<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the Period ended June 30, 1996
Commission File Number 0-18239
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
---------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 84-1087879
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer Iden-
incorporation or organization) tification No.)
5102 South Westshore Boulevard, Tampa, Florida 33611
---------------------------------------------------------
(Address of Principal Executive Offices Including Zip code)
(813) 832-4040
----------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
[ X ] Yes [ ] No
There were 26,134,366 shares of the Registrant's no par value Common Stock
outstanding as of June 30, 1996.
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
FORM 10-QSB
INDEX
Part I: Financial Information.................................Page No.
Item 1. Financial Information:
Consolidated Balance Sheets - June 30, 1996 and
December 31, 1995................................ 3 - 4
Consolidated Statements of Operations - Three
Months Ended June 30, 1996 and 1995, and Six Months
Ended June 30, 1996 and 1995 .................... 5
Consolidated Statement of Cash Flows
for the Six Months Ended June 30, 1996
and 1995......................................... 6 - 8
Notes to Consolidated Financial Statements....... 9 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.... 12 - 17
Part II: Other Information................................ 17
Item 1. Legal Proceedings....................
Item 2. Change in Securities................
Item 3. Defaults Upon Senior Securities.....
Item 4. Submission of Matters to a Vote of
Security Holders....................
Item 5. Other Information...................
Item 6. Exhibits and Reports on Form 8-K....
Signatures... .............................................. 17
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS (Unaudited)
June 30 December 31
1996 1995
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 26,847 $ 8,191
Marketable securities - 9,184
Accounts receivable
Trade, net of allowance
for doubtful debt - 34,889
Other 3,500 4,100
Merchandise inventory 3,687 3,687
Prepaid expenses 19,469 85,004
----------- -----------
Total current assets 53,503 145,055
----------- -----------
PROPERTY AND EQUIPMENT
Net of accumulated depreciation
of $634,331 and $1,473,738 782,874 2,244,416
----------- -----------
OTHER ASSETS
Artifacts 305,658 305,746
Accounts and Notes Receivable
affiliates less losses in excess
of investment in affiliates
of $1,828,159 and $1,797,294 270,568 302,509
Deposits 26,698 10,188
Purchased shipwreck research,
net of $12,431 amortization 10,069 13,819
----------- -----------
Total other assets 612,993 632,262
----------- -----------
TOTAL ASSETS $ 1,449,369 $ 3,021,733
=========== ===========
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
June 30 December 31
1996 1995
------------ ------------
CURRENT LIABILITIES
Accounts payable $ 327,907 $ 436,530
Accrued expenses
Salaries 77,639 120,666
Interest due related parties 30,837 14,931
Interest due to others 52,569 39,891
Other 92,893 38,241
Preferred ships' mortgage - 900,000
Due to related parties 320,421 290,802
Notes payable - others 256,129 272,765
----------- -----------
Total current liabilities 1,158,395 2,113,826
----------- -----------
DEBT TO BE CONVERTED TO COMMON STOCK - 145,306
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock - no par value
60,000,000 shares authorized;
200,000 and 200,000 shares
issued and outstanding 50,000 50,000
Common stock - no par value;
30,000,000shares authorized;
26,134,366 and 24,919,573 shares
issued and outstanding 13,281,498 13,076,429
0 and 314,784 contingent bonus
shares - 62,957
Paid in capital-stock options 5,191 5,191
Accumulated (deficit) (13,045,715) (12,431,976)
----------- -----------
Total Stockholders' equity 290,974 762,601
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY $ 1,449,369 $ 3,021,733
=========== ===========
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Six Months
Ended June 30th Ended June 30th
1996 1995 1996 1995
--------- --------- --------- ---------
REVENUES
Income from Affiliates $ 2,550 $ 2,985 $ (3,240) $ 7,410
Income from Others 2,504 113,955 60,004 231,857
--------- --------- --------- ---------
Total Revenues 5,054 116,940 56,764 239,267
OPERATING EXPENSES
Vessel Operations 55,776 42,712 141,064 91,687
Vessel Operations- Affiliates 18,177 18,000 18,177 36,000
Conservation 12,758 11,598 25,760 17,006
