| 7. Debt | Note 7. Debt Debt, net of discounts and deferred financing
costs, consists of the following (in thousands):
September 30, December 31,
2017 2016
4.25% Convertible Notes $ 64,879 $ 104,071
Exchangeable Notes 8,266 -
Delayed draw term loan 27,584 -
Treximet Secured Notes 168,833 183,353
Wells Fargo Credit Facility - 14,000
ABL Credit Agreement 14,185 -
Total outstanding debt 283,747 301,424
Less current portion - 11,103
Long-term debt outstanding, net $ 283,747 $ 290,321 Convertible Notes: 4.25% Convertible Notes On April 22, 2015, the Company issued $130.0
million aggregate principal amount 4.25% Convertible Notes. The 4.25% Convertible Notes mature on April 1, 2021, unless earlier
converted, redeemed or repurchased. The Company received net proceeds from the sale of the 4.25% Convertible Notes of $125.0 million,
after deducting placement agent fees and commissions and offering expenses payable by the Company. Interest on the 4.25% Convertible
Notes is payable on April 1 and October 1 of each year, beginning October 1, 2015. The 4.25% Convertible Notes are governed
by the terms of an indenture (the 4.25% Convertible Notes Indenture), between the Company and Wilmington Trust, National Association
(the 4.25% Convertible Notes Trustee), each of which were entered into on April 22, 2015. The Company may not redeem the 4.25% Convertible
Notes prior to April 6, 2019. However, the holders may convert their 4.25% Convertible Notes at any time prior to the close of
business on the business day immediately preceding January 1, 2021 only under certain circumstances. Upon conversion, the Company
will deliver a number of shares of the Company's common stock equal to the conversion rate in effect on the conversion date. Effective
upon the 1-for-10 reverse stock split effected on October 13, 2016, the conversion rate decreased from 87.2030 shares of the Company's
common stock for each $1,000 principal amount of the 4.25% Convertible Notes to 8.7237 shares of the Company's common stock for
each $1,000 principal amount of the 4.25% Convertible Notes, which represents a conversion price of approximately $114.63 per share.
Following certain corporate transactions that can occur on or prior to the stated maturity date, the Company will increase the
conversion rate for a holder that elects to convert its 4.25% Convertible Notes in connection with such a corporate transaction.
In addition to the holder option to convert, the 4.25% Convertible Notes may be redeemed upon the occurrence of certain events.
The Company incurred debt issuance costs of approximately $5.0 million, which have been deferred and which are being amortized
over a six-year period, unless earlier converted, in which case the unamortized costs would be recorded in additional paid-in capital.
The effective interest rate on the 4.25% Convertible Notes, including debt issuance costs and bifurcated conversion option derivative
(discussed below), is 9.7%. The Company is required to separate the conversion
option in the 4.25% Convertible Notes under Accounting Standards Codification (ASC) 815, Derivatives and Hedging Debt with Conversion and Other Options In addition to the bifurcated conversion feature,
there are two other features that require bifurcation but contain de minimis value. Although the probability was considered remote,
at the time of the transaction, that (1) additional interest would be incurred for failure to file financial statements timely
or (2) the 4.25% Convertible Notes would be redeemed by the Company following the failure of the Zohydro ER acquisition (see Note
12, Business Combinations Interest expense was $1.7 million and $6.4
million for the three and nine months ended September 30, 2017, respectively and $2.3 million and $6.8 million for the three and
nine months ended September 30, 2016, respectively, related to the 4.25% Convertible Notes. Change in fair value of derivative
liability was a benefit of $46,000 and an expense of $38,000 for the three and nine months ended September 30, 2017, respectively,
and an expense of $209,000 and a benefit of $6.7 million for the three and nine months ended September 30, 2016, respectively.
