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Fair Value Measurements
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
Fair value measurements NOTE 10 – FAIR VALUE MEASUREMENTS

 

The Company did not have any financial assets measured on a recurring basis. The following tables summarize our fair value hierarchy for our financial liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023.

 

 

 

 

Fair Value

 

 

 

Level

 

September 30, 2024

 

 

December 31, 2023

 

Liabilities

 

 

 

 

 

 

 

 

37N Note embedded derivative

 

3

 

$

147,963

 

 

$

702,291

 

Put option liability

 

3

 

 

108,437

 

 

 

5,637,162

 

Litigation financing

 

3

 

 

58,668,368

 

 

 

52,115,647

 

Warrant liabilities issued with debt (December 2023 Warrants)

 

3

 

 

652,100

 

 

 

2,392,563

 

Warrant liabilities issued with equity (2022 Warrants)

 

3

 

 

2,247,643

 

 

 

13,399,822

 

March 2023 Warrants

 

3

 

 

1,511,902

 

 

 

—

 

Total of fair valued liabilities

 

 

 

$

63,336,413

 

 

$

74,247,485

 

 

At September 30, 2024, the Company recorded the 37N Note at fair value, Level 3, for which the valuation techniques used to measure the fair value of the Company’s debt instruments are generally based on observable inputs other than quoted prices in an active market. The Equity Exchange Agreement, which results in a Put option liability (the “Put Option”), and Litigation financing are measured at fair value, Level 3. The OML Put Option valuation was based on the exercise period of the Equity Exchange Agreement, share price and volatility. The Litigation financing valuation was based on the following assumptions: amounts funded by the Funder, the corresponding IRR calculation, applicable percentage applicable to the recovery percentage calculation and management’s good-faith estimates for estimated outcome probabilities and estimated debt repayment dates. The 2022 Warrants, the December 2023 Warrants and the March 2023 Warrants are measured at fair value, Level 3, using a Black-Scholes valuation model. The assumptions used in this model included the use of key inputs, including expected stock volatility, the risk–free interest rate, the expected life of the option and the expected dividend yield. Expected volatility is calculated based on the historical volatility of our Common Stock over the term of the warrant. Risk–free interest rates are calculated based on risk–free rates for the appropriate term. The expected life is estimated based on contractual terms as well as expected exercise dates. The dividend yield is based on the historical dividends issued by us. If the volatility rate or risk-free interest rate were to change, the value of the warrants would be impacted.

 

Changes in our Level 3 fair value measurements were as follows:

 

 

 

March 2023
Warrants

 

 

37N Note
embedded
derivative

 

 

Put option
liability

 

 

Litigation
financing

 

 

December
2023
Warrants

 

 

2022 Warrants

 

 

Total

 

Year ended December 31, 2023

 

$

—

 

 

$

702,291

 

 

$

5,637,162

 

 

$

52,115,647

 

 

$

2,392,563

 

 

$

13,399,822

 

 

$

74,247,485

 

Change in fair value

 

 

(2,491,420

)

 

 

(365,434

)

 

 

(1,252,385

)

 

 

576,173

 

 

 

(124,091

)

 

 

(4,197,744

)

 

 

(7,854,901

)

Classification of warrants as liability

 

 

7,754,438

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

7,754,438

 

Three months ended March 31, 2024

 

 

5,263,018

 

 

 

336,857

 

 

 

4,384,777

 

 

 

52,691,820

 

 

 

2,268,472

 

 

 

9,202,078

 

 

 

74,147,022

 

Debt conversion - 55,000 common shares

 

 

 

 

 

(96,582

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(96,582

)

Change in fair value

 

 

2,161,967

 

 

 

11,023

 

 

 

1,009,132

 

 

 

769,995

 

 

 

1,128,816

 

 

 

3,844,530

 

 

 

8,925,463

 

Three months ended June 30, 2024

 

 

7,424,985

 

 

 

251,298

 

 

 

5,393,909

 

 

 

53,461,815

 

 

 

3,397,288

 

 

 

13,046,608

 

 

 

82,975,903

 

Debt conversion - 120,000 common shares

 

 

—

 

 

 

(97,056

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(97,056

)

Change in fair value

 

 

(5,913,083

)

 

 

(6,279

)

 

 

(5,285,472

)

 

 

5,206,553

 

 

 

(2,745,188

)

 

 

(10,798,965

)

 

 

(19,542,434

)

Three months ended September 30, 2024

 

$

1,511,902

 

 

$

147,963

 

 

$

108,437

 

 

$

58,668,368

 

 

$

652,100

 

 

$

2,247,643

 

 

$

63,336,413

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2022

 

$

—

 

 

$

—

 

 

$

—

 

 

$

45,368,948

 

 

$

—

 

 

$

13,602,467

 

 

$

58,971,415

 

Change in fair value

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,685,517

 

 

 

—

 

 

 

(4,732,403

)

 

 

(3,046,886

)

Other

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,528

 

 

 

—

 

 

 

—

 

 

 

2,528

 

Three months ended March 31, 2023, As Restated

 

 

—

 

 

 

—

 

 

 

—

 

 

 

47,056,993

 

 

 

—

 

 

 

8,870,064

 

 

 

55,927,057

 

Issuance of new instrument

 

 

—

 

 

 

423,696

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

423,696

 

Issuance of new funding

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,633

 

 

 

—

 

 

 

—

 

 

 

4,633

 

Change in fair value

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,682,988

 

 

 

—

 

 

 

1,076,881

 

 

 

2,759,869

 

Three months ended June 30, 2023, As Restated

 

 

—

 

 

 

423,696

 

 

 

—

 

 

 

48,744,614

 

 

 

—

 

 

 

9,946,945

 

 

 

59,115,255

 

Issuance of new funding

 

 

—

 

 

 

—

 

 

 

4,516,007

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,516,007

 

Warrants Exercised

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(184,600

)

 

 

(184,600

)

Change in fair value

 

 

—

 

 

 

173,287

 

 

 

(242,969

)

 

 

1,685,516

 

 

 

—

 

 

 

243,313

 

 

 

1,859,147

 

Nine months ended September 30, 2023

 

$

—

 

 

$

596,983

 

 

$

4,273,038

 

 

$

50,430,130

 

 

$

—

 

 

$

10,005,658

 

 

$

65,305,809

 

 

Additional information about the Litigation financing liability, the 2022 Warrants, the December 2023 Warrants and the March 2023 Warrants is included in Note 9, Loans Payable.

