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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended February 29, 2000
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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(Registrant's 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 April 20, 2000, the Registrant had 11,254,777 shares of Common Stock,
$.0001 Par Value, outstanding, and the aggregate market value of the shares
held by non-affiliates on that date was approximately $4,132,200.
Transitional Small Business Disclosure format: Yes [ ] No [ X ]
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
ODYSSEY MARINE EXPLORATION, INC.
Odyssey Marine Exploration, Inc (the "Company" or "Odyssey"), formerly
Universal Capital Corporation, was formed under the laws of the State of
Colorado on March 5, 1986, to evaluate, structure and complete a merger with,
or acquisition of, prospects consisting of private companies, partnerships or
sole proprietorships.
On August 8, 1997, the Company acquired all of the issued and outstanding
stock of Remarc International, Inc., a Delaware corporation ("Remarc"), in
exchange for approximately 7,750,000(post split) shares of its no par value
Common Stock. On August 15, 1997, the Company filed an Information Statement
with the Securities and Exchange Commission, which announced the Company's
intention to hold a Shareholder Meeting on September 8, 1997. The
Shareholders approved the following measures: (i) change the name of
corporation to Odyssey Marine Exploration; (ii) change the domicile of the
corporation from Colorado to Nevada; (iii) reverse split the Common Stock 1
for 5,(iv) approve an Employee Stock Option Plan, and (v) authorize 10,000,000
shares of preferred stock.
All financial information and share data in this Form 10-KSB give retroactive
effect to the reverse split.
REMARC INTERNATIONAL, INC.
Remarc International, Inc. was formed May 26,1994 to engage in the business of
recovering and marketing artifacts and cargoes from deepwater shipwrecks.
Since its inception, Remarc focused on researching, permitting and developing
a number of shipwreck projects. On August 8, 1997, Remarc became a wholly
owned subsidiary of Odyssey Marine Exploration and on February 25, 1999,
Remarc International Inc. and Odyssey merged with Odyssey being the surviving
Corporation.
ODYSSEY MARINE, INC.
Odyssey Marine, Inc., a Florida corporation, was incorporated on November 2,
1998, as a wholly owned subsidiary of Odyssey Marine Exploration, Inc. for the
purpose of administering the Company's payroll and health plan.
The Company maintains a web site at www.shipwreck.net.
DESCRIPTION OF BUSINESS
GENERAL
Odyssey is engaged in the business of conducting archaeologically sensitive
recoveries of cargo and artifacts from various shipwrecks. The Company plans
to produce revenue by exhibiting the artifacts and selling merchandise
consisting of certain cargoes, replicas of the artifacts and general
merchandise relating to the specific shipwrecks or the shipwreck business in
general. In addition, the Company plans on producing revenue in the form of
project sponsorships and through the sale of intellectual property rights.
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The shipwreck business consists of six major component areas.
A. Project Development: Research and Government Liaison
B. Offshore Search and Inspections
C. Offshore Recovery Operations
D. Conservation and Documentation of Artifacts
E. Sharing the Knowledge and the Artifacts with the Public
F. Marketing the Cargoes, Artifact Replicas and Ancillary Products
A. PROJECT DEVELOPMENT: RESEARCH AND GOVERNMENT LIAISON.
The foundation for any shipwreck search and recovery expedition is the
research behind the project. Not only is the research critical to evaluate the
potential value, location and viability of a shipwreck project, but it is also
necessary in order to establish the historical significance and the
archaeological approach to the excavation that may be required.
The Company uses several outside shipwreck researchers to scout out
potentially viable projects. Data from these researchers is brought in and
checked against the Company's own database and resources, compared against
information from other experts in the industry, then reviewed by a review
board comprised of three outside directors and one executive officer, before
further money is spent on the project.
Once a project looks promising, the next step is to develop a working
relationship with the government or company that holds the rights to that
shipwreck. Development of these relationships is often time-consuming and
requires tremendous patience. Many foreign governments have had bad
experiences with "treasure hunters" in the past and are wary and skeptical of
any mention of shipwrecks.
In the case of shipwrecks that lie beyond any government's jurisdiction, how
and where the artifacts or cargo from the shipwreck are brought ashore could
determine whether the Company could even legally claim the cargo.
Once the Company is satisfied with the historical research and its legal
rights to a specific shipwreck, the project will enter the next phase.
B. OFFSHORE SEARCH AND INSPECTION.
Most offshore search operations will be conducted by first utilizing a side
scan sonar to detect anomalies on the seabed. After one or more promising
anomalies are located, a remotely operated vehicle ("ROV") will be deployed to
inspect and make a video record of the anomaly.
ROV's can be equipped with a wide variety of tools enabling the operator to
pick up samples, dredge or remove sand and/or overburden, take video footage
or still photos and to acquire approximate measurements of the visible wreck
site. There are several companies that lease the vessels, equipment and
personnel necessary to conduct offshore search operations. The Company intends
to lease the necessary vessels and equipment until such time as the Company's
utilization of vessels and equipment justifies ownership and the financing for
such vessels and equipment is available. The Company retains its own project
manager to ensure quality control.
C. OFFSHORE RECOVERY OPERATIONS.
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Since all of the Company's projects are currently located in deep water,
recovery operations will most likely be conducted utilizing remote operated
vehicles.
How a recovery operation will be conducted depends on a number of factors
including the depth of the water, the age, condition, historical and
archaeological importance of the wreckage, local weather and tidal conditions.
Once the decision has been made to recover a shipwreck, the Company will work
with vessel and equipment contractors, archeologists and other interested
parties to determine the most appropriate method of recovery.
D. CONSERVATION OF THE ARTIFACTS.
Conservation of artifacts has, during the past ten years, become a well-
documented and organized function that can be undertaken efficiently by any
number of professional organizations. The Company may contract these services
or elect to establish its own conservation facilities when recovery operations
are successful.
E. SHARING THE KNOWLEDGE OF THE ARTIFACTS WITH THE PUBLIC
The recent success of the movie Titanic, and the associated success of the
sale of coal pieces from the shipwreck, books about the tragedy, sale of media
rights and Discovery Channel coverage, as well as the popularity of the
artifact exhibit underscore the importance of the public's exposure to the
excitement of shipwrecks. Any project undertaken by the Company will be
augmented with a large-scale public awareness program that is dedicated to
making the shipwreck a well-recognized household name.
The Company plans on using documentaries, movies, books and major Internet
communication facilities to provide the media with the technical and
historical stories that the public finds so interesting. The Company plans to
partner with major media outlets and publishers which should provide self-
liquidating promotional opportunities that should provide income as well as
exposure.
The heightened public awareness translates into brand equity in the shipwreck
cargoes and artifacts that management believes will significantly enhance
their value and collectibility.
F. MARKETING THE ARTIFACTS, REPLICAS AND ANCILLARY PRODUCTS
As the shipwreck industry moves from "treasure hunters" to businesses
specializing in shipwreck exploration, a new business model is being
developed. This model reflects the unique archaeological nature of the
shipwreck industry while developing multiple revenue streams.
Odyssey plans to capitalize on the public's fascination with shipwrecks by
developing opportunities for the public to share in the excitement. These
plans include: joining the expedition as "adventure tourists", following the
expedition on the Internet, watching television specials that bring together
the history, search and recovery of shipwrecks, viewing video of recovery
operations, owning coins or artifact replicas, and viewing shipwreck artifacts
at both traveling and permanent exhibitions and tourist attractions.
Each shipwreck project is different, and Odyssey expects to generate different
combinations of revenue from each project. The Company believes its five
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primary sources of revenue will be cargo and trade goods sales, merchandise
sales, exhibit income, sponsorships and intellectual property (IP) rights.
CARGO AND TRADE GOODS SALES
The first area, cargo sales, refers to items or "cargo" found on a ship that
are not considered culturally significant. For example, from a shipwreck found
with a large cargo of coins, Odyssey might market and sell those coins, after
significant study of the collection and setting aside a representative sample
for future study. Another project may recover gold bullion, which could
quickly be sold. Other shipwrecks may never produce revenue from cargo sales.
An example of this would be the "Melkarth" shipwreck, the ancient Punic or
Phoenician shipwreck discovered by Odyssey in September 1998. The artifacts
recovered from this shipwreck will likely be too culturally and
archaeologically significant to split the collection. For shipwrecks such as
the "Melkarth", the other identified revenue streams should allow Odyssey to
recover, conserve and publish these archaeologically significant finds.
MERCHANDISE SALES
Merchandise sales will comprise any items sold that were not recovered from a
particular shipwreck. This merchandise can include artifact replicas
(including jewelry), logo merchandise, videotapes, books and other products.
Merchandise may be sold through retail outlets, over the Internet (e-
commerce), in conjunction with exhibits, and through direct marketing,
including home shopping or documercials.
EXHIBITS
Exhibit income will be derived from various types of exhibits. Permanent
shipwreck exhibits may have rotating exhibits of several shipwreck projects.
Large market exhibits would travel to larger cities and stay in place for 4 to
6 months. The traveling exhibit plan includes weeklong stops in secondary and
tertiary markets. In addition to income from exhibit admission fees, all of
the exhibit plans include opportunities for sponsorship income and additional
merchandising (cargo and/or merchandise sales).
SPONSORSHIPS
Sponsorships will be available for some of Odyssey's projects. These corporate
or institutional sponsorships will allow appropriate companies or products to
share the media exposure and promotional opportunities associated with
specific Odyssey expeditions, from search and recovery through exhibit of
artifacts.
INTELLECTUAL PROPERTY
Intellectual Property (IP) rights will include media rights (television, film,
book, video, photos), and licensing fees. "Rights" fees to shipwreck projects
will be weighed against the PR value of the exposure (which drives
merchandise sales), and what future rights the company may retain to promote
sales.
The current increase in the number of digital television channels will drive a
major increase in the need for content (programming). Retaining some or all
rights to the television specials produced for each project could generate
additional revenue stream from licensing fees to the domestic and
international television markets long into the future.
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ACTIVE PROJECTS
The Company currently has several projects in various stages of development
and has plans to conduct operations on at least three of its sites during
2000.
CAMBRIDGE PROJECT
The "Cambridge Project" is an expedition to locate, recover and market the
artifacts and cargo of a large colonial warship, lost in a severe storm in the
1600's. Based on research conducted by the Company and its researchers,
management believes that there is a high probability that the ship was
carrying a cargo of coins with a bullion value of between $20 and $75 million
and a potential numismatic value of between $200 million to over $1 billion.
This will depend on whether the specie referenced in research documents is
gold or silver, its denomination and condition, and the method chosen for
marketing.
During 1998, the Company conducted search operations over an area of
approximately 100 square miles. Several anomalies were located and several
shipwrecks, including a Phoenician wreck dubbed "Melkarth" were identified.
The Cambridge was not located within the original search area. This led the
Company to conclude the Cambridge is mostly likely located in the territorial
waters of a country with strict underwater exploration laws. During April
1999, the Company was issued a Permit from this country to expand the search
for the Cambridge into their territorial waters.
