UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended
or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from |
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to |
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Commission File Number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip code)
(
(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 |
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.
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).
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: ☐
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, $0.0001 par value, as of November 11, 2024 was
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Page No.
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Part I: |
Financial Information |
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Item 1. |
Financial Statements (unaudited): |
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Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
35 |
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Item 4. |
35 |
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Part II: |
Other Information |
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Item 1. |
36 |
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Item 1A. |
36 |
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Item 2. |
36 |
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Item 4. |
36 |
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Item 5. |
36 |
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Item 6. |
37 |
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38 |
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2
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30, 2024 |
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December 31, 2023 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts and other related party receivables |
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Other current assets |
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Total current assets |
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NON-CURRENT ASSETS |
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Investment in unconsolidated entities |
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Option to purchase equity securities in related party |
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Bismarck exploration license |
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Property and equipment, net |
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Right of use - operating leases |
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Other non-current assets |
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Total non-current assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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CURRENT LIABILITIES |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Operating lease liability, current portion |
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Forward contract liability |
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Put option liability |
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Loans payable, current portion |
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Total current liabilities |
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LONG-TERM LIABILITIES |
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Loans payable |
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Warrant liabilities |
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Litigation financing and other |
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Deferred contract liability |
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Total long-term liabilities |
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Total liabilities |
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STOCKHOLDERS’ DEFICIT |
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Preferred stock – $ |
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Common stock – $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ deficit before non-controlling interest |
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Non-controlling interest |
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Total stockholders’ deficit |
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Total liabilities and stockholders’ deficit |
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$ |
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$ |
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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
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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REVENUE |
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Marine services |
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$ |
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$ |
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$ |
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$ |
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Operating and other |
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Total revenue |
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OPERATING EXPENSES |
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Marketing, general and administrative |
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Operations and research |
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Total operating expenses |
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LOSS FROM OPERATIONS |
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OTHER INCOME (EXPENSE) |
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Interest income |
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Interest expense |
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Income / (Loss) on equity method investment |
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( |
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( |
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Change in derivative liabilities fair value |
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( |
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Gain / (Loss) on debt extinguishment |
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Gain / (Loss) on wholly owned entity |
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Residual economic interest in shipwreck |
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Other |
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Total other income (expense) |
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INCOME/(LOSS) BEFORE INCOME TAXES |
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Income tax benefit |
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INCOME/(LOSS) |
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Net loss attributable to non-controlling interest |
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NET INCOME/(LOSS) attributable to Odyssey Marine Exploration, Inc. |
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$ |
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$ |
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$ |
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$ |
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NET INCOME/(LOSS) PER SHARE |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average number of common shares outstanding: |
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Basic |
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Diluted |
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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
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Three Months Ended September 30, 2024 |
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Common Stock |
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Additional |
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Accumulated |
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Non-controlling |
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Total |
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Balance at June 30, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Share-based compensation |
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— |
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— |
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— |
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Common stock issued for convertible debt conversion |
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— |
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— |
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Net income/(loss) |
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— |
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— |
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( |
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Balance at September 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Three Months Ended September 30, 2023 |
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Common Stock |
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Additional |
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Accumulated |
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Non-controlling |
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Total |
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Balance at June 30, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Share-based compensation |
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— |
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— |
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Common stock issued for debt extinguishment |
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— |
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— |
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— |
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Fair value of warrants issued |
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— |
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— |
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— |
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Net income/(loss) |
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— |
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— |
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( |
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( |
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( |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Nine Months Ended September 30, 2024 |
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Common Stock |
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Additional |
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Accumulated |
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Non-controlling |
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Total |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Share-based compensation |
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— |
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— |
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Cancellation of stock awards for payment of withholding tax requirements |
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— |
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( |
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— |
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— |
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( |
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Director fees settled with stock options |
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— |
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— |
