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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission File Number: 0-18239
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
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(Exact name of small business issuer as specified in its charter)
Colorado 84-1087879
- ------------------------------- ---------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5102 SOUTH WESTSHORE BLVD.
TAMPA, FLORIDA 33611
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(Address of principal executive offices including zip code)
(813) 831-4040
--------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No___
As of January 22, 1999, the Registrant had 28,157,614 shares of common stock,
no par value per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes__ No X
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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 - March 31, 1998 and
December 31, 1997................................ 3 - 4
Consolidated Statements of Operations - Three
Months Ended March 31, 1998 and 1997............. 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1998
and 1997......................................... 6 - 7
Notes to Consolidated Financial Statements....... 8 - 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.... 12 - 16
Part II: Other Information................................ 17
Item 1. Legal Proceedings...................... 17
Item 2. Change in Securities................... 17
Item 3. Defaults Upon Senior Securities........ 17
Item 4. Submission of Matters to a Vote
of Security Holders.................... 17
Item 5. Other Information...................... 17
Item 6. Exhibits and Reports on Form 8-K....... 17
Signatures... .............................................. 18
2
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS (Unaudited)
March 31 December 31
1998 1997
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 34,320 $ 582
Marketable securities 603,696 -
Accounts receivable Other 217,884 2,962
Prepaid expenses 19,883 5,298
------------ ------------
Total current assets 875,783 8,842
------------ ------------
PROPERTY AND EQUIPMENT
Net of accumulated depreciation
of $778,746 and $844,518 625,171 672,716
------------ ------------
OTHER ASSETS
Artifacts - 303,073
Accounts and Notes Receivable
affiliates less losses in excess
of investment in affiliates
of $1,181,859 and $1,924,160 - 291,256
Deposits 14,525 14,775
Purchased shipwreck research,
net of $25,000 amortization - -
------------ ------------
Total other assets 14,525 609,104
------------ ------------
TOTAL ASSETS $ 1,515,479 $ 1,290,661
============ ============
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
March 31 December 31
1998 1997
------------ ------------
CURRENT LIABILITIES
Overdraft $ - $ 1,452
Accounts payable 395,172 404,506
Accrued expenses
Salaries 572,772 466,919
Interest due related parties 28,027 15,472
Interest due to others 62,125 150,842
Other 124,476 75,953
Due to related parties 335,200 334,200
Notes payable - others 357,354 607,258
------------ ------------
Total current liabilities 1,875,126 2,056,602
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock - no par value
60,000,000 shares authorized;
750,000 and 200,000 shares issued
and outstanding 105,000 50,000
Common stock - no par value;
30,000,000 shares authorized;
27,693,991 and 27,693,991 shares
issued and outstanding 13,509,627 13,509,627
Paid in capital-stock options 5,191 5,191
Accumulated (deficit) (13,979,465) (14,330,759)
------------ ------------
Total Stockholders' equity (359,647) (765,941)
------------ ------------
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY $ 1,515,479 $ 1,290,661
============ ============
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended March 31st
1998 1997
------------ ------------
REVENUES
Income from Affiliates $ 10,000 $ 10,000
Income from Others 58,250 5,698
Gain on sale of artifacts 439,356
------------ ------------
Total Revenues 507,606 15,698
OPERATING EXPENSES
Vessel Operations 162,975 11,150
South American Project 1,923 -
Conservation - 12,546
Depreciation 35,783 34,619
Rent 17,588 25,025
------------ ------------
Total Operating Expenses 218,269 83,340
GENERAL AND ADMINISTRATIVE EXPENSES 143,696 87,975
------------ ------------
Total Expenses 361,965 171,315
------------ ------------
PROFIT(LOSS) FROM OPERATIONS 145,641 (155,617)
------------ ------------
OTHER INCOME (EXPENSE)
Interest income - affiliate 14,841 14,548
Interest income - others - -
Interest expense (67,287) (28,135)
Other income - 1,605
Provision for Loss on sale of
marketable securities (476,425) -
(Loss) Gain on disposal of equipment (12,751) 400
Gain (Loss) on investment in less
than 50% owned entities 747,275 (10,369)
------------ ------------
Total other income (expense) 205,653 (21,951)
------------ ------------
NET PROFIT(LOSS) $ 351,294 $ (177,568)
============ ============
NET PROFIT(LOSS) PER SHARE $ 0.01 $ (0.01)
------------ ------------
Weighted average number of common
shares and common shares equivalents
outstanding. 27,693,991 26,273,699
------------ ------------
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
