ODYSSEY MARINE EXPLORATION INC - Annual Report: 2021 (Form 10-K)

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021

☐	TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Nevada		84-1018684
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Common Stock, $.0001 par value		OMEX		NASDAQ Capital Market
(Title of each class)		(Trading symbol)		(Name of each exchange on which registered)

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☒
				Emerging growth company		☐

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		PART I
Item 1.		Business			1
Item 1A.		Risk Factors			7
Item 1B.		Unresolved Staff Comments			12
Item 2.		Properties			12
Item 3.		Legal Proceedings			19
Item 4.		Mine Safety Disclosures			19
		PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			20
Item 6.		[Reserved]			20
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			34
Item 8.		Financial Statements and Supplementary Data			34
Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			34
Item 9A.		Controls and Procedures			34
Item 9B.		Other Information			35
Item 9C.		Disclosure Regard Foreign Jurisdictions that Prevent Inspections			35
		PART III
Item 10.		Directors, Executive Officers and Corporate Governance			35
Item 11.		Executive Compensation			35
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			35
Item 13.		Certain Relationships and Related Transactions, and Director Independence			35
Item 14.		Principal Accounting Fees and Services			35
		PART IV
Item 15.		Exhibits and Financial Statement Schedules			36
SIGNATURES					80
EXHIBITS INDEX					81

This Annual Report on Form contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. The statements regarding Odyssey Marine Exploration, Inc. and its subsidiaries contained in this report that are not historical in nature, particularly those that utilize terminology such as “may,” “will,” “should,” “likely,” “expects,” “anticipates,” “estimates,” “believes,” “plans,” or comparable terminology, are forward-looking statements based on current expectations and assumptions, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements.

Important factors known to us that could cause such material differences are identified in our “RISK FACTORS” in Item 1A and elsewhere in this report. Accordingly, readers of this Annual Report on Form should consider these factors in evaluating an investment in our securities and are cautioned not to place undue reliance on the forward-looking statements contained herein. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information or future events unless otherwise specifically indicated, except as required by law.

Our subsea project portfolio contains multiple projects in various stages of development throughout the world and across different mineral resources. We are regularly adding new projects through the development of new deposits, acquisition of mineral rights/deposits and through a leveraged contracting model, which allows the company to earn equity in mineral projects.

With respect to mineral deposits, Subpart 1300 of Regulations outlines the Securities and Exchange Commission’s basic mining disclosure policy and what information may be disclosed in public filings. The SEC has adopted amendments to the property disclosure requirements for mining registrants that must be complied with for the full fiscal year beginning on or after January 1, 2021, See Item 2 Properties.

The “Exploraciones Oceanicas” Phosphate Project is a rich deposit of phosphate sands located meters deep within Mexico’s Exclusive Economic Zone. This deposit contains a large amount of high-grade phosphate rock that can be extracted on a financially attractive basis (essentially a standard dredging operation). The product will be attractive to Mexican and other world producers of fertilizers and can provide important benefits to Mexico’s agricultural development.

In 2012, ExO was granted a mining license by Mexico (extendable for another 50 years at ExO’s option) for the deposit that lies km offshore in Baja California Sur. An report was completed on the deposit in 2014 and has been periodically updated.

ExO challenged the decision in Mexican Federal court and in March 2018, the Tribunal Federal de Justicia Administrativa (TFJA), an panel, ruled unanimously that SEMARNAT denied the application in violation of Mexican law and ordered the agency to their decision. Just prior to the change in administration later in 2018, SEMARNAT denied the permit a second time in defiance of the court. ExO is once again challenging the unlawful decision of the Peña Nieto administration before the TFJA. In addition, in April 2019, we filed a NAFTA Claim against Mexico to protect our shareholders’ interests and significant investment in the project.

The exploration license for the Lihir Gold Project covers a subsea area that contains at least five 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 meters deep in the Papua New Guinea Exclusive Economic Zone off the coast of Lihir Island, adjacent to the location of one of the world’s largest know terrestrial gold deposits. We have an indirect 85.6% interest in Bismarck Mining Corporation, Ltd, the Papua New Guinea company that holds the exploration license for the project.

In August 2021, Papua New Guinea (PNG) 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 met with local regulatory authorities, specialists in local mining, environmental legal experts, and logistics support service companies in PNG 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 will continue, provided there are no constraints from the pandemic or other unexpected impediments. 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.

Odyssey is a member of the CIC Consortium, which is seeking an exploration license in an island nation’s Exclusive Economic Zone. The CIC Consortium was founded and is led by Odyssey and former CEO, Greg Stemm, and includes Royal Boskalis Westminster NV and Odyssey Marine Exploration.