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— |
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Fair value of warrants classified as liabilities |
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— |
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( |
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— |
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— |
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( |
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Common stock issued for convertible debt conversion |
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— |
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— |
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Common stock issued and exchanged with related party |
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— |
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— |
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Net income/(loss) |
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— |
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— |
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( |
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Balance at September 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Nine Months Ended September 30, 2023 |
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Common Stock |
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Additional |
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Accumulated |
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Non-controlling Interest |
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Total |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Share-based compensation |
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— |
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— |
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Director compensation paid in share-based instruments |
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— |
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— |
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Common stock issued for debt extinguishment |
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— |
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— |
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Fair value of warrants issued |
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— |
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— |
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— |
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Net income/(loss) |
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— |
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— |
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( |
) |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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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
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Nine Months Ended September 30, |
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2024 |
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2023 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income/(loss) |
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$ |
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$ |
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Adjustments to reconcile net income/(loss) to net cash provided by (used in) operating activities: |
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Services provided to unconsolidated entities |
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( |
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( |
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Depreciation |
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Financing fees amortization |
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Amortization of finance liability |
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Amortization of deferred discount |
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Note payable interest accretion |
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Note interest paid-in-kind ("PIK") |
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Note receivable interest accretion |
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Right of use asset amortization |
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Share-based compensation |
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Loss on equity method investment |
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Gain on debt extinguishment, net of note receivable write-off |
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( |
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Gain on sale of equipment |
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( |
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Change in derivatives liability fair value |
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( |
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Director fees settled with stock options |
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(Increase) decrease in: |
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Accounts and other related party receivables |
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( |
) |
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Short-term notes receivable, related party |
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Changes in operating lease liability |
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( |
) |
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( |
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Other assets |
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Accounts payable |
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( |
) |
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Accrued expenses and other |
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( |
) |
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
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( |
) |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Proceeds from sale of equipment |
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Purchase of property and equipment |
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( |
) |
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|
( |
) |
Cash paid for investment in unconsolidated entity |
|
|
|
|
|
( |
) |
|
Proceeds from related party |
|
|
|
|
|
|
||
Gain on sale of entity |
|
|
|
|
|
( |
) |
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Proceeds from issuance of loans payable |
|
|
|
|
|
|
||
Repurchase of stock-based awards withheld for payment of withholding tax requirements |
|
|
( |
) |
|
|
|
|
Offering cost paid on financing |
|
|
|
|
|
( |
) |
|
Payment of debt obligations |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale leaseback financing, net |
|
|
|
|
|
|
||
Proceeds from warrants exercised |
|
|
|
|
|
|
||
Warrants issued |
|
|
|
|
|
|
||
Payment on sale leaseback financing |
|
|
|
|
|
( |
) |
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
||
NET INCREASE/(DECREASE) IN CASH |
|
|
( |
) |
|
|
( |
) |
CASH AT BEGINNING OF PERIOD |
|
|
|
|
|
|
||
CASH AT END OF PERIOD |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
NON-CASH INVESTING AND FINANCING TRANSACTIONS: |
|
|
|
|
|
|
||
Conversion of debt to common stock |
|
$ |
|
|
$ |
|
||
Warrants issued |
|
$ |
|
|
$ |
|
||
Director compensation settled with equity |
|
$ |
|
|
$ |
|
||
Ocean Minerals, LLC (“OML”) acquisition liabilities |
|
$ |
|
|
$ |
|
||
Non-cash contribution of Investment in Odyssey Retriever, Inc. for equity interest in OML |
|
$ |
|
|
$ |
|
||
Non-cash financing related to litigation financing |
|
$ |
|
|
$ |
|
||
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 nine months ended September 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.
In 2024, we received a payment of approximately $
Our consolidated non-restricted cash balance at September 30, 2024 was $
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 condensed 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. 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.
7
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
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 September 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
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.
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.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Average market price during the period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Option awards |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unvested restricted stock awards |
|
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|
||||
Convertible notes |
|
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|
||||
Common Stock Warrant related |
|
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|
|
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|
||||
Put Options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
8
The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income per share:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) attributable to Odyssey Marine Exploration, Inc. |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic net income (loss) available to stockholders |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Income (loss) on equity method investment |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Fair value change of debt instruments |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Fair value change of warrants |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Fair value change of convertible debt |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Diluted net income (loss) available to stockholders |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding – Basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of other derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of warrants |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of convertible instruments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding – Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Diluted |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||
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
Accounting Standards Not Yet Adopted
In November 2023, the FASB issued new guidance on segment reporting (ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”). This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company operates in one reportable segment; however, it is currently evaluating the effect that implementation of this standard will have on the Company’s condensed consolidated financial statements and disclosures.
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 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:
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Related party (see Notes 5 and 6) |
|
$ |
|
|
$ |
|
||
Other |
|
|
|
|
|
|
||
Total accounts receivable and other, net |
|
$ |
|
|
$ |
|
||
NOTE 4 – OTHER CURRENT ASSETS
Our other current assets consisted of the following:
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Prepaid assets |
|
$ |
|
|
$ |
|
||
Other |
|
|
|
|
|
|
||
Deposits |
|
|
|
|
|
|
||
Total other current assets |
|
$ |
|
|
$ |
|
||
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
We invoiced CIC for technical services a total of $
Ocean Minerals, LLC
The Company provides services to Ocean Minerals, LLC (“OML”), a deep-sea mineral exploration company in which we hold approximately
See Note 6, Investment in Unconsolidated Entities, for amounts the Company invoiced OML during the three and nine months ended September 30, 2024 and 2023.
