☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
2021.
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Title of each class | Trading
Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.0001 par value | OMEX | NASDAQ Capital Market |
Large accelerated filer: | ☐ | Accelerated filer: | ☐ | |||
Non-accelerated filer: | ☐ | Smaller reporting company: | ☒ | |||
Emerging growth company: | ☐ |
Page No. | ||||||
Part I: | ||||||
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Item 1. | ||||||
3 | ||||||
4 | ||||||
5 | ||||||
6 | ||||||
7 – | ||||||
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Item 2. | ||||||
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Item 3. | ||||||
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Item 4. | ||||||
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Part II: | ||||||
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Item 1. | ||||||
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Item 1A. | 48 | |||||
Item 2. | ||||||
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Item 4. | ||||||
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Item 5. | ||||||
Item 6. | ||||||
50 |
Unaudited September 30, 2020 | December 31, 2019 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 9,107,736 | $ | 213,389 | ||||
Accounts receivable and other, net | 46,711 | 421,593 | ||||||
Other current assets | 222,852 | 589,840 | ||||||
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Total current assets | 9,377,299 | 1,224,822 | ||||||
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PROPERTY AND EQUIPMENT | ||||||||
Equipment and office fixtures | 7,295,717 | 10,664,948 | ||||||
Right of use – operating lease, net | 641,390 | 739,803 | ||||||
Accumulated depreciation | (7,285,908 | ) | (10,647,910 | ) | ||||
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Total property and equipment | 651,199 | 756,841 | ||||||
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NON-CURRENT ASSETS | ||||||||
Investment in unconsolidated entity | 2,154,152 | 1,500,000 | ||||||
Exploration license | 1,821,251 | 1,821,251 | ||||||
Other non-current assets | 41,806 | 26,806 | ||||||
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Total non-current assets | 4,017,209 | 3,348,057 | ||||||
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Total assets | $ | 14,045,707 | $ | 5,329,720 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 8,236,386 | $ | 6,237,988 | ||||
Accrued expenses and other | 17,772,090 | 13,422,715 | ||||||
Operating lease obligation | 137,143 | 123,152 | ||||||
Loans payable | 32,057,573 | 31,446,389 | ||||||
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Total current liabilities | 58,203,192 | 51,230,244 | ||||||
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LONG-TERM LIABILITIES | ||||||||
Deferred income and revenue participation rights | 3,818,750 | 3,818,750 | ||||||
Operating lease obligation | 516,743 | 621,046 | ||||||
Loans payable | 8,119,037 | 2,957,097 | ||||||
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Total long-term liabilities | 12,454,530 | 7,396,893 | ||||||
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Total liabilities | 70,657,722 | 58,627,137 | ||||||
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Commitments and contingencies (NOTE H) | ||||||||
STOCKHOLDERS’ EQUITY/(DEFICIT) | ||||||||
Preferred stock - $.0001 par value; 24,984,166 shares authorized; none outstanding | — | — | ||||||
Common stock – $.0001 par value; 75,000,000 shares authorized; 12,208,101 and 9,478,009 issued and outstanding | 1,221 | 948 | ||||||
Additional paid-in capital | 235,456,564 | 221,027,057 | ||||||
Accumulated (deficit) | (262,766,951 | ) | (250,322,307 | ) | ||||
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Total stockholders’ equity/(deficit) before non-controlling interest | (27,309,166 | ) | (29,294,302 | ) | ||||
Non-controlling interest | (29,302,849 | ) | (24,003,115 | ) | ||||
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Total stockholders’ equity/(deficit) | (56,612,015 | ) | (53,297,417 | ) | ||||
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Total liabilities and stockholders’ equity/(deficit) | $ | 14,045,707 | $ | 5,329,720 | ||||
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Unaudited September 30, 2021 | December 31, 2020 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 3,543,036 | $ | 6,163,205 | ||||
Accounts receivable and other, net | 252,688 | 160,257 | ||||||
Other current assets | 214,971 | 587,394 | ||||||
Total current assets | 4,010,695 | 6,910,856 | ||||||
PROPERTY AND EQUIPMENT | ||||||||
Equipment and office fixtures | 7,044,891 | 7,295,717 | ||||||
Right to use – operating lease, net | 498,930 | 607,039 | ||||||
Accumulated depreciation | (7,027,598 | ) | (7,287,999 | ) | ||||
Total property and equipment | 516,223 | 614,757 | ||||||
NON-CURRENT ASSETS | ||||||||
Investment in unconsolidated entity | 3,005,867 | 2,370,794 | ||||||
Exploration license | 1,821,251 | 1,821,251 | ||||||
Other non-current assets | 41,806 | 41,806 | ||||||
Total non-current assets | 4,868,924 | 4,233,851 | ||||||
Total assets | $ | 9,395,842 | $ | 11,759,464 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 2,752,627 | $ | 1,463,668 | ||||
Accrued expenses | 29,402,460 | 21,174,005 | ||||||
Operating lease obligation | 157,672 | 142,080 | ||||||
Loans payable | 28,858,376 | 31,104,239 | ||||||
Total current liabilities | 61,171,135 | 53,883,992 | ||||||
LONG-TERM LIABILITIES | ||||||||
Loans payable | 15,815,432 | 11,489,029 | ||||||
Operating lease obligation | 359,071 | 478,966 | ||||||
Deferred income and revenue participation rights | 0 | 3,818,750 | ||||||
Total long-term liabilities | 16,174,503 | 15,786,745 | ||||||
Total liabilities | 77,345,638 | 69,670,737 | ||||||
Commitments and contingencies (NOTE H) | 0 | 0 | ||||||
STOCKHOLDERS’ EQUITY/(DEFICIT) | ||||||||
Preferred stock - $0.0001 par value; 24,984,166 shares authorized; NaN outstanding | 0 | 0 | ||||||
Common stock – $0.0001 par value; 75,000,000 shares authorized; 13,307,180 and 12,591,084 issued and outstanding | 1,331 | 1,259 | ||||||
Additional paid-in capital | 242,031,382 | 237,505,357 | ||||||
Accumulated (deficit) | (275,167,476 | ) | (265,134,462 | ) | ||||
Total stockholders’ equity/(deficit) before non-controlling interest | (33,134,763 | ) | (27,627,846 | ) | ||||
Non-controlling interest | (34,815,033 | ) | (30,283,427 | ) | ||||
Total stockholders’ equity/(deficit) | (67,949,796 | ) | (57,911,273 | ) | ||||
Total liabilities and stockholders’ equity/(deficit) | $ | 9,395,842 | $ | 11,759,464 | ||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | |||||||||||||
REVENUE | ||||||||||||||||
Recovered cargo sales and other | $ | 143,186 | $ | 278,599 | $ | 734,021 | $ | 830,674 | ||||||||
Expedition | 68,352 | 483,576 | 1,002,998 | 1,500,865 | ||||||||||||
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Total revenue | 211,538 | 762,175 | 1,737,019 | 2,331,539 | ||||||||||||
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OPERATING EXPENSES | ||||||||||||||||
Marketing, general and administrative | 23,351 | 2,110,523 | 2,703,526 | 4,979,776 | ||||||||||||
Operations and research | 4,868,518 | 2,122,394 | 10,609,349 | 5,513,366 | ||||||||||||
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Total operating expenses | 4,891,869 | 4,232,917 | 13,312,875 | 10,493,142 | ||||||||||||
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INCOME (LOSS) FROM OPERATIONS | (4,680,331 | ) | (3,470,742 | ) | (11,575,856 | ) | (8,161,603 | ) | ||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Interest expense | (1,858,456 | ) | (2,049,987 | ) | (4,755,771 | ) | (4,308,098 | ) | ||||||||
Gain (loss) on debt extinguishment | (777,484 | ) | (290,024 | ) | (777,484 | ) | (290,024 | ) | ||||||||
Loss in hybrid-instrument fair value | (250,319 | ) | — | (675,534 | ) | — | ||||||||||
Other | (10,541 | ) | (35,093 | ) | 40,267 | 802,747 | ||||||||||
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Total other income (expense) | (2,896,800 | ) | (2,375,104 | ) | (6,168,522 | ) | (3,795,375 | ) | ||||||||
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(LOSS) BEFORE INCOME TAXES | (7,577,131 | ) | (5,845,846 | ) | (17,744,378 | ) | (11,956,978 | ) | ||||||||
Income tax benefit (provision) | — | — | — | — | ||||||||||||
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NET (LOSS) BEFORE NON-CONTROLLING INTEREST | (7,577,131 | ) | (5,845,846 | ) | (17,744,378 | ) | (11,956,978 | ) | ||||||||
Non-controlling interest | 2,129,085 | 1,616,013 | 5,299,734 | 3,784,978 | ||||||||||||
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NET (LOSS) | $ | (5,448,046 | ) | $ | (4,229,833 | ) | $ | (12,444,644 | ) | $ | (8,172,000 | ) | ||||
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NET (LOSS) PER SHARE | ||||||||||||||||
Basic and diluted (See NOTE B) | $ | (0.51 | ) | $ | (0.45 | ) | $ | (1.26 | ) | $ | (0.88 | ) | ||||
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Weighted average number of common shares outstanding | ||||||||||||||||
Basic | 10,616,080 | 9,456,300 | 9,894,707 | 9,301,796 | ||||||||||||
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Diluted | 10,616,080 | 9,456,300 | 9,894,707 | 9,301,796 | ||||||||||||
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
REVENUE | ||||||||||||||||
Service revenue and other | $ | 197,051 | $ | 143,186 | $ | 635,707 | $ | 734,021 | ||||||||
Expedition | 0 | 68,352 | 35,354 | 1,002,998 | ||||||||||||
Total revenue | 197,051 | 211,538 | 671,061 | 1,737,019 | ||||||||||||
OPERATING EXPENSES | ||||||||||||||||
Marketing, general and administrative | 1,735,909 | 23,351 | 4,727,331 | 2,703,526 | ||||||||||||
Operations and research | 1,632,336 | 4,868,518 | 6,858,938 | 10,609,349 | ||||||||||||
Total operating expenses | 3,368,245 | 4,891,869 | 11,586,269 | 13,312,875 | ||||||||||||
INCOME (LOSS) FROM OPERATIONS | (3,171,194 | ) | (4,680,331 | ) | (10,915,208 | ) | (11,575,856 | ) | ||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Interest expense | (2,866,959 | ) | (1,858,456 | ) | (7,876,688 | ) | (4,755,771 | ) | ||||||||
Gain (loss) on debt extinguishment | 374,835 | (777,484 | ) | 374,835 | (777,484 | ) | ||||||||||
Loss in hybrid-instrument fair value | 0 | (250,319 | ) | 0 | (675,534 | ) | ||||||||||
Other | (22,142 | ) | (10,541 | ) | 3,852,441 | 40,267 | ||||||||||
Total other income (expense) | (2,514,266 | ) | (2,896,800 | ) | (3,649,412 | ) | (6,168,522 | ) | ||||||||
(LOSS) BEFORE INCOME TAXES | (5,685,460 | ) | (7,577,131 | ) | (14,564,620 | ) | (17,744,378 | ) | ||||||||
Income tax benefit (provision) | 0 | 0 | 0 | 0 | ||||||||||||
NET (LOSS) BEFORE NON-CONTROLLING INTEREST | (5,685,460 | ) | (7,577,131 | ) | (14,564,620 | ) | (17,744,378 | ) | ||||||||
Non-controlling interest | 1,600,163 | 2,129,085 | 4,531,606 | 5,299,734 | ||||||||||||
NET (LOSS) | $ | (4,085,297 | ) | $ | (5,448,046 | ) | $ | (10,033,014 | ) | $ | (12,444,644 | ) | ||||
NET (LOSS) PER SHARE | ||||||||||||||||
Basic and diluted (See NOTE B) | $ | (0.31 | ) | $ | (0.51 | ) | $ | (0.77 | ) | $ | (1.26 | ) | ||||
Weighted average number of common shares outstanding | ||||||||||||||||
Basic | 13,273,241 | 10,616,080 | 12,971,591 | 9,894,707 | ||||||||||||
Diluted | 13,273,241 | 10,616,080 | 12,971,591 | 9,894,707 | ||||||||||||
Three-month Period Ended September 30, 2020 | ||||||||||||||||||||
Common Stock | Paid-in Capital | Accumulated Deficit | Non-controlling Interest | Total | ||||||||||||||||