The 19 licenses to be developed by the JV include 366 square kilometres of seabed in the Brazilian EEZ. The geological setting of these licenses is similar to the geology Odyssey identified off the coast of Mexico, which is now known as the ExO Phosphate deposit (“ExO”). The NI for the ExO deposit estimated 588 million tonnes of high-grade resource, even though the NI only considered 206.5 square kilometres of the 1147 square kilometres covered by the ExO mining concession. Even based on 2016 phosphate pricing, the ExO project had extremely compelling economics that demonstrated that ExO could have been one of the lowest cost producers in the world. Since then, phosphate prices have surged and the need for phosphate to combat world hunger continues to grow. It is anticipated that the Brazilian deposits can be dredged with the standard technology and engineering solutions already identified for the ExO Project, which will allow the phosphate to be recovered in an environmentally responsible manner without the addition of any chemicals into the sea.

We conduct mineral exploration on both shallow and terrains. There are several companies that publicly identify themselves as engaged in aspects of deep-ocean mineral exploration or mining, including DSMF (OTCM:NUSMF), Neptune Minerals, Deep Green Resources, Inc., which recently combined with the Sustainable Opportunities Acquisition Corporation to go public as The Metals Company (NASDAQ:TMC), GSR, and Chatham Rock Phosphate, Ltd. (CRP.NZ), as well as countries that are evaluating options to mine deep-ocean mineralized materials. As our mineral exploration business plan includes partnering with others in the industry, we view these entities as potential partners rather than pure competitors. As mineral rights are generally granted on an exclusive basis for a specific area or tenement, once licenses are granted, we do not anticipate any competitive intrusion on those areas. It is possible that one of these companies or some currently unknown group may secure licenses on an area desired by us or one of our partners; but since exploration work does not start until licenses are secured, we do not believe that competition from one or more of these entities, known or unknown, would materially affect our operating plan or alter our current business strategy. For offshore mineral exploration, there are providers of vessels and equipment that could be competitors or partners for certain projects. These companies generally service the oil, gas and telecom industries with survey capabilities. We view these companies as potential strategic partners or services providers for our projects.

Odyssey’s Forms and all amendments to those reports are available without charge through Odyssey’s web site on the Internet as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission, . They may be accessed as follows: (Investors/Financial Information Link).

The success of a mineral project is dependent to a substantial degree upon the research and data we or the contracting party have obtained. By its very nature, research and data regarding mineral deposits can be imprecise, incomplete, outdated, and unreliable. For mineral exploration, data is collected based on a sampling technique and available data may not be representative of the entire ore body or tenement area. Prior to conducting exploration, we typically conduct research. There is no guarantee that the models and research conducted onshore will be representative of actual results on the seafloor. Offshore exploration typically requires significant expenditures, with no guarantee that the results will be useful or financially rewarding.

As changes in our business environment occur, we may need to adjust our business strategies to meet these changes or we may otherwise find it necessary to restructure our operations or particular businesses or assets. When these changes or events occur, we may incur costs to change our business strategy and may need to write down the value of assets or sell certain assets. In any of these events our costs may increase, and we may have significant charges associated with the write-down of assets. Discontinuing the use of a multi-year charter of a ship may result in large costs to cover any penalties or charges to put the ship back into its original condition.

We employ technology including side-scan sonar, magnetometers, ROVs, and other advanced science and technology to perform seabed mineral exploration and to locate and recover shipwrecks at depths previously unreachable in an economically feasible manner. Although we try to maintain on critical equipment and components, equipment failures may require us to delay or suspend operations. Also, while we endeavor to keep marine equipment in excellent working condition and current with all available upgrades, technological advances in new equipment may provide superior efficiencies compared to the capabilities of our existing equipment, and this could require us to purchase new equipment which would require additional capital.

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Short sellers of our stock may be manipulative and may attempt to drive down the market price of our common stock. Short selling is the practice of selling securities that the seller does not own but rather has, supposedly, borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is therefore in the short seller’s best interests for the price of the stock to decline, many short sellers (sometime known as “disclosed shorts”) publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects to create negative market momentum and generate profits for themselves after selling a stock short. Although traditionally these disclosed shorts were limited in their ability to access mainstream business media or to otherwise create negative market rumors, the rise of the Internet and technological advancements regarding document creation, videotaping and publication by weblog (“blogging”) have allowed many disclosed shorts to publicly attack a company’s credibility, strategy and veracity by means of “research reports” that mimic the type of investment analysis performed by large Wall Street firms and independent research analysts. These short attacks have, in the past, led to selling of shares in the market, on occasion in large scale and broad base. Issuers who have limited trading volumes and are susceptible to higher volatility levels than stocks, can be particularly vulnerable to such short seller attacks. These short seller publications are not regulated by any governmental, self-regulatory organization or other official authority in the U.S., are not subject to certification requirements imposed by the Securities and Exchange Commission and, accordingly, the opinions they express may be based on distortions or omissions of actual facts or, in some cases, fabrications of facts. In light of the limited risks involved in publishing such information, and the enormous profit that can be made from running just one successful short attack, unless the short sellers become subject to significant penalties, it is more likely than not that disclosed short sellers will continue to issue such reports.