Accrued interest on the 4.25% Convertible Notes was approximately $1.7 million and $1.4 million as of September 30, 2017 and December
31, 2016, respectively. The Company recorded debt issuance costs of $5.0 million, which are being amortized using the effective
interest method. As of September 30, 2017, $525,000 and $1.6 million are recorded on the unaudited condensed consolidated balance
sheet in Prepaid expenses and other current assets and Convertible Notes - long-term, respectively. As of December 31, 2016, $705,000
and $3.3 million are recorded on the consolidated balance sheet in Prepaid expenses and other current assets and Convertible Notes
- long-term, respectively. As of September 30, 2017 and December 31, 2016, the Company had outstanding borrowings of $78.2 million
and $130.0 million, respectively, related to the 4.25% Convertible Notes. The Company recorded $14.7 million as gain
from exchange of debt for the three and nine months ended September 30, 2017, respectively. The $14.7 million gain consisted of
the following (in thousands):
4.25% Convertible Notes:
Principal $ 51,775
Deferred financing costs (1,452)
Debt discount (8,147)
Derivative liability 91
Exchangeable Notes:
Principal (36,243)
Debt discount 25,091
Fair value of conversion option (12,690)
Issuance of 1.1 million shares (3,775)
Net Gain on Extinguishment $ 14,650 Exchangeable Notes On July 20, 2017, the Company entered into
an exchange agreement (the Exchange Agreement) with certain holders of its 4.25% Convertible Notes pursuant to which $51.8 million
of aggregate principal amount of its 4.25% Convertible Notes held by such holders were exchanged for (i) $36.2 million aggregate
principal amount of 4.25%/5.25% Exchangeable Senior Notes due 2022 (the Exchangeable Notes), issued by Pernix Ireland Pain Limited,
or PIPL, a wholly-owned subsidiary of the Company, pursuant to an Indenture, dated July 21, 2017 (the New Notes Indenture), among
PIPL, the guarantors party thereto (the Guarantors), and Wilmington Trust, National Association, as Trustee and (ii) 1,100,498
shares of the Company's common stock. The Exchangeable Notes issued under the New
Notes Indenture are guaranteed by the Company and each other subsidiary thereof. The Exchangeable Notes are senior, unsecured
obligations of PIPL DAC. Interest on the Exchangeable Notes will be paid in cash or a combination of cash and in-kind interest
at PIPL DAC's election. Interest paid in cash (the "All Cash Method") will accrue at a rate of 4.25% per annum, while
interest paid in a combination of cash and in-kind will accrue at a rate of 5.25% per annum, with 2.25% per annum (plus additional
interest, if any) capitalized to the principal amount of the Exchangeable Notes, and the balance paid in cash. The maturity date
of the Exchangeable Notes Indenture is July 15, 2022. The Exchangeable Notes initially are exchangeable
into shares of the Company's common stock at an exchange price per share of $5.50 (the Exchange Price). The Exchange Price will
be subject to adjustment from time to time upon the occurrence of certain events, including, but not limited to, the issuance of
certain stock dividends on the Company's common stock, the issuance of certain rights or warrants, subdivisions, combinations,
distributions of capital stock, indebtedness, or assets, the payment of cash dividends and certain Company tender or exchange offers. Holders will exchange all or a portion of
their Exchangeable Notes at their option at any time prior to the close of business on the second scheduled trading day immediately
preceding the maturity date. Upon not less than 30 nor more than 45 trading
days' notice, if the daily Volume Weighted Average Price (VWAP) (as defined in the Exchangeable Notes Indenture) of the Company's
common stock has been at least 120% of the Exchange Price then in effect for at least 20 trading days (whether or not consecutive)
during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which
such notice of redemption is provided (the "Provisional Redemption", and such date of a Provisional Redemption, the "Redemption
Date"), the Company will have the right to redeem any or all of the Exchangeable Notes at a price equal to 100% of the principal
amount thereof (including any interest capitalized thereto) plus accrued interest that has not been paid or capitalized to, but
excluding, the date on which the Exchangeable Notes are to be redeemed. The redemption price will be paid in cash. No "sinking fund" will be provided
for the Exchangeable Notes, which means that PIPL DAC will not be required to periodically redeem or retire the Exchangeable Notes.