June 30, 2020 | $ | 954 | $ | 222,596,237 | $ | (257,318,905 | ) | $ | (27,173,764 | ) | $ | (61,895,478 | ) | |||||||
Share-based compensation | 105,162 | 105,162 | ||||||||||||||||||
Fair value of warrants issued | 3,015,520 | 3,015,520 | ||||||||||||||||||
Common stock issued | 267 | 9,320,658 | 9,320,925 | |||||||||||||||||
Debt modification | 418,987 | 418,987 | ||||||||||||||||||
Net (loss) | (5,448,046 | ) | (2,129,085 | ) | (7,577,131 | ) | ||||||||||||||
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September 30, 2020 | $ | 1,221 | $ | 235,456,564 | $ | (262,766,951 | ) | $ | (29,302,849 | ) | $ | (56,612,015 | ) | |||||||
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Three-month Period Ended September 30, 2019 | ||||||||||||||||||||
Common Stock | Paid-in Capital | Accumulated Deficit | Non-controlling Interest | Total | ||||||||||||||||
June 30, 2019 | $ | 923 | $ | 218,066,351 | $ | (243,824,513 | ) | $ | (21,478,031 | ) | $ | (47,235,270 | ) | |||||||
Share-based compensation | 679,600 | 679,600 | ||||||||||||||||||
Asset acquisition | 25 | 1,407,628 | 365,716 | 1,773,369 | ||||||||||||||||
Debt modification | 868,878 | 868,878 | ||||||||||||||||||
Net (loss) | (4,229,833 | ) | (1,616,013 | ) | (5,845,846 | ) | ||||||||||||||
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September 30, 2019 | $ | 948 | $ | 221,022,457 | $ | (248,054,346 | ) | $ | (22,728,328 | ) | $ | (49,759,269 | ) | |||||||
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Nine-month Period Ended September 30, 2020 | ||||||||||||||||||||
Common Stock | Paid-in Capital | Accumulated Deficit | Non-controlling Interest | Total | ||||||||||||||||
December 31, 2019 | $ | 948 | $ | 221,027,057 | $ | (250,322,307 | ) | $ | (24,003,115 | ) | $ | (53,297,417 | ) | |||||||
Share-based compensation | 6 | 594,082 | 594,088 | |||||||||||||||||
Fair value of warrants issue | 4,095,780 | 4,095,780 | ||||||||||||||||||
Common stock issued | 267 | 9,320,658 | 9,320,925 | |||||||||||||||||
Debt modification | 418,987 | 418,987 | ||||||||||||||||||
Net (loss) | — | (12,444,644 | ) | (5,299,734 | ) | (17,744,378 | ) | |||||||||||||
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September 30, 2020 | $ | 1,221 | $ | 235,456,564 | $ | (262,766,951 | ) | $ | (29,302,849 | ) | $ | (56,612,015 | ) | |||||||
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Nine-month Period Ended September 30, 2019 | ||||||||||||||||||||
Common Stock | Paid-in Capital | Accumulated Deficit | Non-controlling Interest | Total | ||||||||||||||||
December 31, 2018 | $ | 922 | $ | 217,993,953 | $ | (239,882,346 | ) | $ | (19,309,066 | ) | $ | (41,196,537 | ) | |||||||
Share-based compensation | 1 | 751,998 | 751,999 | |||||||||||||||||
Asset acquisition | 25 | 1,407,628 | 365,716 | 1,773,369 | ||||||||||||||||
Debt modification | 868,878 | 868,878 | ||||||||||||||||||
Net (loss) | (8,172,000 | ) | (3,784,978 | ) | (11,956,978 | ) | ||||||||||||||
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September 30, 2019 | $ | 948 | $ | 221,022,457 | $ | (248,054,346 | ) | $ | (22,728,328 | ) | $ | (49,759,269 | ) | |||||||
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Three Months Ended September 30, 2021 | ||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Accumulated Deficit | Non-controlling Interest | Total | ||||||||||||||||
June 30, 2021 | $ | 1,302 | $ | 240,393,183 | $ | (271,082,179 | ) | $ | (33,214,870 | ) | $ | (63,902,564 | ) | |||||||
Share-based compensation | 0 | 312,646 | 0 | 0 | 312,646 | |||||||||||||||
Common stock issued for converted convertible debt | 29 | 1,325,553 | 1,325,582 | |||||||||||||||||
Net (loss) | (4,085,297 | ) | (1,600,163 | ) | (5,685,460 | ) | ||||||||||||||
September 30, 2021 | $ | 1,331 | $ | 242,031,382 | $ | (275,167,476 | ) | $ | (34,815,033 | ) | $ | (67,949,796 | ) | |||||||
Three Months Ended September 30, 2020 | ||||||||||||||||||||
Common Stock | Paid-in Capital | Accumulated Deficit | Non-controlling Interest | Total | ||||||||||||||||
June 30, 2020 | $ | 954 | $ | 222,596,237 | $ | (257,318,905 | ) | $ | (27,173,764 | ) | $ | (61,895,478 | ) | |||||||
Share-based compensation | 105,162 | 105,162 | ||||||||||||||||||
Fair value of warrants issued | 3,015,520 | 3,015,520 | ||||||||||||||||||
Common stock issued | 267 | 9,320,658 | 9,320,925 | |||||||||||||||||
Debt modification | 418,987 | 418,987 | ||||||||||||||||||
Net (loss) | (5,448,046 | ) | (2,129,085 | ) | (7,577,131 | ) | ||||||||||||||
September 30, 2020 | $ | 1,221 | $ | 235,456,564 | $ | (262,766,951 | ) | $ | (29,302,849 | ) | $ | (56,612,015 | ) | |||||||
Nine Months Ended September 30, 2021 | ||||||||||||||||||||
Common Stock | Paid-in Capital | Accumulated Deficit | Non-controlling Interest | Total | ||||||||||||||||
December 31, 2020 | $ | 1,259 | $ | 237,505,357 | $ | (265,134,462 | ) | $ | (30,283,427 | ) | $ | (57,911,273 | ) | |||||||
Share-based compensation | 1 | 937,938 | 937,939 | |||||||||||||||||
Common stock issued for converted convertible debt | 70 | 2,774,209 | 2,774,279 | |||||||||||||||||
Common stock issued for services | 1 | 99,999 | 100,000 | |||||||||||||||||
Sale of subsidiary equity | 713,879 | 713,879 | ||||||||||||||||||
Net (loss) | 0 | (10,033,014 | ) | (4,531,606 | ) | (14,564,620 | ) | |||||||||||||
September 30, 2021 | $ | 1,331 | $ | 242,031,382 | $ | (275,167,476 | ) | $ | (34,815,033 | ) | $ | (67,949,796 | ) | |||||||
Nine Months Ended September 30, 2020 | ||||||||||||||||||||
Common Stock | Paid-in Capital | Accumulated Deficit | Non-controlling Interest | Total | ||||||||||||||||
December 31, 2019 | $ | 948 | $ | 221,027,057 | $ | (250,322,307 | ) | $ | (24,003,115 | ) | $ | (53,297,417 | ) | |||||||
Share-based compensation | 6 | 594,082 | 594,088 | |||||||||||||||||
Fair value of warrants issue | 4,095,780 | 4,095,780 | ||||||||||||||||||
Common stock issued | 267 | 9,320,658 | 9,320,925 | |||||||||||||||||
Debt modification | 418,987 | 418,987 | ||||||||||||||||||
Net (loss) | 0 | (12,444,644 | ) | (5,299,734 | ) | (17,744,378 | ) | |||||||||||||
September 30, 2020 | $ | 1,221 | $ | 235,456,564 | $ | (262,766,951 | ) | $ | (29,302,849 | ) | $ | (56,612,015 | ) | |||||||
Nine-Months Ended | ||||||||
September 30 2020 | September 30 2019 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss before non-controlling interest | $ | (17,744,378 | ) | $ | (11,956,978 | ) | ||
Adjustments to reconcile net loss to net cash (used) by operating activities: | ||||||||
Director fees paid with equity instruments | — | 701,399 | ||||||
Depreciation and amortization | 7,231 | 113,422 | ||||||
Financed lender fee amortization | 34,043 | — | ||||||
Note payable interest accretion | (99,910 | ) | 922,000 | |||||
Right of use amortization | 98,413 | 20,213 | ||||||
Share-based compensation | 315,486 | 50,600 | ||||||
Investment in unconsolidated entity | (654,152 | ) | (662,007 | ) | ||||
Loss on debt extinguishment | 777,484 | 290,024 | ||||||
Debt modification inducement | — | 868,878 | ||||||
Change in hybrid-instrument fair value | 675,534 | — | ||||||
Terminated revenue participation | — | (825,000 | ) | |||||
(Increase) decrease in: | ||||||||
Accounts receivable | 374,882 | 485,017 | ||||||
Other assets | 351,988 | 637,793 | ||||||
Increase (decrease) in: | ||||||||
Accounts payable | 5,608,462 | 2,087,204 | ||||||
Accrued expenses and other | 4,734,187 | 3,615,904 | ||||||
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NET CASH (USED) BY OPERATING ACTIVITIES | (5,520,730 | ) | (3,651,531 | ) | ||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment | — | (15,492 | ) | |||||
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NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES | — | (15,492 | ) | |||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from issuance of notes payable | 3,493,528 | 1,409,980 | ||||||
Operating lease liability reduction | (90,312 | ) | (18,755 | ) | ||||
Offering costs paid on sale of common stock | (78,326 | ) | — | |||||
Common stock sale net proceeds | 11,315,000 | — | ||||||
Payment of contractual obligation | (224,813 | ) | (207,357 | ) | ||||
|
|
|
| |||||
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES | 14,415,077 | 1,183,868 | ) | |||||
|
|
|
| |||||
NET INCREASE (DECREASE) IN CASH | 8,894,347 | (2,483,155 | ) | |||||
CASH AT BEGINNING OF PERIOD | 213,389 | 2,786,832 | ||||||
|
|
|
| |||||
CASH AT END OF PERIOD | $ | 9,107,736 | $ | 303,677 | ||||
|
|
|
| |||||
SUPPLEMENTARY INFORMATION: | ||||||||
Interest paid | $ | 1,114,376 | $ | 1,114,021 | ||||
Income taxes paid | $ | — | $ | — | ||||
NON-CASH TRANSACTIONS: | ||||||||
2019 Director fees paid with equity | $ | 278,602 | $ | — | ||||
Establish right of use asset with debt obligation per ASC 842 | $ | — | $ | 560,612 | ||||
Convertible debt exchanged for equity | $ | 1,066,219 | $ | — |
Nine Months Ended | ||||||||
September 30 2021 | September 30 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss before non-controlling interest | $ | (14,564,620 | ) | $ | (17,744,378 | ) | ||
Adjustments to reconcile net loss to net cash (used) by operating activities: | ||||||||
Investment in unconsolidated entity | (635,073 | ) | (654,152 | ) | ||||
Depreciation and amortization | 6,566 | 7,231 | ||||||
Financed lender fee amortization | 97,269 | 34,043 | ||||||
Note payable interest accretion | (21,443 | ) | (99,910 | ) | ||||
Right of use amortization | 108,109 | 98,413 | ||||||
Share-based compensation | 937,939 | 315,486 | ||||||
Loss (gain) on debt forgiveness | (374,835 | ) | 777,484 | |||||
Change in hybrid-instrument fair value | 0 | 675,534 | ||||||
Deferred income | (3,818,750 | ) | 0 | |||||
(Increase) decrease in: | ||||||||
Accounts receivable | (92,431 | ) | 374,882 | |||||
Other assets | 372,422 | 351,988 | ||||||
Increase (decrease) in: | ||||||||
Accounts payable | 4,537,885 | 5,608,462 | ||||||
Accrued expenses and other | 9,310,413 | 4,734,187 | ||||||
NET CASH (USED) BY OPERATING ACTIVITIES | (4,136,549 | ) | (5,520,730 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment | (16,141 | ) | 0 | |||||
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES | (16,141 | ) | 0 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from issuance of notes payable | 1,278,218 | 3,493,528 | ||||||
Operating lease liability reduction | (104,303 | ) | (90,312 | ) | ||||
Offering costs paid on sale of common stock | 0 | (78,326 | ) | |||||
Common stock sale net proceeds | 0 | 11,315,000 | ||||||
Sale of subsidiary equity | 713,879 | 0 | ||||||
Payment of debt obligation | (355,273 | ) | (224,813 | ) | ||||
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES | 1,532,521 | 14,415,077 | ||||||
NET INCREASE (DECREASE) IN CASH | (2,620,169 | ) | 8,894,347 | |||||
CASH AT BEGINNING OF PERIOD | 6,163,205 | 213,389 | ||||||
CASH AT END OF PERIOD | $ | 3,543,036 | $ | 9,107,736 | ||||
SUPPLEMENTARY INFORMATION: | ||||||||
Interest paid | $ | 0 | $ | 0 | ||||
Income taxes paid | $ | 0 | $ | 0 | ||||
NON-CASH TRANSACTIONS: | ||||||||
Director compensation settled with equity | $ | 100,000 | $ | 278,602 | ||||
Convertible debt exchanged for equity | $ | 0 | $ | 1,066,219 | ||||
Gain on debt forgiveness | $ | 370,400 | $ | 0 |
2020.
Recently
Therea final rule (“New Final Rule”) that will replace SEC Industry Guide 7 with new disclosure requirements that are nomore closely aligned with current industry and global regulatory practices and standards, including NI
Equipment
2020.