Salvage Agreement
The Company held a
10
In 2024, the Company received payments of approximately $
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 $
As of September 30, 2024 and December 31, 2023, the aggregate outstanding amount, including accrued interest, of the Oceanica-ExO Notes was approximately $
Certain Stockholders
We have entered into financing transactions with certain stockholders that beneficially own more than five percent of our Common Stock.
2022 Equity Transaction
On June 10, 2022, we completed the 2022 Equity Transaction, in which:
On August 31, 2023, FourWorld exercised 2022 Warrants to purchase
11
March 2023 Note Purchase Agreement
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 and Two Seas each purchased portions of the March 2023 Note and March 2023 Warrants. Principal and interest payments during the nine months ended September 30, 2024 are detailed below, and there was no interest paid during the nine months ended September 30, 2023.
On September 5, 2024, the Company entered into amendments of the March 2023 Note with the holders thereof pursuant to which the maturity date of the March 2023 Note was extended from September 6, 2024 to
December 2023 Note Purchase Agreement
On December 1, 2023, we entered into the December 2023 Note Purchase Agreement, in which FourWorld and Two Seas participated. No principal was repaid and no cash interest was paid during the three and nine months ended September 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.
NOTE 6 – INVESTMENT IN UNCONSOLIDATED ENTITIES
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
CIC Limited |
|
$ |
|
|
$ |
|
||
Ocean Minerals, LLC |
|
|
|
|
|
|
||
Chatham Rock Phosphate, Limited |
|
|
|
|
|
|
||
Neptune Minerals, Inc. |
|
|
|
|
|
|
||
Investment in unconsolidated entities |
|
$ |
|
|
$ |
|
||
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.
12
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, 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
On October 18, 2024, Odyssey and OML entered into a Termination Agreement pursuant to which the parties terminated the OML Purchase Agreement (the “Termination Agreement”). The Termination Agreement terminated the parties’ respective rights and obligations relating to the Second OML Units, the Third OML Units and the Optional Units (each as defined below), but did not affect Odyssey’s ownership of the Initial OML Units or the obligation to pay the lease payments for the Retriever asset as described below. The Termination Agreement did not affect the Equity Exchange Agreement or the Contribution Agreement (each as defined below), each of which remains in effect.
At September 30, 2024 and December 31, 2023, Odyssey owned approximately
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 “Equity 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 Equity Exchange Agreement to the contrary, the aggregate maximum number of shares of Odyssey’s common stock that may be issued under the Equity Exchange Agreement will not (a) exceed
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 $
13
Equity Method of Accounting
The Company has determined that OML operates more like a partnership, and as the Company holds more than
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. During the three and nine months ended September 30, 2024, we invoiced OML for technical services a total of $
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 $
14
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 $
The Company determined that the initial Closing Consideration is as follows:
Cash consideration |
|
|
|
$ |
|
|
Fair value of Odyssey Retriever, Inc. |
|
|
|
|
|
|
Fair value of the Second Closing |
|
|
|
|
|
|
Fair value of the Third Closing |
|
|
|
|
|
|
Fair value of the Equity Exchange Agreement |
|
|
|
|
|
|
Transaction costs |
|
|
|
|
|
|
Initial closing consideration |
|
|
|
$ |
|
At September 30, 2024 and December 31, 2023, the Company’s accumulated investment in OML was $
For the three and nine months ended September 30, 2024, based on estimated financial information for our equity-method investee, we recognized income on equity method investment of $
The following tables provide summarized financial information for OML, its equity method accounted investee, not adjusted for the percentage ownership of the Company, compiled from its financial statements, reported on a one-quarter lag.
|
|
June 30, 2024 |
|
|||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||
Revenue |
|
$ |
|
|
$ |
|
||
General expenses |
|
|
( |
) |
|
|
( |
) |
Payroll expenses |
|
|
( |
) |
|
|
( |
) |
Net Loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
As of |
|
|
|
|
June 30, 2024 |
|
|
Total Assets |
|
$ |
|
|
Total Liabilities |
|
$ |
|
|
Neptune Minerals, Inc.
We have an ownership interest of approximately
15
Chatham Rock Phosphate, Limited.
We have an ownership of approximately
NOTE 7 – INCOME TAXES
During the nine months ended September 30, 2024, we generated a federal taxable income of $
NOTE 8
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 $
Lease commitments
One of the Company’s lease agreements expired during the three months ended September 30, 2024, and was extended for a one-year period ending July 31, 2025. As a result, using the short-term exception under ASC 842, the Company did not record a right-of-use (“ROU”) asset and lease obligation as of September 30, 2024.
