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Derivative Financial Instruments (Tables) | 9 Months Ended
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Sep. 30, 2016
Components of Derivative Liabilities | The following tables summarize the components of our derivative liabilities and linked common shares as of September 30, 2016 and December 31, 2015 and the amounts that were reflected in our income related to our derivatives for the periods then ended:
|  | September 30, |  |  | December 31, |
|  | 2016 |  |  | 2015 |
Derivative liabilities: |  |  |  |  |  |  |  |
Embedded derivatives derived from: |  |  |  |  |  |  |  |
2014 Convertible Promissory Notes |  | $ | — |  |  | $ | 3,396,191 |
|  |  | — |  |  |  | 3,396,191 |
Warrant derivatives |  |  |  |  |  |  |  |
Senior Convertible Notes |  |  | 142 |  |  |  | 6,225 |
Warrant derivatives |  |  | 142 |  |  |  | 6,225 |
Total derivative liabilities |  | $ | 142 |  |  | $ | 3,402,416 |
|  | September 30, |  |  | December 31, |
|  | 2016 |  |  | 2015 |
Common shares linked to derivative liabilities: |  |  |  |  |  |  |  |
Embedded derivatives: |  |  |  |  |  |  |  |
2014 Convertible Promissory Notes* |  |  | — |  |  |  | 3,174,604 |
|  |  | — |  |  |  | 3,174,604 |
Warrant derivatives |  |  |  |  |  |  |  |
Senior Convertible Notes |  |  | 130,208 |  |  |  | 130,208 |
|  |  | 130,208 |  |  |  | 130,208 |
Total common shares linked to derivative liabilities |  |  | 130,208 |  |  |  | 3,304,812 |
* | 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, |
|  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015 |
Derivative income (expense): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized gains (losses) from fair value changes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Senior Convertible Notes |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
2014 Convertible Promissory Notes |  |  | — |  |  |  | (18,889 | ) |  |  | 1,939,366 |  |  |  | (350,873 | )
Warrant derivatives |  |  | 3,748 |  |  |  | 14,157 |  |  |  | 6,082 |  |  |  | 95,128 |
|  |  | 3,748 |  |  |  | (4,732 | ) |  |  | 1,945,448 |  |  |  | (255,745 | )
Redemptions of Senior Convertible Notes |  |  | — |  |  |  | — |  |  |  | 1,456,825 |  |  |  | — |
Total derivative income (expense) |  | $ | 3,748 |  |  | $ | (4,732 | ) |  | $ | 3,402,273 |  |  | $ | (255,745 | )
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, 2016 and 2015.
|  | For the nine months ended September 30, |
|  | 2016 |  |  | 2015 |
Balances at January 1 |  | $ | 3,396,191 |  |  | $ | 2,115,318 |
Issuances |  |  | — |  |  |  | — |
Modification |  |  | (1,456,826 | ) |  |  | — |
Changes in fair value inputs and assumptions reflected in income |  |  | (1,939,365 | ) |  |  | 350,873 |
Balances at September 30 |  | $ | — |  |  | $ | 2,466,191 |
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 March 8, 2016 (Modification Date), December 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 8, 2016*** |  | December 31, 2015 |  | August 14, 2014
Underlying price on valuation date* |  | $1.25 |  | $2.50 |  | $2.50
Contractual conversion rate |  | $3.15 |  | $3.15 |  | $3.15
Contractual term to maturity** |  | 1.82 Years |  | 2.00 Years |  | 2.00 Years
Implied expected term to maturity |  | 1.24 Years |  | 1.82 Years |  | 1.85 Years
Market volatility: |  |  |  |  |  |
Range of volatilities |  | 96.0% - 154.0% |  | 85.2% - 109.8% |  | 37.0% - 62.2%
Equivalent volatilities |  | 120.1% |  | 98.1% |  | 51.2%
Contractual interest rate |  | 11.00% |  | 11.00% |  | 8.0% - 11.0%
Equivalent market risk adjusted interest rates |  | 11.60% |  | 11.00% |  | 9.50%
Range of credit risk adjusted yields |  | 3.49% - 5.02% |  | 3.29% - 4.22% |  | 3.94% - 4.45%
Equivalent credit risk adjusted yield |  | 4.13% |  | 3.76% |  | 4.15%
