Odyssey Marine Exploration, Inc. — Form 10-Q Summary
Business context and reporting period
Odyssey Marine Exploration, Inc. is a smaller reporting company focused on subsea mineral exploration, marine services, project management and related litigation. This unaudited Form 10-Q covers the three months ended March 31, 2022, with comparisons to the three months ended March 31, 2021.
Key projects include the Mexican ExO phosphate project, the Lihir Gold Project in Papua New Guinea, the Cook Islands CIC project, prospective projects in Antigua and Barbuda, and a proposed South American phosphate joint venture. Revenue is principally generated from marine research, technical services and project administration, including services provided to related party CIC Limited.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $299,606 | $291,676 | +$7,930 |
| Operating expenses | $6,975,031 | $3,089,051 | +$3,885,980 |
| Loss from operations | $(6,675,425) | $(2,797,375) | Loss increased |
| Interest expense | $3,225,560 | $2,380,476 | +$845,084 |
| Net loss attributable to the company | $(8,230,229) | $(3,720,218) | Loss increased $4,510,011 |
| Basic and diluted loss per share | $(0.57) | $(0.29) | Worsened |
| Cash and cash equivalents, period-end | $2.1 million | $5.2 million | Down from $2.3 million at Dec. 31, 2021 |
Marine services revenue increased to $294,975 from $256,322, while operating and other revenue declined to $4,631 from $35,354. The filing does not report gross profit or a conventional gross margin. Based on reported revenue and operating loss, the operating margin was approximately negative 2,228%; the net loss margin was approximately negative 2,747%.
At March 31, 2022, total assets were $9.0 million, including $3.5 million invested in CIC and a $1.8 million exploration license. Total liabilities were $81.4 million, compared with $71.4 million at December 31, 2021. Stockholders’ deficit was $72.4 million, compared with $62.5 million at year-end.
Loans payable totaled $44.5 million at March 31, 2022, compared with $41.3 million at December 31, 2021. Accrued interest included in accrued expenses was $24.7 million. Working capital deficit was $58.5 million. The company had no variable-rate debt and reported no material market-risk exposure.
Cash flows from investing activities used $2,878. Financing activities provided $1.5 million in the financial statements, primarily from $2.2 million of new borrowing, partially offset by debt, lease and stock-award-related payments. The MD&A cash-flow table instead reports $2.0 million of financing cash provided and $2.1 million of operating cash used; the filing text does not clearly reconcile this difference to the financial statements.
Material changes versus the prior comparable period
- Revenue was broadly flat, increasing approximately 2.7%.
- Marketing, general and administrative expense increased 48.5% to $1.9 million, driven by higher compensation and benefits, share-based compensation, legal fees and insurance.
- Operations and research expense increased 181.3% to $5.1 million, principally due to a $3.0 million increase in litigation-financed NAFTA costs, higher Mexican concession permit fees and increased marine services.
- Net interest and other expense increased to $3.4 million from $2.3 million, including higher litigation-financing interest and a $200,000 loan prepayment premium.
- Net loss before non-controlling interest increased to $10.1 million from $5.1 million. The non-controlling interest adjustment increased to $1.9 million from $1.4 million.
- Shares outstanding increased to 14,487,146 at April 29, 2022, from 14,309,315 at December 31, 2021. The increase was associated with share-based compensation.
- The company adopted ASU 2020-06 effective January 1, 2022. Management stated that other recent accounting pronouncements were not material.
Guidance, outlook, risks and unusual items
Management provided no quantitative revenue or earnings guidance. It stated that future liquidity depends on financing, monetizing receivables and equity interests in mineral exploration entities, collecting amounts owed, generating exploration-charter income, partnership opportunities and potentially completing the MINOSA/Penelope equity transaction.
Management disclosed substantial doubt about the company’s ability to continue as a going concern. The company has experienced recurring losses, had only $2.1 million of unrestricted cash at March 31, 2022, a $58.5 million working capital deficit and limited unpledged assets. The financial statements contain no adjustments that might be required if the company cannot continue as a going concern.
On March 17, 2022, the company entered into a 37North note agreement. It received $2.0 million, recorded a $2.2 million obligation, and recognized $200,000 of interest expense. The note matures June 15, 2022, may be prepaid at premiums, and may be convertible after maturity into common stock subject to specified pricing and issuance limitations.
The ExO project remains dependent on Mexican environmental approval and related legal and political proceedings. Odyssey is pursuing a NAFTA claim seeking more than $2 billion from Mexico. The tribunal hearing occurred in January 2022, with a final witness testifying May 10, 2022; the timing and outcome of any decision remain uncertain. Litigation financing is generally recourse-limited unless an environmental permit or litigation proceeds are received.
The company reported no defendant litigation requiring accrual. However, contingent obligations include up to $700,000 of consultant success fees and potential issuance of 3.0 million Oceanica shares if the Mexican environmental approval is obtained. The company also has project, permitting, commodity, environmental, regulatory, political, financing and execution risks. CIC is a related-party customer and investment; approximately $260,821 of related-party receivables was outstanding at March 31, 2022.
Most important facts for investors to verify
- Available liquidity, near-term maturities and the company’s ability to refinance or repay the 37North note and other debt.
- The going-concern disclosure, working capital deficit, accrued interest and extent of assets pledged to MINOSA.
- The status, funding terms and expected timing of the NAFTA arbitration and Mexican environmental-permit proceedings.
- The source and sustainability of revenue, particularly related-party CIC services and equity-based compensation for services.
- The potential dilution from warrants, restricted stock, convertible or conversion-linked debt and other equity instruments.
- The reconciliation between the cash-flow amounts reported in the financial statements and the MD&A liquidity table.
- Environmental, permitting and regulatory approvals required for the Lihir, CIC, ExO and proposed South American projects.