Borrowings

CRG

September

22,

2015,

the Company entered into a Term Loan Agreement (the “Loan Agreement”) with CRG under which, subject to certain conditions, the Company had the right to borrow up to

$50,000,000

in principal amount from CRG on or before

March

29,

2017.

The Company borrowed

$30,000,000

September

22,

2015.

The Company borrowed an additional

$10,000,000

June

15,

2016

under the Loan Agreement. The Company would have been eligible to borrow an additional

$10,000,000,

on or prior to

March

29,

2017,

upon achievement of certain revenue milestones, among other conditions, but those milestones were

not

achieved.

October

28,

2016,

the Company and CRG amended the Loan Agreement to reduce the minimum revenue that the Company was required to achieve in

2016

$18,000,000.

February

14,

2018,

the Company and CRG further amended the Loan Agreement concurrent with the conversion of

$38,000,000

of the principal amount of the senior secured term loan (plus

$3,800,000

in back-end fees and prepayment premium applicable thereto) into a newly authorized Series A convertible preferred stock (see Note

below). For the

nine

months ended

September

30,

2018,

the

$3,800,000

was accounted for in the condensed statement of operations and comprehensive loss as interest expense.

Under the Loan Agreement, as in effect prior to amendment, the

first

sixteen

quarterly payments were to be interest only payments, and the last

eight

quarterly payments were to be equal installments in which interest and principal amounts would be paid. Interest is calculated at a fixed rate of

12.5%

per annum. The Company makes quarterly payments of interest only in arrears commencing on

September

30,

2015.

During the interest only period, the Company had the right to elect to make the

12.5%

interest payment by making a cash payment for

8.5%

per annum of interest and making a payment-in-kind (“PIK”) for the remaining amount, for which the

4.0%

per annum of interest would be added to the outstanding principal amount of the borrowings. To date, the Company has elected the PIK interest option to the extent available and has made a cash payment for the remaining amount. Principal is repayable in

eight

equal quarterly installments during the final

two

years of the term. Under the original Loan Agreement, all unpaid principal, and accrued and unpaid interest, was to be due and payable in full on

September

30,

2021.

The Company

may

voluntarily prepay the borrowings in full, with a prepayment premium beginning at

5.0%

and declining by

1.0%

annually thereafter, with

premium being payable if prepayment occurs after the

fifth

year of the loan. Each tranche of borrowing required the payment, on the borrowing date, of a financing fee equal to

1.5%

of the borrowed loan principal, which is recorded as a discount to the debt. In addition, a facility fee equal to

7.0%

of the amounts borrowed plus any PIK was to be payable at the end of the term or when the borrowings are repaid in full. A long-term liability is being accreted using the effective interest method for the facility fee over the term of the Loan Agreement with a corresponding discount to the debt. The borrowings are collateralized by a security interest in substantially all of the Company’s assets. The Loan Agreement requires that the Company adheres to certain affirmative and negative covenants, including financial reporting requirements, certain minimum financial covenants for pre-specified liquidity and revenue requirements and a prohibition against the incurrence of indebtedness, or creation of additional liens, other than as specifically permitted by the terms of the Loan Agreement. In particular, the covenants of the original Loan Agreement included a covenant that the Company maintain a minimum of

$5,000,000

of cash and certain cash equivalents, and the Company had to achieve minimum revenue of

$7,000,000

2015,

$23,000,000

2016,

$40,000,000

2017,

$50,000,000

2018,

$60,000,000

2019

and

$70,000,000

2020

and in each year thereafter, as applicable. On

October

28,

2016,

the Company amended the terms of the Loan Agreement, to reduce the minimum revenue that the Company must achieve in

2016

$18,000,000.

If the Company fails to meet the applicable minimum revenue target in any calendar year, the Loan Agreement provides the Company with a cure right if it prepays a portion of the outstanding principal equal to

2.0

times the revenue shortfall. In addition, the Loan Agreement prohibits the payment of cash dividends on the Company’s capital stock and also places restrictions on mergers, sales of assets, investments, incurrence of liens, incurrence of indebtedness and transactions with affiliates. CRG

may

accelerate the payment terms of the Loan Agreement upon the occurrence of certain events of default set forth therein, which include the failure of the Company to make timely payments of amounts due under the Loan Agreement, the failure of the Company to adhere to the covenants set forth in the Loan Agreement, the insolvency of the Company or upon the occurrence of a material adverse change.

