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 28, 2001
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.)
3604 Swann Avenue, Tampa, Florida 33609
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(Address of principal executive offices)
(813) 876-1776
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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 30, 2001, the Registrant had 17,865,537 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 $4,502,422.
Transitional Small Business Disclosure format: Yes [ ] No [ X ]
PART I
This Annual Report on Form 10-KSB contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. The
statements regarding Odyssey Marine Exploration, Inc. and its subsidiaries
contained in this report that are not historical in nature, particularly those
that utilize terminology such as "may," "will," "should," "likely," "expects,"
"anticipates," "estimates," "believes" or "plans," or comparable terminology,
are forward-looking statements based on current expectations and assumptions,
and entail various risks and uncertainties that could cause actual results to
differ materially from those expressed in such forward-looking statements.
Important factors known to us that could cause such material differences are
identified in this report and in our "RISK FACTORS" in Item 1. We undertake no
obligation to correct or update any forward-looking statements, whether as a
result of new information, future events or otherwise. You are advised,
however, to consult any future disclosures we make on related subjects in
future reports to the SEC.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Odyssey Marine Exploration, Inc (the "Company" or "Odyssey"), is a Nevada
corporation formed March 5, 1986. Our principal office is located at 3604
Swann Ave., Tampa, Florida 33609 and our phone number is (813) 876-1776.
The Company has one wholly owned subsidiary, Odyssey Marine, Inc., a Florida
corporation, that was incorporated on November 2, 1998.
The Company maintains a web site at www.shipwreck.net.
DESCRIPTION OF BUSINESS
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 to produce revenue in the form of
project sponsorships and through the sale of intellectual property rights.
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 also to
establish the historical significance and the archaeological approach to the
excavation that may be required.
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The Company uses several outside shipwreck researchers to identify 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
one or more 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 INSPECTIONS
Most offshore search operations are 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") is 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
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.
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D. CONSERVATION AND DOCUMENTATION OF ARTIFACTS.
Conservation of artifacts has, in recent 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 if recovery operations are
successful.
E. SHARING THE KNOWLEDGE AND 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.
The Company plans to use 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 that 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 CARGOS, ARTIFACT 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 it's five
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
Cargo and trade goods 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
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Phoenician shipwreck discovered by Odyssey in September 1998. The artifacts
recovered from this shipwreck may be too culturally and archaeologically
significant to split-up the collection by selling the artifacts piecemeal. 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.
EXHIBIT INCOME
The Company believes that it can generate income by exhibiting recovered
artifacts and selling merchandise to the attendees. Several types of exhibits
under consideration are: (i) Permanent exhibits, which would be located in
high traffic tourist areas and feature artifacts and exhibits from several
shipwrecks, perhaps on a rotating basis; (ii) Large market exhibits, which
could travel to larger cities and stay in place for 4 to 6 months featuring
artifacts and exhibits from very important shipwrecks; and (iii) Short term
traveling exhibits, which could consist of weeklong stops in secondary and
tertiary markets which may be held in conjunction with one or more project
sponsors. In addition to income from exhibit admission fees, all of the
exhibit plans include opportunities for sponsorship income and merchandising
through the sale of cargo, artifact replicas and/or other related merchandise.
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 include media rights (television, film,
book, video, and 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 should 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 one of its sites during 2001.
All of the shipwrecks that Odyssey seeks to locate and recover are given
"project names". These names are not the actual names of the shipwrecks.
CAMBRIDGE PROJECT
The "Cambridge Project" is an expedition to locate, recover and market the
artifacts and cargo of a large colonial-period 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 most 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 were considered to be of a size and shape
consistent with the target sought after by the Company.
The Company returned to the work area in July 2000, and inspected 20 anomalies
with a remotely operated vehicle. These inspections identified eight
shipwrecks, eight areas of geology and four areas of debris jettisoned from
passing ships.
The Company is currently conducting an expedition to the Cambridge work area.
Additional areas are being side scanned and all promising anomalies will be
visually inspected with a remotely operated vehicle. Depending on the outcome
of the expedition, the Company will determine what future work will be
conducted on the project.
REPUBLIC PROJECT
The "Republic Project" is an attempt to locate, identify, recover, conserve
and market the cargo of a steam ship that sank after the Civil War. According
to the Company's research, the "Republic's" cargo is believed to include
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.
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Another Company offered the "Republic Project" 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 is obligated to pay twenty percent of the Adjusted Gross Profit to the
researchers and approximately five percent of the gross recovery to insurance
interests. In addition, the Company sold Revenue Participation Certificates
to individuals in order to finance the project. These individuals will
receive approximately five percent of the Adjusted Gross Revenue.
During 1999, the Company conducted ROV inspections of the anomalies identified
during a previous side scan survey of the area. 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.
During June 2000, the Company conducted side scan and ROV operations over an
area of approximately 65 square miles and during September 2000, the company
side scanned an additional 80 square miles. The Company is reviewing the data
from the 2000 expeditions and making plans for ROV inspections and,
potentially, additional side scan operations.
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 collector's 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 plans 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.
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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.
During 2000, Brazil changed certain laws relating to shipwreck recovery in its
territorial waters. The Company is currently analyzing the new laws and
exploring its options for continued operations.
DEEP-WATER VS SHALLOW WATER OPERATIONS
The shipwreck business is broken into two primary areas: deep-water projects
and shallow water projects. Traditionally shallow water projects, those easily
accessed by divers with scuba gear, have comprised nearly 100% of the
industry, primarily because the cost of entry is relatively low.
Some of the world's most famous shipwreck discoveries 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. 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.
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* 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 that are currently engaged in
the deep-water shipwreck business:
* Nauticos
* Columbus America Group
* RMS Titanic, Inc.
* Comex
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.
In addition, SFX Entertainment has been promoting large public showings of
Titanic artifacts that have been profitable for RMS Titanic, Inc., the company
that owns those artifacts. The success of their first exhibition has spawned
multiple shows, which are now traveling throughout the world. The profits from
these shows are derived from entry fees and sale of gift items and souvenirs
in the gift shop. They sell no actual artifacts from the Titanic, other than
small bits of coal.
