8. Capitalization

On February 1, 2016 , the Company amended its certificate of incorporation to effect a stock split whereby each issued and outstanding share of common stock and Class B-1, B-2, C and D preferred stock was converted into 1.38 shares of common stock, Class B-1, B-2, C and D preferred stock, respectively. The par value per share was not adjusted as a result of this stock split. All share information presented in these consolidated financial statements and accompanying footnotes has been retroactively adjusted to reflect the increased number of shares resulting from this action.

As of December 31, 2015, the authorized capital stock of the Company consisted of 1,000,000 shares of undesignated preferred stock, par value $0.0001 per share, 22,080,000 shares of common stock, par value $0.0001 per share, 3,278,938 shares of Class B-1 preferred stock, par value $0.0001 per share, 326,557 shares of Class B-2 preferred stock, par value $0.0001 per share and 2,365,020 shares of Class C preferred stock, par value $0.0001 per share, 3,105,000 shares of Class D preferred stock, par value $0.0001 per share.

As of December 31, 2016, the authorized capital stock of the Company consisted of 10,000,000 shares of undesignated preferred stock, par value $0.0001 per share and no shares issued and outstanding, and 100,000,000 shares of common stock, par value $0.0001 per share and 27,700,054 shares issued and outstanding.

On January 30, 2014, the Company entered into three separate Exchange Agreements pursuant to which JDH Investment Management ("JDH"), an entity affiliated with a founder and then Board member of the Company, exchanged 202,347 common shares held by it for 202,347 Class B-1 preferred shares, John Carbona exchanged 202,347 common shares held by him for 202,347 Class B-1 preferred shares and West Summit Investments, LP ("West Summit"), exchanged 202,347 common shares held by it for 202,347 Class B-1 preferred shares. The common shares received by the Company pursuant to these Exchange Agreements were cancelled and retired and ceased to be issued and outstanding. In connection with the Exchange Agreements, the Company reduced earnings available to common stockholders used in the calculation of basic and diluted net loss per common share for the year ended December 31, 2014 (see Note 11) by an aggregate of $387,098, representing the difference between the fair value of the Class B-1 preferred shares issued and the fair value of the common stock that was surrendered in the exchanges, which the Company has accounted for as a deemed preferred dividend on its common stock. Additionally, because Mr. Carbona was serving as the Company's chief executive officer at the time, the Company recognized stock-based compensation expense (see Note 10), in connection with Mr. Carbona's Exchange Agreement.

On February 18, 2014, the Company entered into an Exchange Agreement with White Rock Capital Partners, L.P. ("White Rock") pursuant to which White Rock exchanged 303,518 common shares held by it for 303,518 Class B-1 preferred shares (the "White Rock Exchange Agreement"), and on February 27, 2014, the Company entered into an Exchange Agreement with NRM VII Holdings I LLC ("NRM"), pursuant to which NRM exchanged 303,518 common shares held by it for 303,518 Class B-1 preferred shares (the "NRM Exchange Agreement" and, together, the "Exchange Agreements"). The common shares received by the Company pursuant to these Exchange Agreements were cancelled and retired and ceased to be issued and outstanding. In connection with the Exchange Agreements, the Company reduced earnings available to common stockholders used in the calculation of basic and diluted net loss per common share for the year ended December 31, 2014 (see Note 11) by an aggregate of $479,471, representing the difference between the fair value of the Class B-1 preferred shares issued and the fair value of the common stock that was surrendered in the exchanges, which the Company has accounted for as a deemed preferred dividend on its common stock.

Pursuant to the terms of the Company’s certificate of incorporation as in effect prior to the date of its IPO, in the event of any Liquidation Event, the aggregate assets available for distribution to the stockholders would be distributed as follows:

•	first to the holders of Class C and Class D preferred stock in an amount per share equal to their original issue price ($4.2299 per share for Class C and $21.0145 per share for Class D preferred stock);
•	then, to the holders of Class B preferred stock in an amount per share equal to their original issue price ($2.471 per share for Class B-1 and $2.572 per share for Class B-2 preferred stock); and
•	then, the remaining assets shall be distributed to all holders of common stock and Class B-1, B-2, C and D preferred stock ratably based on the number of shares held by each holder.

The right to a preferential distribution held by the Class B-1, B-2, C and D preferred stockholders would terminate upon the conversion of the preferred stock to common stock upon the completion of a qualified IPO.

Holders of common stock and Class B-1, B-2, C and D preferred stock voted together as a single class.

The Class B-1, B-2, C and D preferred stockholders had certain customary protective provisions that allowed them to approve the liquidation, dissolution or merger of the Company, the payment of dividends, the amendment of the Company's certificate of incorporation, an IPO or offering of the Company's debt securities, capital expenditures above a specified threshold and changes in the authorized shares or preferences of the Company's capital stock.

The Class B-1, B-2, C and D preferred shares were subject to proportional adjustment upon stock splits and stock dividends.

The Class B-1, B-2, C and D preferred shares would automatically convert, on a one-for-one basis, into common stock upon a Qualified IPO or the affirmative vote of the holders of a majority of the issued and outstanding shares of Class B-1, B-2, C and D preferred stock.

