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Derivative Financial Instruments (Tables) | 3 Months Ended
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Mar. 31, 2015
Components of Derivative Liabilities | The following tables summarize the components of our derivative liabilities and linked common shares as of March 31, 2015 and December 31, 2014 and the amounts that were reflected in our income related to our derivatives for the periods then ended:
|  | March 31, 2015 |  |  | December 31, 2014 |
Derivative liabilities: |  |  |  |  |  |  |  |
Embedded derivatives derived from: |  |  |  |  |  |  |  |
2014 Convertible Promissory Notes |  | $ | 2,594,444 |  |  | $ | 2,115,318 |
|  |  | 2,594,444 |  |  |  | 2,115,318 |
Warrant derivatives |  |  |  |  |  |  |  |
Senior Convertible Notes |  |  | 94,904 |  |  |  | 111,127 |
Warrant derivatives |  |  | 94,904 |  |  |  | 111,127 |
Total derivative liabilities |  | $ | 2,689,348 |  |  | $ | 2,226,445 |
|  | March 31, 2015 |  |  | December 31, 2014 |
Common shares linked to derivative liabilities: |  |  |  |  |  |  |  |
Embedded derivatives: |  |  |  |  |  |  |  |
2014 Convertible Promissory Notes* |  |  | 3,174,604 |  |  |  | 3,174,604 |
|  |  | 3,174,604 |  |  |  | 3,174,604 |
Warrant derivatives |  |  |  |  |  |  |  |
Senior Convertible Notes |  |  | 1,562,500 |  |  |  | 1,562,500 |
Series G Convertible Preferred Stock |  |  | — |  |  |  | — |
|  |  | 1,562,500 |  |  |  | 1,562,500 |
Total common shares linked to derivative liabilities |  |  | 4,737,104 |  |  |  | 4,737,104 |
* | The common shares indexed to the 2014 Convertible Promissory Notes are shares indexed to Oceanica.
Changes in Fair Values of Derivative Liabilities |
|  | Three-months ended March 31, |
|  | 2015 |  |  | 2014 |
Derivative income (expense): |  |  |  |  |  |  |  |
Unrealized gains (losses) from fair value changes: |  |  |  |  |  |  |  |
Senior Convertible Notes |  | $ | — |  |  | $ | 47,243 |
2014 Convertible Promissory Notes |  |  | (479,126 | ) |  |  | — |
Warrant derivatives |  |  | 16,223 |  |  |  | (229,956 | )
Total derivative income (expense) |  | $ | (462,903 | ) |  | $ | (182,713 | )
Compound Embedded Derivative [Member] |
Changes in Fair Value Inputs and Assumptions | The following table reflects the issuances of compound embedded derivatives, redemptions and changes in fair value inputs and assumptions related to the compound embedded derivatives during the three-months ended March 31, 2015 and 2014.
|  | For the three-months ended March 31, |
|  | 2015 |  |  | 2014 |
Balances at January 1 |  | $ | — |  |  | $ | 47,243 |
Issuances |  |  | — |  |  |  | — |
Expirations from redemptions of host contracts reflected in income |  |  | — |  |  |  | (47,243 | )
Changes in fair value inputs and assumptions reflected in income |  |  | — |  |  |  | — |
Balances at March 31 |  | $ | — |  |  | $ | — |
Warrant Derivatives [Member] |
Significant Assumptions Utilized in Valuation Technique | Significant assumptions and utilized in the Binomial Lattice process are as follows for the warrants linked to 525,000 shares of common stock as of March 31, 2014:
|  | March 31, 2014
Linked common shares |  | 525,000
Quoted market price on valuation date |  | $2.29
Contractual exercise rate |  | $2.3793
Term (years) |  | 0.04
Range of market volatilities |  | 15.2% - 29.2%
Risk free rates using zero coupon US Treasury Security rates |  | 0.05%
Significant assumptions and utilized in the Binomial Lattice process are as follows for the warrants linked to 1,562,500 shares of common stock as of March 31, 2015, March 31, 2014 and December 31, 2014:
|  | March, 31 |  | December 31, 2014
|  | 2015 |  | 2014 |
Linked common shares |  | 1,562,500 |  | 1,562,500 |  | 1,562,500
Quoted market price on valuation date |  | $0.70 |  | $2.29 |  | $0.93
Contractual exercise rate |  | $3.60 |  | $3.60 |  | $3.60
Term (years) |  | 2.11 |  | 3.11 |  | 2.40
Range of market volatilities |  | 69.7% - 109.1% |  | 47.9% - 66.1% |  | 59.9% - 73.9%
Risk free rates using zero coupon US Treasury Security rates |  | 0.03% - 0.56% |  | 0.05% - 0.90% |  | 0.04% - 0.67%
Custom lattice variable: Probability of exercisability (434,027 linked common shares) |  | — |  | — |  | —
Changes in Fair Value Inputs and Assumptions | The following table reflects the issuances of derivative warrants and changes in fair value inputs and assumptions related to the derivative warrants during the years ended March 31, 2015 and 2014.
