As filed with the Securities and Exchange Commission on February 7, 1996
SEC Registration No. 33-68328
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
AMENDMENT NO. 3 TO
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
(Name of Small Business Issuer in its Charter)
Colorado 7359 84-1087879
(State or Other Jurisdic- (Primary Standard (IRS Employer Iden-
tion of Incorporation) Industrial Classi- tification Number)
fication Code
Number)
5102 South Westshore Boulevard, Tampa, Florida 33611
(813) 832-4040
(Address and Telephone Number of Principal
Executive Offices and Principal Place of Business)
John T. Lawrence President
5102 South Westshore Boulevard
Tampa, Florida 33611
(813) 832-4040
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Jon D. Sawyer, Esq.
Jon D. Sawyer, P.C.
1401 Seventeenth Street, Suite 460
Denver, Colorado 80202
(303) 295-2355
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Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / X /
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CALCULATION OF REGISTRATION FEE
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Title of Each Amount Proposed Maxi- Proposed Maximum Amount of
Class of Securities to be mum Offering Aggregate Offer- Registra-
to be Registered Registered Price Per Unit ing Price tion Fee
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No Par Value 13,752,438 $.164 Per $2,255,400 $ 773.73
Common Stock Shares(1) Share
No Par Value 2,914,968 $.321875 Per $ 938,255 $ 323.54
Common Stock Shares(1) Share(2)
No Par Value 418,718 $.28125 Per $ 117,765 $ 40.61(4)
Shares(1) Share(3)
Total $3,311,420 $1137.88
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(1) Shares being offered by Selling Shareholders.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 by reference to the average of the bid and asked prices
as of November 7, 1995.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 by reference to the average of the bid and asked prices
as of February 2, 1996.
(4) Registration fees totaling $1,097.27 have previously been paid in
connection with the filing of Amendments No. 1 and 2, and an additional
registration fee of $323.54 is being paid with this Amendment for the new
shares which have been added.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said Section
8(a), may determine.
The Exhibit Index appears on page ____ of the sequentially numbered pages of
this Registration Statement. This Registration Statement, including exhibits,
contains ____ pages.
PROSPECTUS SUBJECT TO COMPLETION FEBRUARY 7, 1996
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
17,086,125 Shares Common Stock
(No Par Value)
This Pospectus relates to the following shares of Common Stock of Seahawk
Deep Ocean Technology, Inc. (the "Company") which have been issued. All of
the 16,667,407 shares covered by this Prospectus are being offered by selling
shareholders. (For a more complete description, see "SECURITIES COVERED BY
THIS PROSPECTUS.")
1. 810,812 shares of Common Stock out of a total of 970,812 shares which
were issued to fourteen persons in exchange for the conversion of debentures
with a principal amount of $360,000 and $85,641 of accrued interest. The
terms of the debentures required the Company to register these shares.
2. 5,986,323 shares of Common Stock which were issued to fifteen persons
from May 1993 to November 1994 in exchange for the conversion of certain loans
and accounts payable which totaled approximately $1,529,332, including accrued
interest. The Company agreed to register the shares in connection with the
loan conversions.
3. 727,273 shares of Common Stock which were issued upon the exercise of
an option which was issued to a person who invested $100,000 with the Company
during January 1992, and for which the Company agreed to register the shares.
4. 1,040,000 shares of Common Stock which were issued to six persons
during May 1993, in connection with a private placement and for which the
Company agreed to file a registration statement to register such shares for
sale on behalf of such shareholders.
5. 119,000 shares which were issued to one person on March 31, 1992,
upon the exercise of Class A Warrants at a price of $2.00 per share. The
shares were paid for by converting debt owed by the Company to this person.
The Company had agreed to register these shares when the warrants were issued.
6. 133,500 shares which were issued to one person during January 1992,
in connection with a private placement transaction and for which the Company
agreed to file a registration statement to register such shares for sale on
behalf of such shareholder.
------------------
The date of this Prospectus is ______________, 1996.
------------------
7. 40,000 shares which were issued to one person during February 1992,
in connection with the settlement of the termination of the lease for the
Company's planned museum and for which the Company agreed to file a
registration statement to register such shares for sale on behalf of such
shareholder.
8. 60,000 shares of Common Stock out of a total of 127,000 shares which
were issued to certain accredited investors during April 1990, in connection
with a private offering of the Company's shares and for which the Company
agreed to file a registration statement to register such shares for sale on
behalf of such shareholders.
9. 600,000 shares of Common Stock which were issued to Valley Ocean
Technology, Ltd. on February 4, 1991, in exchange for 100% of the outstanding
shares of Valley Marine, Inc., the corporation which owned the vessel named
SEAHAWK RETRIEVER. The Company had previously agreed to register these
shares.
10. 1,302,438 shares of Common Stock which were issued to five persons
during June 1994, in connection with a private placement and for which the
Company agreed to file a registration statement to register such shares for
sale on behalf of such shareholders.
11. 1,040,000 shares of Common Stock which were issued to one shareholder
during November 1994, in a private transaction and for which the Company
agreed to file a registration statement to register such shares for sale on
behalf of such shareholder.
12. 100,000 shares of Common Stock which were issued to one shareholder
during February 1994, as payment for a 36 foot motor vessel and for which the
Company agreed to file a registration statement to register such shares for
sale on behalf of such shareholder.
13. 367,866 shares of Common Stock which were issued to two of the
Company's officers in 1994 and 1995 as payment for accrued and unpaid
remuneration and for which the Company agreed to register the shares.
14. 40,000 shares of Common Stock which were issued to one person during
July 1995, upon the exercise of Class G Warrants at a price of $0.25 per
share. The shares were paid for by converting debt owed by the Company to
this person. The Company had agreed to register these shares when the
warrants were issued.
15. 25,000 shares of Common Stock which were issued to Daniel J. Derfus,
a director of the Company, during July 1995, upon the exercise of Class P
Warrants at a price of $0.30 per share. The shares were paid for by
converting debt owed by the Company to Mr. Derfus. The Company had agreed to
register these shares when the warrants were issued.
16. 40,000 shares of Common Stock which were issued to one person during
July 1995, and 20,000 shares issued to a partnership during August 1995, in
connection with an adjustment in the terms of a joint venture agreement
between the person, the partnership and the Company. Also included are an
additional 40,000 shares issued to the partnership during January 1996
pursuant to the terms of the joint venture agreement. The Company agreed to
file a registration statement for such shares on behalf of such shareholders.
17. 15,790 shares of Common Stock which were issued to one person during
August 1995, in exchange for an account payable totaling $3,000. An
additional 25,000 shares of Common Stock which were issued to the same person
in connection with a service contract for offshore operations. The Company
agreed to register the shares.
18. 360,000 shares of Common Stock which were issued to one person during
October 1995 in connection with the settlement of a lawsuit and for which the
Company agreed to file a registration statement to register the shares.
19. 50,000 shares of Common Stock which were issued to one person during
October 1995 in connection with a loan transaction for which the Company
agreed to register the shares.
20. 105,269 shares of Common Stock which were issued to one person during
October 1995 in connection with the exercise of outstanding options and for
which the Company agreed to register the shares.
21. 1,259,136 shares of Common Stock which were issued to 20 persons
during the period from August through November 1995 in connection with a
private placement at a price of $.25 per share and for which the Company
agreed to file a registration statement to register such shares on
behalf of such shareholders. Also included are an additional 314,718 shares
which were issued to these 20 persons during January 1996 due to a requirement
to issue an additional 20% of the original number of shares if the shares
issued in the private placement were not registered by December 31, 1995.
22. 2,400,000 shares of Common Stock which were issued to six persons in
exchange for 100% of the outstanding shares of Seahawk, Inc., the corporation
which owns the vessel named Seahawk. The Company agreed to register the
shares.
23. 64,000 shares of Common Stock which were issued to a creditor in
settlement of a debt and for which the Company agreed to register the shares.
The total estimated expenses incurred in connection with the preparation
of this Prospectus are $65,000, all of which will be paid by the Company.
The Common Stock of the Company is presently traded on the NASD
Electronic Bulletin Board under the symbol "SDOT." On February ___, 1996,
1995, the closing price for the Common Stock as reported on the Electronic
Bulletin Board was $_____ per share.
---------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. PERSONS INVESTING IN
THESE SECURITIES SHOULD BE ABLE TO SUSTAIN A TOTAL LOSS OF THEIR INVESTMENT.
(SEE "RISK FACTORS.")
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C.; and at the Commission's
regional offices: 75 Park Place, New York, New York 10278; and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials can also be obtained at prescribed rates from the Public Reference
Section of the Commission at its principal office at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549.
PROSPECTUS SUMMARY
The Company
Seahawk Deep Ocean Technology, Inc. (the "Company") was formed under the
laws of the State of Colorado on September 17, 1986, for the purpose of
creating a corporate vehicle to seek and acquire a business opportunity.
In October of 1988, the Company completed a public offering of 1,200,000
shares of Common Stock at an offering price of $.50 per share. The net
proceeds of that offering to the Company were approximately $490,000.
On March 13, 1989, the Company issued 2,000,000 shares of its no par
value Common Stock to the holders of 100% of the outstanding common stock of
R/V Seahawk, Inc. ("R/V Seahawk") in an exchange transaction in which R/V
Seahawk became a wholly owned subsidiary of the Company. During September,
1989 the Company's name was changed from Fox Ridge Capital, Inc. to Seahawk
Deep Ocean Technology, Inc. On March 2, 1992, R/V Seahawk was merged into the
Company.
On June 12, 1992, the Company effected a one for fifty reverse split of
the shares of the Company's Common Stock outstanding. All financial
information and share data in this Prospectus gives retroactive effect to this
reverse split.
On September 12, 1989, the Company organized Seahawk Artifact Recovery,
Inc. This subsidiary was inactive throughout 1989 and 1990. In January 1991,
its name was changed to Seahawk Museum Development, Inc. This subsidiary was
developing plans for a shipwreck and treasure museum in St. Petersburg,
Florida, however, the Company's inability to finance the museum has forced the
Company to put the museum plans on hold until appropriate financing can be
arranged.
Unless the context otherwise requires, the term "Company" as used herein
refers to Seahawk Deep Ocean Technology, Inc. and its wholly owned subsidiary
Seahawk Museum Development, Inc.
The Company is an oceanographic service company which is involved in deep
water search, survey and recovery operations. The Company serves as the
general partner for three limited partnerships which were formed for the
purpose of raising money to search for and locate shipwrecks. The Company
currently leases or owns and operates a variety of subocean equipment
including a 204 foot recovery vessel, an 83 foot survey vessel, ROV's
(Remotely Operated Vehicles), and other specialized search and recovery
equipment which enables it to locate, photograph and retrieve items lost on
the seabed in deep water.
The Company is also seeking opportunities where it can lease its
equipment to others and generally act as an underwater contractor.
The partnerships formed by the Company and for which the Company serves
as the general partner are engaged in the business of attempting to locate,
identify, recover and market the cargoes and artifacts associated with one or
more shipwrecks in a specific area. The Company, on the other hand, provides
to the partnerships the data, manpower and equipment necessary for the
partnerships to carry out this business purpose. The Company is also engaged
in the business of locating, identifying, recovering and marketing the cargoes
and artifacts associated with shipwrecks on its own behalf and for others on a
world wide basis.
The Company's offices are located at 5102 South Westshore Boulevard,
Tampa Florida 33611. Its telephone number is (813) 832-4040. (See
"DESCRIPTION OF BUSINESS -- Facilities.")
Offering Summary
<TABLE>
<S> <C>
Type of Security: Common Stock, No Par Value
Shares Offered by
Selling Shareholders: 16,667,407
Shares offered by
the Company: None
Total 16,667,407
Shares Outstanding as
of January 31, 1996 25,473,914
Proceeds From the
Offering: All proceeds from the sale of the 17,086,125
shares offered by the Selling Shareholders will
accrue to the Selling Shareholders. No proceeds
will accrue to the Company from the shares of-
fered by the Selling Shareholders. The shares
are expected to be offered and sold at prices
related to the prevailing market prices at the
time such shares are sold.
</TABLE>
Financial Summary
The following financial summary is derived from the consolidated
financial statements of the Company, and should be read in conjunction with
such financial statements and accompanying notes appearing elsewhere in this
Prospectus. This financial data is not covered by the report of the
independent accountants. The per share amounts and the weighted average
number of shares have been adjusted for the effect of the one for fifty (1 for
50) reverse stock split effected on June 12, 1992. (See "FINANCIAL
STATEMENTS.")
<TABLE>
<CAPTION>
At
At December 31,
Balance Sheet Data: September 30, 1995 1994
- ------------------- --------------- ------------
<S> <C> <C>
Current Assets $ 69,348 $ 307,103
Total Assets 2,794,115 3,112,850
Current Liabilities 1,776,193 2,421,991
Total Liabilities 2,616,193 2,421,991
Stockholders' Equity 177,922 690,859
</TABLE>
<TABLE>
<CAPTION>
Statement of For the Nine Months For the Year Ended
Operations Data: Ended September 30, December 31,
- ---------------- ------------------------- -------------------------
1995 1994 1994 1993
---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 437,489 $ 47,200 $ 182,227 $ 436,631
Net Loss $(812,955) $(1,107,201) $(1,451,232) $(1,876,862)
Net Loss Per Common
Share $ (0.04) $ (0.07) $ (0.09) $ (0.17)
</TABLE>
RISK FACTORS
These securities involve a high degree of risk. Prospective purchasers
should consider carefully, among other factors set forth in the Prospectus,
the following:
1. Need for Additional Financing. The Company needs additional
financing in order to finance the search for additional shipwrecks, the
continued excavation of wreck sites, the $1 million obligation to Commercial
Union Capital Limited which is payable over the two years from June 1, 1995,
and to pay the continuing overhead expenses of the Company. Except for the
revenue received from the lease of the Retriever (see "BUSINESS --
Equipment"), the Company currently has no clear source for any material
revenues or financing. The Company's future revenues or financing will depend
upon the sale of artifacts by Seahawk I, Ltd., the formation of new
partnership(s) to pay for search and recovery, the leasing or sale of
equipment to others, or the exercise of outstanding warrants. The formation
of new partnerships will dilute any potential return to the Company from a
wreck due to the distributions which would be due to the partners.
The vessel Retriever has been pledged as security for the obligation to
Commercial Union. Therefore, if the Company defaults on this obligation,
Commercial Union could take possession of the Retriever which in turn would
terminate the revenues which the Company receives from the lease of the
Retriever.
Seahawk I, Ltd. and Seahawk II, Ltd. are both out of cash and currently
do not intend to raise any more financing. Seahawk I, Ltd. is attempting to
make arrangements to sell artifacts, reproductions and items based on
artifacts on home shopping television channels. Seahawk II, Ltd. has
terminated all business activity. Eagle Partners, Ltd. has formed a joint
venture with Sea Miners, Inc. of Baltimore, Maryland, to jointly search for a
shipwreck. The joint venture has raised $100,000 to fund the inspection of
certain sites and is attempting to arrange additional project funding. (See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" below.)
2. Difficulty of Obtaining Additional Financing. The Company's poor
financial condition and the existence of the SEC investigation, which
commenced in March 1992, and culminated in a civil injunctive action filed in
August 1994, have made it very difficult to raise any kind of financing. For
example, at various times during the past three years the Company has borrowed
money from investors in order to finance the Company's operations. In
connection with these loans, the Company has needed to issue warrants to the
investors as additional consideration for the loans.
3. Limited Operating History, Operating Losses, and Qualified
Accountants Opinion. The Company has only had a limited operating history and
has incurred substantial operating losses since its inception. During the
fiscal year ended December 31, 1994, the Company had a net loss of
($1,451,232) and had an accumulated deficit of $(11,032,995). In the
Company's financial statements for the year ended December 31, 1994, Giunta,
Ferlita & Walsh, P.A., the Company's independent certified public accountants,
included an opinion which expressed substantial doubt as to the Company's
ability to continue as a going concern. There can be no assurance that the
Company will be able to continue in business, and if so that it will ever be
able to achieve profitable operations. (See "FINANCIAL STATEMENTS.")
4. Speculative Nature of Shipwreck Search and Recovery. The search for
possible shipwrecks and the recovery of objects therefrom, particularly in
deep water, is an extremely speculative high risk venture. Even though the
Company's first two partnerships, Seahawk I, Ltd. and Seahawk II, Ltd., have
each located shipwreck sites, and removed artifacts therefrom, there is no
assurance that the recovery of the wrecks will be profitable. In addition,
the retrieval, identification, conservation and storage of such objects will
be costly and time consuming. If a shipwreck is determined by the Company to
be worthy of salvage, because of the costs and inherent risks of deep water
salvage, there can be no assurance that sufficient additional funds or salvage
contracts with others can be obtained for such salvage, or even if obtained,
that such salvage will prove successful.
5. SEC Administrative Proceeding and Civil Injunctive Action. On July
30, 1992, the SEC issued an order directing the staff of the Division of
Enforcement (the "Division") to conduct an examination pursuant to Section
8(e) of the Securities Act of 1933 (the "Act") to determine whether a stop
order should be issued relating to a registration statement which the Company
had filed during March 1992 and which had become effective by the passage of
time on August 1, 1992. Under Section 8(d) of the Act, a stop order
proceeding was instituted against the Company by order of the SEC dated
January 12, 1993. A hearing was held before an SEC Administrative Law Judge
during late January and early February 1993.
On May 26, 1993, the Administrative Law Judge issued his Initial
Decision. The Judge concluded that the registration statement filed by the
Company was materially false and misleading and that the Company failed to
cooperate with the examination conducted by the Division's staff. A stop
order was issued suspending the effectiveness of the Company's registration
statement.
The primary focus of the proceeding was the value of shipwreck artifacts
owned by the Company and an affiliated partnership, Seahawk I, Ltd. The Judge
found that the Company had overstated the value of the artifacts on its
balance sheet and in other financial information provided in its registration
statement. The Judge concluded that the total net realizable value of all the
artifacts owned by the Company and Seahawk I was $1,356,361 of which amount
$285,413 was attributed to the Company artifacts and $1,070,948 was attributed
to the Seahawk I artifacts. As a result of this Decision, and in order to
present the financial statements in accordance with generally accepted
accounting principles, the Company and Seahawk I, Ltd. restated their December
31, 1990 and 1991 financial statements.
The findings of the Administrative Law Judge could possibly be used by
private litigants in civil suits against the Company to provide that the
Company misstated material facts in certain periodic reports it filed with the
SEC.
During August 1994, the SEC filed a civil action against the Company and
three former officers and directors of the Company seeking injunctive relief
against the Company and injunctive and monetary relief against the former
offices and directors. The SEC did not seek any financial penalties or other
monetary relief against the Company.
The Complaint filed by the SEC alleged that the Company violated Section
17(a) of Securities Act of 1933 and Sections 10(b), 13(a) and 13(b) of the
Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13 and
13b2-1 promulgated thereunder. The SEC alleged that between April 1989 and
July 1991, the Company and three former directors and officers disseminated to
the public, in the form of television broadcasts, videotapes and press
releases, false and misleading material information and failed to disclose
certain material information concerning the Dry Tortugas shipwreck discovered
and excavated by the Company. The SEC also alleged, as it did in the stop
order proceeding, that the Company materially overstated the value of
artifacts on its balance sheet and in other financial information provided in
the registration statement of the Company and two amendments thereto filed in
1992 with the SEC and in certain periodic reports of the Company filed in 1992
with the SEC.
The Company and the staff of the SEC negotiated a settlement whereby the
Company agreed to consent to the entry of a final judgement of permanent
injunction, without admitting or denying any of the allegations in the
Complaint. In addition, the Company agreed that it will not employ two of the
three former officers and directors as officers and directors of the Company
or any subsidiaries of the Company, use corporate funds to pay for or
reimburse any costs incurred by them for the defense of any civil or
administrative action instituted against them by the SEC, or redeem or
purchase any stock they own until after the termination of any such action.
6. Success Dependent on Management. Success of the Company depends on
the active participation of John T. Lawrence and John P. Balch. The Company
has no "key-man" life insurance on either of these persons. The loss of the
services of either Mr. Lawrence or Mr. Balch would adversely affect the
Company's business and its likelihood of continuing operations.
7. Natural Hazards. Underwater salvage and recovery operations are
inherently difficult and dangerous and may be delayed or suspended by weather,
sea conditions and other natural hazards.
8. Title to Objects Located. Persons and entities other than the
Company (both private and governmental) may claim title to shipwrecks or
objects located by the Company. Even if the Company is successful in locating
and salvaging one or more shipwrecks, there is no assurance that the Company
will be able to establish its right to property recovered as against
governmental entities claiming an interest therein, prior owners or other
attempted salvors. (See ("BUSINESS -- Legal Aspects of International
Salvage.")
9. Uncertain Market For and Value of Recovered Objects. Even if
valuable items can be located and salvaged by the Company, it is difficult to
predict the price that might be realized for these items. The value of many
recovered items may fluctuate with a precious metals market which has been
highly volatile in recent years. Additionally, sale for historical or
numismatic value may require the assistance of experts, which assistance might
not be readily available and could be prohibitively expensive. Moreover, the
entrance on the market of a large supply of antique items from shipwrecks
located and salvaged by the Company or others could itself depress the market
for these items.
10. Delay in Distribution or Sale of Recovered Items. The methods and
channels to be used in the disposition of the salvaged items are uncertain at
present, except for the Company's plans to market artifacts, reproductions and
items based on artifacts on home shopping television channels. The Company is
also contemplating the opening of a shipwreck and treasure museum including a
gift shop for the sale of artifacts. (See "BUSINESS -- Plan of Operations --
Marketing of Artifacts" below.) Ready access to buyers for disposition of any
artifacts or other valuable salvaged items recovered by the Company, cannot be
assured and delays in the disposition of such salvaged items are very
possible. In fact, the Company may decide to not sell all or a portion of the
salvaged items for a certain period of time in an attempt to enhance their
value. The storage and security of salvaged items pending sale will, most
likely be expensive.
11. Conflicts of Interest. Two of the Company's principal shareholders,
John C. Morris and Gregory P. Stemm, are subject to various significant
potential conflicts of interest with the Company arising from the relationship
of their affiliates to the Company. Since 1989, the Company has leased the
research vessel SEAHAWK from Seahawk, Inc., a corporation owned principally by
Messrs. Morris and Stemm. During October 1995, the Company entered into an
agreement with the stockholders of Seahawk, Inc., in which the Company
purchased all of the outstanding common stock of Seahawk, Inc. in exchange for
2,400,000 shares of the Company's Common Stock. (See "TRANSACTIONS WITH
MANAGEMENT AND OTHERS.")
On June 1, 1994, the Company entered into a contract for consulting
services with Remarc International, Inc., a corporation owned by Messrs.
Morris and Stemm, whereby Remarc was to seek to obtain a permit for a project
in South American waters on behalf of the Company in return for between 6.0%
and 9.5% of the gross recovery of the project, depending on the percentage
paid to the South American government. In furtherance of the negotiations for
the permit, it became prudent to join forces with a South American competitor
to form a bidding Consortium. The Consortium rendered the original
Consultancy Agreement with Remarc inappropriate and under a Joint Venture
Agreement dated August 1995, with the Company, Remarc agreed to forego its
entitlement to the percentage of the gross recovery of the project and instead
become an equal partner with the Company in a local company that owns half of
the Consortium. All transactions involving Messrs. Morris and Stemm, or their
affiliates, have been and will be approved by the Board of Directors.
In addition, the Company has in the past, and intends in the future, to
form partnerships to pay for the search and recovery of shipwrecks where the
Company serves as the general partner of the partnership. Potential conflicts
of interest may exist between the Company and the partnerships arising from
this relationship.
The three partnerships which have been formed by the Company are in the
business of "engaging in expeditions attempting to locate, identify, recover
and market the cargoes and artifacts associated with one or more shipwrecks
within a specified geographic area," while the Company is engaged in the
business of providing the data, manpower and equipment necessary to locate,
identify, recover and market the cargoes and artifacts associated with
shipwrecks, both for itself and others, on a world wide basis. The Company
expects that any future partnerships which may be formed would also be limited
to the search for a specific wreck or for the search of a specific geographic
area. The Company believes that the practice of limiting the business of a
partnership to a specific wreck or geographic area will mitigate the effects
of any conflicts of interest. (See "TRANSACTIONS WITH MANAGEMENT AND
OTHERS.")
12. Competition. The Company is aware of at least one other operating
company which is engaged in the business of locating and retrieving shipwrecks
from deep water. There are also several companies operating on a world wide
basis who may have the technological capability necessary to compete with
Seahawk. In the event these companies decided to enter the shipwreck
business, they may have greater experience, technology and financial
resources. There are a number of investor groups, or other entities, which
have been formed for the purpose of searching for a particular shipwreck. As
different technologies which can be utilized in the search and recovery of
shipwrecks are developed or improved the likelihood of competitors may
increase.
13. Control by Present Management. The present Officers and Directors
of the Company beneficially own 1,966,802 shares or approximately 7.5% of the
Company's outstanding shares, and, as a practical matter, control the
operations and affairs of the Company. (See "SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL SHAREHOLDERS.")
14. Warrants Outstanding to Purchase 6,540,695 Shares. In connection
with several private placement transactions, loans, loan conversions, and
settlement agreements during a period from December 1991 through July 1995,
the Company issued warrants to purchase 7,679,132 shares of Common Stock.
During this period, 1,012,000 of these Warrants were exercised and 126,437
Warrants expired. Included in the 6,540,695 Warrants remaining outstanding
are Warrants to purchase:
<TABLE>
<S> <C>
142,000 shares at $0.10
1,000,000 shares at $0.25
175,000 shares at $0.30
3,803,750 shares at $0.32
32,000 shares at $0.38
1,100,000 shares at $0.50
100,000 shares at $1.00
25,754 shares at $2.00
32,191 shares at $5.00
100,000 shares at the lower of $2.50 or the lowest
bid price in previous 180 days
---------
6,540,695
</TABLE>
The exercise of these warrants would dilute the percentage ownership of
the Company's current shareholders.
15. Sales by Selling Shareholders. The shares being offered hereby are
being offered solely by Selling Shareholders who are not restricted as to the
price or prices at which they may sell the shares. To the extent that shares
are sold below the then current level at which the Company's shares are
trading, the market price of the Company's Common Stock may be adversely
affected. Further, this offering may depress the market price of the
Company's Common Stock because of the large number of shares being offered and
the absence of a fixed offering price. The Company's ability to raise equity
capital by selling shares of its Common Stock for cash may be impaired because
of this offering by Selling Shareholders.
Selling Shareholders must comply with the requirements of the Securities
Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended,
and the rules thereunder including Rules 10b-2, 10b-6 and 10b-7, in offers and
sales of their shares. In particular, Selling Shareholders may not: (i) pay
commissions or finder's fees to anyone other than normal brokers' commissions
paid to their brokers who execute their orders for sales; (ii) bid for or
purchase for their own account or the account of any affiliate (including any
other Selling Shareholder) or induce others to bid for or purchase, any of the
Company's shares, including those shares offered by this Prospectus, until
their shares have been sold; or (iii) make any bids for or purchases of such
shares, directly or indirectly, for the purpose of stabilizing the price of
the Company's Common Stock. Additionally, Selling Shareholders including
brokers through whom their sales are made, as well as dealers who purchase
shares being offered hereby for resale, must comply with the prospectus
delivery requirements of the Securities Act of 1933, as amended, during the
term of this offering.
16. Dividends. No dividend has been paid on the Common Stock since
inception and none is contemplated at any time in the foreseeable future.
(See "DESCRIPTION OF SECURITIES.")
17. Shares Eligible for Future Sale. Of the shares of the Company's
Common Stock outstanding, 17,712,291 are "restricted securities" and under
certain circumstances may in the future be sold in compliance with Rule 144
adopted under the Securities Act of 1933, as amended. Future sales of those
shares under Rule 144 could depress the market price of the Common Stock in
any market which may exist. Of such shares, approximately 5,694,047 shares
are currently eligible for sale pursuant to Rule 144.
18. Preferred Stock. The Company is authorized to issue 60,000,000
shares of Preferred Stock, no par value. The Preferred Stock may be issued in
series from time to time with such designation, rights, preferences and
limitations as the Board of Directors of the Company may determine by
resolution. The potential exists, therefore, that preferred stock might be
issued which would grant dividend preferences and liquidation preferences to
preferred shareholders over common shareholders. Unless the nature of a
particular transaction and applicable statutes require such approval, the
Board of Directors has the authority to issue these shares without shareholder
approval. The issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company without any further action by
shareholders. There are currently 200,000 shares of Series 1 Convertible
Preferred Stock outstanding. (See "DESCRIPTION OF SECURITIES.")
MARKET PRICE AND DIVIDENDS
The Company's Common Stock is traded on the over-the-counter market. The
following table sets forth the range for high and low bid quotations for the
Company's securities as reported by NASDAQ until February 10, 1994, and the
NASD's Electronic Bulletin Board since February 10, 1994. These prices are
believed to be representative inter-dealer quotations, without retail markup,
markdown or commissions, and may not represent actual transactions. The
Company's Common Stock traded on the NASDAQ Small Cap Market under the symbol
"SDOT" from January 24, 1990 until February 10, 1994, when it was delisted for
non-compliance with the rule that requires companies with net equity lower
than $2,000,000 to maintain a minimum bid stock price of $1.00.
<TABLE>
<CAPTION>
Bid
------------------------
Quarter Ended High Low
------------- -------- ---------
<S> <C> <C>
March 31, 1992 $3.12500 $1.562500
June 30, 1992 $3.50000 $1.250000
September 30, 1992 $3.25000 $0.187500
December 31, 1992 $0.40625 $0.125000
March 31, 1993 $1.00000 $0.125000
June 30, 1993 $1.37500 $0.500000
September 30,1993 $1.06250 $0.531300
December 31, 1993 $0.78130 $0.187500
March 31, 1994 $0.56250 $0.500000
June 30, 1994 $0.34380 $0.250000
September 30, 1994 $0.42190 $0.343800
December 31, 1994 $0.37500 $0.156250
March 31, 1995 $0.35938 $0.34375
June 30, 1995 $0.40625 $0.31250
September 30, 1995 $0.50000 $0.25000
December 31, 1995 $0.8125 $0.0625
</TABLE>
Approximate Number of Holders of Common Stock
The number of beneficial holders of the Company's no par value Common
Stock at February 1, 1996, was approximately 8,000.
Dividends
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. The Company has not paid any
dividends on its Common Stock and the Board of Directors of the Company
presently intends to pursue a policy of retaining earnings, if any, for use in
the Company's operations and to finance expansion of its business. The
declaration and payment of dividends in the future, of which there can be no
assurance, will be determined by the Board of Directors in light of conditions
then existing, including the Company's earnings, financial condition, capital
requirements and other factors.
USE OF PROCEEDS
No proceeds from the sale of the 17,086,125 shares offered by the Selling
Shareholders will accrue to the Company.
Although the Company will not be receiving any additional proceeds from
the sales made by the Selling Shareholders, the Company has received
consideration from the Selling Shareholders when the shares being registered
were originally issued by the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company was formed on September 17, 1986 for the purpose of creating
a corporate vehicle to seek and acquire a business opportunity. The Company
completed a public offering during October, 1988 and received net proceeds of
approximately $490,000. On March 13, 1989 the Company acquired 100% of the
outstanding stock of R/V Seahawk, Inc. ("R/V Seahawk") in exchange for
2,000,000 shares of the Company's Common Stock. The Company had no
significant operations prior to the March, 1989 acquisition of R/V Seahawk.
On March 2, 1992, R/V Seahawk was merged into the Company.
Results of Operations
Nine Months Ended September 30, 1995, Compared to Nine Months Ended
September 30, 1994
The net loss for the nine months ended September 30, 1995, was $812,955
as compared to a loss of $1,107,201 in the corresponding period of 1994.
The reduced loss for the nine months ended September 30, 1995, compared
to the nine months ended September 30, 1994, resulted from an increase in
revenues of $390,289 while operating expenses (down by $102,059 to $518,656)
decreased and administrative expenses (up by $188,820 to $563,804) increased.
The most significant revenues and cost reductions resulted primarily from
the charter of the M/V Seahawk Retriever which provided an increase in revenue
of $281,667 during the 1995 period while there was no such revenues during the
same nine months of 1994. There also was a reduction of $28,263 in marine
operations expense to $205,610 for the nine months ended September 30, 1995,
compared to $233,873 for the corresponding period of 1994. The major savings
in the cost of vessel operations were achieved by decreases in the costs of
insurance (down $9,478), dockage (down $14,927), supplies and consumables
(down $2,286), and repairs (down by $3,005).
A reduction of $84,089 in depreciation expense during the nine months
ended September 30, 1995, as compared to the equivalent nine months of 1994
resulted primarily from the sale of the ROV Merlin and associated equipment
during 1994 and the expiration of useful life of certain computer equipment.
The Company expects that the adoption of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
which will become effective for fiscal years beginning after December 15,
1995, would have no effect on the financial statements as of September 30,
1995.
An increase in interest expense of $69,795 during the nine months ended
September 30, 1995, as compared to the equivalent nine months of 1994 was
offset by a decrease in the loss on partnership operations of $30,338, an
increase in interest income from affiliates of $22,438 and a gain in the sale
of marketable securities of $19,900.
Administrative expense totaled $563,804 for the nine months ending
September 30, 1995, as compared to $374,984 for the same period in 1994.
Major components of the administrative expense for the nine months ending
September 30, 1995, were accounting expense ($32,712), provision for bad debt
($174,310), legal costs ($73,421), personnel costs ($244,476), and telephone
and communications ($15,188). The provision for bad debt related to an amount
due by International Diving and Consulting Services, Inc. for the charter of
the vessel M/V Seahawk Retriever.
Year Ended December 31, 1994, Compared to Year Ended December 31, 1993
The net loss for the year ended December 31, 1994, was $1,451,232 as
compared to a loss of $1,876,863 for the year ended December 31, 1993, a
decrease in losses of about 23%.
The reduction in revenues to $182,227 in 1994 from $436,631 in 1993
resulted from a decrease in revenue-producing partnership operations to
$50,285 in 1994 from $430,545 in 1993. Revenue from affiliated partnerships
was down primarily due to management's decision to no longer perform marine
services for Eagle Partners, Ltd. until the partnership secures funding to
pay for the services. This was offset by a $125,856 increase in revenue from
others ($131,942 in 1994 as compared to $6,086 in 1993). This increase was
largely due to the revenue on the lease of the vessel "M/V Seahawk Retriever"
pursuant to a Bareboat Charter Agreement between the Company and an unrelated
party which began producing revenue in September 1994.
An increase in operating expenses to $836,580 in 1994 from $811,974 in
1993 resulted in part from an increase in expense associated with vessel
operations to $319,346 in 1994 from $225,403 in 1993. There were increases in
the costs of insurance (to $46,863 from $18,898), dockage (to $22,527 from
$6,812), and personnel (to $178,567 from $104,620) with a decrease in vessel
maintenance expenses to $22,025 in 1994 from $41,022 in 1993. The dockage,
personnel, and insurance increases were directly attributable to the overhead
of the M/V Seahawk Retriever in the third quarter of 1994 following the
vessel's release from arrest. The Company did not bear such costs during
1993. The rental of the vessel R/V Seahawk increased to $72,000 in 1994 from
$54,000 in 1993 as the vessel was rented for the full year in 1994 and only 9
months in 1993. Depreciation expense decreased to $324,515 in 1994 from
$426,087 in 1993 mostly due to the sale in 1994 of the ROV Merlin.
A $214,595 reduction in administrative expense to $516,241 from $730,835
in 1993, resulted primarily from reduced legal expenses (to $78,780 in 1994
from $237,428 in 1993) as the Company no longer incurred the higher costs due
to the SEC investigation and the Commercial Union lawsuit in 1994. There was
also a reduction in accounting expense (to $33,434 from $58,247),
administrative salary expense (to $127,847 from $134,195) and a reduction in
general administrative costs of $8,106 due to the continued strategy of
overhead reduction in line with operational activity and cash resources.
There were moderate increases in costs of consulting (increase of $19,436),
printing (increase of $4,267), postage (increase of $2,178) and insurance
(increase of $2,941).
Interest expense was up by $60,792 due to an increase in notes payable
during 1994 when new notes amounting to $310,000 were issued. Interest
expense also continued to accrue to Commercial Union on the long-term debt. A
decrease in losses resulting from partnership operations to $60,763 in 1994
from $394,283 in 1993, was primarily due to a lack of funding for the
partnership's operations and the consequent reduction in their overall
expenditures. There was also a reduction of loss due to disposal of assets to
$45,181 in 1994 from $260,006 in 1993 since the loss on the sale of the ROV
"Merlin" was provided for in the earlier year.
Liquidity and Capital Resources
At December 31, 1994, the Company had negative working capital of
$(2,114,888). During the nine months ended September 30, 1995, the Company's
working capital increased to a negative $(1,706,845).
The increase in working capital of $408,043 in the period was mostly the
result of restructuring $825,000 of the preferred ships' mortgage with
Commercial Union Capital Limited to long-term debt from current liability.
Net operating losses before depreciation were financed by the proceeds from
the sale of marketable securities and the issuance of common stock.
In September 1994 and November 1994, the Company issued 1,001,875 and
800,000 shares of common stock, respectively, in two private placements.
