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Summary of Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2014
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of the Company is presented to assist in understanding our financial statements. The financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity, and have prepared them in accordance with our customary accounting practices. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its direct and indirect wholly owned subsidiaries, Odyssey Marine Services, Inc., OVH, Inc., Odyssey Retriever, Inc., Odyssey Marine Entertainment, Inc., Odyssey Marine Enterprises, Ltd., Odyssey Marine Management, Ltd., Oceanica Marine Operations, S.R.L., and majority interest in Oceanica Resources, S.R.L. and Exploraciones Oceanicas, S. De R.L. De C.V. Equity investments in which we exercise significant influence but do not control and of which we are not the primary beneficiary are accounted for using the equity method. All significant inter-company and intra-company transactions and balances have been eliminated. The results of operations attributable to the non-controlling interest are presented within equity and net income, and are shown separately from the Company’s equity and net income attributable to the Company. During the year ended December 31, 2013, our wholly owned subsidiary, Odyssey Marine Enterprises, Ltd., sold 24 million cuotas (shares) of its position in Oceanica Resources, S.R.L. for $27.5 million in cash to a third-party investment group. According to the Accounting Standards Codification (“ASC”) 810 – Consolidation, paragraph 810-10-45-23, we have accounted for this transaction as an equity transaction. Therefore, no gain or loss has been recognized in consolidated net income or comprehensive income. Use of Estimates Management used estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. Revenue Recognition and Accounts Receivable In accordance with Topic A.1. in SAB 13: Revenue Recognition, exhibit and expedition charter revenue is recognized ratably when realized and earned as time passes throughout the contract period as defined by the terms of the agreement. Expenses related to the exhibit and expedition charter revenue are recorded as incurred and presented under the caption “Operations and research” on our Consolidated Statements of Income. Artifact sales and other may also consist of revenues related to the recovery of bulk silver bullion from the Gairsoppa project that exceeds the directly related operating and recovery expenses. Revenue was recognized when our contractual obligation to deliver the silver bullion to the refining agent was completed, the amount of revenue is reasonably assured based on the London Bullion Market rates and the bullion is in a format ready for sale into the market. 2014 revenue does not contain Gairsoppa project bullion sales. Operating and recovery expenses incurred in connection with the Gairsoppa contract consist of vessel-related expenses (ships’ crew, provisions, port fees and charter expenses), fuel, specialized equipment and administrative expenses. These expenses were charged to the Consolidated Statements of Operations as incurred and subsequently reimbursed per our contract and recorded as a benefit (credit to expense) in the period when we were assured of recoupment. There are no operating expenses related to the Gairsoppa project in 2014. Artifact sales and other is where we would recognize deferred revenue related to revenue participation rights we previously sold to investors. Upon receipt of funds payable to the investors for their revenue participation rights, revenue would be recognized based upon the percent of investor-related proceeds from the sale of silver as a percentage of total proceeds that investor could earn under the revenue participation agreement. Under our agreement with the United Kingdom Government for the Gairsoppa project, any proceeds from the recovery of the government-owned silver cargo were first applied as a reimbursement to us for search and recovery expenses related to the project. Any remaining net proceeds from the silver owned by the United Kingdom Government were then split 20/80 between the government and us, respectively. In 2013 the proceeds from the silver sales were sufficient to fully reimburse our expenses and to provide net proceeds that were split between the two parties. The Gairsoppa project revenue recognized by us in 2013 resulted from our share of the net proceeds from the sale of the recovered silver bullion that belonged to the United Kingdom Government. Accordingly, we applied the expense reimbursement credit against our search and recovery expenses in our