Depreciation 37,980 54,641 107,710 105,765
Rent 20,768 20,768 42,835 41,535
--------- --------- --------- ---------
Total Operating Expenses 145,459 147,719 335,546 291,994
GENERAL AND ADMINISTRATIVE
EXPENSES 115,111 107,646 272,713 241,254
--------- --------- --------- ---------
Total Expenses 260,570 255,364 608,260 533,248
(LOSS) FROM OPERATIONS (255,516) (138,424) (551,496) (293,981)
--------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest income affiliate 1,233 7,479 17,356 14,877
Interest income others - - 5 -
Interest expense (21,013) (63,433) (41,004) (118,677)
Other income (10,000) - 10,000 -
Gain on sale of marketable
securities - 19,813 (483) 15,025
Loss on disposal of equipment 2,750 - 2,750 -
Loss on investment in less
than 50% owned entities (11,434) (13,357) (30,865) (24,269)
--------- --------- --------- ---------
Total other income (expense) (38,464) (49,498) (62,241) (113,044)
NET (LOSS) (293,980) (187,922) (613,737) (407,025)
======== ======== ======== ========
$( 0.01) $( 0.01) $( 0.02) $( 0.02)
(LOSS) PER SHARE --------- --------- --------- ---------
Weighted average number of
common shares and common shares
equivalents outstanding. 25700665 20262761 25700665 20262761
--------- --------- --------- ---------
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
Source (use) of Cash
Six Months Ended June 30th
1996 1995
------------ ------------
Cash Flows from Operating Activities
Net (Loss) $ (613,737) $ (407,025)
Adjustments to reconcile net loss to net
cash used by operating activities :
Depreciation 107,710 105,765
Provision for bad debt 2,160 690
Loss on disposal of equipment (2,750) -
Profit on sale of marketable securities 483 (15,025)
Loss on Investment in less than
50% owned entities 30,865 24,539
Services Acquired through issuance
of common stock 31,000 -
Decrease(increase) in trade accounts
receivable 34,889 13,361
Decrease(increase) in trade accounts
receivable - affiliates 16,273 (8,910)
Decrease(increase) in other receivables 600 1,630
Decrease(increase) in other receivables
- affiliates (17,356) (4,877)
Decrease(increase) in inventory 88 3,261
Decrease(increase) in prepaid expense 65,235 16,617
Decrease(increase) in deposits (16,510) (18)
(Decrease) increase in accounts payable (105,623) (25,817)
(Decrease)increase in accrued expenses (67,394) 173,234
----------- -----------
Total Adjustments 79,670 284,450
----------- -----------
Net Cash generated (used)
by operating activities $ (534,067) $ (122,575)
----------- -----------
Cash Flows from Investing Activities
Purchase of equipment $ (1,302) $ (12,500)
Purchase of artifacts - -
Increase in other investments - -
Issuance of notes receivable
from affiliates - -
Proceeds from disposal of equipment 1,441,635 -
Proceeds from the sale of marketable
securities 8,504 132,152
Payments received on notes receivable - -
Decrease in investment in affiliate - -
----------- -----------
Net Cash provided (used) by investing
activities $ 1,448,837 $ 119,652
----------- -----------
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Cash Flows from Financing Activities
Proceeds from issuance of common stock 6,500 -
Proceeds from issuance of warrants - -
Advances from related parties - -
Issuance of notes payable - other - -
Issuance of notes payable - related 25,000 15,000
Repayment of notes (2,614) -
Repayment of notes - related (25,000) -
Payments on capital lease payable (900,000) -
----------- -----------
Net Cash provided (used) by
financing activities (896,114) 15,000
----------- -----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENT 18,656 12,077
CASH AND CASH EQUIVALENT
BEGINNING OF QUARTER 8,191 4,175
----------- -----------
CASH AND CASH EQUIVALENT
END OF QUARTER $ 26,847 $ 16,252
=========== ===========
Summary of significant non-cash transactions
During 1995 several debt holders, through the exercise of warrants and
options, converted their debt to stock. A summary of the debt converted to
stock is as follows:
Common
Amount Shares
----------- -----------
Accounts payable $ 13,859 68,926
Accounts payable - related 83,702 264,774
Accrued interest 5,023 19,056
Notes payable - related 5,947 19,823
Notes payable - other 17,478 79,911
----------- -----------
126,009 452,490
The Company issued a total of 540,563 shares to subscribers in three prior
private placements because the Company's registration statement was not
declared effective by the agreed date in the private placement subscription
agreements.
