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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 September 30, 1997
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 of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5102 SOUTH WESTSHORE BLVD.
TAMPA, FLORIDA 33611
----------------------------------------------------------
(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 February 24, 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 - September 30, 1997
and December 31, 1996................................. 3-4
Consolidated Statements of Operations - Three
Months Ended September 30, 1997 and 1996, and Nine
Months Ended September 30, 1997 and 1996 ............. 5
Consolidated Statement of Cash Flows
for the Nine Months Ended September 30, 1997 and
1996.................................................. 6-7
Notes to Consolidated Financial Statements............ 8-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 14-18
Part II: Other Information.................................... 19
Item 1. Legal Proceedings........................... 19
Item 2. Change in Securities........................ 19
Item 3. Defaults Upon Senior Securities............. 19
Item 4. Submission of Matters to a Vote
of Security Holders......................... 19
Item 5. Other Information........................... 19
Item 6. Exhibits and Reports on Form 8-K............ 19
Signatures... .................................................. 20
2
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(Unaudited)
September 30 December 31
1997 1996
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 501 $ 536
Accounts receivable Other 9,237 13,851
Merchandise inventory - 3,687
Prepaid expenses 18,008 41,812
----------- -----------
Total current assets 27,746 59,886
----------- -----------
PROPERTY AND EQUIPMENT
Net of accumulated depreciation
of $798,767 and $702,739 635,763 729,291
----------- -----------
OTHER ASSETS
Artifacts 303,073 303,073
Accounts and Notes Receivable
affiliates less losses in excess
of investment in affiliates
of $1,872,366 and $1,841,651 302,753 269,401
Deposits 6,575 11,686
Purchased shipwreck research,
net of $19,930 and $18,055
amortization 694 6,319
----------- -----------
Total other assets 613,095 590,479
------------ -----------
TOTAL ASSETS $ 1,276,604 $ 1,379,656
------------ -----------
3
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
September 30 December 31
1997 1996
------------ ------------
CURRENT LIABILITIES
Accounts payable $ 515,091 $ 535,259
Accrued expenses
Salaries 393,661 205,305
Interest due related parties - -
Interest due to others 210,421 125,869
Other 88,420 132,085
Due to related parties 319,139 126,589
Notes payable - others 584,183 550,683
----------- -----------
Total current liabilities 2,110,915 1,675,790
----------- -----------
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;
26,704,047 and 26,134,366 shares
issued and outstanding 13,358,047 13,281,497
Paid in capital-stock options 5,191 5,191
Accumulated (deficit) (14,247,549) (13,632,822)
----------- -----------
Total Stockholders' equity (834,311) (296,134)
----------- -----------
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY $ 1,276,604 $ 1,379,656
=========== ===========
4
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30th September 30th
1997 1996 1997 1996
========== ========== ========== ==========
REVENUES
Income from Affiliates $ 10,000 $ 2,850 $ 30,000 $ (390)
Income from Others 15,465 (344) 30,257 59,660
---------- ---------- ---------- ----------
Total Revenues 25,465 2,506 60,257 59,270
OPERATING EXPENSES
Vessel Operations 18,524 43,716 57,902 184,780
Vessel Operations- Affiliates - - - 18,177
Conservation 20,464 12,297 44,510 38,057
Depreciation 34,484 37,194 103,653 144,903
Rent 14,916 20,833 60,708 63,668
---------- ---------- ---------- ----------
Total Operating Expenses 88,388 114,038 259,873 449,585
GENERAL AND ADMINISTRATIVE
EXPENSES 129,587 92,798 346,764 365,512
---------- ---------- ---------- ----------
Total Expenses 217,975 206,837 606,637 815,096
(LOSS) FROM OPERATIONS (192,510) (204,331) (546,380) (755,827)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest income affiliate 14,844 8,822 44,088 26,178
Interest income others - - - 5
Interest expense (30,164) (20,885) (84,598) (61,889)
