SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
|
o |
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
x |
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from May 1, 2008 to December 31, 2008
Commission File Number 000-29461
SEAFARER EXPLORATION CORP.
(Exact name of registrant as specified in its charter)
|
Delaware |
73-1556428 |
|
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer Identification No.) |
14497 N. Dale Mabry Highway, Suite 209N, Tampa, 33618
(Address of principal executive offices) (Zip code)
Registrant’s telephone number: (813) 448-3577
Securities registered under 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
1
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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. Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
|
Large accelerated filer o |
Accelerated filer o |
Non-accelerated filer o |
Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of the common stock, par value $0.001 per share, held by non-affiliates of the Registrant, computed by reference to the closing price of such stock on April 27, 2009 was $5,881,556.48. As of April 27, 2009, there were 282,446,224 shares of the Registrant’s Common Stock issued and outstanding.
2
EXPLANATORY NOTE
Seafarer Exploration Corp. (“Seafarer” or “the Company”) is filing this Amendment No. 1 (the “Amended Report”) to its Annual Report on 10-K for the transition period ended December 31, 2008 that was originally filed with the United States Securities and Exchange Commission (“SEC”) on May
11. 2009. The Company hereby amends the following items:
• Item 8. Financial Statements and Supplementary Data. The only change to the Company’s Financial Statements filed with the Annual Report is to correct the Report of the Independent Registered Public Accounting Firm and modify Footnote 10 to the Financial Statements.
As a result of this Amendment No.1, the certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, as filed as exhibits to the original filing have been re-executed and re-filed as of the date of this Amendment No. 1 on Form 10-K. Except for the amendment described above, this Amendment No. 1 does not
modify or update other disclosures in, or exhibits to, the original filing.
3
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Seafarer Exploration Corp.
We have audited the accompanying consolidated balance sheets of Seafarer Exploration Corp. (a development stage company, the “Company”) as of December 31, 2008 and April 30, 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the eight months ended December 31, 2008, the
year ended April 30, 2008 and the cumulative period from February 15, 2007 (date of inception) through December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged
to perform, an audit of its internal controls over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide 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 Seafarer Exploration Corp. as of December 31, 2008 and April 30, 2008, and the results of its operations and its cash flows for the eight months ended December 31, 2008, the year ended April 30, 2008
and the cumulative period from February 15, 2007 (date of inception) through December 31, 2008, in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company incurred net losses and negative cash flows from operations since inception. These factors, and the need for additional financing in order for the Company to meet its business plans, raise
substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
S/ CROSS, FERNANDEZ & RILEY, LLP
Tampa, Florida
May 8, 2009
4
SEAFARER EXPLORATION CORP.
Consolidated Balance Sheets
|
|
||||||||
|
December 31,
2008 |
April 30,
2008 |
|||||||
|
ASSETS |
||||||||
|
Current |
||||||||
|
Cash |
$ | 474 | $ | 108,280 | ||||
|
Notes receivable |
180,521 | 75,000 | ||||||
|
Deposits |
21,284 | -- | ||||||
|
Total Current Assets |
202,279 | 183,280 | ||||||
|
Fixed assets, net of accumulated depreciation of $37,917 and $16,250 |
287,085 | 308,750 | ||||||
|
Total Assets |
$ | 489,364 | $ | 492,030 | ||||
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
||||||||
|
Current |
||||||||
|
Accounts payable and accrued liabilities |
$ | 147,415 | $ | 895 | ||||
|
Due to Organetix, Inc. |
-- | 91,500 | ||||||
|
Convertible notes payable, in default |
90,000 | 64,000 | ||||||
|
Convertible notes payable - related parties, in default |
15,000 | -- | ||||||
|
Notes Payable – related parties, in default |
56,500 | -- | ||||||
|
Due to shareholder |
100 | 100 | ||||||
|
Total Current Liabilities |
309,015 | 156,495 | ||||||
|
Total Liabilities |
309,015 | 156,495 | ||||||
|
Mezzanine equity - common stock, 3,966,668 shares par value $0.0001 |
64,500 | -- | ||||||
|
Commitments and contingencies |
-- | -- | ||||||
|
Stockholders' Equity |
||||||||
|
Preferred Stock, Authorized 50,000,000 shares; par value $0.0001, None issued and outstanding |
-- | - | ||||||
|
Common stock |
||||||||
|
Authorized: |
||||||||
|
500,000,000 common shares, par value $0.0001 per share |
||||||||
|
Issued and outstanding: |
||||||||
|
276,609,557 common shares (April 30, 2008 – 17,533,333,000) |
27,661 | 1,753 | ||||||
|
Additional paid-in capital |
1,346,640 | 621,440 | ||||||
|
Deficit accumulated during the development stage |
(1,258,452 | ) | (287,658 | ) | ||||
|
Total Stockholders’ Equity |
115,849 | 335,535 | ||||||
|
Total Liabilities & Stockholders’ Equity |
$ | 489,364 | $ | 492,030 | ||||
The Accompanying Notes Are an Integral Part of these Financial Statements
5
SEAFARER EXPLORATION CORP.
