Note 8. Debt Obligations.

Growth Term Loan

In August 2014, the Company entered into the Growth Term Loan with a syndicate of two lending institutions. The first tranche of the Growth Term Loan (“Growth Term Loan A”) of $11.0 million was funded at the August 2014 closing. A second tranche of $5.0 million (“Growth Term Loan B”) was initially available to be drawn until July 4, 2015. In August 2015, the Company and its lenders amended the Growth Term Loan agreement to extend the availability of Growth Term Loan B until March 31, 2016. The Company received the Growth Term Loan A proceeds net of a $0.3 million original issue discount. The Company also recorded a discount for the issuance of warrants with Growth Term Loan A (See Note 11). The original issuance discount and warrant discount are being amortized, using the effective interest method, over the term of the Growth Term Loan A. Growth Term Loan discount amortization expense was $170,954 and $84,676 for the years ended December 31, 2015 and 2014, respectively, and is included in interest expense in the accompanying statements of operations. The Growth Term Loan A bears interest at the fixed rate of 8.5% and matures in September 2018. Pursuant to the August 2015 amendment to the Growth Term Loan agreement, the Company will have monthly interest-only payment obligations until April 1, 2016. Following the interest-only payment period, equal monthly payments of $408,296 consisting of principal and interest amortized over the remaining term of the loan through September 2018 will be due. The balance sheets and the principal repayments table below have been adjusted to reflect this amended payment schedule. The August 2015 amendment further changed the prepayment fee schedule for Growth Term Loan A such that the Company will be obligated to pay a prepayment fee equal to (i) 3% of the principal amount prepaid if the Growth Term Loan is prepaid on or before the first anniversary of the August 2015 amendment, (ii) 2% of the principal amount repaid if the Growth Term Loan is prepaid after the first anniversary but on or prior to the second anniversary of the August 2015 amendment and (iii) 1% of the principal amount repaid if the Growth Term Loan is repaid after the second anniversary of the August 2015 amendment and prior to maturity. The amendment also increased the final payment percentage to 4.75%. Final fee premium amortization expense was $158,707 and $56,201 for the years ended December 31, 2015 and 2014, respectively, and is included in interest expense in the accompanying statements of operations. The Growth Term Loan requires the Company to maintain compliance with specific reporting covenants and does not require financial covenants. The Growth Term Loan is secured by a lien covering substantially all of the Company’s assets, excluding patents, trademarks and other intellectual property rights (except for rights to payment related to the sale, licensing or disposition of such intellectual property rights) and certain other specified property. The Company paid $0.1 million in financing costs upon entering the Growth Term Loan. The agreement included Convertible Preferred Stock warrants to purchase 2,512,562 shares of Series E Stock (the “Series E Loan Warrants”) at a price of $0.2189 per share or at the purchase price of the next round of equity sold if no further shares of Series E Stock were sold. The warrants to purchase shares of Series E Stock expire on August 22, 2024 (See Note 11) and were automatically converted to warrants for common stock upon completion of the Company’s IPO in May 2015.

The principal repayments due under the term loan as of December 31, 2015 before consideration of the additional $5.0 million Growth Term Loan B funds expected to be drawn in March 2016, are as follows:

2016	$	3,059,068
2017		4,393,103
2018		3,547,829
Total Growth Term Loan payments		11,000,000
Less discount		(365,877	)
Plus final fee premium		214,908
Total Growth Term Loan, net	$	10,849,031

Convertible Notes

On December 30, 2014, the Company entered into two, separate subordinated convertible promissory note agreements (“the Note Agreements”). The Note Agreements provided that upon a qualified equity financing, pursuant to which the Company raised either through a qualified initial public offering of common stock or through a qualifying private placement of Convertible Preferred Stock, gross offering proceeds of at least $20,000,000 from the sale of shares to new investors, the outstanding principal amount and all accrued but unpaid interest under convertible notes issued pursuant to the Note Agreements would automatically convert into shares of common stock or preferred stock, whichever was sold in the offering. The number of shares into which the convertible notes were convertible was equal to the outstanding principal and accrued interest divided by the price per share paid by investors purchasing such newly issued equity securities. The Note Agreements also provided that in the event of a sale of the Company, the holders could elect to receive two times the outstanding principal and accrued interest or the number of shares of Series E Convertible Preferred Stock as was equal to the outstanding principal and accrued interest divided by $0.2189.

