The following discussion and analysis is intended to provide a narrative of our
financial results and an evaluation of our results of operations and financial
condition. The discussion should be read in conjunction with our consolidated
financial statements and notes thereto. A description of our business is
discussed in Item 1 of this report which contains an overview of our business as
well as the status of our ongoing project operations.
Results of Operations
The dollar values set forth in the following tables, except as otherwise
indicated, are approximations to the nearest thousands and therefore do not
necessarily sum in columns or rows. For more detail refer to the Financial
Statements and Supplementary Data in Item 8. The tables identify years 2022,
2021 and 2020, all of which included a twelve-month period ended December 31.
2022 Compared to 2021
Increase/(Decrease) 2022 vs. 2021
(Dollars in thousands) 2022 2021 $ %
Total revenue $ 1,335 $ 921 $ 414 45.0 %
Marketing, general and administrative 8,487 6,322 2,165 34.2 %
Operations and research
9,892 9,551 341 3.6 %
Total operating expenses $ 18,379 $ 15,872 $ 2,507 15.8 %
Total other income (expense) $ (13,839 ) $ (1,177 ) $ (12,662 ) 1075.8 %
Income tax benefit (provision) $ - $ - $ - 0.0 %
Non-controlling interest $ 7,743 $ 6,171 $ 1,572 25.5 %
Net income (loss) $ (23,141 ) $ (9,956 ) $ (13,185 ) 132.4 %
Revenue
The revenue generated in each period was a result of performing oceanic research
and project administration for our customers and related parties. Total revenue
for the year ended December 31, 2022 was $1.3 million, a $0.4 million increase
compared to $0.9 million from the year ended December 31, 2021. We provided
these services in both years to a deep-sea 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 6 Related Party Transactions).
Cost and Expenses
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 $2.2 million to $8.5 million for the year
ended December 31, 2022 compared to $6.3 million for the year ended December 31,
2021. The primary items contributing to this $2.2 million increase were an
increase of $0.5 million in employee benefits and compensation related expenses
and an increase of non-cash long term incentive share-based compensation of $0.2
million, offset by a $0.4 million decrease in employee bonuses. Legal and
professional fees increased by $0.4 million and $0.8 million, respectively,
primarily related to supporting the expansion of our seafloor minerals
portfolio. Insurance expenses increased by $0.2 million as a result of increased
premiums.
Operations and research expenses are primarily from deep-sea mineral
exploration, which includes minerals research, scientific services, marine
operations and project management. Operations and research expenses increased by
$0.3 million during the year ended December 31, 2022 as compared to the year
ended December 31, 2021 primarily as a result of a $.9 million increase in cost
for the Mexican exploration license, a gain on sale of equipment of $0.3 million
for the year ended December 31, 2021 that did not recur, a $0.2 million increase
in professional fees and a $0.2 million increases in expenses related to the
marine equipment purchase. These increases were offset by a $1.5 million
decrease in litigation financed costs directly associated with our NAFTA
litigation.
Other Income or Expense
Total other income and expense was $13.8 million and $1.2 million for the years
ended December 31, 2022 and 2021, respectively, resulting in a net expense
increase of $12.6 million. This variance was attributable to an increase in
interest expense of $3.3 million, driven by an increase in expenses related to
our ongoing NAFTA litigation. During 2022, we also recognized a $0.3 million
gain on the extinguishment of the Cuota Appreciation Rights awarded to the Board
of Directors that expired. For the year ended
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December 31, 2021 several one-time events increased other income including a
gain of $5.2 million related to a debt settlement agreement with a creditor that
occurred in October 2021 and an increase of $3.8 million of other income
previously recorded as deferred revenue as a result of the cancellation of
revenue participation rights of the Seattle and Galt Resources projects in 2021.
Additionally, in September 2021, a gain of $0.4 million on debt extinguishment
was recorded due to the Small Business Administration forgiving our $0.4 million
Payroll Protection Program loan.
Income Taxes and Non-Controlling Interest
We did not incur any taxes in 2022, 2021 or 2020.
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 "Non-Controlling Interest" in the consolidated statements of
operations. The non-controlling interest adjustment in the year ended December
31, 2022 was $7.7 million as compared to $6.2 million for the year ended
December 31, 2021. The substance of these amounts is primarily due to
compounding of interest on intercompany debt, the increase in permits fees and
other standard operating costs.
Liquidity and Capital Resources
(Dollars in thousands) 2022 2021
Summary of Cash Flows:
Net cash used in operating activities $ (9,254 ) $ (5,425 )
Net cash (used in) provided by investing activities (2,346 ) 323
Net cash provided by financing activities
10,769 1,214
Net decrease in cash and cash equivalents $ (831 ) $ (3,888 )
Beginning cash and cash equivalents 2,275 6,163
Ending cash and cash equivalents $ 1,444 $ 2,275
Discussion of Cash Flows
Net cash used by operating activities for the year ended December 31, 2022 was
$9.3 million. This represents an approximate $3.8 million increase in use of
funds when compared to the use of $5.4 million for the year ended December 31,
2021. Cash flows used in operating activities for the year ended December 31,
2022 of $9.3 million reflected a net loss before non-controlling interest of
$30.9 million and is adjusted primarily by an increase in non-cash items of $1.0
million, which primarily includes share-based compensation of $1.8 million, note
payable accretion of $0.3 million and the $0.3 million non-cash adjustment loans
payable prepayment premium and offset by an investment in unconsolidated entity
of $1.2 million. Other operating activities resulted in an increase in working
capital of $19.2 million. This $19.2 million increase includes a $14.7 million
increase to accrued expenses and an increase of $6.0 million to accounts payable
in 2022. The increase in accrued expenses and accounts payable is predominantly
related to our NAFTA arbitration.