Consolidated Statements of Operations
|
|
Eight Months Ended
December 31,2008 |
Year Months ended April 30, 2008 |
February 15,
2007
(Inception)
to December 31,2008 |
|||||||||
|
REVENUES |
$ |
-- |
$ |
-- |
$ |
-- |
||||||
|
EXPENSES |
||||||||||||
|
Consulting & contractor expenses |
615,887 |
157,594 |
776,482 |
|||||||||
|
Vessel expenses |
83,439 |
46,836 |
130,276 |
|||||||||
|
Professional fees |
97,689 |
27,577 |
127,266 |
|||||||||
|
Travel & entertainment |
74,048 |
28,062 |
102,110 |
|||||||||
|
General and administrative expenses |
53,110 |
6,879 |
60,284 |
|||||||||
|
Rent expense |
21,800 |
425 |
22,225 |
|||||||||
|
Depreciation |
21,665 |
16,250 |
37,915 |
|||||||||
|
Other operating expenses |
3,006 |
2 |
3,005 |
|||||||||
|
Total Expenses |
970,644 |
283,625 |
1,259,563 |
|||||||||
|
Loss from Operations |
(970,644 |
) |
(283,625 |
) |
(1,259,563 |
) | ||||||
|
OTHER (EXPENSE) INCOME |
||||||||||||
|
Interest expense |
(5,690 |
) |
(1,150 |
) |
(6,840 |
) | ||||||
|
Interest income |
5,540 |
2,411 |
7,951 |
|||||||||
|
Total Other (Expense) Income |
(150 |
) |
1,261 |
1,111 |
||||||||
|
NET LOSS |
$ |
(970,794 |
) |
$ |
(282,364 |
) |
$ |
(1,258,452 |
) | |||
|
NET LOSS PER SHARE - BASIC AND DILUTED |
$ |
(0.00 |
) |
$ |
(0.00 |
) |
||||||
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED |
262,970,299 |
174,643,542 |
||||||||||
The Accompanying Notes Are an Integral Part of these Financial Statements
6
SEAFARER EXPLORATION CORP.
(A Development Stage Company)
Consolidated Statements of Cash Flows
|
8 months ended December 31,2008 |
Year ended April 30, 2008 |
February 15, 2007 (Inception) to December 31,2008 |
||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||||
|
Net loss |
$ |
(970,794 |
) |
$ |
(282,364 |
) |
$ |
(1,258,452 |
) | |||
|
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
|
Stock issued for services |
323,333 |
-- |
323,333 |
|||||||||
|
Depreciation |
21,665 |
16,250 |
37,915 |
|||||||||
|
Changes in operating assets and liabilities: |
||||||||||||
|
DeDeposits |
(21,284 |
) |
-- |
(21,284 |
) | |||||||
|
Accounts payable and accrued liabilities |
146,520 |
(1,105 |
) |
238,915 |
||||||||
|
Due to Organetix, Inc. |
-- |
91,500 |
||||||||||
|
Net cash used in operating activities |
(500,560 |
) |
(175,719 |
) |
(679,573 |
) ) | ||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||||||
|
Notes receivable |
(105,521 |
) |
(75,000 |
) |
(180,521 |
) | ||||||
|
Acquisition of equipment |
-- |
(325,000 |
) |
(325,000 |
) | |||||||
|
Net cash used in investing activities |
(105,521 |
) |
(400,000 |
) |
(505,521 |
) | ||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||||||
|
Issuance of convertible notes |
60,000 |
64,000 |
124,000 |
|||||||||
|
Issuance of notes |
56,500 |
-- |
56,500 |
|||||||||
|
Issuance of common shares |
381,775 |
618,100 |
1,005,068 |
|||||||||
|
Net cash provided by financing activities |
498275 |
682,100 |
1,166,568 |
|||||||||
|
INCREASE (DECREASE) IN CASH |
(107,806 |
) |
106,381 |
474 |
||||||||
|
CASH, BEGINNING |
108,280 |
1,899 |
-- |
|||||||||
|
CASH, ENDING |
$ |
474 |
$ |
108,280 |
$ |
474 |
||||||
|
NONCASH OPERATING AND FINANCING ACTIVITIES: |
||||||||||||
|
Due to Organetix, Inc. reclassified to additional paid-in capital |
$ |
91,500 |
$ |
- |
$ |
91,500 |
||||||
|
Convertible debt converted to common stock |
$ |
19,000 |
$ |
- |
$ |
19,000 |
||||||
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
||||||||||||
|
Cash paid for: |
||||||||||||
|
Interest |
$ |
3,660 |
$ |
- |
$ |
3,660 |
||||||
|
Income taxes |
$ |
- |
$ |
- |
$ |
- |
||||||
The Accompanying Notes Are an Integral Part of these Financial Statements
7
SEAFARER EXPLORATION CORP.
