PAGE
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1996
Commission File Number 0-18239
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-1087879
- ------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5102 South Westshore Boulevard, Tampa, Florida 33611
---------------------------------------------------------
(Address of principal executive offices including zip code)
(813) 832-4040
--------------------------
(Issuer's telephone number)
Check whether the Issuer (1) has 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.
[ ] Yes [ X ] No
There were 25,730,857 shares of the Registrant's no par value Common Stock
outstanding as of March 31, 1996.
Transitional Small Business Disclosure Format (check one): Yes--- No-X-
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<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, Inc.
FORM 10-QSB
INDEX
Part I: Financial Information.................................Page No.
Item 1. Financial Information:
Consolidated Balance Sheets - March 31, 1996 and
December 31, 1995................................ 2 - 3
Consolidated Statements of Operations - Three
Months Ended March 31, 1996 and 1995............. 4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1996
and 1995......................................... 5 - 7
Notes to Consolidated Financial Statements....... 8 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.... 12 - 16
Part II: Other Information................................ 16
Item 1. Legal Proceedings....................... 16
Item 2. Change in Securities.................... 16
Item 3. Defaults Upon Senior Securities......... 16
Item 4. Submission of Matters to a Vote
of Security Holders..................... 16
Item 5. Other Information...................... 16
Item 6. Exhibits and Reports on Form 8-K....... 16
Signatures... .............................................. 17
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<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS (Unaudited)
March 31 December 31
1996 1995
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 13,881 $ 8,191
Marketable securities - 9,184
Accounts receivable
Trade, net of allowance
for doubtful debt - 34,889
Other 4,100 4,100
Merchandise inventory 3,687 3,687
Prepaid expenses 47,632 85,004
------------ -----------
Total current assets 69,300 145,055
------------ -----------
PROPERTY AND EQUIPMENT
Net of accumulated depreciation
of $1,541,593 and $1,473,738 2,176,562 2,244,416
------------ -----------
OTHER ASSETS
Artifacts 305,746 305,746
Accounts and Notes Receivable
affiliates less losses in excess
of investment in affiliates
of $1,816,725 and $1,797,294 275,256 302,509
Deposits 10,198 10,188
Purchased shipwreck research,
net of $10,556 amortization 11,944 13,819
------------ -----------
Total other assets 603,144 632,262
------------ -----------
TOTAL ASSETS $ 2,849,006 $ 3,021,733
------------ -----------
(Continued)
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<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
March 31 December 31
1996 1995
----------- -----------
CURRENT LIABILITIES
Accounts payable $ 430,599 $ 436,530
Accrued expenses
Salaries 237,837 120,666
Interest due related parties 25,452 14,931
Interest due to others 47,445 39,891
Other 43,600 38,241
Preferred ships' mortgage 900,000 900,000
Due to related parties 323,802 290,802
Notes payable - others 273,315 272,765
----------- -----------
Total current liabilities 2,282,050 2,113,826
----------- -----------
DEBT TO BE CONVERTED TO COMMON STOCK 42,612 145,306
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock - no par value
60,000,000 shares authorized;
200,000 and 200,000 shares
issued and outstanding 50,000 50,000
Common stock - no par value;
30,000,000 shares authorized;
25,730,857 and 24,919,573 shares
issued and outstanding 13,220,886 13,076,429
0 and 314,784 contingent bonus
shares - 62,957
Paid in capital-stock options 5,191 5,191
Accumulated (deficit) (12,751,733) (12,431,976)
----------- -----------
Total Stockholders' equity 524,344 762,601
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY $ 2,849,006 $ 3,021,733
----------- -----------
----------- -----------
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
1996 1995
------------ ------------
REVENUES
Income from Affiliates $ (5,790) $ 4,425
Income from Others 57,500 117,902
----------- -----------
Total Revenues 51,710 122,327
OPERATING EXPENSES
Vessel Operations 85,288 50,243
Vessel Operations - Affiliates - 18,000
Conservation 13,002 5,407
Depreciation 69,730 51,124
Rent 22,068 20,768
----------- -----------
Total Operating Expenses 190,088 145,542
