News & Media
Odyssey Marine Exploration Reports Continued Improvements in Financial Performance for Second Quarter 2010
August 9, 2010- Odyssey Marine Exploration, Inc. (NasdaqCM: OMEX), pioneers in the field of deep-ocean shipwreck exploration, today filed a quarterly report with the Securities and Exchange Commission detailing results of the Company's second quarter 2010.
For the second quarter of 2010, Odyssey reported revenue of $4.3 million, compared to $0.4 million in the second quarter 2009. The Company also reported a quarterly net loss of $3.5 million, compared to a net loss of $5.0 million in 2009. The net loss per share for the second quarter was $0.05, compared to a net loss of $0.09 per share in the second quarter 2009.
“We’re pleased with our second quarter results, which not only show a significant improvement in revenue year to year but also demonstrate a trend toward sequential revenue growth. These positive numbers result from a change in company strategy which incorporates deep-ocean service contracts with multiple clients as well as syndicated projects with clients of Robert Fraser & Partners LLP. We also have scheduled a number of additional shipwreck and subsea mineral exploration projects to be closed in 2010,” stated Greg Stemm, Odyssey CEO. “Based on our current schedule of new contracts and syndicated projects, we are comfortable that we are on track to see continued improvement in revenue and, as a result, should be able to meet our cash flow requirements for the remainder of 2010.”
SECOND QUARTER 2010 RESULTS
The increase in revenue of $3.9 million was primarily related to a $4.0 million increase in expedition charter revenue primarily associated with the “Firebrand” ($1.4 million) and “Shantaram” ($2.6 million) projects. Odyssey’s exhibit, SHIPWRECK! Pirates & Treasure, was not open in the second quarter 2010 as it is currently undergoing a planned renovation before its next run that begins in the fourth quarter 2010.
Operations and research expenses were $5.1 million in 2010 as compared to $3.1 million in 2009. The $2.0 million increase was due to higher vessel and employee-related expenses in 2010 versus 2009 primarily attributable to the volume of projects underway and the addition of our two chartered vessels. The Dorado Discovery has been undergoing renovations and mobilization in Southeast Asia and has recently been deployed to the South Pacific to work on subsea mineral mining and exploration projects subject to a charter agreement with Dorado. Our second chartered vessel was deployed during the second quarter 2010 to work on the “Shantaram” project.
Marketing, general and administrative expenses were $2.3 million in 2010 as compared to $2.2 million in 2009. The increase of $.1 million was primarily attributable to higher share-based compensation and professional services expenses.
QUARTERLY OPERATIONAL UPDATE
We have numerous shipwreck projects in various stages of development around the world. In order to protect the targets of our planned search or recovery operations, in some cases we will defer disclosing specific information relating to our projects until we have located a shipwreck or targets of interest and determined a course of action to protect our property rights.
Additional information regarding our announced projects may be found in our Annual Report on Form 10-K for the year ended December 31, 2009 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010. Only projects with material status updates since those reports were filed are discussed below. We may have other projects in various stages of planning or execution that may not be disclosed for security or legal reasons until considered appropriate by management.
We may use our vessels, the Odyssey Explorer and Ocean Alert, or chartered vessels to conduct operations based on availability.
“Atlas” Search Project
Between 2005 and 2009, we searched more than 4,700 square nautical miles of seabed in the western English Channel and the Western Approaches to the Channel, recording 267 shipwrecks. The shipwrecks discovered include site “35-F,” the Marqise de Tornay, and HMS Victory (1744). Additional high-value targets are believed to be within the “Atlas” search area, and search operations are currently underway in this area.
HMS Victory Project
We discovered and conducted a preliminary investigation of the shipwreck of Admiral Balchin’s HMS Victory (which sank in 1744) during our 2008 “Atlas” season and we have been cooperating closely with the United Kingdom (UK) Ministry of Defence (the “MOD”) on the project. All activities at the site, including the recovery of two bronze cannon, have been conducted in accordance with protocols approved by the UK Government and Royal Navy officials. The Victory discovery was announced publicly February 2, 2009. On September 18, 2009, we announced an agreement with the UK Government on an 80% salvage award for the cannon recovered from the site. We have since received the cash payment as compensation under that agreement.
On March 25, 2010, the MOD and the Department for Culture Media and Sport published an official consultation document with a deadline for public submissions of June 30, 2010. Odyssey submitted a document to this process that included a proposal for additional archaeological work on the site.
Although the UK is not a signatory to the United Nations Educational Scientific and Cultural Organization’s (UNESCO) Convention for the Protection of Underwater Cultural Heritage (“CPUCH”) and therefore not bound by CPUCH, Odyssey’s proposal is consistent with the archaeological principles of the Rules of CPUCH.
