News & Media
Odyssey Marine Exploration Announces 2005 Financial Results
Tampa, FL - March 14, 2006 - Odyssey Marine Exploration (AMEX: OMR), a leader in the field of deep-ocean shipwreck exploration, today reported full year 2005 financial results.
For the full year 2005, Odyssey reported revenues of $10.0 million, compared to $17.6 million in 2004. The Company reported a net loss of $14.9 million for the full year 2005, compared to net income of $5.2 million in 2004. The net loss per share for the full year 2005 was $.35, compared to earnings of $.13 per share in 2004.
Odyssey attributed the 2005 annual loss to several factors. Revenues were lower than expected due to a smaller customer base of independent coin dealers, diminishing availability of high-value gold coins, lower than expected direct sales, and the impact of Hurricane Katrina on Odyssey's first-ever shipwreck attraction in New Orleans.
Expenses for Operations and Research increased $9.3 million primarily due to vessel recovery costs not being capitalized during most of 2005 and the addition of a chartered vessel for the Company's "Atlas" search project. Marketing, general and administrative expenses increased $4.2 million primarily due to expansion of marketing and sales and administrative expenses associated with Odyssey's themed-attractions segment. In addition, the impact of tax accounting standards resulted in a full valuation allowance against the Company's deferred tax asset which reduced net income by $7.8 million.
"While we're disappointed with this year's financial results, we continue to make solid progress establishing direct and indirect sales markets for our coins, artifacts, and shipwreck merchandise. In addition, our business and our unique industry makes us very different from traditional companies because our bottom line is directly impacted by our ability to find and excavate high-value shipwrecks. Therefore, as the HMS Sussex, 'Atlas' and 'Bristol' projects move forward in 2006, and as we continue to improve our direct and indirect sales channels for products, we expect Odyssey's financial performance to improve," said Mike Barton, Odyssey's Chief Executive Officer.
Full Year 2005 Results
Note: For 2005, the fiscal year included a twelve-month period which ended December 31, 2005. Fiscal year 2004 included a ten-month transition period which ended December 31, 2004.
Revenues are generated primarily through the sale of gold and silver coins, but also include other artifacts and merchandise. Revenues for fiscal years 2005 and 2004 were $10.0 million and $17.6 million, respectively, representing sales volume of approximately 2,500 gold and silver coins in 2005, and approximately 9,000 gold and silver coins in 2004. In 2005, sales were made through independent coin dealers at wholesale prices as well as through the Company's direct retail sales. In 2004, sales were made primarily through independent coin dealers.
Odyssey continues to sell numismatic coins to independent coin dealers. During the latter half of 2005, the Company experienced a decrease in numismatic gold coin revenue, relative to 2004, due to a lower availability of high-value gold coins, a desire to maximize total revenue from existing coin inventory, and sales to fewer independent coin dealers.
The number of independent dealers dropped from thirteen in 2004, to six in 2005, of which two dealers represented 57 percent of total sales. Odyssey's experience has shown that many of these independent dealers are primarily interested in the higher quality numismatic coin market. As availability of high-quality coins diminishes, the Company expects the number of independent dealers interested in its coins to be reduced. In addition, the sale of silver half dollars was significantly reduced from 2004 levels as Odyssey added direct retail distribution, where margins are higher, to existing independent coin dealer wholesale channels.
In December 2004, Odyssey opened a direct sales department to test distribution of its products through retail sales channels where gross margins are typically higher. Sales in 2005 were less than projected. However, the Company continues to build a database of customers which it anticipates will buy additional Odyssey products from various shipwrecks. Odyssey believes sales volumes will increase as it continues to build its client base for repeat sales, expand book sales, and pursue leads generated by themed attractions, advertising efforts in direct response print, television and radio outlets, and other activities. Based on 2005 results, the Company is investigating additional resources and strategic partnerships to service direct response inquiries and orders.
The Company also continues to develop additional indirect sales channels to supplement its coin dealer network for non-graded gold coins, shipwreck-effect silver coins, and for other Odyssey merchandise. While significant revenue has not yet been realized from these new indirect sales channels, Odyssey is building additional distribution for its shipwreck products, which should begin producing revenue in 2006.
Operations and research expenses were $11.3 million in 2005, compared to $2.0 million in 2004. Of the $9.3 million increase in 2005, $4.2 million was a result of not capitalizing vessel recovery costs since February 2005, when Odyssey's archaeological recovery ship left the SS Republic shipwreck site. Vessel recovery costs of $4.8 million were capitalized in 2004, versus $.6 million in 2005. Additionally, $3.3 million was attributable to vessel operations (which includes $1.8 million for a chartered vessel for the "Atlas" search project); $.5 million to ongoing research and conservation efforts; $1.0 million for start-up operations of Odyssey's themed-attraction segment; and $.3 million to the write-off of an investment in developing a second attraction location, due to a realignment in attraction development strategy resulting from hurricane Katrina and other factors.