Consolidated Statements of Stockholders’ Equity
|
Common Stock shares |
Common Stock value |
Additional Paid-in Capital |
Deficit Accumulated During the Development Stage |
Total |
||||||||||||||||
|
Balance, February -15, 2007 (Inception) |
— |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
|||||||||||
|
Common stock issued for cash – February 20, 2007 |
5,000,000 |
500 |
4,693 |
— |
5,193 |
|||||||||||||||
|
Net loss for the period from inception to April 30, 2007 |
— |
— |
— |
(5,294 |
) |
(5,294 |
) | |||||||||||||
|
Balance April 30, 2007 |
5,000,000 |
500 |
4,693 |
(5,294 |
) |
(101 |
) | |||||||||||||
|
Common stock issued for cash – June 15, 2007 |
5,000,000 |
500 |
4,500 |
— |
5,000 |
|||||||||||||||
|
Common stock issued for subscription agreements – various dates |
7,533,333 |
753 |
612,247 |
— |
613,000 |
|||||||||||||||
|
Net loss |
(282,364 |
) |
(282,364 |
) | ||||||||||||||||
|
Balance April 30, 2008 |
17,533,333 |
1,753 |
621,440 |
(287,658 |
) |
335,535 |
||||||||||||||
|
Recapitalization at reverse merger – June 4, 2008 |
233,522,002 |
23,352 |
68,148 |
91,500 |
||||||||||||||||
|
Common stock issued for services – May 21, 2008 |
5,783,332 |
578 |
82,755 |
— |
83,333 |
|||||||||||||||
|
Common stock issued for services – October 23, 2008 |
12,000,000 |
1,200 |
238,800 |
— |
240,000 |
|||||||||||||||
|
Common stock issued on conversion of promissory note – November 1, 2008 |
1,344,972 |
134 |
18,866 |
— |
19,000 |
|||||||||||||||
|
Common stock issued for subscription agreements – various dates |
6,425,918 |
644 |
356,131 |
— |
356,775 |
|||||||||||||||
|
Reclassification to mezzanine equity |
— |
— |
(64,500 |
) |
— |
(64,500 |
) | |||||||||||||
|
Funds received no shares issued – December 3, 2008 |
— |
— |
25,000 |
— |
25,000 |
|||||||||||||||
|
Net loss |
— |
— |
— |
(970,794 |
) |
(970,794 |
) | |||||||||||||
|
Balance, December 31,2008 |
276,609,557 |
$ |
27,661 |
$ |
1,346,640 |
$ |
(1,258,452 |
) |
$ |
115,849 |
||||||||||
The Accompanying Notes Are an Integral Part of these Financial Statements
8
SEAFARER EXPLORATION CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
Seafarer Exploration Corp. (the “Company”) was incorporated on May 28, 2003 in the State of Delaware.
The principal business of the Company is the exploration and recovery of an underwater shipwreck. The Company’s year-end is December 31.
The Company is in the development stage and the Company’s activities during the development stage include developing a business plan and raising capital.
On June 4, 2008, Seafarer Exploration, Inc (“Seafarer Inc.”) merged with Organetix, Inc. (“Organetix”) pursuant to a Share Exchange Agreement (the “Exchange Agreement”). The Exchange Agreement provided for the exchange of all of Seafarer Inc.’s common shares for 131,243,235 of Organetix post-merger
common shares. Considering that Seafarer Inc.’s former stockholders now control the majority of Organetix’ outstanding voting common stock, Seafarer Inc.’s management has actual operational control of Organetix and Organetix has effectively succeeded its otherwise minimal operations to Seafarer Inc.’s operations, Seafarer Inc. is considered the accounting acquirer in this reverse-merger transaction. A reverse-merger transaction with a non-operating public shell company is considered, and
accounted for as a capital transaction in substance; it is equivalent to the issuance of Seafarer Inc.’s common stock for the net monetary assets of Organetix, accompanied by a recapitalization. Accordingly, the accounting does not contemplate the recognition of unrecorded assets of the accounting acquiree, such as goodwill. However, on the date of the merger, Organetix was a blank-check public shell company and had no assets and no liabilities. Consolidated financial statements presented herein and subsequent
to the merger reflect the consolidated financial assets and liabilities and operations of Seafarer Inc., at their historical costs, giving effect to the recapitalization, as if it had been Organetix during the periods presented.
