Odyssey Marine Exploration, Inc. — Q1 2023 Form 10-Q Summary
Business Context and Reporting Period
Odyssey Marine Exploration, Inc. is a smaller reporting company focused on subsea mineral exploration, marine services, project management and related investments. This unaudited Form 10-Q covers the three months ended March 31, 2023, compared with the three months ended March 31, 2022. The company’s only customer represented 100% of revenue in both periods and was related party CIC Limited.
Key Financial Metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $288,739 | $299,606 |
| Operating expenses | $3,665,703 | $6,975,031 |
| Loss from operations | $(3,376,964) | $(6,675,425) |
| Total other income/(expense) | $17,736,309 | $(3,415,817) |
| Net income/(loss) | $16,600,534 | $(8,230,229) |
| Basic diluted EPS | $0.84 / $0.83 | $(0.57) / $(0.57) |
| Net cash used in operating activities | $(3,487,948) | $(1,724,423) |
| Cash and cash equivalents at period end | $674,428 | $2,106,313 |
Revenue declined 3.7% year over year. The operating loss equaled approximately 11.7 times revenue, reflecting the company’s limited revenue base and substantial operating cost structure. Reported net income and net margin were dominated by a nonrecurring $21.5 million gain on debt extinguishment rather than operating performance.
At March 31, 2023, total assets were $13.2 million, including $2.0 million of related-party short-term notes receivable and a $4.7 million investment in CIC. Total liabilities were $70.6 million, and stockholders’ deficit was $57.5 million. Financial debt carrying value was $36.1 million, compared with $46.7 million at December 31, 2022. Accrued interest included in accrued expenses was $26.4 million.
Material Changes Versus the Prior Comparable Period
- Revenue was broadly stable, decreasing by $10,867, while operating expenses decreased by $3.3 million, primarily because of a $4.3 million reduction in litigation-financed costs.
- Interest expense increased to $3.8 million from $3.2 million due to litigation financing and new borrowings.
- The company recorded a $21.5 million gain from terminating and settling the MINOSA notes and related agreements. Odyssey paid AHMSA $9.0 million in cash and issued 304,879 common shares in connection with the settlement.
- On March 6, 2023, Odyssey issued a $13.1 million, 11% promissory note to an institutional investor and a warrant for up to 3,465,778 shares at an exercise price of $3.78 per share. The note is secured by substantially all company assets and matures September 6, 2024 unless redeemed earlier.
- Common shares outstanding increased to 19,893,450 at April 30, 2023, compared with 19,540,310 at December 31, 2022. The company also issued warrants and recorded a $3.4 million debt discount related to the warrant.
- Operating cash use increased to $3.5 million from $1.7 million, and cash declined by $769,000 during the quarter.
Guidance, Outlook, Risks and Unusual Items
Management stated that the company has experienced several years of net losses and expects continued dependence on financing, monetization of receivables and equity interests, project-related income, exploration charters and collections from customers. Management disclosed substantial doubt about the company’s ability to continue as a going concern. The March 31, 2023 working capital deficit was approximately $32.6 million.
Management expects the March financing, an April 4, 2023 $3.0 million marine-equipment sale/leaseback, the April 6, 2023 repayment by CIC of $1.068 million of principal and interest, and other anticipated inflows to provide operating funds through the remainder of 2023. The filing does not provide a quantified forecast of revenue, earnings or cash flow, and this expectation remains subject to execution and receipt of those inflows.
- CIC accounted for all revenue and had related-party connections to current and former directors, creating significant customer concentration and related-party risk.
- The company’s major NAFTA arbitration claim against Mexico seeks compensation of more than $2 billion. The evidentiary phase was closed and the tribunal was deliberating, but the timing and outcome remain uncertain.
- The company paid a $1.0 million nonrefundable waiver fee to its litigation funder and may fund up to $5.0 million of certain litigation costs from its own capital under the waiver arrangement.
- Consultants may receive contingent success fees of up to $700,000 upon approval and issuance of an environmental impact assessment for the Mexican subsidiary; the amount was not accrued because approval had not occurred.
- The company’s development projects depend on regulatory approvals, environmental permits, exploration results, financing and potential project monetization. The Mexican phosphate project’s environmental permit had been rejected twice, and the South American phosphate joint venture remained subject to definitive documentation.
- The new institutional note bears high interest, permits payment-in-kind interest, is secured by substantially all assets and includes potential equity dilution from the warrant. Substantial additional dilution is possible from other outstanding warrants and equity instruments.
Most Important Facts for Investors to Verify
- Whether post-quarter-end financing, sale/leaseback proceeds and CIC repayment were sufficient to fund operations through the remainder of 2023.
- The maturity, repayment terms, collateral, accrued interest and covenant status of the $13.1 million institutional note and the approximately $23.5 million litigation-financing obligation.
- The timing and potential economic impact of the NAFTA arbitration decision, including litigation funding claims and repayment obligations.
- The collectability and maturity of the $2.0 million of related-party notes receivable and the $572,028 Services Agreement Note from CIC.
- The extent of potential dilution from the 3,465,778-share warrant and other outstanding options and warrants.
- The company’s ability to diversify revenue beyond CIC and generate positive operating cash flow.
- The assumptions supporting the going-concern assessment and whether any subsequent events require revisions to the financial statements.