XML 35 R23.htm IDEA: XBRL DOCUMENT

Loans Payable (Tables)

9 Months Ended

Sep. 30, 2016

The Company’s consolidated debt consisted of the following at:


	September 30, 2016		December 31, 2015

Note 1 – Monaco 2014	$	2,800,000	$	3,449,631
Note 2 – Monaco 2016		1,481,264		—
Note 3 – MINOSA		14,750,001		14,750,001
Note 4 – Epsilon		3,005,195		—

	$	22,036,460	$	18,199,632

Summary of Fair Value of Debt

The fair value of the new debt is as follows:


Monaco loans	Loan one
Forward cash flows:
Principal	$	2,800,000
Interest		559,463

Total forward cash flows	$	3,359,463


Present value of forward cash flows	$	2,554,372
Fair value of equity conversion option		1,063,487

Fair value of debt	$	3,617,859

Summary of Debt Premium


Monaco loans	Loan one
Forward cash flows:
Face value	$	2,800,000
Fair value		3,617,859

Difference (premium)*	$	817,859

ASC 470-20-25-13 provides that if a convertible debt instrument is issued at a substantial premium, there is a presumption that such premium represents paid in capital. Since the total face amount of the new loans is $2,800,000, we conclude that the $817,859 was substantial and recorded that premium to additional paid-in capital.

Summary of Gain or Loss Upon Extinguishment Allocation

The allocation is as follows:


	Allocation
Derivative liabilities (share purchase options)	$	1,456,825
Monaco Loan (Old Debt)		3,372,844
Monaco Loan (New Debt)		(2,800,000	)
APIC (Premium)		(817,859	)

Difference to APIC*	$	1,211,810

The difference between the fair value of the new debt and the sum of the pre-modification carrying amount of the old debt and the share purchase option’s fair value represented a gain on extinguishment. ASC 470-50-40-2 indicates that debt restructuring with a related party may be in essence a capital transaction and as a result the gain upon extinguishment was recognized in additional paid in capital.

Oceanica Resources S. de. R.L [Member]

Schedule of Allocation of Cash Proceeds to Derivative Components at their Fair Values

Based on the previous conclusions, we allocated the cash proceeds first to the debt at its present value using a market rate of 15%, which is management’s estimate of a market rate loan for the Company, with the residual allocated to the Oceanica Call Option, as follows:


	Tranche 1		Tranche 2		Tranche 3		Tranche 4		Tranche 5		Total
Promissory Note	$	1,932,759	$	5,826,341	$	2,924,172	$	1,960,089	$	1,723,491	$	14,366,852
Deferred Income (Oceanica Call Option)		67,241		173,659		75,828		39,911		26,509		383,148

Proceeds	$	2,000,000	$	6,000,000	$	3,000,000	$	2,000,000	$	1,750,000	$	14,750,000

Note 2 [Member] | Monaco Notes [Member]

Summary of Significant Conversion Option Valuation Inputs and Results

Significant inputs and results arising from the Binomial Lattice process are as follows for the conversion option that is classified in equity after the modification in March 2016:


Underlying price on valuation date		$1.25
Contractual conversion rate		$1.00
Contractual term to maturity		1.82 Years
Implied expected term to maturity		1.82 Years
Market volatility:
Range of volatilities		96.0% - 154.0%
Equivalent volatilities		120.1%
Risk free rates using zero coupon US Treasury Security rates		0.29% - 0.68%
Equivalent market risk adjusted interest rates		0.52%

Project Term Loans [Member]

Schedule of Allocation of Cash Proceeds to Derivative Components at their Fair Values

Based on the previous conclusions, we allocated the cash proceeds first to the derivative components at their fair values with the residual allocated to the host debt contract, as follows:


	T1 Allocation		T2 Allocation		T3 Allocation
Promissory Note	$	3,918,254	$	1,937,540	$	1,909,127
Embedded derivative (share purchase option)		831,746		562,460		590,873
Common shares of Oceanica		250,000		—		—

	$	5,000,000	$	2,500,000	$	2,500,000