10KSB 1 0001.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended February 29, 2000 Commission File Number 0-26136 ODYSSEY MARINE EXPLORATION, INC. ----------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Nevada 84-1018684 ---------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 3507 Frontage Road, Suite 100, Tampa, Florida 33607 ----------------------------------------------------- (Address of principal executive offices) (813) 282-0855 ----------------------------------------------------- (Registrant's telephone number including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No As of April 20, 2000, the Registrant had 11,254,777 shares of Common Stock, $.0001 Par Value, outstanding, and the aggregate market value of the shares held by non-affiliates on that date was approximately $4,132,200. Transitional Small Business Disclosure format: Yes [ ] No [ X ] PART I. ITEM 1. DESCRIPTION OF BUSINESS BACKGROUND ODYSSEY MARINE EXPLORATION, INC. Odyssey Marine Exploration, Inc (the "Company" or "Odyssey"), formerly Universal Capital Corporation, was formed under the laws of the State of Colorado on March 5, 1986, to evaluate, structure and complete a merger with, or acquisition of, prospects consisting of private companies, partnerships or sole proprietorships. On August 8, 1997, the Company acquired all of the issued and outstanding stock of Remarc International, Inc., a Delaware corporation ("Remarc"), in exchange for approximately 7,750,000(post split) shares of its no par value Common Stock. On August 15, 1997, the Company filed an Information Statement with the Securities and Exchange Commission, which announced the Company's intention to hold a Shareholder Meeting on September 8, 1997. The Shareholders approved the following measures: (i) change the name of corporation to Odyssey Marine Exploration; (ii) change the domicile of the corporation from Colorado to Nevada; (iii) reverse split the Common Stock 1 for 5,(iv) approve an Employee Stock Option Plan, and (v) authorize 10,000,000 shares of preferred stock. All financial information and share data in this Form 10-KSB give retroactive effect to the reverse split. REMARC INTERNATIONAL, INC. Remarc International, Inc. was formed May 26,1994 to engage in the business of recovering and marketing artifacts and cargoes from deepwater shipwrecks. Since its inception, Remarc focused on researching, permitting and developing a number of shipwreck projects. On August 8, 1997, Remarc became a wholly owned subsidiary of Odyssey Marine Exploration and on February 25, 1999, Remarc International Inc. and Odyssey merged with Odyssey being the surviving Corporation. ODYSSEY MARINE, INC. Odyssey Marine, Inc., a Florida corporation, was incorporated on November 2, 1998, as a wholly owned subsidiary of Odyssey Marine Exploration, Inc. for the purpose of administering the Company's payroll and health plan. The Company maintains a web site at www.shipwreck.net. DESCRIPTION OF BUSINESS GENERAL Odyssey is engaged in the business of conducting archaeologically sensitive recoveries of cargo and artifacts from various shipwrecks. The Company plans to produce revenue by exhibiting the artifacts and selling merchandise consisting of certain cargoes, replicas of the artifacts and general merchandise relating to the specific shipwrecks or the shipwreck business in general. In addition, the Company plans on producing revenue in the form of project sponsorships and through the sale of intellectual property rights. 2 The shipwreck business consists of six major component areas. A. Project Development: Research and Government Liaison B. Offshore Search and Inspections C. Offshore Recovery Operations D. Conservation and Documentation of Artifacts E. Sharing the Knowledge and the Artifacts with the Public F. Marketing the Cargoes, Artifact Replicas and Ancillary Products A. PROJECT DEVELOPMENT: RESEARCH AND GOVERNMENT LIAISON. The foundation for any shipwreck search and recovery expedition is the research behind the project. Not only is the research critical to evaluate the potential value, location and viability of a shipwreck project, but it is also necessary in order to establish the historical significance and the archaeological approach to the excavation that may be required. The Company uses several outside shipwreck researchers to scout out potentially viable projects. Data from these researchers is brought in and checked against the Company's own database and resources, compared against information from other experts in the industry, then reviewed by a review board comprised of three outside directors and one executive officer, before further money is spent on the project. Once a project looks promising, the next step is to develop a working relationship with the government or company that holds the rights to that shipwreck. Development of these relationships is often time-consuming and requires tremendous patience. Many foreign governments have had bad experiences with "treasure hunters" in the past and are wary and skeptical of any mention of shipwrecks. In the case of shipwrecks that lie beyond any government's jurisdiction, how and where the artifacts or cargo from the shipwreck are brought ashore could determine whether the Company could even legally claim the cargo. Once the Company is satisfied with the historical research and its legal rights to a specific shipwreck, the project will enter the next phase. B. OFFSHORE SEARCH AND INSPECTION. Most offshore search operations will be conducted by first utilizing a side scan sonar to detect anomalies on the seabed. After one or more promising anomalies are located, a remotely operated vehicle ("ROV") will be deployed to inspect and make a video record of the anomaly. ROV's can be equipped with a wide variety of tools enabling the operator to pick up samples, dredge or remove sand and/or overburden, take video footage or still photos and to acquire approximate measurements of the visible wreck site. There are several companies that lease the vessels, equipment and personnel necessary to conduct offshore search operations. The Company intends to lease the necessary vessels and equipment until such time as the Company's utilization of vessels and equipment justifies ownership and the financing for such vessels and equipment is available. The Company retains its own project manager to ensure quality control. C. OFFSHORE RECOVERY OPERATIONS. 3 Since all of the Company's projects are currently located in deep water, recovery operations will most likely be conducted utilizing remote operated vehicles. How a recovery operation will be conducted depends on a number of factors including the depth of the water, the age, condition, historical and archaeological importance of the wreckage, local weather and tidal conditions. Once the decision has been made to recover a shipwreck, the Company will work with vessel and equipment contractors, archeologists and other interested parties to determine the most appropriate method of recovery. D. CONSERVATION OF THE ARTIFACTS. Conservation of artifacts has, during the past ten years, become a well- documented and organized function that can be undertaken efficiently by any number of professional organizations. The Company may contract these services or elect to establish its own conservation facilities when recovery operations are successful. E. SHARING THE KNOWLEDGE OF THE ARTIFACTS WITH THE PUBLIC The recent success of the movie Titanic, and the associated success of the sale of coal pieces from the shipwreck, books about the tragedy, sale of media rights and Discovery Channel coverage, as well as the popularity of the artifact exhibit underscore the importance of the public's exposure to the excitement of shipwrecks. Any project undertaken by the Company will be augmented with a large-scale public awareness program that is dedicated to making the shipwreck a well-recognized household name. The Company plans on using documentaries, movies, books and major Internet communication facilities to provide the media with the technical and historical stories that the public finds so interesting. The Company plans to partner with major media outlets and publishers which should provide self- liquidating promotional opportunities that should provide income as well as exposure. The heightened public awareness translates into brand equity in the shipwreck cargoes and artifacts that management believes will significantly enhance their value and collectibility. F. MARKETING THE ARTIFACTS, REPLICAS AND ANCILLARY PRODUCTS As the shipwreck industry moves from "treasure hunters" to businesses specializing in shipwreck exploration, a new business model is being developed. This model reflects the unique archaeological nature of the shipwreck industry while developing multiple revenue streams. Odyssey plans to capitalize on the public's fascination with shipwrecks by developing opportunities for the public to share in the excitement. These plans include: joining the expedition as "adventure tourists", following the expedition on the Internet, watching television specials that bring together the history, search and recovery of shipwrecks, viewing video of recovery operations, owning coins or artifact replicas, and viewing shipwreck artifacts at both traveling and permanent exhibitions and tourist attractions. Each shipwreck project is different, and Odyssey expects to generate different combinations of revenue from each project. The Company believes its five 4 primary sources of revenue will be cargo and trade goods sales, merchandise sales, exhibit income, sponsorships and intellectual property (IP) rights. CARGO AND TRADE GOODS SALES The first area, cargo sales, refers to items or "cargo" found on a ship that are not considered culturally significant. For example, from a shipwreck found with a large cargo of coins, Odyssey might market and sell those coins, after significant study of the collection and setting aside a representative sample for future study. Another project may recover gold bullion, which could quickly be sold. Other shipwrecks may never produce revenue from cargo sales. An example of this would be the "Melkarth" shipwreck, the ancient Punic or Phoenician shipwreck discovered by Odyssey in September 1998. The artifacts recovered from this shipwreck will likely be too culturally and archaeologically significant to split the collection. For shipwrecks such as the "Melkarth", the other identified revenue streams should allow Odyssey to recover, conserve and publish these archaeologically significant finds. MERCHANDISE SALES Merchandise sales will comprise any items sold that were not recovered from a particular shipwreck. This merchandise can include artifact replicas (including jewelry), logo merchandise, videotapes, books and other products. Merchandise may be sold through retail outlets, over the Internet (e- commerce), in conjunction with exhibits, and through direct marketing, including home shopping or documercials. EXHIBITS Exhibit income will be derived from various types of exhibits. Permanent shipwreck exhibits may have rotating exhibits of several shipwreck projects. Large market exhibits would travel to larger cities and stay in place for 4 to 6 months. The traveling exhibit plan includes weeklong stops in secondary and tertiary markets. In addition to income from exhibit admission fees, all of the exhibit plans include opportunities for sponsorship income and additional merchandising (cargo and/or merchandise sales). SPONSORSHIPS Sponsorships will be available for some of Odyssey's projects. These corporate or institutional sponsorships will allow appropriate companies or products to share the media exposure and promotional opportunities associated with specific Odyssey expeditions, from search and recovery through exhibit of artifacts. INTELLECTUAL PROPERTY Intellectual Property (IP) rights will include media rights (television, film, book, video, photos), and licensing fees. "Rights" fees to shipwreck projects will be weighed against the PR value of the exposure (which drives merchandise sales), and what future rights the company may retain to promote sales. The current increase in the number of digital television channels will drive a major increase in the need for content (programming). Retaining some or all rights to the television specials produced for each project could generate additional revenue stream from licensing fees to the domestic and international television markets long into the future. 