8. DEBT

Venture Debt

In August 2012, the Company entered into a $15,000,000 loan and security agreement (“the 2012 Loan”), and repaid a loan entered into in 2010 (the “2010 Loan”) including principal of $10,333,833, a termination fee of $875,000, and other costs associated with the payoff. Prepayment penalties and write-off of the remaining unamortized costs associated with the 2010 Loan resulted in a charge to interest expense of approximately $628,000 during the year ended December 31, 2012. These transactions generated net cash proceeds to the Company of $3,432,260.

In August 2013, the Company amended the 2012 Loan to defer the beginning of repaying principal for six months, to March 1, 2014. To obtain this deferral, there was an additional fee of $150,000 due at the end of the loan term. The 2012 Loan, as amended, provides for interest-only payments for 18 months followed by 30 equal monthly principal and interest payments of $566,822 at an annual interest rate of 9.95%. In addition, a final payment of $1,275,000 will be due at the end of the loan term. The 2012 Loan also included a facility fee of $75,000.

In connection with the 2012 Loan, the Company issued to the lenders warrants to purchase 167,182 shares of Series G convertible preferred stock or Next Round Stock at $21.78 per share. The warrants are exercisable until 2019. The estimated fair value of warrants on the date of issuance was negligible. The estimated fair value of the warrants at December 31, 2013, including the methodology and input assumptions used in the valuation, is discussed in Note 10. On July 22, 2014, upon the completion of the Company’s IPO, the warrants converted into warrants to purchase common stock.

The 2012 Loan is collateralized by a security interest in all of the Company’s assets except intellectual property on which there is a negative pledge, and the loan agreement contains covenants, including a revenue covenant, and restrictions on the Company’s ability to pay cash dividends. At December 31, 2014, the Company was in compliance with all loan covenants.

In connection with the 2010 Loan, the Company issued to the lenders warrants to purchase 17,215 shares of Series G convertible preferred stock at $21.78 per share. The warrants were exercisable until 2017. The estimated fair value of the warrants on the date of issuance of $8,000 was recorded as a debt discount liability which was being amortized to interest expense over the term of the loan. For the year ended December 31, 2012, amortization of $4,400 was included in interest expense. The estimated fair value of the warrants at December 31, 2013, including the methodology and input assumptions used in the valuation, is discussed in Note 9. On July 22, 2014, upon the completion of the Company’s IPO, the warrants converted into warrants to purchase common stock.

Aggregate annual payments at December 31, 2014 due on the 2012 Loan, as amended, are as follows (in thousands):


Year ending December 31:	Annual Payments
2015	$	6,802
2016		5,809

		12,611
Less: amounts representing interest		(2,204	)

		10,407
Plus: unamortized premium, net		899

		11,306
Less: current portion		(5,961	)

Long-term portion	$	5,345

Convertible Notes

At December 31, 2011, the Company had a liability for $11,365,000 principal amount of convertible subordinated promissory notes, which had been issued at various times from June 2010 to October 2011 (“the 2010 Notes”). The 2010 Notes had an annual interest rate of 7%, compounded annually and payable at maturity. Amortization of $39,000 for an embedded debt discount related to the 2010 Notes is included in interest expense during the year ended December 31, 2012.

In April 2012, the Company converted all the 2010 Notes including principal and interest of $12,423,000, into 570,294 shares of Series G preferred stock at $21.78 per share, and issued 357,216 Series G preferred stock warrants exercisable at $21.78 per share. The estimated fair value of the warrants on the date of issuance was negligible.

Subordinated Convertible Note

On April 17, 2014, the Company issued a $5.0 million Subordinated Convertible Promissory Note to Illumina, Inc. (the “the 2014 Note”) which provided for interest at an annual rate of 8.0%. The 2014 Note was to mature one year following its issuance with principal and unpaid interest due at that time unless the Note were converted into equity prior to the maturity date. As described below, conversion was mandatory in the event of a Qualified Initial Public Offering (as defined in the 2014 Note). Upon the closing of the IPO on July 22, 2014, the 2014 Note converted into 510,777 shares of common stock in accordance with its terms.

The original estimated fair value of the embedded derivative was accounted for as a debt discount to the subordinated convertible note payable on the consolidated condensed balance sheet. The estimated fair value of the embedded derivative liability was included in accrued and other liabilities on the condensed balance sheets. Amortization of the debt discount was $256,000 for the period from April 17, 2014 to July 22, 2014, when the 2014 Note was converted into common stock. Extinguishment of the embedded derivative liability at July 22, 2014 resulted in other income of $120,000.