Merchant Royal

Odyssey Marine has issued their Quarterly Report (Form 10-Q). They announced a net loss of $5.4 Mil, or $.11/share.

http://www.sec.gov/Archives/edgar/data/798528/000119312508172750/d10q.htm

For the second quarter of 2008, 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 $.11, compared to a net loss of $.13 per share in the second quarter 2007.

"We are very pleased to report some exciting developments and progress in all key areas of our business. Our vessels have undergone extensive repairs and upgrades and we have had multiple ships hard at work so far during our “Atlas” work season. Among our new discoveries were two Colonial era cannon wrecks which resulted in admiralty arrests. Another major development this past quarter was our agreement with JWM Productions to produce an 11-episode primetime TV series for Discovery Channel which is scheduled to air worldwide in early 2009. JWM is currently following and filming our team during our shipwreck search and recovery operations. Our diversified sales programs and business development initiatives are gaining noticeable traction which we expect to see pay off in the future. Along with all these positive steps, we have also been able to see increased operating efficiency in a number of different areas. With all these elements in place, we are optimistic about our plans for the balance of the year and for many years to come,” said Greg Stemm, Odyssey Chief Executive Officer."

Unless or until they start to monetize their several shipwreck arrests the losses will continue to mount. The only interesting section of the 10Q is the following:

Operational Update:

We have numerous shipwreck projects in various stages of development around the world. In order to protect the identities of 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 shipwrecks of interest and determined a course of action to protect our property rights.

Equipment

Our 251’ deep-ocean archaeological platform, Odyssey Explorer, recently underwent routine repairs and extensive upgrades and is now conducting operations in the “Atlas” search area (additional information below). The upgrades to the Odyssey Explorer included the installation and integration of ZEUS II, a next-generation heavy work Remotely Operated Vehicle (ROV), reconfigured for deep-ocean archaeological survey and recovery operations including inspections, photographic and video documentation and artifact recovery. An upgraded, state-of-the-art dual frequency side-scan sonar system was also installed, which allows the Odyssey Explorer to conduct both side-scan and ROV operations to maximize efficiency based on weather conditions and operational objectives. Other work in dry dock included main engine and generator strip downs, extensive steelwork repairs to the aft ballast tanks to maintain Class requirements, and four additional Class surveys that were scheduled for this year.

Our vessel the Ocean Alert has been undergoing an extensive overhaul of engines which took longer than expected. Upon completion of the repairs, expected in August, the Ocean Alert will be conducting sea trials and will resume side-scan search operations in the “Atlas” search area thereafter.

If necessary to meet operational goals, we may lease equipment and ships from third parties from time to time. Due to the Ocean Alert repairs, we entered into short-term ship charters to supplement our search operations during the period which is the most favorable weather for operations.

“Atlas” Search Project

The “Atlas” Search Project encompasses a minimum of five high value targets within a search area covering more than 5,000 square miles. We conducted operations in this search area during the 2005 and 2006 seasons, and operations resumed in this area in April 2008. Results to date in the “Atlas” search area include the discovery of three Colonial period shipwreck sites containing cannon which are the subject of Admiralty arrests filed by us. The first site was located and arrested in 2006. Admiralty arrests were filed in May 2008 on the two additional cannon sites discovered in 2008. The Company’s archaeological and conservation teams are currently developing archaeological excavation and conservation plans for these sites. For additional information refer to the “Admiralty Legal Proceedings” section.

Work in the “Atlas” area, including side-scan and ROV operations, is planned to continue as long as the weather proves favorable for operations.

During the 2008 “Atlas” season, the Odyssey crews have been accompanied by television production crews from JWM Productions, who are producing an 11-episode prime-time television series for Discovery Channel, scheduled to air worldwide in 2009. JWM has exclusive access to film Odyssey’s operations in the “Atlas” search area and certain other locations as needed for JWM to complete filming for the series. JWM also has limited use of our resources for production of the series.