5 ACTIVE PROJECTS The Company currently has several projects in various stages of development and has plans to conduct operations on at least three of its sites during 2000. CAMBRIDGE PROJECT The "Cambridge Project" is an expedition to locate, recover and market the artifacts and cargo of a large colonial warship, lost in a severe storm in the 1600's. Based on research conducted by the Company and its researchers, management believes that there is a high probability that the ship was carrying a cargo of coins with a bullion value of between $20 and $75 million and a potential numismatic value of between $200 million to over $1 billion. This will depend on whether the specie referenced in research documents is gold or silver, its denomination and condition, and the method chosen for marketing. During 1998, the Company conducted search operations over an area of approximately 100 square miles. Several anomalies were located and several shipwrecks, including a Phoenician wreck dubbed "Melkarth" were identified. The Cambridge was not located within the original search area. This led the Company to conclude the Cambridge is mostly likely located in the territorial waters of a country with strict underwater exploration laws. During April 1999, the Company was issued a Permit from this country to expand the search for the Cambridge into their territorial waters. During the summer of 1999, a side scan sonar survey was conducted over an area of approximately 65 square miles. During this operation, 210 anomalies were located. After post processing of the data, all but 132 were eliminated. Of the remaining 132 targets, only 20 are considered to be "highly probable". The Company plans to return to the work area in July 2000 and inspect the highly probable anomalies with a remotely operated vehicle. If the Company is successful in locating the Cambridge during the July operations, an archaeological excavation will be planned for late 2000 or early 2001. If the Cambridge is not located, the Company intends to continue the side scan operation during the late summer and early fall of 2000. REPUBLIC PROJECT The Republic Project is an attempt to locate, identify, recover, conserve and market the cargo of the Republic, a steam ship that sank after the Civil War. According to the Company's research, the Republic's cargo included approximately 48,000 troy ounces of gold. While the bullion value (at $280 per ounce) is approximately $13,000,000, much of the gold may have been shipped as dust, nuggets, and privately minted coins and bars from the gold fields, potentially increasing the value of the cargo. Odyssey has reached an agreement with researchers and insurance interests that would give the Company 80% of any net revenue generated by the project. The Republic Project was offered to the Company in 1999. After conducting research and due diligence on the project, the Company signed an Agreement to take over the project. The Agreement provides for the Company to assume all financial and management responsibilities for the Project. The Company will receive 80% of the net profit with the balance being paid to the insurers and the researchers. 6 Prior to the Agreement with the Company, a side scan survey was conducted over a major portion of the search area by other parties. Several anomalies were located but ROV inspections were never conducted. By the time Odyssey became involved in the Project, most of the original side scan data had been lost. The Company's technicians attempted to reconstitute the survey data through log books and positioning information. During 1999, the Company conducted ROV inspections of the anomalies. Although certain anomalies were found, it was determined that the positioning data was generally unreliable, so plans were made to continue the operation in 2000. The Company intends to conduct a new search operation beginning May 2000. The equipment deployed during this operation will include side scan sonar and a remote operated vehicle capable of working to the maximum depths of the search area. The Company expects this operation to last for a maximum of forty-five days. If the Republic is located, recovery operations will begin as soon as the archaeological excavation plan is complete. CONCEPCION PROJECT The "Concepcion Project" is a project attempting to locate, identify, recover, conserve and market the cargo of an early 18th century shipwreck that sank while carrying a large cargo of gold. Value estimates by Management for the Concepcion Project range from a gold bullion value of approximately $35 million to a potential numismatic and collectors value of well over $100 million. Pesquisas Arqueologicas Maritimas, S.A. (Pesqamar), a Brazilian S/A, was formed to conduct the Concepcion Project. The Company owns 24.5% of the Common Voting Stock and 55% of the Preferred Non-Voting Stock of Pesqamar. In August of 1995, Pesqamar and Salvanav LTDA., a Brazilian salvage company competing for the same shipwreck, entered into an agreement forming a Brazilian consortium known as Consorcio Para Pesquisas Arqueologicas Submarinas (CONPAS). CONPAS conducted all operations on the shipwreck project until April of 1999 when a bifurcation agreement between the parties ended the operation of CONPAS. The sought after shipwreck has not yet been identified and the Company intends to continue searching for the shipwreck through Pesqamar. In addition to its ownership in Pesqamar, the Company has signed a Finance Agreement with Pesqamar whereby it will receive 30% of the gross recovery for providing the search financing and, optionally, an additional 20% of the gross for providing the recovery financing. Assuming the shipwreck is located and the recovery financing option is taken, the combination of its ownership in Pesqamar and the Financing Agreement would entitle the Company to approximately 72.18% of any post government revenue that may be generated from this project. The offshore search phase of this project was commenced during October 1996. To date over 400 square miles have been surveyed with side scan sonar and ROV inspections have been conducted on approximately 20 sites. Due to the conditions observed with the ROV, a magnetometer survey was conducted on these sites during January and February 1998. The Company anticipates further ROV inspections will be recommenced during the fall of 2000. 7 DEEP-WATER VS SHALLOW WATER OPERATIONS The shipwreck business is broken into two primary areas: deep-water projects and shallow water projects. Traditionally, the shallow water business has comprised nearly 100% of the industry, primarily because the cost of entry is relatively low. Many of the world's most famous recoveries were made with minimal investment. As a result, the lack of archaeological professionalism associated with these projects brought a tremendous amount of criticism from the archaeological community. While this didn't dampen the public's enthusiasm for these ventures, the resulting conflict with the archaeological and scientific community caused a great deal of wariness in government and bureaucratic circles. The net result was a burgeoning body of law designed to limit or prevent access to shipwrecks by these shallow water shipwreck explorers. Many of the countries that are richest in potential shipwreck projects have enacted legislation that prevents salvors or divers from even touching these sites. In addition to these problems of working in shallow water, there are several other factors that make shallow water shipwreck projects more risky. They include: * Many competitors can afford to engage in shallow water projects. * Ease of pirates stealing artifacts from shallow water sites. * Possibility that the shipwrecks were already salvaged. * Probability that the site is scattered over a large area by waves and currents. * Difficulty of security when working with divers. * Problems extracting encrusted and coral-covered artifacts. Deep-water shipwrecks, on the other hand, exhibit characteristics that make them much more suitable for legitimate commercial operations. They include: * It is usually easier to gain title to shipwrecks in international waters. * Depth is a barrier to all but well-funded commercial operations. * Deep shipwrecks tend to be in one capsule, perfect for archaeological excavation. * In water greater than 200 meters, there is typically little coral or encrustation. * Difficulty of access provides good site security. * Expense dictates that archaeologists can't reach sites without commercial help. * There is a high probability that shipwrecks have not been previously salvaged. * High cost creates need for professionalism in all commercial operations. * High tech nature of operation increases public interest. For these reasons the Company has decided to concentrate on deep-water shipwreck projects. COMPETITION The Company is aware of the following companies which are currently engaged in the deep water shipwreck business: * Nauticos * Columbus America Group 8 * Seahawk Deep Ocean Technology, Inc. * Blue Water Recoveries While each of these companies could be considered competitors, management does not believe that any of them are interested in any of the Company's current or planned projects. There are also several companies engaged in deep-water oil exploration and seismic research. While these companies may own and operate the type of equipment necessary to locate and recover shipwrecks, the Company does not consider them to be competitors but rather potential suppliers. On the marketing side, there is a cottage industry of a few shops and small museums around the country that market shipwreck artifacts. However, there is one group which has recently begun a pioneering effort in marketing shipwrecks. In spite of the fact that their business is less than three years old, they have developed a formula that seems to be working very well. They have developed a "Shipwreck Treasure Road Show" which has two components. First is a small display of valuable pieces from the Atocha and various other shipwrecks, which is advertised in the press as a "Mini-museum" free for the public to view. The second component is a large display of jewelry, artifacts, replicas, books and other items relating to shipwrecks. The exhibit typically comes to a town for 4 to 5 days, during which it is set up in one of the largest jewelry stores in that city. A major advertising campaign in the market is undertaken, and the public's response to date has been excellent. While this group might be considered competition, they are currently viewed more as pioneers and potential marketing partners that have proven the public's acceptance on a wide scale shipwreck marketing program. EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON THE BUSINESS To the extent that the Company engages in shipwreck search and recovery activities in the territorial, contiguous or exclusive economic zones of countries, the Company must comply with applicable regulations and treaties. Prior to engaging in any project, the Company seeks legal advice to ascertain what effect this may have on the financial returns of the operation. This factor is taken into account in determining whether to proceed with the program as planned. In addition, there is currently an initiative being considered in the United Nations Educational, Scientific & Cultural Organization ("UNESCO") known as the Convention on the Protection of Underwater Cultural Heritage. If adopted, it could restrict access to historical shipwrecks throughout the world to the extent that it would require compliance with guidelines set forth by the International Council of Monuments and Sites (ICOMOS), if these guidelines are annexed to the Convention. These guidelines require adherence to strict archaeological practices, and the Company intends to follow these guidelines in all projects to which they are applicable. The article in the ICOMOS guideline, which may be problematic to the Company, is the requirement that items of cultural significance not be traded. The Company believes that the primary value of the cargoes it seeks is trade goods (such as coins, bullion and gems), and therefore the Company does not believe that these items constitute artifacts of cultural significance. Nevertheless, the Company believes that the proposed convention, if adopted, could significantly increase regulation of shipwreck recovery operations and may result in higher costs. Management does not believe that the Convention will be adopted as presented, however, because the United States, Great Britain and several other critical countries have voiced their opposition to this initiative and stand ready to 9 block its passage. In addition, several organizations, including the Maritime Law Association, Historic Shipwreck Salvors Professional Association (HSSPAC) and the Professional Shipwreck Explorer's Association (ProSEA) are cooperating to prevent adoption of this convention in its currently proposed restrictive form. The Company's management has been involved in a leadership role, and Greg Stemm, Vice President, Research and Operations for the Company, is presently President of ProSEA, as well as a member of the United States delegation chosen to negotiate this Convention. COST OF ENVIRONMENTAL COMPLIANCE While offshore operations and the operation of vessels require compliance with numerous environmental regulations, the Company intends to lease or charter the necessary vessel and equipment thereby transferring the responsibility of environmental compliance to the equipment and vessel owners. EMPLOYEES The Company currently employs its three executive officers, on a full time basis. The Company also employs two individuals doing administrative assistance and public relations. In addition, the Company hires consultants from time to time to perform specific services. RISK FACTORS Investors in shares of the Company's Common Stock should consider the following risk factors, in addition to other information in this Report: 1. SPECIAL RISKS OF THE BUSINESS. An investment in a business such as that of the Company should be considered extremely speculative and of exceptionally high risk. Although the Company has access to a substantial amount of research and data which has been compiled regarding its various projects, the quality and reliability of such research and data, like all research and data of its nature, is unknown. Even if the Company is able to plan and obtain permits for its various projects, there is a possibility that the shipwrecks may have been salvaged, or may not have had anything of value on board at the time of the sinking. Furthermore, even if objects of believed value are located and recovered, there is the possibility that the Company's rights to the recovered objects will be challenged by others, including both private parties and governmental entities, asserting conflicting claims. Finally, even if the Company is successful in locating and retrieving objects from a shipwreck and establishing good title thereto, there can be no assurance as to the value that such objects will bring at their sale as the market for such objects is very uncertain. 