** **

**United StatesSecurities and Exchange Commission**

** **

**Washington, D.C. 20549**

** **

**Form 10-QSB**

** **

**(MarkOne)**

**ý****                                ****Quarterly Report Under Section 13or 15 (d) of the Securities Exchange Act of 1934**

** **

**For the Quarterly period ended December 31,2004**

** **

**o****                                ****Transition Report Under Section 13or 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.) |
|                                                           |   |                                 |
| **7557 Rambler Road, Suite 742, Dallas, Texas 75231**          |
| (Address of Principal Executive Offices)                       |
|                                                           |   |                                 |
| **(214) 265-6545**                                             |
| (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 February 21, 2005: 121,290,412

 

Transitional Small Business Disclosure Format:   Yes   o     No   ý

 

 

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**PART I – FINANCIALINFORMATION**

 

**Item 1. FinancialStatements**

 

The consolidated financial statements ofOcean Resources, Inc. and subsidiaries (collectively, the “Company”), includedherein were prepared, without audit, pursuant to rules and regulations of theSecurities and Exchange Commission. Because certain information and notesnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the United States of America werecondensed or omitted pursuant to such rules and regulations, these financialstatements should be read in conjunction with the financial statements andnotes thereto included in the audited financial statements of the Company asincluded in the Company’s Form 10-KSB for the year ended June 30, 2004.

 

 

2

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**OCEANRESOURCES, INC.**

 

**CONSOLIDATEDBALANCE SHEETS**

 

**(Unaudited)**

 
| ** **                                                                                                  | ** ** | **December 31,  2004** | ** ** | **June 30,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| **ASSETS**                                                                                                  |       |                        |       |                    |       |
| Current  Assets                                                                                             |       |                        |       |                    |       |
| Cash and  cash equivalents                                                                                  |       | $                           | 885        |                    | $          | 92,858 |   |
| Accounts  receivable from affiliates                                                                        |       | 22,902                      |       | 22,902                  |       |
| Accounts  receivable from former related party                                                              |       | 1,536,000                   |       | —                  |       |
| Prepaid  expenses                                                                                           |       | 23,468                      |       | 99,826                  |       |
| Prepaid  consulting services                                                                                |       | 95,000                      |       | 165,000                 |       |
| Prepaid  director fees                                                                                      |       | 33,000                      |       | 210,500                 |       |
| Prepaid  investor relations services                                                                        |       | 48,083                      |       | 344,822                 |       |
| Prepaid  management services                                                                                |       | —                      |       | 278,333                 |       |
| Prepaid ship  consulting services                                                                           |       | 450,371                     |       | —                  |       |
| Note  receivable                                                                                            |       | 6,800                       |       | —                  |       |
| Total  Current Assets                                                                                       |       | 2,216,509                   |       | 1,214,241               |       |
| Property and  equipment, net                                                                                |       | 4,779,388                   |       | 3,878,877               |       |
| Other Assets                                                                                                |       |                        |       |                    |       |
| Investment  in unconsolidated subsidiary                                                                    |       | 313,295                     |       | 313,295                 |       |
| Other assets                                                                                                |       | 78,540                      |       | 8,333                   |       |
| Salvage  recovery                                                                                           |       | —                      |       | —                  |       |
| Total Other  Assets                                                                                         |       | 391,835                     |       | 321,628                 |       |
| Total Assets                                                                                                |       | $                           | 7,387,732  |                    | $          | 5,414,746 |   |
|                                                                                                        |       |                        |       |                    |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY  (DEFICIT)**                                                    |       |                        |       |                    |       |
| Current  Liabilities                                                                                        |       |                        |       |                    |       |
| Accounts  payable and accrued liabilities                                                                   |       | $                           | 856,523    |                    | $          | 932,804 |   |
| Note payable                                                                                                |       | 1,855,253                   |       | 703,333                 |       |
| Deferred  income taxes                                                                                      |       | 1,560                       |       | —                  |       |
| Total Current  Liabilities                                                                                  |       | 2,713,336                   |       | 1,636,137               |       |
| Long-term note payable                                                                                      |       | —                      |       | 316,667                 |       |
| Total  Liabilities                                                                                          |       | 2,713,336                   |       | 1,952,804               |       |
|                                                                                                        |       |                        |       |                    |       |
| Stockholders'  Equity (Deficit)                                                                             |       |                        |       |                    |       |
| Preferred  stock, $0.001 par value, 20,000,000 shares authorized; 1,582,000 issued                          |       | 1,582                       |       | 1,317                   |       |
| Common  stock, $0.0001 par value; 150,000,000 shares authorized; 122,290,412 shares  issued and outstanding |       | 12,229                      |       | 6,116                   |       |
| Additional  paid-in capital                                                                                 |       | 18,824,200                  |       | 10,816,144              |       |
| Accumulated  deficit                                                                                        |       | (13,873,305                 | )          | (7,241,325              | )          |
| Accumulated  comprehensive loss                                                                             |       | (36,310                     | )          | (36,310                 | )          |
| Treasury  stock                                                                                             |       | (84,000                     | )          | (84,000                 | )          |
| Shares held  in escrow                                                                                      |       | (170,000                    | )          | —                  |       |
| Total Stockholders’ Equity (Deficit)                                                                   |       | 4,674,396                   |       | 3,461,942               |       |
| Total Liabilities and Stockholders' Equity (Deficit)                                                        |       | $                           | 7,387,732  |                    | $          | 5,414,746 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