Revenue generated by the production of this television series is included with the quarterly revenue discussed in the “Results of Operations” section. In addition to revenue generated from the production of the series, we anticipate we will benefit from the brand building and exposure generated by an international television series sharing the excitement of our marine explorations.

HMS Sussex Project

HMS Sussex was a large 80-gun English warship lost in a severe storm in 1694 off the coast of Gibraltar. Based on documentary research conducted by contract researchers and our in-house research team in libraries and historical archives in the UK, France and other countries, we believe there is a high probability the ship was carrying a cargo of coins with a substantial value.

Based on the results of offshore operations conducted in 1998, 1999, 2000, and 2001 we believe there is a high probability we may have located the remains of HMS Sussex. In September 2002, we entered into a partnering agreement with the owner of HMS Sussex, the Government of the United Kingdom of Great Britain and Northern Ireland, which we refer to as Her Majesty’s Government (HMG). An overview of the agreement is available at www.shipwreck.net/pam.

In accordance with that agreement, and the approved HMS Sussex archaeological project plan (public version available at www.shipwreck.net/sussexpp.html), we have completed to the satisfaction of HMG all work detailed in Phase 1A and portions of Phase 1B of the plan. Due to interference by various Spanish entities we have postponed further work on the project to allow diplomatic issues to be resolved.

In July 2008, we delivered to HMG an Archaeological Report detailing the pioneering deep-ocean archaeological work done on the site during Phase 1A and portions of 1B conducted in late 2005 and early 2006. The report includes the results of environmental and biological sampling, which were submitted for extensive post-fieldwork analysis. Coring samples and other evidence indicate that the wreck site may be at least twice as large as is visible on the sea floor, and could potentially include areas displaced some distance from the visible wreck mound. Only further trenching and site exploration can confirm or discount the presence of considerably more wreck material than is either evident or exposed in the limited trial trenching conducted.

Although the work completed to date does not conclusively identify the site as that of the Sussex, the evidence gathered suggests a vessel of the approximate time and provenance of HMS Sussex.

“Black Swan” Project

The “Black Swan” is a Colonial period site we discovered during 2007 in the Atlantic Ocean. The Company recovered over 500,000 silver coins weighing more than 17 tons, hundreds of gold coins, worked gold and other artifacts from this site.

We have taken great care to archaeologically document this site and to carefully conserve and record all artifacts to the highest professional standards. The site which is primarily comprised of cargo spread over a large area does not contain an actual vessel or shipwreck. There are no signs of human remains at the site; however, the site is being treated with the utmost respect. We believe it is important to keep the location of the site confidential to protect the integrity of the site.

We have indicated that no actual ship or vessel has been found at the site. One working hypothesis put forth by us is that a vessel related to the cargo found at this deep-water site may be the Nuestra Señora de las Mercedes (the “Mercedes”), sunk in 1804 while carrying mostly private merchant cargo. The Kingdom of Spain, which has filed a claim in this case, stated in court documents their belief that the site in question is definitely the Mercedes.

The recovered cargo and artifacts were brought to the United States under an Admiralty arrest action and we have been appointed Substitute Custodian by the US District Court. For additional information refer to the “Admiralty Legal Proceedings” section below.

Admiralty Legal Proceedings

An Admiralty arrest is a legal process in which Odyssey seeks recognition from the Court of Odyssey’s salvor in possession status for a specific shipwreck, site or cargo. It is the first legal step in establishing Odyssey’s rights to ownership or to a salvage award. Odyssey currently has six pending Admiralty arrest cases; three in the “Atlas” search area, the “Black Swan,” the “Firefly” and a 20th Century passenger liner in the Mediterranean.

Additional information regarding the admiralty legal proceedings for these arrests may be found in our Annual Report on Form 10K for the year ended December 31, 2007, and our Quarterly Report on Form 10Q for the quarter ended March 31, 2008. Only arrests with status updates since these reports were filed will be discussed below.