The Company issued 2,400,000 shares of common stock in exchange for 100% of
the outstanding shares of Seahawk, Inc. stock in an exchange valued at
$904,080.
The Company issued 100,000 shares of common stock as an amendment of a
settlement of past due debt.
The Company issued 60,000 shares of common stock for a receivable from Eagle
Partners' Ltd. in the amount of $9,300 in connection with services performed
for Eagle Partner's Limited.
The Company issued 360,000 shares of common stock valued at $90,000 as part of
a settlement of a law suit.
The Company issued 80,000 shares of common stock for a receivable from Seahawk
I, Ltd. in the amount of $20,000 in connection with Seahawk I, Ltd.'s
settlement of a note payable.
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The Company assumed an account payable and a note payable of Seahawk I, Ltd.
for $10,286.
The Company settled debt to an unrelated party for $115,770 by surrendering
collateral of $129,328.
The Company settled accrued interest of $29,890 to a non-related party by
selling artifacts to that party.
The Company converted an account payable to a note payable amounting to
$87,011.
The Company issued a $90,000 note payable in satisfaction of a claim and
various accrued expenses.
The Company consolidated certain notes payable and accrued expenses of
$165,968 by issuing new notes payable of $170,500.
The Company settled notes payable of $23,500 and accrued expenses of $14,303
for a related party receivable of $37,803.
During 1996 several debt holders, through the exercise of warrants and
options, converted their debt to stock. A summary of the debt converted to
stock is as follows:
Common
Amount Shares
------------ -----------
Accounts payable $ 19,000 81,000
Accrued salary 70,612 504,366
Notes payable 15,000 82,143
------------ -----------
104,612 667,509
The Company issued 200,000 shares to three unrelated consultants for services
rendered in the amount of $31,000.
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES CONSOLIDATED ON FINANCIAL STATEMENTS
JUNE 30, 1996 (Unaudited)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Seahawk Deep
Ocean Technology, Inc. and subsidiaries (Company) have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission and the instructions to Form 10-QSB and, therefore, do not include
all information and footnotes normally included in financial statements
prepared in accordance with generally accepted accounting principles. These
interim consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes included in the Company's Form
10-KSB for the year ended December 31,1995.
In the opinion of management, these financial statements reflect all
adjustments (including normal recurring adjustments) necessary for a fair
presentation of the financial position as of June 30, 1996, results of
operations, and cash flows for the interim periods presented. Operating
results for the six months ended June 30, 1996, are not necessarily indicative
of the results that may be expected for the year ended December 31, 1996.
NOTE 2 AFFILIATES FINANCIAL INFORMATION
The Company is the General Partner and a less than 50% interest owner in
Seahawk I, Ltd., Seahawk II, Ltd. and Eagle Partners, Ltd., all Florida
limited partnerships. These partnerships are accounted for on the equity
method. Summarized financial statement information is shown on page 10.
NOTE 3 INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes". Prior to January 1, 1993,
there was no deferred taxation liability due to net operating loss carry
forwards of approximately $6,000,000. Therefore there is no cumulative effect
on the Financial Statements of adopting Statement 109.
NOTE 4 COMMERCIAL UNION PREFERRED SHIP MORTGAGE
On February 9, 1994 and as amended on April 1, 1994 , the Company and
Commercial Union entered into a joint stipulation agreement to delay sale of
the Seahawk Retriever. The settlement provided for the Company to pay
Commercial Union $500,000 in cash and sign a $1,000,000 note payable one year
from closing secured by a first preferred ships mortgage on the Seahawk
Retriever, her engines, tackle, equipment and apparel. In March 1995,
Commercial Union agreed to extend the expiration date of the note to June 1,
1995, and have since agreed that the mortgage will be extended for two years
until June 2, 1997. Under the terms of the agreement , the new principal
balance would be $1,025,000. On April 5, 1996 the Company sold the vessel
Seahawk Retriever and settled the amount due under the first preferred ships
mortgage for $900,000.
NOTE 5 ACQUISITION AND MERGER OF SEAHAWK, INC.
