SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2009
or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number : 000-24637
MARINE EXPLORATION, INC.
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(Exact name of registrant as specified in its charter)
COLORADO 26-1878284
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
535 Sixteenth Street, Suite 820, Denver, Colorado 80202
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(Address of principal executive offices) (Zip code)
303 459 2485
(Registrant's telephone number, including area code)
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Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report)
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 [_]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act (Check
one):
Large accelerated filer: Accelerated filer: Non-accelerated filer: [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): YES [_] NO [X]
The number of outstanding shares of the registrant's Common Stock, $.001 par
value, as of September 30, 2009 was 471,851,988.
Table of Contents
Page No.
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Part I: Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheet - as of September 30, 2009. 2
Consolidated Statements of Cash Flows, Nine Months
Ended September 30, 2009, and Inception to
September 30, 2009. 3
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
Item 4. Controls and Procedures 12
Part II: Other Information 13
Item 1. Legal Proceedings 14
Item 1A. Risk Factors 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits 15
Signatures 16
1
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARINE EXPLORATION, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
Sept. 30,
June 30, 2009
2009 (Unaudited)
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ASSETS
Current assets
Cash $ 45,300 $ 5
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Total current assets 45,300 5
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Fixed assets 435,149 435,149
Accumulated depreciation (39,889) (83,404)
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395,260 351,745
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Total Assets $ 440,560 $ 351,750
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LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 201,055 $ 189,564
Accounts payable - related party 76,050 76,050
Notes payable - related party 19,300 19,300
Notes payable - current portion 3,305,601 3,303,601
Interest payable 141,564 187,280
Original issue discount (21,986) (1,861)
Stock subscriptions payable 34,667 117,334
Other payables 110,000 110,000
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Total current liabilties 3,866,251 4,001,268
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Notes payable 25,237 47,412
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25,237 47,412
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Total Liabilities 3,891,488 4,048,680
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Stockholders' Equity
Preferred stock, $.001 par value;
1,000,000 shares authorized;
none issued or outstanding -- --
Common stock, $.001 par value;
500,000,000 shares authorized;
448,424,765 (2009) and
471,851,988 (2010) shares
issued and outstanding 448,424 471,851
Additional paid in capital 22,487,269 25,213,592
Accumulated deficit (including
$17,236,212 accum. during the
development stage) (26,386,621) (29,382,373)
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Total Stockholders' Equity (3,450,928) (3,696,930)
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Total Liabilities and
Stockholders' Equity $ 440,560 $ 351,750
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The accompanying notes are an integral part of the consolidated
financial statements.
2
MARINE EXPLORATION, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Period From
March 7, 2007
(Inception of
Three Months Three Months Dev. Stage)
Ended Ended To
Sept. 30, Sept. 30, Sept. 30,
2009 2009 2009
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Revenues $ -- $ -- $ --
------------- ------------- -------------
-- -- --
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Operating expenses:
Depreciation -- 43,515 83,404
Compensatory equity issuances 1,614,636 2,708,861 12,453,822
Compensatory subscriptions payable -- 82,667 617,334
General and administrative 316,298 94,868 3,058,850
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1,930,934 2,929,911 16,213,410
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Gain (loss) from operations (1,930,934) (2,929,911) (16,213,410)
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Other income (expense):
Interest expense (191,243) (65,841) (1,022,802)
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Income (loss) before provision
for income taxes (2,122,177) (2,995,752) (17,236,212)
Provision for income tax -- -- --
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Net income (loss) $ (2,122,177) $ (2,995,752) $ (17,236,212)
============= ============= =============
Net income (loss) per share $ (0.0) $ (0.01)
(Basic and fully diluted)
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Weighted average number of
common shares outstanding 147,316,768 462,399,302
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The accompanying notes are an integral part of the consolidated
financial statements.