We will continue to pursue prompt resolutions of all claims. If we are able to confirm that any entity has a potential legitimate legal claim to any of the materials recovered from these sites, we intend to provide legal notice to any and all potential claimants. Even if another entity is able to prove that it has an ownership interest in the shipwreck and/or cargo and that they had not legally abandoned the shipwreck, Odyssey would seek a salvage award from the Admiralty Court. In cases such as this, salvors are typically awarded up to 90% of the recovery.

“Black Swan” Arrest

In April 2007, we filed an Admiralty arrest on a site in the Atlantic Ocean approximately 1,100 meters deep, beyond the territorial waters or contiguous zone of any sovereign nation and we were appointed substitute custodian for all artifacts recovered from the site (Case number 8:07-cv-00614). 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 on any Spanish property which might be on the site.

The initial phase of discovery began on January 24 and 25, 2008, when legal counsel for Spain and Spain’s representative appeared at Odyssey’s offices and were given the requested documentation and shown photographs, video tape and a sampling of recovered cargo from the “Black Swan” site. On March 5, 2008 the parties again appeared in court to discuss issues related to discovery including confidentiality and the format of documentation produced. On March 6, 2008, the Court denied Spain’s motion to dismiss Odyssey’s claims for possession and ownership of three arrested sites and for salvage awards. The Court also dismissed certain counts of Odyssey’s Complaint which related to Spain’s illegal actions against Odyssey. The dismissal of these counts was based on the Court’s finding of a lack of jurisdiction, not on the merits of the claims. The most significant aspect of the ruling was the Court’s declaration that Odyssey’s pleadings and its disclosures have met all requirements of the Federal Rules of Civil Procedure.

On March 12, 2008, the Court issued orders in this case, the 2006 Atlas case and the Mediterranean case confirming that Odyssey had complied with all discovery orders thus far and instructing Odyssey to respond within thirty days to interrogatories regarding its theory as to the identities of any vessels related to the sites.

On April 11, 2008, Odyssey filed its responses to the Court’s interrogatories and identified the Nuestra Señora 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 which may contradict this hypothesis. Odyssey reiterated that no vessel has been found at the site, and stated that other hypotheses are 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, in fact, the Mercedes. The court has ordered Spain to file its Motion to Dismiss based upon the Foreign Sovereign Immunities Act (alleging that the U.S. Federal Court lacks jurisdiction) on or before September 22, 2008. Odyssey’s response is due November 17, 2008.

“Atlas” Arrests

In May 2008, we filed Admiralty arrests on two separate Colonial period shipwreck sites in the “Atlas” search area (Case numbers 8:08-cv-01044 and 8:08-cv-01045). Both sites contain cannon and other artifacts. On June 20, 2008, U.S. District Court for the Middle District of Florida appointed Odyssey as Substitute Custodian of both sites and the artifacts recovered therefrom. These two arrests are in addition to the site located and arrested in September 2006 in the “Atlas” area (Case number 8:06-cv-01685). The remainder of the information in this section refers only to the September 2006 arrest.

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 on any Spanish property which might be on the sites. On December 20, 2007, Keith Bray filed an Intervening Complaint in this case involving the site arrested in September 2006. His claim includes counts for Fraud, Rescission and Mutual Mistake and seeks to have the Court rescind his contract with Odyssey which specifically provided that Bray was entitled to nothing other than the cash payment paid to him for historical research work. On January 9, 2008, Odyssey filed its Answer and Affirmative Defenses to the Intervening Complaint denying Bray’s allegations and attaching a copy of the Research Agreement which Odyssey had with Bray.

On March 12, 2008, the Court issued orders in this case confirming that Odyssey had complied with all discovery orders thus far and instructing Odyssey to respond within thirty days to interrogatories regarding its theory as to the identities of any vessels related to the sites. On April 11, 2008, Odyssey filed in this case its responses to the Court’s interrogatories. Odyssey stated that it had not confirmed the identity of any vessel related to this site, but named the Merchant Royall, a British merchant vessel lost in 1641, as a possible vessel related to the site, although there is some evidence being examined that may contradict this theory. Spain filed its answers to the Court’s interrogatories indicating that it believed the vessel related to this arrested site was the Merchant Royall.