Source (use) of Cash
Three Months Ended March 31st
1998 1997
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Cash Flows from Operating Activities
Net Profit( Loss) $ 351,294 $ (177,568)
Adjustments to reconcile net loss to net
cash used by operating activities :
Depreciation 35,783 34,618
(Decrease) in provision for bad debts (16,539) -
(Gain)Loss on disposal of equipment 12,750 (400)
(Gain)Loss on Investment in less than
50% owned entities (742,301) 10,369
Services Acquired through issuance
of stock 55,000 35,000
Decrease(increase) in:
trade accounts receivable - -
trade accounts receivable-affiliates - (10,048)
other receivables (214,922) 3,277
other receivables-affiliates 626,240 -
inventory 303,073 770
prepaid expense (14,586) 11,021
deposits 250 -
(Decrease) increase in:
accounts payable (9,334) 235
accrued expenses 154,378 36,643
------------ ------------
Total Adjustments 189,791 121,485
------------ ------------
Net Cash generated (used)
by operating activities $ 541,086 $ (56,084)
------------ ------------
Cash Flows from Investing Activities
Purchase of equipment $ (990) $ (4,500)
Increase in other investments (603,696) -
Proceeds from disposal of equipment - 400
Proceeds from the sale of marketable
securities - -
Payments received on notes receivable 423,856 -
Decrease in investment in affiliate - -
------------ ------------
Net Cash provided (used) by investing
activities $ (180,830) $ (4,100)
------------ ------------
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
(Continued)
Source (use) of Cash
Three Months Ended March 31st
1998 1997
------------ ------------
Cash Flows from Financing Activities
Proceeds from issuance of common stock - -
Proceeds from issuance of warrants - -
Advances from related parties 1,000 57,078
Issuance of notes payable - other 98,961 -
Issuance of notes payable - related - -
Repayment of notes _ (1,000)
Repayment of notes - related (425,026) -
------------ ------------
Net Cash provided (used) by
financing activities (325,065) 56,078
------------ ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENT 35,191 (4,106)
CASH AND CASH EQUIVALENT
BEGINNING OF QUARTER (871) 536
------------ ------------
CASH AND CASH EQUIVALENT
END OF QUARTER $ 34,320 $ (3,750)
============ ============
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 115,144 $ 3,932
============ ============
Taxes paid $ - -
============ ============
Summary of significant non cash transactions
During February 1997, The Company issued 260,000 shares of its common stock to
two individuals as compensation for consultancy work performed on the
Company's behalf in South America and the Company issued 20,000 shares of its
common stock to five individuals as compensation for acting as advisors to the
Company's Board of Directors.
In February 1998, the Company issued 550,000 shares of its Series 3 Preferred
Stock to a non-affiliated company as payment for subcontracted services valued
at $55,000.
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES ON FINANCIAL STATEMENTS
MARCH 31 1998 (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 31,1997.
In the opinion of management, these financial statements reflect all
adjustments (including normal recurring adjustments) necessary for a fair
presentation of the financial position as of March 31, 1998, results of
operations, and cash flows for the interim periods presented. Operating
results for the three months ended March 31, 1998, are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998.
NOTE 2 GOING CONCERN CONSIDERATION
The Company earned a net profit of $351,294 for the first quarter of 1998 but
has incurred substantial net losses for each of the past several years
resulting in an accumulated deficit of $13,979,465 at March 31, 1998. At that
date the Company had negative working capital as indicated by current
liabilities exceeding current assets by $999,343. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern
NOTE 3 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 9.
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
BALANCE SHEETS - AFFILIATES
Three Months Ended
March 31, 1998
Seahawk II, Eagle Part-
Ltd. ners, Ltd.
----------- ------------
Current Assets
Cash $ 52 $ 0
----------- ------------
Total Current Assets 52 0
----------- ------------
Current Liabilities
Accounts payable - general partner 34,275 1,063,945
Notes payable general partner - 61,165
Losses in excess of investment In affiliate 26,138
----------- ------------
Total Current Liabilities 34,275 1,151,248
----------- ------------
Partners' Capital
Capital contributed 1,371,251 150,100
Accumulated loss (1,405,474) (1,301,348)
----------- ------------
Net Capital (34,223) (1,151,248)
----------- ------------
Total Liabilitiesand Capital 52 0
----------- ------------
STATEMENTS OF OPERATION - AFFILIATES
Revenues $ 0 $ 0
Expenses
Administrative expenses 2,500 2,500
------------ ------------
Total Expenses 2,500 2,500
------------ ------------
Other Income (Expenses) 0 (1,233)
------------ ------------
Net (Loss) $ (2,500) $ (3,733)
------------ ------------
As of March 31, 1998 Seahawk I, Ltd. is accounted for on a Liquidation basis.