While this group might be considered competition, they are currently viewed
more as pioneers that have proven the public's interest in shipwrecks.
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 a project
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 certain guidelines.
These guidelines require adherence to strict archaeological practices, and the
Company intends to follow these guidelines in all projects to which they are
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applicable. The rules are still in a draft form, but the rule which may be
problematic to the Company is the requirement that underwater cultural
heritage not be sold. The current draft states that this may not prohibit the
provision of archaeological services, and Odyssey intends to provide such
services in its contracts with Governments. 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 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 any Convention, which would prevent
legitimate Private Sector access to shipwrecks. In addition, several
organizations, including the Maritime Law Association, Historic Shipwreck
Salvors Professional Association (HSSPAC) and the Professional Shipwreck
Explorer's Association (ProSEA) are actively engaged in promoting the role of
legitimate commercial access to shipwrecks. The Company's management has been
involved in a leadership role in these initiatives, and Greg Stemm is
presently a director, and past 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 has five full time employees. In addition, the Company hires
subcontractors and 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 others,
including both private parties and governmental entities, asserting
conflicting claims, may challenge the Company's rights to the recovered
objects. 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.
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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 currently owns certain search equipment, including side scan
sonar, navigation equipment and an ROV capable of operations to approximately
1,000 feet, it will be necessary to contract with third parties for any
additional equipment and/or labor necessary for the location and recovery of
wrecksites. 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.
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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.
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 for the projects may never be issued, and if issued, may not
be legal or honored by the entities that 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 control approximately 50.0% of the Company's
outstanding voting power. 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
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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 3604 Swann Avenue, Tampa, Florida 33609.
The offices consist of approximately 2,900 square feet of office space that
the Company sub-leases from a non-affiliated company. The agreement began
February 1, 2001 and expires January 31, 2003. The approximate yearly rental
for the years ending February 28, 2001 and February 29, 2002 are $44,800 and
$41,100 respectively.
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. In May of 2000, the Company
paid Seahawk $37,000 in full settlement of the cases.
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 Company was able to
offset the judgement through the sale of shares of VNSR stock that it held,
and in November 1999, the parties entered into a settlement agreement that was
personally guaranteed by Mr. Larry Schwartz, the then president of VNSR.
On December 28, 1999, the Company filed suit in the Circuit Court for the
Thirteenth Judicial Circuit in and for Hillsborough County Florida, Civil
Division against Larry Schwartz, seeking performance pursuant to his personal
guarantee of the remaining VNSR debt. On March 7 2001, Odyssey was awarded a
judgment in the amount of $102,515.76 against Larry Schwartz. The Company is
pursuing collection of this judgement from both parties.
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.
13
Bid
High Low
Quarter Ended ----- -----
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
May 31, 2000 $1.22 $0.19
August 31, 2000 $0.84 $0.31
November 30, 2000 $0.34 $0.07
February 28, 2001 $0.62 $0.08
(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, 2001, was 180. This does not include shareholders that hold their
stock in accounts in street name with broker/dealers.
(c) DIVIDENDS.
Holders of the Common Stock and Series B Preferred 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 or Preferred
Stock and none are anticipated in the foreseeable future.
(d) RECENT SALES OF UNREGISTERED SECURITIES.
COMMON STOCK
During the three months ending February 28, 2001, the Company issued 75,606
shares of Common Stock to two individuals for accounts payable of $20,000 and
services valued at $7,500. The Company issued 984,412 shares to four
individuals for notes payable of $187,487 and $21,400 of accrued interest
thereon. Five stockholders, who in total held 70,000 shares of Convertible
Series A Preferred stock, surrendered the preferred stock for conversion into
262,500 shares of Common Stock.
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 consultants to the Company, noteholders, or stockholders 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.
Three officers of the Company were issued 1,250,000 shares of Common Stock for
$143,750 of notes receivable that were repaid by the officers during February
2001. A director of the Company was issued 864,008 shares of Common Stock
pursuant to the Series B Convertible Preferred Stock Purchase Agreement
detailed below.
14
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
On February 28, 2001, the Company closed the Series B Convertible Preferred
Stock Purchase Agreement, in which it sold, for $3,000,000, a combination of
864,008 shares of the Company's Restricted Common Stock, 850,000 shares of
Series B Convertible Preferred stock, and Warrants to purchase up to 1,889,000
shares of Restricted Common Stock. Each share of Series B Convertible
Preferred stock is convertible into 10 shares of the Company's Common Stock at
any time. The holder of the shares of Series B Convertible Preferred stock is
entitled to vote such shares together with the holders of the Company's Common
Stock on an "as converted" basis. In addition, the holder of the Series B
Convertible Preferred stock is entitled to elect three members of the Board of
Directors, and has special voting rights in connection with specified
corporate actions. In the event of a liquidation or dissolution of the
Company, the holder of the Series B Convertible Preferred stock is entitled to
an amount equal to $3.50 per share prior to any payments to holders of any
other class of stock. Although the Series B Convertible Preferred stock has no
separate dividend provisions, holders are entitled to receive any dividends
paid to holders of Common Stock on an "as converted" basis. Under the terms of
the Stock Purchase Agreement, the Series B Preferred stock purchaser received
certain rights to require the Company to register the shares of Common Stock
issuable on the conversion or exercise of the Preferred stock for resale under
the Securities Act of 1933.
The Warrants issued pursuant to the Series B Preferred Stock Purchase
Agreement have terms as follows:
Exercise Price Expiration Date Number of Shares
-------------- --------------- ----------------
$ 3.00 2/28/2003 722,000
2.50 3/31/2002 120,000
2.00 2/28/2003 817,000
0.30 2/28/2004 230,000
-----------
1,889,000
===========
The securities issued in these transactions 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 the common shares and Series B
preferred 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.