After initial discovery and several pre-trial hearings, the parties appeared again in Court on June 9, 2008. Considering Spain’s admission that it had no claim to anything that had been brought before the Court in this case, at the status hearing, the Court urged Spain and Odyssey to reach a settlement. Odyssey has proposed a voluntary dismissal without prejudice and awaits a response from Spain. The discovery process for this case continues and the Court issued a case management and scheduling order on June 11, 2008 that sets completion of discovery for all parties by October 23, 2008 with a non-jury trial set for the January 5, 2009.

Mediterranean Arrest

In April 2007, Odyssey filed an Admiralty arrest on a shipwreck in the Mediterranean believed to be the Ancona, a 20th century passenger liner believed to be carrying valuable cargo, and was appointed substitute custodian of the artifacts recovered (Case number 8:07-cv-00616). 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 on any Spanish property which might be on the site. On March 12, 2008, the Court issued orders in this case confirming that Odyssey had complied with all discovery orders thus far. On April 1, 2008, Spain voluntarily dismissed its claim in this Admiralty case.

An excellent summary of the current state of Odyssey Marine written by a hedge fund manager that is long OMEX.

Full Article: http://seekingalpha.com/article/90675-august-is-the-time-to-buy-odyssey-marine-exploration

Company Description

Odyssey Marine Exploration, Inc. (OMEX) is engaged in the archaeologically-sensitive exploration and recovery of deep water shipwrecks that contain treasure throughout the world.

Odyssey’s May 2007 recovery of the estimated $500M Black Swan treasure and subsequent legal dispute with Spain has made headlines worldwide. Odyssey utilizes innovative methods and state-of-the-art sonar technology to conduct extensive deep ocean search and recovery operations on high value shipwreck targets.
Industry Overview

Sea exploration has dramatically changed due to state-of-the-art technologies that enable the search, discovery and recovery of shipwrecks that were previously beyond reach. Odyssey is transforming activities long associated with "pirates and treasure hunters", into a serious and legitimate commercial industry founded on strong business practices, a commitment to the environment and high archaeological standards. There are well over 1,000 high-value shipwreck targets ($50 million - $2+ billion).

Investment Thesis

Odyssey is our favorite “lottery ticket” play for the next 6 months given its massively outsized risk/reward profile. August is the time to buy OMEX. Odyssey has been operating in the English Channel this season. The recovery season in the Channel runs from May - October due to weather. Hence, announced recoveries usually come August - October. Odyssey arrested 2 shipwrecks on May 29, 2008 in the English Channel. It is logical to conclude that Odyssey has been working on recovery operations on those 2 sites.

Odyssey’s combination of the best research department, superior sonar technology, and the most operations experienced team combine to generate a steady flow of identified and arrested high-value shipwreck targets. In order to have a successful and sustainable business in the shipwreck recovery business, 3 requirements must be met…

1. FINDING: Can the company consistently find the high-value shipwreck targets?
2. RETAINING: Can the company retain the majority of the value of the recovery?
3. MONETIZING: Can the company effectively monetize the value of the recovery?

1) Finding High Value Targets

Odyssey has a team of 8 archeologists that have identified the most attractive shipwreck targets and have reviewed literally hundreds of thousands of historical documents to provide the most likely areas to conduct the searches.

Odyssey owns and employs state-of-the-art technology, including both search and recovery vessels, side-scan sonar and magnetometer equipment, remotely operated vehicles ("ROVs") and other advanced technological innovations. Over the past 10 yrs, OMEX has markedly improved side-scan sonar and magnetometer technology. A ship with traditional commercial side scan sonar can cruise at approximately 2 knots, where OMEX’s ships can now travel at up to 8 knots while towing a side-scan sonar buoy. This allows Odyssey to cover up to 4 times the research area over the same period of time. Odyssey has also significantly improved the search resolution and data analysis which creates more precise vectors leading to massive efficiencies and time savings by reducing false positives.