3

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**OCEANRESOURCES, INC.**

 

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

 

**(Unaudited)**

 

 
| ** **                               | ** ** | **Three  Months Ended  December 31,** | ** ** | **Six Months  Ended  December 31,** | ** ** |
|------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------|------------|
| ** **                               | ** ** | **2004**                                   | ** ** | **2003**                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
| Revenue                                  |       | $                                          | —     |                                     | $          | 8,869 |   | $ | — |   | $ | 8,869 |   |
| Cost of  sales                           |       | 2,757,301                                  |       | 26,612                                   |       | 2,872,856 |   | 26,612 |   |
| Gross profit  (loss)                     |       | (2,757,301                                 | )          | (17,743                                  | )          | (2,872,856 | ) | (17,743 | ) |
|                                     |       |                                       |       |                                     |       |   |   |   |   |
| Operating  expenses:                     |       |                                       |       |                                     |       |   |   |   |   |
| Stock  compensation for:                 |       |                                       |       |                                     |       |   |   |   |   |
| Director  fees                           |       | 49,500                                     |       | 78,500                                   |       | 177,500 |   | 78,500 |   |
| Management  services                     |       | (1,797,986                                 | )          | 429,750                                  |       | (1,346,686 | ) | 429,750 |   |
| Professional  fees                       |       | 614,808                                    |       | 536,542                                  |       | 1,624,861 |   | 556,542 |   |
| Management  services                     |       | 160,000                                    |       | 191,700                                  |       | 385,000 |   | 235,771 |   |
| Payroll and  related                     |       | 117,586                                    |       | (60,191                                  | )          | 262,965 |   | (60,191 | ) |
| Professional  fees                       |       | 257,933                                    |       | 55,244                                   |       | 678,808 |   | 140,890 |   |
| General and  administrative – other |       | 59,236                                     |       | (237,703                                 | )          | 135,748 |   | (104,707 | ) |
| Selling                                  |       | 8,505                                      |       | 6,839                                    |       | 35,534 |   | 23,839 |   |
| Depreciation                             |       | 202,303                                    |       | 3,028                                    |       | 453,455 |   | 3,028 |   |
| Interest  expense                        |       | 68,726                                     |       | —                                   |       | 112,011 |   | — |   |
| Total  operating expenses                |       | (259,389                                   | )          | 1,003,709                                |       | 2,519,196 |   | 1,303,422 |   |
|                                     |       |                                       |       |                                     |       |   |   |   |   |
| Operating  income (loss)                 |       | $                                          | (2,497,912 | )                                        | $          | (1,021,452 | ) | $ | (5,392,052 | ) | $ | (1,321,165 | ) |
|                                     |       |                                       |       |                                     |       |   |   |   |   |
| Other income  (loss):                    |       |                                       |       |                                     |       |   |   |   |   |
| Gain on  settlement                      |       | —                                     |       | —                                   |       | 121,960 |   | — |   |
| Accretion of  warrants                   |       | —                                     |       | —                                   |       | (1,230,218 | ) | — |   |
| Liquidated  damages                      |       | (130,110                                   | )          | —                                   |       | (130,110 | ) | — |   |
| Taxes on  income                         |       | 18,880                                     |       | —                                   |       | (1,560 | ) | — |   |
| Minority  interest                       |       | —                                     |       | 2,533                                    |       | — |   | 2,533 |   |
| Total other  income (loss)               |       | (111,230                                   | )          | 2,533                                    |       | (1,239,928 | ) | 2,533 |   |
|                                     |       |                                       |       |                                     |       |   |   |   |   |
| Net income  (loss)                       |       | $                                          | (2,609,142 | )                                        | $          | (1,018,919 | ) | $ | (6,631,980 | ) | $ | (1,318,632 | ) |
|                                     |       |                                       |       |                                     |       |   |   |   |   |
| Loss per  common share:                  |       |                                       |       |                                     |       |   |   |   |   |
| Basic and  diluted                       |       | $                                          | (.02       | )                                        | $          | (.03 | ) | $ | (.07 | ) | $ | (.05 | ) |
| Weighted  average shares:                |       |                                       |       |                                     |       |   |   |   |   |
| Basic and  diluted                       |       | 117,706,675                                |       | 30,422,589                               |       | 97,486,598 |   | 29,137,740 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

