OMEX

Business Context and Reporting Period

Company: Odyssey Marine Exploration, Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three months ended March 31, 2009
Business Overview: The Company engages in the search, recovery, and conservation of shipwrecks and their cargo. Key projects include the "Black Swan" (recovered silver and gold coins pending legal title), the "Atlas" search area (including HMS Victory), and the "Firefly" project. Revenue is generated through artifact sales, merchandise, themed attractions, and expedition charter revenue.

Key Financial Metrics

Note: Gross margin is not explicitly stated but can be derived as approximately 68% for Q1 2009 ($606,702 Revenue - $195,121 Cost of Sales).

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 116% to $606,702 from $281,029, driven primarily by the sale of over 500 additional silver coins compared to the prior year.
• Expense Reduction: Total operating expenses decreased 19% to $5.8 million from $7.2 million.
  • Marketing, General & Administrative: Decreased 19% to $2.7 million due to lower employee-related expenses and share-based compensation.
  • Operations & Research: Decreased 21% to $3.0 million, attributed to lower vessel repair and maintenance costs.
• Improved Loss Position: Net loss narrowed by approximately $1.5 million to $5.3 million, despite continued operating losses.
• Cash Position: Cash and cash equivalents decreased by $4.0 million during the quarter to $6.7 million, primarily due to operating losses and working capital adjustments.

Outlook, Risks, and Management Commentary

• Liquidity: Management believes current cash ($6.7 million) and the $5 million revolving credit facility are sufficient to fund operations into the third quarter of 2009. Additional capital may be required thereafter if cash flow is insufficient.
• Black Swan Project: Over 17 tons of silver and hundreds of gold coins have been recovered. Monetization is contingent upon receiving title or a salvage award from the U.S. District Court. Legal proceedings are ongoing with Spain and Peru as claimants.
• HMS Victory Project: The Company discovered the wreck of HMS Victory (1744) and is negotiating an agreement with the UK Ministry of Defence. Recovery operations cannot commence until an agreement is finalized.
• Television Revenue: JWM Productions exercised an option for a second season of "Treasure Quest." However, management expects lower expedition charter revenue in 2009 as filming will focus on "Tag Along Days" rather than full expedition charters.
• Risks: Significant risks include the inability to secure legal title to recovered artifacts, delays in court proceedings, the need for additional capital, and the uncertainty of future shipwreck discoveries.

Key Facts for Investor Verification

• Legal Title Status: Verify the current status of the U.S. District Court proceedings regarding the "Black Swan" artifacts, as this is the primary driver for future high-value revenue.
• UK Government Agreement: Monitor progress on the agreement with the UK Ministry of Defence regarding the HMS Victory project to assess the timeline for potential recovery operations.
• Cash Burn Rate: Confirm if the $6.7 million cash balance and credit facility will sustain operations through the end of 2009 without dilutive equity raises.
• Inventory Valuation: Review the valuation of the $6.4 million non-current inventory (artifacts) and the associated $2.4 million in capitalized recovery costs reserved at 100% pending ownership rights.
• Debt Covenants: Review the terms of the $5 million revolving credit facility with Fifth Third Bank, specifically the borrowing base tied to eligible coin inventory.