Sunken Treasure

Sunken Treasure

A TV series, a public exhibit and an international court case are only some of the things keeping Odyssey Marine Exploration busy this year.

COMPANIES by Dave Szymanski | Tampa Bay Editor

Running a shipwreck recovery business isn't unlike running other Gulf Coast companies.

There are spiraling costs to control, such as ship fuel. There are legally sensitive products and services to market and protect. There is finding and retaining the best people. And there is a never-ending quest to grow the company globally and use the best technology.

But like the shimmering image of a gold coin sinking into the dark ocean, the similarities to other Gulf Coast businesses start to fade there.

For Tampa's Odyssey Marine Exploration is a treasure-hunting company.

It uses an unmanned robot called Zeus to dive up to 10,000 feet, light up the bottom of the sea and pull up coins, gold bars and other valuables from shipwrecks. Florida is one of the shipwreck capitals of the world.

It is an industry operating in the gigantic shadow of popular international movie images, such as the Pirates of the Caribbean and Indiana Jones franchises.

Yet for all of the publicity and swashbuckling adventure, it is little understood, especially by upstart companies that attempt to make a lot of money quickly. Many find out how difficult finding treasure and legally protecting it really is.

In addition to the ship's crew, there are dozens of people behind the scenes in the lab, in research rooms and meeting with world governments for permits.

"We're the guys with white lab coats, not with lab coats and a sword," says Mark Gordon, president of Odyssey and a former shipwreck diver.

Drive up to the Odyssey headquarters in Tampa and you'll find a blank concrete, three-story building, with no sign, near Tampa International Airport.

Why? Security. "We have nothing to hide, but a lot to protect," one company official says. There are rare, 1,000-year-old clay jars, gold coins, metal bells and colored glass crosses uncovered from shipwrecks.

Then there are people who dislike Odyssey, painting it as a modern-day pirate. That's how the government of Spain feels. It is in court with Odyssey over ownership of the valuables from the Black Swan shipwreck near the coast of Spain that Odyssey recovered.

Odyssey has assembled what it calls an international "dream team" of lawyers from Tampa, New York, Washington and Spain to help it win the Black Swann case, which is still pending. The ship had 17 tons, or about 500,000, coins.

"We're litigating the future of the industry," Gordon says. "We were at a conference recently and everyone showed huge support for us."

Some see Odyssey as doing what governments and others can't afford to do: Uncovering history that the world can learn from. The company is working on an 11-part TV series on the Discovery Channel which debuts next year.

It is also thinking about going beyond its traveling exhibit and opening a museum of its own.

So even with all of this publicity and experience behind it, and the respect of people in its industry, Odyssey has still posted losses recently.

For the second quarter, Odyssey reported revenue of $1.1 million, compared to $1.7 million in the second quarter 2007. The company also reported a net loss of $5.4 million, compared to a net loss of $6.3 million in the second quarter 2007. The net loss per share for the second quarter 2008 was $0.11, compared to a net loss of $0.13 per share in the second quarter 2007.

Revenue comes primarily through the sale of coins, but also includes the sale of artifacts, merchandise and themed attractions.

The losses are only temporary, because the company will reap revenues from the various projects, technology and R&D it is investing in, says Odyssey founder Greg Stemm.

Odyssey has numerous shipwreck projects in various stages of development around the world and several hundred research projects in its database. It most significant finds to date include the SS Republic, the Black Swan, a 20th century Italian passenger liner, a Colonial era vessel off Gibraltar believed to be HMS Sussex, and several Colonial era shipwrecks.

The existing Odyssey attraction/traveling exhibit which premiered in New Orleans in 2005 – the day Hurricane Katrina hit – was later moved to the Tampa Museum of Science and Industry for a seven-month engagement. It is currently on display at the Detroit Science Center.

Stemm and a partner bought their first research vessel and got into the shipwreck business more than 20 years ago.

A small, expensive industry

Herbert Leeming, chief executive officer of Atlanta companies Undersea Recovery Corp. and Admiralty Holding Co., has seen recovery entrepreneurs come and go.

The attraction: Shipwreck cargo worth billions.

The reality: The business is expensive and requires months of tedious research and legal work to locate potential treasure and secure the right to get it and keep it.

That's why there are just a few major companies worldwide doing shipwreck recovery. One of those is Odyssey.

"I have known Gregg Stemm (CEO of Odyssey) for 15 years," Leeming says. "He's very good at what he does."

The keys to the industry include controlling costs, doing great research and finding a niche. Odyssey's niche is deep-sea exploration. Leeming works in shallower waters and spends a lot of time getting government permits. Premiere Exhibits Inc. focuses on displaying valuables from one shipwreck: The Titanic.

