.

Entities are also required to evaluate, measure, recognize and disclose any uncertain income tax provisions taken on their income tax returns. The Company has analyzed its tax positions and has concluded that as of December 31, 2015, there were no uncertain positions. The Company’s U.S. federal and state net operating losses have occurred since its inception in 2009 and as such, tax years subject to potential tax examination could apply from that date because the utilization of net operating losses from prior years opens the relevant year to audit by the IRS and/or state taxing authorities. Interest and penalties, if any, as they relate to income taxes assessed, are included in the income tax provision. There was no income tax related interest and penalties included in the income tax provision for the nine months ended September 30, 2016 and 2015.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Note 7 – Commitments and Contingencies

Evonik

The Company entered into an agreement with SurModics Pharmaceuticals, Inc. (“SurModics”) in October 2010 for the exclusive worldwide licensing of certain technology, patent rights and know-how rights related to the production of EG-1962, the Company’s lead product candidate (the “Evonik Agreement”). This agreement was later transferred to Evonik Industries AG (“Evonik”) when it purchased substantially all the assets of SurModics.

Pursuant to the Evonik Agreement, in exchange for the license, the Company agreed to make milestone payments totaling up to $14.75 million upon the achievement of certain development, regulatory and sales milestones detailed in the Evonik Agreement. The Company paid $0.25 million upon execution of the Evonik Agreement.  In August 2016, the Company paid a milestone of $1.0 million after the first patient in the Phase 3 clinical trial of EG-1962 was dosed.  In addition, the Evonik Agreement calls for the Company to pay royalties on certain products based on a mid-single digit percentage of net sales. The Evonik Agreement provides for the reduction of royalties in certain limited circumstances.

In September 2015, the Company and Evonik entered into Amendment No. 1 to the Evonik Agreement. This amendment clarified the Company’s obligations to pay Evonik certain royalty and milestone payments in respect of certain products whether or not manufactured by Evonik and removed the Company’s obligation to negotiate exclusively with Evonik for Phase 3 and commercial supply of EG-1962. The term of the Evonik Agreement will continue until the expiration of the Company’s obligation to pay royalties to Evonik. Either party may terminate the Evonik Agreement due to material breach by the other party. Evonik may terminate the Evonik Agreement or convert it to a non-exclusive license, in either case upon giving the Company written notice, if the Company fails to use commercially reasonable efforts to hit certain specified development, regulatory and commercial milestones.

Employment Agreements

The Company has entered into employment agreements with each of its executives. The agreements generally provide for, among other things, salary, bonus and severance payments. The employment agreements provide for between 12 months and 18 months of severance benefits to be paid to an executive (as well as certain potential bonus, COBRA and equity award benefits), subject to the effectiveness of a general release of claims, if the executive terminates his or her employment for good reason or if the Company terminates the executive’s employment without cause. The continued provision of severance benefits is conditioned on each executive’s compliance with the terms of the Company’s confidentiality and invention and assignment agreement as well as his or her release of claims.

Leases

Effective December 13, 2013 the Company entered into a 63 month lease for approximately 8,000 square feet of office space in Berkeley Heights, New Jersey. On February 18, 2016, the Company entered into a new 63 month lease for approximately 20,410 square feet of office space within the same office complex in Berkeley Heights, New Jersey. The terms of the new lease were structured so that the termination date of the December 13, 2013 lease coincided with the commencement date of the new lease on August 13, 2016. As a result of the lease termination, the Company wrote off $67,118 of leasehold improvements.

Rent expense is recognized on a straight line basis where there are escalating payments, and was approximately $82,163 and $58,271 for the three months ended September 30, 2016 and 2015, respectively and $196,322 and $149,371 for the nine months ended September 30, 2016 and 2015, respectively.

