NOTE 7 — BORROWING ARRANGEMENTS

Perceptive Credit Facility

On February 27, 2018, the Company entered into a term loan facility with Perceptive Credit Holdings II, LP (Perceptive) in the amount of $10.0 million (the “Perceptive Credit Facility”). The Perceptive Credit Facility consists of a $5.0 million term loan, which was drawn on the effective date of the Perceptive Credit Facility, and an additional $5.0 million term loan to be drawn down at a future date. The Company used a portion of the proceeds from the Perceptive Credit Facility to pay off the existing debt facility with Silicon Valley Bank. Payments for the first 24 months are interest only and are paid quarterly. After the second anniversary of the closing date of the Perceptive Credit Facility, principal payments of $0.2 million are due each calendar quarter, with a final payment of $3.4 million due on February 27, 2022. This term loan facility matures on February 27, 2022 and includes both financial and non-financial covenants, including a minimum cash balance requirement. The Company is required to pay an exit fee of $0.1 million on a pro rata basis on the maturity date or the earlier date of repayment of the term loans in full. The exit fee is being accreted to interest expense over the term of the Perceptive Credit Facility using the effective interest method.

Borrowings under the Perceptive Credit Facility are secured by all the property and assets of the Company. The principal on the facility accrues interest at an annual rate equal to three-month LIBOR plus the Applicable Margin. The Applicable Margin is 11.00%. Upon the occurrence, and during the continuance, of an event of default, the Applicable Margin, defined above, will be increased by 4.00% per annum. The interest rate at September 30, 2019 was 13.10%.

For the three months ended September 30, 2019 and 2018, the Company recorded interest expense of $0.2 million, for both periods. For the three months ended September 30, 2019 and 2018, the Company recorded $0.1 million of amortization of debt discount related to the Perceptive Credit Facility, for both periods. For the nine months ended September 30, 2019 and 2018, the Company recorded interest expense of $0.5 million and $0.4 million, respectively. For the nine months ended September 30, 2019 and 2018, the Company recorded $0.2 million and $0.1 million, respectively, of amortization of debt discount related to the Perceptive Credit Facility.

In connection with the Perceptive Credit Facility, on February 27, 2018 the Company issued Perceptive a warrant to purchase 190,000 shares of the Company’s common stock. The warrant is exercisable for a period of seven years from the date of issuance at an exercise price per share of $9.58, subject to certain adjustments as specified in the Warrant. See Note 12, Stockholders’ Equity, of the Company’s previously filed Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 29, 2019 for further discussion of the warrant. The fair value of the warrant of $1.5 million was recorded as a debt discount, which is being amortized to interest expense over the term of the Perceptive Credit Facility using the effective interest method

At September 30, 2019 and December 31, 2018, the Perceptive Credit Facility principal balance was $5.0 million. At September 30, 2019, the Company was in compliance with the non-financial covenants of the Perceptive Credit Facility.

Future required principal and final payments on the Perceptive Credit Facility were as follows at September 30, 2019 (in thousands):