Under the terms of the private placements, if the stock issued was not
registered by December 31, 1994, and March 10, 1995, a bonus of 30% of the
original issue became due. The shares were not registered within the time
limit, consequently 300,562 shares of common stock were issued on January 1,
1995, and 240,000 were issued in May 1995. On January 1, 1995, $83,702 of
accrued expense was converted into 264,774 shares of common stock, and on
March 1, 1995, an account payable of $4,609 was converted into 31,926 shares
of common stock. On June 30, 1995, a debt holder exercised warrants for
40,000 shares of common stock in exchange for $10,000 of debt owed by the
Company. During August and September 1995, the Company issued $698,836 shares
of common stock for $174,709 cash raised in a private placement stock
offering. After September the Private Placement was closed out. The total
amount raised was $314,784 by the placement of 1,259,316 shares.
In October 1993, the Company signed a marketing agreement with Buckeye
Communications, Inc. The agreement sets out the terms under which the
Company's artifacts, products derived from the artifacts and products derived
from the Company's archive material would be marketed by Buckeye on a
worldwide exclusive basis. Any sales resulting from this marketing effort
were to result in royalty payments to the Company. Similar agreements were
signed between Buckeye and Seahawk I, Ltd., Seahawk II, Ltd. and Eagle
Partners, Ltd. The agreements required a minimum revenue to the Company and
its Affiliates of $350,000 in the first two years in order for the agreements
to continue in force. The development of products under the marketing
agreement took longer than expected, and little revenue was earned from the
agreement with Buckeye. The required minimum revenue in the two years to
October 1995 was not achieved, and the agreement expired in October 1995.
During 1994, Buckeye did provide a licensing agreement with a third party to
develop a CD ROM game which is expected to enter the market in the first
quarter of 1996 and provide royalty income to the Company from that time. In
October 1993, Buckeye also agreed to provide Seahawk I, Ltd. with a loan of
$250,000 at 10% per annum interest for two years. The loan was secured by
certain of the pearls owned by Seahawk I, Ltd. and guaranteed by the Company.
Under the terms of the note, interest is payable quarterly, but none of the
interest due was paid. On December 1, 1994, an agreement was reached between
the Company, Seahawk I, Ltd. and Buckeye under which the Company assumed the
Buckeye loan and interest due in return for a note from Seahawk I, Ltd. The
principal of the loan was converted into 1,000,000 shares of common stock in
the Company and 200,000 shares of convertible, redeemable preferred stock in
the Company. The outstanding interest of $54,156 is scheduled to be repaid at
the rate of $5,000 per month.
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
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.
During August 1994, the Company entered into a Vessel Bareboat Charter
and Purchase Agreement with International Diving and Consulting Services, Inc.
("International Diving"), a Lafayette, Louisiana based underwater services
company. Pursuant to this agreement, International Diving agreed to charter
the SEAHAWK RETRIEVER for the five year period commencing September 1, 1994,
and to purchase the vessel at the end of the five year period for a net
purchase price of approximately $1,350,000 plus interest at a rate equal to 3%
per annum over the Citibank New York prime rate.
The agreement further provides that International Diving will market the
vessel at a minimum day rate of $5,000, except that all lump sums or turnkey
projects will have a $6,000 minimum daily rate. International Diving further
guarantees one hundred eighty (180) days utilization of the vessel at a rate
of $5,000, or an annual total of $900,000. The greater of the guaranteed
revenues or the actual revenues, after deduction for certain operating costs,
will be shared between the Company and International Diving as follows: (i)
35% to the Company as charter hire for the vessel; (ii) 30% to International
Diving for operating costs and profit; and (iii) 35% to the Company which will
be applied toward the purchase price of the vessel. Revenue of $231,857 was
earned during the six months ended June 30, 1995. Payments are due quarterly
within 10 days after the end of each quarter. In the event International
Diving fails to purchase the vessel at the end of the five year term, the
vessel is to be returned to the Company and the 35% payments which are
credited toward the purchase price will be retained by the Company as
liquidated damages. International Diving's performance under this agreement
has also been personally guaranteed by the two principals of International
Diving.
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 District 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
has declined the option to purchase the Retriever and has made the payments
under (a), (b) and (c) above.
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 25, 1995, and to make payments of $53,179 on
August 8, August 24 and September 5, 1995. The payment due on July 11, 1995
was made and $45,000 was received on August 8, 1995. No further payments have
been received.
On August 22, 1995, the Bankruptcy Court ordered that because
International Diving had failed to pay the sums required by the order of July
25, 1995, they should immediately surrender the Retriever to the Company. The
vessel was repossessed by the Company on September 12, 1995. An account
receivable from International Diving of $173,620 owing at September 30, 1995,
was provided for as bad debt due to the possibility that International Diving
may be forced into a Chapter 7 Bankruptcy Liquidation. The Company is,
however, pursuing International Diving for the outstanding payments through
the same Bankruptcy Court. The Company is currently offering the M/V Seahawk
Retriever for charter in the Gulf of Mexico.
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. If the General Partner is unable to identify additional working
capital to work on the Partnership's wreck off St. Augustine, it may consider
asking the partners to vote on terminating the Partnership.
Eagle Partners, Ltd. is also out of cash but has continued its search for
a shipwreck believed to have sunk off the east coast of the United States.
The Company has 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. On July 18, 1995, the
Company announced that it had entered into a joint venture agreement with Sea
Miners, Inc., a Baltimore, Maryland 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 $45,250 during the quarter ended September 30, 1995, from this partnership
and expects to earn additional revenue during the fourth quarter of 1995 from
this partnership.
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 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.
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. As indicated above, the Company, acting in its
capacity as general partner of Seahawk I, Ltd., is attempting to arrange for a
sale of the artifacts owned by Seahawk I, Ltd.
BUSINESS
The Company
Seahawk Deep Ocean Technology, Inc. (the "Company") was formed under the
laws of the State of Colorado on September 17, 1986, for the purpose of
creating a corporate vehicle to seek and acquire a business opportunity.
In October of 1988, the Company completed a public offering of 1,200,000
shares of Common Stock at an offering price of $.50 per share. The net
proceeds of that offering to the Company were approximately $490,000.
On March 13, 1989, the Company issued 2,000,000 shares of its no par
value Common Stock to the holders of 100% of the outstanding common stock of
R/V Seahawk, Inc. ("R/V Seahawk") in an exchange transaction in which R/V
Seahawk became a wholly owned subsidiary of the Company. During September
1989 the Company's name was changed from Fox Ridge Capital, Inc. to Seahawk
Deep Ocean Technology, Inc. On March 2, 1992, R/V Seahawk was merged into the
Company.
On June 12, 1992, the Company effected a one for fifty reverse split of
the shares of the Company's Common Stock outstanding. All financial
information and share data in this Prospectus give retroactive effect to this
reverse split.
On September 12, 1989, the Company organized Seahawk Artifact Recovery,
Inc. This subsidiary was inactive throughout 1989 and 1990. In January 1991,
its name was changed to Seahawk Museum Development, Inc. This subsidiary was
developing plans for a shipwreck and treasure museum in St. Petersburg,
Florida, however, the Company's inability to finance the museum has forced the
Company to put the museum plans on hold indefinitely.
Unless the context otherwise requires, the term "Company" as used herein
refers to Seahawk Deep Ocean Technology, Inc. and its wholly owned subsidiary
Seahawk Museum Development, Inc.
On February 4, 1991, the Company acquired all of the outstanding stock of
Valley Marine, Inc. ("VMI") in exchange for 600,000 newly issued shares of the
Company's Common Stock. VMI owned the SEAHAWK RETRIEVER, the 204-foot
recovery vessel. During February 1991, VMI merged into R/V Seahawk.
R/V Seahawk was formed on May 23, 1988, for the purpose of serving as
general partner for one or more limited partnerships which were to be formed
to search for valuable shipwrecks. R/V Seahawk was initially capitalized with
$200,000 by John C. Morris, Gregory P. Stemm and three other investors. R/V
Seahawk then purchased equipment to be used for the search operations and
signed an agreement with marine archaeologist Robert Marx for the right to use
data for a suspected shipwreck site. R/V Seahawk then formed its first
partnership, Seahawk I, and raised $175,000 to fund the search activity. The
fund raising and initial search efforts were carried on during the remainder
of 1988 and into 1989 until April, 1989, when the Seahawk I partnership
located and identified its first shipwreck.
The Company is an oceanographic service company which is involved in deep
water search, survey and recovery operations. The Company serves as the
general partner for three limited partnerships which were formed for the
purpose of raising money to search for and locate shipwrecks. The Company
currently leases or owns and operates a variety of subocean equipment
including a 204 foot recovery vessel, an 83 foot survey vessel, ROV's
(Remotely Operated Vehicles), and other specialized search and recovery
equipment which enables them to locate, photograph and retrieve items lost
on the seabed in deep water.
The Company is also seeking opportunities where it can lease its
equipment to others and generally act as an underwater contractor.
The partnerships formed by the Company and for which the Company serves
as the general partner are engaged in the business of attempting to locate,
identify, recover and market the cargoes and artifacts associated with one or
more shipwrecks in a specific area. The Company, on the other hand, provides
to the partnerships the data, manpower and equipment necessary for the
partnerships to carry out this business purpose. The Company is also engaged
in the business of locating, identifying, recovering and marketing the cargoes
and artifacts associated with shipwrecks on its own behalf and for others on a
world wide basis.
Seahawk I, Ltd., Seahawk II, Ltd. and Eagle Partners, Ltd.
The Company has formed three limited partnerships (Seahawk I, Ltd.,
Seahawk II, Ltd. and Eagle Partners, Ltd.) for the purpose of funding the
search for deep water shipwrecks in predesignated areas.
Seahawk I, Ltd. During April, 1989, the first partnership (Seahawk I)
located and photographed a Spanish wreck which the Company believes was one of
the vessels lost during a storm in 1622. The wreck was found approximately
1,500 feet deep in international waters south of the Florida Keys. During
June, 1989 a bell was recovered from the site in order to perfect the
admiralty claim in the United States District Court.
During June 1990, Seahawk I commenced its pre-disturbance survey on this
wreck and during August 1990, Seahawk I commenced actual recovery operations.
The recovery operations continued until November 1990. The SEAHAWK RETRIEVER
returned to the site in May 1991, and resumed recovery operations which were
carried out periodically during the summer of 1991 until October 5, 1991, when
the SEAHAWK RETRIEVER left the site. An area of approximately 2,690 square
feet surrounding the site has been excavated to a depth of 1.5 to 3 feet. The
remaining hull structure and ballast stone pile occupy about 430 square feet
of this area. A total area of 11,300 square feet has been scanned with a
metal detecting unit to a depth of approximately 14 inches and revealed in
excess of 130 targets, most of which were dredged up.
Since the Company does not have the technical capability to determine the
full depth of the wreck, it is impossible to state what percentage of the
wrecksite has actually been excavated. The Company does believe that the
Partnership has reached a point of diminishing returns and the Partnership
does not intend to return to the wrecksite unless it is able to sell most of
its artifacts and the partners decide that the potential of recovering any
artifacts or treasure in the future justifies the expense of continuing with
the recovery.
A total of 16,480 artifacts have been recovered from the site. These
include twenty-nine gold finger bars, over eleven hundred silver coins, a gold
emerald ring, three mariner's astrolabes (a navigational device used during
the early 1600's), over 6,000 pearls, seventy-six clay olive jars and other
miscellaneous items including musket balls, wood, pottery and pottery shards.
Seahawk I has incurred expenses in locating, recovering, conserving and
storing these artifacts of approximately $3,384,000 since inception, of which
$814,156 has been capitalized into the costs of artifacts on Seahawk I's books
at December 31, 1993. The Company has contributed $1,190,900 since inception
to the capital of Seahawk I. Seahawk I has engaged the Company to provide
vessel operations, and the Company has provided vessel operations in the
amount of $868,465 which have been billed to Seahawk I but have not been
paid. These are carried in the Company's books as trade accounts receivable.
The primary focus of the SEC Stop Order proceeding (see "Legal
Proceedings," below) was the value of the artifacts owned by the Company and
its partnership Seahawk I, Ltd. As a result of the decision of the
Administrative Law Judge on May 26, 1993, a provision has been set up against
the capitalized cost of the artifacts in Seahawk I's books to reduce their net
book value to $814,156 and the financial statements of the Company for the
years ended December 31, 1990 and 1991 have been restated to comply with GAAP
as a consequence.
Management of the Company believes that this wreck is from the 1622
Spanish fleet. This belief is based upon a number of factors including the
following: (1) the location of the shipwreck; (2) similarities of a number of
the artifacts found on the shipwreck with artifacts found on the Atocha, a
sunken galleon from the 1622 Spanish fleet; and (3) expert opinions of
individuals familiar with the artifact collection and the 1622 fleet. The
Company does not yet know what the name of this vessel is or how much treasure
it carried. The Company believes that the keel length was approximately 56 to
57 feet long indicating that the vessel size was between 100 and 220 tons.
The Company also believes that the vessel was most likely a moderate-size
merchant vessel.
Seahawk I, Ltd. is a Florida limited partnership which was formed on May
23, 1988, with R/V Seahawk as the sole general partner. The Partnership was
initially funded with a total of $175,000 which was raised from private
investors. The salvage operations for this shipwreck have required the
Partnership to raise additional funding. The Company will split with the
limited partners on a 50/50 basis the proceeds from the sale of all valuable
objects or artifacts after payment of the partnership expenses and a return of
all capital contributions to both the limited partners and the Company. The
expenses of the Partnership include the payment of ten percent (10%) of all
items salvaged to Tanit Corp., a company owned by Robert Marx, the marine
archaeologist who provided research and data relevant to this particular
project. Seahawk I raised an additional one million dollars ($1,000,000)
during 1990 to finance the initial salvage operations. In order to do this,
Seahawk I created a new class of limited partner which is entitled to twenty
percent (20%) of the partnership's net distributable income in return for an
investment of $500,000. The Company has also invested an additional $500,000
to maintain its right, as General Partner, to receive 50% of the partnership's
net distributable income.
On May 19, 1988, R/V Seahawk, Inc. and Tanit entered into an agreement
whereby R/V Seahawk obtained exclusive access to Mr. Marx's research and data
covering a specified search area defined on a map, so long as the project
commenced prior to May 1991. In exchange for this exclusive right to Mr.
Marx's research and data, R/V Seahawk paid to Tanit a fee of $10,000 in cash
and agreed to pay to Tanit an additional fee equal to ten percent (10%) of the
value of all salvaged items recovered (the "Additional Payment") both as
additional consideration for the research and data and as consideration for
consulting services which Mr. Marx was to render during the project. R/V
Seahawk licensed the exclusive use of the research and data to Seahawk I, Ltd.
(the "Partnership") for the Partnership's use in the project. In return, the
Partnership assumed R/V Seahawk's obligation to pay the Additional Payment to
Tanit. On April 22, 1993, R/V Seahawk's and the Partnership's obligations
with respect to the Additional Payment were fully satisfied by the transfer of
certain artifacts to Tanit. The cost of the artifacts was $18,384.
Robert F. Marx is a 58 year old marine archaeologist, maritime historian
and author. He has participated in over 56 archaeological explorations and/or
recoveries around the world since 1953, and he has conducted extensive
historical research on the history of Spanish flotas and galleons. Mr. Marx
has written more than thirty books and 100 articles on various aspects of
marine archaeology.
During March 1991, Seahawk I created a new class of limited partners and
raised a total of $691,800 to finance the recovery and conservation of
artifacts of the Partnership. The Company also invested an additional
$690,800 to maintain its right to receive 50% of the net distributable income.
The Company carries an account and note receivable from Seahawk I, Ltd. of
$1,059,494 as of June 30, 1995, less a provision for losses in excess of
investment of $650,617.
Seahawk II, Ltd. During May, 1989, R/V Seahawk formed Seahawk II, Ltd.,
a Florida limited partnership ("Seahawk II"), and agreed to serve as the sole
general partner. Seahawk II is structured very similar to Seahawk I except
that the expenses of the Partnership include a payment of 5% of all items
salvaged to a fund for the crew. Seahawk II sold 50 Units at a price of
$30,000 per Unit. During 1989, Seahawk II commenced its proposed business of
attempting to locate deep water shipwrecks in a specific area off the east
coast of Florida, and found what management believed to be a colonial era
shipwreck. This belief was based on, among other things, the opinions of Dave
Moore described below relating to the age of the silver coins and cannons
found on the wreck. A cooking pot and piece of rigging were recovered from
the site in order to perfect the admiralty claim. During October 1990,
Seahawk II conducted a predisturbance survey of this wreck site (referred to
as the "St. Augustine" site) utilizing Harbor Branch Oceanographic
Institution's Johnson Sea-Link manned submersible. During this survey,
approximately 90 artifacts were recovered including two cannons, numerous
cannon balls, and a dozen copper cooking pots. Dave Moore, an archaeologist
who used to be employed by the Company, estimated the cannon is from the
1700's. Dave Moore holds a Masters Degree in Maritime History and Underwater
Research and he has over 10 years' experience in archaeology.
During April 1991, the Johnson Sea-Link returned to the site to continue
work on the shipwreck for 6 days. A good portion of the area surrounding the
ballast pile was uncovered and some timbers and ribs of the ship were exposed
which, according to archaeologist Robert Marx, indicated that the ship was
small in size -- most likely in the 50 to 75 ton range. During this trip, a
number of artifacts were recovered, including 6 Spanish silver coins, three
four-foot cannons, more copper cooking pots, scores of lead musket and pistol
balls, pulley blocks and sheaves and other miscellaneous items. According to
Mr. Moore, the coins date between 1712 and 1714. Mr. Marx has reported to the
Company that he believes that the ship was a small Spanish vessel known as an
"Adviso" or advice boat -- sometimes called a "Patache." One or more of these
ships was usually employed in each treasure fleet with their main purposes
being to carry mail and official communications between the king and
government officials.
According to Mr. Moore, this class of vessel was never authorized to
carry treasure, but contraband treasure was sometimes carried on these ships.
He has also stated that there was no way he could say whether or not this
shipwreck contains substantial amounts of treasure.
The Seahawk II Partnership currently has no cash, and the partnership has
no plans except to attempt to liquidate the artifacts if a reasonable
opportunity to do so arises.
The Company carries an account receivable from Seahawk II, Ltd. of
$14,928 as of June 30, 1995, less a provision for bad debt of $6,454 and for
losses in excess of investment of $17,090.
Eagle Partners, Ltd. During November 1991, the Company formed Eagle
Partners, Ltd., a Florida limited partnership ("Eagle Partners"), with the
Company serving as the general partner. Eagle Partners sold 3 Units for a
total of $150,000. The partnership is operating under a joint venture
agreement with a non-affiliated researcher who has provided the research and
data for a 19th Century shipwreck off the east coast of the United States.
The joint venture agreement was entered into between the Company and the
researcher, and the Company assigned its rights and responsibilities in the
joint venture to Eagle Partners. According to the researcher and newspaper
accounts of the sinking, the vessel was believed to have a valuable cargo of
specie on board at the time of the sinking, although there is no assurance
that the researcher is correct or that the shipwreck will be located. The
researcher holds a Bachelor's Degree in Interdisciplinary Studies with a
concentration in Marine Archaeology, and he has been involved in underwater
archaeology and searching for shipwrecks for over 25 years. He has written
over 10 books and a number of articles on the history of shipwrecks.
Pursuant to the terms of the joint venture agreement, the researcher was
to receive twenty percent (20%) of any items recovered from the ship. The
partnership was responsible for conducting and paying the expenses of the
search and recovery of the shipwreck and if successful, for marketing any
cargo which was recovered. The partnership was to receive eighty percent
(80%) of any recovery.
The joint venture agreement required the partnership to dedicate the
vessel R.V. Seahawk (or a similar vessel with similar equipment) to work on
this project at least 120 days during 1992, and each year thereafter,
beginning not later than May 30 of each year. The joint venture agreement was
amended in June 1994. The amended agreement required the partnership to work
on the project for at least 60 days during 1994. The partnership did not meet
this schedule and defaulted on the agreement. In such an event, the agreement
provided that all rights to conduct search and/or salvage efforts relative to
this wreck would revert to the researcher. The Company has negotiated a
replacement of the joint venture agreement (the "1995 Agreement") under which
the researcher's share of any successful recovery was reduced to ten percent
(10%) and the requirement for the partnership to work on the project was
reduced to 60 days during 1995. In return the Company agreed to issue the
researcher and his partner 60,000 shares of its Common Stock. The 1995
Agreement provides that if the minimum work requirement is not met by the end
of 1995, then to continue the arrangements without a minimum performance
requirement, the Company must issue the researcher and his partner an
additional 40,000 shares.
The partnership's eighty percent interest in the joint venture was to be
allocated among the Company and the limited partners as follows: After the
return of all contributed capital each $50,000 unit was to receive 5% of the
first $1 million distributed, 4% of the second $1 million distributed, 3% of
the third $1 million distributed, 2% of the fourth $1 million distributed and
1% of anything over $4 million distributed. The Company, as the general
partner, was to receive the balance of any distribution.
After reviewing the research, Eagle Partners established a primary search
area of 100 square miles and a larger search area of 600 square miles. During
1992, Eagle Partners searched approximately 500 square miles and located six
shipwrecks. During May 1993, using newly acquired research data, Eagle
Partners searched approximately 140 square miles and located five shipwrecks.
During 1994, Eagle Partners searched approximately 140 square miles. None of
the shipwrecks located to date has been that shipwreck the partnership is
seeking.
In early 1995, the Company became aware of another company ("Sea Miners,
Inc.") that was searching for the same shipwreck (code named "Golden Eagle")
and in order to pool research and resources and to remove all-or-nothing
competition, Eagle Partners and Sea Miners formed an equal joint venture to
search for the vessel. As a result of the joint venture, each of the limited
partners of Eagle Partners agreed to reduce their entitlement of any
distribution to one-half of the original amount in the paragraph above. The
joint venture has contracted to use the Company for all of its offshore
services. $100,000 was raised by the joint venture to finance the initial
inspection of certain sites that Sea Miners has revealed as possible
shipwrecks in its search area. The joint venture intends to raise additional
financing for this project but there is no assurance that it will be able to
do so.
The Company carries an account receivable from Eagle Partners of
$1,024,329 as of June 30, 1995, less a provision for losses in excess of
investment of $1,027,854.
Management of Partnerships
The following table sets forth information concerning the authority of
the general partner in the three partnerships referred to above for which the
Company serves as general partner. The purpose of this table is to disclose
generally the types of actions that the general partner can take without
needing approval of the limited partners and the types of actions where
approval of the limited partners is required.
<TABLE>
<CAPTION>
Approval of
Action Limited Partners Required
<S><C> <C> <C>
1. Enter into contracts and agreements 1. No.
which the general partner ("G.P.")
deems necessary or advisable for the
conduct of the partership's business.
2. Enter into partnerships or joint 2. No.
ventures.
3. Employ advisers or agents. 3. No.
4. Borrow money on secured or unsecured 4. No.
basis.
5. Amend limited partership agreements. 5. Yes (by the holders of a
majority of the limited
partnership units).
6. Admit additional G.P.'s. 6. Yes (by the holders of a
majority of the limited
partnership units).
7. Admit additional limited partners. 7. No.
8. Sell additional units in the partnership. 8. No - unless it requires
amendment to partnership
agreement.
9. Remove G.P. 9. Yes* (by the holders of
75% of the limited part-
nership units).
10. Dissolve partnership. 10. Yes (by the holders of a
majority of the limited
partnership units).
* In Seahawk II, the limited partners do not have the right to remove the
general partner.
</TABLE>
Background
During the past three years, the number and seriousness of approaches by
various groups interested in ocean salvage have increased significantly,
principally because the development and application of new technology have
improved working capability in the deep sea.
The principals of the Company have been operating the research vessel
SEAHAWK (the "SEAHAWK") for the past five years. In addition, through their
involvement with this Company and affiliated companies, they have been
acquiring highly specialized search, survey and recovery equipment. They have
been working closely with both consultants and employees considered to be some
of the leading experts at deep ocean search and recovery, diving on wrecks,
and assembling a shipwreck data base.
Plan of Operation
The Company expects that, at least initially, much of its deep ocean
shipwreck search and recovery activities will be funded by limited
partnerships similar to Seahawk I, Seahawk II and Eagle Partners thereby
transferring most of the economic risk of finding shipwrecks to the investors
in these partnerships. As soon as the Company believes that it has sufficient
capital of its own to finance these activities, it will do so in order to
avoid diluting the Company's interest in the wrecks. Management's only
experience in forming and marketing partnerships for the purpose of funding
shipwrecks is Seahawk I, Seahawk II and Eagle Partners.
The Company is also exploring joint ventures with others for the purpose
of searching for shipwrecks in deep water off the coasts of foreign countries
including Brazil and Portugal.
The Company and its partnerships expect to follow the following six steps
in their deep water expeditions.
1. Determine Target Search Areas Through Research. The first step in a
deep water search operation is to develop data on proposed sites through a
combination of research conducted by the Company or research purchased by the
Company from others. For example, the wreck located by Seahawk I, Ltd. was
based on research conducted by an archaeologist who was paid with a 10%
interest in the wreck. The Company has received research on numerous wrecks
throughout the world, and is continually, as time permits, reviewing this
research for possible recovery projects.
2. Search for Anomalies in the Target Areas. Once the target area
search sequence has been determined, the search will then be undertaken to
locate promising anomalies utilizing the Company's equipment.
If an anomaly is found, its precise location will be noted and mapped
using the navigational system which utilizes digital output from sensing
devices and logs it into the onboard computer's target navigational database.
After completing the search of a grid, a preliminary analysis will be
made and the position of promising targets will be noted. This will indicate
those sites and anomalies which will be revisited for visual verification and
inspection with the ROV's.
3. Survey and Verification of the Anomaly Site. The initial
verification phase will serve to provide visual confirmation of the nature and
composition of the anomaly. In most cases, a look at the subject sites will
quickly determine whether they are natural bottom structures, manmade objects
that hold little interest (steel drums, cable, modern anchors, fishing
equipment, etc.) or potentially valuable sites. If the site looks promising,
small artifacts will be recovered in an attempt to date and identify the
vessel.
This entire phase will be accomplished using ROV's, incorporating onboard
lights, cameras, sonar and tracking navigation systems.
With the video records and items recovered from the wrecksite, the
Company will attempt to identify the wreck(s) with the help of maritime
historians and marine archaeologists. Identifying ancient shipwrecks is
extremely difficult, however, and the Company has been unable to definitely
define the shipwrecks discovered by Seahawk I and Seahawk II. Once the wreck
has been identified, a determination of the cargo carried and historical and
archaeological significance of the wreck can be made.
4. Establishing Legal Claim to the Site. If the site appears valuable,
the Company will take the necessary steps to legally claim title to the
shipwreck. This will usually involve a filing in the U.S. Admiralty Court.
See "Legal Aspects of International Salvage."
With respect to the wreck discovered by Seahawk I, the Partnership filed
a complaint seeking a warrant for the arrest of the vessel with the United
States District Court for the Middle District of Florida on June 30, 1989. On
June 30, 1989, the Court issued a warrant for the arrest of the wreck.
Shortly thereafter, a bell recovered from the wreck was presented to the Court
and a motion was filed requesting an order appointing the Company as
custodian for the wreck. On July 18, 1989, notice of the wreck was published
and on September 25, 1989, the Court entered an Order Noting Default since no
response was forthcoming from anyone to the notice published during July,
1989.
With respect to the wreck discovered by Seahawk II, the Partnership filed
a complaint for the arrest of the wreck with the U.S. District Court for the
Middle District of Florida on September 27, 1989. On the same date the Court
issued a warrant for the arrest of the wreck. On December 29, 1989, artifacts
from the wreck were presented to the Court and the Company was appointed by
the Court as the custodian for the artifacts. On February 13, 1990, notice of
the wreck was published, and on December 14, 1990, the Court awarded ownership
of the wreck to the Partnership.
5. Planning and Execution of Recovery. Planning the actual recovery
will depend on a large number of factors such as condition of shipwreck,
depth, bottom conditions, current and tidal conditions. In the anticipated
operating depths, several pieces of equipment will play vital roles in the
recovery operation. First, a safe, stable ship must be used as the recovery
platform.
The vessel must also be large enough from which to deploy the
submersibles that will be used as the actual salvage and recovery tools.
These recovery tools will include ROV's, some of which will be significantly
larger and capable of greater working ability than the ROV's used for initial
visual investigations.
Beginning with its salvage activities of the Seahawk I wreck site, the
Company has used the vessel SEAHAWK RETRIEVER, a 200 foot supply vessel, as
the primary vessel from which the recovery operations are conducted. The
SEAHAWK RETRIEVER has been used to deploy the ROV named Merlin which is being
used for the salvage and recovery activities. (See "Equipment" below for
descriptions of the SEAHAWK RETRIEVER and the ROV Merlin, and see "Legal
Proceedings" below for a description of the litigation involving the Merlin
and SEAHAWK RETRIEVER.)
6. Conservation of Artifacts. Complete conservation of artifacts
recovered from shipwreck sites is a integral part of the Company's business
plan. These conservation efforts begin as soon as the ROV reaches the ocean
floor. The Company takes the utmost care in removing each artifact from the
sea bed, using specialized tools that are built on site and carried to the sea
floor by the ROV. Examples of such tools are specially built baskets and
platforms that are constructed to accommodate artifacts once they have been
identified. The ROV uses these tools, built to interface with its computer
controlled manipulators, to recover each artifact from the ocean floor as
gently as possible.
The artifacts are then placed in a larger recovery platform, which is
designed to separate and protect the artifacts from damaging each other during
the trip to the surface. On deck, the artifacts are then catalogued,
photographed and secured in specially constructed storage containers. The
recovery process is supervised by the Company's archaeologist who assists with
the recovery, coordinates data management, ensures proper artifact handling,
and initiates interpretation and analysis.
The Company has established a conservation laboratory in the building it
leases at 5102 South Westshore Boulevard, in Tampa, Florida, where the
artifacts are transported and conserved to a final, stable state. The Company
has purchased for its conservation laboratory the facilities necessary for
stabilization of most all artifacts recovered, including noble metals, iron,
ceramics and organic materials. Before and during conservation, the artifacts
are made available for inspection by other archaeologists and
conservationists. After conservation is completed, the artifacts may also be
made available to the public, in a museum setting.
7. Marketing of Artifacts. The Company intends to realize revenue from
artifacts as follows:
(a) By Direct Sales - Artifacts which have been properly categorized
and recorded and which are not deemed to be a necessary part of an
archaeological collection may be sold directly to collectors, dealers or
through retail outlets.
(b) By Sale of Replicas - Replicas of certain artifacts may be
produced and sold as such.
(c) Display - Artifacts may be displayed in museum attractions which
would generate revenue from entrance charges and merchandise sales.
In October 1993, the Company signed a marketing agreement with Buckeye
Communications, Inc. The agreement sets out the terms under which the
Company's artifacts, products derived from the artifacts and products derived
from the Company's archive material will be marketed by Buckeye on a worldwide
exclusive basis. Any sales resulting from this marketing effort were to
result in royalty payments to the Company. Similar agreements were signed
between Buckeye and Seahawk I, Ltd., Seahawk II, Ltd. and Eagle Partners, Ltd.
The agreements expired in October 1995, because the required minimum revenues
were not received.
Shipwreck and Treasure Museum
During 1991, the Company's wholly owned subsidiary, Seahawk Museum
Development, Inc., commenced construction of a shipwreck and treasure museum
in St. Petersburg, Florida. The museum was to be approximately 10,000 square
feet, and was to feature interactive displays aimed at entertaining as well as
educating visitors about undersea technology, archaeology, conservation and
the colorful history the artifacts and treasures represent.
The Company leased space for the museum starting in July 1991, however,
during November of 1991, the Company was no longer able to make the monthly
lease payments, and during February 1992, the Company negotiated a termination
of the lease with the lessor.
The Company's inability to finance the museum forced the Company to put
the museum plans on hold until appropriate financing could be arranged. Such
financing may become available pursuant to a Letter of Intent signed by
Buckeye and the Company in October 1993.
The Letter of Intent sets out possible arrangements for the Company and
Buckeye to jointly own, develop and operate theme attractions to be known as
Shipwreck and Treasure Museums. It is intended that the attractions will
display the artifacts and products recovered by the Company or the Limited
Partnerships, recreate the background and actual mission of the recovery crew
on each discovery, and create a gift shop that will sell artifacts and
products, developed by Buckeye, relating to the artifacts. It is contemplated
that Buckeye will either provide or arrange funding for the first attraction.
Development of the joint project is contingent upon the Company and Buckeye
agreeing to a site, a budget and a final business plan for the museum. In
view of the failure of Buckeye to arrange any financing this year, it is
unlikely that any such attractions will be built in the near future.
South American Project
On June 1, 1994, the Company signed an Agreement for Consulting Services
with Remarc International, Inc., a Colorado corporation principally owned by
two former officers and directors of the Company, John Morris and Gregory
Stemm. The Agreement provided that Remarc would, at its own expense, seek to
obtain for the Company a permit from the appropriate government to search for
the particular shipwrecks involved in the South American Project. If such a
permit was obtained for the Company by Remarc, then the Company agreed to
grant Remarc between 6% and 9% of the gross proceeds of any successful
recovery from the project. The actual percentage granted to Remarc was to
depend on the size of portion of the recovery that would be taken by the South
American government in return for the permit.
In furtherance of the negotiations for the permit, it became prudent to
join forces with a South American competitor to form a bidding Consortium.
The Consortium rendered the original South American Consultancy Agreement with
Remarc inappropriate, and under a Joint Venture Agreement dated August 1995
with the Company, Remarc agreed to forego its entitlement to the percentage of
the gross recovery of the project and instead become equal partners with the
Company in a South American company that owns half of the Consortium. The
Company and Remarc each own 24.5% of the South American company with the
remaining 51% being owned by Brazilians.
Legal Aspects of International Salvage
The question of legal ramifications with regard to the recovery of
shipwrecks raises a number of issues. Salvors, historical interests and
individuals claiming ownership based on the payment of insurance claims all
have potential claims on goods brought up from the sea floor.
The seas are divided into four basic zones: the territorial sea, the
contiguous zone, the continental shelf, and the high seas. The Company
expects that most of its activities will be conducted in what is considered
the high seas. The site of the shipwreck found by Seahawk I, Ltd. is
approximately 25 miles from the Florida coastline in water approximately 1,500
feet deep. The site of the shipwreck found by Seahawk II, Ltd. is
approximately 60 miles from the Florida coastline in water approximately 1,200
feet deep. The Company believes that these shipwrecks are therefore located
in the high seas. No international agreement prevents the salvage of a
shipwreck from the high seas. Other countries, however, may claim a 200 mile
territorial limit and may assert claims to all shipwrecks located within that
distance from their coast.
Generally, there are two doctrines of maritime law that govern legal
claims to salvageable shipwrecks in the high seas. These are the law of finds
and the law of salvage. Both are well-documented and accepted in United
States common law, and are also generally accepted as international law in
practice. This discussion centers on application of these laws in
jurisdiction of U.S. courts. The entity responsible for salvage is entitled
to sue in rem against the ship in federal admiralty court to establish its
claim to the shipwreck and cargo against all other claimants, known and
unknown. The court employs a fiction of convenience that a ship is a person
against whom suits can be filed and judgments entered, allowing actions to be
brought against the vessel when the owner is unknown or unreachable.
Legally, the claim may be decided according to the two competing maritime
law doctrines. If title to the wrecked ship or cargo is disputed, the
salvaging entity will seek to assert ownership under the law of finds. If the
original owner or owners are known, then the salvor will be entitled to a
salvage award under the law of salvage.
The first step in making claim is to establish control, or
possession-in-fact, over the shipwreck. To do so, the salvor must actually
reduce objects from the shipwreck to possession. Discovery of the shipwreck,
or the mere intent to raise the shipwreck or to recover objects from it, does
not establish control.
Under the maritime law of finds, where a vessel has been abandoned, the
finder in possession becomes the owner of the vessel. Proof of abandonment
includes two factors: (1) the intent of the original owners to abandon the
ship and its cargo, and (2) the external act of abandonment, which may be
either express or constructive.
United States courts may interpret liberally constructive abandonment in
shipwreck cases where the ship has remained sunken for many years,
particularly if no serious previous salvage efforts have been made.
An entity responsible for the salvage of a sunken vessel and its cargo
may expect to defend its claim to title against the original owners or their
successors-in-interest, against rival salvors, and against governments
asserting a historic interest in the shipwreck or cargo.
Potential claimants might include the insurers of the shipwreck as in the
case of Columbus America Discovery Group v. The Unidentified Wrecked and
Abandoned Sailing Vessel (Civil Action 87-0363-N). Unless the insurers
expressly disclaimed title after payment of a claim, and depending on the
length of time the ship has remained sunken, the insurers might have a valid
claim of title to recovered objects. The courts in the Columbus America case
held that the insurers were entitled to up to 10% of the recovered objects
that they can demonstrate they provided coverage for.
Deep Ocean Survey and Recovery
The Company believes that a market niche exists for a company which can
offer a comprehensive range of deep ocean search, survey, mapping and recovery
services. With the equipment currently owned or leased by the Company, as
described below, the Company can presently provide many of these services, or
lease its equipment to others who are engaged in such services.
