** **

**United States**

**Securities and Exchange Commission**

**Washington,D.C. 20549**

** **

**Form 10-QSB**

 
| **(Mark One)**                                                                                                                                     |                                                                                   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------|
| **ý**                                                                                                                                         | **Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934** |
|                                                                                                                                               |                                                                                   |
| **For the Quarterly period ended September 30, 2004**                                                                                              |
|                                                                                                                                               |                                                                                   |
| **o**                                                                                                                                              | **Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|                                                                                                                                               |                                                                                   |
| **For the transition period from          to          ** |

 

**Commission File No. 000-49750**

 

**OCEAN RESOURCES, INC.**

(Exact Name of Small Business Issuer as Specified in its Charter)

 

| **DELAWARE**                                                   | **33-0857223**                       |
|----------------------------------------------------------------|--------------------------------------|
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |

 

**3001 Knox Street, Suite 403, Dallas, Texas 75205**

(Address of Principal Executive Offices)

 

**(214) 389-9800**

(Issuer’s Telephone Number)

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.   ý Yes    o No

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

State the number of shares outstanding of each of the Issuer’s classes of common equity, as of November 18, 2004: 118,420,412

 

Transitional Small Business Disclosure Format:   Yes   o      No    ý

 

 

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**PART I — FINANCIAL INFORMATION**

** **

**Item 1. Financial Statements**

** **

**OCEAN RESOURCES, INC.**

** **

**CONSOLIDATED BALANCE SHEETS**

 

**(Unaudited)**

 
| ** **                                                                                                 | ** ** | **September 30, 2004** | ** ** | **June 30, 2004** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-------------------|------------|
| **ASSETS**                                                                                                 |       |                   |       |              |       |
| Current Assets                                                                                             |       |                   |       |              |       |
| Cash and cash equivalents                                                                                  |       | $                      | 23,520     |              | $          | 92,858 |   |
| Accounts receivable                                                                                        |       | 22,902                 |       | 22,902            |       |
| Prepaid expenses                                                                                           |       | 44,584                 |       | 98,333            |       |
| Prepaid consulting services                                                                                |       | 315,146                |       | 165,000           |       |
| Prepaid director fees                                                                                      |       | 82,500                 |       | 210,500           |       |
| Prepaid investor relations services                                                                        |       | 182,932                |       | 344,822           |       |
| Prepaid legal services                                                                                     |       | 170,634                |       | 1,493             |       |
| Prepaid management services                                                                                |       | 160,833                |       | 278,333           |       |
| Prepaid ship consulting services                                                                           |       | 1,592,077              |       | —            |       |
| Note Receivable                                                                                            |       | 6,800                  |       | —            |       |
| Total Current Assets                                                                                       |       | 2,601,928              |       | 1,214,214         |       |
| Property and equipment, net                                                                                |       | 4,789,814              |       | 3,878,877         |       |
| Other Assets                                                                                               |       | 391,835                |       | 321,628           |       |
| Total Assets                                                                                               |       | $                      | 7,783,578  |              | $          | 5,414,746 |   |
|                                                                                                       |       |                   |       |              |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)**                                                    | ** ** | ** **             | ** ** | ** **        | ** ** |
| Current Liabilities                                                                                        |       |                   |       |              |       |
| Accounts payable and accrued liabilities                                                                   |       | $                      | 671,728    |              | $          | 932,804 |   |
| Note payable                                                                                               |       | 1,845,711              |       | 703,333           |       |
| Deferred income taxes                                                                                      |       | 20,440                 |       | —            |       |
| Total Current Liabilities                                                                                  |       | 2,537,879              |       | 1,636,137         |       |
| Long-term note payable                                                                                     |       | —                 |       | 316,667           |       |
| Total Liabilities                                                                                          |       | 2,537,879              |       | 1,952,804         |       |
|                                                                                                       |       |                   |       |              |       |
| Stockholders Equity (Deficit)                                                                              |       |                   |       |              |       |
| Preferred stock, $0.001 par value, 20,000,000 shares authorized;  1,432,000 issued                         |       | 1,432                  |       | 1,317             |       |
| Common stock, $0.0001 par value; 150,000,000 shares authorized;  103,719,801 shares issued and outstanding |       | 10,372                 |       | 6,116             |       |
| Additional paid-in capital                                                                                 |       | 18,274,593             |       | 10,816,144        |       |
| Accumulated deficit                                                                                        |       | (11,264,164            | )          | (7,241,325        | )          |
| Accumulated comprehensive loss                                                                             |       | (36,310                | )          | (36,310           | )          |
| Treasury stock                                                                                             |       | (169,000               | )          | (84,000           | )          |
| Shares held in escrow                                                                                      |       | (1,571,225             | )          | —            |       |
| Total Stockholders’ Equity (Deficit)                                                                  |       | 5,245,698              |       | 3,461,942         |       |
| Total Liabilities and Stockholder’s Equity (Deficit)                                                  |       | $                      | 7,783,578  |              | $          | 5,414,746 |   |
|                                                                                                            |            |                        |            |                   |            |  |  |  |  |  |

