TAMPA, Fla., Feb. 28, 2011 (GLOBE NEWSWIRE) -- Odyssey Marine Exploration (Nasdaq:OMEX), pioneers in the field of deep-ocean shipwreck exploration, today reported fourth quarter and full year 2010 financial results.
For the full year ended December 31, 2010, Odyssey reported revenue of $21 million, compared to $4.3 million in 2009, an increase of 383% year to year and the highest annual revenue reported by Odyssey since the company's inception. Operating expenses increased 65% to $37.4 million from $22.7 million in 2009. Approximately, $ 8.5 million of the $37.4 million in operating expenses are receivable reserves, which are further discussed below.
Other expenses increased to $6.9 million in 2010 from $.3 million in 2009 primarily due to the $3.6 million recorded loss due to the increase in fair value of the derivatives related to the Series G preferred stock and $2.4 million loss recorded in the third quarter on the Company's equity investment in Dorado Ocean Resources (DOR). Taking into account the derivative loss and receivable reserves, Odyssey's net loss was $23.3 million for the full year 2010, compared to a net loss of $18.6 million in 2009. The net loss per share for the full year 2010 was $0.36, compared to a net loss per share of $0.33 in 2009.
For the fourth quarter of 2010, Odyssey's revenue was $3.9 million compared to $2.5 million in the fourth quarter 2009. Operating expenses, exclusive of receivable reserves of $8.5 million, were $6.7 million compared to $6.3 million in 2009. Other expenses for fourth quarter, exclusive of the change in fair value of the derivatives of $3.6 million, totaled $.5 million, up from $.1 million in 2009. The Company's net loss was $15.4 million for the fourth quarter 2010, compared to a net loss of $4.0 million in 2009. The net loss per share for the fourth quarter 2010 was $0.24, compared to a net loss per share of $0.07 in 2009.
During the fourth quarter, the Company established a receivable reserve of $6.9 million representing the net amount due from DOR for charter services. This reserve does not include $2.0 million of receivables which can be offset against our subscription payable to DOR for our current 41% equity ownership in DOR. The reserve was established because at the present time, Odyssey cannot determine the amount or form of payment the Company may or may not receive from its charter services provided to DOR, which may be in cash, equity or other financial instrument. Now armed with successful exploration results, DOR is in the process of raising additional capital. Odyssey has several possibilities for recognizing benefits from the accounts receivable from DOR and may receive all or only a portion of the receivables in cash. The options are fully described in the Company's Annual Report on Form 10-K for 2010 which was filed today.
"Clearly 2010 was a landmark year for Odyssey that showed the strategic changes we made in our operations are beginning to transform our business model as we leverage our advanced exploration core competency in other areas in a very positive manner. We're looking forward to continuing our partnerships with Clients of Robert Fraser & Partners and expanding our sources of business and, of course, continuing to expand our shipwreck operations," said Greg Stemm, Odyssey CEO.
"The work we completed in 2009 and 2010 sets the stage for what should be a very productive year for Odyssey's marine operations team, with potential for multiple shipwreck recovery operations in 2011. We are looking forward to beginning the search for the SS Gairsoppa under an exclusive agreement with the UK Government for the salvage of the ship's silver cargo. We've presented a proposal for the archaeological excavation of the HMS Victory at no cost to the UK Government, and we believe we may have located at least one of the shipwrecks targeted by search projects for clients of Robert Fraser & Partners. We are looking forward to returning to and getting a better look at several sites this year. We're also looking forward to continuing and building new relationships with governments as well as exploring new opportunities that will benefit Odyssey and our shareholders," continued Stemm.
"We remain extremely optimistic about the long-term prospects of deep-ocean mineral exploration. The results of the first 100 days of exploration for Dorado, which mapped only 5% of their exploration tenements, included the discovery of several Seafloor Massive Sulphide (SMS) deposits with strong assay results and one deposit so promising that plans are underway to move to the drilling phase to quantify the deposit. While our 2010 investment in this arena has resulted in accounting charges in the current period, we strongly believe that this investment will pay off for Odyssey shareholders in the future. We have several options to derive economic benefit form the Dorado receivable reserve including increasing our equity in Dorado. In addition, we have actively been expanding our roster of mining exploration clients and we're excited to begin exploration operations for another deep-ocean mineral client, Neptune Minerals, in waters off of New Zealand. This operation will be conducted in first and second quarter and will provide Odyssey with cash payments and equity in Neptune," explained Stemm.