respective years Consolidated Statement of Income under the caption “Operating Expenses: Operations and Research.” In 2014, we were contracted to recover gold and other artifacts from the shipwreck SS Central America. Our agreement allows for the reimbursement of Priority Recoupment costs which are based on pre-defined and quantifiable contractual amounts. Priority Recoupment relates to recoupment of operating and recovery expenses associated to this project. Operating and recovery expenses consist of mobilization costs and vessel-related expenses such as ships’ crew, provisions, fuel and specialized off-shore equipment. These expenses are charged to the Consolidated Statements of Operations as incurred and the priority recoupment is recorded as a benefit (credit to expense) in the period we are assured of recoupment. These costs are recouped out of first cash proceeds from the monetization of recovered cargo items that are split 80% to us and 20% to the receiver. After the Priority Recoupment is paid, subsequent cash proceeds are split 45% to us and 55% to the receiver, at which point in time we will record these additional proceeds as revenue. Staff Accounting Bulletin requires four criteria to be present before recognizing revenue. These criteria are: collection is probable, delivery of goods or services are complete, persuasive evidence of an arrangement exists and the price or amount can be determined. Priority cost recoupment is not a revenue but the same criteria are applied when determining to recognize or not. We have recovered a significant amount of gold and other valuable cargo, and based on an independent expert review of the recovered cargo, our Priority Recoupment to date as of September 30, 2014 is reasonably assured of being collected when the gold and other valuable cargo is monetized. To the extent the appraised value exceeds our priority recoupment and we are able to accurately measure or quantify a dollar amount for our 45% interest in these additional cash proceeds, we will record revenue at that time. The value of future monetization is based on what the market will bear, which is undeterminable at this time and, therefore, there will be no revenue recognition related to our 45% portion of proceeds in excess of the Priority Recoupment until monetization occurs. See NOTE D regarding the SS Central America. Bad debts are recorded as identified and, from time to time, a specific reserve allowance will be established when required. A return allowance is established for sales that have a right of return. Accounts receivable is stated net of any recorded allowances. Cash, Cash Equivalents and Restricted Cash Cash, cash equivalents and restricted cash include cash on hand and cash in banks. We also consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Inventory Our inventory consists of artifacts purchased from the SS Gairsoppa project and recovered from the SS Republic shipwreck, general branded merchandise and related packaging material. Inventoried costs of recovered artifacts include the costs of recovery, conservation and administrative costs to obtain legal title to the artifacts. Administrative costs are generally legal fees or insurance settlements required in order to obtain clear title. The capitalized recovery costs include direct costs such as vessel and related equipment operations and maintenance, crew and technical labor, fuel, provisions, supplies, port fees and depreciation. Conservation costs include fees paid to conservators for cleaning and preserving the artifacts. We continually monitor the recorded aggregate costs of the artifacts in inventory to ensure these costs do not exceed the net realizable value. Historical sales, publications or available public market data are used to assess market value. On shipwreck recovery projects where we do not own the recovered cargo, we do not carry any of the recovered but non-monetized cargo as inventory unless we receive cargo as payment for services, as part of our share of proceeds or if we purchase some of the cargo for re-sale. Packaging materials and merchandise are recorded at average cost. We record our inventory at the lower of cost or market. Costs associated with the above noted items are the costs included in our costs of goods. Vessel costs associated with expedition revenue as well as exhibit costs are not included in cost of goods sold. Vessel costs include, but are not limited to, charter costs, fuel, crew and port fees. Vessel and exhibit costs are included in Operations and research in the Consolidated Statements of Operations. In the case of prior revenues associated with the Gairsoppa project, the United Kingdom owned the silver