Business Context and Reporting Period
Company: Odyssey Marine Exploration, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2010
Business Overview: The Company 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, the "HMS Victory" project in the UK, and a strategic partnership with Dorado Ocean Resources Ltd. for deep-ocean mining.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2010 | Balance Sheet (Sep 30, 2010) |
|---|---|---|---|
| Total Revenue | $9,829,768 | $17,092,901 | - |
| Net Loss | $(1,307,313) | $(7,917,310) | - |
| Operating Income (Loss) | $1,019,561 | $(5,091,892) | - |
| Cash and Cash Equivalents | - | - | $905,666 |
| Total Assets | - | - | $27,117,970 |
| Total Liabilities | - | - | $19,362,172 |
| Stockholders' Equity | - | - | $7,755,798 |
| Net Cash Used in Operating Activities | - | $(7,484,564) | - |
| Net Cash Provided by Financing Activities | - | $7,793,665 | - |
Debt Profile: Total debt (current and non-current) stands at approximately $9.75 million, consisting of a $5.0 million revolving credit facility, notes payable, and mortgage obligations.
Material Changes vs. Prior Period
- Revenue Surge: Total revenue for the nine months ended September 30, 2010, increased by 810% to $17.1 million compared to $1.9 million in the prior year period. This was driven primarily by a $16.5 million increase in expedition charter revenue.
- Operating Profitability: The Company reported an operating income of $1.0 million for the three months ended September 30, 2010, marking the first quarterly operating profit in several years. This contrasts with an operating loss of $4.3 million in the same period in 2009.
- Expense Growth: Operations and research expenses increased by 129% ($3.7 million) for the quarter and 71% ($6.3 million) for the nine-month period, largely due to vessel-related costs for the "Dorado Discovery" and chartered vessels for syndicated projects.
- Accounts Receivable: Accounts receivable increased significantly to $8.7 million from $0.2 million at year-end 2009. Approximately $5.4 million is due from Dorado Ocean Resources, Ltd., and $1.6 million from the "Shantaram" project.
- Investment Loss: The Company recognized a loss of $2.4 million for the nine months related to its equity investment in Dorado Ocean Resources, Ltd.
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management believes current cash positions are sufficient to fund operations through the remainder of 2010, contingent on capital raises and the realization of accounts receivable. The Company anticipates executing additional agreements for subsea mineral exploration in the fourth quarter.
- Legal Contingency (Black Swan): The Company has recovered over 17 tons of silver and hundreds of gold coins from the "Black Swan" project but cannot monetize these assets until title or a salvage award is granted by the U.S. District Court. The appeal is pending in the Eleventh Circuit Court of Appeals, with oral arguments scheduled for February 2011.
- Project Status:
- Gairsoppa: Search operations delayed to Q2 2011 due to hurricanes and equipment availability.
- HMS Victory: Recovery of artifacts is contingent on an agreement with the U.K. government.
- Robert Fraser Projects: Search operations for "Firebrand," "Shantaram," and "Enigma II" are underway or completed, with evidence suggesting at least one target has been located.
- Subsequent Financing: In October 2010, the Company completed a financing arrangement selling Series G 8% Convertible Preferred Stock and warrants, raising approximately $5.05 million in cash and exchanging $0.95 million of promissory notes.
- Risks: Significant reliance on the outcome of the "Black Swan" litigation for monetization of recovered assets; exposure to variable interest rates on debt; and the need for additional capital if cash flows are insufficient.
Key Facts for Investor Verification
- Cash Burn vs. Financing: Verify the sustainability of the $7.5 million net cash used in operating activities against the $7.8 million raised via financing in the first nine months of 2010.
- Receivables Collection: Confirm the collectability of the $8.7 million accounts receivable, specifically the $5.4 million owed by Dorado Ocean Resources and the $1.6 million from the "Shantaram" project.
- Black Swan Litigation: Monitor the status of the appeal in the Eleventh Circuit Court of Appeals, as the monetization of the $17+ tons of silver and gold coins depends entirely on this legal outcome.
- Debt Covenants: Review the terms of the $5.0 million revolving credit facility secured by coin inventory to ensure compliance with borrowing base requirements.
- Equity Dilution: Assess the impact of the recent Series G Preferred Stock issuance and the conversion of Series D and E preferred stock on common shareholder equity.