4

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**OCEANRESOURCES, INC.**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 

**(Unaudited)**
| ** **                                                                       | ** ** | **Six Months  Ended  December 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                       | ** ** | **2004**                                 | ** ** | **2003** | ** ** |
| Cash Flows  From Operating Activities:                                           |       |                                     |       |   |   |
| Net income  (loss)                                                               |       | $                                        | (6,631,980 | ) | $ | (1,318,632 | ) |
| Adjustments  to reconcile net loss to net cash provided by operating activities: |       |                                     |       |   |   |
| Common stock  issued for goods & services                                    |       | 6,742,028                                |       | 933,781 |   |
| Preferred  stock issued for goods & services                                 |       | 155,000                                  |       | — |   |
| Warrants  issued for goods & services                                        |       | 10,000                                   |       | — |   |
| Depreciation                                                                     |       | 453,455                                  |       | 3,028 |   |
| Amortization  of stock warrants                                                  |       | 1,230,218                                |       | — |   |
| Gain on  settlement                                                              |       | (121,960                                 | )          | — |   |
| Minority  interest                                                               |       | —                                   |       | (2,533 | ) |
| Change in  assets and liabilities:                                               |       |                                     |       |   |   |
| (Increase)  decrease in accounts receivable                                      |       | (1,536,000                               | )          | — |   |
| (Increase)  decrease in note receivable                                          |       | (6,800                                   | )          | — |   |
| Increase  (decrease) in accounts payable and accrued expenses                    |       | (76,281                                  | )          | (12,040 | ) |
| Increase  (decrease) in deferred taxes payable                                   |       | 1,560                                    |       | — |   |
| Net Cash Provided By Operating Activities                                        |       | 219,240                                  |       | (396,396 | ) |
|                                                                             |       |                                     |       |   |   |
| Cash Flows  From Investing Activities:                                           |       |                                     |       |   |   |
| Capital  expenditures                                                            |       | (1,353,966                               | )          | (178,920 | ) |
| Net Cash  Used In Investing Activities                                           |       | (1,353,966                               | )          | (178,920 | ) |
|                                                                             |       |                                     |       |   |   |
| Cash Flows  From Financing Activities:                                           |       |                                     |       |   |   |
| Issuance of  preferred stock                                                     |       | 110,000                                  |       | 100,000 |   |
| Issuance of  common stock                                                        |       | 75,000                                   |       | 175,000 |   |
| Sale of  convertible notes                                                       |       | 600,000                                  |       | 300,000 |   |
| Proceeds  from sales of warrants                                                 |       | 22,500                                   |       | — |   |
| Proceeds  from short-term loan                                                   |       | 1,349,538                                |       | — |   |
| Repayment of  loans                                                              |       | (1,114,285                               | )          | — |   |
| Proceeds  from sale of participation agreement                                   |       | —                                   |       | 100,000 |   |
| Other                                                                            |       | —                                   |       | 100 |   |
| Net Cash  Provided By Financing Activities                                       |       | 1,042,753                                |       | 675,100 |   |
|                                                                             |       |                                     |       |   |   |
| Net Change  In Cash                                                              |       | (91,973                                  | )          | 99,784 |   |
|                                                                             |       |                                     |       |   |   |
| Cash and  Cash Equivalents:                                                      |       |                                     |       |   |   |
| Beginning of  period                                                             |       | 92,858                                   |       | — |   |
| End of  period                                                                   |       | $                                        | 885        |   | $ | 99,784 |   |

 

See accompanying notes toconsolidated financial statements.

 

5

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**OCEANRESOURCES, INC.**

 