During November 1995, the Company acquired 100% of the outstanding common
stock of Seahawk, Inc., an Alabama corporation that owns the research vessel
R/V Seahawk in a transaction where the Company issued 2,400,000 shares of its
Common Stock to the shareholders of Seahawk, Inc. The R/V Seahawk is an 84
foot, 150
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gross tons monohull ship that is fully equipped to carry out deep sub-sea
survey work, including side scan sonar, magnetometry and bathymetric surveys
as well as remotely operated vehicle operations. Seahawk, Inc. was merged
into the Company effective June 30, 1996 and the Company has accounted for the
acquisition as the purchase of an asset. The basis for the valuation was the
fair value of the vessel received.
NOTE 6 COMMON STOCK TRANSACTIONS WITH RELATED PARTIES
During April 1996, the Company issued 264,774 shares of Common Stock to the
following two employees and officers of the Company as payment for accrued and
unpaid remuneration for the year ended December 31, 1995:
Number Unpaid
Name of Shares Remuneration
------------- --------- ------------
John Lawrence 152,183 $21,305.62
John Balch 152,183 $21,305.62
NOTE 7 COMMON STOCK TRANSACTIONS WITH OTHERS
During January 1996, the Company issued 314,784 shares of its Common Stock to
twenty accredited investors. The investors originally invested in a private
offering during July through October 1995, and according to the terms of the
private offering , if the Company did not register the original shares by the
end of 1995, the Company was required to issue additional shares in an amount
equal to 25% of the shares originally purchased.
During January 1996, the Company issued 64,000 shares of common stock to a
company in exchange for accounts payable. The Company issued 200,000 shares
of common stock to three individuals for services rendered to affiliates.
During March 1996, the Company issued 200,000 shares of common stock to an
individual for unpaid accrued compensation and 32,500 shares to an individual
upon the exercise of a stock option for cash.
During April 1996, the Company issued 25,000 shares of common stock to a
individual in exchange for a note payable. During June 1996, the Company
issued 57,143 shares of common stock to an individual in exchange for a note
payable, and 17,000 shares to a company in exchange for an account payable.
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
BALANCE SHEETS - AFFILIATES
Six Months Ended June 30, 1996
Seahawk I, Seahawk II, Eagle Part-
Ltd. Ltd. ners, Ltd.
------------ ------------ ------------
Current Assets
Cash $ 269 $ 52 $ 0
Accounts receivable 420 - -
Inventory - other 1,146 - -
------------ ------------ ------------
Total Current Assets 1,835 52 0
------------ ------------ ------------
Other Assets
Investment in affiliate - - (25,266)
Artifact inventory 646,025 - -
------------ ------------ ------------
Total Assets 647,860 52 (25,266)
------------ ------------ ------------
Current Liabilities
Accounts payable - trade 4,087 2,217 3,525
Accounts payable
- general partner 639,167 17,088 1,039,028
Accrued liabilities 3,535 900 600
Notes payable limited partners 22,133 - -
Notes payable general partner 341,126 - 52,480
------------ ------------ ------------
Total Current Liabilities 1,010,049 20,205 1,095,632
------------ ------------ ------------
Partners' Capital
Capital contributed 2,511,041 1,371,251 150,100
Accumulated loss (2,873,229) (1,391,403) (1,270,998)
------------ ------------ ------------
Net Capital (362,189) (20,153) (1,120,898)
------------ ------------ ------------
Total Liabilities
and Capital 647,860 52 (25,266)
------------ ------------ ------------
STATEMENTS OF OPERATION - AFFILIATES
Six Months Ended June 30, 1996
Seahawk I, Seahawk II, Eagle Part-
Ltd. Ltd. ners, Ltd.
------------ ------------ ------------
Revenues $ 0 $ 0 $ 0
Expenses
Operating expenses 1,705 180 0
Administrative expenses 7,675 2,880 8,178
------------ ------------ ------------
Total Expenses 9,380 3,060 8,178
------------ ------------ ------------
Other Income (Expenses) (16,489) 0 (4,712)
------------ ------------ ------------
Net (Loss)$ (25,869) $ (3,060) $ (12,890)
------------ ------------ ------------
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<PAGE>
ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
The net loss for the three months to June 30, 1996 was $293,980 compared to a
loss of $187,922 in the corresponding quarter of 1995.
