On July 1, 2015, the Company entered into a Securities Purchase Agreement (the “SPA”) with Pharmsynthez providing for the issuance of a minimum of a $3 million 10% Senior Secured Collateralized Convertible Promissory Note (the “SPA Note”). The SPA also provides for the issuance of certain warrants up to the amount of the SPA Note. The convertible debt and its embedded debt-like features were recorded on the face of the condensed consolidated balance sheet within current liabilities as an aggregate hybrid debt instrument.

On November 13, 2015, the Company entered into an Asset Purchase Agreement (the “APA”) with Pharmsynthez providing for the issuance of a minimum of a $3.5 million 10% Senior Secured Collateralized Convertible Promissory Note (the “APA Note”) and the transfer to the Company of certain intellectual property rights with respect to Virexxa in exchange for, among others, 111.5 million shares of our common stock. The APA also provides for the issuance of certain warrants covering up to half the amount of the APA Note. During the quarter ended March 31, 2016, the Company issued $3.5 million of convertible debt as well as the associated warrants, both in connection with the APA Note. The convertible debt and its embedded debt-like features were recorded on the face of the condensed consolidated balance sheet within current liabilities as an aggregate hybrid debt instrument.

On April 22, 2016, Pharmsynthez converted all convertible notes in the principal amount of $6.5 million plus accrued interest of approximately $228,000, issued by the Company to Pharmsynthez in 2015 and 2016. The conversion rate was $4.95 per share. As such, the Company issued to Pharmsynthez 1,373,036 shares of common stock in connection with conversion of the convertible notes. The related embedded derivatives, which had been bifurcated from the host debt and accounted for separately, were settled by action of the conversion. The Company recognized a net loss on conversion, including a final mark-to-market of the compound derivative, of $4.4 million, which is recorded in other expense in the condensed consolidated statement of comprehensive loss for the three and nine months ended September 30, 2016.

On July 1, 2016, the Company issued a convertible promissory note (the “Note”) in the amount of $500,000 to Pharmsynthez, our majority shareholder. In consideration for the promissory note, we issued Pharmsynthez warrants (the “Warrants”) to purchase 50,505 shares of our common stock at the lesser of $6.60 per share and 120% of the price per share in the Company’s next capital raise of at least $15 million (the “Exercise Price”). The Note is convertible into shares of our common stock at any time at a conversion price of $4.95 per share (subject to price protection and usual and customary adjustments). The Warrants may be exercised at any time through the five-year anniversary. The maturity date of the Note is one year from issuance and is convertible, in whole or in part, into shares of common stock at the option of the holder, at any time and from time to time in accordance with the terms contained therein. Upon a public offering, as defined, the holder shall convert the Note to shares of the Company’s common stock in accordance with the conversion terms contained therein.

Mr. M. Scott Maguire is our Chief Executive Officer. Mr. Maguire’s current annual salary is $505,735 pursuant to his written employment agreement with the Company. Of Mr. Maguire’s 2015 salary amount and 2016 salary amount through today, fifty percent (50%) has been paid in cash and fifty percent (50%) has been deferred and accrued pursuant to an unwritten arrangement between us and Mr. Maguire. On July 1, 2016, we issued a convertible promissory note (the “CEO Note”) in the amount of $369,958 and warrants to purchase 37,369 shares of our common stock at the Exercise Price to Mr. Maguire for the deferred salary. The maturity date of the CEO Note is September 30, 2016. Upon a public offering, as defined, and at the option of the holder, the CEO Note may be settled in cash or by means of conversion into shares of common stock in accordance with the conversion terms contained therein.

On August 26 and September 9, 2016 we issued convertible promissory notes (the “Further Notes”) in the amount of $178,000 and $322,000, respectively, and warrants to purchase 50,505 shares of our common stock at the Exercise Price to Pharmsynthez. The notes are convertible into shares of our common stock at any time at a conversion price of $4.00 per share (subject to price protection and usual and customary adjustments) or may be applied toward the Offering, at the option of Pharmsynthez. The maturity date of the Further Notes is one year from issuance and is convertible, in whole or in part, into shares of common stock at the option of the holder, at any time and from time to time in accordance with the terms contained therein. Upon execution of an underwriting agreement following declaration of effectiveness by the Securities and Exchange Commission of the registration statement filed in connection with the Company’s contemplated public offering, the balance of the Further Notes shall automatically convert into units of the Company’s contemplated public offering in accordance with the conversion terms contained therein.

The Note, CEO Note and Further Notes (together, the “Period Notes”) share the same principal terms and features. The Period Notes are convertible debt and include embedded debt-like features which are recorded on the face of the condensed consolidated balance sheet within current liabilities as an aggregate hybrid debt instrument.

The fair value of the compound derivatives bifurcated from the Period Notes are remeasured at each report date until settled, with changes in fair value recognized in the consolidated statement of comprehensive loss as a gain or loss on derivative. Refer to Note 6 Fair Value Measurements for a table showing changes in the combined compound derivative during the nine months ended September 30, 2016.

The key assumptions used to calculate the estimated fair value of the compound derivative liability as of September 30, 2016, and as of December 31, 2015 are as follows:

Upon issuance of the Further Notes the offset to debt arising from the associated recording of the compound derivative liability, the warrants and the associated issuance costs exceeded the debt proceeds by $106,566. This amount was recorded as a loss in other expense in the condensed consolidated statement of comprehensive loss for the three months ended September 30, 2016.

Interest expense related to the SPA Note, the APA Note, and the Period Notes of approximately $341,000 and $690,000 was recognized in the condensed consolidated statement of comprehensive loss for the three and nine months ended September 30, 2016, respectively.