2. UNCERTAIN RELIABILITY OF RESEARCH AND DATA. The success of a shipwreck project will be dependent to a substantial degree upon the research and data assimilated by the Company. By its very nature, however, all such research and data regarding shipwrecks, such as those sought by the Company, is imprecise, incomplete and unreliable as it is often composed of or effected by numerous assumptions, rumors, "legends", historical and scientific inaccuracies and inaccurate interpretations which have become a part of such research and data over time. 3. DEPENDENCE ON OTHERS FOR LOCATION AND RECOVERY OF WRECKSITES. While the Company plans to contract with other parties who will be responsible for the location and recovery of shipwrecks, it is possible that the primary responsibility for such location and recovery may fall directly upon the Company. While Mr. Morris and Mr. Stemm have experience in the location and 10 recovery of shipwrecks, the Company does not currently own the equipment or employ the personnel that may be necessary for this type of work. Whenever the primary responsibility for search and recovery operations fall upon the Company, it will be required to contract with others to supply personnel and equipment to complete the project. There can be no assurance that financing or third party contracts will be available to the Company. The availability of specialized recovery equipment may present a problem, and the cost of obtaining the use of such equipment to conduct recovery operations is uncertain and will depend on, in part, the location and condition of the wreckage to be recovered. 4. NATURAL HAZARDS. Underwater recovery operations are inherently difficult and dangerous and may be delayed or suspended by weather, sea conditions or other natural hazards. Further, such operations may be undertaken more safely during certain months of the year than during others. There can be no assurances that the Company and/or entities it is affiliated with will be able to conduct their search and/or recovery operations only during such favorable periods. In addition, even though sea conditions in a particular search location may be somewhat predictable, the possibility exits that unexpected conditions in a search area may occur and that such unexpected conditions might adversely affect the Company's operations. Further, it is possible that natural hazards may prevent or significantly delay search and/or recovery operations and therefore any distributions. 5. UNCERTAIN TITLE TO OBJECTS LOCATED. Persons and entities other than the Company and entities it is affiliated with (both private and governmental) may claim title to the shipwrecks. Even if the Company is successful in locating and recovering shipwrecks, there is no assurance that the Company will be able to establish its right to property recovered as against governmental entities, prior owners, or other attempted salvors claiming an interest therein. 6. UNCERTAIN MARKET FOR AND VALUE OF RECOVERED OBJECTS. Even if valuable items can be located and recovered, it is difficult to predict the price that might be realized for these items. The value of the recovered items will fluctuate with a precious metals market that has been highly volatile in recent years. Moreover, the entrance on the market of a large supply of similar items from shipwrecks located and recovered by others could itself depress the market for these items. 7. DELAY IN DISTRIBUTION OR SALE OF RECOVERED OBJECTS. The methods and channels which may be used in the disposition of the recovered items are uncertain at present and may include one or a combination of several alternatives. Ready access to buyers for disposition of any artifacts or other valuable items recovered, however, cannot be assured and delays in the disposition of such items are very possible. 8. THEFT. If the Company locates a shipwreck and asserts a valid claim to items of value, there is a risk of theft of such items at sea, both before and after their recovery, by "pirates" or poachers and while in transit to a safe destination. 9. COMPETITION. There are a number of competing entities engaged in various aspects of the shipwreck business. One or more of these competing entities may locate and recover the shipwreck that the Company is planning to locate and recover. In addition, these competing entities may be better capitalized and may have greater resources to devote to their pursuit of the shipwreck. 11 10. FAILURE TO OBTAIN PERMITS. It is possible that the Company will not be successful in obtaining title to, or permission to excavate the wrecks. In addition, permits which are sought for the projects may never be issued, and if issued, may not be legal or honored by the entities which issued them. 11. NEED FOR ADDITIONAL CAPITAL. Until the Company begins to generate revenue from the sale of recovered items, it will need additional capital in order to continue the search, recovery and marketing phases of its projects. 12. PUBLIC MARKET FOR THE COMPANY'S COMMON STOCK. Although there is a limited market for the Company's Common Stock, there can be no assurance that such a market can be sustained. The investment community could show little or no interest in the Company in the future. As a result, purchasers of the Company's securities may have difficulty in selling such securities should they desire to do so. The Common Stock currently trades on the OTC Bulletin Board. 13. CONTROL BY EXISTING MANAGEMENT. The current executive officers and directors of the Company own beneficially approximately 50% of the Company's outstanding Common Stock. Accordingly, the current executive officers and directors will continue to have the ability to significantly influence the outcome of elections of the Company's directors and other matters presented to a vote of shareholders. 14. DIFFICULTY IN TRADING "PENNY-STOCKS". The Company's securities may be subject to a rule that imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers (as defined in the rule) and accredited investors (generally, institutions and, for individuals, an investor with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with such investor's spouse). For transactions covered by this rule, the broker-dealer must make a special suitability determination for the purchaser and must have received the purchaser's written consent to the transaction prior to the purchase. Consequently, many brokers may be unwilling to engage in transactions in the Company's securities because of the added disclosure requirements, thereby making it more difficult for shareholders to resell Common Stock in the secondary market. 15. GENERIC PREFERRED STOCK AUTHORIZED. The Company's Articles of Incorporation authorize the issuance of up to 10,000,000 shares of Preferred Stock. The Board of Directors has the right to establish the terms, preference, rights and restrictions of the Preferred Stock. Other companies on occasion have issued series of such preferred stock with terms, rights, preferences and restrictions that could be considered to discourage other persons from attempting to acquire control of such companies and thereby insulate incumbent management. It is possible the Company could issue shares of its Preferred Stock for such a purpose. In certain circumstances, the existence of corporate devices that would inhibit or discourage takeover attempts could have a depressant effect on the market value of the Company's common stock. ITEM 2. DESCRIPTION OF PROPERTY The Company maintains its offices at 3507 Frontage Road, Suite 100, Tampa, Florida 33607. The offices consist of approximately 3,170 square feet of office space that the Company sub-leases from a non-affiliated company. The agreement began April 1, 1997 and expires December 31, 2000. The approximate yearly rental is as follows: 1999-$44,120, 2000-$39,777. 12 ITEM 3. LEGAL PROCEEDINGS On February 18, 2000 two complaints were filed against the Company in the Circuit Court for the Thirteenth Judicial Circuit in and for Hillsborough County Florida, Civil Division, on behalf of plaintiff, Seahawk Deep Ocean Technology, Inc.("Seahawk"), seeking approximately $43,400, plus attorney fees, in payment for certain services rendered. The Company has paid the amount it feels it owes ($32,600.00) into an escrow account and continues to defend the case. On October 14, 1999, a judgement was entered in favor of the Company against Treasure & Exhibits International, Inc.("VNSR") in the principal amount of $341,500.08 plus prejudgment interest of $16,361.78. The suit stemmed from certain put options granted to the Company by VNSR. The principal and interest has been paid by VNSR. In May 2000, the parties agreed to a final payment in the amount of $45,000 for reimbursement of legal expense and interest. Upon receipt of the final payment the Company has agreed to dismiss the judgement. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS None. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. (a) PRINCIPAL MARKET OR MARKETS. The Company's Common Stock is traded on the OTC Bulletin Board under the symbol "OMEX." The following table sets forth the range for the high and low bid quotations for the Company's securities as reported by the OTC Bulletin Board. These prices are believed to be representative inter-dealer quotations, without retail markup, markdown or commissions, and may not represent actual transactions. Bid* High Low Quarter Ended ----- ----- May 31, 1998 $4.00 $2.00 August 31, 1998 $3.50 $2.00 November 30, 1998 $2.37 $0.94 February 28, 1999 $2.37 $0.81 May 31, 1999 $1.69 $1.00 August 31, 1999 $1.44 $0.81 November 30, 1999 $0.81 $0.15 February 29, 2000 $0.31 $0.13 (*) The above prices have been adjusted to account for the 1 for 5 reverse split effective September 9, 1997. (b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK. The number of record holders of the Company's $.0001 par value Common Stock at April 30, 2000 was 175. This does not include shareholders that hold their stock in accounts in street name with broker/dealers. 13 (c) DIVIDENDS. Holders of the Common Stock are entitled to receive such dividends as may be declared by the Company's Board of Directors. No dividends have been paid with respect to the Company's Common Stock and none are anticipated in the foreseeable future. (d) RECENT SALES OF UNREGISTERED SECURITIES. COMMON STOCK During the three months ending February 29, 2000 the Company issued 10,000 shares of common stock to one individual for services valued at $2,500 and 16,800 shares to an individual for accrued expenses valued at $4,200. The Company issued 302,363 shares to three individuals for $132,000 of notes payable and $17,133 of accrued interest thereon. The securities were issued pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933. The persons to whom these securities were issued were employees and consultants to the Company and noteholders who made an informed investment decision and had access to material information regarding the Company. The certificates representing such common shares bear an appropriate legend restricting the transfer of such securities, and stop transfer instructions have been provided to the Company's transfer agent in accordance therewith. On February 3, 2000 the Company issued 250,000 shares to three individuals in an exchange for common stock of another company valued at $50,000. The securities issued in the exchange were issued pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933. The three persons to whom these securities were issued are investors who made an informed investment decision and had access to material information regarding the Company. The certificates representing such common shares bear an appropriate legend restricting the transfer of such securities, and stop transfer instructions have been provided to the Company's transfer agent in accordance therewith. The Company conducted a Private Placement dated March 31, 2000, in which it offered Units consisting of 100,000 shares of the Company's Restricted Common Stock, and a Warrant to purchase up to 100,000 shares of Restricted Common Stock at the price of $1.25 per share until August 31, 2000 or at the price of $2.50 per share from September 1, 2000 until March 31, 2002. The Units were offered at a purchase price of $50,000 per Unit. Seven Units were sold. The Company is obligated to file a registration statement with respect to this transaction on or before June 30 2000. If the Company fails to file the registration statement the holders of the Units are entitled to receive additional shares. The securities issued in the private placement were issued pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933. The persons to whom these securities were issued are accredited investors who made an informed investment decision and had access to material information regarding the Company. The certificates representing such common shares bear an appropriate legend restricting the transfer of such securities, and stop transfer instructions have been provided to the Company's transfer agent in accordance therewith. 