OMEX

Business Context and Reporting Period

Company: Odyssey Marine Exploration, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2010
Business Overview: Odyssey engages in the search, recovery, and conservation of shipwrecks and artifacts, as well as subsea mineral exploration. Key projects include the "Black Swan" (SS Mercedes) legal proceedings, the "Gairsoppa" salvage contract, and various search contracts with Robert Fraser Marine, Ltd. (e.g., "Firebrand," "Shantaram").

Key Financial Metrics

Debt: Total debt (Mortgage and loans payable) was $8,024,975 as of June 30, 2010, consisting of a $5,000,000 revolving credit facility and a $3,024,975 mortgage payable.

Material Changes vs. Prior Period

• Revenue Surge: Total revenue increased 603% year-over-year to $7.3 million. This was driven primarily by a $6.8 million increase in "Expedition" revenue due to new search contracts ("Firebrand," "Shantaram," and the Ethiopian Airlines ET 409 search).
• Expense Growth: Total operating expenses increased 19% to $13.4 million. "Operations and research" expenses rose 43% to $8.7 million, attributed to higher vessel costs and the deployment of chartered vessels for new projects.
• Improved Loss Position: Net loss decreased by approximately $3.7 million compared to the prior year, despite increased operations, due to the significant revenue growth.
• Balance Sheet: Accounts receivable increased significantly to $1.57 million (from $246k), largely due to $1.49 million owed for the "Shantaram" project. Inventory remained relatively stable at $6.47 million.

Outlook, Risks, and Management Commentary

• Liquidity: Management believes the current cash position ($3.4 million) and recent capital raise ($6.1 million in January 2010) are sufficient to fund operations through the rest of 2010. However, additional capital may be required if cash flow projections are not met.
• Key Projects:
  • Black Swan: Odyssey is appealing a district court dismissal regarding the SS Mercedes. Monetization of the recovered 17 tons of silver and gold coins is contingent on a favorable court ruling or salvage award.
  • Gairsoppa: Awarded an exclusive 2-year salvage contract by the UK Government in January 2010. Search operations planned for late 2010.
  • Subsea Minerals: Odyssey holds a 41.25% interest in Dorado Ocean Resources, Ltd., focusing on deep-ocean gold and copper deposits. Operations with the "Dorado Discovery" vessel are expected to commence in August 2010.
• Risks:
  • Legal Uncertainty: No assurance of receiving a salvage award for the "Black Swan" project; the timeline for resolution is unknown.
  • Government Agreements: Recovery of the HMS Victory is pending an agreement with the UK government.
  • Interest Rate Risk: The company has variable-rate debt (revolving credit and mortgage) tied to the Prime Rate, exposing it to rising interest costs.

Investor Verification Checklist

• Black Swan Litigation Status: Verify the current status of the appeal in the Eleventh Circuit Court of Appeals and the likelihood of securing title to the recovered cargo.
• Deferred Revenue Recognition: Confirm the timeline for recognizing the $2.3 million in deferred revenue from the "Firebrand" and "Shantaram" contracts.
• Cash Burn Rate: Assess whether the $3.4 million cash balance is sufficient to cover operating losses and capital expenditures until the next potential revenue event or capital raise.
• Debt Covenants: Review the terms of the $5 million revolving credit facility, specifically the borrowing base tied to coin inventory sales and the requirement to maintain restricted cash balances.
• Dorado Investment: Evaluate the progress of the Dorado Ocean Resources subsea mineral exploration and the potential for monetization of the 41.25% stake.