Expedition charter revenue was $20.5 million in 2010 versus $2.1 million in 2009. In 2010, $9.0 million related to our syndicated projects with clients of Robert Fraser Partners LLP (RFP) that included four separate projects (Enigma I and II, Firebrand and Shantaram). Also in 2010, $7.9 million represented charter services sold to Dorado Ocean Resources for deep ocean mineral mining exploration. These two customers represented 82% of our expedition charter revenue in 2010. Other projects for 2010 included the ET 409 aircraft recovery and photomosaic project ($2.9 million) and $.7 million from other charter services. During the fourth quarter 2009 we initiated the first RFP project ($2.0 million) for research, shipwreck search and survey services related to the "Enigma I" project (see Part I, Item 1 Business–Operational Projects in the Company's Annual Report on Form 10-K).
Artifact sales and other revenues primarily include coin sales, but also include other artifacts, merchandise, commissions, and other miscellaneous revenue. Artifact and other revenues for 2010 and 2009 were $.4 million and $1.6 million, respectively. The decrease of $1.2 million in artifact sales and other in 2010 can be attributed to the overall poor economic conditions and availability of new product offerings. As of December 31, 2010, Odyssey had a remaining inventory of approximately 28,500 silver coins. The Company's artifact and other and exhibit revenue for 2010 and 2009 was predominantly U.S. domestic-based.
Exhibit revenue was $.1 million and $.6 million in 2010 and 2009, respectively. Odyssey's SHIPWRECK! Pirates & Treasure is an interactive multi-media exhibit and features hundreds of artifacts recovered from our deep-ocean shipwreck expeditions. The decrease of $.5 million in 2010 because Odyssey's exhibit, SHIPWRECK! Pirates & Treasure, was on tour for four months in 2010 versus eleven months on two separate tours in 2009. The non-booked months in 2010 were related to downtime for planned exhibit refurbishment after runs at five venues and over 600,000 visitors. The exhibit opened at the Maryland Science Center in Baltimore on October 1, 2010 and ran through January 31, 2011. In 2009 the exhibit was featured at two locations (Oklahoma City and Charlotte, North Carolina). Exhibit revenue varied dependent on the type of contract which was either a fixed rental or a per visitor basis. The exhibit is currently booked through August 2012.
Cost and Expenses
The primary cost of sales component is from the sale of coins. Cost of sales for coins decreased 72% for 2010 versus 2009 primarily because of fewer coins sold in 2010. Actual cost as a percentage of coin sales was 41% and 44% in 2010 and 2009, respectively. There is no cost of sales component associated with the themed attraction and expedition charter revenues.
Operations and research expenses primarily include all costs within Archaeology, Conservation, Research, and Marine Operations, which include all vessel operations. Operations and research expenses were $19.6 million in 2010, compared to $12.6 million in 2009. The $7.0 million increase, or 55%, was primarily related to our two chartered vessels ($8.5 million). The Dorado Discovery vessel comprised $6.0 million of the increase and has completed its charter with Dorado Ocean Resources Ltd. in mid-December after a successful four month charter in the South Pacific (see Operational Projects, Item 1). Our second chartered vessel, which comprised $2.5 million of the increase, was deployed during the second quarter 2010 to work on the "Shantaram" project and then was sub-chartered to a third party in the third quarter and went off-charter in the fourth quarter. The unfavorable charter variances were primarily offset by favorable variances for our two owned vessels, most of which represented the Ocean Alert which has been in port for the latter part of 2010. Our current plans are either to sell or charter the Ocean Alert in 2011.
Marketing, general and administrative expenses primarily include all costs within the following departments: Executive, Finance & Accounting, Legal, Information Technology, Human Resources, Marketing & Communications, Sales and Business Development. Marketing, general and administrative expenses were $9.2 million in 2010 versus $9.4 million in 2009. The decrease was primarily attributable to reduced corporate overhead of $.3 million including professional fees and expenses and depreciation.