Robert Fraser Projects (“Enigma,” “Firebrand,” “Shantaram”)
In February 2010, we jointly developed plans and signed a letter of intent with Robert Fraser & Partners LLP to execute a series (at least six) of additional deep-ocean projects in 2010 similar to the model of the project code-named “Enigma.” Three projects are expected to target shipwrecks, while three or more projects will be aimed at mineral mining expeditions (see "Subsea Mineral Exploration Projects" included in this section). Under the proposed structure, Odyssey will be compensated for search, survey and archaeological excavation as well as development of research files on specific shipwrecks and other projects. Odyssey will also receive deferred cash payments and have a substantial interest in the back-end of each project as well as being compensated for providing other services including conservation, documentation, marketing and sales of recovered cargoes. Under the proposed structure for mineral mining projects, Odyssey will be compensated for search and survey operations and development of geological research files on specific expeditions. If valuable mineral deposits are found and eventually sold, Odyssey will receive deferred cash payments and will benefit from its ownership in the mining company.
Search contracts are generally 125 days but may be accelerated or extended depending upon operational factors. Cash payments are comprised of two components, sale of research and search operations. Cash payments for the sale of research are received and recorded as revenue upon execution of the contract. Cash payments for search operations are normally 50% upon execution of the contract, 40% upon arrival at the site and 10% upon completion; however, revenue is recognized over the contractual period on a daily basis when services are performed. At June 30, 2010, we have a $2.3 million service obligation that will be recognized as revenue over the period of time the contractual services are provided. At December 31, 2009, related to the “Enigma” search project, we had deferred revenue of $1.3 million which was earned in the first quarter of 2010. We expect each project will generate a cash flow up to $3.5 million.
Our initial project which began in November 2009 code-named “Enigma” was completed in March 2010. Eight target sites were identified, including two sites that had some of the characteristics of the “Enigma” shipwreck. However, our subsequent analysis indicated that the sites are not likely to be the “Enigma.”
In April 2010, we entered into agreements to provide project research and shipwreck search and survey services for a project code-named "Firebrand" associated with Robert Fraser Marine, Ltd. projects. Under the agreements, Odyssey furnished research related to the "Firebrand" and its sinking and will provide a research vessel, equipment and crew to search a specified area and inspect targets in that area. The contracts provided initial cash payments totaling £2.1 million (approximately $3.2 million) to Odyssey as well as additional payments upon the sale of coins or artifacts from the "Firebrand" project. After repayment of salvage costs and fees, Odyssey will receive 75% of net revenue in aggregate until an additional £10.5 (approximately $16 million) has been received and then 50% in aggregate of all further net revenue. We plan to commence search operations in the third quarter 2010.
In June 2010, we entered into agreements to provide project research and shipwreck search and survey services for a project code-named "Shantaram" associated with Robert Fraser Marine, Ltd. projects. Under the agreements, Odyssey furnished research related to the "Shantaram” and its sinking and will provide a research vessel, equipment and crew to search a specified area and inspect targets in that area. The contract provides cash payments totaling approximately U.S. $3.4 million representing initial cash payments of $1.7 million and additional payments of approximately $1.5 million within 30 days and $0.2 million upon project completion, plus additional payments upon the sale of coins or artifacts from the “Shantaram” project. After the re-payment of salvage costs and fees, we will receive 75% of net revenue in aggregate until an additional £11.4 million (approximately U.S. $16.7 million) has been received and then 50% in aggregate of all further net revenue. We expect the survey of the “Shantaram” search block to be completed in the third quarter. Data is currently being processed to determine which of the anomalies detected warrant further inspection with high resolution side-scan or ROV inspections.
We expect to execute another shipwreck agreement in August 2010 and search agreements for subsea mineral mining and exploration projects in the near future with operations commencing in the fall of 2010. To protect the security of the search areas, specific location details for search projects are not being released at this time.
ET 409 Project
On January 25, 2010, Ethiopian Airlines Flight ET 409 crashed into the Mediterranean Sea shortly after take-off from Beirut International Airport in Lebanon. Our search vessel, Ocean Alert, was operating near the area and had been using the Beirut port for fuel and supplies during these operations. In the weeks prior to the ET 409 crash, Odyssey management had been negotiating an agreement with the Government of Lebanon to partner in a deep-ocean project, so Lebanese officials were familiar with the capabilities of Odyssey and the Ocean Alert.
When ET 409 crashed, Lebanese authorities contacted Odyssey and asked the company to assist in the search and recovery efforts. The Alert returned to Beirut and was integrated into search operations that included the Lebanese Navy and Army, the US Navy (USS Ramage) and a German Navy ship, the Laboe.
Before the plane wreckage was discovered, the Government of Lebanon asked Odyssey to provide additional capabilities for more complex technical documentation of the site. Odyssey sent the Odyssey Explorer, which was based in the UK, to Lebanon to assist. We were paid $1.4 million for the work completed to-date by the Lebanese government. We presently have a signed agreement with the insurance company to create a photomosaic of the entire area of wreckage and debris which we are commencing in August 2010.
Odyssey is continuing negotiations with the Lebanese government for the original project. All operations on this project will be conducted in close coordination with the Government of Lebanon and will include official government observers on board Odyssey vessels.