At that date all Seahawk I, Ltd,'s liabilities had been extinguished and the
Partnership had a sole remaining asset of 1,997,646 shares of common stock in
Treasure & Exhibits International, Inc., valued at $173,157. These shares were
distributed to the Limited Partners in September 1998 and the Partnership was
closed on September 30, 1998.
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.
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NOTE 5 STOCK TRANSACTIONS WITH RELATED PARTIES
During February 1997, the Company issued 100,000 shares of Common Stock to the
following two employees and officers of the Company as payment for accrued and
unpaid remuneration for the month ended June 30, 1996:
Number Unpaid
Name of Shares Remuneration
---- ---------- ------------
John Lawrence 50,000 $6,125
John Balch 50,000 $6,125
In February 1999, the company issued 20,000 shares of its common stock to
Robert Shaw as compensation for acting as sole officer and director of its
subsidiary RV Seahawk, Inc.
In February 1999, the two executive directors each donated 50,000 of their
unrestricted common stock in the Company to a lender as an incentive to lend
the Company $154,000. In compensation the Company agreed to pay each executive
director $3,500 in cash and issued each of the directors 100,000 shares of its
common stock.
NOTE 6 STOCK TRANSACTIONS WITH OTHERS
During February 1997, The Company issued 260,000 shares of its common stock to
two individuals as compensation for consultancy work performed on the
Company's behalf in South America and the Company issued 20,000 shares of its
common stock to five individuals as compensation for acting as advisors to the
Company's Board of Directors.
During September 1997, the Company issued 105,107 shares of its common stock
to two individuals in payment of an account payable of $18,000 and the Company
issued 85,000 shares of its common stock to one individual in return for a
cash investment of $11,050.
During October 1997, the Company issued 589,333 shares of its common stock to
six individuals in payment of $96,080 of loans previously made to the Company
and the Company issued 185,185 shares of its common stock to one individual in
return for a cash investment of $25,000. In the same month the Company issued
$25,000 shares of its common stock to an individual as an inducement to extend
an overdue note of $100,000 for a further year.
In December 1997, the Company issued 90,000 shares of its common stock to a
firm of accountants in payment of an account payable of $13,500.
In February 1998, the Company issued 550,000 shares of its Series 3 Preferred
Stock to a non-affiliated company as payment for services valued at $55,000.
During August 1998, the Company issued 200,000 shares of its common stock in
response to a request from the holders of the Company's series 1 preferred
stock to convert all 200,000 of their series 1 preferred stock into common
stock. In the same month the Company issued 288,000 shares of its common stock
to a corporation in payment of a note for $36,000.
In May 1999, the Company issued 100,000 shares of its common stock to an
individual as an inducement to sign an employment contract.
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NOTE 7 CONTINGENCIES
DEMAND FOR INDEMNITY FROM FORMER DIRECTORS
In March, 1998, the Company received a demand for indemnity from Greg Stemm,
John Morris and Dan Bagley, all former directors and officers of the Company,
for payment of the sum of expenses they incurred in defending an action
brought against them by the Securities and Exchange Commission. The
indemnification claim was made under Colorado corporate law. The Company has
received itemization of the purported legal fees and costs incurred in the
defense of the former directors and officers in the amount of approximately
$700,000. The Company resisted the claim and in December, 1998, the former
directors and officers filed a lawsuit pursuant to their claim.
The Company's directors have investigated the merits of the claim including
the fact that the Company formerly agreed with the Securities and Exchange
Commission that it would not pay the legal expenses of the former officers and
directors in their defense of the action in question.
The Company is of the opinion that the agreement with the Securities and
Exchange Commission takes priority over state law and in January, 1999,the
Company filed in the state court a Motion to Dismiss Complaint, a Motion for
More Definite Statement and Motion to Strike. At the same time the Company
filed a Motion for Preliminary and Permanent Injunction in the federal court.