 

See accompanying notes to consolidated financial statements.

 

2

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**OCEAN RESOURCES, INC.**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

** **

**(Unaudited)**

 
| ** **                              | ** ** | **Quarter Ended**

**September 30,** | ** ** |
|-----------------------------------------|------------|-------------------------------------------|------------|
| ** **                              | ** ** | **2004**                                  | ** ** | **2003** | ** ** |
| Revenue                                 |       | $                                         | —     |   | $ | — |   |
| Cost of sales                           |       | 115,555                                   |       | — |   |
| Gross profit (loss)                     |       | (115,555                                  | )          | — |   |
| Operating expenses:                     |       |                                      |       |   |   |
| Stock compensation for:                 |       |                                      |       |   |   |
| Director fees                           |       | 128,000                                   |       | — |   |
| Management services                     |       | 451,300                                   |       | — |   |
| Professional fees                       |       | 1,010,053                                 |       | — |   |
| Management services                     |       | 225,000                                   |       | — |   |
| Payroll and related                     |       | 145,379                                   |       | — |   |
| Professional fees                       |       | 420,875                                   |       | — |   |
| General and administrative — other |       | 76,512                                    |       | 299,713 |   |
| Selling                                 |       | 27,029                                    |       | — |   |
| Depreciation                            |       | 251,152                                   |       | — |   |
| Interest expense                        |       | 43,285                                    |       | — |   |
| Total operating expenses                |       | 2,778,586                                 |       | 299,713 |   |
| Operating income (loss)                 |       | $                                         | (2,894,141 | ) | $ | (299,713 | ) |
| Other income (loss):                    |       |                                      |       |   |   |
| Gain on settlement                      |       | 121,960                                   |       | — |   |
| Accretion of warrants                   |       | (1,230,218                                | )          | — |   |
| Taxes on income                         |       | (20,440                                   | )          | — |   |
| Total other income (loss)               |       | (1,128,698                                | )          | — |   |
| Net income (loss)                       |       | $                                         | (4,022,839 | ) | $ | (299,713 | ) |
|                                    |       |                                      |       |   |   |
| Loss per common share:                  |       |                                      |       |   |   |
| Basic and diluted                       |       | $                                         | (.05       | ) | $ | (.01 | ) |
| Weighted average shares:                |       |                                      |       |   |   |
| Basic and diluted                       |       | 77,604,727                                |       | 28,040,392 |   |

 

See accompanying notes to consolidated financial statements.

 

3

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**OCEAN RESOURCES, INC.**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 