3
MARINE EXPLORATION, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Period From
March 7, 2007
(Inception of
Three Months Three Months Dev. Stage)
Ended Ended To
Sept. 30, Sept. 30, Sept. 30,
2009 2009 2009
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Cash Flows From
Operating Activities:
Net income (loss) $ (2,122,177) $ (2,995,752) $(17,236,212)
Adjustments to reconcile net loss
to net cash provided by (used for)
operating activities:
Depreciation -- 43,515 83,404
Compensatory equity issuances 1,614,636 2,708,861 12,453,822
Accounts payable (35,561) 19,398 220,453
Related party payables (3,280) -- 363,150
Interest payable 7,613 45,716 187,280
Interest expense - note discount 183,630 20,125 826,839
Other payables -- -- 110,000
Stock subscriptions payable -- 82,667 617,334
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Net cash provided by (used for)
operating activities (355,139) (75,470) (2,373,930)
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Cash Flows From Investing Activities:
Fixed assets -- -- (435,149)
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Net cash provided by (used for)
investing activities -- -- (435,149)
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(Continued On Following Page)
The accompanying notes are an integral part of the consolidated
financial statements.
4
MARINE EXPLORATION, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued From Previous Page)
Period From
March 7, 2007
(Inception of
Three Months Three Months Dev. Stage)
Ended Ended To
Sept. 30, Sept. 30, Sept. 30,
2008 2009 2009
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Cash Flows From Financing Activities:
Sales of common stock -- -- 117,000
Paid in capital -- -- 471
Notes payable - borrowings 355,000 30,175 3,019,713
Notes payable - payments -- -- (328,100)
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Net cash provided by (used for)
financing activities 355,000 30,175 2,809,084
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Net Increase (Decrease) In Cash (139) (45,295) 5
Cash At The Beginning Of The Period 179 45,300 --
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Cash At The End Of The Period $ 40 $ 5 $ 5
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Schedule Of Non-Cash Investing And Financing Activities
In fiscal year 2009 the Company converted $260,500 in
related party payables to common stock, and fulfilled a
stock subscription payable for $500,000 by issuing common
stock, and converted $140,000 in notes payable to common
stock. In fiscal year 2010 the Company converted $30,889 in
accounts payable to common stock, and converted $10,000 in
notes payable to common stock.
Supplemental Disclosure
Cash paid for interest $ -- $ -- $ 1,953
Cash paid for income taxes $ -- $ -- $ --
The accompanying notes are an integral part of the consolidated
financial statements.
5
MARINE EXPLORATION, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Marine Exploration, Inc. (the "Company"), was originally incorporated in the
State of Delaware on June 27, 1996 under the name Jenkon International, Inc. The
Company changed its name in May 2000 to Multimedia KID, Inc., and again in
August 2006 to Syco, Inc. In April 2007 the Company reorganized as a Colorado
corporation and changed its name to Marine Exploration, Inc.
On May 11, 2007, in an acquisition classified as a transaction between parties
under common control, Marine Exploration, Inc. acquired all the outstanding
common shares of Marine Exploration International, Inc. (100,100,000 Marine
Exploration, Inc. common shares were issued for an equal number of common shares
of Marine Exploration International, Inc.), making Marine Exploration
International, Inc. a wholly owned subsidiary of Marine Exploration, Inc. Marine
Exploration International, Inc. was incorporated in the State of Nevada on March
7, 2007 to engage in marine treasure hunting expeditions. The results of
operations of Marine Exploration, Inc. and Marine Exploration International,
Inc. have been consolidated from March 7, 2007 forward. The Company commenced
its new business of marine treasure hunting in March 2007, but has not yet
commenced active operations or generated significant revenues, and is therefore
considered a development stage company.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
disclosures required by generally accepted accounting principles for complete
financial statements. All adjustments which are, in the opinion of management,
necessary for a fair presentation of the results of operations for the interim
periods have been made and are of a recurring nature unless otherwise disclosed
herein. The results of operations for such interim periods are not necessarily
indicative of operations for a full year.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
Marine Exploration, Inc. and its wholly owned subsidiary. All intercompany
accounts and transactions have been eliminated in consolidation.