GENERAL AND ADMINISTRATIVE EXPENSES 157,602 139,498
Total Expenses 347,690 285,040
----------- -----------
(LOSS) FROM OPERATIONS (295,980) (162,713)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income - affiliate 16,123 7,397
Interest income - others 5 -
Interest expense (19,991) (55,244)
Other income - -
Gain on sale of marketable securities (483) (4,788)
Loss on disposal of equipment - -
Loss on investment in less than
50% owned entities (19,431) (10,912)
----------- -----------
Total other income (expense) (23,777) (63,546)
NET (LOSS) $ (319,757) $ (226,259)
----------- -----------
----------- -----------
NET (LOSS) PER SHARE $ (0.01) $ ( .01)
----------- -----------
Weighted average number of common
shares and common shares equivalents
outstanding. 25,351,480 20,167,811
----------- -----------
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
Source (use) of Cash
Three Months Ended March 31,
1996 1995
------------ ------------
Cash Flows from Operating Activities
Net ( Loss) $ (319,757) $ (226,259)
Adjustments to reconcile net loss to net
cash used by operating activities :
Depreciation 69,730 51,124
Provision for bad debt - 570
Loss on disposal of equipment - -
Loss on sale of marketable securities 680 6,202
Loss on Investment in less than
50% owned entities 19,431 10,912
Services Acquired through issuance
of common stock 31,000 -
Decrease(increase) in trade accounts
receivable 34,889 13,361
Decrease(increase) in trade accounts
receivable - affiliates 23,946 (925)
Decrease(increase) in other receivables - 3,931
Decrease(increase) in other receivables
- affiliates (16,124) (7,397)
Decrease(increase) in inventory - 3,261
Decrease(increase) in prepaid expense 37,373 16,534
Decrease(increase) in deposits (10) -
(Decrease) increase in accounts payable (5,931) (24,887)
(Decrease)increase in accrued expenses 90,885 94,690
------------ ------------
Total Adjustments 285,869 167,376
------------ ------------
Net Cash generated (used)
by operating activities $ (33,888) $ (58,883)
------------ ------------
Cash Flows from Investing Activities
Purchase of equipment $ - $ -
Purchase of artifacts - -
Increase in other investments - -
Issuance of notes receivable
from affiliates - -
Proceeds from disposal of equipment - -
Proceeds from the sale of marketable
securities 8,504 87,136
Payments received on notes receivable - -
Decrease in investment in affiliate - -
------------ ------------
Net Cash provided (used) by investing
activities $ 8,504 $ 7,136
------------ ------------
(Continued)
-5-
SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Continued)
Source (use) of Cash
Three Months Ended March 31,
1996 1995
------------ ------------
Cash Flows from Financing Activities
Proceeds from issuance of common stock 6,500 -
Proceeds from issuance of warrants - -
Advances from related parties - -
Issuance of notes payable - other - -
Issuance of notes payable - related 25,000 15,000
Repayment of notes (428) -
Repayment of notes - related - -
Payments on capital lease payable - -
------------ ------------
Net Cash provided (used) by
financing activities 31,072 15,000
------------ ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENT 5,688 43,253
CASH AND CASH EQUIVALENT
BEGINNING OF QUARTER 8,191 4,175
------------ ------------
CASH AND CASH EQUIVALENT
END OF QUARTER $ 13,880 $ 47,429
------------ ------------
------------ ------------
SUMMARY OF SIGNIFICANT NON CASH TRANSACTIONS
During 1995 several debt holders, through the exercise of warrants and options,
converted their debt to stock. A summary of the debt converted to stock is as
follows:
Common
Amount Shares
------------ ------------
Accounts payable $ 13,859 68,926
Accounts payable - related 83,702 264,774
Accrued interest 5,023 19,056
Notes payable - related 5,947 19,823
Notes payable - other 17,478 79,911
------------ ------------
126,009 452,490
The Company issued a total of 540,563 shares to subscribers in three prior
private placements because the Company's registration statement was not declared
effective by the agreed date in the private placement subscription agreements.
The Company issued 2,400,000 shares of common stock in exchange for 100% of the
outstanding shares of Seahawk, Inc. stock in an exchange valued at $904,080.
(Continued)
-6-
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Continued)
The Company issued 100,000 shares of common stock as an amendment of a
settlement of past due debt.
The Company issued 60,000 shares of common stock for a receivable from Eagle
Partners' Ltd. in the amount of $9,300 in connection with services performed for
Eagle Partner's Limited.