For the nine-monthsnine months ended September 30, 20202021 and 2019,2020, the weighted average common shares outstanding9,894,70712,971,591 and 9,301,796,9,894,707, respectively. For the periods in which net losses occurred, all potential common shares were excluded from diluted EPS because the effect of including such shares would be anti-dilutive.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | |||||||||||||
Average market price during the period | $ | 5.25 | $ | 4.75 | $ | 4.45 | $ | 5.35 | ||||||||
In the money potential common shares from options excluded | 22,493 | 9,449 | 22,493 | 10,984 | ||||||||||||
In the money potential common shares from warrants excluded | 2,449,852 | 30,507 | 671,378 | 41,046 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
Average market price during the period | $ | 6.13 | $ | 5.25 | $ | 6.65 | $ | 4.45 | ||||||||
In the money potential common shares from options excluded | 22,493 | 22,493 | 22,493 | 22,493 | ||||||||||||
In the money potential common shares from warrants excluded | 2,781,314 | 2,449,852 | 2,781,314 | 671,378 |
Three Months Ended | Nine-Months Ended | |||||||||||||||
Per share exercise price | September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | ||||||||||||
Out of the money options excluded: |
| �� | ||||||||||||||
$12.48 | 136,833 | 136,833 | 136,833 | 136,833 | ||||||||||||
$12.84 | 4,167 | 4,167 | 4,167 | 4,167 | ||||||||||||
$26.40 | 75,158 | 75,158 | 75,158 | 75,158 | ||||||||||||
Out-of-the-money warrants excluded: | ||||||||||||||||
$4.67 | — | — | 131,816 | — | ||||||||||||
$4.75 | — | — | 1,646,658 | — | ||||||||||||
$5.76 | 196,135 | — | 196,135 | — | ||||||||||||
$7.16 | 700,000 | 700,000 | 700,000 | 700,000 | ||||||||||||
$12.00 | — | 65,625 | — | 65,625 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total excluded | 1,112,293 | 981,783 | 2,890,767 | 981,783 | ||||||||||||
|
|
|
|
|
|
|
|
Three Months Ended | Nine Months Ended | |||||||||||||||
Per share exercise price | September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||||||
Out of the money options excluded: | ||||||||||||||||
$12.48 | 136,833 | 136,833 | 136,833 | 136,833 | ||||||||||||
$12.84 | 4,167 | 4,167 | 4,167 | 4,167 | ||||||||||||
$26.40 | 75,158 | 75,158 | 75,158 | 75,158 | ||||||||||||
Out-of-the-money | ||||||||||||||||
$4.67 | 0 | 0 | 0 | 131,816 | ||||||||||||
$4.75 | 0 | 0 | 0 | 1,646,658 | ||||||||||||
$5.76 | 0 | 196,135 | 0 | 196,135 | ||||||||||||
$7.16 | 700,000 | 700,000 | 700,000 | 700,000 | ||||||||||||
Total excluded | 916,158 | 1,112,293 | 916,158 | 2,890,767 | ||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | |||||||||||||
Potential common shares from unvested restricted stock awards excluded from EPS | 343,353 | 41,667 | 343,353 | 41,667 | ||||||||||||
|
|
|
|
|
|
|
|
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
Potential common shares from unvested restricted stock awards excluded from EPS | 497,350 | 343,353 | 497,350 | 343,353 | ||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | |||||||||||||
Net income (loss) | $ | (5,448,046 | ) | $ | (4,229,833 | ) | $ | (12,444,644 | ) | $ | (8,172,000 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Numerator, basic and diluted net income (loss) available to stockholders | $ | (5,448,046 | ) | $ | (4,229,833 | ) | $ | (12,444,644 | ) | $ | (8,172,000 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Denominator: | ||||||||||||||||
Shares used in computation – basic: | ||||||||||||||||
Weighted average common shares outstanding | 10,616,080 | 9,456,300 | 9,894,707 | 9,301,796 | ||||||||||||
|
|
|
|
|
|
|
|
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | |||||||||||||
Common shares outstanding for basic | 10,616,080 | 9,456,300 | 9,894,707 | 9,301,796 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Shares used in computation – diluted: | ||||||||||||||||
Common shares outstanding for basic | 10,616,080 | 9,456,300 | 9,894,707 | 9,301,796 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Shares used in computing diluted net income per share | 10,616,080 | 9,456,300 | 9,894,707 | 9,301,796 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net (loss) per share – basic | $ | (0.51 | ) | $ | (0.45 | ) | $ | (1.26 | ) | $ | (0.88 | ) | ||||
Net (loss) per share – diluted | $ | (0.51 | ) | $ | (0.45 | ) | $ | (1.26 | ) | $ | (0.88 | ) |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
Net income (loss) | $ | (4,085,297 | ) | $ | (5,448,046 | ) | $ | (10,033,014 | ) | $ | (12,444,644 | ) | ||||
Numerator, basic and diluted net income (loss) available to stockholders | $ | (4,085,297 | ) | $ | (5,448,046 | ) | $ | (10,033,014 | ) | $ | (12,444,644 | ) | ||||
Denominator: | ||||||||||||||||
Shares used in computation – basic: | ||||||||||||||||
Weighted average common shares outstanding | 13,273,241 | 10,616,080 | 12,971,591 | 9,894,707 | ||||||||||||
Common shares outstanding for basic | 13,273,241 | 10,616,080 | 12,971,591 | 9,894,707 | ||||||||||||
Shares used in computation – diluted: | ||||||||||||||||
Common shares outstanding for basic | 13,273,241 | 10,616,080 | 12,971,591 | 9,894,707 | ||||||||||||
Shares used in computing diluted net income per share | 13,273,241 | 10,616,080 | 12,971,591 | 9,894,707 | ||||||||||||
Net (loss) per share – basic | $ | (0.31 | ) | $ | (0.51 | ) | $ | (0.77 | ) | $ | (1.26 | ) | ||||
Net (loss) per share – diluted | $ | (0.31 | ) | $ | (0.51 | ) | $ | (0.77 | ) | $ | (1.26 | ) |
We measure certain
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | $ | — | $ | — | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities: | ||||||||||||||||
Hybrid debt instrument at fair value | $ | 960,800 | $ | — | $ | — | $ | 960,800 | ||||||||
|
|
|
|
|
|
|
|
The following is a reconciliation of the beginning and ending balances for the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2020: See NOTE I: Note 10 – 37North for further detail.
Balance at December 31, 2019 | $ | 861,485 | ||
Additional debt issuances | 490,000 | |||
Conversion | (1,066,219 | ) | ||
Loss in hybrid-instrument fair value | 675,534 | |||
|
| |||
Balance at September 30, 2020 | $ | 960,800 | ||
|
|
Redeemable Preferred Stock
If we issue redeemable preferred stock instruments (or any other redeemable financial instrument), they are initially evaluated for possible classification as a liability in instances where redemption is certain to occur pursuant to ASC 480 – Distinguishing Liabilities from Equity. Redeemable preferred stock classified as a liability is recorded and carried at fair value. Redeemable preferred stock that does not, in its entirety, require liability classification is evaluated for embedded features that may require bifurcation and separate classification as derivative liabilities. In all instances, the classification of the redeemable preferred stock host contract that does not require liability classification is evaluated for equity classification or mezzanine classification based upon the nature of the redemption features. Generally, mandatory redemption requirements or any feature that could require cash redemption for matters not within our control, irrespective of probability of the event occurring, requires classification outside of stockholders’ equity. Redeemable preferred stock that is recorded in the mezzanine section is accreted to its redemption value through charges to stockholders’ equity when redemption is probable using the effective interest method. We have no redeemable preferred stock outstanding for the periods presented.
Commission (See Note M).
September 30, 2020 | December 31, 2019 | |||||||
Trade | $ | 1,234 | $ | 161,937 | ||||
Related party | 45,477 | 216,603 | ||||||
Other | — | 43,053 | ||||||
|
|
|
| |||||
Total accounts receivable and other | $ | 46,711 | $ | 421,593 | ||||
|
|
|
|
During the quarter ended September 30, 2018, we began providing
September 30, 2021 | December 31, 2020 | |||||||
Related party | 252,688 | 160,220 | ||||||
Other | 0 | 37 | ||||||
Total accounts receivable and other | $ | 252,688 | $ | 160,257 | ||||
During 2018 we entered into a services agreement with and continue to
During the quarter ended September 30, 2019, we received an earnest money deposit of $450,000 from a company controlled by Greg Stemm, our past Chairman of the Board. The earnest money deposit relates to a draft agreement related to potential sell of a stake of our equity in CIC. As of this report date, this transaction has not been consummated. The deposit is included in accrued expenses and other in our statement of consolidated balance sheets.
Fair value of 249,584 common shares issued | $ | 1,407,653 | ||
Direct transaction costs | 46,113 | |||
Total consideration paid | $ | 1,453,766 | ||
Intangible asset- exploration license rights | $ | 1,821,251 | ||
Current assets | 1,747 | |||
Current liabilities | (3,516 | ) | ||
Less: Non-controlling interest | (365,716 | ) | ||
|
| |||
Total net assets acquired | $ | 1,453,766 | ||
|
|
Intangible asset- exploration license rights | $ | 1,821,251 | ||
Current assets | 1,748 | |||
Current liabilities | (3,516 | ) | ||
Less: Non-controlling interest | (365,717 | ) | ||
Total net assets acquired | $ | 1,453,766 | ||
amount is much less than the carrying amount of the license and the cost is not expected to prohibit continued renewals of the license in the future. Based on all the factors considered above, management believes it is appropriate to assign indefinite useful life to the acquisition of the rights for the exploration
LTD
We reviewed the following items to assist in determining CIC LTD’s composition.
a VIE.
2038
September 30, 2020 | $ | 57,645,289 | ||
December 31, 2019 | 56,819,522 | |||
|
| |||
Change in valuation allowance | $ | 825,767 | ||
|
|
September 30, | $ | 69,660,261 | ||
December 31, 2020 | 68,859,984 | |||
Change in valuation allowance | $ | 800,277 | ||
2017.
Our 20202021 business plan requiredrequires us to generate new cash inflows to effectively allow us to perform our planned projects. We continually plan to generate new cash inflows through the monetization of our receivables and equity stakes in seabed mineral companies, financings, syndications or other partnership opportunities. If cash inflow ever becomes insufficient to meet our desired projected business plan requirements, we would be required to follow a contingency business plan whichthat is based on curtailed expenses and fewer cash requirements. On August 21, 2020, we sold in thean aggregate of 2,553,314 shares of our common stock and warrants to purchase up to 1,901,9891,901,985 shares of our common stock. The net proceeds received from this sale, after offering expenses of $0.3 million, were $11.3 million (See NOTE J). These proceeds, coupled with theother anticipated cash inflows, are expected to provide operating funds through early 2022.
Year ending December 31, | Annual payment obligation | |||
2020 | 36,429 | |||
2021 | 147,539 | |||
2022 | 151,965 | |||
2023 | 156,524 | |||
2024 | 92,884 | |||
|
| |||
$ | 585,341 | |||
|
|
Year ending December 31, | Annual payment obligation | |||
2021 | 37,522 | |||
2022 | 151,965 | |||
2023 | 156,524 | |||
2024 | 92,884 | |||
$ | 438,895 | |||
At September 30, 20202021, the ROU asset and lease obligation were, $168,001$132,068 and $170,999,$136,609, respectively.
Year ending December 31, | Annual payment obligation | |||
2020 | 12,486 | |||
2021 | 50,317 | |||
2022 | 51,827 | |||
2023 | 53,382 | |||
2024 | 40,930 | |||
|
| |||
$ | 208,942 | |||
|
|
Year ending December 31, | Annual payment obligation | |||
2021 | 12,860 | |||
2022 | 51,827 | |||
2023 | 53,382 | |||
2024 | 40,930 | |||
$ | 158,999 | |||
September 30, 2020 | December 31, 2019 | |||||||
Note 1 – Monaco 2014 | $ | 2,800,000 | $ | 2,800,000 | ||||
Note 2 – Monaco 2016 | 1,175,000 | 1,175,000 | ||||||
Note 3 – MINOSA 1 | 14,750,001 | 14,750,001 | ||||||
Note 4 – Epsilon | 1,000,000 | 1,000,000 | ||||||
Note 5 – SMOM | 3,500,000 | 3,500,000 | ||||||
Note 6 – MINOSA 2 | 5,050,000 | 5,050,000 | ||||||
Note 7 – Monaco 2018 | 1,099,366 | 1,099,366 | ||||||
Note 8 – Promissory note | 1,352,006 | 1,210,537 | ||||||
Note 9 – Litigation financing | 7,969,137 | 2,957,097 | ||||||
Note 10 – 37North | 960,800 | 861,485 | ||||||
Note 11 – Payroll Protection Program | 370,400 | — | ||||||
Note 12 – Emergency Injury Disaster Loan | 149,900 | — | ||||||
|
|
|
| |||||
$ | 40,176,610 | $ | 34,403,486 | |||||
|
|
|
|
September 30, 2021 | December 31, 2020 | |||||||
Note 1 – Monaco 2014 | $ | 2,800,000 | $ | 2,800,000 | ||||
Note 2 – Monaco 2016 | 1,175,000 | 1,175,000 | ||||||
Note 3 – MINOSA 1 | 14,750,001 | 14,750,001 | ||||||
Note 4 – Epsilon | 0 | 1,000,000 | ||||||
Note 5 – SMOM | 3,500,000 | 3,500,000 | ||||||
Note 6 – MINOSA 2 | 5,050,000 | 5,050,000 | ||||||
Note 7 – Monaco 2018 | 1,099,366 | 1,099,366 | ||||||
Note 8 – Promissory note | 0 | 1,245,863 | ||||||
Note 9 – Litigation financing | 15,665,532 | 10,968,729 | ||||||
Note 10 – Payroll Protection Program | 0 | 370,400 | ||||||
Note 11 – Emergency Injury Disaster Loan | 149,900 | 149,900 | ||||||
Note 12 – Vendor note payable | 484,009 | 484,009 | ||||||
$ | 44,673,808 | $ | 42,593,268 | |||||
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 | $ | 1,723,492 | $ | 14,366,853 | ||||||||||||
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 | $ | 1,750,0001 | $ | 14,750,001 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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 | $ | 1,723,492 | $ | 14,366,853 | ||||||||||||
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 | $ | 1,750,001 | $ | 14,750,001 | ||||||||||||
a conversion price of $3.52 per share; (b) $1,000,000 (“Tranche 4”) was issued on November 15, 2016 with a conversion price of $4.19 per share; and (c) $1,000,000 (“Tranche 5”) was issued on December 15, 2016 with a conversion price of $4.13 per share. During 2017, Epsilon assigned Tranche 4 and 5 totaling $2,000,000 of this debt to MINOSA under the same terms as the original debt. See Note – MINOSA 2 below for further detail.