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less as cash equivalents.
6
MARINE EXPLORATION, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Fiscal year
The Company employs a fiscal year ending June 30.
Income tax
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 ("SFAS 109"). Under SFAS 109 deferred taxes are provided on a
liability method whereby deferred tax assets are recognized for deductible
temporary differences and operating loss carryforwards and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
Net income (loss) per share
The net income (loss) per share is computed by dividing the net income (loss) by
the weighted average number of shares of common outstanding. Warrants, stock
options, and common stock issuable upon the conversion of the Company's
preferred stock (if any), are not included in the computation if the effect
would be anti-dilutive and would increase the earnings or decrease loss per
share.
Revenue recognition
Revenue is recognized on an accrual basis as earned under contract terms.
7
MARINE EXPLORATION, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued):
Property and equipment
Property and equipment are recorded at cost and depreciated under the straight
line method over each item's estimated useful life.
Financial Instruments
The carrying value of the Company's financial instruments, including cash and
cash equivalents and accrued payables, as reported in the accompanying balance
sheet, approximates fair value.
Stock based compensation
The Company accounts for employee and non-employee stock awards under SFAS
123(r), whereby equity instruments issued to employees for services are recorded
based on the fair value of the instrument issued and those issued to
non-employees are recorded based on the fair value of the consideration received
or the fair value of the equity instrument, whichever is more reliably
measurable.
Products and services, geographic areas and major customers
The Company plans to generate revenue from the sale of salvaged marine treasure.
Sales are anticipated to be to external customers, either domestic or foreign.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion will assist in the understanding of our financial
position and results of operations. The information below should be read in
conjunction with the financial statements, the related notes to the financial
statements and our Form SB-2 Registration Statement filed June 6, 2007. In
connection with, and because we desire to take advantage of, the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, we caution
readers regarding certain forward looking statements in the following discussion
and elsewhere in this report and in any other statement made by, or on our
behalf, whether or not in future filings with the Securities and Exchange
Commission. Forward-looking statements are statements not based on historical
information and which relate to future operations, strategies, financial results
or other developments. Forward looking statements are necessarily based upon
estimates and assumptions that are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of which are
beyond our control and many of which, with respect to future business decisions,
are subject to change. These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from those expressed
in any forward-looking statements made by, or on, our behalf. We disclaim any
obligation to update forward-looking statements.
Overview
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Marine Exploration, Inc. ("we," "us," "our," the "Company" or "Marine") was
originally incorporated in the State of Delaware on June 27, 1996 under the name
Jenkon International, Inc. We changed our name in May 2000 to Multimedia KID,
Inc., and again in August 2006 to Syco, Inc. In April 2007, we reorganized as a
Colorado corporation and changed our name to Marine Exploration, Inc.
On May 11, 2007, in an acquisition classified as a transaction between
parties under common control, we acquired all the outstanding common shares of
Marine Exploration International, Inc. wherein we issued 100,100,000 shares of
our common stock for an equal number of common shares of Marine Exploration
International, Inc.,, making Marine Exploration International, Inc. a wholly
owned subsidiary of our Company. Marine Exploration International, Inc. was
incorporated in the State of Nevada on March 7, 2007 to engage in marine
treasure hunting expeditions. We commenced our new business of marine treasure
hunting in March 2007, but have not yet generated significant revenues.