The Company issued 360,000 shares of common stock valued at $90,000 as part of
a settlement of a law suit.
The Company issued 80,000 shares of common stock for a receivable from Seahawk
I, Ltd. in the amount of $20,000 in connection with Seahawk I, Ltd.'s settlement
of a note payable.
The Company assumed an account payable and a note payable of Seahawk I, Ltd. for
$10,286.
The Company settled debt to an unrelated party for $115,770 by surrendering
collateral of $129,328.
The Company settled accrued interest of $29,890 to a non-related party by
selling artifacts to that party.
The Company converted an account payable to a note payable amounting to $87,011.
The Company issued a $90,000 note payable in satisfaction of a claim and various
accrued expenses.
The Company consolidated certain notes payable and accrued expenses of $165,968
by issuing new notes payable of $170,500.
The Company settled notes payable of $23,500 and accrued expenses of $14,303 for
a related party receivable of $37,803.
During 1996 several debt holders, through the exercise of warrants and options,
converted their debt to stock. A summary of the debt converted to stock is as
follows:
Common
Amount Shares
------------ ------------
Accounts payable $ 16,000 64,000
Accrued salary 28,000 200,000
------------ ------------
44,000 264,000
The Company issued 200,000 shares to three unrelated consultants for services
rendered in the amount of $31,200.
-7-
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES CONSOLIDATED ON FINANCIAL STATEMENTS
MARCH 31, 1996 (Unaudited)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Seahawk Deep
Ocean Technology, Inc. and subsidiaries (Company) have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission and the instructions to Form 10-QSB and, therefore, do not include
all information and footnotes normally included in financial statements
prepared in accordance with generally accepted accounting principles. These
interim consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes included in the Company's
Form 10-KSB for the year ended December 31,1995.
In the opinion of management, these financial statements reflect all adjustments
(including normal recurring adjustments) necessary for a fair presentation of
the financial position as of March 31, 1996, results of operations, and cash
flows for the interim periods presented. Operating results for the three months
ended March 31, 1996, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996.
NOTE 2 AFFILIATES FINANCIAL INFORMATION
The Company is the General Partner and a less than 50% interest owner in Seahawk
I, Ltd., Seahawk II, Ltd. and Eagle Partners, Ltd., all Florida limited
partnerships. These partnerships are accounted for on the equity method.
Summarized financial statement information is shown on page 10.
NOTE 3 INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes". Prior to January 1, 1993,
there was no deferred taxation liability due to net operating loss carry
forwards of approximately $6,000,000. Therefore there is no cumulative
effect on the Financial Statements of adopting Statement 109.
NOTE 4 COMMERCIAL UNION PREFERRED SHIP MORTGAGE
On February 9, 1994 and as amended on April 1, 1994 , the Company and Commercial
Union entered into a joint stipulation agreement to delay sale of the Seahawk
Retriever. The settlement provided for the Company to pay Commercial Union
$500,000 in cash and sign a $1,000,000 note payable one year from closing
secured by a first preferred ships mortgage on the Seahawk Retriever, her
engines, tackle, equipment and apparel. In March 1995, Commercial Union agreed
to extend the expiration date of the note to June 1, 1995, and have since agreed
that the mortgage will be extended for two years until June 2, 1997. Under the
terms of the agreement, the new principal balance would be $1,025,000. On April
5, 1996 the Company sold the vessel Seahawk Retriever and settled the amount due
under the first preferred ships mortgage for $900,000.
NOTE 5 ACQUISITION AND MERGER OF SEAHAWK, INC.
During November 1995, the Company acquired 100% of the outstanding common stock
of Seahawk, Inc., an Alabama corporation that owns the research vessel R/V
Seahawk in a transaction where the Company issued 2,400,000 shares of its Common
-8-
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES CONSOLIDATED ON FINANCIAL STATEMENTS
MARCH 31, 1996 (Unaudited)
(Continued)
Stock to the shareholders of Seahawk, Inc. The R/V Seahawk is an 84 foot, 150
gross tons monohull ship that is fully equipped to carry out deep sub-sea survey
work, including side scan sonar, magnetometry and bathymetric surveys as well as
remotely operated vehicle operations. Seahawk, Inc. was merged into the Company
effective March 31, 1996 and the Company has accounted for the acquisition as
the purchase of an asset. The basis for the valuation will be the fair value
of the vessel received.