Cash flows used in operating activities for the year ended December 31, 2021 of
$5.4 million reflected a net loss before non-controlling interest of $16.1
million and is adjusted primarily by decrease in non-cash items of $8.8 million,
which primarily include a decrease in investment in unconsolidated entity of
$0.9 million, gain on debt settlement of $5.2 million, deferred revenue
adjustment of $3.8 million, gain on debt extinguishment of $0.4 million and gain
on the sale of equipment of $0.3 million offset by share-based compensation of
$1.2 million. Other operating activities resulted in an increase in working
capital of $19.6 million. This $19.6 million increase includes a $13.7 million
increase to accrued expenses and an increase of $6.3 million to accounts payable
in 2021. The increase in accrued expenses and accounts payable is predominantly
related to our NAFTA financed litigation.
Cash flows used in investing activities for the year ended December 31, 2022 was
$2.3 million. This represents an approximate $2.7 million decrease from cash
flows provided by investing activities of $0.3 million for the year ended
December 31, 2021. During the year ended December 31, 2022 the net cash used in
investing activities of $2.3 million was for the purchase of property and
equipment and loan disbursements.
Cash flows provided by investing activities for the year ended December 31, 2021
of $0.3 million was from the sale of property and equipment.
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Cash flows provided by financing activities for the year ended December 31, 2022
was $10.8 million. The $10.8 million comprises $16.5 million received from the
June 2022 issuance of stock and $2.2 million received from the issuance of loans
payable offset by the $5.5 million of debt obligation payments and $1.8 million
of offering costs associated with the stock issuance.
Cash flows provided by financing activities for the year ended December 31, 2021
were $1.2 million. The $1.2 million comprises $1.4 million received from our
litigation funder related to our NAFTA litigation financed expenses and $0.7
million from the sale of equity in our subsidiary offset by $0.4 million of debt
obligation payments and $0.5 million of debt termination fees.
General Discussion 2022
At December 31, 2022, we had cash of $1.4 million, a decrease of ($0.8) million
from the December 31, 2021 balance of $2.3 million. On June 10, 2022, we sold an
aggregate of 4,939,515 shares of our common stock and warrants to purchase up to
4,939,515 shares of our common stock. The net proceeds received from this sale,
after offering expenses of $1.8 million, were $14.7 million. During the year
ended December 31, 2022, the proceeds from our equity offering were used to
repay $5.5 million of debt obligation payments and $1.1 million of self funded
NAFTA litigation expenses. Additionally, in 2022 our litigation funder paid, on
our behalf, $5.4 million of amounts due to vendors who are supporting our NAFTA
litigation as well as directly reimbursing the Company $0.2 million for expended
costs related directly to our NAFTA litigation. During March 2021, Epsilon
Acquisitions LLC converted its indebtedness comprising $1.0 million of principal
and $0.4 million of accrued interest into 411,562 shares of our common stock,
and during July 2021, certain creditors converted $1.1 million of our
convertible debt and accrued interest of $0.3 million into 283,850 shares of our
common stock. During the year ended December 31, 2021, our litigation funder
paid, on our behalf, $5.6 million of amounts due to vendors who are supporting
our NAFTA litigation as well as directly reimbursing the Company $1.4 million
for expended costs related directly to our NAFTA litigation.
Financial debt of the company was $46.7 million at December 31, 2022 and $41.9
million at December 31, 2021. During October 2021 we entered into a Termination
and Settlement Agreement with Monaco and SMOM which removed $14.5 million of
debt principal and accrued interest from our balance sheet. See Note 10 Loans
Payable - Monaco for further detail.
Since SEMARNAT declined to approve the environmental permit application of our
Mexican subsidiary in April 2016 and again in October 2018, notwithstanding that
the Superior Court of the Federal Court of Administrative Justice ("TFJA") in
Mexico nullified SEMARNAT's 2016 denial, we continue to support the efforts of
our subsidiaries and partners to work through the administrative, legal and
political process necessary to have the decision reviewed and overturned in the
court of the TFJA. On January 4, 2019, we initiated the process to submit a
claim against Mexico to arbitration under the investment protection chapter of
the NAFTA. On September 4, 2020, we filed our First Memorial with the Tribunal.
