ODYSSEY MARINE EXPLORATION INC 10-Q

ITEM 1. FINANCIAL STATEMENTS ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited March 31, 2022 December 31, 2021 ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,106,313 $ 2,274,751 Accounts receivable and other, net 262,128 268,867 Other current assets 753,495 776,630 Total current assets 3,121,936 3,320,248 PROPERTY AND EQUIPMENT Equipment and office fixtures 5,605,792 5,602,915 Right to use – operating lease, net 422,336 461,109 Accumulated depreciation ( 5,587,254 ) ( 5,584,881 ) Total property and equipment 440,874 479,143 NON-CURRENT ASSETS Investment in unconsolidated entity 3,548,925 3,253,950 Exploration license 1,821,251 1,821,251 Other non-current assets 34,295 34,295 Total non-current assets 5,404,471 5,109,496 Total assets $ 8,967,281 $ 8,908,887 LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) CURRENT LIABILITIES Accounts payable $ 5,677,097 $ 1,817,445 Accrued expenses 30,827,610 27,844,107 Operating lease obligation 168,809 163,171 Loans payable 24,984,010 22,784,010 Total current liabilities 61,657,526 52,608,733 LONG-TERM LIABILITIES Loans payable 19,483,909 18,472,997 Operating lease obligation 271,428 315,795 Total long-term liabilities 19,755,337 18,788,792 Total liabilities 81,412,863 71,397,525 Commitments and contingencies (NOTE G) STOCKHOLDERS’ EQUITY/(DEFICIT) Preferred stock – $ .0001 par value; 24,984,166 shares authorized; no ne outstanding — — Common stock – $ .0001 par value; 75,000,000 shares authorized; 14,487,146 and 14,309,315 issued and outstanding 1,448 1,431 Additional paid-in capital 249,189,881 249,055,600 Accumulated (deficit) ( 283,321,086 ) ( 275,090,857 ) Total stockholders’ equity/(deficit) before non-controlling interest ( 34,129,757 ) ( 26,033,826 ) Non-controlling interest ( 38,315,825 ) ( 36,454,812 ) Total stockholders’ equity/(deficit) ( 72,445,582 ) ( 62,488,638 ) Total liabilities and stockholders’ equity/(deficit) $ 8,967,281 $ 8,908,887 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – Unaudited Three Months Ended March 31, 2022 March 31, 2021 REVENUE Marine services $ 294,975 $ 256,322 Operating and other 4,631 35,354 Total revenue 299,606 291,676 OPERATING EXPENSES Marketing, general and administrative 1,918,496 1,291,614 Operations and research 5,056,535 1,797,437 Total operating expenses 6,975,031 3,089,051 INCOME (LOSS) FROM OPERATIONS ( 6,675,425 ) ( 2,797,375 ) OTHER INCOME (EXPENSE) Interest expense ( 3,225,560 ) ( 2,380,476 ) Other ( 190,257 ) 54,385 Total other income (expense) ( 3,415,817 ) ( 2,326,091 ) (LOSS) BEFORE INCOME TAXES ( 10,091,242 ) ( 5,123,466 ) Income tax benefit (provision) — — NET (LOSS) BEFORE NON-CONTROLLING INTEREST ( 10,091,242 ) ( 5,123,466 ) Non-controlling interest 1,861,013 1,403,248 NET (LOSS) $ ( 8,230,229 ) $ ( 3,720,218 ) NET (LOSS) PER SHARE Basic and diluted (See NOTE B) $ ( 0.57 ) $ ( 0.29 ) Weighted average number of common shares outstanding Basic 14,365,633 12,610,924 Diluted 14,365,633 12,610,924 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY / (DEFICIT) – Unaudited Three Months Ended March 31, 2022 Common Stock Additional Paid-in Capital Accumulated Deficit Non-controlling Interest Total December 31, 2021 $ 1,431 $ 249,055,600 $ ( 275,090,857 ) $ ( 36,454,812 ) $ ( 62,488,638 ) Share-based compensation 17 134,281 — — 134,298 Net (loss) — — ( 8,230,229 ) ( 1,861,013 ) ( 10,091,242 ) March 31, 2022 $ 1,448 $ 249,189,881 $ ( 283,321,086 ) $ ( 38,315,825 ) $ ( 72,445,582 ) Three Months Ended March 31, 2021 Common Stock Paid-in Capital Accumulated Deficit Non-controlling Interest Total December 31, 2020 $ 1,259 $ 237,505,357 $ ( 265,134,462 ) $ ( 30,283,427 ) $ ( 57,911,273 ) Share-based compensation 1 281,687 — — 281,688 Common stock issued for converted convertible debt 41 1,448,656 — — 1,448,697 Common stock issued for services 1 99,999 — — 100,000 Sale of subsidiary equity 713,879 — — 713,879 Net (loss) — — ( 3,720,218 ) ( 1,403,248 ) ( 5,123,466 ) March 31, 2021 $ 1,302 $ 240,049,578 $ ( 268,854,680 ) $ ( 31,686,675 ) $ ( 60,490,475 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – Unaudited Three Months Ended March 31 2022 March 31 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss before non-controlling interest $ ( 10,091,242 ) $ ( 5,123,466 ) Adjustments to reconcile net loss to net cash (used) in operating activities: Investment in unconsolidated entity ( 294,975 ) ( 256,323 ) Depreciation and amortization 2,373 1,833 Financing fees amortization 36,724 28,982 Loan payable prepayment premium 200,000 — Note payable interest accretion 68,140 ( 45,204 ) Right of use