If PIPL DAC or the Company undergoes a Fundamental Change (as defined below), subject to certain conditions, holders of the Exchangeable
Notes may require PIPL DAC to repurchase for cash all or part of their Exchangeable Notes. The fundamental change repurchase price
will be equal to 100% of the principal amount (including any interest capitalized thereto) of the Exchangeable Notes to be repurchased,
plus accrued and unpaid interest to, but excluding, the date, chosen by PIPL DAC, that is not less than 20 business days or more
than 35 business days following the date on which notice of the Fundamental Change was provided by PIPL DAC. Under the Exchangeable Notes Indenture, a
"Fundamental Change" will be deemed to have occurred if, among other events, any of the following occurs: (i) any "group"
or "person," within the meaning of Section 13(d) of the Securities Exchange Act of 1934 (as amended, the "Exchange
Act"), other than a permitted holder under the Exchangeable Notes Indenture, becomes the direct or indirect "beneficial
owner," as defined in Rule 13d-3 under the Exchange Act, of the Company's common stock representing more than 50% of the Company's
voting power; (ii) the Company consummates any recapitalization, reclassification or change of the Company's common stock, subject
to certain exceptions as contained in the Exchangeable Notes Indenture; (iii) the Company effects any share exchange, consolidation
or merger pursuant to which the Company's common stock will be converted into cash, securities or other property or assets; (iv)
the Company effects any sale, lease or other transfer in one transaction or a series of transactions of all or substantially all
of the Company's consolidated assets to a person or entity other than a permitted holder under the Exchangeable Notes Indenture;
(v) the Company's stockholders approve a plan or proposal for the Company's liquidation or dissolution or the liquidation or dissolution
of PIPL DAC; and (vi) the Company's common stock ceases to be listed on The New York Stock Exchange, The NASDAQ Global Select Market
or The NASDAQ Global Market (or any of their respective successors). Holders of the Exchangeable Notes are entitled
to receive, in certain circumstances, additional shares of the Company's common stock upon exchanges of Exchangeable Notes in connection
with a Provisional Redemption or certain Fundamental Changes. Subject to certain limited exceptions, the
Exchangeable Notes contain covenants which prohibit or limit the ability of PIPL DAC and the Guarantors to, among other things:
(i) pay cash dividends or making distributions on the Company's capital stock or redeem or repurchase the Company's capital stock;
(ii) create, assume or suffer to exist at any time any lien upon any of the Company's properties or assets; (iii) incur any debt
other than debt permitted under the terms of the Exchangeable Notes Indenture; (iv) enter into transactions with affiliates other
than on terms and conditions that, taken as a whole, would be obtained in an arm's-length transaction with non-affiliates; and
(v) make any sale of the Company's assets and the assets of the Company's subsidiaries except in accordance with the terms of the
Exchangeable Notes Indenture. The Exchangeable Notes Indenture provides
for customary events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization
involving PIPL DAC) occurs and is continuing, the Trustee by notice to PIPL DAC, or the holders of at least 25% in principal amount
of the then outstanding Exchangeable Notes by written notice to PIPL DAC and the Trustee, may declare 100% of the accreted principal
of and accrued and unpaid interest, if any, on all of the Exchangeable Notes to be due and payable immediately. Upon the occurrence
of certain events of bankruptcy, insolvency or reorganization involving PIPL DAC, 100% of the principal of and accrued and unpaid
interest, if any, on all of the Exchangeable Notes will become due and payable automatically, including a make-whole premium in
an amount equal to the present value of the interest that would accrue on such Exchangeable Notes (assuming the All Cash Method)
from, and including, such date of acceleration until the maturity date of the Exchangeable Notes, with such present value computed
using a discount rate equal to the sum of (i) the yield to maturity of United States Treasury securities with remaining maturity
equal to that of the Exchangeable Notes (as determined in a commercially reasonable manner by PIPL DAC) on such date of acceleration