During the summer of 1999, a side scan sonar survey was conducted over an area
of approximately 65 square miles. During this operation, 210 anomalies were
located. After post processing of the data, all but 132 were eliminated. Of
the remaining 132 targets, only 20 are considered to be "highly probable".
The Company plans to return to the work area in July 2000 and inspect the
highly probable anomalies with a remotely operated vehicle.
If the Company is successful in locating the Cambridge during the July
operations, an archaeological excavation will be planned for late 2000 or
early 2001. If the Cambridge is not located, the Company intends to continue
the side scan operation during the late summer and early fall of 2000.
REPUBLIC PROJECT
The Republic Project is an attempt to locate, identify, recover, conserve and
market the cargo of the Republic, a steam ship that sank after the Civil War.
According to the Company's research, the Republic's cargo included
approximately 48,000 troy ounces of gold. While the bullion value (at $280
per ounce) is approximately $13,000,000, much of the gold may have been
shipped as dust, nuggets, and privately minted coins and bars from the gold
fields, potentially increasing the value of the cargo. Odyssey has reached an
agreement with researchers and insurance interests that would give the Company
80% of any net revenue generated by the project.
The Republic Project was offered to the Company in 1999. After conducting
research and due diligence on the project, the Company signed an Agreement to
take over the project. The Agreement provides for the Company to assume all
financial and management responsibilities for the Project. The Company will
receive 80% of the net profit with the balance being paid to the insurers and
the researchers.
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Prior to the Agreement with the Company, a side scan survey was conducted
over a major portion of the search area by other parties. Several anomalies
were located but ROV inspections were never conducted. By the time Odyssey
became involved in the Project, most of the original side scan data had been
lost. The Company's technicians attempted to reconstitute the survey data
through log books and positioning information.
During 1999, the Company conducted ROV inspections of the anomalies. Although
certain anomalies were found, it was determined that the positioning data was
generally unreliable, so plans were made to continue the operation in 2000.
The Company intends to conduct a new search operation beginning May 2000. The
equipment deployed during this operation will include side scan sonar and a
remote operated vehicle capable of working to the maximum depths of the search
area. The Company expects this operation to last for a maximum of forty-five
days.
If the Republic is located, recovery operations will begin as soon as the
archaeological excavation plan is complete.
CONCEPCION PROJECT
The "Concepcion Project" is a project attempting to locate, identify, recover,
conserve and market the cargo of an early 18th century shipwreck that sank
while carrying a large cargo of gold. Value estimates by Management for the
Concepcion Project range from a gold bullion value of approximately $35
million to a potential numismatic and collectors value of well over $100
million.
Pesquisas Arqueologicas Maritimas, S.A. (Pesqamar), a Brazilian S/A, was
formed to conduct the Concepcion Project. The Company owns 24.5% of the Common
Voting Stock and 55% of the Preferred Non-Voting Stock of Pesqamar.
In August of 1995, Pesqamar and Salvanav LTDA., a Brazilian salvage company
competing for the same shipwreck, entered into an agreement forming a
Brazilian consortium known as Consorcio Para Pesquisas Arqueologicas
Submarinas (CONPAS). CONPAS conducted all operations on the shipwreck project
until April of 1999 when a bifurcation agreement between the parties ended the
operation of CONPAS. The sought after shipwreck has not yet been identified
and the Company intends to continue searching for the shipwreck through
Pesqamar.
In addition to its ownership in Pesqamar, the Company has signed a Finance
Agreement with Pesqamar whereby it will receive 30% of the gross recovery for
providing the search financing and, optionally, an additional 20% of the gross
for providing the recovery financing. Assuming the shipwreck is located and
the recovery financing option is taken, the combination of its ownership in
Pesqamar and the Financing Agreement would entitle the Company to
approximately 72.18% of any post government revenue that may be generated from
this project.
The offshore search phase of this project was commenced during October 1996.
To date over 400 square miles have been surveyed with side scan sonar and ROV
inspections have been conducted on approximately 20 sites. Due to the
conditions observed with the ROV, a magnetometer survey was conducted on these
sites during January and February 1998. The Company anticipates further ROV
inspections will be recommenced during the fall of 2000.
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DEEP-WATER VS SHALLOW WATER OPERATIONS
The shipwreck business is broken into two primary areas: deep-water projects
and shallow water projects. Traditionally, the shallow water business has
comprised nearly 100% of the industry, primarily because the cost of entry is
relatively low.
Many of the world's most famous recoveries were made with minimal investment.
As a result, the lack of archaeological professionalism associated with these
projects brought a tremendous amount of criticism from the archaeological
community. While this didn't dampen the public's enthusiasm for these
ventures, the resulting conflict with the archaeological and scientific
community caused a great deal of wariness in government and bureaucratic
circles. The net result was a burgeoning body of law designed to limit or
prevent access to shipwrecks by these shallow water shipwreck explorers. Many
of the countries that are richest in potential shipwreck projects have enacted
legislation that prevents salvors or divers from even touching these sites.
In addition to these problems of working in shallow water, there are several
other factors that make shallow water shipwreck projects more risky. They
include:
* Many competitors can afford to engage in shallow water projects.
* Ease of pirates stealing artifacts from shallow water sites.
* Possibility that the shipwrecks were already salvaged.
* Probability that the site is scattered over a large area by waves
and currents.
* Difficulty of security when working with divers.
* Problems extracting encrusted and coral-covered artifacts.
Deep-water shipwrecks, on the other hand, exhibit characteristics that make
them much more suitable for legitimate commercial operations. They include:
* It is usually easier to gain title to shipwrecks in international
waters.
* Depth is a barrier to all but well-funded commercial operations.
* Deep shipwrecks tend to be in one capsule, perfect for
archaeological excavation.
* In water greater than 200 meters, there is typically little coral
or encrustation.
* Difficulty of access provides good site security.
* Expense dictates that archaeologists can't reach sites without
commercial help.
* There is a high probability that shipwrecks have not been
previously salvaged.
* High cost creates need for professionalism in all commercial
operations.
* High tech nature of operation increases public interest.
For these reasons the Company has decided to concentrate on deep-water
shipwreck projects.
COMPETITION
The Company is aware of the following companies which are currently engaged in
the deep water shipwreck business:
* Nauticos
* Columbus America Group
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* Seahawk Deep Ocean Technology, Inc.
* Blue Water Recoveries
While each of these companies could be considered competitors, management does
not believe that any of them are interested in any of the Company's current or
planned projects.
There are also several companies engaged in deep-water oil exploration and
seismic research. While these companies may own and operate the type of
equipment necessary to locate and recover shipwrecks, the Company does not
consider them to be competitors but rather potential suppliers.
On the marketing side, there is a cottage industry of a few shops and small
museums around the country that market shipwreck artifacts. However, there is
one group which has recently begun a pioneering effort in marketing
shipwrecks. In spite of the fact that their business is less than three years
old, they have developed a formula that seems to be working very well. They
have developed a "Shipwreck Treasure Road Show" which has two components.
First is a small display of valuable pieces from the Atocha and various other
shipwrecks, which is advertised in the press as a "Mini-museum" free for the
public to view. The second component is a large display of jewelry, artifacts,
replicas, books and other items relating to shipwrecks. The exhibit typically
comes to a town for 4 to 5 days, during which it is set up in one of the
largest jewelry stores in that city. A major advertising campaign in the
market is undertaken, and the public's response to date has been excellent.
While this group might be considered competition, they are currently viewed
more as pioneers and potential marketing partners that have proven the
public's acceptance on a wide scale shipwreck marketing program.
EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON THE BUSINESS
To the extent that the Company engages in shipwreck search and recovery
activities in the territorial, contiguous or exclusive economic zones of
countries, the Company must comply with applicable regulations and treaties.
Prior to engaging in any project, the Company seeks legal advice to ascertain
what effect this may have on the financial returns of the operation. This
factor is taken into account in determining whether to proceed with the
program as planned. In addition, there is currently an initiative being
considered in the United Nations Educational, Scientific & Cultural
Organization ("UNESCO") known as the Convention on the Protection of
Underwater Cultural Heritage. If adopted, it could restrict access to
historical shipwrecks throughout the world to the extent that it would require
compliance with guidelines set forth by the International Council of Monuments
and Sites (ICOMOS), if these guidelines are annexed to the Convention. These
guidelines require adherence to strict archaeological practices, and the
Company intends to follow these guidelines in all projects to which they are
applicable. The article in the ICOMOS guideline, which may be problematic to
the Company, is the requirement that items of cultural significance not be
traded. The Company believes that the primary value of the cargoes it seeks is
trade goods (such as coins, bullion and gems), and therefore the Company does
not believe that these items constitute artifacts of cultural significance.
Nevertheless, the Company believes that the proposed convention, if adopted,
could significantly increase regulation of shipwreck recovery operations and
may result in higher costs.
Management does not believe that the Convention will be adopted as presented,
however, because the United States, Great Britain and several other critical
countries have voiced their opposition to this initiative and stand ready to
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block its passage. In addition, several organizations, including the Maritime
Law Association, Historic Shipwreck Salvors Professional Association (HSSPAC)
and the Professional Shipwreck Explorer's Association (ProSEA) are cooperating
to prevent adoption of this convention in its currently proposed restrictive
form. The Company's management has been involved in a leadership role, and
Greg Stemm, Vice President, Research and Operations for the Company, is
presently President of ProSEA, as well as a member of the United States
delegation chosen to negotiate this Convention.
COST OF ENVIRONMENTAL COMPLIANCE
While offshore operations and the operation of vessels require compliance with
numerous environmental regulations, the Company intends to lease or charter
the necessary vessel and equipment thereby transferring the responsibility of
environmental compliance to the equipment and vessel owners.
EMPLOYEES
The Company currently employs its three executive officers, on a full time
basis. The Company also employs two individuals doing administrative
assistance and public relations. In addition, the Company hires consultants
from time to time to perform specific services.
RISK FACTORS
Investors in shares of the Company's Common Stock should consider the
following risk factors, in addition to other information in this Report:
1. SPECIAL RISKS OF THE BUSINESS. An investment in a business such as
that of the Company should be considered extremely speculative and of
exceptionally high risk. Although the Company has access to a substantial
amount of research and data which has been compiled regarding its various
projects, the quality and reliability of such research and data, like all
research and data of its nature, is unknown. Even if the Company is able to
plan and obtain permits for its various projects, there is a possibility that
the shipwrecks may have been salvaged, or may not have had anything of value
on board at the time of the sinking. Furthermore, even if objects of believed
value are located and recovered, there is the possibility that the Company's
rights to the recovered objects will be challenged by others, including both
private parties and governmental entities, asserting conflicting claims.
Finally, even if the Company is successful in locating and retrieving objects
from a shipwreck and establishing good title thereto, there can be no
assurance as to the value that such objects will bring at their sale as the
market for such objects is very uncertain.
2. UNCERTAIN RELIABILITY OF RESEARCH AND DATA. The success of a
shipwreck project will be dependent to a substantial degree upon the research
and data assimilated by the Company. By its very nature, however, all such
research and data regarding shipwrecks, such as those sought by the Company,
is imprecise, incomplete and unreliable as it is often composed of or effected
by numerous assumptions, rumors, "legends", historical and scientific
inaccuracies and inaccurate interpretations which have become a part of such
research and data over time.