Equipment
Following are descriptions of the vessels SEAHAWK RETRIEVER and SEAHAWK
and the primary equipment which is owned by the Company and available for
search, survey and recovery operations.
Supply Vessel M/V SEAHAWK RETRIEVER
The SEAHAWK RETRIEVER is a 200 foot, 489 gross ton, tug/supply vessel
built in 1974 for the offshore oil industry. Drawing a full load draft of 17
feet and having a breadth of 40 feet, the vessel has an open deck working
area of 111 feet by 34 feet (3,800 square feet).
The ship is powered by two 18-cylinder ALCO engines, generating up to
7,200 shaft horsepower through reduction gearing and a controllable-pitch
propeller. The ship is also fitted with a 380 horsepower bow-thruster to
assist with maneuvering.
Electrical power is provided by two 200 kilowatt generators providing the
ship with all her electrical needs. Power to the ROV spread will be provided
by an independent 100 kilowatt generator mounted on deck.
The vessel currently has berthing and stores space for a crew of 24 in a
totally climate controlled environment.
During February 1990, the Company entered into a ship's charter with
Valley Marine, Inc. (the "Charter") for the use of the SEAHAWK RETRIEVER for a
twelve month period.
Simultaneously with the execution of the Charter, the Company also
entered into a stock option agreement with Valley Marine, Inc. and its
shareholder, Valley Resources, Ltd. ("VRL"), pursuant to which the Company
granted to VRL the option to exchange all of the outstanding shares of Valley
Marine, Inc. for restricted shares of the Company. The exact number of shares
to be issued was based on the total cash spent by Valley Marine purchasing and
equipping the vessel SEAHAWK RETRIEVER. Since this amount was $1,510,000, the
Company agreed to issue 600,000 shares to VRL if the option was exercised. On
February 4, 1991, VRL exercised its option to exchange its stock in Valley
Marine for stock in the Company. Therefore, Valley Marine was acquired as a
wholly owned subsidiary of the Company, after which it was merged into R/V
Seahawk. R/V Seahawk was then merged into the Company.
On June 11, 1992, Commercial Union Capital Limited, London, England
("Commercial Union") filed a complaint against the Company and the SEAHAWK
RETRIEVER in United States District Court, Tampa, Florida, alleging that
rentals on the Merlin remote operating vehicle (See "Merlin" below) had not
been paid and alleging that $1,647,139.19 was due and owing along with
additional interest costs and attorney fees. The court permitted the arrest
of the SEAHAWK RETRIEVER on June 11, 1992. The Company contended that the
arrest was improper mainly because Commercial Union was not entitled to a
maritime lien on the vessel and on December 23, 1992, a magistrate judge
recommended the arrest be quashed and the vessel released. However, on May
21, 1993, a district court judge concluded that the magistrate judge's
recommendation should not be adopted. This matter was settled during April
1994. See "Litigation" below.
During August 1994, the Company entered into a Vessel Bareboat Charter
and Purchase Agreement with International Diving and Consulting Services, Inc.
("International Diving"), a Lafayette, Louisiana based underwater services
company. Pursuant to this agreement, International Diving agreed to charter
the SEAHAWK RETRIEVER for the five year period commencing September 1, 1994,
and to purchase the vessel at the end of the five year period for a net
purchase price of approximately $1,350,000 plus interest at a rate equal to 3%
per annum over the Citibank New York prime rate.
The agreement further provides that International Diving will market
the vessel at a minimum day rate of $5,000, except that all lump sums or
turnkey projects will have a $6,000 minimum daily rate. International Diving
further guarantees one hundred eighty (180) days utilization of the vessel at
a rate of $5,000, or an annual total of $900,000. The greater of the
guaranteed
revenues or the actual revenues, after deduction for certain operating costs,
will be shared between the Company and International Diving as follows: (I)
35% to the Company as charter hire for the vessel; (ii) 30% to International
Diving for operating costs and profit; and (iii) 35% to the Company which will
be applied toward the purchase price of the vessel. Payments are due
quarterly within 10 days after the end of each quarter. In the event
International Diving fails to purchase the vessel at the end of the five year
term, the vessel is to be returned to the Company and the 35% payments which
are credited toward the purchase price will be retained by the Company as
liquidated damages. International Diving's performance under this agreement
has also been personally guaranteed by the two principals of International
Diving.
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
has declined the option to purchase the Retriever and has made the payments
under (a), (b) and (c) above.
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
Bankruptcy Court ordered International Diving to make payments of $45,568 on
July 11 and July 25, 1995, and to make payments of $53,179 on August 8, August
24 and September 5, 1995. The payment due on July 11, 1995, was made and
$45,000 was received on August 8, 1995. No further payments have been
received.
On August 22, 1995, the Bankruptcy Court ordered that because
International Diving had failed to pay the sums required by the order of July
25, 1995, they should immediately surrender the Retriever to the Company. The
vessel was repossessed by the Company on September 12, 1995.
The Company intends to continue to pursue International Diving for the
outstanding payments through the same Bankruptcy Court. The Retriever is
being offered for charter in the Gulf of Mexico.
Vessel SEAHAWK. The Vessel SEAHAWK (the "SEAHAWK") is an 83 foot vessel
which, until it was sold to the Company in November 1995, was owned by
Seahawk, Inc., an affiliate of the Company. (See "TRANSACTIONS WITH
MANAGEMENT AND OTHERS.") The SEAHAWK was built in 1977 and extensively
renovated in 1982. Its former owner, the University of North Carolina, used
the SEAHAWK for oceanographic research projects.
The SEAHAWK has accommodations for 11 persons for periods of up to 30
continuous days at sea. The SEAHAWK is equipped with mid-range diving
equipment (including a decompression chamber) and a full array of navigational
and positioning equipment.
In March 1989, the Company entered into a ship's charter with Seahawk,
Inc. (the "Charter") for the use of the SEAHAWK for a twenty-four month period
which expired in March 1991. The Charter provided that Seahawk, Inc. was to
provide the Company with the use of the SEAHAWK and all equipment contained on
board for a charter fee of $6,000 per month. The Company was responsible for
providing the entire crew, fuel and all provisions and consumables as well as
providing for the day-to-day maintenance of the ship and on-board equipment.
The Company was also required to obtain protection and indemnity insurance
with a minimum valuation of $1,000,000, and hull insurance with a minimum
valuation of $900,000. The Charter was extended on a month-to-month basis on
the same terms from March 1991 until October 1, 1992. Commencing May 1, 1993,
the Charter was recommenced on the same terms.
During November 1995, the Company acquired 100% of the outstanding common
stock of Seahawk, Inc. in a transaction where the Company issued 2,400,000
shares of its Common Stock to the shareholders of Seahawk, Inc. and agreed to
include these shares in the registration statement of which this Prospectus is
a part. The agreement also provides that if the registration statement is not
declared effective by May 1, 1996, the shareholders of Seahawk, Inc. will have
the option to rescind the transaction.
ROV's. The Company currently owns five Phantom ROV's: (1) Phantom H2D2,
(2) Phantom Hybrid, (3) Phantom 500, (4) Super Phantom, and (5) Phantom HD.
These remotely controlled underwater vehicles provide a cost-effective method
of inspecting wrecks and bottom structures down to 1500 feet. Designed by
Deep Ocean Engineering, the Phantoms are capable of transmitting real-time
video of the bottom directly back to the ship. The ROV design consists of
syntactic foam molded to anodized aluminum tubes. An assortment of machined
parts, electronics and motors are then added to complete the sub-sea package.
The vehicle is then fitted into a stainless steel crash frame. Several
connectors are attached to an umbilical that leads up to the surface
controller.
ROV Leasing Activities. The Company from time to time leases some or all
of its equipment to outside contracts.
Competition
There are several companies operating on a world wide basis who may have
the technological capability necessary to compete with Seahawk. In the event
these companies decided to enter the shipwreck business, they may have greater
experience, technology and financial resources. In addition, there are a
number of investor groups, or other entities, which have been formed for the
purpose of searching for a particular shipwreck. As different technologies
which can be utilized in the search and recovery of shipwrecks are developed
or improved the likelihood of competitors may increase.
Employees
The Company and its subsidiary, Seahawk Museum Development, have a total
of approximately 9 employees. These persons include John Lawrence and John
Balch, executive officers of the Company, administrative personnel, the
captain of the vessel SEAHAWK, assistants to the captain, and crew members of
the vessel.
Litigation
There are no current legal proceedings, and the Company is not aware of
any threatened legal proceedings to which the Company is a party. Following
is a summary of the litigation the Company has been involved with during the
past three years:
Lawsuit filed by Gregory P. Stemm. During February 1994, the Company
agreed with Carl Anderson, a principal shareholder, to convert two notes (the
"Notes"), one for $44,448.78 and the other for $80,936.78, which, together
with accrued interest thereon, totaled $141,803, into 567,212 shares of
Common Stock in the Company. The Notes were payable to Gregory P. Stemm, a
former officer and director of the Company, who had sold them to Anderson on
the basis that they would be returned to him or paid for on their due date
which was December 31, 1994. Anderson did not pay Stemm nor did he return
the Notes to him. Consequently, on April 27, 1995, Stemm filed a lawsuit
against the Company alleging that (a) the Company must pay him the principal
and interest due on the Notes plus attorneys' fees and such other relief as
the Court saw just and proper, and (b) Stemm was entitled to immediate
possession of the Notes, and (c) the Company and Anderson conspired to
deprive Stemm of his right to payment on the Notes and as a result Stemm was
entitled to damages due to the loss of value of the Notes plus interest,
costs and attorneys'fees.
The Company defended the action on the basis that it was verbally
informed by both Anderson and Stemm that the Notes had been transferred to
Anderson, and that the Company relied on their representations and converted
the Notes in good faith. However, on the advice of counsel, the Company has
agreed to settle with Stemm. The Company has issued Stemm 360,000 shares of
its Common Stock in consideration for Mr. Stemm dismissing the lawsuit. As
part of the settlement of this matter, Carl Anderson agreed to pay the Company
$.25 per share for the 567,212 shares which he was issued during February
1994.
The following litigation was recently settled: (1) civil injunctive
action filed by the Securities and Exchange Commission, (2) the SEC's stop
order proceeding suspending a registration statement filed by the Company, and
(3) a lawsuit filed by Commercial Union Capital Limited.
SEC Civil Action. During August 1994, the SEC filed a civil action
against the Company and John Morris, Gregory Stemm and Daniel Bagley, three
former officers and directors of the Company, seeking injunctive relief
against the Company and injunctive and monetary relief against the former
officers and directors. The SEC did not seek any financial penalties or other
monetary relief against the Company.
The Complaint filed by the SEC alleged that the Company violated Section
17(a) of the Securities Act of 1933 and Sections 10(b), 13(a) and 13(b) of the
Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13 and
13b2-1 promulgated thereunder. The SEC alleged that between April, 1989, and
July, 1991, the Company and Messrs. Morris, Stemm and Bagley disseminated to
the public, in the form of television broadcasts, videotapes and press
releases, false and misleading material information and failed to disclose
certain material information concerning the Dry Tortugas shipwreck discovered
and excavated by the Company. The SEC alleged that the Company materially
overstated the value of the artifacts on its balance sheet and in other
financial information provided in the registration statement of the Company
and two amendments thereto filed in 1992 with the SEC and in certain periodic
reports of the Company filed in 1992 with the SEC.
The Company and the staff of the SEC negotiated a settlement of the
matter whereby the Company agreed to consent to the entry of a final judgment
of permanent injunction, without admitting or denying any of the allegations
in the complaint enjoining the Company from violations of certain provisions
of the federal securities law referenced in the preceding paragraph. In
addition, the Company agreed that it will not employ John Morris or Gregory
Stemm as officers and directors of the Company or any subsidiaries of the
Company, use corporate funds to pay for or reimburse any costs incurred by
Morris or Stemm for the defense of any civil or administrative action
instituted against them by the SEC, or redeem or purchase any stock they own
until after the termination of any such action. Finally, the Company agreed
to withdraw its pending appeal to the SEC of the Initial Decision issued in
the stop order proceeding.
SEC Stop Order Proceeding. On July 30, 1992, the SEC issued an order
directing the staff of the Division of Enforcement (the "Division") to conduct
an examination pursuant to Section 8(e) of the Securities Act of 1933 (the
Act") to determine whether a stop order should be issued relating to a
registration statement which the Company had filed during March 1992 and which
had become effective by the passage of time on August 1, 1992. Under Section
8(d) of the Act, a stop order proceeding was instituted against the Company by
order of the SEC dated January 12, 1993. A hearing was held before an SEC
Administrative Law Judge during late January and early February 1993.
On May 26, 1993, the Administrative Law Judge issued his Initial
Decision. The Judge concluded that the registration statement filed by the
Company was materially false and misleading and that the Company failed to
cooperate with the examination conducted by the Division's staff. A stop
order was issued suspending the effectiveness of the Company's registration
statement.
The primary focus of the proceeding was the value of the shipwreck
artifacts owned by the Company and an affiliated partnership, Seahawk I, Ltd.
The Judge found that the Company had overstated the value of the artifacts on
its balance sheet and in other financial information provided in its
registration statement. The Judge concluded that the total net realizable
value of all the artifacts owned by the Company and Seahawk I was $1,356,361
of which amount $285,413 was attributed to the Company artifacts and
$1,070,948 was attributed to the Seahawk I artifacts. As a result of this
decision, and in order to present the financial statements in accordance with
generally accepted accounting principles, the Company and the Partnership
restated their December 31, 1990 and 1991 financial statements.
The findings of the Administrative Law Judge could possibly be used by
private litigants in civil suits against the Company to prove that the Company
misstated material facts in certain periodic reports it filed with the SEC.
Commercial Union Lawsuit. On June 11, 1992 Commercial Union Capital
Limited ("Commercial Union"), the company from which the Company leased its
large ROV "Merlin", filed a lawsuit in the United States District Court for
the Middle District of Florida, Tampa Division in Admiralty against R.V.
Seahawk, Inc. In Personam, Seahawk Deep Ocean Technology, Inc. In Personam and
the "Seahawk Retriever" In Rem.
In its complaint Commercial Union alleged that the Company had committed
a breach or default under its Lease Purchase Contract with Commercial Union
since the Company failed to make its payment due July 2, 1991, and failed to
make all payments due thereafter. Commercial Union further alleged that it
had elected to treat the breach by the Company as a termination of the Lease
Purchase Contract, entitling Commercial Union to recover the loss value as
defined in the Lease Purchase Contract as of June 9, 1992 of $1,173,370.89.
Commercial Union alleged that it was also entitled to receive the amount of
the Company's arrears equal to $447,208.19 plus interest on the arrears from
June 20, 1991 through June 9, 1992 of $26,560.11, and legal fees and costs
estimated at $156,113.20. Therefore, Commercial Union was seeking a judgment
against the Company in the amount of $1,647,139.19 as of June 9, 1992 plus (a)
interest accruing at the rate of $386.02 per day and (b) attorney fees and
costs estimated at $156,113.20
Commercial Union, in its complaint, also sought a maritime lien against
the Seahawk Retriever, her engines, tackle, equipment and appurtenances and
asked that the ship be sold and the proceeds be paid towards the amount of any
judgment.
On June 18, 1992 the Company responded by filing a Motion to Quash the
Arrest Warrant and to dismiss the In Rem complaint. The motion was
recommended by the Magistrate Judge on December 23, 1992, but on May 21, 1993,
a District Court Judge concluded that the Magistrate Judge's recommendation
should not be adopted and the Seahawk Retriever was arrested. On August 6,
1993, the Magistrate Judge gave a Report and Recommendation concerning
Commercial Union's Emergency Motion for an Interlocutory Sale of the M/V
Seahawk Retriever in which it was recommended that the vessel be sold at
Interlocutory Sale with a minimum bid of $1,000,000. On October 18, 1993, the
United States District Court Middle District of Florida Tampa Division made an
Order for an Interlocutory Sale of the M/V Seahawk Retriever to take place,
without a minimum bid, on November 9, 1993. The Order, however, contained
certain publication requirements that could not be met until some time in late
January, 1994. Accordingly, the Company requested further clarification from
the Court and the sale date was delayed to February 10, 1994.
On February 9, 1994, and as amended on April 1, 1994, the Company and
Commercial Union Capital Limited 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 ship mortgage on the
Seahawk Retriever, her engines, tackle, equipment and apparel. The note was
non-interest bearing through its due date, April 15, 1995. In March 1995,
Commercial Union agreed to extend the expiration date of the note to June 1,
1995, pursuant to a March 7, 1995, Agreement wherein International Diving and
Consulting Services, Inc., which is operating the Seahawk Retriever under a
charter agreement, was granted the option to purchase the vessel for the sum
of $1,450,000 payable in cash on or before June 1, 1995. International Diving
did not exercise this option and has continued the five year charter under its
original terms. The Company and Commercial Union have since reached an
agreement that the mortgage will be extended for two years until June 2, 1997.
Under the terms of the agreement, the new principal balance will be
$1,025,000, and will be paid in eight quarterly installments, with interest
charged at 5% per annum over the Citibank New York prime rate in effect on
June 2, 1995, and adjusted thereafter biannually on the first day of December
and June each year. The first seven quarterly installments will comprise the
interest accrued and due on the date of the installment plus $50,000 of the
principal. The eighth and final installment will comprise all the remaining
amount due under the note.
Facilities
The Company and its subsidiaries maintain their offices at 5102 South
Westshore Boulevard, Tampa, Florida. The space is leased from a nonaffiliated
partnership pursuant to a lease which expired March 31, 1995. Pursuant to the
lease, the Company leased the first floor (approximately 5,200 square feet)
for $5,500 per month until September 30, 1995, and the second floor
(approximately 5,000 square feet) for $1,000 per month on a month-to-month
basis. The Company is continuing to lease both floors on a month-to-month
basis at the same rate while a new lease is being negotiated.
The leased space provides the Company with corporate offices and
conservation lab in addition to providing space for artifact displays.
MANAGEMENT
The Directors and Officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Positions and Offices Held
<S> <C> <C>
John T. Lawrence 47 Chief Executive Officer,
President, Director
of the Company and Chairman
of the Board
Daniel J. Derfus 51 Secretary and Director
of the Company
John P. Balch 47 Chief Operating Officer
and Director of the Company
</TABLE>
There is no family relationship between any Director or executive officer
of the Company. All Directors and Officers will hold office until the next
Annual Meeting of Shareholders.
The following sets forth biographical information as to the business
experience of each Officer and Director of the Company and SMD for at least
the past five years.
John T. Lawrence has served as one of the Company's Directors since
September, 1991 and as President of the Company since June, 1993, and as Chief
Executive Officer since January, 1994. Mr. Lawrence has served as Chairman of
OSEL GROUP since November, 1988. OSEL GROUP, located in the United Kingdom,
is engaged in the business of designing and manufacturing subsea vehicles and
sensors. The main trading company in OSEL GROUP was recently placed into
receivership, and its business and assets were sold. From 1984 until 1988,
Mr. Lawrence served as the Managing Director of OSEL GROUP and from 1979 until
1984, he served as the Financial Director of OSEL GROUP. From 1975 until
1979, he served as financial director of an oil business subsidiary of the
John Mowlin Group. In 1968, Mr. Lawrence joined the London office of Peat
Marwick Mitchell & Co. where he qualified as a Chartered Accountant in 1971
and he continued with Peat Marwick Mitchell & Co. until 1975. Mr. Lawrence
received an honors degree in Chemistry from University College of London in
1968.
Daniel J. Derfus has served as Director of the Company since September,
1993, and as Corporate Secretary since January, 1994. He owns and operates a
retail wallpaper business in Tampa, Florida, and is a former director of
Innova Purewater, Inc. He retired from Exxon Corp. after seventeen years
working for that company at their Houston headquarters as well as in the
Middle East. His positions with Exxon included Vice President of Human
Resources for AL Jubail Petrochemical and Compensation and Benefits Manager
for Exxon Marine Transport. He was also responsible for a major study on the
social and economic effect of developing a 70M ton copper-zinc ore body in the
Wisconsin Northwoods. Mr. Derfus received a B.S. in Business Administration
from Marquette University, an MA in Industrial Relations from the University
of Minnesota and he completed post graduate work at the University of Houston,
Bates College of Law.
John P. Balch has served as a Director of the Company and as Chief
Operating Officer since May 1994. Mr. Balch has also served as Managing
Director of OSEL GROUP (see above) since November 1988. Mr. Balch served as
General Manager and Director of OSEL GROUP from 1983 until 1988. From 1975
until 1979, he served as Operations Manager for DHB, a subsidiary of Oceaner
International, Inc., which manufactured Atmospheric Diving Systems. From
1979 until 1983, Mr. Balch served as Managing Director of DHB and Worldwide
Program Manager for Oceaneering ADS. From 1969 until 1975, he progressed from
toolmaker to development engineer then product manager in three precision
engineering companies. Mr. Balch received a City and Guilds HNC in Mechanical
Engineering from Highbury College, Portsmouth, England in 1969.
Compliance with Section 12(a) of the Securities Exchange Act of 1934
During the year ended December 31, 1994, four persons who were Officers,
Directors or beneficial owners of 10% or greater of the Company's Common Stock
failed to file reports on a timely basis under Section 16(a) of the Securities
Exchange Act of 1934. In addition, John P. Balch, an Officer and Director of
the Company, filed his Form 3 thirty-five days late.
Carl Anderson, a 10% or greater shareholder, failed to file Form 4's for
the months of February, June and November 1994. The transactions which were
not reported included (i) the conversion of $467,100 of debt into 1,868,400
shares of Common Stock; (ii) the sale of a 36-foot motor vessel to the Company
for 100,000 shares of Common Stock; (iii) the issuance of 60,000 shares in
connection with the Company's 1993 private placement; (iv) the purchase of
303,125 shares in a private placement; and (v) the issuance of 800,000 shares
of Common Stock in exchange for 66,667 shares of the common stock of Valley
Forge Scientific Corp.
A.F. Budge, a Director, failed to file a Form 4 for the month of June
1994, reporting that he had received 60,000 shares of Common Stock in
connection with the Company's 1993 private placement and that he purchased
156,250 shares in a private placement during June 1994.
James P. Beggins and Daniel J. Derfus, Directors, failed to file Form 4's
for the month of December 1994, reporting that they each received warrants to
purchase 15,000 shares of the Company's Common Stock.
Executive Compensation
The following table summarizes the compensation for the years ended
December 31, 1993, 1994 and 1995, of the Company's Chief Executive Officer:
<TABLE>
Summary Compensation Table
<CAPTION>
Long-Term Compensation
--------------------------
Annual Compensation Awards Payouts
-------------------------- ------------------ -------
Other All
Annual Restrict- Options/
Other
Name and Prin- Compen- ed Stock SARs LTIP
Compen-
cipal Position Year Salary Bonus sation Award(s) (Number) Payouts
sation
- ---------------- ---- -------- ----- ------- -------- -------- -------
- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John T. Lawrence 1995 $100,000 -0- -0- -0- -0- -0- $
- -0-
President (1)
1994 $100,000 -0- -0- -0- -0- -0- $
- -0-
(2)
(2)
John C. Morris 1993 $ -0- -0- -0- -0- -0- -0- $
- -0-
President
John P. Balch, 1995 $100,000 -0- -0- -0- -0- -0- $
- -0-
Chief Operating (1)
Officer
</TABLE>
- -------------------
(1) Mr. Lawrence and Mr. Balch were each paid only $8,400 of their $100,00
salary. He balnce was accrued.
(2) Mr. Lawrence's total compensation for 1994 was $100,000. He received
$27,888 in cash and $26,850 was accrued due to the Company's shortage of cash
flow. The balance of $45,262 was to be paid in stock by issuing 132,387
shares of the Company's Common Stock. The number of shares was calculated
monthly based on the average closing bid prices of the Company's Common Stock
during each month. During June 1994, Mr. Lawrence was also issued 51,546
shares as payment for $48,324.56 of accrued and unpaid wages for the year
ended December 31, 1993.
(2) Mr. Morris was paid $20,000 in January 1992 as consideration for his
personal guarantee of a $200,000 loan to the Company.
The following table sets forth certain information relating to option
grants pursuant to the Company's Employee Stock Option Plan in the year ended
December 31, 1994, to the individual named in the Summary Compensation Table
above.
<TABLE>
Option/SAR Grants in Last Fiscal Year
<CAPTION>
Percent of
Total Options/
Options/ SARs Granted Exercise
SARs to Employees or Base Expiration
Name (Number) in Fiscal Year Price ($/Sh) Date
- ---------------- -------- -------------- ------------ ----------
<S> <C> <C> <C> <C>
John T. Lawrence -0- -0- -- --
</TABLE>
Employee Stock Option Plan
During April 1990, the Board of Directors adopted the Employee Stock
Option Plan (the "Plan") which was approved by the Company's shareholders on
December 14, 1990. The Plan authorizes the issuance of options to purchase up
to 400,000 shares of the Company's Common Stock.
The Plan allows the Board to grant stock options from time to time to
employees, officers and directors of the Company. The Board has the power to
determine at the time the option is granted whether the option will be an
Incentive Stock Option (an option which qualifies under Section 422 of the
Internal Revenue Code of 1986) or an option which is not an Incentive Stock
Option. Vesting provisions are determined by the Board at the time options
are granted. The option price for any option will be no less than the fair
market value of the Common Stock on the date the option is granted.
During June 1990, the Board granted to John C. Morris, Gregory P. Stemm
and Daniel S. Bagley, III, options to purchase 20,000 shares each at an
exercise price of $10.00 per share. During January 1993, the Board granted
options to purchase 25,000 shares at $.20 each to James P. Beggins and during
September 1993, the Board granted an option to purchase 25,000 shares at $.825
each to Daniel J. Derfus.
The Plan allows the Board to grant stock options from time to time to
employees, officers and directors of the Company. The Board has the power to
determine at the time the option is granted whether the option will be an
Incentive Stock Option (an option which qualifies under Section 422 of the
Internal Revenue Code of 1986) or an option which is not an Incentive Stock
Option. Vesting provisions are determined by the Board at the time options
are granted. The option price for any option will be no less than the fair
market value of the Common Stock on the date the option is granted.
Other Stock Options and Warrants
During 1993, John Lawrence and John Balch were each granted five year
stock options to purchase 400,000 shares: 100,000 at the exercise price of
$0.70; 100,000 at the exercise price of $1.20; 100,000 at the exercise price
of $3.00; and 100,000 at the exercise price of $5.00. At the same time
Douglas Wakeling was granted 100,000 warrants to purchase shares at $0.70 and
100,000 at $1.20. In May 1994, the exercise prices of these warrants were
reduced from $0.70 to $0.40, $1.20 to $0.60, $3.00 to $1.50, and $5.00 to
$2.50, respectively. In May 1995, Mr. Lawrence and Mr. Balch were each
granted options to purchase 200,000 shares at $0.30 pursuant to the renewal of
their employment agreements.
The Board of Directors decided during 1994 to grant options below the
market to outside directors as compensation for their serving as a director.
In determining the number of options and exercise price, the Board agreed to
give each director value equivalent to 4% of the salary of the Company's
President. Accordingly, for the year ended December 31, 1994, the Company
granted the following options to the independent directors named below:
<TABLE>
<CAPTION>
Number Exercise Termination
Name of Options Price Date
---------------- ---------- -------- -----------
<S> <C> <C> <C>
James P. Beggins 12,979 $.05 12/31/99
Daniel J. Derfus 12,979 $.05 12/31/99
</TABLE>
The difference between the exercise price of the options and the market
value of the shares of the Company's Common Stock on the date they were
granted was booked in the financial statements for 1994 as a compensation
expense.
During December 1994, the Company issued to James P. Beggins and Daniel
J. Derfus warrants to purchase 15,000 shares each at a price of $.40 per
share.
During May 1995, the Company issued to John T. Lawrence, John P. Balch
and Daniel J. Derfus warrants to purchase 50,000 shares each at a price of
$.30 per share.
The Board also decided that since the Company could not afford to
purchase officer and director liability insurance it would issue common stock
to directors to compensate for their potential liability for serving as
directors. The amount of common stock was to depend on an estimate of the
premium that would be payable for such insurance. In May 1995, the Board
decided that their obligation was an inappropriate way to deal with the lack
of such insurance and it was decided to replace the obligation for 1994 with a
cash payment of $5,000 to each director. The directors who are also executive
officers waived their right to receive such payment.
Limited Liability of Directors
In accordance with the Colorado Corporation Code, the Company has
included a provision in its Articles of Incorporation to limit the personal
liability of its directors for violations of their fiduciary duties. The
provision eliminates such directors' personal liability to the Company or its
stockholders for monetary damages, except for liability (i) for any breach of
the directors' duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under the Colorado statutory provision
making directors personally liable under a negligence standard, for unlawful
dividends or unlawful stock repurchases or redemptions, or (iv) for any
transaction from which any director derived an improper personal benefit.
This provision protects the Company's directors against personal
liability for monetary damages arising from breaches of their duty of care.
Directors remain liable for breaches of their duty of loyalty to the Company
and its stockholders and for the specific matters set forth above, as well as
for violations of the federal securities laws. The provision has no effect on
the availability of equitable remedies such as injunction or rescission.
Additionally, these provisions do not protect a director from activities
undertaken in any capacity other than that of director.
Indemnification of Officers and Directors
The Company's Articles of Incorporation provide that the Company may
indemnify its officers and directors to the full extent permitted by the
Colorado Corporation Code. The Colorado Corporation Code generally permits
the Company to indemnify any Officer or Director for claims and liabilities,
including legal expenses, which he may incur in his capacity as such, provided
that he acted in good faith and in a manner that he reasonably believed to be
in the best interests of the Company. However, he may not be indemnified in
connection with a proceeding in which he is found to be liable to the Company
or where he is found to have received an improper personal benefit from the
Company. To the extent that an Officer or Director is successful in defending
himself in any proceeding to which he was a party, he is to be indemnified
against his reasonable expenses incurred by him in connection with the
proceeding. Such indemnification applies to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
investigative and whether formal or informal. The indemnification also
applies to liabilities arising under the Securities Act of 1933, assuming the
other statutory requirements are met.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to its Articles of Incorporation, the Company has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered in the Registration Statement of which this Prospectus is a part,
the Company has undertaken that it will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth, as of February 1, 1996, the stock
ownership of each person known by the Company to be the beneficial owner of
five percent or more of the Company's Common Stock, all Directors individually
and all Directors and Officers of the Company as a group. Except as noted,
each person has sole voting and investment power with respect to the shares
shown.
<TABLE>
<CAPTION>
Amount
Name and Address Beneficial Percentage
of Beneficial Owner Ownership of Class
------------------- ----------- ----------
<S> <C> <C>
Valley Ocean Technology Ltd. (1) 2,631,587 10.3%
Osberton Hall
Worksop, Notts, England S81 OUF
John T. Lawrence 833,933 (2) 3.2%
5102 South Westshore Blvd.
Tampa, FL 33611
Carl Anderson 7,788,487 (3) 28.0%
19235 Highway 41 North
Lutz, FL 33549
Daniel J. Derfus 298,936 (4) 1.2%
13399 Pine Bark Court
Largo, FL 34644
John P. Balch 833,933 (5) 3.2%
5102 South Westshore Blvd.
Tampa, FL 33611
John C. Morris 1,951,509 (6) 7.5%
P.O. Box 320487
Tampa, FL 33679-2487
Gregory P. Stemm 1,988,943 (7) 7.6%
4912 South Melrose Avenue
Tampa, FL 33629
All Officers and Directors 1,966,802 (2)(4)(5) 7.3%
as a Group (3 Persons)
[/R]
- -------------------
(1) Valley Ocean Technology Ltd. is owned by Mr. A. F. Budge of the same
address.
(2) Includes 600,000 shares underlying currently exercisable options and
50,000 shares underlying currently exercisable warrants held by Mr. Lawrence.
(3) Includes 2,306,250 shares underlying currently exercisable warrants held
by Mr. Anderson.
(4) Includes 37,979 shares underlying currently exercisable options held by
Mr. Derfus, 25,000 shares held by Mr. Derfus as custodian for his son, and
65,000 shares underlying currently exercisable warrants owned by Mr. Derfus.
(5) Includes 600,000 shares underlying currently exercisable options and
50,000 shares underlying currently exercisable warrants held by Mr. Balch.
(6) Includes 1,371,509 shares owned of record by Mr. Morris, 480,000 shares
underlying currently exercisable warrants owned by Mr. Morris, and 100,000
shares owned of record by Remarc International, Inc. of which Mr. Morris
serves as President and director.
(7) Includes 1,168,943 shares owned of record by Mr. Stemm, 720,000 shares
underlying currently exercisable warrants owned by Mr. Stemm, and 100,000
shares owned of record by Remarc International, Inc. of which Mr. Stemm is a
principal shareholder.
</TABLE>
SELLING SHAREHOLDERS
The following table sets forth information concerning the amount of
shares of the Company's Common Stock owned by the Selling Shareholders as of
the date of this Prospectus, the number of such shares included for sale in
this Prospectus, and the number of shares to be owned by such Shareholders
after completion of the offering.
<TABLE>
<CAPTION>
Number of Number Number of Shares
Shares Owned of Shares to be Owned
Prior to Offering to be Sold After Offering
----------------- ---------- -----------------
<S> <C> <C> <C>
T. Kennicott 30,000 10,000 20,000
H. Kennicott 10,000 10,000 -0-
James Mahaffey 61,231 21,231 40,000
Valley Ocean
Technology Ltd. 2,631,587 2,231,587 400,000
Robert Stemm 34,493 24,493 10,000
James Ferman 36,493 24,493 12,000
Eugene Cooke 236,064 226,064 10,000
Wally Copeland 274,493 88,865 185,628
Timothy J. Brasel 4,493 4,493 -0-
Sawyer Family Partners 4,493 4,493 -0-
Daniel J. Derfus 195,957 195,957 -0-
Howard Berland 124,557 24,493 100,064
D. Roberts 13,103 13,103 -0-
Carl Anderson 5,482,237 5,373,236 109,001
Garrett Jones 103,748 28,748 75,000
Norma Stemm 38,748 28,748 10,000
Mark Strong 100,000 100,000 -0-
RFK Partnership 92,068 75,000 17,068
Mark Cohn 185,739 185,739 -0-
John Morris 1,371,509 1,318,013 53,496
Megeve Investments 337,860 337,860 -0-
John Lawrence 183,933 183,933 -0-
John Balch 183,933 183,933 -0-
Realty Development 900,000 900,000 -0-
Buckeye Communications 900,000 900,000 -0-
William Curtis 300,000 300,000 -0-
Richard Six 130,000 130,000 -0-
Louis Rotunno 567,125 567,125 -0-
Peter Mowad 66,900 65,000 1,900
Monty Moore 195,000 195,000 -0-
Phoebe Ezell 8,125 8,125 -0-
Scott Stemm 119,000 119,000 -0-
John Stambaugh 40,000 40,000 -0-
E. Lee Spence 40,000 40,000 -0-
Republic & Eagle
Associates 60,000 60,000 -0-
Solaris International
IBC 50,790 50,790 -0-
Barbara Shaw 50,000 50,000 -0-
Gregory P. Stemm 1,168,943 963,943 205,000
Benjamin Norbom 182,403 182,403 -0-
Brandar Group Ltd. 182,403 182,403 -0-
Ann Googins 125,000 125,000 -0-
Robert L. Smith 218,750 218,750 -0-
Ed Naczi 156,250 156,250 -0-
David Milton 125,000 125,000 -0-
Kathleen Tierney 125,000 125,000 -0-
Monty Moore 125,000 125,000 -0-
Thomas Rotunno 62,500 62,500 -0-
Richard Coglon 61,420 61,420 -0-
Lee Tawes 100,000 100,000 -0-
Elizabeth D. Rotunno,
TTEE UTA 5/14/91 31,250 31,250 -0-
Anthony and Marie
Gervaso 31,250 31,250 -0-
Mrs. J.B. Herriage 31,250 31,250 -0-
David Talbott 31,250 31,250 -0-
John G. Patterson 125,000 125,000 -0-
Mark T. Tate, Jr. 37,500 37,500 -0-
Mark T. Tate, Sr. 62,500 62,500 -0-
Kenneth J. Sandstrom 31,250 31,250 -0-
Steve Zillmer 31,250 31,250 -0-
Robert B. B. Smith 31,250 31,250 -0-
Thomas C. Mondshine 31,250 31,250 -0-
Travel Discoveries 64,000 64,000 -0-
- -------------------
(1) After completion of this offering and assuming that no other shares of
Common Stock are sold, Carl Anderson will continue to own less than 1% of the
Company, and Valley Ocean Technology Ltd. will continue to own 1.6% of the
Company. (See "SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS.")
</TABLE>
None of the Selling Shareholders has held any office or maintained any
material relationship with the Company or any of its predecessors or
affiliates within the past three years, except that John T. Lawrence, John P.
Balch and Daniel J. Derfus are Officers and Directors of the Company, and
Anthony F. Budge, who beneficially owns the shares held by Valley Ocean
Technology Ltd., was a Director. John Morris and Greg Stemm were former
officers and directors. In addition, Walter C. Copeland, Jr. and Copeland &
Company have provided tax and accounting services to the Company and its
affiliates, Jon D. Sawyer has provided legal services to the Company, and
Scott Stemm is an employee of the Company. The Selling Shareholders reserve
the right to reduce the number of Shares offered for sale or to otherwise
decline to sell any or all of the Shares registered hereunder.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Transactions Involving the Company
From March 13, 1989 until October 1995, the Company chartered the vessel
SEAHAWK from Seahawk, Inc., an affiliated Alabama corporation (the "Charter").