The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of September 30, 2016:

Year ended December 31,
2016 (remaining)	$	148,799
2017		592,256
2018		602,461
2019		604,541
2020		603,371
2021 and after		530,384
Total minimum payments required	$	3,081,812

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Debt

9 Months Ended

Sep. 30, 2016

Debt [Abstract]

Debt

Note 8 - Debt

On August 28, 2014, the Company entered into a loan and security agreement with Hercules Technology Growth Capital, Inc., (the “Original Loan Agreement”). The Original Loan Agreement provided funding for an aggregate principal amount of up to $10,000,000 in three separate term loans. The first term loan was funded on August 28, 2014 in the amount of $3,000,000. The second tranche of $3,000,000 was funded on January 29, 2015. Both the first and second tranches were due to mature on March 1, 2018. The Company elected not to draw the third tranche of $4.0 million, the availability of which expired on June 30, 2015. Initially, the loans bore interest at a rate per annum equal to the greater of (i) 10.45% or (ii) the sum of (a) 10.45% plus (b) the prime rate (as reported in The Wall Street Journal) minus 4.50%. On April 6, 2015, the second milestone event was met where the Company received gross cash proceeds in an amount greater than $55,000,000 which lowered the base interest rate on all loans to the greater of (i) 9.95% or (ii) the sum of (a) 9.95% plus (b) the prime rate (as reported in The Wall Street Journal ) minus 4.50%. The Company was required to make interest-only payments on each term loan through September 2015.

Commencing in October 2015, the term loans began amortizing in equal monthly installments of principal and interest over 30 months. On the maturity date or the date the loans otherwise became due, the Company was also required to pay additional interest equal to 1.5% of the total amounts funded under the Original Loan Agreement.

On August 1, 2016, the Company entered into an Amended and Restated Loan and Security Agreement (the “Amended Loan Agreement”) with Hercules Capital, Inc., formerly known as Hercules Technology Growth Capital, Inc., pursuant to which the Company may borrow a term loan up to $20,000,000.  The Amended Loan Agreement amends and restates the Original Loan Agreement.  At closing, the Company borrowed $15,000,000 available for draw under the Amended Loan Agreement (and received proceeds net of the current amount outstanding under the Original Loan Agreement, fees and expenses). The Amended Loan Agreement allows the Company, at its option, to drawn down a second tranche of $5 million on or before June 15, 2017.  Amounts drawn under the Amended Loan Agreement bear interest at a rate per annum equal to the greater of either (i) the sum of (a) 9.15%, plus (b) the prime rate as reported in The Wall Street Journal minus 4.50% or (ii) 9.15%. The effective interest rate at September 30, 2016 was 9.15%.  Pursuant to the terms of the Amended Loan Agreement, the Company will make interest-only payments for 18 months, and then repay the principal balance of the loan in 24 equal monthly payments of principal and interest through the scheduled maturity date on February 3, 2020. The period of interest-only payments and the maturity date may be extended if the Company satisfies certain conditions as described in the Amended Loan Agreement.

Pursuant to the Original Loan Agreement, in March 2018, the Company must pay additional interest of $90,000, which is equal to 1.5% of the total amounts funded under the Original Loan Agreement.  On the maturity date or the date the term loan otherwise becomes due, under the Amended Loan Agreement the Company must also pay additional interest of $900,000, which is equal to 4.5% of the total amounts available under such agreement.  In addition, if the Company prepays the term loan during the first year following the initial closing, the Company must pay a prepayment charge equal to 2% of the amount being prepaid, if the Company prepays the term loan during the second year following the closing, the Company must pay a prepayment charge equal to 1% of the amount being prepaid, and if the Company prepays the term loan after the second year following the closing, the Company must pay a prepayment charge equal to 0.5% of the amount being prepaid.

