エドガーで原本を確認する
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ |
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2024.
or
☐ |
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from |
|
to |
|
Commission File Number 001-31895
ODYSSEY MARINE EXPLORATION, INC.
(Exact name of registrant as specified in its charter)
|
|
Nevada |
84-1018684 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
205 S. Hoover Blvd., Suite 210, Tampa, FL 33609
(Address of principal executive offices) (Zip code)
(813) 876-1776
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Common Stock, $0.0001 par value |
OMEX |
NASDAQ Capital Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer: ☐ Accelerated filer: ☐
Non-accelerated filer: ☒ Smaller reporting company: ☒
Emerging growth company: ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the exchange act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
The number of outstanding shares of the registrant’s Common Stock, $0.0001 par value, as of August 05, 2024 was 20,594,180.
|
|
|
|
|
Page No.
|
Part I: |
Financial Information |
|
|
|
|
Item 1. |
Financial Statements (unaudited): |
|
|
|
|
|
Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 |
3 |
|
|
|
|
4 |
|
|
|
|
|
5 |
|
|
|
|
|
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 |
6 |
|
|
|
|
7 |
|
|
|
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
|
|
|
Item 3. |
32 |
|
|
|
|
Item 4. |
33 |
|
|
|
|
Part II: |
Other Information |
|
|
|
|
Item 1. |
34 |
|
|
|
|
Item 1A. |
34 |
|
|
|
|
Item 2. |
34 |
|
|
|
|
Item 4. |
34 |
|
|
|
|
Item 5. |
34 |
|
|
|
|
Item 6. |
35 |
|
|
|
|
36 |
||
2
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
|
|
(Unaudited) |
|
|
|
|
||
ASSETS |
|
|
|
|
|
|
||
CURRENT ASSETS |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
7,575,996 |
|
|
$ |
4,021,720 |
|
Accounts and other related party receivables |
|
|
75,573 |
|
|
|
110,320 |
|
Other current assets |
|
|
390,964 |
|
|
|
743,439 |
|
Total current assets |
|
|
8,042,533 |
|
|
|
4,875,479 |
|
|
|
|
|
|
|
|
||
NON-CURRENT ASSETS |
|
|
|
|
|
|
||
Investment in unconsolidated entity |
|
|
9,533,533 |
|
|
|
9,001,646 |
|
Option to purchase equity securities in related party |
|
|
6,253,094 |
|
|
|
6,373,402 |
|
Bismarck exploration license |
|
|
1,821,251 |
|
|
|
1,821,251 |
|
Property and equipment, net |
|
|
572,240 |
|
|
|
524,656 |
|
Right of use - operating leases |
|
|
25,056 |
|
|
|
121,568 |
|
Other non-current assets |
|
|
34,295 |
|
|
|
34,295 |
|
Total non-current assets |
|
|
18,239,469 |
|
|
|
17,876,818 |
|
Total assets |
|
$ |
26,282,002 |
|
|
$ |
22,752,297 |
|
|
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
||
CURRENT LIABILITIES |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
345,949 |
|
|
$ |
345,378 |
|
Accrued expenses |
|
|
8,906,238 |
|
|
|
8,493,358 |
|
Operating lease liability, current portion |
|
|
26,579 |
|
|
|
129,140 |
|
Forward contract liability |
|
|
1,446,796 |
|
|
|
1,446,796 |
|
Put option liability |
|
|
5,393,909 |
|
|
|
5,637,162 |
|
Loans payable, current portion |
|
|
21,670,783 |
|
|
|
15,413,894 |
|
Total current liabilities |
|
|
37,790,254 |
|
|
|
31,465,728 |
|
|
|
|
|
|
|
|
||
LONG-TERM LIABILITIES |
|
|
|
|
|
|
||
Loans payable |
|
|
4,267,845 |
|
|
|
7,903,074 |
|
Warrant liabilities |
|
|
23,868,881 |
|
|
|
15,792,385 |
|
Litigation financing and other |
|
|
53,713,113 |
|
|
|
52,817,938 |
|
Deferred contract liability |
|
|
559,398 |
|
|
|
679,706 |
|
Total long-term liabilities |
|
|
82,409,237 |
|
|
|
77,193,103 |
|
Total liabilities |
|
|
120,199,491 |
|
|
|
108,658,831 |
|
|
|
|
|
|
|
|
||
Commitments and contingencies (Note 8) |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
||
Preferred stock – $0.0001 par value; 24,984,166 shares authorized; none outstanding |
|
|
— |
|
|
|
— |
|
Common stock – $0.0001 par value; 75,000,000 shares authorized; 20,590,644 and |
|
|
2,059 |
|
|
|
2,042 |
|
Additional paid-in capital |
|
|
258,412,973 |
|
|
|
263,616,186 |
|
Accumulated deficit |
|
|
(294,126,036 |
) |
|
|
(296,096,957 |
) |
Total stockholders’ deficit before non-controlling interest |
|
|
(35,711,004 |
) |
|
|
(32,478,729 |
) |
Non-controlling interest |
|
|
(58,206,485 |
) |
|
|
(53,427,805 |
) |
Total stockholders’ deficit |
|
|
(93,917,489 |
) |
|
|
(85,906,534 |
) |
Total liabilities and stockholders’ deficit |
|
$ |
26,282,002 |
|
|
$ |
22,752,297 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
(As Restated) |
|
|
|
|
|
(As Restated) |
|
||||
REVENUE |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Marine services |
|
$ |
179,821 |
|
|
$ |
166,832 |
|
|
$ |
382,885 |
|
|
$ |
438,208 |
|
Operating and other |
|
|
35,744 |
|
|
|
5,743 |
|
|
|
35,744 |
|
|
|
23,106 |
|
Total revenue |
|
|
215,565 |
|
|
|
172,575 |
|
|
|
418,629 |
|
|
|
461,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Marketing, general and administrative |
|
|
2,204,852 |
|
|
|
1,809,328 |
|
|
|
6,239,379 |
|
|
|
3,625,254 |
|
Operations and research |
|
|
1,026,715 |
|
|
|
1,210,836 |
|
|
|
1,912,382 |
|
|
|
2,495,563 |
|
Total operating expenses |
|
|
3,231,567 |
|
|
|
3,020,164 |
|
|
|
8,151,761 |
|
|
|
6,120,817 |
|
LOSS FROM OPERATIONS |
|
|
(3,016,002 |
) |
|
|
(2,847,589 |
) |
|
|
(7,733,132 |
) |
|
|
(5,659,503 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
|
7,314 |
|
|
|
23,424 |
|
|
|
7,723 |
|
|
|
411,956 |
|
Interest expense |
|
|
(1,833,773 |
) |
|
|
(1,074,661 |
) |
|
|
(3,653,767 |
) |
|
|
(1,781,183 |
) |
Loss on equity method investment |
|
|
(133,419 |
) |
|
|
— |
|
|
|
(347,365 |
) |
|
|
— |
|
Change in derivative liabilities fair value |
|
|
(8,925,464 |
) |
|
|
(2,762,397 |
) |
|
|
(1,070,562 |
) |
|
|
284,489 |
|
Gain / (Loss) on debt extinguishment |
|
|
— |
|
|
|
(301,414 |
) |
|
|
— |
|
|
|
21,177,200 |
|
Residual economic interest in shipwreck |
|
|
9,400,000 |
|
|
|
— |
|
|
|
9,400,000 |
|
|
|
— |
|
Other |
|
|
772,617 |
|
|
|
(284,331 |
) |
|
|
589,344 |
|
|
|
(1,607,683 |
) |
Total other income (expense) |
|
|
(712,725 |
) |
|
|
(4,399,379 |
) |
|
|
4,925,373 |
|
|
|
18,484,779 |
|
INCOME/(LOSS) BEFORE INCOME TAXES |
|
|
(3,728,727 |
) |
|
|
(7,246,968 |
) |
|
|
(2,807,759 |
) |
|
|
12,825,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax benefit |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
INCOME/(LOSS) |
|
|
(3,728,727 |
) |
|
|
(7,246,968 |
) |
|
|
(2,807,759 |
) |
|
|
12,825,276 |
|
Net loss attributable to non-controlling interest |
|
|
2,201,624 |
|
|
|
2,315,359 |
|
|
|
4,778,680 |
|
|
|
4,550,802 |
|
NET INCOME/(LOSS) attributable to Odyssey Marine Exploration, Inc. |
|
$ |
(1,527,103 |
) |
|
$ |
(4,931,609 |
) |
|
$ |
1,970,921 |
|
|
$ |
17,376,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
NET INCOME/(LOSS) PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
(0.07 |
) |
|
$ |
(0.25 |
) |
|
$ |
0.10 |
|
|
$ |
0.88 |
|
Diluted |
|
$ |
(0.07 |
) |
|
$ |
(0.25 |
) |
|
$ |
0.03 |
|
|
$ |
0.87 |
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
20,481,072 |
|
|
|
19,918,677 |
|
|
|
20,453,503 |
|
|
|
19,793,265 |
|
Diluted |
|
|
20,481,072 |
|
|
|
19,918,677 |
|
|
|
26,362,113 |
|
|
|
20,057,894 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ DEFICIT - Unaudited
|
|
Three Months Ended June 30, 2024 |
|
|||||||||||||||||
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated |
|
|
Non-controlling |
|
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance at March 31, 2024 |
|
$ |
2,043 |
|
|
$ |
257,542,998 |
|
|
$ |
(292,598,933 |
) |
|
$ |
(56,004,861 |
) |
|
$ |
(91,058,753 |
) |
Share-based compensation |
|
|
— |
|
|
|
101,785 |
|
|
|
— |
|
|
|
— |
|
|
|
101,785 |
|
Director fees settled with stock options |
|
|
— |
|
|
|
11,250 |
|
|
|
— |
|
|
|
— |
|
|
|
11,250 |
|
Common stock issued for convertible debt conversion |
|
|
6 |
|
|
|
327,382 |
|
|
|
— |
|
|
|
— |
|
|
|
327,388 |
|
Common stock issued and exchanged with related party |
|
|
10 |
|
|
|
429,558 |
|
|
|
— |
|
|
|
— |
|
|
|
429,568 |
|
Net (loss) |
|
|
— |
|
|
|
— |
|
|
|
(1,527,103 |
) |
|
|
(2,201,624 |
) |
|
|
(3,728,727 |
) |
Balance at June 30, 2024 |
|
$ |
2,059 |
|
|
$ |
258,412,973 |
|
|
$ |
(294,126,036 |
) |
|
$ |
(58,206,485 |
) |
|
$ |
(93,917,489 |
) |
|
|
Three Months Ended June 30, 2023 (As Restated) |
|
|||||||||||||||||
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated |
|
|
Non-controlling |
|
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance at March 31, 2023 |
|
$ |
1,989 |
|
|
$ |
261,689,412 |
|
|
$ |
(279,135,089 |
) |
|
$ |
(46,432,827 |
) |
|
$ |
(63,876,515 |
) |
Share-based compensation |
|
|
9 |
|
|
|
355,483 |
|
|
|
— |
|
|
|
— |
|
|
|
355,492 |
|
Common stock issued for debt extinguishment |
|
|
— |
|
|
|
119,560 |
|
|
|
— |
|
|
|
— |
|
|
|
119,560 |
|
Net (loss) |
|
|
— |
|
|
|
— |
|
|
|
(4,931,609 |
) |
|
|
(2,315,359 |
) |
|
|
(7,246,968 |
) |
Balance at June 30, 2023 |
|
$ |
1,998 |
|
|
$ |
262,164,455 |
|
|
$ |
(284,066,698 |
) |
|
$ |
(48,748,186 |
) |
|
$ |
(70,648,431 |
) |
|
|
Six Months Ended June 30, 2024 |
|
|||||||||||||||||
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated |
|
|
Non-controlling |
|
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance at December 31, 2023 |
|
$ |
2,042 |
|
|
$ |
263,616,186 |
|
|
$ |
(296,096,957 |
) |
|
$ |
(53,427,805 |
) |
|
$ |
(85,906,534 |
) |
Share-based compensation |
|
|
1 |
|
|
|
1,564,532 |
|
|
|
— |
|
|
|
— |
|
|
|
1,564,533 |
|
Cancellation of stock awards for payment of withholding tax requirements |
|
|
— |
|
|
|
(16,398 |
) |
|
|
— |
|
|
|
— |
|
|
|
(16,398 |
) |
Director fees settled with stock options |
|
|
— |
|
|
|
246,150 |
|
|
|
— |
|
|
|
— |
|
|
|
246,150 |
|
Fair value of warrants classified as liabilities |
|
|
— |
|
|
|
(7,754,438 |
) |
|
|
— |
|
|
|
— |
|
|
|
(7,754,438 |
) |
Common stock issued for convertible debt conversion |
|
|
6 |
|
|
|
327,382 |
|
|
|
— |
|
|
|
— |
|
|
|
327,388 |
|
Common stock issued and exchanged with related party |
|
|
10 |
|
|
|
429,559 |
|
|
|
— |
|
|
|
— |
|
|
|
429,569 |
|
Net income/(loss) |
|
|
— |
|
|
|
— |
|
|
|
1,970,921 |
|
|
|
(4,778,680 |
) |
|
|
(2,807,759 |
) |
Balance at June 30, 2024 |
|
$ |
2,059 |
|
|
$ |
258,412,973 |
|
|
$ |
(294,126,036 |
) |
|
$ |
(58,206,485 |
) |
|
$ |
(93,917,489 |
) |
|
|
Six Months Ended June 30, 2023 (As Restated) |
|
|||||||||||||||||
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated |
|
|
Non-controlling Interest |
|
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance at December 31, 2022 |
|
$ |
1,954 |
|
|
$ |
256,963,264 |
|
|
$ |
(301,442,776 |
) |
|
$ |
(44,197,384 |
) |
|
$ |
(88,674,942 |
) |
Share-based compensation |
|
|
14 |
|
|
|
665,067 |
|
|
|
— |
|
|
|
— |
|
|
|
665,081 |
|
Common stock issued for debt extinguishment |
|
|
30 |
|
|
|
999,970 |
|
|
|
— |
|
|
|
— |
|
|
|
1,000,000 |
|
Fair value of warrants issued |
|
|
— |
|
|
|
3,536,154 |
|
|
|
— |
|
|
|
— |
|
|
|
3,536,154 |
|
Net income/(loss) |
|
|
— |
|
|
|
— |
|
|
|
17,376,078 |
|
|
|
(4,550,802 |
) |
|
|
12,825,276 |
|
Balance at June 30, 2023 |
|
$ |
1,998 |
|
|
$ |
262,164,455 |
|
|
$ |
(284,066,698 |
) |
|
$ |
(48,748,186 |
) |
|
$ |
(70,648,431 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited
|
|
Six Months Ended June 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
(As Restated) |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
||
Net income/(loss) |
|
$ |
(2,807,759 |
) |
|
$ |
12,825,276 |
|
Adjustments to reconcile net income/(loss) to net cash used in operating activities: |
|
|
|
|
|
|
||
Services provided to unconsolidated entities |
|
|
(382,885 |
) |
|
|
(438,208 |
) |
Depreciation |
|
|
36,766 |
|
|
|
289,511 |
|
Financing fees amortization |
|
|
54,290 |
|
|
|
268,673 |
|
Amortization of finance liability |
|
|
45,512 |
|
|
|
— |
|
Amortization of deferred discount |
|
|
2,029,298 |
|
|
|
— |
|
Amortization of loan prepayment premium |
|
|
— |
|
|
|
116,826 |
|
Note payable interest accretion |
|
|
1,184,785 |
|
|
|
862,467 |
|
Note interest paid-in-kind ("PIK") |
|
|
1,034,102 |
|
|
|
— |
|
Note receivable interest accretion |
|
|
— |
|
|
|
(288,991 |
) |
Right of use asset amortization |
|
|
96,512 |
|
|
|
86,917 |
|
Share-based compensation |
|
|
1,564,532 |
|
|
|
372,831 |
|
Loss on equity method investment |
|
|
347,365 |
|
|
|
— |
|
Gain on debt extinguishment, net of note receivable write-off |
|
|
— |
|
|
|
(21,177,200 |
) |
Gain on sale of equipment |
|
|
— |
|
|
|
(40,000 |
) |
Change in derivatives liability fair value |
|
|
1,070,562 |
|
|
|
(284,489 |
) |
Director fees settled with stock options |
|
|
246,150 |
|
|
|
— |
|
(Increase) decrease in: |
|
|
|
|
|
|
||
Accounts and other related party receivables |
|
|
(32,065 |
) |
|
|
(997,642 |
) |
Short-term notes receivable, related party |
|
|
— |
|
|
|
(176,501 |
) |
Changes in operating lease liability |
|
|
(102,561 |
) |
|
|
(89,852 |
) |
Other assets |
|
|
352,475 |
|
|
|
(33,779 |
) |
Accounts payable |
|
|
(30,245 |
) |
|
|
(1,056,107 |
) |
Accrued expenses and other |
|
|
(741,073 |
) |
|
|
2,189,782 |
|
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
|
|
3,965,761 |
|
|
|
(7,570,486 |
) |
|
|
|
|
|
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
||
Proceeds from sale of equipment |
|
|
— |
|
|
|
40,001 |
|
Purchase of property and equipment |
|
|
(84,350 |
) |
|
|
(895,856 |
) |
Proceeds from related party |
|
|
— |
|
|
|
1,000,000 |
|
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES |
|
|
(84,350 |
) |
|
|
144,145 |
|
|
|
|
|
|
|
|
||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Proceeds from issuance of loans payable |
|
|
— |
|
|
|
15,067,746 |
|
Repurchase of stock-based awards withheld for payment of withholding tax requirements |
|
|
(16,398 |
) |
|
|
— |
|
Offering cost paid on financing |
|
|
— |
|
|
|
(98,504 |
) |
Payment of debt obligations |
|
|
(310,737 |
) |
|
|
(11,139,244 |
) |
Proceeds from sale leaseback financing, net |
|
|
— |
|
|
|
4,050,000 |
|
Payment on sale leaseback financing |
|
|
— |
|
|
|
(65,000 |
) |
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
|
|
(327,135 |
) |
|
|
7,814,998 |
|
|
|
|
|
|
|
|
||
NET INCREASE/(DECREASE) IN CASH |
|
|
3,554,276 |
|
|
|
388,657 |
|
CASH AT BEGINNING OF PERIOD |
|
|
4,021,720 |
|
|
|
1,443,421 |
|
CASH AT END OF PERIOD |
|
$ |
7,575,996 |
|
|
$ |
1,832,078 |
|
|
|
|
|
|
|
|
||
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
399,465 |
|
|
$ |
134,717 |
|
|
|
|
|
|
|
|
||
NON-CASH INVESTING AND FINANCING TRANSACTIONS: |
|
|
|
|
|
|
||
Conversion of debt to common stock |
|
$ |
— |
|
|
$ |
1,000,000 |
|
Warrants issued |
|
$ |
— |
|
|
$ |
3,536,154 |
|
Director compensation settled with equity |
|
$ |
246,150 |
|
|
$ |
— |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Odyssey Marine Exploration, Inc. and subsidiaries (the “Company,” “Odyssey,” “us,” “we” or “our”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in financial statements prepared in accordance with generally accepted accounting principles. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
In the opinion of management, these financial statements reflect all adjustments, including normal recurring adjustments, necessary for a fair presentation of these interim condensed consolidated financial statements. Operating results for the three and six months ended June 30, 2024, are not necessarily indicative of the results that may be expected for the full year.
