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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1998
Commission File Number 0-26136
ODYSSEY MARINE EXPLORATION, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 84-1018684
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
3507 Frontage Road, Suite 100, Tampa, Florida 33607
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(Address of principal executive offices)
(813) 282-0855
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(Registrants telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
[ X ] Yes [ ] No
As of December 31, 1998, the Registrant had 10,294,999 shares of common
stock, $.0001 par value, outstanding.
Transitional Small Business Disclosure format: Yes [ ] No [ X ]
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INDEX
Part I: Financial Information Page No.
Item 1. Financial Statements:
Unaudited Consolidated Balance Sheets - as of
November 30, 1998 ........................................... 3
Unaudited Consolidated Statements of Operations, Three
Months Ended November 30, 1998, and Three Months
Ended November 30, 1997 ..................................... 4
Unaudited Consolidated Statements of Operations, Nine Months
Ended November 30, 1998, Nine Months Ended November 30, 1997 and
and from May 20,1994 (Date of Inception) through November 30,
1998 ........................................................ 5
Unaudited Consolidated Statement of Cash Flows, Nine
Months Ended November 30, 1998, Nine Months Ended
November 30, 1997, and from May 20,1994 (Date of Inception)
through November 30, 1998 .................................. 6 - 7
Notes to Consolidated Financial Statements.................. 8
Item 2. Management's Plan of Operation........................... 8 - 10
Part II: Other Information....................................... 11
Item 1. Legal Proceedings.................................. 11
Item 2. Change in Securities............................... 11
Item 3. Defaults Upon Senior Securities.................... 11
Item 4. Submission of Matters to a Vote
of Security Holders................................ 11
Item 5. Other Information.................................. 11
Item 6. Exhibits and Reports on Form 8-K................... 11
Signatures ...................................................... 11
2
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ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET - Unaudited
November 30,1998
ASSETS ----------------
CURRENT ASSETS
Cash $ 19,755
Marketable securities 3,325
Advances and prepaid expense 1,185
Inventory 20,000
-----------
Total current assets 44,265
PROPERTY AND EQUIPMENT
Equipment and office fixtures 140,222
Accumulated depreciation (34,825)
-----------
105,397
OTHER ASSETS
Organization costs, net of
accumulated amortization of $3,595 404
Marketable securities held long term 202,633
Loans receivable from related parties 125,900
Deposits 3,240
-----------
332,177
-----------
$ 481,839
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 28,906
Accrued expenses 464,582
Notes payable to related parties 373,042
Notes payable other 25,000
-----------
Total current liabilities 891,530
LONG TERM LIABILITIES
Deferred RPC Income 662,500
STOCKHOLDERS' DEFICIENCY
Preferred stock - $.0001 par value; 10,000,000
shares authorized; no shares issued or outstanding -
Common Stock - $.0001 par value; 100,000,000 shares
authorized; 10,294,999 issued and outstanding 1,029
Additional paid-in capital 2,443,928
Accumulated unrealized loss in investment (115,542)
Excess of expenses over revenues during development stage (3,401,605)
-----------
Total Stockholders' deficiency (1,072,190)
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TOTAL LIABILITY AND STOCKHOLDERS' DEFICIENCY $ 481,839
===========
The accompanying notes are an integral part of these financial statements.
3
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ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
Three Months Three Months
Ended Ended
November 30 November 30
1998 1997
----------- -----------
REVENUES $ 20,000 $ 6,750
OPERATING EXPENSES
Project Development 18,104 6,071
Project Operations 127,668 115,546
Marketing 27,485
----------- -----------
Total Operating
Expenses 173,257 121,617
GENERAL AND
ADMINISTRATIVE
EXPENSES 73,465 183,434
----------- -----------
INCOME(LOSS)FROM
OPERATIONS (226,722) (298,301)
OTHER INCOME
OR (EXPENSE)
Interest Income 2,572 -
Interest Expense (13,423) (5,355)
Other (1,625) 19,470
Total other Income ----------- -----------
or (expense) (12,476) 14,115
----------- -----------
NET INCOME(LOSS) $ (239,198) $ (284,186)
=========== ===========
INCOME(LOSS)PER SHARE $ (0.02) $ (0.07)
Weighted average
number of common
shares and common
shares equivalents
outstanding. 10,294,999 4,294,282
The accompanying notes are an integral part of these financial statements.
4
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ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
From May 20,
1994 (Date
Nine Months Nine Months of Incep-
Ended Ended tion) through
November 30 November 30 November 30
1998 1997 1998
----------- ----------- -----------
REVENUES $ 234,750 $ 6,750 $ 248,250
OPERATING EXPENSES
Project Development 74,068 18,064 710,524
Project Operations 383,991 182,334 1,147,660
Marketing 69,700 139,623
----------- ----------- -----------
Total Operating
Expenses 527,759 200,398 1,997,807
GENERAL AND
ADMINISTRATIVE
EXPENSES 283,812 541,003 1,594,059
----------- ----------- -----------
INCOME(LOSS)FROM
OPERATIONS (576,831) (734,651) (3,343,616)
OTHER INCOME
OR (EXPENSE)
Interest Income 8,140 5,509 16,001
Interest expense (45,328) (100,123) (172,303)
Other 98,375 44,977 98,313
Total other income ----------- ----------- -----------
or (expense) 61,187 (49,637) (57,989)
----------- ----------- -----------
NET INCOME(LOSS) $ (515,644) $ (784,288) $(3,401,605)
=========== =========== ===========
INCOME(LOSS)PER SHARE $ (0.05) $ (0.18) $ (0.33)
Weighted average
number of common
shares and common
shares equivalents
outstanding. 10,294,999 4,276,282 10,294,999
The accompanying notes are an integral part of these financial statements.
