6.	Note Payable

May 22, 2017,

the Company entered into a Term Loan Agreement as amended on

December 12, 2017

and

November

29,2018

(collectively the

“2017

Loan Agreement”) with affiliates of CRG LP (“CRG”). The credit facility consists of

$20,000,000

drawn at closing and access to additional funding of up to an aggregate of

$10,000,000

for a total of

$30,000,000

available under the credit facility. On

December 29, 2017,

the Company accessed the remaining

$10,000,000

available under the credit facility.

A portion of the initial loan proceeds were used to repay all of the amounts owed by the Company under its

2016

Loan Agreement with Western Alliance Bank. The remainder of the loan proceeds (after deducting loan origination costs and other fees and expenses incurred in connection with the

2017

Loan Agreement), plus any additional amounts that

may

be borrowed in the future, will be used for general corporate purposes and working capital.

In connection with the

2017

Loan Agreement, the Company issued

two

-year warrants to CRG to purchase a total of

2,220

shares of the Company’s common stock at an exercise price of

$950.00

per share (See Note

Under the

2017

Loan Agreement, as in effect prior to the

November 12, 2019

amendment, the credit facility had a

six

-year term with

four

years of interest-only payments after which quarterly principal and interest payments were to be due through the maturity date. Amounts borrowed under the

2017

Loan Agreement accrued interest at an annual fixed rate of

12.5%,

4.0%

of which

may,

at the election of the Company, could be paid in-kind during the interest-only period by adding such accrued amount to the principal loan amount each quarter. During the

three

months ended

March 31, 2019,

the Company paid interest in-kind of

$318,000

which was added to the total outstanding principal loan amount. The Company was also required to pay CRG a final payment fee upon repayment of the loans in full equal to

5.0%

of the sum of the aggregate principal amount plus the deferred interest added to the principal loan amount during the interest-only period.

As security for its obligations under the

2017

Loan Agreement, the Company entered into security agreements with CRG whereby the Company granted CRG a lien on substantially all of the Company’s assets, including intellectual property.

The terms of the

2017

Loan Agreement also required the Company to meet certain financial and other covenants. These covenants require the Company to maintain cash and cash equivalents of

$2,000,000

and, each year through the end of

2022,

to meet a minimum total annual revenue threshold. In the event that the Company did

not

meet the minimum total annual revenue threshold for a particular year, then the Company could retroactively cure the shortfall by either issuing additional equity in exchange for cash or incurring certain additional permitted indebtedness, in each case, in an amount equal to

2.0

times the shortfall. Any such amounts would be applied to prepay the loans. The

2017

Loan Agreement also contained customary affirmative and negative covenants for a credit facility of this size and type, including covenants that limit or restrict the Company’s ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends or make distributions, license intellectual property rights on an exclusive basis or repurchase stock, in each case subject to customary exceptions.

November 12, 2019,

the Company and CRG amended the

2017

Loan Agreement (the “Amendment

No.

3”

). In connection with the amendment, the Company converted approximately

$28,981,000

of the outstanding principal amount under the term loan plus accrued interest, the prepayment premium and the back-end facility fee for an aggregate amount of converted debt obligations of approximately

$31,300,000.

The debt obligations converted into

31,300

shares of the newly authorized Series B convertible preferred stock and warrants to purchase up to

9,893,776

shares of common stock were also issued. The warrants have a term of

years and an exercise price equal to

120%

of the Series convertible B preferred stock conversion price of

$1.53

$1.836

per share (see Note

). CRG entered into a

one

year lock up agreement on all securities that it holds.

The Amendment

No.

to the

2017

Loan Agreement addressed, among other things:

●

repayment provisions were amended such that repayment is permitted only with, or after, the redemption in full of the Series B convertible preferred stock issued to CRG;

●

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

may

elect to pay the full interest in PIK interest payments was extended through the

23rd

date after the

first

payment date. Pursuant to the amendment, CRG shall consent to the payment of such interest in the form of PIK loans, provided that (i) as of such payment date,

default shall have occurred and be continuing, and (ii) the principal amount of each PIK loan shall accrue interest in accordance with the provisions of the

2017

Loan Agreement;

●

modified certain of the covenants, including (i) to permit issuance of the Series B convertible preferred stock and any preferred stock issued in the equity financing and the exercise and performance by the Company of its rights and obligations in connection with such CRG preferred stock and any preferred stock issued in the equity financing, (ii) eliminate the Company’s ability to enter into permitted acquisitions, (iii) further restrict the incurrence of additional indebtedness and removal of the equity cure right, and (iv) eliminate the minimum revenue requirement; and

●

the back-end facility fee on the aggregate remaining principal balance on the term loan shall be increased from

25%.

During the

three

months ended

March 31, 2020,

the Company paid interest in-kind of

$126,000

which was added to the total outstanding principal loan amount.

As of

March 31,

2020,

the Company was in compliance with all covenants.

As of

March 31, 2020

and

December 31, 2019,

$4,110,000

and

$3,983,000,

respectively, was recorded on the consolidated balance sheets, as note payable, noncurrent portion, which is net of the remaining unamortized debt discount.

The Company accounted for the changes in the

2017

Loan Agreement as a troubled debt restructuring. The Company reduced the amount of the debt obligation by the fair value of the equity interests transferred. The remaining difference was charged to the loss on debt restructuring and reported on the consolidated statements of operations and comprehensive loss. The equity interests transferred included the

31,300

shares of the newly authorized Series B convertible preferred stock and warrants to purchase up to

9,893,776

shares of common stock. The Company determined the fair value of the Series B convertible preferred stock on

November 26, 2019

using the option pricing method. The following assumptions were present in the calculation: (

) value of Company equity based on

$0.869

per common share, which was the closing common stock price on the date of the valuation (

November 26, 2019); (

) volatility of

73%;

(

) term of

years; and (

) risk-free rate of

1.58%.

The fair value of the Series B convertible preferred stock was determined to be

$1,023.23

for an aggregate fair value amount of approximately

$32,027,000.

The Company determined the fair value of the warrants on the date of issuance to be approximately

$3,502,000

using the Black-Scholes option pricing model (see Note

– Common Stock.) After consideration of the fair value of the equity interests transferred and the carrying value of the debt, the remaining difference is the loss on debt restructuring of

$6,705,000,

which was recorded in the consolidated statement of operations for the year ended

December 31, 2019.

As of

March 31, 2020,

future minimum payments under the note payable are as follows (in thousands):

Year Ending December 31,
2020 (remaining 9 months)	$	-
2021		-
2022		-
2023		5,992
Total payments		5,992
Less: Amount representing interest		(1,871	)
Present value of obligations		4,121
Less: Unamortized debt discount		(11	)
Note payable, noncurrent portion	$	4,110