14 ITEM 6. MANAGEMENT'S PLAN OF OPERATION. This Report contains forward-looking statements that involve a number of risks and uncertainties. While these statements represent the Company's current judgment in the future direction of the business, such risks and uncertainties could cause actual results to differ materially from any future performance suggested herein. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events of circumstances after the date hereof or to reflect the occurrence of unanticipated events. Certain factors that could cause results to differ materially from those projected in the forward-looking statements are set forth under "RISK FACTORS" in Item 1. In the long term, the Company expects to derive substantially all of its revenue through the sale and/or display of shipwreck cargoes and artifacts, including replicas. Therefore, until the Company is successful in acquiring and marketing artifacts and/or cargoes, it will be dependent upon investment capital to meet its cash flow requirements. To date, the Company has conducted private placements of debt, equity and project specific revenue participation to meet its financial obligations. For the next twelve months, the Company anticipates spending approximately $60,000 per month to pay salaries and general office expense and an additional $500,000 to continue the "Republic", "Cambridge" and "Concepcion" operations. In order to fund its overhead and projects, the Company conducted a private placement of Units consisting of Common Stock and Warrants that raised $350,000 for operational and administrative purposes. The Company has also raised approximately $265,000 through the sale of marketable securities and anticipates it will generate an additional $250,000 from future sales of marketable securities held by the Company. Depending on the results of the Republic and Cambridge operations, the Company plans on financing the balance of its budget through secured debt or another private placement of debt or equity. Operationally, the Company plans to continue the search operations for the Cambridge, Republic and Concepcion Projects. Additionally, if any of the search operations are successful, and subject to financing, the Company plans to begin recovery operations on one or more of these projects. The Company intends to finance these operations through the sale of equity, revenue participation or debt. There can be no assurance of the Company's ability to secure financing and this could cause a delay or cancellation of one or more projects. YEAR 2000 COMPLIANCE The Company has reviewed the effect that the year 2000 will have on its essential computer systems, especially those related to its ongoing operations and its internal control systems, including the preparation of financial information. The Company's computer systems are used primarily for basic accounting, word processing, spreadsheet applications, and access to the internet and world wide web. The Company uses four PC computers with year 2000 compliant hardware. The Company does not depend on any specialized computer hardware that may become non-functional due to Y2K problems. The Company investigated potential problems with software used by the Company for the management of its business and communications. The Company utilizes 15 very common software packages, all of which are relatively new. Potential problems with software compliance were addressed by all of the software package vendors and in the first quarter of 1999 the Company installed patches to it's software programs to insure Y2K compliance. There was no additional cost incurred to access these updates. The Company is not dependant on any material suppliers that would be expected to cause an interruption of the Company's business operations if they were to suffer Y2K compliance problems. To date, there have been no adverse effects on the Company's operations or accounting records related to the year 2000 issue. ITEM 7. FINANCIAL STATEMENTS. Please see pages F-1 through F-19. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. The following table sets forth the names and positions of the officers and directors. NAME AGE POSITION ----------------- --- ----------------------------- John C. Morris 51 President and Chairman of the Board of Directors Gregory P. Stemm 43 Vice-President, Research & Operations, Director and Chairman of Nominating Committee David A. Morris 49 Secretary and Treasurer William C. Callari 38 Director and Chairman of Project Review Committee Gerald Goodman 51 Director and Chairman of Audit Committee E. Eugene Cooke 60 Director Brad Baker 40 Director and Chairman of the Compensation Committee There is no family relation between any of the Directors or the Executive Officers of the Company except John Morris and David Morris who are brothers. All directors will hold office until the next annual meeting of the Shareholders. 16 The three Executive Officers each have employment contracts that are effective from March 1, 2000 until February 28, 2001. The following sets forth biographical information as to the business experience of each Officer and Director of the Company for at least the last five years. JOHN C. MORRIS has served as an Officer and Director of the Company since August 1997, and as an officer and director of Remarc since May 1994. Prior to that, Mr. Morris was an officer and director of Seahawk Deep Ocean Technology, Inc. ("SDOT") from March 1989, until January 1994. As President of SDOT, Mr. Morris was in charge of the Company which completed the first archaeologically sound recovery of a deep water shipwreck, salvaging a Spanish shipwreck from approximately 1,500 feet of water near the Dry Tortugas. The recovery yielded nearly 17,000 artifacts consisting of gold, silver coins, pottery, pearls, jewelry, and numerous other artifacts. From 1992 until 1997, Mr. Morris served on the Board of Directors of the Florida Aquarium, a not for profit corporation engaged in the operation of a large aquarium facility in Tampa, Florida. WILLIAM C. CALLARI, has served as an Officer of the Company from October 1995 to February 1998, and as a Director of the Company since October 1995. Callari is Chairman of International Licensing & Merchandising, Inc., a company that holds the license for the management of the e-Commerce platform for the world's fair, EXPO2000, to be held in Hannover, Germany in the year 2000. He is President of North Star Resources, Inc., a firm that provides contracting management services, and business management services. For the past nine years, he has also been President of Realty Development & Management, Inc., a real estate development and construction company. From 1986 to 1992, Mr. Callari was involved in property management, real estate development, construction and marketing for many real estate limited partnerships. Prior to that, he received a Bachelor of Science degree in Business Administration (Marketing) from Seton Hall University in 1983. Mr. Callari has been featured in Builder Magazine and lectured at state conventions on residential marketing. During 1990 and 1991 he won many state and local Sales and Marketing awards for product design and presentation. He was also a member of the Young Entrepreneur's Organization. GREGORY P. STEMM has served as Vice President, Research and Operations and as a member of the Board of Directors since December 1995 and is responsible for research and operations on all shipwreck projects. Prior to that, he served as an officer and director of Seahawk Deep Ocean Technology from the time he co- founded the company in 1989 until January 1994. Stemm is a member of the United States delegation to the United Nations, Educational, Scientific and Cultural Organization (UNESCO) expert meeting to consider the "Draft Convention for the Protection of Underwater Cultural Heritage". This group will determine future international deep-ocean shipwreck guidelines. He has written articles on the ethics and future of deep ocean shipwreck exploration and archaeological excavation, and has given over 100 lectures on the subject at the Institute of Nautical Archaeology, World President's Organization, Young Entrepreneur's Organization and before other groups. He was named a panelist on Shipwreck Ethics at the 1998 Law of the Sea Institute and was also recently selected as a fellow of the Explorers Club. Greg writes a column on shipwreck exploration for "Underwater Magazine", and is currently President, and a founding Board Member, of the Professional Shipwreck Explorers Association (ProSEA). ProSEA is a not-for-profit trade association that provides a forum through which salvors, archaeologists and 17 government entities work together to promote a high standard of ethics and principals in dealing with deep sea shipwreck resources. As a principal of Seahawk, Stemm was involved in directing research and technology for the company, which resulted in locating two Spanish Colonial shipwrecks in depths greater than 1,000 feet. He was also responsible for directing the archaeological team and operations that accomplished the world's first remote archaeological excavation, in a depth of 1,500 feet southwest of the Florida Keys. In addition, Stemm is a member of MENSA, The Nautical Archaeology Society, The Society for American Archaeology, and a founder of the Florida Aquarium. He was formerly International President and director of the Young Entrepreneurs Organization (YEO), an exclusive group of founders of companies throughout the world. He was also appointed to the International Board of Directors of the World Entrepreneurs Organization (WEO). Prior to his involvement with Seahawk, Stemm was co-founder and a partner in DeFrain-Stemm Advertising, a full service advertising agency which included clients such as Trammell Crow Real estate, NCNB National Bank, Hyatt Hotels and may other tourism and real- estate-oriented businesses. Greg was responsible for all strategic planning and marketing for clients of the agency. E. EUGENE COOKE has been a member of the Board of Directors of the Company since August 1997 and a member of the Board of Directors of Remarc since September 1996. Prior to joining the Board, Mr. Cooke was an investor in Remarc. From 1986 until 1994 Mr. Cooke was the President of Gravure Packaging, a printing concern located in Richmond Virginia. From 1994 through the present, Mr. Cooke serves as President of CAS Leasing, Inc., an aircraft leasing company located in Richmond Virginia and he is also President of Commonwealth Aviation in Richmond. Mr. Cooke serves on the Board of Directors of Goodwill Industries and is a Board member at the Trinity Episcopal School in Richmond. GERALD GOODMAN has served on the Board of Directors since September, 1996. He also serves on the Board of Directors of International Licensing & Merchandising, Inc., a Nevada company that holds the license for the management of the e-Commerce platform for the world's fair, EXPO2000, to be held in Hannover, Germany in the year 2000. In addition, he is also a name- partner in the certified public accounting firm of Weiner & Goodman, P.C., Eatontown, New Jersey, where he has been affiliated for the past twenty-three years. The firm is a regional firm with offices located in New Jersey and New York. Gerald provides audit, tax and management advisory services to his broad base of clients, and he is the designated partner-in-charge of the SEC Practice Section of his firm. A major portion of his client base is international, with clients based in Hong Kong, the United Kingdom, France, Germany as well as the United States and the CIS. Gerald was awarded a Bachelor of Science degree