9.	WARRANTS, OTHER LIABILITY AND NET SALES DISTRIBUTION PAYMENT LIABILITY

Warrant Liability and Other Liability

In connection with the issuance of the Series A Preferred on July 20, 2012, the Company issued Common Stock Warrants (the “Common Stock Warrants”) to each participating investor. The Common Stock Warrants were exercisable into an aggregate of 47,828 shares of the Company’s common stock upon a defined liquidity event of either a sale of the Company or an IPO. On December 3, 2014, the Company completed its IPO and the Common Stock Warrants were net settled into 44,531 shares of common stock to satisfy the Other Liability obligation.

 

Net Sales Distribution Payment

In connection with the sale of Series A-1 Preferred, purchasers of Series A Preferred forfeited their right to receive a 2% net sales distribution payment described in Note 11. The 2% net sales distribution payment was replaced with a new royalty agreement under which the purchasers of Series A-1 Preferred in the Second Closing (“Royalty Recipients”) are entitled to receive a net sales distribution payment equal to 3% of net sales during the calendar year. At the election of the Royalty Recipients, all or a portion of the net sales distribution payments were required to be redeemed by the Company. The Royalty Recipients could elect to have each net sales percentage point redeemed for $10,000 payable in cash or the Company’s common stock.

On October 14, 2014, the Company entered into an amended and restated royalty agreement with the Royalty Recipients which provided for a redemption provision of the net sales royalty payment to be terminated upon the closing of the Company’s IPO (the “A&R Royalty Agreement”). As the A&R Royalty Agreement was entered into directly as a result of the investors’ interest in the Company as stockholders, the change in value of the net sales payment liability of $15,803 was recorded to additional paid-in-capital and was also treated as an addition of earnings attributable to common stockholders in the calculation of net income (loss) per share. On December 3, 2014, the Company completed its IPO and the redemption provision was terminated. The net sales distribution payment of 3% remains in place.

Fair Value Methodology

The following table provides a reconciliation of all liabilities measured at fair value using Level 3 significant unobservable inputs at December 31, 2014:

 

		Year Ended December 31,
		2014
Beginning balance		$	26,912
Change in fair value of Net Sales Distribution Payment Liability			(10,007	)
Extinguishment of liabilities			(16,905	)
Ending balance		$	—

Significant increases (decreases) in the significant unobservable inputs used in the fair value measurement of the level 3 liabilities would result in a significantly higher (lower) fair value measurement.