Total revenues in the 1996 quarter at $5,054 were down $111,886 from the 1995
quarter primarily as a result of decreased billing for charter hire of the M/V
Seahawk Retriever. There was a decrease of $435 in billing to affiliated
limited partnerships. Total expenses of $260,570 were incurred in the second
quarter of 1996, compared to $255,364 in the equivalent period in 1995. While
operating expenses decreased to $145,459 in the second quarter of 1996 from
$147,719 in the equivalent quarter in 1995, there was an increase in general
and administrative expense to $115,111 during the 1996 quarter from $107,646
in the 1995 quarter. This resulted in the loss from operations being higher at
$255,516 in 1996 compared to $138,424 in 1995.
The Company's cost of vessel operations were up by $13,064 to $55,776 for the
quarter ending June 30, 1996 as compared to the second quarter in 1995 when
vessel operations were $42,712. This resulted from vessel maintenance costs
being $4,711 in the quarter ending June 30th 1996, while there were no
maintenance expenses in the same quarter of 1995. Insurance costs increased by
$3,175 to $4,719 for the quarter ending June 30, 1996 as compared to $1,544
for the quarter ending June 30, 1995. The increase in insurance cost was due
to higher limits of coverage on the R/V Seahawk. The costs of travel and
provisions at $4,563 during the quarter ending June 30, 1996 were higher as
there were no such costs during the equivalent quarter during 1995. These
costs were the result of maintaining the vessel R/V Seahawk in the gulf coast
during the second quarter of 1996 in an effort to obtain contract work for the
vessel.
Conservation and archaeology expenses were $12,758 for the quarter ending June
30, 1996 as compared to $11,598 for the equivalent period during 1995. This
was a result of maintaining a similar level of activity for the quarter ending
June 30, 1996 as that of the equivalent quarter of 1995.
Depreciation was $37,980 for the quarter ending June 30, 1996, $16,661 lower
than the charge for depreciation in the equivalent period in 1995. The
difference resulted from the decrease in depreciation expense associated with
the vessel M/V Seahawk Retriever which was sold during the second quarter of
1996.
Rent was unchanged for the quarter ending June 30, 1996 compared to the
equivalent quarter during 1995 at $20,768.
Administrative costs increased by $7,465 to $115,111 for the quarter ending
June 30, 1996 as compared to $107,646 during the same period of 1995.
Interest expense decreased to $21,013 for the quarter ending June 30, 1996
compared to $63,433 in the second quarter of 1995. The decrease was due to the
elimination of interest expense associated with the note payable to Commercial
Union Capital upon the sale of the M/V Seahawk Retriever in April 1996.
Interest income was $8,726 for the second quarter of 1996 resulting from a
note receivable from affiliates. There was $7,479 interest income for the
equivalent period during 1995. The increase is due to the interest earned on
the note receivable from Eagle Partners, Ltd. which was issued in the last
quarter of 1995.
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The loss on investment in less than 50% owned entities was $11,434 in the 1996
quarter, down $1,923 from the second quarter of 1995. These losses represent
the company's share of losses of Seahawk I, Ltd., Seahawk II, Ltd., and Eagle
Partners, Ltd., partnerships in which the company is the managing general
partner. Seahawk I, Ltd. produced a loss of $7,233 primarily resulting from
efforts to develop a market for the artifacts recovered from the Tortugas
Shipwreck Site and from the cost of year end accounting requirements. Seahawk
II, Ltd. incurred an administrative loss of $1,710 and Eagle Partners, Ltd.
incurred administrative and operating costs of $2,490 which resulted in net
losses of those amounts for the quarter.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
The net loss for the six months ending June 30, 1996 was $613,737 compared to
a loss of $407,025 in the corresponding period of 1995.
Total revenues of $56,764 for the half year ended June 30, 1996 were down
$182,503 from the equivalent period during 1995 primarily as a result of
decreased billing for charter hire of the M/V Seahawk Retriever. Billing to
affiliated limited partnerships also decrease by $10,650 during the six months
period. This resulted primarily from a credit for weather days being issued to
Eagle Miners Limited for previously billed services. Total expenses of
$608,260 were incurred during the six months ending June 30, 1996, compared to
$533,248 in the equivalent period in 1995. Operating expenses increased to
$335,546 in the six month period of 1996 from $291,994 during the equivalent
period in 1995. There was an increase in general and administrative expense to
$272,731 during the six months ending June 30 1996 from $241,254 in the 1995
period. This resulted in the loss from operations being higher at $551,496 in
the six months ending June 30, 1996 as compared to $293,981 during the six
months ending June 30, 1995.