We recognized approximately $
16
NOTE 9 – LOANS PAYABLE
The Company’s consolidated loans payable consisted of the following carrying values at:
|
|
Loan payable |
|
|||||
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
March 2023 Note |
|
$ |
|
|
$ |
|
||
December 2023 Note |
|
|
|
|
|
|
||
Emergency Injury Disaster Loan |
|
|
|
|
|
|
||
Vendor note payable |
|
|
|
|
|
|
||
AFCO Insurance note payable |
|
|
|
|
|
|
||
Pignatelli note |
|
|
|
|
|
|
||
37N Note |
|
|
|
|
|
|
||
Finance liability (Note 14) |
|
|
|
|
|
|
||
Total Loans payable |
|
$ |
|
|
$ |
|
||
Less: Unamortized deferred lender fee |
|
|
( |
) |
|
|
( |
) |
Less: Unamortized deferred discount |
|
|
( |
) |
|
|
( |
) |
Total Loans payable, net |
|
$ |
|
|
$ |
|
||
Less: Current portion of loans payable |
|
|
( |
) |
|
|
( |
) |
Loans payable—long term |
|
$ |
|
|
$ |
|
||
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 $
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 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 the 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 nine months ended September 30, 2024 was a decrease of $
For the three months ended September 30, 2024 and 2023, we incurred $
For the nine months ended September 30, 2024 and 2023, we incurred $
The September 30, 2024 carrying value of the debt was $
On September 5, 2024, the Company entered into amendments of the March 2023 Note with the holders thereof pursuant to which the maturity date of the March 2023 Note was extended from September 6, 2024 to
17
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 $
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 $
For the three and nine months ended September 30, 2024, we recorded $
At September 30, 2024, the carrying value of the debt was $
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 $
Vendor Note Payable
We currently owe a vendor $
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
18
Pignatelli
On March 6, 2023, Odyssey issued a new unsecured Convertible Promissory Note in the principal amount of $
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 $
Any time prior to maturity, the Company had the option to prepay the indebtedness at an amount of
If 37N delivers an exercise notice and the number of shares issuable is limited by the
In June 2024, 37N delivered an exercise notice to us pursuant to which it exercised its right to convert $
In July 2024, 37N delivered an exercise notice to us pursuant to which it exercised its right to convert $
In September 2024, 37N delivered an exercise notice to us pursuant to which it exercised its right to convert $
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
19
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 September 30, 2024, the debt instrument and embedded derivatives were recorded on the consolidated balance sheets at fair value of $
At December 31, 2023, the debt instrument and embedded derivatives were recorded on the consolidated balance sheets at fair value of $
Accrued interest
Total accrued interest associated with our financings was $
The Company did not have any financial assets measured on a recurring basis.
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Fair Value |
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Level |
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September 30, 2024 |
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December 31, 2023 |
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Liabilities |
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37N Note embedded derivative |
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3 |
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$ |
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$ |
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Put option liability |
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3 |
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Litigation financing |
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3 |
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Warrant liabilities issued with debt (December 2023 Warrants) |
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3 |
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Warrant liabilities issued with equity (2022 Warrants) |
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3 |
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March 2023 Warrants |
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3 |
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Total of fair valued liabilities |
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$ |
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$ |
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At September 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 an active market. The Equity Exchange Agreement, which 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 of 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.
20
Changes in our Level 3 fair value measurements were as follows:
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March 2023 |
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37N Note |
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Put option |
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Litigation |
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December |
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2022 Warrants |
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Total |
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Year ended December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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Change in fair value |
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Classification of warrants as liability |
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Three months ended March 31, 2024 |
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Debt conversion - 55,000 common shares |
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Change in fair value |
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Three months ended June 30, 2024 |
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Debt conversion - 120,000 common shares |
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Change in fair value |
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( |
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Three months ended September 30, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Year ended December 31, 2022 |
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$ |
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$ |
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$ |
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Change in fair value |
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Other |
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Three months ended March 31, 2023, As Restated |
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Issuance of new instrument |
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Issuance of new funding |
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Change in fair value |
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Three months ended June 30, 2023, As Restated |
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Issuance of new funding |
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Warrants Exercised |
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Change in fair value |
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Nine months ended September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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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
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 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 is recorded in our condensed consolidated balance sheet in Litigation financing and other and as of September 30, 2024 and December 31, 2023 amounted to $
On September 17, 2024, the Company received notification from the International Centre for Settlement of Investment Disputes (“ICSID”) of the arbitral award on the claims brought by the Company on behalf of itself and ExO, against the United Mexican States under Chapter Eleven of the North American Free Trade Agreement (“NAFTA”). The arbitral tribunal issued an award in favor of the Company and ExO. The award orders Mexico to pay $
21
award is paid in full, plus the arbitrators’ fees and ICSID administrative costs. The amounts awarded are net of Mexican taxes and Mexico may not tax the award.