we sold into the London Bullion Market on their behalf, therefore, there was no associated cost of goods. Long-Lived Assets Our policy is to recognize impairment losses relating to long-lived assets in accordance with the ASC topic for Property, Plant and Equipment. Decisions are based on several factors, including, but not limited to, management’s plans for future operations, recent operating results and projected cash flows. Impairment losses are included in depreciation at the time of impairment. For the three-months ending September 30, 2014, $1.7 million of depreciation was accelerated due to the termination of the Dorado Discovery charter. Property and Equipment and Depreciation Property and equipment is stated at historical cost. Depreciation is provided using the straight-line method at rates based on the assets’ estimated useful lives, which are normally between three and ten years. Leasehold improvements are amortized over their estimated useful lives or lease term, if shorter. Major overhaul items (such as engines or generators) that enhance or extend the useful life of vessel-related assets qualify to be capitalized and depreciated over the useful life or remaining life of that asset, whichever is shorter. Certain major repair items required by industry standards to ensure a vessel’s seaworthiness also qualify to be capitalized and depreciated over the period of time until the next scheduled planned major maintenance for that item. All other repairs and maintenance are accounted for under the direct-expensing method and are expensed when incurred. Earnings Per Share Basic earnings per share (“EPS”) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. In periods when the Company generates income, the Company calculates basic earnings per share using the two-class method pursuant to ASC 260 Earnings Per Share. The two-class method was required effective with the issuance of the Senior Convertible Note disclosed in Note I because the note qualifies as a participating security, giving the holder the right to receive dividends should dividends be declared on common stock. Under the two-class method, earnings for the period are allocated on a pro-rata basis to the common stockholders and to the holders of Convertible Notes based on the weighted average number of common shares outstanding and number of shares that could be converted. The Company does not use the two-class method in periods when it generates a loss as the holder of the Convertible Notes do not participate in losses. Diluted EPS reflects the potential dilution that would occur if dilutive securities and other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock that then shared in our earnings. We use the treasury stock method to compute potential common shares from stock options and warrants and the if-converted method to compute potential common shares from Preferred Stock, Convertible Notes or other convertible securities. As it relates solely to the Senior Convertible Note, for diluted earnings per share, the Company uses the more dilutive of the if-converted method or two-class method. When a net loss occurs, potential common shares have an anti-dilutive effect on earnings per share and such shares are excluded from the Diluted EPS calculation. At September 30, 2014 and 2013, weighted average common shares outstanding year-to-date was 84,707,367 and 78,991,192, respectively. For the periods ended September 30, 2014 and 2013, in which net losses occurred, all potential common shares were excluded from diluted EPS because the effect of including such shares would be anti-dilutive. The potential common shares in the following tables represent potential common shares calculated using the treasury stock method from outstanding options, stock awards and warrants that were excluded from the calculation of diluted EPS:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2014 |  |  | September 30, 2013 |  |  | September 30, 2014 |  |  | September 30, 2013 |
Average market price during the period |  | $ | 1.22 |  |  | $ | 3.28 |  |  | $ | 1.69 |  |  | $ | 3.18 |
In the money potential common shares from options excluded |  |  | — |  |  |  | 360,340 |  |  |  | — |  |  |  | 297,197 |
In the money potential common shares from warrants excluded |  |  | — |  |  |  | 576,218 |  |  |  | — |  |  |  | 523,586 |
Potential common shares from out-of-the-money options and warrants were also excluded from the computation of diluted EPS because calculation of the associated potential common shares has an anti-dilutive effect on EPS. The following table lists options and warrants that were excluded from diluted EPS:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2014 |  |  | September 30, 2013 |  |  | September 30, 2014 |  |  | September 30, 2013 |