asset amortization 38,773 35,179 Share-based compensation 312,646 281,687 (Increase) decrease in: Accounts receivable 6,739 ( 60,734 ) Other assets 23,135 87,152 Increase (decrease) in: Accounts payable 4,633,450 389,674 Accrued expenses and other 3,378,543 3,230,064 NET CASH USED IN OPERATING ACTIVITIES ( 1,685,694 ) ( 1,431,156 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 2,878 ) — NET CASH USED IN INVESTING ACTIVITIES ( 2,878 ) — CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of loans payable 2,200,000 — Payment of operating lease liability ( 38,729 ) ( 33,668 ) Proceeds from sale of equity of subsidiary — 713,879 Payment of debt obligation ( 186,777 ) ( 177,438 ) Repurchase of stock-based awards withheld for payment of withholding tax requirements ( 454,360 ) — NET CASH PROVIDED BY FINANCING ACTIVITIES 1,520,134 502,773 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ( 168,438 ) ( 928,383 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,274,751 6,163,205 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,106,313 $ 5,234,822 SUPPLEMENTARY INFORMATION: Interest paid $ — $ — Income taxes paid $ — $ — NON-CASH INVESTING AND FINANCING TRANSACTIONS: Director compensation settled with equity $ 276,012 $ 100,000 Accrued interest settled with common stock $ — $ 34,520 Non-Cash Disclosure: During the three months ended March 31, 2022 and 2021, we received $ 706,048 and $ 577,539 , respectively, in non-cash financing associated with our litigation financing as described in Note H – Litigation financing. The funder paid this amount directly to vendors used in our North American Free Trade Agreement (“NAFTA”) litigation support. On March 30, 2021, Epsilon Acquisitions LLC converted indebtedness of $ 1,448,697 at an exercise price of $ 3.52 into 411,562 shares of our common stock. The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A – 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 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, 2021. In the opinion of management, these financial statements reflect all adjustments, including normal recurring adjustments, necessary for a fair presentation of the financial position as of March 31, 2022 and the results of operations and cash flows for the interim periods presented. Operating results for the three month period ended March 31, 2022, are not necessarily indicative of the results that may be expected for the full year. Accounting standards adopted In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The amendments in this update are effective for public business entities that meet the definition of a Securities and Exchange Commission (“SEC”) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The amendments in ASU No. 2020-06 affect entities that issue convertible instruments and/or contracts in an entity’s own equity. For convertible instruments, the instruments primarily affected are those issued with beneficial conversion features or cash conversion features because the accounting models for those specific features are removed. However, all entities that issue convertible instruments are affected by the amendments to the disclosure requirements in this update. For contracts in an entity’s own equity, the contracts primarily affected are freestanding instruments and embedded features that are accounted for as derivatives under the current guidance because of failure to meet the settlement conditions of the derivatives scope exception related to certain requirements of the settlement assessment. The FASB simplified the settlement assessment by removing the requirements (1) to consider whether the contract would be settled in registered shares, (2) to consider whether collateral is required to be posted, and (3) to assess shareholder rights. Those amendments also affect the assessment of whether an embedded conversion feature in a convertible instrument qualifies for the derivatives scope exception. Additionally, the amendments in this update affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. We adopted this ASU as of January 1 , 2022 . On October 31, 2018, the SEC adopted a final rule (“New Final Rule”) that will replace SEC Industry Guide 7 with new disclosure requirements that are more closely aligned with current industry and global regulatory practices and standards, including NI 43-101. Companies must comply with the New Final Rule for the company’s first fiscal year beginning on or after January 1, 2021. We adopted this New Final Rule on January 1, 2021. 