On January 25, 2010, Odyssey was awarded the exclusive salvage contract for the cargo of the SS Gairsoppa by the United Kingdom (UK) Government Department for Transport. The contract was awarded after a competitive bid process and is for two (2) years, which commenced immediately.
The SS Gairsoppa was a British cargo steamer enlisted in the service of the United Kingdom for the Ministry of War Transport during World War II. It was torpedoed by a German U-Boat in February 1941 in the North Atlantic while reportedly carrying a significant cargo of silver.
Odyssey will assume the risk, expense, and responsibility for the search, cargo recovery, documentation, and marketing of the cargo. If the salvage is successful, Odyssey will be compensated with a salvage award which consists of 80% of the net value of the recovered cargo after deduction of expenses of search and salvage. This project aligns with our strategy to focus on partnership projects with several governments that provide straightforward legal ownership arrangements.
We are currently planning to begin search operations later in 2010 subject to the weather conditions in the search area.
Subsea Mineral Mining and Exploration Project
In November 2009, Odyssey acquired a 25% interest in SMM Project LLC, a company funded by a group of investors to bring together exclusive licenses and skills of world renowned deep-ocean geologist Dr. Timothy McConachy of Bluewater Metals, the deep-ocean survey and exploration expertise of Odyssey, and the offshore coring and mining expertise of Robert Goodden and Subsea Minerals.
SMM Project LLC purchased a majority interest in Bluewater Metals Pty Ltd, an Australian company with licenses for mineral exploration of approximately 150,000 square kilometers of ocean floor in territorial waters controlled by four different countries in the South Pacific. A new business entity, Dorado Ocean Resources Ltd ("Dorado"), a limited liability company organized in Hong Kong, was formed to focus on the exploration and monetization of gold, silver, zinc and copper-rich Seafloor Massive Sulfide (SMS) deposits. In April 2010, Dorado acquired SMM Project LLC and the remaining interest in Bluewater.
In April 2010, we purchased 1,200 shares of Dorado, for a purchase price of U.S. $2.0 million. Under the terms of the Share Subscription Agreement, Odyssey has the option to pay for this investment in cash or by providing marine services to Dorado over a three-year period. Odyssey also exchanged its five membership units in SMM Project, LLC for 450 Dorado shares bringing Odyssey's total ownership in Dorado to a 41.25%, non-controlling interest.
We will provide proprietary expertise and personnel management to Dorado under contract on a commercially reasonable basis, and will conduct operations to explore for deep-ocean SMS deposits in areas covered by exploration permits held by Dorado.
Odyssey entered into a long-term charter agreement for a vessel, the Dorado Discovery, which has been undergoing renovations and mobilization in Southeast Asia. The Dorado Discovery has recently been deployed to the South Pacific to work on subsea mineral mining and exploration projects subject to a charter agreement with Dorado. Operations are to commence in August 2010.
“Black Swan” Admiralty Update
We filed an appeal with the Eleventh Circuit Court of Appeals in Atlanta Georgia on May 11, 2010 appealing the district court’s dismissal of the “Black Swan” admiralty arrest and award of the recovered coins and artifacts to Spain. Spain filed its Response on July 19, 2010. Odyssey’s Reply is due August 19, 2010. In our initial brief, Odyssey argued that the district court erroneously dismissed the case, using flawed legal analysis of admiralty jurisdiction in general and the issue of sovereign immunity specifically. The opening brief also points out several erroneous factual findings made by the district court. All of Odyssey’s significant filings to date, including those made at the district court level, can be viewed at http://www.shipwreck.net/blackswanlegal.php.
About Odyssey Marine Exploration, Inc.
Odyssey Marine Exploration, Inc. (NasdaqCM: OMEX) is engaged in the exploration of deep-ocean shipwrecks and uses innovative methods and state-of-the-art technology to conduct extensive search and archaeological recovery operations around the world. Odyssey discovered the Civil War era shipwreck of the SS Republic® in 2003 and recovered over 50,000 coins and 14,000 artifacts from the site nearly 1,700 feet deep. In May 2007, Odyssey announced the historic deep-ocean treasure recovery of over 500,000 silver and gold coins, weighing 17 tons, from a Colonial era site code-named "Black Swan." In February 2009, Odyssey announced the discovery of Balchin's HMS Victory. Odyssey also has other shipwreck projects in various stages of development around the world.
Odyssey offers various ways to share in the excitement of deep-ocean exploration by making shipwreck treasures and artifacts available to collectors, the general public and students through its webstore, exhibits, books, television, merchandise, and educational programs.
Odyssey's operations are the subject of a Discovery Channel television series titled "Treasure Quest," produced by JWM Productions. The 12-episode first season aired worldwide in 2009.
For details on the Odyssey's activities and its commitment to the preservation of maritime heritage please visit www.shipwreck.net.
For consolidated financial statements as well as the full filing, please go to:
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" in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2009, which has been filed with the Securities and Exchange Commission.
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