On July 17, 2008, we changed our name from Organetix, Inc. to Seafarer Exploration Corp. During 2008, we changed our year end from April 30 to December 31.
NOTE 2 - GOING CONCERN
These financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. As shown in the accompanying financial statements, the Company has incurred net losses of $1,259,736 since inception.
We expect to expend our available cash in less than one month from May 5, 2009 based on our historical rate of expenditures. Management's plans include raising capital through the equity markets to fund operations, and the generating of revenue through its business.
Failure to raise adequate capital and generate adequate revenues could result in the Company having to curtail or cease operations. The Company’s ability to raise additional capital through the future issuances of the common stock is unknown. Additionally, even if the Company does raise sufficient capital to support its operating
expenses and generate adequate revenues, there can be no assurances that the revenue will be sufficient to enable it to develop to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company's ability to continue as a going concern. However, the accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These financial
statements do not include any adjustments relating to the recovery of the recorded assets or the classifications of the liabilities that might be necessary should the Company be unable to continue as a going concern.
9
SEAFARER EXPLORATION CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
for the fiscal year ended December 31, 2008
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Seafarer Exploration Corp. is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These
accounting policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements.
Accounting Method
The Company’s financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents.
Revenue Recognition
The Company recognizes revenue on arrangements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive
evidence of an arrangement exists, the service is performed and collectability is reasonably assured. For the fiscal years ended December 31, 2008 and April 30, 2008, the Company did not report any revenues.
Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards No. 128, which provides for calculation of "basic" and "diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding
for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. Basic and diluted losses per share were the same at the reporting dates as there were no common stock equivalents outstanding during the fiscal years ended December 31, 2008 and April 30, 2008.
Fair Value of Financial Instruments
Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 157 “Fair Value Measurements” (SFAS 157) which defines fair value, establishes a framework for measuring fair value and expands required disclosure about fair value measurements of assets and liabilities. The impact of
adopting SFAS 157 as of January 1, 2008 was not significant to the Company’s financial statements. SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 – Valuation based on quoted market prices in active markets for identical assets or liabilities.
Level 2 – Valuation based on quoted market prices for similar assets and liabilities in active markets.
Level 3 – Valuation based on unobservable inputs that are supported by little or no market activity, therefore requiring management’s best estimate of what market participants would use as fair value.
10
SEAFARER EXPLORATION CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
for the fiscal year ended December 31, 2008
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Fair Value of Financial Instruments - continued
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2008. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These
financial instruments include cash, notes receivable, accounts payable and accrued expenses. The fair value of the Company’s long-term debt is estimated based on current rates that would be available for debt of similar terms which is not significantly different from its stated value.
Income Taxes
The Company provides for federal and state income taxes payable, as well as for those deferred because of the timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled. The effect of a change in tax rates is recognized as income or expense in the period of the change. A valuation allowance is established, when necessary, to reduce deferred income tax
assets to the amount that is more likely than not to be realized.
The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”, on January 1, 2007. The Company has not recognized a liability as a result of the implementation of Interpretation 48. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided
since there is no unrecognized benefit as of the date of adoption. The Company has not recognized interest expense or penalties as a result of the implementation of Interpretation 48. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
Fixed Assets and Depreciation
Fixed assets are recorded at historical cost. Depreciation is computed on the straight-line method over estimated useful lives of the respective assets. Currently our only asset is a diving vessel, which we purchased for $325,000 during 2008 and is being depreciated over a 10 year useful life.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company reviews the carrying amount of long-lived assets on a regular basis for the existence of facts or circumstances, both internally and externally, that suggest impairment. The Company
determines if the carrying amount of a long-lived asset is impaired based on anticipated undiscounted cash flows before interest from the use of the asset. In the event of impairment, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the asset. Fair value is determined based on appraised value of the assets or the anticipated cash flows from the use of the asset, discounted at a rate commensurate with the risk involved. There was no impairment charges recorded during
each of the years ended December 31, 2008 and April 30, 2008.