The Company's cost of vessel operations were up by $49,377 to $141,064 for
the six months ending June 30, 1996 as compared to the equivalent period in
1995 when vessel operations were $91,687. This resulted from increased
expenses for marine equipment maintenance to $17,151 and an increase in
insurance costs of $17,033 for the six months ending June 30, 1996 as compared
to the same period in 1995. The increase in insurance cost was due to higher
limits of coverage on the R/V Seahawk. The costs of travel and provisions of
$5,962 were higher during the six months ending June 30, 1996 as such costs
were $594 during the equivalent six months during 1995. These costs were the
result of maintaining the vessel R/V Seahawk in the gulf coast during the
second quarter of 1996 in an effort to obtain contract work for the vessel.
Conservation and archaeology expenses were $25,760 for the six months ending
June 30, 1996 as compared to $17,006 for the equivalent period during 1995.
This was a result of direct payroll being paid for the full six months during
1996 while personnel were on unpaid leave during part of the equivalent period
of 1995.
Depreciation was $107,710 for the six months ending June 30, 1996, $1,945
lower than the charge for depreciation in the equivalent period in 1995. The
difference resulted from the decrease in depreciation expense associated with
the vessel M/V Seahawk Retriever which was sold during the second quarter of
1996 being partially offset by depreciation taken on the R/V Seahawk which was
acquired in November 1995.
Rent was relatively unchanged for the six month period ending June 30, 1996 at
$42,835 compared to $41,535 during the equivalent period of 1995.
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Administrative costs increased by $31,459 to $272,713 for the six months
ending June 30, 1996 as compared to $241,254 during the same period of 1995.
There was an increase in consulting expense of $24,800 during the six months
ended June 30, 1996 which resulted from efforts to pursue a shipwreck project
in waters off Brazil. The Company had no such costs during the six months
ended June 30, 1995. General Insurance costs were up $4,638 during the six
months ended June 30, 1996 compared to the equivalent period during 1995.
Interest expense decreased to $41,004 for the six months ending June 30, 1996
compared to $118,677 in the like period of 1995. The decrease was due to the
elimination of interest expense associated with the note payable to Commercial
Union Capital upon the sale of the M/V Seahawk Retriever in April 1996.
Interest income was $17,356 for the six months ending June 30, 1996 compared
to $14,877 during the equivalent period during 1995. The increase is due to
the interest earned on the note receivable from Eagle Partners, Ltd. which was
issued in the last quarter of 1995.
The loss on investment in less than 50% owned entities was $30,865 in the half
year to June 30, 1996 compared to $24,269 during the same period in 1995.
These losses represent the company's share of losses of Seahawk I, Ltd.,
Seahawk II, Ltd., and Eagle Partners, Ltd., partnerships in which the company
is the managing general partner. Seahawk I, Ltd. produced a loss of $14,915
primarily resulting from efforts to develop a market for the artifacts
recovered from the Tortugas Shipwreck Site and from the cost of year end
accounting requirements. Seahawk II, Ltd. incurred an administrative loss of
$3,060 and Eagle Partners, Ltd. incurred administrative and operating costs of
$12,890 which resulted in net losses of those amounts for the six month
period.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995 the Company had negative working capital of
$(1,968,771). During the six months ended June 30, 1996 the Company's working
capital increased to a negative $(1,104,892).
The increase in working capital of $863,879 in the period was mostly the
result of net operating losses before depreciation offset by debt converted to
common stock and the sale of the M/V Seahawk Retriever on April 5, 1996.
The Company continues to have very restricted liquidity. This situation
results principally through the lack of revenue from operations. The Company
has sought to produce revenue through the following:
1. Sales of subsea services to entities involved in shipwreck recovery
projects which are originated by the Company.
2. Sales of subsea services to other entities.
3. Lease of ships and subsea equipment.
4. Sale of artifacts and artifact related merchandise.
The Company's main source of revenue, sales to affiliated project entities
such as Limited Partnerships, depends on those partnerships being properly
funded. All three of the existing Limited Partnerships, Seahawk I, Ltd.,
Seahawk II, Ltd., and Eagle Partners, Ltd., are out of cash.