The Charter provided that Seahawk, Inc. was to provide the Company with the
use of the SEAHAWK and all equipment contained on board for a charter fee of
$6,000 per month. The Company was responsible for providing the entire crew,
fuel, all provisions and consumables as well as provide for the day-to-day
maintenance of the ship and on-board equipment. The Company must also
maintain protection and indemnity insurance. The Charter was a written
agreement for the first two years, and was verbally extended on a
month-to-month basis until October 1995. As of June 30, 1995, the Company had
an accrued liability of $250,408 to Seahawk, Inc. for unpaid charter payments.
Seahawk, Inc., an Alabama corporation, was principally owned by John C.
Morris and Gregory P. Stemm, principal shareholders and former Officers and
Directors of the Company, and by A. F. Budge, a principal shareholder. The
basic terms of this Charter were negotiated by the prior management of the
Company as part of the acquisition by the Company of R/V Seahawk in 1989.
During November 1995, the Company acquired 100% of the outstanding common
stock of Seahawk, Inc. in a transaction where the Company issued 2,400,000
shares of its Common Stock to the shareholders of Seahawk, Inc. and agreed to
include these shares in the registration statement of which this Prospectus is
a part. Messrs. Morris and Stemm received 868,121 shares and 603,943 shares,
respectively, and a corporation controlled by Mr. Budge received 533,130
shares. The agreement also provides that if the registration statement is not
declared effective by May 1, 1996, the shareholders of Seahawk, Inc. will have
the option to rescind the transaction.
During the year ended December 31, 1992, the Company subleased space in
its office building to Defrain & Associates, Inc. pursuant to a verbal
agreement whereby Defrain & Associates agreed to pay its proportionate share
of the rent, utilities, clerical support and other expenses. During the year
ended December 31, 1992, the Company charged Defrain & Associates, Inc.
$25,635.24 for such expenses. During the year ended December 31, 1992, the
Company paid Defrain & Associates $876.24 for printing and other expenses.
Defrain & Associates is a corporation owned by the wife of Gregory P. Stemm.
The Company's Board of Directors believes that the terms of these transactions
with Defrain & Associates were at least as favorable as those which could be
obtained from independent third parties.
During June 1991, Gregory P. Stemm loaned the Company $55,000 pursuant to
a promissory note bearing interest at 12%, and during September 1991, he
loaned the Company $74,500 pursuant to a promissory note bearing interest at
12%. During 1992, $20,000 was repaid on the $55,000 loan. During July 1992,
John C. Morris loaned the Company $16,000 pursuant to a promissory note
bearing interest at 12%. The Board of Directors was of the opinion that the
terms of these transactions were at least as favorable as those which could be
obtained from independent third parties.
During January 1992, the Company approved the payment of $20,000 to John
C. Morris as compensation for Mr. Morris' agreement to personally guarantee a
one year $200,000 loan made to the Company. The Board of Directors was of the
opinion that the terms of this transaction with Mr. Morris were at least as
favorable as would be obtained from independent third parties.
During October 1991, the Company issued $370,000 of Debentures to 15
investors for a total of $370,000 in cash. During April 1993, the Company
offered these investors the opportunity to convert their debentures and any
accrued interest into shares of the Company's Common Stock at a price of $.50
per share. Ten of the investors accepted the offer to convert their
debentures at that time, including Anthony F. Budge, a principal shareholder
at that time, who converted his $200,000 of debentures plus accrued interest
into a total of 487,851 shares of Common Stock.
During June 1992, Valley Resources, Ltd., a principal shareholder, loaned
$50,000 to the Company pursuant to a 12 month unsecured promissory note
bearing interest at 10% per annum. As consideration for making the loan, the
Company issued to Valley Resources, Ltd. warrants to purchase 25,000 shares at
$2.00 per share and warrants to purchase 25,000 shares at $5.00 per share.
During June 1993, the principal amount of this loan plus $7,740.24 of accrued
interest was converted into 115,481 shares of Common Stock at a price of $.50
per share.
On January 6, 1992, Carl Anderson loaned $200,000 to the Company pursuant
to a promissory note due in one year and bearing interest at 10%. On March
31, 1992, the due date of this loan was extended to July 5, 1993. This loan
was personally guaranteed by John Morris. As additional consideration for the
loan, the Company issued to Mr. Anderson 100,000 Class A Warrants exercisable
at $2.00 per share and 100,000 Class B Warrants exercisable at $5.00 per
share.
On January 24, 1992, Carl Anderson entered into a Private Placement
Agreement with the Company pursuant to which he invested $200,000 in the
Company and purchased 200,000 shares of Common Stock and 200,000 Class C
Warrant Units which entitled Mr. Anderson to purchase a total of 400,000
shares of Common Stock.
During January 1992, the Company issued 100,000 Class C Warrants to Carl
Anderson for the purpose of raising private equity funding. One of the terms
of the transaction was that the shares underlying the Class C Warrants would
be registered. Each Class C Warrant originally entitled the holder to
purchase one share of Common Stock at one hundred and ten percent (110%) of
the lowest closing bid price of the Company's Common Stock during the one
hundred and eighty (180) calendar days prior to the exercise date with a
maximum of $3.00 per share and one share of Common Stock at a price equal to
90% of the average closing bid price during the preceding 10 trading days.
During May 1993, the Company was attempting to convert as much debt into
equity as possible and the Company allowed Mr. Anderson to exercise the
one-half of his Class C Warrants which were exercisable at the price of $.1375
(which was equal to 110% of the lowest closing bid price during the 180 days
prior to May 7, 1993) without exercising the other one-half of his C Warrants.
The Company also agreed to modify the exercise price of the remaining Warrants
to 110% of the lowest closing bid price during the 180 days prior to the
exercise date with a maximum of $2.00 per share. The Class C Warrants expire
at the end of the 30 month period commencing on the date the shares underlying
the warrants are exercised.
On January 24, 1992, Carl Anderson also entered into an Option Agreement
with the Company pursuant to which Mr. Anderson paid $100,000 to the Company.
The Option Agreement provided that Mr. Anderson had the option of acquiring a
5% interest in a partnership the company was considering forming for the
purpose of recovering a shipwreck off the coast of Brazil, or 40,000 shares of
Common Stock.
On June 2, 1992, Carl Anderson and three other investors agreed to loan
the Company a total of $250,000, with Mr. Anderson loaning $75,000 of this
amount pursuant to a promissory note due December 31, 1992, and bearing
interest at 10%. The note was secured by certain gold artifacts. As
additional consideration for this loan, the Company issued to Mr. Anderson
50,000 Class D Warrants exercisable at a price equal to 110% of the lowest
closing bid price of the Company's Common Stock during the 180 calendar days
prior to the exercise date. In addition, Mr. Anderson and the other three
lenders each were granted an interest in the Company's share of the profits of
Eagle Partners Ltd., with Mr. Anderson receiving a 1.875% interest.
In order for the Company to be able to negotiate the $250,000 in loans,
it was necessary for the Company to amend the terms of certain of Mr.
Anderson's outstanding Warrants substantially as follows: The exercise prices
of the Class A and Class B Warrants and one-half of the Class C Warrants were
reduced to a price equal to 110% of the lowest closing bid price during the
180 calendar days prior to their exercise dates. In addition, the Company
agreed to amend Mr. Anderson's option agreement to provide that he could
convert his $100,000 into stock at a price equal to the lowest bid price
during the 180 days prior to his election to exercise his option.
On January 14, 1993, Carl Anderson loaned $60,000 to the Company pursuant
to a promissory note due December 31, 1993, and bearing interest at 10%. This
loan was personally guaranteed by John Morris and secured by certain
artifacts. As additional consideration for the loan, the Company issued to
Mr. Anderson 400,000 Warrants exercisable at a price equal to 110% of the
lowest closing bid price of the Company's Common Stock during the 180 calendar
days prior to the exercise date.
On May 7, 1993, Carl Anderson exercised the option he purchased on
January 24, 1992, and acquired 727,273 shares of Common Stock. In addition,
on the same date he converted a total of $75,000 in principal loans and
$41,875 in interest by exercising 850,000 of his warrants to purchase 850,000
shares of Common Stock.
During June 1993, the Company issued 650,000 shares of its Common Stock
to six accredited investors in a private placement conducted by the Company at
a price of $.50 per share. Included among the investors were Carl Anderson
and Anthony F. Budge, principal shareholders of the Company. Mr. Anderson
purchased 200,000 shares and Mr. Budge purchased 50,000 shares.
During September 1993, the Company issued 112,032 shares of Common Stock
to John C. Morris, the President, a director and principal shareholder of the
Company, as payment for a $50,000 promissory note plus $6,016 of accrued
interest.
During February 1994, the Company issued 2,438,851 shares of its Common
Stock to the following affiliated persons who agreed to convert existing loans
and accrued interest into Common Stock:
<TABLE>
<CAPTION>
Amount of
Name Number of Shares Debt Converted
---- ---------------- --------------
<S> <C> <C>
Carl Anderson 1,868,400 $467,100
Megeve Investments 232,591 34,889
John C. Morris 337,860 50,679
</TABLE>
Carl Anderson and John Morris were principal shareholders of the Company
and Megeve Investments acquired its shares as an assignee from Gregory Stemm,
a principal shareholder. All of the debt was converted at $.25 per share
except for the 232,591 shares issued to Megeve Investments and 212,533 of the
shares issued to John Morris, which were issued pursuant to the exercise of
existing warrants at an exercise price of $.15 per share.
During February 1994, the Company also issued 100,000 shares of Common
Stock to Carl Anderson, a principal shareholder, for the purchase of 36-foot
motor vessel valued at $30,000.
In connection with the resignations of John Morris and Greg Stemm as
officers and directors of the Company, the Company negotiated Separation
Agreements with each person. These agreements were executed on April 14,
1994, and provide essentially that Messrs. Morris and Stemm will not compete
with the Company for a period of three years, and in consideration therefor,
the Company issued to each of Mr. Morris and Mr. Stemm warrants to purchase
500,000 shares of the Company's Common Stock at $0.50 per share for the same
three year period.
During June 1994, the Company issued 240,000 shares of its Common Stock
to six accredited investors. These six investors originally invested in a
private offering during May and June 1993, and according to the terms of the
1993 private placement, if the Company did not register the original shares
within one year of the private offering, the Company was required to issue
additional shares in an amount equal to 30% of the shares originally
purchased. Included among these investors were Carl Anderson and A.F. Budge,
who were each issued 60,000 shares. Carl Anderson and A.F. Budge were both
principal shareholders of the Company.
During June 1994, the Company also issued 103,092 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, 1993:
<TABLE>
<CAPTION>
Number Amount of Unpaid
Name of Shares Remuneration
---- --------- -----------------
<S> <C> <C>
John Lawrence 51,546 $48,324.56
John Balch 51,546 $48,324.56
</TABLE>
During June and July 1994, the Company issued 983,125 shares of its
Common Stock to five accredited investors in a private placement conducted by
the Company at a price of $.32 per share. The investors also acquired two
common stock purchase warrants exercisable at $.32 per share for each share of
Common Stock they purchased. Included among the investors were Anthony F.
Budge, a director and principal shareholder, and Carl Anderson, a principal
shareholder. Mr. Budge purchased 156,250 shares and Mr. Anderson purchased
303,125 shares.
According to the terms of the above private placement, if the Company did
not register the original shares by December 31, 1994, the Company was
required to issue additional shares in an amount equal to 30% of the shares
originally purchased. A total of 326,813 additional shares were issued during
January 1995, with Mr. Budge receiving an additional 46,875 shares and Mr.
Anderson receiving an additional 90,938 shares.
During November 1994, the Company issued 800,000 shares of its Common
Stock and common stock purchase warrants to buy 1,600,000 shares of Common
Stock at an exercise price of $.32 per share to Carl Anderson, a principal
shareholder, in exchange for 66,667 shares of common stock of Valley Forge
Scientific Corp. In accordance with the terms of the exchange agreement, the
Company issued Mr. Anderson an additional 240,000 shares of Common Stock since
the 800,000 shares were not registered by March 10, 1995.
During January 1995, 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, 1994:
<TABLE>
<CAPTION>
Number Amount of Unpaid
Name of Shares Remuneration
---- --------- -----------------
<S> <C> <C>
John Lawrence 132,387 $41,850.87
John Balch 132,387 $41,850.87
</TABLE>
During April 1995, the Company issued 300,563 shares of its Common Stock
to the five accredited investors. These five investors originally invested in
a private offering during June 1994, and according the terms of the 1994
private offering, if the Company did not register the original shares by the
end of 1994, the Company was required to issue additional shares in an amount
equal to 30% of the shares originally purchased. Two of these investors were
Carl Anderson who was issued 90,938 shares and A.F. Budge who was issued
46,875 shares.
During July 1995, the Company issued 25,000 shares to Daniel Derfus, a
Director, who agreed to convert part of an existing loan and accrued interest
into Common Stock. Mr. Derfus exercised existing warrants at $.30 per share.
During May 1995, the Company issued 240,000 shares of its Common Stock
to Carl Anderson, a principal shareholder. Mr. Anderson originally invested
in a private offering during November 1994, and according to the terms of the
1994 private offering, if the Company did not register the original shares by
March 10, 1995, the Company was required to issue additional shares in an
amount equal to 30% of the shares originally purchased.
During October 1995, the Company issued 360,000 shares of its Common
Stock to Gregory Stemm, a shareholder and former officer and director,
pursuant to a settlement agreement which resolved a lawsuit filed by Mr. Stemm
against the Company. (See "BUSINESS -- Litigation.")
During September and October 1995, the Company issued 40,000 shares of
its Common Stock to John C. Morris, a shareholder and former officer and
director, upon payment to the Company of $10,000. These shares were sold
because Mr. Morris exercised anti-dilution rights he held under previously
issued warrants.
The Board of Directors was of the opinion that the terms of the above
transactions were at least as favorable as those which could be obtained from
independent third parties.
DESCRIPTION OF SECURITIES
Common Stock
The authorized capital stock of the Company consists of 30,000,000 shares
of no par value Common Stock. All shares have equal voting rights and are not
assessable. Voting rights are not cumulative, and, therefore, the holders of
more than 50% of the Common Stock of the Company could, if they chose to do
so, elect all the Directors.
Upon liquidation, dissolution or winding up of the Company, the assets of
the Company, after the payment of liabilities and any liquidation preferences
on outstanding preferred stock, will be distributed pro rata to the holders of
the Common Stock. The holders of the Common Stock do not have preemptive
rights to subscribe for any securities of the Company and have no right to
require the Company to redeem or purchase their shares. The shares of Common
Stock presently outstanding are, and the shares of Common Stock to be sold
pursuant to this offering will be, upon issuance, fully paid and
nonassessable.
Holders of Common Stock are entitled to share equally in dividends when,
as and if declared by the Board of Directors of the Company, out of funds
legally available therefor. The Company has not paid any cash dividends on
its Common Stock, and it is unlikely that any such dividends will be declared
in the foreseeable future.
Preferred Stock
The Company is authorized to issue 60,000,000 shares of Preferred Stock,
no par value. The Preferred Stock may be issued in series from time to time
with such designation, rights, preferences and limitations as the Board of
Directors of the Company may determine by resolution. The rights, preferences
and limitations of separate series of Preferred Stock may differ with respect
to such matters as may be determined by the Board of Directors, including,
without limitation, the rate of dividends, method and nature of payment of
dividends, terms of redemption, amounts payable on liquidation, sinking fund
provisions (if any), conversion rights (if any), and voting rights. The
potential exists, therefore, that preferred stock might be issued which would
grant dividend preferences and liquidation preferences to preferred
shareholders. Unless the nature of a particular transaction and applicable
statutes require such approval, the Board of Directors has the authority to
issue these shares without shareholder approval. The issuance of Preferred
Stock may have the affect of delaying or preventing a change in control of the
Company without any further action by shareholders. The Company has
designated 200,000 shares of its Preferred Stock as Series 1 Convertible
Preferred Stock, of which 200,000 shares are currently outstanding. Following
is a summary of the rights and preferences of the Series 1 Convertible
Preferred Stock:
Series 1 Convertible Preferred Stock
Holders of the Series 1 Convertible Preferred Stock are not entitled to
receive dividends. In the event of any dissolution, liquidation or sale of
the Company's assets, the holders of each share of the Series 1 Convertible
Preferred Stock shall be entitled to receive out of the assets of the Company
available for distribution to its stockholders, before any payment or
distribution shall be made on its Common Stock, an amount equal to $.25 per
share.
Each share of Series 1 Convertible Preferred Stock may be converted into
one share of the Company's Common Stock at any time at the option of the
holder.
In the event there is an effective registration statement covering the
shares of Common Stock into which the Series 1 Convertible Preferred Stock may
be converted and the average closing bid price for the Company's Common Stock
is at least $3.00, the shares of Series 1 Convertible Preferred Stock will be
automatically converted on a one-for-one basis.
The Company may redeem shares of Series 1 Convertible Preferred Stock, in
whole or in part, at any time, at its option, on 7 days prior notice, at a
price equal to the higher of $.25 or the average of the closing bid and asked
prices for the Company's Common Stock for the 10 days prior to the date of the
redemption notice.
The Company is required to redeem the shares of Series 1 Convertible
Preferred Stock, at the price set forth in the paragraph above, on the
earliest to occur of the following:
(i) December 1, 1999;
(ii) The date Buckeye Communications, Inc. ("Buckeye") provides the
Company with or arranges for the Company to be provided with, a cash infusion
of $500,000 or more;
(iii) The date that the Company receives a cash infusion of $1,500,000
or more in a single transaction or in a series of four or less transactions in
any one year.
If the Company receives proceeds from the sale of certain pearls (which
were previously used to collateralize the $250,000 loan from Buckeye), in
excess of $50,000, one-half of the excess shall be applied to redeem shares of
the Series 1 Convertible Preferred Stock at the price set forth above.
Each share of Series 1 Convertible Preferred Stock is entitled to one
vote and votes together with the holders of the Common Stock as a single
class.
Transfer Agent
The Company has retained American Securities Transfer, Inc., Denver,
Colorado, as Transfer Agent for the Common Stock.
Reports to Shareholders
The Company intends to furnish annual reports to shareholders on demand
which will include audited financial statements reported on by its certified
public accountants. In addition, the Company may issue unaudited quarterly or
other interim reports to shareholders as it deems appropriate.
SECURITIES COVERED BY THIS PROSPECTUS
Outstanding Shares Subject to Sale
All 17,086,125 of the shares covered by this Prospectus have previously
been issued by the Company and the Company has agreed with the holders thereof
to attempt to register such shares under the Act. All of these shares
constitute "restricted securities", as defined in Rule 144 under the Act.
Certain of the selling shareholders are affiliates of the Company and may be
deemed to be "underwriters", as defined in the Act, at such times, if any, as
they determine to resell such shares. (See "Selling Shareholders.")
Shareholders may make private sales of the shares directly or sell them
through brokers. In connection with any sales, the selling shareholders and
any brokers participating in such sales may be deemed to be "underwriters"
within the meaning of the Act.
PLAN OF DISTRIBUTION
The Selling Shareholders and others who may sell shares being registered
herein are not restricted as to the price or prices at which they may sell
their shares and sales of such shares at less than the market price may
depress the market price of the Company's Common Stock. Further, Selling
Shareholders are not restricted as to the number of shares which may be sold
at any one time, and it is possible that a significant number of shares could
be sold at the same time which may also have a depressive effect on the market
price of the Company's Common Stock. However, it is anticipated that the sale
of the Common Stock being offered hereby will be made through customary
brokerage channels either through broker-dealers acting as agents or brokers
for the seller, or through broker-dealers acting as principals, who may then
resell the shares in the over-the-counter market, or at private sale in the
over-the-counter market or otherwise, at prices related to prevailing market
prices at the time of the sales, at negotiated prices, or by a combination of
such methods. Thus, the period for sale of such shares by the Selling
Shareholders may occur over an extended period of time. Dealers who purchase
a significant amount of shares as principals may be statutory underwriters and
should notify the Company so that this Prospectus can be updated.
There are no contractual arrangements between or among any of the Selling
Shareholders and others who may sell shares being registered herein and the
Company with regard to the sale of the shares and no professional underwriter
in its capacity as such will be acting for the group or any member thereof.
The Company has advised the Selling Shareholders that they and any
securities broker-dealers or others who may be deemed to be statutory
underwriters will be subject to the Prospectus delivery requirements under the
Securities Act of 1933. The Company has also advised each Selling Shareholder
that in the event of a "distribution" of his or its shares, such Selling
Shareholder, any "affiliated purchasers," and any broker-dealer or other
person who participates in such distribution may be subject to Rule 10b-6
under the Securities Exchange Act of 1934 (the "1934 Act") until his or its
participation in that distribution is completed. A "distribution" is defined
in Rule 10b-6(c)(5) as an offering of securities "that is distinguished from
ordinary trading transactions by the magnitude of the offering and the
presence of special selling efforts and selling methods." The Company has
also advised the Selling Shareholders that Rule 10b-7 under the 1934 Act
prohibits any "stabilizing bid" or "stabilizing purchase" for the purpose of
pegging, fixing or stabilizing the price of the Common Stock in connection
with this offering.
Rule 10b-6 makes it unlawful for any person who is participating in a
distribution to bid for or purchase stock of the same class as is the subject
of the distribution. If Rule 10b-6 applies to the offer and sale of any of
the shares, then participating broker-dealers will be obligated to cease
market making activities nine business days prior to their participation in
the offer and sale of such Shares and may not recommence market making
activities until their participation in the distribution has been completed.
If Rule 10b-6 applies to one or more of the principal market makers in the
Company's Common Stock, the market price of such stock could be adversely
affected. (See "RISK FACTORS.")
LEGAL MATTERS
The legality of the securities of the Company offered will be passed on
for the Company and the Selling Shareholders by Jon D. Sawyer, P.C., 1401
Seventeenth Street, Suite 460, Denver, Colorado 80202.
EXPERTS
The audited consolidated financial statements of Seahawk Deep Ocean
Technology, Inc. and the financial statements of Seahawk I, Ltd., Seahawk II,
Ltd. and Eagle Partners, Ltd. included herein for the years ended December 31,
1994 and 1993, have been audited by Giunta, Ferlita & Walsh, P.A., independent
certified public accountants, for the periods and to the extent set forth in
their reports appearing herein. Such financial statements have been so
included in reliance upon the reports of such firm given upon their authority
as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 (herein, together with all amendments
thereto, the "Registration Statement") under the Securities Act of 1933 with
respect to the securities of the Company offered. This Prospectus, filed as
part of the Registration Statement, omits certain information contained in the
Registration Statement. The Registration Statement and exhibits may be
inspected at the office of the Commission, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of such materials can be obtained
from the Commission's Washington, D.C. office at prescribed rates. References
in this Prospectus to various documents, statutes, regulations and agreements
do not purport to be complete and are qualified in their entirety by reference
to such documents, statutes, regulations and agreements.
FINANCIAL STATEMENTS
1. The following Financial Statements are filed as part of this Prospectus.
Page No.
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
Consolidated Balance Sheets - September 30, 1995 (Unaudited) F3
Consolidated Statements of Operations (Unaudited)
- Nine Months Ended September 30, 1995 and 1994 F4-5
Statement of Cash Flows - Nine Months Ended September 30, 1995
and 1994 F6-7
Notes to Consolidated Financial Statements (Unaudited) F8-10
Report of Independent Certified Public Accountants F11
Consolidated Balance Sheet as of December 31, 1994 F12-13
Consolidated Statements of Operations for the Years
Ended December 31, 1994 and 1993 F14
Consolidated Statement of Stockholders' Equity for
the Years Ended December 31, 1994 and 1993 F15-16
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1994 and 1993 F17-19
Notes to Consolidated Financial Statements F20-47
SEAHAWK I, LTD.
Report of Independent Certified Public Accountants F48
Balance Sheet as of December 31, 1994 F49
Statements of Operations for the Years Ended
December 31, 1994 and 1993 F50
Statement of Partners' Capital for the Years Ended
December 31, 1994 and 1993 F51
Statements of Cash Flows for the Years Ended
December 31, 1994 and 1993 F52
Notes to the Financial Statements F53-61
SEAHAWK I, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
Reports of Independent Certified Public Accountants F62-63
Balance Sheet as of December 31, 1994 F64
Statements of Operations for the Years Ended
December 31, 1994 and 1993 and from May 16,
1989 (Inception) to December 31, 1994 F65
Statements of Partners' Capital for the Period of
May 16, 1989 (Inception) to December 31, 1994 F66
Statements of Cash Flows for the Years Ended
December 31, 1994 and 1993 and from May 16,
1989 (Inception) to December 31, 1994 F67
Notes to Financial Statements F68-74
EAGLE PARTNERS, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
Reports of Independent Certified Public Accountants F75
Balance Sheet as of December 31, 1994 F76
Statements of Operations for the Years Ended
December 31, 1994 and 1993 and from November 12,
1991 (Inception) to December 31, 1994 F77
Statements of Partners' Capital for the period
November 12, 1991 (Inception) to December 31, 1994 F78
Statements of Cash Flows for the Years Ended
December 31, 1994 and 1993 and from November 12,
1991 (Inception) to December 31, 1994 F79
Notes to Financial Statements F80-85
SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
ASSETS
<CAPTION>
(Unaudited)
September 30, 1995
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 6,467
Marketable securitie 9,184
Accounts receivable
Trade -
Other 10,350
Merchandise inventory 8,016
Prepaid expenses 35,330
Total current assets 69,348
PROPERTY AND EQUIPMENT
Net of accumulated depreciation
of $1,214,062 1,949,233
OTHER ASSETS
Artifacts 307,259
Accounts and Notes Receivable - affiliates
less losses in excess of investment in
affiliates of $1,696,212 456,238
Deposits 12,038
Total other assets 775,535
TOTAL ASSETS $2,794,115
</TABLE>
CONSOLIDATED BALANCE SHEET
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
(Unaudited)
September 30, 1995
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 338,162
Accrued expenses
Salaries 208,926
Interest due related parties 66,618
Interest due to others 145 499
Other 11,119
Preferred ships' mortgage 250,000
Due to related parties 371,756
Notes payable - others 384,033
Total current liabilities 1,776,193
LONG TERM LIABILITIES
Notes payable - related 65,000
Preferred ships' mortgage 775,000
TOTAL LIABILITIES 2,616,193
STOCKHOLDERS' EQUITY
Preferred stock - no par value; 60,000,000
shares authorized; 200,000 shares issued
and outstanding 50,000
Common Stock - no par value; 30,000,000
shares authorized; 21,400,168 shares
issued and outstanding 11,968,682
Paid in capital - stock options 5,191
Accumulated (deficit) (11,845,951)
Total Stockholders' Equity 177,922
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY $ 2,794,115
</TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1995 1994
<S> <C> <C>
REVENUES
Income from Affiliates $ 55,240 $ 42,263
Income from Others 382,249 4,937
Total Revenues 437,489 47,200
OPERATING EXPENSES
Vessel Operations 211,860 233,873
Vessel Operations - Affiliates 54,000 54,000
Conservation 29,462 25,919
Depreciation 161,031 245,121
Rent 62,303 61,803
Total Operating Expenses 518,656 620,715
GENERAL AND ADMINISTRATIVE EXPENSES 563,804 374,984
Total Expenses 1,082,460 995,699
(LOSS) FROM OPERATIONS (644,971) (948,499)
OTHER INCOME (EXPENSE)
Interest income - affiliate 22,438 -
Interest income - others 3 1,151
Interest expense (184,140) (113,608)
Other income 8,034 11,168
Gain on sale of marketable securities 19,900 -
Loss on disposal of equipment - (2,155)
Loss on investment in less than 50%
owned entities (34,220) (55,258)
Total other income (expense) (167,984) (158,703)
NET (LOSS) (812,955) (1,107,201)
NET (LOSS) PER SHARE $ (0.04) $ (0.07)
Weighted average number of common
shares and common shares
equivalents outstanding 20,488,249 15,307,307
</TABLE>
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Sources and (use) of Cash
Nine Months Ended September 30,
1995 1994
<S> <C> <C>
Cash Flows from Operating Activities
Net (Loss) $ (812,955) $(1,107,201)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 161,030 245,121
Provision for bad debt 174,310 -
Loss on disposal of equipment - 2,155
Profit on sale of marketable securities (19,900) -
Loss on Investment in less than 50%
owned entities 34,220 55,258
Services acquired through issuance
of common stock 6,250 28,443
Decrease (increase) in trade
accounts receivable (46,389) (416)
Decrease (increase) in trade
accounts receivable - affiliates (56,740) (35,613)
Decrease (increase) in other receivables (4,720) 45,531
Decrease (increase) in other
receivables - affiliates (12,438) -
Decrease (increase) in inventory 3,261 9
Decrease (increase) in prepaid expense 18,576 (31,489)
Decrease (increase) in deposits (1,868) 3,101
(Decrease) increase in accounts payable (107,433) 28,746
(Decrease) increase in accrued expenses 279,984 209,289
Total Adjustments 390,991 550,135
Net Cash generated (used) by
operating activities (421,964) (557,066)
Cash Flows from Investing Activities
Purchase of equipment (27,877) (12,802)
Purchase of artifacts - -
Increase in other investments - -
Issuance of notes receivable from affiliates - -
Proceeds from disposal of equipment - 655,000
Proceeds from the sale of marketable
securities 146,013 -
Payments received on notes receivable - -
Decrease in investment in affiliate - -
Net Cash provided (used) by investing
activities 118,136 642,198
Cash Flows from Financing Activities
Proceeds from issuance of common stock 174,709 245,850
Proceeds from issuance of warrants - -
Advances from related parties - -
Issuance of notes payable - other 162,011 208,000
Issuance of notes payable - related 15,000 7,000
Repayment of notes (21,000)
Repayment of notes - related (45,600) -
Payments on capital lease payable - (500,000)
Net Cash provided (used) by
financing activities 306,120 (60,150)
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENT 2,292 24,983
CASH AND CASH EQUIVALENT BEGINNING
OF QUARTER 4,175 2,705
CASH AND CASH EQUIVALENT END OF QUARTER $ 6,467 $ 27,688
</TABLE>
<PAGE>
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:
[CAPTION]
Common
Amount Shares
[S] [C] [C]
Accounts payable $ 13,859 68,926
Accrued interest 5,023 19,055
Accrued salary 83,702 264,774
Notes payable - related 5,947 19,823
Notes payable - other 7,478 29,912
$116,009 402,490
During 1995 the Company issued 60,000 shares for services vaued at $9,300.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES ON CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 (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, 1994.
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 September 30, 1995, results of
operations and cash flows for the interim periods presented. Operating
results for the six months ended September 30, 1995, are not necessarily
indicative of the results that may be expected for the year ended December
31, 1995.
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 MARKETABLE SECURITIES
At September 30, 1995, marketable securities consist of 3,867 shares of common
stock of Valley Forge Scientific, Inc., a stock traded in the over-the-
counter market and included in the NASDAQ Systems - Small Cap issues under
the symbol VLFS. These shares had an original cost of $11,601 and a fair
market value of $14,018 at September 30, 1995. The Company has adopted SFAS
No. 115 which requires investments in equity securities to be reported at fair
value. Accordingly, an unrealized loss of $35,603 was recorded in the
financial statements for the period ending December 31, 1994.
NOTE 4 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 5 COMMERCIAL UNION PREFERRED SHIP MORTGAGE
On February 9, 1994 and as amended on April 1, 1994, the Company and
Commercial Union Capital Limited 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 ship mortgage on the
Seahawk Retriever, her engines, tackle, equipment and apparel. The note was
non-interest bearing through its due date, April 15, 1995. 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 will be $1,025,000, and will be paid in eight quarterly installments,
with interest charged at 5% per annum over the Citybank new York prime rate in
effect on June 2, 1995, and adjusted thereafter biannually on the first day of
December and June each year. The first seven quarterly installments will
comprise the interest accrued and due on the date of the installment plus
$50,000 of the principal. The eighth and final installment will comprise all
the remaining amount due under the note. The current portion of the principal
under this note is $250,000 at September 30, 1995. Due to the inability to
collect payments due from chartering the vessel, the Company was unable to
make the payment of principal and interest due to Commercial Union on
September 2, 1995, and is currently seeking a new charter for the vessel M/V
Seahawk Retriever that will enable it to make the past due and future payments
to Commercial Union.
NOTE 6 CONTINGENCIES
During February, 1994 the Company agreed with Carl Anderson, a principal
shareholder, to convert two notes ("the Notes"), one for $44,448 and the
other for $80,936 which, together with accrued interest thereon, totaled
$141,804, into 567,212 shares of Common Stock in the Company. The Notes were
in the name of Gregory P. Stemm, a former officer and director of the Company
who had sold them to Anderson. On April 27, 1995, Stemm filed a lawsuit
against the Company alleging that (a) the Company must pay him the principal
and interest due on the Notes plus attorneys' fees and such other relief as
the Court sees just and proper, and (b) Stemm is entitled to immediate
possession of the Notes, and (c) the Company and Anderson conspired to deprive
Stemm of his right to the Notes and as a result Stemm is entitled to damages
due to this action.
The Company defended this action on the basis that it was verbally informed by
both Anderson and Stemm that the Notes had been transferred to Anderson and
that the Company relied on their representations and converted the Notes in
good faith. The Company settled this matter with Anderson in November 1995 by
Anderson paying the purchase price for the stock issued upon conversion of the
Notes. The Company settled the matter with Stemm by issuing a $90,000
promissory note for two years at 12% per annum and issuing to Stemm 360,000
shares of common stock and 360,000 warrants to purchase shares of common stock
at $0.32 per share. The Company had a cost of legal expense and settling this
matter of $15,305.
NOTE 7 SUBSEQUENT EVENTS
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 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. The Company will
account for this acquisition as the purchase of an asset. The basis for the
valuation will be the fair value of the vessel received.
NOTE 8 COMMON STOCK TRANSACTIONS WITH RELATED PARTIES
During January 1995, 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, 1994:
[CAPTION]
Number Unpaid
of Shares Remuneration
----------- -----------
[S] [C] [C]
John Lawrence 132,387 $41,850.87
John Balch 132,387 $41,850.87
During January 1995, the Company issued 90,938 shares of its Common Stock to
Carl Anderson and 46,875 shares of its Common Stock to A. F. Budge, two
accredited investors. These investors originally invested in a private
offering during June 1994, and according to the terms of the 1994 private
offering, if the Company did not register the original shares by the end of
1994, the Company was required to issue additional shares in an amount equal
to 30% of the shares originally purchased.
During May 1995, the Company issued 240,000 shares of its Common Stock to Carl
Anderson, a principal shareholder. Mr. Anderson originally invested in a
private offering during November 1994, and according to the terms of the 1994
private offering, if the Company did not register the original shares by March
10, 1995, the Company was required to issue additional shares in an amount
equal to 30% of the shares originally purchased.
During July 1995, the Company issued 25,000 shares to Daniel Derfus, a
Director, who agreed to convert part of an existing loan and accured interest
into Common Stock. Mr. Derfus exercised existing warrants at $.30 per share.
During September 1995, the Company issued 24,000 shares of its Common Stock to
John C. Morris, a shareholder and former officer and director, upon payment to
the Company of $6,000. These shares were sold because Mr. Morris exercised
anti-dilution rights he held under previously issued warrants.
During October 1995, the Company issued 16,000 shares of its Common Stock to
John C. Morris, a shareholder and former officer and director, upon payment to
the Company of $4,000. These shares were sold because Mr. Morris exercised
anti-dilution rights he held under previously issued warrants.
During October 1995, the Company issued 360,000 shares of its Common Stock to
Gregory Stemm, a shareholder and former officer and director, pursuant to a
settlement agreement which resolved a lawsuit filed by Mr. Stemm against the
Company.
During November 1995 the Company issued 2,400,000 shares of its Common Stock
to the six owners of Seahawk, Inc. the corporation which owned the vessel R/V
Seahawk in exchange for 100% of the outstanding stock of Seahawk, Inc.
The Board of Directors was of the opinion that the terms of the above
transactions were at least as favorable as those which could be obtained from
independent third parties.
NOTE 9 COMMON STOCK TRANSACTIONS WITH OTHERS
During January 1995, the Company issued 100,000 shares of its Common Stock to
Buckeye Communications, Inc. in accordance with an amendment to the terms of a
December 1994 agreement. During December 1994, the Company issued 800,000
shares of its Common Stock and 200,000 shares of the Company's Series 1
Convertible Preferred Stock to Buckeye as payment for a $250,000 loan.
During January 1995, the Company issued 162,750 shares of its Common Stock to
three accredited investors. The three investors originally invested in a
private offering during June 1994, and according to the terms of the 1994
private offering, if the Company did not register the original shares by the
end of 1994, the Company was required to issue additional shares in an amount
equal to 30% of the shares originally purchased.
During March 1995, the Company issued 31,926 shares of its Common Stock to an
individual for $4,609 of services rendered.