Marketing, general and administrative expenses were $9.3 million in 2005, as compared to $5.1 million in 2004. Of the $4.2 million increase, $2.3 million resulted from expansion of marketing and sales associated with the development of a direct sales effort, $.6 million related to general and administrative expenses associated with the themed-attractions segment, and $1.3 million to other general and administration expenses, corporate communications, information technology, and professional and audit services related to Sarbanes-Oxley implementation.
The Company reported a net loss of $14.9 million for the full year 2005, compared to net income of $5.2 million in 2004. The net loss per share for the full year 2005 was $.35, compared to earnings of $.13 per share in 2004.
Included in the net loss for fiscal year 2005 is a full valuation allowance of $7.8 million placed on the deferred tax assets. The Company recorded this full valuation allowance due to uncertainty surrounding the realization of these deferred tax assets, which resulted from net operating loss carry-forwards from previous years. The full valuation allowance adjustment is a non-cash adjustment. The income tax provisions for the fiscal years 2005 and 2004 are $3.3 million and $3.5 million, respectively.
ANNUAL OPERATIONAL OVERVIEW
SS Republic Project
The SS Republic was a side-wheel steamer lost in deep water in 1865 after battling a hurricane for several days. The ship, en-route from New York to New Orleans, was reportedly carrying $400,000 in specie (1865 face value) when it sank. The ship's history includes service in both the Confederate and Union navies during the American Civil War. Odyssey discovered the shipwreck in the summer of 2003 nearly 1,700 feet below the surface of the Atlantic Ocean approximately 100 miles off the Georgia coast.
The archaeological excavation and recovery was completed in February 2005. During the SS Republic excavation, more than 51,000 gold and silver coins and approximately 14,000 artifacts were recovered. The Company's remotely operated vehicle (ROV) ZEUS, completed 262 dives to the shipwreck site and debris field, logging almost 3,500 hours of bottom time. The coins recovered represent approximately 25 percent of the "$400,000 in specie" (1865 face value) that historical research indicated was on board the Republic when she sank.
In March 2004, the Company was awarded title and ownership to the SS Republic shipwreck and cargo, including the hull, artifacts and the specie on board. In February 2005, the Odyssey Explorer left the SS Republic shipwreck site to steam to the Western Mediterranean.
Western Mediterranean Project
In April 2005, the Odyssey Explorer performed survey and archaeological work in the western Mediterranean. The Company located 23 shipwreck sites, produced 14 pre-disturbance photomosaics, and completed preliminary excavations on seven sites. The archaeological work resulted in the recovery of approximately 400 artifacts plus a substantial number of trading beads undergoing conservation and study by Odyssey's research and conservation departments. "Atlas" Search Project On May 4, 2005, Odyssey announced that search operations had begun on its 2005 shipwreck search program, code-named the "Atlas" project, with a chartered side-scan survey vessel. The "Atlas" project is the result of an extensive target development program and consists of a minimum of five target shipwrecks. It is believed to be the most extensive shipwreck search operation ever launched. Utilizing an advanced side-scan system allowed the Company to map the seafloor twice as fast as previous searches.
The Odyssey Explorer joined the Company's chartered side-scan survey vessel in the "Atlas" search area in June 2005 to inspect promising side-scan targets utilizing ZEUS. Using one ship for survey, and a second ship with an ROV for inspections, resulted in a highly efficient search process.
The 2005 "Atlas" search operations resulted in the mapping of over 4,600 square miles of the search area. Results included the discovery of 2,421 anomalies on the sea floor using advanced high-resolution, side-scan sonar system. After processing data, over 1,100 of those anomalies were selected for further examination. Of those, 577 sites were inspected and at least 180 are believed to be manmade or shipwreck sites. Of the shipwrecks inspected by ZEUS, several exhibit key characteristics of some of the target shipwrecks being sought as part of the "Atlas" project. To date, however, Odyssey has not positively identified any of its primary targets. The Company continues to analyze the "Atlas" project's high-definition video, digital photos and collected artifacts to determine the potential identity, cultural significance, and economic value of inspected sites.
On November 7, 2005, the Company announced that operations on the "Atlas" search project would be suspended through the winter months due to inclement weather while the Odyssey Explorer was deployed to the western Mediterranean to begin operations on the Sussex project. Odyssey intends to complete the search of the "Atlas" area in 2006 when the weather window re-opens. (For reasons of security and strategic confidentiality, the Company does not disclose the location of the "Atlas" project area.)
HMS Sussex Project
The Sussex project is an expedition to locate and recover artifacts and cargo of a large colonial-period British warship, HMS Sussex, which was lost in a severe storm in 1694. Based on documentary research conducted by contract researchers and our in-house research team in libraries and historical archives in Great Britain, France and other countries, Odyssey believes that there is a high probability the ship was carrying a cargo of coins with a substantial numismatic value.