Our current operations are limited to providing funding to, and making
approved capital expenditures for, our Joint Venture Partner, Hispaniola
Ventures, LLC ("Hispaniola"). It is Hispaniola that will engage in the actual
search for, diving to, and recovery of, the cargo and artifacts. In the roles
just described, and pursuant to our Joint Venture Agreement (the "JV
Agreement"), we intend to pursue recovery of two vessels we call Operation
Mystery Galleon and Operation Abrojos which includes, without limitation, an
operation to the Serranilla and Bajo Nuevo Banks in the Caribbean Sea in
attempts to recover treasure from a Spanish Galleon (Mystery Galleon) and, an
operation to the South Reef on the Silver Bank, North of the Dominican Republic
to recover treasure from an English Corsair (Abrojos). Marine Exploration Inc
and Hispaniola Ventures LLC are currently undergoing preliminary operations off
the coast of the Dominican Republic. On December 11, 2008, Marine Exploration
Inc's 128 ft operations vessel, the M/V Hispaniola, was launched for its primary
missions, "Operation Mystery Galleon" and "Operation Abrojos". Equipment
purchasing, research, and marine vessel restoration were completed by launch
date. Capital formation and crew training are ongoing. On March 1 2009, the crew
of the M/V Hispaniola began their preliminary survey operations of prospective
target sites within the mission parameters. Data analysis has commenced and is
ongoing.
Our vision is to join with individuals and entities on the leading edge of
shipwreck exploration, archeological excavation, education, entertainment, and
marketing of shipwreck cargoes and related merchandise.
9
Business Segment and Plan of Operation
- --------------------------------------
We manage and evaluate the operating results of the business by and through
our return on investments in one primary segment, shipwreck exploration. We do
not allocate any of the funds for breakdown, nor do we purchase any of the
equipment used for this activity. We simply fund the project and receive
twenty-five percent of the gross proceeds derived from these operations, in the
event that there are any gross proceeds to distribute from the Joint Venture.
Thus we are unable to discern how our funds will be applied by Hispaniola
Ventures. However, it is reasonable to presume that portions will be used by it
to pay general and administrative expenses, for the purchase of equipment, to
obtain licenses and permits and to charter or lease marine equipment and
services.
Any remaining balance of the funds will be held in reserve and used by it
for business purposes. See our Form 10-K filed September 28, 2009, Part I, Item
1A, "Risk Factors." Typically, fifty percent of the proceeds derived from the
recovery must be paid to the government in whose waters the treasure is
recovered. The next twenty-five percent will be received by Hispaniola. The
remainder will be received by us.
Shipwreck Exploration - This segment handles all shipwreck exploration and
recovery, including marketing and sales of recovered artifacts, replicas,
merchandise and media. Shipwreck Exploration departments are our joint venture
partner, Hispaniola Ventures, LLC's marine operations, archaeology, conservation
and research, sales and business development, and corporate administration.
Operational Update
- ------------------
MEI has financing in place to fund our joint venture partner, Hispaniola
Ventures, LLC's shipwreck projects in various stages of development around the
Caribbean Sea region. Additional information about some of these projects is set
forth in our Form SB-2 Registration Statement. The operational update set forth
below covers developments since our Form SB-2 was filed with the Securities and
Exchange Commission. We anticipate that we will need approximately $1,800,000
over the next 12 months to implement our business plan. We intend to fund this
capital need through loans from existing stockholders or other investors. Most
of this funding goes directly to our JV Partner, Hispaniola Ventures, LLC.
In order to protect the identities of the targets of our joint venture
partner, Hispaniola Ventures, LLC's planned search or recovery sites, we may
delay disclosure of details of the projects until the shipwrecks are located and
a plan to protect property rights is put into place.
Silver Bank Project
- -------------------
The Company, through our joint venture partner, Hispaniola Ventures, LLC,
is working exclusively with the government of the Dominican Republic for
exploration of at least one shipwreck.
Additional Projects
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Marine plans to schedule operations to most effectively take advantage of
funding opportunities available to us to sponsor our joint venture partner,
Hispaniola Ventures, LLC's activities for further investigation and/or
excavation of other sites. Scheduling will take into consideration such factors
as weather, the legal and political climates or relevant states, and operational
factors.