On March 30, 2021, Epsilon converted the aggregate indebtedness related to Tranche 3 totaling $1,448,697 into 411,562 shares of our common stock at an exercise price of $3.52 per share.
During November 2020, Epsilon exercised this warrant using the cashless exercise feature. This exercise resulted in the issuance of 56,228 of our common shares and the forfeiture of the right to acquire the remaining 63,772 common shares.
Tranche 3 | Tranche 4 | Tranche 5 | ||||||||||
Promissory Note | $ | 981,796 | $ | 939,935 | $ | 1,000,000 | ||||||
Beneficial Conversion Feature (“BCF”)* | 18,204 | 60,065 | — | |||||||||
Proceeds | $ | 1,000,000 | $ | 1,000,000 | $ | 1,000,000 | ||||||
On July 15, 2021, $404,633 of this
fund) any subsequent loan under the Minosa Purchase Agreement and (iii) demand is made for repayment of all or any part of the indebtedness outstanding under the Minosa Note, the Second AR Epsilon Note, or the Promissory Note, dated as of March 11, 2015, as amended (the “SPA Note”), in the principal amount of $14.75 million that was issued by us to MINOSA under the SPA, and (b) unless on or prior to such termination, the Notes are paid in full.
The unamortized premium at September 30, 2021 was 0 and at December 31, 2020 it was $195,863. Upon maturity of this indebtedness on July 12, 2021, the Lenders converted the Note and interest totaling $1,325,582 into 283,850 shares of our common stock. The conversion price was $4.67 per share of common stock.
(a) | a first phase, in which the Funder shall make Claims Payments in an aggregate amount no greater than $1,500,000 for the payment of antecedent and ongoing costs (“Phase I Investment Amount”); and |
(b) | a second phase, in which the Funder shall make Claims Payments in an aggregate amount no greater than $5,000,000 for the purposes of pursuing the Subject Claim to a final award (“Phase II Investment Amount”). |
in an amount up to the greatest amount that may then be reasonably expected to be committed for investment in Subject Claim. If the Funder declines to exercise its option, the Claimholder may negotiate and enter into agreements with one or more third parties to provide funding, which shall be subordinate to the Funder’s rights under the Agreement.
(a) If the Claimholder receives only the Phase I Investment Amount from the Funder, the first Proceeds shall be distributed as follows:
(a) | If the Claimholder receives only the Phase I Investment Amount from the Funder, the first Proceeds shall be distributed as follows: |
(i) | first, 100.0% to the Funder, until the cumulative amount distributed to the Funder equals the total Claims Payments paid by the Funder under Phase I; |
(ii) | second, 100.0% to the Funder until the cumulative amount distributed to the Funder equals an IRR of 20% of Claims Payments paid by the Funder under Phase I (“Phase I Compensation”), per annum; and |
(iii) | thereafter, 100.0% to the Claimholder. |
(b) | If the Claimholder exercises its options to receive Tranche A or both Tranche A and Tranche B of the Phase II Investment Amount, the first Proceeds shall be distributed as follows: |
(i) | first, 100.0% to the Funder until the cumulative amount distributed to the Funder equals the total Claims Payments paid by the Funder under Phases I and II; |
(ii) | second, 100.0% to the Funder until the cumulative amount distributed to the Funder equals an additional 300.0% of Phase I Investment Amount; plus an additional 300% of the Tranche A Committed Amount (i.e. 300.0% of $3.5 million), less any amounts remaining of the Tranche A Committed Amount that the Funder did not pay as Claims Payments; plus an additional 300.0% of the Tranche B Committed Amount (i.e. 300.0% of $1.5 million), if the Claimholder exercises the Tranche B funding option, less any amounts remaining of the Tranche B Committed Amount that the Funder did not pay as Claims Payments; |
(iii) | third, for each $10,000 in specified fees and expenses paid by the Funder under Phase I and Phase II and any amounts over each $10,000 of the Tranche A Committed Amount and the Tranche B Committed Amount (if the Claimholder exercises the Tranche B funding option), 0.01% of the total Proceeds from any recoveries after repayment of (i) and (ii) above, to the Funder; and |
(iv) | thereafter, 100% to the Claimholder. |
As of September 30,
While
Note 10 – 37North
At any time and from time to time until the three-month anniversary of the Maturity Date, all or any portion of the outstanding amount of each Note may, at the Investor’s election, be converted into shares of our common stock, par value $0.0001 per share (“Conversion Shares”). The number of Conversion Shares to be issued upon any conversion shall be equal to the quotient obtained by dividing the Applicable Conversion Amount (as defined below) by the Applicable Conversion Rate (as defined below). As defined in the Purchase Agreement, the “Applicable Conversion Amount” means, on the date of determination and with respect to each Note, (a) for the period beginning on the date of issuance and ending on the day immediately preceding the Maturity Date, an amount equal to 100.0% of the amount of $5,187,181 and $2,399,154, respectively, was recorded. For the Loan evidenced by such Note then outstanding; (b) onthree months ended September 30, 2021 and 2020, we recorded $63,689 and $52,688, respectively, of interest expense from the Maturity Date, 136.0%amortization of the amountdebt discount and $36,724 and $12,766 interest from the fee amortization, respectively. For the nine months ended September 30, 2021 and 2020, we recorded $174,420 and $109,957, respectively, of interest expense from the amortization of the Loan evidenced by such Note then outstanding (such amount,debt discount and $97,269 and $34,043 interest from the “Enhanced Conversion Amount”); (c) for the period beginning on the day immediately following the Maturity Datefee amortization, respectively. The September 30, 2021 and for a period of three months thereafter (such three-month period, the “Accrual Period”), an amount equal to (i) the Enhanced Conversion Amount then outstanding plus (ii) an additional amount equal to 3.0% per month (prorated for any period of less than a full month) accrued on the amount described in clause (i); and (d) on any date after the Accrual Period, the amount then outstanding after giving effect to the accrual described in clause (c) during the Accrual Period (it being understood that no additional amount shall accrue after the expiration of the Accrual Period); and “Applicable Conversion Rate” means (x) with respect to any conversion on or prior to the Maturity Date, $5.00, and (y) with respect to any conversion after the Maturity Date, the lower of (i) $5.00 and (ii) 80.0% of the ten-day volume-weighted average price of Odyssey’s common stock. Notwithstanding anything in the Purchase Agreement to the contrary, we are prohibited from issuing any Conversion Shares, to the extent such shares, after giving effect to such issuance after conversion and when added to the number of Conversion Shares previously issued upon conversion of any of the Notes sold pursuant to the Purchase Agreement, would represent in excess of 19.9% of (A) the number of shares of our common stock outstanding immediately after giving effect to such issuances or (B) the total voting power of our securities outstanding immediately after giving effect to such issuances that are entitled to vote on a matter being voted on by holders of our common stock. On May 6, December 31,
If, at any time prior to the Maturity Date, (a) we receive cash proceeds (the “Shipwreck Proceeds”) arising out of our salvage agreement relating to cargo recovered from a specified shipwreck, and (ii) the amount of the Shipwreck Proceeds equals at least 155.0% of the then-unpaid amount of all Loans, then we must repay in full the indebtedness outstanding under all the Notes by delivery of an amount equal to 155.0% of the then-unpaid amount of all Loans. In addition, at any time prior to the Maturity Date, we may repay all (but not less than all) of the then-unpaid amount of all Loans by delivery of an amount equal to 155.0% of the then-unpaid amount of all Loans; provided, that we must provide the Investor at least ten days’ notice of our intention to repay the indebtedness.
The Purchase Agreement and the Notes issued by Odyssey on December 10, 2019 and January 29, 2020, include representations and warranties and other covenants, conditions, and other provisions customary for comparable transactions.
We evaluated the Notes in accordance with ASC Topic 815, Derivatives and Hedging, and determined that they contain certain embedded derivatives whose economic risks and characteristics were not clearly and closely related to the risks of the host contract. The material embedded derivative features consisted of the embedded conversion option and contingent redemption provisions. The Company elected to initially and subsequently measure the Notes in their entirety at fair value, with changes in fair value recognized in earnings. FASB ASC 825-10-25 allows us to elect the fair value option for recording financial instruments when they are initially recognized or if there is an event that requires re-measurement of the instruments at fair value, such as a significant modification of the debt.
Because the Notes are carried in their entirety at fair value, thecarrying value of the compound embedded conversion featuredebt is embodied in that fair value. The Company estimates$15,665,532 and $10,968,729, respectively, and is net of unamortized debt fees of $330,517 and $347,786, respectively, as well as the net unamortized debt discount of $716,542 and $890,962, respectively, associated with the fair value of the hybrid instrument based on a probability weighted analysis which considers the presentwarrant. The total face value of the cash flows using a credit risk adjusted rate enhanced by the redemption feature and the value of the conversion option valued using a Monte Carlo model. This method was considered by management to be the most appropriate method of encompassing the credit risk and exercise behavior that a market participant would consider when valuing the hybrid financial instrument. Inputs used to value the hybrid instrumentthis obligation at September 30, 2020 included, (i) present value of future cash flows using a credit risk adjusted rate of 18%, (ii) remaining term of approximately 1.2 months, (iii) volatility of 87%, (iv) closing stock price on the valuation date,2021 and (v) the conversion price based on the lesser of $5.00 or 80% of the 10 day VWAP. Material changes due to instrument-specific credit risk are recorded in Other Comprehensive Income with all other changes in value being recorded in net income.
The fair value of the hybrid instrument was $861,485 as of December 31, 2019. The fair value of all the outstanding hybrid instruments were revalued at $960,800 as of September 30, 2020 resulting from additional proceeds of $490,000, conversions resulting in a reduction in fair value of $1,066,219,was $16,712,591 and a change in the fair value of the derivative liability of $250,319 for the three-months ended September 30, 2020 and $675,534 for the nine-months ended September 30, 2020.
12,207,477, respectively.
The Loan may be forgiven partially or fully ifrespectively, was recorded. At September 30, 2021, the Loan proceeds are used for covered payroll costs, rent and utilities, provided that such amounts are incurred during the eight-week period that commenced on April 16, 2020,outstanding principal was 0 and at least 75%December 31, 2020, was $370,400. We applied for 100% forgiveness with Fifth Third Bank during March 2021. In July 2021, we received communication from Fifth Third Bank and the SBA confirming 100% of anythis Loan was forgiven and paid in full effective July 1, 2021.
Operations
For the three months ended September 30, 2021 and 2020, interest expense in the amount of $2,192 and $0, respectively, was recorded. For the nine months ended September 30, 2021 and 2020 interest expense in the amount of $8,641 and $0, respectively, was recorded. At September 30, 2021 and December 31, 2020, the outstanding principal balance was $149,900.
On July 9, 2019, we acquired a 79.9% interest in Bismarck Mining Corporation (PNG) Limited (“Bismarck”), a Papua New Guinea company (see NOTE E). The consideration we paid to the seller for Bismarck was 249,584 shares of our common stock.
Convertible Preferred Stock | Shares | Price Per Share | Total Investment | |||||||||
Series AA-1 | 8,427,004 | $ | 12.00 | $ | 101,124,048 | |||||||
Series AA-2 | 7,223,145 | $ | 6.00 | 43,338,870 | ||||||||
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15,650,149 | $ | 144,462,918 | ||||||||||
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Convertible Preferred Stock | Shares | Price Per Share | Total Investment | |||||||||
Series AA-1 | 8,427,004 | $ | 12.00 | $ | 101,124,048 | |||||||
Series AA-2 | 7,223,145 | $ | 6.00 | 43,338,870 | ||||||||
15,650,149 | $ | 144,462,918 | ||||||||||
entity which results in a conversion, exchange, or cancellation of the common stock, or a sale of all or substantially all of Odyssey’s assets, then the conversion rights described above will be adjusted appropriately so that each holder of Series AA Preferred will receive the securities or other consideration the holder would have received if the holder’s Series AA Preferred had been converted before the happening of the event. The conversion price in effect from time to time is also subject to downward adjustment if we issue or sell shares of common stock for a purchase price less than the conversion price or if we issue or sell shares convertible into or exercisable for shares of common stock with a conversion price or exercise price less than the conversion price for the Series AA Preferred.
issuance which is February 25, 2024.
