CONVERTIBLE NOTES

3 Months Ended

Mar. 31, 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. During the three months ended March 31, 2017 such measurement of the embedded derivative resulted in a non-cash charge to the statement of operations of $52.3 million.

The debt discount and debt issuance costs regarding the issuance of the Company’s outstanding 4.5% convertible notes 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 three months ended on March 31, 2017, total conversion notices of $7.7 million principal amount of the Company’s 7.5% notes were received, of which $4.4 million principal amount was settled during the period via an issuance of 525,800 shares of the Company’s common stock and cash payments of $6.1 million in the aggregate.