and (ii) 50 basis points. Notwithstanding the foregoing, for up to 270 days after the occurrence of an event of default, PIPL DAC
may elect to have the sole remedy for an event of default relating to certain of PIPL DAC's failures to comply with certain reporting
covenants in the Exchangeable Notes Indenture consist exclusively of the right to receive additional interest on the Exchangeable
Notes. Holders of Exchangeable Notes will not be
entitled to receive shares of the Company's common stock upon exchange of any Exchangeable Notes to the extent such holder (or
group of which such holder is a part) would beneficially own more than 9.99% of the outstanding shares of the Company's common
stock. Subject to such limitation, at the initial Exchange Price, the Exchangeable Notes will be exchangeable into approximately
40% of the Company's outstanding common stock as of the date hereof (after giving effect to the issuance of the Exchange Shares
and the common stock underlying the Exchangeable Notes). The Exchange allowed the Company to reduce
the principal amount of its outstanding indebtedness through the exchange of the Holders' 4.25% Convertible Notes for a smaller
principal amount of the Exchangeable Notes. The principal amount of the Exchangeable Notes may be reduced if the holders thereof
exchange their Exchangeable Notes for shares of the Company's common stock. The Exchangeable Notes Indenture will provide capacity
to refinance up to an additional $25.0 million principal amount of the 4.25% Convertible Notes, which refinancing could also provide
an opportunity to further reduce the principal amount of the Company's outstanding indebtedness. Interest expense was $599,000 for the three
and nine months ended September 30, 2017, respectively, and $0 for the three and nine months ended September 30, 2016, related
to the Exchangeable Notes. Accrued interest on the Exchangeable Notes was approximately $300,000 and $0 as of September 30, 2017
and December 31, 2016, respectively. The Company recorded debt issuance costs of $3.5 million, which are being amortized using
the effective interest method. As of September 30, 2017, $278,000 and $3.2 million are recorded on the unaudited condensed consolidated
balance sheet in Prepaid expenses and other current assets and Convertible Notes - long-term, respectively. As of September 30,
2017 and December 31, 2016, the Company had outstanding borrowings of $36.2 million and $0, respectively, related to the Exchangeable
Notes, respectively and classified as Convertible Notes - long-term, on the unaudited condensed consolidated balance sheets. Term Facility: PIPL DAC entered into a term loan credit agreement
(the Delayed Draw Term Loan or DDTL) with Cantor Fitzgerald Securities, as agent (the Term Agent) and the lenders party thereto
to obtain the DDTL. $30 million under the DDTL was drawn on the date of closing of the Transactions, and the remaining $15 million
will be available for subsequent draws for certain specified purposes, including to finance certain acquisitions, subject to conditions
set forth in the Term Credit Agreement. The DDTL includes an incremental feature that allows PIPL DAC, with the consent of the
requisite lenders under the Term Facility, to obtain up to an additional $20 million in term loan commitments from new or existing
lenders under the DDTL that agree to provide such commitments. Interest on the loans will accrue either in cash or a combination
of cash and in kind interest, at PIPL DAC's election. Cash interest will accrue at a rate of 7.50% per annum, while the combination
of cash and in-kind interest will accrue at a rate of 8.50% per annum, with up to 4.00% per annum added to the principal amount
of loans and the balance paid in cash. The DDTL contains representations and warranties, affirmative and negative covenants, and
events of default applicable to PIPL DAC and its subsidiaries (if any) that are customary for credit facilities of this type. The
DDTL will mature on July 21, 2022. PIPL DAC also entered into a mortgage debenture
with Cantor Fitzgerald Securities as agent, pursuant to which PIPL DAC's obligations under the DDTL will be secured by substantially
all of the assets of PIPL DAC and its future-acquired subsidiaries. Interest expense was $438,000 for the three
and nine months ended September 30, 2017, respectively and $0 for the three and nine months ended September 30, 2016, related to
the DDTL. Accrued interest on the DDTL was approximately $438,000 and $0 as of September 30, 2017 and December 31, 2016, respectively.