On June 9, 2015, our stockholders approved our 2015 Stock Incentive Plan (the “Plan”) that was adopted by our Board of Directors (the “Board”) on January 2, 2015, which is the effective date. The plan expires on the tenth anniversary of the effective date. The Plan provides for the grant of incentive stock options,
September 30, 2020 | December 31, 2019 | |||||||
“Seattle” project | 62,500 | 62,500 | ||||||
Galt Resources, LLC (HMS Victory project) | 3,756,250 | 3,756,250 | ||||||
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Total revenue participation rights | $ | 3,818,750 | $ | 3,818,750 | ||||
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September 30, 2021 | December 31, 2020 | |||||||
“ Seattle | $ | 0 | 62,500 | |||||
Galt Resources, LLC (HMS Victory | 0 | 3,756,250 | ||||||
Total revenue participation rights | $ | 0 | $ | 3,818,750 | ||||
the project, which was confirmed by management in June 2021. Therefore, the amount was written off and is included in Other income (expense) in our Consolidated Statements of Operations.
This project syndication agreement was mutually terminated in June 2021. Therefore, the carrying amount was written off to Other income (expense) in our Consolidated Statements of Operations.
SUBSEQUENT EVENT
2020.
We have numerous marine
annual filing for the full fiscal year beginning after January 1, 2021.
Oceanica Resources, S. de R.L.
In February 2013, we disclosed Odyssey’s ownership interest, through Odyssey Marine Enterprises, Ltd.,
fertilizers and can provide important benefits to Mexico’s agricultural development.
ExO applied for and was granted additional mining concession areas byfactors stated above, in April 2016 the Mexican government. These additional areas are adjacent to the zones with the highest concentration of mineralization in the original mining concession area. ExO also relinquished certain partsMinistry of the granted concession areas where the mineral concentration levels were less attractive for mining purposes.
In September 2014, ExO reported that the EIA for proposed dredging and recovery of phosphate sands from the deposit had been filed with the Mexican Secretary of Environment and Natural Resources (SEMARNAT). Approval of unlawfully rejected the EIA is neededpermission to obtain an environmental permit to begin the commercial extraction of phosphate from the tenement area. In November 2014, SEMARNAT held a public hearing on the EIA in Mexico and asked supplemental questions to ExO on the EIA. In full compliancemove forward with the SEMARNAT process, a response toproject.
re-submittedin June 2015, and additional information was filed in August 2015. A public hearing on this application was conducted by SEMARNAT on October 8, 2015, additional questions were received from SEMARNAT in November 2015, and ExO’s responses to the questions were filed with SEMARNAT on December 3, 2015. On April 8, 2016, SEMARNAT denied the application.
On March 21, 2018, the Tribunal Federal de Justicia Administrativa (TFJA) in Mexico, an
On October 18, 2018, we were notified that SEMARNAT repeated their refusal to issue the environmental approval for the phosphate deposit controlled by ExO. On October 22, 2018, legal counsel for ExO filed an action before the TFJA requesting sanctions be imposed upon SEMARNAT and ordering SEMARNAT to reevaluatedenied the application in compliance with their policies and consider the environmental science and mitigation measures presented by ExO as directed in the TFJA’s original order.
At a hearing on April 24, 2019, the TFJA advised ExO that in lightviolation of a procedural issue arising under Mexican law its current application would haveand ordered the agency to be resubmitted
According to ExO’s Mexican legal counsel, the TFJA’s recent determination neither reverses their unanimous decision of March 21, 2018, which nullified SEMARNAT’s original denial of the MIA on April 7, 2016, nor does it decide the legality of SEMARNAT’s denial of the MIA on October 12, 2018. To move to the next phase of development of the deposit, Odyssey and its subsidiaries need the issuance of this environmental permit. Odyssey and its subsidiary ExO continue to work to obtain the necessary environmental permission.
We have full confidence in the environmental and economic merits of our venture in Mexico. We are taking all necessary stepsa NAFTA Claim against Mexico to protect our shareholders’ interests and significant investment in the interestsproject.
within 60 days after it was filed. The Arbitral Tribunal, consisting of three international arbitrators well-versedNAFTA hearing is currently scheduled to take place in international investment treaties, has been constituted. Procedural Order No. 1, which includes a filing deadlineJanuary 2022 unless settled earlier by the parties.
We continue to work diligently and in good faith with Mexico’s current administration to achieve an equitable resolution of this dispute, but we are prepared to proceed with the full NAFTA arbitration process.
Additional Mineral Projects
We have two additional strategic mineral projects currently under development.
One project is being conducted under contract with CIC LLC,Lihir Gold Project covers a mineral development company, working in the South Pacific where we are receiving cash and equity for services rendered to the venture. This model is in line with the company’s strategic plan. CIC, LLC is majority owned and controlled by Greg Stemm, the past Chairman of the Board for our Company. See NOTES C, D and F.
Additionally, on July 9, 2019, Odyssey acquired a 79.9% equity interest in Bismarck Mining Corporation (PNG) Limited (“Bismarck”) in exchange for 249,584 shares of Odyssey’s common stock.
Bismarck’s primary asset is an exclusive exploration license covering approximately 320 square kilometers of subsea area containingthat contains at least five prospective gold exploration targets in two different mineralization types: seamount-related epithermal and modern placer gold. In connection withTwo subaqueous debris fields within the acquisition by Odyssey, Bismarckarea are adjacent to the terrestrial Ladolam Gold Mine and the seller entered into a royalty agreement that provides for Bismarckare believed to pay the seller a 2.496% net smelter royalty on minerals minedhave originated from the license area.
same volcanogenic source. The license area is adjacent to Lihir Islandresource lies
The deposit has significant strategic valueBismarck’s parent company which increases our indirect interest in Bismarck to Odyssey and adds valuable diversification to the company’s mineral asset portfolio. 85.6%.
Odyssey is currently planning offshoresupport upcoming marine exploration operations in the licensed arealicense area. This offshore work is scheduled to begin in late 2021, provided there are no constraints from the
Other Projects
Odyssey offers its marine exploration services to third-party companies. This may be for mineral exploration, environmental studies, shipwreck search and recovery, subsea surveys, and other off-shore work requiring specialized equipment, personnel, project planning and management as well as research and scientific services.
coming months.
2020.
Three-months
Increase/(Decrease) | 2020 vs. 2019 | |||||||||||||||
(Dollars in millions) | 2020 | 2019 | $ | % | ||||||||||||
Total revenues | $ | 0.2 | $ | 0.8 | $ | (0.6 | ) | 72 | % | |||||||
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Marketing, general and administrative | 0.0 | 2.1 | (2.1 | ) | 99 | % | ||||||||||
Operations and research | 4.9 | 2.1 | 2.7 | 129 | % | |||||||||||
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Total operating expenses | $ | 4.9 | $ | 4.2 | $ | 0.7 | 16 | % | ||||||||
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Other income (expense) | $ | (2.9 | ) | $ | (2.4 | ) | $ | 0.5 | 22 | % | ||||||
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Income tax benefit (provision) | $ | 0.0 | $ | 0.0 | $ | 0.0 | 0 | % | ||||||||
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Non-controlling interest | $ | 2.1 | $ | 1.6 | $ | 0.5 | 32 | % | ||||||||
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Net income (loss) | $ | (5.4 | ) | $ | (4.2 | ) | $ | 1.2 | 29 | % | ||||||
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2020.
Increase/(Decrease) | 2021 vs. 2020 | |||||||||||||||
(Dollars in millions) | 2021 | 2020 | $ | % | ||||||||||||
Total revenues | $ | 0.2 | $ | 0.2 | $ | (0.0 | ) | 7 | % | |||||||
Marketing, general and administrative | 1.7 | 0.0 | 1.7 | 7334 | % | |||||||||||
Operations and research | 1.6 | 4.9 | (3.2 | ) | 66 | % | ||||||||||
Total operating expenses | $ | 3.4 | $ | 4.9 | $ | (1.5 | ) | 31 | % | |||||||
Other income (expense) | $ | (2.5 | ) | $ | (2.9 | ) | $ | (0.4 | ) | 13 | % | |||||
Income tax benefit (provision) | $ | 0.0 | $ | 0.0 | $ | 0.0 | 0 | % | ||||||||
Non-controlling interest | $ | 1.6 | $ | 2.1 | $ | (0.5 | ) | 25 | % | |||||||
Net income (loss) | $ | (4.1 | ) | $ | (5.4 | ) | $ | (1.4 | ) | 25 | % | |||||
Total revenue in the current quarter was $0.2 million, a $0.6 million decreaseno change compared to the same period a year ago. The revenueRevenue generated in each period was a result of performing marine research, project administration andor search and recovery operations for our customers and related parties. One companyIn the current and prior year, we provided thesedelivered marine services to CIC, which is a CIC, owned and controlled by our past Chairman of the Board (see NOTE D) which, whom we consider to be a related party. The primary reason for this reduction was thatDuring the long-term projectsame period in the prior year, we earned $0.1 million in expedition fees from a second customer. During the latter half of 2020, we were no longer engaged on the last two years reached its life expectancy during this quarter.
incentives.
NAFTA litigation.
2020.
Nine-monthsand other standard operating costs.
Increase/(Decrease) | 2020 vs. 2019 | |||||||||||||||
(Dollars in millions) | 2020 | 2019 | $ | % | ||||||||||||
Total revenues | $ | 1.7 | $ | 2.3 | $ | (0.6 | ) | 25 | ||||||||
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Marketing, general and administrative | 2.7 | 5.0 | (2.3 | ) | 46 | % | ||||||||||
Operations and research | 10.6 | 5.5 | 5.1 | 92 | % | |||||||||||
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Total operating expenses | $ | 13.3 | $ | 10.5 | $ | 2.8 | 27 | % | ||||||||
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Other income (expense) | $ | (6.2 | ) | $ | (3.8 | ) | $ | 2.4 | 63 | % | ||||||
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Income tax benefit (provision) | $ | 0.0 | $ | 0.0 | $ | 0.0 | 0 | % | ||||||||
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Non-controlling interest | $ | 5.3 | $ | 3.8 | $ | 1.5 | 40 | % | ||||||||
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Net income (loss) | $ | (12.4 | ) | $ | (8.2 | ) | $ | 4.3 | 52 | % | ||||||
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Increase/(Decrease) | 2021 vs. 2020 | |||||||||||||||
(Dollars in millions) | 2021 | 2020 | $ | % | ||||||||||||
Total revenues | $ | 0.7 | $ | 1.7 | $ | (1.1 | ) | 61 | % | |||||||
Marketing, general and administrative | 4.7 | 2.7 | 2.0 | 75 | % | |||||||||||
Operations and research | 6.9 | 10.6 | (3.8 | ) | 35 | % | ||||||||||
Total operating expenses | $ | 11.6 | $ | 13.3 | $ | (1.7 | ) | 13 | % | |||||||
Other income (expense) | $ | (3.6 | ) | $ | (6.2 | ) | $ | (2.5 | ) | 41 | % | |||||
Income tax benefit (provision) | $ | 0.0 | $ | 0.0 | $ | 0.0 | 0 | % | ||||||||
Non-controlling interest | $ | 4.5 | $ | 5.3 | $ | (0.8 | ) | 14 | % | |||||||
Net income (loss) | $ | (10.0 | ) | $ | (12.4 | ) | $ | 2.4 | 19 | % | ||||||
current year.
incentives.
revenue contracts that are nonrecurring in 2021.
income items from our balance sheet (see NOTE L).
2020.
and other standard operating costs.
Nine-Months Ended | ||||||||
(In thousands) | September 30, 2020 | September 30, 2019 | ||||||
Summary of Cash Flows: | ||||||||
Net cash used by operating activities | $ | (5,521 | ) | $ | (3,652 | ) | ||
Net cash (used) provided by investing activities | — | (15 | ) | |||||
Net cash provided by financing activities | 14,415 | 1,184 | ||||||
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Net (decrease) increase in cash and cash equivalents | $ | 8,894 | $ | (2,483 | ) | |||
Beginning cash and cash equivalents | 213 | 2,787 | ||||||
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Ending cash and cash equivalents | $ | 9,107 | $ | 304 | ||||
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Nine Months Ended | ||||||||
(In thousands) | September 30, 2021 | September 30, 2020 | ||||||
Summary of Cash Flows: | ||||||||
Net cash (used) by operating activities | $ | (4,137 | ) | $ | (5,521 | ) | ||
Net cash (used) provided by investing activities | (16 | ) | — | |||||
Net cash provided by financing activities | 1,533 | 14,415 | ||||||
Net (decrease) increase in cash and cash equivalents | $ | (2,620 | ) | $ | 8,894 | |||
Beginning cash and cash equivalents | 6,163 | 213 | ||||||
Ending cash and cash equivalents | $ | 3,543 | $ | 9,107 | ||||
2021. The increase to accrued expenses and accounts payable is predominantly related to our NAFTA financed litigation.
for 2020. We did not have any other investing cash flow activity for these periods.
expenses.