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. NOTE B – 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 results of operations attributable to the non-controlling interest are presented within equity and net income 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 liability to be converted into equity of a subsidiary, which if exercised, could increase the direct or indirect interest of the Company in the non-wholly owned subsidiaries. 7 Table of Contents Use of Estimates Management uses 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 revenues and expenses. Actual results could vary from the estimates that were used. Reclassifications Certain reclassifications have been made to the 2021 condensed consolidated financial statements in order to conform to the classifications used in 2022. The reclassifications had no impact to operations or working capital. Revenue Recognition and Accounts Receivable Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of Accounting Standards Codification (“ASC”) Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue. The Company currently generates revenues from service contracts with customers. Currently, there are two sources of revenue, marine services and other services. The contracts for these services provide research, scientific services, marine operations planning, management execution and project management. These services are billed generally on a monthly basis and recognized as revenue as the services are performed. Revenue is recognized at a point in time as services are provided, as the customers simultaneously receive and consume the benefits provided by the Company each month. The Company generally does not receive any upfront consideration for these services, and there is no variable consideration for the services. Costs associated with both services include all direct consulting labor, and minimal supplies, and is charged to operations as a component of Operations and Research. Accounts receivable are based on amounts billed to customers. Generally accepted accounting principles state an estimate is to be made for an allowance for doubtful accounts. We have determined no allowance is currently necessary. If we were to have a recorded allowance, the accounts receivable would be stated net of the recorded allowance. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and cash in banks. We also consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Exploration License The Company follows the guidance pursuant to ASU 350, “ Intangibles-Goodwill and Other ” in accounting for its 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 exploration license is not dependent on another asset or group of assets that could potentially limit the useful life of the exploration license. In the future, the recoverability of the license will be tested whenever circumstances indicate that its carrying amount may not be recoverable per the guidance of the ASC topic 360 for Property, Plant and Equipment . We did no t have any impairments for the three months ended March 31, 2022 and 2021, respectively. Long-Lived Assets Our policy is to recognize impairment losses relating to long-lived assets in accordance with the ASC 360 Property, Plant and Equipment. Decisions are based on several factors, including, but not limited to, management’s plans for future operations, recent operating results and projected cash flows. Impairment losses are included in depreciation at the time of impairment. We did not have any impairments for the three months ended March 31, 2022 and 2021, respectively. 8 Table of Contents Property and Equipment and Depreciation Property and equipment is stated at historical cost. Depreciation is calculated using the straight-line method at rates based on the assets’ estimated useful lives which are normally between three and thirty years . Leasehold improvements are amortized over their estimated useful lives or lease term, if shorter. Items that may require major overhauls (such as marine equipment) that enhance or extend the useful life of these assets qualify to be capitalized and depreciated over the useful life or remaining life of that asset, whichever was shorter. All other repairs and maintenance were accounted for under the direct-expensing method and are expensed when incurred. Earnings Per Share Basic earnings per share (“EPS”) is computed by dividing income 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 if-converted method to compute potential common shares from stock options, restricted stock units, warrants, preferred stock, convertible notes or other convertible securities. When a net loss occurs, potential common shares have an anti-dilutive effect on earnings