11
SEAFARER EXPLORATION CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
for the fiscal year ended December 31, 2008
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Stock-Based Compensation
In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based Payment". SFAS 123(R) will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements.
That cost will be measured based on the fair value of the equity or liability instruments issued. SFAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS 123(R) replaces FASB Statement No. 123, "Accounting for Stock-Based Compensation", and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees". SFAS 123, as originally issued in 1995,
established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that statement permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used. Public entities (other than those filing as small business issuers) were required to apply SFAS 123(R) as of the first interim or annual reporting
period that begins after June 15, 2005. For public entities that file as small business issuers, SFAS 123(R) was applicable as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. As of December 31, 2008, the Company has not implemented a stock based compensation plan.
Non-Employee Stock Based Compensation
The Company accounts for stock based compensation awards issued to non-employees for services, as prescribed by SFAS No. 123R, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in EITF 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services."
Use of Estimates
The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as
of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.
Convertible Notes Payable
The Company accounts for conversion options embedded in convertible notes in accordance with SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") and Emerging Issues Task Force EITF 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock" ("EITF
00-19"). SFAS 133 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free standing derivative financial instruments in accordance with EITF 00-19. SFAS 133 provides for an exception to this rule when convertible notes, as host instruments, are deemed to be conventional as that term is described in the implementation guidance under Appendix A to SFAS 133 and further clarified in EITF 05-2 "The Meaning of "Conventional
Convertible Debt Instrument" in Issue No. 00-19.” As of December 31, 2008 all of the Company’s convertible notes payable were classified as conventional instruments.
12
SEAFARER EXPLORATION CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
for the fiscal year ended December 31, 2008
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Convertible Notes Payable - continued
The Company accounts for convertible notes deemed conventional and conversion options embedded in non-conventional convertible notes which qualify as equity under EITF 00-19, in accordance with the provisions of Emerging Issues Task Force Issue ("EITF") 98-5 "Accounting for Convertible Securities with Beneficial Conversion Features," and
EITF 00-27 "Application of EITF 98-5 to Certain Convertible Instruments". Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt. As of December 31, 2008, none of the Company’s
convertible notes payable included a beneficial conversion option.
In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in -Income Taxes-an interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. The Interpretation requires that the Company recognize in the financial statements the impact of tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006
with the cumulative effect of the change in accounting principle recorded as an adjustment to beginning retained earnings. The adoption of this statement did not have a material impact on the Company's consolidated financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning
after November 15, 2007. The adoption of this accounting pronouncement did not have a material effect on the Company’s consolidated financial statements.
In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115 ”. This statement permits entities to choose
to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 “ Accounting for Certain Investments in Debt and Equity Securities ” applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins
after November 15, 2007. The adoption of this statement did not have a material effect on the Company's financial statements.
In December 2007, the FASB issued Statement No. 141(R), “Business Combinations” (SFAS 141(R)), which applies to all transactions or other events in which an entity obtains control of one or more businesses, including those sometimes referred to as “true mergers” or “mergers of equals” and combinations
achieved without the transfer of consideration. This statement replaces FASB Statement No. 141 and applies to all business entities, including mutual entities that previously used the pooling-of-interests method of accounting for some business combinations. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The Company believes that adoption of SFAS 141(R) will have an effect on our operating results with respect to future acquisitions, if any.
13
SEAFARER EXPLORATION CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
for the fiscal year ended December 31, 2008
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
In February 2008, the FASB issued FASB Staff Position No. 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (FSP 157-1). FSP 157-1 amends SFAS 157 to remove certain
leasing transactions from its scope. In addition, on February 12, 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2), which amends SFA 157 by delaying its effective date by one year for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. This pronouncement was effective upon issuance. The Company has deferred the adoption of SFAS
157 with respect to all non-financial assets and liabilities in accordance with the provisions of this pronouncement. On January 1, 2009, SFAS 157 will be applied to all other fair value measurements for which the application was deferred under FSP 157-2. The Company is currently assessing the impact SFAS 157 will have in relation to non-financial assets and liabilities on the consolidated financial statements.
In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS 161). SFAS 161 amends and expands the disclosure requirements of Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” It requires qualitative disclosures about objectives
and strategies for using derivatives, quantitative disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not anticipate the adoption of SFAS 161 will have a material impact on its results of operations, cash flows or financial condition.
In June 2008, the FASB’s Emerging Issues Task Force reached a consensus regarding EITF Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (EITF 07-5). EITF 07-5 outlines a two-step approach to evaluate the instrument’s contingent exercise provisions,
if any, and to evaluate the instrument’s settlement provisions when determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock. EITF 07-5 is effective for fiscal years beginning after December 15, 2008 and must be applied to outstanding instruments as of the beginning of the fiscal year of adoption as a cumulative-effect adjustment to the opening balance of retained earnings. Early adoption is not permitted. The Company is currently evaluating
the impact of the adoption of EITF 07-5.
NOTE 4 - LOSS PER SHARE
Components of loss per share for the respective periods are as follows:
|
December 31, 2008 |
April 30, 2008 |
|||||||
|
Net income available to common shareholders |
$ | (970,794 | ) | $ | (282,364 | ) | ||
|
Weighted average shares outstanding: |
||||||||
|
Basic and diluted |
262,970,299 | 174,643,542 | ||||||
|
Loss per share: |
||||||||
|
Basic and diluted |
$ | (0.00 | ) | $ | (0.00 | ) | ||
14
SEAFARER EXPLORATION CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
for the fiscal year ended December 31, 2008
NOTE 5 - CAPITAL STOCK
Common Stock
The Company is authorized to issue 500,000,000 shares of $0.0001 par value common stock. All shares have equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of
the directors of the Company.
At December 31, 2008 the Company had issued and outstanding 3,966,668 common shares for total proceeds of $64,500 that are subject to a repricing feature guaranteeing the shareholders a minimum value of $0.015 to $0.020 per share. The repricing feature extends through the date upon which all registration restrictions expire and is based
upon the trading market value on that date. Due to the fact that the number of shares required to settle this minimum value guaranty will not be known until the registration restrictions have expired, the Company cannot guarantee with certainty that it will have enough authorized shares to settle these agreements. Accordingly, these shares have been accounted for in accordance with EITF Topic No. D-98, Classification and Measurement of Redeemable Securities.
Pursuant to this guidance, the shares subject to the anti-dilution protection require classification as mezzanine equity until such time as the repricing feature expires.
NOTE 6 - INCOME TAXES
The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes are as follows:
|
2008 |
2008 |
|||||||
|
Income tax at federal statutory rate |
(34.00 | )% | (34.00 | )% | ||||
|
State tax, net of federal effect |
(3.96 | )% | (3.96 | )% | ||||
| 37.96 | % | 37.96 | % | |||||
|
Valuation Allowance |
||||||||
|
Effective rate |
0.00 | % | 0.00 | % | ||||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
As of December 31, 2008, the Company’s only significant deferred income tax asset was an estimated net tax operating loss of ($1,258,452) that is available to offset future taxable income if any in future periods, subject to expiration and other limitations imposed by the Internal Revenue Service, if any. Management has
considered the Company's operating losses incurred to date, and believes that a full valuation allowance against its deferred tax assets is required as of December 31, 2008 and April 30, 2008.
NOTE 7 - LEASE OBLIGATION
The Company has an operating lease for its office space located in Tampa, Florida. The term of the lease agreement commenced on October 1, 2008 and expires on March 31, 2010. For the Year Ending December 31, 2008 the rental expense including taxes was $3,853 and the Company also paid a security deposit in the amount of $1,284. Future
minimum rental payments, including taxes, required under the non-cancelable operating lease are as follows:
For the Year Ending December 31,
2009 - $15,410.64
2010 - $3,852.66
15
SEAFARER EXPLORATION CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
for the fiscal year ended December 31, 2008
NOTE 8 - NOTES PAYABLE
Convertible Notes Payable
At December 31, 2008 and April 30, 2008, respectively, the Company had $105,000 and $64,000 in convertible promissory notes outstanding, of which $15,000 was outstanding to related parties at December 31, 2008 and April 30, 2008. The notes pay interest at 6% and are convertible at the option of the lenders into common stock at $0.10 per
share. The notes are payable between September 1, 2008 through June 1, 2009 and are secured by the equipment, fixtures, inventory, accounts receivable and intellectual property of the Company. All of these notes were issued prior to the June 2008 merger discussed in Note 1. These notes are currently in default due to non-payment of principal and interest.
Payable – related parties
At December 31, 2008, the Company has three promissory notes outstanding totaling $36,500. These notes have a maturity of one year, carry an annual interest rate of 8% and pay interest on a quarterly basis. These notes are unsecured and are not convertible. These notes are currently in default due to non-payment principal and interest.
NOTE 9 - NOTES RECEIVABLE
At December 31, 2008, the Company was owed a principal amount of $175,000 from Blue Water Ventures of Key West, Inc., a corporation. The notes pay interest at a rate of 4.5% per annum with interest due and payable when the notes mature. All three of the notes matured on December 31, 2008. As of April 27, 2009 Seafarer has received $120,000
in repayment of the money owed to the Company by Blue Water Ventures of Key West, Inc. and the Company believes that the entire principal amount of the notes receivable is collectible.