2020. During October 2021 we entered into a Termination and Settlement Agreement with Monaco and SMOM which removed $14.5 million of debt principal and accrued interest from our balance sheet. See NOTE M – SUBSEQUENT EVENT for further detail.
this litigation.
Series | No. of Shares | Price per Share | ||||||
Series AA-1 | 8,427,004 | $ | 12.00 | |||||
Series AA-2 | 7,223,145 | $ | 6.00 |
Series | No. of Shares | Price per Share | ||||||
Series AA-1 | 8,427,004 | $ | 12.00 | |||||
Series AA-2 | 7,223,145 | $ | 6.00 |
Date | No. Series AA-1 Shares | Total Purchase Price | ||||||
March 1, 2016 | 1,806,989 | $ | 21,683,868 | |||||
September 1, 2016 | 1,806,989 | $ | 21,683,868 | |||||
March 1, 2017 | 1,517,871 | $ | 18,214,446 | |||||
March 1, 2018 | 378,488 | $ | 4,541,856 |
Other loans
Promissory Note
On March 18, 2016 we entered into a Note Purchase Agreement (“Purchase Agreement”) with Epsilon Acquisitions LLC (“Epsilon”). Pursuant to the Purchase Agreement, Epsilon loaned us $3.0 million in two installments of $1.5 million on March 31, 2016 and April 30, 2016. The indebtedness bears interest at a rate of 10% per annum and was due on March 18, 2017. We were also responsible for $50,000 of the lender’s out of pocket costs. This amount is included in the loan balance. In pledge agreements related to the loans, we granted security interests to Epsilon in (a) the 54 million cuotas (a unit of ownership under Panamanian law) of Oceanica Resources S. de R.L. (“Oceanica”) held by our wholly owned subsidiary, Odyssey Marine Enterprises, Ltd. (“OME”), (b) all notes and other receivables from Oceanica and its subsidiary owed to the Odyssey Pledgors, and (c) all of the outstanding equity in OME. Epsilon has the right to convert the outstanding indebtedness into shares of our common stock upon 75 days’ notice to us or upon a merger, consolidation, third party tender offer, or similar transaction relating to us at the conversion price of $5.00 per share, which represents the five-day volume-weighted average price of Odyssey’s common stock for the five trading day period ending on March 17, 2016. Upon the occurrence and during the continuance of an event of default, the conversion price will be reduced to $2.50 per share. Following any conversion of the indebtedness, Penelope Mining LLC (an affiliate of Epsilon) (“Penelope”), may elect to reduce its commitment to purchase preferred stock of Odyssey under the Stock Purchase Agreement, dated as of March 11, 2015 (as amended, the “Stock Purchase Agreement”), among Odyssey, Penelope, and Minera del Norte, S.A. de C.V. (“MINOSA”) by the amount of indebtedness converted.
Pursuant to the Purchase Agreement (a) we agreed to waive our rights to terminate the Stock Purchase Agreement in accordance with the terms thereof until December 31, 2016, and (b) MINOSA agreed to extend, until March 18, 2017, the maturity date of the $14.75 million loan extended by MINOSA to OME pursuant to the Stock Purchase Agreement. The indebtedness may be accelerated upon the occurrence of specified events of default including (a) OME’s failure to pay any amount payable on the date due and payable; (b) OME or we fail to perform or observe any term, covenant, or agreement in the Purchase Agreement or the related documents, subject to a five-day cure period; (c) an event of default or material breach by OME, us or any of our affiliates under any of the other loan documents shall have occurred and all grace periods, if any, applicable thereto shall have expired; (d) the Stock Purchase Agreement shall have been terminated; (e) specified dissolution, liquidation, insolvency, bankruptcy, reorganization, or similar cases or actions are commenced by or against OME or any of its subsidiaries, in specified circumstances unless dismissed or stayed within 60 days; (f) the entry of judgment or award against OME or any of its subsidiaries in excess or $100,000; and (g) a change in control (as defined in the Purchase Agreement) occurs.
In connection with the execution and delivery of the Purchase Agreement, we and Epsilon entered into a registration rights agreement pursuant to which we agreed to register new shares of our common stock with a formal registration statement with the Securities and Exchange Commission upon the conversion of the indebtedness.
Accounting considerations: Note Purchase Agreement
We have accounted for this agreement as a financing transaction, wherein the net proceeds received were allocated to the financial instruments issued. Prior to making the accounting allocation, we evaluated for proper classification under ASC 480 Distinguishing Liabilities from Equity (“ASC 480”), ASC 815 Derivatives and Hedging (“ASC 815”) and ASC 320 Property, Plant and Equipment (“ASC 320”).
This debt agreement did not contain any embedded terms or features that have characteristics of derivatives. However, we were required to consider whether the hybrid contract embodied a beneficial conversion feature (“BCF”). The calculation of the effective conversion amount did result in a BCF because the effective conversion price was less than the Company’s stock price on the commitment date, therefore a BCF of $96,000 was recorded. The BCF represented a debt discount which is fully amortized.
Loan modification (October 1, 2016)
On October 1, 2016 Odyssey Marine Enterprises, Ltd. (“OME”), entered into an Amended and Restated Note Purchase Agreement (the “Restated Note Purchase Agreement”) with Epsilon Acquisitions LLC (“Epsilon”). In connection with the existing $3.0 million loan agreement, Epsilon agreed to lend an additional $3.0 million of secured convertible promissory notes. The convertible promissory notes bear an interest rate of 10.0% per annum and was due and payable on March 18, 2017. Epsilon has the right to convert all amounts outstanding under the Restated Note into shares of our common stock upon 75 days’ notice to OME or upon a merger, consolidation, third party tender offer, or similar transaction relating to us at the applicable conversion price, which is (a) $5.00 per share with respect to the $3.0 million already advanced under the Restated Note and (b) with respect to additional advances under the Restated Note, the five-day volume-weighted average price of our common stock for the five trading day period ending on the trading day immediately prior to the date on which OME submits a borrowing notice for such advance. Notwithstanding anything herein to the contrary, we shall not issue any of our common stock upon conversion of any outstanding tranche (other than the first $3.0 million already advanced) under this Restated Note in excess of 1,388,769 shares of common stock. The additional tranches were issued as follows: (a) $1,000,000 (“Tranche 3”) was issued on October 16, 2016 with a conversion price of $3.52 per share; (b) $1,000,000 (“Tranche 4”) was issued on November 15, 2016 with a conversion price of $4.19 per share; and (c) $1,000,000 (“Tranche 5”) was issued on December 15, 2016 with a conversion price of $4.13 per share. During 2017, Epsilon assigned Tranche 4 and 5 totaling $2,000,000 of this debt to MINOSA under the same terms as the original debt.
As an inducement for the issuance of the additional $3.0 million of promissory notes, we also delivered to Epsilon a common stock purchase warrant (the “Warrant”) pursuant to which Epsilon has the right to purchase up to 120,000 shares of our common stock at an exercise price of $3.52 per share, which exercise price represents the five-day volume-weighted average price of our common stock for the five trading day period ending on the trading day immediately prior to the day on which the Warrant was issued. Epsilon may exercise the Warrant in whole or in part at any time during the period ending October 1, 2021. The Warrant includes a cashless exercise feature and provides that, if Epsilon is in default of its obligations to fund any advance pursuant to and in accordance with the Restated Note Purchase Agreement, then, thereafter, the maximum aggregate number of shares of common stock that may be purchased under the Warrant shall be the number determined by multiplying 120,000 by a fraction, (a) the numerator of which is the aggregate principal amount of advances that have been extended to the OME by Epsilon pursuant to the Restated Note Purchase Agreement on or after the date of the Warrant and prior to the date of such failure and (b) the denominator of which is $3.0 million.
Accounting considerations: Loan Modification
We evaluated for proper classification under ASC 480 Distinguishing Liabilities from Equity (“ASC 480”), ASC 815 Derivatives and Hedging (“ASC 815”) and ASC 320 Property, Plant and Equipment (“ASC 320”). This debt agreement did not contain any embedded terms or features that have characteristics of derivatives. Additionally, the warrant agreement did not contain any terms or features that would preclude equity classification. We were required to consider whether the hybrid contract embodied a beneficial conversion feature (“BCF”). The allocations of the three additional tranches were as follows.
Tranche 3 | Tranche 4 | Tranche 5 | ||||||||||
Promissory Note | $ | 981,796 | $ | 939,935 | $ | 1,000,000 | ||||||
Beneficial Conversion Feature (“BCF”)* | 18,204 | 60,065 | — | |||||||||
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Proceeds | $ | 1,000,000 | $ | 1,000,000 | $ | 1,000,000 | ||||||
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A beneficial conversion feature arises when the calculation of the effective conversion price is less than the Company’s stock price on the date of issuance. Tranche 5 did not result in a BCF because the effective conversion price was greater than the company’s stock price on the date of issuance.
The warrants fair values were calculated using the Black-Scholes-Merton pricing model. The aggregate fair value of the warrants totaled $303,712. Since the warrants were issued as an inducement to Epsilon to issue additional debt, we recorded an inducement expense of $303,712.
Term Extension (March 21, 2017)
On March 21, 2017 we entered into an amendment to the Restated Note Purchase Agreement with Epsilon. In connection with the existing $6.0 million loan agreement, the adjusted principal balance is due and payable in full upon the earlier of (i) written demand by Epsilon or (ii) such time as Odyssey or the guarantor pays any other indebtedness for borrowed money prior to its stated maturity date. As such the Company amortized the notes up to their face value of $6,050,000 and they are classified as short-term. However, since Epsilon converted the first $3.0 million into 670,455 of our common shares and assigned $2.0 million to MINOSA, the current principal indebtedness at September 30, 2020 is $1.0 million.
Promissory Note
On April 15, 2016, Odyssey Marine Exploration, Inc. (“Odyssey”) and its wholly owned subsidiaries Oceanica Marine Operations, S.R.L. (“OMO”), Odyssey Marine Services, Inc. (“OMS”), and Odyssey Marine Enterprises, Ltd. (“OME”) executed a Loan and Security Agreement (the “Loan Agreement”) with Monaco Financial LLC (“Monaco”) pursuant to which Odyssey borrowed $1,825,000 from Monaco. The current balance is now $1,175,000. Monaco advanced the entire amount to us in March 2016 upon execution of a Letter of Intent. The indebtedness is evidenced by a Convertible Promissory Note (the “Note”) that provides for interest at the rate of 10.0% per annum on the outstanding amount of principal, with the entire unpaid principal sum outstanding, together with any unpaid interest thereon, being due and payable on April 15, 2018. This note has matured, but Monaco has not demanded payment since we are in negotiations with Monaco to set a new maturity date. Odyssey has the right to prepay the indebtedness, in whole or in part, upon 30 days’ notice to Monaco.
Pursuant to the Loan Agreement and as security for the indebtedness, Monaco was granted a security interest in (a) one-half of the indebtedness evidenced by the Amended and Restated Consolidated Note and Guaranty, dated September 25, 2015 (the “ExO Note”), in the original principal amount of $18.0 million, issued by Exploraciones Oceanicas S. de R.L. de C.V. to OMO, and all rights associated therewith (the “OMO Collateral”); and (b) all marine technology and assets in OMS’s possession or control used for offshore exploration, including a deep-tow search systems, winches, multi-beam sonar, and other equipment. OME unconditionally and irrevocably guaranteed all obligations of Odyssey, OMO, and OMS to Monaco under the Loan Agreement.
As further consideration for the loan, Monaco was granted an option (the “Option”) to purchase the OMO Collateral. The Option is exercisable at any time before the earlier of (a) the date that is 30 days after the loan is paid in full or (b) the maturity date of the ExO Note, for aggregate consideration of $9.3 million, $1.8 million of which would be paid at the closing of the exercise of the Option, with the balance paid in ten monthly installments of $750,000.
The Loan Agreement also contains customary representations and warranties of the parties, covenants, and events of default. Of the combined total indebtedness of Monaco’s Note 1 of $2.8 million (NOTE I) and this agreement, Note 2, (see NOTE I), Monaco can convert this combined debt into 3,174,603 shares of Oceanica at a fixed conversion price of $1.00 per share, or $3,174,603. Any remaining debt in excess of $3,174,603 is not convertible. The Note further provides that the maximum number of Oceanica cuotas that can be acquired by Monaco upon conversion is 3,174,603 cuotas. During the three-months ended June 30, 2017, we sold a marine vessel to a related party of Monaco for $650,000. The consideration for this vessel was applied to our loan balance to Monaco in the amount of $650,000.
