Note 7 Monaco 2018
During the period ended March 31, 2018, Monaco advanced us $1.0 million that was included in a loan agreement that was executed on
April 20, 2018. Monaco also agreed to treat $99,366 of back rent owed by us to Monaco as part of this loan resulting in an aggregate principal amount of $1,099,366 at March 31, 2020 and December 31, 2019. The indebtedness bears
interest at 10.0% percent per year. All principal and any unpaid interest are 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 March 31, 2020 and 2019, interest expense in the amount of $32,776 and $29,308, respectively, 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. See Term Extension (July 8, 2019) below.
At any time
after to the first to occur of (a) a sale by us of additional Notes or (b) September 12, 2018, the Lenders have the right to convert all amounts outstanding under the Notes into either (x) shares of our common stock at the conversion
rate of $8.00 per share, (y) $500,000 of the indebtedness owed by Exploraciones Oceanicas S. de R. L. de C.V. (ExO) to Oceanica Marine Operations, S.R.L. (OMO), or (z) a 7.5% interest in Aldama Mining Company, S. de
R. L. de C.V. (Aldama). We indirectly hold a controlling interest in ExO; OMO and Aldama are indirect, wholly owned subsidiaries of ours.
In connection with the issuance and sale of the Notes, we issued warrants to purchase common stock (the Warrants) to the Lenders.
The Lenders may exercise the Warrants to purchase an aggregate of 65,625 shares of our common stock at an exercise price of $12.00 per share. The Warrants are exercisable during the period commencing on the date on which the Notes are converted into
shares of our common stock and ending on July 12, 2021.
Pursuant to a Pledge Agreement, dated as of July 12, 2018 (the
Pledge Agreement), our obligations under the Notes are secured by a pledge of a portion of 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 $1,050,000 at December 31, 2018. As a result, there was no value allocated to the debt at inception. The debt was being accreted to face value over its term using the
effective interest method. The face value of this debt was $1.05 million at March 31, 2020 and December 31, 2019. For the three months ended March 31, 2020 and 2019, interest expense in the amount of $23,555 and $21,510,
respectively, was recorded.
Term Extension (July 8, 2019)
On July 8, 2019, Odyssey and the Lenders entered into a Second Amendment to Note and Warrant Purchase Agreement and Note and Warrant
Modification Agreement (the Second Amendment) pursuant to which certain terms and provisions of the
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