Out of the money options and warrants excluded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock options with an exercise price of $1.74 per share |  |  | 51,750 |  |  |  | — |  |  |  | 51,750 |  |  |  | — |
Stock options with an exercise price of $2.20 per share |  |  | 969,610 |  |  |  | — |  |  |  | 969,610 |  |  |  | — |
Stock options with an exercise price of $2.73 per share |  |  | 644,469 |  |  |  | — |  |  |  | 644,469 |  |  |  | — |
Stock options with an exercise price of $2.74 per share |  |  | 633,835 |  |  |  | — |  |  |  | 633,835 |  |  |  | — |
Stock options with an exercise price of $2.89 per share |  |  | 983,822 |  |  |  | — |  |  |  | 983,822 |  |  |  | — |
Stock options with an exercise price of $3.25 per share |  |  | 100,000 |  |  |  | — |  |  |  | 100,000 |  |  |  | 100,000 |
Stock options with an exercise price of $3.40 per share |  |  | 100,000 |  |  |  | 100,000 |  |  |  | 100,000 |  |  |  | 100,000 |
Stock options with an exercise price of $3.43 per share |  |  | 40,000 |  |  |  | 40,000 |  |  |  | 40,000 |  |  |  | 40,000 |
Stock options with an exercise price of $3.50 per share |  |  | 100,000 |  |  |  | 345,000 |  |  |  | 100,000 |  |  |  | 345,000 |
Stock options with an exercise price of $3.51 per share |  |  | — |  |  |  | 959,500 |  |  |  | — |  |  |  | 959,500 |
Stock options with an exercise price of $3.53 per share |  |  | — |  |  |  | 191,700 |  |  |  | — |  |  |  | 191,700 |
Stock options with an exercise price of $3.90 per share |  |  | 20,000 |  |  |  | 20,000 |  |  |  | 20,000 |  |  |  | 20,000 |
Stock options with an exercise price of $4.00 per share |  |  | — |  |  |  | 52,500 |  |  |  | — |  |  |  | 52,500 |
Stock options with an exercise price of $5.00 per share |  |  | — |  |  |  | 100,000 |  |  |  | — |  |  |  | 100,000 |
Stock options with an exercise price of $7.00 per share |  |  | — |  |  |  | 100,000 |  |  |  | — |  |  |  | 100,000 |
Warrants with an exercise price of $3.60 per share |  |  | 1,562,500 |  |  |  | 1,562,500 |  |  |  | 1,562,500 |  |  |  | 1,562,500 |
Total anti-dilutive warrants and options excluded from EPS |  |  | 5,205,986 |  |  |  | 3,471,200 |  |  |  | 5,205,986 |  |  |  | 3,571,200 |
Potential common shares from outstanding Convertible Preferred Stock calculated on an if-converted basis having an anti-dilutive effect on diluted earnings per share were excluded from potential common shares as follows:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2014 |  |  | September 30, 2013 |  |  | September 30, 2014 |  |  | September 30, 2013 |
Potential common shares from Convertible Preferred Stock excluded from EPS |  |  | 32,400 |  |  |  | 32,400 |  |  |  | 32,400 |  |  |  | 32,400 |
The weighted average equivalent common shares relating to our unvested restricted stock awards that were excluded from potential common shares in the earning per share calculation due to having an anti-dilutive effect are:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2014 |  |  | September 30, 2013 |  |  | September 30, 2014 |  |  | September 30, 2013 |
Potential common shares from unvested restricted stock awards excluded from EPS |  |  | 630,489 |  |  |  | 441,495 |  |  |  | 630,489 |  |  |  | 434,066 |
The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income per share:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2014 |  |  | September 30, 2013 |  |  | September 30, 2014 |  |  | September 30, 2013 |
Net income (loss) |  | $ | (7,415,124 | ) |  | $ | (931,393 | ) |  | $ | (21,229,763 | ) |  | $ | (21,492,748 | )
Numerator, basic and diluted net income (loss) available to stockholders |  | $ | (7,415,124 | ) |  | $ | (931,393 | ) |  | $ | (21,229,763 | ) |  | $ | (21,492,748 | )
Denominator: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Shares used in computation – basic: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Weighted average common shares outstanding |  |  | 85,271,429 |  |  |  | 80,252,203 |  |  |  | 84,707,367 |  |  |  | 78,991,192 |
Common shares outstanding for basic |  |  | 85,271,429 |  |  |  | 80,252,203 |  |  |  | 84,707,367 |  |  |  | 78,991,192 |
Shares used in computation – diluted: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common shares outstanding for basic |  |  | 85,271,429 |  |  |  | 80,252,203 |  |  |  | 84,707,367 |  |  |  | 78,991,192 |
Shares used in computing diluted net income per share |  |  | 85,271,429 |  |  |  | 80,252,203 |  |  |  | 84,707,367 |  |  |  | 78,991,192 |
Net (loss) per share – basic |  | $ | (0.09 | ) |  | $ | (0.01 | ) |  | $ | (0.25 | ) |  | $ | (0.27 | )