in Accounting from Pennsylvania State University in 1970, and he was admitted as a member of the American Institute of Certified Public Accountants in 1983. BRAD BAKER is CEO of myprivates.com, an Internet company tasked with raising money for private placements on the internet. During the last six years, he has been President of Kansas Home Development Corporation, a developer of affordable housing in Kansas City, Kansas. He was previously Director of Business Development for Comcast Online Communications, having recently been promoted from General Manager of Comcast Online Communications in Sarasota, Florida. He was the founder and CEO of NetLine Communications, a statewide Internet provider that was acquired by 18 Comcast in July 1996. At NetLine, he was responsible for implementing one of the state's first frame relay networks to provide Internet Access throughout Florida. He began his technology career by founding a chain of retail computer stores that became the premier Apple and IBM dealers in southwest Florida. Later, he took a computer peripheral company, Tech:Time (NASDAQ TTME) public. One of Baker's projects was to design a low cost computer network for peripheral equipment that is still used today. Baker has consulted with Bell & Howell and Hewlett Packard on ink-jet printer design; as well as the U. S. Coast Guard and several other Fortune 500 companies on solid-state equipment design. Baker received a presidential appointment from President Reagan to serve as a White House Fellow in 1987. In this assignment he was involved in many policy issues, including technology. Later, he became one of the officers of the Resolution Trust Corporation, the government agency tasked with solving the savings and loan problem. As founder and CEO of NetLine, Baker has guided the company through explosive growth while engineering a high level of customer support and service. DAVID MORRIS has served as Secretary and Treasurer of the Company since August 1997. He joined Remarc in April 1997, and in May 1997 he became Remarc's Secretary and Treasurer. Prior to that, Mr. Morris was employed by Seahawk Deep Ocean Technology where he was an Administrative Assistant to the Chief Financial Officer from 1994 through 1997, and manager of the Conservation and Archaeology departments from 1990 through 1994. Mr. Morris graduated with a Bachelor of Science degree in Mechanical Engineering from Michigan State University in 1974. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Based solely on a review of Forms 3 and 4 and amendments thereto furnished to the Company during its most recent fiscal year, and Form 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year and certain written representations, no persons who were either a Director, Officer or beneficial owner of more than 10% of the Company's Common Stock, failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during the most recent fiscal year except as follows: (1) Will Callari reported four sales totaling 6,300 shares of common stock sold during the year ending February 29, 2000, late in a Form 5; and (2) Greg Stemm reported four sales totaling 6,500 shares of common stock sold during the year ending February 29, 2000, late in a Form 5. ITEM 10. EXECUTIVE COMPENSATION. The following table sets forth information regarding the executive compensation for the Company's President for the years ended February 29, 2000 and February 28, 1999 and 1998, and each other executive officer who had total annual salary and bonus in excess of $100,000 during such years. 19
SUMMARY COMPENSATION TABLE Long-Term Compensation ---------------------------- Annual Compensation Awards Payouts --------------------- ---------------- ------- Securi- ties Re- Under- All Name and stricted lying LTIP Other Principal Stock Options/ Payout Compen- Position Year Salary Bonus Awards SARs(#) ($) sation ---------------- ---- -------- -------- ------- --------- ------ ------- John C. Morris, 2000 $150,000 $25,000 -0- 220,000 -0- -0- President 1999 $100,000 -0- -0- 75,000 -0- -0- 1998 $ 90,000 -0- -0- -0- -0- -0- Gregory P. Stemm, 2000 $150,000 $25,000 -0- 195,000 -0- -0- Vice-President 1999 $100,000 -0- -0- 75,000 -0- -0- 1998 $ 90,000 -0- -0- -0- -0- -0- David A. Morris, 2000 $125,000 $15,000 -0- 195,000 -0- -0- Secr/Treas 1999 $ 75,000 -0- -0- 75,000 -0- -0- 1998 $ 50,000 -0- -0- -0- -0- -0-
OPTION GRANTS IN LAST FISCAL YEAR Individual Grants Number of % of Total Securities Options Underlying Granted to Exercise or Options Employees in Base Price Expiration Name Granted(#) Fiscal Year ($/Share) Date ---------------- ---------- ------------ ------------ ----------- John C. Morris 45,000 3.59 $ 1.50 2/28/2003 John C. Morris 112,500 8.98 $ 2.00 2/28/2003 John C. Morris 62,500 4.99 $ 3.00 2/28/2003 Greg P. Stemm 45,000 3.59 $ 1.50 2/28/2003 Greg P. Stemm 87,500 6.99 $ 2.00 2/28/2003 Greg P. Stemm 62,500 4.99 $ 3.00 2/28/2003 David A. Morris 45,000 3.59 $ 1.50 2/28/2003 David A. Morris 87,500 6.99 $ 2.00 2/28/2003 David A. Morris 62,500 4.99 $ 3.00 2/28/2003 20 AGGREGATE OPTION EXERCISES IN YEAR ENDED FEBRUARY 29, 2000 AND FEBRUARY 29, 2000 OPTION VALUES Securities Under- Value of Unexer- lying Unexercised cised In-The- Shares Options at Money Options at Acquired on February 29, 2000 February 29, 2000 Exercise Value Exercisable/ Exercisable/ Name (Number) Realized Unexercisable Unexercisable --------------- ----------- -------- ----------------- ---------------- John C. Morris -0- -0- 295,000 / -0- -0- / -0- Greg P. Stemm -0- -0- 270,000 / -0- -0- / -0- David A. Morris -0- -0- 270,000 / -0- -0- / -0- EMPLOYMENT AND CONSULTING AGREEMENTS Effective March 1, 2000 the Company entered into one year employment agreements with its three executive officers. These agreements provide for the following annual salaries: John C. Morris, President - $150,000; Gregory P. Stemm, Vice-President - $150,000; and David A. Morris, Secretary and Treasurer - $125,000. All three officers are also entitled to receive a bonus of up to 100% of their base salary with such bonuses to be based upon job proficiency and approval of the board of directors. Each agreement also provides for the issuance of a total of 50,000 stock options, exercisable for a period of four years from March 1, 2000 at an exercise price of $0.30 per share. EMPLOYEE STOCK OPTION PLAN During the Special Shareholder Meeting held September 8, 1997, the Shareholders approved an Employee Stock Option Plan (the "Plan"). The Plan authorizes the issuance of options to purchase up to 2 million shares of the Company's Common Stock. The Plan allows the Board of Directors to grant stock options from time to time to employees, officers and directors of the Company. The Board has the power to determine at the time the option is granted whether the option will be an Incentive Stock Option (an option which qualifies under Section 422 of the Internal Revenue Code of 1986) or an option which is not an Incentive Stock Option. Vesting provisions are determined by the board at the time options are granted. The option price for any option will be no less than the fair market value of the Common Stock on the date the option is granted. During the fiscal year ended February 29, 2000, the Company issued the following options to officers and directors, in addition to those itemized in the Summary Compensation Table above, from the Plan: Date Number of Option Date Of Options Exercise Of Grantee Position Grant Granted Price Expiration ------------------ ---------- --------- --------- --------- ---------- William C. Callari Director 4/23/1999 40,000 $1.50 2/28/2003 William C. Callari Director 4/23/1999 65,000 $2.00 2/28/2003 William C. Callari Director 4/23/1999 40,000 $3.00 2/28/2003 E. Eugene Cooke Director 4/23/1999 12,500 $1.50 2/28/2003 E. Eugene Cooke Director 4/23/1999 37,500 $2.00 2/28/2003 E. Eugene Cooke Director 4/23/1999 12,500 $3.00 2/28/2003 Brad Baker Director 4/23/1999 15,000 $1.50 2/28/2003 Brad Baker Director 4/23/1999 15,000 $2.00 2/28/2003 21 Brad Baker Director 4/23/1999 15,000 $3.00 2/28/2003 Gerald Goodman Director 4/23/1999 15,000 $1.50 2/28/2003 Gerald Goodman Director 4/23/1999 15,000 $2.00 2/28/2003 Gerald Goodman Director 4/23/1999 15,000 $3.00 2/28/2003 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table set forth, as of April 30, 2000, the stock ownership of each person known by the Company to be the beneficial owner of five percent or more of the Company's Common Stock, each Officer and Director individually and all Officers and Directors of the Company as a Group. Amount of Name of Beneficial Percentage Beneficial Owner Ownership of Class ------------------ -------------- ---------- John C. Morris 1,360,895 (1) 11.8% 3507 Frontage Rd. Suite 100 Tampa, FL 33607 Gregory P. Stemm 1,841,741 (2) 16.1% 3507 Frontage Rd., Suite 100 Tampa, FL 33607 William C. Callari 1,420,595 (3) 12.5% Wedgewood Professional Bldg. 1725 Route 35, Suite B Wall Township, NJ 07719 E. Eugene Cooke 1,158,096 (4) 10.0% 3901 Old Gun Road West Midlothian, VA 23113 Mr. Gerald Goodman 144,379 (5) 1.3% Meridian Center I, Two Industrial Way West Eatontown, NJ 07724 Brad Baker 118,627 (6) 1.1% 1322 Pine Needle Road Venice, FL 34292 David A. Morris 407,253 (7) 3.6% 6522 Bimini Court Apollo Beach, FL 33572 All Officers and Directors as a group 6,451,586 49.9% __________________ (1) Includes 889,149 shares held of record by John Morris, 110,080 shares owned beneficially by Mr. Morris by virtue of his 45% interest in shares held by Estimated Prophet, Inc., 345,000 shares underlying currently exercisable stock options, and 16,666 shares underlying the option to convert revenue participation certificates into common stock. 22 (2) Includes 126,182 shares held of record by Greg and Laurie Stemm, 1,395,559 shares held by Adanic Capital, Ltd., a limited partnership for which Greg Stemm serves as general partner, and 320,000 shares underlying currently exercisable stock options. (3) Includes 1,190,595 shares held of record by William Callari and 230,000 shares underlying currently exercisable stock options. (4) Includes 741,482 shares held of record by Eugene Cooke, 97,500 shares underlying currently exercisable stock options, 45,834 shares underlying the option to convert revenue participation certificates into common stock, and 273,280 shares underlying an option to convert a note to common stock. (5) Includes 64,379 shares held of record by Gerald Goodman and 80,000 shares underlying currently exercisable stock options. (6) Includes 38,627 shares held of record by Brad Baker and 80,000 shares underlying currently exercisable stock options. (7) Includes 57,253 shares held of record by David A. Morris, 30,000 shares held by Andrew P. Morris and Chad E. Morris his sons who live in the same household, and 320,000 shares underlying currently exercisable stock options. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. During the last fiscal year ended certain officers or directors have granted new loans or extended the due dates of existing loans to the Company. At February 29, 2000 the Company had loan agreements with its officers and directors under the following terms:
Relation- Interest Due Warrants or Date Name ship Amount Rate Date Conversion Right -------- --------- --------- ------- -------- ------- ---------------- 6/30/99 E. Cooke D $ 35,000 15% 6/30/00 -0- 11/1/99 E. Cooke D $ 61,011 15% 11/1/00 254,212 12/1/99 W. Callari D $132,131 15% 8/31/00 -0- 9/1/99 D. Morris O $ 75,000 15% 9/01/00 -0- 9/1/99 J. Morris O&D $150,000 15% 9/01/00 -0- 9/1/99 G. Stemm O&D $150,000 15% 9/01/00 -0-
