Ah, if only Odyssey Marine Exploration (OMEX) could be as clever as Captain Jack Sparrow of The Pirates of the Caribbean. But even then, neither his swagger nor multiple bottles of rum would be able to right this ship.
The Tampa, Florida company captured investors’ imaginations a couple decades ago as it set off in search of shipwrecks laden with gold and artifacts.
But in 2014, Odyssey changed course from excavating shipwrecks to seeking seafloor phosphate off the coast of Mexico.
The company has spent $235 million of investors’ money in its pursuit of treasures from the deep blue sea, but it has uncovered profit only once, in 2004.
Since Odyssey has shot up more than 200% since mid-March, this is a good time to consider whether Odyssey is more of a ship of gold … or a ship of horrors.
*Revenue Plummets To Historical Low
Odyssey’s revenue dropped in 2017 to $1.2 million, the lowest point since it first began reporting financials more than a decade ago. And net losses for 2017 hit $7.8 million.
Revenues today are generated by chartering, leasing boats and equipment, and services.
The year’s revenue was slightly worse than the previous low of $1.3 million in 2014. That September, the company changed course from recovering shipwreck loot to principally pursuing the opportunity to dredge phosphate from the “Don Diego” deposit.
*Cash Drops To 7-Year Low
Odyssey is quickly running out of cash.
For the year, Odyssey’s cash fell to $1.1 million, the lowest level since 2010 when cash dropped to $236,000. Meanwhile, quarterly cash burn rate has rocketed.
(Source: Company SEC filing, TheStreetSweeper)
Earlier this year, Odyssey knocked off $600,000 in debt and received $1 million cash from selling “various marine assets to Magellan, a related party.”
Despite that infusion, the money appears unlikely to stretch far into this quarter. Back of the envelope math shows: $1.1 m on Dec. 31 + $1 m asset sale = $2.1 m – $1.46 m cash burn through March = probably under $640,000 remaining.
TheStreetSweeper asked Odyssey about what it plans to do about its cash shortage.
Odyssey’s outside counsel David Doney referred us to the annual report and press release of March 26.
“For example,” Doney wrote in an email, “Odyssey stated in the press release, “Operations are currently underway on a contracted project that is expected to begin generating cash in 2018 to fund company operations and is forecast to produce cash returns for a minimum 12-18 months.”
With the stock so high and cash so low, a dilutive event seems inevitable.
* Selling More Assets
Meanwhile, it’s tough to make a buck or borrow more money when there are few assets available.
And Odyssey has been selling off assets to the point where almost nothing is left to sell.
Accounting for this year’s marine asset sale, Odyssey’s $2.97 million in assets have dropped back to somewhere around $1.4 million.
But most of those assets no longer even belong to Odyssey:
“The majority of our remaining assets have been pledged to MINOSA, and its affiliates, and to Monaco Financial LLC, leaving us with few opportunities to raise additional funds from our balance sheet.”
In response to TheStreetSweeper’s question about the chances of the company filing for bankruptcy protection, Odyssey wrote, “Bankruptcy is not a topic of consideration for Odyssey’s board of directors or management, and they do not foresee any need to consider seeking protection under the bankruptcy or similar laws in the foreseeable future.”
*Means To Generate Revenue Decline; No Ship Of Gold
Odyssey’s ways of generating money are evaporating. Even the small fortune many believed Odyssey would scoop up once the haul from the SS Central America shipwreck was settled in court – IS BEYOND ODYSSEY’S REACH.
“On December 10, 2015, we sold our shipwreck database, our exhibit activity, our merchandise and recovered cargo inventory, our headquarters building, 50% of our ownership in and 50% its receivables from Neptune Minerals, Inc,…”
A December 2017 published report said the court had awarded Odyssey half the proceeds from the SS Central America (SSCA) wreckage.
But that was wrong.
Staggering beneath growing debt – payable loans are now $27.36 million – Odyssey gave up all financial interests in the “Ship of Gold” to a lender:
“On December 10, 2015, Odyssey sold all of its financial interests in the SSCA project to Monaco Financial, LLC and its affiliates…”
Company filings added: “… thus no revenue is expected to be recognized from the recovered cargo in the future.”