**CONSOLIDATEDSTATEMENTS 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 |       | —                |       | 110                  |       | —            |       | 109,890                         |       | —                     |       | —                   |       | —                     |       | —              |        | 110,000           |       |
| Common shares acquired through financing    |       | 750,000               |       | —               |       | 75                |       | 74,925                          |       | —                     |       | —                   |       | —                     |       | —              |        | 75,000            |       |
| Warrants acquired through financing         |       | —                |       | —               |       | —            |       | 1,257,718                       |       | —                     |       | —                   |       | —                     |       | —              |        | 1,257,718         |       |
| Preferred shares issued for services        |       | —                |       | 155                  |       | —            |       | 154,845                         |       | —                     |       | —                   |       | —                     |       | —              |        | 155,000           |       |
| Common shares issued for services           |       | 59,376,276            |       | —               |       | 5,938             |       | 6,230,778                       |       | —                     |       | —                   |       | —                     |       | —              |        | 6,236,716         |       |
| Common shares held in escrow                |       | 1,000,000             |       | —               |       | 100               |       | 169,900                         |       | —                     |       | —                   |       | (170,000                   | )          | —              |        | —            |       |
| Warrants issued for services                |       | —                |       | —               |       | —            |       | 10,000                          |       | —                     |       | —                   |       | —                     |       | —              |        | 10,000            |       |
| Comprehensive loss                          |       | —                |       | —               |       | —            |       | —                          |       | —                     |       | (6,631,980               | )          | —                     |       | —              |        | (6,631,980        | )          |
|                                        |       |                  |       |                 |       |              |       |                            |       |                       |       |                     |       |                       |       |                |        |              |       |
| Ending Balance at December 31, 2004    |       | 122,290,412           |       | $                    | 1,582      |              | $          | 12,229                          |       | $                          | 18,824,200 |                     | $          | (36,310                    | )          | $                   | (13,873,305 | )                 | $          | (170,000 | ) | $ | (84,000 | ) | $ | 4,674,396 |   |
|                                             |            |                       |            |                      |            |                   |            |                                 |            |                            |            |                          |            |                            |            |                     |             |                   |            |  |  |  |  |  |  |  |  |

 

See accompanying notes to consolidatedfinancial statements.

 

6

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**OceanResources, Inc.**

**Notesto Consolidated Financial Statements**

**(Unaudited)**

 

**(1) Summary of Significant AccountingPrinciples.**

 

Ocean Resources, Inc. (the ‘‘Company’’) is a Delaware charteredcorporation which conducts business from its headquarters in Dallas, Texas. TheCompany was incorporated on April 14, 1999 under the name Clip ‘N PierceFashions, Inc., but changed its name to Ocean Resources, Inc. on May 23, 2002to more accurately reflect its shifted focus on maritime salvage operations. Atpresent, the Company and its wholly owned subsidiaries are relying on debt andequity financing until it can successfully conclude a salvage operation.

 

The unaudited financial statements have been prepared in conformitywith accounting principles generally accepted in the United States. Inpreparing the financial statements, management is required to make estimatesand assumptions that affect the reported amounts of assets and liabilities asof the date of the statements of financial condition and operations for theperiod then ended. Actual results may differ from those estimates, and suchdifferences may be material to the financial statements.

 

The following summarize the more significant accounting and reportingpolicies and practices of the Company:

 

a) *Use of estimates*. Inpreparing the consolidated financial statements, management is required to makeestimates and assumptions that affect the reported amounts of assets andliabilities as of the date of the statements of financial condition, andrevenues and expenses for the quarter then ended. Actual results may differsignificantly from those estimates.

 

b) *Principles of consolidation*.The consolidated financial statements include the accounts of Ocean Resources,Inc. and its subsidiaries. The Company’s wholly-owned subsidiaries include: OceanOperating, Inc. (‘‘OOI’’), a Texas company, Caribbean Exploration, Inc. (‘‘CEI’’),a Texas corporation, and Blue Ocean Technologies, LLC (‘‘BOT’’), a Texaslimited liability company. OOI owns 100% of the outstanding shares of OceanBoomer, Inc. (‘‘OBI’’), a New Jersey corporation, which has a wholly-ownedsubsidiary, Marine Group International, Inc. (‘‘MGI’’), a Panamanian company.Inter-company balances and transactions have been eliminated.

 

c) *Recognition of revenue andexpenses*. The Company recognizes revenues when billed. Cost of salesand general, administrative, and selling expenses are recognized as incurred.

 

d) *Depreciation*. TheCompany calculates depreciation using the MACRS method of depreciation. Vesselrelated assets are depreciated based on a useful life of 10 years; computerequipment and leasehold improvements are depreciated over a useful life of 5years, and furniture and fixtures over a useful life of 7 years.

 

7

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e) *Interest expense.*During the quarter ended December 2004,the Company incurred $68,726 of interest expense related to notes payable and$112,011 year to date. The Company did not incur any interest expense duringthe three or six month period ended December 2003.

 

f) *Liquidated damages.*For the six month period ended December 2004,the Company incurred $130,110 in fees as a result of not registering on atimely basis, certain securities related to financing agreements.

 

g) *Accretion of warrants*. During the quarter ended December 2004,the Company incurred no expense related to the accretion of warrants and$1,230,218 year to date. The Company did not incur any expense for accretion ofwarrants during the three or six month period ended December 2003.