Our failure to maintain compliance with the above-mentioned and other NASDAQ continued listing requirements may lead to the delisting of our common from the NASDAQ Capital Market. Delisting from the NASDAQ Capital Market could make trading our common stock more difficult for investors, potentially leading to declines in our share price and liquidity. If our common stock is delisted by NASDAQ, our common stock may be eligible to trade on an quotation system, where an investor may find it more difficult to sell our stock or obtain accurate quotations as to the market value of our common stock. We cannot assure you that our common stock, if delisted from the NASDAQ Capital Market, will be listed on another national securities exchange or quoted on an counter quotation system.

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We depend on information technology networks and systems to process, transmit and store electronic information and to communicate among our locations around the world and among ourselves within our company. Additionally, one of our significant responsibilities is to maintain the security and privacy of our confidential and proprietary information and the personal data of our employees. Our information systems, and those of our service and support providers, are vulnerable to an increasing threat of continually evolving cybersecurity risks. Computer viruses, hackers and other external hazards, as well as improper or inadvertent staff behavior could expose confidential company and personal data systems and information to security breaches. Techniques used to obtain unauthorized access or cause system interruption change frequently and may not immediately produce signs of intrusion. As a result, we may be unable to anticipate these incidents or techniques, timely discover them, or implement adequate preventative measures. With respect to our commercial arrangements with service and support providers, we have processes designed to require third-party IT outsourcing, offsite storage and other vendors to agree to maintain certain standards with respect to the storage, protection and transfer of confidential, personal and proprietary information. However, we remain at risk of a data breach due to the intentional or unintentional by a vendor’s employee or agent, the breakdown of a vendor’s data protection processes, or a cyber-attack on a vendor’s information systems or our information systems.

specific conditions concerning operating procedures, water use, waste disposal, spills, environmental studies and financial assurances. There can be no assurance that we will be able to comply with any such conditions and with such conditions may result in the loss of certain of our permits and licenses on properties, which may have a material adverse effect on us. Future taxation of mining operators cannot be predicted with certainty so planning must be undertaken using present conditions and best estimates of any potential future changes. There is no certainty that such planning will be effective to mitigate adverse consequences of future taxation on us.

The scientific and technical disclosures about the Don Diego Phosphorite Project in this annual report on Form have been reviewed and approved by Henry J. Lamb of Mineral Resource Associates. Mr. Lamb is a professional geologist with 40 years’ experience in the exploration, evaluation, development, maintenance, and operation of phosphate rock mines and beneficiation plants in multiple countries. Mr. Lamb is a “qualified person” as defined by Regulation Subpart 1300 and NI For a description of the key assumptions, parameters and methods used to estimate mineral resources included in this Form as well as data verification procedures and a general discussion of the extent to which the estimates may be affected by any known environmental, permitting, legal, title, taxation, socio-economic, marketing, political or other relevant factors, please review the Technical Report for the Don Diego Phosphorite Project attached as Exhibit 96.01 to this annual report on Form

The information that follows relating to the Don Diego Phosphorite Project is, for the most part, derived from, and, in some instances, may be extracted from, the technical report entitled “Technical Report: Revised Assessment of the Don Diego West Phosphorite Deposit, Mexican Exclusive Economic Zone (EEZ)” (the “Don Diego Technical Report”), with an effective date of June 30, 2014. Readers should consult the Don Diego Technical Report to obtain further information regarding the Don Diego Phosphorite Project, which is available at www.sec.gov and attached as Exhibit 96.01 to this annual report on Form The Don Diego Technical Report is not incorporated by reference into this annual report on Form Following the submission of the 2014 Technical Report, additional samples from the newly acquired Don Diego Norte concession were analyzed by Mr. Lamb and results were provided to us. No analysis has been done on the Don Diego Sur concession. The NI Technical Report and additional updates pertaining to the Norte concession were completed using standard guidelines and protocols.

The Don Diego Phosphorite Project concession area is a sedimentary marine phosphorite deposit located in the Mexican EEZ offshore Baja California Sur, Mexico in the Pacific Ocean. The property is located using a multi-point polygonal property demarcation bounded by latitudes 26.1°, 25.60°, and longitudes WGS 1984. The property is roughly 20 to 45 kilometers from shore. Following is a map denoting the three concessions in Don Diego in relation to Baja California Sur, Mexico.