The First Memorial is the filing that fully lays out our case, witnesses and
evidence for the Tribunal. Mexico filed its counter-memorial, which is available
on the International Centre for Settlement of Investment Disputes ("ICSID")
website, on February 23, 2021. On June 29, 2021, we filed our reply to Mexico's
counter-memorial. Odyssey's filings are available at
www.odysseymarine.com/nafta. The NAFTA Tribunal hearing took place from January
24 - January 29, 2022. On May 10, 2022, one final witness, whose testimony was
delayed due to COVID, testified before the NAFTA Tribunal. In accordance with
the procedural calendar, written post hearing briefs were filed in September
2022. The evidentiary phase of the case is now closed.
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2021 Compared to 2020
Increase/(Decrease) 2021 vs. 2020
(Dollars in thousands) 2021 2020 $ %
Total revenue $ 921 $ 2,038 $ (1,117 ) (54.8 %)
Marketing, general and administrative 6,322 3,750 2,572 68.6 %
Operations and research
9,551 10,924 (1,373 ) (12.6 %)
Total operating expenses $ 15,872 $ 14,674 $ 1,198 8.2 %
Total other income (expense) $ (1,177 ) $ (8,457 ) $ 7,280 (86.1 %)
Income tax benefit (provision) $ - $ - $ - 0.0 %
Non-controlling interest $ 6,171 $ 6,280 $ (109 ) (1.7 %)
Net income (loss) $ (9,956 ) $ (14,812 ) $ 4,856 (32.8 %)
Revenue
The revenue generated in each period was a result of performing oceanic research
and project administration for our customers and related parties. Total revenue
for the year ended December 31, 2021 decreased by $1.1 million to $0.9 million
as compared to $2.0 million from the year ended December 31, 2020. We provided
services to CIC for both years ended 2021 and 2020. 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.
Cost and Expenses
Marketing, general and administrative expenses increased $2.6 million to $6.3
million for the year ended December 31, 2021 compared to $3.8 million for the
year ended December 31, 2020. 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 non-cash 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 decreased by $1.4 million to $9.6 million for
the year ended December 31, 2021 compared to $10.9 million for the year ended
December 31, 2020 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.
Other Income or Expense
Total other income and expense was $1.2 million in net expenses and $8.5 million
in net expenses for the years ended December 31, 2021 and 2020, respectively,
resulting in a net expense decrease of $7.3 million. This variance was
attributable to a $1.2 million decrease from a $0.8 million prior year loss on
debt extinguishment to a current year gain of $0.4 million on debt
extinguishment. The prior year $0.8 million loss was due to fair value
accounting on a refinancing of a loan with a creditor and the current year gain
was due to the Small Business Administration forgiving our $0.4 million Payroll
Protection Program loan. The other items were a decrease of $0.7 million in
derivative fair value expense of our hybrid debt instrument that only existed in
2020, a $3.9 million increase in interest expense mainly attributable to our
NAFTA litigation funding, a $4.1 million increase in other income due to
removing the balance of our deferred income items from our balance sheet (see
Note 12 Deferred Income and Revenue Participation Rights) and a gain of $5.2
million related to a debt settlement agreement with a creditor that occurred in
October 2021, see Note 10 Loans Payable - Monaco for further detail.
Income Taxes and Non-Controlling Interest
We did not incur any taxes in 2021, 2020 or 2019.
The non-controlling interest adjustment in the year ended December 31, 2021 was
$6.2 million as compared to $6.3 million for the year ended December 31, 2020.
The substance of these amounts is primarily due to the compounding of interest
on intercompany debt and other standard operating costs.
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Liquidity and Capital Resources
(Dollars in thousands) 2021 2020
Summary of Cash Flows:
Net cash used in operating activities $ (5,425 ) $ (9,182 )
Net cash provided by investing activities 323 -
Net cash provided by financing activities 1,214 15,132
Net (decrease) increase in cash and cash equivalents $ (3,888 ) $ 5,950
Beginning cash and cash equivalents
6,163 213
Ending cash and cash equivalents $ 2,275 $ 6,163
Discussion of Cash Flows
Net cash used by operating activities for the calendar year of 2021 was $5.4
million. This represents an approximate $3.8 million decrease in use of funds
when compared to the use of $9.1 million in the same period of 2020. The current
year net cash used by operating activities reflected a net loss before
non-controlling interest of $16.1 million and is adjusted primarily by non-cash
or non-operating 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 $9.2 million. The net cash
used by operating activities reflected a net loss before non-controlling
interest of $21.1 million offset in part by non-cash items 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 $10.8 million compared to 2019. Changes to
accrued expenses, accounts receivable, accounts payable and other assets in 2020
comprised the $10.8 million. The December 31, 2020 accounts payable balance of
$4.5 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 investing activities for the calendar year 2021 were
$322,988, which is net of $19,137 of equipment purchases of a marine asset and
computer and cash proceeds from the sale of equipment of $342,125.
There were no cash flows from investing activities in 2020.
Cash flows provided by financing activities for the calendar year 2021 were $1.2
million. The $1.2 million is comprised of $0.7 million received from the sale of
equity in our subsidiary offset by outflows of $0.5 million for our lease
obligation payments and other debt obligation payments. We were reimbursed $1.4
million from our funder related to our NAFTA litigation financed expenses. A
$500,000 termination fee was paid in relation to our Termination Agreement (See
Note 10 Loans Payable - Monaco).