On April 1, 1999 the Company entered into a loan extension agreement with Robert Stemm, Greg Stemm's father, wherein Mr. Stemm extended the due date on his loan to the Company until March 31, 2000. The principal amount of $32,926 bears interest at 15% per annum and is secured by an inventory of raw emeralds. On October 17, 1999 the principal amount was increased by $10,000 for equipment sold to the Company by Mr. Stemm. As an incentive to extend the due date of the loan Mr. Stemm was granted an option to purchase up to 11,000 shares of the Company's restricted Common Stock at a purchase price of $3.00 per share. On April 1, 2000 the loan due date was again extended until March 31, 2001. As an incentive to again extend the due date of the loan Mr. Stemm was granted an option to purchase up to 21,500 shares of the Company's restricted Common Stock at a purchase price of $2.00 per share. This loan is convertible into shares of Common Stock at the rate of $.50 per share. 23 On August 31, 1999 the Company entered into a loan extension agreement with Robert Stemm. The due date on his loan, which originated October 16, 1996 in the principal amount of $50,000, has been extended for a term of one year. This loan bears interest at the rate of 15% per annum and is now due August 31, 2000. As an incentive to extend the due date of the loan Mr. Stemm was granted an option to purchase up to 35,000 shares of the Company's restricted Common Stock at a purchase price of $2.00 per share. This loan is convertible into shares of Common Stock at the rate of $1.00 per share. On January 8, 2000 the Company entered into a loan extension agreement with Olive Morris, the mother of both John and David Morris. Mrs. Morris's loan was extended for a one-year term until January 8, 2001 and bears interest at 15% per annum. The loan is convertible into shares of the Company's Common Stock at $.50 per share at Mrs. Morris' option. The original loan granted Mrs. Morris warrants entitling her to purchase up to 10,000 shares of the Company's restricted Common Stock at a purchase price of $3.00 per share. As an incentive to extend the due date of the loan, which became due on January 8, 2000, Mrs. Morris was granted an additional option to purchase up to 15,000 shares of the Company's restricted Common Stock at a purchase price of $2.00 per share. On February 28, 2000, Mrs. Morris exercised her option to convert the principal balance under the loan into 60,000 shares of the Company's common stock. During the year ended February 29, 2000, the Company made periodic advances to John Morris and Greg Stemm. These advances bear interest at 8%, and as of February 29, 2000, the amount of the receivable from John Morris was $82,969, including interest, and the amount of receivable from Greg Stemm was $74,659, including interest. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K Exhibit Number Description Location ------- ----------- -------- 3.1 Articles of Incorporation, as Incorporated by reference to amended Registrant's Form S-18 Regis- tration Statement (No. 33-7678-D) 3.2 Bylaws Incorporated by reference to Registrant's Form S-18 Regis- tration Statement (No. 33-7678-D) 10.1 Employment Agreement dated March 1, Filed herewith electronically 2000, with David A. Morris 10.2 Employment Agreement dated March 1, Filed herewith electronically 2000 with Greg Stemm 10.3 Employment Agreement dated March 1, Filed herewith electronically 2000 with John C. Morris 23 Consent of Independent Public Filed herewith electronically Accountants 27 Financial Data Schedule Filed herewith electronically 24 INDEX TO FINANCIAL STATEMENTS ODYSSEY MARINE EXPLORATION, INC. PAGE Report of Independent Certified Public Accountants . . . . . . . . F-2 Financial Statements: Consolidated Balance Sheet - February 29, 2000 . . . . . . . F-3 Consolidated Statements of Operations for the years ended February 29, 2000 and February 28, 1999 . . . . . . . . . . . F-4 Consolidated Statements of Changes in Stockholders' Deficiency for the years ended February 29, 2000, and February 28, 1999 . . . . . . . . . . . . . . . . . . . . . . F-5 Consolidated Statements of Cash Flows for the years ended February 29, 2000 and February 28, 1999 . . . . . . . . F-6-F-7 Notes to the Consolidated Financial Statements. . . . . . . . . F-8-F-19 F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Odyssey Marine Exploration, Inc. Tampa, Florida We have audited the accompanying consolidated balance sheet of Odyssey Marine Exploration, Inc. and subsidiary as of February 29, 2000, and the related consolidated statements of operations, stockholders' deficiency, and cash flows for the years ended February 29, 2000 and February 28, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Odyssey Marine Exploration, Inc. and subsidiary as of February 29, 2000, and the results of their operations and their cash flows for the years ended February 29, 2000 and February 28, 1999, in conformity with generally accepted accounting principles. /s/ Giunta, Ferlita & Walsh, P.A. GIUNTA, FERLITA & WALSH, P.A. Certified Public Accountants May 2, 2000 F-2 ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET FEBRUARY 29, 2000 ASSETS CURRENT ASSETS Cash $ 47,175 Marketable securities 183,583 Advances 10,006 ----------- Total current assets 240,764 PROPERTY AND EQUIPMENT Equipment and office fixtures 144,482 Accumulated depreciation (63,748) ----------- 80,734 OTHER ASSETS Inventory 20,000 Loans receivable from related parties 157,628 Deposits 240 ----------- 177,868 ----------- $ 499,366 =========== LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES Accounts payable $ 204,613 Accrued expenses 455,550 Notes payable 89,500 Notes payable to related parties 724,962 ----------- Total current liabilities 1,474,625 LONG TERM LIABILITIES Deferred Income from Revenue Participation Certificates 825,000 STOCKHOLDERS' DEFICIENCY Preferred stock - $.0001 par value; 9,300,000 shares authorized; none outstanding - Preferred stock Series A Convertible - $.0001 par value; 700,000 shares authorized; 190,000 shares issued and outstanding 19 Common Stock - $.0001 par value; 100,000,000 shares authorized; 11,134,777 issued and outstanding 1,113 Additional paid-in capital 3,097,618 Accumulated unrealized loss in investments (4,200) Accumulated deficit (4,894,809) ----------- Total Stockholders' deficiency (1,800,259) ----------- $ 499,366 =========== The accompanying notes are an integral part of these financial statements. F-3 ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS Years ended Feb 29,2000 Feb 28,1999 ----------- ----------- REVENUES $ 250 $ 235,750 OPERATING EXPENSES Project Development 229,611 117,023 Project Operations 380,513 456,488 Marketing 52,042 88,773 ----------- ----------- Total Operating Expenses 662,166 662,284 GENERAL AND ADMINISTRATIVE EXPENSES 486,068 384,143 ----------- ----------- (LOSS) FROM OPERATIONS (1,147,984) (810,667) OTHER INCOME OR (EXPENSE) Gain(Loss) on sale of marketable securities (2,033) (3,325) Interest income 30,115 10,766 Interest expense (101,904) (61,793) Recovery of bad debt - 85,000 Other income(expense) (7,013) - Total other income ----------- ----------- or (expense) (80,835) 30,648 ----------- ----------- NET(LOSS) (1,228,819) (780,029) (BASIC AND DILUTED LOSS PER SHARE) $ (0.12) $ (0.08) Weighted average number of common shares and potential common shares, basic and diluted, outstanding 10,583,246 10,315,637 The accompanying notes are an integral part of these financial statements. F-4 ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
Accumul- ated Un- Additional realized Comprehen- Preferred Stock Common Stock Paid-In Loss in Accumulated sive Shares Amount Shares Amount Capital Investment (Deficit) Income --------- ----- ---------- ------ ---------- ---------- ----------- ---------- Balance at February 28, 1998 - $ - 10,104,879 $1,010 $2,206,622 $ (28,000) $(2,885,961) $(1,109,350) Common Stock Issued For cash 205,000 21 102,479 For services 84,716 8 107,390 For accrued expenses 161,019 16 190,371 Net change in unrealized loss on securities available for sale $ (69,663) $ (69,663) Net loss for the year ended February 28, 1999 (780,029) $ (780,029) Balance at --------- ----- ---------- ------ ---------- ---------- ----------- ----------- February 28, 1999 - $ - 10,555,614 $1,055 $2,606,862 $ (97,663) $(3,665,990) $( 849,692) =========== Preferred Stock Issued For cash 180,000 18 269,982 For accounts payable 10,000 1 14,999 Common Stock Issued For services 10,000 1 2,499 For accrued expenses 16,800 2 4,198 For conversion of debt 302,363 30 149,103 For marketable Securities 250,000 25 49,975 Net change in unrealized loss on securities available for sale $ 93,463 $ 93,463 Net loss for the year ended February 29, 2000 $(1,228,819) $(1,228,819) Balance at --------- ---- ---------- ------ ---------- ---------- ----------- ----------- February 29,2000 190,000 19 11,134,777 $1,113 $3,097,618 $ (4,200) $(4,894,809) $(1,135,356) ========= ==== ========== ====== ========== ========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-5 ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended Feb 29,2000 Feb 28,1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (Loss) $(1,228,819) $ (780,029) Adjustments to reconcile net loss to net cash used by operating activity: Depreciation 28,059 26,497 Amortization 204 798 Common Stock issued for services 2,500 107,398 Finance charge added to note 4,500 - Loss on marketable securities 2,033 3,325 Loss of disposal of equipment 2,513 - Marketable securities received on settlement - (85,000) as commission - (171,500) (Increase)decrease in: Advances (6,316) (769) Interest receivable (22,702) (9,649) Inventory - (20,000) Increase (decrease) in: Accounts payable 172,869 26,290 Accrued expenses 412,136 168,920 ----------- ----------- NET CASH(USED)IN OPERATING ACTIVITIES (633,023) (733,719) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (2,845) (17,885) Issuances of Notes Receivable - (13,000) ----------- ----------- NET CASH (USED) IN INVESTING ACTIVITIES (2,845) (30,885) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from: Related party loans 100,000 47,750 Loans from others 62,000 125,000 Issuance of Common stock - 102,500 Issuance of Preferred stock 270,000 - Issuance of RPC 15,000 587,500 Sale of Marketable Securities 163,484 1,875 Repayment of Note (33,881) (12,790) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 576,603 851,835 ----------- ----------- NET INCREASE(DECREASE)IN CASH (59,265) 87,234 CASH AT BEGINNING OF YEAR 106,440 19,209 ----------- ----------- CASH AT END OF YEAR $ 47,175 $ 106,440 =========== =========== The accompanying notes are an integral part of these financial statements. F-6 ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) Years ended February 29 2000 1999 ----------- ----------- SUPPLEMENTARY INFORMATION: Interest paid $ 6,665 $ 16,245 Income taxes paid - - Summary of significant non cash transactions During February, 2000, three debt holders converted $132,000 of notes payable and $17,135 of accrued interest thereon into 302,363 shares of common stock. In February, 2000 the Company issued 250,000 shares of restricted common stock valued at $50,000 to three individuals in an even exchange for 250,000 free trading shares of Chronicle Communications, Inc. common stock. The Company also issued 16,800 shares of Common Stock to an individual for accrued expenses valued at $4,200 and an additional 10,000 shares to one individual for services valued at $2,500. During October 1999, the Company acquired side scan sonar equipment through a non-cash transaction wherein the principal balance on a note payable was increased by $10,000. Accrued and unpaid executive compensation in the amount of $375,000 was reclassified on September 1, 1999 to notes payable to related parties bearing interest at 15% per annum and payable to three officers of the Company. During June 1999, the Company issued 10,000 shares of Series A Convertible Preferred Stock in satisfaction of accounts payable in the amount of $15,000. During April 1999, an officer and a director converted $122,375 of notes payable and $12,625 of accrued interest thereon into deferred income in the form of Cambridge Project Revenue Participation Certificates (See Note K). During the year ending February 28, 1999, two debt holders converted $85,000 of notes payable and $2,500 of accrued interest thereon into deferred income in the form of Cambridge Project Revenue Participation Certificates. The Company also issued 161,019 shares of Common Stock to eight individuals For accrued expenses valued at $190,371 and an additional 84,716 shares for services valued at $107,390. During March 1998 the Company received 1,008,824 shares of restricted public stock valued at $171,500 and inventory valued at $20,000 as partial payment of a $234,500 commission due to the Company. During May of 1998 the Company negotiated the recovery of previously written off debt in which the Company received 1,000,000 shares of common stock valued at $85,000 as other income. The accompanying notes are an integral part of these financial statements. F-7 ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE A - ORGANIZATION AND BUSINESS ORGANIZATION Odyssey Marine Exploration, Inc. was incorporated March 5, 1986, as a Colorado corporation named Universal Capital Corporation, Inc. On August 8, 1997 Odyssey Marine Exploration, Inc.(the "Company"), completed the acquisition of 100% of the outstanding Common Stock of Remarc International, Inc.