There is no material infrastructure located on the property where the concessions are located. Access to the site is by vessels dispatched from various nearby ports of opportunity.

Project engineering anticipates use of existing dredging technology to recover the phosphorite ore, including a trailer suction hopper dredger, and mechanical beneficiation using a floating production and storage platform to produce phosphate rock concentrate.

Total concessions encompass 1,147 km of seafloor at a water depth of approximately 80 meters and consist of three concessions in total (see the previous map). The concessions were granted to ExO by the Mexican Secretary of Economy, General Coordination of Mining, and are valid for 50 years, with an option for a extension. The primary concession was granted in 2012, and rights for the other two concessions (Norte and Sur) were acquired thereafter in 2014. To commence further operations on the Don Diego Phosphorite Project, ExO must obtain approval of its Environmental and Social Impact Assessment (“ESAI”) from the Mexican Secretariat of Environment and Natural Resources. See ExO Phosphate Project in the above ITEM 1. BUSINESS for additional information.

For each location two piston cores were collected, one was archived while the other was split, photographed and described. The core barrel did not have liners; therefore, the material was hydraulically extruded into a core tray. For each core, the core was photographed and described. For both types of samples, visual descriptions used a hand lens and grain size card to determine grain size, sorting, roundness, presence of pelletal phosphorite, and shell fragment size. Colors were determined using Munsell soil color charts. Benthic infauna found within the samples were photographed, measured and identified. The archived core liner was capped and secured on both ends and labeled with appropriate identification. The archived piston core tubes, containing the undisturbed samples, were stored until returning to port (San Diego, California) where the samples were securely packaged, with a chain of custody identifying the contents of each package, and shipped by a commercial carrier to the Florida Industrial and Phosphate Research Institute (FIPR) laboratory in Bartow, Florida.

Due to the recovery length, the Rossfelder core liners, containing the recovered samples, were cut into 1.0 to sections and point sampled. Visual descriptions used a hand lens and grain size card to determine grain size, sorting, roundness, presence of pelletal phosphorite, and shell fragment size. Colors were determined using Munsell soil color charts. Benthic infauna found within the samples were photographed, measured and identified. The core liner sections were capped and secured on both ends, labeled with appropriate identifiers, and shipped by a commercial carrier to the FIPR laboratory. Only the samples from the Rossfelder Vibracore were used in the preparation of the Don Diego West Phosphorite Deposit resource estimate.

Visual descriptions used a hand lens and grain size card to determine grain size, sorting, roundness, presence of pelletal phosphorite, and shell fragment size. Colors were determined using a Munsell soil color chart. Any benthic infauna found within the samples were photographed, measured and identified. No ROV samples were archived.

Assay was overseen by a qualified person and performed in line with the procedures of the Association of Fertilizer and Phosphate Chemists (AFPC) at an experienced laboratory. Quality assurance and control measures included duplicate assays and the use of both blank and reference materials at select intervals. Uniform sample preparation, digestion, and spectral analysis procedures were followed. Measures are detailed is sections 13 and 14 and Appendix G in the attached Technical Report for the Don Diego Phosphorite Project as Exhibit 96.01 to this annual report on Form

In , we include projects: LIHIR Subsea Gold (Lihir), CIC Project and Antigua and Barbuda (Antigua) as active projects. These are exploration targets that are in the early stages of validation. As discussed in NOTE G, we are investors in the CIC Project. Even though we have an investment position in CIC LTD (CIC), CIC is not consolidated into our consolidated financial statements of Odyssey Marine Exploration, Inc. and subsidiaries. Indicated and referred mineral resources have not been identified for the LIHIR and Antigua projects. A qualified person has not been engaged for the LIHIR

The revenue generated in each period was a result of performing oceanic research, project administration and search and recovery operations for our customers and related parties. Total revenue in the current year was $0.9 million, a $1.1 million decrease compared to the same period a year ago. One company to which we provided these services in both years was a mineral exploration company, CIC, which we consider to be a related party since it is owned and controlled by our past Chairman of the Board (see NOTE J). The primary reason for the $1.1 million reduction was that we were no longer engaged on another project since the latter half of 2020. This project accounts for $0.6 million of the reduction. In 2020 we had other marine search engagements for which we earned $0.5 million in revenue. These other marine engagements did not recur in this current year.

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. Costs increased $2.6 million to $6.3 million for the year ended December 31, 2021 compared to $3.7 million from the same period in the prior year. The items contributing to this $2.6 million increase were an increase of $0.2 million in employee benefits and compensation related, and an increase of long term incentive share-based compensation of $0.8 million. Legal fees increased by $0.2 million which is primarily related to supporting the expansion of our seafloor minerals portfolio. The remaining $1.4 million was due to a reduction in the discretionary incentive reserve during the prior year resulting from management’s decision to not pay certain discretionary incentives.