NOTE 6 COMMON STOCK TRANSACTIONS WITH RELATED PARTIES
During April 1996, the Company issued 264,774 shares of Common Stock to the
following two employees and officers of the Company as payment for accrued and
unpaid remuneration for the year ended December 31, 1995:
Number Unpaid
Name of Shares Remuneration
--------- ------------
John Lawrence 152,183 $21,305.62
John Balch 152,183 $21,305.62
NOTE 7 COMMON STOCK TRANSACTIONS WITH OTHERS
During January 1996, the Company issued 314,784 shares of its Common Stock to
twenty accredited investors. The investors originally invested in a private
offering during July through October 1995, and according to the terms of the
private offering , if the Company did not register the original shares by the
end of 1995, the Company was required to issue additional shares in an amount
equal to 25% of the shares originally purchased.
During January 1996, the Company issued 64,000 shares of common stock to a
company in exchange for accounts payable. The Company issued 200,000 shares of
common stock to three individuals for services rendered to affiliates, and the
Company issued 200,000 shares of common stock to an individual for unpaid
accrued compensation.
-9-
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES CONSOLIDATED ON FINANCIAL STATEMENTS
MARCH 31, 1996 (Unaudited)
(Continued)
SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
BALANCE SHEETS - AFFILIATES
Three Months Ended March 31, 1996
Seahawk I, Seahawk II, Eagle Part-
Ltd. Ltd. ners, Ltd.
----------- ----------- -----------
Current Assets
Cash $ 269 $ 52 $ 0
Accounts receivable 420 - -
Inventory - other 1,146 - -
----------- ----------- -----------
Total Current Assets 1,835 52 0
----------- ----------- -----------
Other Assets
Investment in affiliate - - (25,266)
Artifact inventory 646,025 - -
----------- ----------- -----------
Total Assets 647,860 52 (25,266)
----------- ----------- -----------
Current Liabilities
Accounts payable - trade 4,087 2,217 3,525
Accounts payable
- general partner 634,462 15,378 1,037,770
Accrued liabilities 3,535 900 600
Notes payable limited partners 21,368 - -
Notes payable general partner 333,647 - 51,246
----------- ----------- -----------
Total Current Liabilities 997,099 18,495 1,093,141
----------- ----------- -----------
Partners' Capital
Capital contributed 2,511,041 1,371,251 150,100
Accumulated loss (2,860,280) (1,389,694) (1,268,507)
----------- ----------- -----------
Net Capital (349,239) (18,443) (1,118,407)
----------- ----------- -----------
Total Liabilities
and Capital 647,860 52 0
----------- ----------- -----------
-10-
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES CONSOLIDATED ON FINANCIAL STATEMENTS
MARCH 31, 1996 (Unaudited)
(Continued)
STATEMENTS OF OPERATION - AFFILIATES
Three Months Ended March 31, 1996
Seahawk I, Seahawk II, Eagle Part-
Ltd. Ltd. ners, Ltd.
------------ ------------ ------------
Revenues $ 0 $ 0 $ 0
Expenses
Operating expenses 420 90 0
Administrative expenses 4,255 1,260 6,920
----------- ----------- -----------
Total Expenses 4,675 1,350 6,920
----------- ----------- -----------
Other Income (Expenses) (8,245) 0 (3,479)
----------- ----------- -----------
Net (Loss) $ (12,920) $ (1,350) $ (10,399)
----------- ----------- -----------
-11-
<PAGE>
ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
The net loss for the three months to March 31, 1996 was $319,757 compared to a
loss of $226,259 in the corresponding quarter of 1995.
Total revenues in the 1996 quarter at $51,710 were down $70,617 from the 1995
quarter primarily as a result of decreased billing for charter hire of the M/V
Seahawk Retriever. There was also a decrease of $10,215 in billing to affiliated
limited partnerships comprised of a decrease in administrative services billings
of $2,715 and a negotiated credit of $7,500 against 1995 receivable for weather
days billed against on the Eagle Miners account. Total expenses of $347,690
were incurred in the first quarter of 1996, compared to $285,040 in the
equivalent period in 1995. This resulted in the loss from operations being
higher at $295,980 in 1996 compared to $162,713 in 1995.