The Company considers the monetary award to be a gain contingency, and has not recorded any related gain in the condensed consolidated financial statements as of and for the quarter ended September 30, 2024. The Company will record any related gain when it is determined to be realized or realizable. As of September 30, 2024, the Company is in process of analyzing the probability of collectability of the arbitration award.
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
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 September 30, 2024 and December 31, 2023 was $
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 Equity Exchange Agreement.
NOTE 11
Accrued expenses consist of the following:
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September 30, 2024 |
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December 31, 2023 |
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Compensation and incentives |
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$ |
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$ |
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Professional services |
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Deposits |
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Interest |
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Exploration license fees |
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Total accrued expenses |
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22
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
Share-Based Compensation
The Company recorded share-based compensation expense related to our options and restricted stock units of $
On January 29, 2024, we granted options to purchase an aggregate of
The Company used the following assumptions for the BSM to determine the fair value of the stock options granted during the nine months ended September 30, 2024.
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January 29, 2024 |
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Risk free interest rate |
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% |
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Expected life |
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Expected volatility |
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% |
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Expected dividend yield |
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— |
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Grant-date fair value |
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NOTE 13 – CONCENTRATION OF CREDIT RISK
We do not currently have any debt obligations with variable interest rates.
For the three and nine months ended September 30, 2024, we had
As of both September 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 $
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.
23
As of September 30, 2024 and December 31, 2023, the carrying values of the financing liabilities were $
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 |
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2024 |
$ |
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2025 |
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2026 |
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2027 |
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Thereafter |
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$ |
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NOTE 15 – SUBSEQUENT EVENTS
Nasdaq Listing Requirements
On October 30, 2024, the Company was notified by the listing qualifications staff of Nasdaq Regulation (“Nasdaq”) that the Company did not satisfy the minimum $
On November 4, 2024, the Company was notified by the listing qualifications staff of Nasdaq that the Company did not satisfy the $
If the Company does not regain compliance with both rules prior to the expiration of the respective compliance periods, it will receive written notification that its securities are subject to delisting, and at that time the Company may appeal the delisting determination to a hearing panel. The notices have no immediate impact on the listing of the Company’s securities on the Nasdaq Capital Market.
OML Purchase Agreement
As disclosed in Note 6, Investment in Unconsolidated Entity, on October 18, 2024, Odyssey and OML entered into a Termination Agreement pursuant to which the parties terminated the OML Purchase Agreement (the “Termination Agreement”). The Termination Agreement did not affect the Equity Exchange Agreement or the Contribution Agreement, each of which remains in effect.
37North Conversion
In October 2024, 37N delivered exercise notices to us pursuant to which it exercised its right to convert the remainder of the outstanding indebtedness under the Note Agreement, amounting to $
24
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:
25
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 once again challenged the unlawful SEMARNAT decision before the TFJA. On October 25, 2024, the TFJA announced its ruling in favor of SEMARNAT. ExO expects to appeal the TFJA’s ruling.
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 sought compensation on the basis that SEMARNAT’s wrongful repeated denial of authorization has destroyed the value of our investment in violation of NAFTA.
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 $10.0 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).
On September 17, 2024, the Company received notification from the International Centre for Settlement of Investment Disputes (“ICSID”) of the arbitral award on the claims brought by the Company on behalf of itself and ExO, against the United Mexican States under Chapter Eleven of the North American Free Trade Agreement (“NAFTA”). The arbitral tribunal issued an award in favor of the Company and ExO. The award orders Mexico to pay $37.1 million for breaching its obligations under NAFTA, plus interest at the one-year Mexico Treasury bond rate, compounded annually, from October 12, 2018, until the award is paid in full, plus the arbitrators’ fees and ICSID administrative costs. The amounts awarded are net of Mexican taxes and Mexico may not tax the award.
In October 2024, the Company discovered that the Mexican mining authority unlawfully cancelled ExO’s mining concessions in June and August 2024. ExO is challenging the cancellation.
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 15.3% of the current outstanding equity units of CIC issued in exchange for provision of services by the Company.
26
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 1.1 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 these high-quality seafloor polymetallic nodules and processing solutions to convert them into commercial grade metals.
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 $10.0 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. On October 18, 2024, Odyssey and OML entered into a Termination Agreement pursuant to which the parties terminated the OML Purchase Agreement. The Termination Agreement terminated the parties’ rights and obligations relating to the Second OML Units, Third OML Units and Optional Units (see Note 6, Investment In Unconsolidated Entity), but did not affect Odyssey’s ownership of the Initial OML Units or its obligation to pay the lease payments for the Retriever asset (see Note 6, Investment In Unconsolidated Entity). The Termination Agreement also did not affect the Equity Exchange Agreement or Contribution Agreement (each as defined above), each of which remains in effect.