NOTE 10 - DIVISON OF ARTIFACTS AND TREASURE
The Company must split any artifacts or treasure that it successfully recovers from the Juno Beach shipwreck site with the State of Florida and Tulco Resources, Ltd. The division of artifacts and treasure will be:
20% to the State of Florida
40% to Tulco Resources, Ltd.
40% to the Company
More specifically the State of Florida has the right to select up to 20% of the total value of recovered artifacts and treasure for the State's museum collection. After the State of Florida has selected those artifacts and treasure that it feels will complement its collection then the Company and Tulco, Resources, Ltd. will split the remaining
artifacts and treasure equally.
In February 2007, Seafarer Exploration, Inc. entered into an Agreement with Tulco Resources, Ltd., a Florida limited partnership (“Tulco”), which grants Seafarer the exclusive rights to explore, locate, identify, and salvage any old shipwreck remains in an area near Juno Beach, Florida as described in the research and
recovery permit granted by the Florida Division of Historical Resources. The Agreement with Tulco is a one year agreement, with an automatic one year renewal under the same terms, so long as Seafarer is productively recovering artifacts. In March 2009, Seafarer made, and Tulco accepted, payment required by the Agreement, but Seafarer requested a number of modifications to the Agreement, including a longer guaranteed term of up to five (5) years. If Tulco and Seafarer are unable
to reach an agreement as to the proposed modifications, then there are no guarantees that Seafarer will be able to renew the Agreement with Tulco for the 2010 dive season, and Seafarer has limited protections from termination during the 2009 dive season. The Agreement with Tulco is a key contract to Seafarer implementing its business plan. If the Agreement with Tulco is not satisfactorily renegotiated, then such consequence will have a material adverse effect on Seafarer and its prospects. If Tulco
is not willing to modify the existing agreement, then Seafarer is prepared to take significant legal action against Tulco and its Managing Partner, including reimbursement of expenses related to the renewal of the agreement with the State of Florida in both 2007 and 2008.
16
SEAFARER EXPLORATION CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
for the fiscal year ended December 31, 2008
NOTE 11 - LEGAL PROCEEDINGS
The Company is not the subject of any pending legal proceedings and to the knowledge of management, no proceedings are presently contemplated against the Company by any federal, state or local governmental agency.
NOTE 12 - MATERIAL AGREEMENTS
Consulting Agreement
On June 23, 2008 the Company entered into a consulting agreement with an individual. Under the terms of the agreement the individual was going to provide the Company with various business development, mergers and acquisitions and business strategy consulting services at the direction of the Company’s Chief Executive Officer. In consideration
for performing the consulting services the Company agreed to pay the individual 1,000,000 shares of its common stock. The agreement states that the stock consideration was to be considered earned as of the execution of the agreement. To the best of the Company’s knowledge the individual never performed any services on behalf of the Company. The Company has not issued any shares to the individual under the agreement and no expense has been recorded through December 31, 2008.
Cancellation of Purchase and Sale Agreement
The purchase and sale agreement that was previously executed on July 2, 2008 by and between Sinclair Educational Archaeological Research Expeditions, Inc. (“SeaRex, Inc.”), James J. Sinclair, Vanessa E. Friedman, and the Company was cancelled on December 9, 2008 by written consent of all of the parties to the agreement.
New Purchase and Sale Agreement with SeaRex, Inc.