Receivable reserves of $8.5 million in 2010 include approximately $1.5 million which related to the sale of research for the "Shantaram" project which has not been received. If not collected, Odyssey has the option to receive an additional percentage up to 11% of the net proceeds assuming the target project is located. The additional reserve of $6.9 million represents the net amount due from DOR for charter services. The DOR reserve does not include $2.0 million of receivables which can be offset against our subscription payable to DOR. At the present time, we cannot determine with certainty as to the amount of cash we may or may not receive from our charter services with DOR of which we have approximately a 41% interest. As discussed in Part I, Item 1- Business, Operational Projects and Status, the DOR expedition with Odyssey achieved outstanding results in the first charter which covered approximately 5% of DOR tenements. Also, with the recent mining license issued to Nautilus Minerals, another mineral exploration company operating in the South Pacific, there has been significant attention being given to this relatively new emerging industry. DOR is in the process of raising the additional capital in order to begin further operations in the initial areas of success. Odyssey has several possibilities for recognizing benefits from the accounts receivable from DOR. We may receive all or only a portion of the receivables in cash. We have the option to convert our non-mobilization portion of the accounts receivable into additional equity of DOR at the last subscription price. If we were to convert the receivables to equity, Odyssey could increase its stake to approximately 49% prior to any future dilution. We can also convert all or a portion of the receivables into a note receivable or debenture which would provide a coupon rate and potentially other enhancements. Due to the lack of clarity on the ultimate form of collection of the DOR receivable, we recorded a $6.9 million receivable reserve against operations. There remains a $2.0 million account receivable from DOR which could be offset against our subscription payable of $2.0 million which is due by April 1, 2013. Had we converted our accounts receivable into equity in DOR, we would have also been required to absorb our ownership percentage of accumulated losses of DOR. Since DOR is in the start-up phase of operations, continued losses would have eventually reduced our long term investment against the income statement as loss from unconsolidated entity. We will retain our ownership interest in DOR and continue to be very optimistic concerning the future potential of this emerging new business. We believe that we may receive the economic benefit of all or a portion of the receivable that relates to the reserve that has been established and will continue to evaluate this asset accordingly in future periods.
Operational Projects and Status
We have numerous shipwreck and other deep-ocean 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 other potentially valuable resources of interest and determined a course of action to protect our property rights.
"Atlas" Search Project
Between 2005 and 2010, we searched more than 5,000 square nautical miles of seabed in the western English Channel and the Western Approaches to the Channel, recording over 270 shipwrecks. The shipwrecks discovered include site "35-F," the Marquise de Tornay, and HMS Victory (1744). Additional high-value targets are believed to be within the "Atlas" search area, and operations in the area are expected to continue in 2011.
Site "35-F" is believed to be an armed English merchantman from the second half of the 17th century. The site has been heavily damaged by fishing activities, and a confirmed identification may not be possible. During a preliminary investigation of the site, Odyssey discovered a rare wooden folding carpenter's rule – the oldest ever recovered from a shipwreck site. The ruler was on display at the Museum of the History of Science at Oxford in the UK and is currently on display as part of the SHIPWRECK! Pirates & Treasure exhibit.
Additional information about the ruler recovered from Site "35-F", the Marquise de Tornay shipwreck and HMS Victory shipwreck is available in a series of papers accessible at 10.php and www.shipwreck.net/featuresarchpapers09.php.
Operations for the 2010 "Atlas" season commenced in April 2010 and concluded in November 2010. More than 500 square miles were mapped and at least 6 shipwrecks discovered. Additional search, inspection and verification work is planned for 2011.
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. HMS Victory was the inspiration for and direct predecessor to Nelson's Victory and was the mightiest and most technically advanced vessel of her age.
We have been cooperating closely with the United Kingdom (UK) Ministry of Defense (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.
Odyssey is participating in the ongoing process of consultation with the UK Government to determine what approaches should be adopted towards the wreck. We have set forth a proposal that would provide for the archaeological excavation of the shipwreck at no cost to the UK Government.
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.
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 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 expect to begin operations on this project during 2011.
Robert Fraser Projects ("Enigma," "Firebrand," "Shantaram")
Odyssey executed agreements in 2010 with clients of Robert Fraser & Partners LLP (RFP) for three shipwreck search projects code named "Firebrand," "Shantaram" and "Enigma II."
In April 2010, we entered into agreements to provide project research and shipwreck search and survey services for a project code-named "Firebrand" to clients of RFP. Under the agreements, Odyssey furnished research related to "Firebrand" and its sinking and agreed to 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 approximately $3.2 million (of which $3.0 has been paid) 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 $17 million) has been received and then 50% in aggregate of all further net revenue. Search operations have already covered a major portion of the "Firebrand" project area and are expected to resume when weather in the area is appropriate for search operations.