The 6,000-meter rated ROV contributed to OML by Odyssey provides OML with an additional tool to advance the project toward eventual applications for an environmental permit and harvesting license when exploration and feasibility studies are completed and demonstrate how harvesting can be done without serious environmental harm. OML continues to advance 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 known 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.
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.
27
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.
28
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 September 30, 2024 compared to Three Months Ended September 30, 2023
|
|
Three months ended September 30, |
|
|
Change |
|
||||||||||
Increase/(Decrease) (in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
214 |
|
|
$ |
176 |
|
|
$ |
38 |
|
|
|
21.6 |
% |
Marketing, general and administrative |
|
|
1,733 |
|
|
|
1,564 |
|
|
$ |
169 |
|
|
|
10.8 |
% |
Operations and research |
|
|
1,349 |
|
|
|
1,067 |
|
|
$ |
282 |
|
|
|
26.4 |
% |
Total operating expenses |
|
|
3,082 |
|
|
|
2,631 |
|
|
$ |
451 |
|
|
|
17.1 |
% |
Total other income (expense) |
|
|
19,104 |
|
|
|
(3,597 |
) |
|
$ |
22,701 |
|
|
|
631.1 |
% |
Income tax benefit (provision) |
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
Non-controlling interest |
|
|
2,453 |
|
|
|
2,240 |
|
|
$ |
213 |
|
|
|
9.5 |
% |
Net income (loss) |
|
$ |
18,688 |
|
|
$ |
(3,813 |
) |
|
$ |
22,501 |
|
|
|
590.1 |
% |
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 September 30, 2024 was $0.21 million, an increase of $38,000 as compared to $0.18 million for the three months ended September 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.
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 September 30, 2024 were $1.7 million, an increase of $0.2 million as compared to the three months ended September 30, 2023. The increase was primarily due to $0.4 million of increased professional services fees for audit and consulting, offset by a decrease of $0.2 million in stock-based 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 increased by $0.3 million to $1.3 million for the three months ended September 30, 2024 from $1.1 million for the three months ended September 30, 2023. The increase was primarily due to $0.3 million of increased licenses and permits and $0.2 million of increased depreciation and other operating expenses, offset by a decrease of $0.2 million in compensation expenses.
Total Other Income/Expense
Total other income/expense was an income of $19.1 million and an expense of $3.6 million for the three months ended September 30, 2024 and 2023, respectively, resulting in a net income increase of $22.7 million. The increased income was attributable to: (i) $21.4 million increase in the change in fair value of derivative liabilities, relating primarily to the change in fair value of warrants; (ii) $0.4 million of other income from our residual economic interest from our legacy shipwreck business, (iii) $0.3 million increased foreign exchange income, and (iv) an increase of $0.4 million in the gain from our equity investment, which were offset by (x) a $0.2 million reduction of the gain on sale of wholly owned entity.
Income Taxes
Due to losses and our net operating loss carryforwards, we did not accrue any taxes in either period ending 2024 or 2023.
29
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 September 30, 2024 was $2.5 million as compared to $2.2 million for the three months ended September 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.
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
Increase/(Decrease) (in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
633 |
|
|
$ |
637 |
|
|
$ |
(4 |
) |
|
|
(1 |
)% |
Marketing, general and administrative |
|
|
7,973 |
|
|
|
5,189 |
|
|
$ |
2,784 |
|
|
|
53.7 |
% |
Operations and research |
|
|
3,261 |
|
|
|
3,563 |
|
|
$ |
(302 |
) |
|
|
(8.5 |
)% |
Total operating expenses |
|
|
11,234 |
|
|
|
8,752 |
|
|
$ |
2,482 |
|
|
|
28.4 |
% |
Total other income (expense) |
|
|
24,029 |
|
|
|
14,887 |
|
|
$ |
9,142 |
|
|
|
61.4 |
% |
Income tax benefit (provision) |
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
Non-controlling interest |
|
|
7,231 |
|
|
|
6,790 |
|
|
$ |
441 |
|
|
|
6.5 |
% |
Net income (loss) |
|
$ |
20,659 |
|
|
$ |
13,563 |
|
|
$ |
7,096 |
|
|
|
52.3 |
% |
Revenue
Total revenue for the nine months ended September 30, 2024 was $0.6 million, a decrease of $4,000 as compared to $0.6 million for the nine months ended September 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 nine 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 nine months ended September 30, 2024 were $8.0 million, an increase of $2.8 million as compared to the nine months ended September 30, 2023. The increase primarily resulted from an increase of $2.0 million in professional services primarily attributable to audit and consulting fees and an increase of $1.2 million in non-cash share-based compensation expense, offset by a $0.4 million reduction in employee compensation.
