5.Notes Payable

On August 27, 2014, the Company entered into the Credit Facility. The Credit Facility, as amended on March 31, 2015, provides for initial borrowings of $5.0 million under a term loan (“Term Loan A”) and additional borrowings of up to $20.0 million under other term loans, for a maximum of $25.0 million. On August 27, 2014, the Company received proceeds of $5.0 million from the issuance of promissory notes under Term Loan A. On March 31, 2015, the Company received proceeds of $5.0 million from the issuance of promissory notes under another term loan (“Term Loan B”). Of the remaining borrowing capacity, (i) $5.0 million was available to be drawn until May 31, 2015, subject to the completion of an equity financing with net cash proceeds of at least $8.0 million and the issuance of warrants to purchase shares of the Company’s stock equal in value to 3% of the amount drawn, and (ii) $10.0 million was available until July 31, 2015, subject to the completion of an initial public offering with net cash proceeds to the Company of at least $50.0 million and the issuance of warrants to purchase shares of the Company’s common stock equal in value to 3% of the amount drawn. However, these amounts were not drawn. All amounts outstanding under the Credit Facility are due on October 1, 2018 and are collateralized by substantially all of the Company’s personal property, other than its intellectual property.

Interest-only payments are due monthly on amounts outstanding under the Credit Facility until September 1, 2015 and, thereafter, interest and principal payments are due in 36 equal monthly installments from October 1, 2015 through September 1, 2018. Amounts due under the Credit Facility bear interest at an annual rate of 7.49%. In addition, a final payment equal to 3.48% of any amounts drawn under the Credit Facility is due upon the earlier of the maturity date, acceleration of the term loans or prepayment of all or part of the term loans. The final payment is being accrued as additional interest expense using the effective-interest method from the date of issuance through the maturity date, and is recorded within other long-term liabilities. In the event of prepayment, the Company is obligated to pay 1% to 3% of the amount of the outstanding principal depending upon the timing of the prepayment. The effective interest rate as of June 30, 2015 was 11.2%.

In conjunction with Term Loan A, the Company issued warrants to purchase 157,844 shares of series B convertible preferred stock at an exercise price of $0.9503 per share (the “2014 Warrants”) to the lenders. In conjunction with Term Loan B, the Company issued warrants to purchase an additional 157,844 shares of series B convertible preferred stock at an exercise price of $0.9503 per share (the “2015 Warrants”) to the lenders (see Note 6). The 2014 Warrants and 2015 Warrants were exercisable immediately and have seven-year lives. The 2014 Warrants and 2015 Warrants were initially valued at $0.1 million and $0.1 million, respectively, using the Black-Scholes option-pricing model. The Company recorded debt discounts of $0.1 million and $0.1 million upon issuance of the 2014 Warrants and 2015 Warrants, respectively, which are being accreted as interest expense using the effective-interest method over the remaining term of the loan.

There are no financial covenants associated with the Credit Facility; however, there are negative covenants restricting the Company’s activities, including limitations on asset dispositions, mergers or acquisitions; encumbering or granting a security interest in its intellectual property; incurring indebtedness or liens; paying dividends; making certain investments; and entering into certain other business transactions.

Upon the occurrence and continuation of an event of default, the lenders have the right to exercise certain remedies against the Company and the collateral securing the loans under the Credit Facility, including cash. Events of default include, among other things, failure to pay amounts due under the Credit Facility, insolvency, the occurrence of a material adverse event, which includes a material adverse change in the business, operations or conditions (financial or otherwise) of the Company or a material impairment of the prospect of repayment of any portion of the obligations, the occurrence of any default under certain other indebtedness and a final judgment against the Company in an amount greater than $250,000. The occurrence of a material adverse change could result in acceleration of the payment of the debt. At June 30, 2015 and December 31, 2014, the Company concluded that the likelihood of the acceleration of the debt was remote, as a material adverse change had not occurred and was unlikely to occur and therefore the debt was classified in current and long-term liabilities based on scheduled principal payments. Following the occurrence and during the continuance of an event of default, borrowings under the Credit Facility shall bear interest at a rate per annum, which is five hundred basis points, or 5.0%, above the rate that is otherwise applicable.

The Company accounted for the amendment to the Credit Facility, effective March 31, 2015, as a debt modification pursuant to ASC Topic 470-50 Modifications and Extinguishments.

Estimated future principal payments at June 30, 2015 are as follows (in thousands):

Six Months Ending June 30, 2015	Amount
Remainder 2015	$	834
2016	3,333
2017	3,333
2018	2,500

Total	$	10,000
Less: discount for warrants and costs paid to lender	(302		)
Less: current portion	(2,346		)

Note payable, net of current portion and discount	$	7,352

Estimated future principal payments at December 31, 2014 are as follows (in thousands):

Year Ending December 31, 2014	Amount
2015	$	416
2016	1,667
2017	1,667
2018	1,250

Total	$	5,000
Less: discount for warrants and costs paid to lender	(252		)
Less: current portion	(309		)

Note payable, net of current portion and discount	$	4,439

During the three and six months ended June 30, 2015, the Company recognized $0.3 million and $0.4 million, respectively, of interest expense related to the Credit Facility.