The Company's certificate of incorporation and the related Class B and C financing documents reference the legal form of the Class B-1, B-2, C and D preferred shares as "common stock." For GAAP purposes, the Class B-1, B-2, C and D shares were classified as preferred stock due to the preferential distributions that could have been received by the holders of such shares.

Class B-1 and B-2 Preferred Stock

On January 30, 2014, the Company entered into a Convertible Note and Class B Stock Purchase Agreement (the "Class B Purchase Agreement") with PBM Capital Investments, LLC ("PBM"). Under the Class B Purchase Agreement, the Company sold to PBM a $500,000 convertible promissory note (the "Class B Note") (see Note 9) and granted PBM an option (the "Class B Option") to purchase 809,385 shares of Class B-1 preferred stock at a purchase price of $2.47 per share and a warrant (the "Class B-2 Warrant") to purchase 130,623 shares of Class B-2 preferred stock at $2.57 per share (the "Class B Stock Closing"). To exercise the Class B Option, PBM was required to provide written notice of its intent on or before February 28, 2014, after which date the Class B Option would terminate.

After the Class B Stock Closing, the Company also agreed to sell and PBM agreed to purchase, on the same terms and conditions, 1,011,721 additional shares of Class B-1 preferred stock (the "Class B-1 Milestone Shares") and a warrant to purchase 163,278 additional shares of Class B-2 preferred stock (the "Milestone Warrant") on the same terms and conditions. The Class B-1 Milestone Shares were to be sold and the Milestone Warrant was to be issued within ten days of the date that the Company certified that the data and safety monitoring board appointed by the FDA had approved the dosing of the 7th patient in the Company's Phase 1 clinical trial.

On February 27, 2014, PBM provided notice of its intent to exercise the Class B Option. On March 7, 2014, the Company issued to PBM 1,011,721 shares of Class B-1 preferred stock at $2.47 per share in exchange for $2,000,000 of cash and the conversion of the Class B Note. In conjunction with the purchase of the Class B-1 preferred stock, the Company also issued the Class B-2 Warrant to PBM to purchase 130,623 shares of Class B-2 preferred stock at an exercise price of $2.57 per share.

In April 2015, the Company certified that the data and safety monitoring board appointed by the FDA had approved the dosing of the 7th patient in the Company's Phase 1 clinical trial. As a result, on May 4, 2015, the Company issued the Class B-1 Milestone Shares and the Milestone Warrant to PBM in exchange for $2,500,000 of cash.

The Class B-2 Warrant and the Milestone Warrant may be exercised by the holder, in whole or in part, upon the payment of the exercise price in cash. The Class B-2 Warrant and the Milestone Warrant terminate upon the earliest to occur of (a) the 10 year anniversary of their issuance date or (b) a liquidation event, as defined therein.

Class C Preferred Stock

On August 11, 2014, the Company entered into a Class C Stock Purchase Agreement with Deerfield Private Design Fund III ("Deerfield") and Roche Finance Ltd ("Roche").

At closing, Deerfield purchased 504,478 shares of Class C preferred stock at a price of $3.96 per share and converted the original principal amount and accrued and unpaid interest on a secured promissory note dated June 20, 2014 (see Note 9) in the original principal amount of $500,000 into 126,991 shares of Class C preferred stock at a conversion price of $3.96 per share.

At closing, Roche purchased 630,606 shares of Class C preferred stock at a purchase price of $3.96 per share.

After the initial closing, the Company agreed to sell, and Deerfield and Roche each agreed to purchase, an aggregate of 551,472 additional shares of Class C preferred stock at a purchase price of $4.53 per share (the "Class C Milestone Shares") upon the later to occur of the following milestones (the "Class C Milestone Event"):

a)	within 15 days of the date upon which the Company notifies both Deerfield and Roche that the dosing of the 6th patient in the Phase 1 clinical trial has occurred; or
b)	the second business day of the calendar month immediately following notification of the dosing of the 6th patient in the Phase 1 clinical trial.

Neither Deerfield nor Roche was required to purchase any Class C Milestone Shares if either (A) the 6th patient was not dosed by April 15, 2015, or, as of or prior to April 15, 2015, the clinical trial had been stopped, suspended or put on partial or complete hold for patient safety reasons. Either Deerfield or Roche was permitted, at their sole discretion, to purchase their portion of the Class C Milestone Shares at any time, irrespective of the occurrence of a Class C Milestone Event, by providing 5 days written notice.

The Class C Milestone Event occurred in March 2015 and on March 17, 2015, the Class C Milestone Shares were purchased by Deerfield and Roche in exchange for an aggregate purchase price of $5,000,020 in cash.

Class D Preferred Stock Issuance

On September 3, 2015, the Company entered into a Class D Stock Purchase Agreement pursuant to which the Company issued and sold an aggregate of 3,093,092 shares of Class D preferred stock at a price per share of $21.01 for an aggregate of $64,787,549, net of issuance costs.