("Remarc") in exchange for the Company's Common Stock in a reverse acquisition. On September 7, 1997, the Company's domicile was changed to Nevada and the name was changed to Odyssey Marine Exploration, Inc. Remarc International, Inc. was organized as a Colorado corporation on May 20, 1994. On April 9, 1996 Remarc International, Inc., a Colorado Corporation and Remarc International, Inc., a Delaware Corporation merged. Remarc International, Inc., the Delaware corporation was the surviving corporation. Effective with the reverse acquisition of Odyssey as discussed in Note B, Remarc International, Inc. adopted February as its fiscal year end. Subsequently, on February 25, 1999, Remarc International, Inc. and Odyssey Marine Exploration, Inc. were merged with Odyssey Marine Exploration, Inc. being the surviving corporation. Odyssey Marine, Inc., a Florida corporation, was incorporated on November 2, 1998, as a wholly owned subsidiary of Odyssey Marine Exploration, Inc. for the purpose of administering the Company's payroll and health plan. BUSINESS ACTIVITY Odyssey Marine Exploration, Inc., is engaged in the business of researching, developing, financing and marketing of shipwreck projects on a worldwide basis. The corporate headquarters are located in Tampa, Florida. NOTE B - REVERSE ACQUISITION On August 8, 1997 Odyssey Marine Exploration, Inc. completed the acquisition of 100% of the outstanding Common Stock of Remarc International, Inc. in exchange for the Company's Common Stock. The Company issued approximately 7,500,000 shares of its Common Stock to the shareholders of Remarc at closing, pursuant to a Share Exchange Agreement between the Company and Remarc. For accounting purposes the acquisition has been treated as a re- capitalization of Remarc, with Remarc as the acquirer(reverse acquisition). The historical financial statements prior to August 8, 1997 are those of Remarc. NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of the Company is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management who is responsible for their integrity and objectivity and have prepared them in accordance with the Company's customary accounting practices. F-8 ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Odyssey Marine, Inc. All significant inter- company transactions and balances have been eliminated. Use of Estimates Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. Revenue Recognition Although the Company has generated minimal revenues to date, marketing of the artifacts, replicas and ancillary products will be recognized on the point of sale method. Cash Equivalents Cash equivalents include cash on hand and cash in banks. The Company also considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Fair Value of Financial Instruments The carrying value of cash, accounts payable, and accrued expenses approximate fair value. The carrying value of notes payable(except those to related parties) approximate fair value which is estimated based on quoted market prices for the same or similar issues. Notes receivable and payable to related parties are discussed in Notes G and I, respectively. Considerable judgement is necessarily required in interpreting market data to develop the estimates of fair value, and, accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. Marketable Securities The securities owned by the company are deemed available-for-sale and carried at fair value. Unrealized gains and losses on these securities are excluded from earnings and reported, net of any income tax effect, as a separate component of stockholders' equity. Restricted shares of securities are carried at estimated fair market values (50% of quoted price). F-9 ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Depreciation Property and equipment is stated at historical cost. Depreciation is provided using the straight-line method at rates based on the assets' estimated useful lives. Investment in Affiliate The Company owns 24.5% of the Common Voting Stock and 55% of the Preferred Non-Voting Stock of Pesquisas Arqueologicas Maritimas, S.A. (Pesqamar). Pesqamar, a Brazilian S/A, was formed to research, locate and salvage a shipwreck. In August of 1995, Pesqamar and Salvanav S.A., a Brazilian salvage company competing for the same shipwreck, entered into an agreement forming a Brazilian consortium known as Consorcio Para Pesquisas Arqueologicas Submarinas (CONPAS). CONPAS conducted all operations on the shipwreck project until April of 1999 when a bifurcation agreement between the parties ended the operation of CONPAS. The sought after shipwreck has not been identified to date and the Company has received a permit to continue searching for the shipwreck through Pesqamar. During the year ended February 28, 1999 the Company accepted common stock and a 5% increase(from 50% to 55%)in its share of the Preferred Stock of Pesqamar from another investor in consideration for a past due amount previously written off by the Company. This resulted in a recovery of bad debt during the period. The Company is responsible for 100% of all search phase expenses. These expenses have been charged to operations as project expenses, therefore no investment in Pesqamar is reflected in these financial statements. Organization Costs Organization costs are being amortized, using the straight line method, over a period of 60 months. Loss Per Share Basic earnings per share (EPS) is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the year. Diluted EPS reflects the potential dilution that would occur if dilutive securities and other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of Odyssey. At February 29, 2000 and February 28, 1999, potential common shares were excluded from the computation of diluted EPS because their inclusion would have had an antidilutive effect on EPS. At February 29, 2000 and February 28, 1999, all of the exercisable stock options and stock warrants were excluded from the computation of diluted EPS because the options' exercise prices were greater than the average market price of the common shares. F-10 ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Income Taxes Deferred income taxes are provided for the temporary differences between the carrying amount of assets and liabilities for financial reporting and income tax purposes. NOTE D - MARKETABLE SECURITIES Marketable securities held by the Company as of February 29, 2000 consist of 170,000 shares of Seahawk Deep Ocean Technology, Inc.("Seahawk")Common Stock, 1,372,824 shares of Common Stock of Treasure & Exhibits International, Inc.("VNSR") and 60,000 shares of Chronicle Communications, Inc.,("Chronicle") Common Stock which are deemed available for sale. The Seahawk shares have been held in excess of two years. The Company received the VNSR shares as partial payment of a commission earned on the sale of an artifact collection and in settlement of an account receivable in the first quarter of the year ended February 28, 1999. The Chronicle shares were obtained during February 2000 in an exchange for shares of the Company's common stock. As of February 29, 2000, the Company has written down the value of all of it's remaining Seahawk shares (170,000 shares) to $500 because the Company doubts that it will realize value in excess of that amount from these shares. The VNSR shares are carried on the books at the average cost basis in the shares, and the Chronicle shares are carried at the quoted closing bid price at February 29, 2000. The total annual change in unrealized loss for the year ending February 29, 2000 of $93,463 is reflected as an adjustment to stockholders' equity and included in the comprehensive loss shown on the Company's financial statements. The costs basis for each security held by the Company is derived by dividing the total cost of acquiring each block of stock by the total number of shares acquired by the Company for each class of security. A detail of the fair market value and unrealized loss of the marketable securities held by the Company at February 29, 2000 is set out in the table below: Fair Class of Security Unrealized Market Issuer Shares Basis Loss Value ----------------------- ---------- --------- --------- --------- Seahawk Deep Ocean Technology, Inc. 170,000 $ 500 $ - $ 500 Treasures & Exhibits International, Inc. 1,372,824 175,283 - 175,283 Chronicle Communic- ations 60,000 12,000 (4,200) 7,800 --------- --------- Total Marketable Securities $ 183,583 Total Unrealized Loss ========= in Investment $ (4,200) ========= F-11 ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE E - PROPERTY AND EQUIPMENT Property and equipment consist of: Accumulated Original Depreciation/ Book Class Cost Amortization Value -------------------- ------------ ------------ ------------ Computers and Peripherals $ 25,666 12,690 $ 12,976 Furniture and Office equipment 14,782 5,345 9,437 Marine survey equipment 98,969 42,758 56,211 Leasehold Improvements 5,065 2,955 2,110 ----------- ----------- ----------- $ 144,482 63,748 $ 80,734 =========== =========== =========== NOTE F - INVENTORY The Company's inventory consists of a collection of 748 raw emeralds recovered from the 1656 shipwreck of the Nuestra Senora de al Maravilla salvaged by Seafinders, Inc. in 1972. The emeralds range in size from 0.5 to 17.5 carat weight and each is accompanied by a "Treasure Certificate" explaining the origin and a brief history of the item. The Company received these items as partial compensation for services rendered during the year ended February 28, 1999 in a transaction wherein the inventory was assigned a value of $20,000. Due to the uncommon nature of the items, the Company has not sought an independent appraisal of the goods. NOTE G - LOANS RECEIVABLE FROM RELATED PARTIES On January 1, 1997 the Company entered into a loan agreement with two of its officers authorizing each to borrow a maximum of $75,000 from the Company at 8% annual interest compounded quarterly. The loan balances, which become due on December 31, 2000, were $60,667 and $68,320 respectively. Accrued interest in the amount of $13,993 and $14,648 are reflected in this caption. NOTE H - ACCRUED EXPENSES Accrued expenses at February 29, 2000 consist of: Officer compensation $ 256,444 Employee wages 20,753 Payroll tax 7,909 Research and consulting 112,333 Interest on notes payable 58,112 ----------- $ 455,551 =========== F-12 ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE I - NOTES PAYABLE Notes payable at February 29, 2000 consist of: Unsecured 15.00% note payable due February 28,2001 The note can be converted to Common Stock for $.50 per share. $ 55,000 Unsecured 18.00% note payable due December 1, 1999. The note, originally $30,000, is in default and provides for monthly increases of principal at 5% of the original note value 34,500 ----------- $ 89,500 =========== NOTE J - NOTES PAYABLE TO RELATED PARTIES Notes payable to related parties at February 28, 1999 consist of: Unsecured 15% note payable to the family member of an officer due April 1, 2000. The note can be converted to Common Stock for $1.50 per share. $ 42,926 Unsecured 15% note payable to the family member of an officer due August 31, 2000. The note can be converted to Common Stock for $1.00 per share. 68,894 Unsecured 15% notes payable to a director due August 31, 2000. 128,295 Unsecured 15% notes payable to a director due November 1, 2000. 61,011 Unsecured 15% demand loan payable to a Company in which a related party is a control person 10,000 Two Unsecured 15% demand loans payable to two directors. 38,836 Three Unsecured 15% notes payable to three officers due September 1, 2000. 375,000 ----------- $ 724,962 =========== NOTE K - SALE OF FUTURE REVENUE PARTICIPATION The Company has sold through a private placement of Convertible Revenue Participation Certificates("RPC's")the right to share in future revenues of the Company related to the Cambridge project. Each RPC entitles the holder to receive a percentage of the Gross Revenues received by the Company from the "Cambridge Project" which are defined as all cash proceeds payable to the Company as a result of the Cambridge Project, less any amounts paid to the British Government or their designee(s); provided, however, that all funds received by the Company to finance the project are excluded from Gross Revenue. As of April 30, 1999, when the offering was closed, the Company sold $875,000 of a maximum of $900,000 of the RPC's. As a group, the holders are entitled to F-13 ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE K - SALE OF FUTURE REVENUE PARTICIPATION - continued 100% of the first $875,000 of gross revenue, 24.75% of gross revenue from $4 - 35 million, and 12.375% of gross revenue above $35 million generated by the Cambridge project. Distributions will be made to each certificate holder within 15 days from the end of each quarterly reporting period in which the Issuer receives any cash proceeds from, or as a result of, the Cambridge Project. Additionally each $50,000 RPC unit may be converted into 16,666 shares of the Company's common stock at any time prior to June 30th, 2000 or within 10 days of receipt of the "Notice of First Distribution", whichever occurs first. The RPC's and any stock which it may be converted for constitute restricted securities. As of February 29, 2000 the Company had sold $875,000 of RPC's which are reflected on the books as Deferred RPC Income to be amortized under the units of revenue method. NOTE L - PREFERRED STOCK The Company is authorized to issue 10,000,000 shares of preferred stock. The preferred stock may be issued in series from time to time with such designation, rights, preferences and limitation as the Board of Directors of the Company may determine by resolution. On April 23, 1999 the Company established a series of Preferred Stock known as "Series A Convertible Preferred Stock"("preferred stock"), having a par value of $.0001 per share and an authorization of 700,000 shares. The Corporation is not required to pay dividends on the preferred stock, however the stock carries a liquidation preference of $1.50 per share prior to any distributions on the Company's common stock. Commencing June 1, 2000, the preferred stock may be converted, all or in