Derivative Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2015

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	December 31, 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

- Definition

Tabular disclosure of the fair value measurement of liabilities using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and gains or losses recognized in other comprehensive income (loss) and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs) by class of liability.

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