Tranche 2 – October 1, 2014: |  | March 8, 2016*** |  | December 31, 2015 |  | October 1, 2014
Underlying price on valuation date* |  | $1.25 |  | $2.50 |  | $2.50
Contractual conversion rate |  | $3.15 |  | $3.15 |  | $3.15
Contractual term to maturity** |  | 1.82 Years |  | 2.00 Years |  | 2.00 Years
Implied expected term to maturity |  | 1.24 Years |  | 1.82 Years |  | 1.79 Years
Market volatility: |  |  |  |  |  |
Range of volatilities |  | 96.0% - 154.0% |  | 85.2% - 109.8% |  | 58.6% - 75.3%
Equivalent volatilities |  | 120.1% |  | 98.1% |  | 68.00%
Contractual interest rate |  | 11.00% |  | 11.00% |  | 8.0% - 11.0%
Equivalent market risk adjusted interest rates |  | 11.60% |  | 11.00% |  | 9.25%
Range of credit risk adjusted yields |  | 3.49% - 5.02% |  | 3.29% - 4.22% |  | 3.97% - 4.61%
Equivalent credit risk adjusted yield |  | 4.13% |  | 3.76% |  | 4.24%
Tranche 3 – December 1, 2014: |  | March 8, 2016*** |  | December 31, 2015 |  | December 1, 2014
Underlying price on valuation date* |  | $1.25 |  | $2.50 |  | $2.50
Contractual conversion rate |  | $3.15 |  | $3.15 |  | $3.15
Contractual term to maturity** |  | 1.82 Years |  | 2.00 Years |  | 2.00 Years
Implied expected term to maturity |  | 1.24 Years |  | 1.82 Years |  | 1.76 Years
Market volatility: |  |  |  |  |  |
Range of volatilities |  | 96.0% - 154.0% |  | 85.2% - 109.8% |  | 61.8% - 79.8%
Equivalent volatilities |  | 120.1% |  | 98.1% |  | 72.2%
Contractual interest rate |  | 11.00% |  | 11.00% |  | 8.0% - 11.0%
Equivalent market risk adjusted interest rates |  | 11.60% |  | 11.00% |  | 9.25%
Range of credit risk adjusted yields |  | 3.49% - 5.02% |  | 3.29% - 4.22% |  | 4.29% - 4.84%
Equivalent credit risk adjusted yield |  | 4.13% |  | 3.76% |  | 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 was originally based on private sales of the subsidiary’s shares because that was the best indicator of the value of the shares in the past. The last 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 past in the MCS calculations was the $2.50 for the inception dates and December 31, 2015. Being far removed from December 2013 while considering the modification in March 2016 of the new option price of $1.00 and other market conditions currently prevailing, management determined $1.25 to be fairly representative of the per share fair value.
** | On December 10, 2015 the term was extended to December 31, 2017.
In March 2016 the term was extended to March 8, 2018.
*** | In March 2016 the purchase price of the share purchase options was modified to $1.00 per share. As a result of the re-pricing, the share purchase options no longer require measurement as derivative liabilities. The MCS were calculated for the instruments just prior to the modification on March 8, 2016.
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 130,208 shares of common stock as of September 30, 2016 and December 31, 2015:
|  | September 30, |  | December 31,
|  | 2016 |  | 2015
Linked common shares |  | 130,208 |  | 130,208
Quoted market price on valuation date |  | $3.59 |  | $3.24
Contractual exercise price |  | $43.20 |  | $43.20
Term (years) |  | 0.60 |  | 1.35
Range of market volatilities |  | 29.9% - 158.8% |  | 92.9% - 113.2%
Risk free rates using zero coupon US Treasury Security rates |  | 0.20% - 0.45% |  | 0.16% - 0.65%
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, 2016 and 2015.
|  | Nine months ended September 30, |
|  | 2016 |  |  | 2015 |
Balances at January 1 |  | $ | 6,225 |  |  | $ | 111,127 |
Changes in fair value inputs and assumptions reflected in income |  |  | (6,083 | ) |  |  | (95,128 | )
Balances at September 30 |  | $ | 142 |  |  | $ | 15,999 |

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