During May 1995 the Company issued 40,000 shares of its Common Stock to one
person in payment for a right to 10% of any cargo recovered from a shipwreck
in the Atlantic, code named Golden Eagle.
During June 1995 the Company issued 40,000 shares to a shareholder who agreed
to convert part of an existing loan and accrued interest into Common Stock by
exercising existing warrants at $.25 per share.
During July 1995, the Company issued 40,790 shares of its Common Stock to a
corporation in connection with services performed by the corporation.
During August 1995, the Company issued 20,000 shares of its Common Stock to
one individual in accordance with an amendment to an agreement for the
individuals right to 10% of any cargo recovered from a shipwreck in the
Atlantic, code named Golden Eagle.
During October 1995, the Company issued 50,000 shares of its Common Stock to
an individual pursuant to a loan aggreement entered into during September
1995 which provided that if a $10,000 loan was not repaid by the October 1995
due date, the loan would be converted into Common Stock at $.20 per share.
During October 1995, the Company issued 105,269 shares of its Common Stock to
a shareholder which exercised an outstanding option to purchase 105,269 shares
at a price of $.15 per share.
During October 1995, the Company issued 80,000 shares of its Common Stock to
two individuals who agreed to convert a loan and interest amounting to
$20,000 to stock.
During November 1995, the Company issued 1,259,136 shares of its Common Stock
to 20 accredited investors who invested a total of $314,784 in cash in a
private placement. These stock purchases were entered to the Company's books
from August through December, coincident with receipt of payment for the
shares.
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.AND SUBSIDIARIES
BALANCE SHEETS - AFFILIATES
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1995
Seahawk I, Seahawk II, Eagle Part-
Ltd. Ltd. ners, Ltd.
<S> <C> <C> <C>
Current Assets
Cash $ 845 $ 52 $ 0
Accounts receivable 421 - -
Inventory - other 1,805 - -
Total Current Assets 3,071 52 0
Other Assets
Artifact inventory 784,567 - -
Total Assets 787,638 52 0
Current Liabilities
Accounts payable - trade 4,087 2,217 3,525
Accounts payable -
general partner 761,983 14,928 1,027,519
Accrued liabilities 35,654 -
Notes payable - general partner 300,000
Notes payable - limited partners 32,886 - -
Total Current
Liabilities 1,134,610 17,145 1,031,044
Partners' Capital
Capital contributed 2,511,041 1,371,251 150,100
Accumulated loss (2,858,013) (1,388,344) (1,181,144)
Net Capital (346,972) (17,093) (1,031,044)
Total Liabilities
and Capital $ 787,638 $ 52 $ 0
</TABLE>
STATEMENTS OF OPERATION - AFFILIATES
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1995
Seahawk I, Seahawk II, Eagle Part-
Ltd. Ltd. ners, Ltd.
<S> <C> <C> <C>
Revenues $ 141 $ 0 $ 0
Expenses
Operating expenses 225 0 0
General and Administrative 11,090 1,890 9,980
Total Expenses 11,315 1,890 9,980
Other Income (Expenses) (27,241) 0 0
Net (Loss) $ (38,556) $ (1,890) $ (9,980)
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Seahawk Deep Ocean Technology, Inc.
Tampa, Florida
We have audited the accompanying consolidated balance sheet of Seahawk Deep
Ocean Technology, Inc. as of December 31, 1994 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1994 and 1993. These financial statements are the
responsibility of the Company's managment. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentations. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Seahawk Deep Ocean
Technology, Inc. as of December 31, 1994 and the results of its operations,
changes in stockholders' equity and its cash flows for the years ended
December 31, 1994 and 1993 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statements, the Company incurred a net loss of $1,451,232 for 1994 and has
incurred substantial net losses for each of the past several years
resulting in an accumulated deficit of $11,032,995. At December 31, 1994,
the Company has negative working capital as indicated by current
liabilities exceeding current assets by $2,114,888. These factors, in
addition to other factors as discussed in Note 15, raise substantial doubt
about its ability continue as a going concern. The financial statements do
not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the Company cannot
continue in operation.
/S/ Guinta, Ferlita & Walsh, P.A.
Giunta, Ferlita & Walsh, P.A.
Tampa, Florida
May 12, 1995
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
ASSETS
<CAPTION>
CURRENT ASSETS (in dollars)
<S> <C>
Cash and cash equivalents 4,175
Marketable securities 135,297
Accounts receivable
Trade 127,231
Other 15,630
Merchandise inventory 8,016
Prepaid expenses 16,754
Total current assets 307,103
PROPERTY AND EQUIPMENT,
Net of accumulated depreciation of $1,053,031 2,082,387
OTHER ASSETS
Artifacts 310,520
Accounts and notes receivable - affiliate,
less losses in excess of investment
in affiliates of $1,671,292 402,670
Deposits 10,170
723,360
TOTAL ASSETS 3,112,850
</TABLE>
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<CAPTION>
CURRENT LIABILITIES (in dollars)
<S> <C>
Accounts payable 450,204
Accrued expenses
Salaries 69,282
Interest due related parties 48,851
Interest due others 76,120
Other 7,988
Capital lease obligation 970,590
Due to related parties 504,456
Notes payable - others 294,500
Total current liabilities 2,421,991
STOCKHOLDERS' EQUITY
Preferred stock - no par value, 60,000,000 shares
authorized, 200,000 shares issued and outstanding 50,000
Common stock - no par value, 30,000,000 shares
authorized, 19,598,115 shares issued and outstanding 11,668,663
Paid in capital-stock options 5,191
Accumulated (deficit) 11,032,995)
690,859
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 3,112,850
</TABLE>
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
REVENUES ----------- -----------
<S> <C> <C>
Rental income - affiliates $ 50,285 $ 430,545
Rental income - others 131,942 6,086
Total revenues 182,227 436,631
OPERATING EXPENSES
Vessel - operations 319,346 225,402
Vessel operations - affiliate 72,000 54,000
Conservation 38,149 33,000
Depreciation 324,515 426,087
Rent 82,570 73,485
Total operating expenses 836,580 811,974
GENERAL & ADMINISTRATIVE EXPENSES 516,241 730,835
Total expenses 1,352,821 1,542,809
(LOSS) FROM OPERATIONS (1,170,594) (1,106,178)
OTHER INCOME (EXPENSE)
Interest income - affiliate 2,548 3,645
Interest income - others 1,589 -
Interest expense ( 189,999) ( 129,207)
Other income 11,168 9,166
Loss on sale of and unrealized loss
provision on marketable securities ( 38,028) -
Loss on disposal of equipment ( 7,153) ( 2,640)
Provision for write down on ROV - ( 592,771)
Benefit on capital lease obligation - 335,406
Loss on investment in less
than 50 % owned entities ( 60,763) ( 394,283)
Total other income (expense) ( 280,638) ( 770,684)
NET (LOSS) (1,451,232) (1,876,862)
NET (LOSS) PER SHARE $( 0.09) $( 0.17)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARES EQUIVALENTS OUTSTANDING 16,484,605 10,765,840
</TABLE>
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 and 1993
<TABLE>
<CAPTION>
Paid-in
Preferred Preferred Common Common Capital
Stock Stock Stock Stock Stock
Accumulated
Shares Amount Shares Amount Option
Deficit
<S> <C> <C> <C> <C> <C>
<C>
Balance,
December 31, 1992 - - 8,864,164 $ 8,634,502 -
$( 7,704,901)
Common stock issued
for cash - - 800,000 400,000 -
-
Debt to equity
conversion - - 2,467,545 855,331 -
-
Employee common stock
option exercized - - 16,500 3,300 -
-
Common stock warrants
exercized - - 727,274 100,000 -
-
Common Stock issued to
officers for services - - 103,092 48,324 -
-
Net (loss) - - - - -
( 1,876,862)
Balance,
December 31, 1993 - - 12,978,575 $10,041,457 -
( 9,581,763)
Common stock issued
for cash - - 1,195,001 310,820 -
-
Common stock issued
in exchange for
marketable securities - - 800,000 200,000 -
-
Common stock issued
for services - - 151,713 36,502 -
-
Debt to equity
conversion 200,000 50,000 4,325,951 1,034,884 -
-
Common stock issued
for subscription
agreement - - 46,875 15,000 -
-
Common stock issued for
purchase of equipment - - 100,000 30,000 -
-
25,958 below market
options issued to
directors for fees - - - - $5,191
-
Net (loss) - - - - -
( 1,451,232)
Balance,
December 31, 1994 200,000 $50,000 19,598,115 $11,668,663 $5,191
$(11,032,995)
</TABLE>
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES ----------- -----------
<S> <C> <C>
Net (loss) $(1,451,232) $(1,876,862)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 324,515 426,087
Provision for bad debt 5,764 -
Loss on disposal of equipment 7,153 2,640
Loss on marketable securities 38,028 -
Proceeds from sale of marketable securities 26,179 -
Benefit (provision) on capital lease obligation - ( 335,406)
Provision for write-down of ROV - 592,771
Loss on investment in less than
50% owned entities 60,763 394,283
Services acquired through the
issuance of common stock 25,478 48,326
Decrease (increase) in trade accounts receivable ( 127,231) -
Decrease (increase) in trade
accounts receivable affiliates ( 47,413) 197,980
Decrease (increase) in other receivables 48,748 ( 46,937)
Decrease (increase) in inventory 742 3,230
Decrease (increase) in prepaid expenses (13,029) ( 1,337)
Decrease (increase) in deposits 5,101 ( 2,772)
Increase in accounts payable (32,899) 56,067
(Decrease) increase in accrued expenses 393,783 (204,861)
Total adjustments 715,682 1,130,071
Net cash (used) by operating activities ( 735,550) ( 746,791)
</TABLE>
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
CASH FLOWS FROM INVESTING ACTIVITIES --------- ---------
<S> <C> <C>
Purchase of equipment $( 12,802) $( 18,175)
Purchase of artifacts - ( 5,247)
Proceeds from disposal of equipment 675,002 14,300
Net cash provided (used) by
investing activities 662,200 ( 9,122)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 310,820 403,297
Advances from related parties - 60,410
Issuances of notes payable - other 303,000 327,500
Issuances of notes payable - related 7,000 -
Repayments of notes payable ( 46,000) -
Payment of capital lease payable (500,000) -
Repayments to related parties - ( 42,046)
Net cash provided by financing activities 74,820 749,161
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS 1,470 ( 6,752)
CASH AND CASH EQUIVALENT AT BEGINNING OF YEAR 2,705 9,457
CASH AND CASH EQUIVALENT AT END OF YEAR $ 4,175 $ 2,705
</TABLE>
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
SUMMARY OF SIGNIFICANT NON-CASH TRANSACTIONS
During 1993 several debt holders, through the exercise of warrants and
options, converted their debt to common stock. A summary of the debt
converted is as follows:
<TABLE>
<CAPTION>
Amount Shares
----------- -----------
<S> <C> <C>
Accounts payable $ 37,186 74,372
Accrued interest 138,943 489,307
Notes payable-related 62,500 125,000
Notes payable-other 250,000 961,236
Debentures 330,000 660,000
$818,629 2,309,915
</TABLE>
During 1993 the Company issued 103,092 shares of common stock as payment of
$48,325 of compensation to one officer and one consultant.
During 1993, the Company issued 40,000 shares of common stock to an unrelated
party in exchange for his rights to receive a nondilutible 5% interest in a
limited partnership which the Company intended to form.
During 1994 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:
<TABLE>
<CAPTION>
Common Preferred
Amount Shares Amount Shares
----------- ---------- -------- -------
<S> <C> <C> <C> <C>
Accounts payable $ 25,477 78,074 - -
Accounts payable-related 59,347 395,943
Accrued interest 77,064 314,208
Notes payable-related 139,498 619,407
Notes payable-other 740,000 2,950,032 $50,000 200,000
Debentures 30,000 120,000
$1,071,386 4,477,664 $50,000 200,000
</TABLE>
During 1994 the Company issued 46,875 shares of common stock for a $15,000
receivable.
During 1994 the Company issued 800,000 shares of common stock in exchange for
66,667 shares of Valley Forge Scientific, Inc. common stock in an exchange
valued at $200,000.
During 1994 the company issued 100,000 shares of common stock valued at
$30,000 for a 34 foot workboat.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
Organization
Seahawk Deep Ocean Technology, Inc. (the "Company") was organized as a
Colorado corporation on September 17, 1986 for the purpose of acquiring a
business opportunity. On October 14, 1988 the Company completed its initial
public offering of 1,200,000 shares of common stock at an offering price of
$.50 per share. On March 13, 1989, the Company issued 2,000,000 shares of
its no par value common stock to the holders of 100% of the outstanding common
stock of R/V Seahawk, Inc. (a Florida corporation organized on May 23, 1988)
in an exchange transaction in which R/V Seahawk, Inc. became a wholly owned
subsidiary of the Company. On March 2, 1992, R/V Seahawk Inc. was merged
into the Company. On September 12, 1989 the Company organized Seahawk Museum
Development, Inc. and acquired 100% interest with the purchase of 625,000
shares of its no par common stock.
Nature of Business
Since its inception and until the acquisition of its subsidiary, R/V Seahawk,
Inc., the Company had not received significant revenues and had been devoting
its efforts to raising capital, hiring personnel, establishing its accounting
system, investigating business opportunities and issuing common stock for
cash. Accordingly, the Company was considered to be in the development stage.
The Company is an oceanographic service company which is involved in deep
water search, survey and recovery operations. The Company serves as the
general partner for three limited partnerships which were formed for the
purpose of raising money to search for and locate shipwrecks. The Company
currently leases or owns and operates a variety of subocean equipment
including a 200 foot supply vessel, an 83 foot research vessel, ROV's (Remote
Operated Vehicles), and other specialized search and recovery equipment which
enables it to locate, photograph and retrieve items lost on the seabed in deep
water.
Principles of Consolidation
The consolidated financial statements include the accounts of Seahawk Deep
Ocean Technology, Inc. and its wholly-owned subsidiary, Seahawk Museum
Development, Inc. All significant intercompany accounts and transactions have
been eliminated.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to
assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management who is
responsible for their integrity and objectivity and have prepared them in
accordance with the Company's customary accounting practices.
Basis of Presentation
The accompanying financial statements were prepared using the accrual basis
of accounting in accordance with generally accepted accounting principles.
Revenue Recognition
The Company derives its revenue primarily from rental of search and recovery
vessels, deep ocean survey and search equipment, remote operating vehicles,
and other electronic equipment to Seahawk I, Ltd., Seahawk II, Ltd., Eagle
Partners, Ltd. and other related and unrelated parties, as well as from its
distributive share of limited partnerships' net income.
Marketable Securities - Trading Account
Securities held as trading assets are stated at market value. Market
adjustments, gains or losses on the sales of trading securities are included
in other income (expense).
Accounts Receivable and Credit Concentration
Trade accounts receivable are charter payments due from International Diving.
Although International Diving has filed for protection under Chapter 11 of the
Federal Bankruptcy Act management considers the account fully collectible and
no provision for uncollectible accounts has been made. (See Note 17).
Accounts and Notes Receivable - Affiliate and Credit Concentration
The Company uses the allowance method to account for uncollectible affiliate
accounts. The Company has provided an allowance for uncollectible accounts
since management considers the losses in excess of its investments in
affiliates as a provision for uncollectible accounts. (See Note 4).
Artifacts
Artifacts are stated at the lower of cost or market value and consist
primarily of colonial age artifacts purchased from related and unrelated
entities.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Depreciation
Property and equipment is stated at historical cost. Depreciation is provided
using the straight-line method for financial reporting purposes at rates based
on the assets' estimated useful lives. The major components of assets and
their estimated useful lives are as follows:
<TABLE>
<CAPTION>
December 31,
1994 Years
Vessel "Seahawk Retriever" ----------- -----------
<S> <C> <C>
(See note 15) $1,500,000 35
Equipment 1,635,418 5 - 10
3,135,418
Accumulated depreciation (1,053,031)
$2,082,387
</TABLE>
For income tax purposes, depreciation is computed using accelerated methods
over statutory periods.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of. The
application of the statement is effective for fiscal years beginning after
December 15, 1995. The Statement would require the Company to carry certain
property and equipment at lower of cost or fair value less cost to sell, if
the sum of expected future cash flow (undiscounted and without interest
charges) is less than the carry amount of property and equipment. At December
31, 1994, the Company expects the adoption of SFAS 121 will not have an effect
on its financial statements.
Investment in Affiliates
The Company's investment in Seahawk I, Ltd., Seahawk II, Ltd. and Eagle
Partners, Ltd (less than 50% owned entities) is recorded on the equity method.
Under this method, the basis of such investments, including loans, advances,
and receivables are increased or decreased by the Company's distributive share
of the partnerships' income or loss. The partnerships were formed for the
purpose of funding the search for deep water shipwrecks in predesignated
areas.
Loss Per Share
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common stock warrants and options are
not considered into the computation because they are antidilutive in the
aggregate.
Statement of Cash Flows
Short-term investments which have an original maturity of ninety days or less
are considered cash equivalents.
Cash payments of interest for the years ended December 31, 1994 and 1993
amounted to $ 38,068 and $10,011 respectively.
Income Taxes
The Company provides for deferred income taxes resulting from the timing
differences in reporting income and expenses for financial statement purposes
compared to the method of reporting for income tax purposes. No deferred
income taxes are reflected in the accompanying financial statements due to the
Company's losses from operations.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - MARKETABLE SECURITIES
At December 31, 1994, marketable securities consist of 56,967 shares of common
stock of Valley Forge Scientific Inc., a stock traded in the over-the-counter
market and included in the NASDAQ Systems - Small Cap issues under the symbol
VLFS. These shares had an original cost of $170,900 and a fair market value
at December 31, 1994 of $135,297. These shares had an original cost of
$170,900 and a fair market value at December 31, 1994 of $135,297. THE
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 115 REQUIRES THAT INVESTMENTS
IN EQUITY SECURITIES BE REPORTED AT FAIR VALUE. THE COMPANY HAS ADOPTED SFAS
NO. 115 AND THEREFORE, AN UNREALIZED LOSS OF $35,603 IS INCLUDED IN OTHER
EXPENSE IN THE STATEMENT OF OPERATIONS.
NOTE 4 - ACCOUNTS AND NOTES RECEIVABLE FROM AND INVESTMENTS IN AFFILIATES
The Company is a general partner and a less than 50% interest owner in Eagle
Partners, Ltd., Seahawk I, Ltd. and Seahawk II, Ltd (Florida limited
partnerships). The partnerships are accounted for on the equity method. The
report of independent certified public accountants on the 1994 financial
statements of Seahawk I, Ltd., Seahawk II, Ltd., and Eagle Partners, Ltd.
each includes an explanatory paragraph raising substantial doubt about the
partnership's ability to continue as a going concern. Pursuant to the
partnership agreements, net losses of the Partnerships will be allocated as
follows:
For Seahawk I, Ltd., 15% to the Class A Limited Partners, 10% for the
Class B Limited Partners, 25% of the Class C Limited Partners and 50%
to the General Partner. At such time as the capital account balance of
any limited partner (taking into consideration all units owned by a
partner including Class A, B and C) reaches zero, any further loss
allocation shall be made to the general partner.
For Seahawk II, Ltd. and Eagle Partners, Ltd. 99% to the Limited
Partners and 1% to the General Partner until the Limited Partners'
capital accounts have been reduced to zero.
Net income is first allocated to the Limited Partners based on their
proportionate ownership interests to the extent of the net loss previously
allocated to them. Net income is then allocated to the General Partner to the
extent of the net loss previously allocated to it. Thereafter, net income
will be allocated as follows: For Seahawk I, Ltd., the remaining net income
is allocated 50% to the Limited Partners and 50% to the General Partner; for
Seahawk II, Ltd., the remaining net income is allocated 1% per unit of the
limited partnership interest (not to exceed 50%), and the balance to the
General Partner; for Eagle Partners, Ltd., the remaining net income is
allocated on a per unit basis with each $50,000 unit receiving 5% of the first
$1 million of income allocated, 4% of the second $1 million of income
allocated, 3% of the third $1 million of income allocated, 2% of the fourth
$1 million of income allocated and 1% of income over $4 million allocated.
The Company, as the general partner, will receive the balance of any net
income to be allocated.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACCOUNTS AND NOTES RECEIVABLE FROM AND INVESTMENTS IN AFFILIATES
(continued)
The Company's total distributive share of Seahawk I, Ltd., Seahawk II, Ltd.
and Eagle Partners, Ltd. for 1994 and 1993 was $60,763 and $394,283,
respectively. In accordance with the use of the equity method of accounting
for its investment in partnerships, the Company has reduced its investment in
those partnerships by its allocated portion of the partnership's losses.
The accounts and notes receivable from affiliates, less losses in excess of
investment in affiliates at December 31, 1994 is detailed as follows:
<TABLE>
<CAPTION>
EAGLE
SEAHAWK I SEAHAWK II PARTNERS
LTD. LTD. LTD. TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Note receivable $ 300,000 $ - $ - $ 300,000
Accounts receivable 751,514 8,473 1,017,890 1,777,877
Deferred interest
income ( 3,915) - - ( 3,915)
Less losses in excess
of investment in
affiliates (635,028) (15,200) (1,021,064) (1,671,292)
$ 412,571 $(6,727) $( 3,174) $ 402,670
</TABLE>
The accounts receivable are unsecured but the Note Receivable is due in
November 1995 and is secured by 4,000 pearls owned by Seahawk I, Ltd which
are stated in that Company's artifact inventory at $36,000. (See Note 11)
The Company has recorded losses in excess of its investments due to
managements' commitment to provide additional financial support. In 1994,
the Company recorded its share of losses from affiliates primarily as a result
of invoices billed to the affiliate for services provided. Therefore, the
Company considers the negative investment account as a provision for
uncollectible accounts.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INVESTMENT IN AFFILIATES (Continued)
Summarized financial statement information is shown below:
SEAHAWK I, LTD.
BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<CAPTION>
ASSETS (in dollars)
<S> <C>
CURRENT ASSETS 10,237
OTHER ASSETS - ARTIFACTS 785,027
795,264
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES $ 1,103,821
PARTNERS' CAPITAL
Capital contributions 2,511,040
Accumulated deficit (2,819,597)
TOTAL PARTNERS' CAPITAL (Deficit) (308,557)
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 795,264
</TABLE>
SEAHAWK I, LTD.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
REVENUES $ 7,978 $ 23,791
COST OF REVENUES 4,330 6,708
GROSS PROFIT 3,648 17,083
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES 38,113 81,476
INCOME (LOSS) FROM OPERATIONS (34,465) (64,393)
OTHER INCOME (EXPENSES) (49,439) ( 8,279)
NET INCOME (LOSS) $ (83,904) $ (72,672)
</TABLE>
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INVESTMENTS IN AFFILIATES (Continued)
SEAHAWK II, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<CAPTION>
ASSETS (in dollars)
<S> <C>
CURRENT ASSETS $ 52
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES $ 15,254
PARTNERS' CAPITAL
Capital contributions 1,371,250
Deficit accumulated during development stage (1,386,452)
NET PARTNERS' CAPITAL $ 15,202)
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 52
</TABLE>
<PAGE>
SEAHAWK II, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993 AND
FROM MAY 16, 1989 (Inception) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
May 16, 1989
(Inception) to
1994 1993 December 31, 1994
--------- --------- -----------------
<S> <C> <C> <C>
REVENUES $ - $ - $ -
OPERATING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,734 4,172 1,398,040
(LOSS) FROM OPERATIONS (6,734) (4,172) (1,398,040)
OTHER INCOME - - 11,588
NET (LOSS) $(6,734) $(4,172) $(1,386,452)
</TABLE>
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INVESTMENT IN AFFILIATES (Continued)
EAGLE PARTNERS, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
ASSETS (in dollars)
<CAPTION>
<S> <C>
CURRENT ASSETS -
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES 1,021,064
PARTNERS' DEFICIT
Capital contributions 150,100
Deficit accumulated during the development stage (1,171,164)
TOTAL PARTNERS' DEFICIT (1,021,064)
TOTAL LIABILITIES AND PARTNERS' DEFICIT -
</TABLE>
EAGLE PARTNERS, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended November 12, 1991
December 31, December 31, (Inception) to
1994 1993 December 31, 1994
----------- ----------- -----------------
<S> <C> <C> <C>
REVENUES $ - $ - $ -
OPERATING, GENERAL AND
ADMINISTRATIVE EXPENSES 12,826 367,048 1,170,815
(LOSS) FROM OPERATIONS (12,826) (367,048) (1,170,815)
OTHER INCOME (Expense) - - (349)
NET (LOSS) $(12,826) $ 367,048 $(1,171,164)
</TABLE>
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - DEPOSITS
<TABLE>
Deposits at December 31, 1994 consist of the following:
<S> <C>
Deposit on office space $ 5,300
Utility deposits 4,870
$10,170
</TABLE>
NOTE 6 - CAPITAL LEASE OBLIGATION
As further discussed in Note 16 the capital lease obligation was settled for
$1,500,000. $500,000 was due April, 1994 and $1,000,000 due on a non-interest
bearing note payable April, 1995 secured by a first preferred ship mortgage on
the Seahawk Retriever, her engines, tackle, equipment and apparel. At
December 31, 1994, the Company reflected the note payable at the discounted
present value of $970,590 using a 12% interest rate. In March, 1995 the
agreement was amended and the date of the payment of the $1,000,000 extended
to June 1, 1995 and management is discussing with the noteholder the terms
under which the due date on the note can be extended further.
NOTE 7 - DUE TO RELATED PARTIES
<TABLE>
Amounts due to related parties at December 31, 1994 comprises:
<S> <C>
Note due on demand, secured by subsea equipment
bearing an interest rate of 10% per annum $ 50,000
Note due March 16, 1996, secured by an artifact
stated in the Company's inventory at $75,000
bearing an interst rate of 18% per annum 25,000
Account payable for rental of the vessel R/V Seahawk 183,840
Accrued expenses including officer and director remuneration 177,416
Unsecured note due on March 31, 1994 bearing an interest
rate of 12% per annum. In April, 1995 this note was
extended on the same terms for two years 45,600
10% unsecured demand notes payable 22,600
$504,456
</TABLE>
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - NOTES PAYABLE - OTHERS
<TABLE>
Notes payable - others at December 31, 1994 comprises:
<S> <C>
Notes payable during the first quarter of 1995 at an
interest rate of 18% per annum and secured by artifacts
owned by the Company, and stated in the artifact
inventory at $108,375. In April, 1995 these notes were
extended on the same terms for one year. $ 75,000
Note payable due in December 1994 at an interest rate
of 10% per annum and secured by silver coins owned by
Seahawk I, Ltd., stated in that Company's artifact
inventory at $22,284. In May, 1995 this note was
extended on the same terms for one year. 17,000
Note payable due in June 1995 at an interest rate of 10%
per annum and secured by gold owned by Seahawk I, Ltd.,
stated in that Company's artifact inventory at $122,820. 100,000
Note payable due in October 1995 at an interest rate of
10% secured by gold owned by Seahawk I Ltd., stated in
that Company's artifact inventory at $128,393. 95,000
Other unsecured notes payable 7,500
$294,500
</TABLE>
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMON STOCK
On June 12, 1992, the Company effected a one for fifty reverse split on the
shares of the Company's common stock outstanding. The per share amounts and
number of shares in the financial statements have been retroactively adjusted
for the effect of this reverse stock split. Concurrently, the Company's
stockholders approved an amendment to the Articles of Incorporation
decreasing the authorized common stock to 30,000,000 shares of no par value
common stock.
NOTE 10 - COMMON STOCK OPTIONS AND WARRANTS
On April 18, 1990, the Company's Board of Directors approved a Stock Option
Plan (the "Plan"). Under the Plan, stock options, which qualify as "incentive
stock options" under Section 422A of the Internal Revenue Code of 1954, as
amended (the "Code"), can be issued to employees of the Company.
Additionally, options can also be issued to the directors who render valuable
contributions to the Company. Pursuant to the Plan, options to purchase up to
400,000 shares of the Company's common stock may be granted to employees and/
or Directors of the Company. The Plan is administered by the Board of
Directors, which is empowered to determine the terms and conditions of each
option, subject to the limitation that the exercise price cannot be less than
the market value of the Common Stock on the date of the grant (110% of the
market value in the case of option granted to an employee who owns 10% or more
of the Company's outstanding Common Stock) and no options can have a term in
excess of 10 years (5 years in the case of options granted to employees who
own 10% or more of the Company's Common Stock). The Plan was approved by the
shareholders of the Company at the stockholders' meeting held on December 14,
1990.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
Number of Shares Price per Share
---------------- ---------------
<S> <C> <C>
Balance December 31, 1992 187,500 $1.50 - 10.00
Granted 235,000 $0.20
Terminated ( 62,000) $2.35 - 7.00
Exercised ( 16,500) $0.20
Balance December 31, 1993 344,000 $0.20 - 10.00
Granted 39,500 $0.30
Terminated ( 89,500) $0.20 - 7.00
Balance December 31, 1994 294,000 $0.20 - 10.00
</TABLE>
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMON STOCK OPTIONS AND WARRANTS (Continued)
The following options to purchase the Company's common shares were outstanding
on December 31, 1994:
<TABLE>
<CAPTION>
Number Exercise Expiration
Date of Shares Price Date
----------- ----------- -----------
<S> <C> <C> <C>
5/15/92 13,000 2.35 5/15/95
6/6/92 40,000 10.00 6/ 6/95
8/6/92 15,000 1.50 8/ 6/95
1/13/93 25,000 0.20
7/15/95*
1/18/93 136,500 0.20
7/18/95*
9/16/93 25,000 0.83 9/16/98
11/22/94 39,500 0.30 12/14/96
294,000
- ------------
* The expiration date of the $0.20 option was extended to one year during
1994.
</TABLE>
During January, 1990 the Board of Directors of the Company voted to decline
the purchase of the RV Seahawk, owned by Seahawk, Inc. (a related party). In
accordance with a prior agreement (see Note 13) Seahawk, Inc. was granted
options to buy 2,000,000 shares of the Company's common stock at $0.15.
Seahawk, Inc. has assigned these options to others.
<TABLE>
Activity in these Warrants can be summarized as follows:
<CAPTION>
No. of Shares
<S> <C>
Balance, December 31, 1992 742,955
Exercised
Balance, December 31, 1993 742,955
Exercised 570,451
Balance, December 31, 1994 171,904
</TABLE>
The expiration date of 105,269 of these warrants was extended to May 15, 1995
in return for exercising certain of the warrants on February 28, 1994 for
conversion of debt to equity.
On June 2, 1993, the Company's Board of Directors approved a total of
1,000,000 incentive stock options to be issued to three senior members of the
managment team as part of their contract of employment. On May 11, 1994 the
exercise price of the stock options were reduced. These options are described
as follows:
<TABLE>
<CAPTION>
Original New
Exercise Exercise Expiration
Date Number of Shares Price Price Date
<S> <C> <C> <C> <C>
6/2/93 300,000 $0.70 $0.40 6/2/98
6/2/93 300,000 $1.20 $0.60 6/2/98
6/2/93 200,000 $3.00 $1.50 6/2/98
6/2/93 200,000 $5.00 $2.50 6/2/98
1,000,000
</TABLE>
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMON STOCK OPTIONS AND WARRANTS (Continued)
<TABLE>
Warrant activity is summarized as follows:
<CAPTION>
Number Price
of Shares per Share
<S> <C> <C>
Balance December 31, 1992 1,246,382 $0.15 - 5.00
Granted 978,804 $0.50 - 1.00
Exercised ( 500,000) $0.1375-0.50
Expired ( 100,000) $0.60 - 5.00
Balance December 31, 1993 1,625,186 $0.15 - 2.00
Granted 5,565,750 $0.25 - 1.00
Exercised ( 250,000) -
Expired ( 535,241) $0.15 - 2.00
Balance December 31, 1994 6,405,695 $0.25 - 2.00
</TABLE>
<TABLE>
The following warrants to purchase the Company's common shares were
outstanding on December 31, 1994:
<CAPTION>
Date No. of Shares Exercise Price Expiration
Date
<S> <C> <C> <C>
01/21/92 23,000 Note A Note A
01/21/92 25,754 $2.00 Note B
01/21/92 32,191 5.00 Note A
01/21/92 119,000 Note C Note A
01/24/92 100,000 Note D -
12/01/92 40,000 0.25 Note F
06/24/93 250,000 0.25 12/31/96
10/13/93 250,000 0.25 10/13/99
01/01/94 32,000 0.38 12/31/95
02/18/94 50,000 0.30 02/28/96
03/01/94 25,000 0.30 03/01/96
03/16/94 25,000 0.30 03/16/96
04/01/94 400,000 0.25 12/31/99
05/19/94 500,000 0.50 04/14/97
05/19/94 500,000 0.50 04/14/97
06/01/94 100,000 1.00 06/30/97
10/19/94 100,000 0.50 10/19/96
05/11/94 15,000 0.40 Note E
05/11/94 15,000 0.40 Note E
07/31/94 606,250 0.32 07/31/96
07/31/94 772,500 0.32 07/31/96
07/31/94 312,500 0.32 07/31/96
07/31/94 12,500 0.32 07/31/96
07/31/94 300,000 0.32 07/31/96
11/10/94 1,800,000 0.32 11/10/96
6,405,695
</TABLE>
Note A - 3 months after effective date of Registration Statement
Note B - 18 months after effective date of Registration Statement
Note C - 110% of lowest closing bid 180 days prior to exercise
Note D - $2.50 or divide 100,000 by lowest bid during 180 day prior
Note E - 180 days after resignation
Note F - 180 days after a related note payable is paid in full
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - RELATED PARTY TRANSACTIONS
The Company receives some of its revenues from the rental of a vessel and deep
ocean search and survey equipment sale of services leased to Seahawk I, Ltd.,
Seahawk II, Ltd. and Eagle Partners, Ltd. For the years ended December 31,
1994 and 1993, the Company recorded revenues of $50,285 and $430,545
respectively, from these partnerships. At December 31, 1994 accounts
receivable-affiliates includes $1,777,877 from this rental activity. See Note
4 for discussion of losses in excess of investments in affiliates and its
relationship to accounts receivable-affiliates.
The Company leases a research vessel from a related entity. See Note 13 for
further discussion. During the years ended December 31, 1994 and 1993, the
Company paid the related entity lease payments of $72,000 and $54,000
respectively.
During October 1991, the Company issued $370,000 of Debentures to 15 investors
for a total of $370,000 in cash. During April 1993, the Company offered these
investors the opportunity to convert their debentures and any accrued interest
into shares of the Company's Common Stock at a price of $.50 per share. Ten
of the investors accepted the offer to convert their debentures at that time,
including Anthony F. Budge, a principal shareholder who converted his $200,000
of debentures plus accrued interest into a total of 487,851 shares of Common
Stock.
During June 1992, Valley Resources, Ltd., a company owned by Mr. Budge, loaned
$50,000 to the Company pursuant to a twelve month unsecured promissory note
bearing interest at 10% per annum. As consideration for making the loan, the
Company issued to Valley Resources, Ltd. warrants to purchase 25,000 shares at
$2.00 per share and warrants to purchase 25,000 shares at $5.00 per share.
During June 1993, the principal amount of this loan plus $7,740 of accrued
interest was converted into 115,481 shares of Common Stock at a price of $.50
per share.
On January 24, 1992, Carl Anderson, a principal stockholder, entered into a
Private Placement Agreement with the Company pursuant to which he invested
$200,000 in the Company and purchased 200,000 shares of Common Stock and
200,000 Class C Warrant Units which entitled Mr. Anderson to purchase a total
of 400,000 shares of Common Stock. One of these terms of the transaction was
that the shares underlying the Class C Warrants would be registered. Each
Class C Warrant originally entitled the holder to purchase one share of Common
Stock at one hundred and ten percent (110%) of the lowest closing bid price of
the Company's Common Stock during the one hundred and eighty (180) calendar
days prior to the exercise date with a maximum of $3.00 per share and one
share of Common Stock at a price equal to 90% of the average closing bid price
during the preceding 10 trading days. During May 1993, the Company was
attempting to convert as much debt into equity as possible and the Company
allowed Mr. Anderson to exercise the one-half of his
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - RELATED PARTY TRANSACTIONS (continued)
Class C Warrants which were exercisable at the price of $.1375 (which was
equal to 110% of the lowest closing bid price during the 180 days prior to
May 7, 1993) without exercising the other one-half of his C Warrants. The
Company also agreed to modify the exercise price of the remaining Warrants to
110% of the lowest closing bid price during the 180 days prior to the exercise
date with a maximum of $2.00 per share.
On January 14, 1993, Carl Anderson loaned $60,000 to the Company pursuant to a
promissory note due December 31, 1993 and bearing interest at 10%. This loan
was personally guaranteed by John Morris, former president, and secured by
certain artifacts. As additional consideration for the loan, the Company
issued to Mr. Anderson 400,000 Warrants exercisable at a price equal to 110%
of the lowest closing bid price of the Company's Common Stock during the 180
calendar days prior to the exercise date. In February, 1994 this note was
converted to stock.
During April 1993 Anthony F. Budge, a principal shareholder, purchased 200,000
shares of the Company's Common Stock in a private placement at a price of $.50
per share by paying $100,000 in cash to the Company. On April 29., 1993,
Valley Resources, Ltd. a company owned by Mr. Budge, converted a $50,000 loan
plus accrued interest of $7,740.24 into 115,481 shares of Common Stock at the
price of $.50 per share. In addition, Mr. Budge converted $201,000 of
debentures plus accrued interest of $44,925.59 into 489,851 shares at a price
of $.50 per share.