10
Critical Accounting Policies and Changes to Accounting Policies
- ---------------------------------------------------------------
There have been no material changes in our critical accounting estimates
since December 31, 2008, nor have we adopted any accounting policy that has or
will have a material impact on our consolidated financial statements.
Results of Operations, Liquidity and Capital Resources
- ------------------------------------------------------
The Company has limited cash on hand as of September 30, 2009 and its
primary asset is its joint venture agreement with Hispaniola Ventures, LLC. Its
Current Liabilities include Notes Payable of $19,300 and $3,303,601 totaling
$3,322,901 from the period of inception through September 30, 2009, and totaling
$4,001,268 for the three months ended September 30, 2009. Interest Payable on
the Notes is $187,280 as of September 30, 2009.
The Company has 471,851,988 shares of $.001 par value common stock issued
and outstanding, and a negative Stockholder's Equity of $3,696,930 as of
September 30, 2009.
Three months ended September 30, 2009 compared to period of Inception to March
- ------------------------------------------------------------------------------
31, 2007
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We were formed on March 7, 2007, and we refer to this date as the date of
inception of the Company. We have a net loss of $2,995,752 for the three month
period ended September 30, 2009. This compares to a net loss of $2,122,177 for
the three month period ended September 30, 2008, and a net loss of $17,236,212
for the period of March 7, 2007, to September 30, 2009. We had $2,708,861
compensatory stock issuances for the three months ended September 30, 2009,
compared to $1,614,636 compensatory stock issuances for the three months ended
September 30, 2008, and $12,453,822 from period of March 7, 2007, to September
30, 2009. We have had interest expense of $65,841 for the three period ended
September 30, 2009. This compares to $191,243 interest expense for the three
month period ended September 30, 2008, and brings our interest expense total to
$1,022,802 since March 7, 2007 through September 30, 2009.
We have used since March 7, 2007, the amount of $2,373,930 for operating
activities. Of this total, we have used $75,470 for operating activities in the
three month period ended September 30, 2009 and $355,139 for operating
activities in the three month period ended September 30, 2008.
We have had no revenue from any operations either in the period from
inception to September 30, 2009, or in the three month period ended September
30, 2009.
Discussion of Cash Flows
- ------------------------
Based upon our current expectations, we believe our cash and cash
equivalents, cash generated from operations and proceeds contributed by our
shareholders from our recent borrowing will satisfy our working capital
requirements for fiscal year 2009. However, we anticipate we will continue to
incur net losses throughout fiscal year 2009. Our ability to generate net income
in future periods is dependent upon the success of our ability to provide
funding to our joint venture partner, Hispaniola Ventures, LLC, to enable its
recovery and monetizing high-value shipwrecks. At the present time we cannot
determine how long that process may take us. If cash flow is not sufficient to
meet our projected business plan requirements, we will be required to raise
additional capital in fiscal year 2009. While we have been successful in raising
the necessary funds in the past, there can be no assurance that we can continue
to do so.
Off Balance Sheet Requirements
- ------------------------------
We do not engage in off-balance sheet financing arrangements. In
particular, we do not have any interest in so-called limited purpose entities,
which include special purpose entities (SPEs) and structured finance entities.
11
New Accounting Pronouncements
- -----------------------------
There are no new FASB pronouncements which affect Marine Exploration, Inc.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Loss resulting from changes in interest rates, currency exchange rates,
commodity prices and equity prices constitute market risk. Marine does not
believe it has material market risk exposure and Marine has not entered into
market risk sensitive instruments to mitigate these risks or for trading or
speculative purposes.
ITEM 4. CONTROLS AND PROCEDURES
Marine maintains a set of disclosure controls and procedures to ensure that
information we are required to disclose to the SEC is recorded, processed,
summarized and reported in a timely way. Under the supervision and with the
participation of our Chief Executive Officer ("CEO") and other management,
Marine evaluated the effectiveness of our disclosure controls and procedures as
of the end of the period covered by this report. Based on that evaluation,
Marine has concluded that the Company's disclosure controls and procedures are
effective to ensure that we are able to collect, process and disclose the
information we are required to disclose in the reports we file timely with the
SEC.