Going Concern Consideration
We have experienced several years of net losses and may continue to do so. Our ability to generate net income or positive cash flows for the following twelve months is dependent upon financings, our success in developing and monetizing our interests in mineral exploration entities, generating income from contracted services, and collecting amounts owed to us.
Our 2024 business plan requires 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 becomes insufficient to meet our desired projected business plan requirements, we would be required to follow a contingency business plan based on curtailed expenses and fewer cash requirements. On December 1, 2023, we entered into the December 2023 Note Purchase Agreement (as defined below) with institutional investors pursuant to which we issued and sold to the investors the December 2023 Notes (as defined below) in the principal amount of up to $6.0 million and the December 2023 Warrants (as defined below) to purchase shares of our Common Stock.
In addition, on May 3, 2024, we received a payment of approximately $9.4 million arising from a residual economic interest in a salvaged shipwreck. The balance of the proceeds from the December 2023 Notes and a portion of the proceeds received in May 2024, together with other anticipated cash inflows, are expected to provide sufficient operating funds through at least the fourth quarter of 2024.
Our consolidated non-restricted cash balance at June 30, 2024 was $7.6 million. We have a working capital deficit at June 30, 2024 of $29.7 million. The total consolidated book value of our assets was approximately $26.3 million at June 30, 2024, which includes cash of $7.6 million. The fair market value of these assets may differ from their net carrying book value. The factors noted above raise substantial doubt about our ability to continue as a going concern. These condensed 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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to assist in understanding our condensed consolidated financial statements. The financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity and have prepared them in accordance with our customary accounting practices.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its direct and indirect wholly owned subsidiaries, both domestic and international. Equity investments in which we exercise significant influence but do not control and of which we are not the primary beneficiary are accounted for using the equity method. All significant inter-company and intra-company transactions and balances have been eliminated. The portion of the consolidated subsidiaries not owned by the Company and any related activity is eliminated through non-controlling interests in the condensed consolidated balance sheets and net income or loss attributable to redeemable non-controlling interests in the condensed consolidated statements of operations. The results of operations attributable to the non-controlling interest are presented within equity and net income or loss and are shown separately from the Company’s equity and net income attributable to the Company.
7
Some of the existing inter-company balances, which are eliminated upon consolidation, include features allowing the liabilities of Exploraciones Oceánicas S. de R.L. de CV (“ExO”) and Oceanica Resources, S. de R.L. (“Oceanica”), majority-owned subsidiaries of the Company, to be converted into additional equity of a subsidiary, which, if exercised, could increase the Company’s direct or indirect interest in the non-wholly owned subsidiaries.
Use of Estimates
Management used estimates and assumptions in preparing these condensed consolidated financial statements in accordance with U.S. GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenue and expenses. Actual results could vary from the estimates that were used.
Bismarck Exploration License
The Company follows the guidance pursuant to Financial Accounting Standards Board (“FASB”) ASC 350, “Intangibles-Goodwill and Other” (“ASC 350”) in accounting for the exploration license held by Bismarck Mining Corporation, Ltd., (the “Bismarck Exploration License”). Management determined the rights to use the license to have an indefinite life. This assessment is based on the historical success of renewing the license every two years since 2006, and the fact that management believes there are no legal, regulatory, or contractual provisions that would limit the useful life of the asset. The Company was notified in November 2023 that the 2022 exploration license renewal application was approved. The Bismarck Exploration License is not dependent on another asset or group of assets that could potentially limit the useful life of the Bismarck Exploration License. We test the Bismarck Exploration License for impairment annually, and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired, per the guidance of the ASC 350. We did not have any impairment indicators for the three and six months ended June 30, 2024 and 2023.
Investment in Unconsolidated Entities
As discussed in Note 6, Investment in Unconsolidated Entities, the Company has cost basis method investments and equity method investments with related parties. As of June 30, 2024 and December 31, 2023, there were no variable interest entities (“VIE”) for which the Company was the primary beneficiary. We also review these investments for any potential impairment annually.
Long-Lived Assets
We did not have any impairment indicators related to long-lived assets for the three and six months ended June 30, 2024 and 2023.
Earnings Per Share (“EPS”)
Basic EPS has been computed pursuant to FASB ASC Topic 260, Earnings Per Share, and is computed by dividing income or loss available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if dilutive securities and other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in our earnings. We use the treasury stock method to compute potential common shares from stock options, restricted stock units and warrants and use the if-converted method to compute potential common shares from preferred stock, convertible notes or other convertible securities.
8
Dilutive common stock equivalents include the dilutive effect of in-the-money stock equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common stock equivalents if their effect would be anti-dilutive. The potential common shares in the following tables represent potential common shares from outstanding options, restricted stock awards, convertible notes and other convertible securities that were excluded from the calculation of diluted EPS during periods due to having an anti-dilutive effect are:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Average market price during the period |
|
$ |
4.29 |
|
|
$ |
3.24 |
|
|
$ |
4.37 |
|
|
$ |
3.22 |
|
Option awards |
|
|
1,529,824 |
|
|
|
1,064,355 |
|
|
|
1,000,722 |
|
|
|
1,045,933 |
|
Unvested restricted stock awards |
|
|
10,087 |
|
|
|
207,774 |
|
|
|
— |
|
|
|
10,999 |
|
Convertible notes |
|
|
341,776 |
|
|
|
585,735 |
|
|
|
147,134 |
|
|
|
— |
|
Common Stock Warrant related |
|
|
10,923,525 |
|
|
|
11,977,294 |
|
|
|
1,819,473 |
|
|
|
11,977,294 |
|
Put Options |
|
|
3,871,880 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income per share:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
(As Restated) |
|
|
|
|
|
(As Restated) |
|
||||
Net (loss) income attributable to Odyssey Marine Exploration, Inc. |
|
$ |
(1,527,103 |
) |
|
$ |
(4,931,609 |
) |
|
$ |
1,970,921 |
|
|
$ |
17,376,078 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic net (loss) income available to stockholders |
|
$ |
(1,527,103 |
) |
|
$ |
(4,931,609 |
) |
|
$ |
1,970,921 |
|
|
$ |
17,376,078 |
|
Fair value change of debt instruments |
|
|
— |
|
|
|
— |
|
|
|
(243,253 |
) |
|
|
— |
|
Fair value change of warrants |
|
|
— |
|
|
|
— |
|
|
|
(682,667 |
) |
|
|
— |
|
Fair value change of convertible debt |
|
|
— |
|
|
|
— |
|
|
|
(354,411 |
) |
|
|
— |
|
Diluted net (loss) income available to stockholders |
|
$ |
(1,527,103 |
) |
|
$ |
(4,931,609 |
) |
|
$ |
690,590 |
|
|
$ |
17,376,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding – Basic |
|
|
20,481,072 |
|
|
|
19,918,677 |
|
|
|
20,453,503 |
|
|
|
19,793,265 |
|
Dilutive effect of options |
|
|
— |
|
|
|
— |
|
|
|
69,816 |
|
|
|
4,533 |
|
Dilutive effect of other derivative instruments |
|
|
— |
|
|
|
— |
|
|
|
3,871,880 |
|
|
|
171,361 |
|
Dilutive effect of warrants |
|
|
— |
|
|
|
— |
|
|
|
1,777,412 |
|
|
|
— |
|
Dilutive effect of convertible instruments |
|
|
— |
|
|
|
— |
|
|
|
189,502 |
|
|
|
88,735 |
|
Weighted average common shares outstanding – Diluted |
|
|
20,481,072 |
|
|
|
19,918,677 |
|
|
|
26,362,113 |
|
|
|
20,057,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
(0.07 |
) |
|
$ |
(0.25 |
) |
|
$ |
0.10 |
|
|
$ |
0.88 |
|
Diluted |
|
$ |
(0.07 |
) |
|
$ |
(0.25 |
) |
|
$ |
0.03 |
|
|
$ |
0.87 |
|
Segment Reporting
We evaluate the products and services that produce our revenue and the geographical regions in which we operate to determine reportable segments in accordance with ASC 280 – Segment Reporting. Based on that evaluation, we have determined that we have only one operating segment and therefore we do not disclose segment information.
Accounting Standards Not Yet Adopted
In December 2023, the FASB issued new guidance on income tax disclosures (ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”). Among other requirements, this update adds specific disclosure requirements for income taxes, including: (1) disclosing specific categories in the rate reconciliation and (2) providing additional information for reconciling items that meet quantitative thresholds. The guidance is effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of evaluating the impact of the adoption of ASU 2023-09 on the Company’s condensed consolidated financial statements and disclosures.
Other recent accounting pronouncements issued by the FASB, the AICPA and the SEC did not or are not believed by management to have a material effect, if any, on the Company’s financial statements.
9
NOTE 3 – ACCOUNTS RECEIVABLE AND OTHER RELATED PARTY, NET
Our accounts receivable consist of the following:
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Related party (see Notes 5 and 6) |
|
$ |
75,573 |
|
|
$ |
46,394 |
|
Other |
|
|
— |
|
|
|
63,926 |
|
Total accounts receivable and other, net |
|
$ |
75,573 |
|
|
$ |
110,320 |
|
NOTE 4 – OTHER CURRENT ASSETS
Our other current assets consisted of the following:
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Prepaid assets |
|
$ |
231,261 |
|
|
$ |
608,353 |
|
Other |
|
|
124,437 |
|
|
|
119,820 |
|
Deposits |
|
|
35,266 |
|
|
|
15,266 |
|
Total other current assets |
|
$ |
390,964 |
|
|
$ |
743,439 |
|
All prepaid expenses are amortized on a straight-line basis over the term of the underlying agreements. Deposits may be held by various entities for equipment, services, and in accordance with agreements in the normal course of business.
NOTE 5 – RELATED PARTY TRANSACTIONS
CIC Limited
The Company provides services to and owns approximately 15.2% of the equity interests in CIC Limited (“CIC”), a deep-sea mineral exploration company. The Company’s lead director, Mark B. Justh, made an investment into CIC’s parent company and indirectly owns approximately 11.5% of CIC. We believe Mr. Justh’s indirect ownership in CIC does not impair his independence under applicable rules, and Odyssey’s board of directors has formed a special committee to address any matters relating to CIC. The Company is providing services to CIC in accordance with the terms of a Services Agreement pursuant to which Odyssey provides certain back-office services to CIC in exchange for a recurring monthly fee, as well as other deep-sea mineral related services on a cost-plus profit basis and is compensated for these services with a combination of cash and equity in CIC.
We invoiced CIC for technical services a total of $0.1 million and $0.2 million for the three months ended June 30, 2024 and 2023, respectively, and $0.3 million and $0.4 million for the six months ended June 30, 2024 and 2023, respectively, which amounts are recorded in Marine services in our condensed consolidated statements of operations. The Company is paid in equity for its services. In addition, the Company has the option to accept equity for payment of cash expenditures due from CIC in lieu of cash. The Company has not opted to accept equity from CIC in lieu of cash for its cash expenditures.
Ocean Minerals, LLC
The Company provides services to Ocean Minerals, LLC (“OML”), a deep-sea mineral exploration company in which we hold approximately 7.0% of the equity interests (see Note 6, Investment in Unconsolidated Entities). The Company is providing these services to OML pursuant to the Contribution Agreement (defined below) that provides for deep-sea mineral related services on a cost-plus profit basis and will be compensated for these services with equity in OML.
See Note 6, Investment in Unconsolidated Entities, for amounts the Company invoiced OML during the three and six months ended June 30, 2024 and 2023.
Salvage Agreement
The Company holds a 40% interest in proceeds under a salvage agreement from our legacy shipwreck business. A company controlled by Mr. Justh obtained the right to the remaining 60% of those proceeds from an unrelated third party in exchange for the obligation to finance legal expenses relating to the recovery of the proceeds, pursuant to a funding arrangement to which the Company is also a party. Odyssey and Mr. Justh’s controlled entity will be responsible for any remaining legal costs on a pro rata basis.
On May 3, 2024, the Company received a payment of approximately $9.4 million arising from its residual economic interest in one of the shipwrecks, which is recorded in Residual economic interest in shipwreck in our condensed consolidated statements of operations. The entity controlled by Mr. Justh also received a payment arising from the shipwreck.