3. DEPENDENCE ON OTHERS FOR LOCATION AND RECOVERY OF WRECKSITES. While
the Company plans to contract with other parties who will be responsible for
the location and recovery of shipwrecks, it is possible that the primary
responsibility for such location and recovery may fall directly upon the
Company. While Mr. Morris and Mr. Stemm have experience in the location and
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recovery of shipwrecks, the Company does not currently own the equipment or
employ the personnel that may be necessary for this type of work. Whenever
the primary responsibility for search and recovery operations fall upon the
Company, it will be required to contract with others to supply personnel and
equipment to complete the project. There can be no assurance that financing or
third party contracts will be available to the Company. The availability of
specialized recovery equipment may present a problem, and the cost of
obtaining the use of such equipment to conduct recovery operations is
uncertain and will depend on, in part, the location and condition of the
wreckage to be recovered.
4. NATURAL HAZARDS. Underwater recovery operations are inherently
difficult and dangerous and may be delayed or suspended by weather, sea
conditions or other natural hazards. Further, such operations may be
undertaken more safely during certain months of the year than during others.
There can be no assurances that the Company and/or entities it is affiliated
with will be able to conduct their search and/or recovery operations only
during such favorable periods. In addition, even though sea conditions in a
particular search location may be somewhat predictable, the possibility exits
that unexpected conditions in a search area may occur and that such unexpected
conditions might adversely affect the Company's operations. Further, it is
possible that natural hazards may prevent or significantly delay search and/or
recovery operations and therefore any distributions.
5. UNCERTAIN TITLE TO OBJECTS LOCATED. Persons and entities other than
the Company and entities it is affiliated with (both private and governmental)
may claim title to the shipwrecks. Even if the Company is successful in
locating and recovering shipwrecks, there is no assurance that the Company
will be able to establish its right to property recovered as against
governmental entities, prior owners, or other attempted salvors claiming an
interest therein.
6. UNCERTAIN MARKET FOR AND VALUE OF RECOVERED OBJECTS. Even if
valuable items can be located and recovered, it is difficult to predict the
price that might be realized for these items. The value of the recovered
items will fluctuate with a precious metals market that has been highly
volatile in recent years. Moreover, the entrance on the market of a large
supply of similar items from shipwrecks located and recovered by others could
itself depress the market for these items.
7. DELAY IN DISTRIBUTION OR SALE OF RECOVERED OBJECTS. The methods and
channels which may be used in the disposition of the recovered items are
uncertain at present and may include one or a combination of several
alternatives. Ready access to buyers for disposition of any artifacts or other
valuable items recovered, however, cannot be assured and delays in the
disposition of such items are very possible.
8. THEFT. If the Company locates a shipwreck and asserts a valid claim
to items of value, there is a risk of theft of such items at sea, both before
and after their recovery, by "pirates" or poachers and while in transit to a
safe destination.
9. COMPETITION. There are a number of competing entities engaged in
various aspects of the shipwreck business. One or more of these competing
entities may locate and recover the shipwreck that the Company is planning to
locate and recover. In addition, these competing entities may be better
capitalized and may have greater resources to devote to their pursuit of the
shipwreck.
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10. FAILURE TO OBTAIN PERMITS. It is possible that the Company will not
be successful in obtaining title to, or permission to excavate the wrecks. In
addition, permits which are sought for the projects may never be issued, and
if issued, may not be legal or honored by the entities which issued them.
11. NEED FOR ADDITIONAL CAPITAL. Until the Company begins to generate
revenue from the sale of recovered items, it will need additional capital in
order to continue the search, recovery and marketing phases of its projects.
12. PUBLIC MARKET FOR THE COMPANY'S COMMON STOCK. Although there is a
limited market for the Company's Common Stock, there can be no assurance that
such a market can be sustained. The investment community could show little or
no interest in the Company in the future. As a result, purchasers of the
Company's securities may have difficulty in selling such securities should
they desire to do so. The Common Stock currently trades on the OTC Bulletin
Board.
13. CONTROL BY EXISTING MANAGEMENT. The current executive officers and
directors of the Company own beneficially approximately 50% of the Company's
outstanding Common Stock. Accordingly, the current executive officers and
directors will continue to have the ability to significantly influence the
outcome of elections of the Company's directors and other matters presented to
a vote of shareholders.
14. DIFFICULTY IN TRADING "PENNY-STOCKS". The Company's securities may
be subject to a rule that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers (as defined in the rule) and accredited investors (generally,
institutions and, for individuals, an investor with assets in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 together with such
investor's spouse). For transactions covered by this rule, the broker-dealer
must make a special suitability determination for the purchaser and must have
received the purchaser's written consent to the transaction prior to the
purchase. Consequently, many brokers may be unwilling to engage in
transactions in the Company's securities because of the added disclosure
requirements, thereby making it more difficult for shareholders to resell
Common Stock in the secondary market.
15. GENERIC PREFERRED STOCK AUTHORIZED. The Company's Articles of
Incorporation authorize the issuance of up to 10,000,000 shares of Preferred
Stock. The Board of Directors has the right to establish the terms,
preference, rights and restrictions of the Preferred Stock. Other companies on
occasion have issued series of such preferred stock with terms, rights,
preferences and restrictions that could be considered to discourage other
persons from attempting to acquire control of such companies and thereby
insulate incumbent management. It is possible the Company could issue shares
of its Preferred Stock for such a purpose. In certain circumstances, the
existence of corporate devices that would inhibit or discourage takeover
attempts could have a depressant effect on the market value of the Company's
common stock.
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains its offices at 3507 Frontage Road, Suite 100, Tampa,
Florida 33607. The offices consist of approximately 3,170 square feet of
office space that the Company sub-leases from a non-affiliated company. The
agreement began April 1, 1997 and expires December 31, 2000. The approximate
yearly rental is as follows: 1999-$44,120, 2000-$39,777.
12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On February 18, 2000 two complaints were filed against the Company in the
Circuit Court for the Thirteenth Judicial Circuit in and for Hillsborough
County Florida, Civil Division, on behalf of plaintiff, Seahawk Deep Ocean
Technology, Inc.("Seahawk"), seeking approximately $43,400, plus attorney
fees, in payment for certain services rendered. The Company has paid the
amount it feels it owes ($32,600.00) into an escrow account and continues to
defend the case.
On October 14, 1999, a judgement was entered in favor of the Company against
Treasure & Exhibits International, Inc.("VNSR") in the principal amount of
$341,500.08 plus prejudgment interest of $16,361.78. The suit stemmed from
certain put options granted to the Company by VNSR. The principal and interest
has been paid by VNSR. In May 2000, the parties agreed to a final payment in
the amount of $45,000 for reimbursement of legal expense and interest. Upon
receipt of the final payment the Company has agreed to dismiss the judgement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) PRINCIPAL MARKET OR MARKETS.
The Company's Common Stock is traded on the OTC Bulletin Board under the
symbol "OMEX." The following table sets forth the range for the high and low
bid quotations for the Company's securities as reported by the OTC Bulletin
Board. These prices are believed to be representative inter-dealer quotations,
without retail markup, markdown or commissions, and may not represent actual
transactions.
Bid*
High Low
Quarter Ended ----- -----
May 31, 1998 $4.00 $2.00
August 31, 1998 $3.50 $2.00
November 30, 1998 $2.37 $0.94
February 28, 1999 $2.37 $0.81
May 31, 1999 $1.69 $1.00
August 31, 1999 $1.44 $0.81
November 30, 1999 $0.81 $0.15
February 29, 2000 $0.31 $0.13
(*) The above prices have been adjusted to account for the 1 for 5
reverse split effective September 9, 1997.
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK.
The number of record holders of the Company's $.0001 par value Common Stock at
April 30, 2000 was 175. This does not include shareholders that hold their
stock in accounts in street name with broker/dealers.
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<PAGE>
(c) DIVIDENDS.
Holders of the Common Stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. No dividends have been paid
with respect to the Company's Common Stock and none are anticipated in the
foreseeable future.
(d) RECENT SALES OF UNREGISTERED SECURITIES.
COMMON STOCK
During the three months ending February 29, 2000 the Company issued 10,000
shares of common stock to one individual for services valued at $2,500 and
16,800 shares to an individual for accrued expenses valued at $4,200. The
Company issued 302,363 shares to three individuals for $132,000 of notes
payable and $17,133 of accrued interest thereon.
The securities were issued pursuant to the exemption provided by Section 4(2)
of the Securities Act of 1933. The persons to whom these securities were
issued were employees and consultants to the Company and noteholders who made
an informed investment decision and had access to material information
regarding the Company. The certificates representing such common shares bear
an appropriate legend restricting the transfer of such securities, and stop
transfer instructions have been provided to the Company's transfer agent in
accordance therewith.
On February 3, 2000 the Company issued 250,000 shares to three individuals in
an exchange for common stock of another company valued at $50,000.
The securities issued in the exchange were issued pursuant to the exemption
provided by Section 4(2) of the Securities Act of 1933. The three persons to
whom these securities were issued are investors who made an informed
investment decision and had access to material information regarding the
Company. The certificates representing such common shares bear an appropriate
legend restricting the transfer of such securities, and stop transfer
instructions have been provided to the Company's transfer agent in accordance
therewith.
The Company conducted a Private Placement dated March 31, 2000, in which it
offered Units consisting of 100,000 shares of the Company's Restricted Common
Stock, and a Warrant to purchase up to 100,000 shares of Restricted Common
Stock at the price of $1.25 per share until August 31, 2000 or at the price of
$2.50 per share from September 1, 2000 until March 31, 2002. The Units were
offered at a purchase price of $50,000 per Unit. Seven Units were sold. The
Company is obligated to file a registration statement with respect to this
transaction on or before June 30 2000. If the Company fails to file the
registration statement the holders of the Units are entitled to receive
additional shares.
The securities issued in the private placement were issued pursuant to the
exemption provided by Section 4(2) of the Securities Act of 1933. The persons
to whom these securities were issued are accredited investors who made an
informed investment decision and had access to material information regarding
the Company. The certificates representing such common shares bear an
appropriate legend restricting the transfer of such securities, and stop
transfer instructions have been provided to the Company's transfer agent in
accordance therewith.
14
<PAGE>
ITEM 6. 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 reflect events of 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 Item 1.
In the long term, the Company expects to derive substantially all of its
revenue through the sale and/or display of shipwreck cargoes and artifacts,
including replicas. Therefore, until the Company is successful in acquiring
and marketing artifacts and/or cargoes, it will be dependent upon investment
capital to meet its cash flow requirements. To date, the Company has
conducted private placements of debt, equity and project specific revenue
participation to meet its financial obligations.
For the next twelve months, the Company anticipates spending approximately
$60,000 per month to pay salaries and general office expense and an additional
$500,000 to continue the "Republic", "Cambridge" and "Concepcion" operations.
In order to fund its overhead and projects, the Company conducted a private
placement of Units consisting of Common Stock and Warrants that raised
$350,000 for operational and administrative purposes. The Company has also
raised approximately $265,000 through the sale of marketable securities and
anticipates it will generate an additional $250,000 from future sales of
marketable securities held by the Company. Depending on the results of the
Republic and Cambridge operations, the Company plans on financing the balance
of its budget through secured debt or another private placement of debt or
equity.