The Company's cost of vessel operations were up by $35,045 to $85,288 for the
quarter ending March 31, 1996 as compared to the first quarter in 1995 when
vessel operations were $50,243. This resulted from increased expenses for marine
equipment maintenance of $12,439 with an increase in insurance costs of $13,858
for the quarter ending March 31, 1996 as compared to the quarter ending March
31, 1995. The increase in insurance cost was due to higher limits of coverage
on the M/V Seahawk Retriever and the R/V Seahawk and general cost increases
for the total insurance packages during the first quarter of 1996 compared to
the equivalent quarter of 1995. Travel and communications costs of $5,107
were higher during the quarter ending March 31, 1996 up from $531 during the
same period in 1995 because of travel costs associated with tending to the
M/V Seahawk Retriever in the Gulf Coast during 1996. The Company had no such
costs during the equivalent period of 1995.
Conservation and archaeology expenses were $13,002 for the quarter ending March
31, 1996 as compared to $5,407 for the equivalent period during 1995. This was
a result of direct payroll being paid for the full quarter during 1996 while
personnel were on unpaid leave during part of the equivalent quarter of 1995.
Depreciation was $69,730 for the quarter ending March 31, 1996, $18,606 higher
than the charge for depreciation in the equivalent period in 1995. The
difference resulted from depreciation expense arising from the acquisition of
the vessel R/V Seahawk during the last quarter of 1995.
Rent increased $1,300 for the quarter ending March 31, 1996 to $22,068 compared
to $20,768 during the equivalent quarter of 1995.
Administrative costs increased by $18,104 for the quarter ending March 31, 1996
as compared to the like quarter of 1995. There was a decrease in legal (to
$5,084 from $20,532) resulting primarily from a lower level of activity
during the quarter ending March 31, 1996 compared to the same quarter in
1995 in which the Company was using legal counsel in the Azores to expedite
the review of the Company's permit applications there. There was an increase
in travel related costs (to $19,796 from $10,295) resulting from expenses
associated with efforts to obtain permits for future marine projects. Salary
expense increased (to $52,733 from $48,464) due to general payroll increases
incurred after the quarter ending March 31, 1995. Consulting costs were up to
$24,800 in the 1996 quarter from $2,267 during the 1995 quarter as a result
of expenses incurred for
-12-
<PAGE>
assistance with permit applications in Brazil during the quarter ending March
31, 1996 while the Company did not have such expense during the 1995 quarter.
Interest expense decreased to $19,991 for the quarter ending March 31, 1996
compared to $55,244 in the first quarter of 1995. The decrease was due to the
elimination of interest expense associated with the note payable to Commercial
Union Capital upon the sale of the M/V Seahawk Retriever in April 1996. Interest
income was $16,123 for the first quarter of 1996 resulting from a note
receivable from affiliates. There was $7,397 interest income for the
equivalent period during 1995. The increase is due to the interest earned on
the note receivable from Eagle Partners, Ltd. which was issued in the last
quarter of 1995.
The loss on investment in less than 50% owned entities was $19,431 in the 1996
quarter, up $8,519 from the first quarter of 1995. These losses represent the
company's share of losses of Seahawk I, Ltd., Seahawk II, Ltd., and Eagle
Partners, Ltd., partnerships in which the company is the managing general
partner. Seahawk I, Ltd. produced a loss of $7,682 primarily resulting from
efforts to develop a market for the artifacts recovered from the Tortugas
Shipwreck Site and from the cost of year end accounting requirements. Seahawk
II, Ltd. incurred an administrative loss of $1,350 and Eagle Partners, Ltd.
incurred administrative and operating costs of $10,399 which resulted in net
losses of those amounts for the quarter.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995 the Company had negative working capital of $(1,968,771).
During the three months ended March 31, 1996 the Company's working capital
decreased to a negative $(2,212,750).
The decrease in working capital of $243,979 in the period was mostly the result
of net operating losses before depreciation offset by debt converted to common
stock and the sale of marketable securities.
The Company continues to have very restricted liquidity. This situation results
principally through the lack of revenue from operations. The Company has sought
to produce revenue through the following:
1. Sales of subsea services to entities involved in shipwreck recovery
projects which are originated by the Company.