In June 2010, we entered into agreements to provide project research and shipwreck search and survey services for a project code-named "Shantaram" with clients of RFP. Under the agreements, Odyssey furnished research related to "Shantaram" and its sinking and provided a research vessel, equipment and crew to search a specified area and inspect targets in that area. The contract provided for 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 $18.5 million) has been received and then 50% in aggregate of all further net revenue. The survey of the "Shantaram" search block is complete, and targets of interest have been inspected with a remotely operated vehicle. Of the amount owed to Odyssey, approximately $1.5 million related to the sale of research was not tendered to Odyssey. If not collected, Odyssey has the option to receive an additional percentage up to 11% of the net proceeds assuming the target project is located and monetized. A contract relating to additional operations relating to this project is being negotiated.
In September 2010, we executed agreements to provide supplementary project research and shipwreck search and survey services for a project code-named "Enigma II" with clients of RFP. (Our initial project with RFP, 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 were not the "Enigma.") As part of the agreements for the "Enigma II" project, Odyssey furnished research related to the anticipated location of the "EnigmaII" and agreed to provide the research vessel, equipment and crew to search a specified area and inspect targets in that area. The contract provided for initial cash payments totaling approximately $1.6 million to Odyssey, plus additional payments upon the sale of coins or artifacts from the "Enigma II" project. After the repayment of all recovery costs, Odyssey will receive 75% of net revenue in aggregate until an additional £5.2 million (approximately $8.4 million) has been received and then 60% in aggregate of all further net revenue. Survey operations have been completed and targets of interest have been inspected with a remotely operated vehicle.
Based on preliminary results, there is evidence suggesting that at least one of the "Robert Fraser Project" target shipwrecks has been located. Additional analysis and investigation is currently underway.
In January 2011, Odyssey executed agreements to provide marine archaeological excavation and related services on an existing project to certain client companies of RFP to verify the existence of a target shipwreck. The work will be conducted on a shipwreck site that Odyssey discovered and inspected during a recently completed survey carried out under contract with the RFP client companies. Odyssey is providing the research vessel, equipment, technical and archaeological crew to conduct the operation. The contract provided for cash payments totaling approximately U.S. $2.3 million to Odyssey plus additional payments based upon revenue derived from the project. After the repayment of all recovery costs, Odyssey will receive at least 50% of net revenue until an additional £1.9 Million (approximately U.S. $3.1 million) has been received and then will receive a minimum of 50% of further net revenue in accordance with the search contracts.
Subject to the verification of the shipwreck's identity, the condition of the cargo and confirmation of jurisdiction for administering legal rights and title to the shipwreck and its cargo, Odyssey expects to enter into additional agreements for the complete archaeological excavation of the site and for the conservation and documentation of any artifacts recovered.
We expect to close on agreements in the first quarter 2011 which would provide cash payments to Odyssey of approximately $2 million to expand a search and provide marine archaeological excavation and related services to certain client companies of RFP on and around a site that Odyssey discovered and inspected during a recently completed survey carried out under contract with the RFP client companies.
To protect the security of the operations and search areas, specific location details for "Enigma," "Firebrand" and "Shantaram" are not being released at this time.
We expect to execute additional agreements with clients of RFP in 2011 for subsea mineral exploration projects. Under the proposed structure for these 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 subsea mineral exploration company (see "Subsea Mineral Exploration Projects" included in this section).
In January 2010, Ethiopian Airlines Flight ET 409 crashed into the Mediterranean Sea shortly after take-off from Beirut International Airport in Lebanon. When ET 409 crashed, Lebanese authorities contacted Odyssey and asked the company to assist in the search and recovery efforts. The Ocean Alert returned to Beirut and was integrated into search operations that included the Lebanese Navy and Army, the U.S. 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 have also completed a video survey and photomosaic of the entire area of the wreckage and debris field under contract to the airline insurance company for a total contract price of $ 1.5 million. This groundbreaking project is believed to be the largest underwater geo-spatially accurate photomosaic ever completed, and required stitching together over 50,000 individual high resolution photos. Any additional work at the site is pending until a thorough review of the photomosaic has been completed and a report is produced by the accident investigation team.
Subsea Mineral Mining Exploration Projects
In November 2009, Odyssey acquired a 25% interest in SMM Project LLC, a company funded by a group of investors to bring together the 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 (DOR), 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, DOR acquired SMM Project LLC and the remaining interest in Bluewater.