No longer the romantic, swash-buckling underwater treasure hunter like this guy …
(Source: Getty Images, Johnny Depp as Captain Jack Sparrow)
Odyssey is now just another ho-hum marine services company.
Things are so dull that analysts – always in remarkably short supply for Odyssey – are running for the hills. Craig Hallum most recently downgraded the stock from “buy” to “hold” in April 2016 and has been silent ever since. According to Fidelity, brokerage firm Thomson Reuters/Verus first downgraded Odyssey to “hold” and then discontinued coverage several days later on April 2, 2018.
*Don Diego: Still At Step One
It was only a year ago, April 27, 2017, that Odyssey’s CEO Mark Gordon told stockholders in a letter about the status of the Don Diego permit.
“I am confident that between our planned revenue generation and identified funding sources, Odyssey will have sufficient cash to operate until the environmental approval process is completed on the ‘Don Diego’ project.”
But the application had been denied a year earlier.
Last month, though, Odyssey got a reprieve. The Mexican Superior Court apparently nullified the denial of the Odyssey subsidiary’s application which had been submitted four years earlier. The uncharacteristically short filing stated:
“On March 21, 2018, the Superior Court of the Federal Court of Administrative Justice in Mexico ruled unanimously in favor of Odyssey Marine Exploration, Inc.’s (“Odyssey”) subsidiary, Exploraciones Oceánicas, S. de R.L. de C.V. (“ExO”), nullifying the denial of ExO’s environmental permit application for the extraction of phosphate sand from its “Don Diego” project. Odyssey holds a 53.88% interest in ExO. Odyssey will provide additional information once more details appropriate for public disclosure become available.”
The public can only assume the ruling was correctly interpreted since it has not been made public. Some misunderstood the decision, including Chatham Rock Phosphate Limited, which issued a correction a few days after saying the decision meant the project was fully permitted.
The fact is, Odyssey’s subsidiary still does not have the permit.
“To move to the next phase of development of the deposit, we need the approval of this environmental permit application,” Odyssey disclosed in the annual report released four days after the short filing. Indeed, this application is just the first of multiple required permits (pg. 6) for the project.
Importantly, more than $100 million in funding from Minosa/Penelope, essentially bankrolling Odyssey’s continued operations, rests squarely on the Don Diego project (page 25):
“Our ability to generate net income or positive cash flows for the following twelve months is dependent upon our success in developing and monetizing our interests in mineral exploration entities, generating income from exploration charters, collecting on amounts owed to us, and completing the MINOSA/Penelope equity financing transaction approved by our stockholders on June 9, 2015.”
* Don Diego Costs: Secret
Let’s say Odyssey does get the permit. Then the work begins. Then the company with a small boat, and 17 employees would have to roll up those sleeves to get the people, plans and equipment needed to start a speculative project likely to cost many hundreds of millions of dollars.
The costs are apparently so massive that Odyssey doesn’t want to disclose them.
In response to TheStreetSweeper’s question about project costs, Odyssey’s Mr. Doney wrote:
“Odyssey has not publicly disclosed its budgets or other forecasts for the Don Diego project, and it does not intend to disclose such information until Odyssey believes it is appropriate to disclose the information or Odyssey is required by law to disclose the information.”
We believe the biggest short-term harm to current shareholders could be if Odyssey does get the permit. Then the escalating costs would lead to dilution so big that it would crush shareholders.
*Conclusion
With EPS of $-0.95 , little cash, working capital deficit of $-31.5 million, liabilities of $49.96 million, “going concern” doubts and the Don Diego still years and multi-millions away from reality, Odyssey likely has never before entered such choppy waters. And, in our view, getting out will take more gold and magic than even Captain Sparrow could ever conger up. We believe this stock is massively overvalued and will get hammered back to $6 quickly. And, in our opinion, the stock isn’t even worth half of that.
* 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 scolberg@thestreetsweeper.org.
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