Note 8. Debt Obligations

Growth Term Loan

In August 2014, the Company entered into a Loan and Security Agreement (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 to extend the availability of Growth Term Loan B until March 31, 2016. The Company borrowed the remaining $5.0 million availability under Growth Term Loan B in March 2016. The amendment also extended the monthly interest-only payment period until April 1, 2016. Following the interest-only payment period, equal monthly payments of principal and interest amortized over the remaining term of the loan will be due for all funds drawn under Growth Term Loan A and B. Growth Term Loan A and B bear interest at the fixed rates of 8.5% and 8.75%, respectively and mature in September 2018. Should a prepayment be made, 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%. 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 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. The original issuance discount and warrant discount are being amortized, using the effective interest method, over the term of the Growth Term Loan A. Amortization expense was $51,908 and $45,397 for the three months ended March 31, 2016 and 2015, respectively, and is included in interest expense in the accompanying condensed statements of operations. In addition, the Company has recorded approximately $44,947 and $52,377 of deferred financing costs net of the related debt in the accompanying condensed balance sheets as of March 31, 2016 and December 31, 2015, respectively, in accordance with ASC 2015-03, which was adopted on January 1, 2016. Deferred financing cost amortization expense was $7,431 and $3,508 for the three months ended March 31, 2016 and 2015, respectively, and is included in interest expense in the accompanying condensed statements of operations.

The final fee premium relating to Growth Term Loan B of $237,500 will be amortized to interest expense, using the effective interest method, over the remaining Term of Growth Term Loan B beginning in April 2016. The Company issued 45,307 common stock warrants at $2.759 per share and 5,317 common stock warrants at $23.51 per share in accordance with the Growth Term Loan B agreement. The fair value of the discount of $122,460, was calculated using the Black-Scholes option pricing model at March 31, 2016 using the following key inputs:

	For the three months ended
	March 31, 2016
Stock price	$	2.92
Terms (years)	10
Volatility		90.15%
Risk-free rate		1.20%
Dividend yield		0%

The Company analyzed these outstanding Growth Term Loan B warrants to determine whether they meet the definition of a derivative and, if so, whether they also meet the scope exception that contracts issued or held by the reporting entity that are both (1) indexed to its own stock and (2) classified in stockholders’ equity shall not be considered to be derivative instruments. Determining whether an instrument (or embedded feature) is indexed to an entity's own stock apply to any freestanding financial instruments or embedded features that have the characteristics of a derivative, as defined by ASC 815 and to any freestanding financial instruments that are potentially settled in an entity’s own common stock. The Company has concluded that these warrants should be equity-classified since they contain no provisions which would require the Company to account for the warrants as a derivative liability. The warrant discount is being amortized to interest expense, using the effective interest method, over the term of Growth Term Loan B beginning in April 2016.

The principal repayments due under the term loan as of March 31, 2016, are as follows:

2016	$	4,446,396
2017		6,389,782
2018		5,163,822
Total Growth Term Loan payments		16,000,000
Less discount and deferred financing costs		(481,374	)
Plus final fee premium		258,546
Total Growth Term Loan, net	$	15,777,172

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 (“IPO”) 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.

Draws under the first Note Agreement in February, March and April 2015 totaled $4.5 million. There were no draws under the second Note Agreement prior to the Company’s IPO in May 2015. Amortization of the Note Agreement discount and deferred financing fees associated with the Note Agreements was $0 and $32,006 for the three months ended March 31, 2016 and 2015, respectively, and was included in interest expense in the accompanying condensed statements of operations. The remaining unamortized discount and deferred financing fees were written off with the conversion of the convertible notes and accrued interest into 324,591 shares of common stock at a conversion price of $14.00 per share at the IPO.