In April 2010, we purchased 1,200 shares of DOR 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 DOR over a three-year period. Odyssey also exchanged its five membership units in SMM Project, LLC for 450 DOR shares bringing Odyssey's total ownership in DOR to approximately 41%.
In March 2010, Odyssey entered into a long-term charter agreement for a vessel, the Dorado Discovery, a 311-foot DP2 vessel we mobilized with advanced mining and exploration equipment. Utilizing the vessel, equipment and proprietary expertise, we began subsea mineral exploration in the South Pacific in August 2010 under charter in areas covered by exploration permits held by DOR. The charter ended on December 15, 2010.
During Odyssey's first 100 days of exploration under charter to Dorado, seafloor mapping of approximately 5% of Dorado's tenements was completed; numerous rock samples, including sulfide samples, were recovered; and new mineral deposits were discovered in the waters surrounding the Solomon Islands and Vanuatu.
Mineral discovery highlights reported by Dorado's on their first 100 days of exploration included:
- assay results on samples recovered from multiple locations include high grades of gold, silver, zinc and lead;
- one of several Seafloor Massive Sulphide (SMS) discoveries on this tour has assay results averaging 10.9 grams/tonne of gold, 550 grams/tonne of silver, and 15% zinc and lead (combined);
- another target yielded zinc in excess of 43% and Silver at 395 grams/metric tonne;
- nine prospects have been advanced as discoveries or high priority targets and 24 additional prospects recently visited remain of significant interest; and
- exploration of an Epithermal Gold Deposit with previously sampled average grades of 24.7 grams/tonne of gold.
During February 2011, we expanded our deep-ocean mineral exploration client base by entering into a charter agreement with Neptune Minerals PLC (a UK Company) and Neptune Minerals, Inc. (a Nevada Corp.) and Neptune Resources Ltd. (a New Zealand Company). Under the charter, the Dorado Discovery will supply geological exploration services to Neptune Minerals to explore their tenements in the waters surrounding New Zealand during the first half of 2011. This agreement provides for 75% of the charter rate to be paid in cash to Odyssey and 25% to be paid in equity of Neptune Minerals, Inc. John Morris is a principal in Neptune Minerals, Inc. and is also the cofounder and former CEO of Odyssey and continues to be a consultant to Odyssey.
After completion of the Neptune project, it is anticipated that Odyssey will continue exploration activities using the Dorado Discovery in the South Pacific for Dorado Ocean Resources and other clients.
Other Syndication Projects
In February 2011, we entered into arrangements for a project syndication deal with Galt Resources LLC. Odyssey has received approximately $5.6 million from Galt which represent rights to future revenues of any project that Galt selects prior to December 31, 2011. If the project is successful, Galt will recoup their investment plus three times the investment. These amounts will be paid out of proceeds of the project. Galt will receive 50% of the proceeds until this amount is recouped. In addition they will share in additional net proceeds of the project at the rate of 1% for every million invested. The agreement allows Galt to select only one project, and Galt will be allowed to invest up to $10 million total with the permission of Odyssey.
North Carolina Project
Operations were conducted in August and September 2009 in the area covered by the exploration permit issued by the North Carolina Department of Cultural Resources to Odyssey's partner, Intersal, Inc. Odyssey worked under an agreement with Intersal, Inc. to pursue operations under this permit and to share in substantial research and data acquired by Intersal over the years relating to the target shipwreck and the work completed to date in the permit area.
The 2009 operations included a remote sensing in two search blocks with side-scan sonar and magnetometer, which identified multiple targets requiring additional inspection. A preliminary report and final report have been submitted to the North Carolina Department of Cultural Resources.
Although the partnership between Odyssey and Intersal resulted in positive progress on the project, Odyssey and Intersal mutually agreed to terminate the contract between the two companies, and Odyssey has no current plans to conduct operations in the Intersal permit area. Odyssey will retain a small percentage of any gross revenues realized by Intersal from shipwreck finds in the permit area.
The area covered by the Intersal permit is located near but does not overlap Odyssey's "Firefly" project, which was acquired by Odyssey from BDJ Discovery Group in 2007 and includes one arrested site that has produced a small number of gold and silver artifacts. Odyssey does plan to continue operations on the "Firefly" project.