10
Oceanica and ExO
Odyssey and its subsidiary, Oceanica Marine Operations S.R.L. (“OMO”), hold three notes (the “`Oceanica-ExO Notes”) issued and/or guaranteed by our majority-owned subsidiaries, ExO and Oceanica, in the aggregate principal amount of approximately $23.0 million, which was advanced to ExO and Oceanica to fund working capital, exploration and legal expenses. Approximately $11.4 million was advanced to ExO and Oceanica between 2012 and 2014, and approximately $7.6 million between 2015 and 2017; the balance has been advanced since 2017. In addition, Odyssey provides management and administrative services to ExO and funds ExO’s ongoing administrative expenses pursuant to a services agreement in exchange for a recurring monthly fee and reimbursement of funded amounts. The Oceanica-ExO Notes and outstanding receivables under the management and services agreement accrue interest at 18% per annum. Certain of Odyssey’s former and current directors and officers are also directors or officers of ExO and Oceanica.
As of June 30, 2024 and December 31, 2023, the aggregate outstanding amount, including accrued interest, of the Oceanica-ExO Notes was approximately $114.1 million and $105.0 million, respectively, and the aggregate receivable pursuant to the management and services agreement was approximately $1.1 million and $0.7 million as of June 30, 2024 and December 31, 2023, respectively.
Certain Stockholders
We have entered into financing transactions with certain stockholders that beneficially own more than five percent of our Common Stock. FourWorld Capital Management LLC (“FourWorld”) beneficially owns approximately 20.0% of our Common Stock. Part of that holding includes two of FourWorld’s funds, each of which individually beneficially owns more than five percent of our Common Stock as of July 31, 2024, and has participated in our financial transactions: each of FW Deep Value Opportunities Fund LLC and FourWorld Global Opportunities Fund, Ltd beneficially owns approximately 6.0% of our Common Stock. Funds managed by Two Seas Capital LP (“Two Seas”) own approximately 9.99% of our Common Stock after giving effect to the 9.99% beneficial ownership limitation applicable to warrants held by its funds as of July 31, 2024. Greywolf Distressed Opportunities Master Fund, L.P. and its affiliates (“Greywolf”) beneficially own approximately 9.2% of our Common Stock as of July 31, 2024.
On June 10, 2022, we completed the 2022 Equity Transaction, in which FourWorld funds purchased 292,628 shares of our Common Stock and 2022 Warrants (as defined below) to purchase 292,628 shares of our Common Stock, Two Seas purchased 447,761 shares of our Common Stock and 2022 Warrants to purchase 447,761 shares of our Common Stock, and Greywolf purchased 940,298 shares of our Common Stock and 2022 Warrants to purchase 940,298 shares of our Common Stock. On August 31, 2023, FourWorld exercised 2022 Warrants to purchase 1,000 shares of Common Stock at $3.35 per share. As of June 30, 2024, FourWorld, Two Seas and Greywolf held 2022 Warrants to purchase 291,628 shares of our Common Stock, 447,761 shares of our Common Stock and 940,298 shares of our Common Stock, respectively, at an exercise price of $3.35 per share.
On March 6, 2023, we entered into the March 2023 Note Purchase Agreement, pursuant to which we issued the March 2023 Note and the March 2023 Warrants. FourWorld, Two Seas and Greywolf each purchased portions of the March 2023 Note and March 2023 Warrants. No principal was repaid during the six months ended June 30, 2024 and 2023. Interest payments during the six months ended June 30, 2024 are detailed below and there was no interest paid during the six months ended June 30, 2023.
On December 1, 2023, we entered into the December 2023 Note Purchase Agreement, in which FourWorld, Two Seas and Greywolf participated. No principal was repaid and no cash interest was paid during the three and six months ended June 30, 2024 and 2023. Any accrued and unpaid interest is capitalized to the principal as paid-in-kind on a quarterly basis on the first day immediately following the close of the quarter.
11
NOTE 6 – INVESTMENT IN UNCONSOLIDATED ENTITIES
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
CIC Limited |
|
$ |
4,776,824 |
|
|
$ |
4,514,618 |
|
Ocean Minerals, LLC |
|
|
4,756,709 |
|
|
|
4,487,028 |
|
Chatham Rock Phosphate, Limited |
|
|
— |
|
|
|
— |
|
Neptune Minerals, Inc. |
|
|
— |
|
|
|
— |
|
Investment in unconsolidated entities |
|
$ |
9,533,533 |
|
|
$ |
9,001,646 |
|
CIC Limited
Due to the structure of CIC, we determined this venture to be a VIE consistent with ASC 810. We have determined we are not the primary beneficiary of the VIE and, therefore, we have not consolidated this entity. We record our investment under the cost method as this company is incorporated and we have determined we do not exercise significant influence over the entity. We provide services to CIC, as detailed in Note 5, Related Party Transactions. We assess our investment for impairment annually and, if a loss in value is deemed other than temporary, an impairment charge will be recorded.
Ocean Minerals, LLC
On June 4, 2023, Odyssey, Odyssey Minerals Cayman Limited, a wholly owned subsidiary of Odyssey (the “Purchaser”), and OML entered into a Unit Purchase Agreement (as amended on July 1, 2023, October 3, 2023 and October 17, 2023, the “OML Purchase Agreement”) pursuant to which the Purchaser agreed to purchase, and OML agreed to issue and sell to the Purchaser, an aggregate of 733,497 membership interest units of OML (the “Purchased Units”) for a total purchase price of $15.0 million. After giving effect to the issuance and sale of all the Purchased Units, the Purchased Units represented approximately 15.0% of the issued and outstanding membership interest units of OML (based upon the number of membership interest units outstanding on June 1, 2023).
At June 30, 2024 and December 31, 2023, Odyssey owned approximately 7.0% and 6.3%, respectively, of the issued and outstanding membership interest units of Ocean Minerals, LLC (“OML”). The Company determined that OML is a VIE as it does not have sufficient equity at-risk to permit OML to finance its activities without additional subordinated financial support. However, as Odyssey’s lack of power to direct the activities that most significantly impact OML’s economic performance, it is not the primary beneficiary of OML and therefore is not required to consolidate OML. We record our investment under the equity method.
Equity Exchange Agreement
In connection with the transactions contemplated by the OML Purchase Agreement, Odyssey and the existing members of OML entered into an Equity Exchange Agreement (the “Exchange Agreement”) pursuant to which such members of OML have the right, but not the obligation, to exchange membership interest units of OML held by them for shares of Odyssey’s common stock.
Notwithstanding anything in the Exchange Agreement to the contrary, the aggregate maximum number of shares of Odyssey’s common stock that may be issued under the Exchange Agreement will not (a) exceed 19.9% of the number of outstanding shares of Odyssey’s common stock immediately prior to the date of the Exchange Agreement, (b) exceed 19.9% of the combined voting power of the outstanding voting securities of Odyssey immediately prior to the date of the Exchange Agreement, or (c) otherwise exceed such number of shares of Odyssey’s common stock that would violate applicable listing rules of the Nasdaq Capital Market.
12
The Equity Exchange Agreement is a liability within the scope of ASC 480 that is initially measured at fair value and was included within the initial consideration transferred. Subsequently, changes in the fair value of the liability will be recognized in earnings and not as an adjustment to the cost basis of the Company’s investment in OML.
Contribution Agreement
In connection with the transactions contemplated by the OML Purchase Agreement, Odyssey, the Purchaser, and OML also entered into a Contribution Agreement pursuant to which additional membership interest units of OML may be issued to the Purchaser in consideration of the contribution to OML by Odyssey from time to time of certain property or other assets and services with an aggregate value of up to $10.0 million. We concluded that the Contribution Agreement is within the scope of ASC 606, as the services provided are within Odyssey’s ordinary activities, and OML is therefore, considered a customer of Odyssey.
Equity Method of Accounting
The Company has determined that OML operates more like a partnership, and as the Company holds more than 3%—5% and has greater than virtually no influence over OML, the investment is within the scope of ASC 323, Investments – Equity and Joint Ventures. Odyssey applied the equity method investment accounting for its interest in OML, starting on July 3, 2023. As a result, OML is considered a related party. The Company further concluded that the initial closing consideration transferred is $10.3 million, and includes the cash amount paid, the fair value of the contribution of ORI, the fair value of the second and third closings and Equity Exchange Agreement, and acquisition costs. Furthermore, the total consideration transferred is allocated to the different components identified in the OML Purchase Agreement based on their closing date fair value, including, (1) the Initial OML Units, (2) the Second OML Units option, (3) the Third OML Units option and (4) the Optional Units, each as defined below, as well as the Equity Exchange Agreement as previously defined above. Through a series of transactions pursuant to the OML Unit Purchase Agreement, the Company agreed to pay a total purchase price of $15 million, or $20.45 per unit, for 733,497 units, as follows:
The Company concluded that the Second OML Units option, the Third OML Units option and the Optional Units are within the scope of ASC 321 Investments – Equity and Joint Ventures and would therefore be initially recognized at cost as part of the initial consideration transferred, and thereafter will be accounted for under the measurement alternative at cost with adjustments related to impairment and observable market adjustments. The Company concluded that the Contribution Agreement is within the scope of ASC 606, Revenue from Contracts with Customers, as the services provided are within the Company’s ordinary activities, and OML is therefore considered a customer of Odyssey.
13
During the three and six months ended June 30, 2024, we invoiced OML for technical services a total of $50,780 and $0.1 million, respectively, recorded in Marine services in our condensed consolidated statements of operations. The Company concluded that the Equity Exchange Agreement is a liability within the scope of ASC 480, Distinguishing Liabilities from Equity, that is initially measured at fair value and will be included within the initial consideration transferred. Subsequently, changes in the fair value of the liability will be recognized in earnings and not as an adjustment to the cost basis of Odyssey’s investment in OML. As part of the Initial Closing, Odyssey transferred its equity interest of ORI, free of debt of the finance liability owed on the sale-leaseback arrangement. This portion was determined to be part of the Initial Consideration Transferred, as of July 3, 2023, as it meets the definition of a subsidiary of the acquirer.
ASC 805, Business Combination, further provides that the consideration transferred in a business combination is measured at fair value, determined in accordance with ASC 820, Fair Value Measurement, except for (i) assets and liabilities transferred that remain under the control of the acquiree after the business combination, and (ii) any portion of the acquirer’s shared-based replacement awards exchanged for awards held by the acquiree’s grantees included in the consideration transferred. Therefore, the Company determined that although the OML Purchase Agreement provides that the contractual amount of ORI is $5.0 million, the Company is required to determine whether the contractual amount represents the fair value of the transferred asset. It is further noted that ORI primarily consists of one asset (the “Retriever asset”) that was previously acquired and refurbished by Odyssey. Given the uniqueness of the asset, a 6,000-meter rated remotely operated vehicle (“ROV”), and its then-relatively recent acquisition and refurbishment, the Company determined to apply the cost method in order to evaluate the estimated fair value of the asset of $3.3 million. The Company transferred ORI but retained the obligation to pay the lease payments for the Retriever asset as the Company retained the obligation to continue making payments. The net book value of ORI as of July 3, 2023 was $3.1 million. Therefore, at the Closing Date, Odyssey recognized a Gain on the sale of an entity in the consolidated statement of operations in the amount of $174,107 related to the disposal of ORI.
The Company determined that the initial Closing Consideration is as follows:
Cash Consideration |
|
|
|
$ |
1,000,000 |
|
Fair value of Odyssey Retriever, Inc. |
|
|
|
|
3,280,261 |
|
Fair value of the Second Closing |
|
|
|
|
676,921 |
|
Fair value of the Third Closing |
|
|
|
|
769,875 |
|
Fair value of the Equity Exchange Agreement |
|
|
|
|
4,516,007 |
|
Transaction costs |
|
|
|
|
49,988 |
|
Initial closing consideration |
|
|
|
$ |
10,293,052 |
|
At June 30, 2024 and December 31, 2023, the Company’s accumulated investment in OML was $4.8 million and $4.5 million, respectively, which is classified as an investment in unconsolidated entities in our condensed consolidated balance sheets. For the three and six months ended June 30, 2024, the company recognized an increase of $1.0 million and a decrease of $0.2 million, respectively, in the put option liability assumed in the condensed consolidated statement of operations to record the fair value adjustment of the equity exchange agreement.
For the three and six months ended June 30, 2024, based on estimated financial information for our equity-method investee, we recognized a Loss on Equity Method Investment of $0.1 million and $0.3 million in the condensed consolidated statement of operations for our proportionate share of the net loss of our equity method investee, which decreased our net income for the three and six months ended June 30, 2024 in our consolidated statement of operations. Our proportionate share of the net loss of our equity method investee can have a significant impact on the amount of Loss on Equity Method Investment in our condensed consolidated statement of operations and our carrying value of those investments. We eliminated from our financial results all significant intercompany transactions to the extent of our ownership interest.
Neptune Minerals, Inc.
We have an ownership interest of approximately 14% in Neptune Minerals, Inc. (“NMI”). We currently apply the cost method of accounting for this investment. Previously, when we accounted for this investment using the equity method of accounting, we accumulated and did not recognize $21.3 million in our income statement because these losses exceeded our investment in NMI. Our investment has a carrying value of zero as a result of the recognition of our share of prior losses incurred by NMI under the equity method of accounting. If we recognize value on our balance sheet for any future incremental NMI investment, we would expect to allocate the loss carryforward of $21.3 million to that investment because the loss occurred when we accounted for NMI ownership as an equity-method investment.
Chatham Rock Phosphate, Limited.
14
We have an ownership of approximately a 1% in Chatham Rock Phosphate, Limited (“CRPL”). We record our investment under the cost method. During 2012, we performed deep-sea mining exploratory services for Chatham Rock Phosphate, Ltd. (“CRP”) valued at $1.7 million. As payment for these services, CRP issued 9,320,348 ordinary shares to us. During March 2017, Antipodes Gold Limited completed the acquisition of CRP. The surviving entity is now CRPL. In exchange for our 9,320,348 shares of CRP, we received 141,884 shares of CPRL, which represents equity ownership of, at most, approximately 1% of the surviving entity with zero value. We continue to carry the value of our investment in CPRL at zero in our consolidated financial statements.
NOTE 7 - INCOME TAXES
During the six months ended June 30, 2024, we generated a federal taxable income of $2.4 million and generated $4.9 million of foreign net operating loss (“NOL”) carryforwards. As of June 30, 2024, we had consolidated income tax NOL carryforwards for federal tax purposes of approximately $210.0 million and net operating loss carryforwards for foreign income tax purposes of approximately $51.0 million. From 2025 through 2027, approximately $29.0 million of the NOL will expire, and from 2028 through 2037, approximately $128.0 million of the NOL will expire. The NOL generated in 2018 through 2023 of approximately $53.0 million will be carried forward indefinitely.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company may be subject to a variety of claims and suits that arise from time to time in the ordinary course of business. We are not a party to any litigation as a defendant where a loss contingency is required to be reflected in our condensed consolidated financial statements.
Contingency
ExO owes consultants success fees of up to $0.7 million that are contingent upon the approval and issuance of the Environmental Impact Assessment (“EIA”). The EIA has not been approved as of the date of this report and the contingent success fees have not been accrued.
Lease commitments
At June 30, 2024, the right-of-use (“ROU”) asset and lease obligation for our corporate office operating lease were $25,056 and $26,579, respectively.
Future minimum lease payments for assets under non-cancelable operating lease agreements with original terms of more than one year for the remainder of 2024 and thereafter are as follows:
Year ending December 31, |
|
Annual payment obligation |
|
|
2024 |
|
$ |
26,913 |
|
We recognized approximately $53,188 and $53,084 in rent expense associated with these leases for the three months ended June 30, 2024 and 2023, respectively, and $109,846 and $123,911 for the six months ended June 30, 2024 and 2023, respectively, which was recorded in Marketing, general and administrative expenses on the condensed consolidated statement of operations.