The term loan is secured by substantially all of the Company’s assets, other than intellectual property, which is the subject of a negative pledge. Under the Amended Loan Agreement, the Company is subject to certain customary covenants that limit or restrict its ability to, among other things, incur additional indebtedness, investments, distributions, transfer assets, make acquisitions, grant any security interests, pay cash dividends, repurchase its common stock, make loans, or enter into certain transactions without prior consent. The Amended Loan Agreement contains several events of default, including, among others, payment defaults, breaches of covenants or representations, material impairment in the perfection of Hercules’ security interest or in the collateral and events related to bankruptcy or insolvency. Upon an event of default, Hercules may declare all outstanding obligations immediately due and payable (along with a prepayment charge), a default rate of an additional 5.0% may be applied to the outstanding loan balances, and Hercules may take such further actions as set forth in the Amended Loan Agreement, including collecting or taking such other action with respect to the collateral pledged in connection with the Amended Loan Agreement.

Future principal payments on the note as of September 30, 2016 were as follows:

Year Ending in December 31:	(000's)
remaining 2016	$	-
2017		-
2018		5,912
2019		7,716
2020		1,372
	$	15,000

The estimated fair value of the debt (categorized as a Level 2 liability for fair value measurement purposes) is determined using current market factors and the ability of the Company to obtain debt at comparable terms to those that are currently in place. The Company believes the estimated fair value at September 30, 2016 approximates the carrying amount.

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Subsequent Events

9 Months Ended

Sep. 30, 2016

Subsequent Events [Abstract]

Subsequent Events

Note 9- Subsequent Events

Subsequent events have been evaluated through the date these financial statements were issued.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2016

Summary of Significant Accounting Policies [Abstract]

Unaudited Interim Financial Statements

(A) Unaudited interim financial statements:

The interim balance sheet at September 30, 2016, the statements of operations and comprehensive loss for the three and nine months ended September 30, 2016 and 2015, and cash flows for the nine months ended September 30, 2016 and 2015 are unaudited. The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), and following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of its financial information. The results of operations for the nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016 or for any other future annual or interim period. The balance sheet as of December 31, 2015 included herein was derived from the audited financial statements as of that date. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2015.

Use of Estimates

(B) Use of estimates:

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant Risks and Uncertainties

(C) Significant risks and uncertainties:

The Company’s operations are subject to a number of factors that may affect its operating results and financial condition. Such factors include, but are not limited to: the results of clinical testing and trial activities of the Company’s product candidates, the Company’s ability to obtain regulatory approval to market its products, the Company’s intellectual property, competition from products manufactured and sold or being developed by other companies, the price of, and demand for, Company products if approved for sale, the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, and the Company’s ability to raise capital.

The Company currently has no commercially approved products and there can be no assurance that the Company’s research and development programs will be successfully commercialized. Developing and commercializing a product requires significant time and capital and is subject to regulatory review and approval as well as competition from other biotechnology and pharmaceutical companies. The Company operates in an environment of rapid change and is dependent upon the continued services of its employees and consultants and obtaining and protecting its intellectual property.

Cash Equivalents and Concentration of Cash Balance

(D) Cash equivalents and concentration of cash balance:

The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits.

Research and Development

(E) Research and development:

Costs incurred in connection with research and development activities are expensed as incurred. These costs include licensing fees to use certain technology in the Company’s research and development projects as well as fees paid to consultants and various entities that perform certain research and testing on behalf of the Company.

Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data, such as patient enrollment, clinical site activations or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred.

Stock-Based Compensation

(F) Stock-based compensation:

The Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award.

Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including, for stock options, the expected life of the option, and expected stock price volatility. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.

The expected life of stock options was estimated using the “simplified method,” as the Company has limited historical information to develop reasonable expectations about future exercise patterns and employment duration for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate the fair value of options grants. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option.

The estimation of the number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised.

Net Loss per Common Share

(G) Net loss per common share:

Basic and diluted net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted average common shares outstanding during the period. For all periods presented, the common shares underlying the preferred stock, common stock options and warrants have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted average shares outstanding used to calculate both basic and diluted loss per common share are the same.