The Company recorded debt issuance costs of $3.0 million, which are being amortized using the effective interest method. As of
September 30, 2017, $496,000 and $2.4 million are recorded on the unaudited condensed consolidated balance sheet in Prepaid expenses
and other current assets and Delayed draw term loan - long-term, net, respectively. As of September 30, 2017 and December 31, 2016,
the Company had outstanding borrowings of $30.0 million and $0, respectively, related to the DDTL, respectively and classified
as Delayed draw term loan - long-term, on the unaudited condensed consolidated balance sheets, net of unamortized issuance costs. Secured Notes: Treximet Note Offering On August 19, 2014, the Company issued
$220.0 million aggregate principal amount of its 12% Senior Secured Notes due 2020 (the Treximet Secured Notes) pursuant to
an Indenture (the "August 2014 Indenture") dated as of August 19, 2014 among the Company, certain of its subsidiaries
(the "Treximet Guarantors") and U.S. Bank National Association (the August 2014 Trustee), as trustee and collateral
agent. The Treximet Secured Notes mature on August
1, 2020 and bear interest at a rate of 12% per annum, payable in arrears on February 1 and August 1 of each year (each, a Payment
Date), beginning on February 1, 2015. On each Payment Date, commencing August 1, 2015, the Company began paying installments of
principal of the Treximet Secured Notes in an amount equal to 50% of net sales of Treximet for the two consecutive fiscal quarters
immediately preceding such Payment Date (less the amount of interest paid on the Treximet Secured Notes on such Payment Date).
At each month-end beginning with January 2015, the net sales of Treximet will be calculated, the monthly interest accrual amount
will then be deducted from the net sales and this resulting amount will be recorded as the current portion of the Treximet Secured
Notes. If the Treximet net sales less the interest due at each month-end of each six-month period does not result in any excess
over the interest due, no principal payment must be paid at that time. The remaining balance outstanding on the Treximet Secured
Notes will be due on the maturity date, which is August 1, 2020. As of September 30, 2017 and December 31, 2016, the Company classified
$0 and $12.8 million, respectively, of the Treximet Secured Notes as a current liability and $172.1 and $176.8 million as a non-current
liability, respectively. The Treximet Secured Notes are unconditionally
guaranteed, jointly and severally, by the Treximet Guarantors. The Treximet Secured Notes and the guarantees of the Treximet Guarantors
are secured by a continuing first-priority security interest in substantially all of the assets of the Company and the Treximet
Guarantors related to Treximet other than inventory and certain inventory related assets, including accounts arising from the sale
of the inventory. The Company may redeem the Treximet Secured
Notes at its option, in whole at any time or in part from time to time, on any business day, on not less than 30 days nor more
than 60 days prior notice provided to each holder's registered address. If such redemption was prior to August 1, 2015, the redemption
price would have been equal to the greater of (i) the principal amount of the Treximet Secured Notes being redeemed and (ii) the
present value, discounted at the applicable treasury rate of the principal amount of the Treximet Secured Notes being redeemed
plus 1.00%, of such principal payment amounts and interest at the rate per annum shown above on the outstanding principal balance
of the Treximet Secured Notes being redeemed assuming the principal balances were amortized at the times and in the assumed amounts
set forth on Schedule A to the August 2014 Indenture. If such redemption occurred on or after August 1, 2015 and prior to August
1, 2016, the redemption price would have been equal to 106% of the outstanding principal amount of Treximet Secured Notes being
redeemed plus accrued and unpaid interest thereon, or occurs (i) on or after August 1, 2016 and prior to August 1, 2017, the redemption
price would be equal 103% of the outstanding principal amount of the Treximet Secured Notes being redeemed plus accrued and unpaid
interest thereon and (ii) on or after August 1, 2017, the redemption price will equal 100% of the outstanding principal amount
of the Treximet Secured Notes being redeemed plus accrued and unpaid interest thereon. The August 2014 Indenture contains covenants
that limit the ability of the Company and the Treximet Guarantors to, among other things: incur certain additional indebtedness;
pay dividends on, redeem or repurchase stock or make other distributions in respect of its capital stock; repurchase, prepay
or redeem certain indebtedness; make certain investments; create restrictions on the ability of the Treximet Guarantors
to pay dividends to the Company or make other intercompany transfers; create liens; transfer or sell assets; consolidate,
merge or sell or otherwise dispose of all or substantially all of its assets and enter into certain transactions with affiliates.
