During 2015 and 2016, the Company entered into several financing arrangements which included the issuance of convertible notes and warrants to purchase shares of common stock. 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 $3.0 million, 10% Senior Secured Collateralized Convertible Promissory Note (the “SPA Note”). The SPA also provided for the issuance of certain warrants up to the amount of the SPA Note to purchase shares of 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 $7 million (the “Exercise Price”).

On November 13, 2015, the Company entered into an Asset Purchase Agreement (the “APA”) with Pharmsynthez and AS Kevelt (“Kevelt”) providing for the issuance of a minimum of a $3.5 million, 10% Senior Secured Collateralized Convertible Promissory Note (the “Initial APA Note”) and the transfer to the Company of certain intellectual property rights with respect to XBIO-101 in exchange for, among other things, 3,378,788 shares of the Company’s common stock. The APA also provided for the issuance of certain warrants covering up to half the amount of the Initial APA Note to purchase shares of common stock at the Exercise Price. During the nine month period ended September 30, 2016, the Company issued $3.5 million of convertible debt, through a series of draws, as well as the associated warrants, both in connection with the Initial APA Note. The convertible debt and its embedded debt-like features were recorded within current liabilities as hybrid debt instruments. A $1.6 million loss was recorded upon the issuance of hybrid debt instruments. In addition, a $1.9 million gain was recorded during the nine months ended September 30, 2016, reflecting the change in fair value of hybrid debt instruments during the period.

On April 22, 2016, Pharmsynthez converted all of the convertible notes issued by the Company to Pharmsynthez in the principal amount of $6.5 million plus accrued interest of approximately $0.2 million, resulting in a $6.2 million loss. 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.

On July 1, 2016, the Company issued a convertible promissory note (the “Note”) in the amount of $500,000 to Pharmsynthez. In consideration for the Note, the Company issued Pharmsynthez warrants (the “Warrants”) to purchase 50,505 shares of its common stock at the Exercise Price. The Note was convertible into shares of the Company’s 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 could be exercised at any time through the five-year anniversary. The maturity date of the Note was one year from issuance and was 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 such term was defined in the Note, the holder was required to convert the Note to shares of the Company’s common stock in accordance with the conversion terms contained therein.

On July 1, 2016, the Company issued a convertible promissory note (the “CEO Note”) in the amount of $369,958 and warrants to purchase 37,369 shares of common stock at the Exercise Price to Mr. Scott Maguire, the Company’s former CEO, for his deferred salary. The maturity date of the CEO Note was September 30, 2016. Upon a public offering, as defined, and at the option of the holder, the CEO Note could 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, the Company 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 its common stock at the Exercise Price to Pharmsynthez. The notes were convertible into shares of 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 a public offering, at the option of Pharmsynthez. The maturity date of the Further Notes was one year from issuance and were 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 SEC of the registration statement filed in connection with the Company’s public offering, the balance of the Further Notes automatically converted into units of the Company’s public offering in accordance with the conversion terms contained therein.

The Note, CEO Note and Further Notes (together, the “Period Notes”) shared the same principal terms and features. The Period Notes were convertible debt and included embedded debt-like features which were 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 were remeasured at each report date until they were settled, with changes in fair value recognized in the unaudited consolidated statement of operations 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, were as follows:

A $0.1 million loss was recorded upon the issuance of the Period Notes. In addition, a $0.2 million gain was recorded during the three months ended September 30, 2016 reflecting the change in fair value of hybrid debt instruments during the period.

On November 7, 2016, the Company closed an approximate $10 million underwritten public offering. In connection with the offering and pursuant to the respective terms therein, the balances of the Period Notes were settled as follows:

See Notes 8 and 11 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Following the November 2016 settlement of these instruments, no hybrid debt instruments were outstanding as of September 30, 2017 and December 31, 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 unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2016, respectively.