 

h) *Net earnings (loss) per share*.Net earnings (loss) per share Basic is computed by dividing the net earnings(loss) by the weighted average number of common shares outstanding during the period.Diluted earnings per share include the effect of dilutive securities such asstock options and warrants. Warrants outstanding at December 31, 2004 and December 31,2003 are excluded from the computation of diluted earnings per share due to theCompany incurring a net loss for the periods presented.

 

i) *Foreign currency transaction andtranslation gains (losses)*. The principal operations of the Companyare located in the United Kingdom or at sea in international waters. On a consolidatedbasis the Company’s reporting currency is the United States dollar.

 

j) *Comprehensive income*.The Company reports comprehensive income in accordance with FASB Statement No.130, ‘‘Reporting Comprehensive Income’’. This statement establishes standards forreporting comprehensive income in financial statements. Material components of AccumulatedOther Comprehensive Income must also be disclosed. This statement only modifiesdisclosures, including financial statement disclosures, and does not result inother changes to the results or financial position of the Company. Accordingly,Comprehensive Income is included in the Statement of Operations, whileAccumulated Other Comprehensive (Loss) Income is included in the Shareholders’Equity section of the Balance Sheet. Amounts are reported net of tax andinclude gains and losses on foreign currency translation adjustments.

 

k) *Recent accounting standards*.The Company has adopted the provisions of Financial Accounting Standards BoardNo. 150, ‘‘Accounting for Certain Financial Instruments with Characteristics ofBoth Liabilities and Equity’’ in accounting for its redeemable preferred stock.As such, the Company has recorded the fair value of its issued redeemablepreferred stock as equity in the Company’s consolidated balance sheet.

 

8

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**(2) Significant Acquisitions.**

 

None.

 

**(3) Divestitures.**

 

The Company elected to cancel its previously announced acquisition ofTitanic Explorations, Ltd., a subsidiary of Caribbean Exploration, Inc.Caribbean Exploration remains a wholly-owned subsidiary of the Company. TheCompany also elected to withdraw its spin-off of shares in CaribbeanExploration.

 

**(4) Stockholders’ Equity.**

 

During the quarter ended September 30, 2004, the Company issued8,242,500 common shares to be held in escrow for a contemplated stock swap. Inearly October 2004, the escrowed shares were returned and cancelled as theCompany decided not to participate in the stock swap.

 

During the quarter ended December 31, 2004, the Company issued 100,000shares of Series C preferred stock to investors for proceeds of $100,000. Anadditional 50,000 shares of Series C preferred stock valued at $50,000 wereissued in lieu of accrued salary.

 

During the quarter ended December 31, 2004, the Company issued a nettotal of 18,570,611 shares of common stock. Of these, 250,000 common shares wereissued to investors for proceeds of $25,000. Vessel management, consulting, andproject related expenses, prepaid and current, accounted for 22,888,889 commonshares valued at $1,830,111. MAC Partners LP/Trenton Lighthouse, LP received anet of 4,720,000 common shares.  Otherservice providers received 1,793,111 common shares in exchange for servicesrendered or to be rendered. In addition to the return of the 8,242,500 sharesreferenced above, the Company cancelled the issuance of 500,000 shares due toits decision not to go forward with the acquisition of Titanic Exploration, andcancelled an additional 2,338,889 common shares previously issued to serviceproviders.

 

**(5) Note Payable.**

 

In fiscal year 2004, the Company issued a promissory note in theprincipal amount of $950,000 as partial payment for the M.S. Ocean Boomer and theROV. The note bears interest at 7% per annum and is due no later than June 30,2005. The principal balance due on the note at December 31, 2004 was $420,000.

 

On July 13, 2004, Marine Group International, Inc. assigned itsinterests in the ROV to the Company. On July 15, 2004, the Company, inconjunction with its subsidiaries, Ocean Operating, Inc., Ocean Boomer, Inc.,and Marine Group International, Inc., signed a promissory note in the principalamount of $800,000.00, payable to Summitbridge National Investments LLC, anaffiliate of Summit Investment

 

9

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Management, LLC. The principal balance due on the note at December 31,2004 was $330,715.

 

In July 2004, the Company signed a secured convertible note in theprincipal amount of $475,000, payable to Alpha Capital Aktiengesellschaft, aLichtenstein company, and a $25,000 secured convertible note in the principalamount of $25,000, payable to David Herzog, c/o Investcor LLC. The notes accrueinterest at 6% annually and mature in July 2006.

