Note 8. Financing Arrangements

Notes Payable

2014 Term Note — In November 2014, the Company entered into a loan and security agreement with a commercial bank which allowed for borrowings up to $3.0 million under a term note (“2014 Term Note”) and up to $7.0 million less the then-current outstanding borrowings under the 2014 Term Note under a line of credit (“2014 Line of Credit”). In November 2014, the Company borrowed $3.0 million under the 2014 Term Note of which $1.8 million of the proceeds was used to repay an outstanding debt with a different commercial bank. Borrowings under the 2014 Term Note bore 5.75% interest (prime rate of 3.25% plus 2.5%), with interest only payments through October 2015, followed by 24 equal monthly installments of principal and interest. The Company was also required to pay origination fees of $15,000, facilities fees of $70,000 and a termination fee of $60,000. These debt issuance costs were recorded as a direct deduction from notes payable in the consolidated balance sheets and were amortized to interest expense over the term of the note using the effective interest method. In 2015, the Company recognized $55,000 of interest expense in connection with the aforementioned fees. In September 2015, the Company repaid the 2014 Term Note and there was no outstanding balance under the 2014 Term Note at December 31, 2016 and 2017. The write-off of unamortized debt issuance costs of $77,000 was recorded as early extinguishment of debt in general and administrative expenses during the year ended December 31, 2015.

2014 Line of Credit — In February 2015, the Company borrowed $1.0 million, and in May 2015, the Company borrowed an additional $0.9 million, under the 2014 Line of Credit. Outstanding borrowings under the 2014 Line of Credit bore 4.75% interest (prime rate of 3.25% plus 1.5%). In September 2015, the outstanding balance of $1.9 million was repaid in full.

2015 Term Note — At December 31, 2016, the Company had outstanding borrowings under a term note (the “2015 Term Note”) of $11.7 million, net of unamortized debt issuance costs. There were no outstanding borrowings as of December 31, 2017.

Borrowings under the 2015 Term Note bore interest at the greater of: (i) the average prime rate in effect during each month or (ii) the average three-month LIBOR rate during such month, plus 2.5% per annum, plus 7.5% with a minimum rate of 11%, with interest only payments through October 2017, followed by 36 equal monthly installments of principal and interest through October 2020, the maturity date. The weighted average interest rate during the years ended December 31, 2016 and 2017 was 11.00% and 11.54%, respectively.

For the years ended December 31, 2016 and 2017, the Company recognized interest expense of $1.2 million and $1.1 million, respectively, based on the outstanding balance during the respective periods.

During the years ended December 31, 2016 and 2017, amortization of debt issuance costs was $131,000 and $132,000, respectively. Amortization of debt issuance costs is recorded in interest expense in the consolidated statements of operations.

Borrowings under the 2015 Term Note were secured by substantially all of the assets of the Company. Additionally, the terms of the 2015 Term Note included certain financial covenants and various negative covenants.

In March 2017, the Company amended the 2015 Term Note. In connection with the amendment of the 2015 Term Note, the Company issued a warrant to purchase 76,704 shares of Series B-1 preferred stock at an exercise price of $5.8667 per share; however, the terms of the warrant provided that upon the completion of a public offering in which the Company raises at least $25.0 million in net proceeds, the number of shares underlying the warrant would be reduced to 61,363 shares. Consistent with these terms, upon the closing of the IPO, the number of shares underlying this warrant was reduced to 61,363 shares, and the warrant became exercisable for common stock.

Notes payable consisted of the following (in thousands):

	December 31, 2017
	2016			2017
Notes payable	$	12,000		$	—
Unamortized debt issuance costs		(321	)		—
Current maturities of term note		(667	)		—
Total notes payable, net of current maturities	$	11,012		$	—

Early Extinguishment of Debt

In September 2017, the Company voluntarily repaid all outstanding borrowings under the 2015 Term Note. The Company recorded to other expense, net, a loss of $0.2 million, consisting of prepayment fees and miscellaneous fees, and wrote-off $0.3 million of unamortized debt issuance costs from the early extinguishment of debt.