TheStreetSweeper issues an investor alert for Odyssey Marine Exploration (OMEX).
The shipwreck exploration company is rapidly turning into an epic shipwreck that will leave unwary investors drowning in its wake.
The company faces massive issues, including:
*Virtually no cash left.
*At the brink of Nasdaq delisting.
*Likely bankruptcy or major dilution looming.
*Professional promoters, chatrooms hype the stock.
*Don Diego project application is dead.
*Recent announcement is apparently meaningless; actually a lost opportunity.
*OMEX loses millions while executives make millions.
Financial distress has forced this Tampa, Florida company to essentially give up salvaging shipwrecks in December 2015 to re-focus on mining underwater phosphates in Mexican waters. But that plan was derailed six months ago when the Mexican government rejected the company’s environmental application to dredge the “Don Diego” deposit.
Investors may find other viewpoints here. Meanwhile, we’ll look more closely at OMEX and nine current risks poised to sink possibly the worst company we’ve ever considered:
*1. Virtually No Cash Left
Today’s investors might be surprised to learn that OMEX has operated as a hobby for the past decade, as shown by consistent yearly net losses.
(Source: Company SEC filings, here, here, here)
Those losses reflect OMEX’ ongoing predicament of cash burn exceeding available cash:
(Source: Company SEC filing)
The company managed to add to cash and cut debt by selling its exploration boat, headquarters building and shipwreck inventory in December 2015. Company filings say now there’s no remaining inventory.
And by the end of September 2016, barely assisted by a $2.4 million contract, OMEX was likely almost down to its last dollar. But Epsilon Financing agreed to amend a note to give OMEX its final $3 million infusion – at a draconian 10% interest rate. The loan allows OMEX to limp along another quarter until the wolves line up at the doorstep again …
*2. Finance Or Delist
So OMEX is left with two choices: It must get significant financing, likely via convertible shares … or go to the dreaded over-the-counter bulletin board.
When the stock goes to the bulletin board, the show’s over. Everyone moves on. And the stock we believe is left to trade for about 50 cents apiece.
*3. Nasdaq Delisting
OMEX is, indeed, at the brink of being delisted from the Nasdaq because its market valuation has been below the required $35 million level for the past six months.
The delisting notification boils down to this…
To hit that valuation, shares need to trade for about $4.65 per share and remain at that level for 10 consecutive business days by Nov. 21.
But the stock has not closed above $4.39 even once since April, when the market learned the Don Diego environmental application was dead.
(Source: Yahoo Finance)
Last year, the market apparently began doubting the treasure hunting story and the company’s ability to conduct a profitable business. The stock fell below $10 in February 2015 and just kept falling, leading to the two previous delisting notices. So the company frantically pulled a 1-for-12 reverse stock split on Feb. 19, 2016 to prop up the price.
A reverse stock split is mostly an accounting trick used by desperate companies. It doesn’t add value to the stock but, as the chart below indicates, briefly raises the stock price as investors perceive less risk. Instead of buying $2.50 stock, investors evidently thought they were buying $4 or $5 stock. So the share price rose but only temporarily…
(Source: Yahoo Finance)
These reverse stock-splits might make a few bucks for a few people at first but they ultimately wipe out existing investors…
*4. Promotions Influence Stock
The stock opened at $4.25 this morning, Oct. 24, but this is thanks partially to chat boards such as Investors Hub, where people have posted more than 3,000 comments on OMEX:
Excessive social media chatter, especially when joined by professional promoters, are flapping red flags for investors. Indeed, paid promoter Value Stock Pick flung out a promotional campaign in early March after the February reverse stock split failed to move the stock sufficiently.
Compensation is unclear but we know promoters aren’t hyping out of the goodness of their hearts. These promoters add a disclaimer, too, which says in part: “This newsletter is a paid advertisement and is neither an offer nor recommendation to buy or sell any security … individuals are strongly encouraged to not use this newsletter as the basis for any investment decision.”
Indeed, these same promoters claim there’s hope for OMEX. But some important people are not buying the pitch….
*5. Institutions To OMEX: Adios
Investors find comfort in knowing that big banks have a strong interest in their stock. But institutions have shown remarkably little interest in owning OMEX and their ownership has dropped from 12.10% in August to just 8.8% now.
And institutional selling is 7 1/2 times greater than new positions:
Shortly after Mexico rejected the OMEX application, four institutions dumped their stock:
OMEX doesn’t want to accept Mexico’s “no” as an answer and persists in using language that we consider deceptive…
*6. Dead: Don Diego
Mexico rejected the OMEX application in April.