15
NOTE 9 –LOANS PAYABLE
The Company’s consolidated loans payable consisted of the following carrying values at:
|
|
Note payable |
|
|||||
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
March 2023 Note |
|
$ |
15,689,588 |
|
|
$ |
14,858,816 |
|
December 2023 Note |
|
|
6,203,330 |
|
|
|
6,000,000 |
|
Emergency Injury Disaster Loan |
|
|
150,000 |
|
|
|
150,000 |
|
Vendor note payable |
|
|
484,009 |
|
|
|
484,009 |
|
AFCO Insurance note payable |
|
|
158,014 |
|
|
|
468,751 |
|
Pignatelli note |
|
|
500,000 |
|
|
|
500,000 |
|
37N Note |
|
|
574,191 |
|
|
|
804,997 |
|
Finance liability (Note 14) |
|
|
4,157,845 |
|
|
|
4,112,332 |
|
Total Loans payable |
|
$ |
27,916,977 |
|
|
$ |
27,378,905 |
|
Less: Unamortized deferred lender fee |
|
|
(52,199 |
) |
|
|
(106,488 |
) |
Less: Unamortized deferred discount |
|
|
(1,926,150 |
) |
|
|
(3,955,449 |
) |
Total Loans payable, net |
|
$ |
25,938,628 |
|
|
$ |
23,316,968 |
|
Less: Current portion of loans payable |
|
|
(21,670,783 |
) |
|
|
(15,413,894 |
) |
Loans payable—long term |
|
$ |
4,267,845 |
|
|
$ |
7,903,074 |
|
March 2023 Note and Warrant Purchase Agreement
On March 6, 2023, Odyssey entered into a Note and Warrant Purchase Agreement (the “March 2023 Note Purchase Agreement”) with an institutional investor pursuant to which Odyssey issued and sold to the investor (a) a promissory note (the “March 2023 Note”) in the principal amount of up to $14.0 million and (b) a warrant (the “March 2023 Warrants” and, together with the March 2023 Note, the “Securities”) to purchase shares of our Common Stock.
On January 30, 2024, the March 2023 Warrants were amended to add a cashless exercise provision. Due to that amendment, the Company determined that the March 2023 Warrants meets the definition of a derivative and are not considered indexed to the Company’s own stock due to the settlement adjustment that provides that the share price input upon cashless exercise is always based on the highest of three prices. As such, the March 2023 Warrants are now recognized as a derivative liability, which was initially measured at fair value and any subsequent changes in fair value will be recognized in earnings in the period incurred.
The amended March 2023 Warrants were measured using the Black-Scholes valuation method on January 30, 2024, and re-classified from equity to warrant liability. The difference between the warrant liability and initial equity balance was recognized as an additional discount to additional paid-in capital (“APIC”). The change in fair value of the March 2023 Warrants for the three and six months ended June 30, 2024 was an increase of $2.2 million and a decrease of $0.3 million, respectively, which has been recorded in the change in derivative liabilities fair value in the condensed consolidated statement of operations. The fair value of the March 2023 Warrants at June 30, 2024 was $7.4 million.
For the three months ended June 30, 2024 and 2023, we incurred $0.6 million and $0.5 million, respectively, of interest expense from the amortization of the debt discount and $16,628 and $16,268, respectively, interest from the fee amortization which has been recorded in interest expense on the condensed consolidated Statement of Operations.
For the six months ended June 30, 2024 and 2023, we incurred $1.2 million and $0.8 million, respectively, of interest expense from the amortization of the debt discount and $32,537 and $20,916, respectively, interest from the fee amortization which has been recorded in interest expense on the condensed consolidated Statement of Operations.
The June 30, 2024 carrying value of the debt was $15.2 million, which includes interest Paid-In-Kind (“PIK”) of $1.7 million, and was net of unamortized debt fees of $12,157, net of unamortized debt discount of $0.5 million associated with the fair value of the warrant. The total face value of this obligation on June 30, 2024, and December 31, 2023, was $15.7 million and $14.9 million, respectively.
December 2023 Notes and Warrant Purchase Agreement
On December 1, 2023, we entered into a Note and Warrant Purchase Agreement (the “December 2023 Note Purchase Agreement”) with institutional investors pursuant to which we issued and sold to the investors (a) a series of promissory notes (the “December 2023 Notes”) in the aggregate principal amount of up to $6.0 million and (b) two tranches of warrants (the “December
16
2023 Warrants” and, together with the December 2023 Notes, the “December 2023 Securities”) to purchase shares of our Common Stock.
The Company determined that the December 2023 Warrants meet the definition of a derivative and are not considered indexed to the Company’s own stock due to the settlement adjustment that provides that the share price input upon cashless exercise is always based on the highest of three prices. As such, the December 2023 Warrants were recognized as derivative liabilities and were initially measured at fair value with subsequent gains or losses due to changes in fair value recognized in the condensed consolidated statement of operations.
The Company noted that when debt is issued with liability-classified stock purchase warrants, the residual method should be used so that the warrants are recognized at fair value at issuance and the residual proceeds are allocated to the debt. We incurred $65,500 in related expenses, which are being amortized over the term of the December 2023 Note Purchase Agreement and charged to interest expense. The total proceeds of $6.0 million were allocated between debt and warrant liability by recognizing the warrants at their full fair value and allocating the residual proceeds to the December 2023 Notes. The initial fair value of the December 2023 Warrants was $2.4 million, resulting in a corresponding discount on the December 2023 Notes which is being amortized over the remaining term of the December 2023 Note Purchase Agreement using the effective interest method, which is charged to interest expense.
For the three and six months ended June 30, 2024, we recorded $0.4 million and $0.8 million, respectively, of interest expense from the amortization of the debt discount and $10,877 and $21,754, respectively, of interest from the fee amortization.
At June 30, 2024, the carrying value of the debt was $4.7 million and was net of unamortized debt fees of $40,041, net of unamortized debt discount of $1.5 million associated with the fair value of the warrant. The total face value of this obligation at June 30, 2024 was $6.2 million. The current interest rate of the December 2023 Notes was 11.0%.
Emergency Injury Disaster Loan
The Company obtained an Economic Injury Disaster Loan (the “EIDL Loan”) from the United States Small Business Administration (the “SBA”) with a principal amount of $150,000, which was used for working capital purposes. The Company made payments amounting to $2,193 and $4,386 for each of the three and six months ended June 30, 2024 and 2023, respectively. All payments reduce accrued interest first and are then applied against principal. As of June 30, 2024, the Company’s principal balance on the EIDL Loan amounted to $150,000 and is recorded as Loans payable in the condensed consolidated balance sheets.
Vendor Note Payable
We currently owe a vendor $0.5 million as an interest-bearing trade payable. This trade payable bears simple annual interest at a rate of 12%. As collateral, we granted the vendor a primary lien on certain of our equipment. The carrying value of this equipment is zero. This agreement matured in August 2018. Even though this agreement has matured, the creditor has not demanded payment. There are no covenant requirements to meet that would expose the Company to default situations.
AFCO Insurance Note Payable
On November 1, 2023, we entered into the Premium Finance Agreement (“AFCO Insurance Note Payable”) with AFCO Credit Corporation (“AFCO”). Pursuant to the Premium Finance Agreement, AFCO agreed to finance the D&O Insurance premiums evidenced by the promissory note, bearing interest at a rate of 4.95% per annum, maturing on October 31, 2024. As of June 30, 2024, the Company’s balance on the AFCO Insurance Note Payable amounted to $158,014 and is recorded as Loans payable in the condensed consolidated balance sheets.
Pignatelli
On March 6, 2023, Odyssey issued a new Unsecured Convertible Promissory Note in the principal amount of $0.5 million to Mr. Pignatelli that bears interest at the rate of 10.0% per annum convertible into common stock of Odyssey at a conversion price of $3.78 per share. As of June 30, 2024, the Company’s balance on this convertible note amounted to $0.5 million, and is recorded as Loans payable in the condensed consolidated balance sheets. Accrued interest on this promissory note is $66,164 and included within Accrued interest in the condensed consolidated balance sheets.
17
37North
On June 29, 2023 we entered into a Note Purchase Agreement (“Note Agreement”) with 37North SPV 11, LLC (“37N”) pursuant to which 37N agreed to loan us $1.0 million. The proceeds from this transaction were received in full on June 29, 2023. Pursuant to the Note Agreement, the indebtedness was non-interest bearing and matured on July 30, 2023. At any time from 31 days after the maturity date, 37N has the option to convert all or a portion of the outstanding amount of the indebtedness into conversion shares equal to the quotient obtained by dividing (A) 120% of the amount of the indebtedness, by (B) the lower of $3.66 or 70% of the 10-day volume-weighted average principal (“VWAP”) market trading price of Common Stock. The aggregate maximum number of shares of Common Stock to be issued in connection with conversion of the indebtedness is not to exceed (i) 19.9% of the outstanding shares of Common Stock prior to the date of the Agreement, (ii) 19.9% of the combined voting power of the outstanding voting securities, or (iii) such number of shares of Common Stock that would violate the applicable listing rules of the Principal Market if the stockholders did not approve the issuance of Common Stock upon conversion of the indebtedness.
Any time prior to maturity, we had the option to prepay the indebtedness at an amount of 108% of the unpaid principal. From the maturity date to 29 days after the maturity date (August 27, 2023), we were permitted to repay all (but not less than) of an amount equal to 112.5% of the unpaid amount of the indebtedness. At any time after the 30th day after the maturity date (August 28, 2023), we are permitted to repay all (but not less than) of an amount equal to 115% of the unpaid amount of the indebtedness after 10 days’ notice. If 37N delivers an exercise notice during this 10-day period, the note issued pursuant to the Note Agreement (the “37N Note”) would be converted to shares of Common Stock, instead of being repaid. As of June 30, 2024, we have not repaid this Note Agreement.
If 37N delivers an exercise notice and the number of shares issuable is limited by the 19.9% limitation outlined above, then we are permitted to repay all the remaining unpaid amount of the Loan in an amount equal to 130% of the remaining unpaid amount. On December 27, 2023, 37N delivered an exercise notice to us pursuant to which it exercised its right to convert $360,003 of the outstanding indebtedness under the Note Agreement into shares of our Common Stock. In accordance with the Note Agreement, based on the applicable conversation rate of $2.3226 under the agreement, we issued 155,000 shares of our common Stock to 37N on December 29, 2023.
In June 2024, 37N delivered an exercise notice to us pursuant to which it exercised its right to convert $230,806 of the outstanding indebtedness under the Note Agreement into shares of our Common Stock. In accordance with the Note Agreement, based on the applicable conversation rate of $3.6491, we issued 55,000 shares of our common Stock to 37N on June 24, 2024.
We evaluated the indebtedness and, based on the criteria of ASC 480 Distinguishing Liabilities from Equity and 815 Derivatives and Hedging, the 37N convertible note is classified as a liability on the consolidated balance sheet with a share settled redemption feature that is recorded as an embedded derivative. As a result, the share settled redemption and conversion features were recorded at fair value at each reporting period outstanding with changes recognized through Interest expenses on the consolidated statement of operations. The Company analyzed the conversion feature of the note and determined that, because it includes a conditional obligation to issue a variable number of shares based on a fixed amount known at inception, the debt is properly classified as a liability in the balance sheet. The Company identified seven embedded features, all of which were of de minimis fair value other than the Share Settled Redemption Feature. As such, only that was bifurcated and accounted for separately from the debt host. Certain default put provisions were not considered to be clearly and closely related to the debt host, but management concluded that the value of these default put provisions was de minimis.
At June 30, 2024, the debt instrument and embedded derivatives were recorded on the consolidated balance sheets at fair value of $0.6 million and $0.3 million, respectively, under Loans payable – short term and Litigation financing and other – long term.
At December 31, 2023, the debt instrument and embedded derivatives were recorded on the consolidated balance sheets at fair value of $0.8 million and $0.7 million, respectively, under Loans payable – short term and Litigation financing and other – long term.
Accrued interest
Total accrued interest associated with our financings was $0.7 million and $0.9 million as of June 30, 2024 and December 31, 2023, respectively.
18
NOTE 10 - FAIR VALUE MEASUREMENTS
The Company did not have any financial assets measured on a recurring basis. The following tables summarize our fair value hierarchy for our financial liabilities measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023.
|
|
|
|
Fair Value |
|
|||||
|
|
Level |
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Liabilities |
|
|
|
|
|
|
|
|
||
37N Note embedded derivative |
|
3 |
|
$ |
251,298 |
|
|
$ |
702,291 |
|
Put option liability |
|
3 |
|
|
5,393,909 |
|
|
|
5,637,162 |
|
Litigation financing |
|
3 |
|
|
53,461,815 |
|
|
|
52,115,647 |
|
Warrant liabilities issued with debt (December 2023 Warrants) |
|
3 |
|
|
3,397,288 |
|
|
|
2,392,563 |
|
Warrant liabilities issued with equity (2022 Warrants) |
|
3 |
|
|
13,046,608 |
|
|
|
13,399,822 |
|
March 2023 Warrants |
|
3 |
|
|
7,424,985 |
|
|
|
— |
|
Total of fair valued liabilities |
|
|
|
$ |
82,975,903 |
|
|
$ |
74,247,485 |
|
At June 30, 2024, the Company recorded the 37N Note at fair value, Level 3, for which the valuation techniques used to measure the fair value of the Company’s debt instruments are generally based on observable inputs other than quoted prices in active market. The OML equity exchange agreement, that results in a Put option liability (the “Put Option”), and Litigation financing are measured at fair value, Level 3. The OML Put Option valuation was based on the exercise period of the equity exchange agreement, share price and volatility. The Litigation Financing valuation was based on the following assumptions: amounts funded by the Funder, the corresponding IRR calculation, applicable percentage applicable to the recovery percentage calculation and management’s good-faith estimates for estimated outcome probabilities and estimated debt repayment dates. The 2022 Warrants, the December 2023 Warrants and the March 2023 Warrants are measured at fair value, Level 3, using a Black-Scholes valuation model. The assumptions used in this model included the use key inputs, including expected stock volatility, the risk–free interest rate, the expected life of the option and the expected dividend yield. Expected volatility is calculated based on the historical volatility of our Common Stock over the term of the warrant. Risk–free interest rates are calculated based on risk–free rates for the appropriate term. The expected life is estimated based on contractual terms as well as expected exercise dates. The dividend yield is based on the historical dividends issued by us. If the volatility rate or risk-free interest rate were to change, the value of the warrants would be impacted.
Changes in our Level 3 fair value measurements were as follows:
|
|
March 2023 |
|
|
37N Note |
|
|
Put option |
|
|
Litigation |
|
|
December |
|
|
2022 Warrants |
|
|
Total |
|
|||||||
Year ended December 31, 2023 |
|
$ |
— |
|
|
$ |
702,291 |
|
|
$ |
5,637,162 |
|
|
$ |
52,115,647 |
|
|
$ |
2,392,563 |
|
|
$ |
13,399,822 |
|
|
$ |
74,247,485 |
|
Change in fair value |
|
|
(2,491,420 |
) |
|
|
(365,434 |
) |
|
|
(1,252,385 |
) |
|
|
576,173 |
|
|
|
(124,091 |
) |
|
|
(4,197,744 |
) |
|
|
(7,854,901 |
) |
Classification of warrants as liability |
|
|
7,754,438 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,754,438 |
|
Three months ended March 31, 2024 |
|
|
5,263,018 |
|
|
|
336,857 |
|
|
|
4,384,777 |
|
|
|
52,691,820 |
|
|
|
2,268,472 |
|
|
|
9,202,078 |
|
|
|
74,147,022 |
|
Debt conversion - 55,000 common shares |
|
|
|
|
|
(96,582 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(96,582 |
) |
|||||
Change in fair value |
|
|
2,161,967 |
|
|
|
11,023 |
|
|
|
1,009,132 |
|
|
|
769,995 |
|
|
|
1,128,816 |
|
|
|
3,844,530 |
|
|
|
8,925,463 |
|
Six months ended June 30, 2024 |
|
$ |
7,424,985 |
|
|
$ |
251,298 |
|
|
$ |
5,393,909 |
|
|
$ |
53,461,815 |
|
|
$ |
3,397,288 |
|
|
$ |
13,046,608 |
|
|
$ |
82,975,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Year ended December 31, 2022 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
45,368,948 |
|
|
$ |
— |
|
|
$ |
13,602,467 |
|
|
$ |
58,971,415 |
|
Change in fair value |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,685,517 |
|
|
|
— |
|
|
|
(4,732,403 |
) |
|
|
(3,046,886 |
) |
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,528 |
|
|
|
— |
|
|
|
— |
|
|
|
2,528 |
|
Three months ended March 31, 2023, As Restated |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
47,056,993 |
|
|
|
— |
|
|
|
8,870,064 |
|
|
|
55,927,057 |
|
Issuance of new instrument |
|
|
— |
|
|
|
423,696 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
423,696 |
|
Issuance of new funding |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,633 |
|
|
|
— |
|
|
|
— |
|
|
|
4,633 |
|
Change in fair value |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,682,988 |
|
|
|
— |
|
|
|
1,076,881 |
|
|
|
2,759,869 |
|
Six months ended June 30, 2023, As Restated |
|
$ |
— |
|
|
$ |
423,696 |
|
|
$ |
— |
|
|
$ |
48,744,614 |
|
|
$ |
— |
|
|
$ |
9,946,945 |
|
|
$ |
59,115,255 |
|
Additional information about the Litigation Financing liability, the 2022 Warrants, the December 2023 Warrants and the March 2023 Warrants is included in Note 9, Loans Payable.