Cash flows provided by financing activities for 2020 were $15.1 million. The
2020 period $15.1 million was comprised of funds received from our NAFTA
litigation financing and funds received from the 37 North agreement. 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 10 Loans Payable - Emergency Injury Disaster Loan). 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 for net-proceeds of
$11.3 million (see Note 13 Stockholders' Equity/(Deficit)). During December
2020, we sold $800,000 of new equity in one of our controlled subsidiaries to an
existing shareholder of that subsidiary.
General Discussion 2021
At December 31, 2021, we had cash of $2.3 million, a decrease of $3.9 million
from the December 31, 2020 balance of $6.2 million. During March 2021, Epsilon
Acquisitions LLC converted its indebtedness comprised of $1.0 million of
principal and $0.4 million of accrued interest into 411,562 shares of our common
stock, and during July 2021, certain creditors converted $1.1 million of our
convertible debt and accrued interest of $0.3 million into 283,850 shares of our
common stock (See Note 13 Stockholders'
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Equity/(Deficit). Our litigation funder paid, on our behalf, $5.6 million of
amounts due to vendors who are supporting our NAFTA litigation as well as
directly reimbursing the Company $1.4 million for expended costs related
directly to our NAFTA litigation.
Financial debt of the company, excluding any derivative, discounts, hybrid-debt
fair value accounting or beneficial conversion feature components of such, was
$41.9 million at December 31, 2021 and $42.6 million at December 31, 2020.
During October 2021 we entered into a Termination and Settlement Agreement with
Monaco and SMOM which removed $14.5 million of debt principal and accrued
interest from our balance sheet. See Note 10 Loans Payable - Monaco for further
detail.
Because SEMARNAT declined to approve the environmental permit application of our
Mexican subsidiary in April 2016 and again in October 2018, notwithstanding that
the Superior Court of the Federal Court of Administrative Justice (TFJA) in
Mexico nullified SEMARNAT's 2016 denial, we continue to support the efforts of
our subsidiaries and partners to work through the administrative, legal and
political process necessary to have the decision reviewed and overturned in the
court of the TFJA. On January 4, 2019, we initiated the process to submit a
claim against Mexico to arbitration under the investment protection chapter of
the North American Free Trade Agreement (NAFTA). On September 4, 2020, we filed
our First Memorial with the Tribunal. The First Memorial is the filing that
fully lays out our case, witnesses and evidence for the Tribunal. Mexico filed
its counter-memorial, which is available on the International Centre for
Settlement of Investment Disputes (ICSID) website, on February 23, 2021. On June
29, 2021, we filed our reply to Mexico's counter-memorial. Odyssey's filings are
available at www.odysseymarine.com/nafta. The NAFTA's Tribunal hearing took
place from January 24 - January 29, 2022. See Litigation Financing below
regarding the funding of this litigation, see ITEM 1. BUSINESS for further
detail.
Financings
The Company's consolidated notes payable consisted of the following carrying
values and related interest expense at:
Note payable Interest expense
December 31, December 31, Year Ended December 31,
2022 2021 2022 2021 2020
MINOSA 1 $14,750,001 $14,750,001 $1,122,681 $1,179,998 $1,183,230
MINOSA 2 5,050,000 5,050,000 562,336 504,998 506,381
Litigation financing 24,347,513 18,323,097 11,784,672 7,354,940 3,668,242
EIDL 149,900 149,900 4,014 10,102 -
Vendor note payable 484,009 484,009 58,080 58,083 58,240
Monaco - 2,500,000 222,000 - -
Seller note payable 1,400,000 - 20,712 - -
D&O Insurance note payable 562,280 621,770 11,971 7,545 5,608
37North - - 300,000 - -
$46,743,703 $41,878,777
Stock Purchase Agreement
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 provided 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
1-for-12 reverse stock split of February 19, 2016):
Series No. of Shares Price per Share
SeriesAA-1 8,427,004 $ 12.00
SeriesAA-2 7,223,145 $ 6.00
The closing of the sale and issuance of shares of the Company's preferred stock
to the Investor was subject to certain conditions, including the Company's
receipt of required approvals from the Company's stockholders (received on June
9, 2015), the receipt of regulatory approval, performance by the Company of its
obligations under the Purchase Agreement, receipt of certain third party
consents, the listing of the underlying common stock on the NASDAQ Stock Market
and the Investor's satisfaction, in its sole discretion, with the viability of
certain undersea mining projects of the Company. Completion of the transaction
requires amending the Company's articles of incorporation to (a) effect a
reverse stock split, which was done on February 19, 2016, (b) adjusting the
Company's authorized capitalization, which was also done on February 19, 2016,
and (c) establishing a classified board of directors.
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The purchase and sale of 2,916,667 shares of Series AA-1 Preferred Stock at an
initial closing and for the purchase and sale of the remaining 5,510,337 shares
of Series AA-1 Preferred Stock according to the following schedule, was subject
to the satisfaction or waiver of specified conditions set forth in the Purchase
Agreement:
No. Series AA-1 Total Purchase
Date Shares Price
March 1, 2016 1,806,989 $ 21,683,868
September 1, 2016 1,806,989 $ 21,683,868
March 1, 2017 1,517,871 $ 18,214,446
March 1, 2018 378,488 $ 4,541,856The Investor had the right to elect to purchase all or a portion of the Series
AA-1 Preferred Stock before the other dates set forth above. The initial closing
and the closing scheduled for March 1, 2016, did not occur because certain
conditions to closing were not satisfied or waived. After completing the
purchase of all AA-1 Preferred Stock, the Investor would have had the right, but
not the obligation, to purchase all or a portion the 7,223,145 shares of Series
AA-2 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.