5
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ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited
From May 20,
1994 (Date
Nine Months Nine Months of Incep-
Ended Ended tion) through
November 30 November 30 November 30
1998 1997 1998
----------- ----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Income(Loss) $ (515,644) $ (784,288) $(3,401,605)
Adjustments to reconcile
net loss to net Cash used
by operating activity:
Depreciation 19,562 7,439 34,826
Amortization 599 599 3,595
Common Stock issued
for services 46,938 8,750 471,438
Loss on sale of
marketable securities 1,625 - 1,625
Marketable securities
received on settlement (271,500) (12,000) (283,500)
(Increase)decrease in:
Advances 1,264 9,316 (4,425)
Accounts receivable - (61) -
Organization cost - - (3,999)
Interest receivable (13,624) - (13,624)
Inventory (20,000) - (20,000)
Increase (decrease) in:
Accounts payable 8,451 (10,407) 28,906
Accrued expenses 129,944 186,031 998,432
NET CASH(USED) IN ----------- ----------- -----------
OPERATING ACTIVITIES (614,904) (573,807) (2,188,332)
----------- ----------- -----------
CASH FLOWS FROM IN-
VESTING ACTIVITIES:
Purchase of property
and equipment (17,885) (87,340) (140,222)
Issuance of Notes - - (112,276)
NET CASH (USED) IN ---------- ----------- -----------
INVESTING ACTIVITIES (17,885) (87,340) (252,498)
---------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
6
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ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
From May 20,
1994 (Date
Nine Months Nine Months of Incep-
Ended Ended tion) through
November 30 November 30 November 30
1998 1997 1998
----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from:
Related party loans 13,250 392,000 684,500
Loans from others 55,000 297,000 657,000
Issuance of Common Stock - 2,500 506,500
Sale of marketable
Securities 375 - 375
Issuance of RPC 662,500 - 730,000
Repayment of Note (97,790) (20,000) (117,790)
NET CASH PROVIDED BY ---------- ---------- -----------
FINANCING ACTIVITIES 633,335 671,500 2,460,585
---------- ---------- -----------
NET INCREASE
(DECREASE)IN CASH 546 10,353 19,755
CASH AT BEGINNING
OF PERIOD 19,209 1,861 -
----------- ----------- -----------
CASH AT END OF
PERIOD $ 19,755 $ 12,214 $ 19,755
=========== =========== ===========
SUPPLEMENTARY
INFORMATION:
Interest paid $ 3,375 - $ 3,375
Income taxes paid $ - - $ -
Summary of significant non cash transactions
There were no significant non cash transactions during the three months ending
November 30, 1998.
The accompanying notes are an integral part of these financial statements.
7
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ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Odyssey Marine
Exploration, Inc. and subsidiary have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission and the
instructions to Form 10Q-SB and, therefore, do not include all information and
footnotes normally included in financial statements prepared in accordance
with generally accepted accounting principles. These interim consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes included in the Company's Form 10-KSB for the
year ended February 28, 1998, and the interim reports filed since February 28,
1998.
In the opinion of management, these financial statements reflect all
adjustments (including normal recurring adjustments) necessary for a fair
presentation of the financial position as of November 30, 1998, results of
operations, and cash flows for the interim periods presented and from
inception. Operating results for the three months and nine months ended
November 30, 1998, are not necessarily indicative of the results that may be
expected for the year ended February 28, 1999.
The Company has generated minimal revenue to date and is considered to be in
the development stage.
NOTE B - REVENUE PARTICIPATION CERTIFICATES
During October 1998, the Company extended the Cambridge RPC offering by
$400,000 of which $62,500 were subsequently sold. Additionally, the reserve
for recovery was altered to $3 million dollars. Thus, the percentage of
revenue participation to each certificate holder remained unaltered.
NOTE C - GOING CONCERN CONSIDERATION
The Company, a development stage enterprise, has incurred net losses of
$3,401,605. At November 30, 1998 the Company had negative working capital as
indicated by current liabilities exceeding current assets by $847,264.
Management intends to raise additional funds through the sale of debt or
equity to finance future shipwreck projects, or operating expenses until such
time as sales from recovered artifacts, replicas, or other products contribute
toward achieving profitability. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
ITEM 2. MANAGEMENT'S PLAN OF OPERATION.