Operations and research expenses are primarily focused exploration which includes minerals research, scientific services, marine operations and project management. Operations and research expenses decreased by $1.4 million from 2020 to 2021 primarily as a result of the following items: (i) a $0.3 million decrease in litigation financed costs directly associated with our NAFTA litigation and (ii) a $0.8 million decrease in marine services technical contracted labor in direct correlation with the reduction in revenue contracts that are nonrecurring in 2021 and (iii) the current year ended December 31, 2021 includes a gain on sale of equipment of $0.3 million.

Starting in 2013, we became the controlling shareholder 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 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 Interest” in the consolidated statements of operations. The interest adjustment in the year ended December 31, 2021 was $6.2 million as compared to $6.3 million for the same period in 2021. The substance of these amounts is primarily due to the compounding of interest on intercompany debt and other standard operating costs.

Net cash used by operating activities for the calendar year of 2021 was $5.3 million. This represents an approximate $3.5 million decrease in use of funds when compared to the use of $9.3 million in the same period of 2020. The current year net cash used by operating activities reflected a net loss before interest of $16.1 million and is adjusted primarily by or items of $8.8 million, which primarily includes an investment in unconsolidated entity of $0.9 million, share-based compensation of $1.2 million, debt forgiveness of $0.4 million, a gain on sale of equipment of $0.3 million, an adjustment to deferred income of $3.8 million and a gain on the debt settlement agreement of $5.2 million. Other operating activities resulted in an increase in working capital of $19.7 million. This $19.7 million increase includes a $13.7 million increase to accrued expenses, an increase of $6.3 million to accounts payable and a decrease of $0.3 million to other assets and accounts receivable in 2021. The increase to accrued expenses and accounts payable is predominantly related to our NAFTA financed litigation as it pertains to standard litigation payables and accrued interest associated with the litigation financing.

Net cash used by operating activities for 2020 was $9.3 million. This represents a $3.8 million increase in use of funds when compared to the use of $5.4 million in the same period of 2019. The net cash used by operating activities reflected a net loss of $21.1 million offset in part of $1.0 million which primarily includes loss on debt extinguishment of $0.8 million, investment in unconsolidated entity of $0.9 million, the fair-value of hybrid-debt accounting of $0.7 million and other which includes items such as depreciation and debt discount accretion for $0.4 million. Other operating activities resulted in an increase in working capital of $2.4 million compared to 2019. Changes to accrued expenses, accounts receivable, accounts payable and other assets in 2020 comprised the $2.4 million. The December 31, 2020 accounts payable balance of $4.1 million is comprised of: a) $3.3 million which pertains to four accounts. These accounts are not related to current operations and are not expected to be settled with cash, b) $0.5 million for our NAFTA litigation and will be funded from our litigation financing facility and c) $0.3 million of standard operating payables that will be settled in the normal course of business.

Cash flows provided by financing activities for 2020 were $15.2 million, which represented a $12.3 million increase over the same period in 2019 of $2.9 million. The current period $15.2 million was comprised of funds received from our NAFTA litigation financing and funds received from the 37 North agreement (NOTE H). We also received funds from the Small Business Administration (SBA) programs for the Payroll Protection Program (PPP) and the Emergency Injury Disaster Loan (EIDL) (NOTE H). These debt proceeds of $3.6 million were offset by $0.2 million of repayments of financed obligations. In August 2020 we sold 2.5 million of our common shares $11.3 million (see NOTE L). During December 2020, we sold $800,000 of new equity in one of our controlled subsidiaries to an existing shareholder of that subsidiary.

Marketing, general and administrative expense decreased $1.7 million to $3.6 million in 2020 compared to $5.5 million in 2019. The key items contributing to this $1.7 million decrease was of share-based compensation of $0.2 million and a net reduction of $1.2 in employee incentives and employee and director related compensation. The $1.2 million reduction was primarily due to the reduction of the discretionary incentive reserve resulting from management’s decision to not pay discretionary incentives until appropriate. We also had a $0.4 million reduction in professional corporate services which includes a reduction of approximately $0.3 million in maritime legal services associated with the HMS as well as fees related to legal and in our annual audit function. These decreases were offset in part by a $0.1 million increase split between governmental fees and our corporate liability insurance.

Other income and expense was $8.5 and $5.2 million in net expenses for 2020 and 2019, respectively, resulting in a net expense increase of $3.3 million. This variance was primarily attributable to an increase in interest expense of $3.5 million primarily from our litigation financing agreement (NOTE H), a reduction in debt discount accretion in the amount of $1.0 million, a $0.4 million incremental expense due to the fair value accounting of our hybrid debt instrument (NOTE H), the prior year included an expense of $0.9 million related to the fair value accounting for a warrant inducement related to debt refinancing, a $0.5 million current year expense related to debt extinguishment accounting related to a loan extension, and $0.8 million of other income in 2019 attributable to the extinguishment of deferred revenue that was caused by the 2019 cancelation of the HMS contract.