Operationally, the Company plans to continue the search operations for the
Cambridge, Republic and Concepcion Projects. Additionally, if any of the
search operations are successful, and subject to financing, the Company plans
to begin recovery operations on one or more of these projects. The Company
intends to finance these operations through the sale of equity, revenue
participation or debt. There can be no assurance of the Company's ability to
secure financing and this could cause a delay or cancellation of one or more
projects.
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. 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 investigated potential problems with software used by the Company
for the management of its business and communications. The Company utilizes
15
<PAGE>
very common software packages, all of which are relatively new. Potential
problems with software compliance were addressed by all of the software
package vendors and in the first quarter of 1999 the Company installed patches
to it's software programs to insure Y2K compliance. There was no additional
cost incurred to access these updates.
The Company is not dependant on any material suppliers that would be expected
to cause an interruption of the Company's business operations if they were to
suffer Y2K compliance problems.
To date, there have been no adverse effects on the Company's operations or
accounting records related to the year 2000 issue.
ITEM 7. FINANCIAL STATEMENTS.
Please see pages F-1 through F-19.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table sets forth the names and positions of the officers and
directors.
NAME AGE POSITION
----------------- --- -----------------------------
John C. Morris 51 President and Chairman of the
Board of Directors
Gregory P. Stemm 43 Vice-President, Research &
Operations, Director and Chairman
of Nominating Committee
David A. Morris 49 Secretary and Treasurer
William C. Callari 38 Director and Chairman of Project
Review Committee
Gerald Goodman 51 Director and Chairman of Audit
Committee
E. Eugene Cooke 60 Director
Brad Baker 40 Director and Chairman of the
Compensation Committee
There is no family relation between any of the Directors or the Executive
Officers of the Company except John Morris and David Morris who are brothers.
All directors will hold office until the next annual meeting of the
Shareholders.
16
<PAGE>
The three Executive Officers each have employment contracts that are effective
from March 1, 2000 until February 28, 2001.
The following sets forth biographical information as to the business
experience of each Officer and Director of the Company for at least the last
five years.
JOHN C. MORRIS has served as an Officer and Director of the Company since
August 1997, and as an officer and director of Remarc since May 1994. Prior
to that, Mr. Morris was an officer and director of Seahawk Deep Ocean
Technology, Inc. ("SDOT") from March 1989, until January 1994. As President
of SDOT, Mr. Morris was in charge of the Company which completed the first
archaeologically sound recovery of a deep water shipwreck, salvaging a Spanish
shipwreck from approximately 1,500 feet of water near the Dry Tortugas. The
recovery yielded nearly 17,000 artifacts consisting of gold, silver coins,
pottery, pearls, jewelry, and numerous other artifacts. From 1992 until 1997,
Mr. Morris served on the Board of Directors of the Florida Aquarium, a not for
profit corporation engaged in the operation of a large aquarium facility in
Tampa, Florida.
WILLIAM C. CALLARI, has served as an Officer of the Company from October 1995
to February 1998, and as a Director of the Company since October 1995.
Callari is Chairman of International Licensing & Merchandising, Inc., a
company that holds the license for the management of the e-Commerce platform
for the world's fair, EXPO2000, to be held in Hannover, Germany in the year
2000. He is President of North Star Resources, Inc., a firm that provides
contracting management services, and business management services. For the
past nine years, he has also been President of Realty Development &
Management, Inc., a real estate development and construction company. From
1986 to 1992, Mr. Callari was involved in property management, real estate
development, construction and marketing for many real estate limited
partnerships. Prior to that, he received a Bachelor of Science degree in
Business Administration (Marketing) from Seton Hall University in 1983.
Mr. Callari has been featured in Builder Magazine and lectured at state
conventions on residential marketing. During 1990 and 1991 he won many state
and local Sales and Marketing awards for product design and presentation. He
was also a member of the Young Entrepreneur's Organization.
GREGORY P. STEMM has served as Vice President, Research and Operations and as
a member of the Board of Directors since December 1995 and is responsible for
research and operations on all shipwreck projects. Prior to that, he served as
an officer and director of Seahawk Deep Ocean Technology from the time he co-
founded the company in 1989 until January 1994.
Stemm is a member of the United States delegation to the United Nations,
Educational, Scientific and Cultural Organization (UNESCO) expert meeting to
consider the "Draft Convention for the Protection of Underwater Cultural
Heritage". This group will determine future international deep-ocean shipwreck
guidelines. He has written articles on the ethics and future of deep ocean
shipwreck exploration and archaeological excavation, and has given over 100
lectures on the subject at the Institute of Nautical Archaeology, World
President's Organization, Young Entrepreneur's Organization and before other
groups. He was named a panelist on Shipwreck Ethics at the 1998 Law of the Sea
Institute and was also recently selected as a fellow of the Explorers Club.
Greg writes a column on shipwreck exploration for "Underwater Magazine", and
is currently President, and a founding Board Member, of the Professional
Shipwreck Explorers Association (ProSEA). ProSEA is a not-for-profit trade
association that provides a forum through which salvors, archaeologists and
17
<PAGE>
government entities work together to promote a high standard of ethics and
principals in dealing with deep sea shipwreck resources.
As a principal of Seahawk, Stemm was involved in directing research and
technology for the company, which resulted in locating two Spanish Colonial
shipwrecks in depths greater than 1,000 feet. He was also responsible for
directing the archaeological team and operations that accomplished the world's
first remote archaeological excavation, in a depth of 1,500 feet southwest of
the Florida Keys.
In addition, Stemm is a member of MENSA, The Nautical Archaeology Society, The
Society for American Archaeology, and a founder of the Florida Aquarium. He
was formerly International President and director of the Young Entrepreneurs
Organization (YEO), an exclusive group of founders of companies throughout the
world. He was also appointed to the International Board of Directors of the
World Entrepreneurs Organization (WEO). Prior to his involvement with
Seahawk, Stemm was co-founder and a partner in DeFrain-Stemm Advertising, a
full service advertising agency which included clients such as Trammell Crow
Real estate, NCNB National Bank, Hyatt Hotels and may other tourism and real-
estate-oriented businesses. Greg was responsible for all strategic planning
and marketing for clients of the agency.
E. EUGENE COOKE has been a member of the Board of Directors of the Company
since August 1997 and a member of the Board of Directors of Remarc since
September 1996. Prior to joining the Board, Mr. Cooke was an investor in
Remarc. From 1986 until 1994 Mr. Cooke was the President of Gravure
Packaging, a printing concern located in Richmond Virginia. From 1994 through
the present, Mr. Cooke serves as President of CAS Leasing, Inc., an aircraft
leasing company located in Richmond Virginia and he is also President of
Commonwealth Aviation in Richmond. Mr. Cooke serves on the Board of Directors
of Goodwill Industries and is a Board member at the Trinity Episcopal School
in Richmond.
GERALD GOODMAN has served on the Board of Directors since September, 1996. He
also serves on the Board of Directors of International Licensing &
Merchandising, Inc., a Nevada company that holds the license for the
management of the e-Commerce platform for the world's fair, EXPO2000, to be
held in Hannover, Germany in the year 2000. In addition, he is also a name-
partner in the certified public accounting firm of Weiner & Goodman, P.C.,
Eatontown, New Jersey, where he has been affiliated for the past twenty-three
years. The firm is a regional firm with offices located in New Jersey and New
York. Gerald provides audit, tax and management advisory services to his
broad base of clients, and he is the designated partner-in-charge of the SEC
Practice Section of his firm. A major portion of his client base is
international, with clients based in Hong Kong, the United Kingdom, France,
Germany as well as the United States and the CIS. Gerald was awarded a
Bachelor of Science degree in Accounting from Pennsylvania State University in
1970, and he was admitted as a member of the American Institute of Certified
Public Accountants in 1983.
BRAD BAKER is CEO of myprivates.com, an Internet company tasked with raising
money for private placements on the internet. During the last six years, he
has been President of Kansas Home Development Corporation, a developer of
affordable housing in Kansas City, Kansas.
He was previously Director of Business Development for Comcast Online
Communications, having recently been promoted from General Manager of Comcast
Online Communications in Sarasota, Florida. He was the founder and CEO of
NetLine Communications, a statewide Internet provider that was acquired by
18
<PAGE>
Comcast in July 1996. At NetLine, he was responsible for implementing one of
the state's first frame relay networks to provide Internet Access throughout
Florida.
He began his technology career by founding a chain of retail computer stores
that became the premier Apple and IBM dealers in southwest Florida. Later, he
took a computer peripheral company, Tech:Time (NASDAQ TTME) public. One of
Baker's projects was to design a low cost computer network for peripheral
equipment that is still used today. Baker has consulted with Bell & Howell and
Hewlett Packard on ink-jet printer design; as well as the U. S. Coast Guard
and several other Fortune 500 companies on solid-state equipment design.
Baker received a presidential appointment from President Reagan to serve as a
White House Fellow in 1987. In this assignment he was involved in many policy
issues, including technology. Later, he became one of the officers of the
Resolution Trust Corporation, the government agency tasked with solving the
savings and loan problem. As founder and CEO of NetLine, Baker has guided the
company through explosive growth while engineering a high level of customer
support and service.
DAVID MORRIS has served as Secretary and Treasurer of the Company since August
1997. He joined Remarc in April 1997, and in May 1997 he became Remarc's
Secretary and Treasurer. Prior to that, Mr. Morris was employed by Seahawk
Deep Ocean Technology where he was an Administrative Assistant to the Chief
Financial Officer from 1994 through 1997, and manager of the Conservation and
Archaeology departments from 1990 through 1994. Mr. Morris graduated with a
Bachelor of Science degree in Mechanical Engineering from Michigan State
University in 1974.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely on a review of Forms 3 and 4 and amendments thereto furnished to
the Company during its most recent fiscal year, and Form 5 and amendments
thereto furnished to the Company with respect to its most recent fiscal year
and certain written representations, no persons who were either a Director,
Officer or beneficial owner of more than 10% of the Company's Common Stock,
failed to file on a timely basis reports required by Section 16(a) of the
Exchange Act during the most recent fiscal year except as follows: (1) Will
Callari reported four sales totaling 6,300 shares of common stock sold during
the year ending February 29, 2000, late in a Form 5; and (2) Greg Stemm
reported four sales totaling 6,500 shares of common stock sold during the year
ending February 29, 2000, late in a Form 5.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information regarding the executive
compensation for the Company's President for the years ended February 29, 2000
and February 28, 1999 and 1998, and each other executive officer who had total
annual salary and bonus in excess of $100,000 during such years.