per share and such shares are excluded from the diluted EPS calculation. For the three months ended March 31, 2022 and 2021, the weighted average common shares outstanding year-to-date were 14,365,633 and 12,610,924 , respectively. For the periods in which net losses occurred, all potential common shares were excluded from diluted EPS because the effect of including such shares would be anti-dilutive. The potential common shares in the following tables represent potential common shares calculated using the if-converted method from outstanding options, stock awards and warrants that were excluded from the calculation of diluted EPS: Three Months Ended March 31, 2022 March 31, 2021 Average market price during the period $ 5.91 $ 7.30 In the money potential common shares from options excluded 22,493 22,493 In the money potential common shares from warrants excluded 2,752,951 3,481,314 Potential common shares from out of the money options and warrants were also excluded from the computation of diluted EPS because calculation of the associated potential common shares has an anti-dilutive effect on EPS. The following table lists options and warrants that were excluded from diluted EPS: Three Months Ended Per share exercise price March 31, 2022 March 31, 2021 Out of the money options excluded: $ 12.48 136,833 136,833 $ 12.84 4,167 4,167 $ 26.40 75,158 75,158 Out-of-the-money warrants excluded: $ 7.16 700,000 — Total excluded 916,158 216,158 9 Table of Contents The equivalent common shares relating to our unvested restricted stock awards that were excluded from potential common shares in the earning per share calculation due to having an anti-dilutive effect are: Three Months Ended March 31, 2022 March 31, 2021 Excluded unvested restricted stock awards 276,709 447,164 The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income per share: Three Months Ended March 31, 2022 March 31, 2021 Net loss $ ( 8,230,229 ) $ ( 3,720,218 ) Numerator, basic and diluted net loss available to stockholders $ ( 8,230,229 ) $ ( 3,720,218 ) Denominator: Shares used in computation – basic: Weighted average common shares outstanding 14,365,633 12,610,924 Shares used in computation – diluted: Weighted average common shares outstanding 14,365,633 12,610,924 Net loss per share – basic and diluted $ ( 0.57 ) $ ( 0.29 ) Income Taxes Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that some portion or the entire deferred tax asset will not be realized. Stock-based Compensation Our stock-based compensation is recorded in accordance with the guidance in the ASC topic for Stock-Based Compensation (See NOTE I). Fair Value of Financial Instruments Financial instruments consist of cash, evidence of ownership in an entity, and contracts that both (i) impose on one entity a contractual obligation to deliver cash or another financial instrument to a second entity, or to exchange other financial instruments on potentially unfavorable terms with the second entity, and (ii) conveys to that second entity a contractual right (a) to receive cash or another financial instrument from the first entity, or (b) to exchange other financial instruments on potentially favorable terms with the first entity. Accordingly, our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, derivative financial instruments and mortgage and loans payable. We carry cash and cash equivalents, accounts payable and accrued liabilities, and mortgage and loans payable at the approximate fair market value, and, accordingly, these estimates are not necessarily indicative of the amounts that we could realize in a current market exchange. We carry derivative financial instruments at fair value as is required under current accounting standards. Derivative financial instruments consist of financial instruments or other contracts that contain a notional amount and one or more underlying variables (e.g., interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets. We generally do not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, we have entered into certain other financial instruments and contracts with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by ASC 815 – Derivatives and Hedging , these instruments are required to be carried as derivative liabilities, at fair value, in our financial statements with changes in fair value reflected in our income. 10 Table of Contents We adopted ASC Topic 820 for certain financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include: Fair Value Hierarchy The three levels of inputs that may be used to measure fair value are as follows: Level 1. Quoted prices in active markets for identical assets or liabilities. Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. Level 2 inputs also include non-binding market consensus prices that can be corroborated with observable market data, as well as quoted prices that were adjusted for security-specific restrictions. Level 3. Unobservable inputs to the valuation methodology are significant to the measurement of the fair value of assets or liabilities. Level 3 inputs also include non-binding market consensus prices or non-binding broker quotes that we were unable to corroborate with observable market data. At March 31, 2022 and December 31, 2021, the Company did no t have any financial instruments measured on a recurring basis. NOTE C – ACCOUNTS RECEIVABLE AND OTHER Our accounts receivable consist of the following: March 31, 2022 December 31, 2021 Related party (see Note D) $ 260,821 $ 268,867 Other 1,307 — Total accounts receivable and other $ 262,128 $ 268,867 NOTE D – RELATED PARTY TRANSACTIONS We currently provide services to a deep-sea mineral exploration company, CIC Limited (“CIC”), which was organized and is majority owned and controlled by Greg Stemm, Odyssey’s past Chairman of the Board. Mr. Stemm’s involvement with this company was disclosed to, and approved by, the Odyssey Board of Directors and legal counsel pursuant to the terms of Mr. Stemm’s consulting agreement in effect at that time. A current Odyssey director, Mark B. Justh, made an investment into CIC’s parent company and indirectly owns approximately 11.5 % of CIC. We expect Mr. Justh to recuse himself from any decisions of the Board of Directors regarding CIC. The Board of Directors made a determination that Mr. Justh’s indirect ownership in CIC does not impair his independence under applicable rules. We are providing these services to CIC pursuant to a Master Services Agreement that provides for back-office services in exchange for a recurring monthly fee as well as other deep-sea mineral related services on a cost-plus profit basis and will be compensated for these services with a combination of cash and equity in CIC. For the three months ended March 31, 2022 and 2021, we invoiced CIC a total of $ 294,975 and $ 291,676 , respectively, which was for technical and support services. We have the option to accept equity in payment of the amounts due from CIC. See NOTE C for related accounts receivable at March 31, 2022 and December 31, 2021 and NOTE E for our investment in an unconsolidated entity. The above terms and amounts are not necessarily indicative of the terms and amounts that would have been incurred had comparable transactions been entered into with independent parties. NOTE E – INVESTMENT IN UNCONSOLIDATED ENTITY At March 31, 2022 and December 31, 2021, our accumulated investment in CIC was $ 3,548,925 and $ 3,253,950 , respectively, which is classified as an investment in unconsolidated entity in our condensed consolidated balance sheets. 11 Table of Contents NOTE F – INCOME TAXES During the three month period ended March 31, 2022, we generated a federal net operating loss (“NOL”) carryforward of $ 8.6 million and generated $ 3.9 million of foreign NOL carryforwards. As of March 31, 2022, we had consolidated income tax NOL carryforwards for federal tax purposes of approximately $ 217.4 million and net operating loss carryforwards for foreign income tax purposes of approximately $ 78.9 million . The federal NOL carryforwards from 2005 will expire in various years beginning in 2025 and ending through the year 2035 . From 2025 through 2027, approximately $ 47 million of the NOL will expire, and from 2028 through 2037, approximately $ 128 million of the NOL will expire. The NOL generated in 2018 through 2021 of approximately $ 42.4 M will be carried forward indefinitely. NOTE G – COMMITMENTS AND CONTINGENCIES Legal Proceedings The Company may be subject to a variety of claims and suits that arise from time to time in the ordinary course of business. We are not a party to any litigation as a defendant where a loss contingency is required to be reflected in our condensed consolidated financial statements. Contingency During March 2016, our Board of Directors approved the grant and issuance of 3.0 million new equity shares of Oceanica Resources, S.R.L. (“Oceanica”) to two attorneys for their future services. This equity would only be issuable upon the Mexican’s government approval and issuance of the Environmental Impact Assessment (“EIA”) for our Mexican subsidiary. All possible grants of new equity shares were approved by the Administrators of Oceanica. We also owe consultants contingent success fees of up to $ 700,000 upon the approval and issuance of the EIA. The EIA has not been approved as of the date of this report. 