CONVERTIBLE NOTES

6 Months Ended

Jun. 30, 2017

NOTE 5 – CONVERTIBLE NOTES

All of the Company’s outstanding convertible notes are accounted for using the guidance set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC) 815 requiring that the Company determine whether the embedded conversion option must be separated and accounted for separately. ASC 470-20 regarding debt with conversion and other options requires the issuer of a convertible debt instrument that may be settled in cash upon conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The Company accounts for the 4.5% convertible notes as liability, on an aggregated basis, in their entirety. The conversion feature for the Company’s 7.5% convertible notes is accounted for as a derivative which is bifurcated from the debt host contract and is measured at fair value through the statement of operations. On April 12, 2017, the Company received approval from its stockholders to issue shares of the Company’s Common Stock in excess of 19.9% of the Company’s outstanding shares of Common Stock immediately prior to the closing of the issuance of the Company’s 7.5% convertible notes to settle conversion requests and pay interest on the Company’s issued 7.5% convertible notes. As a result, the Company reclassified the embedded derivative to equity. During the six months ended June 30, 2017 such measurement of the derivative resulted in a non-cash charge to the Company’s statement of operations of $ 38,061 thousand.

The debt discount and debt issuance costs regarding the issuance of the Company’s outstanding 4.5% convertible notes due 2018 are deferred and amortized over the applicable convertible period (5 years).

Issuance costs regarding the issuance of the Company’s 7.5% convertible notes were allocated to the liability, equity component, derivative and shares of Common Stock based on their relative fair values. Issuance costs that were allocated to liability will be amortized using the effective interest rate, other than issuance costs that were allocated to derivative, which were expensed immediately.

During the six months ended June 30, 2017, note holders converted approximately $10.8 million aggregate principal amount of the Company’s 7.5% convertible notes into a total of 4,948,821 shares of Common Stock and cash payments equal to approximately $11 million.