The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding as they would be anti-dilutive:

	As of September 30,
	2016		2015
Stock options to purchase Common Stock		5,166,511		4,227,022
Convertible preferred stock to purchase Common Stock		-		17,497,815
Warrants to purchase Common Stock		544,705		99,401
Warrants to purchase Series C Preferred Stock		-		338,534
Warrants to purchase Series C-1 Preferred Stock		-		332,480
Total		5,711,216		22,495,252

Recently Adopted Standards

(H) Recently adopted standards:

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842).” The new standard requires organizations that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. This standard is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact of adoption.

In March 2016, the FASB issued ASU No. 2016-09 which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Public companies will be required to adopt this standard in annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period provided that the entire standard is adopted. The Company does not expect adoption of the ASU will have a material impact on the financial statements based upon preliminary evaluation.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2016

Summary of Significant Accounting Policies [Abstract]

Potentially Dilutive Securities Excluded from Computations of Diluted Weighted Average Shares Outstanding

The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding as they would be anti-dilutive:

	As of September 30,
	2016		2015
Stock options to purchase Common Stock		5,166,511		4,227,022
Convertible preferred stock to purchase Common Stock		-		17,497,815
Warrants to purchase Common Stock		544,705		99,401
Warrants to purchase Series C Preferred Stock		-		338,534
Warrants to purchase Series C-1 Preferred Stock		-		332,480
Total		5,711,216		22,495,252

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Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

There were no transfers between Levels 1, 2, or 3 during 2016 or 2015.

	Fair Value Measurements at Reporting Date Using
	Total		Quoted Prices in Active Markets (Level 1)		Quoted Prices in Inactive Markets (Level 2)		Significant Unobservable Inputs (Level 3)
As of September 30, 2016: (unaudited)
Cash and cash equivalents	$	112,784,622	$	112,784,622	$	-	$	-
As of December 31, 2015:
Cash and cash equivalents	$	130,189,421	$	130,189,421	$	-	$	-

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Accrued Expenses (Tables)

9 Months Ended

Sep. 30, 2016

Accrued Expenses [Abstract]

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following:

	As of September 30,		As of December 31,
	2016		2015
Accrued research and development costs	$	377,294	$	1,874,126
Accrued professional fees		440,799		258,568
Accrued compensation		1,300,793		1,510,430
Accrued other		169,385		56,835
Deferred rent		1,978		34,389
Total	$	2,290,249	$	3,734,348

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Stock Options (Tables)

9 Months Ended

Sep. 30, 2016

Stock Options [Abstract]

Stock-Based Compensation Expense

The Company’s stock-based compensation expense was recognized in operating expense as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
	(unaudited)				(unaudited)
Stock-Based Compensation
Research and development	$	567,452	$	273,782	$	1,609,683	$	702,322
General and administrative		665,579		338,096		2,419,643		864,240
Total	$	1,233,031	$	611,878	$	4,029,326	$	1,566,562

Assumptions Used in Valuing Stock Options and Warrants Granted

The fair value of options and warrants granted during the three and nine months ended September 30, 2016 and 2015 was estimated using the Black-Scholes option valuation model utilizing the following assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
	Weighted Average			Weighted Average			Weighted Average			Weighted Average
	(unaudited)						(unaudited)
Volatility		71.80	%		79.80	%		77.96	%		79.80	%
Risk-Free Interest Rate		1.19	%		1.59	%		1.38	%		1.74	%
Expected Term in Years		6.07			6.08			6.02			6.08
Dividend Rate		0.00	%		0.00	%		0.00	%		0.00	%
Fair Value of Option on Grant Date	$	6.78		$	7.51		$	5.24		$	5.22

Stock Option Activity

The following table summarizes the number of options outstanding and the weighted average exercise price:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Options outstanding at December 31, 2015		4,302,267		$	5.19
Granted		1,061,400			7.81
Exercised		(63,639	)		4.62
Forfeited		(133,517	)		5.79
Options outstanding at September 30, 2016		5,166,511		$	5.72		7.78	$	24,994,623
Vested and expected to vest at September 30, 2016		5,077,867		$	5.68		7.76	$	24,747,792
Exercisable at September 30, 2016		2,810,161		$	4.22		6.94	$	17,557,732