NOTE 8 SUBSEQUENT EVENTS
PAYMENT OF PESQAMAR ACCOUNT PAYABLE
In May 1998, the Company, under the Pesqamar joint venture agreement with
Odyssey Marine exploration, Inc. (formerly Remarc International, Inc.) dated
August 17,1995, had accrued a debt due to Odyssey for running expenses of
Pesqamar in the sum of $153,018. In payment of that amount, the Company
transferred to Odyssey 1 million restricted shares of common stock in
Vanderbilt Square Corporation, and, in lieu of the agreement from Odyssey that
all future Pesqamar expenses would be borne fully by Odyssey, the Company
transferred 2.5% of its holding in Pesqamar to Odyssey.
ISSUE OF SERIES 4 PREFERRED STOCK
In November 1998, the Company designated 4,000 shares of its preferred stock
as series 4 preferred stock and issued 2,700 of the shares to nine
individuals, including Carl Anderson and the two executive directors, for a
total cash investment of $67,500.
ISSUE OF SERIES 2 PREFERRED STOCK
In March, 1999 the Company entered an agreement with Drexel Aqua Technologies,
Inc., a Delaware corporation, under which Drexel is to purchase 36,000,000
shares of the Company's Series 2 Preferred Stock for $500,000. The
consideration is to be paid at the rate of $50,000 or more each month and the
stock is to be issued on a pro-rata basis. On payment of the first $50,000
Drexel were entitled to appoint two directors to the board of the Company and
on payment of the second $50,000 Drexel were entitled to appoint a third
director. On full payment of the consideration Drexel are entitled to appoint
a total of four directors. The proceeds of the sale are to be used
specifically for current payroll, taxes, rent, administrative expenditures,
legal fees and the costs of shareholder meetings. At the same time the Company
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and Drexel signed an agreement subject to due diligence, for the Company to
acquire the entire share capital of Drexel's wholly owned subsidiary, Sindia
Expedition, Inc.("SEI") for shares of Common Stock in the Company. The number
of shares to be issued for the acquisition of SEI will depend on the valuation
of that corporation. SEI is the sole owner of all the rights to a shipwreck in
Ocean City, New Jersey known as the Sindia.
EXTENSION OF LOAN FOLLOWING REQUEST FOR CONVERSION
During 1997 Carl Anderson, a principal shareholder of the Company, advanced
the Company $278,200. In September 1997 Mr. Anderson applied to the Company to
exercise his AH1 warrants and requested that the advances be converted into
2,140,000 shares of the Company's common stock. The Company had insufficient
unissued authorized stock and were unable to comply with the request.
In May 1999 the Company entered into an Agreement with Mr. Anderson under
which the $278,000 was incorporated into a convertible note with interest
accruing on an annual basis at 18% from September 1997. The note provided that
the loan and accrued interest would be repaid in cash or, at Anderson's
option, in the Company's common stock at the conversion rate of $0.035 per
share on December 31, 1999 (the "First Due Date"). The Agreement also provided
that in the event that the Company does not repay the loan on that date, the
Note will be extended on the same terms for one year to December 31, 2000, at
which time the principal and accrued interest must be repaid in cash or, at
the at Anderson's option, in the Company's common stock at the conversion rate
of $0.025 per share. As an incentive to enter this agreement the Company
extended the expiration date of Mr. Anderson's T1 and AH2 warrants to December
31, 2000, and reduced the exercise price to $0.05 per share.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
This Report contains forward-looking statements that involve a number of risks
and uncertainties. While these statements represent the Company's current
judgement in the future direction of the business, such risks and
uncertainties could cause actual results to differ materially from any future
performance suggested herein. The Company undertakes no obligation to publicly
release the results of any revisions to these forward-looking statements that
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Certain factors that could
cause results to differ materially from those projected in the forward-looking
statements are set forth in "Risk Factors," and "Business" in the Company's
annual report on Form 10KSB for the year ended December 31, 1997.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
The net profit for the first quarter of 1998 was $351,294 compared to a loss
of $177,568 in the corresponding quarter of 1997.
Total revenues in the 1998 quarter were $507,606, an increase of $491,908 over
the 1997 quarter due to a $439,356 gain on sale of artifacts and revenues of
$58,356 from the supply of survey services. In the three months to March 31,
1997 the Company received no revenue from either of these sources. As a result
of the higher activity, total expenditure in the first quarter, at $361,965,
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was more than twice the $171,315 expended in the first three months of 1997
and an operating profit of $145,641 was earned in the 1998 period compared to
a loss of $155,617 in the 1997 period.