Until it can obtain additional financing or begin earning revenue from its
artifacts, either by direct sale or royalty on reproductions, Seahawk I, Ltd
will not be able to pay the balance of its liabilities to the Company. It is
not likely that the Partnership will be able to raise further financing except
through the sale of artifacts. The Partnership had planned to sell its
artifacts through the Seahawk Shipwreck and Treasure Museum, but the inability
to finance
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<PAGE>
the museum had forced the Company to put the museum plans on hold until
appropriate financing could be arranged. The Company, acting in its capacity
as general partner of Seahawk I Ltd. is attempting to arrange for a sale of
the Partnership's collection of artifacts.
Seahawk II, Ltd is out of funds and the partners have decided they are not
willing to invest additional funds to continue further excavation of the wreck
site. The General Partner is unable to identify additional working capital to
work on the Partnership's wreck off St. Augustine, and has asked the partners
on two occasions to vote on terminating the Partnership. The results of those
votes were inconclusive.
Eagle Partners, Ltd. is also out of cash but has continued its search for a
shipwreck, known as the Golden Eagle, believed to have sunk off the east coast
of the Untied States. The Company has in the past provided survey services to
Eagle Partners, Ltd. on credit but has in effect provided in full against the
account receivable by assuming losses on investments sufficient to create a
negative balance on investment in the Partnership that is equal to the account
receivable.
During 1995, Eagle Partners Limited raised funds to continue its search for
the Golden Eagle using the Company's services. On July 18, 1995 the Company
announced that it had entered into a joint venture agreement with Sea Miners,
Inc. a Baltimore, MD company, to resume the search for this shipwreck. The
joint venture incorporates research by both parties concerning this wreck and
a pooling of resources to continue the search operations. Under the
agreement, the Company will continue to be the offshore contractor to the
joint venture for all marine operations. The Company earned revenues of
$50,000 during 1995 from this Joint Venture and expects to earn additional
revenue during 1996 if the Joint Venture can raise sufficient funding.
The Company is currently seeking to assist Eagle Partners in raising
sufficient funding to complete the Golden Eagle project. If properly funded,
the project will generate cash flow for the Company. Substantial cash would
be produced for the Company if the Golden Eagle is located and its cargo is
recovered and disposed of profitably.
The Company is reviewing other potential shipwreck projects and it is
anticipated that if the Company were to proceed with any of these projects, it
would help to form limited partnerships or similar entities for the purpose of
funding the projects. There is no assurance that any of the partnerships
would be successful in raising the necessary amount of funding.
During 1995 the Company generated over $50,000 selling its services to
non-shipwreck related customers and some $400,000 through the chartering of
its recovery vessel, the Seahawk Retriever. The charter agreement was with
International Diving and Consulting Services and was to produce an annual
revenue of $900,000 for five years. However, on November 23, 1994,
International Diving filed a voluntary petition in the United States
Bankruptcy Court under Chapter 11 of the Bankruptcy Code. Due to this Chapter
11 filing, International Diving was not able to make the lease payment in the
amount of approximately $100,000 which was due to the Company on December 10,
1994.
On March 7, 1995, the U.S. Bankruptcy Court Western Division of Louisiana,
Lafayette-Opelousas Division ordered International Diving to pay (a) $130,836
on or before March 17, 1995; (b) $56,935 on or before April 7, 1995; (c)
$56,935 on or before May 7, 1995; and (d) all future payments under the
Agreement as they come due, and ordered that the Agreement be amended to grant
International Diving the option to purchase the Retriever for the sum of
$1,450,000 payable in cash
-15-
<PAGE>
on or before June 1, 1995. International Diving declined the option to
purchase the Retriever and made the payments under (a), (b), and (c) above.
International Diving was unable to make the payment of $136,703.50 due on June
10, 1995 and on July 11, 1995 (as modified on July 25, 1995) the same U.S.
Bankruptcy Court ordered International Diving to make payments of $45,568.00
on July 11 and July 25th 1995, and to make payments of $53,179 on August 8th,
August 24th, and September 5th, 1995. The payments due on July 11, 1995 and
July 25, 1995 were made. No further payments were made by International
Diving and on September 12, 1995, the vessel M/V Seahawk Retriever was
repossessed by the Company. An account receivable from International Diving
of $173,620 owing at December 31, 1995 was provided for as bad debt by the
Company due to the fact that International Diving entered into a Chapter 7
Bankruptcy Liquidation.
