Odyssey Marine Exploration, Inc. — FY2014 Form 10-K Summary
Business context and reporting period
Odyssey is a deep-ocean exploration company engaged in shipwreck recovery, archaeological services, commodity salvage, and seabed mineral exploration. This Form 10-K covers the fiscal year ended December 31, 2014, with comparative financial information for 2013 and 2012. The filing was signed March 16, 2015. Fourth-quarter 2014 revenue was $0.3 million and net loss was $5.2 million.
- The SS Central America project recovered more than 15,500 gold and silver coins, 45 gold ingots, and other valuable materials in 2014. The cargo had not been released by the court for monetization at year-end.
- Odyssey owns a controlling interest in Oceanica Resources, which is pursuing offshore phosphate deposits in Mexico and had filed an environmental-impact application.
- The company discontinued its long-term lease of the RV Dorado Discovery in 2014 and retained certain equipment for possible future use.
Key financial metrics
| Metric | 2014 | 2013 | Change |
|---|---|---|---|
| Revenue | $1.3 million | $23.9 million | Down 94% |
| Operating loss | $28.2 million | $17.0 million | Loss increased |
| Net loss | $26.5 million | $10.7 million | Loss increased $15.7 million |
| Basic and diluted loss per share | $0.31 | $0.13 | Loss increased |
| Net cash used in operating activities | $28.6 million | $19.7 million | Use increased $8.9 million |
| Net cash used in investing activities | $3.0 million | $4.5 million | Use decreased |
| Net cash provided by financing activities | $13.3 million | $35.4 million | Down $22.0 million |
| Cash and cash equivalents at year-end | $3.1 million | $21.3 million | Down $18.2 million |
| Total assets | $25.1 million | $51.5 million | Down $26.4 million |
| Interest-bearing debt | $21.2 million | $22.0 million | Down $0.8 million |
| Stockholders’ equity/(deficit) | $(10.4) million | $13.2 million | Declined $23.6 million |
Gross profit was approximately $1.1 million, or about 81% of revenue, but this was more than offset by operating expenses of $29.5 million. Operations and research expense declined to $19.5 million from $26.0 million, while marketing, general and administrative expense declined to $9.8 million from $14.2 million.
At December 31, 2014, current assets were $11.5 million versus current liabilities of $19.0 million, producing a working-capital deficit of approximately $7.6 million. Restricted cash was $0.5 million and was not available for general operations. The company reported total contractual obligations of $17.6 million, including $2.8 million due within one year.
Material changes versus the prior comparable period
- Revenue fell primarily because 2013 included substantial monetization of SS Gairsoppa silver, while no SS Central America cargo was monetized in 2014. Gairsoppa revenue declined from $20.8 million to $0.3 million.
- Although no SS Central America revenue was recognized, the company recorded $6.3 million of Priority Recoupment as a reduction of operating expenses. This amount remains subject to collection upon court-approved monetization.
- Cash declined sharply because operating cash use increased and the company incurred substantial project and corporate costs before receiving proceeds from SS Central America.
- Debt composition changed materially: the prior Gairsoppa project loan was repaid; the company borrowed $7.7 million under a new Fifth Third facility and $10.0 million from Monaco Financial at year-end.
- Senior convertible notes were retired during 2014 through cash payments and issuance of 1.29 million common shares. Common shares outstanding increased to 85.6 million from 83.9 million.
- The company recorded approximately $3.0 million of accelerated depreciation and impairment-related depreciation associated with equipment on the discontinued Dorado Discovery charter.
- Derivative liabilities increased to $2.2 million from $1.0 million, while derivative-related income declined to $1.0 million from $4.4 million.
Guidance, outlook, management commentary, risks and unusual items
Management did not provide conventional revenue or earnings guidance. It stated that 2015 liquidity depends on monetizing shipwreck cargo, monetizing mineral interests, collecting receivables, obtaining financing, and securing project or partnership income.
- The independent auditor included an explanatory paragraph stating that substantial doubt exists about the company’s ability to continue as a going concern. Management stated that $3.1 million of unrestricted cash was insufficient to support operations through the end of 2015.
- A $7.7 million bank loan matured in 2015, and the company’s ability to repay obligations depended substantially on future cargo monetization and financing.
- On March 11, 2015, the company entered into a proposed financing arrangement under which MINOSA could provide up to $14.75 million of short-term debt and Penelope Mining could invest up to $101 million in convertible preferred stock over three years. The equity financing was subject to conditions, including stockholder approval, and its accounting treatment had not been determined.
- The SS Central America cargo remained subject to court release. No exact value was recognized because the filing stated that the monetization value could not yet be reliably measured.
- Permission to proceed with the HMS Victory project was withdrawn by the UK Ministry of Defence in March 2015 pending review issues. A separate UK Marine Management Organisation permit application remained pending.
- Oceanica’s Mexican phosphate project required environmental approval. Chatham Rock Phosphates was denied its first environmental permit application in February 2015.
- Odyssey received a NASDAQ notice on March 9, 2015 because its stock had traded below the $1.00 minimum bid price for 30 consecutive business days. It had 180 calendar days to regain compliance, subject to possible additional relief.
- Principal business risks include uncertain discovery and recovery outcomes, title and governmental claims, permitting and environmental restrictions, volatile commodity and artifact prices, delays in monetization, equipment failures, financing needs, debt collateral requirements, and continued operating losses.
- The company maintained a full valuation allowance of $60.3 million against deferred tax assets and reported federal tax-loss carryforwards of approximately $129.1 million.
Important facts investors should verify
- Whether the SS Central America cargo was released, monetized, and converted into cash proceeds, including collection of the $6.3 million Priority Recoupment and the company’s subsequent 45% share of proceeds.
- Completion, terms, dilution, and stockholder approval status of the March 2015 MINOSA/Penelope financing.
- Repayment, refinancing, or restructuring of the $7.7 million Fifth Third project loan and other 2015 maturities.
- Actual unrestricted cash, working capital, operating cash burn, and compliance with debt covenants after year-end.
- NASDAQ’s determination regarding the minimum-bid-price deficiency and continued listing.
- Regulatory and judicial status of the HMS Victory and Oceanica phosphate projects, including required permits.
- The realizable value and liquidity of inventory, pledged SS Republic coins, Oceanica shares, and other collateral.
- Potential dilution from outstanding warrants, options, convertible instruments, and proposed preferred-stock financings.