 

On August 24, 2004, the Company revised the terms of an existing promissorynote payable to Sovereign Strategic Partners, Limited. The principal amount ofthe original, non-interest bearing demand note was $200,000. Under the revisedterms, the principal amount was reduced, following a $50,000 payment, to$150,000 with accrued interest at 10% per annum. On November 2, 2004, theprincipal balance was reduced by $95,000 and transferred to a new promissorynote held by Sovereign Equity Fund.

 

On November 2, 2004, the Company signed a promissory note withSovereign Equity Fund in the amount of $495,000 which included $95,000 from aloan with Sovereign Strategic Partners, Limited. The note, which matures in November 2006,bears an interest rate of 15% per annum and requires quarterly principal andinterest payments commencing February 1, 2005.

 

In December 2004, the Company signed a promissory note payable toMr. Andrew Way, a director of the Company, in the amount of £28,600(approximately $54,538.00). Mr. Way purchased the ROV on behalf of the Company.

 

**(6) Warrants.**

 

The Company has issued 750,000 warrants for a purchase price of $7,500 duringthe quarter ended December 31, 2004. The Company also accepted the returnof 1,500,000 warrants during the same period. The exercise price on all warrantsissued to date range from $0.09 to $0.19, with an average exercise price of $0.12.The terms of the warrants range from 240 days after registration to 5 years,with an average term of three years.

 

**(7) Going Concern.**

 

The accompanying financial statements have been prepared on agoing-concern basis, which contemplates the realization of assets and thesatisfaction of liabilities in the normal course of business. The Company hasnot been profitable since inception. The ability of the Company to continue asa going concern is dependent upon commencing profitable operations andobtaining additional capital and financing. The Company expects to raiseadditional funds via a private placement of either equity and/or debt. Thefinancial statements do not include any adjustments that might be necessary ifthe Company is unable to continue as a going concern.

 

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**(8) Supplemental Disclosure of Cash FlowInformation.**

 

Cash flows from operating activities include a number of significantnon-cash transactions. Non-cash transactions for the quarter ended December 31,2004 include a net issuance of 18,320,000 shares of common stock and 50,000shares of preferred stock for services rendered or to be rendered.

 

**(9) Subsequent Events.**

 

In December 2004, the Board of Directorsterminated its Management Services Agreement with MAC Partners, LP andinitiated an internal audit of all remuneration received by MAC Partners LP andTrenton Lighthouse LP, an affiliated company. The Board also initiated an auditof all remuneration, including advance payments, received by consulting firmsmanaged by an affiliate of MAC Partners, LP. The purpose of the audits is toascertain the reasonableness of fees and expenses incurred by the Company andcorrect any imbalance, should one exist.  Preliminary audit findings withregard to MAC Partners indicate that an overpayment may have been made. The Companyis in discussions with MAC Partners to resolve this issue. In the quarter endedDecember 2004, the Company has taken a credit against management feesexpense for the apparent overpayment. With regard to advance payments made tothe consulting entities, the Company has not received full disclosure ofpayments made by these entities on the Company’s behalf. The Company isconcerned that it may not be able to collect the full amount due from theseentities and has decided to take a charge against earnings in the currentperiod.

 

On January 18, 2005, the Board ofDirectors received and accepted the resignation of Mr. Dennis McLaughlin fromhis capacities as Chief Executive Officer and Co-Chairman of the Board. Mr.McLaughlin also resigned his position as a member of the Board of Directors.The Board also received and accepted the resignation of Mr. Kit Chambers, ChiefOperating Officer and Secretary of the Company. The Board unanimously approvedthe appointment of Mr. Andrew Way, the President and a director of the Company,as the Company’s new Chief Executive Officer, and Mr. Nick Sinclair-Brown,formerly Co-Chairman of the Board, to the position of Chairman of the Board ofDirectors. The Board also unanimously approved the appointment of Mr. StevenSanit, currently the Chief Financial Officer of the Company, to the additionalposition of Secretary of the Company.

 

On January 29, 2005, the Board ofDirectors elected to withdraw its planned spin-off of shares in CaribbeanExploration, Inc., a wholly-owned subsidiary.

 

In February, 2005, the Company cancelled1,000,000 shares of common stock held in escrow.

 

 

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**Item 2. Management’sDiscussion and Analysis**

 

**(a)****                                  *Caution Regarding Forward-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, uncertainties andother factors that may cause the actual results, performance or achievements ofthe Company, or industry results, to be materially different from any futureresults, performance or achievements expressed or implied by suchforward-looking statements. Such factors include, among others, international,national and local economic and market conditions; demographic changes; theability of the Company to sustain, manage, or forecast its growth; the abilityof the Company to successfully make and integrate acquisitions; new productdevelopment and introduction; existing government regulations and changes in,or the failure to comply with government regulations; adverse publicity;competition; the loss of significant customers or suppliers; fluctuations anddifficulty in forecasting operating results; changes in business strategy ordevelopment plans; business disruptions; the ability to attract and retainqualified personnel; the ability to protect technology; and other factorsreferenced in this and previous filings.

