Odyssey Marine Exploration, Inc. — Q1 2015 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended March 31, 2015, compared with the three months ended March 31, 2014. Odyssey conducts shipwreck recovery, recovered-cargo sales, exhibits and expeditions, and subsea mineral exploration. The Odyssey Explorer was in port for repairs, drydock, inspections and mobilization. The company continued reconnaissance on bullion wrecks and pursued permits for the HMS Victory project and the Oceanica phosphate project.
Key financial metrics
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Total revenue | $115,292 | $566,086 |
| Operating loss | $(8,995,036) | $(9,663,727) |
| Loss before taxes | $(10,138,531) | $(10,362,312) |
| Net loss | $(9,714,471) | $(9,798,757) |
| Basic and diluted loss per share | $(0.11) | $(0.12) |
| Net cash used in operating activities | $(4,314,079) | $(10,508,259) |
| Net cash provided by investing activities | $811,497 | $(1,575,426) |
| Net cash provided by financing activities | $1,063,484 | $(3,470,851) |
| Ending cash and cash equivalents | $704,452 | $5,767,721 |
- Revenue declined 80%, principally because Q1 2014 included gold sales from the Gairsoppa project. No SS Central America revenue was recognized because the recovered cargo had not been monetized and remained subject to court proceedings.
- Operating expenses decreased 11% to $9.1 million. Operations and research expense fell 53% to $3.4 million, mainly from the termination of the Dorado Discovery vessel lease and lower mineral-operation costs.
- Q1 2015 included a $2.52 million non-cash expense for issuing 4.0 million common shares to terminate Mako Resources’ option over Oceanica shares.
- Interest expense was $662,282, and the fair-value loss on derivative liabilities was $462,903.
- Cash declined by $2.44 million from December 31, 2014. Restricted cash was $378,358 and was not available for general operations.
- At March 31, 2015, total assets were $21.1 million, total liabilities were $38.5 million, and stockholders’ equity was negative $17.4 million.
- Total mortgage and loan debt was $22.3 million, compared with $21.2 million at December 31, 2014. Major balances included the $10.0 million Monaco project loan, $7.7 million Fifth Third project debt, the $3.5 million term loan and a $2.0 million MINOSA promissory note.
Material changes versus the prior comparable period
- Revenue decreased by approximately $450,794, or 80%.
- Operating loss improved by approximately $668,691, despite the new $2.52 million share-based settlement expense, because operations and research costs declined by approximately $3.7 million.
- Net loss improved modestly by approximately $84,286, while interest and derivative-related expense increased.
- Operating cash outflow improved by approximately $6.2 million, primarily due to lower operating costs, non-cash charges and a $1.3 million increase in accounts payable.
- Cash and cash equivalents fell substantially from $3.14 million at December 31, 2014 to $0.70 million at March 31, 2015.
- Common shares outstanding increased to 89,582,502 from 85,582,502 at year-end, reflecting the 4.0 million shares issued to Mako.
Guidance, outlook, risks and unusual items
Management provided no quantified revenue or earnings guidance. It stated that 2015 operations and the following twelve months depend on monetizing shipwreck cargo, collecting receivables, monetizing mineral interests, generating project income, obtaining financing and completing the MINOSA/Penelope transaction.
- The company disclosed substantial doubt about its ability to continue as a going concern. Unrestricted cash of $0.7 million was described as insufficient to support operations through the end of 2015, and working capital deficit was $13.5 million.
- The March 11, 2015 financing arrangement contemplated up to $14.75 million of MINOSA debt and up to $144.5 million of Penelope preferred-stock purchases, including up to $101.1 million of Series AA-1 preferred stock and an option for up to $43.3 million of Series AA-2 preferred stock. Completion was subject to stockholder, regulatory and other conditions; the filing states the investor and lender were not obligated to provide all additional amounts until conditions were satisfied.
- In April 2015, the company received an additional $6.0 million under the MINOSA arrangement; this was not included in the March 31 financial statements.
- On May 7, 2015, Fifth Third extended the $7.7 million project facility’s maturity to December 11, 2015, required at least $1.4 million of principal repayment by August 31, and could accelerate the balance if stockholders did not approve the Purchase Agreement at the June 9 meeting.
- NASDAQ notified the company that its closing bid price had remained below $1.00 for 30 consecutive business days. The company had 180 calendar days to regain compliance, subject to possible additional time, or risk delisting.
- The HMS Victory project remained dependent on renewed UK Ministry of Defence consent and other permits after the prior consent was withdrawn in March 2015 following a judicial-review application.
- Accounts receivable included a fully reserved $4.63 million Neptune Minerals receivable and approximately $6.29 million of SS Central America priority recoupment receivable awaiting court approval and cargo monetization.
- The company recorded a $151,922 inventory markdown for Gairsoppa silver bars due to lower silver prices and held approximately $5.65 million of inventory, including recovered cargo.
- The company reported no pending litigation but remains exposed to permitting, court approval, commodity-price, financing, liquidity, project execution, interest-rate and potential dilution risks.
Important facts for investors to verify
- Whether stockholders and regulators approved the MINOSA/Penelope transaction and whether the contemplated preferred-stock investments and remaining MINOSA loans were completed.
- Whether the Fifth Third project loan was repaid, refinanced or otherwise amended after its December 2015 maturity and whether the required $1.4 million payment was made.
- Whether the SS Central America cargo received court release and was monetized, including the amount ultimately collectible by Odyssey.
- Whether the HMS Victory permits and consent were reissued and whether recovery operations commenced.
- Actual liquidity after the April 2015 financing proceeds, debt maturities and required collateral or restricted-cash balances.
- The effect of the proposed preferred stock, reverse split and potential conversions on ownership, voting control and dilution.
- The filing presents an apparent inconsistency in weighted-average shares: the statements report 86,515,835 for Q1 2015, while one EPS note references 85,515,835; investors should verify the correct denominator.