December

14,

2017,

the Company entered into a waiver and consent agreement (the “Waiver and Consent”) with CRG. The Waiver and Consent provided for the waiver of the minimum required revenue financial covenant for the

twelve

-month period beginning

January

2017,

as required under the terms of the Loan Agreement. Pursuant to the Waiver and Consent, CRG also consented to the Company’s payment of the cash interest payment due on

December

31,

2017

in the form of a PIK loan instead. On

January

24,

2018,

we entered into a waiver agreement (the “Waiver”) with CRG. The Waiver provided for the waiver of the

$5,000,0000

minimum liquidity financial covenant and reduced it to

$2,500,000

for the period beginning

January

2018

through

February

28,

2018,

as required under the terms of the Loan Agreement and waived any event of default resulting from non-compliance with the

$5,000,000

minimum liquidity financial covenant.

February

14,

2018,

the Company entered into Amendment

No.

to the Loan Agreement to, among other things:

●

extend the interest only payment period and the period during which the Company

may

elect to pay a portion of the interest in PIK interest payments through

June

30,

2021;

●

provide for a

15%

facility fee to be paid on the maturity date;

●

permit the Company to make the entire interest payment for payment dates in

2018

and

2019

in PIK interest payments, provided

default has occurred and is continuing;

●

extend the maturity date to

June

30,

2023;

●

modify certain of the covenants, including the indebtedness covenant, lien covenant and restricted payments covenant, to eliminate or modify permitted exceptions to the restrictions in those covenants;

●

modify the financial covenants to reduce the minimum liquidity requirement to

$3,500,000

at all times, to eliminate the minimum revenue requirements for

2018

and

2019,

and to reduce the minimum revenue requirements to

$15,000,000

million for

2020,

$20,000,000

for

2021

and

$25,000,000

for

2022;

and

●

provide CRG with board observer rights.

As of

September

30,

2018,

the Company was in compliance with all applicable covenants under the Loan Agreement.

As of

September

30,

2018,

principal and PIK payments under the Loan Agreement were as follows (in thousands):

	Principal and PIK
Period Ending September 30,	Loan Repayments
2018	$	—
2019		—
2020		—
2021		—
2022 and after		2,000
		2,000
Add: Accretion of closing fees		994
Add: PIK		5,938
		8,932
Less: Amount representing debt financing costs		(786	)
Borrowings, as of September 30, 2018	$	8,146

Contemporaneously with the execution of the Loan Agreement in

September

2015,

the Company entered into a Securities Purchase Agreement (the “CRG Purchase Agreement”) with CRG which allowed it to purchase up to

$5,000,000

of the Company’s common stock. CRG purchased

8,705

shares of common stock on

September

22,

2015

at a price of

$559.64

per share, which is the

-day average of closing prices of the Company’s common stock ending on

September

21,

2015.

The closing price on

September

22,

2015

was

$558.80

yielding a

$0.84

per share premium. Both the premium and the issuance costs were allocated to the borrowings under Loan Agreement and the common stock purchase under the CRG Purchase Agreement based on the relative fair values of each security. The portion of the premium allocated to the borrowings is being amortized over the term of the Loan Agreement. Pursuant to the CRG Purchase Agreement, the Company filed a shelf registration statement covering, among other things, the resale of the shares sold to CRG and must comply with certain affirmative covenants during the time that such registration statement remains in effect.

In connection with the initial drawdown under the Loan Agreement, the Company recorded a debt discount of

$876,000

as contra-debt. The debt discount comprised financing fees of

$450,000,

paid directly to CRG, and an allocation of the other costs directly attributable to the Loan Agreement and CRG Securities Purchase Agreement of

$541,000

net of the common stock premium of

$115,000

based on the relative fair values of each security. In connection with the

June

2016

drawdown under the Loan Agreement in

February 2018,

the Company recorded a debt discount of

$275,000

which comprised financing fees of

$150,000,

paid directly to CRG, and other costs directly attributable to the Loan Agreement with CRG of

$125,000.