Subject to the terms set forth in the Purchase Agreement, the Lender provided
the Company, through a subsidiary of the Company, with a loan of $14.75 million,
the outstanding amount of which, plus accrued interest, was to be repaid from
the proceeds from the sale of the shares of Series AA-1 Preferred Stock at the
initial closing. The outstanding principal balance of the loan at December 31,
2022 was $14.75 million.
The obligation to repay the loan was evidenced by a promissory note (the "Note")
in the amount of up to $14.75 million and bore 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"), was secured by a pledge of 54.0 million shares of
Oceanica Resources S. de R.L., a Panamanian limitada ("Oceanica"), held by OME.
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 made 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 Purchase Agreement; (iii) the occurrence of
an event of default under the Note; (iv) March 30, 2016; or (v) if the Investor
had 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 amended and extended the maturity date of the loan to March 18, 2017
(see Note 10 Loans Payable). The August 10, 2017 amendment to the Purchase
Agreement also amended the due date of the Note to a due date which may be no
earlier than December 31, 2017, and at least 60 days subsequent to written
notice that Minosa intended to demand payment. In December 2017 MINOSA
transferred the Note to its parent company, Altos Hornos de México, S.A.B. de
C.V. ("AHMSA") .
On March 3, 2023, Odyssey, AHMSA, MINOSA and Phosphate One LLC (f/k/a Penelope
Mining LLC, "Phosphate One" and together with AHMSA and MINOSA, the "AHMSA
Parties") entered into Settlement, Release and Termination Agreement (the
"Termination Agreement").
Pursuant to the Termination Agreement:
•
Odyssey paid AHMSA $9.0 million (the "Termination Payment") in cash on March 6,
2023;
•
the parties agreed that, concurrently with the payment of the Termination
Payment, a portion of the MINOSA Notes would be deemed automatically converted
into 304,879 shares of Odyssey's common stock;
•
the MINOSA Notes, the Purchase Agreement, and the Pledge Agreements were
terminated;
•
each of the AHMSA Parties, on the one hand, and Odyssey, on the other, agreed to
release the other parties and their respective affiliates, equity holders,
beneficiaries, successors and assigns (the "Released Parties") from any and all
claims, demands, damages, actions, causes of action or liabilities of any kind
or nature whatsoever under the SPA, the MINOSA Notes, the Minosa Purchase
Agreement, or the Pledge Agreements (the "Released Matters"); and
•
each of the AHMSA Parties, on the one hand, and Odyssey, on the other, agreed
not to make any claims against any of the Released Parties related to the
Released Matters.
The transactions contemplated by the Termination Agreement were completed on
March 6, 2023.
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On March 6, 2023, Odyssey entered into a Release and Termination Agreement with
a director of the Company, James S. Pignatelli, to terminate and release a
portion of the MINOSA 2 Note assigned to Mr. Pignatelli in 2021, the related
Note Purchase Agreement ("NPA") and the Pledge Agreement.
On March 6, 2023, Odyssey issued a new Unsecured Convertible Promissory Note in
the principal amount of $500,000 to Mr. Pignatelli of the Company that bears
interest at the rate of 10.0% per annum convertible at a conversion price of
$3.78 per share. Pursuant to the Release and Termination Agreement with Mr.
Pignatelli noted above, he agreed, in exchange for the issuance of this
Unsecured Convertible Promissory Note by Odyssey, to release the assigned
portion of the MINOSA 2 note issued by Odyssey Marine Exploration, Inc., a
wholly owned subsidiary of the Company, to Mr. Pignatelli in the principal
amount of $404,634 and convertible at a conversion price of $4.35 per share,
pursuant to which the outstanding aggregate obligation with accrued interest was
$630,231.
Other loans and financing
Litigation Financing
On June 14, 2019, Odyssey and Exploraciones Oceánicas S. de R.L. de C.V., our
Mexican subsidiary ("ExO" and, together with Odyssey, the "Claimholder"), and
Poplar Falls LLC (the "Funder") entered into an International Claims Enforcement
Agreement (the "Agreement"), pursuant to which the Funder agreed to provide
funding 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, the Funder agreed to specified fees and expenses
regarding the Subject Claim (the "Claims Payments") incrementally and at the
Funder's sole discretion.
Under the terms of the Agreement, the Funder agreed to make Claims Payments in
an aggregate amount not to exceed $6,500,000 (the "Maximum Investment Amount").
The Maximum Investment Amount will be made available to the Claimholder in two
phases, as set forth below:
(a)
a first phase, in which the Funder shall make Claims Payments in an aggregate
amount no greater than $1,500,000 for the payment of antecedent and ongoing
costs ("Phase I Investment Amount"); and
(b)
a second phase, in which the Funder shall make Claims Payments in an aggregate
amount no greater than $5,000,000 for the purposes of pursuing the Subject Claim
to a final award ("Phase II Investment Amount").