Starting in 2013, we became the controlling shareholder of Oceanica. Our financial statements thus include the financial results of Oceanica and its subsidiary. Except for intercompany transactions that are eliminated upon consolidation, Oceanica’s revenues and expenses, in their entirety, are shown in our 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 Interest” in the consolidated statements of operations. The interest adjustment for 2020 was $6.3 million as compared to $5.1 million for 2019. The administrative support has been ongoing in support of the legal process in obtaining the environmental application for our Mexican subsidiary. This increase was mainly attributable to the compounding debt interest on our Mexican subsidiary’s balance sheet.

Net cash used by operating activities for 2020 was $9.3 million. This represents a $3.8 million increase when compared to the use of $5.4 million in the same period of 2019. The net cash used by operating activities reflected a net loss of $21.1 million offset in part of $1.0 million which primarily includes loss on debt extinguishment of $0.8 million, investment in unconsolidated entity of $0.9 million, the fair-value of hybrid-debt accounting of $0.7 million and other which includes items such as depreciation and debt discount accretion for $0.4 million. Other operating activities resulted in an increase in working capital of $2.4 million compared to 2019. Changes to accrued expenses, accounts receivable, accounts payable and other assets in 2020 comprised the $2.4 million. The December 31, 2020 accounts payable balance of $4.1 million is comprised of: a) $3.3 million which pertains to four accounts. These accounts are not related to current operations and are not expected to be settled with cash, b) $0.5 million for our NAFTA litigation and will be funded from our litigation financing facility and c) $0.3 million of standard operating payables that will be settled in the normal course of business.

Net cash used by operating activities for 2019 was $5.4 million, an increase of $1.0 million compared to the same period in 2018. Net cash used by operating activities reflected a net loss before interest of $(15.5) million offset in part by items of $1.7 million which primarily included depreciation and amortization of $0.1 million, note payable interest accretion of $0.8 million, equity based compensation of $0.8 million and deferred income amortization of $(0.8) million as well as a noncash use of $(0.7) million for an investment in an unconsolidated entity, loss on debt extinguishment of $0.3 million, a loss of $0.3 million on the debt fair value option and a $0.9 million loss due to a debt modification inducement. Other operating activities resulted in an increase in working capital of $8.4 million. Changes to accrued expenses, accounts receivable, accounts payable and other assets in 2019 comprised the $8.4 million.

Cash flows provided by financing activities for 2020 were $15.2 million, which represented a $12.3 million increase over the same period in 2019 of $2.9 million. The current period $15.2 million was comprised of funds received from our NAFTA litigation financing and funds received from the 37 North agreement (NOTE H). We received funds from the Small Business Administration (SBA) programs for the Payroll Protection Program (PPP) and the Emergency Injury Disaster Loan (EIDL) (NOTE H). These debt proceeds of $3.6 million were offset by $0.2 million of repayments of financed obligations. In August 2020 we sold 2.5 million of our common shares $11.3 million (see NOTE L). During December 2020, we sold $800,000 of new equity in one of our controlled subsidiaries to an existing shareholder of that subsidiary.

At December 31, 2020, we had cash and cash equivalents of $6.2 million, an increase of $5.9 million from the December 31, 2019 balance of $0.2 million. The operating cash used of $9.3 million was supported by debt proceeds from 37North, the NAFTA litigation financing and the SBA’s programs for the PPP and EIDL as well as the August 2020 capital raise of $11.3 million noted below. The $9.3 million of cash used from operations was partially offset totaling $1.0 million which include share-based compensation, loss on debt extinguishment accounting and the results of the hybrid-debt agreement fair value accounting.

On March 11, 2015, we entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Penelope Mining LLC (the “Investor”), and, solely with respect to certain provisions of the Purchase Agreement, Minera del Norte, S.A. de C.V. (“MINOSA”). The Purchase Agreement provides for us to issue and sell to the Investor shares of our preferred stock in the amounts and at the prices set forth below (the numbers set forth below have been adjusted to reflect the reverse stock split of February 19, 2016):

The purchase and sale of 2,916,667 shares of Preferred Stock at an initial closing and for the purchase and sale of the remaining 5,510,337 shares of Preferred Stock according to the following schedule, is subject to the satisfaction or waiver of specified conditions set forth in the Purchase Agreement:

The Investor may elect to purchase all or a portion of the Preferred Stock before the other dates set forth above. The initial closing and the closing scheduled for March 1, 2016, have not yet occurred because certain conditions to closing have not yet been satisfied or waived. After completing the purchase of all Preferred Stock, the Investor has the right, but not the obligation, to purchase all or a portion the 7,223,145 shares of Series Preferred Stock at any time after the closing price of the Common Stock on the NASDAQ Stock Market has been $15.12 or more for 20 consecutive trading days. The Investor’s right to purchase the shares of Series Preferred Stock will terminate on the fifth anniversary of the initial closing under the Purchase Agreement.

