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, Oxford Finance LLC and Silicon Valley Bank, which was amended in August 2015 and June 2016. The first tranche of the Growth Term Loan (“Growth Term Loan A”) of $11.0 million was funded in August 2014. The second tranche of $5.0 million (“Growth Term Loan B”) was funded in March 2016. The August 2015 amendment extended the monthly interest-only payment period until April 1, 2016. Following the interest-only payment period, the Company became obligated to make equal monthly payments of principal and interest amortized over the remaining term of the loan 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, 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%. The June 2016 amendment modified the definitions of permitted indebtedness and permitted liens to provide for an increased maximum amount of permitted indebtedness, authorize a new category of permitted indebtedness and authorize a new category of permitted liens. 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 the 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 $50,224 and $102,132 for the three and six months ended June 30, 2016, respectively, and $52,512 and $89,032 for the three and six months ended June 2015, respectively, and is included in interest expense in the accompanying condensed statements of operations. The Company has recorded approximately $37,756 and $52,377 of deferred financing costs net of the related debt in the accompanying condensed balance sheets as of June 30, 2016 and December 31, 2015, respectively, in accordance with ASU 2015-03, which was adopted on January 1, 2016. Deferred financing cost amortization expense was $7,190 and $14,621 and $14,322 and $17,830 for the three and six months ended June 30, 2016 and 2015, respectively, and is included in interest expense in the accompanying condensed statements of operations. In addition, in connection with the Growth Term Loan A, the Company issued preferred stock warrants to the lenders exercisable for 2,512,562 shares of Series E redeemable convertible preferred stock (“Series E Stock”) at a price of $0.2189 per share. Upon completion of the Company’s IPO in May 2015, the warrants were automatically converted to common stock warrants exercisable for up to 23,396 shares of common stock at an exercise price of $23.51 per share. The warrants expire on August 22, 2024.

The final fee premium relating to the Growth Term Loan B of $237,500 is being amortized to interest expense, using the effective interest method, over the term of the Growth Term Loan B. In connection with the funding of the Growth Term Loan B, in March 2016, the Company issued Oxford Finance LLC a common stock warrant exercisable for 45,307 shares of common stock at an exercise price of $2.759 per share, and the warrant issued to Silicon Valley Bank automatically became exercisable for an additional 5,317 shares of common stock at an exercise price of $23.51 per share in accordance with the terms of the Growth Term Loan. The fair value of the discount of $122,460, was calculated using the Black-Scholes option pricing model at March 31, 2016. The warrant discount is being amortized to interest expense, using the effective interest method, over the term of the Growth Term Loan B. Amortization for the three and six months ended June 30, 2016 was $21,920 and $21,920. There was no amortization for the three and six months ended June 30, 2015 on Growth Term Loan B discount because the Growth Term Loan B was not outstanding during those periods.

The principal repayments due under the term loan as of June 30, 2016, are as follows:

2016	$	2,995,821
2017		6,389,782
2018		5,163,822
Total Growth Term Loan payments		14,549,425
Less discount and deferred financing costs		(402,042	)
Plus final fee premium		343,282
Total Growth Term Loan, net	$	14,490,665

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 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. The Company recorded a $741,828 discount for the estimated fair value of warrants issued in connection with the debt. Amortization of the Note Agreement discount and deferred financing fees associated with the Note Agreements was $93,262 and $125,268 for the three and six months ended June 30, 2015, respectively, which was included in interest expense in the accompanying condensed statements of operations.

Settlement of Convertible Debt upon IPO Closing

Upon the initial closing of the Company’s IPO in May 2015, all outstanding principal and accrued interest was settled by issuing 324,591 shares of common stock valued at the IPO price of $14.00 for a total of $4.5 million. The Company evaluated the terms of the Note Agreements at inception and concluded that the convertible notes issued thereunder should be accounted for as share settled debt as they fall within the scope of ASC Topic 480, Distinguishing Liabilities from Equity. While the debt issued under the Note Agreements contains 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 50%. 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 recorded a loss on settlement of debt of $705,217 in the accompanying condensed statement of operations for the three and six months ended June 30, 2015. The value of the debt adjusted to the value of the common stock paid was reclassified from debt to equity. No such loss on settlement of debt was recorded for the three and six months ended June 30, 2016.