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 exploration charters, collecting on amounts owed to us, or completing the MINOSA/Penelope equity financing transaction. Our 2022 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 ever becomes insufficient to meet our desired projected business plan requirements, we would be required to follow a contingency business plan that is based on curtailed expenses and fewer cash requirements. On August 21, 2020, we sold an aggregate of 2,553,314 shares of our common stock and warrants to purchase up to 1,901,985 shares of our common stock. The net proceeds received from this sale, after offering expenses of $ 0.3 million, were $ 11.3 million. These proceeds, coupled with other anticipated cash inflows, are expected to provide operating funds through 2022. On March 11, 2015, we entered into a Stock Purchase Agreement with Minera del Norte S.A. de c.v. (“MINOSA”) and Penelope Mining LLC (“Penelope”), an affiliate of MINOSA, pursuant to which (a) MINOSA agreed to extend short-term, debt financing to Odyssey of up to $ 14.75 million, and (b) Penelope agreed to invest up to $ 101 million over three years in convertible preferred stock of Odyssey. The equity financing is subject to the satisfaction of certain conditions, including the approval of our stockholders which occurred on June 9, 2015, and MINOSA and Penelope are currently under no obligation to make the preferred share equity investments. Our consolidated non-restricted cash balance at March 31, 2022 was $ 2.1 million. We have a working capital deficit at March 31, 2022 of $ 58.5 million. The majority of our remaining assets have been pledged to MINOSA, leaving us with few opportunities to raise additional funds from our balance sheet. The total consolidated book value of our assets was approximately $ 9.0 million at March 31, 2022, which includes cash of $ 2.1 million. Even though we executed the above noted financing arrangement with Penelope, Penelope must purchase the shares for us to be able to complete the equity component of the transaction. The Penelope equity transaction is heavily dependent on the outcome of our subsidiary’s application approval process for an EIA to commercially develop a mineralized phosphate deposit off the coast of Mexico. The factors noted above raise doubt about our ability to continue as a going concern. These 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. Lease commitment At March 31, 2022, the right of usage (“ROU”) asset and lease obligation for our corporate office operating lease were, $ 309,579 and $ 322,916 , respectively. 12 Table of Contents The remaining lease payment obligations are as follows: Year ending December 31, Annual payment obligation 2022 $ 114,442 2023 156,524 2024 92,884 $ 363,850 At March 31, 2022, the ROU asset and lease obligation for our marine operations operating lease were, $ 112,757 and $ 117,321 , respectively. The remaining lease payment obligations are as follows: Year ending December 31, Annual payment obligation 2022 $ 38,966 2023 53,382 2024 40,930 $ 133,278 We recognized approximately $ 54,000 and $ 41,000 in rent expense associated with these leases for the three month periods ended March 31, 2022 and 2021, respectively. NOTE H – LOANS PAYABLE The Company’s consolidated notes payable consisted of the following carrying values and related interest expense at: Note payable Interest expense March 31, 2022 December 31, 2021 March 31, 2022 March 31, 2021 MINOSA 1 $ 14,750,001 $ 14,750,001 $ 290,959 $ 290,959 MINOSA 2 5,050,000 5,050,000 124,520 124,520 Litigation financing 19,334,009 18,323,097 2,412,348 1,505,032 Emergency Injury Disaster Loan 149,900 149,900 1,461 — Vendor note payable 484,009 484,009 14,322 14,321 Monaco 2,500,000 2,500,000 111,000 — 37North 2,200,000 — 200,000 — $ 44,467,919 $ 41,257,007 Litigation Financing For the three months ended March 31, 2022 and 2021, we recorded $ 68,140 and $ 50,479 , respectively, of interest expense from the amortization of the debt discount and $ 36,724 and $ 28,982 interest from the fee amortization, respectively. The March 31, 2022 and December 31, 2021 carrying value of the debt wa s $ 19,334,009 and $ 18,323,097 , respectively, and were net of unamortized debt fees of $ 257,069 and $ 293,793 , respectively, as well as the net unamortized debt discount of $ 581,788 and $ 649,928 , respectively, associated with the fair value of the warrant. The total face value of this obligation at March 31, 2022 and December 31, 2021 was $ 20,172,866 and 19,266,818 , respectively. 