Subject to the terms set forth in the Purchase Agreement, the Lender provided the Company, through a subsidiary of the Company, with loans of $14.75 million, the outstanding amount of which, plus accrued interest, will be repaid from the proceeds from the sale of the shares of Preferred Stock at the initial closing. The outstanding principal balance of the loan at December 31, 2019 was $14.75 million.

The obligation to repay the loans is evidenced by a promissory note (the “Note”) in the amount of up to $14.75 million and bears interest at the rate of 8.0% per annum, and, pursuant to a pledge agreement (the “Pledge Agreement”) between the Lender and Odyssey Marine Enterprises Ltd., an indirect, wholly owned subsidiary of the Company (“OME”), is secured by a pledge of 54.0 million shares of Oceanica Resources S. de R.L., a Panamanian limitada (“Oceanica”), held by OME. In addition, OME and the Lender entered into a call option agreement (the “Oceanica Call”), pursuant to which OME granted the Lender an option to purchase the 54.0 million shares of Oceanica held by OME for an exercise price of $40.0 million at any time during the period after the Oceanica Call was executed and delivered by the parties. The Oceanica Call option expired on March 11, 2016 without being executed or extended. On December 15, 2015, the Promissory Note was amended to provide that, unless otherwise converted as provided in the Note, the adjusted principal balance shall be due and payable in full upon written demand by MINOSA; provided that MINOSA agrees that it shall not demand payment of the adjusted principal balance earlier than the first to occur of: (i) 30 days after the date on which (x) SEMARNAT makes a determination with respect to the current application for the Manifestacion de Impacto Ambiental relating to our phosphate deposit project, which determination is other than an approval or (y) Enterprises or any of its affiliates withdraws such application without MINOSA’s prior written consent; (ii) termination by Odyssey of the Stock Purchase Agreement, dated March 11, 2015 (the “Purchase Agreement”), among Odyssey, MINOSA, and Penelope Mining, LLC (the “Investor”); (iii) the occurrence of an event of default under the Promissory Note; (iv) March 30, 2016; or (v) if and only if the Investor shall have terminated the Purchase Agreement pursuant to Section 8.1(d)(iii) thereof, March 30, 2016. On March 18, 2016 the agreements with MINOSA and Penelope were further

Pursuant to a certificate of designation (the “Designation”) to be filed with the Nevada Secretary of State, each share of Convertible Preferred Stock and Series Convertible Preferred Stock (collectively, the “Class AA Preferred Stock”) will be convertible into one share of Common Stock at any time and from time to time at the election of the holder. Each share of Class AA Preferred Stock will rank pari passu with all other shares of Class AA Preferred Stock and senior to shares of Common Stock and all other classes and series of junior stock. If the Company declares a dividend or makes a distribution to the holders of Common Stock, the holders of the Class AA Preferred Stock will be entitled to participate in the dividend or distribution on an basis. Each share of Class AA Preferred Stock shall entitle the holder thereof to vote, in person or by proxy, at any special or annual meeting of stockholders, on all matters voted on by holders of Common Stock, voting together as a single class with other shares entitled to vote thereon. So long as a majority of the shares of the Class AA Preferred Stock are outstanding, the Company will be prohibited from taking specified extraordinary actions without the approval of the holders of a majority of the outstanding shares of Class AA Preferred Stock. In the event of the liquidation of the Company, each holder of shares of Class AA Preferred Stock then outstanding shall be entitled to be paid, out of the assets of the Corporation available for distribution to its stockholders, an amount in cash equal to the greater of (a) the amount paid to the Company for such holder’s shares of Class AA Preferred Stock, plus an accretion thereon of 8.0% per annum, compounded annually, and (b) the amount such holder would be entitled to receive had such holder converted such shares of Class AA Preferred into Common Stock immediately prior to such time at which payment will be made or any assets distributed.

The Stockholder Agreement will provide the Investor with rights with respect to certain equity offerings of the Company and restricts the Company from selling equity securities until the Investor has purchased all the Class AA Preferred Stock or no longer has the right or obligation to purchase any of the Class AA Preferred Stock. The Stockholder Agreement will also provide the Investor with certain “first look” rights with respect to certain mineral deposits discovered by the Company or its subsidiaries. Pursuant to the Stockholder Agreement, the Company will grant the Investor certain demand and piggy-back registration rights, including for shelf registrations, with respect to the resale of the shares of Common Stock issuable upon conversion of the Class AA Preferred Stock.