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies [Abstract]

Future Minimum Rental Payments Required under Operating Leases

The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of September 30, 2016:

Year ended December 31,
2016 (remaining)	$	148,799
2017		592,256
2018		602,461
2019		604,541
2020		603,371
2021 and after		530,384
Total minimum payments required	$	3,081,812

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Debt (Tables)

9 Months Ended

Sep. 30, 2016

Debt [Abstract]

Future Principal Payments

Future principal payments on the note as of September 30, 2016 were as follows:

Year Ending in December 31:	(000's)
remaining 2016	$	-
2017		-
2018		5,912
2019		7,716
2020		1,372
	$	15,000

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Nature of Operations (Details) - USD ($) $ / shares in Units, $ in Millions	Oct. 06, 2015	Sep. 30, 2016	Dec. 31, 2015
Completion of IPO [Abstract]
Sales price per share (in dollars per share)	$ 11.00
Gross proceeds from issuance of common stock	$ 92.5
Net proceeds from issuance of common stock	82.8
Underwriting discounts, commissions and other offering costs	$ 9.7
Common shares issued upon conversion of preferred stock (in shares)	18,566,856
Preferred stock, shares outstanding (in shares)	0
Common stock, shares authorized (in shares)	75,000,000	75,000,000	75,000,000
Preferred stock, shares authorized (in shares)	5,000,000
Common stock, par value (in dollars per share)	$ 0.00033	$ 0.00033	$ 0.00033
IPO [Member]
Completion of IPO [Abstract]
Shares of common stock sold (in shares)	8,412,423
Over-Allotment Option [Member]
Completion of IPO [Abstract]
Shares of common stock sold (in shares)	1,097,272

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Summary of Significant Accounting Policies (Details) - shares	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Net Loss per Common Share [Abstract]
Antidilutive securities excluded from computation of earnings per share (in shares)	5,711,216	22,495,252
Stock Options to Purchase Common Stock [Member]
Net Loss per Common Share [Abstract]
Antidilutive securities excluded from computation of earnings per share (in shares)	5,166,511	4,227,022
Convertible Preferred Stock to Purchase Common Stock [Member]
Net Loss per Common Share [Abstract]
Antidilutive securities excluded from computation of earnings per share (in shares)	0	17,497,815
Warrants to Purchase Common Stock [Member]
Net Loss per Common Share [Abstract]
Antidilutive securities excluded from computation of earnings per share (in shares)	544,705	99,401
Warrants to Purchase Series C Preferred Stock [Member]
Net Loss per Common Share [Abstract]
Antidilutive securities excluded from computation of earnings per share (in shares)	0	338,534
Warrants to Purchase Series C-1 Preferred Stock [Member]
Net Loss per Common Share [Abstract]
Antidilutive securities excluded from computation of earnings per share (in shares)	0	332,480

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Fair Value of Financial Instruments (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Fair Value Transfers Between Levels [Abstract]
Transfers from Level 1 to Level 2	$ 0	$ 0
Transfers from Level 2 to Level 1	0	0
Transfers into Level 3	0	0
Transfers out of Level 3	0	0
Fair Value of Financial Instruments [Abstract]
Cash and cash equivalents	112,784,622	130,189,421
Quoted Prices in Active Markets (Level 1) [Member]
Fair Value of Financial Instruments [Abstract]
Cash and cash equivalents	112,784,622	130,189,421
Quoted Prices in Inactive Markets (Level 2) [Member]
Fair Value of Financial Instruments [Abstract]
Cash and cash equivalents	0	0
Significant Unobservable Inputs (Level 3) [Member]
Fair Value of Financial Instruments [Abstract]
Cash and cash equivalents	$ 0	$ 0

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Accrued Expenses (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Accrued Expenses [Abstract]
Accrued research and development costs	$ 377,294	$ 1,874,126
Accrued professional fees	440,799	258,568
Accrued compensation	1,300,793	1,510,430
Accrued other	169,385	56,835
Deferred rent	1,978	34,389
Total	$ 2,290,249	$ 3,734,348

