In connection with the execution and delivery of the Minosa Purchase Agreement, Odyssey and
MINOSA entered into a second amended and restated registration rights agreement (the Second AR Registration Rights Agreement) pursuant to which Odyssey agreed to register the offer and sale of the shares (the Conversion
Shares) of our common stock issuable upon the conversion of the indebtedness evidenced by the Minosa Note. Subject to specified limitations set forth in the Second AR Registration Rights Agreement, including that we are eligible to use Form
S-3,
the holder of the Minosa Note can require us to register the offer and sale of the Conversion Shares if the aggregate offering price thereof (before any underwriting discounts and commissions) is not less than
$3.0 million. In addition, we agreed to file a registration statement relating to the offer and sale of the Conversion Shares on a continuous basis promptly (but in no event later than 60 days after) after the conversion of the Minosa Note into
the Conversion Shares and to thereafter use its reasonable best efforts to have such registration statement declared effective by the Securities and Exchange Commission.
Note 7 Monaco 2018
During the
period ended March 31, 2018, Monaco advanced us $1.0 million that was applied to a loan agreement that was executed on April 20, 2018. Monaco also agreed to treat $99,366 of back rent owed by us to Monaco as part of this loan
resulting in an aggregate principal amount of $1,099,366 at September 30, 2018. The indebtedness bears interest at 10.0% percent per year. All principal and any unpaid interest is to be payable on the first anniversary of this agreement,
April 20, 2019. This debt is secured by cash proceeds, if any, from our future shipwreck projects we have contracted with Magellan. As additional consideration, their share purchase option expiration date, as discussed in Note 1 Monaco
2014 and Note 2 Monaco 2016 above, has been extended from 30 days to seven months after the note becomes paid in full. For the three-months ended September 30, 2018, interest expense in the amount of $28,498 was recorded.
Note 8 Promissory note
On
July 12, 2018, we entered into a Note and Warrant Purchase Agreement (the Purchase Agreement) with two individuals (the Lenders), one of whom holds in excess of 5.0% of our outstanding common stock. Pursuant to the
Purchase Agreement, the Lenders agreed to lend an aggregate of $1,050,000 to us, which was advanced in three tranches on July 12, 2018, $500,000, August 17, 2018, $300,000 and October 4, 2018, $250,000. The indebtedness is evidenced
by secured convertible promissory notes (the Notes) and bears interest at a rate equal to 8.0% per annum. Unless otherwise converted as described below, the entire outstanding principal balance under the Notes and all accrued interest
and fees are due and payable on July 12, 2019.
At any time after to the first to occur of (a) a sale by us of additional Notes
or (b) September 12, 2018, the Lenders have the right to convert all amounts outstanding under the Notes into either (x) shares of our common stock at the conversion rate of $8.00 per share, (y) $500,000 of the indebtedness owed by
Exploraciones Oceanicas S. de R. L. de C.V. (ExO) to Oceanica Marine Operations, S.R.L. (OMO), or (z) a 7.5% interest in Aldama Mining Company, S. de R. L. de C.V. (Aldama). We indirectly hold a controlling
interest in ExO; OMO and Aldama are indirect, wholly owned subsidiaries of ours.
In connection with the issuance and sale of the Notes,
we issued warrants to purchase common stock (the Warrants) to the Lenders. The Lenders may exercise the Warrants to purchase an aggregate of 50,000 shares of our common stock at an exercise price of $12.00 per share. The Warrants are
exercisable during the period commencing on the date on which the Notes are converted into shares of our common stock and ending on July 12, 2021.
Pursuant to a Pledge Agreement, dated as of July 12, 2018 (the Pledge Agreement), our obligations under the Notes are secured
by a pledge of a portion of Odysseys ownership interest in Aldama and another entity.
Pursuant to a Registration Rights Agreement
(the Rights Agreement) among us and the Lenders, we granted the Lenders piggy-back registration rights with respect to the shares of our common stock issuable upon conversion of the Notes and the exercise of the Warrants.
The Purchase Agreement, the Notes, the Warrants, the Pledge Agreement, and the Rights Agreement include representations and warranties
and other covenants, conditions, and other provisions customary for comparable transactions.
We have accounted for this transaction as a
financing transaction, wherein the net proceeds received were allocated to the financial instruments issued. Prior to making the accounting allocation, we evaluated the transaction for proper classification under ASC 480 Distinguishing Liabilities
from Equity (ASC 480), ASC 815 Derivatives and Hedging (ASC 815).
We determined that the debt achieved
conventional convertible status and that the equity conversion option was in the money at inception which required the calculation of a beneficial conversion feature (BCF). The fair value of the warrants and BCF component exceeded the
amount of proceeds, therefore, they were limited to the cash proceeds of $800,000 at September 30, 2018. As a result, there was no value allocated to the debt at inception. The debt is being accreted to face value over its term using the
effective interest method. For the three months ended September 30, 2018, we recorded $20,403 in interest expense associated with the accretion of the debt discount and the carrying value of the notes at September 30, 2018 was $20,403.
Therefore, the book balance of this debt at September 30, 2018 is $20,403 and the actual face value is $1.050 million.
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