2. Sales of subsea services to other entities.
3. Lease of ships and subsea equipment.
4. Sale of artifacts and artifact related merchandise.
The Company's main source of revenue, sales to affiliated project entities such
as Limited Partnerships, depends on those partnerships being properly funded.
All three of the existing Limited Partnerships, Seahawk I, Ltd., Seahawk II,
Ltd., and Eagle Partners, Ltd., are out of cash.
Until it can obtain additional financing or begin earning revenue from its
artifacts, either by direct sale or royalty on reproductions, Seahawk I, Ltd
will not be able to pay the balance of its liabilities to the Company. It is
not likely that the Partnership will be able to raise further financing except
through the sale of artifacts. The Partnership had planned to sell its
artifacts
through the Seahawk Shipwreck and Treasure Museum, but the inability to finance
the museum had forced the Company to put the museum plans on hold until
appropriate financing could be arranged. The Company, acting in its capacity as
general partner of Seahawk I Ltd. is attempting to arrange for a sale of the
Partnership's collection of artifacts.
-13-
<PAGE>
Seahawk II, Ltd is out of funds and the partners have decided they are not
willing to invest additional funds to continue further excavation of the wreck
site. The General Partner is unable to identify additional working capital to
work on the Partnership's wreck off St. Augustine, and has asked the partners
on two occasions to vote on terminating the Partnership. The results of
those votes were inconclusive.
Eagle Partners, Ltd. is also out of cash but has continued its search for a
shipwreck, known as the Golden Eagle, believed to have sunk off the east coast
of the Untied States. The Company has in the past provided survey services to
Eagle Partners, Ltd. on credit but has in effect provided in full against the
account receivable by assuming losses on investments sufficient to create a
negative balance on investment in the Partnership that is equal to the account
receivable.
During 1995, Eagle Partners Limited raised funds to continue its search for the
Golden Eagle using the Company's services. On July 18, 1995 the Company
announced that it had entered into a joint venture agreement with Sea Miners,
Inc. a Baltimore, MD company, to resume the search for this shipwreck. The
joint venture incorporates research by both parties concerning this wreck and
a pooling of resources to continue the search operations. Under the
agreement, the Company will continue to be the offshore contractor to the
joint venture for all marine operations. The Company earned revenues of
$50,000 during 1995 from this Joint Venture and expects to earn additional
revenue during 1996 if the Joint Venture can raise sufficient funding.
The Company is currently seeking to assist Eagle Partners in raising sufficient
funding to complete the Golden Eagle project. If properly funded, the project
will generate cash flow for the Company. Substantial cash would be produced for
the Company if the Golden Eagle is located and its cargo is recovered and
disposed of profitably.
The Company is reviewing other potential shipwreck projects and it is
anticipated that if the Company were to proceed with any of these projects,
it would help to form limited partnerships or similar entities for the
purpose of funding the projects. There is no assurance that any of the
partnerships would be successful in raising the necessary amount of funding.
During 1995 the Company generated over $50,000 selling its services to
non-shipwreck related customers and some $400,000 through the chartering of its
recovery vessel, the Seahawk Retriever. The charter agreement was with
International Diving and Consulting Services and was to produce an annual
revenue of $900,000 for five years. However, on November 23, 1994,
International Diving filed a voluntary petition in the United States
Bankruptcy Court under Chapter 11 of the Bankruptcy Code. Due to this
Chapter 11 filing, International Diving was not able to make the lease
payment in the amount of approximately $100,000 which was due to the Company
on December 10, 1994.
On March 7, 1995, the U.S. Bankruptcy Court Western Division of Louisiana,
Lafayette-Opelousas Division ordered International Diving to pay (a) $130,836 on
or before March 17, 1995; (b) $56,935 on or before April 7, 1995; (c) $56,935 on
or before May 7, 1995; and (d) all future payments under the Agreement as they
come due, and ordered that the Agreement be amended to grant International
Diving the option to purchase the Retriever for the sum of $1,450,000
payable in cash on or before June 1, 1995. International Diving declined the
option to purchase the Retriever and made the payments under (a), (b), and
(c) above.
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<PAGE>
International Diving was unable to make the payment of $136,703.50 due on June
10, 1995 and on July 11, 1995 (as modified on July 25, 1995) the same U.S.
