Odyssey Marine Exploration, Inc. — Q2 2015 Form 10-Q Summary
Business context and reporting period
Odyssey Marine Exploration, Inc. is a marine exploration and shipwreck-recovery company with activities in recovered-cargo sales, exhibits and expeditions, shipwreck projects, and subsea mineral exploration through Oceanica. This unaudited Form 10-Q covers the three and six months ended June 30, 2015, with comparisons to the corresponding 2014 periods.
During the quarter, the company conducted search and preliminary inspection work on the Olympus project, continued work related to the SS Central America and HMS Victory projects, and advanced permitting activities for Oceanica’s Don Diego phosphate project in Mexico.
Financial condition and key metrics
| Metric | Three months ended June 30, 2015 | Six months ended June 30, 2015 |
|---|---|---|
| Total revenue | $443,543 | $558,836 |
| Operating loss | $5,964,863 | $14,959,898 |
| Net loss | $6,126,218 | $15,840,689 |
| Net loss per share | $0.07 | $0.18 |
| Net cash used in operating activities | Not separately reported | $12,179,278 |
- Revenue consisted primarily of artifact sales and other revenue, an exhibit fee, and $204,310 of expedition revenue in the quarter. No revenue was recognized from the SS Central America cargo because monetization and measurement remain pending.
- Operating expenses were $6.4 million in the quarter and $15.5 million year to date. Six-month expenses included a $2.52 million non-cash charge for common stock issued to settle a subsidiary stock option arrangement.
- Interest expense was $1.02 million in the quarter and $1.68 million year to date. Derivative fair-value changes produced income of $211,890 in the quarter but an expense of $251,013 year to date.
- Cash and cash equivalents were $5.62 million at June 30, 2015, compared with $3.14 million at December 31, 2014. Restricted cash was $233,550.
- Total debt was $35.17 million at June 30, 2015, compared with $21.16 million at December 31, 2014. Debt included the $14.75 million MINOSA promissory note, $10.0 million of Monaco project loans, $7.68 million of Fifth Third project debt, and other term and mortgage debt.
- Current liabilities were $32.19 million versus current assets of $6.98 million, producing a working-capital deficit of approximately $25.2 million. Total stockholders’ deficit was $23.40 million.
- Accounts receivable included a $6.29 million long-term receivable for SS Central America priority cost recoupment, subject to court approval and cargo monetization. A separate $4.63 million receivable from Neptune Minerals remained fully reserved.
Material changes versus the prior comparable period
- Second-quarter revenue increased 27% to $443,543 from $348,264, primarily because of $204,310 of expedition revenue; first-half revenue decreased 39% to $558,836 from $914,350 because 2014 included Gairsoppa-related gold sales.
- Second-quarter net loss increased to $6.13 million from $4.02 million. First-half net loss increased to $15.84 million from $13.81 million.
- Second-quarter operating expenses increased 23% to $6.41 million, driven by higher marketing, general and administrative costs and the absence of the $3.5 million SS Central America priority-cost-recoupment credit recorded in the second quarter of 2014.
- First-half operations and research expense declined to $6.25 million from $9.84 million because the company did not charter the Dorado Discovery for the full period and the Odyssey Explorer operated offshore for less time. This reduction was largely offset by the $2.52 million stock-based settlement charge.
- Operating cash outflow improved to $12.18 million from $16.34 million, but remained substantial. Financing inflows of $13.85 million, primarily the MINOSA borrowings, drove the $2.48 million increase in cash.
- Common shares outstanding increased to 89,778,081 at July 15, 2015, from 85,582,502 at December 31, 2014, primarily reflecting the issuance of 4.0 million shares to Mako Resources.
Guidance, outlook, risks and unusual items
- Management stated that unrestricted cash of $5.6 million was insufficient to support operations through the end of 2015 without additional cash inflows. The filing explicitly identifies substantial doubt about the company’s ability to continue as a going concern.
- Liquidity depends on monetizing shipwreck cargo or mineral interests, collecting receivables, obtaining project or asset-based financing, generating charter income, and completing the planned Penelope preferred-stock financing. Penelope had not completed the initial closing as of the filing date and was not obligated to purchase the preferred shares until specified conditions were satisfied.
- The proposed Penelope transaction contemplated up to $144.5 million of preferred-stock investment, including $101.1 million of Series AA-1 and an optional $43.3 million of Series AA-2. Completion required additional corporate amendments, including a proposed 1-for-6 reverse stock split, regulatory and other approvals, and investor satisfaction with project viability.
- The $14.75 million MINOSA loan bears 8% interest and was scheduled to mature in September 2015 or March 2016, depending on termination circumstances. The company pledged its 54% interest in Oceanica and granted MINOSA a call option on that interest.
- The $7.68 million Fifth Third project loan was extended to December 2015 and required at least $1.4 million of principal repayment by August 31, 2015. The $10.0 million Monaco loan matures in installments from August through December 2016.
- SS Central America proceeds remained blocked pending court resolution of title and related proceedings. The company’s $6.3 million priority-cost receivable and any additional 45% proceeds depend on monetization of the cargo.
- HMS Victory recovery work remained dependent on renewed UK Ministry of Defence consent and Marine Management Organisation approval. The Don Diego phosphate project remained dependent on environmental permitting in Mexico.
- NASDAQ had notified the company that its stock price had failed to maintain the $1.00 minimum bid requirement. Failure to regain compliance could result in delisting. The filing also identifies dilution, share-price volatility, short-selling activity, interest-rate exposure, commodity prices, project approvals, and the uncertain value and timing of recovered cargo as material risks.
- The company reported no pending litigation and stated that its disclosure controls and procedures were effective as of June 30, 2015.
Most important facts for investors to verify
- Whether Penelope completed the initial closing and funded any Series AA preferred-stock investment after the filing date.
- Whether the company met the required repayments and maturity obligations on the Fifth Third and MINOSA loans.
- Whether courts authorized monetization of SS Central America cargo and whether the $6.29 million priority-cost receivable was collected.
- The company’s actual unrestricted cash position, operating cash burn, and ability to fund operations without additional financing.
- Whether the proposed reverse stock split and other corporate amendments were completed and their effect on dilution and NASDAQ compliance.
- The status of UK and Mexican permits for the HMS Victory and Don Diego projects, respectively.
- The recoverable value and liquidity of collateralized inventories, Oceanica interests, recovered cargo, and other assets supporting the company’s debt.