Derivative Financial Instruments
Litigation financing
19
On June 14, 2019, Odyssey and ExO (together, the “Claimholder”), and Poplar Falls LLC (the “Funder”) entered into an International Claims Enforcement Agreement (the “Agreement”), as amended in January 2020, December 2020, June 2021 and March 2023, pursuant to which the Funder agreed to provide financial assistance to the Claimholder to facilitate the prosecution and recovery of the claim by the Claimholder against the United Mexican States under Chapter Eleven of the North American Free Trade Agreement (“NAFTA”) for violations of the Claimholder’s rights under NAFTA related to the development of an undersea phosphate deposit off the coast of Baja Sur, Mexico (the “Project”), on our own behalf and on behalf of ExO and United Mexican States (the “Subject Claim”). Pursuant to the Agreement, as amended, the Funder agreed to specified fees and expenses regarding the Subject Claim (the “Claims Payments”) incrementally and at the Funder’s sole discretion.
The fair value of this derivative instrument at June 30, 2024 and December 31, 2023 was $53.5 million and $52.1 million, respectively, and is recorded in our consolidated balance sheet in Litigation financing and other.
The Company determined that the financing arrangement was a derivative, measured at fair value within the scope of ASC 815 Derivatives and Hedging. Subsequently, any changes in the fair value of the derivative are reported in earnings for the period. Fair value was calculated as the midpoint of estimated ranges of the probability-weighted present value of potential results based on management assumptions. As such, the fair value of the obligation on June 30, 2024 and December 31, 2023 was $53.5 million and $52.1 million, respectively, with changes in the fair value of increases of $0.8 million and $1.7 million for the three months ended June 30, 2024 and 2023, respectively, and increases of $1.4 million and $3.4 million for the six months ended June 30, 2024 and 2023, respectively.
37N Note
See Note 9, Loans Payable, for discussion related to the accounting for the 37N embedded derivative.
Warrant Liability
2022 Warrants
On June 10, 2022, we sold an aggregate of 4,939,515 shares of our Common Stock and the 2022 Warrants to holders to purchase up to 4,939,515 shares of our Common Stock (“2022 Warrants”). The net proceeds received from sale, after offering expenses of $1.8 million, were $14.7 million. The shares of common stock and warrants were sold in units, with each unit consisting of one share of common stock and one warrant to purchase one share of common stock at an exercise price of $3.35 (the “2022 Warrant Price”) per share of common stock. Each unit was sold at a negotiated price of $3.35 per unit. The 2022 Warrants are exercisable at any time beginning on December 10, 2022, and ending on the close of business on June 10, 2027.
The Company determined that the 2022 Warrants meet the definition of a derivative and are not considered indexed to the Company’s own stock due to the input related to the price per share and any non-cash consideration. Management determined that this input would preclude the 2022 Warrants from being indexed to the Company’s stock given that this input could be affected by variables that are extraneous to the pricing of a fixed-for-fixed option or forward contract on equity shares. As such, the 2022 Warrants were recognized as derivative liabilities and will be initially and subsequently measured at fair value with the gain or loss due to changes in fair value recognized in the current period. The Company noted that when debt is issued with liability-classified stock purchase warrants, the residual method should be used so that the warrants are recognized at fair value at issuance and the residual proceeds are allocated to the debt.
The fair value of the obligation on June 30, 2024 and December 31, 2023 was $13.0 million and $13.4 million, respectively, with changes in the fair value of increases of $3.8 million and $1.1 million for the three months ended June 30, 2024 and 2023, respectively, and decreases of $0.4 million and $3.7 million for the six months ended June 30, 2024 and 2023, respectively.
20
March 2023 Warrants and December 2023 Warrants
See Note 9, Loans Payable, for discussion related to the accounting for the March 2023 Warrants and the December 2023 Warrants.
Put Option Liability
See Note 6, Investment in unconsolidated entities, for discussion regarding the Ocean Minerals, LLC Exchange Agreement.
NOTE 11 – ACCRUED EXPENSES
Accrued expenses consist of the following:
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Compensation and incentives |
|
$ |
2,037 |
|
|
$ |
5,239 |
|
Professional services |
|
|
337,192 |
|
|
|
296,332 |
|
Deposits |
|
|
450,000 |
|
|
|
450,000 |
|
Interest |
|
|
685,956 |
|
|
|
912,915 |
|
Exploration license fees |
|
|
7,431,053 |
|
|
|
6,828,872 |
|
Total accrued expenses |
|
|
8,906,238 |
|
|
|
8,493,358 |
|
Deposits consist of an earnest money deposit from CIC, which relates to a draft agreement related to the potential sale of a stake of our equity in CIC. This transaction has not yet been agreed upon or consummated.
NOTE 12 – STOCKHOLDERS’ EQUITY/(DEFICIT)
Share-Based Compensation
The Company recorded share-based compensation expense related to our options and restricted stock units of $0.1 million and $0.3 million, for the three months ended June 30, 2024 and 2023, respectively, and $1.6 million and $0.4 million, for the six months ended June 30, 2024 and 2023, respectively.
On January 29, 2024, we granted options to purchase an aggregate of 90,000 shares of Common Stock to directors, options to purchase an aggregate of 200,000 shares of common stock to officers, and options to purchase an aggregate of 302,000 shares of common stock to employees. The value of the stock options granted was determined using the Black-Scholes-Merton option-pricing model (“BSM”), which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, the expected dividend payments, and the risk-free interest rate over the life of the option. Expected volatilities are based on the historical volatility of the Company’s stock as well as other companies operating similar businesses. The expected term (in years) is determined using historical data to estimate option exercise patterns. Forfeitures are recognized in compensation cost when they occur. The expected dividend yield is based on the annualized dividend rate over the vesting period. The risk-free interest rate is based on the rate for US Treasury bonds commensurate with the expected term of the granted option.
The Company used the following assumptions for the BSM to determine the fair value of the stock options granted during the six months ended June 30, 2024.
|
|
|
January 29, 2024 |
|
|
Risk free interest rate |
|
|
|
3.97 |
% |
Expected life |
|
|
5 years |
|
|
Expected volatility |
|
|
|
62.42 |
% |
Expected dividend yield |
|
|
— |
|
|
Grant-date fair value |
|
|
2.61 |
|
|
21
NOTE 13 – CONCENTRATION OF CREDIT RISK
We do not currently have any debt obligations with variable interest rates.
For the three and six months ended June 30, 2024, we had two customers, CIC and OML, both of which are related parties (see Note 5, Related Party Transactions), that accounted for 100% of our total revenue. For the three and six months ended June 30, 2023, we had one customer, CIC, which is a related party, that accounted for 100% of our total revenue.
As of both June 30, 2024 and December 31, 2023, the Company held cash in financial institutions that were over the federally insured limits. The Company has not incurred losses on these accounts.
NOTE 14 – SALE-LEASEBACK FINANCING OBLIGATIONS
During the year ended December 31, 2023, the Company’s subsidiaries sold marine equipment to third-party buyers for an aggregate of $4.5 million. Simultaneously with each sale, the subsidiaries entered into lease agreements with each buyer of the respective marine equipment (the sale of the property and simultaneous leaseback is referred to as a “sale-leaseback”).
The Company accounted for the sale-leaseback transactions as financing transactions with the purchasers of the property in accordance with ASC Topic 842 as the lease agreements were determined to be finance leases. The Company concluded the lease agreements both met the qualifications to be classified as finance leases due to the obligation to repurchase the equipment.
ORI was one of Odyssey’s subsidiaries that entered into one of the sale-leaseback financing obligations noted above. As noted in Note 6, Investment in Unconsolidated Entity, Odyssey transferred all of its shares in ORI to OML as part of the Investment in OML. Pursuant to the OML Purchase Agreement, Odyssey is obligated to pay all amounts owed for rent and the repurchase of the marine equipment under the sale-leaseback agreement.
As of June 30, 2024 and December 31, 2023, the carrying values of the financing liabilities were $4.2 million and $4.1 million. The monthly lease payments are split between a reduction of principal and interest expense using the effective interest rate method.
Remaining future cash payments related to the financing liability, for the remainder of 2024 and thereafter are as follows:
Year Ending December 31, |
Annual payment obligation |
|
||||
2024 |
$ |
270,000 |
|
|||
2025 |
|
540,000 |
|
|||
2026 |
|
540,000 |
|
|||
2027 |
|
4,710,000 |
|
|||
Thereafter |
|
— |
|
|||
|
|
|
|
$ |
6,060,000 |
|
22
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to provide a narrative of our financial results and an evaluation of our results of operation and financial condition. The discussion should be read in conjunction with our consolidated financial statements, the related notes to the financial statements and our Annual Report on Form 10-K for the year ended December 31, 2023.
In addition to historical information, this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 regarding the Company’s expectations concerning its future operations, earnings and prospects. On the date the forward-looking statements are made, the statements represent the Company’s expectations, but the expectations concerning its future operations, earnings and prospects may change. The Company’s expectations involve risks and uncertainties and are based on many assumptions that the Company believes to be reasonable, but such assumptions may ultimately prove to be inaccurate or incomplete, in whole or in part. Accordingly, there can be no assurances that the Company’s expectations and the forward-looking statements will be correct. Please refer to the Company’s most recent Annual Report on Form 10-K for a description of risk factors that could cause actual results to differ from the expectations stated in this discussion. Odyssey disclaims any obligation to update any of these forward-looking statements except as required by law.
Operational Update
Additional information regarding our announced projects can be found in our Annual Report on Form 10-K for the year ended December 31, 2023. Only projects that are material in nature or with material status updates are discussed below. We may have other projects in various stages of planning or execution that may not be disclosed for security or legal reasons until considered appropriate by management or required by law.
Our subsea project portfolio contains multiple projects in various stages of development throughout the world and across different mineral resources. We regularly evaluate prospective resources to identify new projects. In addition to conducting geological assessments, we also analyze licensing regulations to assure rights can be secured, business development models, and commercial viability factors; all which factor into our decision making on whether and how to pursue opportunities in the best interest of our stockholders.
Subsea Mineral Exploration Projects
ExO Phosphate Project:
The “Exploraciones Oceánicas” Phosphate Project is a rich deposit of phosphate sands located 70-90 meters deep within Mexico’s Exclusive Economic Zone (“EEZ”). This deposit contains a large amount of high-grade phosphate ore that can be extracted on a financially attractive basis (essentially a standard dredging operation). The product will be desirable to Mexican and other world producers of fertilizers and can provide important benefits to Mexico’s agricultural development.
The deposit lies within an exclusive mining concession licensed to the Mexican company Exploraciones Oceánicas S. de R.L. de CV (“ExO”). Oceanica Resources, S. de R.L., a Panamanian company (“Oceanica”) owns 99.99% of ExO, and Odyssey owns 56.04% of Oceanica through Odyssey Marine Enterprises, Ltd., a wholly owned Bahamian company (“Enterprises”).
In 2012, ExO was granted a 50-year mining license by Mexico (extendable for another 50 years at ExO’s option) for the deposit that lies 25-40 km offshore in Baja California Sur.
We spent more than three years preparing an environmentally sustainable development plan with the assistance of experts in marine dredging and leading environmental scientists from around the world. Key features of the environmental plan included:
23
Notwithstanding the factors stated above, in April 2016 the Mexican Ministry of the Environment and Natural Resources (“SEMARNAT”) unlawfully rejected the permit to move forward with the project.
ExO challenged the decision in Mexican federal court and in March 2018, the Tribunal Federal de Justicia Administrativa (“TFJA”), an 11-judge panel, ruled unanimously that SEMARNAT denied the application in violation of Mexican law and ordered the agency to re-take its decision. Just prior to the change in administration later in 2018, SEMARNAT denied the permit a second time in defiance of the court. ExO is once again challenging the unlawful decision of the Peña Nieto administration before the TFJA. This action is on-going.
In addition, in April 2019, we filed a claim under the North American Free Trade Agreement (“NAFTA”) against Mexico to protect our stockholders’ interests and significant investment in the project.
Our claim seeks compensation of over $2 billion on the basis that SEMARNAT’s wrongful repeated denial of authorization has destroyed the value of our investment and is in violation of the following provisions of NAFTA:
We filed our First Memorial in the NAFTA case in September 2020. It is supported by documentary evidence and 20 expert reports and witness statements. In summary, this evidence includes:
Odyssey’s filings are available at www.odysseymarine.com/nafta. The procedural calendar and case filings are available on the ICSID website. The NAFTA Tribunal hearing took place in early 2022. In accordance with the procedural calendar, written post-hearing briefs were filed in September 2022. The evidentiary phase of the case is now closed, and the Tribunal has begun its deliberations. On June 10, 2024, Odyssey received a letter from ICSID advising that the Tribunal’s determinations are in the process of being translated. Odyssey cannot predict when the translations will be completed and a ruling will be issued, but we remain confident in the merits of our case.
On June 14, 2019, Odyssey and ExO executed an agreement that provided up to $6.5 million in funding for prior, current and future costs of the NAFTA action. On January 31, 2020, this agreement was amended and restated, as a result of which the availability increased to $10.0 million. In December 2020, Odyssey announced it secured an additional $10 million from the funder to aid in our NAFTA case. On June 14, 2021, the funder agreed to fund up to an additional $5.0 million for arbitration costs. The funder will not have any right of recourse against us unless the environmental permit is awarded or if proceeds are received (See Note 9, Loans Payable).
24
CIC Project:
CIC Limited (“CIC”) is a deep-sea mineral exploration company. CIC is supported by a consortium of companies providing expertise and financial contributions in support of development of the project. Odyssey is a member of the consortium, which also includes Royal Boskalis Westminster.
In February 2022, the Cook Islands Seabed Minerals Authority (“SBMA”) awarded CIC a five-year exploration license beginning June 2022. Offshore explorations and research commenced in the third quarter of 2022 with positive results in early sampling and testing of vessels and equipment, which informed requirements for viable operational functions as the basis for a longer term operation over the license period. The early operations also resulted in preliminary resource sampling, which will ultimately accrue to the resource evaluation and regional environmental assessment.
Through a wholly owned subsidiary, we have earned and now hold approximately 15.2% of the current outstanding equity units of CIC issued in exchange for provision of services by the Company.
We have the ability to earn up to an aggregate of 20.0 million equity units over the next calendar year, which represents an approximate 16.0% interest in CIC, based upon the currently outstanding equity units. This means we can earn approximately 1.2 million additional equity units in CIC under our current services agreement. We achieved our current equity position through the provision of services rendered to CIC (see Note 6, Investment In Unconsolidated Entity).
Ocean Minerals, LLC Project:
Ocean Minerals, LLC (“OML”) is a deepwater critical minerals exploration and development company incorporated in the Cayman Islands. Moana Minerals Limited (“Moana Minerals”) is a wholly owned subsidiary of OML and is a deepwater critical metals exploration and development company incorporated in the Cook Islands with offices and operations based in Rarotonga, Cook Islands. In February 2022, the SBMA awarded Moana Minerals a five-year exploration license (“EL3”) for a 23,630 square kilometer area in the Cook Islands’ EEZ.