Odyssey completed the first phase of survey in a search area code named "Symphony" in 2009. The work was conducted under a government permit in an exclusive claim area and in conjunction with a project partner. Results of the survey have been analyzed and compiled into a report, which has been provided to the government for review. Preliminary review of the data suggests that four shipwrecks may have been located in the phase-one search area, but at this point, none of the sites have been conclusively identified. Research suggests the search area potentially contains at least two commercial vessels with significant cargoes of gold coins. Sea conditions in this area limit the time operations can be conducted on this project and recent government regulations have made working in the area less attractive. Operations in the area have been postponed until legal and regulatory conditions are considered more favorable.
HMS Sussex Project
The Sussex project is an expedition to locate and recover the 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, we believe that there is a high probability the ship was carrying a cargo of coins with a substantial numismatic and collector value. Our analysis of the data was accumulated from a review of the ship's logs, court martial records, state papers, treasury books and various other letters and reports. We conducted offshore search operations on this project in 1998, 1999, 2000 and 2001. Based on the results of these search operations, we believe there is a high probability we may have located the HMS Sussex, but this will only be confirmed after additional excavation of the site.
On September 27, 2002, we 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 us 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 us to submit a Project Plan to HMG concerning the equipment, personnel and methodologies we intend to 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 was declared fit for purpose during 2004 with the exception of the staffing plan, which could not be completed until the actual start date was agreed upon and the availability of personnel could be determined. The staffing plan was approved during 2005 and we began exploration of the site during December 2005.
In late 2005 and early 2006, Odyssey completed to the satisfaction of HMG all work detailed in Phase 1A of the HMS Sussex archaeological project plan. The Company has also completed a portion of Phase 1B. The Company temporarily halted operations on the project at the request of the Spanish Ministry of Foreign Affairs while issues relative to the archaeological plan for excavation of the site, territorial and cultural resource management issues were negotiated.
As a sovereign warship, HMS Sussex remains the property of HMG which, to our knowledge, has not been contested by the Spanish government or other entities. As part of the partnering agreement signed between Odyssey and HMG in 2002, the following sharing arrangements have been agreed upon with respect to the aggregate amount of the appraised values and/or selling prices of the artifacts, net of agreed selling expenses:
In addition to the percentages specified above, we will also pay HMG 10% of any net income we derive from intellectual property rights associated with the project.
Under the agreement, HMG has the right to keep all artifacts together in one collection, and to then compensate Odyssey by paying us the commensurate percentage of the appraised retail value of the collection. Alternatively, HMG may decide to de-accession duplicate artifacts such as coins and to compensate us by giving us a percentage of those artifacts in an amount that correlates with the percentage of the value due us.
Also, we received the exclusive worldwide right to use the name "HMS Sussex" in connection with sales and marketing of merchandise (exclusive of artifacts) related to the shipwreck, and HMG will receive 3% of the gross sales of such merchandise.
Our agreement with HMG is for a period of 20 years, and can only be terminated if:
- the shipwreck is not HMS Sussex;
- we are in serious breach of our obligations under our agreement with HMG.
The shipwreck that is believed to be HMS Sussex is located in the search area for a project that we have previously referred to as our "Cambridge" project. We sold through private placements of Revenue Participation Certificates, or RPCs, the right to share in our future revenues derived from the "Cambridge" project. As of April 30, 1999, when the offering was closed, we had sold $825,000 of the RPCs. As a group, the holders are entitled to 100% of the first $825,000 of gross revenue, 24.75% of gross revenue from $4 million to $35 million, and 12.375% of gross revenue above $35 million generated by the "Cambridge" project. Additionally, on May 26, 1998, we signed an agreement with a subcontractor that entitled it to receive 5% of the post-finance cost proceeds from any shipwrecks in a certain search area of the Mediterranean Sea. The shipwreck we believe is HMS Sussex is located within the specified search area, and we will be responsible to share future revenues, if any, from this shipwreck with the subcontractor. The subcontractor's rights were foreclosed upon during 2002 and the purchaser was a limited liability company which was partially owned by two of our officers and directors at the time. In order to remove any potential conflicts of interest, these two persons sold their interests in the limited liability company during 2005.
Because Spain is pursuing claims against our recovery from the "Black Swan" project, the HMS Sussex project, which has involved work in the Mediterranean Sea off the coast of Gibraltar, has been delayed. See "Black Swan" in the next section.