**(Unaudited)**

** **
| ** **                                                                   | ** ** | **Quarter Ended**

**September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                   | ** ** | **2004**                             | ** ** | **2003** | ** ** |
| Cash Flows From Operating Activities:                                        |       |                                 |       |   |   |
| Net income (loss)                                                            |       | $                                    | (4,022,839 | ) | $ | (299,713 | ) |
| Adjustments to reconcile net loss to net cash used in operating  activities: |       |                                 |       |   |   |
| Common stock issued for goods & services                                 |       | 1,379,383                            |       | 20,000 |   |
| Preferred stock issued for goods & services                              |       | 105,000                              |       | — |   |
| Warrants issued for goods & services                                     |       | 30,000                               |       | — |   |
| Depreciation                                                                 |       | 251,152                              |       | — |   |
| Amortization of stock warrants                                               |       | 1,230,218                            |       | — |   |
| Gain on settlement                                                           |       | (121,960                             | )          | — |   |
| Change in assets and liabilities:                                            |       |                                 |       |   |   |
| (Increase) decrease in note receivable                                       |       | (6,800                               | )          | — |   |
| Increase (decrease) in accounts payable and accrued expenses                 |       | 1,037,858                            |       | (28,672 | ) |
| Increase (decrease) in deferred taxes payable                                |       | 20,440                               |       | — |   |
| Net Cash Used In Operating Activities                                        |       | (97,548                              | )          | (308,385 | ) |
|                                                                         |       |                                 |       |   |   |
| Cash Flows From Investing Activities:                                        |       |                                 |       |   |   |
| Capital expenditures                                                         |       | (877,501                             | )          | — |   |
| Net Cash Used In Investing Activities                                        |       | (877,501                             | )          | — |   |
|                                                                         |       |                                 |       |   |   |
| Cash Flows From Financing Activities:                                        |       |                                 |       |   |   |
| Issuance of preferred stock                                                  |       | 10,000                               |       | — |   |
| Issuance of common stock                                                     |       | 50,000                               |       | 75,000 |   |
| Sale of convertible notes                                                    |       | 600,000                              |       | 175,000 |   |
| Proceeds from sales of warrants                                              |       | 20,000                               |       | — |   |
| Proceeds from short-term loan                                                |       | 800,000                              |       | — |   |
| Repayment of loans                                                           |       | (574,289                             | )          | — |   |
| Proceeds from sale of participation agreement                                |       | —                               |       | 100,000 |   |
| Other                                                                        |       | —                               |       | 100 |   |
| Net Cash Provided By Financing Activities                                    |       | 905,711                              |       | 350,100 |   |
|                                                                         |       |                                 |       |   |   |
| Net Change In Cash                                                           |       | (69,338                              | )          | 41,715 |   |
|                                                                         |       |                                 |       |   |   |
| Cash and Cash Equivalents:                                                   |       |                                 |       |   |   |
| Beginning of period                                                          |       | 92,858                               |       | — |   |
| End of period                                                                |       | $                                    | 23,520     |   | $ | 41,715 |   |

 

See accompanyingnotes to consolidated financial statements.

 

4

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**OCEAN RESOURCES, INC.**

** **

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

** **

**(Unaudited)**

** **
| ** **                                   | ** ** | **Number of Shares** | ** ** | **Preferred Stock** | ** ** | **Common Stock** | ** ** | **Additional Paid in Capital** | ** ** | **Accumulated Comp Loss** | ** ** | **Accumulated Deficit** | ** ** | **Shares Held in Escrow** | ** ** | **Treasury Stock** | ** ** | **Total Equity** | ** ** |
|----------------------------------------------|------------|----------------------|------------|---------------------|------------|------------------|------------|--------------------------------|------------|---------------------------|------------|-------------------------|------------|---------------------------|------------|--------------------|------------|------------------|------------|
| Beginning Balance  at June 30, 2004     |       | 61,164,136           |       | $                   | 1,317      |             | $          | 6,116                          |       | $                         | 10,816,144 |                    | $          | (36,310                   | )          | $                  | (7,241,325 | )                | —     |   | $ | (84,000 | ) | $ | 3,461,942 |   |
|                                         |       |                 |       |                |       |             |       |                           |       |                      |       |                    |       |                      |       |               |       |             |       |
| Preferred shares  acquired through financing |       | —               |       | 10                  |       | —           |       | 9,990                          |       | —                    |       | —                  |       | —                    |       | —             |       | 10,000           |       |
| Common shares  acquired through financing    |       | 500,000              |       | —              |       | 50               |       | 49,950                         |       | —                    |       | —                  |       | —                    |       | —             |       | 50,000           |       |
| Warrants acquired  through financing         |       | —               |       | —              |       | —           |       | 1,250,218                      |       | —                    |       | —                  |       | —                    |       | —             |       | 1,250,218        |       |
| Common shares  issued for TEL                |       | 500,000              |       | —              |       | 50               |       | 84,950                         |       | —                    |       | —                  |       | —                    |       | (85,000            | )          | —           |       |
| Preferred shares  issued for services        |       | —               |       | 105                 |       | —           |       | 104,895                        |       | —                    |       | —                  |       | —                    |       | —             |       | 105,000          |       |
| Common shares  issued for services           |       | 32,313,165           |       | —              |       | 3,232            |       | 4,358,145                      |       | —                    |       | —                  |       | —                    |       | —             |       | 4,361,377        |       |
| Common shares  held in escrow                |       | 9,242,500            |       | —              |       | 924              |       | 1,570,301                      |       | —                    |       | —                  |       | (1,571,225                | )          | —             |       | —           |       |
| Warrants issued  for services                |       | —               |       | —              |       | —           |       | 30,000                         |       | —                    |       | —                  |       | —                    |       | —             |       | 30,000           |       |
| Comprehensive  loss                          |       | —               |       | —              |       | —           |       | —                         |       | —                    |       | (4,022,839              | )          | —                    |       | —             |       | (4,022,839       | )          |
|                                         |       |                 |       |                |       |             |       |                           |       |                      |       |                    |       |                      |       |               |       |             |       |
| Ending Balance at  September 30, 2004   |       | 103,719,801          |       | $                   | 1,432      |             | $          | 10,372                         |       | $                         | 18,274,593 |                    | $          | (36,310                   | )          | (11,264,164        | )          | $                | (1,571,225 | ) | $ | (169,000 | ) | $ | 5,245,698 |   |
|                                              |            |                      |            |                     |            |                  |            |                                |            |                           |            |                         |            |                           |            |                    |            |                  |            |  |  |  |  |  |  |  |  |