19
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
----------------------------
Annual Compensation Awards Payouts
--------------------- ---------------- -------
Securi-
ties
Re- Under- All
Name and stricted lying LTIP Other
Principal Stock Options/ Payout Compen-
Position Year Salary Bonus Awards SARs(#) ($) sation
---------------- ---- -------- -------- ------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
John C. Morris, 2000 $150,000 $25,000 -0- 220,000 -0- -0-
President 1999 $100,000 -0- -0- 75,000 -0- -0-
1998 $ 90,000 -0- -0- -0- -0- -0-
Gregory P. Stemm, 2000 $150,000 $25,000 -0- 195,000 -0- -0-
Vice-President 1999 $100,000 -0- -0- 75,000 -0- -0-
1998 $ 90,000 -0- -0- -0- -0- -0-
David A. Morris, 2000 $125,000 $15,000 -0- 195,000 -0- -0-
Secr/Treas 1999 $ 75,000 -0- -0- 75,000 -0- -0-
1998 $ 50,000 -0- -0- -0- -0- -0-
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/Share) Date
---------------- ---------- ------------ ------------ -----------
John C. Morris 45,000 3.59 $ 1.50 2/28/2003
John C. Morris 112,500 8.98 $ 2.00 2/28/2003
John C. Morris 62,500 4.99 $ 3.00 2/28/2003
Greg P. Stemm 45,000 3.59 $ 1.50 2/28/2003
Greg P. Stemm 87,500 6.99 $ 2.00 2/28/2003
Greg P. Stemm 62,500 4.99 $ 3.00 2/28/2003
David A. Morris 45,000 3.59 $ 1.50 2/28/2003
David A. Morris 87,500 6.99 $ 2.00 2/28/2003
David A. Morris 62,500 4.99 $ 3.00 2/28/2003
20
<PAGE>
AGGREGATE OPTION EXERCISES IN YEAR ENDED
FEBRUARY 29, 2000 AND FEBRUARY 29, 2000 OPTION VALUES
Securities Under- Value of Unexer-
lying Unexercised cised In-The-
Shares Options at Money Options at
Acquired on February 29, 2000 February 29, 2000
Exercise Value Exercisable/ Exercisable/
Name (Number) Realized Unexercisable Unexercisable
--------------- ----------- -------- ----------------- ----------------
John C. Morris -0- -0- 295,000 / -0- -0- / -0-
Greg P. Stemm -0- -0- 270,000 / -0- -0- / -0-
David A. Morris -0- -0- 270,000 / -0- -0- / -0-
EMPLOYMENT AND CONSULTING AGREEMENTS
Effective March 1, 2000 the Company entered into one year employment
agreements with its three executive officers. These agreements provide for
the following annual salaries: John C. Morris, President - $150,000; Gregory
P. Stemm, Vice-President - $150,000; and David A. Morris, Secretary and
Treasurer - $125,000. All three officers are also entitled to receive a bonus
of up to 100% of their base salary with such bonuses to be based upon job
proficiency and approval of the board of directors. Each agreement also
provides for the issuance of a total of 50,000 stock options, exercisable for
a period of four years from March 1, 2000 at an exercise price of $0.30 per
share.
EMPLOYEE STOCK OPTION PLAN
During the Special Shareholder Meeting held September 8, 1997, the
Shareholders approved an Employee Stock Option Plan (the "Plan"). The Plan
authorizes the issuance of options to purchase up to 2 million shares of the
Company's Common Stock.
The Plan allows the Board of Directors to grant stock options from time to
time to employees, officers and directors of the Company. The Board has the
power to determine at the time the option is granted whether the option will
be an Incentive Stock Option (an option which qualifies under Section 422 of
the Internal Revenue Code of 1986) or an option which is not an Incentive
Stock Option. Vesting provisions are determined by the board at the time
options are granted. The option price for any option will be no less than the
fair market value of the Common Stock on the date the option is granted.
During the fiscal year ended February 29, 2000, the Company issued the
following options to officers and directors, in addition to those itemized in
the Summary Compensation Table above, from the Plan:
Date Number of Option Date
Of Options Exercise Of
Grantee Position Grant Granted Price Expiration
------------------ ---------- --------- --------- --------- ----------
William C. Callari Director 4/23/1999 40,000 $1.50 2/28/2003
William C. Callari Director 4/23/1999 65,000 $2.00 2/28/2003
William C. Callari Director 4/23/1999 40,000 $3.00 2/28/2003
E. Eugene Cooke Director 4/23/1999 12,500 $1.50 2/28/2003
E. Eugene Cooke Director 4/23/1999 37,500 $2.00 2/28/2003
E. Eugene Cooke Director 4/23/1999 12,500 $3.00 2/28/2003
Brad Baker Director 4/23/1999 15,000 $1.50 2/28/2003
Brad Baker Director 4/23/1999 15,000 $2.00 2/28/2003
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<PAGE>
Brad Baker Director 4/23/1999 15,000 $3.00 2/28/2003
Gerald Goodman Director 4/23/1999 15,000 $1.50 2/28/2003
Gerald Goodman Director 4/23/1999 15,000 $2.00 2/28/2003
Gerald Goodman Director 4/23/1999 15,000 $3.00 2/28/2003
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table set forth, as of April 30, 2000, the stock ownership of
each person known by the Company to be the beneficial owner of five percent or
more of the Company's Common Stock, each Officer and Director individually and
all Officers and Directors of the Company as a Group.
Amount of
Name of Beneficial Percentage
Beneficial Owner Ownership of Class
------------------ -------------- ----------
John C. Morris 1,360,895 (1) 11.8%
3507 Frontage Rd. Suite 100
Tampa, FL 33607
Gregory P. Stemm 1,841,741 (2) 16.1%
3507 Frontage Rd., Suite 100
Tampa, FL 33607
William C. Callari 1,420,595 (3) 12.5%
Wedgewood Professional Bldg.
1725 Route 35, Suite B
Wall Township, NJ 07719
E. Eugene Cooke 1,158,096 (4) 10.0%
3901 Old Gun Road West
Midlothian, VA 23113
Mr. Gerald Goodman 144,379 (5) 1.3%
Meridian Center I,
Two Industrial Way West
Eatontown, NJ 07724
Brad Baker 118,627 (6) 1.1%
1322 Pine Needle Road
Venice, FL 34292
David A. Morris 407,253 (7) 3.6%
6522 Bimini Court
Apollo Beach, FL 33572
All Officers and Directors
as a group 6,451,586 49.9%
__________________
(1) Includes 889,149 shares held of record by John Morris, 110,080 shares
owned beneficially by Mr. Morris by virtue of his 45% interest in shares held
by Estimated Prophet, Inc., 345,000 shares underlying currently exercisable
stock options, and 16,666 shares underlying the option to convert revenue
participation certificates into common stock.
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<PAGE>
(2) Includes 126,182 shares held of record by Greg and Laurie Stemm, 1,395,559
shares held by Adanic Capital, Ltd., a limited partnership for which Greg
Stemm serves as general partner, and 320,000 shares underlying currently
exercisable stock options.
(3) Includes 1,190,595 shares held of record by William Callari and 230,000
shares underlying currently exercisable stock options.
(4) Includes 741,482 shares held of record by Eugene Cooke, 97,500 shares
underlying currently exercisable stock options, 45,834 shares underlying the
option to convert revenue participation certificates into common stock, and
273,280 shares underlying an option to convert a note to common stock.
(5) Includes 64,379 shares held of record by Gerald Goodman and 80,000 shares
underlying currently exercisable stock options.
(6) Includes 38,627 shares held of record by Brad Baker and 80,000 shares
underlying currently exercisable stock options.
(7) Includes 57,253 shares held of record by David A. Morris, 30,000 shares
held by Andrew P. Morris and Chad E. Morris his sons who live in the same
household, and 320,000 shares underlying currently exercisable stock options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the last fiscal year ended certain officers or directors have granted
new loans or extended the due dates of existing loans to the Company. At
February 29, 2000 the Company had loan agreements with its officers and
directors under the following terms:
<TABLE>
<CAPTION>
Relation- Interest Due Warrants or
Date Name ship Amount Rate Date Conversion Right
-------- --------- --------- ------- -------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
6/30/99 E. Cooke D $ 35,000 15% 6/30/00 -0-
11/1/99 E. Cooke D $ 61,011 15% 11/1/00 254,212
12/1/99 W. Callari D $132,131 15% 8/31/00 -0-
9/1/99 D. Morris O $ 75,000 15% 9/01/00 -0-
9/1/99 J. Morris O&D $150,000 15% 9/01/00 -0-
9/1/99 G. Stemm O&D $150,000 15% 9/01/00 -0-
</TABLE>
On April 1, 1999 the Company entered into a loan extension agreement with
Robert Stemm, Greg Stemm's father, wherein Mr. Stemm extended the due date on
his loan to the Company until March 31, 2000. The principal amount of $32,926
bears interest at 15% per annum and is secured by an inventory of raw
emeralds. On October 17, 1999 the principal amount was increased by $10,000
for equipment sold to the Company by Mr. Stemm. As an incentive to extend the
due date of the loan Mr. Stemm was granted an option to purchase up to 11,000
shares of the Company's restricted Common Stock at a purchase price of $3.00
per share. On April 1, 2000 the loan due date was again extended until March
31, 2001. As an incentive to again extend the due date of the loan Mr. Stemm
was granted an option to purchase up to 21,500 shares of the Company's
restricted Common Stock at a purchase price of $2.00 per share. This loan is
convertible into shares of Common Stock at the rate of $.50 per share.
23
<PAGE>
On August 31, 1999 the Company entered into a loan extension agreement with
Robert Stemm. The due date on his loan, which originated October 16, 1996 in
the principal amount of $50,000, has been extended for a term of one year.
This loan bears interest at the rate of 15% per annum and is now due August
31, 2000. As an incentive to extend the due date of the loan Mr. Stemm was
granted an option to purchase up to 35,000 shares of the Company's restricted
Common Stock at a purchase price of $2.00 per share. This loan is convertible
into shares of Common Stock at the rate of $1.00 per share.
On January 8, 2000 the Company entered into a loan extension agreement with
Olive Morris, the mother of both John and David Morris. Mrs. Morris's loan was
extended for a one-year term until January 8, 2001 and bears interest at 15%
per annum. The loan is convertible into shares of the Company's Common Stock
at $.50 per share at Mrs. Morris' option. The original loan granted Mrs.
Morris warrants entitling her to purchase up to 10,000 shares of the Company's
restricted Common Stock at a purchase price of $3.00 per share. As an
incentive to extend the due date of the loan, which became due on January 8,
2000, Mrs. Morris was granted an additional option to purchase up to 15,000
shares of the Company's restricted Common Stock at a purchase price of $2.00
per share. On February 28, 2000, Mrs. Morris exercised her option to convert
the principal balance under the loan into 60,000 shares of the Company's
common stock.
During the year ended February 29, 2000, the Company made periodic advances to
John Morris and Greg Stemm. These advances bear interest at 8%, and as of
February 29, 2000, the amount of the receivable from John Morris was $82,969,
including interest, and the amount of receivable from Greg Stemm was $74,659,
including interest.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
Number Description Location
------- ----------- --------
3.1 Articles of Incorporation, as Incorporated by reference to
amended Registrant's Form S-18 Regis-
tration Statement
(No. 33-7678-D)
3.2 Bylaws Incorporated by reference to
Registrant's Form S-18 Regis-
tration Statement
(No. 33-7678-D)
10.1 Employment Agreement dated March 1, Filed herewith electronically
2000, with David A. Morris
10.2 Employment Agreement dated March 1, Filed herewith electronically
2000 with Greg Stemm
10.3 Employment Agreement dated March 1, Filed herewith electronically
2000 with John C. Morris
23 Consent of Independent Public Filed herewith electronically
Accountants
27 Financial Data Schedule Filed herewith electronically
24
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ODYSSEY MARINE EXPLORATION, INC.