On September 27, 2002, Odyssey entered into an agreement with the Government of the United Kingdom of Great Britain and Northern Ireland, which we refer to as "Her Majesty's Government" (HMG), which allows the Company to conduct an archaeologically sensitive exploration of the shipwreck believed to be HMS Sussex and to recover artifacts from the shipwreck site. The agreement provided for Odyssey to submit a Project Plan to HMG concerning the equipment, personnel and methodologies the Company will use in the exploration of the shipwreck, and the conservation and documentation of any artifacts and cargo that may be recovered. This Plan was submitted and approved in 2004.
In December 2005, Odyssey's 251' deep-ocean archaeological platform, the Odyssey Explorer, returned to the western Mediterranean from the "Atlas" search area. The ship and crew conducted the initial phases of Odyssey's Sussex project plan approved by HMG.
During January 2006, Odyssey announced it had completed archaeological and environmental survey operations believed to fulfill the requirements of Phase 1A, and a substantial portion of Phase 1B. A report was submitted to HMG, which detailed the work completed by Odyssey to satisfy Phase 1A requirements of the Sussex project plan. The report was reviewed by the Ministry of Defence (MoD) and the Sussex Archaeological Executive committee.
HMG notified Odyssey that the work detailed in the report met or exceeded all requirements of Phase 1A of the Sussex Project plan and Odyssey is authorized to proceed to complete Phase 1B of the project. (A public version of the project plan is available at www.shipwreck.net.) Odyssey's archaeological team has also completed a report detailing results of Phase 1B accomplished during the month of January, which was submitted to HMG in March 2006. On January 26, 2006, a nota verbal was communicated to Odyssey through diplomatic channels requesting the Company suspend operations until the Junta of Andalucia - the regional government of the Spanish state of Andalucia - appointed an expert to observe operations on the site believed to be the Sussex. It was further declared the Junta did not appoint an expert because they believed Odyssey was working without appropriate authorization and that the Project Plan presented by the Company did not comply with the applicable Andalucian legislation as requested by the Spanish Ministry of Foreign Affairs.
Odyssey did, in fact, submit a Project Plan to the Spanish Government through diplomatic channels that was believed to comply with all applicable requirements. In good faith, the Company began operations on the Sussex after submission of the Project Plan and subsequent assurance by the Spanish Government through diplomatic channels that failure of the Junta to appoint an expert to join the operation would not be considered a failure of Odyssey to comply with the cooperative agreement pursuant to the nota verbal. In addition, assurances were provided to Odyssey through diplomatic channels during January 2006 that there would be no interference with Sussex operations.
The January 2006 nota verbal from Spain appears to have been a contradiction of that position, and Odyssey trusts the inconsistency resulted from ambiguity and possible miscommunication relative to jurisdictional issues.
When operating in territorial waters of any country, Odyssey has always done so with the appropriate authorizations. In the case of the Sussex project, because of regional sensitivities over the issue of the territorial status of the waters, and in accordance with diplomatic requests, the Company's agreements of cooperation were made without prejudice to any jurisdictional claims relative to the territorial status of waters. Thus, the assertion of any claim to those waters or the assertion of any rights based on such claims is not consistent with the diplomatic discussions relative to the project.
During meetings held in Spain in February 2006 with the Spanish Government, the Junta de Andalucia and the Government of the United Kingdom, Odyssey agreed to re-submit an archaeological project plan pursuant to specific requirements requested by Spanish authorities to move the project forward. This plan, which would include collaboration with Spanish archaeologists, will be delivered to the appropriate authorities in March 2006.
Odyssey understands the geographic and political sensitivities surrounding this project and is willing to go to great efforts to show willingness to work in a cooperative fashion with all governments involved. Both Odyssey and HMG have been assured by the Andalucian and Spanish central government authorities that they will expeditiously examine the archaeological project plan when it is re-submitted, in order to allow Odyssey to proceed with the operation in a collaborative manner.
As a Sovereign warship, the HMS Sussex remains the property of the Government of the United Kingdom and has not been contested by the Spanish government or other entities, to the Company's knowledge.
About Odyssey Marine Exploration
Odyssey Marine Exploration is an American Stock Exchange Company with several shipwreck projects in various stages of development throughout the world. Additional information about Odyssey, its projects and archaeological methodologies, is available at www.shipwreck.net.
For additional information, please contact John McNeilly, Odyssey's Manager of Corporate Communications, at 813-876-1776 (ext. 2553).
Odyssey Marine Exploration believes the information set forth in this Press Release may include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. Certain factors that could cause results to differ materially from those projected in the forward-looking statements are set forth in "Risk Factors," and "Business" in the Company's annual report on Form 10-K for the year ended December 31, 2005, which has been filed with the Securities and Exchange Commission.
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