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Revenue Participation Rights

9 Months Ended

Sep. 30, 2012

Revenue Participation Rights [Abstract]

NOTE N – REVENUE PARTICIPATION RIGHTS

The Company’s participating revenue rights consisted of the following at September 30, 2012 and December 31, 2011:


	September 30, 2012		December 31, 2011
“Cambridge” project	$	825,000	$	825,000
“Republic” (now “Seattle”) project		62,500		62,500
Galt Resources, LLC		3,756,250		7,512,500

Total participating revenue rights	$	4,643,750	$	8,400,000

We previously sold Revenue Participation Certificates (“RPCs”) that represent the right to share in our future revenues derived from the “Cambridge” project, which is now referred to as the HMS Sussex shipwreck project. We also sold RPCs related to a project formerly called the “Republic” project which we now call the “Seattle” project. The “Seattle” project refers to a shipwreck which we have not yet located. The “Cambridge” RPC units constitute restricted securities.

Each $50,000 convertible “Cambridge” RPC entitles the holder to receive a percentage of the gross revenue received by us from the “Cambridge” project, which is defined as all cash proceeds payable to us as a result of the “Cambridge” project, less any amounts paid to the British Government or their designee(s); provided, however, that all funds received by us to finance the project are excluded from gross revenue. The “Cambridge” project holders are entitled to 100% of the first $825,000 of gross revenue, 24.75% of gross revenue from $4 - 35 million, and 12.375% of gross revenue above $35 million generated by the project.

In a private placement that closed in September 2000, we sold “units” consisting of “Republic” Revenue Participation Certificates and Common Stock. Each $50,000 “unit” entitled the holder to 1% of the gross revenue generated by the “Seattle” project (formerly referred to as the “Republic” project), and 100,000 shares of Common Stock. Gross revenue is defined as all cash proceeds payable to us as a result of the “Seattle” project, excluding funds received by us to finance the project.

The participating rights balance will be amortized under the units of revenue method once management can reasonably estimate potential revenue for each of these projects. The RPCs for the “Cambridge” and “Republic” projects do not have a termination date, therefore these liabilities will be carried on the books until revenue is recognized from these projects or we permanently abandon either project.

In February 2011, we entered into a project syndication deal with Galt Resources LLC (“Galt”) for which they invested $7,512,500 representing rights to future revenues of any project Galt selects prior to December 31, 2011. If the project is successful, Galt will recoup their investment plus three times the investment. These amounts will be paid out of proceeds of the project. Galt will receive 50% of the proceeds until this amount is recouped. Thereafter, they will share in additional net proceeds of the project at the rate of 1% for every million invested. The agreement originally allowed Galt to select only one project but an agreement was subsequently reached permitting Galt to bifurcate their selection between two projects, the SS Gairsoppa and HMS Victory. Galt will receive an amount equal to 50% of our net proceeds on the SS Gairsoppa project until they receive two times their initial investment of $7,512,500. Galt will also receive an amount equal to 50% of our net proceeds, if any, on the HMS Victory project until they receive two times their initial investment and thereafter will receive 7.5125% of our net proceeds from the HMS Victory project. The Galt invested balance will be amortized to revenue over the expected cash flow stream of the selected project. During the three-month period ended September 30, 2012, we recovered approximately 48 tons of silver from the SS Gairsoppa and commenced the refining process which allows us to sell this silver into London’s bullion market on behalf of the United Kingdom Government. The refining process commenced September 2012 and is expected to be completed during the fourth quarter of 2012. During this time, the proceeds we receive from the sale of silver into London’s bullion market will be allocated accordingly between us, Galt and the United Kingdom Government based on contractual terms. During September 2012, we received first proceeds of $5,036,489 of which 50%, $2,518,244 has been allocated to Galt while the other 50% was allocated toward our recovery cost recapture discussed in NOTE D. Galt’s $2,518,244 represents 17% of the total $15,025,000 due. The $2,518,244 is due Galt in November 2012 and is included in Accrued expenses and other in our September 30, 2012 balance sheet. This first cash proceeds allowed us to amortize $629,561 (17% of $3,756,250) into revenue for the three-month period ended September 30, 2012. During the three-month period ending December 31, 2012, based on the expected cash flows resulting from the refining process, we expect to receive sufficient cash flow to allocate the remaining $12,506,756 to the Galt investment, thus allowing us to amortize the remaining $3,126,689 into revenue for the three-month period ending December 31, 2012. This $3,126,689 is included in the Deferred Revenue balance of $6,671,829 at September 30, 2012, see NOTE K.