Committed Amount, shall immediately convert to a senior secured liability of the Claimholder. This sum shall incur an annualized internal rate of return (IRR) of 50.0% retroactive to the date each Funding Request was paid by the Funder (under Phase I), or, to the conversion date for the Tranche A Committed Amount and Tranche B Committed Amount of Phase II if the Claimholder has exercised the respective option (collectively, the “Conversion Amount”). Such Conversion Amount and any and all accrued IRR shall be the Claimholder within 24 months of the date of such conversion, after which time any outstanding Conversion Amounts, shall accrue an (IRR) of 100.0%, retroactive to the conversion date (the “Penalty Interest Amount”). The Claimholder will execute such documents and take other actions as necessary to grant the Funder a senior security interest on and over all sums due and owing by the Claimholder in order to secure its obligation to pay the Conversion Amount to the Funder. If the Claimholder ceases the Subject Claim due to the grant of an environmental permit (with or without a monetary component), all Claims Payments under Phase 1 and, if the Claimholder has exercised the corresponding option, the Tranche A Committed Amount and Tranche B Committed Amount shall immediately convert to a senior secured liability of the Claimholder and shall incur an annualized an IRR of 50.0% on the Conversion Amount, noted above, from the conversion date. Management has estimated it is more likely than not the Subject Claim will result in the issuance of the environmental permit requiring us to record interest under Generally Accepted Accounting Principles. Reliance should not be placed on this estimate in determining the likely outcome of the Subject Claim.

If, at any time after exercising its option to receive funds under either Tranche A or Tranche B of Phase II, the Claimholder wishes to fund the Subject Claim with its own capital (“Self-Funding”) (which excludes any Claims Payments made, either directly or indirectly, by any other third party), the Claimholder shall immediately pay to the Funder the Conversion Amount, provided that this requirement shall not apply if, after the Funder has made Claims Payments in an aggregate amount equal to the Maximum Investment Amount, the Funder does not exercise its option to provide

In the event of any receipt of proceeds resulting from the Subject Claim (“Proceeds”), the Funder shall be entitled to any additional sums above the Conversion Amount to which the Funder is entitled as described below. Should the Claimholder cease the Subject Claim as described above after Self-Funding the Claim, accrued IRR and Penalty Interest shall be calculated and paid to the Funder as set forth above. The Funder’s rights to the Recovery Percentage as defined below shall survive any decision by Claimholder to utilize Self-Funding. The parties acknowledge this Agreement constitutes a sale of the right to a portion of the Proceeds (if any) arising from the Subject Claim as set forth in this Agreement. The Claimholder has relinquished its right to the portion of the proceeds, if any, that the Funder would have the right to as described below. This sale of proceeds is being accounted for under the guidance of ASC

(iii)

third, for each $10,000 in specified fees and expenses paid by the Funder under Phase I and Phase II and any amounts over each $10,000 of the Tranche A Committed Amount and the Tranche B Committed Amount (if the Claimholder exercises the Tranche B funding option), 0.01% of the total Proceeds from any recoveries after repayment of (i) and (ii) above, to the Funder; and

(iv)

thereafter, 100% to the Claimholder.

•

The Funder agreed to provide up to $2.2 million in Arbitration Support Funds for the purpose of paying the Claimholder’s litigation support costs in connection with Subject Claim;

•

A closing fee of $200,000 has been retain by the Funder in connection with due diligence and other transaction costs incurred by the Funder;

•

A warrant was issued to purchase our common stock which is exercisable for a period of five years beginning on the earlier of (a) the date on which the Claimholder ceases the Subject Claim for any reason other than a full and final arbitral award against the Claimholder or a full and final monetary settlement of the claims or (b) the date on which Proceeds are received and deposited into escrow. The exercise price per share is $3.99, and the Funder can exercise the warrant to purchase the number of shares of our common stock equal to the dollar amount of Arbitration Support Funds provided to us pursuant to the Restated Agreement divided by the exercise price per share (subject to customary adjustments and limitations); and

•

All other terms in the Restated Agreement are substantially the same as in the original Agreement.

		1.		(a)		Consolidated Financial Statements   See “Index to Consolidated Financial Statements” on page 37.
				(b)		Consolidated Financial Statement Schedules   See “Index to Consolidated Financial Statements” on page 37.
				All other schedules have been omitted because the required information is not significant or is included in the financial statements or notes thereto, or is not applicable.
		2.		Exhibits
				The Exhibits listed in the Exhibits Index, which appears immediately following the signature page and is incorporated herein by reference, are filed as part of this Annual Report on Form 10-K.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules and under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. This process includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.