Concurrent with the Amendment

No.2

to the Loan Agreement in

February 2018,

the Company recorded an additional debt discount of

$154,000

of issuance costs. The debt discount is being amortized as non-cash interest expense using the effective interest method over the term of the Loan Agreement. As of

September

30,

2018

and

December

31,

2017,

the balance of the aggregate debt discount was approximately

$786,000

and

$716,000,

respectively. The Company’s interest expense associated with the debt discount amounted to

$30,000

and

$62,000

during the

three

months ended

September

30,

2018

and

2017,

respectively. The Company’s interest expense associated with the debt discount amounted to

$87,000

and

$186,000

during the

nine

months ended

September

30,

2018

and

2017,

respectively. For the

three

months ended

September

30,

2018

and

2017,

the Company incurred interest expense of

$293,000

and

$1,537,000,

respectively. For the

nine

months ended

September

30,

2018

and

2017,

the Company incurred interest expense of

$657,000

and

$4.5

million, respectively.

As noted in Note

to these financial statements, due to the substantial doubt about the Company’s ability to continue operating as a going concern and the material adverse change clause in the CRG Loan Agreement, the entire amount of borrowings at

September

30,

2018

and

December

31,

2017

has been classified as current in these financial statements. CRG has

not

invoked the material adverse change clause.

PDL BioPharma

April

18,

2013,

the Company entered into a Credit Agreement (“Agreement”) with PDL BioPharma, Inc. (“PDL”) whereby PDL agreed to loan up to

$40,000,000.

Contemporaneous with the execution of the Agreement the Company borrowed an initial

$20,000,000

(“Term Note”).

The Term Note was scheduled to mature

April

18,

2018,

had a stated interest rate of

12.0%

per annum and could be prepaid by the Company at any time. The Company paid interest-only through the

first

ten

quarters and, thereafter, repayment of principal in equal installments including accrued and unpaid interest, payable each quarter. As provided under the terms of the Agreement, for the

first

eight

quarterly interest payments, or through

2015,

on the Term Note the Company elected to convert an amount of interest, up to

1.5%

per annum, into additional loans, referred to as PIK loans. The PIK loans accrued interest and were added to the aggregate principal balance of the Term Note.

September

2015,

in connection with the consummation of the Loan Agreement with CRG, the Company repaid all amounts outstanding under the Agreement. The payoff amount of

$21,363,000

included accrued interest through the repayment date of

$563,000

and

$200,000

as an end-of-term final payment fee recorded in other income (expense), net on the statement of loss and comprehensive loss.

In addition to the interest and principal payments, the Company also paid a royalty, referred to as Assigned Interests, equal to

1.8%

of the Company’s quarterly net revenues. Upon the prepayment of the Term Note, the Company’s obligations relating to Assigned Interests continue, and are payable through the maturity date at a reduced rate of

0.9%

of the quarterly net revenues, subject to certain quarterly minimum mandatory amounts, which are payable monthly. The ongoing obligation was determined to be an embedded element of the Agreement and cannot be bifurcated from the Term Note for accounting purposes. Accordingly, the Company continued to account for the Assigned Interests obligation relating to future royalties as a debt instrument by applying the retrospective approach and reviews its estimate of forecasted Assigned Interests payable annually. Under the retrospective method, the Company computes a new effective interest rate based on the original carrying amount, actual cash flows to date, and remaining estimated cash flows over the maturity date. The new effective interest rate,

20.4%

as of

December

31,

2016,

was used to adjust the carrying amount to the present value of the revised estimated cash flows, discounted at the new effective interest rate. At the time of the repayment the resulting increase in the carrying value of the Assigned Interests, of

$942,000,

was recognized as a component of other income (expense), net, on the statements of operations and comprehensive loss. The Company had an aggregate accrual for its Assigned Interests obligations of

$364,000,

representing the net present value of the future minimum royalty obligation as of

December

31,

2017,

respectively. The Assigned Interest liability was included within accrued expenses and other current liabilities as of

December

31,

2017.

This amount was fully paid during the

nine

months ended

September

30,

2018.

Additionally, until

April

2018,

the Company was required to pay on a periodic basis PDL a percentage of its net revenue and comply with certain affirmative covenants and negative covenants limiting its ability to, among other things, undergo a change in control or dispose of assets, in each case subject to certain exceptions.