Operations and research expenses decreased by $0.3 million to $3.3 million for the nine months ended September 30, 2024 from $3.6 million the nine months ended September 30, 2023, primarily as a result of a $0.3 million decrease in professional legal fees services, $0.2 million decrease in compensation expenses, and $0.1 million decrease in depreciation expense, offset by an increase of $0.3 million in licenses and permits.
Total Other Income and Expense
Total other income/expense was $24.0 million and $14.9 million in net income for both the nine months ended September 30, 2024 and 2023, respectively, resulting in a net increase of $9.1 million.
The increased income was attributable to: (i) $20.0 million increased gain in the change in fair value of derivative liabilities, relating primarily to the change in fair value of warrants and Litigation financing liability, (ii) $9.8 million of other income from our residual economic interest from our legacy shipwreck business, and (iii) $2.5 million increased foreign exchange income, which were offset by (x) $21.2 million of gain on debt extinguishment in 2023 that did not reoccur in 2024, (y) $1.7 million increase in interest expense which includes debt discount amortization; and (z) $0.3 million in decreased interest income.
30
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 nine months ended September 30, 2024 was $7.2 million as compared to $6.8 million for the nine months ended September 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.
Liquidity and Capital Resources
Discussion of Cash Flows
|
|
Nine months ended September 30, |
|
|||||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
|
||
Summary of Cash Flows: |
|
|
|
|
|
|
||
Net Cash Provided By (Used In) Operating Activities |
|
$ |
2,411 |
|
|
$ |
(8,742 |
) |
Net Cash Provided By (Used In) Investing Activities |
|
|
(88 |
) |
|
|
(430 |
) |
Net Cash Provided By (Used In) Financing Activities |
|
|
(3,485 |
) |
|
|
8,240 |
|
Net Increase/(Decrease) In Cash |
|
$ |
(1,162 |
) |
|
$ |
(932 |
) |
Cash At Beginning Of Period |
|
|
4,022 |
|
|
|
1,443 |
|
Cash At End Of Period |
|
$ |
2,859 |
|
|
$ |
512 |
|
Operating Activities
Net cash provided by operating activities for the nine months ended September 30, 2024 was $2.4 million, compared to cash used of $8.7 million for the nine months ended September 30, 2023.
The net cash provided by operating activities reflected a net income before non-controlling interest of $13.4 million, which includes other income of $9.8 million from a residual economic interest in a salvaged shipwreck. Cash provided by operating activities is adjusted primarily by non-cash items of $10.9 million, including: (i) $18.4 million in changes in fair value of derivative liabilities, relating primarily to the change in fair value of warrants and Litigation financing liability, (ii) the amortization of deferred discount $2.9 million, (iii) note payable accretion of $1.8 million, (iv) share-based compensation of $1.7 million, and (v) $1.2 million of PIK interest. Other operating activities resulted in an increase in working capital of $0.2 million. This $0.2 million increase includes a $0.6 million increase to accrued expenses, predominantly related to our NAFTA arbitration, offset by a decrease of $0.5 million in other assets.
Investing Activities
Cash flows used in investing activities for the nine months ended September 30, 2024 were minimal and related to purchases of property and equipment. Cash flows used in investing activities for the nine months ended September 30, 2023 primarily consisted of $1.0 million cash paid for the investment in a new unconsolidated entity and $0.6 million of purchases of property and equipment, offset by $1.0 million of proceeds from the note receivable repayment and $0.3 million of proceeds from the sale of equipment.
Financing Activities
Cash flows used in financing activities for the nine months ended September 30, 2024 were $3.5 million, consisting primarily of debt obligation payments.
Cash flows provided by financing activities for the nine months ended September 30, 2023 were $8.2 million, consisting primarily of $15.4 million received from the issuance of loans payable and $4.1 million of net proceeds from the sale leaseback financing, which were offset by $11.4 million of debt obligation payments.
31
Other Cash Flow and Equity Areas
General Discussion
At September 30, 2024, we had cash and cash equivalents of $2.9 million, a decrease of $1.1 million from the December 31, 2023 balance of $4.0 million. Financial debt of the company was $23.2 million at September 30, 2024 and $23.3 million at December 31, 2023.