2) Retaining the Recovery

In order for the salvor to legally retain the value of the recovery, the shipwreck must not be subject to “sovereign immunity.” Below is a brief primer on the relevant law.

Legal

There are two important subject areas connected to any shipwreck. The Law of the Sea Convention establishes the rights of a country based on location and Admiralty and Maritime Law governs maritime questions and offenses.

The Law of Sea Convention establishes three separate zones off the coast of any country:

* Territorial Water (<12 miles)
* Contiguous Zones (12 - 24 miles)
* Exclusive Economic Zones [EEZ] (24 - 200 miles)

A shipwreck in Territorial Water (within 12 miles) is considered to be the property of that country if the shipwreck is not deemed to be sovereign immune (see “Sovereign Immunity” below for definition). Commercial wrecks in Territorial Water are only eligible for arrest or a salvage award when permitted by that country’s laws or if there is a pre-existing agreement in place between Odyssey and the country.

Sovereign Immunity

Under international law, warships and other vessels or aircraft owned or operated by a country and used only on government non-commercial service ("State vessels and aircraft'') may continue to enjoy sovereign immunity after sinking, wherever they are located. This typically makes any sovereign vessel immune from arrest, salvage claim and salvage award.

However, if a military ship is on a mission that has any commercial business, the ship is no longer considered a sovereign immune vessel. Commercial vessels and mail ships are also not considered sovereign immune vessels. Odyssey only targets vessels that are deemed to be non-sovereign vessels. The only exception is if Odyssey has a pre-existing agreement in place with that country (similar to Odyssey’s agreement with the U.K. for the sovereign vessel, the HMS Sussex).

Salvage Law

“Salvage” is the reward given to persons who voluntarily assist a ship or recover its cargo from impending or actual peril or loss. If a shipwreck is not subject to sovereign immunity, it is deemed to be a “commercial vessel” and comes under maritime and admiralty salvage law. Under maritime and admiralty salvage law, a salvor is typically entitled to 90% of the recovery. Thus, if a country or another claimant has a legitimate claim on a commercial ship, in a best case the country or claimant is awarded 10%...leaving 90% to the salvor. Hence, Odyssey is likely to receive at least 90% of any find to which they are granted salvage regardless of who the claimants are.
3) Monetizing the Recovery

To maximize the value of the recovered coins and artifacts, the coins should be well promoted and packaged.

Discovery Channel Series

In May 2008, Odyssey and Discovery Communications (owner of the Discovery Channel) announced a significant production deal. Similar to the show “The Deadliest Catch”, Discovery intends to air a series based upon Odyssey’s shipwreck recoveries. There will be a 2 part episode on the Black Swan (currently slated for November 2008) and the regular series is slated to air either near the end of 1Q09 or the beginning of 2Q09. Filming started at the beginning of June 2008. Odyssey receives a fee per episode that covers a significant portion of the operating budget of the recovery ship.

Marketing Partners

We expect Odyssey to announce relationships with top-tier public companies that specialize in the packaging and sales of collectible coins and artifacts. This will markedly increase the speed of monetization of the recoveries.

The Black Swan Litigation with Spain

The company has already recovered approximately 500,000 coins (estimated by at least one external expert to be valued at $500M) from a site code-named the Black Swan. We believe that it is likely that Odyssey will be granted rights to 90% of this find by the Admiralty Court of the United States.

On August 8, 2008 the stock price was $4.75, which is the same level that the shares were at BEFORE the announcement of the recovery of the Black Swan treasure in May 2007. That implies that the market is giving Odyssey zero chance to keep any of the Black Swan treasure. Spain has been quite vocal in the press talking about how Spanish galleons are part of Spain’s heritage and therefore, Spain demands the return of the coins and artifacts from Spanish shipwrecks. Oddly, Spain seems to neglect to acknowledge that the gold and silver coins and gemstones from the Black Swan were coming back from the New World where Spain enslaved and killed countless people in South America during its colonial period. Grand standing aside, what actually will dictate the outcome of the trial is admiralty law (as discussed above).