PAGE
Report of Independent Certified Public Accountants . . . . . . . . F-2
Financial Statements:
Consolidated Balance Sheet - February 29, 2000 . . . . . . . F-3
Consolidated Statements of Operations for the years ended
February 29, 2000 and February 28, 1999 . . . . . . . . . . . F-4
Consolidated Statements of Changes in Stockholders'
Deficiency for the years ended February 29, 2000, and
February 28, 1999 . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years
ended February 29, 2000 and February 28, 1999 . . . . . . . . F-6-F-7
Notes to the Consolidated Financial Statements. . . . . . . . . F-8-F-19
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Odyssey Marine Exploration, Inc.
Tampa, Florida
We have audited the accompanying consolidated balance sheet of Odyssey Marine
Exploration, Inc. and subsidiary as of February 29, 2000, and the related
consolidated statements of operations, stockholders' deficiency, and cash
flows for the years ended February 29, 2000 and February 28, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Odyssey
Marine Exploration, Inc. and subsidiary as of February 29, 2000, and the
results of their operations and their cash flows for the years ended February
29, 2000 and February 28, 1999, in conformity with generally accepted
accounting principles.
/s/ Giunta, Ferlita & Walsh, P.A.
GIUNTA, FERLITA & WALSH, P.A.
Certified Public Accountants
May 2, 2000
F-2
<PAGE>
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
FEBRUARY 29, 2000
ASSETS
CURRENT ASSETS
Cash $ 47,175
Marketable securities 183,583
Advances 10,006
-----------
Total current assets 240,764
PROPERTY AND EQUIPMENT
Equipment and office fixtures 144,482
Accumulated depreciation (63,748)
-----------
80,734
OTHER ASSETS
Inventory 20,000
Loans receivable from related parties 157,628
Deposits 240
-----------
177,868
-----------
$ 499,366
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 204,613
Accrued expenses 455,550
Notes payable 89,500
Notes payable to related parties 724,962
-----------
Total current liabilities 1,474,625
LONG TERM LIABILITIES
Deferred Income from Revenue Participation Certificates 825,000
STOCKHOLDERS' DEFICIENCY
Preferred stock - $.0001 par value; 9,300,000
shares authorized; none outstanding -
Preferred stock Series A Convertible - $.0001 par value;
700,000 shares authorized; 190,000 shares issued
and outstanding 19
Common Stock - $.0001 par value; 100,000,000 shares
authorized; 11,134,777 issued and outstanding 1,113
Additional paid-in capital 3,097,618
Accumulated unrealized loss in investments (4,200)
Accumulated deficit (4,894,809)
-----------
Total Stockholders' deficiency (1,800,259)
-----------
$ 499,366
===========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended
Feb 29,2000 Feb 28,1999
----------- -----------
REVENUES $ 250 $ 235,750
OPERATING EXPENSES
Project Development 229,611 117,023
Project Operations 380,513 456,488
Marketing 52,042 88,773
----------- -----------
Total Operating Expenses 662,166 662,284
GENERAL AND ADMINISTRATIVE EXPENSES 486,068 384,143
----------- -----------
(LOSS) FROM OPERATIONS (1,147,984) (810,667)
OTHER INCOME OR (EXPENSE)
Gain(Loss) on sale of marketable securities (2,033) (3,325)
Interest income 30,115 10,766
Interest expense (101,904) (61,793)
Recovery of bad debt - 85,000
Other income(expense) (7,013) -
Total other income ----------- -----------
or (expense) (80,835) 30,648
----------- -----------
NET(LOSS) (1,228,819) (780,029)
(BASIC AND DILUTED LOSS PER SHARE) $ (0.12) $ (0.08)
Weighted average number of common
shares and potential common shares,
basic and diluted, outstanding 10,583,246 10,315,637
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Accumul-
ated Un-
Additional realized Comprehen-
Preferred Stock Common Stock Paid-In Loss in Accumulated sive
Shares Amount Shares Amount Capital Investment (Deficit) Income
--------- ----- ---------- ------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
February 28, 1998 - $ - 10,104,879 $1,010 $2,206,622 $ (28,000) $(2,885,961) $(1,109,350)
Common Stock Issued
For cash 205,000 21 102,479
For services 84,716 8 107,390
For accrued expenses 161,019 16 190,371
Net change in
unrealized loss on
securities available
for sale $ (69,663) $ (69,663)
Net loss for the year
ended February 28, 1999 (780,029) $ (780,029)
Balance at --------- ----- ---------- ------ ---------- ---------- ----------- -----------
February 28, 1999 - $ - 10,555,614 $1,055 $2,606,862 $ (97,663) $(3,665,990) $( 849,692)
===========
Preferred Stock Issued
For cash 180,000 18 269,982
For accounts payable 10,000 1 14,999
Common Stock Issued
For services 10,000 1 2,499
For accrued expenses 16,800 2 4,198
For conversion of debt 302,363 30 149,103
For marketable
Securities 250,000 25 49,975
Net change in
unrealized loss on
securities available
for sale $ 93,463 $ 93,463
Net loss for the year
ended February 29, 2000 $(1,228,819) $(1,228,819)
Balance at --------- ---- ---------- ------ ---------- ---------- ----------- -----------
February 29,2000 190,000 19 11,134,777 $1,113 $3,097,618 $ (4,200) $(4,894,809) $(1,135,356)
========= ==== ========== ====== ========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended
Feb 29,2000 Feb 28,1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $(1,228,819) $ (780,029)
Adjustments to reconcile net loss to net
cash used by operating activity:
Depreciation 28,059 26,497
Amortization 204 798
Common Stock issued for services 2,500 107,398
Finance charge added to note 4,500 -
Loss on marketable securities 2,033 3,325
Loss of disposal of equipment 2,513 -
Marketable securities received
on settlement - (85,000)
as commission - (171,500)
(Increase)decrease in:
Advances (6,316) (769)
Interest receivable (22,702) (9,649)
Inventory - (20,000)
Increase (decrease) in:
Accounts payable 172,869 26,290
Accrued expenses 412,136 168,920
----------- -----------
NET CASH(USED)IN OPERATING ACTIVITIES (633,023) (733,719)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,845) (17,885)
Issuances of Notes Receivable - (13,000)
----------- -----------
NET CASH (USED) IN INVESTING ACTIVITIES (2,845) (30,885)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Related party loans 100,000 47,750
Loans from others 62,000 125,000
Issuance of Common stock - 102,500
Issuance of Preferred stock 270,000 -
Issuance of RPC 15,000 587,500
Sale of Marketable Securities 163,484 1,875
Repayment of Note (33,881) (12,790)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 576,603 851,835
----------- -----------
NET INCREASE(DECREASE)IN CASH (59,265) 87,234
CASH AT BEGINNING OF YEAR 106,440 19,209
----------- -----------
CASH AT END OF YEAR $ 47,175 $ 106,440
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
Years ended February 29
2000 1999
----------- -----------
SUPPLEMENTARY INFORMATION:
Interest paid $ 6,665 $ 16,245
Income taxes paid - -
Summary of significant non cash transactions
During February, 2000, three debt holders converted $132,000 of notes payable
and $17,135 of accrued interest thereon into 302,363 shares of common stock.
In February, 2000 the Company issued 250,000 shares of restricted common stock
valued at $50,000 to three individuals in an even exchange for 250,000 free
trading shares of Chronicle Communications, Inc. common stock. The Company
also issued 16,800 shares of Common Stock to an individual for accrued
expenses valued at $4,200 and an additional 10,000 shares to one individual
for services valued at $2,500.
During October 1999, the Company acquired side scan sonar equipment through a
non-cash transaction wherein the principal balance on a note payable was
increased by $10,000.
Accrued and unpaid executive compensation in the amount of $375,000 was
reclassified on September 1, 1999 to notes payable to related parties bearing
interest at 15% per annum and payable to three officers of the Company.
During June 1999, the Company issued 10,000 shares of Series A Convertible
Preferred Stock in satisfaction of accounts payable in the amount of $15,000.
During April 1999, an officer and a director converted $122,375 of notes
payable and $12,625 of accrued interest thereon into deferred income in the
form of Cambridge Project Revenue Participation Certificates (See Note K).
During the year ending February 28, 1999, two debt holders converted $85,000
of notes payable and $2,500 of accrued interest thereon into deferred income
in the form of Cambridge Project Revenue Participation Certificates. The
Company also issued 161,019 shares of Common Stock to eight individuals For
accrued expenses valued at $190,371 and an additional 84,716 shares for
services valued at $107,390.
During March 1998 the Company received 1,008,824 shares of restricted public
stock valued at $171,500 and inventory valued at $20,000 as partial payment of
a $234,500 commission due to the Company.
During May of 1998 the Company negotiated the recovery of previously written
off debt in which the Company received 1,000,000 shares of common stock valued
at $85,000 as other income.
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND BUSINESS
ORGANIZATION
Odyssey Marine Exploration, Inc. was incorporated March 5, 1986, as a Colorado
corporation named Universal Capital Corporation, Inc. On August 8, 1997
Odyssey Marine Exploration, Inc.(the "Company"), completed the acquisition of
100% of the outstanding Common Stock of Remarc International, Inc.("Remarc")
in exchange for the Company's Common Stock in a reverse acquisition. On
September 7, 1997, the Company's domicile was changed to Nevada and the name
was changed to Odyssey Marine Exploration, Inc.
Remarc International, Inc. was organized as a Colorado corporation on May 20,
1994. On April 9, 1996 Remarc International, Inc., a Colorado Corporation and
Remarc International, Inc., a Delaware Corporation merged. Remarc
International, Inc., the Delaware corporation was the surviving corporation.
Effective with the reverse acquisition of Odyssey as discussed in Note B,
Remarc International, Inc. adopted February as its fiscal year end.
Subsequently, on February 25, 1999, Remarc International, Inc. and Odyssey
Marine Exploration, Inc. were merged with Odyssey Marine Exploration, Inc.
being the surviving corporation.
Odyssey Marine, Inc., a Florida corporation, was incorporated on November 2,
1998, as a wholly owned subsidiary of Odyssey Marine Exploration, Inc. for the
purpose of administering the Company's payroll and health plan.
BUSINESS ACTIVITY
Odyssey Marine Exploration, Inc., is engaged in the business of researching,
developing, financing and marketing of shipwreck projects on a worldwide
basis. The corporate headquarters are located in Tampa, Florida.
NOTE B - REVERSE ACQUISITION
On August 8, 1997 Odyssey Marine Exploration, Inc. completed the acquisition
of 100% of the outstanding Common Stock of Remarc International, Inc. in
exchange for the Company's Common Stock. The Company issued approximately
7,500,000 shares of its Common Stock to the shareholders of Remarc at closing,
pursuant to a Share Exchange Agreement between the Company and Remarc.