Upon exhaustion of the Phase I Investment Amount, the Claimholder will have the
option to request Tranche A of the Phase II Investment Amount, consisting of
funding up to $3.5 million ("Tranche A Committed Amount"). Upon exhaustion of
the Tranche A Committed Amount, the Claimholder will have the option to request
Tranche B of the Phase II Investment Amount, consisting of funding of up to $1.5
million ("Tranche B Committed Amount"). The Claimholder must exercise its option
to receive the Tranche A Committed Amount in writing, no less than thirty days
before submitting a Funding Request to the Funder under Tranche A. The
Claimholder must exercise its option to receive the Tranche B Committed Amount
in writing within forty-five days after the exhaustion of the Tranche A
Committed Amount. Pursuant to the Agreement, the Claimholder agreed that, upon
exercising the Claimholder's option to receive funds under Phase I, Tranche A of
Phase II, or Tranche B of Phase II, the Funder will be the sole source of
third-party funding for the specified fees and expenses of the Subject Claim
under each respective phase and tranche covered by the option exercised, and the
Claimholder will obtain funding for such fees and expenses only as set forth in
the Agreement. The Funder was due a closing fee of $80,000 for the Phase I
Investment Amount, and $80,000 for the Phase II Investment Amount to pay third
parties in connection with due diligence and other administrative and
transaction costs incurred by the Funder prior to and in furtherance of
execution of the Agreement.
Upon the Funder making Claims Payments to the Claimholder or its designees in an
aggregate amount equal to the Maximum Investment Amount, the Funder has the
option to continue funding the specified fees and expenses in relation to the
Subject Claim on the same terms and conditions provided in the Agreement. The
Funder must exercise its option to continue funding in writing, within thirty
days after the Funder has made Claims Payments in an aggregate amount equal to
the Maximum Investment Amount. If the Funder exercises its option to continue
funding, the parties agreed to attempt in good faith to amend the Agreement to
provide the Funder with the right to provide at the Funder's discretion funding
in excess of the Maximum Investment Amount, in an amount up to the greatest
amount that may then be reasonably expected to be committed for investment in
Subject Claim. If the Funder declines to exercise its option, the Claimholder
may negotiate and enter into agreements with one or more third parties to
provide funding, which shall be subordinate to the Funder's rights under the
Agreement.
The Agreement provides that the Claimholder may at any time without the consent
of the Funder either settle or refuse to settle the Subject Claim for any
amount; provided, however, that if the Claimholder settles the Subject Claim
without the Funder's
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consent, which consent shall not be unreasonably withheld, conditioned, or
delayed, the value of the Recovery Percentage (as defined below) will be deemed
to be the greater of (a) the Recovery Percentage (under Phase I or Phase II, as
applicable), or (b) the total amount of all Claims Payments made in connection
with such Subject Claim multiplied by three (3).
If the Claimholder ceases the Subject Claim for any reason other than (a) a full
and final arbitral award against the Claimholder or (b) a full and final
monetary settlement of the claims, including in particular, for a grant of an
environmental permit to the Claimholder allowing it to proceed with the Project
(with or without a monetary component), all Claims Payments under Phase I and,
if 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. 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 payable
in-full by 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 Follow-On Funding.
In the event of any receipt of proceeds resulting from the Subject Claim (as
defined in the Agreement, "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 acknowledged that the 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 470-10-25 Recognition (Sales of Future Revenues)
On each Distribution Date, distributions of the Proceeds shall be made to the
Claimholder and the Funder in accordance with subparagraph (a) or (b) below (the
"Recovery Percentage"), as applicable:
(a)
If the Claimholder receives only the Phase I Investment Amount from the Funder,
the first Proceeds shall be distributed as follows:
(i)
first, 100.0% to the Funder, until the cumulative amount distributed to the
Funder equals the total Claims Payments paid by the Funder under Phase I;
(ii)
second, 100.0% to the Funder until the cumulative amount distributed to the
Funder equals an IRR of 20% of Claims Payments paid by the Funder under Phase I
("Phase I Compensation"), per annum; and
(iii)
thereafter, 100.0% to the Claimholder.
(b)
If the Claimholder exercises its options to receive Tranche A or both Tranche A
and Tranche B of the Phase II Investment Amount, the first Proceeds shall be
distributed as follows:
(i)
first, 100.0% to the Funder until the cumulative amount distributed to the
Funder equals the total Claims Payments paid by the Funder under Phases I and
II;
(ii)
second, 100.0% to the Funder until the cumulative amount distributed to the
Funder equals an additional 300.0% of Phase I Investment Amount; plus an
additional 300% of the Tranche A Committed Amount (i.e. 300.0% of $3.5 million),
less any amounts remaining of the Tranche A Committed Amount that the Funder
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did not pay as Claims Payments; plus an additional 300.0% of the Tranche B
Committed Amount (i.e. 300.0% of $1.5 million), if the Claimholder exercises the
Tranche B funding option, less any amounts remaining of the Tranche B Committed
Amount that the Funder did not pay as Claims Payments;
(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 Agreement provides that if no Proceeds are ever paid to or received by the
Claimholder or its representatives and if the environmental permit is not
issued, the Funder shall have no right of recourse or right of action against
the Claimholder or its representatives, or any of their respective property,
assets, or undertakings, except as otherwise specifically contemplated by the
Agreement. If (a) Proceeds are paid to or received by the Claimholder or its
representatives; (b) such Proceeds are promptly applied and/or distributed by
the Claimholder or on behalf of the Claimholder in accordance with the terms of
the Agreement; and (c) the amount received by the Funder as a result thereof is
not sufficient to pay all of the Recovery Percentage and all of the amounts due
to the Funder under the Agreement, then (provided that all of the Proceeds which
the Funder will ever be entitled to have been paid to or received by the
Funder), the Funder shall have no right of recourse or action against the
Claimholder or its Representatives, or any of their property, assets, or
undertakings, except as otherwise specifically contemplated by the Agreement.