Moana Minerals has validated vast polymetallic nodule resources in its exploration license area and, pursuant to the SBMA’s standards and guidelines, it is conducting further exploration activities to increase confidence in the reported mineral resource and size of the reported mineral resources and to secure environmental approvals to perform commercial operations. OML and its project partners are also advancing work to develop recovery systems to harvest and process these high-quality seafloor polymetallic nodules commercially.
On June 4, 2023, Odyssey entered into a purchase agreement to acquire an approximately 13% interest in OML in exchange for a contribution by Odyssey of its interest in its then wholly owned subsidiary, ORI, whose sole asset was a 6,000-meter remotely operated vehicle (“ROV”), cash contributions of up to $10 million in a series of transactions over the following year, a Contribution Agreement and an Equity Exchange Agreement. On July 3, 2023, the parties consummated the initial closing of the purchase agreement, pursuant to which Odyssey’s wholly owned subsidiary obtained approximately 6.28% of OML’s outstanding equity interests. The purchase agreement allows Odyssey to acquire up to 40% of OML within the following 18 months from the initial closing date at Odyssey’s discretion.
OML continues to advance its understanding of the resources and environment in its license area and work toward eventual applications for an environmental permit and a resource mining license. OML expects to advance its current Joint Ore Reserve Committee (“JORC”) compliant report, substantially increasing resources reporting to indicated and measured confidence levels and completing its preliminary Feasibility Study, among other important project milestones it is working to achieve.
LIHIR Gold Project:
The exploration license for the Lihir Gold Project covers a subsea area that contains several prospective gold exploration targets in two different mineralization types: seamount-related epithermal and modern placer gold. Two subaqueous debris fields within the area are adjacent to the terrestrial Ladolam Gold Mine and are believed to have originated from the same volcanogenic source. The resource lies 500-2,000 meters deep in the Papua New Guinea Exclusive Economic Zone off the coast of Lihir Island, adjacent to the location of one of the world’s largest know terrestrial gold deposits. We have an 85.6% interest in Bismarck Mining Corporation, Ltd, the Papua New Guinea company that holds the exploration license (the “Bismarck Exploration License”) for the project.
25
Previous exploration expeditions in the license area, including research conducted by Odyssey, indicate it is highly prospective for commercially viable gold content.
In November 2023, Papua New Guinea issued a permit extension allowing Odyssey to continue with our exploration program. We have developed an exploration program for the Lihir Gold Project to validate and quantify the precious and base metal content of the prospective resource. The Company has met with local regulatory authorities, specialists in local mining, environmental legal experts, and logistics support service companies in Papua New Guinea to establish baseline business functions essential for a successful program to support upcoming marine exploration operations in the license area. This offshore work began in late 2021 and is ongoing. Bismarck and Odyssey value the environment and respect the interests and people of Papua New Guinea and Lihir and are committed to transparent sharing of all environmental data collected during the exploration program.
During 2023, Odyssey continued exploration in the exploration license area to continue to validate the geological prospectivity of the property. In addition to examining the regional geological and tectonic settings of the region, additional multibeam data and 127 geological samples were collected, and seven ROV dives were conducted. These activities increased Bismarck’s confidence in the presence of enriched mineral targets within the exploration license area. Likewise, two target sites were identified for future resource sampling. Future exploration will focus on continued sampling in these locations while working towards a defined resource assessment and gathering environmental baseline data to compile an environmental impact assessment.
During the exploration phase, steps to validate and quantify the precious and base metal content of the prospective resource would also be carried out. Once completed, if the data shows extraction can be carried out responsibly, Odyssey will apply for a mining license.
Further development of this project is dependent on the characterization resources during the exploration phase.
Results of Operations
The dollar values discussed in the following tables, except as otherwise indicated, are approximations to the nearest thousands and therefore do not necessarily sum in columns or rows. For more detail refer to the Financial Statements in Part I, Item 1.
Three Months Ended June 30, 2024 compared to Three Months Ended June 30, 2023
|
|
Three months ended June 30, |
|
|
Change |
|
||||||||||
Increase/(Decrease) (in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
|
|
|
|
|
(As Restated) |
|
|
|
|
|
(As Restated) |
|
||||
Total revenue |
|
$ |
216 |
|
|
$ |
173 |
|
|
$ |
43 |
|
|
|
24.9 |
% |
Marketing, general and administrative |
|
|
2,205 |
|
|
|
1,809 |
|
|
$ |
396 |
|
|
|
21.9 |
% |
Operations and research |
|
|
1,027 |
|
|
|
1,211 |
|
|
$ |
(184 |
) |
|
|
(15.2 |
)% |
Total operating expenses |
|
|
3,232 |
|
|
|
3,020 |
|
|
$ |
211 |
|
|
|
7.0 |
% |
Total other income (expense) |
|
|
(713 |
) |
|
|
(4,399 |
) |
|
$ |
3,686 |
|
|
|
83.8 |
% |
Income tax benefit (provision) |
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
100.0 |
% |
Non-controlling interest |
|
|
2,202 |
|
|
|
2,315 |
|
|
$ |
(113 |
) |
|
|
(4.9 |
)% |
Net income (loss) |
|
$ |
(1,527 |
) |
|
$ |
(4,932 |
) |
|
$ |
3,405 |
|
|
|
69.0 |
% |
Revenue
The revenue generated in each period was a result of performing marine research and project administration services for our customers and related parties. Total revenue for the three months ended June 30, 2024 was $0.22 million, an increase of $43,000 as compared to $0.17 million for the three months ended June 30, 2023. We do not consider the fluctuation period over period to be significant.
One company to which we provided these services in both years is a deep-sea mineral exploration company, CIC, which we consider to be a related party because our lead director has an indirect interest in the company (see Note 5, Related Party Transactions). In addition, during 2024, we also provided services to OML, which is also a related party and that we account for under the equity method of accounting.
26
Operating Expenses
Marketing, general and administrative expenses primarily include all costs within the following departments: Executive, Finance & Accounting, Legal, Information Technology, Human Resources, Marketing & Communications, Sales and Business Development. Marketing, general and administrative expenses for the three months ended June 30, 2024 were $2.2 million, an increase of $0.4 million as compared to the three months ended June 30, 2023. The increase was primarily due to $0.7 million of increased professional services fees for audit and consulting, offset by a decrease of $0.1 million in stock-based compensation and $0.2 million in other employee compensation.
Operations and research expenses are primarily focused around deep-sea mineral exploration, which include minerals research, scientific services, marine operations and project management. Operations and research expenses decreased by $0.2 million to $1.0 million for the three months ended June 30, 2024 from $1.2 million for the three months ended June 30, 2023 as a result of a decrease in professional services, which includes a $0.1 million decrease in arbitration costs directly associated with our NAFTA arbitration, and a $0.1 million decrease in depreciation expense.
Total Other Income/Expense
Total other income/expense was $0.7 million and $4.4 million in net expense for both the three months ended June 30, 2024 and 2023, respectively, resulting in a net expense decrease of $3.7 million. The decreased expense was attributable to: (i) $6.2 million increased loss in the change in fair value of derivative liabilities; (ii) $0.8 million increase in interest expense which includes debt discount amortization, and (iii) an increase of $0.1 million in loss from our equity investment, which were offset by (x) $9.4 million of other income from our residual economic interest from our legacy shipwreck business, (y) a $0.3 million reduction of the gain on debt extinguishment, and (z) $0.8 million increased foreign exchange income.
Income Taxes
Due to losses and our net operating loss carryforwards, we did not accrue any taxes in either period ending 2024 or 2023.
Non-Controlling Interest
Starting in 2013, we became the controlling stockholder of Oceanica. Our financial statements thus include the financial results of Oceanica and its subsidiary, ExO. Except for intercompany transactions that are fully eliminated upon consolidation, Oceanica’s revenues and expenses, in their entirety, are shown in our condensed consolidated financial statements. The share of Oceanica’s net losses corresponding to the equity of Oceanica not owned by us is subsequently shown as the “Non-Controlling Interest” in the condensed consolidated statements of operations.
The non-controlling interest adjustment in the three months ended June 30, 2024 was $2.2 million as compared to $2.3 million for the three months ended June 30, 2023. The substance of these amounts is primarily due to the increase in costs relating to permits and other standard operating costs. We do not consider the fluctuation period over period to be significant.
27
Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
|
|
Six months ended June 30, |
|
|
Change |
|
||||||||||
Increase/(Decrease) (in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
|
|
|
|
|
(As Restated) |
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
419 |
|
|
$ |
461 |
|
|
$ |
(42 |
) |
|
|
(9 |
)% |
Marketing, general and administrative |
|
|
6,239 |
|
|
|
3,625 |
|
|
$ |
2,614 |
|
|
|
72.1 |
% |
Operations and research |
|
|
1,912 |
|
|
|
2,496 |
|
|
$ |
(584 |
) |
|
|
(23.4 |
)% |
Total operating expenses |
|
|
8,152 |
|
|
|
6,121 |
|
|
$ |
2,031 |
|
|
|
33.2 |
% |
Total other income (expense) |
|
|
4,925 |
|
|
|
18,485 |
|
|
$ |
(13,560 |
) |
|
|
(73.4 |
)% |
Income tax benefit (provision) |
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
100 |
% |
Non-controlling interest |
|
|
4,779 |
|
|
|
4,551 |
|
|
$ |
228 |
|
|
|
5.0 |
% |
Net income (loss) |
|
$ |
1,971 |
|
|
$ |
17,376 |
|
|
$ |
(15,405 |
) |
|
|
(88.7 |
)% |
Revenue
Total revenue for the six months ended June 30, 2024 was $0.4 million, a decrease of $42,000 as compared to $0.5 million for the six months ended June 30, 2023. We do not consider the fluctuation period over period to be significant.
One company to which we provided these services in both periods is a deep-sea mineral exploration company, CIC, which we consider to be a related party because our lead director has an interest in the company (see Note 5, Related Party Transactions). In addition, during the six months ended 2024, we also provided services to OML, which is also a related party and that we account for under the equity method of accounting.
Operating Expenses
Marketing, general and administrative expenses for the six months ended June 30, 2024 were $6.2 million, an increase of $2.6 million as compared to the six months ended June 30, 2023. The increase primarily resulted from an increase of $1.5 million in professional services primarily attributable to audit and consulting fees and an increase of $1.1 million in non-cash share-based compensation expense.
Operations and research expenses decreased by $0.6 million to $1.9 million for the six months ended June 30, 2024 from $2.5 million the six months ended June 30, 2023, primarily as a result of a $0.3 million decrease in professional legal fees services and a $0.3 million decrease in depreciation expense.
Total Other Income and Expense
Total other income/expense was $4.9 million and $18.5 million in net expense for both the six months ended June 30, 2024 and 2023, respectively, resulting in a net decrease of $13.6 million.
The decreased expense was attributable to: (i) $21.2 million of gain on debt extinguishment in 2023 that did not reoccur in 2024, (ii) $1.9 million increase in interest expense which includes debt discount amortization; (ii) $1.3 million increased loss in the change in fair value of derivative liabilities; (iii) $0.4 million in decreased interest income, and (iii) an increases $0.3 million in loss from our equity investment, which were offset by (x) $9.4 million of other income from our residual economic interest from our legacy shipwreck business, (y) a $1.0 million waiver fee paid in 2023 that did not reoccur in 2024, and (z) $0.6 million increased foreign exchange income.
Taxes
Due to losses and our net operating loss carryforwards, we did not accrue any taxes in either period ending 2024 or 2023.
Non-Controlling Interest
The non-controlling interest adjustment in the six months ended June 30, 2024 was $4.8 million as compared to $4.6 million for the six months ended June 30, 2023. The substance of these amounts is primarily due to the increase in permits and other standard operating costs. We do not consider the fluctuation period over period to be significant.
28
Liquidity and Capital Resources
Discussion of Cash Flows
|
|
Six months ended June 30, |
|
|||||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
(As Restated) |
|
||
Summary of Cash Flows: |
|
|
|
|
|
|
||
Net Cash Provided By (Used In) Operating Activities |
|
$ |
3,966 |
|
|
$ |
(7,570 |
) |
Net Cash (Used In) Provided By Investing Activities |
|
|
(84 |
) |
|
|
144 |
|
Net Cash (Used In) Provided By Financing Activities |
|
|
(327 |
) |
|
|
7,815 |
|
Net Increase/(Decrease) In Cash |
|
$ |
3,554 |
|
|
$ |
389 |
|
Cash At Beginning Of Period |
|
|
4,022 |
|
|
|
1,443 |
|
Cash At End Of Period |
|
$ |
7,576 |
|
|
$ |
1,832 |
|
Operating Activities
Net cash provided by operating activities for the six months ended June 30, 2024 was $4.0 million, compared to cash used of $7.6 million for the six months ended June 30, 2023.
The net cash provided by operating activities reflected a net loss before non-controlling interest of $2.8 million, which includes other income of $9.4 million from a residual economic interest in a salvaged shipwreck. Cash provided by operating activities is adjusted primarily by non-cash items of $7.3 million, including: (i) the amortization of deferred discount $2.0 million, (ii) note payable accretion of $1.2 million, (iii) share-based compensation of $1.6 million, (iv) $1.1 million in changes in fair value of derivative liabilities, and (v) $1.0 million of PIK interest. Other operating activities resulted in an increase in working capital of $0.6 million. This $0.6 million increase includes a $0.7 million increase to accrued expenses, predominantly related to our NAFTA arbitration, offset by a decrease of $0.4 million in other assets.
Investing Activities
Cash flows used in investing activities for the six months ended June 30, 2024 were minimal and related to purchases of property and equipment. Cash flows used in investing activities for the six months ended June 30, 2023 primarily consisted of $1.0 million from repayment of a related party loan, offset by $84,000 of purchases of property and equipment.
Financing Activities
Cash flows used in financing activities for the six months ended June 30, 2024 were $0.3 million, consisting primarily of debt obligation payments.
Cash flows provided by financing activities for the six months ended June 30, 2023 were $7.8 million, consisting primarily of $15.1 million received from the issuance of loans payable and $4.1 million of net proceeds from the sale leaseback financing, which were offset by $11.1 million of debt obligation payments.
Other Cash Flow and Equity Areas
General Discussion
At June 30, 2024, we had cash and cash equivalents of $7.6 million, an increase of $3.6 million from the December 31, 2023 balance of $4.0 million. Financial debt of the company was $25.9 million at June 30, 2024 and $23.3 million at December 31, 2023.
29
Financings
The Company’s consolidated notes payable consisted of the following carrying values and related interest expense at:
|
|
Note payable |
|
|||||
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
March 2023 Note |
|
$ |
15,689,588 |
|
|
$ |
14,858,816 |
|
December 2023 Note |
|
|
6,203,330 |
|
|
|
6,000,000 |
|
Emergency Injury Disaster Loan |
|
|
150,000 |
|
|
|
150,000 |
|
Vendor note payable |
|
|
484,009 |
|
|
|
484,009 |
|
AFCO Insurance note payable |
|
|
158,014 |
|
|
|
468,751 |
|
Pignatelli note |
|
|
500,000 |
|
|
|
500,000 |
|
37N Note |
|
|
574,191 |
|
|
|
804,997 |
|
Finance liability (Note 14) |
|
|
4,157,845 |
|
|
|
4,112,332 |
|
Total Loans payable |
|
$ |
27,916,977 |
|
|
$ |
27,378,905 |
|
Less: Unamortized deferred lender fee |
|
|
(52,199 |
) |
|
|
(106,488 |
) |
Less: Unamortized deferred discount |
|
|
(1,926,150 |
) |
|
|
(3,955,449 |
) |
Total Loans payable, net |
|
$ |
25,938,628 |
|
|
$ |
23,316,968 |
|
Less: Current portion of loans payable |
|
|
(21,670,783 |
) |
|
|
(15,413,894 |
) |
Loans payable—long term |
|
$ |
4,267,845 |
|
|
$ |
7,903,074 |
|
March 2023 Note and Warrant Purchase Agreement
On March 6, 2023, Odyssey entered into a Note and Warrant Purchase Agreement (the “March 2023 Note Purchase Agreement”) with an institutional investor pursuant to which Odyssey issued and sold to the investor (a) a promissory note (the “March 2023 Note”) in the principal amount of up to $14.0 million and (b) a warrant (the “March 2023 Warrants” and, together with the March 2023 Note, the “Securities”) to purchase shares of our Common Stock.
