Debt

In June 2012, the Company entered into a $3.0 million loan and security agreement collateralized by the Company’s personal property. Interest on advances under the agreement is at a fixed interest rate equal to 4.50%. The loan and security agreement contains only non-financial covenants. Advances under the loan and security agreement have an interest-only period through December 31, 2013 and a 24-month payback period commences in January 2014.

As of September 30, 2013 and December 31, 2012, the Company had $0 and $2.0 million, respectively, in available credit under the loan and security agreement. Total interest incurred under the loan and security agreement for the three months ended September 30, 2013 and 2012 and the nine months ended September 30, 2013 and 2012 (excluding amortization of debt discount) was $34,125, $8,500, $102,125 and $8,500, respectively.

In connection with the loan and security agreement, a warrant was issued for shares of Series A Convertible Preferred Stock that is exercisable in whole, or in part, at any time until the expiration date of June 1, 2022. During July 2012, the Company drew down $1.0 million under the loan and security agreement and the warrant became exercisable for 4,000 shares of Series A Convertible Preferred Stock at an exercise price of $7.50 per share. During January 2013, the Company drew down the remaining $2.0 million under the loan and security agreement and the warrant became exercisable for an additional 8,000 shares of Series A Convertible Preferred Stock at an exercise price of $7.50 per share. Upon the closing of the Company’s IPO in September 2013, the warrant became exercisable for 12,000 shares of common stock at an exercise price of $7.50 per share.

The initial $24,250 fair value of the 4,000 warrant shares earned in July 2012 and the initial $49,000 fair value of the 8,000 warrant shares earned in January 2013 were recorded as a debt discount and are amortized to interest expense over the term of the loan using the effective interest method. As of September 30, 2013 and December 31, 2012, the Company had unamortized debt discount of $51,762 and $20,208, respectively, related to the initial fair value of the warrants.

The initial fair value of warrants earned in 2012 and 2013 was estimated using the Black-Scholes option pricing model with the following assumptions:


	July 2012			January 2013
Assumed risk-free interest rate		1.43	%		1.86	%
Assumed volatility		80	%		80	%
Expected warrant life		10 years			9.5 years
Expected dividend yield		0.0	%		0.0	%

The aggregate advances under the Company’s loan and security agreement and unamortized discount as of September 30, 2013 and December 31, 2012 are as follows:


	September 30, 2013			December 31, 2012
Aggregate advances under loan and security agreement	$	3,000,000		$	1,000,000
Less unamortized discount		(51,762	)		(20,208	)

Total debt, net of debt discount		2,948,238			979,792
Current portion of long-term debt, net of current portion of unamortized discount		(1,069,802	)		—

Long-term debt, net of current portion	$	1,878,436		$	979,792