This Report contains forward-looking statements that involve a number of risks
and uncertainties. While these statements represent the Company's current
judgment in the future direction of the business, such risks and uncertainties
could cause actual results to differ materially from any future performance
suggested herein. The Company undertakes no obligation to publicly release
the result of any revisions to these forward-looking statements that may be
made to
8
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reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. Certain factors that could cause results
to differ materially from those projected in the forward-looking statements
are set forth under "RISK FACTORS" in the Company's Form 10-KSB for the year
ended February 28, 1998.
The Company expects to derive substantially all of its income through five
major areas: (i) the sale of sponsorship rights; (ii) the sale of intellectual
property rights; (iii) the sale of cargo; (iv) the sale of replicas and
merchandise; and (v) the operation of exhibits featuring the company's
projects.
The Company is currently seeking a sponsor for the Melkarth Project and is
negotiating the sale of intellectual property rights for the Melkarth and
Cambridge projects. The revenue from these sources is not expected to meet
the Company's total cash requirements. Therefore, it will be dependent upon
investment capital to meet its cash flow requirements. To date, the Company
has conducted private placements of debt and equity to meet its financial
obligations, a large portion of which has been purchased by the officers and
directors. The Company intends to continue to offer private placements of
equity, debt or project participation to fund its various projects and
corporate overhead.
On September 17th, 1998, in conjunction with the Cambridge Project, the
Company located what it believes to be a Phoenician shipwreck that sank in the
4th or 5th century BC. This shipwreck is now known as the "Melkarth". The
Company is currently seeking financing for the recovery of this shipwreck and
hopes to begin recovery during early 1999. Once the shipwreck is recovered and
conserved, the Company believes it can generate income by leasing the artifact
collection to museums or operating a travelling exhibit.
For the next twelve months, the Company anticipates spending approximately
$50,000 per month to pay salaries and general office expenses. In addition,
the Company intends to complete the search phase of the Cambridge Project, and
begin the recovery phase of the Cambridge and/or Melkarth project.
Subject to final negotiations concerning financing, the Company plans to
continue search operations on the Concepcion Project during early 1999. The
Company intends to finance this operation through the sale of equity, revenue
participation or debt. There can be no assurance of the Company's ability to
secure this financing which could cause a delay or cancellation of the
project.
In the event the Company experiences cash flow difficulty, the officers and
directors of the Company have entered into an agreement which provides that if
the Company's operating cash reserves drop below $20,000, the officers will
accrue their salaries and the four outside directors will each loan the
Company up to $3,000 per month to pay general overhead expenses. This
arrangement will continue until June 1, 1999.
YEAR 2000 COMPLIANCE
The Company has reviewed the effect that the year 2000 will have on its
essential computer systems, especially those related to its ongoing operations
and its internal control systems, including the preparation of financial
information.
9
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The Company's computer systems are used primarily for basic accounting, word
processing, spreadsheet applications, and access to the internet and world
wide web.
The Company uses four PC computers with year 2000 compliant hardware. The
Company does not depend on any specialized computer hardware, that may become
non-functional due to Y2K problems.
The Company has investigated potential problems with software used by the
Company for the management of it's business and communications. The Company
utilizes very common software packages all of which are relatively new.
Potential problems with software compliance have been addressed by all of the
software package vendors and will be averted by installation of updates
scheduled to be provided in the first quarter of 1999. There will be no
additional cost incurred to access these updates.
The financial service industry is required to meet key milestone dates for
testing, reprogramming, and implementation of any new systems that are set
well in advance of Year 2000. The Company believes that there will be no
significant adverse effect on its operations or accounting records related to
the year 2000.
10
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
None
ITEM 2. Changes in Securities.
During the three months ended November 30, 1998, the Company sold an
additional $62,500 of revenue participation certificates ("RPC's"). The RPC's
provide the holders with the right to receive a percentage of gross revenues
received by the Company from the Cambridge Project. The RPC's were sold
pursuant to the exemption provided by Rule 506 to three investors who had
previously purchased units in the offering. The investors were provided with
information regarding their investment, and the Company believes that such
persons had knowledge and experience in financial and business matters such
that they were capable of evaluating the merits and risks of the investment.
The certificates representing the RPC's bear an appropriate legend restricting
the transfer of such securities.
ITEM 3. Defaults upon Senior Securities.
None.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None
ITEM 5. Other Information.
None.
ITEM 6. Exhibits and Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ODYSSEY MARINE EXPLORATION, INC.
Date: January 14, 1999 By:/s/ David A. Morris
David A. Morris, Chief Financial Officer
11
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on pages 3, 4 and 6 of the
Company's Form 10-QSB for the quarter ended November 30, 1998, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> NOV-30-1998
<CASH> 19,755
<SECURITIES> 3,325
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 20,000
<CURRENT-ASSETS> 44,265
<PP&E> 140,222
<DEPRECIATION> (34,825)
<TOTAL-ASSETS> 481,839
<CURRENT-LIABILITIES> 891,530
<BONDS> 0
0
0
<COMMON> 1,029
<OTHER-SE> (1,073,219)
<TOTAL-LIABILITY-AND-EQUITY> 481,839
<SALES> 0
<TOTAL-REVENUES> 234,750
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 811,571
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (45,328)
<INCOME-PRETAX> (515,644)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (515,644)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