part, into shares of the Corporation's common stock. Each share of preferred stock may be converted into a number of shares of common stock determined by dividing $1.50 by the conversion price. The conversion price will be the lesser of (a) $1.50 or (b) 85% of the average closing bid price for the ten(10) consecutive trading days prior to the date of conversion provided, however, that the maximum number of shares of common stock issued for each share of preferred shall not exceed 3.75 shares. Each share of Series A Convertible Preferred Stock entitles the holder to one vote. Beginning July 1, 2000 the Company may redeem the preferred stock for a price of $2.00 per share in the event the closing bid price of the common stock exceeds $5.00 per share for 20 of 30 consecutive trading days not more than 5 days prior to mailing of a 45 day notice of redemption. As of February 29,2000 the Company had authorized 700,000 shares of $.0001 par value Series A Convertible Preferred stock. There were 190,000 shares of Series A Convertible Preferred issued and outstanding as of February 29, 2000. F-14 ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE M - COMMON STOCK OPTIONS AND WARRANTS The Company adopted the 1997 Stock Option Plan on September 8, 1997. Under the terms to the plan, options to purchase Common Stock are granted at not less than 100% of the fair market value of the shares on the date of grant or the par value thereof whichever is greater. Notwithstanding the preceding sentence, in the case of a grant of an incentive stock option to an employee who, as of the date of the grant, owns more than ten percent of the stock of the Company, the option price shall not be less than 110% of the fair market value of the shares on the date of grant or the par value thereof, whichever is greater. The cumulative number of shares which may be subject to options issued and outstanding pursuant to the plan is limited to 2,000,000 shares. As of February 29, 2000 the following non-statutory stock options had been granted: Option Date Price per Expiration Shares Of Grant Share of Option Granted ----------- ----------- ------------ ------------ Officers 4/24/98 $3.00 2/28/2003 225,000 4/23/99 $1.50 2/28/2003 135,000 4/23/99 $2.00 2/28/2003 287,500 4/23/99 $3.00 2/28/2003 187,500 Directors 4/24/98 $3.00 2/28/2003 170,000 4/23/99 $1.50 2/28/2003 82,500 4/23/99 $2.00 2/28/2003 132,500 4/23/99 $3.00 2/28/2003 82,500 Employees 4/23/99 $1.00 2/28/2003 45,000 4/23/99 $2.00 2/28/2003 45,000 4/23/99 $3.00 2/28/2003 45,000 1/01/00 $0.30 2/28/2004 60,000 Consultant 6/05/98 $4.00 2/28/2003 8,000 4/23/99 $1.00 2/28/2003 25,000 4/23/99 $2.00 2/28/2003 50,000 4/23/99 $3.00 2/28/2003 25,000 1/01/00 $0.30 2/28/2004 50,000 ----------- 1,655,500 =========== No options have been cancelled or exercised since the inception of the stock option plan, therefore, 1,655,500 options are exercisable at a weighted average exercise price of $2.23 per share. The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". Accordingly, no compensation has been recognized for the stock options awarded during the years ended February 29, 2000, or February 28, 1999. However, using the Black-Scholes method of option valuation, the options granted during the years ending February 29, 2000 and February 28, 1999 are determined to have a fair market value of $522,240 and $0 respectively. The fair value for these options was estimated at the date of grant using a Black- Scholes option pricing model with the following weighted average assumptions F-15 ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE M - COMMON STOCK OPTIONS AND WARRANTS - continued for the year 2000; risk-free interest rates of 5.5 percent; a dividend yield of zero; volatility factors of the expected market price of the Company's common stock based on historical trends; and a weighted-average expected life of the options of three years. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options's vesting period. The Company's pro forma information is as follows: Proforma net income (loss) attributable to stockholders $ (1,751,059) (780,029) Proforma basic and diluted (loss) per share $ (0.17) $ (.08) The Company has issued warrants to six individuals in connection with loans made to the Company and has issued warrants to fourteen individuals who purchased the Company's Series A Preferred stock. Warrants issued are as follows: Price Warrants per Share Expiration Date ----------- ----------- -------------------------------- 190,000 $ 3.50 7/31/01 28,333 3.00 8/31/00 10,000 3.00 Two years from the date the loan is paid in full 31,000 3.00 Two years from the date the loan is paid in full 95,000 2.00 7/31/01 80,000 2.00 2/28/02 80,500 2.00 Two years from the date the loan is paid in full 60,000 0.30 Two years from the date the loan is paid in full ----------- 574,833 NOTE N - REVENUES During the year ended February 28, 1999, the Company received a commission on the sale of artifacts purchased by Treasures and Exhibits International, Inc., formerly Vanderbilt Square Corp ("VNSR"), from Seahawk Deep Ocean Technology, Inc. jointly with Seahawk I, Ltd.("Seahawk") pursuant to the Artifacts and Displays Purchase Agreement(the "Agreement") consummated between the parties (the "Parties"). The commission paid to Odyssey was $234,750 (10% of the proceeds to Seahawk plus $5,000). The commission payment was made by a combination of cash, inventory, and common stock as follows: F-16 ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE N - REVENUES - continued Amount Shares ----------- ----------- Cash $ 43,250 Inventory 20,000 Common stock 171,500 1,008,824 ----------- ---------- $ 234,750 1,008,824 =========== ========== The common stock consists of restricted shares of VNSR originally valued at $0.17 per share. The inventory consists of raw emeralds recovered from the 1655 shipwreck of the Nuestra Senora de al Maravilla, with Certificates of Authenticity. The Company intends to market these items. The Agreement stipulated a deferred payment of $200,000 to Seahawk which was made in August 1998 and upon which, Odyssey received a $20,000 cash payment. The Company has had only incidental revenue from selling rights to intellectual property since the artifact sale commission was earned. NOTE O - OTHER INCOME AND EXPENSE During the year ended February 29, 2000, the Company wrote down the value of 170,000 shares of the common stock of Seahawk Deep Ocean Technology, Inc.(SDOT) to $500. In doing so, a loss of $43,700 was taken. Because the issuer has not filed current financial statements, and has been de-listed from the OTC bulletin board, management believes it to be unlikely that the Company will realize value above $500, which was received for a sale of 10,000 shares of SDOT in March 2000. This transaction was offset by gains of $41,667 on the sale of other marketable securities during the year resulting in a loss on the sale of marketable securities of $2,033 for the year ending February 29, 2000. During the year ended February 28,1999, the Company executed the First Amendment to the Pesqamar Joint Venture Agreement("Amendment") with Seahawk Deep Ocean Technology, Inc. wherein the two investors in Pesquisas Arqueologicas Maritimas, S. A.(Pesqamar) revised the ownership, sharing of administrative costs of Pesqamar, and debt owed to Odyssey under the original agreement. Under the original agreement Odyssey had billed Seahawk $153,018 for their 50% share of costs, and had provided a 100% provision for doubtful accounts. Under terms of the Amendment, Odyssey will assume responsibility for 100% of the administrative costs of Pesqamar, and consider the $153,018 debt to be paid in full in exchange for 1,000,000 shares of common stock of Treasures and Exhibits, International, Inc.("VNSR")(See Note N). Additionally, Odysseys percentage of ownership in the Preferred Non Voting Shares of Pesqamar increased to 55%. Other income was recorded on the books for the fair value of the VNSR common stock as an $85,000 recovery of bad debt. F-17 ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE P - COMPREHENSIVE LOSS During Fiscal 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130) The company has included Comprehensive Income in the financial statements for the year ended February 29, 2000 and a Comprehensive Loss for the year ended February 28, 1999. The comprehensive income and losses resulted entirely from the unrecognized gains and losses on the value of marketable securities held by the Company as detailed in Note D. NOTE Q - INCOME TAXES The Company has a net operating loss carry forward of approximately $4,000,000 that is available to offset future regular taxable income. The carry forward will expire in various years ending through the year 2020. Because of the Company's net cumulative losses and the uncertainty of being able to utilize the deferred tax asset, the Company recorded a valuation allowance of 100% of the deferred tax asset. NOTE R - COMMITMENTS AND CONTINGENCIES Offices In March 1997, the Company entered into a sublease agreement for 3,170 square feet of office space for the period beginning April 1, 1997 and ending December 31, 2000. Rent payments for this office were $44,120 for the fiscal year ending February 29, 2000. Approximate future rent payments are $39,800. Industry Related Risks Although the Company has access to a substantial amount of research and data which has been compiled regarding the shipwreck business, the quality and reliability of such research and data, like all research and data of its nature, is unknown. Even if the Company is able to plan and obtain permits for its projects, there is a possibility that the shipwreck may have been salvaged, or may not have had anything of value on board at the time of the sinking. Furthermore, even if objects of believed value are located and recovered, there is the possibility that the Company's rights to the recovered objects will be challenged by others, including both private parties and governmental entities, asserting conflicting claims. Finally, even if the Company is successful in locating and retrieving objects from a shipwreck and establishing good title thereto, there can be no assurance as to the value that such objects will bring at their sale as the market for such objects is very uncertain. Litigation During February 2000, two complaints were filed against the Company in the Circuit Court for the Thirteenth Judicial Circuit in and for Hillsborough County Florida, Civil Division, on behalf of plaintiff, Seahawk Deep Ocean Technology, inc.("Seahawk"). The complaint seeks payment for services, legal fees and interest. The company has recognized in accounts payable and accrued expenses $43,400 for services, and an estimate for legal fees and interest of $7,650. The company intends to vigorously defend this action. F-18 ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE S - GOING CONCERN CONSIDERATION The Company has incurred net losses of $4,894,809. At February 29, 2000 the Company has negative working capital as indicated by current liabilities exceeding current assets by $1,233,861. These factors caused the Company's auditors to consider whether the Company could continue as a going concern. In order to fund its overhead and projects, the Company conducted a private placement of Units consisting of Common Stock and Warrants that raised $350,000 for operational and administrative purposes. The Company has also raised approximately $265,000 through the sale of marketable securities and anticipates it will generate an additional $250,000 from future sales. Depending on the results of the Republic and Cambridge operations, the Company plans on financing the balance of its budget through secured debt or another private placement of debt or equity. Operationally, the Company plans to continue the search operations for the Cambridge, Republic and Concepcion Projects. Additionally, if any of the search operations are successful, and subject to financing, the Company plans to begin recovery operations on one or more of these projects. The Company intends to finance these operations through the sale of equity, revenue participation or debt. There can be no assurance of the Company's ability to secure financing and this could cause a delay or cancellation of one or more projects. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. F-19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunder duly authorized. ODYSSEY MARINE EXPLORATION, INC. Dated: May 30, 2000 By:/s/ John C. Morris John C. Morris, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: SIGNATURE TITLE DATE /s/ John C. Morris President and Chairman of May 30, 2000 John C. Morris the Board of Directors /s/ Gregory P. Stemm Vice President and Director May 30, 2000 Gregory P. Stemm /s/ David A. Morris Secretary and Treasurer May 30, 2000 David A. Morris (Chief Financial Officer) /s/ William C. Callari Director May 30, 2000 William C. Callari /s/ Gerald Goodman Director May 30, 2000 Gerald Goodman /s/ E. Eugene Cooke Director May 30, 2000 E. Eugene Cooke /s/ Brad Baker Director May 30, 2000 Brad Baker