ITEM 6. MANAGEMENT'S PLAN OF OPERATION
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.
15
For the next twelve months, the Company anticipates spending approximately
$60,000 per month to pay salaries and general office expense and an additional
$1,000,000 to continue search operations on its various projects.
During February 2001, the company raised $3,000,000 in cash through the sale
of securities. These funds are available to pay overhead and fund project
operations. The Company may also offer to sell revenue participation in one
or more of its projects to offset operational expenses.
Operationally, the Company plans to continue the search operations for one or
more of its projects. Additionally, if any of the search operations are
successful and financing can be obtained, the Company plans to begin recovery
operations on one or more of these projects.
ITEM 7. FINANCIAL STATEMENTS
Please see pages F-1 through F-20.
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
----------------- --- ----------------------------------
James E. MacDougald 57 Chairman of the Board of Directors
John C. Morris 52 President and Director
Gregory P. Stemm 44 Vice-President and Director
David A. Morris 50 Secretary and Treasurer
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.
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.
16
JAMES E. MACDOUGALD joined Odyssey as Chairman of the Board of Directors in
February 2001. He is also President of Westshore Ventures, Inc., a St.
Petersburg, Florida based company, which handles personal investments for Mr.
MacDougald. Prior to that, from 1982 to 1999, Mr. MacDougald served as
Chairman, President and CEO of ABR Information Services, Inc. (NASDAQ: ABRX).
During his tenure as CEO, ABR was named "One of the Best 200 Small Companies
in America" by Forbes Magazine three years in a row as well as "One of the 100
Fastest Growing Public Companies in America" in 1998 by Fortune Magazine. ABR
became a public company in 1984 and was sold to Ceridian Corporation in 1999.
He then served as the Executive Vice President of Ceridian Corporation (NYSE:
CEN) and President of Ceridian Benefits Services from 1999 to 2000.
Mr. MacDougald actively serves as trustee of St. Petersburg Area Chamber of
Commerce, the Salvador Dali Museum, the St. Petersburg Museum of Fine Arts,
the USF Foundation, Eckerd College and Academy Prep.
JOHN C. MORRIS has served as an Officer and Director of the Company since
August 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 that 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.
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
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.
DAVID MORRIS has served as Secretary and Treasurer of the Company since August
1997. 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.
17
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 two transactions in a Form 5 that was filed one day late (2)
E. Eugene Cooke reported one transaction in a Form 5 that was filed one day
late; (3) John Morris reported two transactions 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 28,
2001, February 29, 2000, and February 28, 1999, and each other executive
officer who had total annual salary and bonus in excess of $100,000 during
such years.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
----------------------------
Annual Compensation Awards Payouts
--------------------- ---------------- -------
Securi-
ties
Re- Under- All
Name and stricted lying LTIP Other
Principal Stock Options/ Payout Compen-
Position Year Salary(1) Bonus(1) Awards SARs(#) ($) sation
---------------- ---- -------- -------- ------- --------- ------ -------
John C. Morris, 2001 $150,000 $89,456 -0- 50,000 -0- -0-
President 2000 $150,000 25,000 -0- 220,000 -0- -0-
1999 $100,000 -0- -0- 75,000 -0- -0-
Gregory P. Stemm, 2001 $150,000 $89,456 -0- 50,000 -0- -0-
Vice-President 2000 $150,000 25,000 -0- 195,000 -0- -0-
1999 $100,000 -0- -0- 75,000 -0- -0-
David A. Morris, 2001 $125,000 $46,110 -0- 50,000 -0- -0-
Secr/Treas 2000 $125,000 15,000 -0- 195,000 -0- -0-
1999 $ 75,000 -0- -0- 75,000 -0- -0-
(1) Included in the amounts shown as salary and bonus for the named persons are
amounts that were deferred and subsequently forgiven. In January 2001, John C.
Morris forgave $284,470 in unpaid compensation; Gregory P. Stemm forgave $288,236 in
unpaid compensation; and David A. Morris forgave $150,775 in unpaid compensation.
See Item 12 Certain Relationships and Related Party Transactions.
18
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/Share) Date
---------------- ---------- ------------ ------------ -----------
John C. Morris 50,000 14.5% $ 0.30 2/28/2004
Greg P. Stemm 50,000 14.5% $ 0.30 2/28/2004
David A. Morris 50,000 14.5% $ 0.30 2/28/2004
AGGREGATE OPTION EXERCISES IN YEAR ENDED
FEBRUARY 28, 2001 AND FEBRUARY 28, 2001 OPTION VALUES
Securities Under- Value of Unexer-
lying Unexercised cised In-The-
Shares Options at Money Options at
Acquired on February 28, 2001 February 28, 2001
Exercise Value Exercisable/ Exercisable/
Name (Number) Realized Unexercisable Unexercisable
--------------- ----------- -------- ----------------- ----------------
John C. Morris -0- -0- 345,000 / -0- $ 7,500 / -0-
Greg P. Stemm -0- -0- 320,000 / -0- 7,500 / -0-
David A. Morris -0- -0- 320,000 / -0- 7,500 / -0-
EMPLOYMENT AGREEMENTS
The Employment Agreements for John Morris, Greg Stemm and David Morris expired
on February 28, 2001. The Company intends to enter into new agreements in the
near future. The terms and condition of those agreement have not been
finalized, but the current base salaries for John Morris and Greg Stemm have
been set at $125,000 per year. The Company anticipates that in addition to
their base salary each of these individuals will receive stock options and
certain other benefits.
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 two million shares of the
Company's Common Stock. On January 11, 2001, the Board of Directors approved
an amendment to the Plan to increase the number of shares subject to the Plan
to three million shares. This amendment is subject to shareholder approval
prior to January 11, 2002.
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. The board determines vesting provisions 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.
19
During the fiscal year ended February 28, 2001, the Company issued the
following options to officers and former 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 Former Director 3/1/2000 5,000 $0.30 2/28/2004
E. Eugene Cooke Former Director 3/1/2000 5,000 $0.30 2/28/2004
Brad Baker Former Director 3/1/2000 5,000 $0.30 2/28/2004
Gerald Goodman Former Director 3/1/2000 5,000 $0.30 2/28/2004
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table set forth, as of April 30, 2001, 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
------------------ -------------- ----------
James E. MacDougald 11,253,008 (1) 39.8%
1721 Brightwaters Blvd. N.E.
St. Petersburg, FL 33704
Gregory P. Stemm 2,291,741 (2) 12.6%
3604 Swann Ave
Tampa, FL 33609
John C. Morris 1,862,895 (3) 10.2%
3604 Swann Ave
Tampa, FL 33609
William C. Callari 1,378,595 (4) 7.6%
Wedgewood Professional Bldg.
1725 Route 35, Suite B
Wall Township, NJ 07719
E. Eugene Cooke 1,309,221 (5) 7.3%
3901 Old Gun Road West
Midlothian, VA 23113
James E. Cooke 954,776 (6) 5.3%
991 Somerset Drive
Atlanta, GA 30327
David A. Morris 657,253 (7) 3.6%
6522 Bimini Court
Apollo Beach, FL 33572
20
All Officers and Directors
as a group (4 persons) 16,064,897 54.9%
__________________
(1)Includes 864,008 shares, 8,500,000 shares underlying the conversion rights
of Series B Preferred Stock, and 1,889,000 shares underlying currently
exercisable stock options, all held by MacDougald Family Limited Partnership,
a partnership for which James MacDougald is a beneficial owner.
(2) Includes 626,182 shares held of record by Greg and Laurie Stemm, 1,345,559
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 1,501,229 shares held of record by John Morris, 345,000 shares
underlying currently exercisable stock options, and 16,666 shares underlying
the option to convert revenue participation certificates into Common Stock.
(4)Includes 1,148,595 shares held of record by William Callari and 230,000
shares underlying currently exercisable stock options.
(5)Includes 1,165,887 shares held of record by Eugene Cooke, 97,500 shares
underlying currently exercisable stock options, and 45,834 shares underlying
the option to convert revenue participation certificates into Common Stock.
(6)Includes 350,633 shares held of record by James E. Cooke, 30,902 shares
held as custodian for Ian and Tyler Cooke, his minor sons, 60,000 shares
underlying warrants issued in connection with a note, 4,167 shares underlying
the option to convert revenue participation certificates into Common Stock;
Mr. Cooke also is beneficial owner of 489,907 shares of record, 15,000 shares
underlying warrants issued in connection with a note, 4,167 shares underlying
the option to convert revenue participation certificates into Common Stock all
by virtue of his interest in Canyon Group, LLC, a Limited Liability Company.
(7) Includes 307,253 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 two years certain officers, directors, and beneficial owners
entered into transactions with the Company as follows:
On April 2, 1999 John Morris, exchanged $50,000 of a note, which originated in
October 1997 in the amount of $76,000, and which accrued interest at 15%
compounded annually, for one Cambridge Revenue Participation Certificate. The
remaining balance on the note, $20,036, became due on September 1, 1999 and
was renewed under the same terms. The note was paid off in December 1999.
On September 1, 1999, accrued and unpaid executive compensation in the amount
of $375,000 was reclassified to notes payable to related parties bearing
interest at 15% per annum. Notes to the officers were as follows: John Morris
and Gregory Stemm $150,000 each, and David Morris, $75,000. In January 2001,
the notes were again reclassified to accrued wages and the officers forgave
the balance of accrued unpaid compensation from the Company as follows:
21
Officer Note Balance Accrued Wages Total Accrued Wages
----------------- ------------ ------------ ------------
John C. Morris $ 150,740 $ 133,730 $ 284,470
Gregory P. Stemm 150,740 137,496 288,236
David A. Morris 75,370 75,405 150,775
------------
Total accrued wages forgiven by officers $ 723,481
============
Also, in January 2001, John Morris and Gregory Stemm each purchased 500,000
shares of restricted Common Stock for $57,500, and David Morris purchased
250,000 shares of restricted Common Stock for $28,750 from the Company. The
stock was purchased at the market price, and paid for by notes from the
officers. In February 2001, the officers paid the notes.
On January 1, 2001, the Company renewed loan agreements with Gregory Stemm and
John Morris authorizing each to borrow a maximum of $120,000 from the Company
at 8% annual interest compounded quarterly. The loan balances as of February
28, 2001, were $83,652 and $97,847 respectively, including interest. These
loans become due on December 31, 2003.
Eugene Cooke, a former director, loaned the Company $35,000 in June 1999, and
an additional $60,000 during September and October 1999. These loans carried
an interest rate of 15% per annum. During January 2001, Mr. Cooke converted
the principal and accumulated interest in the amount of $115,533 from these
notes, into 424,405 shares of Common Stock.
During May, 2000, William Callari, a former officer and former director, who
was owed $105,000 of accrued fees and compensation from prior to 1998,
$140,387 of principal and interest on notes which originated in May 1998 and
accrued interest at 15% per annum, assigned the entire amount owed to an
unrelated third party who was issued 490,774 shares of Common Stock in
exchange for the cancellation of this indebtedness pursuant to a Debt
Conversion Agreement with the third party.
On November 2, 1999, James E. Cooke, a principal shareholder, loaned $30,000
to the Company until December 1, 1999 at 15% interest. The loan was renewed
July 31, 2000, and interest accrued at 15% per annum until the note was to
become due on December 31, 2000. On November 9, 2000, Mr. Cooke agreed to
increase the loan amount by $25,000, and the Company pledged certain marine
equipment as security for the loan that now had a balance, of $58,478. The
terms of the new loan provided an option to the lender to convert the entire
loan balance into stock at the lower of $.50 per share or 110% of the lowest
closing bid price for the stock over the 60 calendar days preceding
conversion. In addition, Mr. Cooke was issue a warrant entitling him to
purchase 60,000 shares of the Company's Common Stock at the purchase price of
$0.30 per share. During January and February 2001, Mr. Cooke elected to
convert the entire balance of principal and interest, $60,356, into 460,007
shares of Common Stock.
22
On April 1, 1999 the Company entered into a loan extension agreement with
Robert Stemm, Gregory Stemm's father, wherein Mr. Robert Stemm extended the
due date on his loan to the Company until March 31, 2000. The principal amount
of $32,926 accrued interest at 15% per annum and was 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.
On April 1, 2001, the Company entered into a loan extension agreement with
Robert Stemm, wherein Mr. Stemm extended the due date on his loan to the
Company until March 31, 2003. The principal amount of $56,144 bears interest
at 10% per annum and is secured by an inventory of raw emeralds. This loan is
convertible into shares of Common Stock at the rate of $.50 per share.
On August 31, 1999 the Company entered into a loan extension agreement with
Robert Stemm on a loan, which originated October 16, 1996 in the principal
amount of $50,000, extending the due date on the note for one year. The loan
bore interest at the rate of 15% per annum and was to become 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 was convertible into
shares of Common Stock at the rate of $.50 per share, and in May 2000, Mr.
Stemm elected to convert the entire principal and interest due under the note,
$75,744 into 151,548 shares of restricted Common Stock.
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 bore interest at 15%
per annum. The loan was 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.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description Location
------- ----------- --------
3.1 Articles of Incorporation, as Filed herewith electronically
amended
3.2 Bylaws Filed herewith electronically
23
3.3 Designation of Series B Incorporated by reference to
Convertible Preferred Stock Exhibit 3.3 to the Company's
Report on Form 8-K dated
February 28, 2001
10.1 Employment Agreement dated Incorporated by reference
March 1, 2000, with David A. to Exhibit 10.1 to the Company's
Morris Annual Report on Form 10-KSB
for the year ended February 29,
2000
10.2 Employment Agreement dated Incorporated by reference
March 1, 2000, with Greg Stemm to Exhibit 10.2 to the Company's
Annual Report on Form 10-KSB
for the year ended February 29,
2000
10.3 Employment Agreement dated Incorporated by reference
March 1, 2000, with John C. to Exhibit 10.3 to the Company's
Morris Annual Report on Form 10-KSB
for the year ended February 29,
2000
10.4 Series B Convertible Preferred Incorporated by reference
Stock Purchase Agreement to Exhibit 10.4 to the Company's
Annual Report on Form 10-KSB
for the year ended February 29,
2000
10.5 1997 Stock Option Plan Filed herewith electronically
10.6 Commercial Lease with Filed herewith electronically
Corinthian Custom Homes,
Inc. dated January 24, 2001
23 Consent of Independent Public Filed herewith electronically
Accountants
(b) Reports on Form 8-K. For the quarter ended February 28, 2001, the
Company filed one Report on Form 8-K dated February 28, 2001, reporting
information under Items 1 and 7.
24
INDEX TO FINANCIAL STATEMENTS
ODYSSEY MARINE EXPLORATION, INC.
PAGE
Report of Independent Certified Public Accountants . . . . . . . F-2
Financial Statements:
Consolidated Balance Sheet - February 28, 2001 . . . . . . . F-3
Consolidated Statements of Operations for the years
ended February 28, 2001 and February 29, 2000. . . . . . . F-4
Consolidated Statements of Changes in Stockholders'
Equity and Comprehensive Income for the years ended
February 28, 2001, and February 29, 2000 . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years
ended February 28, 2001 and February 29, 2000. . . . . . . F-6 - F-8
Notes to the Consolidated Financial Statements . . . . . . . F-9 - F-20
F-1
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 28, 2001, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the years ended February 28, 2001 and February 29, 2000. 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 28, 2001, and the
results of their operations and their cash flows for the years ended February
28, 2001 and February 29, 2000, in conformity with generally accepted
accounting principles.
/s/ Giunta, Ferlita & Walsh, P.A.
GIUNTA, FERLITA & WALSH, P.A.
Certified Public Accountants
May 3, 2001
F-2
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 2001
ASSETS
CURRENT ASSETS
Cash $ 2,433,187
Marketable securities 10,754
Advances 8,600
-----------
Total current assets 2,452,541
PROPERTY AND EQUIPMENT
Equipment and office fixtures 287,837
Accumulated depreciation (83,722)
-----------
204,115
OTHER ASSETS
Inventory 20,000
Loans receivable from related parties 181,499
Deposits 13,207
-----------
214,706
-----------
$ 2,871,362
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 60,899
Accrued expenses 123,502
-----------
Total current liabilities 184,401
-----------
NOTES PAYABLE TO RELATED PARTIES 48,821
DEFERRED INCOME FROM REVENUE PARTICIPATION CERTIFICATES 887,500
STOCKHOLDERS' EQUITY
Preferred stock - $.0001 par value; 8,450,000
shares authorized; none outstanding -
Preferred stock Series A Convertible - $.0001 par value;
700,000 shares authorized; 190,000 shares issued
and none outstanding -
Preferred stock Series B Convertible - $.0001 par value;
850,000 shares authorized; 850,000 shares issued
and outstanding 85
Common Stock - $.0001 par value; 100,000,000 shares
authorized; 17,865,536 issued and outstanding 1,786
Additional paid-in capital 7,447,680
Accumulated unrealized loss in investments (18,460)
Accumulated deficit (5,680,451)
-----------
Total Stockholders' equity 1,750,640
-----------
$ 2,871,362
===========
The accompanying notes are an integral part of these financial statements.
F-3
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended Year Ended
February 28, February 29,
2001 2000
----------- -----------
REVENUES $ - $ 250
OPERATING EXPENSES
Project Development 171,373 229,611
Project Operations 640,743 380,513
Marketing and Promotion 52,520 52,042
----------- -----------
Total Operating Expenses 864,636 662,166
GENERAL AND ADMINISTRATIVE EXPENSES 752,330 486,068
----------- -----------
(LOSS) FROM OPERATIONS (1,616,966) (1,147,984)
OTHER INCOME OR (EXPENSE)
Income from debt forgiveness 723,481 -
Gain(Loss) on sale of marketable securities 189,479 (2,033)
Interest income 23,456 30,115
Interest expense (93,656) (101,904)
Other income(expense) (11,436) (7,013)
Total other income ----------- -----------
or (expense) 831,324 (80,835)
----------- -----------
NET(LOSS) ( 785,642) (1,228,819)
=========== ===========
(BASIC AND DILUTED LOSS PER SHARE) $ (0.06) $ (0.12)
Weighted average number of common
shares and potential common shares,
basic and diluted, outstanding 13,353,009 10,583,246
The accompanying notes are an integral part of these financial statements.
F-4
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
Accumul-
Addi- ated Un-
tional realized Comprehen-
Preferred Stock Common Stock Paid-In Loss in Accumulated sive
Shares Amount Shares Amount Capital Investment (Deficit) Income
--------- ------ ---------- ------ ---------- ---------- ----------- -----------
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)
Preferred Stock
Issued For cash 850,000 85 2,723,104
Preferred Stock
Converted to Common (190,000) (19) 712,500 71 (52)
Common Stock Issued
For cash 2,801,919 280 794,031
For services 1,514,000 151 275,600
For accrued expenses 285,606 29 132,471
For conversion of debt 1,416,734 142 424,908
Net change in unrealized
Loss on securities
Available for sale (14,260) (14,260)
Net loss for the year
ended February 28, 2001 (785,642) (785,642)
Balance at --------- ----- ---------- ------ ---------- --------- ----------- -----------
February 28, 2001 850,000 $ 85 17,865,536 $1,786 $7,447,680 $ (18,460) $(5,680,451) $ (799,902)
========= ==== ========== ====== ========== ========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended Year Ended
February 28, February 29,
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $ (785,642) $(1,228,819)
Adjustments to reconcile net loss to net
cash used by operating activity:
Depreciation 34,877 28,059
Amortization - 204
Common Stock issued for services 283,250 2,500
Finance charge added to note 7,500 4,500
Loss(gain)on marketable securities (189,479) 2,033
Loss of disposal of equipment 4,057 2,513
Income from debt forgiveness (723,481) -
(Increase)decrease in:
Advances (11,561) (6,316)
Interest receivable (23,872) (22,702)
Increase (decrease) in:
Accounts payable (123,714) 172,869
Accrued expenses 185,445 412,136
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,342,620) (633,023)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (162,315) (2,845)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (162,315) (2,845)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Related party loans 5,000 100,000
Loans from others 75,000 62,000
Issuance of Common Stock 794,311 -
Issuance of Preferred Stock 2,723,189 270,000
Issuance of Revenue Participation Certificates 62,500 15,000
Sale of Marketable securities 348,048 163,484
Repayment of notes (117,101) (33,881)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,890,947 576,603
----------- -----------
NET INCREASE(DECREASE)IN CASH 2,386,012 (59,265)
CASH AT BEGINNING OF YEAR 47,175 106,440
----------- -----------
CASH AT END OF YEAR $ 2,433,187 $ 47,175
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-6
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
Year ended Year ended
February 28, February 29,
2001 2000
----------- -----------
SUPPLEMENTARY INFORMATION:
Interest paid $ 88,418 $ 6,665
Income taxes paid - -
SUMMARY OF SIGNIFICANT NON CASH TRANSACTIONS
During February 2001, two noteholders elected to convert $67,966 of principal,
$388 of accrued interest, and $7,500 of accrued expense into 225,357 shares of
Common Stock.
In January 2001, two noteholders elected to convert $119,521 of principal and
$21,012 of accrued interest into 774,055 shares of Common Stock. Three
officers were issued 1,250,000 shares of Common Stock for notes receivable in
the amount of $143,750, and a consultant was issued 60,606 shares of Common
Stock for $20,000 of accounts payable.
Also, during January, three officers who were owed a total of $723,481 of
previously accrued but unpaid compensation, agreed to forgive the indebtedness
from the Company(See Note N).
During December 2000, five holders of the Company's Series A Preferred stock
elected to convert into 262,500 shares of Common Stock valued at $105,000.
During the quarter ended November 30, 2000, five unrelated accredited
investors who purchased shares through the private placement which was closed
in July 2000, were issued 757,911 additional shares pursuant to the terms of
the private placement. Additionally, 120,000 shares of Series A Preferred
stock were surrendered and converted into 450,000 shares of Common Stock, and
two subcontractors who provided services valued at $47,000 on the Republic
project were issued 94,000 shares of Common Stock for services.
During August 31, 2000, two subcontractors who provided services valued at
$80,000 on the Republic project, were compensated by the issuance of 160,000
shares of Common Stock.
During May, 2000, a director who was owed $105,000 of accrued expenses,
$132,131 of notes, and $8,256 of accrued interest assigned the entire amount
owed to an unrelated third party who was issued 490,774 shares of Common Stock
for converting the entire amount due.
During May, 2000, a related party who was owed $68,894 of principal and $6,880
of accrued interest on a note converted the entire amount into 151,548 shares
of Common Stock. A consultant owed $5,000 for services received 10,000 shares
of Common Stock as payment for the services.
The accompanying notes are an integral part of these financial statements.
F-7
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.
On September 1, 1999, accrued and unpaid executive compensation in the amount
of $375,000 was reclassified 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).
The accompanying notes are an integral part of these financial statements.
F-8
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-9
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 H and J, 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-10
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.
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 have been 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 28, 2001, and February 29, 2000, potential common shares were
excluded from the computation of diluted EPS because their inclusion would
have had an antidilutive effect on EPS. At February 28, 2001, there were
options for 354,500 shares and warrants for 290,000 shares that were
exercisable between $0.30 and $0.40 per share which were thus excluded from
the computation of diluted EPS. On February 28, 2001, and February 29,2000,
all of the other 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.
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.
F-11
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - CONCENTRATION OF CREDIT RISK
The Company maintains its cash in one financial institution. The Federal
Deposit Insurance Corporation insures up to $100,000. At February 28, 2001
and February 29, 2000, the Company's uninsured cash balance was approximately
$2,400,000 and $0, respectively.
NOTE E - MARKETABLE SECURITIES
At February 28, 2001, the Company held shares of two unrelated companies. The
Company owned 160,000 shares of Seahawk Deep Ocean Technology, Inc.
("Seahawk") common stock which it has held in excess of two years. The Seahawk
shares were fully written off, in the year ended February 29, 2000, as it is
unlikely that the Company will realize any future value from the shares.
Other marketable securities held by the Company as of February 28, 2001,
consist of 228,824 shares of common stock of Affinity International Marketing,
Inc. (formerly Treasure & Exhibits International,Inc.)("AIMI") common stock
which are deemed available for sale. The Company received the AIMI 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 AIMI shares are carried on the books at the
closing open market price, which is lower than the cost basis of the shares.
The total annual unrealized loss for the year ending February 28, 2001, of
$14,260 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 28, 2001, is set out in the table below:
Fair
Unrealized Market
Issuer Shares Basis Loss Value
----------------------- -------- -------- -------- ---------
American International
Marketing, Inc. 228,824 $ 29,214 $ 18,460 $ 10,754
========= =========
F-12
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE F - PROPERTY AND EQUIPMENT
At February 28, 2001 Property and Equipment consist of:
Accumulated
Original Depreciation/ Book
Class Cost Amortization Value
------------------------------ ------------ ------------ ------------
Computers and Peripherals $ 32,630 7,724 $ 24,906
Furniture and Office equipment 26,155 11,264 14,891
Marine survey equipment 229,052 64,734 164,318
----------- ----------- -----------
$ 287,837 83,722 $ 204,115
=========== =========== ===========
NOTE G - 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, and the difficulty an appraiser would
have in finding comparable sales, the Company does not believe that it can
obtain a meaningful third party appraisal, and therefore, has not sought an
independent appraisal of the goods.
NOTE H - LOANS RECEIVABLE FROM RELATED PARTIES
On January 1, 2001, the Company renewed loan agreements with two of its
officers authorizing each to borrow a maximum of $120,000 from the Company at
8% annual interest compounded quarterly. The loan balances, which become due
on December 31, 2003, were $83,652 and $97,847 respectively. Accrued interest
in the amount of $20,186 and $21,726 are reflected in this caption.
NOTE I - ACCRUED EXPENSES
Accrued expenses at February 28, 2001, consist of:
Employee wages 732
Payroll tax 108,565
Research and consulting 7,504
Interest on notes payable 6,701
-----------
$ 123,502
===========
F-13
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties at February 28, 2001, consist of:
Unsecured 10% note payable to the family member of
an officer due April 1, 2003. The note can be
converted to Common Stock for $0.50 per share. $ 48,821
===========
NOTE K - SALE OF REVENUE PARTICIPATION CERTIFICATES
The Company has sold through private placements of Revenue Participation
Certificates("RPC's")the right to share in future revenues of the Company
derived from the Cambridge or Republic projects.
Each convertible Cambridge RPC entitles the holder to receive a percentage of
the gross revenue 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 $825,000
of a maximum of $900,000 of the Cambridge RPC's. As a group, the holders are
entitled to 100% of the first $825,000 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 Cambridge RPC unit may be converted into 16,666
shares of the Company's Common Stock at any time prior to December 31, 2001,
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.
In a private placement which closed in September 2000, the Company sold
"units" comprised of Republic Revenue Participation Certificates, and Common
Stock. Each $50,000 "unit" entitled the holder to 1% of the gross revenue
generated by the Republic project, and 100,000 shares of Common Stock. Gross
revenue is defined as all cash proceeds payable to the Issuer as a result of
the Republic project, excluding funds received by the Issuer to finance the
project.
When the offering was closed, in September, 2000, a total of five $50,000
units consisting of one Republic RPC and 100,000 shares of Common Stock had
been sold, and the cost of each unit was allocated as $37,500 for the stock
and $12,500 for the RPC. Therefore, a total of $62,500 was reflected on the
books as deferred income from the sale of republic revenue participation
certificates.
F-14
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE K - SALE OF REVENUE PARTICIPATION CERTIFICATES - continued
As of February 28, 2001, the Company had sold, in total, $887,500 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 rights,
designations, preferences and limitation as the Board of Directors of the
Company may determine by resolution.
Series A Preferred stock
On April 23, 1999 the Company established a series of Preferred stock known as
"Series A Convertible Preferred Stock"("series A Preferred stock"), having a
par value of $.0001 per share and an authorization of 700,000 shares.
Commencing June 1, 2000, the series A Preferred stock was convertible, all or
in part, into shares of the Corporation's Common Stock. Each share of
Preferred stock could 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.
In total, 190,000 shares of series A Preferred stock had been issued. As of
February 28, 2001, the holders of the series A Preferred stock had elected to
convert the entire 190,000 shares into 712,500 shares of Common Stock.
As of February 28,2001 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 stock issued and none outstanding.
Series B Preferred stock
On December 27, 2000, the Company established a series of Preferred stock
known as "Series B Convertible Preferred Stock"("series B Preferred stock"),
having a par value of $.0001 per share and an authorization of 850,000 shares.