Admiralty Legal Proceedings
In April 2007, we found and recovered approximately 594,000 coins in the Atlantic Ocean approximately 1,100 meters deep, beyond the territorial waters or contiguous zone of any sovereign nation. We filed an Admiralty arrest for this site, and we were appointed substitute custodian for all artifacts recovered from the site. Odyssey code named the site "Black Swan." In May 2007, the Kingdom of Spain filed a notice in this case stating that the Spanish government did not intend to give up rights to any Spanish property that might be on the site.
On April 11, 2008, Odyssey filed its responses to the Court's interrogatories and identified the Nuestra Senora de las Mercedes (the "Mercedes"), a vessel assigned to transport mail, private passengers, consignments of merchant goods and other cargoes, as one vessel potentially related to the "Black Swan" site, although there is evidence that may contradict this hypothesis. Odyssey reiterated that no vessel has been found at the site, and stated that other hypotheses were also being explored. Spain then filed its answers to the Court's interrogatories indicating that it had concluded that the vessel related to the "Black Swan" site was the Mercedes.
Spain filed a Motion to Dismiss the case on September 22, 2008, based upon the Foreign Sovereign Immunities Act ("FSIA"), alleging that the U.S. District court lacks jurisdiction. Odyssey filed a response on November 17, 2008, to which Spain filed a reply on January 26, 2009. Odyssey filed a response to that reply on February 13, 2009. Claims have also been filed in the case by the country of Peru as well as named individuals who assert an interest in property that was aboard the Mercedes. Those named individuals have specifically acknowledged Odyssey's right to a salvage award in the case. On May 4, 2009, Peru filed its objection to Spain's Motion to Dismiss that Spain filed on September 22, 2008.
On June 3, 2009, a Report and Recommendation (R&R) was filed by the Magistrate Judge which recommended Spain's Motion to dismiss the case be granted. Six separate Objections were filed, including an Objection from Odyssey, Peru, and many claiming to be descendants of merchants who owned the private cargo on the Mercedes. Odyssey's objection included arguments that:
- the applied legal standard of review was incorrect (i.e., the motion must be denied because the factual questions regarding jurisdiction are intertwined with the merits of the case),
- there was no coherent vessel located at the "Black Swan" site,
- there is clear and convincing evidence of the commercial nature of the Mercedes' mission at the time of her demise, which Odyssey believes legally nullifies the claim to sovereign immunity of that vessel,
- a distinction between cargo and vessel is allowed and even required by settled admiralty law; and
- the majority of the coins aboard the Mercedes were merchant-owned, commercial cargo being shipped as freight for a fee and were never owned by Spain.
Spain filed a response to the Objections on August 31, 2009. Odyssey filed a reply to that response on October 15, 2009, reiterating that the R&R had applied the wrong legal standard of review and had incorrectly interpreted factual and legal issues. On October 14, 2009, Odyssey filed a response to a statement of interest filed in the case by the United States Department (DOJ) of Justice which, while not addressing the specific jurisdictional issue before the court, supported Spain's argument that the Nuestra Senora de las Mercedes would have been considered a sovereign vessel. The court denied Odyssey's motion to file a declaration signed by the primary drafter of relevant legislation. A motion to file an amicus brief by members of Congress purporting to counter the DOJ filing was also denied.
On December 23, 2009, the U.S. District Judge adopted the Magistrate's Report and Recommendation and dismissed the case based on lack of jurisdiction. The Judge ordered Odyssey to turn over the coins to Spain, but stayed that part of the order until the Eleventh Circuit Court of Appeals rules in the case, which serves to keep the coins in Odyssey's possession pending the outcome of the case.
We filed our notice of appeal with the Federal District Court for the Middle District of Florida and Eleventh Circuit Court of Appeals on January 15, 2010, and filed the Initial Brief on appeal with the Eleventh Circuit on May 11, 2010. Spain issued its Response to our appeal on July 19, 2010, and Odyssey's Reply to Spain's Response was filed on August 19, 2010. The case was scheduled for oral argument in Atlanta, Georgia on March 4, 2011 but has since been changed to the week of May 23, 2011.