But incredibly, the company claimed in its second quarter earnings press release that the company is awaiting approval for Don Diego’s environmental permit application.
The press release misleads investors, in our view, into thinking OMEX is on the verge of getting approval: “As we await the approval of the MIA for the ‘Don Diego’ project, we remain confident that the project will move forward and our Mexican subsidiary is continuing ongoing efforts to support the environmental approval process with a goal of approval in the second half of 2016.”
Note to OMEX: Mexico turned down your application on April 8, 2016 over environmental concerns for the marine ecosystem. Your stock took a 55% dive in reaction.
On April 29, the company asked Mexico to review its decision. But previously the application process took nearly two years and this time they’re asking Mexico to reverse itself?
How long will that take? More importantly, why would Mexico reverse its decision?
TheStreetSweeper is actively pursuing this issue to see if Mexico authorities might actually reconsider its decision. Even if Mexico does reverse course, the captal needed to entertain that type of business would likely result in incredible dilution. Stay tuned.
*7. Recent Announcement: Lost Opportunity For OMEX
Meanwhile, OMEX is desperate to make investors think it’s doing something. So desperate in fact that its latest announcement involves a court ruling that has no impact whatsoever on OMEX.
OMEX paid “news” published Sept. 6 on GlobeNewsWire ran under this headline: “Federal Judge Announces Favorable Ruling in the Matter of the SS Central America and Recognizes the Contribution of Odyssey Marine Exploration.”
Unsuspecting investors might think that the decision granting Recovery Limited Partnership (RLP) the loot from the wreck’s excavation might be of some financial importance to OMEX itself.
Nothing could be further from the truth.
If it hadn’t been for the Monaco debt deal, OMEX might have made thousands or even millions from the SS Central America recovery project. Thanks to a court-appointed receiver’s decision, OMEX would have had the right to recover any additional artifacts left after the 1988 excavation of the SS Central America. Dubbed “The Ship of Gold, the steamer was loaded with three to 21 tons of California gold when it sank in 1857.
But in a debt deal, OMEX turned over many assets to lender Monaco Financial … and gave up rights to any payments related to RLP.
OMEX clarifies the loss of the rights in its annual report, which refers to the RLP project as SSCA:
“On December 10, 2015, Odyssey sold all of its financial interests in the SSCA project to Monaco Financial, LLC and its affiliates (See NOTE S). As a result, at December 31, 2015, Odyssey no longer carries a receivable on its books for the SSCA project and will not receive any further proceeds from the eventual monetization of the cargo that was recovered in 2014. All other contractual terms and conditions of the March 2014 agreement between Odyssey and RLP remain in place.”
Management made it clear to analysts last December that OMEX would not recover one thin dime.
Eagle’s View Capital analyst Rob Johnston asked CEO Mark Gordon about the RLP case during the conference call:
Well, as an interested party, would your general expectation, not to hold you to this, would you expect that to be resolved, either good or bad, in 2016 for us?
I have no way to predict directly, but as you look at what we talked about in the deal today, really the timing of the case, we’re sort of indifferent about at Odyssey because that’s one of the assets that’s already been purchased as part of this transaction, or more specifically our rights to any payment have been—are part of this deal.
Okay, the full rights to the Central America, not partial are part of this?
No, just our rights to any payments to be received is what’s been purchased.
(Source: Company SEC filing, transcript of Dec. 16, 2015 conference call, see pages 5 & 6)
So OMEX’ announcement trumpets a lost opportunity.
*8. OMEX: Losing Millions
OMEX fails to turn a profit year after year as it struggles amid doubt that it will survive as a going concern.
Indeed, shareholders’ net loss over the past 6 months reached $-1.80. The quarter ended June 30 resulted in a $-0.25 loss.
Here’s what financial distress looks like:
*9. Executives: Making Millions
While OMEX loses millions, executives make millions. Indeed, compensation for President/CEO Mark Gordon is a cool million. The recently resigned chief financial officer is getting along on a golden parachute of $15,527 monthly for 9 months. And the chief operating officer is doing just fine, too. Altogether the officers raked in over $2.1 million last year…
(Source: Company SEC filing)
OMEX is still hunting for treasure, alright. Just not in the ocean. With little cash, high promotional efforts, institutional disinterest, lost opportunities, excessive executive pay, dead dredging deal and no sustainable business … OMEX can only capsize and go under.
The company appears to be weeks away from major dilution or bankruptcy. We believe the stock is a zero or pennies, at best.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in OMEX and stand to profit on any future declines in the stock price.
* Editor’s Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected].