U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 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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(Registrants telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
[ X ] Yes [ ] No
As of December 31, 2001, the Registrant had 26,465,536 shares of common stock,
$.0001 par value, outstanding.
Transitional Small Business Disclosure format: Yes [ ] No [ X ]
INDEX
Part I: Financial Information Page No.
Item 1. Financial Statements:
Unaudited Consolidated Balance Sheet - as of
November 30, 2001.......................................... 3
Unaudited Consolidated Statements of Operations, Three
Months Ended November 30, 2001, and 2000................... 4
Unaudited Consolidated Statements of Operations, Nine
Months Ended November 30, 2001, and 2000................... 5
Unaudited Consolidated Statements of Cash Flows, Nine
Months Ended November 30, 2001, and 2000................... 6 - 7
Notes to Consolidated Financial Statements................. 8
Item 2. Management's Plan of Operation.......................... 8 - 10
Part II: Other Information...................................... 10
Item 1. Legal Proceedings................................. 10
Item 2. Change in Securities.............................. 10
Item 3. Defaults Upon Senior Securities................... 10
Item 4. Submission of Matters to a Vote
of Security Holders............................... 11
Item 5. Other Information................................. 11
Item 6. Exhibits and Reports on Form 8-K.................. 11
Signatures ..................................................... 12
2
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 30, 2001 - Unaudited
ASSETS
CURRENT ASSETS
Cash $ 1,040,528
Marketable securities 1,373
Advances and prepaid expense 18,514
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Total current assets 1,060,415
PROPERTY AND EQUIPMENT
Equipment and office fixtures 380,172
Accumulated depreciation (137,178)
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242,994
OTHER ASSETS
Loans receivable from related parties 249,264
Inventory 20,000
Deposits 13,206
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282,470
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TOTAL ASSETS $ 1,585,879
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 42,699
Accrued expenses 6,735
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Total current liabilities 49,434
NOTES PAYABLE TO RELATED PARTY 59,897
DEFERRED INCOME FROM REVENUE PARTICIPATION CERTIFICATES 887,500
STOCKHOLDERS' EQUITY
Preferred stock - $.0001 par value; 9,300,000 shares
authorized, none outstanding -
Preferred stock Series A Convertible - $.0001 par value;
700,000 shares authorized; 190,000 shares issued
and none outstanding -
Common stock - $.0001 par value; 100,000,000 shares
authorized; 26,365,536 issued and outstanding 2,636
Additional paid-in capital 7,446,915
Accumulated unrealized loss in investment (27,840)
Accumulated deficit (6,832,663)
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Total stockholders' equity 589,048
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$ 1,585,879
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The accompanying notes are an integral part of these financial statements.
3
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - Unaudited
Three Months Ended
November 30
2001 2000
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REVENUE $ 9,975 -
OPERATING EXPENSES
Project development 64,755 46,276
Project operations 32,999 175,244
Marketing and promotion 17,689 16,163
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Total operating expenses 115,443 237,683
GENERAL AND ADMINISTRATIVE EXPENSES 134,645 101,359
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(LOSS) FROM OPERATIONS (240,113) (339,042)
OTHER INCOME OR (EXPENSE)
Gain(Loss) on sale of marketable securities - (13,480)
Interest income 12,066 3,377
Interest expense (1,400) (24,110)
Other 300 -
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Total other income or (expense) 10,966 (34,213)
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NET LOSS $ (229,147) $ (373,255)
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OTHER COMPREHENSIVE LOSS, NET OF TAX
Unrealized loss on available for sale
securities (914) (15,619)
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COMPREHENSIVE LOSS $ (230,061) $ (388,874)
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(BASIC AND DILUTED LOSS PER SHARE) $ (0.01) $ (0.03)
Weighted average number of common
shares and potential common shares,
basic and diluted outstanding. 19,029,920 12,177,841
The accompanying notes are an integral part of these financial statements.