Upon the occurrence of certain events constituting a change of control, the Company is required to make an offer to repurchase
all of the Treximet Secured Notes (unless otherwise redeemed) at a purchase price equal to 101% of their principal amount, plus
accrued and unpaid interest, if any to the repurchase date. The August 2014 Indenture provides that an
Event of Default (as defined in the August 2014 Indenture) will occur if, among other things, (a) the Company defaults in any payment
of interest on any note when due and payable, and such default continues for a period of 30 days; (b) the Company defaults in the
payment of principal of or premium, if any, on any note when due and payable on the maturity date, upon declaration of acceleration
or otherwise, or to pay the change of control repurchase price, when due and payable, and such default continues for a period of
five days; (c) failure to make a repurchase offer in the event of a change in control when required under the August 2014 Indenture,
which continues for three business days; (d) the Company or any Treximet Guarantor fails to comply with certain covenants after
receiving written notice from the August 2014 Trustee or the holders of more than 25% of the principal amount of the outstanding
Treximet Secured Notes; (e) the Company or any Treximet Guarantor defaults with respect to other indebtedness for borrowed money
in excess of $8.0 million and such default is not cured within 30 days after written notice from the August 2014 Trustee or the
holders of more than 25% of the principal amount of the outstanding Treximet Secured Notes; (f) the Company or any Treximet Guarantor
has rendered against it a final judgment for the payment of $8.0 million (or its foreign currency equivalent) or more (excluding
any amounts covered by insurance) under certain circumstances; (g) certain bankruptcy, insolvency, liquidation, reorganization
or similar events occur with respect to the Company or any Treximet Guarantor; (h) a guarantee of the Treximet Secured Notes (with
certain exceptions) is held to be unenforceable or invalid in a judicial proceeding or ceases to be in full force and effect or
a Treximet Guarantor disaffirms its obligations under its guarantee of the Treximet Secured Notes; and (i) certain changes in control
of a Treximet Guarantor. Interest expense related to the Treximet Secured
Notes was $5.2 million and $15.9 million for the three and nine months ending September 30, 2017, respectively and was $5.7 million
and $17.6 million for the three and nine months ending September 30, 2016, respectively. Accrued interest on the Treximet Secured
Notes was approximately $3.4 million and $9.5 million as of September 30, 2017 and December 31, 2016, respectively. The Company
recorded debt issuance costs of $7.8 million, which are being amortized using the effective interest method. As of September 30,
2017, $1.3 million and $2.5 million are recorded on the unaudited condensed consolidated balance sheet in Prepaid expenses and
other current assets and Treximet Secured Notes - long-term, respectively. As of December 31, 2016, $1.3 million and $3.4 million
are recorded on the consolidated balance sheet in Treximet Secured Notes - current and Treximet Secured Notes - long-term, respectively. On April 13, 2015, the Company furnished to
the holders of the Treximet Secured Notes a Consent Solicitation Statement (the Consent Solicitation). The Consent Solicitation
sought the consent of the holders of a majority of the principal amount of the Treximet Secured Notes to amend the August 2014
Indenture, that governs the Treximet Secured Notes to allow the Company to, among other things, incur up to $42.2 million of additional
debt (the Indenture Amendments) in exchange for a consent fee in cash equal to 1% of the principal amount of consenting Treximet
Secured Notes (the Consent Fees). Through April 28, 2015, the Company received consent to the Indenture Amendments from holders
representing approximately 98% of the principal amount of the Notes, and subsequently paid the holders approximately $2.2 million
during the year ended December 31, 2015. The remaining unamortized cost of inducement of $403,000 and $773,000 is recorded in prepaid
expenses and other current assets and Treximet Secured Notes - long term on the unaudited condensed consolidated balance sheet
at September 30, 2017, respectively and $403,000 and $1.1 million is recorded in Treximet Secured Notes - current and Treximet
Secured Notes - long term on the unaudited condensed consolidated balance sheet at December 31, 2016, respectively and are being
amortized using the straight-line method, which approximates the effective interest method. Credit Facility : Cantor Fitzgerald On July 21, 2017, Pernix and certain subsidiaries
of Pernix as borrowers and guarantors (the "ABL Borrowers") and Pernix Ireland Pain DAC, Pernix Ireland Limited, Pernix
Holdco 1, LLC, Pernix Holdco 2, LLC and Pernix Holdco 3, LLC as additional guarantors (the ABL Guarantors), entered into an asset-based
revolving credit agreement (the ABL Credit Agreement) with Cantor Fitzgerald Securities, as agent (the ABL Agent) and the lenders
party thereto to obtain the ABL Credit Agreement. The ABL Borrowers' obligations under the ABL
Credit Agreement are guaranteed by the ABL Borrowers and the ABL Guarantors are secured by, among other things, the ABL Borrowers'
cash, inventory and accounts, in each case pursuant to a guaranty and security agreement between the ABL Borrowers, ABL Guarantors
and Cantor Fitzgerald Securities as agent. Availability of borrowings under the ABL Credit Agreement from time to time will be
subject to a borrowing base calculation based upon a valuation of the ABL Borrowers' eligible inventories and eligible accounts
receivable, each multiplied by an applicable advance rate, subject to adjustments in accordance with the ABL Credit Agreement.