For accounting purposes the acquisition has been treated as a re-
capitalization of Remarc, with Remarc as the acquirer(reverse acquisition).
The historical financial statements prior to August 8, 1997 are those of
Remarc.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to
assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management who is
responsible for their integrity and objectivity and have prepared them in
accordance with the Company's customary accounting practices.
F-8
<PAGE>
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Odyssey Marine, Inc. All significant inter-
company transactions and balances have been eliminated.
Use of Estimates
Management uses 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
Although the Company has generated minimal revenues to date, marketing of the
artifacts, replicas and ancillary products will be recognized on the point of
sale method.
Cash Equivalents
Cash equivalents include cash on hand and cash in banks. The Company also
considers all highly liquid investments with a maturity of three months or
less when purchased to be cash equivalents.
Fair Value of Financial Instruments
The carrying value of cash, accounts payable, and accrued expenses approximate
fair value. The carrying value of notes payable(except those to related
parties) approximate fair value which is estimated based on quoted market
prices for the same or similar issues. Notes receivable and payable to related
parties are discussed in Notes G and I, respectively.
Considerable judgement is necessarily required in interpreting market data to
develop the estimates of fair value, and, accordingly, the estimates are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
Marketable Securities
The securities owned by the company are deemed available-for-sale and carried
at fair value. Unrealized gains and losses on these securities are excluded
from earnings and reported, net of any income tax effect, as a separate
component of stockholders' equity. Restricted shares of securities are carried
at estimated fair market values (50% of quoted price).
F-9
<PAGE>
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
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.
Investment in Affiliate
The Company owns 24.5% of the Common Voting Stock and 55% of the Preferred
Non-Voting Stock of Pesquisas Arqueologicas Maritimas, S.A. (Pesqamar).
Pesqamar, a Brazilian S/A, was formed to research, locate and salvage a
shipwreck. In August of 1995, Pesqamar and Salvanav S.A., a Brazilian salvage
company competing for the same shipwreck, entered into an agreement forming a
Brazilian consortium known as Consorcio Para Pesquisas Arqueologicas
Submarinas (CONPAS). CONPAS conducted all operations on the shipwreck project
until April of 1999 when a bifurcation agreement between the parties ended the
operation of CONPAS. The sought after shipwreck has not been identified to
date and the Company has received a permit to continue searching for the
shipwreck through Pesqamar.
During the year ended February 28, 1999 the Company accepted common stock and
a 5% increase(from 50% to 55%)in its share of the Preferred Stock of Pesqamar
from another investor in consideration for a past due amount previously
written off by the Company. This resulted in a recovery of bad debt during the
period.
The Company is responsible for 100% of all search phase expenses. These
expenses have been charged to operations as project expenses, therefore no
investment in Pesqamar is reflected in these financial statements.
Organization Costs
Organization costs are being amortized, using the straight line method, over a
period of 60 months.
Loss Per Share
Basic earnings per share (EPS) is computed by dividing income available to
common shareholders by the weighted-average number of common shares
outstanding for the year. 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 the earnings of Odyssey.
At February 29, 2000 and February 28, 1999, potential common shares were
excluded from the computation of diluted EPS because their inclusion would
have had an antidilutive effect on EPS. At February 29, 2000 and February 28,
1999, all of the exercisable stock options and stock warrants were excluded
from the computation of diluted EPS because the options' exercise prices were
greater than the average market price of the common shares.
F-10
<PAGE>
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Income Taxes
Deferred income taxes are provided for the temporary differences between the
carrying amount of assets and liabilities for financial reporting and income
tax purposes.
NOTE D - MARKETABLE SECURITIES
Marketable securities held by the Company as of February 29, 2000 consist of
170,000 shares of Seahawk Deep Ocean Technology, Inc.("Seahawk")Common Stock,
1,372,824 shares of Common Stock of Treasure & Exhibits International,
Inc.("VNSR") and 60,000 shares of Chronicle Communications, Inc.,("Chronicle")
Common Stock which are deemed available for sale.
The Seahawk shares have been held in excess of two years. The Company received
the VNSR shares as partial payment of a commission earned on the sale of an
artifact collection and in settlement of an account receivable in the first
quarter of the year ended February 28, 1999. The Chronicle shares were
obtained during February 2000 in an exchange for shares of the Company's
common stock.
As of February 29, 2000, the Company has written down the value of all of it's
remaining Seahawk shares (170,000 shares) to $500 because the Company doubts
that it will realize value in excess of that amount from these shares. The
VNSR shares are carried on the books at the average cost basis in the shares,
and the Chronicle shares are carried at the quoted closing bid price at
February 29, 2000.
The total annual change in unrealized loss for the year ending February 29,
2000 of $93,463 is reflected as an adjustment to stockholders' equity and
included in the comprehensive loss shown on the Company's financial
statements.
The costs basis for each security held by the Company is derived by dividing
the total cost of acquiring each block of stock by the total number of shares
acquired by the Company for each class of security. A detail of the fair
market value and unrealized loss of the marketable securities held by the
Company at February 29, 2000 is set out in the table below:
Fair
Class of Security Unrealized Market
Issuer Shares Basis Loss Value
----------------------- ---------- --------- --------- ---------
Seahawk Deep Ocean
Technology, Inc. 170,000 $ 500 $ - $ 500
Treasures & Exhibits
International, Inc. 1,372,824 175,283 - 175,283
Chronicle Communic-
ations 60,000 12,000 (4,200) 7,800
--------- ---------
Total Marketable
Securities $ 183,583
Total Unrealized Loss =========
in Investment $ (4,200)
=========
F-11
<PAGE>
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment consist of:
Accumulated
Original Depreciation/ Book
Class Cost Amortization Value
-------------------- ------------ ------------ ------------
Computers and
Peripherals $ 25,666 12,690 $ 12,976
Furniture and
Office equipment 14,782 5,345 9,437
Marine survey equipment 98,969 42,758 56,211
Leasehold Improvements 5,065 2,955 2,110
----------- ----------- -----------
$ 144,482 63,748 $ 80,734
=========== =========== ===========
NOTE F - INVENTORY
The Company's inventory consists of a collection of 748 raw emeralds recovered
from the 1656 shipwreck of the Nuestra Senora de al Maravilla salvaged by
Seafinders, Inc. in 1972. The emeralds range in size from 0.5 to 17.5 carat
weight and each is accompanied by a "Treasure Certificate" explaining the
origin and a brief history of the item. The Company received these items as
partial compensation for services rendered during the year ended February 28,
1999 in a transaction wherein the inventory was assigned a value of $20,000.
Due to the uncommon nature of the items, the Company has not sought an
independent appraisal of the goods.
NOTE G - LOANS RECEIVABLE FROM RELATED PARTIES
On January 1, 1997 the Company entered into a loan agreement with two of its
officers authorizing each to borrow a maximum of $75,000 from the Company at
8% annual interest compounded quarterly. The loan balances, which become due
on December 31, 2000, were $60,667 and $68,320 respectively. Accrued interest
in the amount of $13,993 and $14,648 are reflected in this caption.
NOTE H - ACCRUED EXPENSES
Accrued expenses at February 29, 2000 consist of:
Officer compensation $ 256,444
Employee wages 20,753
Payroll tax 7,909
Research and consulting 112,333
Interest on notes payable 58,112
-----------
$ 455,551
===========
F-12
<PAGE>
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - NOTES PAYABLE
Notes payable at February 29, 2000 consist of:
Unsecured 15.00% note payable due February 28,2001
The note can be converted to Common Stock for
$.50 per share. $ 55,000
Unsecured 18.00% note payable due December 1, 1999. The
note, originally $30,000, is in default and provides for
monthly increases of principal at 5% of the original note
value 34,500
-----------
$ 89,500
===========
NOTE J - NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties at February 28, 1999 consist of:
Unsecured 15% note payable to the family member of
an officer due April 1, 2000. The note can be
converted to Common Stock for $1.50 per share. $ 42,926
Unsecured 15% note payable to the family member of
an officer due August 31, 2000. The note can be
converted to Common Stock for $1.00 per share. 68,894
Unsecured 15% notes payable to a director due
August 31, 2000. 128,295
Unsecured 15% notes payable to a director due
November 1, 2000. 61,011
Unsecured 15% demand loan payable to a Company
in which a related party is a control person 10,000
Two Unsecured 15% demand loans payable to
two directors. 38,836
Three Unsecured 15% notes payable to three officers
due September 1, 2000. 375,000
-----------
$ 724,962
===========
NOTE K - SALE OF FUTURE REVENUE PARTICIPATION
The Company has sold through a private placement of Convertible Revenue
Participation Certificates("RPC's")the right to share in future revenues of
the Company related to the Cambridge project. Each RPC entitles the holder to
receive a percentage of the Gross Revenues received by the Company from the
"Cambridge Project" which are defined as all cash proceeds payable to the
Company as a result of the Cambridge Project, less any amounts paid to the
British Government or their designee(s); provided, however, that all funds
received by the Company to finance the project are excluded from Gross
Revenue.
As of April 30, 1999, when the offering was closed, the Company sold $875,000
of a maximum of $900,000 of the RPC's. As a group, the holders are entitled to
F-13
<PAGE>
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE K - SALE OF FUTURE REVENUE PARTICIPATION - continued
100% of the first $875,000 of gross revenue, 24.75% of gross revenue from $4 -
35 million, and 12.375% of gross revenue above $35 million generated by the
Cambridge project.
Distributions will be made to each certificate holder within 15 days from the
end of each quarterly reporting period in which the Issuer receives any cash
proceeds from, or as a result of, the Cambridge Project.
Additionally each $50,000 RPC unit may be converted into 16,666 shares of the
Company's common stock at any time prior to June 30th, 2000 or within 10 days
of receipt of the "Notice of First Distribution", whichever occurs first. The
RPC's and any stock which it may be converted for constitute restricted
securities.
As of February 29, 2000 the Company had sold $875,000 of RPC's which are
reflected on the books as Deferred RPC Income to be amortized under the units
of revenue method.
NOTE L - PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock. The
preferred stock may be issued in series from time to time with such
designation, rights, preferences and limitation as the Board of Directors of
the Company may determine by resolution.
On April 23, 1999 the Company established a series of Preferred Stock known as
"Series A Convertible Preferred Stock"("preferred stock"), having a par value
of $.0001 per share and an authorization of 700,000 shares. The Corporation is
not required to pay dividends on the preferred stock, however the stock
carries a liquidation preference of $1.50 per share prior to any distributions
on the Company's common stock.
Commencing June 1, 2000, the preferred stock may be converted, all or in part,
into shares of the Corporation's common stock. Each share of preferred stock
may be converted into a number of shares of common stock determined by
dividing $1.50 by the conversion price. The conversion price will be the
lesser of (a) $1.50 or (b) 85% of the average closing bid price for the
ten(10) consecutive trading days prior to the date of conversion provided,
however, that the maximum number of shares of common stock issued for each
share of preferred shall not exceed 3.75 shares. Each share of Series A
Convertible Preferred Stock entitles the holder to one vote.