 

See accompanying notes toconsolidated financial statements.

 

5

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**Ocean Resources, Inc.**

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

**(1) Summaryof Significant Accounting Principles.**

Ocean Resources, Inc. (the ‘‘Company’’) is aDelaware chartered corporation which conducts business from its headquarters inDallas, Texas. The Company was incorporated on April 14, 1999 under the nameClip ‘N Pierce Fashions, Inc., but changed its name to Ocean Resources, Inc. onMay 23, 2002 to more accurately reflect its shifted focus on maritime salvageoperations. At present, the Company and its wholly owned subsidiaries arerelying on debt and equity financing until it can successfully conclude asalvage operation.

 

The unaudited financial statements have beenprepared in conformity with accounting principles generally accepted in theUnited States. In preparing the financial statements, management is required tomake estimates and assumptions that affect the reported amounts of assets andliabilities as of the date of the statements of financial condition andoperations for the period then ended. Actual results may differ from thoseestimates, and such differences may be material to the financial statements.

 

The following summarize the more significantaccounting and reporting policies and practices of the Company:

 

a) *Use ofestimates*. In preparing the consolidated financial statements,management is required to make estimates and assumptions that affect thereported amounts of assets and liabilities as of the date of the statements offinancial condition, and revenues and expenses for the quarter then ended.Actual results may differ significantly from those estimates.

 

b) *Principlesof consolidation*. The consolidated financial statements include theaccounts of Ocean Resources, Inc. and its subsidiaries. The Company’swholly-owned subsidiaries include: Ocean Operating, Inc. (‘‘OOI’’), a Texascompany, Caribbean Exploration, Inc. (‘‘CEI’’), a Texas corporation, TitanicExplorations, Ltd. (‘‘TEL’’), a British Virgin Islands company, and Blue OceanTechnologies, LLC (‘‘BOT’’), a Texas limited liability company. OOI owns 100%of the outstanding shares of Ocean Boomer, Inc. (‘‘OBI’’), a New Jerseycorporation, which has a wholly-owned subsidiary, Marine Group International,Inc. (‘‘MGI’’), a Panamanian company. Inter-company balances and transactionshave been eliminated.

 

c) *Recognitionof revenue and expenses*. The Company recognizes revenues whenbilled. Cost of sales and general, administrative, and selling expenses arerecognized as incurred.

 

d) *Depreciation*.The Company calculates depreciation using the MACRS method of depreciation.Vessel related assets are depreciated based on a useful life of 10 years; 

 

6

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computer equipment and leasehold improvementsare depreciated over a useful life of 5 years, and furniture and fixtures overa useful life of 7 years.

 

e) *Interestexpense.*During thequarter ended September 2004, the Company incurred $43,285 of interest expenserelated to notes payable. The Company did not incur any interest expense forthe quarter ended September 30, 2003.

 

f) *Accretion of warrants*.During the quarter ended September2004, the Company incurred expenses of $1,230,218 for accretion of warrants.The Company did not incur any expense for accretion of warrants during thequarter ended September 30, 2003.

 

g) *Netearnings (loss) per share*. Net earnings (loss) per share Basic iscomputed by dividing the net earnings (loss) by the weighted average number ofcommon shares outstanding during the period. Diluted earnings per share includethe effect of dilutive securities such as stock options and warrants. Warrantsoutstanding at September 30, 2004 and September 30, 2003 are excluded from thecomputation of diluted earnings per share due to the Company incurring a netloss for the periods presented.