During the period December 8, 1995 to March 31, 1996 the Company chartered the
Retriever to American Oilfield Divers Inc. of Lafayette, Louisiana ("AOD").
The main terms of the charter were that AOD would pay a day rate of $2,050 per
day when the vessel was working and pay any dockage costs when it was not.
During the period AOD incurred $47,250 of charter fees. On April 4, 1996, AOD
purchased the Retriever for $1,438,750 on an as-is-where-is basis via a wholly
owned subsidiary S&H Diving L.L.C. The purchase agreement provided for a sum
of $100,000 to be held in escrow for six months to pay for any bona fide lien
claims
encumbering the vessel which accrued prior to March 31, 1996.
After settlement of the mortgage on the vessel and various selling fees, the
sale of the Retriever has generated approximately $350,000 cash in the second
quarter of 1996, and the retained $100,000 was released to the Company in the
third quarter. The sale of the Retriever means that no other revenue will be
produced for the Company from that asset in the future.
In November 1995 the Company acquired all the outstanding common stock of
Seahawk, Inc. a company that owns the RV Seahawk, the ship that the Company
uses for survey work. Prior to the acquisition the Company had chartered the
vessel at a cost of $6,000 per month, almost continually since March 1989.
The acquisition will reduce such rental costs in the future.
Apart from seeking to raise revenue from assets the Company has also sought to
conserve cash by the conversion of debt into equity.
During 1995 1,863,699 shares (including contingent bonus shares) were issued
for $321,333, 1,057,739 shares were issued to pay $261,099 in outstanding debt
and 2,400,000 shares were issued in an exchange agreement with Seahawk, Inc.
valued at $904,080.
During January 1996, the Company issued 64,000 shares of common stock to a
company in exchange for accounts payable of $16,000. The Company issued
200,000 shares of common stock to three individuals for services rendered to
affiliates, and the Company issued 200,000 shares of common stock to an
individual for unpaid accrued compensation.
During April 1996 the Company issued 304,366 shares of common stock to two
officers for accrued remuneration valued at $42,610. The Company also issued
57,143 shares to an individual in exchange for a note payable of $25,000.
During June 1996 the Company issued 17,000 shares of common stock to an
individual in exchange for an account payable of $3,000.
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
-16-
<PAGE>
sources of revenue or raise additional financing. The Company's current and
future efforts to obtain additional financing will concentrate on offering
additional equity to investors until such time as the Company's operational
cash flow is self supporting. The original loan enabled Seahawk I, Ltd. to
pay some of its liabilities to the Company. Until it can obtain additional
financing or begin earning revenue from its artifacts, either by direct sale
or royalty on reproductions, it will not be able to pay the balance of the
liabilities. It is not likely that the Partnership will be able to raise
further financing except through the sale of artifacts. The Partnership had
planned to sell its artifacts through the Seahawk Shipwreck and Treasure
Museum, but the inability to finance the museum had forced the Company to put
the museum plans on hold until appropriate financing could be arranged.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
By/s/ John T. Lawrence
John T. Lawrence, President
Dated: May 4, 1998
-17-
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- ------- -----------------------------
27. FINANCIAL DATA SCHEDULE Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited condensed consolidated balance sheets and unaudited condensed
consolidated statements of income found on pages 3 and 4 of the Company's Form
10-QSB for the year to date, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 26,847
<SECURITIES> 0
<RECEIVABLES> 3,500
<ALLOWANCES> 0
<INVENTORY> 3,687
<CURRENT-ASSETS> 53,503
<PP&E> 782,874
<DEPRECIATION> 634,331
<TOTAL-ASSETS> 1,449,369
<CURRENT-LIABILITIES> 1,158,395
<BONDS> 0
<COMMON> 13,281,498
0
50,000
<OTHER-SE> (13,040,524)
<TOTAL-LIABILITY-AND-EQUITY> 1,449,369
<SALES> 56,764
<TOTAL-REVENUES> 56,764
<CGS> 335,546
<TOTAL-COSTS> 335,546
<OTHER-EXPENSES> 272,713
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (41,004)
<INCOME-PRETAX> (62,241)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (613,737)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
