maturity date into shares of Oceanica held by us at a conversion price of $1.00 per share. Pursuant to this loan and as security for the indebtedness, Monaco was granted a second priority
security interest in (a) one-half of the indebtedness evidenced by the Amended and Restated Consolidated Note and Guaranty, dated September 25, 2015 (the ExO Note), in the original
principal amount of $18.0 million, issued by Exploraciones Oceanicas S. de R.L. de C.V. to Oceanica Marine Operations, S.R.L. (OMO), and all rights associated therewith (the OMO Collateral); and (b) all technology
and assets in our possession or control used for offshore exploration, including an ROV system, deep-tow search systems, winches, multi-beam sonar, and other equipment. The carrying value of this equipment is
$0.9 million. We unconditionally and irrevocably guaranteed all obligations of ours and our subsidiaries to Monaco under this loan agreement. As further consideration for the loan, Monaco was granted an option (the Option) to
purchase the OMO Collateral. The Option is exercisable at any time before the earlier of (a) the date that is 30 days after the loan is paid in full or (b) the maturity date of the ExO Note, for aggregate consideration of
$9.3 million, $1.8 million of which would be paid at the closing of the exercise of the Option, with the balance paid in ten monthly installments of $750,000. During the three-months ended June 30, 2017, we sold a marine vessel to a
related party of Monaco for $650,000. The consideration for this vessel was applied against our loan balance to Monaco in the amount of $650,000.
generally requires the analysis of embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely
related to the risks of the host contract. The option to purchase the OMO Collateral is an embedded feature that is not clearly and closely related to the host debt agreement and thus requires bifurcation. Since the option is out of the money, it
has no material fair value as of the inception date or currently. The debt agreement did not contain any additional embedded terms or features that have characteristics of derivatives. However, we were required to consider whether the hybrid
contract embodied a beneficial conversion feature (BCF). The calculation of the effective conversion amount did result in a BCF because the effective conversion price was less than the market price on the date of issuance, therefore a
BCF of $456,250 was recorded. At September 30, 2017, a BCF of $76,770 remains. The BCF represents a debt discount which will be amortized over the life of the loan. For the three months ended September 30, 2017 and September 30, 2016,
interest expense related to the discount in the amount of $38,791 and $52,320, respectively, was recorded. For the three months ended September 30, 2017 and September 30, 2016, accrued interest in the amount of $29,616 and $45,000,
respectively, was recorded.
Loan modification (December 2015)
In connection with the Acquisition Agreement entered into with Monaco on December 10, 2015, Monaco agreed to modify certain terms of the
loans as partial consideration for the purchase of assets. For the First Tranche ($5,000,000 advanced on August 14, 2014), Monaco agreed to cease interest as of December 10, 2015 and reduce the loan balance by (i) the cash or other
value received from the SS Central America shipwreck project (SSCA) or (ii) if the proceeds received from the SSCA project are insufficient to pay off the loan balance by December 31, 2017, then Monaco can seek repayment
of the remaining outstanding balance on the loan by withholding Odysseys 21.25% additional consideration in new shipwreck projects performed for Monaco in the future. For the Second Tranche ($2,500,000 advanced on October 1,
2014), Monaco agreed to reduce the principal amount by $2,200,000 leaving a new principal balance of $300,000 and extension of maturity to December 31, 2017. For the Third Tranche ($2,500,000 advanced on December 1, 2014), Monaco agreed to
the extension of maturity to December 31, 2017.
On December 10, 2015, the Monaco call option on $10 million of Oceanica
shares held by Odyssey was maintained for the full amount of the original loan amount and was extended until December 31, 2017.
Acquisition Agreement was accounted for as a troubled debt restructuring in accordance with ASC 470-60. As a result of the troubled debt restructuring, the carrying values of the remaining Monaco loans were
required to be recorded at their undiscounted future cash flow values, which amounted to $3,449,632. No interest expense was to be recorded going forward. Interest payments in the three months ended March 31, 2016 reduced the carrying value.
Loan modification (March 2016)
In connection with the $1.825 million loan agreement with Monaco in March 2016, the existing $2.8 million notes were modified. Of the
combined total indebtedness of Monacos Note 1 and Note 2, Monaco can convert this debt into 3,174,603 shares of Oceanica at a fixed conversion price of $1.00 per share, or $3,174,603. Any remaining debt in excess of $3,174,603 is not
convertible. Additionally, the modification eliminated Monacos option (share purchase option) to purchase 3,174,603 shares of Oceanica stock at a price of $3.15 per share. The modification was analyzed under
ASC 480 Distinguishing Liabilities from Equity (ASC 480) to determine if extinguishment accounting was applicable. Under ASC
470-50-40-10 a modification or an exchange that adds or eliminates a substantive conversion option as of the conversion date is
always considered substantial and requires extinguishment accounting. Since this modification added a substantive conversion option, extinguishment accounting is applicable. In accordance with the extinguishment accounting guidance (a) the
share purchase option was first marked to its pre-modification fair value, (b) the new debt was recorded at fair value and (c) the old debt and share purchased option was removed.