DEBT

Credit Facility

On October 17, 2014 (the “Closing Date”), the Company entered into the Credit Facility with the Lenders, pursuant to which the Lenders agreed, subject to certain conditions, to make term loans totaling up to $10.0 million available to the Company. The proceeds from these loans were designated to pay off existing indebtedness and for working capital and general business purposes. The first $5.0 million term loan was funded on the Closing Date. A second term loan of $5.0 million was funded at the Company’s request on July 23, 2015. Pursuant to the terms of the Credit Facility, the Lenders have a senior-secured lien on all of the Company’s current and future assets, other than its intellectual property. The Lenders have the right to declare the term loan immediately due and payable in an event of default under the Credit Facility, which includes, among other things, a material adverse change in the Company’s business, operations, or financial condition or a material impairment in the prospect of repayment of the term loan. As of December 31, 2015, the Company was in compliance with all covenants under the Credit Facility and has not received any notification or indication from the Lenders of an intent to declare the loan due prior to maturity. However, due to the Company’s current cash flow position and the substantial doubt about its being able to continue as a going concern, the entire principal amount of the Credit Facility has been reclassified to short-term. The Company will continue to evaluate the debt classification on a quarterly basis and evaluate for reclassification in the future should the Company’s financial condition improve.

The first term loan bears interest at an annual rate of 7.95%. The second term loan bears interest at an annual rate of 8.01%. The repayment schedule provides for interest-only payments in arrears until November 2015, followed by consecutive equal monthly payments of principal and interest in arrears through the maturity date, which is October 1, 2018 (the “Maturity Date”). The Company has the option to prepay the outstanding balance of the term loans in full prior to the Maturity Date, subject to a prepayment fee of up to 3%. Upon repayment of each term loan, the Company is also required to make a final payment to the Lenders equal to 6% of the original principal amount of each term loan. This final payment is being accreted over the life of the Credit Facility using the effective interest method.

On the Closing Date, the Company issued warrants to purchase up to an aggregate of 193,798 shares of common stock at an exercise price of $1.29 per share to the Lenders. On July 23, 2015, in connection with the funding of the second term loan, the Company issued additional warrants to purchase up to an aggregate of 152,440 shares of common stock at an exercise price of $1.64 per share to the Lenders. The warrants expire ten years from their dates of issuance. The warrants were classified in equity since they do not include provisions that would require the Company to repurchase its shares or cash settle, among other factors that would require liability classification. The initial fair value of the warrants of approximately $0.1 million was recorded as a discount to the principal balance and is being amortized over the life of the Credit Facility using the effective interest method.

The Company’s notes payable balance consisted of the following (in thousands):



	December 31,
	2015			2014
Notes payable, principal	$	9,505		$	5,000
Add: accretion of final payment fee	171			16
Less: unamortized debt discount	(201		)	(237		)
	9,475			4,779
Less: current portion of notes payable, net	(9,475		)	(153		)
	$	—		$	4,626

Future contractual maturities under the term loans as of December 31, 2015 are as follows (in thousands):



2016	$	3,113
2017	3,371
2018	3,021
	$	9,505

The debt issuance costs, accretion of the final payment and amortization of the warrants are included in interest expense in the Company’s consolidated statements of operations. The Company recognized interest expense related to the Credit Facility of $0.8 million and $0.1 million during the years ended December 31, 2015 and 2014, respectively.

Convertible Notes Payable

On October 17, 2014, the Company amended the terms of its 7% Convertible Notes (“2012 Convertible Notes”) due December 31, 2014 and repaid the remaining aggregate principal balance of $1.225 million with accrued interest. In addition, the Company issued warrants to the former note holders for the right to purchase up to an aggregate of 480,392 shares of common stock, at an exercise price of $2.55 per share. The warrants are exercisable through December 31, 2015. The Company incurred a loss on extinguishment of debt of approximately $0.1 million during the fourth quarter of 2014, which consisted of the fair value of the warrants, an additional payment to the note holders in the amount of the remaining interest payments prior to the amendment, the write-off of the remaining debt discount, and legal fees incurred as part of the amended terms.

The Company recognized interest expense related to its convertible notes payable of $0.2 million and $0.5 million during the years ended December 31, 2014 and 2013, respectively.