 

h) *Foreigncurrency transaction and translation gains (losses)*. The principaloperations of the Company are located in the United Kingdom or at sea ininternational waters. On a consolidated basis the Company’s reporting currencyis the United States dollar.

 

i) *Comprehensiveincome*. The Company reports comprehensive income in accordance withFASB Statement No. 130, ‘‘Reporting Comprehensive Income’’. This statementestablishes standards for reporting comprehensive income in financialstatements. Material components of Accumulated Other Comprehensive Income mustalso be disclosed. This statement only modifies disclosures, includingfinancial statement disclosures, and does not result in other changes to theresults or financial position of the Company. Accordingly, Comprehensive Incomeis included in the Statement of Operations, while Accumulated OtherComprehensive (Loss) Income is included in the Shareholders’ Equity section ofthe Balance Sheet. Amounts are reported net of tax and include gains and losseson foreign currency translation adjustments.

 

j) *Recentaccounting standards*. The Company has adopted the provisions ofFinancial Accounting Standards Board No. 150, ‘‘Accounting for CertainFinancial Instruments with Characteristics of Both Liabilities and Equity’’ inaccounting for its redeemable preferred stock. As such, the Company hasrecorded the fair value of its issued redeemable preferred stock as equity inthe Company’s consolidated balance sheet.

 

**(2)Significant Acquisitions.**

 

The Company issued 500,000 shares ofrestricted common stock to Caribbean Exploration, Inc. in exchange for itsTitanic Explorations, Ltd. subsidiary.

 

7

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**(3)Divestitures.**

 

None

 

**(4)Stockholders’ Equity.**

 

During the quarter ended September 30, 2004,the Company issued 10,000 shares of Series C preferred stock to investors forproceeds of $10,000. An additional 55,000 shares of Series C preferred stockvalued at $55,000 were issued in lieu of accrued salary. The Company alsoissued 50,000 shares of Series C preferred stock valued at $50,000 for currentand prepaid legal fees.

 

During the quarter ended September 30, 2004,the Company issued a net total of 42,555,665 shares of common stock. Of these,500,000 common shares were issued to investors for proceeds of $50,000 and440,000 common shares valued at $52,800 were issued in lieu of accrued salary.The Company also issued 500,000 shares to CEI for the purchase of its TELsubsidiary. Vessel management, consulting, and project related expenses,prepaid and current, accounted for 18,388,889 common shares valued at$2,660,000. MAC Partners LP received a net of 4,015,000 common shares valued at$359,900, for management services rendered. An additional 9,469,276 commonshares, net, valued at $1,288,677 were issued to other service providers forservices rendered or to be rendered.

 

Also during the quarter ended September 30,2004, the Company issued 1,000,000 common shares to a contractor working on thevessel, to be held in escrow as collateral, and 8,242,500 common shares to beheld in escrow for a contemplated stock swap. In early October 2004, theCompany decided not to participate in the contemplated stock swap, as aconsequence of which the escrowed shares were returned and cancelled.

 

**(5) NotePayable.**

 

In fiscal year 2004, the Company issued apromissory note in the principal amount of $950,000 as partial payment for theM.S. Ocean Boomer and the ROV. The note bears interest at 7% per annum and isdue no later than June 30, 2005. The principal balance due on the note atSeptember 30, 2004 was $420,000.

 

On July 13, 2004, Marine Group International,Inc. assigned its interests in the ROV to the Company. On July 15, 2004, theCompany, in conjunction with its subsidiaries, Ocean Operating, Inc., OceanBoomer, Inc., and Marine Group International, Inc., signed a promissory note inthe principal amount of $800,000.00, payable to Summitbridge NationalInvestments LLC, an affiliate of Summit Investment Management, LLC secured by afirst preferred mortgage in the vessel Ocean Boomer and the ROGE grabber mechanism,a first priority security interest in the earnings of the vessel, a first lienon all proceeds of sale of salvage cargo (net of amounts due the United KingdomCrown Treasury, Argosy International Ltd, and Blue Water Recoveries Limited),and a pledge of all ownership interests in Ocean Operating, Inc., Ocean BoomerInc., and Marine Group International, Inc. The note, payable in 6 monthly 

 

8

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installments, bears interest at 17% per annumand is due no later than February 1, 2005. In conjunction with the issuance ofthe promissory note, Summitbridge received a warrant to purchase 8,000,000shares of common stock at $0.09 per share. The principal balance due on thenote at September 30, 2004 was $675,711.

