Debt and Convertible Instruments

The Company accounts for its debt and convertible debt instruments in accordance with ASC 470, Debt. Debt is recorded at the principal amount net of original issue discounts, premiums, and debt issuance costs, which are amortized to interest expense over the contractual term of the instrument using the effective interest method. Interest expense is recognized as incurred. The Company evaluates debt modifications and extinguishments in accordance with ASC 470-50.

Convertible debt instruments are evaluated under ASC 470 and ASC 815, Derivatives and Hedging, to determine whether embedded conversion features require separate accounting as derivative liabilities. In making this assessment, the Company considers whether conversion features are indexed to the Company’s own stock and qualify for the equity scope exception under ASC 815. Conversion features that do not qualify for the equity scope exception are bifurcated and recorded as derivative liabilities at fair value, with changes in fair value recognized in earnings. Conversion features that qualify for the equity scope exception are accounted for as part of the host debt instrument.

The Company performs this evaluation at issuance and reassesses the classification of conversion features upon the occurrence of events such as modifications to contractual terms or changes in circumstances that could impact the accounting conclusion.