Promissory Note
On May 3, 2017, we entered into a Loan and Security Agreement (“Loan Agreement”) with SMOM. Pursuant to the Loan Agreement, SMOM agreed to loan us up to $3.0 million as evidenced by a convertible promissory note. As a commitment fee, we assigned the remaining 50% of our Neptune Minerals, LLC receivable to SMOM. This receivable had zero carrying value on our
balance sheet and due to the age and collectability was deemed to have no fair value. The indebtedness bears interest at a rate of 10% per annum and matures on the second anniversary of this Loan Agreement which was May 3, 2019. On April 20, 2018, the loan was amended, and the principal amount of the Loan was increased to $3,500,000. The loan balance at September 30, 2020 is $3.5 million. The holder has the option to convert up to $2.0 million of any unpaid principal and interest into up to 50% of the equity interest held by Odyssey in Aldama Mining Company, S.de R.L. de C.V. which is a wholly owned subsidiary of ours. The conversion value of $1.0 million equates to 10% of the equity interest in Aldama. If the holder elects to acquire the entire 50% of the equity interest, the Holder has to pay the deficiency in cash. As additional consideration for the loan, the holder has the right to purchase from Odyssey all or a portion of the equity collateral (up to the 50% of the equity interest of Aldama) for the option consideration ($1.0 million for each 10% of equity interests) during the period that is the later of (i) one year after the maturity date and (ii) one year after the loan is repaid in full, the expiration date. The lender may also choose to extend the expiration date annually by paying $500,000 for each year extended.
Promissory Note
On August 10, 2017, we entered into a Note Purchase Agreement (the “Minosa Purchase Agreement”) with MINOSA. Pursuant to the Minosa Purchase Agreement, MINOSA whereas MINOSA will loan Enterprises up to $3.0 million. During 2018, this debt was fully funded and Epsilon assigned $2.0 million of its debt to MINOSA. At September 30, 2020, the outstanding principal balance, including the Epsilon assignment, is $5.1 million. The indebtedness is evidenced by a secured convertible promissory note (the “Minosa Note”) and bears interest at a rate equal to 10.0% per annum. Unless otherwise converted as described below, the entire outstanding principal balance under this Minosa Note and all accrued interest and fees are due and payable upon written demand by MINOSA; provided, that MINOSA agreed not make a demand for payment prior to the earlier of (a) an event of default (as defined in the Minosa Note) or (b) a date, which may be no earlier than December 31, 2017, that is at least 60 days subsequent to written notice that MINOSA intends to demand payment. MINOSA has not provided any notice they intend to issue a payment demand notice. We unconditionally and irrevocably guaranteed all of the obligations under the Minosa Purchase Agreement and the Minosa Note. MINOSA has the right to convert all amounts outstanding under the Minosa Note into shares of our common stock upon 75 days’ notice to us or upon a merger, consolidation, third party tender offer, or similar transaction relating to us at the conversion price of $4.41 per share. During December 2017 MINOSA, transferred this debt to its parent company.
This debt agreement did not contain any embedded terms or features that have characteristics of derivatives. However, we were required to consider whether the hybrid contract embodied a beneficial conversion feature (“BCF”). The calculation of the effective conversion amount did result in a BCF because the effective conversion price was less than the Company’s stock price on the date of issuance, therefore a BCF of $62,925 was recorded. As of December 31,2017, all of the BCF has been accreted to the income statement. The BCF represented a debt discount which was amortized over the original life of the loan.
As previously reported, Epsilon loaned us an aggregate of $6.0 million pursuant to an amended and restated convertible promissory Minosa Note, dated as of March 18, 2016, as further amended and restated on October 1, 2016 (the “Epsilon Note”). Since then, Epsilon has assigned $2.0 million of the indebtedness under the Epsilon Note to MINOSA. Along with Epsilon, we entered into a second amended and restated convertible promissory note (the “Second AR Epsilon Note”), which further amends and restates the Epsilon Note. The stated principal amount of the Second AR Epsilon Note is $1.0 million (which reflects the outstanding principal balance remaining after giving effect to Epsilon’s (x) previous assignment of $2.0 million of the indebtedness under the Epsilon Note to MINOSA and (y) conversion of $3.0 million of the indebtedness under the Epsilon Note into shares of our common stock). The Second AR Epsilon Note further provides that the outstanding principal balance under the Second AR Epsilon Note and all accrued interest and fees are due and payable upon written demand by Epsilon; provided, that Epsilon agreed not make a demand for payment prior to the earlier of (a) an event of default (as defined in the Second AR Epsilon Note) or (b) a date, which may be no earlier than December 31, 2017, that is at least 60 days subsequent to written notice that MINOSA intends to demand payment.
Upon the closing of the Minosa Purchase Agreement, along with MINOSA, and Penelope Mining LLC, an affiliate of Minosa (“Penelope”), executed and delivered a Second Amended and Restated Waiver and Consent and Amendment No. 5 to Promissory Note and Amendment No. 2 to Stock Purchase Agreement (the “Second AR Waiver”). Pursuant to the Second AR Waiver, Minosa and Penelope consented to the transactions contemplated by the Minosa Purchase Agreement and waived any breach of any representation or warranty and violation of any covenant in the Stock Purchase Agreement, dated as of March 11, 2015, as amended April 10, 2015 (the “SPA”), by and among us, Minosa, and Penelope, arising out of the Company’s execution and delivery of the Minosa Purchase Agreement and the consummation of the transactions contemplated thereby. Pursuant to the Second AR Waiver, we also waived, and agreed not to exercise our right to terminate the SPA pursuant to Section 8.1(c)(ii) thereto, both (a) until after the earlier of (i) July 1, 2018, (ii) the date that MINOSA fails, refuses, or declines to fund (or otherwise does not fund) any subsequent loan under the Minosa Purchase Agreement and (iii) demand is made for repayment of all or any part of the indebtedness outstanding under the Minosa Note, the Second AR Epsilon Note, or the Promissory Note, dated as of March 11, 2015, as amended (the “SPA Note”), in the principal amount of $14.75 million that was issued by us to MINOSA under the SPA, and (b) unless on or prior to such termination, the Notes are paid in full.
The Second AR Waiver (x) further provides that following any conversion of the indebtedness evidenced by the Minosa Note, Penelope may elect to reduce its commitment to purchase our preferred stock under the SPA by the amount of indebtedness converted by MINOSA and (y) amends the SPA Note to provide that the outstanding principal balance under the SPA Note and all accrued interest and fees are due and payable upon written demand by MINOSA; provided, that Minosa agreed not make a demand for payment prior to the earlier of (a) an event of default (as defined in the Minosa Note) or (b) a date, which may be no earlier than December 31, 2017, that is at least 60 days subsequent to written notice that Minosa intends to demand payment.
The obligations under the Minosa Note may be accelerated upon the occurrence of specified events of default including (a) our failure to pay any amount payable under the Minosa Note on the date due and payable; (b) our failure to perform or observe any term, covenant, or agreement in the Minosa Note or the related documents, subject to a five-day cure period; (c) the occurrence and expiration of all applicable grace periods, if any, of an event of default or material breach by us under any of the other loan documents; (d) the termination of the SPA; (e) commencement of certain specified dissolution, liquidation, insolvency, bankruptcy, reorganization, or similar cases or actions by or against us, in specified circumstances unless dismissed or stayed within 60 days; (f) the entry of a judgment or award against us in excess of $100,000; and (g) the occurrence of a change in control (as defined in the Minosa Note).
Pursuant to second amended and restated pledge agreements (the “Second AR Pledge Agreements”) entered into by us in favor of MINOSA, the we pledged and granted security interests to MINOSA in (a) the 54 million cuotas (a unit of ownership under Panamanian law) of Oceanica held by us, (b) all notes and other receivables from Oceanica and its subsidiary owed to us, and (c) all of the outstanding equity in our wholly owned subsidiary, Odyssey Marine Enterprises, Ltd.
In connection with the execution and delivery of the Minosa Purchase Agreement, Odyssey and MINOSA entered into a second amended and restated registration rights agreement (the “Second AR Registration Rights Agreement”) pursuant to which Odyssey agreed to register the offer and sale of the shares (the “Conversion Shares”) of our common stock issuable upon the conversion of the indebtedness evidenced by the Minosa Note. Subject to specified limitations set forth in the Second AR Registration Rights Agreement, including that we are eligible to use Form S-3, the holder of the Minosa Note can require us to register the offer and sale of the Conversion Shares if the aggregate offering price thereof (before any underwriting discounts and commissions) is not less than $3.0 million. In addition, we agreed to file a registration statement relating to the offer and sale of the Conversion Shares on a continuous basis promptly (but in no event later than 60 days after) after the conversion of the Minosa Note into the Conversion Shares and to thereafter use its reasonable best efforts to have such registration statement declared effective by the Securities and Exchange Commission.
Promissory Note
During the period ended March 31, 2018, Monaco advanced us $1.0 million that was applied to a loan agreement that was executed on April 20, 2018. Monaco also agreed to treat $99,366 of back rent owed by us to Monaco as part of this loan resulting in an aggregate principal amount of $1,099,366 at March 30, 2020. The indebtedness bears interest at 10.0% percent per year. All principal and any unpaid interest is to be payable on the first anniversary of this agreement, April 20, 2019. This debt is secured by cash proceeds, if any, from our future shipwreck projects we have contracted with Magellan. As additional consideration, their share purchase option expiration date, as discussed in Note 1 – Monaco 2014 and Note 2 – Monaco 2016 above, has been extended from 30 days to seven months after the note becomes paid in full.
Promissory Note
On July 12, 2018, we entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”) with two individuals (the “Lenders”), one of whom holds in excess of 5.0% of our outstanding common stock. Pursuant to the Purchase Agreement, the Lenders agreed to lend an aggregate of $1,050,000 to us, which was advanced in three tranches on July 12, 2018, $500,000, August 17, 2018, $300,000 and October 4, 2018, $250,000. The indebtedness is evidenced by secured convertible promissory notes (the “Notes”) and bears interest at a rate equal to 8.0% per annum. Unless otherwise converted as described below, the entire outstanding principal balance under the Notes and all accrued interest and fees are due and payable on July 12, 2019. See “Term Extension (July 8, 2019)” below.
At any time after to the first to occur of (a) a sale by us of additional Notes or (b) September 12, 2018, the Lenders have the right to convert all amounts outstanding under the Notes into either (x) shares of our common stock at the conversion rate of $8.00 per share, (y) $500,000 of the indebtedness owed by Exploraciones Oceanicas S. de R. L. de C.V. (“ExO”) to Oceanica Marine Operations, S.R.L. (“OMO”), or (z) a 7.5% interest in Aldama Mining Company, S. de R. L. de C.V. (“Aldama”). We indirectly hold a controlling interest in ExO; OMO and Aldama are indirect, wholly owned subsidiaries of ours.
In connection with the issuance and sale of the Notes, we issued warrants to purchase common stock (the “Warrants”) to the Lenders. The Lenders may exercise the Warrants to purchase an aggregate of 65,625 shares of our common stock at an exercise price of $12.00 per share. The Warrants are exercisable during the period commencing on the date on which the Notes are converted into shares of our common stock and ending on July 12, 2021.
Pursuant to a Pledge Agreement, dated as of July 12, 2018 (the “Pledge Agreement”), our obligations under the Notes are secured by a pledge of a portion of Odyssey’s ownership interest in Aldama and another entity.
Pursuant to a Registration Rights Agreement (the “Rights Agreement”) among us and the Lenders, we granted the Lenders “piggy-back” registration rights with respect to the shares of our common stock issuable upon conversion of the Notes and the exercise of the Warrants.
The Purchase Agreement, the Notes, the Warrants, the Pledge Agreement, and the Rights Agreement include representations and warranties and other covenants, conditions, and other provisions customary for comparable transactions.
We have accounted for this transaction as a financing transaction, wherein the net proceeds received were allocated to the financial instruments issued. Prior to making the accounting allocation, we evaluated the transaction for proper classification under ASC 480 Distinguishing Liabilities from Equity (“ASC 480”), ASC 815 Derivatives and Hedging (“ASC 815”).
We determined that the debt achieved conventional convertible status and that the equity conversion option was in the money at inception which required the calculation of a beneficial conversion feature (“BCF”). The fair value of the warrants and BCF component exceeded the amount of proceeds, therefore, they were limited to the cash proceeds of $1,050,000 at December 31, 2018. As a result, there was no value allocated to the debt at inception. The debt was being accreted to face value over its term using the effective interest method. The face value of this debt was $1.05 million at September 30, 2020 and December 31, 2019.
Term Extension (July 8, 2019)
On July 8, 2019, we entered into a Second Amendment to Note and Warrant Purchase Agreement and Note and Warrant Modification Agreement (the “Second Amendment”) with the lenders pursuant to which certain terms and provisions of the Notes and Warrants were amended or otherwise modified. The material terms and provisions that were amended or otherwise modified are as follows:
the maturity date of the Notes was extended by one year, to July 12, 2020 (the parties are currently in discussions to further extend the maturity date of the Notes);
the conversion rate of the Notes and the exercise price of the Warrants were modified to $5.756, which represented the “market price” of Odyssey’s common stock as of July 7, 2019, the day before the Second Amendment was signed;
the Notes are unsecured;
the Notes are convertible only into shares of Odyssey common stock; and
the modified Warrants are exercisable at any time until July 8, 2024 to purchase an aggregate of 196,135 shares of our common stock.
We evaluated the amendment’s impact on the accounting for the Note in accordance with ASC 470-50-40-6 through 12 to determine whether extinguishment accounting was appropriate. The modification had a cash flow effect on a present value basis of less than 10%. However, the reduction in the conversion price resulted in a change in the fair value of the embedded conversion option that was more than 10% of the carrying value of the Note immediately prior to the modification. Because the amendment resulted in a substantial modification, extinguishment accounting was required, and we recorded a loss on the extinguishment of debt of $290,024. The warrant modification was treated as an inducement to extend the debt therefore the fair value of the warrants of $868,878 was a period expense and charged to interest expense with an offset to equity.