Financings
The Company’s consolidated loans payable consisted of the following carrying values at:
|
|
Loan payable |
|
|||||
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
March 2023 Note |
|
$ |
12,689,588 |
|
|
$ |
14,858,816 |
|
December 2023 Note |
|
|
6,373,454 |
|
|
|
6,000,000 |
|
Emergency Injury Disaster Loan |
|
|
150,000 |
|
|
|
150,000 |
|
Vendor note payable |
|
|
484,009 |
|
|
|
484,009 |
|
AFCO Insurance note payable |
|
|
— |
|
|
|
468,751 |
|
Pignatelli note |
|
|
— |
|
|
|
500,000 |
|
37N Note |
|
|
389,202 |
|
|
|
804,997 |
|
Finance liability (Note 14) |
|
|
4,183,728 |
|
|
|
4,112,332 |
|
Total Loans payable |
|
$ |
24,269,981 |
|
|
$ |
27,378,905 |
|
Less: Unamortized deferred lender fee |
|
|
(29,045 |
) |
|
|
(106,488 |
) |
Less: Unamortized deferred discount |
|
|
(1,063,361 |
) |
|
|
(3,955,449 |
) |
Total Loans payable, net |
|
$ |
23,177,575 |
|
|
$ |
23,316,968 |
|
Less: Current portion of loans payable |
|
|
(19,383,847 |
) |
|
|
(15,413,894 |
) |
Loans payable—long term |
|
$ |
3,793,728 |
|
|
$ |
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 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 the 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 nine months ended September 30, 2024 was a decrease of $5.9 million and a decrease of $6.2 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 September 30, 2024 was $1.5 million.
For the three months ended September 30, 2024 and 2023, we incurred $0.5 million and $0.6 million, respectively, of interest expense from the amortization of the debt discount and $12,157 and $16,447, respectively, interest from the fee amortization which has been recorded in interest expense on the condensed consolidated Statement of Operations.
For the nine months ended September 30, 2024 and 2023, we incurred $1.7 million and $1.4 million, respectively, of interest expense from the amortization of the debt discount and $44,693 and $37,363, respectively, interest from the fee amortization which has been recorded in interest expense on the condensed consolidated Statement of Operations.
The September 30, 2024 carrying value of the debt was $12.7 million, which includes interest Paid-In-Kind (“PIK”) of $1.7 million. The total face value of this obligation on September 30, 2024, and December 31, 2023, was $12.7 million and $14.9 million, respectively.
32
On September 5, 2024, the Company entered into amendments of the March 2023 Note with the holders thereof pursuant to which the maturity date of the March 2023 Note was extended from September 6, 2024 to December 6, 2024. In connection with the amendments, the Company repaid an aggregate amount of $3.0 million of the principal outstanding on September 6, 2024.
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.
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 nine months ended September 30, 2024, we recorded $0.4 million and $1.2 million, respectively, of interest expense from the amortization of the debt discount and $10,996 and $32,750, respectively, of interest from the fee amortization.
At September 30, 2024, the carrying value of the debt was $5.3 million and was net of unamortized debt fees of $29,045, net of unamortized debt discount of $1.1 million associated with the fair value of the warrants. The change in fair value of the December 2023 Warrants for the three and nine months ended September 30, 2024 was a decrease of $2.7 million and a decrease of $1.7 million, respectively, which has been recorded in the change in derivative liabilities fair value in the condensed consolidated statement of operations. The total face value of this obligation at September 30, 2024 was $6.4 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 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, the Company 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 September 30, 2024, we have not repaid this Note Agreement.
33
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 $200,701 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.
In July 2024, 37N delivered an exercise notice to us pursuant to which it exercised its right to convert $101,621 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 $3.2781, we issued 31,000 shares of our Common Stock to 37N on July 18, 2024.
In September 2024, 37N delivered an exercise notice to us pursuant to which it exercised its right to convert $250,633 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 $2.8161, we issued 89,000 shares of our Common Stock to 37N on September 12, 2024.
In October 2024, 37N delivered exercise notices to us pursuant to which it exercised its right to convert the remainder of the outstanding indebtedness under the Note Agreement, amounting to $467,043, into shares of our Common Stock. In accordance with the Note Agreement, based on the applicable conversation rates of ranging between $0.41055 and $0.6993, we issued 853,671 shares of our Common Stock to 37N during October 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 September 30, 2024, the debt instrument and embedded derivatives were recorded on the consolidated balance sheets at fair value of $0.4 million and $0.1 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, 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.
In 2024, we received a payment of approximately $9.8 million arising from a residual economic interest in a salvaged shipwreck. The balance of those proceeds, together with other anticipated cash inflows, is expected to provide sufficient operating funds through at least the fourth quarter of 2024.
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Our consolidated non-restricted cash balance at September 30, 2024 was $2.9 million. We have a working capital deficit at September 30, 2024 of $27.7 million. The total consolidated book value of our assets was approximately $21.8 million at September 30, 2024, which includes cash of $2.9 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.
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 September 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 September 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.
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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) continuing our 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
Other than the ongoing remediation efforts of the material weakness described above, there were no changes during the three months ended September 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
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ITEM 6. Exhibits
Exhibit Number |
|
Description |
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 |
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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: November 13, 2024 |
By: |
/s/ Mark D. Gordon |
|
|
Mark D. Gordon |
|
|
Chief Executive Officer |
|
|
Principal Executive Officer |
|
|
Principal Financial Officer |
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