Spain can only refuse salvage on a vessel that is “sovereign immune.” In order for a vessel to be sovereign immune, it must have been a Spanish warship that was 100% engaged in non-commercial activity at the time of its sinking.

Spain has several severe challenges with its legal case in the Black Swan. First, Odyssey Marine did not recover a single item from the site to indicate that there was a ship at that site. The Black Swan recovery site is just a debris field. There is not a canon, a ship’s bell, moorings, the ship’s spine, or anything else to indicate that the site is that of a shipwreck. One possible explanation is that during battle, if a ship was taking on water or needed to lighten its load so that it could better escape, it would throw the heaviest items overboard. Odyssey Marine recovered 17 tons of coins and artifacts from the site.

Even if Spain is successful in proving that the Black Swan site is that of a shipwreck, Spain has the burden of proof to prove which shipwreck it is. Spain claims that it is the Nuestra Senora de la Mercedes which sunk in 1804. Odyssey claims that there are some pieces of data that support that conclusion, but other pieces of data that do not support that conclusion.

Even if Spain is able to prove that the Black Swan site is (1) that of a shipwreck and (2) that the shipwreck is the Mercedes, Spain must then prove that the Mercedes was subject to sovereign immunity. There is no debate that the Mercedes was a Spanish warship. However, on the return voyage from the New World upon which it was sunk, documentation exists that demonstrates that approximately 72% of the cargo on the ship was commercial. Given that the Mercedes was not on a 100% non-commercial mission, the shipwreck site cannot be subject to sovereign immunity. Instead, if Spain is successful in proving that the site is that of the shipwreck of the Mercedes, the recovery would come under salvage law. Under salvage law, approximately 90% of the recovery is typically granted to the salvor. In this case, the salvor is Odyssey Marine. The remaining 10% would be shared among any legitimate claimants.

The next step in the litigation with Spain is that the presiding magistrate has asked Spain to lay out its entire case to establish its claim that the Black Swan is subject to sovereign immunity. Spain's dispositive motion is due on or before September 22, 2008. A victory by Odyssey in the Black Swan case will establish firm and wide-reaching precedent regarding the “commercial” status (vs. “sovereign immune”) of all State warships that were transporting some commercial cargo or non-military passengers at the time of the sinking.

Upcoming Catalysts

4 major events will likely act as positive catalysts for Odyssey’s shares….

1) Settlement or Legal Victory in the Black Swan Case

a. Settlement - any settlement would likely be in the form of a split (50/50) of the Black Swan treasure and the terms would extend to any other Spanish shipwreck that Odyssey recovers regardless of whether the ship is commercial or sovereign immune. Additionally, in order to ensure that the market for the coins and artifacts is kept in balance, if Spain ever wanted to sell a portion of its percentage of the recoveries, the sale would be managed by Odyssey. We believe that a settlement is unlikely until sometime after September 22, 2008. This is the date when Spain’s response is due in Admiralty Court as to why it believes that the Black Swan is subject to sovereign immunity. If Spain’s support for its position is not legally compelling, it is possible that the court could signal to Spain that it feels that it is Spain’s best interest to settle the dispute or risk establishing a very negative precedent against Spain.

b. Legal Victory - If Spain declines to settle the Black Swan case and Odyssey prevails, then Odyssey would be granted a salvage award on the Black Swan and likely retain over 90% of the recovery. More importantly, direct legal precedent will have been established and it is open season on the 100s of Spanish mixed-use shipwrecks (warships that had some commercial goods on them at the time of the sinking) that are in international waters. It is believed that the vast majority of the high-value ($200M - $3+ billion) Spanish shipwrecks were mixed-use.