On April 29, 1993, Carl Anderson a principal shareholder, purchased 200,000
shares of the Company's Common Stock in a private placement at a price of $.50
per share by paying $100,000 in cash to the Company. On the same date, Mr.
Anderson also exercised stock options he held at an exercise price of $.1375
per share by converting existing loans in the principal amount of $75,000 plus
accrued interest of $41,875 for which he received a total of 850,000 shares.
He was also issued 727,273 shares on April 29, 1993 pursuant to the exercise
of an option for which he paid $100,000.
On May 7, 1993, Carl Anderson exercised an option he purchased on January 24,
1992, and acquired 727,273 shares of Common Stock. In addition, on the same
date he converted a total of $75,000 in principal loans and $41,875 in
interest by exercising 850,000 of his warrants to purchase 850,000 shares of
Common Stock.
During June, 1993, the Company issued 650,000 shares of its Common Stock to
six accredited investors in a private placement conducted by the Company at a
price of $.50 per share. Included among the investors were Carl Anderson and
Anthony F. Budge. Mr. Anderson purchased 200,000 shares and Mr. Budge
purchased 50,000 shares.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - RELATED PARTY TRANSACTIONS (continued)
During September, 1993, the Company issued 112,032 shares of Common Stock to
John C. Morris, former president and director and principal shareholder of the
Company, as payment for a $50,000 promissory note plus $6,016 of accrued
interest.
During February 1994, the Company issued 2,438,851 shares of its Common Stock
to the following affiliated persons who agreed to convert existing loans and
accrued interest into Common Stock:
<TABLE>
<CAPTION>
Amount
Number of Debt
Name of Shares Converted
<S> <C> <C>
Carl Anderson 1,868,400 $467,100
Megeve Investments 232,591 $ 34,889
John C. Morris 337,860 $ 50,679
</TABLE>
Carl Anderson and John Morris and Megeve Investments acquired its shares as an
assignee from Gregory Stemm, a principal shareholder. All of the debt was
converted at $.25 per share except for the 232,591 shares issued to Megeve
Investments and 212,533 of the shares issued to John Morris, which were issued
pursuant to the exercise of existing warrants at an exercise price of $.15
per share.
During February 1994, the Company also issued 100,000 shares of Common Stock
to Carl Anderson, for the purchase of a 36-foot motor vessel valued at
$30,000.
During February 1994, Carl Anderson, was issued 1,868,400 shares of Common
Stock at a price of $.25 per share in consideration for his conversion of
loans and debentures having a total principal amount of $406,498 plus accrued
interest of $60,601.90.
On March 1, 1994, John Morris exercised stock options he held at an exercise
price of $.15 per share by converting existing loans plus interest equal to
$50,679 for which he received 337,860 shares.
On March 1, 1994, Gregory Stemm exercised stock options he held at an exercise
price of $.15 per share by converting an existing loan plus interest equal to
$34,888.65 for which he received 232,591 shares.
The Company executed Separation Agreements on April 14, 1994, and provide
essentially that Messrs. Morris and Stemm will not compete with the Company
for a period of three years, and in consideration therefor the Company issued
to each of them warrants to purchase 500,000 shares of the Company's Common
Stock at $.50 per share for the same three year period.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - RELATED PARTY TRANSACTIONS (continued)
On June 1, 1994, the Company signed an Agreement for Consulting Services with
Remarc International, Inc. ("Remarc") a Colorado corporation owned by John
Morris and Gregory Stemm. The Agreement provides that Remarc will, at it own
expense, seek to obtain for the Company a permit from the appropriate
government to search for and salvage the particular shipwreck involved in a
South American Project. If such a permit is obtained for the Company by
Remarc, then the Company has agreed to grant Remarc between 6% and 9 1/2% of
the gross proceeds of any successful recovery from the project. The actual
percentage granted to Remarc will depend on the size of portion of the
recovery that will be taken by the South American government in return for
the permit.
During June, 1994, The Company issued 240,000 shares of its Common Stock to
six accredited investors. These six investors originally invested in a
private offering during May and June 1993, and according to the terms of
the 1993 private placement, if the Company did not register the original
shares within one year of the private offering, the Company was required to
issue additional shares in an amount equal to 30% of the shares originally
purchased. Including among these investors were Mr. Anderson and Anthony F.
Budge, who were each issued 60,000 shares.
During June, 1994, the Company also issued 103,092 shares of Common Stock to
the two officers of the Company as payment for accrued and unpaid
remuneration for the year ended December 31, 1993.
During June and July, 1994, the Company issued 983,125 shares of its Common
Stock to five accredited investors in a private placement conducted by the
Company at a price of $.32 per share. The investors also acquired two common
stock purchase warrants exercisable at $.32 per share for each share of Common
Stock they purchased. Included among the investors were Anthony F. Budge and
Carl Anderson. Mr. Budge purchased 156,250 shares and Mr. Anderson purchased
303,125 shares.
According to the terms of the above private placement, if the Company did not
register the original shares by December 31, 1994, the Company was required to
issued additional shares in an amount equal to 30% of the shares originally
purchased. A total of 326,813 additional shares were issued during January
1995, with Mr. Budge receiving an additional 46,875 shares and Mr. Anderson
receiving an additional 90,938 shares.
During November, 1994, the Company issued 800,000 shares of its Common Stock
and warrants to buy 1,600,000 shares of Common Stock at an exercise price of
$.32 per share to Carl Anderson in exchange for 66,667 shares of common stock
of Valley Forge Scientific Corporation. According to the terms of the
exchange agreement, since the Company did not register the original shares by
March 10, 1995 the Company is required to issue Mr. Anderson an additional
240,000 shares of its Common Stock.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - RELATED PARTY TRANSACTIONS (continued)
During 1993 the Seahawk I, Ltd. issued a note payable to an unrelated party
in the sum of $250,000 with interest payable quarterly in arrears. The
principal sum plus any accrued interest was to be payable on December 31,
1995. The loan was secured with 3,500 natural pearls from the Partnership's
artifact collections and was guaranteed by the Company. The note fell into
default as a result of non-payment of interest and on December 1, 1994 an
agreement was reached between the note holder and the Company whereby the
principal was satisfied by the issue of 800,000 shares of common stock and
200,000 shares of Series 1 preferred 55 stock in the Company. The Company
also agreed to pay the outstanding interest in cash. In return for this
settlement of their debt to the unrelated party the Partnership issued to the
Company a note for $300,000 payable on November 30, 1995 together with accrued
interest at the rate of 10% per annum. The note is secured by 4,000 pearls
owned by the Partnership valued in that company's artifact inventory at
$36,000.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - 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". There is no effect on prior
operations as a result of the change. This new statement changes the criteria
for the recognition and measurement of deferred tax assets or liabilities,
including net operating loss carry forwards.
As of December 31, 1994, the Company had a net operating loss carry forward of
approximately $10,950,000 which are available to offset future taxable income.
The carry forward will begin to expire in the year 2004. The Company has not
recorded a deferred tax asset since the use of the carry forward is
indeterminable at this time.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Research Vessel Charter
The Company entered into a ship's charter, on a verbal month-to-month basis,
of a research vessel from a related entity, Seahawk, Inc., a corporation which
is principally owned by three of the Company's major shareholders, at a rate
of $6,000 per month. As part of the original lease agreement that was
terminated on October 31, 1991, the Company agreed to dry dock and paint the
vessel on or before June 30, 1993. The work was carried out at a cost of
$39,091 in April and May 1993.
Office and Warehouse Lease
In December 1990, the Company entered into a lease agreement for 17,500 square
feet of office and warehouse space. The lease, commencing January 15, 1991,
was for a term of three years with an option to renew for two additional
one-year renewal periods. Rent during the initial term was $120,000 per year
payable as follows: First year, $5,000 per month plus $60,000 of the
Company's common stock; Second year, $6,667 per month plus $40,000 of the
Company's common stock. The exact number of shares issued was determined by
dividing the $60,000 and $40,000 by the average of the bid and the asking
price on the last trading day prior to the commencement day.
In April 1993, the Company renegotiated the lease effective January 1, 1993
and ending December 31, 1993 and then renewed the lease until March 31, 1995
after which the lease operates on a month to month basis. The lease provides
for 7,000 square feet of office and warehouse space at a monthly rate of
$5,500 and a further 5,000 square feet of office and warehouse space at
monthly rate of $1,000 with no additional common stock.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMITMENTS AND CONTINGENCIES (continued)
Guarantor of Affiliate's Loan
The Company guaranteed a $250,000 10% note payable of its affiliate, Seahawk
I, Ltd.. The loan was due December 31, 1995 and was secured with 3,500 natural
pearls from the affiliate's artifact collection. The loan was in default due
to non payment of interest and so the Company, as guarantors, accepted a
secured note from Seahawk I, Ltd. for $300,000 and at the same time satisfied
the principal of the loan by issuance of 800,000 shares of common stock and
200,000 shares of Series 1 preferred stock.
Legal Aspects of International Salvage
The question of legal ramifications with regard to the recovery of shipwrecks
raises a number of issues. Salvors, historical interests and individuals
claiming ownership based on the payment of insurance claims all have potential
claims on goods brought up from the sea floor.
An entity responsible for the salvage of a sunken vessel and its cargo may
expect to defend its claim to title against the original owners or their
successors-in-interest, against rival salvors, and against governments
asserting a historic interest in the shipwreck or cargo.
Potential claimants might include the insurers of the shipwreck as in the SS
Central America case(Civil Action 87-363-N). Unless the insurers expressly
disclaimed title after payment of a claim, and depending on the length of time
the ship has remained sunken, the insurers might have a valid claim of title
to recovered objects.
Lawsuit Relating to Notes Converted into Stock
During February, 1994 the Company agreed with Carl Anderson to convert two
notes ("the Notes"), one for $44,448 and the other for $80,936 which, together
with accrued interest thereon, totaled $141,804 into 567,212 shares of Common
Stock in the Company. The Notes were in the name of Gregory P. Stemm, a
former officer and director of the Company, who had sold them to Anderson.
On April 27, 1995, Stemm filed a lawsuit against the Company alleging that (a)
the Company must pay him the principal and interest due on the Notes plus
attorneys' fees and such other relief as the Court sees just and proper, and
(b) Stemm is entitled to immediate possession of the Notes, and (c) the
Company and Anderson conspired to deprive Stemm of his right to the Notes and
as a result Stemm is entitled to damages due to this action on the basis that
it the loss of value of the Notes plus interest, costs and attorneys' fees.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMITMENTS AND CONTINGENCIES (continued)
The Company intends to defend this action on the basis that it was verbally
informed by both Anderson and Stemm that the Notes had been transferred to
Anderson and that the Company relied on their representations and converted
the Notes in good faith. The Company is confident it will prevail and this
action is not expected to have a material adverse effect on the consolidated
financial statements.
Bonus Shares Issuable to Participants in Private Placements
In June, 1994 and November, 1994 the Company issued 1,001,875 and 800,000
shares of common stock respectively in two private placements. Under the
terms of these private placements, if the stock issued was not registered by
December 31, 1994, and March 10, 1995, a bonus of 30% of the original issue
became due. The shares were not registered within the time limit,
consequently 300,562 shares of common stock were issued in January, 1995 and
240,000 were issued in May, 1995.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - SEC INVESTIGATION
SEC CIVIL ACTION. During August 1994, the SEC filed a civil action against
the Company and John Morris, Gregory Stemm and Daniel Bagley, three former
officers and directors of the Company, seeking injunctive relief against the
Company and injunctive and monetary relief against the former officers and
directors. The SEC did not seek any financial penalties or other monetary
relief against the Company.
The Complaint filed by the SEC alleged that the Company violated Section 17(a)
of the Securities Act of 1933 and Sections 10(b), 13(a) and 13(b) of the
Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-a, 13a-13 and
13b2-1 promulgated thereunder. The SEC alleged between April, 1989 and July,
1991 the Company and Messrs. Morris,Stemm and Bagley disseminated to the
public, in the form of television broadcasts, videotapes and press releases,
false and misleading material information and failed to disclose certain
material information concerning the Dry Tortugas shipwreck discovered and
excavated by the Company. The SEC alleged that the Company materially
overstated the value of the artifacts on its balance sheet and in other
financial information provided in the registration statement of the Company
and two amendments thereto filed in 1992 with the SEC and in certain periodic
reports of the Company filed in 1992 and with the SEC.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - SEC INVESTIGATION (continued)
The Company and the staff of the SEC negotiated a settlement of the matter
whereby the Company agreed to consent to the entry of a final judgement of
permanent injunction, without admitting or denying any of the allegations in
the complaint enjoining the Company from violations of certain provisions of
the federal securities law referenced in the preceding paragraph. In
addition, the Company agreed that it will not employ John Morris or Gregory
Stemm as officers and directors of the Company or any subsidiaries of the
Company, use corporate funds to pay for or reimburse any costs incurred by
Morris or Stemm for the defense of any civil or administrative action
instituted against them by the SEC, or redeem or purchase any stock they own
until after the termination of any such action. Finally, the Company agreed
to withdraw its pending appeal to the SEC of the Initial Decision issued in
the stop order proceeding.
SEC STOP ORDER PROCEEDING. On July 30, 1992, the SEC issued an order
directing the staff of the Division of Enforcement (the "Division") to conduct
an examination pursuant to Section 8(e) of the Securities Act of 1933 (the
"Act") to determine whether a stop order should be issued relating to a
registration statement which the Company had filed during March, 1992 and
which had become effective by the passage of time on August 1, 1992. Under
Section 8(d) of the Act, a stop order proceeding was instituted against the
Company by order of the SEC dated January 12, 1993. A hearing was held before
an SEC Administrative Law Judge during late January and early February, 1993.
On May 26, 1993, the Administrative Law Judge issued his Initial Decision.
The Judge concluded that the registration statement filed by the Company was
materially false and misleading and that the Company failed to cooperate with
the examination conducted by the Division's staff. A stop order was issued
suspending the effectiveness of the Company's registration statement.
The primary focus of the proceeding was the value of the shipwreck artifacts
owned by the Company and an affiliated partnership, Seahawk I, Ltd. The Judge
found that the Company had overstated the value of the artifacts on its
balance sheet and in other financial information provided in its registration
statement. The Judge concluded that the total net realizable value of all the
artifacts owned by the Company and Seahawk I was $1,356,361 of which amount
$285,413 was attributed to the Company artifacts and $1,070,948 was attributed
to the Seahawk I artifacts. As a result of this decision, and in order to
present the financial statements in accordance with generally accepted
accounting principles, the Company and the Partnership restated their December
31, 1990 and 1991 financial statements.
The findings of the Administrative law Judge could possibly be used by private
litigants in civil suits against the Company to prove that the Company
misstated material facts in certain periodic reports it filed with the SEC.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - GOING CONCERN
As shown in the accompanying financial statements, the Company incurred a net
loss of $1,451,232 for 1994 and has incurred substantial net losses for each
of the past several years resulting in an accumulated deficit of $11,032,995.
At December 31, 1994, the Company has negative working capital as indicated by
current liabilities exceeding current assets by $2,114,888. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. In addition to shipwreck projects for which Management is currently
seeking permits and raising funds, Management has contracted to obtain rental
income from the Retriever and plans to obtain rental income from other idle
marine assets and enter the museum attraction business by virtue of the
agreement with Buckeye Communications. Management feels that these factors
will contribute toward achieving profitability.
The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
NOTE 16 - SETTLEMENT OF A LAWSUIT RELATED TO CAPITAL LEASE OBLIGATION AND
SALE OF REMOTELY OPERATED VEHICLE
In 1990, the Company acquired a Remotely Operated Vehicle (ROV) under the
provisions of a long-term lease. For financial reporting purposes, the ROV
had been capitalized in accordance with the Statement of Financial Accounting
Standards No. 13.
In June, 1992, Commercial Union Capital Limited ("Commercial Union"), the
company from which the Company leases its large ROV "Merlin", filed a lawsuit
against R.V. Seahawk, Inc. In Personam, Seahawk Deep Ocean Technology, Inc.
In Personam and the "Seahawk Retriever" In Rem.
In its complaint Commercial Union alleged that the Company had committed a
breach or default under its Lease Purchase Contract with Commercial Union
since the Company failed to make its payment due July 2, 1991 and had failed
to make all payments due thereafter. Commercial Union further alleged that it
as elected to treat the breach by the Company as a termination of the Lease
Purchase Contract, entitling Commercial Union to recover the loss value as
defined in the Lease Purchase Contract as of June 9, 1992 of $1,173,371.
Commercial Union alleged that it is also entitled to receive the amount of the
Company's arrears equal to $447,208 plus interest on the arrearage from June
20, 1991 through June 9, 1992 plus (a) interest accruing at the rate of $386
per day and (b) attorney fees and costs estimated at $156,113.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - SETTLEMENT OF A LAWSUIT RELATED TO CAPITAL LEASE OBLIGATION AND
SALE OF REMOTELY OPERATED VEHICLE (continued)
Commercial Union, in its complaint, was also seeking a maritime lien against
the Seahawk Retriever, her engines, tackle, equipment and appurtenances and
asking that the ship be sold and the proceeds be paid toward the amount of
any judgment.
On June 18, 1992, the Company responded by filing a Motion to Quash the Arrest
Warrant and to dismiss the In Rem Complaint. On December 23, 1992, a
magistrate judge recommended the arrest be quashed and the vessel released.
However on May 21, 1993 a district court judge concluded that the magistrate
judge's recommendations should not be adopted.
On February 9, 1994 and 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 ship mortgage on the Seahawk Retriever, her
engines, tackle, equipment and apparel. The note is non-interest bearing
through its due date. The note was payable on April 15, 1995 but in March
1995, because of the bankruptcy filing of the third party charterer of the
Retriever (See Note 17) Commercial Union agreed to extend the expiration date
of the note to June 1, 1995. Management is discussing with Commercial Union
the terms under which the expiration date can be extended further.
The Company also agreed to grant Commercial Union warrants to purchase
$400,000 shares of the Company's common stock at an exercise price of the
lower of $.3125 and the lowest price per share at which the Company issues
stock during the life of the warrants. At December 31, 1994, the exercise
price was $.25.
To permit the Company to generate the $500,000 in cash needed to close this
transaction, Commercial Union allowed the Company to sell the ROV "Merlin" to
a third party. On March 8, 1994, the Company and Commercial Union entered
into an agreement with the third party to sell the ROV "Merlin" for $650,000
cash. All cash on the sale was received by April 11, 1994.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - SETTLEMENT OF A LAWSUIT RELATED TO CAPITAL LEASE OBLIGATION AND
SALE OF REMOTELY OPERATED VEHICLE (continued)
The capital lease obligation settlement and resulting sale of the ROV "Merlin"
is summarized and reflected on the financial statements for the year ended
December 31, 1993 as follows:
<TABLE>
<CAPTION>
(in dollars)
<S> <C>
Original capitalized lease purchase price 1,850,000
Costs of development 108,376
1,958,376
Less accumulated depreciation, December 31, 1993 ( 692,931)
Net book value, December 31, 1993 1,265,445
Less provision for write down of ROV to net realizable
value for the year ended December 31, 1993 ( 592,771)
ROV-net at December 31, 1993 included in other assets 672,674
Capitalized lease obligation on books since lease default 1,357,574
Provision for loss on capital lease obligation
at December 31, 1992 100,000
Accrued interest provided for during the default and
litigation phase with Commercial Union 265,280
Total provided for at December 31, 1993 1,722,854
Less down payment ( 500,000)
Less $1,000,000 non-interest bearing note given to
Commercial Union in April 1994 discounted to net
present value at 12% ( 887,448)
Reduction of prior year's estimate of potential loss
and/or interest accrued on capital lease obligation 335,406
</TABLE>
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - VESSEL BAREBOAT CHARTER AND PURCHASE OPTION AGREEMENT
During August 1994, the Company entered into a Vessel Bareboat Charter and
Purchase Agreement with International Diving and Consulting Services, Inc.
("International Diving"), a Lafayette, Louisiana based underwater service
company. Pursuant to this agreement, International Diving agreed to charter
the SEAHAWK RETRIEVER for the five year period commencing September 1, 1994,
and to purchase the vessel at the end of the five year period for $1,350,000
plus interest at a rate equal to 3% per annum over the Citibank New York prime
rate less credits as explained in the next paragraph.
The agreement further provides that International Diving will market the
vessel at a minimum day rate of $5,000, except that all lump sums or turnkey
projects will have a $6,000 minimum daily rate. International Diving further
guarantees one hundred eighty (180) days utilization of the vessel at a rate
of $5,000, or an annual total of $900,000. The greater of the guaranteed
revenues or the actual revenues, after deduction for certain operating costs,
will be shared between the Company and International Diving as follows: (i)
35% to the Company as charter hire for the vessel; (ii) 30% to International
Diving for operating costs and profit; and (iii) 35% to the Company which will
be applied toward the purchase price of the vessel. Payments are due
quarterly within 10 days after the end of each quarter. In the event
International Diving fails to purchase the vessel at the end of the five year
term, the vessel is to be returned to the Company and the 35% payments which
are credited toward the purchase price will be retained by the Company as
liquidated damages. International Diving's performance under this agreement
has also been personally guaranteed by the two principals of International
Diving.
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 District 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.
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - VESSEL BAREBOAT CHARTER AND PURCHASE AGREEMENT (continued)
It was further ordered by the same Court that if International Diving fails to
timely perform its obligations under the Agreement, upon a motion by the
Company, the Court shall grant an order ex parte, requiring International
Diving to surrender the Retriever to the Company and that International
Diving, in the event of their default, shall have no maritime lien or other
claim against the Retriever or the Company whatsoever. The payments due in
(a) (b) and (c) above have been paid.
NOTE 18 - ECONOMIC DEPENDENCE
For the year ended December 31, 1993, approximately $127,000 (70%) of revenues
were attributable to a single major customer.
NOTE 19 - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
1994 Quarter Quarter Quarter Quarter
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 23,855 $ 16,873 $ 6,472 $ 135,027
Net Income (loss) (368,260) (344,330) (394,611) (272,458)
Income (loss)
per share (0.03) (0.02) (0.03) (0.02)
Weighted average number
of common shares and
common shares
equivalent
outstanding 13,909,545 14,852,105 15,307,307 16,484,605
<CAPTION>
1993
<S> <C> <C> <C> <C>
Revenues $ 16,113 $ 135,012 $ 261,530 $ 23,976
Net Income (loss) (343,275) (487,988) (433,851) (611,749)
Income (loss)
per share (0.04) (0.05) (0.03) (0.05)
Weighted average number
of common shares and
common shares
equivalent
outstanding 8,864,164 10,274,434 10,869,824 10,765,840
</TABLE>
The increase in revenues during the Fourth Quarter of 1994 results from the
charter of the RV Seahawk Retriever to an unrelated party (see Note 17).
The net loss for the fourth Quarter of 1993 includes the $592,771 provision
for write down of ROV and a $335,406 reduction of prior years estimate of
potential loss as detailed in Note 16. This resulted from the sale of the ROV
in 1994.
<PAGE>
Report of Independent Certified Public Accountants
To the Partners of
Seahawk I, Ltd.
Tampa, Florida
We have audited the accompanying balance sheet of Seahawk I, Ltd. (a Florida
limited partnership) as of December 31, 1994 and the related statements of
operations, partners' capital and cash flows for the years ended December 31,
1994 and 1993. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audits in accordance with generally accepted audited
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentations. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Seahawk I, Ltd. as of
December 31, 1994 and the results of its operations, changes in partners'
capital and its cash flows for the years ended December 31, 1994 and 1993 in
conformity with generally accepted accounted principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As shown in the financial
statements, the partnership incurred a net loss of $83,904 for 1994, has
incurred substantial net losses for each of the past five years and has a
partners' deficit of $308,557. In addition, the Partnership has negative
cash flows from its operating activities. These factors, in addition to other
factors as discussed in Note 9, raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classification of liabilities that might be
necessary in the event the Partnership cannot continue in operation.
/S/ Guinta, Ferlita & Walsh, P.A.
Giunta, Ferlita & Walsh, P.A.
Tampa, Florida
May 12, 1995
<PAGE>
SEAHAWK I, LTD.
BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
ASSETS
<CAPTION>
CURRENT ASSETS (in dollars)
<S> <C>
Cash 4,096
Accounts receivable 421
Inventory - other 1,805
Prepaid expense 3,915
Total Current Assets 10,237
OTHER ASSETS
Artifact inventory 785,027
795,264
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
<S> <C>
CURRENT LIABILITIES
Accounts payable - affiliates 751,514
Accounts payable - other 2,087
Accrued expenses 17,334
Notes payable - Limited Partners 32,886
Note payable - General Partner 300,000
Total Current Liabilities 1,103,821
PARTNERS' CAPITAL (DEFICIT)
Capital contributions 2,511,040
Accumulated deficit (2,819,597)
( 308,557)
795,264
</TABLE>
<PAGE>
SEAHAWK I, LTD.
STATEMENTS OF OPERATION
FOR THE YEARS ENDED DECEMBER 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
SALES 7,978 23,791
COST OF SALES 4,330 6,708
GROSS PROFIT 3,648 17,083
OPERATING EXPENSES 32,588 71,851
GENERAL AND ADMINISTRATIVE EXPENSES 5,525 9,625
38,113 81,476
(LOSS) FROM OPERATIONS ( 34,465) ( 64,393)
OTHER INCOME (EXPENSE)
Interest expense ( 49,439) ( 8,279)
NET (LOSS) ( 83,904) ( 72,672)
</TABLE>
<PAGE>
SEAHAWK I, LTD.
STATEMENT OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1994 and 1993
<TABLE>
<CAPTION>
Number Capital Accumulated
Units Contributions Deficit
<S> <C> <C> <C>
BALANCE, December 31, 1992 204 2,511,040 (2,663,021)
NET (LOSS) - - ( 72,672)
BALANCE, December 31, 1993 204 2,511,040 (2,735,693)
NET (LOSS) - - ( 83,904)
BALANCE, December 31, 1994 204 2,511,040 (2,819,597)
</TABLE>
<PAGE>
SEAHAWK I, LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $( 83,904) $( 72,672)
Adjustments to reconcile net loss to
net cash used by operating activities:
Decrease (increase) in accounts
receivable-affiliate 2,250
Decrease (increase) in accounts
receivable-other ( 171)
(Decrease) increase in accounts
payable-affiliates 25,855 ( 146,653)
(Decrease) increase in accrued expenses ( 815) ( 18,387)
(Decrease) in accounts payable - other 2,000 ( 6,366)
(Increase) decrease in inventory
- artifacts and other 4,148 20,044
Total adjustments 31,017 ( 149,112)
Net cash (used)
by operating activities ( 52,887) ( 221,784)
<CAPTION>
CASH FLOWS FROM FINANCING ACTIVITIES
<S> <C> <C>
Increase (decrease) in loans from
General and Limited Partners ( 21,242)
Loan proceeds 50,000 250,000
Net cash provided by
financing activities 50,000 228,758
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ( 2,887) 6,974
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 6,983 9
CASH AND CASH EQUIVALENTS
AT END OF YEAR 4,096 6,983
</TABLE>
<PAGE>
SEAHAWK I, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
Seahawk I, Ltd. (The "Partnership") was formed May 23, 1988 as a Florida
limited partnership. The Partnership consists of several Limited Partners
and a corporate General Partner, Seahawk Deep Ocean Technology, Inc. (the
General Partner)(in 1991 and prior years the General Partner was R/V Seahawk,
Inc. a 100% owned subsidiary merged into Seahawk Deep Ocean Technology Inc.
on March 2, 1992). The purpose of the Partnership is to engage in expeditions
to locate, identify, and retrieve samples from shipwrecks in waters off the
coast of Florida. Since the Partnership has located a colonial age sunken
vessel, the purpose of the Partnership has been expanded to include the
salvage and recovery of artifacts.
The Partnership agreement extends through December 31, 1998, and may be
terminated earlier at any time at the election of the General Partner with the
consent of a Majority - In - Interest of the Limited Partners.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
As provided in the Partnership Agreement, the Partnership's accounts are
maintained on the cash basis of accounting for tax purposes, however, for
financial statement purposes they are adjusted to the accrual basis in order
to conform with generally accepted accounting principles.
Inventory - Artifacts
Inventory consists of artifacts and precious metals recovered from a colonial
age sunken vessel discovered off the coast of Florida. Inventory is stated at
the lower of cost or market. Cost of individual artifacts is determined as
the estimated net realizable value.
Allocation of Net Income and Net Losses
Initially, net losses of the Partnership were allocated 99% to the Class A
Limited Partners and 1% to the General Partner until the Class A Limited
Partners' capital accounts had been reduced to zero. Net income was to be
first allocated to the Limited Partners based on their proportionate ownership
interests to the extent of net losses previously allocated to them. Next; net
income was to be allocated to the General Partner to the extent of net losses
previously allocated to him. All remaining net income was to be allocated 50%
to the Limited Partners and 50% to the General Partner.
<PAGE>
SEAHAWK I, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Upon completion of the Class B limited partnership offering in 1990, the
allocation of net losses and income was as follows:
Net losses of the Partnership allocated 30% to the Class A Limited
Partners, 20% to the Class B Limited Partners and 50% to the General Partner.
Net income was to be allocated to the Limited Partners, as it was before,
based on their proportional ownership interests to the extent of net loss
previously allocated to them and to the General Partner to the extent of net
loss previously allocated to him. All remaining net income will be allocated
30% to Class A Limited Partners, 20% to Class B Limited Partners and 50% to
the General Partner.
Upon completion of the Class C limited partnership offering, the allocation of
net losses and income is as follows:
Net losses shall be allocated 15% to the Class A Limited Partners, 10%
to the Class B Limited Partners, 25% to the Class C Limited Partners and 50%
to the General Partner. At such time as the capital account of any limited
partner reaches zero, any further loss allocation shall be made to the
General Partner.
Net income shall be allocated first to the limited partners to the extent
of any net losses previously allocated, then to the General Partner to the
extent of losses allocated to the General Partner. Any additional net income
shall be allocated 15% to the Class A Limited Partners, as a class, 25% to the
Class B Limited Partners, 25% to the Class C Limited Partners and 50% to the
General Partner.
Distribution of Cash
Cash available for distribution from Partnership operations represents cash
generated from Partnership activities after payments of all expenses of the
Partnership and the establishment of any reserves deemed appropriate by the
General Partner. Any distributions shall be made in the following order of
priority:
First to the Partners to repay outstanding loans to the Partnership; then
to the Class A Limited Partners in the amount sufficient to return to the
Class A Limited Partners the total amount of their cumulative Capital
Contributions to the Partnership. Then, 50% to the Class B Limited Partners
as a class and 50% to the General Partner until the Class B Limited Partners
as a class and the General Partner have received distributions in the amount
of $500,000 each, taking into account prior distributions of cash or property.
<PAGE>
SEAHAWK I, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Then 50% to Class C Limited Partners as a class and 50% to the General
Partner until the Class C Limited Partners and the General Partners have
received distributions in the amount of their original contribution, taking
into account prior distributions of cash or property. Then, to the Partners
in amounts up to and in proportion to their respective capital account
balances if any. Then the balance shall be distributed 15% to Class A Limited
Partners, 10% to Class B Limited Partners 25% to Class C Limited Partners and
50% to the General Partner.
Income Taxes
In accordance with Section 701 of the Internal Revenue Code, the Partnership
is not a taxable entity, therefore the results of operations flow through to
the partners for tax purposes. The tax returns and the amounts of Partnership
income or loss distributed to the partners are subject to examination by
Federal and State taxing authorities.
NOTE 3 - NOTES PAYABLE
Notes payable at December 31, 1994 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Notes payable to certain Limited Partners with interest
at the rate of 15% per annum payable January 15th of
each year. The principal sum plus accrued interest
was due October 10, 1992, unsecured. 32,886
Note payable to General Partner (see Note 4 below) 300,000
332,886
</TABLE>
NOTE 4 - NOTE PAYABLE GENERAL PARTNER AND OTHER INFORMATION
During 1993 the Partnership issued a note payable to an unrelated party in the
sum of $250,000 with interest payable quarterly in arrears. The principal sum
plus any accrued interest was to be payable on December 31, 1995. The loan
was secured with 3,500 natural pearls from the Partnership's artifact
collections and was guaranteed by the General Partner. The note fell into
default as a result of non-payment of interest and on December 1, 1994 an
agreement was reached between the note holder and the General
<PAGE>
SEAHAWK I, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - NOTE PAYABLE GENERAL PARTNER AND OTHER INFORMATION (continued)
Partner whereby the principal was satisfied by the issue of 800,000 shares of
common stock and 200,000 shares of Series 1 preferred stock in the General
Partner. The General Partner also agreed to pay the outstanding interest in
cash. In return for this settlement of their debt to the unrelated party the
Partnership issued to the General Partner a note for $300,000 payable on
November 30, 1995 together with accrued interest at the rate of 10% per annum.
The note is secured by 4,000 pearls owned by the Partnership valued in the
Company's artifact inventory at $36,000.
In June 1992, the General Partner received loans of $200,000 from unrelated
parties and $50,000 from a related party. The notes were due December 31,
1992 with interest at 10% per annum payable at the time the note is paid off.
These notes were collateralized by all the gold artifacts owned by the
Partnership, approximately 500 ounces. As additional consideration, the
General Partner issued two year warrants to purchase an aggregate of 200,000
shares of common stock at 110% of the lowest closing bid price of the General
Partner's common stock during the 180 calendar days prior to the exercise date
with the maximum exercise price to be $3 per share. All these notes were
converted to common stock of the General Partner in May 1993 except the
$50,000 loan from a related party. The collateral for that loan was changed
from the Partnership's gold to assets owned by the General Partner.
In December 1992 the General Partner received a loan of $10,000 from an
unrelated party. The note was due on December 1, 1993 with interest at 10%
per annum payable at the time the note was paid off. The note is
collateralized by silver coins owned by the Partnership valued in the
Company's artifact inventory at $22,284. The note was increased to $17,000
in January 1994 and extended until December 1, 1995. There was no change
made to the collateral but as consideration for the first note the General
Partner issued two year warrants to purchase 40,000 shares of common stock at
$0.25 per share and as consideration for the extended note the General Partner
issued two year warrants to purchase 32,000 shares of common stock at $0.38
per share. In March 1995 the note was extended for one year on the basis that
the validity of the $0.25 warrants was extended until six months after all
amounts due under the note are repaid.
In June 1993 the General Partner received a loan of $250,000 from an unrelated
party. The note was due on July 31, 1994 with interest at 10% per annum
payable at the time the note was paid off. The note was collateralized by
gold artifacts owned by the Partnership valued in the Company's artifact
inventory at $466,685. As additional consideration the General Partner issued
two year warrants to purchase 250,000 shares of common stock at $1.00 per
share. In September 1994 the General Partner paid the note and the collateral
was released.
<PAGE>
SEAHAWK I, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - NOTE PAYABLE GENERAL PARTNER AND OTHER INFORMATION (continued)
In June 1994, the General Partner received a loan of $100,000 from an
unrelated party. The note becomes due on June 1, 1995, with interest at 10%
per annum payable at the time the note is paid. The note is collateralized by
gold artifacts owned by the Partnership valued in the Company's artifact
inventory at $122,820. As additional consideration the General Partner issued
two year warrants to purchase 100,000 shares of common stock at $1.00 per
share.
In October 1994 the General Partner received a loan of $95,000 from an
unrelated party. The note becomes due on October 20, 1995, with interest
at 10% per annum payable at the time the note is paid off. The note is
collateralized by gold artifacts owned by the Partnership valued in the
Company's artifact inventory at $128,393. As additional consideration the
General Partner issued two year warrants to purchase 100,000 shares of common
stock at $0.50 per share.
NOTE 5 - RELATED PARTY TRANSACTIONS
The Partnership has leased a research vessel, a recovery vessel and on board
electronic research, survey and salvage equipment from its General Partner to
perform search, identification and salvage activities at a rate which the
General Partner established as reasonable from time to time. The leasing
arrangement was terminated on completion of the project and no lease expenses
were charged by the General Partner to the Partnership for the years ended
December 31, 1994 and 1993.
The General Partner also performed conservation and administrative services
for the Partnership. The total amount of these expenses for the years ended
December 31, 1994 and 1993 was $33,649 and $63,545 respectively.
The Partnership has borrowed funds from its affiliates and its affiliates have
paid certain expenses on behalf of the Partnership. The Partnership charges
interest on advances from affiliates at the rate of 12% per annum based on the
average monthly balance.
The Partnership has a note payable to the General Partner for $300,000. (See
Note 4).
<PAGE>
SEAHAWK I, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - CONTINGENCIES
The Partnership is contingently liable, under a consulting agreement to an
unrelated company, for an amount equal to ten (10) percent of the total value
of all artifacts and other valuable items recovered, if any, from the sites
identified in an agreed research area, after subtraction of any share taken by
any government in whose waters the recovered materials are raised, in exchange
for which the Partnership will secure the services of that company's principal
employee in connection with the historical and archeological aspects of the
Partnership operations.