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Stock Options, Equity Compensation Plans (Details)			3 Months Ended		9 Months Ended		12 Months Ended
	Jul. 01, 2016 shares	Nov. 16, 2015 shares	Sep. 30, 2016 USD ($) Plan $ / shares	Sep. 30, 2015 USD ($) $ / shares	Sep. 30, 2016 USD ($) Plan Installment $ / shares shares	Sep. 30, 2015 USD ($) $ / shares	Dec. 31, 2014 shares	Jan. 02, 2016 shares	Jan. 02, 2015 shares	Dec. 31, 2013 shares	Dec. 31, 2012 shares	Dec. 31, 2010 shares
Stock Options [Abstract]
Number of equity compensation plans | Plan			3		3
Stock-Based Compensation [Abstract]
Stock-based compensation expense | $			$ 1,233,031	$ 611,878	$ 4,029,326	$ 1,566,562
Assumptions Used in Determining Fair Value of Stock Options and Warrants Granted [Abstract]
Volatility			71.80%	79.80%	77.96%	79.80%
Risk-free interest rate			1.19%	1.59%	1.38%	1.74%
Expected term			6 years 25 days	6 years 29 days	6 years 7 days	6 years 29 days
Dividend rate			0.00%	0.00%	0.00%	0.00%
Fair value of option on grant date (in dollars per share) | $ / shares			$ 6.78	$ 7.51	$ 5.24	$ 5.22
W. Bradford Middlekauff [Member] | Nonqualified Options [Member]
Stock Options [Abstract]
Options granted (in shares)		80,000
Vesting period					4 years
W. Bradford Middlekauff [Member] | Nonqualified Options [Member] | Vesting One Year Following Date of Hire [Member]
Stock Options [Abstract]
Vesting percentage					25.00%
W. Bradford Middlekauff [Member] | Nonqualified Options [Member] | Vesting in 36 Monthly Installments Thereafter [Member]
Stock Options [Abstract]
Vesting percentage					75.00%
Number of monthly installments for vesting | Installment					36
Harry J. Sacks [Member] | Nonqualified Options [Member]
Stock Options [Abstract]
Options granted (in shares)	85,000
Vesting period					4 years
Harry J. Sacks [Member] | Nonqualified Options [Member] | Vesting One Year Following Date of Hire [Member]
Stock Options [Abstract]
Vesting percentage					25.00%
Harry J. Sacks [Member] | Nonqualified Options [Member] | Vesting in 36 Monthly Installments Thereafter [Member]
Stock Options [Abstract]
Vesting percentage					75.00%
Number of monthly installments for vesting | Installment					36
The Plans [Member] | Stock Options [Member]
Stock Options [Abstract]
Options granted (in shares)					1,061,400
The Plans [Member] | Incentive Stock Options [Member]
Stock Options [Abstract]
Vesting period					4 years
The Plans [Member] | Incentive Stock Options [Member] | Maximum [Member]
Stock Options [Abstract]
Term of option					10 years
The Plans [Member] | Nonqualified Options [Member] | Minimum [Member]
Stock Options [Abstract]
Vesting period					3 years
The Plans [Member] | Nonqualified Options [Member] | Maximum [Member]
Stock Options [Abstract]
Vesting period					4 years
2010 Equity Incentive Plan [Member]
Stock Options [Abstract]
Number of shares authorized for issuance (in shares)							1,350,412			1,279,146		548,206
Term of plan					10 years
2012 Equity Incentive Plan [Member]
Stock Options [Abstract]
Number of shares authorized for issuance (in shares)											1,096,411
Term of plan					10 years
2014 Equity Incentive Plan [Member]
Stock Options [Abstract]
Number of shares authorized for issuance (in shares)							1,827,351	3,047,323	1,894,890
Percentage of Common Stock outstanding used to determine annual increase in the plan limit							4.00%
Term of plan					10 years
Research and Development [Member]
Stock-Based Compensation [Abstract]
Stock-based compensation expense | $			$ 567,452	$ 273,782	$ 1,609,683	$ 702,322
General and Administrative [Member]
Stock-Based Compensation [Abstract]
Stock-based compensation expense | $			$ 665,579	$ 338,096	$ 2,419,643	$ 864,240