The vessel RV Seahawk was fully operational and working in the Caribbean in
the first quarter of 1998 whereas she was laid up without work for the
equivalent period of 1997. Consequently the cost of vessel operations,
including $133,616 for subcontracted crew and equipment costs in the three
months ended March 31, 1998 were $151,825 higher at $162,975 than the $11,150
incurred during the 1997 quarter. As well as the subcontracted crew and
equipment costs, the 1988 vessel operations absorbed $6,952 in consumables,
$55,592 for repairs and renewals and $3,149 for fuel while there were no such
costs in the quarter to March 31, 1997.
There was no expenditure on conservation of artifacts in 1998 since all the
effort of the archaeology department was expended on administrative matters.
In the first quarter of 1997 conservation costs were $12,546.
Depreciation charges for the quarter ended March 31, 1998 at $35,783 were of
the same order as the $34,619 charged for the 1997 quarter because largely the
same equipment was being depreciated.
Rent for the Company's premises cost $17,588 in the 1998 quarter, $7,437 less
than the rent costs in the 1997 quarter because the latter included late
payment penalties.
General and administrative costs totalled $143,695 in the first quarter of
1998. In the equivalent quarter of 1997 they totalled $87,975. The $55,720
increase was a result of a general increase in activity and a new availability
of funds to complete certain projects that could not be addressed in 1997.
Thus all categories of administrative expenditure were up in the 1998 quarter
and certain expenditure, such as Audit fees of $18,000 and payroll of $20,206,
were incurred in 1998 but were absent in the 1997 quarter.
In the first quarter of 1998, interest expense was $67,287 compared to $28,135
in the first quarter of 1997. $26,477 of the $39,152 increase was a one time
charge for interest on past due salaries. The balance of the increase was due
largely to the effect of default interest on overdue notes. Assets with a net
book value of $12,751 were retired during the three months ended March 31,
1998, causing a loss on disposal of assets of that amount.
During the first quarter of 1998 the Company's affiliate paid off its note and
and account payable to the Company releasing a provision for non payment of
$742,301 which accounted for most of the $747,275 gain on investment in
affiliates for that quarter. In the equivalent quarter of 1997, the loss on
investment in the affiliates was $10,369.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1998, the Company's working capital
deficit decreased by $1,048,417 to a negative $(999,343). At December 31,
1997 the Company had a working capital deficit of $(2,047,760).
The deficit decreased because of a net operating profit before depreciation
during the period of $387,077, the sale the Company's artifacts and the
recovery of the account receivable from Seahawk I, Ltd.
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Despite these profitable liquidations, 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 operational 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.
Sales to affiliated project entities such as Limited Partnerships, depends on
those partnerships being properly funded. The existing Limited Partnerships,
Seahawk II, Ltd., and Eagle Partners, Ltd., are out of cash.
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 Eagle Partners Limited had entered into a limited partnership
agreement with Sea Miners, Inc. a Baltimore, MD company, to resume the search
for this shipwreck. The name of the new limited partnership is Eagle Miners
Limited. The joint venture incorporates research by both parties concerning
the Golden Eagle and a pooling of resources to continue the search operations.
Under the agreement, the Company will continue to be the offshore contractor
to Eagle Miners Limited for all marine operations. The Company earned no
revenues during 1997 and 1998 from this Joint Venture but expects to earn
revenue during 1999 if Eagle Miners Limited can raise sufficient funding.
The Company is currently seeking to assist Eagle Miners limited 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.
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During 1997 the Company generated over $114,000 selling its services to
shipwreck related customers. In the first quarter of 1998' $58,250 was
generated by that means.
On March 19, 1998, Treasure & Exhibits International, Inc. entered an
agreement with the Company and Seahawk I, Ltd. to purchase all of Seahawk I,
Ltd.'s artifacts, their related documentation and all of the Company's
artifacts. The consideration was $822,056 in cash and 9,500,000 newly issued
shares of TEI's common stock, which were valued at the time of the agreement
at $0.17 per share or $1,615,000. Immediately thereafter, Seahawk I, Ltd.
repaid all its debt to the Company in cash and TEI stock, repaid other loans
to two of the limited partners and made a pro rata distribution to the limited
partners of the remaining TEI stock based on the limited partners' total
investment in Seahawk I, Ltd.
On July 20,1998, the Company agreed to sell its remaining holding of 5,302,084
shares in TEI to First Consolidated Financial Corp., a Florida corporation,
for a total consideration of $450,677 ($0.085 per share). The agreement
provided for the cash to be paid in five installments, $180,270 on the date of
the agreement and at least $50,000 during each of September, October and
November 1998 with the balance in by December 31, 1998. In the event, after
paying the first installment, no further payment was made until November 10,
1998, when the Company accepted a discount of $10,407 in return for the whole
of the balance being paid on that date.