Net (loss) per share – diluted |  | $ | (0.09 | ) |  | $ | (0.01 | ) |  | $ | (0.25 | ) |  | $ | (0.27 | )
Income Taxes Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that some portion or the entire deferred tax asset will not be realized. Stock-based Compensation Our stock-based compensation is recorded in accordance with the guidance in the ASC topic for Stock-Based Compensation (See NOTE J). Fair Value of Financial Instruments Financial instruments consist of cash, evidence of ownership in an entity, and contracts that both (i) impose on one entity a contractual obligation to deliver cash or another financial instrument to a second entity, or to exchange other financial instruments on potentially unfavorable terms with the second entity, and (ii) conveys to that second entity a contractual right (a) to receive cash or another financial instrument from the first entity, or (b) to exchange other financial instruments on potentially favorable terms with the first entity. Accordingly, our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, derivative financial instruments, mortgage and loans payable, and redeemable preferred stock, if any. We carry cash and cash equivalents, accounts payable and accrued liabilities, and mortgage and loans payable at the approximate fair market value, and, accordingly, these estimates are not necessarily indicative of the amounts that we could realize in a current market exchange. We carry derivative financial instruments at fair value as is required under current accounting standards. If applicable, we carry redeemable preferred stock at historical cost and accrete carrying values to estimated redemption values over the term of the financial instrument. Derivative financial instruments consist of financial instruments or other contracts that contain a notional amount and one or more underlying variables (e.g., interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets (See NOTE L for additional information). We generally do not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, in the past, we have entered into certain other financial instruments and contracts, such as the sale and issuance of redeemable preferred stock and freestanding warrants with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by ASC 815 – Derivatives and Hedging, these instruments are required to be carried as derivative liabilities, at fair value, in our financial statements with changes in fair value reflected in our income. Fair Value Hierarchy The three levels of inputs that may be used to measure fair value are as follows: Level 1. Quoted prices in active markets for identical assets or liabilities. Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. Level 2 inputs also include non-binding market consensus prices that can be corroborated with observable market data, as well as quoted prices that were adjusted for security-specific restrictions. Level 3. Unobservable inputs to the valuation methodology are significant to the measurement of the fair value of assets or liabilities. Level 3 inputs also include non-binding market consensus prices or non-binding broker quotes that we were unable to corroborate with observable market data. Redeemable Preferred Stock If we issue redeemable preferred stock instruments (or any other redeemable financial instrument) they are initially evaluated for possible classification as a liability in instances where redemption is certain to occur pursuant to ASC 480 – Distinguishing Liabilities from Equity. Redeemable preferred stock classified as a liability is recorded and carried at fair value. Redeemable preferred stock that does not, in its entirety, require liability classification is evaluated for embedded features that may require bifurcation and separate classification as derivative liabilities. In all instances, the classification of the redeemable preferred stock host contract that does not require liability classification is evaluated for equity classification or mezzanine classification based upon the nature of the redemption features. Generally, mandatory redemption requirements or any feature that could require cash redemption for matters not within our control, irrespective of probability of the event occurring, requires classification outside of stockholders’ equity. Redeemable preferred stock that is recorded in the mezzanine section is accreted to its redemption value through charges to stockholders’ equity when redemption is probable using the effective interest method. Subsequent Events We have evaluated subsequent events for recognition or disclosure through the date this Form 10-Q is filed with the Securities and Exchange Commission.

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