Under the first Note Agreement, the Company was able to issue up to $7,339,165 of notes to existing investors at five future, individual closings of up to $1,500,000 each upon ten days’ notice to participating investors. When issued, the notes would bear annual interest at 8% and mature on March 31, 2016. In addition, pursuant to the first Note Agreement the Company issued to participating investors warrants to purchase up to 5,029,114 shares of Series E Convertible Preferred Stock at $0.2189 per share, discussed further in Note 11.

Under the second Note Agreement, the Company was able to issue up to $6,203,971 of subordinated convertible notes to existing investors at four individual closings of up to $1,703,971 each upon ten days’ notice to participating investors. When issued, the notes would bear annual interest at 8% and mature on March 31, 2016. In addition, pursuant to the second Note Agreement the Company issued to participating investors warrants to purchase up to 4,282,472 shares of Series E Convertible Preferred Stock at $0.2189 per share, discussed further in Note 11.

Under each of the Note Agreements, the failure of a principal or major participating investor to invest their committed amount at each of the closings resulted in the conversion of a percentage of the investor’s preferred shares into common shares at the applicable conversion rates in effect pursuant to the Company’s restated certificate of incorporation. Under the first Note Agreement, failure of a principal investor to purchase their committed amount resulted in the conversion of their entire holdings of Convertible Preferred Stock into common stock, at conversion rates then in effect. Under the second Note Agreement, up to 80% of the total Convertible Preferred Stock held by such investor will be converted into common stock, at conversion rates then in effect. In addition, failure to purchase the full committed amount in any closing will result in the termination of the applicable investor’s warrants, in whole or in part, and the forgiveness and extinguishment of 80% of the aggregate principal amount of the applicable investor’s outstanding notes, if any. In the event the Company sold new shares of stock in a qualified initial public offering or preferred stock in a private placement, an investor’s failure to participate in the subsequent equity financing, in an amount equal to their applicable remaining committed amount under the Note Agreements, would result in the conversion of up to 80% of the non-participating investor’s aggregate Convertible Preferred Stock holding as of the closing date of the subsequent equity financing, along with a reduction of up to 80% of the non-participating investor’s warrants.

Pursuant to the provisions of the second Note Agreement, certain preferred shares were optionally converted into common stock as of December 30, 2014.

Certain provisions of the first Note Agreement terminate (including the investors’ obligations to purchase notes thereunder) immediately prior to the earlier to occur of the closing of (i) a qualified initial public offering or (ii) a qualified private placement. Certain provisions of the second Note Agreement terminate (including the investors’ obligations to purchase notes thereunder) immediately prior to the earlier to occur of (x) the time at which a registration statement covering a public offering of the Company’s securities under the Securities Act of 1933, as amended, becomes effective or (y) the initial closing of a qualified private placement. Such provisions of the Note Agreements (including the investors’ obligations to purchase notes thereunder) terminated in connection with the completion of the Company’s IPO.

As of December 31, 2014, there were no borrowings under the Note Agreements. Draws under the first Note Agreement in February, March and April 2015 totaled $4.5 million through the Company’s IPO in May 2015. There were no draws under the second Note Agreement prior to the Company’s IPO in May 2015.

The Company recorded a $741,828 discount for the estimated fair value of warrants issued in connection with the debt (See Note 11). The warrant discount is being amortized, using the effective interest method, over the term of the Convertible Notes. Amortization expense of $90,222 for the year ended December 31, 2015, is included in interest expense in the statements of operations. There was no amortization expense for the year ended December 31, 2014.

Settlement of Convertible Debt upon IPO Closing

Upon closing of the Company’s IPO in May 2015, all outstanding principal ($4.5 million) and accrued interest under the convertible notes issued pursuant to the first Note Agreement was converted into 324,591 shares of common stock at a conversion price of $14.00 per share. The Company evaluated the terms of the Note Agreement at inception and concluded that it should be accounted for as share settled debt as it falls within the scope of ASC 480, Distinguishing Liabilities from Equity. While the issued debt Note Agreements contain multiple events that could trigger settlement at different values, the Company evaluated all of the possible outcomes and considered the qualified IPO outcome to be predominant at more than a 50% probability of occurrence. The IPO settlement triggering event settles the fixed monetary amount of the debt known at inception with a variable number of shares of common stock based on the price of the common stock at settlement and therefore meets the definition of share settled debt. The Company compared the value of the common stock issued to settle the debt with the carrying amount of the debt at the IPO closing date of May 2015, net of unamortized discount and deferred financing costs, and recognized a loss on settlement of debt of $705,217 in the accompanying statements of operations for the year ended December 31, 2015. The value of the debt adjusted to the value of the common stock paid was reclassified from debt to equity.