Odyssey Marine Exploration, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Quarterly report for the three and six months ended June 30, 2016. Odyssey provides marine survey, exploration, recovery and related services and holds interests in seabed mineral projects, including the Don Diego phosphate project in Mexico. The company also operates through consolidated subsidiaries, including Oceanica Resources, with non-controlling interests.
Financial Results and Condition
| Metric | Three Months Ended June 30, 2016 | Three Months Ended June 30, 2015 | Six Months Ended June 30, 2016 | Six Months Ended June 30, 2015 |
|---|---|---|---|---|
| Total revenue | $1.217 million | $0.444 million | $1.800 million | $0.559 million |
| Operating loss | $(2.014) million | $(5.965) million | $(6.012) million | $(14.960) million |
| Net loss attributable to Odyssey | $(1.859) million | $(6.126) million | $(1.774) million | $(15.841) million |
| Basic and diluted loss per share | $(0.25) | $(0.84) | $(0.24) | $(2.16) |
| Net cash used in operating activities | Not provided for the quarter | Not provided for the quarter | $(5.299) million | $(12.179) million |
- Second-quarter revenue was primarily from expedition marine survey services; no recovered-cargo sales were recorded.
- Operating expenses declined to $3.231 million in the quarter and $7.812 million year to date, versus $6.408 million and $15.519 million, respectively, in the comparable periods.
- Six-month other income was $2.860 million, including a $3.399 million favorable change in derivative liability fair value. This non-cash item materially reduced the reported net loss.
- Cash and cash equivalents were $1.832 million at June 30, 2016, down from $2.241 million at December 31, 2015. Total assets were $6.810 million.
- Working capital was negative $20.7 million. Current liabilities were $24.802 million versus current assets of $4.064 million.
- Total loans payable were $21.960 million, consisting primarily of $14.750 million owed to MINOSA, $2.981 million to Epsilon and $4.229 million of Monaco-related debt. Financial debt increased from approximately $18.2 million at year-end 2015.
- Total liabilities were $33.675 million, while total stockholders’ equity was negative $26.865 million.
Material Changes Versus the Prior Comparable Period
- Revenue increased 179% in the quarter and 226% for the first six months, driven mainly by marine survey and expedition services rather than inventory sales.
- Marketing, general and administrative expense declined 42% in the quarter and 32% year to date, reflecting lower personnel, legal, professional, share-based compensation and corporate overhead costs.
- Operations and research expense declined 55% in the quarter and 44% year to date, primarily because of lower mineral-project spending and reduced vessel costs while the Odyssey Explorer was prepared for sale.
- The company sold the Odyssey Explorer in May 2016 for $200,000 in cash and received a smaller vessel as in-kind consideration, valued by management at $350,000 pending an appraisal.
- Financing activities provided $4.748 million during the first half, including $3.0 million from Epsilon and approximately $1.8 million from Monaco. These proceeds largely offset operating cash usage.
- The company completed a 1-for-12 reverse stock split effective February 19, 2016; all share and per-share information was retroactively adjusted.
Guidance, Outlook, Risks and Unusual Items
- Management stated that available unrestricted cash of $1.8 million was insufficient to support operations through the end of 2016 and disclosed substantial doubt about the company’s ability to continue as a going concern.
- Future liquidity depends on chartering marine equipment and services, collecting receivables, monetizing mineral-project interests, obtaining additional financing and completing the proposed MINOSA/Penelope preferred-stock financing. MINOSA and Penelope were not obligated to complete the preferred-stock purchases at the filing date.
- SEMARNAT denied the Don Diego environmental permit application on April 8, 2016. Odyssey filed for review and continued pursuing approval, but the denial delayed expected project cash inflows and financing prospects.
- Odyssey’s market capitalization fell below NASDAQ’s $35 million continued-listing requirement on April 11, 2016. The company needed to regain compliance for at least ten consecutive business days before November 21, 2016 and could not assure compliance.
- The company’s majority interest in Oceanica and substantial assets are pledged as collateral to lenders, limiting additional borrowing capacity. Several loans mature or become payable in 2017 or 2018 and contain conversion rights, collateral rights and events of default.
- The proposed $144.5 million Series AA preferred-stock financing remained subject to multiple conditions and had not closed. The filing does not provide assurance that any portion will be funded.
- Accounts receivable included $3.366 million of trade receivables, substantially offset by a $2.316 million reserve, and $0.501 million due from related party Monaco.
- Odyssey reported no current litigation and stated that its disclosure controls and procedures were effective.
- After quarter-end, the company entered into a severance agreement with former CFO Philip S. Devine, including continuation pay, incentive compensation, equity vesting and other benefits; the filing does not provide a total dollar cost for the arrangement.
Most Important Facts for Investors to Verify
- Whether the Don Diego environmental permit will ultimately be approved and whether approval will unlock the proposed MINOSA/Penelope financing.
- Actual cash burn, available liquidity and the timing and enforceability of required debt repayments through 2017 and 2018.
- Whether the company can regain and maintain NASDAQ market-capitalization compliance.
- The collectability of accounts receivable, particularly amounts associated with Neptune Minerals and related-party Monaco.
- The fair value and realizability of Oceanica, mineral-project interests, pledged collateral and the vessel received in the Odyssey Explorer transaction.
- The extent to which reported earnings depend on non-cash derivative fair-value gains and other unusual items rather than recurring operating profitability.