 

In July 2004, the Company signed a securedconvertible note in the principal amount of $475,000, payable to Alpha CapitalAktiengesellschaft, a Lichtenstein company, and a $25,000 secured convertiblenote in the principal amount of $25,000, payable to David Herzog, c/o InvestcorLLC. The notes accrue interest at 6% annually and mature in July 2006. Thenotes may be converted into common shares at $0.09 per share, at any time, atthe election of the holder until the note is paid in full. In conjunction withthe convertible notes, the holders were granted, in the aggregate, 9,130,534and 480,555 warrants, respectively, to purchase common shares. The notes arecollateralized by a second preferred ship’s mortgage.

 

On August 24, 2004, the Company revised theterms of an existing promissory note payable to Sovereign Strategic Partners,Limited. The principal amount of the original, non-interest bearing demand notewas $200,000. Under the revised terms, the principal amount was reduced,following a $50,000 payment, to $150,000 and accrues interest at 10% per annum.The new note may be converted into shares of common stock at $0.10 per share atthe option of the holder. The note requires interest-only payments for a periodof twelve months commencing September 24, 2004. The collateral for the revisedpromissory note is a second lien on the ROV.

 

On September 21, 2004, the Company signed anunsecured promissory note in the principal amount of $100,000 payable to NiteCapital, LP. The note and accrued interest are due September 20, 2005. The noteaccrues interest at 8% per annum and may be converted into shares of commonstock at $0.10 per share at the option of the holder. Nite Capital alsoreceived warrants to purchase 50% of the shares converted. The warrants have a strikeprice of $0.10 per warrant, and expire in three years.

 

**(6)Warrants.**

 

The Company has issued, in the aggregate,22,081,912 warrants during the quarter ended September 30, 2004. The exerciseprices of the warrants range from $0.09 to $0.19, with an average exerciseprice of $0.12. The terms of the warrants range from 240 days afterregistration to 5 years, with an average term of three years. Of the warrantsissued, 1,260,000 were purchased directly or in conjunction with the purchaseof common or preferred stock; 17,611,089 were issued in conjunction with theissuance of promissory notes; and 1,500,000 warrants were issued in lieu ofaccrued salaries. The remaining 1,710,823 warrants were issued as finder’s feesfor the loans procured and to service providers for services rendered or to berendered.

 

9

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**(7) GoingConcern.**

 

The accompanying financial statements havebeen prepared on a going-concern basis, which contemplates the realization ofassets and the satisfaction of liabilities in the normal course of business.The Company has not been profitable since inception. The ability of the Companyto continue as a going concern is dependent upon commencing profitableoperations and obtaining additional capital and financing. The Company expectsto raise additional funds via a private placement of either equity and/or debt.The financial statements do not include any adjustments that might be necessaryif the Company is unable to continue as a going concern.

 

**(8)Supplemental Disclosure of Cash Flow Information.**

 

Cash flows from operating activities includea number of significant non-cash transactions. Non-cash transactions for thequarter ended September 30, 2004 include a net issuance of 32,313,165 shares ofcommon stock valued at $4,361,377, 105,000 shares of preferred stock valued at$105,000, and 1,500,000 warrants valued at $30,000 issued for services renderedor to be rendered . In addition, 500,000 common shares valued at $85,000 wereissued for the acquisition of TEL and 9,242,500 common shares valued at$1,571,225 were held in escrow.

 

**(9)Subsequent Events.**

 

In early October 2004, the Company decidednot to participate in the contemplated stock swap, as a consequence of whichthe escrowed shares were returned and cancelled.

 

On November 2, 2004, the Company revised itsnote with Sovereign Strategic Partners, Limited reducing the principal balanceto $55,000 from $150,000. The remaining $95,000 was rolled-over into a new notein the principal amount of $495,000 contemporaneously with the receipt of anadditional $325,000 and a payment of $75,000 applied against the $100,000 notepayable to Nite Capital. The remaining $25,000 of the Nite Capital note wasoffset by an account receivable from MAC Partners.

 

Since September 30, 2004, the Company hasissued 26,443,100 shares of common stock valued at $2,318,500 and cancelled3,500,000 shares valued at $556,900. Of the shares issued, 50,000 shares wereissued to investors for $5,000, and 26,393,100, valued at $2,313,500, forservices rendered or to be rendered. The Company also issued 50,000 shares ofpreferred stock to Trenton Lighthouse in lieu of accrued expenses.

