8. Convertible Debentures

The Company issued convertible debenture securities with detachable warrants (see Note 15) on various dates throughout the years ended September 30, 2012 and 2011 for proceeds of $14,664 and $5,465, respectively. The Company identified certain embedded conversion features in the 2011 convertible debenture issuance that were required to be bifurcated and accounted for as derivatives. The derivative financial instruments were recorded at fair value as of the issuance date of the convertible debentures, as a debt discount, and remeasured to fair value as of each subsequent balance sheet date. The initial fair values determined for the embedded derivatives during the years ended September 30, 2012 and 2011 were $467 and $153, respectively. The Company allocated the remaining proceeds to the convertible debentures and warrants on a relative fair value basis and recorded a beneficial conversion feature related to certain of the convertible debentures. The derivative financial instruments, warrants and beneficial conversion feature were recorded as a discount to the convertible debentures and were amortized to interest expense through the IPO date (see below).

The convertible debentures were general unsecured obligations of the Company. The convertible debentures had a stated interest rate of 8.0% per annum on the outstanding principal balance. The interest on the convertible debenture securities was payable in kind (“PIK”) and added to the unpaid principal in order to determine the number of shares of common stock to be issued upon conversion.

Conversion of principal and accrued PIK interest into shares of common stock was at the election of the noteholders and was also mandatory upon the occurrence of a positive cash flow event, which was deemed to have occurred on the 30th day after the Company generates positive cash flow during three consecutive calendar months for debentures issued between November 2008 and December 2009 (“2009 Debentures”) and six consecutive calendar months for debentures issued between April 2010 and February 2011 (“2010 Debentures”). In addition, for the 2009 and 2010 Debentures, upon conversion additional warrants were to be issued equivalent to 50% of the number of shares of common stock converted from accrued PIK interest. For debentures issued between September 2011 and December 2011 (“2011 Debentures”), conversion of principal and accrued PIK interest into shares of common stock occurred at the election of the note holders at a conversion price of $15.00 per share and was also was mandatory upon the closing of an initial public offering at a conversion price equal to the public offering price. The 2009 Debentures were to mature ten years from the issue date. The 2010 and 2011 Debentures were to mature five years from the issue date.

On May 1, 2011 and August 1, 2011, a positive cash flow event occurred for the 2009 and 2010 Debentures, respectively. The price at which the principal and accrued interest was converted was $16.26 per share of common stock for the 2009 Debentures and $13.25 per share of common stock for the 2010 Debentures. The principal and accrued interest converted into 740 and 862 shares of common stock for the 2009 and 2010 Debentures, respectively. The unamortized debt discount at the conversion date for the 2009 Debentures, which included a beneficial conversion feature, was recorded as interest expense on the conversion date. For the 2010 Debentures, which did not include a beneficial conversion feature, the carrying amount, including the unamortized debt discount related to the warrants, was credited to equity at the conversion date.

On December 31, 2012, certain holders of the convertible debentures elected to convert their debentures to common stock. The outstanding principal and PIK interest for these holders at December 31, 2012 was $12,392, which converted into 826 shares of common stock. The unamortized debt discount for these debentures of $1,387 was recorded as interest expense on the conversion date.

On June 12, 2013, in connection with the completion of the IPO, the outstanding principal of the convertible debentures of $5,865 and PIK interest of $778 automatically converted into 443 shares of the Company's common stock, based upon the IPO price of $15.00 per share. The unamortized debt discount for these debentures of $863 was recorded as interest expense on the conversion date. As a result of this conversion, there were no outstanding convertible debenture balances as of December 31, 2014 and 2013.

Convertible debenture activity for the years ended September 30, 2013 and 2012, respectively, is as follows:



	Year Ended September 30,
	2013			2012
	(in thousands)
Beginning balance:
Gross balance	$	18,328		$	2,493
Less: Discounts	(2,440		)	(529		)
	15,888			1,964
Proceeds:
To convertible debentures, before allocations	—			14,664
Allocated to detachable warrants	—			(1,660		)
Allocated to beneficial conversion feature	—			(140		)
Allocated to conversion option liability	—			(467		)
Interest expense:
PIK interest	707			1,171
Amortization of debt discount	190			355
Recognition of unamortized debt discount upon conversion	2,250			—
Conversion:
Issuance of common shares	(19,035		)	—
Recognition of unamortized discount upon conversion (2009 Debentures)	—			—
Ending balance:
Gross balance	—			18,328
Less: Discounts	—			(2,440		)
Ending balance	$	—		$	15,888

Total interest expense recognized related to the convertible debenture securities was $3,147 and $1,526 for the years ended September 30, 2013 and 2012. Due to the conversion of these convertible debenture securities to shares of common stock in connection with the completion of the IPO in June 2013, the Company did not incur any related interest expense during all subsequent periods.