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 28, 2008, the Company announced that it had been named as a
defendant in an interpleader action, filed in the Denver District Court, State
of Colorado, Case No. 08-CV-1278. This case was subsequently removed to the U.S.
District Court for the District of Colorado, Case No. 1:08-cv-682. The lawsuit
arose from the sale of restricted shares and the attempted transfer of a stock
certificate held by the selling shareholder, which was also named as a
defendant. This event lead to the filing of two other related lawsuits, one in
federal district court in Denver, Case number 08-cv-00632-LTB-MEH, which was
commenced by the Company against the selling shareholder, and the second, by the
selling shareholder against the Company in federal district court in Miami, Case
number 1:08-cv-20849-ASG. On July 15th, 2008, Case No. 1:08-cv-682 was dismissed
with prejudice in the United States District Court for the District of Colorado.
Case No. 08-cv-00632-LTB-MEH and No. 1:08-cv-20849-ASG were settled out of court
on July 7th, 2008.
On August 22, 2008, The Company was named as defendant in as interpleader
action, filed in the United States District Court for the District of Colorado,
Case No. 08-cv-01792-WYD. Thereafter the case was consolidated with Civil Action
No. 08-cv-01707-EWN. This case involves a dispute between the Plaintiff,
Technology Partners LLC, and the Defendants, Wonderland Capital et al. around
shares that were allegedly purchased but not paid for. A preliminary injunction
hearing was held on October 9, 2008 and the Plaintiff, Technology Partners, was
granted a preliminary injunction upon posting a $10,000 bond. This bond has been
posted and accepted by the court. The Defendants in this action have filed
counterclaims against the company for alleged violations of the Colorado
Consumer Protection Act, trespass to chattels, civil conspiracy to interfere
with the possession of stock certificates, violations of the Colorado Uniform
Commercial Code with regard to the transfer of stock certificates, declaratory
relief, civil theft, fraud and RICO. The company is vigorously defending itself
against these counterclaims. Defendants Wonderland, Golden Key, and Sipada did
not appear as required for their depositions April 29 and April 30 2009.
The company was named as defendant in case number 08-L-011153 of the Circuit
Court of Cook County, Illinois, by a note holder of the company, Micro Pipe Fund
I. This lawsuit revolves around repayment and performance by the company under a
nonrecourse note that originated in January of 2008. The Company has filed to
remove the litigation to federal court in Case number is 08-CV7272 in the United
States District Court for the Northern District of Illinois. The removal notice
was filed in December of 2008 and is still pending.
The company was named a defendant in Denver District Court in Case Number
2009-CV-683 by Oster Martin, former counsel for the company. The suit sought to
collect legal fees and damages.
Case number 2009-CV-683, Denver District Court (Oster Martin v. Marine
Exploration et al), a stipulated settlement was approved and accepted by the
Court as of Thursday July 30, 2009, effectively settling the case. Msrs Stevens
and Enright, through Hoss Capital LLC, agreed to pay for Marine's prior legal
services through registered sales of their holdings in Marine. Hoss Capital LLC,
through Enright and Stevens, has paid $10,000 and agreed to $8,750 monthly
payments until the total amount of $45,000 is paid to Oster Martin.
Case number 2008-CV-1707, United States District Court for the District of
Colorado, (Technology Partners, LLC v. Golden Key, LLC et al.) all parties have
executed a Release and Settlement Agreement as of August 4, 2009. The Release
and Settlement Agreement awaits approval from the Court. If accepted by the
Court, the settlement terms include the return of all shares to Technology
Partners, the rescission of the Share Purchase Agreements between Technology
Partners and the Defendants, and the dismissal of all claims and counterclaims,
including all counterclaims against Marine. The Company may become subject to
claims and suits that arise from time to time in the ordinary course of
business, as well.