 

**Item 2. Management’s Discussion and Analysis**

 

(a) *Caution RegardingForward-Looking Information*. Certain statements contained in this filing, including, withoutlimitation, statements containing the words ‘‘believes’’, ‘‘anticipates’’, ‘‘expects’’and words of similar import, constitute forward-looking statements. Suchforward-looking statements involve known and unknown risks, 

 

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uncertainties and other factors that maycause the actual results, performance or achievements of the Company, orindustry results, to be materially different from any future results,performance or achievements expressed or implied by such forward-lookingstatements. Such factors include, among others, international, national andlocal economic and market conditions; demographic changes; the ability of theCompany to sustain, manage, or forecast its growth; the ability of the Companyto successfully make and integrate acquisitions; new product development andintroduction; existing government regulations and changes in, or the failure tocomply with government regulations; adverse publicity; competition; the loss ofsignificant customers or suppliers; fluctuations and difficulty in forecastingoperating results; changes in business strategy or development plans; businessdisruptions; the ability to attract and retain qualified personnel; the abilityto protect technology; and other factors referenced in this and previousfilings.

 

Given these uncertainties, readers of thisForm 10-QSB and investors are cautioned not to place undue reliance on suchforward-looking statements. The Company disclaims any obligation to update anysuch factors or to publicly announce the result of any revisions to any of theforward looking statements contained herein to reflect future events ordevelopments.

 

(b) *Results of Operations forthe Quarters Ended September 30, 2004 and 2003.*

 

**FinancialCondition, Capital Resources and Liquidity Revenues—**For thequarters ended September 30, 2004 and 2003, the Company recorded no revenues.

 

**GrossProfit—**Gross profit decreased from $0 for the quarter ended September 30, 2003to $(115,600) for the quarter ended September 30, 2004. The decrease isprimarily due to increased costs associated with operating the Ocean Boomervessel acquired in fiscal 2004.

 

**Selling,General and Administrative Expenses—**Selling, general andadministrative expenses increased significantly to $2,778,600 during thequarter ended September 30, 2004 from $299,700 in the quarter September 2003.This increase is primarily related to the non-cash issuances of common stockfor payment of management services provided by MAC Partners, LP/TrentonLighthouse LP; director fees; and professional fees including legal, consultingand investor relation expenses totaling $1,589,400. The Company also incurredadditional MAC Partners/Trenton Lighthouse management services fees of$225,000; legal expenses of $259,200; commissions and fees of $99,400 relatedto the Company’s financing and investor relations efforts, Argosy Internationalservices fees of $60,000, and payroll expenses of $145,400.

 

**Other Income(Loss)—**Other income (loss) decreased from $0 in the quarter ended September 302003 to $(1,128,700) in the quarter ended September 2004. The decrease is dueprimarily to accretion of warrants of $1,230,200, offset by the gain onsettlement with Ruby Mining.

 

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**Liquidity/WorkingCapital —**At September 30, 2004, the Company had workingcapital of $64,000 compared to a working capital deficit of $573,200 atSeptember 30, 2003. The increase is primarily due to an increase in prepaidexpenses.

 

Net cash used by operating activities was$(97,548) for the quarter ended September 30, 2004 compared to $(308,400) forthe quarter ended September 30, 2003. The increase in cash provided byoperating activities was primarily due to a significant increase in net lossoffset by a significant issuance of stock and warrants for goods and services,the amortization of stock warrants, and an increase in accounts payable andaccrued expenses.

 

Net cash used in investing activities for thequarter ended September 30, 2004 was $(877,501) for the purchase ofcommunications and computer equipment and other vessel upgrading expenses.

 

Cash flows provided by financing activitieswas $905,700 for the quarter ended September 30, 2004 compared to $350,100 forthe quarter ended September 30, 2003. The increase was due to the issuance ofcommon and preferred stock and the net proceeds from loans to the Company.

 

There can be no assurance that the Company’sfinancial condition will improve. The Company is expected to continue to haveminimal working capital or a working capital deficit as a result of currentliabilities.

 

The Company is currently evaluating itsoptions for raising additional working capital via a private placement ofeither debt or equity.