Pursuant to the Agreement, the Claimholder acknowledged the Funder's priority
right, title, and interest in any Proceeds, including against any available
collateral to secure its obligations under the Agreement, which security
interest shall be first in priority as against all other security interests in
the Proceeds. The Claimholder also acknowledged and agreed to execute and
authorize the filing of a financing statement or similar and to take such other
actions in such jurisdictions as the Funder, in its sole discretion, deems
necessary and appropriate to perfect such security interest. The Agreement also
includes representations and warranties, covenants, conditions, termination and
indemnification provisions, and other provisions customary for comparable
arrangements.
Amendment and Restatement (January 31, 2020)
On January 31, 2020, the Claimholder and the Funder entered into an Amended and
Restated International Claims Enforcement Agreement (the "Restated Agreement").
The material terms and provisions that were amended or otherwise modified are as
follows:
•
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.
During 2020, the Funder provided us with $2.0 million of the Arbitration Support
Funds, and we incurred $200,000 in related fees that were treated as an
additional advance. Upon each funding, the proceeds were allocated between debt
and equity for the warrants based on the relative fair value of the two
instruments. As a result, there was a debt discount of $1,063,811 which is being
amortized over the expected remaining term of the agreement using the effective
interest method which is charged to interest expense.
Although the warrants only become exercisable upon the occurrence of future
events, they are considered issued for accounting purposes and were valued using
a binomial lattice model. The expected volatility assumption was based on the
historical volatility of our common stock. The expected life assumption was
primarily based on management's expectations of when the Warrants will become
exercisable and the risk-free interest rate for the expected term of the warrant
is based on the U.S. Treasury yield curve in effect at the time of measurement.
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Second Amendment and Restatement (December 12, 2020)
On December 12, 2020, the Claimholder and the Funder entered into a Second
Amended and Restated International Claims Enforcement Agreement (the "Second
Restated Agreement") relating to the Subject Claim. Under the terms of the
Second Restated Agreement, the Funder agreed to make Claims Payments in an
aggregate amount not to exceed $20,000,000 (the "Maximum Investment Amount").
The Second Restated Agreement requires the Funder to make Claims Payments in an
aggregate amount no greater than $10,000,000 for the purposes of pursuing the
Subject Claim to a final award ("Phase III Investment Amount"). We also incurred
$200,000 in related fees, which were treated as an additional advance. The
Second Restated Agreement includes the same representations and warranties,
covenants, conditions, termination and indemnification provisions, and other
provisions as in the original agreement.
Third Amendment and Restatement (June 14, 2021)
On June 14, 2021, the Claimholder and the Funder entered into a Third Amended
and Restated International Claims Enforcement Agreement (the "Third Restated
Agreement") relating to the Subject Claim. Under the terms of the Third Restated
Agreement, the Funder has made and agreed to make Claims Payments in an
aggregate amount not to exceed $25,000,000, an increase of $5.0 million (the
"Incremental Amount"). The Third Restated Agreement requires the Claimholder to
request $2.5 million of the Incremental Amount (the "First $2.5 Million").
Within 15 days after exhaustion of the First $2.5 Million, the Claimholder may
either (a) request the remaining $2.5 million (the "Second $2.5 Million") of the
Incremental Amount or (b) notify the Funder that the Claimholder has decided to
self-fund the Second $2.5 Million. We also incurred $80,000 in related fees
which were treated as an additional advance. This Second Restated Agreement
includes the same representations and warranties, covenants, conditions,
termination and indemnification provisions, and other provisions as in the
original agreement. As of December 31, 2022, the Funder has made Claim Payments
in the aggregate amount of $4.8 million.
Litigation Financing Waiver and Consent
On March 6, 2023, the Claimholder and the Funder under the Agreement entered
into a Waiver and Consent Agreement, pursuant to which, among other things, (i)
the Funder provided a waiver and consent (i) to allow the Claimholder to fund
certain costs and expenses arising from the Subject Claim from the Claimholder's
own capital in an aggregate amount not to exceed $5,000,000, and (ii) Odyssey
paid a $1,000,000 nonrefundable waiver fee to the Funder.
