Business Context and Reporting Period
Company: Odyssey Marine Exploration, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2006
Business Overview: The Company engages in the archaeologically sensitive exploration and recovery of deep-water shipwrecks and the marketing of recovered artifacts. Operations are divided into two segments: Shipwreck Exploration and Themed Attractions.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2006 | Six Months Ended June 30, 2005 |
|---|---|---|
| Revenue | $2,823,013 | $7,175,334 |
| Net Loss | $(8,120,127) | $(1,092,572) |
| Loss Per Share (Basic & Diluted) | $(0.18) | $(0.03) |
| Cash and Cash Equivalents (End of Period) | $3,880,641 | $4,417,027 |
| Total Assets | $32,361,034 | $30,190,458 |
| Total Liabilities | $6,166,815 | $5,304,725 |
| Stockholders' Equity | $26,194,219 | $24,885,733 |
| Net Cash Used in Operating Activities | $(7,061,388) | $(2,585,946) |
| Net Cash Provided by Financing Activities | $10,877,400 | $7,718,733 |
Inventory: Total inventory was $10,447,954 as of June 30, 2006, consisting primarily of artifacts from the SS Republic shipwreck ($9,204,536).
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased by 61% ($4.4 million) compared to the prior six-month period. This was primarily due to a lower availability of high-value numismatic gold coins and a shift to selling lower-priced silver coins.
- Increased Operating Loss: The net loss widened significantly to $8.1 million from $1.1 million. This was driven by a $1.9 million increase in Operations & Research expenses, attributed to vessel operating costs, mobilization of a new search vessel, and the reopening of the New Orleans themed attraction.
- Capital Expenditures: Investing cash outflows were $3.2 million, primarily for the purchase of a remotely operated vehicle (ROV) and a new search vessel.
- Financing Activity: The Company raised $8.75 million through the sale of 2.5 million shares of Series D Convertible Preferred Stock and secured $1.12 million in loans for equipment purchases.
Outlook, Risks, and Management Commentary
- Themed Attractions: The New Orleans attraction (Odyssey's Shipwreck & Treasure Adventure) has not reached breakeven attendance due to the lingering effects of Hurricane Katrina. Management notified the landlord of lease termination effective January 31, 2007, with closure scheduled for September 2006. An estimated $0.3 million charge for leasehold improvements is expected.
- Exploration Projects: The Company is awaiting final approval from the Spanish government to resume operations on the HMS Sussex project. Three large research ships are currently active on major expeditions.
- Liquidity: Management believes current cash, credit facilities, and equity proceeds will satisfy working capital requirements for 2006. However, the Company anticipates continuing net losses and may need to raise additional capital if sales estimates are not met.
- Legal Proceedings: A lawsuit filed by Republic & Eagle Associates regarding the SS Republic discovery was dismissed by the South Carolina court in June 2006. The plaintiffs have filed a Motion for Rehearing scheduled for September 2, 2006.
- Accounting Changes: The Company adopted FAS 123(R) effective January 1, 2006, resulting in share-based compensation expenses of $310,545 for the six-month period.
Investor Verification Checklist
- Revenue Sustainability: Verify the Company's ability to generate revenue without high-value gold coin sales from the SS Republic, given the shift to silver coins and lower sales volumes.
- Attraction Viability: Assess the financial impact of the New Orleans attraction closure and the costs associated with relocating to a new market.
- Debt Covenants: Review the covenants on the $3 million revolving credit facility, specifically the requirement to maintain minimum stockholders' equity of $20 million.
- Legal Risks: Monitor the outcome of the Motion for Rehearing in the SS Republic litigation to ensure no material adverse impact on financial position.
- Capital Needs: Evaluate the timeline for new shipwreck recoveries against the current burn rate to determine if additional equity or debt financing will be required in 2006.