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Stock Options, Stock Option Activity (Details)	9 Months Ended
	Sep. 30, 2016 USD ($) $ / shares shares
Unamortized Stock Compensation Expense [Abstract]
Unamortized stock compensation expense | $	$ 10,353,101
Period for recognition	1 year 4 months 20 days
The Plans [Member] | Stock Options [Member]
Number of Shares [Roll Forward]
Options outstanding, beginning balance (in shares) | shares	4,302,267
Granted (in shares) | shares	1,061,400
Exercised (in shares) | shares	(63,639)
Forfeited (in shares) | shares	(133,517)
Options outstanding, ending balance (in shares) | shares	5,166,511
Vested and expected to vest (in shares) | shares	5,077,867
Exercisable (in shares) | shares	2,810,161
Weighted Average Exercise Price [Roll Forward]
Options outstanding, beginning balance (in dollars per share) | $ / shares	$ 5.19
Granted (in dollars per share) | $ / shares	7.81
Exercised (in dollars per share) | $ / shares	4.62
Forfeited (in dollars per share) | $ / shares	5.79
Options outstanding, ending balance (in dollars per share) | $ / shares	5.72
Vested and expected to vest (in dollars per share) | $ / shares	5.68
Exercisable (in dollars per share) | $ / shares	$ 4.22
Remaining Contractual Life and Aggregate Intrinsic Value [Abstract]
Options outstanding, weighted average remaining contractual life	7 years 9 months 11 days
Options outstanding, aggregate intrinsic value | $	$ 24,994,623
Vested and expected to vest, weighted average contractual life	7 years 9 months 4 days
Vested and expected to vest, aggregate intrinsic value | $	$ 24,747,792
Exercisable, weighted average contractual life	6 years 11 months 8 days
Exercisable, aggregate intrinsic value | $	$ 17,557,732

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Income Taxes (Details) - USD ($) $ in Millions	9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Income Tax Uncertainties [Abstract]
Income tax related interest and penalties	$ 0.0	$ 0.0
Federal [Member]
Tax Carryforwards [Abstract]
Net operating loss carryforwards			$ 47.5
Federal [Member] | Minimum [Member]
Tax Carryforwards [Abstract]
Expiration date of net operating loss carryforwards			Dec. 31, 2029
Federal [Member] | Maximum [Member]
Tax Carryforwards [Abstract]
Expiration date of net operating loss carryforwards			Dec. 31, 2035
New Jersey [Member]
Tax Carryforwards [Abstract]
Net operating loss carryforwards			$ 23.3
New Jersey [Member] | Minimum [Member]
Tax Carryforwards [Abstract]
Expiration date of net operating loss carryforwards			Dec. 31, 2030
New Jersey [Member] | Maximum [Member]
Tax Carryforwards [Abstract]
Expiration date of net operating loss carryforwards			Dec. 31, 2035
Research and Development Credit [Member] | Federal [Member]
Tax Carryforwards [Abstract]
Tax credit carryforwards			$ 0.8
Research and Development Credit [Member] | New Jersey [Member]
Tax Carryforwards [Abstract]
Tax credit carryforwards			0.3
Orphan Drug Credit [Member] | Federal [Member]
Tax Carryforwards [Abstract]
Tax credit carryforwards			$ 4.0