The December 31, 2022 carrying value of the obligation is $24,347,513 and is net
of unamortized debt fees of $146,897 as well as the net unamortized debt
discount of $353,996 associated with the fair value of the warrants. For the
year ended December 31, 2022, the expense related to debt discount and fee
amortization was $295,932 and $146,896, respectively. The total face value of
this obligation at December 31, 2022 and 2021 was $24,848,406 and$19,266,818,
respectively.
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 or collecting on amounts owed to us.
Our 2023 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 June 10, 2022, we sold an aggregate of 4,939,515 shares of our
common stock and warrants to purchase up to 4,939,515 shares of our common
stock. The net proceeds received from this sale, after offering expenses of $1.8
million, were $14.7 million (see Note 13 Stockholders' Equity/(Deficit)). These
proceeds, coupled with other anticipated cash inflows, are expected to provide
operating funds through early 2023.
Our consolidated non-restricted cash balance at December 31, 2022 was $1.4
million. We have a working capital deficit at December 31, 2022 of $60.7
million. The total consolidated book value of our assets was approximately $13.3
million at December 31, 2022, which includes cash of $1.4 million. The fair
market value of these assets may differ from their net carrying book value. The
factors noted above raise doubt about our ability to continue as a going
concern. These 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.
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Off Balance Sheet Arrangements
We do not engage in off-balance sheet financing arrangements. In particular, we
do not have any interest in so-called limited purpose entities, which include
special purpose entities ("SPEs") and structured finance entities.
Indemnification Provisions
Under our bylaws and certain consulting agreements, we have agreed to indemnify
our officers and directors for certain events arising as a result of the
officer's or director's serving in such capacity. Separate agreements may
provide indemnification after term of service. The term of the indemnification
agreement is as long as the officer or director remains in the employment of the
company. The maximum potential amount of future payments we could be required to
make under these indemnification agreements is unlimited. However, our director
and officer liability insurance policy limits its exposure and enables us to
recover a portion of any future amounts paid. As a result of our insurance
policy coverage, we believe the estimated fair value of these indemnification
agreements is minimal and no liabilities are recorded for these agreements as of
December 31, 2022.
Critical Accounting Estimates
The discussion and analysis of our financial position and results of operations
is based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
judgments that affect our financial position and results of operations. See Note
2 Summary of Significant Accounting Policies to the consolidated financial
statements for a description of our significant accounting policies. Critical
accounting estimates are defined as those that are reflective of significant
judgment and uncertainties, and potentially result in materially different
results under different assumptions and conditions. We have identified the
following critical accounting estimates. We have discussed the development,
selection and disclosure of these policies with our audit committee.
Long-Lived Assets
As of December 31, 2022, we had approximately $3.0 million of net property and
equipment, right to use - operating lease and related assets. Our policy is to
recognize impairment losses relating to long-lived assets in accordance with the
ASC topic for Property, Plant and Equipment. Impairment decisions are based on
several factors, including, but not limited to, management's plans for future
operations, recent operating results and projected cash flows.
Realizability of Deferred Tax Assets
We have recorded a net deferred tax asset of $0 at December 31, 2022. As
required by the ASC topic for Accounting for Income Taxes, we have evaluated
whether it is more likely than not that the deferred tax assets will be
realized. Based on the available evidence, we have concluded that it is more
likely than not that those assets would not be realizable without the recovery
and rights of ownership or salvage rights of high value shipwrecks or the
monetization of our mineral exploration stakes and thus a valuation allowance of
$85.3 million has been recorded as of December 31, 2022.
Allowance for Doubtful Accounts
In determining the collectability of our accounts receivable, we need to make
certain assumptions and estimates. Specifically, we may examine accounts and
assess the likelihood of collection of particular accounts. Management has
elected to record bad debts using the direct write-off method. Generally
accepted accounting principles state an estimate is to be made for an allowance
for doubtful accounts. The effect of using the direct write-off method, however,
is not materially different from the results that would
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have been obtained had the allowance method been followed. If we were to have a
recorded allowance, the accounts receivable would be stated net the recorded
allowance.
Derivative Financial Instruments
From time to time, we may enter into a financial instrument that may contain a
derivative. In evaluating fair value of derivative financial instruments, there
are numerous assumptions which management must make that may influence the
valuation of the derivatives that would be included in the financial statements.
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 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 ASU 360, "Subsequent Measurement."
Litigation Financing
As discussed in Note 10 Loans Payable to the consolidated financial statements,
we have certain litigation financing with detachable warrants that is included
in "loans payable" on the consolidated balance sheets at December 31, 2022 and
2021. The terms of the financing agreement involved numerous amendments,
significant non-cash financing, issuance of warrants, and debt issuance costs
requiring judgment of the facts and circumstances.
Investment in Unconsolidated Entity
As discussed in Notes 6 and 9 to the consolidated financial statements, the
Company has a cost investment with a related party. The Company has entered into
numerous agreements with the related party that required analysis of ASU 215-2
to determine that the Company was not the primary beneficiary. This analysis
required judgment and review of the facts and circumstance to determine the
proper accounting for this cost investment. We also reviewed the impairment
guidance to determine any potential impairment of the investment.
Contractual Obligations
At December 31, 2022, except as disclosed in Note 16 Commitments and
Contingencies regarding our office lease, the Company did not have any other
contractual obligations that extended beyond 12 months.
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