2) Recovery of another high-value shipwreck – As mentioned above, we believe that Odyssey is currently engaged in at least one recovery operation in the English Channel. Given that the recovery season in the Channel is from May – October (due to weather), we would not be surprised if there were meaningful developments before the end of this year’s English Channel recovery season.

3) Airing of the Odyssey series on Discovery Channel – the series on Discovery will bring worldwide attention to the company. It is expected that the Discovery Channel will air a 2 part episode on the Black Swan in late 2008, which will lead into the series that will air in late 1Q09 or early 2Q09.

4) Announcement of wide-sweeping country agreements – we believe that it is likely that Odyssey is working on partnership agreements with various countries that would cover numerous shipwrecks of the country in question.
Valuation

These are the major sites that Odyssey Marine may have already discovered:

1. Black Swan

500,000 silver and several hundred gold coins have been recovered and it is estimated that this is only half of the cargo. Odyssey will be returning to the site to conclude recovery operations.

Estimated Value: $500M - $1 billion

2. HMS Sussex

HMS Sussex was an English warship lost in a severe storm in 1694. Historical documents and other evidence suggest that there was approximately 10 tons of Gold aboard the vessel when it sank. If the research is correct, then the numismatic value estimates for the cargo range from several hundred million to a billion dollars or more, depending on whether the cargo referenced in historical documents is gold or silver, the condition of the coins, which denominations may be represented. Odyssey and the Government of the United Kingdom have signed an exclusive partnering agreement for the shipwreck of the British warship HMS Sussex. This is the first time in history any government entered into an agreement with the private sector for the archaeological excavation of a sovereign warship.

Estimated Value: $300 - $1+ billion

3. Merchant Royal

The Merchant Royal set sail in late August 1641, trailed by her sister ship, the Dover Merchant. But during the journey she began to leak and rescuers were unable reach her in time. The loss of the treasure made headlines. Back in 1641, the ship’s hold was equivalent to one-third of the national exchequer. There are reports of anywhere from 100,000-400,000 pounds sterling, and 100,000 gemstones.

Estimated Value: $500M - $2 billion

4. SS Ancona

The SS Ancona, an Italian passenger liner torpedoed by a German U-boat in 1915 off the southeastern coast of Sardinia, taking 12 barrels of gold and a shipment of silver bars with it to the bottom.

Estimated Value: $60M.

5. Undisclosed (but suspected to be the El Salvador) - According to historical records it was carrying 16 chests of silver and four of gold when it went down in the area of Cape Lookout during a 1750 hurricane.

Estimated Value: $125M

6. Undisclosed (but suspected to be the La Vierge du Bon Port) - On July 9, 1666, the ship was attacked by an English corsair and sunk off Guernsey.

Estimated Value: $100M - $400M

A silver coin wholesales for $200 - $2,000 depending on the scarcity, condition, and the “collectibility” of the coin. A gold coin wholesales for $4,000 - $100,000 depending on the scarcity, condition, and the “collectibility” of the coin. Odyssey management believes that several items of worked gold and silver will wholesale in the millions.

We value the company by first looking at the value of the 6 targets listed above and then consider the pipeline of the business beyond these 6 sites.

The mid-point of values of the 6 shipwrecks is $3.5 billion. Assuming 2 full-time recovery vessels, we estimate that it will take 3 years to recover these 6 sites. It is likely that Odyssey will add an additional recovery vessel or 2 in the near future. The sales cycle for collectible and numismatic coins can be 4 - 5 years, depending on demand. With the interest and demand that will likely be generated by the Discovery series, we have conservatively assumed a 4 year sales cycle. We assume that 40% of the wholesale revenue goes to sales, marketing and channel partners. Assuming 12% discount rate, we estimate the current value of the above listed shipwreck projects to be $17.00/sh. Again, this portion of the valuation is based just on the 6 identified and arrested sites.

