Borrowings

CRG

September

22,

2015,

the Company entered into a Term Loan Agreement, as amended (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.

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

three

months ended

March 31, 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 amended,

cash payments for either principal or interest are due until the

first

quarter of

2020.

Beginning in the

first

quarter of

2020

accrued interest will be partially paid and partially accrued and included in the debt balance based (to the extent

not

paid) on principal amounts outstanding at the beginning of the quarter at an interest rate of

12.5%.

Beginning in the

third

quarter of

2021,

the Company will be required to make quarterly principal payments (in addition to the interest) of

$1.2

million with total principal payments of

$2.4

million in

2021,

$4.8

million in

2022

and

$2.4

million in

2023.

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 payment-in-kind (“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.

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 (“final facility fee”);

●

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

March 31, 2019,

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

As of

March 31, 2019,

principal, final facility fee and PIK payments due under the Loan Agreement are as follows (in thousands):

Period Ending December 31 ,
2019 (remaining nine months of the year)	$	196
2020		804
2021		4,637
2022		5,371
2023		2,697
		13,705
Less: Amount of PIK additions and final facility fee to be incurred subsequent to March 31, 2019		(5,154	)
Less: Amount representing debt financing costs		(714	)
Borrowings, as of March 31, 2019	$	7,837

In connection with drawdowns under the Loan Agreement, the Company recorded aggregate debt discounts of

$1.3

million as contra-debt. The debt discounts are being amortized as non-cash interest expense using the effective interest method over the term of the Loan Agreement. As of

March 31, 2019

and

December

31,

2018,

the balance of the aggregate debt discount was approximately

$714,000

and

$757,000,

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

$43,000

and

$26,000

during the

three

months ended

March 31, 2019

and

2018,

respectively. For the

three

months ended

March 31, 2019

and

2018,

the Company incurred interest expense of approximately

$350,000

and

$4.7

million, respectively.

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 Loan Agreement with CRG, the entire amount of borrowings at

March

31,

2019

and

2018

is classified as current in these financial statements. CRG has

not

invoked the material adverse change clause.