Each share of Series B Convertible Preferred stock is convertible into 10
shares of the Company's Common Stock at any time. The holder of the shares of
Series B Convertible Preferred stock is entitled to vote such shares together
with the holders of the Company's Common Stock on an "as converted" basis. In
addition, the holder of the Series B Convertible Preferred stock is entitled
to elect three members of the Board of Directors, and has special voting
rights in connection with specified corporate actions. In the event of a
liquidation or dissolution of the Company, the holder of the Series B
Convertible Preferred stock is entitled to an amount equal to $3.50 per share
prior to any payments to holders of any other class of stock. Although the
Series B Convertible
F-15
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE L - PREFERRED STOCK - continued
Preferred stock has no separate dividend provisions, holders are entitled to
receive any dividends paid to holders of Common Stock on an "as converted"
basis. Under the terms of the Stock Purchase Agreement, the Series B Preferred
stock purchaser received certain rights to require the Company to register the
shares of Common Stock issuable on the conversion or exercise of the Preferred
stock for resale under the Securities Act of 1933.
As of February 28, 2001, the Company had authorized 850,000 shares of $.0001
par value series B Convertible Preferred stock. There were 850,000 shares of
series B Convertible Preferred stock issued and, 850,000 shares outstanding.
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. On
January 11, 2001, the Board of Directors of the Company approved increasing
the number of shares in the plan to 3,000,000, subject to shareholder
approval.
As of February 28, 2001 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
3/01/00 $0.30 2/28/2004 150,000
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
3/01/00 $0.30 2/28/2004 20,000
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
1/16/01 $0.33 1/16/2005 49,500
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
F-16
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - COMMON STOCK OPTIONS AND WARRANTS - continued
Option
Date Price per Expiration Shares
Of Grant Share of Option Granted
----------- ----------- ------------ ------------
1/01/00 $0.30 2/28/2004 50,000
3/01/00 $0.30 2/28/2004 25,000
4/21/00 $0.50 4/30/2004 25,000
10/12/00 $0.50 9/30/2004 25,000
1/22/01 $0.40 1/22/2003 50,000
-----------
2,000,000
===========
Since the inception of the stock option plan, 50,000 option to purchase stock
for $0.30 have been exercised, therefore, 1,950,000 options are exercisable at
a weighted average exercise price of $1.95 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 28, 2001, or February 29,
2000. However, using the Black-Scholes method of option valuation, the options
granted during the years ending February 28, 2001 and February 29, 2000 are
determined to have a fair market value of $50,895 and $522,240 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 for the year 2001; risk-free interest rates of 5.0 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:
2001 2000
------------ ------------
Proforma net income (loss)
attributable to stockholders $ (836,537) $ (1,751,059)
Proforma basic and diluted (loss)
per share $ (0.06) $ (.17)
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, and one limited liability
F-17
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - COMMON STOCK OPTIONS AND WARRANTS - continued
company that purchased the Company's series B preferred stock. Warrants issued
are as follows:
Price
Warrants per Share Expiration Date
----------- ----------- --------------------------------
190,000 $ 3.50 7/31/01
10,000 3.00 2/28/02
20,000 3.00 4/30/02
722,000 3.00 2/28/03
11,000 3.00 Two years from the date the loan
is paid in full
640,000 2.50 3/31/02
110,000 2.50 6/30/02
95,000 2.00 7/31/01
80,000 2.00 2/28/02
35,000 2.00 4/30/02
862,500 2.00 2/28/03
21,500 2.00 Two years from the date the loan
is paid in full
25,000 0.68 5/01/03
60,000 0.30 2/28/03
230,000 0.30 2/28/04
-----------
3,112,000
===========
NOTE N - INCOME FROM DEBT CANCELLATION
During January, 2001, the Company entered into an agreement for additional
capitalization which provided for unpaid compensation to be forgiven by three
officers of the Company.
The debt forgiven was as follows:
Class of debt Amount
--------------------------- -----------
Notes payable related $ 375,000
Accrued interest payable 1,849
Accrued executive compensation 346,632
-----------
$ 723,481
===========
NOTE O - 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 Loss in the financial
statements for the year ended February 28, 2001, and Comprehensive Income for
the year ended February 29, 2001. 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 E.
F-18
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE P - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The temporary
differences that give rise to the deferred tax asset are the Company's net
operating loss carryforward and accounts payable and accrued expenses due to
using modified cash basis for tax reporting purposes.
The Company has a net operating loss carry forward of approximately $5,300,000
that is available to offset future regular taxable income. The carry forward
will expire in various years ending through the year 2021. 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 Q - COMMITMENTS AND CONTINGENCIES
Offices
On January 24, 2001, the Company entered into a lease agreement for
approximately 3,000 square feet of office space for the period beginning
February 1, 2001, and ending January 31, 2003. Rent payments for this office
were $3,732 for the fiscal year ending February 29, 2000. Approximate future
rent payments are $44,790 for the year ending February 28, 2002, and $41,057
from then until the expiration of the lease on January 31, 2003.
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.
NOTE R - GOING CONCERN CONSIDERATION
The Company has incurred net losses of $5,680,451 since inception, and will
not generate revenue until it is successful at locating one or more of it's
target shipwrecks and bringing the find to sale or otherwise generating
revenue. 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 series B preferred stock, Common Stock and warrants that raised
F-19
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE R - GOING CONCERN CONSIDERATION - continued
$3,000,000 for operational and administrative purposes in February,2001. Also,
a number of debt holders converted $236,387 of debt to Common Stock, and
$723,481 of accrued debt was forgiven by officers. The Company also brought
it's accounts payable current and paid off the balance of certain notes. The
result of these actions were that at February 28, 2001, the Company had
working capital as indicated by current assets exceeding current liabilities
by $2,268,140.
Depending on the results of the Cambridge operations to be conducted during
April through June of 2001, the Company will make a determination as to
whether it will use any more of it's working capital, or conduct private
placements of debt or equity to finance future operations.
Operationally, the Company plans to continue search operations on the
Cambridge project, and depending upon financing, may also conduct operations
on the 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-20
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 25, 2001 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 Director May 25, 2001
John C. Morris
/s/ Gregory P. Stemm Vice President and Director May 25, 2001
Gregory P. Stemm
/s/ David A. Morris Secretary and Treasurer May 24, 2001
David A. Morris (Principal Accounting Officer)
/s/ James E. MacDougald Chairman of the Board of Directors May 25, 2001
James E. MacDougald