Beginning July 1, 2000 the Company may redeem the preferred stock for a price
of $2.00 per share in the event the closing bid price of the common stock
exceeds $5.00 per share for 20 of 30 consecutive trading days not more than 5
days prior to mailing of a 45 day notice of redemption.
As of February 29,2000 the Company had authorized 700,000 shares of $.0001 par
value Series A Convertible Preferred stock. There were 190,000 shares of
Series A Convertible Preferred issued and outstanding as of February 29, 2000.
F-14
<PAGE>
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - COMMON STOCK OPTIONS AND WARRANTS
The Company adopted the 1997 Stock Option Plan on September 8, 1997. Under
the terms to the plan, options to purchase Common Stock are granted at not
less than 100% of the fair market value of the shares on the date of grant or
the par value thereof whichever is greater. Notwithstanding the preceding
sentence, in the case of a grant of an incentive stock option to an employee
who, as of the date of the grant, owns more than ten percent of the stock of
the Company, the option price shall not be less than 110% of the fair market
value of the shares on the date of grant or the par value thereof, whichever
is greater. The cumulative number of shares which may be subject to options
issued and outstanding pursuant to the plan is limited to 2,000,000 shares.
As of February 29, 2000 the following non-statutory stock options had been
granted:
Option
Date Price per Expiration Shares
Of Grant Share of Option Granted
----------- ----------- ------------ ------------
Officers 4/24/98 $3.00 2/28/2003 225,000
4/23/99 $1.50 2/28/2003 135,000
4/23/99 $2.00 2/28/2003 287,500
4/23/99 $3.00 2/28/2003 187,500
Directors 4/24/98 $3.00 2/28/2003 170,000
4/23/99 $1.50 2/28/2003 82,500
4/23/99 $2.00 2/28/2003 132,500
4/23/99 $3.00 2/28/2003 82,500
Employees 4/23/99 $1.00 2/28/2003 45,000
4/23/99 $2.00 2/28/2003 45,000
4/23/99 $3.00 2/28/2003 45,000
1/01/00 $0.30 2/28/2004 60,000
Consultant 6/05/98 $4.00 2/28/2003 8,000
4/23/99 $1.00 2/28/2003 25,000
4/23/99 $2.00 2/28/2003 50,000
4/23/99 $3.00 2/28/2003 25,000
1/01/00 $0.30 2/28/2004 50,000
-----------
1,655,500
===========
No options have been cancelled or exercised since the inception of the stock
option plan, therefore, 1,655,500 options are exercisable at a weighted
average exercise price of $2.23 per share.
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". Accordingly, no compensation has been recognized for the stock
options awarded during the years ended February 29, 2000, or February 28,
1999. However, using the Black-Scholes method of option valuation, the options
granted during the years ending February 29, 2000 and February 28, 1999 are
determined to have a fair market value of $522,240 and $0 respectively. The
fair value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted average assumptions
F-15
<PAGE>
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - COMMON STOCK OPTIONS AND WARRANTS - continued
for the year 2000; risk-free interest rates of 5.5 percent; a dividend yield
of zero; volatility factors of the expected market price of the Company's
common stock based on historical trends; and a weighted-average expected life
of the options of three years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options's vesting period. The Company's pro
forma information is as follows:
Proforma net income (loss)
attributable to stockholders $ (1,751,059) (780,029)
Proforma basic and diluted (loss)
per share $ (0.17) $ (.08)
The Company has issued warrants to six individuals in connection with loans
made to the Company and has issued warrants to fourteen individuals who
purchased the Company's Series A Preferred stock. Warrants issued are as
follows:
Price
Warrants per Share Expiration Date
----------- ----------- --------------------------------
190,000 $ 3.50 7/31/01
28,333 3.00 8/31/00
10,000 3.00 Two years from the date the loan
is paid in full
31,000 3.00 Two years from the date the loan
is paid in full
95,000 2.00 7/31/01
80,000 2.00 2/28/02
80,500 2.00 Two years from the date the loan
is paid in full
60,000 0.30 Two years from the date the loan
is paid in full
-----------
574,833
NOTE N - REVENUES
During the year ended February 28, 1999, the Company received a commission on
the sale of artifacts purchased by Treasures and Exhibits International, Inc.,
formerly Vanderbilt Square Corp ("VNSR"), from Seahawk Deep Ocean Technology,
Inc. jointly with Seahawk I, Ltd.("Seahawk") pursuant to the Artifacts and
Displays Purchase Agreement(the "Agreement") consummated between the parties
(the "Parties").
The commission paid to Odyssey was $234,750 (10% of the proceeds to Seahawk
plus $5,000). The commission payment was made by a combination of cash,
inventory, and common stock as follows:
F-16
<PAGE>
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE N - REVENUES - continued
Amount Shares
----------- -----------
Cash $ 43,250
Inventory 20,000
Common stock 171,500 1,008,824
----------- ----------
$ 234,750 1,008,824
=========== ==========
The common stock consists of restricted shares of VNSR originally valued at
$0.17 per share. The inventory consists of raw emeralds recovered from the
1655 shipwreck of the Nuestra Senora de al Maravilla, with Certificates of
Authenticity. The Company intends to market these items.
The Agreement stipulated a deferred payment of $200,000 to Seahawk which was
made in August 1998 and upon which, Odyssey received a $20,000 cash payment.
The Company has had only incidental revenue from selling rights to
intellectual property since the artifact sale commission was earned.
NOTE O - OTHER INCOME AND EXPENSE
During the year ended February 29, 2000, the Company wrote down the value of
170,000 shares of the common stock of Seahawk Deep Ocean Technology,
Inc.(SDOT) to $500. In doing so, a loss of $43,700 was taken. Because the
issuer has not filed current financial statements, and has been de-listed from
the OTC bulletin board, management believes it to be unlikely that the Company
will realize value above $500, which was received for a sale of 10,000 shares
of SDOT in March 2000. This transaction was offset by gains of $41,667 on the
sale of other marketable securities during the year resulting in a loss on the
sale of marketable securities of $2,033 for the year ending February 29, 2000.
During the year ended February 28,1999, the Company executed the First
Amendment to the Pesqamar Joint Venture Agreement("Amendment") with Seahawk
Deep Ocean Technology, Inc. wherein the two investors in Pesquisas
Arqueologicas Maritimas, S. A.(Pesqamar) revised the ownership, sharing of
administrative costs of Pesqamar, and debt owed to Odyssey under the original
agreement. Under the original agreement Odyssey had billed Seahawk $153,018
for their 50% share of costs, and had provided a 100% provision for doubtful
accounts. Under terms of the Amendment, Odyssey will assume responsibility for
100% of the administrative costs of Pesqamar, and consider the $153,018 debt
to be paid in full in exchange for 1,000,000 shares of common stock of
Treasures and Exhibits, International, Inc.("VNSR")(See Note N). Additionally,
Odysseys percentage of ownership in the Preferred Non Voting Shares of
Pesqamar increased to 55%.
Other income was recorded on the books for the fair value of the VNSR common
stock as an $85,000 recovery of bad debt.
F-17
<PAGE>
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE P - COMPREHENSIVE LOSS
During Fiscal 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS No. 130) The company has included Comprehensive Income in the financial
statements for the year ended February 29, 2000 and a Comprehensive Loss for
the year ended February 28, 1999. The comprehensive income and losses resulted
entirely from the unrecognized gains and losses on the value of marketable
securities held by the Company as detailed in Note D.
NOTE Q - INCOME TAXES
The Company has a net operating loss carry forward of approximately $4,000,000
that is available to offset future regular taxable income. The carry forward
will expire in various years ending through the year 2020. Because of the
Company's net cumulative losses and the uncertainty of being able to utilize
the deferred tax asset, the Company recorded a valuation allowance of 100% of
the deferred tax asset.
NOTE R - COMMITMENTS AND CONTINGENCIES
Offices
In March 1997, the Company entered into a sublease agreement for 3,170 square
feet of office space for the period beginning April 1, 1997 and ending
December 31, 2000. Rent payments for this office were $44,120 for the fiscal
year ending February 29, 2000. Approximate future rent payments are $39,800.
Industry Related Risks
Although the Company has access to a substantial amount of research and data
which has been compiled regarding the shipwreck business, the quality and
reliability of such research and data, like all research and data of its
nature, is unknown. Even if the Company is able to plan and obtain permits
for its projects, there is a possibility that the shipwreck may have been
salvaged, or may not have had anything of value on board at the time of the
sinking. Furthermore, even if objects of believed value are located and
recovered, there is the possibility that the Company's rights to the recovered
objects will be challenged by others, including both private parties and
governmental entities, asserting conflicting claims. Finally, even if the
Company is successful in locating and retrieving objects from a shipwreck and
establishing good title thereto, there can be no assurance as to the value
that such objects will bring at their sale as the market for such objects is
very uncertain.
Litigation
During February 2000, two complaints were filed against the Company in the
Circuit Court for the Thirteenth Judicial Circuit in and for Hillsborough
County Florida, Civil Division, on behalf of plaintiff, Seahawk Deep Ocean
Technology, inc.("Seahawk"). The complaint seeks payment for services, legal
fees and interest. The company has recognized in accounts payable and accrued
expenses $43,400 for services, and an estimate for legal fees and interest of
$7,650. The company intends to vigorously defend this action.
F-18
<PAGE>
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE S - GOING CONCERN CONSIDERATION
The Company has incurred net losses of $4,894,809. At February 29, 2000 the
Company has negative working capital as indicated by current liabilities
exceeding current assets by $1,233,861. These factors caused the Company's
auditors to consider whether the Company could continue as a going concern.
In order to fund its overhead and projects, the Company conducted a private
placement of Units consisting of Common Stock and Warrants that raised
$350,000 for operational and administrative purposes. The Company has also
raised approximately $265,000 through the sale of marketable securities and
anticipates it will generate an additional $250,000 from future sales.
Depending on the results of the Republic and Cambridge operations, the Company
plans on financing the balance of its budget through secured debt or another
private placement of debt or equity.
Operationally, the Company plans to continue the search operations for the
Cambridge, Republic and Concepcion Projects. Additionally, if any of the
search operations are successful, and subject to financing, the Company plans
to begin recovery operations on one or more of these projects. The Company
intends to finance these operations through the sale of equity, revenue
participation or debt. There can be no assurance of the Company's ability to
secure financing and this could cause a delay or cancellation of one or more
projects.
The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
F-19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned thereunder duly authorized.
ODYSSEY MARINE EXPLORATION, INC.
Dated: May 30, 2000 By:/s/ John C. Morris
John C. Morris, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ John C. Morris President and Chairman of May 30, 2000
John C. Morris the Board of Directors
/s/ Gregory P. Stemm Vice President and Director May 30, 2000
Gregory P. Stemm
/s/ David A. Morris Secretary and Treasurer May 30, 2000
David A. Morris (Chief Financial Officer)
/s/ William C. Callari Director May 30, 2000
William C. Callari
/s/ Gerald Goodman Director May 30, 2000
Gerald Goodman
/s/ E. Eugene Cooke Director May 30, 2000
E. Eugene Cooke
/s/ Brad Baker Director May 30, 2000
Brad Baker