Bankruptcy Court ordered International Diving to make payments of $45,568.00 on
July 11 and July 25th 1995, and to make payments of $53,179 on August 8th,
August 24th, and September 5th, 1995. The payments due on July 11, 1995 and
July 25, 1995 were made. No further payments were made by International
Diving and on September 12, 1995, the vessel M/V Seahawk Retriever was
repossessed by the Company. An account receivable from International Diving
of $173,620 owing at December 31, 1995 was provided for as bad debt by the
Company due to the fact that International Diving entered into a Chapter 7
Bankruptcy Liquidation.
During the period December 8, 1995 to March 31, 1996 the Company chartered the
Retriever to American Oilfield Divers Inc. of Lafayette, Louisiana ("AOD"). The
main terms of the charter were that AOD would pay a day rate of $2,050 per day
when the vessel was working and pay any dockage costs when it was not. During
the period AOD incurred $47,250 of charter fees. On April 4, 1996, AOD
purchased the Retriever for $1,438,750 on an as-is-where-is basis via a
wholly owned subsidiary S&H Diving L.L.C. The purchase agreement provided
for a sum of $100,000 to be held in escrow for six months to pay for any bona
fide lien claims encumbering the vessel which accrued prior to March 31, 1996.
After settlement of the mortgage on the vessel and various selling fees, the
sale of the Retriever has generated approximately $350,000 cash in the second
quarter of 1996, and the retained $100,000 should be released to the Company
in the third quarter. The sale of the Retriever means that no other revenue
will be produced for the Company from that asset in the future.
In November 1995 the Company acquired all the outstanding common stock of
Seahawk, Inc. a company that owns the RV Seahawk, the ship that the Company uses
for survey work. Prior to the acquisition the Company had chartered the vessel
at a cost of $6,000 per month, almost continually since March 1989. The
acquisition will reduce such rental costs in the future.
part from seeking to raise revenue from assets the Company has also sought to
conserve cash by the conversion of debt into equity.
During 1995 1,863,699 shares (including contingent bonus shares) were issued for
$321,333, 1,057,739 shares were issued to pay $261,099 in outstanding debt and
2,400,000 shares were issued in an exchange agreement with Seahawk, Inc. valued
at $904,080.
During January 1996, the Company issued 64,000 shares of common stock to a
company in exchange for accounts payable. The Company issued 200,000 shares of
common stock to three individuals for services rendered to affiliates, and the
Company issued 200,000 shares of common stock to an individual for unpaid
accrued compensation.
In order for the Company to remain in business during the next 12 months it is
necessary for the Company to pursue charter and contract work, generate new
sources of revenue or raise additional financing. The Company's current and
future efforts to obtain additional financing will concentrate on offering
additional equity to investors until such time as the Company's operational cash
flow is self supporting. The original loan enabled Seahawk I, Ltd. to pay some
of its liabilities to the Company. Until it can obtain additional financing or
begin earning revenue from its artifacts, either by direct sale or royalty on
reproductions, it will not be able to pay the balance of the liabilities. It is
not likely that the Partnership will be able to raise further financing except
through the sale of artifacts. The Partnership had planned to sell its
artifacts
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<PAGE>
through the Seahawk Shipwreck and Treasure Museum, but the inability to finance
the museum had forced the Company to put the museum plans on hold until
appropriate financing could be arranged.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
-16-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
By/s/ John T. Lawrence
John T. Lawrence, President
October 28, 1996
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<PAGE>
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
27 Financial Data Schedule Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and consolidated statement of operations contained
in the Company's Form 10-QSB for the year to date, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 13,881
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 3,687
<CURRENT-ASSETS> 69,300
<PP&E> 2,176,562
<DEPRECIATION> 1,541,593
<TOTAL-ASSETS> 2,849,006
<CURRENT-LIABILITIES> 2,282,050
<BONDS> 0
<COMMON> 13,220,886
0
50,000
<OTHER-SE> (12,746,542)
<TOTAL-LIABILITY-AND-EQUITY> 2,849,006
<SALES> 0
<TOTAL-REVENUES> 51,710
<CGS> 0
<TOTAL-COSTS> 190,088
<OTHER-EXPENSES> 157,602
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (19,991)
<INCOME-PRETAX> (319,757)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (319,757)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
