Odyssey Marine Exploration, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. The company conducts shipwreck recovery, artifact sales, marine exploration and subsea mineral exploration. The interim financial statements are unaudited.
Financial performance and position
| Metric | Three months ended Sept. 30, 2015 | Nine months ended Sept. 30, 2015 | Comparable period |
|---|---|---|---|
| Total revenue | $1.46 million | $2.02 million | $0.12 million and $1.03 million, respectively |
| Cost of sales | $0.87 million | $1.25 million | $0.03 million and $0.20 million, respectively |
| Operating expenses | $5.81 million | $21.33 million | $7.92 million and $23.35 million, respectively |
| Loss from operations | $(4.35) million | $(19.31) million | $(7.80) million and $(22.32) million, respectively |
| Net loss | $(4.58) million | $(20.42) million | $(7.42) million and $(21.23) million, respectively |
| Loss per share | $(0.05) | $(0.23) | $(0.09) and $(0.25), respectively |
Reported gross margin was approximately 40% in the third quarter and 38% for the first nine months, based on revenue less cost of sales. Operating margins remained deeply negative at approximately (298)% and (957)%, respectively. The filing does not present adjusted EBITDA.
- Cash: $1.84 million at September 30, 2015, down from $3.14 million at December 31, 2014. Restricted cash was $0.21 million.
- Cash flow: Operating activities used $15.38 million; investing activities provided $0.81 million, primarily from property sales; financing activities provided $13.27 million.
- Debt: Mortgage and loans payable totaled $35.17 million, compared with $21.16 million at year-end 2014. Derivative liabilities were $2.48 million.
- Liquidity: Working capital deficit was approximately $36.3 million. Total assets were $20.56 million, versus total liabilities of $48.79 million, resulting in stockholders’ equity deficit of $28.23 million.
- Receivables and inventory: Net accounts receivable totaled $6.89 million, including a $6.29 million long-term receivable tied to SS Central America priority cost recoupment. Total inventory was $4.81 million, including $4.48 million classified as non-current.
Material changes versus the prior comparable period
- Third-quarter revenue increased by $1.34 million, primarily from higher SS Republic coin sales through a distributor. Nine-month revenue increased by $0.98 million.
- Operating expenses declined by $2.11 million in the quarter and $2.03 million year to date. Lower vessel and marine operating costs were partly offset by a $2.52 million non-cash common-stock charge for settling a subsidiary stock option.
- Interest expense increased to $1.21 million in the quarter and $2.89 million year to date, compared with $0.27 million and $0.93 million, respectively, reflecting higher debt balances and rates.
- Net loss improved by $2.83 million in the quarter and $0.81 million year to date, but the company continued to report substantial losses.
- Debt increased primarily because MINOSA advanced $14.75 million during March through June 2015. The company also issued 4.0 million common shares, valued at $2.52 million, to terminate Mako Resources’ option relating to Oceanica shares.
- The company sold property and classified its remaining corporate building and land as held for sale.
Outlook, risks and unusual items
- Going concern: Management stated that unrestricted cash of $1.8 million was insufficient to support operations through the end of 2015 and that the company’s circumstances raised substantial doubt about its ability to continue as a going concern. The financial statements contain no going-concern adjustments.
- Near-term maturities: Approximately $11.8 million of bank debt was scheduled to mature on December 17, 2015, and the $14.75 million MINOSA loan was scheduled to mature on December 31, 2015. The $10.0 million Monaco loan matures in installments from August through December 2016.
- Financing dependency: Penelope Mining had agreed to potentially purchase up to $144.5 million of convertible preferred stock over time, but had not completed the initial closing and was under no obligation to make the investment. The transaction required additional conditions, including corporate amendments and regulatory matters.
- SS Central America: Cargo recovered in 2014 had not been monetized because court approval and title-related proceedings remained unresolved. The company had recorded a $6.29 million priority cost recoupment receivable but had recognized no revenue from its 45% share of proceeds.
- Don Diego project: The environmental impact assessment for the Mexican phosphate project was re-submitted in June 2015, with additional information filed in August. A public hearing occurred on October 8, 2015; regulatory approval remained pending.
- HMS Victory: The company continued to await UK approvals after prior consent was withdrawn in connection with a judicial review.
- NASDAQ compliance: The company received a delisting notice for failing to maintain the $1.00 minimum bid price. NASDAQ granted an extension to March 7, 2016; failure to regain compliance could result in delisting and reduced trading liquidity.
- Subsequent financing: In October 2015, the company received a $1.0 million advance under a private loan agreement providing for up to $2.0 million. The loan bears 12% interest, increasing to 14% upon default, and was due December 18, 2015 unless otherwise satisfied.
- Variable-rate debt exposed the company to LIBOR and prime-rate risk. The company also maintained significant tax loss carryforwards, but reported a full valuation allowance against its deferred tax assets.
Investor verification points
- Confirm whether the SS Central America cargo received court approval for monetization and whether the $6.29 million receivable was collected.
- Verify repayment, refinancing or restructuring of the December 2015 bank and MINOSA maturities.
- Determine whether Penelope completed the initial preferred-stock investment and whether the related corporate amendments and conditions were satisfied.
- Check the company’s subsequent NASDAQ listing status and any reverse stock split or other capital restructuring.
- Assess cash runway, additional financing needs and the effect of any asset transfers or collateral enforcement.
- Evaluate permitting progress and economic viability of the Don Diego subsea phosphate project and HMS Victory recovery project.