One of the biggest challenges in the industry is that unlike other businesses, there has been relatively few technological advancements. So Leeming's company developed its own device that can differentiate metals and owns several patents.

"There's a lot of misrepresentation in the industry from a lot of sources," Leeming says. "There are a lot of people that see big numbers and think it's easy. It isn't. It is a very capital-intensive business."

"Odyssey has been the only company to consistently find wrecks," he adds.

Legal challenges, opportunities

Then there are the legal and accounting costs of being a public company, along with insurance and fuel.

"But the flip side is that there are a huge amount of shipwrecks down around the world and they are very valuable wrecks," Leeming says.

Why are there so many shipwrecks? Countries moved goods by water for thousands of years. Billions of dollars of goods were moved from the New World and sent to Europe. And most of it is documented in millions of documents. Much of the cargo was gold.

But it takes time to find it.

"There's not a treasure map in the archives," Leeming says.

Legal fees can pile up quickly for shipwreck companies. One group in Columbus, Ohio paid $13 million in one day to settle claims connected to a shipwreck off the coast of South Carolina.

Leeming believes Odyssey will prevail in the Black Swan case because of its experience and people.

The industry does have a perception problem, though.

"A lot of people believe these things belong in museums or should be left on the bottom of the ocean forever," Lemming says. "Some of these are university types. The fact is, technology is moving ahead and they need to be brought up."

And part of what makes the industry complex is politics. Many smaller governments fear potential criticism from other countries if they grant a permit and allow shipwreck exploration around their shores.

"For a lot of governments, it's easier for them to do nothing, than to do something and be criticized," Leeming says. "But the government gets 25% or 50% of the value. It could be an awful lot of money."

According to UNESCO estimates, there are three million shipwrecks around the world.

"These articles aren't doing any good to anybody sitting on the bottom of the ocean," Leeming says.

BY THE NUMBERS

ODYSSEY MARINE EXPLORATION

BALANCE SHEET

12/31/07 6/30/08 % chg.

Current Assets

Cash and cash equivalents $18,321,349 $6,173,745 -66.3

Restricted cash 0 490,963 0

Accounts receivable, net 585,051 462,168 -21

Inventory 2,024,676 1,398,814 -31

Other current assets 401,329 308,854 -23

Total current assets 21,332,405 8,834,544 -58.5

Total other assets 6,895,125 7,194,152 4.3

Total assets 38,557,700 26,836,833 -30

LIABILITIES & STOCKHOLDERS EQUITY

Current Liabilities

Accounts payable 776,387 559,175 -28

Accrued expenses 3,562,260 1,693,523 -52

Mortgage and loans payable 449,024 2,542,774 466

Deposits 82,090 16,979 -79

Long-term liabilities 3,488,736 1,622,417 -53

Total liabilities 8,358,538 6,434,868 -23

STOCKHOLDERS EQUITY

Preferred stock series D convertible 690 690 0

Common stock 4,777 4,813 0.75

Additional paid-in capital 93,659,049 96,082,606 2.5

Accumulated deficit (63,465,354) (75,686,094) 19

Total stockholders equity 30,199,162 20,402,015 -32

Total liabilities and stockholders equity 38,557,700 26,836,883 -30

INCOME STATEMENT

6/30/07 6/30/08 % chg.

Revenue $1,732,348 $1,120,553 -35

Operating expenses

Cost of sales 525,939 233,629 -55

Marketing, general and administrative 3,026,709 2,409,328 -20

Operations and research 4,461,103 3,976,649 -11

Total operating expenses 8,013,751 6,619,606 -17

Loss from operations (6,281,403) (5,499,053) -12

OTHER INCOME (EXPENSE)

Interest income 68,556 37,199 -46

Interest expense (123,771) (9,772) -92

Other 18,998 31,947 68

Total other income (expense) (36,217) 59,374 64

Loss before income taxes (6,317,620) (5,439,679) -13

Net loss (6,317,620) (5,439,679) -13

Net loss per share

Basic and diluted (0.13) (0.11) 15

Source: EDGAR Online

at a glance

Odyssey Marine Exploration

Headquarters: Tampa

Market capitalization: $239.42 million

Stock symbol: OMEX (Nasdaq)

Recent stock price: $4.98

52-week stock price range: $3.91 to $7.75

Price-earnings ratio (trailing 12 months): N/A

Source: Yahoo! Finance

REVIEW SUMMARY

Company: Odyssey Marine Exploration

Industry: Shipwreck recovery

Key: Do accurate research to find valuable shipwrecks, market the valuables from those discoveries.