On January 30, 2024, the March 2023 Warrants were amended to add a cashless exercise provision. Due to that amendment, the Company determined that the March 2023 Warrants meet the definition of a derivative and is not considered indexed to the Company’s own stock due to the settlement adjustment that provides that the share price input upon cashless exercise is always based on the highest of three prices. As such, the March 2023 Warrants are now recognized as a derivative liability, which was initially measured at fair value and any subsequent changes in fair value will be recognized in earnings in the period incurred.
The amended March 2023 Warrants were measured using the Black-Scholes valuation method on January 30, 2024, and re-classified from equity to warrant liability. The difference between the warrant liability and initial equity balance was recognized as an additional discount to additional paid-in capital (“APIC”). The change in fair value of the March 2023 Warrants for the three and six months ended June 30, 2024 was an increase of $2.2 million and a decrease of $0.3 million, respectively, which was recorded in the condensed consolidated statement of operations. The fair value of the March 2023 Warrants at June 30, 2024 was $7.4 million.
For the three months ended June 30, 2024 and 2023, we incurred $0.6 million and $0.5 million, respectively, of interest expense from the amortization of the debt discount and $16,628 and $16,268, respectively, interest from the fee amortization which has been recorded in interest expense.
For the six months ended June 30, 2024 and 2023, we incurred $1.2 million and $0.8 million, respectively, of interest expense from the amortization of the debt discount and $32,537 and $20,916, respectively, interest from the fee amortization which has been recorded in interest expense.
The June 30, 2024 carrying value of the debt was $15.2 million, which includes interest Paid-In-Kind (“PIK”) of $1.7 million, and was net of unamortized debt fees of $12,157, net of unamortized debt discount of $0.5 million associated with the fair value of the warrant. The total face value of this obligation on June 30, 2024, and December 31, 2023, was $15.7 million and $14.9 million, respectively.
December 2023 Notes and Warrant Purchase Agreement
On December 1, 2023, we entered into a Note and Warrant Purchase Agreement (the “December 2023 Note Purchase Agreement”) with institutional investors pursuant to which we issued and sold to the investors (a) a series of promissory notes (the “December 2023 Notes”) in the aggregate principal amount of up to $6.0 million and (b) two tranches of warrants (the “December 2023 Warrants” and, together with the December 2023 Notes, the “December 2023 Securities”) to purchase shares of our Common Stock.
30
The Company determined that the December 2023 Warrants meet the definition of a derivative and are not considered indexed to the Company’s own stock due to the settlement adjustment that provides that the share price input upon cashless exercise is always based on the highest of three prices. As such, the December 2023 Warrants were recognized as derivative liabilities and were initially measured at fair value with subsequent gains or losses due to changes in fair value recognized in the condensed consolidated statement of operations.
The Company noted that when debt is issued with liability-classified stock purchase warrants, the residual method should be used so that the warrants are recognized at fair value at issuance and the residual proceeds are allocated to the debt. We incurred $65,500 in related expenses, which are being amortized over the term of the December 2023 Note Purchase Agreement and charged to interest expense. The total proceeds of $6.0 million were allocated between debt and warrant liability by recognizing the warrants at their full fair value and allocating the residual proceeds to the December 2023 Notes. The initial fair value of the December 2023 Warrants was $2.4 million, resulting in a corresponding discount on the December 2023 Notes which is being amortized over the remaining term of the December 2023 Note Purchase Agreement using the effective interest method, which is charged to interest expense.
For the three and six months ended June 30, 2024, we recorded $0.4 million and $0.8 million, respectively, of interest expense from the amortization of the debt discount and $10,877 and $21,754, respectively, of interest from the fee amortization.
At June 30, 2024, the carrying value of the debt was $4.7 million and was net of unamortized debt fees of $40,041, net of unamortized debt discount of $1.5 million associated with the fair value of the warrant. The total face value of this obligation at June 30, 2024 was $6.2 million. The current interest rate of the December 2023 Notes was 11.0%.
37North
On June 29, 2023 we entered into a Note Purchase Agreement (“Note Agreement”) with 37N pursuant to which 37N agreed to loan us $1.0 million. The proceeds from this transaction were received in full on June 29, 2023. Pursuant to the Note Agreement, the indebtedness was non-interest bearing and matured on July 30, 2023. At any time from 31 days after the maturity date, 37N has the option to convert all or a portion of the outstanding amount of the indebtedness into conversion shares equal to the quotient obtained by dividing (A) 120% of the amount of the indebtedness, by (B) the lower of $3.66 or 70% of the 10-day volume-weighted average principal (“VWAP”) market trading price of Common Stock. The aggregate maximum number of shares of Common Stock to be issued in connection with conversion of the indebtedness is not to exceed (i) 19.9% of the outstanding shares of Common Stock prior to the date of the Agreement, (ii) 19.9% of the combined voting power of the outstanding voting securities, or (iii) such number of shares of Common Stock that would violate the applicable listing rules of the Principal Market if the stockholders did not approve the issuance of Common Stock upon conversion of the indebtedness.
Any time prior to maturity, we had the option to prepay the indebtedness at an amount of 108% of the unpaid principal. From the maturity date to 29 days after the maturity date (August 27, 2023), we were permitted to repay all (but not less than) of an amount equal to 112.5% of the unpaid amount of the indebtedness. At any time after the 30th day after the maturity date (August 28, 2023), we are permitted to repay all (but not less than) of an amount equal to 115% of the unpaid amount of the indebtedness after 10 days’ notice. If 37N delivers an exercise notice during this 10-day period, the note issued pursuant to the Note Agreement (the “37N Note”) would be converted to shares of Common Stock, instead of being repaid. As of June 30, 2024, we have not repaid this Note Agreement.
If 37N delivers an exercise notice and the number of shares issuable is limited by the 19.9% limitation outlined above, then we are permitted to repay all the remaining unpaid amount of the Loan in an amount equal to 130% of the remaining unpaid amount. On December 27, 2023, 37N delivered an exercise notice to us pursuant to which it exercised its right to convert $360,003 of the outstanding indebtedness under the Note Agreement into shares of our Common Stock. In accordance with the Note Agreement, based on the applicable conversation rate of $2.3226 under the agreement, we issued 155,000 shares of our common Stock to 37N on December 29, 2023. In June 2024, 37N delivered an exercise notice to us pursuant to which it exercised its right to convert $230,806 of the outstanding indebtedness under the Note Agreement into shares of our Common Stock. In accordance with the Note Agreement, based on the applicable conversation rate of $3.6491 under the agreement, we issued 55,000 shares of our common Stock to 37N on June 24, 2024.
We evaluated the indebtedness and, based on the criteria of ASC 480 Distinguishing Liabilities from Equity and 815 Derivatives and Hedging, the 37N Note is classified as a liability on the consolidated balance sheet with a share settled redemption feature that is recorded as an embedded derivative. As a result, the share settled redemption and conversion features were recorded at fair value at each reporting period outstanding with changes recognized through Interest expenses on the consolidated statement of operations. The Company analyzed the conversion feature of the note and determined that, because it includes a conditional obligation to issue a variable number of shares based on a fixed amount known at inception, the debt is properly classified as a liability in the balance sheet.
31
The Company identified seven embedded features, all of which were of de minimis fair value other than the Share Settled Redemption Feature. As such, only that was bifurcated and accounted for separately from the debt host. Certain default put provisions were not considered to be clearly and closely related to the debt host, but management concluded that the value of these default put provisions was de minimis.
At June 30, 2024, the debt instrument and embedded derivatives were recorded on the consolidated balance sheets at fair value of $0.6 million and $0.3 million, respectively, under Loans payable – short term and Litigation financing and other – long term.
At December 31, 2023, the debt instrument and embedded derivatives were recorded on the consolidated balance sheets at fair value of $0.8 million and $0.7 million, respectively, under Loans payable – short term and Litigation financing and other – long term.
Going Concern Consideration
We have experienced several years of net losses and may continue to do so. Our ability to generate net income or positive cash flows for the following twelve months is dependent upon financings, our success in developing and monetizing our interests in mineral exploration entities, generating income from contracted services, collecting on amounts owed to us.
Our 2024 business plan requires 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 becomes insufficient to meet our desired projected business plan requirements, we would be required to follow a contingency business plan based on curtailed expenses and fewer cash requirements. On December 1, 2023, we entered into the December 2023 Note Purchase Agreement (as defined below) with institutional investors pursuant to which we issued and sold to the investors the December 2023 Notes in the principal amount of up to $6.0 million and the December 2023 Warrants to purchase shares of our common stock.
In addition, on May 3, 2024, we received a payment of approximately $9.4 million arising from a residual economic interest in a salvaged shipwreck. The balance of the proceeds from the December 2023 Notes and a portion of the proceeds received in May 2024, together with other anticipated cash inflows, are expected to provide sufficient operating funds through at least the fourth quarter of 2024.
Our consolidated non-restricted cash balance at June 30, 2024 was $7.6 million. We have a working capital deficit at June 30, 2024 of $29.7 million. The total consolidated book value of our assets was approximately $26.3 million at June 30, 2024, which includes cash of $7.6 million. The fair market value of these assets may differ from their net carrying book value. The factors noted above raise substantial doubt about our ability to continue as a going concern. These condensed 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.
Critical Accounting Estimates
There have been no material changes in our critical accounting estimates since December 31, 2023.
New Accounting Pronouncements
Refer to Note 2, Summary of Significant Accounting Policies, to the Condensed Consolidated Financial Statements included elsewhere in this report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. We do not believe we have material market risk exposure and have not entered into any market risk sensitive instruments to mitigate these risks or for trading or speculative purposes.
We currently do not have any debt obligations with variable interest rates.
32
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedure
Disclosure controls are procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Comprehensive Form 10-K, are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and principal financial officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision and with the participation of our management, including our CEO, who is currently also acting as our CFO for this purpose, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were not effective as of June 30, 2024, as the result of the material weakness in our internal control over financial reporting discussed below, which is currently being remediated.
Notwithstanding the material weakness, management believes the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, the Company’s financial condition, results of operations and cash flows for each of the periods presented in this report in conformity with US GAAP.
Material Weakness in Internal Control over Financial Reporting
In connection with our evaluation for the year ended December 31, 2023, we identified material weaknesses in our internal control over financial reporting for the years ended December 31, 2023, and 2022, that continued during the period ended June 30, 2024, relating to the appropriate review of accounting positions for certain significant transactions. Specifically, (a) the Company does not have sufficient resources with the adequate technical skills to identify and evaluate specific accounting positions and conclusions, and (b) the Company has inadequate processes and controls to ensure appropriate level of precision of review related to our financial statement footnote disclosures.
The material weakness did not result in any material misstatement in our interim financial statements or disclosures as set forth in this report, and there were no changes required to any of our previously released interim or audited consolidated financial statements.
Remediation Efforts to Address Material Weakness
Management is committed to maintaining a strong internal control environment. In response to the identified material weakness, management, with the oversight of the Audit Committee of the Board of Directors, has taken actions to remediate the material weakness in internal control over financial reporting by (a) engaging an Interim Controller with responsibility for monitoring the performance of controls by control owners, (b) commencing an evaluation of the skills and experience of our existing personnel with respect to public company experience and appropriate level of expertise in the respective areas of accounting, SEC financial reporting and associated internal controls commensurate with the type, volume and complexity of our accounting operations, transactions and reporting requirements, and (c) engaging accounting advisory consultants to provide additional depth and breadth in our SEC financial reporting and technical accounting functions, which consultants we expect to continue to utilize until we have ensured that our internal personnel have the appropriate expertise and experience. In addition, we have reinforced the importance of adherence to Company policies regarding control performance and related documentation with control owners, identified training and resource needs for control owners, and developed monitoring activities to validate the performance of controls by control owners.
The Company anticipates the actions described above and resulting improvements in controls will strengthen the Company’s processes, procedures and controls related to management’s review of accounting positions for our transactions and will address the related material weakness. However, the material weakness cannot be considered remediated until the applicable control has operated for a sufficient period of time, and management has concluded, through testing, that the control is operating effectively.
Changes in Internal Control over Financial Reporting
33
Other than the ongoing remediation efforts of the material weakness described above, there were no changes during the three months ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company may be subject to a variety of claims or suits that arise from time to time in the ordinary course of business. We are not a party to any litigation as a defendant where a loss contingency is required to be reflected in our condensed consolidated financial statements.
ITEM 1A. Risk Factors
There have been no material changes to our principal risks that we believe are material to our business, results of operations and financial condition, from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Investors should consider such risk factors prior to making an investment decision with respect to the Company’s securities.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 4. Mine Safety Disclosures
Not applicable
ITEM 5. Other Information
On August 5, 2024, the Compensation Committee of our Board of Directors approved the Executive Severance Plan (the “Severance Plan”) for our executives, including named executive officers, who are designated by the committee as participants under the Severance Plan.
The Severance Plan provides for the payment of severance and other benefits to participants whose employment is terminated by Odyssey without cause or for good reason (a “Covered Termination”), each as defined in the Severance Plan. Pursuant to the Severance Plan, in the event of a Covered Termination, a participant would be entitled to payment of an amount equal to the participant’s annual base salary and annual bonus amount, payable in twelve equal payments following the termination, and payment of COBRA premiums for 18 months following the termination. If the Covered Termination follows a change in control, a participant would be entitled to a lump sum payment of an amount equal to twice the participant’s annual base salary and annual bonus amount, and payment of COBRA premiums for 18 months following the termination. The above description is a summary of the terms of the Severance Plan and is subject to and qualified in its entirety by the terms of the Severance Plan.
34
ITEM 6. Exhibits
|
Exhibit Number |
|
Description |
10.1*† |
|
|
10.2*† |
|
|
31.1* |
|
|
32.1# |
|
|
101.INS* |
|
Inline XBRL Instance Document–the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document |
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
104* |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document). |
* |
Filed herewith. |
+ |
Previously filed. |
# |
Furnished herewith |
† |
Management contract or compensatory plan |
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
ODYSSEY MARINE EXPLORATION, INC. |
|
|
|
|
Date: August 8, 2024 |
By: |
/s/ Mark D. Gordon |
|
|
Mark D. Gordon |
|
|
Chief Executive Officer |
|
|
Principal Executive Officer |
|
|
Principal Financial Officer |
36
Exhibit 10.1
Odyssey Marine Exploration, Inc.,
2024 Executive Compensation Plan
This 2024 Executive Compensation Plan (this “Compensation Plan”), effective as of July 8, 2024 (the “Effective Date”), sets forth the terms and conditions on which a bonus may be paid to eligible executives of Odyssey Marine Exploration, Inc. (“Odyssey” or the “Company”).
The course of Odyssey’s business transition into deep-sea mineral exploration, which the Company expected to lead with its significant investment into Exploraciones Oceánicas S. de R.L. de C.V. (“ExO”), was materially altered and derailed for several years due to what Odyssey’s management believes was an illegal denial of an environmental permit by the United Mexican States (“Mexico”). The arbitration that Odyssey ultimately commenced against Mexico to protect its investment and the interests of all of its stakeholders, including its employees, has resulted in thousands of hours of work for Odyssey employees beyond their regular responsibilities and cash constraints that have consistently adversely affected the payment of compensation. The Board of Directors of the Company (the “Board”) has recognized that any gain by Odyssey from the arbitration or ownership of ExO would not have been possible without the incredible dedication and hard work of its employees in leading and supporting the arbitration and in maintaining the Company through this difficult period. Although the Company has achieved great success with many of its strategic goals over the last few years, the Company has not been able to offer a cash annual incentive plan for 2023 or 2024. In 2023, the Company adopted a 2023 Special Bonus Plan in the place of any short-term incentive plan for all employees for 2023. This Compensation Plan is adopted by the Company in the place of any short-term incentive plan for the executives of the Company for 2024.