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ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - Unaudited
Nine Months Ended
November 30
2001 2000
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REVENUE $ 9,975 -
OPERATING EXPENSES
Project development $ 160,139 $ 133,729
Project operations 583,852 619,683
Marketing and promotion 73,999 42,705
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Total operating expenses 817,990 796,117
GENERAL AND ADMINISTRATIVE EXPENSES 396,906 378,510
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(LOSS)FROM OPERATIONS (1,204,921) (1,174,627)
OTHER INCOME OR (EXPENSE)
Gain on sale of marketable securities - 193,406
Interest income 56,779 9,858
Interest expense (4,375) (79,683)
Other 306 (7,413)
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Total other income or (expense) 52,710 116,168
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NET LOSS $(1,152,211) $(1,058,459)
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OTHER COMPREHENSIVE LOSS, NET OF TAX
Unrealized loss on available for sale
securities (9,380) (17,752)
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COMPREHENSIVE LOSS $(1,161,591) $(1,076,211)
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(BASIC AND DILUTED LOSS PER SHARE) $ (0.06) $ (0.09)
Weighted average number of common
shares and potential common shares,
basic and diluted, outstanding. 19,029,920 12,177,841
The accompanying notes are an integral part of these financial statements.
5
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited
Nine Months Ended
November 30
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $(1,152,211) $(1,058,459)
Adjustments to reconcile net loss to
net cash used by operating activity:
Depreciation 53,456 24,404
Common stock issued for services - 132,000
Finance charge added to note - 7,500
Loss (gain) on sale of marketable securities - (193,406)
Decrease (increase)in:
Advances 5,878 8,346
Interest receivable (14,165) (15,998)
Prepaid expenses (15,792) -
Increase (decrease) in:
Accounts payable (18,200) (32,436)
Accrued expenses (105,690) 165,257
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NET CASH(USED) IN OPERATING ACTIVITIES (1,246,724) (962,792)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (92,335) (18,753)
Increase in loans receivable (53,600) -
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NET CASH (USED) IN INVESTING ACTIVITIES (145,935) (18,753)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Related party loans - 5,000
Loans from others - 75,000
Issuance of common stock - 517,500
Issuance of revenue participation certificates - 62,500
Sale of marketable securities - 345,105
Repayment of note - (64,153)
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NET CASH PROVIDED BY FINANCING ACTIVITIES - 940,952
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NET INCREASE(DECREASE)IN CASH (1,392,659) (40,593)
CASH AT BEGINNING OF PERIOD 2,433,187 47,175
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CASH AT END OF PERIOD $ 1,040,528 $ 6,582
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The accompanying notes are an integral part of these financial statements.
6
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
SUPPLEMENTARY INFORMATION:
Interest paid $ - $ 31,919
Income taxes paid $ - -
Summary of significant non cash transactions:
During the quarter ending November 30, 2001, the holder of 850,000 shares of
Series B Preferred Stock converted the shares into 8,500,000 shares of Common
Stock in a non-cash transaction.
During the quarter ended May 31, 2001, a note to a related party was renewed.
The original principal amount of $48,821 and accrued interest of $7,323 were
combined in a new note in the principal amount of $56,144 bearing interest at
10% per annum. The due date was extended to March 31, 2003.
During the quarter ended November 30, 2000, five unrelated accredited
investors who purchased shares through the private placement which was
completed 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 the quarter ended 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 the quarter ended May 31, 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 $245,387 into
stock. A related party was issued 151,548 shares for the conversion of $68,894
of principal and $6,880 of accrued interest into stock. A consultant was
issued 10,000 shares of Common Stock for $5,000 of services.
The accompanying notes are an integral part of these financial statements.
7
ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Odyssey Marine
Exploration, Inc. and subsidiary have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission and the
instructions to Form 10-QSB and, therefore, do not include all information and
footnotes normally included in financial statements prepared in accordance
with generally accepted accounting principles. These interim consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes included in the Company's Form 10-KSB for the
year ended February 28, 2001.