** **

**Item 3. Controls and Procedures**

 

Based on the evaluation of the Company’sdisclosure controls and procedures as of the end of the period covered by thisquarterly report, Dennis McLaughlin, III, the President and Chief ExecutiveOfficer, and Steven Sanit, the Chief Financial Officer, have concluded that, intheir judgment, the Company’s disclosure controls and procedures are designedto ensure that material information relating to the Company, including theCompany’s subsidiaries, is accumulated and communicated to the Company’smanagement, including its principal executive and financial officers of theCompany or its subsidiaries, to allow timely decisions regarding requireddisclosure. Management necessarily applied its judgment in assessing the costsand benefits of such controls and procedures, which, by their nature, canprovide only reasonable assurance regarding management’s control objectives.The design of any system of controls and procedures is based in part uponcertain assumptions about the likelihood of future events. There can be noassurance that any design will succeed in achieving its stated goals under allpotential future conditions, regardless of how remote.

 

There were no significant changes in theCompany’s internal controls or in other factors that could significantly affectthese controls subsequent to the date of their evaluation, 

 

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including any corrective actions with regardto significant deficiencies and material weaknesses.

 

 

**PART II — OTHER INFORMATION**

** **

**Item 1. Legal Proceedings**

 

The Company is involved in various claims andother legal matters initiated by the Company in the course of conducting itsbusiness. The Company believes that neither such claims and legal matters northe cost of prosecuting and/or defending such claims and legal matters willhave a material affect on the Company’s financial condition or cash flows. Nomaterial claims are currently pending; however, no assurances can be given thatfuture claims, if any, may not be material.

** **

**Item 2. Unregistered Sales of Equity Securities and Use ofProceeds**

 

During the quarter ended September 30, 2004,the Company issued 10,000 shares of Series C preferred stock to investors forproceeds of $10,000. An additional 55,000 shares of Series C preferred stockvalued at $55,000 were issued in lieu of accrued salary. The Company alsoissued 50,000 shares of Series C preferred stock valued at $50,000 for currentand prepaid legal fees.

 

During the quarter ended September 30, 2004,the Company issued a net total of 42,555,665 shares of common stock. Of these,500,000 common shares were issued to investors for proceeds of $50,000 and440,000 common shares valued at $52,800 were issued in lieu of accrued salary.The Company also issued 500,000 shares to CEI for the purchase of its TELsubsidiary. Vessel management, consulting, and project related expenses,prepaid and current, accounted for 18,388,889 common shares valued at$2,660,000. MAC Partners LP received a net of 4,015,000 common shares valued at$359,900, for management services rendered. An additional 9,469,276 commonshares, net, valued at $1,288,677 were issued to other service providers forservices rendered or to be rendered.

 

Also during the quarter ended September 30,2004, the Company issued 1,000,000 common shares to a contractor working on thevessel, to be held in escrow as collateral, and 8,242,500 common shares to beheld in escrow for a contemplated stock swap. In early October 2004, theCompany decided not to participate in the contemplated stock swap, as aconsequence of which the escrowed shares were returned and cancelled.

 

The securities have been issued pursuant tothe exemption provided by Section 4(2) of the Securities Act of1933.  The purchasers of these securities are accredited investors whomade informed investment decisions and had access to material informationregarding the Company.

 

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**Item 3. Defaults Upon Senior Securities**

 

None.

** **

**Item 4. Submission of Matters to a Vote of Security Holders**

 

No matters were submitted to the shareholdersfor a vote during the quarter ended September 30, 2004.

** **

**Item 5. Other Information**

 

None.

** **

**Item 6. Exhibits**

 

The exhibits required to befiled herewith by Item 601 of Regulation S-B, as described in the followingindex of exhibits, are incorporated herein by reference, as follows:

 
| **Exhibit**

**No.** | ** ** | **Description**                                                                |
|----------------------|------------|--------------------------------------------------------------------------------|
|                 |       |                                                                           |
| 31.1                 |       | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2                 |       | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1                 |       | Certification  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2                 |       | Certification  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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**SIGNATURES**

 

In accordance with therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|   |                   |   | Ocean Resources, Inc.                           |
|--------|------------------------|--------|-------------------------------------------------|
|   |                   |   | Registrant                                      |
|   |                   |   |                                            |
|   | November 19, 2004 |   | /s/ Dennis McLaughlin, III                      |
|   | Date                   |   | Dennis McLaughlin, III

Chief Executive Officer |
|   |                   |   |                                            |
|   | November 19, 2004      |   | /s/ Steven Sanit                                |
|   | Date                   |   | Steven Sanit

Chief Financial Officer           |

 

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