The extinguishment accounting resulted in a fair value reacquisition price of this debt of $1,340,024 with a premium of $290,024 which was being amortized over the remaining life of the debt.
Term Extension (August 14, 2020)
On August 14, 2020, we entered into a Third Amendment to Note and Warrant Purchase Agreement and Note and Warrant Modification Agreement (the “Third Amendment”) with the Lenders pursuant to which certain terms and provisions of the Notes modified and we issued a new warrant to purchase common stock to each of the Lenders as consideration for them entering into the Third Amendment. The warrants have an exercise price of $4.67 and are exercisable any time until August 14, 2023. The material terms and provisions that were amended or otherwise modified are as follows:
the maturity date of the Notes was extended by one year, to July 12, 2021 and
the conversion rate of the Notes was modified to $4.67.
As of August 14, 2020, the aggregate amount of indebtedness outstanding under the Notes was $1,232,846. As amended by the Third Amendment, the Notes are convertible into an aggregate of 263,993 shares of our common stock and the new Warrants are exercisable to purchase an aggregate of 131,996 shares of our common stock for $4.67.
The modification of the Notes and the issuance of the warrants, were evaluated under ASC 470-50-40, “Debt Modification and Extinguishments.” By applying the guidance, the Notes were determined to be substantially different and the transaction qualified for extinguishment accounting. As a result, we recorded a loss on extinguishment of approximately $777,500, which included the fair value of the warrants given as consideration for the modification. The premium of $358,497 is being amortized over the remaining life of the debt. The related amortization for the three and nine-months ended September 30, 2020 was $78,050 and $217,028, respectively.
Litigation Financing
(c) | a first phase, in which the Funder shall make Claims Payments in an aggregate amount no greater than $1,500,000 for the payment of antecedent and ongoing costs (“Phase I Investment Amount”); and |
(d) | a second phase, in which the Funder shall make Claims Payments in an aggregate amount no greater than $5,000,000 for the purposes of pursuing the Subject Claim to a final award (“Phase II Investment Amount”). |
If the Claimholder ceases the Subject Claim for any reason other than (a) a full and final arbitral award against the Claimholder or (b) a full and final monetary settlement of the claims, including in particular, for a grant of an environmental permit to the Claimholder allowing it to proceed with the Project (with or without a monetary component), all Claims Payments under Phase I and, if Claimholder has exercised the corresponding option, the Tranche A Committed Amount and Tranche B Committed Amount, shall immediately convert to a senior secured liability of the Claimholder. This sum shall incur an annualized internal rate of return (IRR) of 50.0% retroactive to the date each Funding Request was paid by the Funder (under Phase I), or, to the conversion date for the Tranche A Committed Amount and Tranche B Committed Amount of Phase II if the Claimholder has exercised the respective option (collectively, the “Conversion Amount”). Such Conversion Amount and any and all accrued IRR shall be
If the Claimholder receives only the Phase I Investment Amount from the Funder, the first Proceeds shall be distributed as follows: |
(i) | first, 100.0% to the Funder, until the cumulative amount distributed to the Funder equals the total Claims Payments paid by the Funder under Phase I; |
(ii) | second, 100.0% to the Funder until the cumulative amount distributed to the Funder equals an IRR of 20% of Claims Payments paid by the Funder under Phase I (“Phase I Compensation”), per annum; and |
(iii) | thereafter, 100.0% to the Claimholder. |
If the Claimholder exercises its options to receive Tranche A or both Tranche A and Tranche B of the Phase II Investment Amount, the first Proceeds shall be distributed as follows: |
(i) | first, 100.0% to the Funder until the cumulative amount distributed to the Funder equals the total Claims Payments paid by the Funder under Phases I and II; |
(ii) | second, 100.0% to the Funder until the cumulative amount distributed to the Funder equals an additional 300.0% of Phase I Investment Amount; plus an additional 300% of the Tranche A Committed Amount (i.e. 300.0% of $3.5 million), less any amounts remaining of the Tranche A Committed Amount that the Funder did not pay as Claims Payments; plus an additional 300.0% of the Tranche B Committed Amount (i.e. 300.0% of $1.5 million), if the Claimholder exercises the Tranche B funding option, less any amounts remaining of the Tranche B Committed Amount that the Funder did not pay as Claims Payments; |
(iii) | third, for each $10,000 in specified fees and expenses paid by the Funder under Phase I and Phase II and any amounts over each $10,000 of the Tranche A Committed Amount and the Tranche B Committed Amount (if the Claimholder exercises the Tranche B funding option), 0.01% of the total Proceeds from any recoveries after repayment of (i) and (ii) above, to the Funder; and |
(iv) | thereafter, 100% to the Claimholder. |
As
On December 6, 2019, we entered into a Note Purchase Agreement (the “Purchase Agreement”) with 37North Capital SPV 11, LLC (the “Investor”) pursuant to which the Investor agreed to lend, in one or more transactions (each, a “Loan”), up to an aggregate of $2.0 million to us, subject to the terms and conditions of the Purchase Agreement. On December 10, 2019, the Investor made a Loan to us in the amount of $539,000 pursuant to the Purchase Agreement. An additional Loan of $490,000 was made in the first quarter of 2020. Each Loan is evidenced by a separate convertible promissory note (each, a “Note”). Unless otherwise converted as described below, the entire outstanding amount of all Loans will be due and payable on June 6, 2020 (the “Maturity Date”).
At any time and from time to time until the three-month anniversary of the Maturity Date, all or any portion of the outstanding amount of each Note may, at the Investor’s election, be converted into shares of our common stock, par value $0.0001 per share (“Conversion Shares”). The number of Conversion Shares to be issued upon any conversion shall be equal to the quotient obtained by dividing the Applicable Conversion Amount (as defined below) by the Applicable Conversion Rate (as defined below). As defined in the Purchase Agreement, the “Applicable Conversion Amount” means, on the date of determination and with respect to each Note, (a) for the period beginning on the date of issuance and ending on the day immediately preceding the Maturity Date, an amount equal to 100.0% of the amount of the Loan evidenced by such Note then outstanding; (b) on the Maturity Date, 136.0% of the amount of the Loan evidenced by such Note then outstanding (such amount, the “Enhanced Conversion Amount”); (c) for the period beginning on the day immediately following the Maturity Date and for a period of three months thereafter (such three-month period, the “Accrual Period”), an amount equal to (i) the Enhanced Conversion Amount then outstanding plus (ii) an additional amount equal to 3.0% per month (prorated for any period of less than a full month) accrued on the amount described in clause (i); and (d) on any date after the Accrual Period, the amount then outstanding after giving effect to the accrual described in clause (c) during the Accrual Period (it being understood that no additional amount shall accrue after the expiration of the Accrual Period); and “Applicable Conversion Rate” means (x) with respect to any conversion on or prior to the Maturity Date, $5.00, and (y) with respect to any conversion after the Maturity Date, the lower of (i) $5.00 and (ii) 80.0% of the ten-day volume-weighted average price of Odyssey’s common stock. Notwithstanding anything in the Purchase Agreement to the contrary, we are prohibited from issuing any Conversion Shares, to the extent such shares, after giving effect to such issuance after conversion and when added to the number of Conversion Shares previously issued upon conversion of any of the Notes sold pursuant to the Purchase Agreement, would represent in excess of 19.9% of (A) the number of shares of our common stock outstanding immediately after giving effect to such issuances or (B) the total voting power of our securities outstanding immediately after giving effect to such issuances that are entitled to vote on a matter being voted on by holders of our common stock. On May 6, 2020, Odyssey and the Investor agreed to amend the Purchase Agreement to additionally provide that, notwithstanding anything in the Purchase Agreement to the contrary, Odyssey is prohibited from issuing any Conversion Shares, to the extent such shares, after giving effect to such issuance after conversion and when added to the number of Conversion Shares previously issued upon conversion of any of the Notes sold pursuant to the Purchase Agreement, would represent in excess of 19.9% of the number of shares of Common Stock outstanding as of December 6, 2019. The maturity date was also extended to November 6, 2021. During July 2020, the lender converted $0.1 million of debt into 30,000 shares of our common stock at conversion rate of $3.71 per share. During September 2020, the lender converted $.4 million of the debt into 82,338 shares of our common stock at a conversion rate of $4.858 per share.
If, at any time prior to the Maturity Date, (a) we receive cash proceeds (the “Shipwreck Proceeds”) arising out of our salvage agreement relating to cargo recovered from a specified shipwreck, and (ii) the amount of the Shipwreck Proceeds equals at least 155.0% of the then-unpaid amount of all Loans, then we must repay in full the indebtedness outstanding under all the Notes by delivery of an amount equal to 155.0% of the then-unpaid amount of all Loans. In addition, at any time prior to the Maturity Date, we may repay all (but not less than all) of the then-unpaid amount of all Loans by delivery of an amount equal to 155.0% of the then-unpaid amount of all Loans; provided, that we must provide the Investor at least ten days’ notice of our intention to repay the indebtedness.
The Purchase Agreement and the Notes issued by Odyssey on December 10, 2019 and January 29, 2020, include representations and warranties and other covenants, conditions, and other provisions customary for comparable transactions.
We evaluated the Notes in accordance with ASC Topic 815, Derivatives and Hedging, and determined that they contain certain embedded derivatives whose economic risks and characteristics were not clearly and closely related to the risks of the host contract. The material embedded derivative features consisted of the embedded conversion option and contingent redemption provisions. The Company elected to initially and subsequently measure the Notes in their entirety at fair value, with changes in fair value recognized in earnings. FASB ASC 825-10-25 allows us to elect the fair value option for recording financial instruments when they are initially recognized or if there is an event that requires re-measurement of the instruments at fair value, such as a significant modification of the debt.
Because the Notes are carried in their entirety at fair value, the value of the compound embedded conversion feature is embodied in that fair value. The Company estimates the fair value of the hybrid instrument based on a probability weighted analysis which considers the present value of the cash flows using a credit risk adjusted rate enhanced by the redemption feature and the value of the conversion option valued using a Monte Carlo model. This method was considered by management to be the most appropriate method of encompassing the credit risk and exercise behavior that a market participant would consider when valuing the hybrid financial instrument. Inputs used to value the hybrid instrument at September 30, 2020 included, (i) present value of future cash flows using a credit risk adjusted rate of 18%, (ii) remaining term of approximately 1.2 months, (iii) volatility of 87%, (iv) closing stock price on the valuation date, and (v) the conversion price based on the lesser of $5.00 or 80% of the 10 day VWAP. Material changes due to instrument-specific credit risk are recorded in Other Comprehensive Income with all other changes in value being recorded in net income.
The fair value of the hybrid instrument was $861,485 as of December 31, 2019. The fair value of all the outstanding hybrid instruments were revalued at $960,800 as of September 30, 2020, resulting from additional proceeds of $490,000, conversions resulting in a reduction in fair value of $1,066,220, and a change in the fair value of the derivative liability of $250,319 for the three-months ended September 30, 2020 and $675,534 for the nine-months ended September 30, 2020.
Promissory Note
We applied to Fifth Third Bancorp (“Fifth Third”) under the Small Business Administration (the “SBA”) Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”) for a loan of $370,400 (the “Loan”), and the Loan was made on April 16, 2020. The proceeds of the Loan were used to cover payroll costs, rent and utilities in accordance with the relevant terms and conditions of the CARES Act.
The Loan may be forgiven partially or fully if At September 30, 2021, the Loan proceeds are used for covered payroll costs, rent and utilities, provided that such amounts are incurred during the eight-week period that commenced on April 16, 2020,outstanding principal was zero and at least 75%December 31, 2020, was $370,400. We applied for 100% forgiveness with Fifth Third Bank during March 2021. In July 2021, we received communication from Fifth Third Bank and the SBA confirming 100% of anythis Loan was forgiven and paid in full effective July 1, 2021. The forgiven amount has been used for covered payroll costs. During June 2020, the 75% requirement was reduced to 60% and the eight-week period was amended to a 24 week period. Any forgivenessincluded in Other income in our Consolidated Statements of the Loan will be subject to approval by the SBA and Fifth Third and will require us to apply for such treatment in the future.
Operations
the equity component of the transaction. The Penelope equity transaction is heavily dependent on the outcome of our subsidiary’s application approval process for an environmental permit (EIA) to commercially develop a mineralized phosphate deposit off the coast of Mexico. The factors noted above raise doubt about our ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.
There
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 1. | Legal Proceedings |
ITEM 1A. | Risk Factors |
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
ITEM 4. | Mine Safety Disclosures |
ITEM 5. | Other Information |
ITEM 6. | Exhibits |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith electronically) | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith electronically) | |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (Filed herewith electronically) | |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Filed herewith electronically) | |
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104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
ODYSSEY MARINE EXPLORATION, INC. | ||||||
Date: November | By: | /s/ | ||||
Christopher E. Jones, as Chief Financial Officer Authorized Officer |
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