13
ITEM 1A. RISK FACTORS
For information regarding risk factors, please refer to the Company's Form 10-K
dated September 28, 2009. There are no material changes from the disclosure
provided therein with respect to the Risk Factors. Investors should consider the
Risk Factors prior to making an investment decision with respect to the
Company's stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company had 23,427,233 unregistered issuances of equity securities during
the three months ended September 30, 2009, which have not been reported in a
Current Report on Form 8-K. Dates, amounts and terms as follows: On July 15th,
2009, the Company issued 3,545,000 shares as an equity kicker pursuant to
promissory notes assigned to twenty three accredited investors and exempt from
registration under Section 4(2) of the Securities Act of 1933. On July 15th, the
Company issued 300,000 shares as additional compensation for an existing loan
agreement assigned to an accredited investor and exempt from registration under
Section 4(2) of the Securities Act of 1933. On July 15th, the Company issued
10,000 shares for professional services received as per an independent
contractor agreement assigned to an accredited investor and exempt from
registration under Section 4(2) of the Securities Act of 1933. On July 29th,
2009, the Company issued 15,000,000 shares in conversion of $10,000 debt, which
were exempt from registration under section 4(2) of Securities Act of 1933. On
September 15th, 2009, pursuant to a debt conversion, the Company issued
4,000,000 shares, which were exempt from registration under section 4(2) of
Securities Act of 1933. On September 18th, 2009, the Company issued 572,223
shares under a form S-8 agreement for legal services provided.
Issuer Purchases of Unregistered Equity Securities.
- -----------------------------------------------------------------------------------------------------
Period (a) Total (b) Average price (c) Total (d) Maximum
Number of paid per number of number (or
Shares Share ($) Shares Approximate
purchased purchased dollar value) of
as part of shares that
Publicly may yet be
Announced purchased
Plan under the plan
- -----------------------------------------------------------------------------------------------------
July 1, 2009 to
July 31, 2009 18,855,000 0.1475 -- --
- -----------------------------------------------------------------------------------------------------
August 1, 2009 to
August 31, 2009 -- -- -- --
- -----------------------------------------------------------------------------------------------------
September 1, 2009 to 4,572,233 0.0900 -- --
September 30, 2009
- ----------------------------------------------------------------------------------------------------
Total 23,427,233 0.1187 -- --
14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The following listings of corporate debt are in default:
(1) $700,000 of principal with interest (12% per annum) on a mortgage for
the operations vessel, M/V Hispaniola, are payable on the seventeenth
(17th) day of each calendar month, beginning on October 17, 2008, in
monthly installments of $15,571. Total arrearage owed is $140,140 as
of the three months ended September 30, 2009. The Company has a
forbearance agreement with the lender and will pay an installment in
November, 2009.
(2) $750,000 of principal with interest and accrued arrearage on a
nonrecourse note dated October 28, 2008 is in dispute and under
litigation. See Part II, Item 1. "Legal Proceedings", reference
08-CV7272 in the United States District Court for the Northern
District of Illinois.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None
ITEM 5. OTHER INFORMATION. None
ITEM 6. EXHIBITS
31.1 Certification of Chief Executive Officer pursuant Filed herewith
to Section 302 of the Sarbanes-Oxley Act of 2002 electronically
31.2 Certification of Chief Financial Officer pursuant Filed herewith
to Section 302 of the Sarbanes-Oxley Act of 2002 electronically
32.1 Certification of Chief Executive Officer pursuant Filed herewith
to 18 U.S.C. Section 1350 electronically
32.2 Certification of Chief Financial Officer pursuant Filed herewith
to 18 U.S.C. Section 1350 electronically
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 6, 2009 MARINE EXPLORATION, INC.
By /s/ Paul D. Enright
----------------------------
Chief Financial Officer and
Authorized Officer
16