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Commitments and Contingencies (Details)	1 Months Ended		3 Months Ended		9 Months Ended
	Aug. 31, 2016 USD ($)	Oct. 31, 2010 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) ft²	Sep. 30, 2015 USD ($)
Leases [Abstract]
Rent expense			$ 82,163	$ 58,271	$ 196,322	$ 149,371
Future Minimum Rental Payments Required under Operating Leases [Abstract]
2016 (remaining)			148,799		148,799
2017			592,256		592,256
2018			602,461		602,461
2019			604,541		604,541
2020			603,371		603,371
2021 and after			530,384		530,384
Total minimum payments required			3,081,812		3,081,812
Evonik License Agreement [Member]
Evonik [Abstract]
Milestone payments paid	$ 1,000,000	$ 250,000
Evonik License Agreement [Member] | Maximum [Member]
Evonik [Abstract]
Milestone payments to be paid			$ 14,750,000		$ 14,750,000
Employment Agreements with Executives [Member] | Minimum [Member]
Employment Agreements [Abstract]
Term for payment of severance benefits					12 months
Employment Agreements with Executives [Member] | Maximum [Member]
Employment Agreements [Abstract]
Term for payment of severance benefits					18 months
Office Space in Berkeley Heights, New Jersey Under Lease Effective December 13, 2013 [Member]
Leases [Abstract]
Term of lease					63 months
Area of leased property | ft²					8,000
Writeoff of leasehold improvements					$ 67,118
Office Space in Berkeley Heights, New Jersey Under Lease Entered into February 18, 2016 [Member]
Leases [Abstract]
Term of lease					63 months
Area of leased property | ft²					20,410

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Debt (Details)				9 Months Ended
	Aug. 01, 2016 USD ($)	Apr. 06, 2015 USD ($)	Aug. 28, 2014 USD ($) Loan	Sep. 30, 2016 USD ($)	Jun. 30, 2015 USD ($)	Jan. 29, 2015 USD ($)
Future Principal Payments [Abstract]
remaining 2016				$ 0
2017				0
2018				5,912,000
2019				7,716,000
2020				1,372,000
Total				$ 15,000,000
Original Loan Agreement [Member]
Loan and Security Agreement [Abstract]
Aggregate principal amount of borrowing capacity			$ 10,000,000
Number of term loans | Loan			3
Interest rate		9.95%	10.45%
Adjustment to interest rate		(4.50%)	(4.50%)
Term for making principal and interest payments				30 months
Additional interest charged on due date			$ 90,000
Additional interest rate charged on due date			1.50%
Original Loan Agreement [Member] | Minimum [Member]
Loan and Security Agreement [Abstract]
Cash proceeds received for second milestone event		$ 55,000,000
First Term Loan under Original Loan Agreement [Member]
Loan and Security Agreement [Abstract]
Funded amount			$ 3,000,000
Maturity date				Mar. 01, 2018
Second Term Loan under Original Loan Agreement [Member]
Loan and Security Agreement [Abstract]
Funded amount						$ 3,000,000
Maturity date				Mar. 01, 2018
Third Term Loan under Original Loan Agreement [Member]
Loan and Security Agreement [Abstract]
Maturity date				Jun. 30, 2015
Unused borrowing capacity					$ 4,000,000
Amended Loan Agreement [Member]
Loan and Security Agreement [Abstract]
Aggregate principal amount of borrowing capacity	$ 20,000,000
Maturity date				Feb. 03, 2020
Interest rate	9.15%
Adjustment to interest rate	(4.50%)
Term for making principal and interest payments				24 months
Effective interest rate				9.15%
Additional interest charged on due date	$ 900,000
Additional interest rate charged on due date	4.50%
Term for making interest-only payments				18 months
Prepayment charge during first year following initial closing			2.00%
Prepayment charge during second year following initial closing			1.00%
Prepayment charge after second year following initial closing			0.50%
Event of default rate	5.00%
First Term Loan under Amended Loan Agreement [Member]
Loan and Security Agreement [Abstract]
Funded amount	$ 15,000,000
Second Term Loan under Amended Loan Agreement [Member]
Loan and Security Agreement [Abstract]
Unused borrowing capacity	$ 5,000,000