 

Derivative Financial Instruments

 

Litigation financing

 

On June 14, 2019, Odyssey and ExO (together, the “Claimholder”), and Poplar Falls LLC (the “Funder”) entered into an International Claims Enforcement Agreement (the “Agreement”), as amended in January 2020, December 2020, June 2021 and March 2023, pursuant to which the Funder agreed to provide financial assistance to the Claimholder to facilitate the prosecution and recovery of the claim by the Claimholder against the United Mexican States under Chapter Eleven of the North American Free Trade Agreement (“NAFTA”) for violations of the Claimholder’s rights under NAFTA related to the development of an undersea phosphate deposit off the coast of Baja Sur, Mexico (the “Project”), on our own behalf and on behalf of ExO and United Mexican States (the “Subject Claim”). Pursuant to the Agreement, as amended, the Funder agreed to specified fees and expenses regarding the Subject Claim (the “Claims Payments”) incrementally and at the Funder’s sole discretion.

 

The Company determined that the financing arrangement was a derivative, measured at fair value within the scope of ASC 815 Derivatives and Hedging. Subsequently, any changes in the fair value of the derivative are reported in earnings for the period. Fair value was calculated as the midpoint of estimated ranges of the probability-weighted present value of potential results based on management assumptions. As such, the fair value of the obligation is recorded in our condensed consolidated balance sheet in Litigation financing and other and as of September 30, 2024 and December 31, 2023 amounted to $58.6 million and $52.1 million, respectively, with changes in the fair value of an increase of $5.2 million and an increase of $1.7 million for the three months ended September 30, 2024 and 2023, respectively, and an increase of $6.5 million and an increase $5.1 million for the nine months ended September 30, 2024 and 2023, respectively.

On September 17, 2024, the Company received notification from the International Centre for Settlement of Investment Disputes (“ICSID”) of the arbitral award on the claims brought by the Company on behalf of itself and ExO, against the United Mexican States under Chapter Eleven of the North American Free Trade Agreement (“NAFTA”). The arbitral tribunal issued an award in favor of the Company and ExO. The award orders Mexico to pay $37.1 million for breaching its obligations under NAFTA, plus interest at the one-year Mexico Treasury bond rate, compounded annually, from October 12, 2018, until the

award is paid in full, plus the arbitrators’ fees and ICSID administrative costs. The amounts awarded are net of Mexican taxes and Mexico may not tax the award.

The Company considers the monetary award to be a gain contingency, and has not recorded any related gain in the condensed consolidated financial statements as of and for the quarter ended September 30, 2024. The Company will record any related gain when it is determined to be realized or realizable. As of September 30, 2024, the Company is in process of analyzing the probability of collectability of the arbitration award.

 

37N Note

 

See Note 9, Loans Payable, for discussion related to the accounting for the 37N embedded derivative.

 

Warrant Liability

 

2022 Warrants

 

On June 10, 2022, we sold an aggregate of 4,939,515 shares of our Common Stock and the 2022 Warrants to holders to purchase up to 4,939,515 shares of our Common Stock (“2022 Warrants”). The net proceeds received from sale, after offering expenses of $1.8 million, were $14.7 million. The shares of common stock and warrants were sold in units, with each unit consisting of one share of common stock and one warrant to purchase one share of common stock at an exercise price of $3.35 (the “2022 Warrant Price”) per share of common stock. Each unit was sold at a negotiated price of $3.35 per unit. The 2022 Warrants are exercisable at any time beginning on December 10, 2022, and ending on the close of business on June 10, 2027.

 

The Company determined that the 2022 Warrants meet the definition of a derivative and are not considered indexed to the Company’s own stock due to the input related to the price per share and any non-cash consideration. Management determined that this input would preclude the 2022 Warrants from being indexed to the Company’s stock given that this input could be affected by variables that are extraneous to the pricing of a fixed-for-fixed option or forward contract on equity shares. As such, the 2022 Warrants were recognized as derivative liabilities and will be initially and subsequently measured at fair value with the gain or loss due to changes in fair value recognized in the current period. The Company noted that when debt is issued with liability-classified stock purchase warrants, the residual method should be used so that the warrants are recognized at fair value at issuance and the residual proceeds are allocated to the debt.

 

The fair value of the obligation on September 30, 2024 and December 31, 2023 was $2.2 million and $13.4 million, respectively, with changes in the fair value of a decrease of $10.8 million and an increase of $0.2 million for the three months ended September 30, 2024 and 2023, respectively, and decreases of $11.2 million and $3.4 million for the nine months ended September 30, 2024 and 2023, respectively.

March 2023 Warrants and December 2023 Warrants

See Note 9, Loans Payable, for discussion related to the accounting for the March 2023 Warrants and the December 2023 Warrants.

Put Option Liability

See Note 6, Investment in unconsolidated entities, for discussion regarding the Equity Exchange Agreement.