Legal Aspects of International Salvage
The question of legal ramifications with regard to the recovery of shipwrecks
raises a number of issues. Salvors' historical interests and individuals
claiming ownership based on the payment of insurance claims all have potential
claims on goods brought up from the sea floor.
An entity responsible for the salvage of a sunken vessel and its cargo may
expect to defend its claim to title against the original owners or their
successors - in - interest, against rival salvors, and against governments
asserting a historic interest in the shipwreck or cargo.
Potential claimants might include the insurers of the shipwreck as in the SS
Central America case (Civil Action 87-363-N). Unless the insurers expressly
disclaimed title after payment of a claim, and depending on the length of time
the ship has remained sunken, the insurers might have a valid claim of title
to recovered objects.
<PAGE>
SEAHAWK I, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - SEC INVESTIGATION OF GENERAL PARTNER
SEC CIVIL ACTION. During August 1994, the SEC filed a civil action against
the General Partner and John Morris, Gregory Stemm and Daniel Bagley, three
former officers and directors of the General Partner, seeking injunctive
relief against the General Partner and injunctive and monetary relief against
the former officers and directors. The SEC did not seek any financial
penalties or other monetary relief against the General Partner.
The Complaint filed by the SEC alleged that the General Partner violated
Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a) and
13(b) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-a,
13a-13 and 13b2-1 promulgated thereunder. The SEC alleged between April 1989
and July 1991 the General Partnership and Messrs. Morris,Stemm and Bagley
disseminated to the public, in the form of television broadcasts, videotapes
and press releases, false and misleading material information and failed to
disclose certain material information concerning the Dry Tortugas shipwreck
discovered and excavated by the General Partner. The SEC alleged that the
General Partner materially overstated the value of the artifacts on its
balance sheet and in other financial information provided in the registration
statement of the General Partner and two amendments thereto filed in 1992 with
the SEC and in certain periodic reports of the General Partner filed in 1992
and with the SEC.
The General Partner and the staff of the SEC negotiated a settlement of the
matter whereby the General Partner agreed to consent to the entry of a final
judgement of permanent injunction, without admitting or denying any of the
allegations in the complaint enjoining the General Partner from violations of
certain provisions of the federal securities law referenced in the preceding
paragraph. In addition, the General Partner agreed that it will not employ
John Morris or Gregory Stemm as officers and directors of the General Partner
or any subsidiaries of the General Partner, use corporate funds to pay for or
reimburse any costs incurred by Morris or Stemm for the defense of any civil
or administrative action instituted against them by the SEC, or redeem or
purchase any stock they own until after the termination of any such action.
Finally, the General Partner agreed to withdraw its pending appeal to the SEC
of the Initial Decision issued in the stop order proceeding.
SEC STOP ORDER PROCEEDING. On July 30, 1992, the SEC issued an order
directing the staff of the Division of Enforcement (the "Division") to conduct
an examination pursuant to Section 8(e) of the Securities Act of 1933 (the
"Act") to determine whether a stop order should be issued relating to a
registration statement which the General Partner had filed during March 1992
and which had become effective by the passage of time on August 1, 1992.
Under
<PAGE>
SEAHAWK I, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - SEC INVESTIGATION OF GENERAL PARTNER (continued)
Section 8(d) of the Act, a stop order proceeding was instituted against the
General Partner by order of the SEC dated January 12, 1993. A hearing was held
before an SEC Administrative Law Judge during late January and early February
1993.
On May 26, 1993, the Administrative Law Judge issued his Initial Decision.
The Judge concluded that the registration statement filed by the General
Partner was materially false and misleading and that the General Partner
failed to cooperate with the examination conducted by the Division's staff.
A stop order was issued suspending the effectiveness of the General Partner's
registration statement.
The primary focus of the proceeding was the value of the shipwreck artifacts
owned by the General Partner and the partnership. The Judge found that the
General Partner had overstated the value of the artifacts on its balance sheet
and in other financial information provided in its registration statement.
The Judge concluded that the total net realizable value of all the artifacts
owned by the General Partner and Partnerships was $1,356,361 of which amount
$285,413 was attributed to the General Partner artifacts and $1,070,948 was
attributed to the Partnership's artifacts. As a result of this decision, and
in order to present the financial statements in accordance with generally
accepted accounting principles, the General Partner and the Partnership
restated their December 31, 1990 and 1991 financial statements.
The findings of the Administrative law Judge could possibly be used by private
litigants in civil suits against the General Partner to prove that the Company
misstated material facts in certain periodic reports it filed with the SEC.
<PAGE>
SEAHAWK I, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - LICENSING AND MARKETING AGREEMENT
On October 13, 1993 the Partnership entered into a Master Licensing and
Marketing Agreement with Buckeye Communications, Inc. ("Buckeye"). Under the
Agreement, Buckeye will develop an integrated marketing strategy to market,
sell and distribute the artifacts recovered by the Partnership. Buckeye has
the exclusive worldwide right to market and sell the artifacts and any
additional products that are developed by Buckeye and the General Partner
related to either the artifacts (i.e., artifact replicas), the General
Partner's video library and its archives, through a variety of distribution
channels.
Buckeye has agreed to fund all development and marketing costs including
product development cost, media cost, test marketing cost, talent and
consulting costs, fulfillment costs, fees and commissions and any other costs
directly related to the selected products. The Partnership will receive
royalty payments on the sale of the products. The Agreements are for and
initial term five (5) years (the "Initial Term") subject to Buckeye's right
to extend the Initial Term for one additional five (5) year term if certain
required minimum payments are made to the General Partner, the Partnership,
and other limited partnerships where the General Partner also serves as
general partner.
<PAGE>
SEAHAWK I, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of
the Partnership as a going concern. However, the Partnership has sustained
substantial operating losses during its operation and has used substantial
amounts of working capital in its operation. The Partnership incurred a net
loss of $83,904 in 1994, has incurred substantial net losses for each of the
past four years and has a partners' deficit of $308,557. In addition, the
Partnership has negative cash flows from its operating activities. These
factors raise substantial doubt about the Partnership's ability to continue
as a going concern.
In addition, the SEC investigation of the General Partner has inhibited the
raising of capital in the public market as well as from obtaining financing
from private sources; and, the audited financial statements of the General
Partner indicate substantial doubt exists as to the continuance of its future
operations.
In order for the General Partner to remain in business during the next twelve
months it is necessary for the General Partner to either generate revenues or
raise additional financing. The General Partner, acting in its capacity as
general partner for the Partnership, is attempting to sell the artifacts owned
by Seahawk I, Ltd., replicas and merchandise based on the artifacts.
If Seahawk I is able to conduct a sale of the artifacts, management believes
that the sale should yield at least enough for the General Partners to recover
most of its accounts and notes receivable. However, the final resolution and
recoverability of actual amounts is dependent upon future events, the outcome
of which are not fully determined at the present time. Accordingly, no
provision for any additional losses that may result has been made in the
financial statements.
The financial statements do not include any adjustments that might be
necessary if the Partnership is unable to continue as a going concern.
<PAGE>
Report of Independent Certified Public Accountants
To the Partners of
Seahawk II, Ltd.
Tampa, Florida
We have audited the accompanying balance sheet of Seahawk II, Ltd. (a Florida
limited partnership in the development stage) as of December 31, 1994 and the
related statements of operations, partners' capital and cash flows for the
years ended December 31, 1994 and 1993. We did not audit the financial
statements of Seahawk II, Ltd. from the period May 16, 1989 (inception) to
December 31, 1991. Those statements were audited by other auditors whose
report dated February 11, 1992 (except for Note 5 as to which the date is June
14, 1993) expressed an unqualified opinion on those statements. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Seahawk II, Ltd. (a Florida
limited partnership in the development stage) as of December 31, 1994 and the
results of its operations, changes in partners' capital and its cash flows
for the years ended December 31, 1994 and 1993 and the cumulative amounts
since its inception, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As shown in the financial
statements, the Partnership incurred a net loss of $6,734 for 1994 and has a
partners' deficit of $15,202. In addition, the Partnership has no cash flow
from its operating activities. These factors, in addition to other factors
as discussed in Note 7, raise substantial doubt about its ability to continue
as a going concern. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets, or the
amount sand classification of labilities that might be necessary in the event
the Partnership cannot continue in operation.
/S/ Guinta, Ferlita & Walsk, P.C.
Giunta, Ferlita & Walsh, P.A.
Tampa, Florida
May 12, 1995
<PAGE>
Report of Independent Certified Public Accounts
To the Partners of
Seahawk II, Ltd.
Tampa, Florida
We have audited the statements of operations, partners' capital and cash flows
of Seahawk II, Ltd. (a Florida limited partnership in the development stage)
for the period from May 16, 1989 (inception) to December 31, 1991, which
reflected cumulative expenses of $1,346,238 and partners' capital of $25,012.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statements of operations, partners' capital and cash flows
referred to above present fairly, in all material respects, the operations,
changes in partners' capital and its cash flows of Seahawk II, Ltd. (a
Florida limited partnership in the development stage) for the period May 16,
1989 (inception) to December 31, 1991 as reflected in the cumulative total
columns in conformity with generally accepted accounting principles.
/S/ Baumann & Company, P.A.
BAUMANN & COMPANY, P.A.
Tampa, Florida
February 11, 1992
(except for Note 5 as to which the
date is June 14, 1993)
<PAGE>
SEAHAWK II, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
ASSETS
<CAPTION>
CURRENT ASSETS (in dollars)
<S> <C>
Cash 52
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts Payable
Affiliate 14,237
Other 1,017
15,254
PARTNERS'CAPITAL (DEFICIT)
Capital contributions 1,371,250
Deficit accumulated during development stage (1,386,452)
( 15,202)
52
</TABLE>
<PAGE>
SEAHAWK II, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
May 16, 1989
Years Ended December 31, (Inception)to
1994 1993 Dec. 31,1994
<S> <C> <C> <C>
REVENUES - - -
OPERATING EXPENSES
Vessel rental 560,951
Boat operation 69,839
Technician fees 43,647
Consumables and supplies 11,184
Shuttle service 4,138
Repairs and maintenance 1,695
Communications 1,834
Equipment rental 317,956
Research costs 200,000
Conservation costs 4,104 - 14,592
4,104 - 1,225,836
GENERAL AND ADMINISTRATIVE EXPENSES
Accounting fees 1,580 3,890 29,472
Administrative fees 1,050 - 32,973
Legal and other professional fees - 227 68,096
Travel and entertainment - - 8,717
Promotions and printing - - 4,401
License and fees - 55 5,945
Amortization - - 19,510
Other - - 3,090
2,630 4,172 172,204
Total expenses 6,734 4,172 1,398,040
(LOSS) FROM OPERATIONS ( 6,734) ( 4,172) (1,398,040)
OTHER INCOME (EXPENSE)
Interest income - - 12,976
Interest expense - - ( 1,388)
- - 11,588
NET (LOSS) ( 6,734) ( 4,172) (1,386,452)
</TABLE>
<PAGE>
SEAHAWK II, LTD.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF PARTNERS' CAPITAL
FOR THE PERIOD FROM MAY 16, 1989 (INCEPTION)
TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
Deficit
Subscrip- Accumulated
Number Capital tions during
of Contri- Receiv- Development
Units butions able Stage
<S> <C> <C> <C> <C>
ISSUANCE OF LIMITED 28 840,100 (420,000) -
PARTNERSHIP UNITS
PLACEMENT COSTS ( 65,100)
NET (LOSS),
May 16, 1989 to
December 31, 1989 (734,168)
BALANCE, December 31, 1989 28 775,000 (420,000) (734,168)
ISSUANCE OF LIMITED
PARTNERSHIP UNITS 22 660,000 420,000
PLACEMENT COSTS ( 63,750)
NET (LOSS) 1990 (476,568)
BALANCE, December 31, 1990 50 1,371,250 - (1,210,736)
NET (LOSS) 1991 ( 135,502)
BALANCE, December 31, 1991 50 1,371,250 - (1,346,238)
NET (LOSS) 1992 ( 29,308)
BALANCE, December 31, 1992 50 1,371,250 - (1,375,546)
NET (LOSS) 1993 ( 4,172)
BALANCE, December 31, 1993 50 1,371,250 - (1,379,718)
NET (LOSS) 1994 - ( 6,734)
BALANCE, December 31, 1994 50 1,371,250 - (1,386,452)
</TABLE>
<PAGE>
SEAHAWK II, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
May 16, 1989
Year Ended December 31, (Inception)to
1994 1993 Dec.31,1994
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net (loss) during
development stage ( 6,734) ( 4,172) (1,386,452)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Amortization 19,510
Decrease in receivables
(Increase) in organization costs (19,510)
Increase in accounts payable
- affiliates 6,011 4,500 14,237
Increase (decrease) in
accounts payable - other 723 ( 328) 1,017
Total adjustments 6,734 4,172 15,254
Net cash (used)
by operating activities - - (1,371,198)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issuance of
partnership units - - 1,371,250
Net cash provided by
financing activities - - 1,371,250
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ( -) ( -) 52
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 52 52 -
CASH AND CASH EQUIVALENTS AT
END OF PERIOD 52 52 52
</TABLE>
<PAGE>
SEAHAWK II, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
Seahawk II, Ltd. (the "Partnership") was formed May 16, 1989 as a Florida
limited partnership. The Partnership consists of several limited partners
and a corporate general partner, Seahawk Deep Ocean Technology, Inc. The
purpose of the Partnership is to engage in expeditions to locate, identify,
and retrieve samples from ship wrecks in waters off the coast of Florida. The
Partnership is a development stage enterprise and has not realized any
expedition revenue.
The Partnership agreement extends through December 31, 2025, and may be
terminated earlier at any time at the election of the General Partner with
the consensus of a Majority-In-Interest of the Limited Partners.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
As provided in the Partnership Agreement, the Partnership's accounts are
maintained on the cash basis of accounting for tax purposes, however, for
financial statement purposes they are adjusted to the accrual basis in order
to conform with generally accepted accounting principles.
Organizational Costs
Organizational costs, consisting principally of legal and professional service
fees, which were incurred during the formation of the Partnership were
capitalized and amortized over the initial year of operation.
Research Costs
Research costs, consisting principally of fees paid to a related party for
information that will be useful in identifying and locating colonial ship
wrecks, were capitalized and amortized over the first two years of operations.
Allocation of Profits and Losses
Net losses of the Partnership will be allocated 99% to the Limited Partnership
and 1% to the General Partner until the limited partners' capital accounts
have been reduced to zero, therafter, the net losses will be allocated to the
general partner. Net income is first allocated to the Limited Partners based
on their proportionate ownership interests to the extent of net losses
previously allocated to them. Net income is then allocated to the General
Partner to the extent of net losses previously allocated. All remaining net
income is allocated 1% per unit of limited partnership interest, and the
balance to the General Partner.
<PAGE>
SEAHAWK II, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Distribution of Cash Flow
Cash available for distribution from Partnership operations represents cash
generated from Partnership activities after payment of all expenses of the
Partnership and the establishment of any reserves deemed appropriate by the
General Partner. Cash available for distribution will be distributed to the
extent of the Limited and General Partners' initial cash contributions to the
Partnership. Then to the General Partner up to the amount of its credit
balance if any. Thereafter, cash available for distributions will be
distributed 1% per unit of limited partnership interest, and the balance to
the General Partner.
Income Taxes
In accordance with Section 701 of the Internal Revenue Code, the Partnership
is not a taxable entity, therefore the results of operations flow through to
the partners for tax purposes. The tax returns and the amounts of Partnership
income or loss distributed to the partners are subject to examinations by
federal and state taxing authorities.
<PAGE>
SEAHAWK II, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY TRANSACTIONS
The Partnership has entered into a license agreement with Seahawk
Oceanographic Services, Inc. (SOS), a corporation of which its two
3shareholders are also two major shareholders of the Partnership's General
Partner. Under the terms of the agreement, the partnership acquired all
rights, title and interest in , and to certain research, data and other
information relating to potential ancient and modern shipwreck sites in the
waters off the east coast of Florida. In accordance with the agreement, the
Partnership has made an initial payment of $50,000. The agreement further
specifies that upon confirmation and certification from an independent source
that the Partnership has discovered the site of a colonial shipwreck in the
research area specified by the agreement, the Partnership will pay SOS a fee
of $150,000. One colonial shipwreck has been found and certified, and the
Partnership has paid the corresponding fee.
Additionally, if the Partnership discovers any additional co2lonial shipwrecks
in the research area, which are also independently verified, the Partnership
will pay SOS an additional fee of $200,000 for each additional colonial
shipwreck.
The Partnership leased a research vessel and on-board electronic research,
survey and salvage equipment from its General Partner to perform search,
identification and salvage equipment activities at a rate which the General
Partner established as reasonable from time to time. The leasing arrangement
was terminated at the completion of the project. In addition, the Partnership
pays an administrative fee and a fee for personnel services to its General
Partner. The total amount incurred by the Partnership during 1994 and 1993
was $4,104 and $0, respectively, and cumulative charges during the development
stage total $892,812.
<PAGE>
SEAHAWK II, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - CONTINGENCIES
Consulting Agreement
The Partnership is contingently liable under a consulting agreement to an
unrelated company, for an amount equal to ten (10) percent of the total value
of all artifacts and other valuable items recovered, if any, from the sites
identified in an agreed research area, after subtraction of any shares taken
by any government in whose waters the recovered materials are raised, in
exchange for which the Partnership will secure the services of that company's
principal employee in connection with the historical and archeological aspects
of the Partnership operations. No valuable artifacts or other valuable items
have been recovered as of December 31, 1994.
Legal Aspects of International Salvage
The question of legal ramifications with regard to the recovery of shipwrecks
raises a number of issues. Salvors, historical interests and individuals
claiming ownership based on the payment of insurance claims all have potential
claims on goods brought up from the sea floor.
An entity responsible for the salvage of a sunken vessel and its cargo may
expect to defend its claim to title against the original owners or their
successors-in-interest, against rival salvors, and against governments
asserting a historic interset in the shipwreck or cargo. Potential claimants
might include the insurers of the shipwreck as in the SS Central America case
(Civil Action 87-363-N). Unless the insurers expressly disclaimed title after
payment of a claim, and depending on the length of time the ship has remained
sunken, the insurers might have a valid claim of title to recovered objects.
<PAGE>
SEAHAWK II, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - SEC INVESTIGATION OF GENERAL PARTNER
SEC CIVIL ACTION. During August 1994, the SEC filed a civil action against
the General Partner and John Morris, Gregory Stemm and Daniel Bagley, three
former officers and directors of the General Partner, seeking injunctive
relief against the General Partner and injunctive and monetary relief against
the former officers and directors. The SEC did not seek any financial
penalties or other monetary relief against the General Partner.
The Complaint filed by the SEC alleged that the General Partner violated
Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a) and
13(b) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-a,
13a-13 and 13b2-1 promulgated thereunder. The SEC alleged between April 1989
and July 1991 the General Partnership and Messrs. Morris,Stemm and Bagley
disseminated to the public, in the form of television broadcasts, videotapes
and press releases, false and misleading material information and failed to
disclose certain material information concerning the Dry Tortugas shipwreck
discovered and excavated by the General Partner. The SEC alleged that the
General Partner materially overstated the value of the artifacts on its
balance sheet and in other financial information provided in the registration
statement of the General Partner and two amendments thereto filed in 1992 with
the SEC and in certain periodic reports of the General Partner filed in 1992
and with the SEC.
The General Partner and the staff of the SEC negotiated a settlement of the
matter whereby the General Partner agreed to consent to the entry of a final
judgement of permanent injunction, without admitting or denying any of the
allegations in the complaint enjoining the General Partner from violations of
certain provisions of the federal securities law referenced in the preceding
paragraph. In addition, the General Partner agreed that it will not employ
John Morris or Gregory Stemm as officers and directors of the General Partner
or any subsidiaries of the General Partner, use corporate funds to pay for or
reimburse any costs incurred by Morris or Stemm for the defense of any civil
or administrative action instituted against them by the SEC, or redeem or
purchase any stock they own until after the termination of any such action.
Finally, the General Partner agreed to withdraw its pending appeal to the SEC
of the Initial Decision issued in the stop order proceeding.
SEC STOP ORDER PROCEEDING. On July 30, 1992, the SEC issued an order
directing the staff of the Division of Enforcement (the "Division") to
conduct an examination pursuant to Section 8(e) of the Securities Act of 1933
(the "Act") to determine whether a stop order should be issued relating to a
registration statement which the General Partner had filed during March 1992
and which had become effective by the passage of time on August 1, 1992.
Under Section 8(d) of the Act, a stop order proceeding was instituted against
<PAGE>
SEAHAWK II, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - SEC INVESTIGATION OF GENERAL PARTNER (continued)
the General Partner by order of the SEC dated January 12, 1993. A hearing was
held before an SEC Administrative Law Judge during late January and early
February 1993.
On May 26, 1993, the Administrative Law Judge issued his Initial Decision.
The Judge concluded that the registration statement filed by the General
Partner was materially false and misleading and that the General Partner
failed to cooperate with the examination conducted by the Division's staff.
A stop order was issued suspending the effectiveness of the General Partner's
registration statement.
The primary focus of the proceeding was the value of the shipwreck artifacts
owned by the General Partner and an affiliated partnership, Seahawk I, Ltd.
The Judge found that the General Partner had overstated the value of the
artifacts on its balance sheet and in other financial information provided
in its registration statement. The Judge concluded that the total net
realizable value of all the artifacts owned by the General Partner and Seahawk
I was $1,356,361 of which amount $285,413 was attributed to the General
Partner artifacts and $1,070,948 was attributed to the Seahawk I artifacts.
As a result of this decision, and in order to present the financial
statements in accordance with generally accepted accounting principles, the
General Partner and the Seahawk I restated their December 31, 1990 and 1991
financial statements.
The findings of the Administrative law Judge could possibly be used by private
litigants in civil suits against the General Partner to prove that the Company
misstated material facts in certain periodic reports it filed with the SEC.
<PAGE>
SEAHAWK II, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - LICENSING AND MARKETING AGREEMENT
On October 13, 1993 the Partnership entered into a Master Licensing Agreement
with Buckeye Communications, Inc. ("Buckeye"). Under the Agreement, Buckeye
will develop an integrated marketing strategy to market, sell and distribute
the artifacts recovered by the Partnership.
Buckeye has the exclusive worldwide right to market and sell the artifacts and
any additional products that are developed by Buckeye and the General Partner
related to either the artifacts (i.e., artifact replicas), the General
Partner's video library and its archives, through a variety of distribution
channels.
Buckeye has agreed to fund all development and marketing costs including
product development cost, media cost, test marketing cost, talent and
consulting costs, fulfillment costs, fees and commissions and any other costs
directly relate to the selected products. The Partnership wil receive royalty
payments on the sale of the products. The Agreement is for an initial term of
five (5) years (the "Initial Term") subject to Buckeye's right to extend the
Initial Term for one additional five (5) year term if certain required minimum
payment are made to the General Partner and the Partnerships.
NOTE 7 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As shown in the financial
statements, the Partnership incurred a net loss for 1994 and has an
accumulated deficit. In addition, the Partnership has no cash flow from its
operating activities. These factors raise substantial doubt about its ability
to continue as a going concern.
The Partnership is virtually out of money and the partners have decided they
are not willing to invest additional funds to continue further excavation of
the wreck site. The General Partner has been unable to obtain additional
working capital to work on the Partnership's wreck off Saint Augustine, and
in December 1994 asked the partners to vote on terminating the Partnership.
The result of the vote was inconclusive and the General Partner may consider
asking the partners to vote again on terminating the Partnership.
In addition the SEC investigation of the General Partner inhibited the raising
of capital in the public market as well as from obtaining financing from
private sources; and, the financial statements of the General Partner indicate
that substantial doubt exists as to the continuance of its future operations.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the
Partnership cannot continue in operation.
<PAGE>
Report of Independent Certified Public Accounts
To the Partners of
Eagle Partners, Ltd.
Tampa, Florida
We have audited the accompanying balance sheet of Eagle Partners, Ltd. (a
Florida limited partnership in the development stage) as of December 31, 1994
and the related statements of operations, partners' capital and cash flows for
the years ended December 31, 1994 and 1993. We did not audit the financial
statements of Eagle Partners, Ltd. from the period from November 12, 1991
(inception) to December 31, 1991. Those statements were audited by other
auditors whose report dated February 11, 1992 (except for Note 5 as to which
the date is June 14, 1993) expressed an unqualified opinion on those
statements. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Eagle Partners, Ltd. (a
Florida limited partnership in the development stage) as of December 31, 1994,
and the results of its operations, changes in partners' capital and its cash
flows for the years ended December 31, 1994 and 1993 and in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As shown in the financial
statements, the Partnership incurred a net loss of $12,826 for 1994 and has
a partners' deficit of $1,021,064. In addition, the Partnership has negative
cash flows from its operating activities and has no cash at December 31, 1994.
These factors, in addition to other factors as discussed in Note 7, raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the
Partnership cannot continue in operation.
/S/ Giunta, Ferlita & Walsh, P.C.
Giunta, Ferlita & Walsh, P.A.
Tampa, Florida
May 12, 1995
<PAGE>
Report of Independent Certified Public Accounts
To the Partners of
Eagle Partners, Ltd
Tampa, Florida
We have audited the statements of operations, partners' capital and cash flows
of Eagle Partners, Ltd. (a Florida limited partnership in the development
stage) for the period from November 12, 1991 (inception) to December 31, 1991,
which reflected cumulative expenses of $267,500 and partners' deficit of
$116,877. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statements of operations, partners' capital and cash
flows referred to above present fairly, in all material respects, the
operations, changes in partners' capital and cash flows of Eagle Partners,
Ltd. (a Florida limited partnership in the development stage) for the period
from November 12, 1991 (inception) to December 31, 1991 as reflected in the
cumulative total columns in conformity with generally accepted accounting
principles.
/S/ Baumann & Company, P.A.
BAUMANN & COMPANY, P.A.
Tampa, Florida
February 11, 1992
(except for Note 5 as to which the date is June 14, 1993)
<PAGE>
EAGLE PARTNERS, LTD.
(A Development Stage Enterprise)
BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<CAPTION>
ASSETS (in dollars)
December 31,
1994
-----------
<S> <C>
TOTAL ASSETS -
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable - affiliate 1,017,890
- other 3,174
1,021,064
PARTNERS' CAPITAL (DEFICIT)
Capital contributions 150,100
Deficit accumulated during the development stage (1,171,164)
(1,021,064)
</TABLE>
<PAGE>
EAGLE PARTNERS, LTD.
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
November 12,1991
Year Ended December 31, (Inception) to
1994 1993 December 31,1994
<S> <C> <C> <C>
REVENUE - - -
OPERATING EXPENSES
Vessel rental - 362,000 1,107,000
Aircraft rental - - 24,768
Other 10,680 198 18,822
10,680 362,198 1,150,590
GENERAL AND ADMINI-
STRATIVE EXPENSES 2,146 4,850 20,225
(LOSS) FROM OPERATIONS ( 12,826) ( 367,048) (1,170,815)
OTHER INCOME (EXPENSE)
Interest income - - 525
Interest expense - - ( 874)
- - ( 349)
NET (LOSS) ( 12,826) ( 367,048) (1,171,164)
</TABLE>
<PAGE>
EAGLE PARTNERS, LTD.
(A Development Stage Enterprise)
STATEMENT OF PARTNERS' CAPITAL
FOR THE PERIOD FROM NOVEMBER 12, 1991 (INCEPTION)
TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
Deficit
Accumulated
Number Capital during
of Contri- Development
Units butions Stage
<S> <C> <C> <C>
Issuance of General
Partner Interest - 100 -
Issuance of Limited
Partner Units 3 150,000 -
NET (LOSS)
November 12, 1991 to
December 31, 1991 - - ( 266,977)
BALANCE, December 31, 1991 3 150,100 ( 266,977)
NET (LOSS) - - ( 524,313)
BALANCE, December 31, 1992 3 150,100 ( 791,290)
NET (LOSS) - - ( 367,048)
BALANCE, December 31, 1993 3 (150,100) (1,158,338)
NET (LOSS) - - ( 12,826)
BALANCE, December 31, 1994 3 (150,100) (1,171,164)
</TABLE>
<PAGE>
EAGLE PARTNERS, LTD.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
<TABLE>
CASH FLOW FROM OPERATING ACTIVITIES
<CAPTION>
November 12, 1991
Year Ended December 31, (Inception) to
1994 1993 December 31, 1994
<S> <C> <C> <C>
Net (loss) ( 12,826) ( 367,048) (1,171,164)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Decrease in other
receivables 25,000
Increase in accounts
payable 12,826 367,048 1,021,064
Total adjustments 12,826 367,048 1,046,064
Net cash (used) by
operating activities - - ( 125,100)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issuance
of partnership units - - 125,100
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS - - -
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD - - -
CASH AND CASH EQUIVALENTS AT
END OF PERIOD - - -
SIGNIFICANT NON-CASH
TRANSACTION:
Issuance of partnership
units for note receivable - - 25,000
</TABLE>
<PAGE>
EAGLE PARTNERS, LTD.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
Eagle Partners, Ltd. (the "Partnership") was formed November 12, 1991 as a
Florida limited partnership. The Partnership consists of several limited
partners and a corporate general partner, Seahawk Deep Ocean Technology, Inc.
The purpose of the Partnership is to engage in expeditions to locate,
identify, recover and market the cargo of a shipwreck believed to have sunk
off the east coast of the United States. The Partnership is a development
stage enterprise and has not realized any expedition revenue.
The Partnership agreement extends through December 31, 1996, and may be
terminated earlier at any time at the election of the General Partner with
the consent of a Majority-In-Interest of the Limited Partners.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
As provided in the Partnership Agreement, the Partnership's accounts are
maintained on the cash basis of accounting for tax purposes, however, for
financial statement purposes they are adjusted to the accrual basis in order
to conform with generally accepted accounting principles.
Income Taxes
In accordance with Section 701 of the Internal Revenue Code, the Partnership
is not a taxable entity, therefore the results of operations flow through to
the partners for tax purposes. The tax returns and the amounts of
Partnership income or loss distributed to the partners are subject to
examinations by federal and state taxing authorities.
Statement of Cash Flows
Short-term investments which have an original maturity of ninety days or less
are considered cash equivalents.
Allocation of Profits and Losses
Net losses of the Partnership will be allocated 99% to the Limited Partners
and 1% to the General Partner until the limited partners' capital accounts
have been reduced to zero. All allocations of net losses thereafter are made
solely to the General Partner. Net income is first allocated to the Limited
Partners based on their proportionate ownership interests to the extent of net
losses previously allocated to them. Net income is then allocated to the
<PAGE>
EAGLE PARTNERS, LTD.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
General Partner to the extent of net losses previously allocated. All
remaining net income is allocated on a per unit of limited partnership
interest as follows:
Each $50,000 unit will receive 5% of the first $1 million of income
allocated, 4% of the second $1 million allocated, 3% of the third $1 million
allocated, 2% of the fourth $1 million allocated, 1% of anything over $4
million allocated and the balance to the General Partner.
Distribution of Cash Flow
Cash available for distribution from Partnership operations represents cash
generated from Partnership activities after payment of all expenses of the
Partnership and the establishment of any reserves deemed appropriate by the
General Partner. Cash available for distribution will be distributed to the
extent of the Limited and General Partners' initial cash contributions to the
Partnership. Thereafter, cash available for distributions will be distributed
as follows:
Each $50,000 unit will receive 5% of the first $1 million distributed,
4% of the second $1 million distributed, 3% of the third $1 million
distributed, 2% of the fourth $1 million distributed and 1% of anything
over $4 million distributed. The General Partner will receive the balance of
any distribution.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Partnership leases a research vessel and on-board electronic research,
survey and salvage equipment from its General Partner to perform search,
identification and salvage activities at a rate which the General Partner
establishes as reasonable from time to time. Unless sooner terminated, the
leasing arrangement will extend through completion of the project. The total
amount incurred by the Partnership in 1994, 1993 and cumulative during the
development stage are none, $362,000 and $1,107,000 respectively, of which
$1,017,890 is in accounts payable at December 31, 1994.
In June 1992, the General Partner received loans of $200,000 from unrelated
parties and $50,000 from a related party. The lenders will receive (in
addition to other considerations) an aggregate of 6.25% of the General
Partners' share of the net profit, if any, from the sale of any recovered
cargo by the Partnership.
<PAGE>
EAGLE PARTNERS, LTD.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - CONTINGENCIES
Joint Venture Agreement
The Partnership is operating under a joint venture agreement with a researcher
who has provided the research and data for a 19th Century shipwreck off the
east coast of the United States. According to the researcher, the vessel was
believed to have a valuable cargo of gold coins on board at the time of the
sinking, although there is no assurance that the researcher is correct or that
the shipwreck will be located.
Pursuant to the terms of the joint venture agreement, the researcher was to
receive twenty percent (20%) of any items recovered from the ship provided
that it is located in the designated search area in return for his research
and data. The Partnership was responsible for conducting the search and
recovery of the shipwreck and if successful, for marketing any cargo which
is recovered. The partnership was to receive eighty percent (80%) of any
recovery.
The joint venture agreement required the partnership to dedicate the vessel
R.V. Seahawk (or a similar vessel with similar equipment) to work on this
project at least 120 days during 1992, and each year thereafter, beginning
not later than May 30 of each year. The joint venture agreement was amended
in June 1994. The amended agreement required the partnership to work on the
project for at least 60 days during 1994. The partnership did not meet this
schedule and was in default on this agreement. In such an event, the
agreement provided that all rights to conduct search and/or salvage efforts
relative to this wreck would revert to the researcher. The General Partner
has negotiated an extension to the joint venture agreement under which the
Researcher's share of any successful recovery was reduced to ten per cent
(10%) and the requirement for the partnership to work on the project was
reduced to 60 days during 1995. In return the Company has agreed to issue
the Researcher 40,000 shares of its Common Stock. The Company will attempt
to raise additional financing for this project but there is no assurance that
it will be able to do so.
Legal Aspects of International Salvage
The question of legal ramifications with regard to the recovery of shipwrecks
raises a number of issues. Salvors historical interests and individuals
claiming ownership based on the payment of insurance claims all have potential
claims on goods brought up from the sea floor.
An entity responsible for the salvage of a sunken vessel and its cargo may
expect to defend its claim to title against the original owners or their
successors -in -interest, against rival salvers, and against governments
asserting a historic interest in the shipwreck or cargo.
Potential claimants might include the insurers of the shipwreck as in the SS
Central America case (Civil Action 87-363-N). Unless the insurers expressly
disclaimed title after payment of a claim, and depending on the length of
time the ship has remained sunken, the insurers might have a valid claim of
title to recovered objects.
<PAGE>
EAGLE PARTNERS, LTD.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - SEC INVESTIGATION OF GENERAL PARTNER
SEC Civil Action. During August 1994, the SEC filed a civil action against
the General Partner and John Morris, Gregory Stemm and Daniel Bagley, three
former officers and directors of the General Partner, seeking injunctive
relief against the General Partner and injunctive and monetary relief against
the former officers and directors. The SEC did not seek any financial
penalties or other monetary relief against the General Partner.
The Complaint filed by the SEC alleged that the General Partner violated
Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a) and
13(b) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-a,
13a-13 and 13b2-1 promulgated thereunder. The SEC alleged between April 1989
and July 1991 the General Partnership and Messrs. Morris,Stemm and Bagley
disseminated to the public, in the form of television broadcasts, videotapes
and press releases, false and misleading material information and failed to
disclose certain material information concerning the Dry Tortugas shipwreck
discovered and excavated by the General Partner. The SEC alleged that the
General Partner materially overstated the value of the artifacts on its
balance sheet and in other financial information provided in the registration
statement of the General Partner and two amendments thereto filed in 1992
with the SEC and in certain periodic reports of the General Partner filed in
1992 and with the SEC.
The General Partner and the staff of the SEC negotiated a settlement of the
matter whereby the General Partner agreed to consent to the entry of a final
judgement of permanent injunction, without admitting or denying any of the
allegations in the complaint enjoining the General Partner from violations of
certain provisions of the federal securities law referenced in the preceding
paragraph. In addition, the General Partner agreed that it will not employ
John Morris or Gregory Stemm as officers and directors of the General Partner
or any subsidiaries of the General Partner, use corporate funds to pay for or
reimburse any costs incurred by Morris or Stemm for the defense of any civil
or administrative action instituted against them by the SEC, or redeem or
purchase any stock they own until after the termination of any such action.
Finally, the General Partner agreed to withdraw its pending appeal to the SEC
of the Initial Decision issued in the stop order proceeding.
SEC Stop Order Proceeding. On July 30, 1992, the SEC issued an order
directing the staff of the Division of Enforcement (the "Division") to conduct
an examination pursuant to Section 8(e) of the Securities Act of 1933 (the
"Act") to determine whether a stop order should be issued relating to a
registration statement which the General Partner had filed during March 1992
and which had become effective by the passage of time on August 1, 1992.
Under Section 8(d) of the Act, a stop order proceeding was instituted against
the General Partner by order of the SEC dated January 12, 1993. A hearing was
held before an SEC Administrative Law Judge during late January and early
February 1993.
<PAGE>
EAGLE PARTNERS, LTD.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - SEC INVESTIGATION OF GENERAL PARTNER (continued)
On May 26, 1993, the Administrative Law Judge issued his Initial Decision.
