Odyssey Marine Exploration, Inc. — Form 10-Q Summary
Business context and reporting period
Quarterly report for the three months ended March 31, 2018. Odyssey provides marine search, recovery, survey and exploration services and holds interests in seabed mineral projects, including the Don Diego phosphate project in Mexico. The company reported 8,466,909 common shares outstanding as of April 30, 2018.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 / Prior period |
|---|---|---|
| Total revenue | $511,735 | $649,353 |
| Operating expenses | $2,468,975 | $2,932,471 |
| Loss from operations | $(1,957,240) | $(2,283,118) |
| Net loss attributable to the company | $(1,744,762) | $(2,199,263) |
| Basic and diluted loss per share | $(0.21) | $(0.28) |
| Net cash used in operating activities | $(2,009,636) | $(1,218,117) |
| Cash and cash equivalents at period end | $1,363,063 | $1,065,690 |
Revenue comprised $495,997 of expedition revenue and $15,738 of recovered cargo sales and other revenue. The operating loss margin was approximately 382% of revenue, and the net loss margin was approximately 341%.
At March 31, 2018, total assets were $3.5 million, total liabilities were $44.0 million, and total stockholders’ deficit was $40.5 million. Loans payable totaled $28.8 million, including $25.8 million classified as current and $3.0 million classified as long term. Working capital was negative by approximately $33.9 million.
Material changes versus the prior comparable period
- Revenue decreased by approximately $137,618, or 21%, primarily because expedition revenue declined; the company stated that current-quarter revenue resulted from marine search and recovery services for related-party customer Magellan.
- Marketing, general and administrative expense declined approximately $181,748, while operations and research expense declined approximately $281,748.
- Net loss improved by approximately $454,501, despite lower revenue, primarily because of reduced operating expenses.
- Operating cash use increased by approximately $791,519, reflecting the loss and a $310,000 increase in accounts receivable, partly offset by higher accrued expenses.
- Cash increased by $254,870 during the quarter, supported by a $1.0 million deposit related to a planned marine-asset sale and $1.3 million of financing cash flow.
- Debt increased by approximately $1.4 million from December 31, 2017, primarily from a $1.0 million Monaco advance and a $375,000 MINOSA advance. A $1.0 million Monaco advance received during the period was applied to a loan agreement executed April 20, 2018.
- A Superior Court of the Federal Court of Administrative Justice in Mexico ruled on March 21, 2018 in favor of the company’s subsidiary, nullifying the 2016 denial of the Don Diego environmental license application. The project still requires issuance of the environmental permit before commercial development can proceed.
Guidance, outlook, risks and unusual items
- Management provided no quantitative revenue or earnings guidance. It stated that 2018 operations require new cash inflows from monetizing receivables and mineral-company interests, financings, syndications or partnerships.
- Management expressly raised substantial doubt about the company’s ability to continue as a going concern. Unrestricted cash of approximately $1.4 million was described as insufficient to fund operations for the following twelve months.
- Future financing and the proposed MINOSA/Penelope preferred-stock transaction are uncertain and depend in part on the viability and permitting of the Mexican phosphate project. The investors were not currently obligated to complete the preferred-stock investments.
- Most remaining assets have been pledged to MINOSA, its affiliates and Monaco, limiting additional secured financing capacity. Several debt instruments are matured or payable upon demand, although lenders had not demanded payment under certain Monaco and MINOSA arrangements as of the filing.
- The company received a $1.0 million deposit toward a planned sale of marine assets to Magellan. Total consideration is expected to be $1.6 million, including $0.6 million of contingent consideration involving assumed trade debt and interest. Completion remains subject to the transaction structure and related conditions.
- Related-party exposure is significant: Monaco and affiliates owed the company $480,955 in accounts receivable and the company owed Monaco $644,987 in operating payables at March 31, 2018. Approximately $0.5 million of current-quarter revenue was recognized from services to this related party.
- The company held an approximately 14% interest in Neptune Minerals, Inc. with a zero carrying value and approximately $21.3 million of unrecognized equity-method losses. It reported no obligation to provide financial support to Neptune.
- Other risks include potential dilution from convertible debt and warrants, possible NASDAQ delisting, uncertainty of environmental permitting and mineral development, cybersecurity threats, and high short interest reported at approximately 17% of outstanding shares.
Most important facts for investors to verify
- Whether the company can obtain sufficient financing or asset-sale proceeds to address the going-concern deficiency and near-term debt obligations.
- The status, enforceability and maturity terms of the Monaco, MINOSA, Epsilon and other secured or convertible debt, including any lender demands or defaults after March 31, 2018.
- Whether the Don Diego environmental permit will ultimately be issued and whether the MINOSA/Penelope preferred-stock financing will close.
- Completion of the planned $1.6 million marine-asset sale and collection of related-party receivables.
- Potential common-stock dilution from debt conversions, warrants and other equity-linked arrangements.
- The company’s continuing operating cash burn, recurring revenue generation and ability to convert exploration projects into cash.