In addition to recognizing the significant dedication, work and sacrifice of Odyssey’s executives to achieve a positive outcome for Odyssey with respect to ExO and to continue to achieve success in other areas of the business with limited resources, the Compensation Committee of the Board considered the following in adopting this Compensation Plan:
1
Exhibit 10.1
The Compensation Committee therefore has determined that the Company will pay to eligible executives a special cash bonus payment if the Company profits significantly from its ownership of ExO, subject to the conditions set forth in this Compensation Plan. Eligible executives of Odyssey will be entitled to a special cash bonus payment (the “Executive Bonus”) if the special bonus conditions set forth in this Compensation Plan are met.
Executive Bonus Conditions
For the Executive Bonus to be payable, all of the following conditions (the “Executive Bonus Conditions”) must be met:
Given the ordinary uncertainty of arbitration outcomes and the lack of guarantees surrounding the ExO investment, as well as with respect to Odyssey’s ability to raise sufficient capital for operations and to make the Executive Bonus payments, Odyssey and any individual eligible to participate in this Compensation Plan should recognize that there is no certainty that the Executive Bonus Conditions will be satisfied or of any payment of an Executive Bonus, nor is there any guarantee even if a payment occurs that it will be a definite amount.
Eligibility for Executive Bonus
To be eligible to receive payment of the Executive Bonus:
2
Exhibit 10.1
Each individual meeting all of the criteria set forth above is an “Eligible Executive.”
Executive Bonus Amount and Payment
Subject to the terms of this Compensation Plan, Odyssey will pay the Executive Bonus to each Eligible Executive as follows:
“Pro Rata Basis” means a pro rata basis based on the base salaries of the Eligible Executives as of the Effective Date.
“Total Bonus Amount” means the amount set forth on Exhibit A to this Compensation Plan for all Eligible Executives based on the amount of the Award or Settlement, as such amount may be reduced pursuant to subsection 3 below.
3
Exhibit 10.1
Any payment of an Executive Bonus will not reduce any other compensation to which an Eligible Executive is entitled. In the event of death of any Eligible Executive after the Effective Date, the Company will pay any Executive Bonus to the Eligible Executive’s estate or designated beneficiaries.
Administration
This Compensation Plan shall be administered by the Compensation Committee or, in the Board’s sole discretion, by the Board. Subject to the terms of this Compensation Plan, the Compensation Committee's charter and applicable laws, and in addition to other express powers and authorization conferred by this Compensation Plan, the Compensation Committee shall have the authority:
All decisions and determinations made by the Compensation Committee or, if applicable, the Board shall be final and binding on Odyssey and all Eligible Executives.
General Provisions
4
Exhibit 10.1
Taxes
Section 409A of the Code
The Company intends that the Compensation Plan comply with the requirements of Section 409A of the Internal Revenue Code (“Code Section 409A”), or an exemption thereunder, and the Special Compensation Plan shall be operated, construed, administered and interpreted in accordance with Section 409A.. Each installment payment under this Compensation Plan shall be treated as a separate payment for purposes of Code Section 409A
Notwithstanding the foregoing, the Company makes no representation that the payments and benefits provided under this Compensation Plan complies with Code Section 409A of the Code and shall in no event have liability for all or any portion of any taxes, penalties, interest, or other expenses that may be incurred by any Eligible Employee for any failure to comply with Code Section 409A.
Notwithstanding anything in this Compensation Plan to the contrary and to the extent required to comply with Code Section 409A, if an Eligible Employee is a Specified Employee (as defined in Section 409A(a)(2)(B)(i) of the Code and Treas. Reg. Section 1.409A-1(i)) as of a payment date under this Compensation Plan, to the extent required under Code Section 409A, the Company shall make no distribution of such Eligible Executive's payment until the first payroll date of the seventh month following the Eligible Executive's separation from service from the Company (or, if earlier, upon the date of the Eligible Executive's death) (the “Specified Employee Payment Date”). Any payments to which a Eligible Executive otherwise would have been entitled under the Compensation Plan during the period between the original payment date (but for this section) and the Specified Employee Payment Date shall be accumulated and paid in a lump sum payment on the Specified Employee Payment Date and shall not be accrue interest during such period.
Amendment
This Compensation Plan may be (a) amended by the Board to extend any of the dates set forth in this Compensation Plan, subject to any applicable restrictions under Code Section 409A; and (b) otherwise amended or terminated (in accordance with Code Section 409A) then in office; provided that, to the extent such amendment would adversely affect an Eligible Executive, such amendment shall only be effective if agreed to in writing by the Eligible Executive. As used in this Compensation Plan, “Continuing Director” means any individual (i) who was a member of the Board on the Effective Date; (ii) whose election or nomination to the Board was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of the Board; or (iii) whose election or nomination to the Board was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of the Board.
5
Exhibit 10.1
Data Protection.
By participating, or accepting any rights granted under, this Compensation Plan, each Eligible Executive consents to the collection and processing of personal data relating to the Eligible Executive so that the Company and its affiliates can fulfill their obligations and exercise their rights under this Compensation Plan and generally administer and manage this Compensation Plan. This data will include, but may not be limited to, data about participation in this Compensation Plan and Total Bonus Award from time to time and other appropriate financial and other data about the Eligible Executive and the Eligible Executive's participation in this Compensation Plan.
Notices.
Notices required or permitted to be made under this Compensation Plan shall be in writing and shall be deemed given, delivered and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via email or facsimile prior to 5:00 p.m. (New York time) on a business day, (b) the business day after the date of transmission, if such notice or communication is delivered via email or facsimile later than 5:00 p.m. (New York time) on any business day and earlier than 11:59 p.m. (New York time) on the day preceding the next business day, (c) one (1) business day after when sent, if sent by nationally recognized overnight courier service (charges prepaid), or (d) upon actual receipt by the person to whom such notice is required to be given. All notices shall be addressed: (i) to an Eligible Executive at such Eligible Executive's address as set forth in the books and records of the Company, or (ii) to the Company at the principal office of the Company clearly marked “Attention: Board of Directors”.
Severability.
Whenever possible, each provision of this Compensation Plan shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Compensation Plan is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Compensation Plan shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
Prior Agreements.
No provision of any employment, severance, incentive award or other similar agreement entered into by an Eligible Executive, on the one hand, and the Company or any of its affiliates, on the other hand, prior to the Effective Date shall modify or have any effect in any manner on any provision of this Compensation Plan.
Governing Law and Forum; Waiver of Jury Trial.
This Compensation Plan shall be construed under the laws of the State of Florida without regard to principles of conflicts of law. Each Eligible Executive consents to the exclusive jurisdiction in the United States District Court for the Middle District of Florida, Tampa Division, or the state courts in Tampa, Florida, for the determination of all disputes arising from this Compensation Plan and waives any rights to remove or transfer the case to another court. EACH ELIGIBLE EXECUTIVE IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION OR OTHER PROCEEDING INSTITUTED BY OR AGAINST SUCH ELIGIBLE EXECUTIVE IN RESPECT OF THE ELIGIBLE EXECUTIVE'S RIGHTS OR OBLIGATIONS HEREUNDER.
6
Exhibit 10.1
Construction.
Unless otherwise expressly provided herein, the words “include,” “includes” and “including” do not limit the preceding words or terms and shall be deemed to be followed by the words “without limitation.” Where specific language is used to clarify by example a general statement contained herein (such as by using the words “such as”), such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. Whenever required by the context, any pronoun used in this Compensation Plan shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa.
This Compensation Plan was duly adopted by the Board of Directors as of July 8, 2024.
Odyssey Marine Exploration, Inc.
By /s/ Jon D. Sawyer
Jon D. Sawyer
Chair, Compensation Committee
of the Board of Directors
7
Exhibit 10.2
Odyssey Marine Exploration
Executive Severance Plan
This Odyssey Marine Exploration Executive Severance Plan has been established by the Company on August 5, 2024 (the "Effective Date") to provide Participants with the opportunity to receive severance benefits in the event of certain terminations of employment. The purpose of the Plan is to attract and retain qualified executives. The Plan is intended to be a top hat welfare benefit plan under ERISA.
Capitalized terms used but not otherwise defined herein have the meanings set forth in ARTICLE II.
"ACA" has the meaning set forth in Section 4.01(b).
"Accrued Amounts" means: (i) any accrued but unpaid base salary through the date of termination, (ii) any bonus earned but unpaid for the immediately preceding year, (iii) any accrued but unused vacation time, and (iv) unreimbursed business expenses that have been timely submitted and are properly reimbursable in accordance with Company policies.
"Administrator" means the Compensation Committee of the Board or any committee thereof duly authorized by the Board to administer the Plan.
"Applicable Severance Multiplier" means (i) one (1) for any Participant; and (ii) two (2) for a Qualifying Termination within 90 days prior to a Change in Control or at any time within 24 months following a Change in Control.
"Benefit Continuation Period" means for any Participant, the period beginning on the Participant's termination date and ending on the earliest of (i): the end of either (x) the 18-month period following the date on which the Qualifying Termination occurs or (y) the 24-month period if a Qualifying Termination occurs within 90 days prior to a Change in Control or at any time following a Change in Control; (ii) the date on which the Participant receives substantially similar coverage from another employer; and (iii) the date the Participant is no longer eligible to receive COBRA continuation coverage; and
"Board" means the Board of Directors of the Company.
"Cause" means: (i) willfully engaging in misconduct that is materially injurious to the Company; (ii) willful and repeated failure to discharge duties of the Participant's employment by the Company (other than any such failure resulting from incapacity due to physical or mental illness or disability); (iii) conviction of or plea of guilty or nolo contendere to a crime that constitutes a felony or a crime that constitutes a misdemeanor involving moral turpitude; (iv) performance of an illegal act that is materially injurious to the Company while purporting to act on the Company's behalf; (v) conviction of or a plea of guilty or nolo contendere to a crime that constitutes embezzlement, misappropriation, or fraud; or (vi) material breach of the Company's code of ethics or its confidentiality, insider trading or anti-corruption and anti-bribery policies in a manner that is materially injurious to the Company.
1
A termination will not be for “Cause” pursuant to clauses (i), (ii), (iv) or (vi), to the extent such conduct is curable, unless the Company has notified the Participant in writing describing the conduct and prescribing conduct required to cure such conduct and the individual has failed to cure the conduct within ten business days after the individual’s receipt of such written notice. For purposes of this definition of Cause, no act or failure to act on the individual’s part will be considered willful if it is done, or omitted to be done, by the individual in good faith and with a good faith belief that his or her act or omission was in the best interests of the Company.
"Change in Control" shall mean the occurrence of any of the following: (a) one person (or more than one person acting as a group) acquires ownership of stock of the Company that, together with the stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of such corporation; provided that, a Change in Control shall not occur if any person (or more than one person acting as a group) owns more than 50% of the total fair market value or total voting power of the Company's stock and acquires additional stock; (ii) a majority of the members of the Board are replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the Board before the date of appointment or election; or (iv) the sale of all or substantially all of the Company's assets.
Notwithstanding the foregoing, to the extent required to comply with Code Section 409A, a Change in Control shall not occur unless such transaction constitutes a change in the ownership of the Company, a change in effective control of the Company, or a change in the ownership of a substantial portion of the Company's assets under Code Section 409A.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985.
"Code" means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code shall be deemed to include a reference to any regulations promulgated thereunder.
"Company" means Odyssey Marine Exploration, Inc., a Nevada corporation, and any successor thereto.
"Compensation Committee" means the Compensation Committee of the Board.
"Effective Date" has the meaning set forth in ARTICLE I.
"Eligible Employee" means any full-time employee of the Company who is an executive officer. Eligible Employees shall be limited to a select group of management or highly compensated employees within the meaning of Sections 201, 301, and 404 of ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Exchange Act" means the Securities and Exchange Act of 1934, as amended.
2
"Good Reason" means any of the following without the Participant's written consent: (a) a material reduction in the Participant's base salary; (b) a relocation of the Participant's principal place of employment by more than 25 miles; (c) the Company's failure to obtain an agreement from any successor to the Company to assume and agree to perform the obligations under the Plan in the same manner and to the same extent that the Company would be required to perform, except where such assumption occurs by operation of law; (d) a material, adverse change in the Participant's title, authority, duties or responsibilities (other than temporarily while the Participant is physically or mentally incapacitated or as required by applicable law); or (e) a material breach by the Company of any material agreement between the Participant and the Company or its affiliates.
The Participant cannot terminate their employment for Good Reason unless they have provided written notice to the Company of the existence of the circumstances providing grounds for termination for Good Reason within 90 days of the initial existence of such grounds and the Company has had at least 30 days from the date on which such notice is provided to cure such circumstances.
"Participant" has the meaning set forth in Section 3.01.
"Person" has the meaning ascribed to it in Section 13(d)(3) of the Exchange Act.
"Plan" means this Odyssey Marine Exploration Executive Severance Plan, as may be amended and/or restated from time to time.
"Pro-Rata Bonus" has the meaning set forth in Section 4.01(c).
"Qualifying Termination" means the termination of a Participant's employment either (a) by the Company without Cause; or (b) by the Participant for Good Reason
"Release" has the meaning set forth in Section 6.01(c).
"Severance" has the meaning set forth in Section 4.01(a).
"Specified Employee Payment Date" has the meaning set forth in Section 9.13(b).
3
Subject to Section 9.13, Severance will be paid in substantially equal installments over 12 months following the Qualifying Termination, payable in accordance with the Company's normal payroll practices, but no less frequently than monthly, which payments in the aggregate are equal to the Severance and which shall begin on the 61st day following the Qualifying Termination; provided that, if such Severance is payable due to a Qualifying Termination within 90 days prior to or within 24 months following a Change in Control, any such Severance shall be paid in a single lump sum payment on the 61st day following such Qualifying Termination;
4
Odyssey Marine Exploration
c/o: Chair of Compensation Committee
205 S. Hoover Blvd., Suite 210
Tampa, FL 33609
With copy to (which shall not constitute notice to the Company):
Akerman LLP
401 East Jackson Street, Suite 1700
Tampa, FL 33602
Attention: David M. Doney, Esq.
If the Participant's claim is denied, in whole or in part, the Participant will be furnished with written notice of the denial within 90 days after the Administrator's receipt of the Participant's written claim, unless special circumstances require an extension of time for processing the claim, in which case a period not to exceed 180 days will apply. If such an extension of time is required, written notice of the extension will be furnished to the Participant before the termination of the initial 90-day period and will describe the special circumstances requiring the extension, and the date on which a decision is expected to be rendered. Written notice of the denial of the Participant's claim will contain the following information:
5
6
7
The decision of the Administrator on any disputes arising under the Plan, including (but not limited to) questions of construction, interpretation and administration shall be final, conclusive and binding on all persons having an interest in or under the Plan. Any determination made by the Administrator shall be given deference in the event the determination is subject to judicial review and shall be overturned by a court of law only if it is arbitrary and capricious.
8
9
10
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark D. Gordon, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Odyssey Marine Exploration, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 8, 2024
|
/s/ Mark D. Gordon |
Mark D. Gordon |
Chief Executive Officer |
Principal Executive Officer and Principal Financial Officer |
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
ODYSSEY MARINE EXPLORATION, INC.
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I hereby certify that, to the best of my knowledge, the quarterly report on Form 10-Q of Odyssey Marine Exploration, Inc. for the period ending June 30, 2024:
(1) complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of Odyssey Marine Exploration, Inc.
Date: August 8, 2024
|
/s/ Mark D. Gordon |
Mark D. Gordon |
Chief Executive Officer |
Principal Executive Officer and Principal Financial Officer |
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Odyssey Marine Exploration, Inc. and will be retained by Odyssey Marine Exploration, Inc. and furnished to the Securities and Exchange Commission upon request.