In its Initial Brief, Odyssey argued that the district court erroneously dismissed the case by using flawed legal analysis and by failing to acknowledge or understand several major aspects of the case, including the issue of sovereign immunity. The opening brief also points out several erroneous factual findings and legal conclusions made by the district court including the following:
- Not having the benefit of Aqua Log, Inc. vs. State of Georgia, 594 F.3d 1330 (11th Cir. 2010) which was decided by the Eleventh Circuit three weeks after the district court's dismissal of the Black Swan case, the district court incorrectly held that under the Foreign Sovereign Immunities Act (FSIA), a sovereign (Spain) was not required to have possession of property to claim sovereign immunity. In Aqualog, the Eleventh Circuit held that in in rem admiralty proceedings, a sovereign is indeed required to have possession. Although the Aqualog case was an Eleventh Amendment case regarding the immunity of the state of Georgia, the Court addressed immunity for all sovereigns in such cases, including foreign countries like Spain.
- The district court did not conduct an evidentiary hearing on the disputed issues of fact, unquestioningly accepting testimony presented by Spain. This was a violation of due process for all of the claimants as well as Odyssey.
- The district court erred in failing to recognize that the Defendant in the case (an in rem proceeding) was NOT Spain or a vessel owned by Spain. The actual Defendant in the case was the group of coins and artifacts (the res in this case) discovered and recovered by Odyssey.
- Descendant claimants have alleged to have ownership rights to the property recovered, claiming their ancestors placed it aboard the Mercedes (the vessel alleged by Spain to have been carrying the subject cargo) for shipment. The district court completely misunderstood their relationship to the property, referring to them as "descendants of those aboard the Mercedes," rather than the descendants of property owners.
- Despite undisputed evidence to the contrary, the district court erroneously found that the Mercedes was not engaged in commercial activity. The majority of coins aboard the Mercedes were privately owned and commercially shipped, and the gun decks of the Mercedes had been reconfigured to accommodate paying passengers and cargo. In fact, in the aftermath of the sinking of the Mercedes, Spain went on diplomatic record to protest to the British government that the Mercedes was carrying private cargo and passengers, and therefore the British attack was an unwarranted provocation. Longstanding law, as codified in the FSIA and the SMCA (Sunken Military Craft Act) provides that a vessel is NOT entitled to foreign sovereign immunity if it was engaged in commercial acts.
- The district court also failed to recognize that under well-established admiralty law, cargo may be separated from a vessel, and the cargo may be subdivided to determine competing claims of ownership and salvage.
Unidentified Shipwreck (Bray Case)
On December 20, 2007, Keith Bray filed an Intervening Complaint in one of our admiralty arrests (Case number 8:06-cv-1685). On February 1, 2010, Odyssey was granted Partial Summary Judgment in the case giving us title to all artifacts recovered from the site, and the in rem portion of the case was administratively closed leaving Bray's contract claim as the only claim to be tried. Bray sought rescission of the written research contract he had executed with Odyssey claiming mutual mistake or fraud.
On August 18, 2010 the district court dismissed Bray's intervening complaint for lack of subject matter jurisdiction. Bray filed an appeal of the dismissal on January 3, 2011 with the Eleventh Circuit Court of Appeals. Odyssey filed its response on January 26, 2011, and Bray filed a reply to our response on February 14, 2011. The parties await a ruling from the Eleventh Circuit.
About Odyssey Marine Exploration
Odyssey Marine Exploration, Inc. (Nasdaq:OMEX) is engaged in deep-ocean exploration using innovative methods and state-of-the-art technology. The Company is a world leader in shipwreck exploration, conducting extensive search and archaeological recovery operations on deep-ocean shipwrecks around the world. Odyssey also owns approximately 41% of Dorado Ocean Resources, a company formed in 2010 to discover and commercialize high-value mineral deposits from the ocean floor, and provides proprietary deep-ocean expertise and equipment to Dorado under contract. Odyssey also provides deep-ocean contracting services to governments and companies 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 Admiral Sir John 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, educational programs and virtual museum located at www.odysseysvirtualmuseum.com. Odyssey's shipwreck 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.
Following previous successful engagements in New Orleans, Tampa, Detroit, Oklahoma City, Charlotte and Baltimore, Odyssey's SHIPWRECK! Pirates & Treasure exhibit is currently being installed at G.WIZ – The Science Museum in Sarasota, Florida.
For details on Odyssey's activities and its commitment to the preservation of maritime heritage please visit .
For consolidated financial statements as well as the full filing please go to
The Odyssey Marine Exploration, Inc. logo is available at
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, 2010, which has been filed with the Securities and Exchange Commission.
CONTACT: Liz Shows Odyssey Marine Exploration, Inc. (813) 876-1776 ext 2335 firstname.lastname@example.org