In the opinion of management, these financial statements reflect all
adjustments (including normal recurring adjustments) necessary for a fair
presentation of the financial position as of November 30, 2001, results of
operations, and cash flows for the interim periods presented. Operating
results for the three months, and nine months ended November 30, 2001, are not
necessarily indicative of the results that may be expected for the year ended
February 28, 2002.
NOTE B - CONVERSION OF SERIES B PREFERRED STOCK TO COMMON STOCK
On October 12, 2001, MacDougald Family Limited Partnership("MFLP") delivered a
Notice of Conversion to the Issuer pursuant to which MFLP converted 850,000
shares of Preferred Stock held by MFLP into 8,500,000 shares of Common Stock
in accordance with the terms of the Stock Purchase Agreement and the
Certificate of Designation. No additional funds were expended by MFLP in
connection with its acquisition of the Common Stock. The consideration for
the Common Stock was the Preferred Stock tendered by MFLP to the Issuer.
As a condition and an inducement to MFLP to convert the Preferred Stock, the
Issuer and MFLP executed an Amended and Restated Registration Rights
Agreement, dated October 12, 2001 ("Amended and Restated Registration Rights
Agreement"), pursuant to which the Issuer granted MFLP up to five demand
registration rights. Concurrently with the execution of the Amended and
Restated Registration Rights Agreement, the Issuer and MFLP entered into the
First Amendment to Series B Stock Purchase Agreement, dated October 12, 2001
("First Amendment to Stock Purchase Agreement"), which eliminated certain of
MFLP's rights under the Stock Purchase Agreement.
The 850,000 shares of Series B Preferred Stock thus converted to Common Stock
have been retired and cancelled and restored to the status of authorized but
unissued shares of preferred stock of the Corporation, without designation as
to series, as provided for in the Certificate of Designation of Series B
Convertible Preferred Stock.
ITEM 2. 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.
8
For the next twelve months, the Company anticipates spending approximately
$80,000 per month to pay administrative and project development overhead.
Management believes the Company currently has sufficient cash to fund its
overhead for the next twelve months.
During the next twelve months, the Company is planning to conduct recovery and
conservation operations on a shipwreck believed to be "HMS Sussex", conduct
two search operations and begin the development of the sales and marketing
department. All of these operations will require additional financing which
the Company intends to raise through the sale of equity, debt or project
specific revenue participation.
Recovery and Conservation for "HMS Sussex":
"HMS Sussex" is an English warship that sank during a storm in the western
Mediterranean Sea in 1694. There is circumstantial evidence that the ship was
carrying a substantial cargo of money at the time of its sinking.
During operations conducted in the Spring of 2001, the expedition
archaeologist, Neil Cunningham Dobson, directed the recovery of certain
artifacts from a site that he believed demonstrated some of the
characteristics of the Sussex. In his draft archaeological report he
concludes that after studying the survey data, the historical and documentary
sources, the underwater investigations, the location, the size and shape of
the site, and the cannon distribution and sizes, he believes that the site is
likely to be the remains of the Sussex. However, the Company stresses that all
of the evidence is circumstantial.
Based upon the survey data, historical research and Mr. Dobson's report, the
Company believes that it is likely that the wreck of the British warship, "HMS
Sussex", has been discovered. Accordingly, it has provided a copy of Mr.
Dobson's report to the United Kingdom's Ministry of Defence ("MOD") and asked
them to enter into a license agreement for the purpose of determining the
methods of recovery and the disposition of any artifacts recovered. While
there can be no assurance that the MOD will issue such a license, the MOD has
previously indicated that a license would be issued to Odyssey. The Company
believes that any license will contain provisions for Odyssey to receive a
substantial distribution of any recovered items. The Company also anticipates
that any license will be subject to the stringent application of
archaeological standards for all work conducted on the site.
The Company anticipates it will be issued a license for the recovery of the
Sussex, or it may elect to perfect a claim and protect the site using any
international legal mechanisms at its disposal. Subject to financing, the
Company intends to begin recovery during the Spring of 2002.