Apart from seeking to raise revenue from assets the Company has also sought to
raise cash from issues of stock and conserve cash by the conversion of debt
into equity.
During 1997 the Company issued 270,185 shares of its common stock for $36,000
in cash and 333,333 shares in payment of an overdue Note for $50,000. In the
same year the Company received $319,000 in loans from various individuals
$46,000 of which was later converted into 256,000 shares of common stock. In
February 1998, the Company issued 550,000 shares of Series 3 preferred stock
in payment of a $55,000 debt to a supplier. In October 1998, the Company
issued 2,460 shares of its Series 4 preferred stock to 9 investors for a total
of $61,500.
In March, 1999 the Company entered an agreement with Drexel Aqua Technologies,
Inc., a Delaware corporation, under which Drexel is to purchase 36,000,000
shares of the Company's Series 2 Preferred Stock for $500,000. The
consideration is to be paid at the rate of $50,000 or more each month and the
stock is to be issued on a pro-rata basis. On payment of the first $50,000
Drexel were entitled to appoint two directors to the board of the Company and
on payment of the second $50,000 Drexel were entitled to appoint a third
director. On full payment of the consideration Drexel are entitled to appoint
a total of four directors.
The proceeds of the sale are to be used specifically for current payroll,
taxes, rent, administrative expenditures, legal fees and the costs of
shareholder meetings. At the same time the Company and Drexel signed an
agreement subject to due diligence, for the Company to acquire the entire
share capital of Drexel's wholly owned subsidiary, Sindia Expedition,
Inc.("SEI") for shares of Common Stock in the Company. The number of shares to
be issued for the acquisition of SEI will depend on the valuation of that
corporation. SEI is the sole owner of all the rights to a shipwreck in Ocean
City, New Jersey known as the Sindia.
15
<PAGE>
<PAGE>
The receipts from the Drexel private placement will enable the Company to pay
its day to day expenses while the installments are received. In order for the
Company to remain in business beyond that 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.
YEAR 2000 COMPLIANCE
The Company has reviewed the effect that the year 2000 will have on its
essential computer systems, especially those related to its ongoing operations
and its internal control systems, including the preparation of financial
information.
The Company's computer systems are used primarily for basic accounting, word
processing, spreadsheet applications and access to the inter-net and world-
wide web.
The Company employs four PC computers with year 2000 compliant hardware. The
Company does not depend on any specialized computer hardware that may become
non-functional due to year 2000 problems.
The Company utilizes commonly used software packages, the vendors of which
have all addressed the issue of year 2000 compliance, and the Company does not
foresee any year 2000 related software problems that will not be averted by
the cost free installation of simple updates.
The Company believes that there will be no significant adverse effect on its
operations or accounting records related to the year 2000.
16
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities.
During the three months ended March 31, 1998, the Company designated and
issued 550,000 of its preferred stock as series 3 Preferred Stock. The Series
3 Preferred Stock was issued pursuant to the exemption provided by Rule 506 to
a corporate investor that had been supplied with information regarding the
investment, and that the Company believes had knowledge and experience in
financial and business matters such that the investor was capable of
evaluating the merits and risks of the investment. The certificate
representing the Series 3 Preferred Stock bear an appropriate legend
restricting the transfer of such securities.
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
17
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
(REGISTRANT) SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
By (SIGNATURE) /s/ John T. Lawrence
(NAME AND DTITLE) John T. Lawrence, President
(DATE) April 2, 1998
18
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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
balance sheets and statements of operations found on page 3 and 5 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 34,320
<SECURITIES> 603,696
<RECEIVABLES> 217,884
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 875,783
<PP&E> 625,171
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,515,479
<CURRENT-LIABILITIES> 1,875,126
<BONDS> 0
<COMMON> 13,509,627
0
105,000
<OTHER-SE> (13,974,274)
<TOTAL-LIABILITY-AND-EQUITY> 1,515,479
<SALES> 0
<TOTAL-REVENUES> 507,606
<CGS> 0
<TOTAL-COSTS> 218,269
<OTHER-EXPENSES> 143,696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (67,287)
<INCOME-PRETAX> 351,294
<INCOME-TAX> 0
<INCOME-CONTINUING> 351,294
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (351,294)
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