|  | Three-months ended March 31, |
|  | 2015 |  |  | 2014 |
Balances at January 1 |  | $ | 111,127 |  |  | $ | 840,000 |
Changes in fair value inputs and assumptions reflected in income |  |  | (16,223 | ) |  |  | 18,906 |
Balances at March 31 |  | $ | 94,904 |  |  | $ | 858,906 |
Senior Convertible Note [Member] |
Significant Assumptions Utilized in Valuation Technique | Significant inputs and results arising from the Monte Carlo Simulations process are as follows for the share purchase options that have been bifurcated from our Monaco Notes and classified in liabilities as of March 31, 2015 and the inception dates (Tranche 1 – August 14, 2014, Tranche 2 – October 1, 2014, Tranche 3 – December 1, 2014):
Tranche 1 – August 14, 2014: |  | March 31, 2015 |  | August 14, 2014
Underlying price on valuation date* |  | $2.50 |  | $2.50
Contractual conversion rate |  | $3.15 |  | $3.15
Contractual term to maturity |  | 1.38 Years |  | 2.00 Years
Implied expected term to maturity |  | 1.27 Years |  | 1.85 Years
Market volatility: |  |  |  |
Range of volatilities |  | 75.4% - 115.9% |  | 37.0% - 62.2%
Equivalent volatilities |  | 91.53% |  | 51.2%
Contractual interest rate |  | 8.0% - 11.0% |  | 8.0% - 11.0%
Equivalent market risk adjusted interest rates |  | 10.00% |  | 9.50%
Range of credit risk adjusted yields |  | 4.69% - 5.18% |  | 3.94% - 4.45%
Equivalent credit risk adjusted yield |  | 4.81% |  | 4.15%
Tranche 2 – October 1, 2014: |  | March 31, 2015 |  | October 1, 2014
Underlying price on valuation date* |  | $2.50 |  | $2.50
Contractual conversion rate |  | $3.15 |  | $3.15
Contractual term to maturity |  | 1.51 Years |  | 2.00 Years
Implied expected term to maturity |  | 1.38 Years |  | 1.79 Years
Market volatility: |  |  |  |
Range of volatilities |  | 75.2% - 114.1% |  | 58.6% - 75.3%
Equivalent volatilities |  | 89.7% |  | 68.00%
Contractual interest rate |  | 8.0% - 11.0% |  | 8.0% - 11.0%
Equivalent market risk adjusted interest rates |  | 9.75% |  | 9.25%
Range of credit risk adjusted yields |  | 4.69% - 5.18% |  | 3.97% - 4.61%
Equivalent credit risk adjusted yield |  | 4.85% |  | 4.24%
Tranche 3 – December 1, 2014: |  | March 31, 2015 |  | December 1, 2014
Underlying price on valuation date* |  | $2.50 |  | $2.50
Contractual conversion rate |  | $3.15 |  | $3.15
Contractual term to maturity |  | 1.67 Years |  | 2.00 Years
Implied expected term to maturity |  | 1.53 Years |  | 1.76 Years
Market volatility: |  |  |  |
Range of volatilities |  | 74.4% - 115.1% |  | 61.8% - 79.8%
Equivalent volatilities |  | 89.3% |  | 72.2%
Contractual interest rate |  | 8.0% - 11.0% |  | 8.0% - 11.0%
Equivalent market risk adjusted interest rates |  | 9.50% |  | 9.25%
Range of credit risk adjusted yields |  | 4.69% - 5.18% |  | 4.29% - 4.84%
Equivalent credit risk adjusted yield |  | 4.85% |  | 4.52%
* | The instrument is convertible into shares of the Company’s subsidiary, Oceanica, which is not a publicly-traded entity. Therefore its shares do not trade on a public exchange. As a result, the underlying value must be based on private sales of the subsidiary’s shares because that is the best indicator of the value of the shares. There has been a sale of Oceanica’s shares in which a private investor accumulated 24% of the shares of which their last purchase price was for $2.50 per share in December 2013. Accordingly the underlying price used in the MCS calculations for the inception dates and quarter ended March 31, 2015 was $2.50.
2014 Share Purchase Option [Member] |
Changes in Fair Value Inputs and Assumptions | The following table reflects the issuances of the Share Purchase Option derivatives and changes in fair value inputs and assumptions for these derivatives during the three-months ended March 31, 2015.
|  | March 31, 2015 |
Balances at January 1 |  | $ | 2,115,318 |
Issuances |  |  | — |
Changes in fair value inputs and assumptions reflected in income |  |  | 479,126 |
Balances at March 31 |  | $ | 2,594,444 |

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