If the Company successfully recovers artifacts and cargo from "HMS Sussex",
the Company plans to produce revenue from the project by selling the trade
goods recovered (after conservation and documentation), along with ancillary
products such as replicas, video footage, promotional items, and intangible
property rights. The Company anticipates that the project will have a
marketing life in excess of ten years.
9
Search Operations:
On September 1, 2001, the Company entered into an agreement with Mr. Jeff
Hummel, a researcher for the Company's Republic Project, to conduct search
operations, on a "no cure - no pay" basis. Accordingly, the Company did not
conduct any of its own search operations for the Republic during the 2001 work
season. If financing is obtained, the Company plans to continue its search for
the Republic during August and September 2002, when weather conditions are
most favorable in the search area.
During the Summer of 2002, the Company also intends to search an area off the
east coast of the United States in an attempt to locate and identify a
nineteenth century steamship believed to have sunk while carrying a cargo of
coins at the time of its sinking. If this shipwreck is located and if
financing and equipment are available, recovery and conservation efforts could
begin immediately.
Sales and Marketing Department
Since the Company believes it will conduct recovery operations at one or more
sites during the next twelve months, it intends to build a sales and marketing
division to provide the platform for revenue generation. The Company has
retained consultants to assist it in developing the marketing strategy and
plans to implement this strategy once funds are available.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes in Securities.
On October 12, 2001, MacDougald Family Limited Partnership ("MFLP")
delivered a Notice of Conversion to the Company pursuant to which MFLP
converted 850,000 shares of Series B Preferred Stock held by MFLP into
8,500,000 shares of Common Stock in accordance with the terms of the Stock
Purchase Agreement and the Certificate of Designation. No additional funds
were expended by MFLP in connection with its acquisition of the Common Stock.
The consideration for the Common Stock was the Preferred Stock tendered by
MFLP to the Company. James E. MacDougald, who was a Director of the Company
at that time, controls MFLP.
As a condition and an inducement to MFLP to convert the Preferred Stock,
the Company and MFLP executed an Amended and Restated Registration Rights
Agreement, dated October 12, 2001 ("Amended and Restated Registration Rights
Agreement"), pursuant to which the Company granted MFLP up to five demand
registration rights. Concurrently with the execution of the Amended and
Restated Registration Rights Agreement, the Company and MFLP entered into the
First Amendment to Series B Stock Purchase Agreement, dated October 12, 2001
("First Amendment to Stock Purchase Agreement"), which eliminated certain of
MFLP's rights under the Stock Purchase Agreement.
10
In connection with this transaction, the Company relied on the exemption
from registration provided by Section 4(2) of the Securities Act of 1933, as
amended. MFLP is an accredited investor and represented that it was acquiring
the shares for investment purposes and not with a view to distribution. The
certificate representing the shares of common stock bears a restrictive legend
and stop transfer orders were entered with the transfer agent.
ITEM 3. Defaults Upon Senior Securities.
None.
ITEM 4. Submission of Matters to a Vote of Security Holders.
On November 7, 2001, the holders of 15,051,245 shares of the Company's
Common Stock (the "Common Stock") signed a written consent that became
effective on December 5, 2001, approving amendments to the Company's 1997
Stock Option Plan to increase the number of shares of Common Stock covered by
the Plan from 2,000,000 to 3,500,000 shares. On November 7, 2001, there were
26,365,536 shares of Common Stock issued and outstanding, and no shares of
Preferred Stock outstanding. The consenting shareholders owned an aggregate of
approximately 57.1% of the outstanding shares of Common Stock.
ITEM 5. Other Information.
None.
ITEM 6. Exhibits and Reports on Form 8-K.
None.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ODYSSEY MARINE EXPLORATION, INC.
Date: January 9, 2002 By:/s/ David A. Morris
David A. Morris, Treasurer
(Principal Accounting Officer
and Duly Authorized Officer)
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