Odyssey is adding 2- 4 new arrested shipwreck sites annually. It has already identified what it believes are 7 potentially high-value targets in the Channel and the North Atlantic. Additionally, there are numerous sites along the Mexican coast and in the Caribbean that have been identified. We estimate that Odyssey will be able to recover 3 wrecks per year past 2011 with an average value of $150M per wreck, producing EBITDA of $216M. The NPV of this cash stream is $22.60/sh. The combined value of the two cash flow streams generates a total value of $39.60/sh. Hence, we believe that if Odyssey continues to execute that the shares could appreciate 10x.

Recent Trading Sets Up for a Short Squeeze

The company is not covered by the sell side and there are now 6.9M shares short (15.3% of the float). An additional 1M shares were shorted in the first 15 days of July 2008. Why? From late June through July 15th, the financial stocks were breaking down very hard and it looked like the market was setting-up for a massive decline. Many of the quant funds needed to lay out new short positions with little time for deep company-specific analysis. This is what happened with Odyssey and the incremental 1M shares that were shorted during June 30 – July 15.

Given that most of the short holders are “low-conviction” shorts, they have done little fundamental work on the company. In the face of evidence that they badly misread the situation, that they will look to quickly cover. Hence, there are 6.9M shares that will have to be bought in very short order in the event that one or more of the above catalysts take place. The vast majority of OMEX’s float is held by high-conviction long institutional holders and insiders. High-conviction long institutional owners believe that we are at the beginning of a 3 – 5 year bull run for OMEX. There are very few shares available for the shorts to buy and the price will move quickly higher. Therefore, this is setting-up for a MASSIVE short squeeze.

Conclusion

There are issues that carry high uncertainty and require a significant time investment to gain conviction around. We believe that this causes the shares to trade at a steep discount to baseline value. It is likely that several of these uncertainties will be removed in the coming months and that the company will trade up significantly to better reflect intrinsic value. We feel that Odyssey Marine presents a unique investment opportunity.

http://docs.justia.com/cases/federal/district-courts/florida/flmdce/8:2007cv00614/197978/120/

Peru has filed a conditional claim to the Black Swan treasure. Peru wants access to all discovery information so that it may make a final determination as to whether or not it has a legitimate claim. Peru has stated that it does not have an interest in any vessel or vessel remains but also stated that it has not abandoned it's sovereign right to it's property.

Odyssey Marine Exploration Welcomes Peru's Filing In "Black Swan" Case

Odyssey Marine Exploration, Inc. announced today that the Republic of Peru filed a motion in federal court in one of the company's pending admiralty cases. As anticipated after numerous statements in the media, Peru formally filed a Verified Conditional Claim in the "Black Swan" admiralty case, which was originally filed by Odyssey Marine Exploration. The case is currently pending before the U.S. District Court in Tampa, Florida.

"Odyssey's position is to encourage every appropriate claimant to present its potential claims in a case like this, so we welcome Peru's filing, even as the Company reserves its legal position. If the court does not find that the property was abandoned, we believe that the property in the "Black Swan" case would be handled under the traditional law of salvage," said Greg Stemm, Odyssey Chief Executive Officer.

The nature of a salvage award is that the award to the salvor is not dependent upon the number of claimants. Claimants other than the salvor must either enter into an agreement amongst themselves to split the owner's percentage of a find or submit their individual claims to the court for adjudication. For instance, in the case of the Central America, an award of 92% of the cargo was made to the salvor, and the remaining 8% was held in trust while various insurance companies were given the opportunity to present their respective claims.

"We believe that Peru's filing raises a significant and timely question relating to whether a former colonial power or the colonized indigenous peoples should receive the cultural and financial benefit of underwater cultural heritage derived from the previously colonized nations. Odyssey would be pleased to involve Peru in the study and archaeological investigation of any property that is found to have originated in Peru, without regard for whether Peru has any legal rights to the property. We would also be pleased to extend the same courtesy to any other sovereign government, indigenous people, relatives or descendants who might have a legitimate claim or interest in property discovered on any of Odyssey's shipwrecks," Mr. Stemm added.