On December 10, 2008, the Company entered into a new purchase and sale agreement with Sinclair Educational Archaeological Research Expeditions, Inc. (“SeaRex, Inc.”) to acquire the DaVinci Research Materials. The DaVinci Research Materials purportedly contain information as to the theoretical location of a deepwater shipwreck
site which has been named the “DaVinci Project”. As used in the agreement with SeaRex, Inc. the DaVinci Research Materials refers to any and all of the documents, data, records, reports, maps, compilations, computer models, writings and materials that are in any way related to the DaVinci Project that have been accumulated by SeaRex, Inc. any persons known to SeaRex, Inc. or any employees, contractors, consultants, officers, directors, agents, affiliates, or associates of SeaRex, Inc. Under the new
agreement, the Company has agreed, in its sole discretion and if funds are available, to pay SeaRex, Inc. a fee of $250,000 less any funds previously paid to SeaRex, Inc. in exchange for the DaVinci Research Materials. SeaRex, Inc. acknowledged that it previously received $10,000 from Seafarer towards the purchase of the DaVinci Research Materials. According to the agreement, the remaining fees will be paid in the following increments; $10,000 was due upon execution of the Agreement; $30,000 was due by December
31, 2008 unless the parties mutually agree to extend the due date; $50,000 was due by February 15, 2009 unless the parties mutually agree to extend the due date; and $150,000 was be due by March 31, 2009 unless the parties mutually agree to extend the due date. In addition to the fees, Seafarer agreed to pay SeaRex fourteen percent (14%) of the net liquidated value of any items actually recovered from the DaVinci Project less any and all expenses incurred by Seafarer relating to the DaVinci Project (the “Contingent
Fees”). The Contingent Fees will be paid to SeaRex, Inc. at the time that Seafarer actually receives funds. The agreement further states that Seafarer will have exclusive rights to the DaVinci Research Materials during the term of the agreement. Additionally, if Seafarer does not pay SeaRex, Inc. the fees by the due dates described previoulsy, then SeaRex, Inc. in its sole discretion, may terminate the agreement by providing written notice to Seafarer. If SeaRex, Inc. terminates the agreement then it agrees
that within five business days of providing written notice of termination it will pay back any and all funds that it has received from Seafarer. SeaRex, Inc. specifically acknowledges that if Seafarer does not pay the fees by any of the due dates described previously, then Seafarer will not have any further financial obligations whatsoever or owe any consideration or fees of any kind to SeaRex. As of December 31, 2008 Seafarer has paid a total of $20,000 to SeaRex, Inc. towards the purchase of the DaVinci Research
Materials however the Company has not been able to raise the capital necessary to complete the purchase of the DaVinci Research Materials. Even if the Company is able to successfully obtain the DaVinci Research Materials then there will be a significant amount of additional capital required to actually to both pinpoint the exact location of the DaVinci Project shipwreck and/or conduct recovery operations. At this time the Company does not have any formal plans to raise the capital that will be necessary
locate, explore and recover the deepwater shipwreck.
17
SEAFARER EXPLORATION CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
for the fiscal year ended December 31, 2008
NOTE 13 - RELATED PARTY TRANSACTIONS
On July 23, 2007 Seafarer entered into a convertible promissory note in the amount of $15,000 with Pelle Ojasu, a director of the Company. The note is convertible to common stock at $0.10 per share, is secured by substantially all the assets of the company and bears interest at a rate of 6%. The note was due
September 30, 2008 but remains outstanding at December 31, 2008. The note is currently in default due to non-payment of principal and interest.
On September 9, 2008 Seafarer entered into a promissory note agreement in the amount of $9,000 with a person who is related to the CEO of the Company. The note is not secured and bears interest at the rate of 8% per annum. The note is interest only with interest payments to be made quarterly. The note is due and payable on September 9,
2009.
On September 29, 2008 Seafarer entered into a promissory note agreement in the amount of $12,500 with a corporation. Seafarer’s CEO is a Director of the corporation. The note is not secured and bears interest at the rate of 8% per annum. The note is interest only with interest payments to be made quarterly. The note is due and payable
on September 29, 2009.
On October 24, 2008 Seafarer entered into a promissory note agreement in the amount of $6,500 with a person who is related to the CEO of the Company. The note is not secured and bears interest at the rate of 8% per annum. The note is interest only with interest payments to be made quarterly. The note is due and payable on October 24, 2009.
The principal amount of the note was repaid in December 2008.
On October 27, 2008 Seafarer entered into a promissory note agreement in the amount of $15,000 with a person who is related to the CEO of the Company. The note is not secured and bears interest at the rate of 8% per annum. The note is interest only with interest payments to be made quarterly. The note is due and payable on October 27, 2009.
NOTE 14 - SUBSEQUENT EVENTS
Subsequent to December 31, 2008 the Company has received $120,000 from Blue Water Ventures of Key West, Inc. in partial repayment of the money owed by Blue Water Ventures of Key West, Inc. to Seafarer.
Subsequent to December 31, 2008 the Company has received $47,500 from the issuance of common stock under subscription agreements.
Subsequent to December 31, 2008 the Company has received $46,500 in proceeds from convertible promissory notes and loans.
18
PART IV
Item 15. Exhibits
|
(31) |
Section 302 Certification |
|
(32) |
Section 906 Certification |
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, thereunto duly authorized.
|
Seafarer Exploration Corp. | ||
|
Date: September 25, 2009 |
By: |
/s/ Kyle Kennedy |
|
Kyle Kennedy
President, Chief Executive Officer, Chairman of the Board
| ||
19