Note 4 Convertible Debt – Related Party

The following table is a summary of our convertible debt – related party at March 31, 2015:

	Gross Principal Amount		Unamortized Debt Discount			Net Amount

Note Payable A	$	20,000,000	$	(4,210,000	)	$	15,790,000

Note Payable B		3,500,000		(650,000	)		2,850,000

Note Payable C		4,990,000		(1,101,000	)		3,889,000
	$	28,490,000	$	(5,961,000	)	$	22,529,000

The Convertible Debt-Related Party is held by Mr. Lewis Pell, a member of Cogentix’s board of directors, and consists of three convertible promissory notes.

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Note Payable A accrues annual interest at the rate of 0.84%. The outstanding principal amount of Note Payable A is convertible into shares of our common stock at a conversion price of $6.00 per share.

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Note Payable B accrues annual interest at the rate of 1.66%. The outstanding principal amount of Note Payable B is convertible into shares of our common stock at a conversion price of $4.45 per share.

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Note Payable C accrues annual interest at the rate of 1.91%. The outstanding principal amount of Note Payable C is convertible into shares of our common stock at a conversion price of $5.55 per share.

At March 31, 2015, we had an aggregate amount of $524,000 in accrued interest under the convertible notes payable, which is included in accrued expenses on our consolidated balance sheet.

The convertible promissory notes mature on March 31, 2020 or earlier upon a change of control (as defined). The convertible promissory notes generally cannot be converted prior to March 31, 2018. The convertible promissory notes may be converted earlier prior to a change in control or in connection with our prepayment of the convertible promissory notes. The convertible promissory notes may be prepaid, at our option and upon 15 days’ notice to Mr. Pell, without other premium or penalty, with a combination of cash and common stock. Interest on the convertible promissory notes is payable on the maturity date or upon repayment or conversion of all or any portion of the principal under the note.

The convertible promissory notes were amended concurrently with the execution of the merger agreement to extend the maturity from the fifth anniversary from their issuance dates to the fifth anniversary of the effective date of the merger and to change the conversion date from anytime to generally not earlier than three years after the effective date of the merger.

Under purchase accounting for the merger, the convertible promissory notes were recorded at fair value, resulting in a discount from their face value of $5,960,000. The discount is being amortized over the remaining term based on the effective interest rate method with an imputed interest rate of 4.72%. The amendments to the convertible notes payable were considered to be part of an arrangement entered into between Mr. Pell and the Company during the merger negotiations that were separate from the business combination. Accordingly, the fair value of the notes was based on the terms that existed prior to the amendment. The fair value of the notes was determined using a lattice model with key assumptions of a risk free rate of 1.37%, market interest rate of 10.3%, and annualized volatility of 65%, less any increase in the fair value of the conversion feature resulting from the amendments. The increase in the fair value of the conversion feature was based on a comparative analysis of the conversion feature's value under both the original terms and modified terms using the same key assumptions.

Stock warrants originally issued in connection with the issuance of the convertible promissory notes are described in note 5.