 

Given these uncertainties, readers of this Form 10-QSB and investorsare cautioned not to place undue reliance on such forward-looking statements.The Company disclaims any obligation to update any such factors or to publiclyannounce the result of any revisions to any of the forward looking statementscontained herein to reflect future events or developments.

 

**(b)****                                  *Results of Operations for the Three Month Period Ended December 31,2004 and 2003.***

 

**Financial Condition, Capital Resources andLiquidity Revenues—**In November 2004, the Companyannounced commencement of recovery operations in the Mediterranean. The projecthad a dual mission combining the field testing of equipment, vessel and crew,with salvage recovery. Field testing was performed in an exemplary manner. TheCompany recovered approximately three tons of tin before it decided to abandonthe wreck site in December as it was deemed not cost effective to continueoperations. The recovered cargo is not valued at this time as it has not yetbeen brought to market.  For the threemonth period ended December 31, 2004, the Company recorded no revenues.  For the three month period ended December 31,2003, the Company recognized revenue of $8,900 as a result of fees earned by aformer subsidiary, Blue Ocean Wireless. Blue Ocean Wireless was sold in June 2004.

 

**Gross Profit—**Grossprofit decreased from $(17,700) for the three month period ended December 31,2003 to $(2,757,300) for the three month period ended December 31, 2004.The decrease is primarily due to expensing amounts advanced to consulting firmsand increased costs associated with operating the Ocean Boomer vessel acquiredin fiscal 2004.

 

**Selling, General and Administrative Expenses—**Selling,general and administrative expenses decreased to $(259,400) during the threemonth period ended December 31,

 

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2004 from $1,003,700 in the three month period ended December 2003.This decrease is primarily related to a credit taken by the Company as a resultover an apparent overpayment to MAC Partners, LP.

 

**Other Income (Loss)—**Otherincome (loss) decreased from $2,500 in the three month period ended December 312003 to $(111,200) in the three month period ended December 2004. The decreaseis due primarily to liquidated damages fees associated with the Company’sinablility to timely register certain securities.

 

**(c)****                                  *Results of Operations for the Six Month Period Ended December 31,2004 and 2003.***

 

**Financial Condition, Capital Resources andLiquidity Revenues—**In November 2004, the Companyannounced commencement of recovery operations in the Mediterranean. The projecthad a dual mission combining the field testing of equipment, vessel and crew,with salvage recovery. Field testing was performed in an exemplary manner. TheCompany recovered approximately three tons of tin before it decided to abandonthe wreck site in December as it was deemed not cost effective to continueoperations. The recovered cargo is not valued at this time as it has not yetbeen brought to market. For the six month period ended December 31, 2004,the Company recorded no revenues.  Forthe six month period ended December 31, 2003, the Company recognizedrevenue of $8,900 as a result of fees earned by a former subsidiary, Blue OceanWireless. Blue Ocean Wireless was sold in June 2004.

 

**Gross Profit—**Grossprofit decreased from $(17,700) for the six month period ended December 31,2003 to $(2,872,900) for the six month period ended December 31, 2004. Thedecrease is primarily due to expensing amounts advanced to consulting firms andincreased costs associated with operating the Ocean Boomer vessel acquired infiscal 2004.

 

**Selling, General and Administrative Expenses—**Selling,general and administrative expenses increased to $2,519,200 during the sixmonth period ended December 31, 2004 from $1,303,400 in the six monthperiod ended December 2003. This increase is primarily related to thenon-cash issuances of common stock for management services; director fees; andprofessional fees including legal, consulting, public relations, and investorrelation expenses, offset by a credit taken by the Company as a result over anapparent overpayment to MAC Partners.

 

**Other Income (Loss)—**Otherincome (loss) decreased from $2,500 in the six month period ended December 312003 to $(1,239,900) in the six month period ended December 2004. Thedecrease is due primarily to accretion of warrants and liquated damage fees, offsetby the gain on settlement with Ruby Mining.

 

 

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**(d)****                                  *Liquidity and Working Capital***

 

At December 31, 2004, the Company had a working capital deficit of$496,800 compared to working capital of $393,800 at December 31, 2003. Thedecrease is primarily due to an increase in notes payable.

 

Net cash provided by operating activities was $219,200 for the periodended December 31, 2004 compared to $(396,400) for the period ended December 31,2003. The increase in cash provided by operating activities was primarily dueto the issuance of stock for goods and services and the amortization of stockwarrants offset by a net loss and an increase in accounts receivable as aresult over an apparent overpayment to MAC Partners.