The Judge concluded that the registration statement filed by the General
Partner was materially false and misleading and that the General Partner
failed to cooperate with the examination conducted by the Division's staff.
A stop order was issued suspending the effectiveness of the General Partner's
registration statement.
The primary focus of the proceeding was the value of the shipwreck artifacts
owned by the General Partner and an affiliated partnership, Seahawk I, Ltd.
The Judge found that the General Partner had overstated the value of the
artifacts on its balance sheet and in other financial information provided
in its registration statement. The Judge concluded that the total net
realizable value of all the artifacts owned by the General Partner and
Seahawk I was $1,356,361 of which amount $285,413 was attributed to the
General Partner artifacts and $1,070,948 was attributed to the Seahawk I
artifacts. As a result of this decision, and in order to present the
financial statements in accordance with generally accepted accounting
principles, the General Partner and the Seahawk I restated their December 31,
1990 and 1991 financial statements.
The findings of the Administrative law Judge could possibly be used by private
litigants in civil suits against the General Partner to prove that the Company
misstated material facts in certain periodic reports it filed with the SEC.
NOTE 6 - LICENSING AND MARKETING AGREEMENT
On October 13, 1993 the Partnership entered into a Master Licensing and
marketing Agreement with Buckeye Communications, Inc. ("Buckeye"). Under
the Agreement, Buckeye will develop an integrated marketing strategy to
market, sell and distribute the artifacts recovered by the Partnership.
Buckeye has the exclusive worldwide right to market and sell the artifacts
and any additional products that are developed by Buckeye and the General
Partner related to either the artifacts (i.e., artifact replicas), the
General Partner's video library and its archives, through a variety of
distribution channels.
Buckeye has agreed to fund all development and marketing costs including
product development costs, media cost, test marketing cost, talent and
consulting costs, fulfillment costs, fees and commissions and any other
costs directly related to the selected products. The Partnership will
receive royalty payments on the sale of the products. The Agreement is for
an initial term of five (5) years (the "Initial Term") subject to Buckeye's
right to extend the Initial Term for one additional five (5) year term if
certain required minimum payment are made to the General Partner and the
Partnerships.
<PAGE>
EAGLE PARTNERS, LTD.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As shown in the financial
statements, the Partnership incurred a net loss for 1994 and has a Partners'
Deficit. In addition, the Partnership has negative cash flows from its
operating activities and had no cash at December 31, 1994. These factors
raise substantial doubt about its ability to continue as a going concern.
In view of these matters, substantial doubt exists as to the continuance of
future Partnership operations. The Partnership is virtually out of money and
the partners are seeking to raise additional funds possibly through the sale
of additional partnership units or through joint venture arrangements.
In addition, the SEC investigation of the General Partner inhibited the
raising of capital in the public market as well as from obtaining financing
from private sources; and, the audited financial statements of the General
Partner indicates that substantial doubt exists as to the continuance of its
future operations.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the
Partnership cannot continue in operation.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 7-3-105.5, Colorado Revised Statutes, and Article VII of the
Registrant's Articles of Incorporation generally permit the Registrant to
indemnify any Officer or Director of the Registrant for claims and
liabilities, including legal expenses, which he may incur in his capacity as
such, provided that he acted in good faith and in a manner that he reasonably
believed to be in the best interests of the Registrant. However, he may not
be indemnified in connection with a proceeding in which he is found to be
liable to the Registrant or where he is found to have received an improper
personal benefit from the Registrant. To the extent that an Officer or
Director is successful in defending himself in any proceeding to which he was
a party, he is to be indemnified against his reasonable expenses incurred by
him in connection with the proceeding.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses of the offering, all of which are to be borne by
the Registrant, are as follows:
<TABLE>
<S> <C>
SEC Filing Fee............................ $ 2,045.76*
Printing Expenses......................... 2,500.00*
Accounting Fees and Expenses.............. 7,000.00*
Legal Fees and Expenses................... 51,000.00*
Miscellaneous............................. 2,254.24*
----------
Total................................ $65,000.00
* Estimated.
</TABLE>
Item 26. Recent Sales of Unregistered Securities.
During the past three years, the Registrant sold securities which were
not registered under the Securities Act of 1933, as amended, as follows (the
following numbers have been adjusted to reflect the 1 for 50 reverse stock
split which was effective on June 12, 1992):
During 1990, the Registrant issued 785,379 shares to twelve persons upon
the exercise of options to purchase 785,379 shares at an exercise price of
$.15 per share. One of these twelve persons was Dan Bagley, a former Director
of the Company, and eight of the twelve were accredited investors. The
Registrant relied on Section 4(2) of the Securities Act of 1933, as amended.
The shares were offered for investment only and not for the purpose of resale
or distribution, and the transfer thereof was appropriately restricted by the
Registrant.
On February 4, 1991, the Registrant issued 600,000 shares to Valley
Resources, Ltd. ("VRL") pursuant to the exercise of an option by VRL to
exchange its ownership of 100% of the outstanding shares of Valley Marine,
Inc. for shares of the Registrant's Common Stock. The consideration for these
shares was valued at $1,510,000 or approximately $2.50 per share. The
Registrant relied on Section 4(2) of the Securities Act of 1933, as amended.
The shares were offered for investment only and not for the purpose of resale
or distribution, and the transfer thereof was appropriately restricted by the
Registrant.
During 1991, the Registrant issued 400,000 shares to Valley Resources,
Ltd., an affiliate, and 71,667 shares to three individuals and one partnership
controlled by one of the individuals upon the exercise of options to purchase
a total of 471,667 shares at an exercise price of $.15 per share. Valley
Resources, Ltd. and the three individuals were all accredited investors. The
Registrant relied on Section 4(2) of the Securities Act of 1933, as amended.
The shares were offered for investment only and not for the purpose of resale
or distribution, and the transfer thereof was appropriately restricted by the
Registrant.
During May, 1991, the Registrant issued 80,000 shares of its no par value
Common Stock to Oceanwise International, Ltd., a consulting firm for services
performed during 1990 and 1991. The consideration for these shares was valued
at $250,000 or $3.125 per share. The Registrant relied on Section 4(2) of the
Securities Act of 1933, as amended. The shares were offered for investment
only and not for the purpose of resale or distribution, and the transfer
thereof was appropriately restricted by the Registrant.
During October, 1991, the Registrant's subsidiary, R/V Seahawk, Inc.
issued $370,000 of Debentures to 15 individual investors for a total of
$370,000 in cash. One of the 15 individuals was Anthony Budge, an affiliate,
and at least 10 of the 15 individuals were accredited investors. R/V Seahawk,
Inc. relied on Section 4(2) of the Securities Act of 1933, as amended, and
Rule 506 of Regulation D promulgated thereunder. Each investor was given
access to complete information concerning R/V Seahawk, Inc. and the
Registrant. The securities were offered for investment only and not for the
purpose of resale or distribution, and the transfer thereof was appropriately
restricted by R/V Seahawk, Inc.
During December, 1991, the Registrant issued 20,000 common stock purchase
warrants to Daniel and Marcy Derfus, accredited investors, in consideration
for their agreement to loan $50,000 to the Registrant. The Registrant relied
on Section 4(2) of the Securities Act of 1933, as amended. The shares were
offered for investment only and not for the purpose of resale or distribution,
and the transfer thereof was appropriately restricted by the Registrant.
These Warrants have expired.
During January, 1992, the Registrant issued 17,067 shares to RFK
Partnership, the lessor of the Registrant's offices, as part of the rent
payment pursuant to the terms of the lease. RFK Partnership has no
affiliation with the Registrant. The consideration for these shares was
valued at $40,000 or $2.34375 per share. The Registrant relied on Section
4(2) of the Securities Act of 1933, as amended. The shares were offered for
investment only and not for the purpose of resale or distribution, and the
transfer thereof was appropriately restricted by the Registrant.
During January, 1992, the Registrant issued 200,000 shares of common
stock and 200,000 Class C Warrants which are exercisable to purchase up to
400,000 shares of common stock to Carl Anderson, an accredited investor,
pursuant to a private placement agreement in which Carl Anderson agreed to
invest $200,000 in the Registrant ($300,000 if this Registration Statement is
declared effective by August 31, 1992). The Registrant relied on Section 4(2)
of the Securities Act of 1933, as amended. The shares were offered for
investment only and not for the purpose of resale or distribution, and the
transfer thereof was appropriately restricted by the Registrant.
During January 1992, the Registrant issued warrants to purchase shares of
the Registrant's no par value common stock to the following six persons in the
amounts set forth below in consideration for their agreement to extend the due
date to December 31, 1992 on outstanding promissory notes which had previously
been issued by Seahawk Museum Development, Inc. and guaranteed by the
Registrant:
<TABLE>
<CAPTION>
Number Number
of $2.00 of $5.00
Name Loan Amount Warrants Warrants
- ------------- ----------- -------- --------
<S> <C> <C> <C>
Carl Anderson $200,000 100,000 100,000
Robert Morris 46,000 23,000 23,000
Norma Stemm 12,500 6,437 6,437
Garrett Jones 12,500 6,437 6,437
Mark Cohen 37,500 19,318 19,318
Scott Stemm 238,000 119,000 119,000
-------- ------- -------
Total $546,500 274,192 274,192
</TABLE>
The Registrant relied on Section 4(2) of the Securities Act of 1933, as
amended. The warrants were offered for investment only and not for the
purpose of resale or distribution, and the transfer thereof was appropriately
restricted by the Registrant.
On March 31, 1992, Robert Morris and Scott Stemm exercised all of their
$2.00 warrants by converting the full amount of their loans into equity.
Therefore, Robert Morris was issued 23,000 shares and Scott Stemm was issued
119,000 shares. Although Robert Morris is the father of John Morris and Scott
Stemm is the brother of Greg Stemm, neither of these persons are affiliates of
the Registrant. The Registrant relied on Section 4(2) for the sale of these
shares. The shares were offered for investment only and not for the purpose
of resale or distribution, and the transfer thereof was appropriately
restricted by the Registrant.
During February, 1992, the Registrant issued 20,000 shares to E. Eugene
Cooke, an accredited investor, for $35,000 in cash. The Registrant relied on
Section 4(2) of the Securities Act of 1933, as amended. The shares were
offered for investment only and not for the purpose of resale or distribution,
and the transfer thereof was appropriately restricted by the Registrant.
During February, 1992, the Registrant issued 20,000 shares to Walter C.
Copeland, Jr., an accredited investor, as payment for previous accounting work
done for the Registrant which was valued at $35,000. The Registrant relied on
Section 4(2) of the Securities Act of 1933, as amended. The shares were
offered for investment only and not for the purpose of resale or distribution,
and the transfer thereof was appropriately restricted by the Registrant.
During February, 1992, the Registrant issued 22,000 shares to Robert Marx
as payment for consulting services performed for the Registrant and for
artifacts sold to the Registrant for its planned museum. The Registrant
relied on Section 4(2) of the Securities Act of 1933, as amended. The shares
were offered for investment only and not for the purpose of resale or
distribution, and the transfer thereof was appropriately restricted by the
Registrant.
During February, 1992, the Registrant issued 40,000 shares to John E.
Stambaugh, the lessor of the Registrant's proposed museum site, in settlement
for the termination of the lease. The Registrant relied on Section 4(2) of
the Securities Act of 1933, as amended. The shares were offered for
investment only and not for the purpose of resale or distribution, and the
transfer thereof was appropriately restricted by the Registrant.
During February, 1992, the Registrant issued 12,000 shares to William
Scatchard III, the former President of the Registrant, in connection with the
early termination of his employment agreement. The Registrant relied on
Section 4(2) of the Securities Act of 1933, as amended. The shares were
offered for investment only and not for the purpose of resale or distribution,
and the transfer thereof was appropriately restricted by the Registrant.
During June, 1992, the Registrant issued warrants to purchase shares of
the Registrant's no par value Common Stock to the following five accredited
investors in the amounts set forth below in consideration for their agreement
to loan the Registrant a total of $300,000. These warrants have since
expired.
<TABLE>
<CAPTION>
Number of
Name Loan Amount Warrants
- ----------------------- ----------- ----------
<S> <C> <C>
E. Eugene Cooke $ 75,000 50,000
Daniel and Marcy Derfus 50,000 50,000
Robert and Norma Stemm 50,000 50,000
Carl Anderson 75,000 50,000
Valley Resources, Ltd. 50,000 50,000
--------
Total $ 300,000
</TABLE>
The Registrant relied on Section 4(2) of the Securities Act of 1933, as
amended. The first four of these persons has made previous loans to the
Registrant during the past six months, and Valley Resources, Ltd. is a
principal shareholder of the Company. The warrants were offered for
investment only and not for the purpose of resale or distribution, and the
transfer thereof was appropriately restricted by the Registrant.
During the period from November 23, 1992, through January 14, 1993, the
Registrant issued warrants to purchase shares of Common Stock to the following
three accredited investors in the amounts set forth below in consideration for
their agreements to loan the Registrant a total of $85,000:
<TABLE>
<CAPTION>
Number of
Name Loan Amount Warrants
- ----------------- ----------- ----------
<S> <C> <C>
J. Mark Strong $15,000 100,000
William E. Curtis $10,000 40,000
Carl Anderson $60,000 400,000
</TABLE>
The Registrant relied on Section 4(2) of the Securities Act of 1933, as
amended. Carl Anderson has made previous loans to the Registrant, and Messrs.
Strong and Curtis are shareholders of the Company. The warrants were offered
for investment only and not for the purpose of resale or distribution, and the
transfer thereof was appropriately restricted by the Registrant.
During April, 1993, the Registrant issued 747,026 shares of its Common
Stock to ten accredited investors who had agreed to convert their debentures
into Common Stock at $.50 per share. The principal amount of the debentures
converted was $305,000 and the total amount of accrued interest converted was
$68,512. Of the 747,026 shares issued, Anthony F. Budge, a principal
shareholder, was issued 487,851 shares for his $200,000 of debentures plus
accrued interest. The Registrant relied on Section 4(2) of the Securities Act
of 1933, as amended. Each investor was given access to complete information
concerning the Registrant. The securities were offered for investment only
and not for the purpose of resale or distribution, and the transfer thereof
was appropriately restricted by the Registrant.
During April, 1993, the Registrant issued 1,445,384 shares to eight
accredited investors who agreed to convert existing loans, accrued interest
and accounts payable into Common Stock. The two accredited investors who
converted accounts payable for stock were issued shares at $.50 per share.
The other six accredited investors exercised existing warrants they held at
prices ranging from $.1375 to $.50 per share. One of the six persons was Carl
Anderson, a principal shareholder of the Registrant, who was issued 850,000
shares pursuant to the exercise of certain warrants he held. The Registrant
relied on Section 4(2) of the Securities Act of 1933, as amended. Each
investor was given access to complete information concerning the Registrant.
The securities were offered for investment only and not for the purpose of
resale or distribution, and the transfer thereof was appropriately restricted
by the Registrant.
On May 7, 1993, Carl Anderson exercised an option he purchased from the
Registrant on January 24, 1992, for $100,000. Pursuant to the terms of the
option, as amended, Mr. Anderson acquired 727,273 shares of Common Stock at a
price of $.1375 per share. Mr. Anderson is an accredited investor and
principal shareholder of the Company. The Registrant relied on Section 4(2)
of the Securities Act of 1933, as amended. The shares were offered for
investment only and not for the purpose of resale or distribution, and the
transfer thereof was appropriately restricted by the Registrant.
During June, 1993, the Registrant issued 650,000 shares of its Common
Stock to six accredited investors who invested a total of $325,000 in cash in
a private placement. Two of the six accredited investors are principal
shareholders of the Registrant - Anthony F. Budge and Carl Anderson. The
Registrant relied on Section 4(2) of the Securities Act of 1933, as amended,
and Rule 506 of Regulation D promulgated thereunder. Each investor was given
access to complete information concerning the Registrant. The securities were
offered for investment only and not for the purpose of resale or distribution,
and the transfer thereof was appropriately restricted by the Registrant.
During September 1993, the Registrant issued 112,032 shares of common
stock to John C. Morris, the President, a director and principal shareholder
of the Registrant, as payment for a $50,000 promissory note plus $6,016 of
accrued interest. The Registrant relied on Section 4(2) of the Securities Act
of 1933, as amended. The shares were offered for investment only and not for
the purpose of resale or distribution, and the transfer thereof was
appropriately restricted by the Registrant.
During February 1994, the Registrant issued 2,699,590 shares of its
common stock to the following five accredited investors who agreed to convert
existing loans and accrued interest into common stock:
<TABLE>
<CAPTION>
Number Amount of
Name of Shares Debt Converted
- ------------------ --------- ---------------
<S> <C> <C>
Carl Anderson 1,868,400 $467,100
Mark A. Cohn 185,739 46,435
Megeve Investments 232,591 34,889
John C. Morris 337,860 50,679
RFK Partnership 75,000 21,963
</TABLE>
Carl Anderson and John Morris were principal shareholders of the
Registrant and Megeve Investments acquired its shares as an assignee from
Gregory Stemm, a principal shareholder. All of the debt was converted at
$.25 per share except for the 232,591 shares issued to Megeve Investments and
212,533 of the shares issued to John Morris, which were issued pursuant to the
exercise of existing warrants at an exercise price of $.15 per share. The
Registrant relied on Section 4(2) of the Securities Act of 1933, as amended.
Each person was given access to complete information concerning the
Registrant. The securities were offered for investment only and not for the
purpose of resale or distribution, and the transfer thereof was appropriately
restricted by the Registrant.
During February 1994, the Registrant also issued 100,000 shares of common
stock to Carl Anderson, a principal shareholder and accredited investor, for
the purchase of 36-foot motor vessel valued at $30,000. In this transaction
the Registrant relied on Section 4(2).
During June 1994, the Registrant issued 47,074 shares of its common stock
to Jon D. Sawyer, the Registrant's securities legal counsel as compensation
for past legal services valued at $17,417. The Registrant relied on Section
4(2) in this transaction.
During June 1994, the Registrant issued 240,000 shares of its common
stock to the six accredited investors listed below. These six investors
originally invested in a private offering during May and June 1993, and
according to the terms of the 1993 private placement, if the Registrant did
not register the original shares within one year of the private offering, the
Registrant was required to issue additional shares in an amount equal to 30%
of the shares originally purchased.
<TABLE>
<CAPTION>
Number
Name of Shares
--------------- ---------
<S> <C>
Carl Anderson 60,000
A.F. Budge 60,000
William Curtis 60,000
Richard Six 30,000
Louis Rotunno 15,000
Peter Mowad 15,000
-------
Total 240,000
</TABLE>
Carl Anderson and A.F. Budge were both principal shareholders of the
Registrant. The Registrant relied on Section 4(2) of the Securities Act of
1933, as amended. The shares were offered for investment only and not for the
purpose of resale or distribution, and the transfer thereof was appropriately
restricted by the Registrant.
During June 1994, the Registrant also issued 103,092 shares of common
stock to the following two employees and officers of the Registrant as payment
for accrued and unpaid remuneration for the year ended December 31, 1993:
<TABLE>
<CAPTION>
Amount of
Number Unpaid
Name of Shares Remuneration
- ------------- --------- -------------
<S> <C> <C>
John Lawrence 51,546 $48,324.56
John Balch 51,546 $48,324.56
</TABLE>
The Registrant relied on Section 4(2) of the Securities Act of 1933, as
amended. The shares were offered for investment only and not for the
purpose of resale or distribution, and the transfer thereof was appropriately
restricted by the Registrant.
During June 1994, the Registrant authorized the issuance upon receipt of
consideration of 1,001,875 shares of its Common Stock and 2,003,750 warrants
to purchase Common Stock to five accredited investors who agreed to invest a
total of $320,600 in cash in a private placement. The warrants are
exercisable at $.32 per share. Included among the investors were Carl
Anderson, a principal shareholder, and Anthony F. Budge, a Director and
principal shareholder of the Registrant. An additional 300,563 shares have
been issued to these investors since they were entitled to receive an
additional 30% more shares if their original shares were not registered by
December 31, 1994. Mr. Anderson invested a total of $97,000 and received
394,063 shares and 606,250 warrants. Mr. Budge invested $50,000 and received
203,125 shares and 312,500 warrants. The Registrant relied on Section 4(2) of
the Securities Act of 1933, as amended. Each investor was given access to
complete information concerning the Registrant. The securities were offered
for investment only and not for the purpose of resale or distribution, and the
transfer thereof was appropriately restricted by the Registrant.
During July 1994, the Board of Directors authorized the issuance of
10,000 shares to Solaris, Inc. as payment for a $3,000 account payable. The
Registrant relied on Section 4(2) of the Securities Act of 1933, as amended.
The shares were offered for investment only and not for the purpose of resale
or distribution, and the transfer thereof was appropriately restricted by the
Registrant.
During November 1994, the Registrant issued 800,000 shares of its Common
Stock and common stock purchase warrants to buy 1,600,000 shares of the
Registrant's Common Stock at an exercise price of $.32 per share to Carl
Anderson, a principal shareholder and accredited investor, in exchange for
66,667 shares of common stock of Valley Forge Scientific Corp. The Registrant
agreed to issue an additional 240,000 shares of its Common Stock to Mr.
Anderson in the event the 800,000 shares are not registered by March 10, 1995.
The Registrant relied on Section 4(2) in this transaction. The shares were
offered for investment only and not for the purpose of resale or distribution,
and the transfer thereof was appropriately restricted by the Registrant.
During November 1994, the Registrant issued 900,000 shares of its Common
Stock to Realty Development & Management, Inc., an accredited investor, which
agreed to convert $225,000 of the principal amount due on a loan to Common
Stock at $.25 per share. The Registrant relied on Section 4(2) of the
Securities Act of 1933, as amended. The shares were offered for investment
only and not for the purpose of resale or distribution, and the transfer
thereof was appropriately restricted by the Registrant.
During 1994 and 1995, the Registrant issued a total of 900,000 shares of
its Common Stock and 200,000 shares of the Registrant's Series 1 Convertible
Preferred Stock to Buckeye Communications, Inc., which agreed to convert a
$250,000 loan into Common Stock and preferred stock. As part of the
transaction, the Registrant agreed to register the 900,000 shares of Common
Stock. The Registrant relied on Section 4(2) of the Securities Act of 1933,
as amended. The shares were offered for investment only and not for the
purpose of resale or distribution, and the transfer thereof was appropriately
restricted by the Registrant.
During January 1995, 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, 1994:
<TABLE>
<CAPTION>
Amount of
Number Unpaid
Name of Shares Remuneration
- -------------- --------- -------------
<S> <C> <C>
John Lawrence 132,387 $41,850.87
John Balch 132,387 $41,850.87
</TABLE>
The Registrant relied on Section 4(2) of the Securities Act of 1933, as
amended. The shares were offered for investment only and not for the purpose
of resale or distribution, and the transfer thereof was appropriately
restricted by the Registrant.
During January 1995, the Registrant issued 300,563 shares of its Common
Stock to the five accredited investors listed below. These five investors
originally invested in a private offering during June 1994, and according the
terms of the 1994 private offering, if the Registrant did not register the
original shares by the end of 1994, the Registrant was required to issue
additional shares in an amount equal to 30% of the shares originally
purchased.
<TABLE>
<CAPTION>
Name Number of Shares
------------- ----------------
<S> <C>
Carl Anderson 90,938
Louis Rotunno 115,875
A. F. Budge 46,875
Monty Moore 45,000
Phoebe Yezell 1,875
-------
Total 300,563
</TABLE>
Carl Anderson and A.F. Budge were both principal shareholders of the
Regis-trant. The Registrant relied on Section 4(2) of the Securities Act of
1933, as amended. The shares were offered for investment only and not for the
purpose of resale or distribution, and the transfer thereof was appropriately
restricted by the Registrant.
During June 1995, the Registrant issued 40,000 shares to William Curtis
who agreed to convert part of an existing loan and accrued interest into
Common Stock. Mr. Curtis exercised existing warrants at $0.25 per share. The
Registrant relied on Section 4(2) of the Securities Act of 1933, as amended.
The shares were offered for investment only and not for the purpose of resale
or distribution, and the transfer thereof was appropriately restricted by the
Registrant.
During July 1995, the Registrant issued 25,000 shares to Daniel Derfus
who agreed to convert part of an existing loan and accrued interest into
Common Stock. Mr. Derfus exercised existing warrants at $.30 per share. The
Registrant relied on Section 4(2) of the Securities Act of 1933, as amended.
The shares were offered for investment only and not for the purpose of resale
or distribution, and the transfer thereof was appropriately restricted by the
Registrant.
During July 1995, the Registrant issued 240,000 shares of its Common
Stock to Carl Anderson, a principal shareholder of the Registrant. Mr.
Anderson originally invested in a private offering during November 1994, and
according to the terms of the 1994 private offering, if the Registrant did not
register the original shares by March 10, 1995, the Registrant was required
to issue additional shares in an amount equal to 30% of the shares originally
purchased.
During July 1995, the Registrant issued 40,000 shares of its common stock
to E. Lee Spence in payment for a right to 10% of any cargo recovered from a
shipwreck in the Atlantic, code named Golden Eagle, which Eagle Partners, Ltd.
is searching for. Mr. Spence is the researcher on the Golden Eagle project.
The Registrant relied on Section 4(2) of the Securities Act of 1933, as
amended. The shares were offered for investment only and not for the purpose
of resale or distribution, and the transfer thereof was appropriately
restricted by the Registrant.
During August 1995, the Registrant issued 20,000 shares of its Common
Stock to Republic & Eagle Associates, an affiliate of Mr. Spence, to purchase
an option for continued use of research data on the Golden Eagle after the end
of 1995. During January 1996, the Registrant issued an additional 40,000
shares to Republic & Eagle Associates pursuant to the terms of the agreement
with Republic & Eagle Associates. The Registrant relied on Section 4(2) of
the Securities Act of 1933, as amended. The shares were offered for
investment only and not for the purpose of resale or distribution, and the
transfer thereof was appropriately restricted by the Registrant.
During August 1995, the Registrant issued 40,790 shares of its Common
Stock to Solaris International IBC in connection with services performed by
Solaris. The shares were offered for investment only and not for the purpose
of resale or distribution, and the transfer thereof was appropriately
restricted by the Registrant.
During August through November 1995, the Registrant issued 1,259,136
shares of its Common Stock to 20 accredited investors who invested a total of
$314,784 in cash in a private placement. The Registrant relied on Section
4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D
promulgated thereunder. Each investor was given access to complete
information concerning the Registrant. The shares were offered for investment
only and not for the purpose of resale or distribution, and the transfer
thereof was appropriately restricted by the Registrant. During January 1996,
the Company issued an additional 314,718 shares to these 20 investors because
the Company was required to issue a bonus of 20% of the number of shares sold
if the original shares were not registered by December 31, 1995.
During October 1995, the Registrant issued 360,000 shares of its Common
Stock to Gregory Stemm, a shareholder and former officer and director of the
Registrant, pursuant to a settlement agreement which resolved a lawsuit filed
by Mr. Stemm against the Registrant. The Registrant relied on Section 4(2) of
the Securities Act of 1933, as amended.
During September and October 1995, the Registrant issued a total of
40,000 shares of its Common Stock to John C. Morris, a shareholder and former
officer and director of the Registrant, upon payment to the Registrant of
$10,000. These shares were sold because Mr. Morris exercised anti-dilution
rights he held under previously issued warrants. The Registrant relied on
Section 4(2) of the Securities Act of 1933, as amended.
During October 1995, the Registrant issued 50,000 shares of its Common
Stock to Barbara Shaw pursuant to a loan agreement entered into during
September 1995 which provided that if Ms. Shaw's $10,000 loan was not repaid
by the October 1995 due date, her loan would be converted into common stock at
$.20 per share. The Registrant relied on Section 4(2) of the Securities Act of
1933, as amended.
During October 1995, the Registrant issued 105,269 shares of its Common
Stock to Megeve Investments, Ltd. which exercised an outstanding option to
purchase 105,269 shares at a price of $.15 per share. The Registrant relied
on Section 4(2) of the Securities Act of 1933, as amended.
During October 1995, the Registrant issued an aggregate of 2,400,000
shares of its Common Stock to the six owners of Seahawk, Inc., the corporation
which owned the vessel RV Seahawk. The shares were issued pursuant to an
Exchange Agreement with Seahawk, Inc. and the six persons who owned 100% of
the outstanding stock of Seahawk, Inc. These six persons were all existing
shareholders of the Registrant. The Registrant relied on Section 4(2) of the
Securities Act of 1933, as amended.
During January 1996, the Registrant issued 64,000 shares of its Common
Stock to Travel Discoveries in settlement of an old debt in the amount of
$16,000. The Regitrant relied on Section 4(2) of the Securities Act of 1933,
as amended.
<PAGE>
Item 27. Exhibits and Financial Statement Schedules.
(a) The following Exhibits are filed as part of this Registration
Statement pursuant to Item 601 of Regulation S-B:
<TABLE>
(a) Exhibits.
<CAPTION>
Exhibit No. Description Location
<S> <C> <C>
3 Articles of Incorporation and Incorporated by reference to
Bylaws Exhibit No. 3 to the Regis-
trant's Registration
Statement (No. 33-22037)
10.1 Agreement and Plan of Reor- Incorporated by reference to
ganization between Fox Ridge Exhibit No. 10.2 to the Reg-
Capital, Inc. and R.V. istrant's Registration
Seahawk, Inc. Statement (No. 33-22037)
10.2 Agreement Among Fox Ridge Incorporated by reference to
Capital, Inc., Timothy J. Exhibit No. 10.3 to the Reg-
Brasel, Janelle K. Johnson istrant's Registration
and Susan A. Brasel, dated Statement (No. 33-22037)
April 24, 1989
10.3 Charter Agreement between Incorporated by reference to
Seahawk, Inc. and R/V Exhibit No. 10.4 to the Reg-
Seahawk, Inc. istrant's Registration
Statement (No. 33-22037)
10.4 Contract for the Purchase Incorporated by reference to
of 2000 Series ROV between Form 8-K dated December 7,
R/V Seahawk, Inc., AOSC and 1989
Commercial Union Capital Limited
10.5 Master Lease Purchase Incorporated by reference to
Agreement between Commercial Form 8-K dated December 7,
Union Capital Limited 1989
10.6 Contract for the Purchase Incorporated by reference to
of 2000 Series ROV between Form 8-K dated December 7,
R/V Seahawk, Inc., AOSC and 1989
Commercial Union Capital
Limited
10.7 Option and Agreement by and Incorporated by reference to
among Valley Resources, Ltd., Form 10-K for fiscal year
Valley Marine, Inc., and ended December 31, 1989
Commercial Union Capital
Limited
10.8 Bareboat Charter Party be- Incorporated by reference to
tween Valley Marine, Inc. Form 10-K for fiscal year
and Seahawk Deep Ocean ended December 31, 1989
Technology, Inc.
10.9 Common Stock Option for Incorporated by reference to
John C. Morris Form 10-K for fiscal year
ended December 31, 1989
10.10 Common Stock Option for Incorporated by reference to
Gregory P. Stemm Form 10-K for fiscal year
ended December 31, 1989
10.11 Lease with RFK Partnership Incorporated by reference to
for building at 5102 South Form 10-K for fiscal year
Westshore Boulevard ended December 31, 1990
10.12 Statement of Intent with Incorporated by reference to
Harbor Branch Oceanographic Form 10-K for fiscal year
Institution, Inc. ended December 31, 1990
10.17 Termination of Lease Agree- Incorporated by reference to
ment and Release of Liability Registrant's Registration
dated February 7, 1992 Statement on Form S-1 (filed
March 18, 1992)
10.18 Trust Indenture with R/V Incorporated by reference to
Seahawk, Inc. dated August 16, Registrant's Registration
1992, as supplemented Statement on Form S-1 (filed
March 18, 1992)
10.19 Exchange Agreement with R/V Incorporated by reference to
Seahawk dated August 16, 1991 Registrant's Registration
Statement on Form S-1 (filed
March 18, 1992)
10.20 Option Agreement dated Incorporated by reference to
January 24, 1992 with Carl Registrant's Registration
Anderson Statement on Form S-1 (filed
March 18, 1992)
10.21 Loan Agreement dated January 6, Incorporated by reference to
1992 with Carl Anderson Registrant's Registration
Statement on Form S-1 (filed
March 18, 1992)
10.22 Private Placement Agreement Incorporated by reference to
dated January 24, 1992 with Registrant's Registration
Carl Anderson Statement on Form S-1 (filed
March 18, 1992)
10.23 Agreement to Modify Warrant Incorporated by reference to
Exercise Price and Shares Registrant's Form 10-KSB for
Subject to Option the fiscal year ended
December 31, 1992
10.24 Lease Termination Agreement Incorporated by reference to
dated October 1, 1992 with Registrant's Form 10-KSB for
Seahawk, Inc. the fiscal year ended
December 31, 1992
10.25 Employment Agreement with Incorporated by reference to
John Lawrence Amendment No. 1 to Regis-
tration Statement on Form
SB-2 (filed February 10,
1995)
10.26 Employment Agreement with Incorporated by reference to
John Balch Amendment No. 1 to Regis-
tration Statement on Form
SB-2 (filed February 10,
1995)
10.27 Vessel Bareboat Charter and Incorporated by reference to
Purchase Agreement dated Amendment No. 1 to Regis-
August 22, 1994, with tration Statement on Form
International Diving and SB-2 (filed February 10,
Consulting Service, Inc. 1995)
10.28 Agreement with Consulting Incorporated by reference to
Services dated June 1, 1994, Amendment No. 1 to Regis-
with Remarc International, tration Statement on Form
Inc. SB-2 (filed February 10,
1995)
10.29 Loan Conversion Agreement Incorporated by reference to
with Buckeye Communications, Amendment No. 1 to Regis-
Inc. tration Statement on Form
SB-2 (filed February 10,
1995)
10.30 Secured Loan Agreement with Incorporated by reference to
Buckeye Communications, Inc. Amendment No. 1 to Regis-
tration Statement on Form
SB-2 (filed February 10,
1995)
10.31 Exchange Agreement dated Incorporated by reference to
November 30, 1994, with Carl Amendment No. 1 to Regis-
Anderson tration Statement on Form
SB-2 (filed February 10,
1995)
10.32 Loan Conversion Agreement Incorporated by reference to
dated September 30, 1994 Amendment No. 1 to Regis-
with Realty Development, tration Statement on Form
Inc. SB-2 (filed February 10,
1995)
10.33 Separation Agreement dated Incorporated by reference to
April 14, 1994, with John Amendment No. 1 to Regis-
Morris tration Statement on Form
SB-2 (filed February 10,
1995)
10.34 Separation Agreement dated Incorporated by reference to
April 14, 1994, with Gregory Amendment No. 1 to Regis-
Stemm tration Statement on Form
SB-2 (filed February 10,
1995)
10.35 Settlement Agreement with Incorporated by reference to
Commercial Union Capital Amendment No. 1 to Regis-
Limited tration Statement on Form
SB-2 (filed February 10,
1995)
10.36 Exchange Agreement with Incorporated by reference to
Seahawk, Inc. Amendment No. 2 to Regis-
tration Statement on Form
SB-2 (filed November 13,
1995)
10.37 Employment Agreement with Incorporated by reference to
John Lawrence Amendment No. 2 to Regis-
tration Statement on Form
SB-2 (filed November 13,
1995)
10.38 Employment Agreement with Incorporated by reference to
John Balch Amendment No. 2 to Regis-
tration Statement on Form
SB-2 (filed November 13,
1995)
22 Subsidiaries of the Incorporated by reference to
Registrant Amendment No. 1 to Regis-
tration Statement on Form
SB-2 (filed February 10,
1995)
24.1 Consent of Giunta, Ferlita & Attached
Walsh, P.A.
24.2 Consent of Baumann & Company,
P.A. Attached
</TABLE>
Item 28. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this Amendment
No. 3 to the Registration Statement to be signed in the City of Tampa, State
of Florida on the 6th day of February, 1996.
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
/s/ John T. Lawrence
John T. Lawrence, President
February 7, 1996
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 3 to the Registration Statement was signed by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ John T. Lawrence Chief Executive Officer, February 7, 1996
President, Principal
Financial and Accounting
Officer and Director
/s/ John P. Balch Chief Operating Officer February 7, 1996
and Director
/s/ Daniel J. Derfus Secretary and Director February 7, 1996
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Seahawk Deep Ocean Technology, Inc.
We hereby consent to the use in this Registration Statement on Form SB-2 of
our reports dated May 12, 1995, relating to the consolidated financial state-
ments of Seahawk Deep Ocean Technology, Inc. and the financial statements of
Seahawk I, Ltd., Seahawk II, Ltd. and Eagle Partners, Ltd. We also consent to
the reference to our firm under the caption Experts' in the prospectus.
/S/ Giunta, Ferlita & Walsh, P.A.
GIUNTA, FERLITA & WALSH, P.A.
Tampa, Florida
February 5, 1996
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Seahawk Deep Ocean Technology, Inc.
We hereby consent to the use of our reports on Seahawk II, Ltd. and Eagle
Partners, Ltd. Dated February 11, 1992, appearing in the Registration
Statement on Form SB-2 of Seahawk Deep Ocean Technology, Inc. We also consent
to the reference to our firm under the caption "Experts" in the prospectus.
/S/ Baumann & Company, P.A.
BAUMANN & Company, P.A.
Tampa, Florida
February 6, 1996