Borrowings under the ABL Credit Agreement will bear interest at the rate of LIBOR plus 7.50%. In addition, the ABL Borrowers will
be required to pay a commitment fee on the undrawn commitments under the ABL Credit Agreement from time to time at a rate per annum
of 0.25% on the unused commitments under the ABL Credit Agreement, payable monthly. The ABL Credit Agreement contains representations
and warranties, affirmative and negative covenants, and events of default applicable to the Company, the other ABL Borrowers, the
ABL Guarantors and their respective subsidiaries that are customary for credit facilities of this type. The ABL Credit Agreement
will mature on July 21, 2022. Interest expense was $257,000 for the three
and nine months ended September 30, 2017, respectively and $0 for the three and nine months ended September 30, 2016, related to
the ABL Credit Agreement. Accrued interest on the ABL Credit Agreement was approximately $31,000 and $0 as of September 30, 2017
and December 31, 2016, respectively. The Company recorded debt issuance costs of $2.9 million, which are being amortized using
the effective interest method. As of September 30, 2017, $581,000 and $2.2 million are recorded on the unaudited condensed consolidated
balance sheet in Prepaid expenses and other current assets and Other assets, respectively. As of September 30, 2017 and December
31, 2016, the Company had outstanding borrowings of $14.2 million and $0, respectively, related to the ABL Credit Agreement, respectively
and classified as Credit facility - long-term, net, on the unaudited condensed consolidated balance sheets. Wells Fargo On August 21, 2015, the Company entered into
the Credit Agreement with Wells Fargo, as Administrative Agent and the lenders party thereto for a $50.0 million, three-year senior
secured revolving credit facility (the Wells Fargo Credit Facility), which may be increased by an additional $20.0 million in the
lenders' discretion. As discussed earlier, the ABL Credit Facility
entered into on July 21, 2017 replaced the Wells Fargo Credit Facility and the Company used the proceeds from the ABL Credit Facility
to repay the outstanding obligation of the Wells Fargo Credit Facility. The Company's obligations under the Wells
Fargo Credit Facility were secured by, among other things, the Company's and certain subsidiaries' inventory and accounts receivable,
and were guaranteed by certain of the Company's subsidiaries. As of September 30, 2017 and December 31, 2016, $0 and $14.0 million
was outstanding under the Wells Fargo Credit Facility, respectively. The $14.0 million outstanding at December 31, 2016 was classified
as Credit facility - long-term on the unaudited condensed consolidated balance sheet. The Wells Fargo Credit Facility contained
representations and warranties, affirmative, restrictive and financial covenants, and events of default (applicable to the Company
and certain of its subsidiaries) which were customary for a credit facility of this type. The effective interest rate was 14.91%
at June 30, 2017. On April 18, 2017, the Borrowers entered into
the Amendment with Wells Fargo and the lenders party thereto. The Amendment amends the Credit Agreement governing the Wells Fargo
Credit Facility. Pursuant to the Amendment, the Base Rate Margin
(as defined in the Credit Agreement) was increased from 1.00% to 3.00% and the LIBOR Rate Margin (as defined in the Credit Agreement)
was increased from 2.00% to 4.00%, in each case effective as of the date of the Amendment. The Company has previously disclosed
that it was reviewing its stra |