 

Net cash used in investing activities for the period ended December 31,2004 was $(1,354,000) for the purchase of communications and computer equipmentand other vessel upgrading expenses, compared to $(178,900) for the periodended December 31, 2003.

 

Cash flows provided by financing activities was $1,042,800 for the periodended December 31, 2004 compared to $675,100 for the period ended December 31,2003. The increase was due to the issuance of common and preferred stock andthe net proceeds from loans to the Company.

 

There can be no assurance that the Company’s financial condition willimprove. The Company is expected to continue to have minimal working capital ora working capital deficit as a result of current liabilities.

 

The Company is currently evaluating its options for raising additionalworking capital via a private placement of either debt or equity.

 

**Item 3. Controls andProcedures**

 

Based on the evaluation of the Company’s disclosure controls andprocedures as of the end of the period covered by this quarterly report, AndrewWay, the President and Chief Executive Officer, and Steven Sanit, the ChiefFinancial Officer, have concluded that, in their judgment, the Company’sdisclosure controls and procedures are designed to ensure that materialinformation relating to the Company, including the Company’s subsidiaries, isaccumulated and communicated to the Company’s management, including its principalexecutive and financial officers of the Company or its subsidiaries, to allowtimely decisions regarding required disclosure. Management necessarily appliedits judgment in assessing the costs and benefits of such controls andprocedures, which, by their nature, can provide only reasonable assuranceregarding management’s control objectives. The design of any system of controlsand procedures is based in part upon certain assumptions about the likelihoodof future events. There can be no assurance that any design will succeed inachieving its stated goals under all potential future conditions, regardless ofhow remote.

 

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There were no significant changes in the Company’s internal controls orin other factors that could significantly affect these controls subsequent tothe date of their evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 

**PART II – OTHERINFORMATION**

 

**Item 1. LegalProceedings**

 

The Company is involved in various claims and other legal mattersinitiated by the Company in the course of conducting its business. The Companybelieves that neither such claims and legal matters nor the cost of prosecutingand/or defending such claims and legal matters will have a material affect on theCompany’s financial condition or cash flows. No material claims are currentlypending; however, no assurances can be given that future claims, if any, maynot be material.

 

**Item 2. UnregisteredSales of Equity Securities and Use of Proceeds**

 

During the quarter ended September 30, 2004, the Company issued8,242,500 common shares to be held in escrow for a contemplated stock swap. Inearly October 2004, the escrowed shares were returned and cancelled as theCompany decided not to participate in the stock swap.

 

During the quarter ended December 31, 2004, the Company issued100,000 shares of Series C preferred stock to investors for proceeds of$100,000. An additional 50,000 shares of Series C preferred stock valued at$50,000 were issued in lieu of accrued salary.

 

During the quarter ended December 31, 2004, the Company issued anet total of 18,570,611 shares of common stock. Of these, 250,000 common shareswere issued to investors for proceeds of $25,000. Vessel management,consulting, and project related expenses, prepaid and current, accounted for22,888,889 common shares valued at $1,830,111. MAC Partners LP/TrentonLighthouse, LP received a net of 4,720,000 common shares.  Other service providers received 1,793,111common shares in exchange for services rendered or to be rendered. In additionto the return of the 8,242,500 shares referenced above, the Company cancelledthe issuance of 500,000 shares due to its decision not to go forward with theacquisition of Titanic Exploration, and cancelled an additional 2,338,889common shares previously issued to service providers.

 

The securities have been issued pursuant to the exemption provided by Section 4(2)of the Securities Act of 1933. The purchasers of these securities areaccredited investors who made informed investment decisions and had access tomaterial information regarding the Company.

 

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**Item 3. Defaults UponSenior Securities**

 

None.

 

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

 

No matters were submitted to the shareholders for a vote during the quarteryear ended December 31, 2004.

 

**Item 5. OtherInformation**

 

None.

 

**Item 6. Exhibits**

 

The exhibits required to be filed herewith byItem 601 of Regulation S-B, as described in the following index 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 the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.

 
|   |                   | Ocean  Resources, Inc.                |              |
|--------|------------------------|---------------------------------------|-------------------|
|   |                   | Registrant                            |
|   |                   |                                  |
|   | February 22, 2005 |                                  | /s/ Andrew  Way   |   |
|   | Date                   | Andrew Way  Chief Executive Officer   |              |
|   |                   |                                  |
|   |                   |                                  |
|   | February 22, 2005 |                                  | /s/ Steven  Sanit |   |
|   | Date                   | Steven Sanit  Chief Financial Officer |              |

 

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