37North On March 17, 2022 we entered into a Note Purchase Agreement (“Note Agreement”) with 37North SPV 11, LLC (“37N”) in which 37N agreed to loan us up to $ 2,000,000 . These loan proceeds were received in full on March 25, 2022. Pursuant to the Note Agreement, the indebtedness is non-interest bearing and matures on June 15, 2022. Anytime from 30 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) 125% of the amount of the indebtedness, by (B) the lower of $5.94 and 70% of the 10-day VWAP. The aggregate maximum number of shares of Common Stock to be issued in connection with conversion of the indebtedness will not 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) exceed the applicable listing rules of the Principal Market if the stockholders don’t approve the issuance of Common Stock upon conversion of the indebtedness . 13 Table of Contents Any time prior to maturity, we have the option to prepay the indebtedness at an amount of 110 % of the unpaid principal. From the maturity date to 29 days after the maturity date (July 14, 2022), we may prepay all (but not less than) an amount equal to 115 % of the unpaid amount of the indebtedness. Anytime, after the 30th day after the maturity date (July 15, 2022), we may prepay all (but not less than) an amount equal to 125 % of the unpaid amount of the indebtedness , however, we must provide 37N a p repayment n otice at least 10 days prior to repayment. If 37N delivers an exercise notice during this 10 -day period, the Note will be converted, rather than prepaid. If 37N delivers an exercise notice and the number of shares issuable is limited by the 19.9 % limitation outlined above, then we may prepay all (but not less than all) an amount equal to 130 % of the remaining unpaid amount. Accounting considerations We evaluated the indebtedness and determined the shares issuable pursuant to the conversion option were determinate due to the cap on the number of issuable shares, and, as such, met the requirements for a derivative scope exception for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity. The optional and contingent prepayment options provide the right to accelerate the settlement of debt; however, the prepayment options can only be exercised by the Company. As such, they are considered clearly and closely related to the debt host instrument and bifurcation was not necessary. We early adopted ASC 2020-06, so we were not required to analyze the instrument for a beneficial conversion feature, and the instrument was recorded wholly as debt. Although the indebtedness does not bear interest, it must be repaid at amounts greater than the face value. According to ASC 470-10-35-2, if a debt instrument has a contractual maturity date that can be extended at the issuer’s option, at an increasing rate, the debt discounts and issuance costs must be amortized over the period in which the debt is estimated to be outstanding, even if that period extends beyond the debt’s original contractual maturity date. The difference between the proceeds received and the repayment amount are generally amortized over the expected life of the indebtedness using the effective interest method. Management estimated the expected life to be very limited, so the entire expected repayment amount of $ 2.2 million , representing 110 % of the indebtedness, was recorded upon issuance of the Note Agreement. We recognized $ 200,000 of interest expense for the period ended March 31, 2022. 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. We reconsider the value of the default put provisions each reporting period to determine if the value is material to the financial statements. Accrued interest Total accrued interest associated with our financings was $ 24,719,363 and $ 21,875,753 as of March 31, 2022 and December 31, 2021, respectively. Accrued interest is included in accrued expenses on the accompanying condensed consolidated balance sheets. NOTE I – STOCK-BASED COMPENSATION The share-based compensation charged against income, related to our restricted stock units, for the three month periods ended March 31, 2022 and 2021, was $ 312,646 and $ 281,687 , respectively. We did no t grant stock options to employees or outside directors in the three ended March 31, 2022 or 2021. NOTE J – CONCENTRATION OF CREDIT RISK We do no t currently have any debt obligations with variable interest rates. NOTE K – SUBSEQUENT EVENT We have evaluated subsequent events for recognition or disclosure through the date of this Form 10-Q is filed with the SEC. 1 4 Table of Contents