Derivative Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2015

The following tables summarize the components of our derivative liabilities and linked common shares as of September 30, 2015 and December 31, 2014 and the amounts that were reflected in our income related to our derivatives for the periods then ended:


	September 30,		December 31,
	2015		2014
Derivative liabilities:
Embedded derivatives derived from:
2014 Convertible Promissory Notes	$	2,466,191	$	2,115,318

		2,466,191		2,115,318

Warrant derivatives
Senior Convertible Notes		15,999		111,127

Warrant derivatives		15,999		111,127

Total derivative liabilities	$	2,482,190	$	2,226,445


	September 30,		December 31,
	2015		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

		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 September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Derivative income (expense):
Unrealized gains (losses) from fair value changes:
Senior Convertible Notes	$	—		$	—		$	—		$	47,243
2014 Convertible Promissory Notes		(18,889	)		(153,175	)		(350,873	)		(153,175	)
Warrant derivatives		14,157			459,016			95,128			782,752

Total derivative income (expense)	$	(4,732	)	$	305,841		$	(255,745	)	$	676,820

Senior Convertible Notes [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 September 30, 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:	September 30, 2015	September 30, 2014	August 14, 2014
Underlying price on valuation date*	$2.50	$2.50	$2.50
Contractual conversion rate	$3.15	$3.15	$3.15
Contractual term to maturity	0.87 Years	1.87 Years	2.00 Years
Implied expected term to maturity	0.83 Years	1.68 Years	1.85 Years
Market volatility:
Range of volatilities	91.0% - 123.9%	55.5% - 70.5%	37.0% - 62.2%
Equivalent volatilities	103.21%	62.3%	51.2%
Contractual interest rate	11.00%	8.0% - 11.0%	8.0% - 11.0%
Equivalent market risk adjusted interest rates	11.00%	9.50%	9.50%
Range of credit risk adjusted yields	3.31% - 4.23%	3.97% - 4.61%	3.94% - 4.45%
Equivalent credit risk adjusted yield	3.31%	4.24%	4.15%


Tranche 2 – October 1, 2014:	September 30, 2015	October 1, 2014
Underlying price on valuation date*	$2.50	$2.50
Contractual conversion rate	$3.15	$3.15
Contractual term to maturity	1.01 Years	2.00 Years
Implied expected term to maturity	0.96 Years	1.79 Years
Market volatility:
Range of volatilities	89.5% - 114.9%	58.6% - 75.3%
Equivalent volatilities	99.87%	68.00%
Contractual interest rate	11.00%	8.0% - 11.0%
Equivalent market risk adjusted interest rates	11.00%	9.25%
Range of credit risk adjusted yields	3.31% - 4.23%	3.97% - 4.61%
Equivalent credit risk adjusted yield	3.31%	4.24%


Tranche 3 – December 1, 2014:	September 30, 2015	December 1, 2014
Underlying price on valuation date*	$2.50	$2.50
Contractual conversion rate	$3.15	$3.15
Contractual term to maturity	1.17 Years	2.00 Years
Implied expected term to maturity	1.09 Years	1.76 Years
Market volatility:
Range of volatilities	87.8% - 110.2%	61.8% - 79.8%
Equivalent volatilities	98.87%	72.2%
Contractual interest rate	8.0% - 11.0%	8.0% - 11.0%
Equivalent market risk adjusted interest rates	10.25%	9.25%
Range of credit risk adjusted yields	3.31% - 4.23%	4.29% - 4.84%
Equivalent credit risk adjusted yield	3.39%	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 September 30, 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 nine months ended September 30, 2015.


	September 30, 2015		September 30, 2014
Balances at January 1	$	2,115,318	$	—
Issuances		—		831,746
Changes in fair value inputs and assumptions reflected in income		350,873		153,175

Balances at September 30	$	2,466,191	$	984,921

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 nine-months ended September 30, 2015 and 2014.


	For the nine-months ended September 30,
	2015		2014
Balances at January 1	$	—	$	47,243
Issuances		—		—
Expirations from redemptions of host contracts reflected in income		—		—
Changes in fair value inputs and assumptions reflected in income		—		(47,243	)

Balances at September 30	$	—	$	—

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 1,562,500 shares of common stock as of September 30, 2015, September 30, 2014 and December 31, 2014:


	September 30		December 31,
	2015	2014	2014
Linked common shares	1,562,500	1,562,500	1,562,500
Quoted market price on valuation date	$0.36	$0.91	$0.93
Contractual exercise rate	$3.60	$3.60	$3.60
Term (years)	1.61	2.61	2.40
Range of market volatilities	83.6% - 106.3%	57.0% - 79.7%	59.9% - 73.9%
Risk free rates using zero coupon US Treasury Security rates	0.04% - 0.33%	0.02% - 0.58%	0.04% - 0.67%

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 nine months ended September 30, 2015 and 2014.


	Nine-months ended September 30,
	2015			2014
Balances at January 1	$	111,127		$	970,823
Changes in fair value inputs and assumptions reflected in income		(95,128	)		(829,995	)

Balances at September 30	$	15,999		$	140,828