Other income (loss) - - 1,605 (10,000)
Gain on sale of marketable
securities - - - (483)
Loss on disposal of equipment 895 - 1,295 2,750
Gain (Loss) on settlements - 3,491 - 3,491
Loss on investment in less
than 50% owned entities (10,255) (8,021) (30,736) (38,886)
---------- ---------- ---------- ----------
Total other income (expense) (24,680) (16,594) (68,346) (78,835)
---------- ---------- ---------- ----------
NET (LOSS) (181,190) (220,924) (614,726) (834,662)
========== ========== ========== ==========
(LOSS) PER SHARE $ ( 0.01) $ ( 0.01) $ ( 0.02) $ ( 0.03)
========== ========== ========== ==========
Weighted average number of
common shares and common
shares equivalents
outstanding. 26,515,032 25,846,287 26,515,032 25,846,287
========== ========== ========== ==========
5
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Source (use) of Cash
Nine Months Ended September 30,
1997 1996
------------ ------------
Cash Flows from Operating Activities
Net ( Loss) $ (614,727) $ (834,662)
Adjustments to reconcile net loss to net
cash used by operating activities :
Depreciation 103,653 144,904
Provision for bad debt 10,000 3,300
Loss on disposal of equipment (400) (2,750)
Profit on sale of marketable securities - 483
Loss on Investment in less than
50% owned entities 30,726 38,886
Services Acquired through issuance
of common stock 12,500 31,000
Decrease(increase) in trade accounts
receivable - 30,889
Decrease(increase) in trade accounts
receivable - affiliates (29,224) 33,913
Decrease(increase) in other receivables 4,614 600
Decrease(increase) in other receivables
- affiliates - (26,179)
Decrease(increase) in inventory 3,687 1,962
Decrease(increase) in prepaid expense 23,805 75,389
Decrease(increase) in deposits 5,111 (16,498)
(Decrease) increase in accounts payable (20,169) (61,624)
(Decrease)increase in accrued expenses 228,899 19,691
----------- -----------
Total Adjustments 373,202 273,966
----------- -----------
Net Cash generated (used)
by operating activities $ (241,525) $ (560,696)
----------- -----------
Cash Flows from Investing Activities
Purchase of equipment $ (4,500) $ (1,302)
Purchase of artifacts - -
Increase in other investments - -
Issuance of notes receivable
from affiliates - -
Proceeds from disposal of equipment 2,400 1,441,635
Proceeds from the sale of marketable
securities - 8,504
Payments received on notes receivable - -
Decrease in investment in affiliate 10 -
----------- -----------
Net Cash provided (used) by investing
activities $ (2,110) $ 1,448,837
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6
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Cash Flows from Financing Activities
Proceeds from issuance of common stock 11,050 6,500
Proceeds from issuance of warrants - -
Advances from related parties 194,550 -
Issuance of notes payable - other 38,000 -
Issuance of notes payable - related - 25,000
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 243,600 (896,114)
----------- -----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENT (35) (7,973)
CASH AND CASH EQUIVALENT
BEGINNING OF QUARTER 536 8,191
----------- -----------
CASH AND CASH EQUIVALENT
END OF QUARTER $ 501 $ 218
=========== ===========
Summary of significant non cash transactions
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.
In February 1997, the Company issued 130,000 shares of its Common Stock to
each of two directors of Pesqamar, the Company's Brazilian joint venture
company, as payment for past services rendered to Pesquamar.
In February 1997, the Company issued 4,000 shares of its Common Stock to each
of five persons who served in an advisory group to the Company's Board.
On April 1, 1997, the Company converted $36,000 of its account payable to
Solaris International, Inc. into a promissory note for $36,000 payable on
March 31, 1998, with interest at 10% per annum.
7
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES CONSOLIDATED ON FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (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, 1996.
From January 1, 1997, the Company considers the status of Mr. John Morris and
Mr. Greg Stemm and their affiliates as non-related parties. Since they had
previously been treated in the financial statements as related parties, the
comparative figures as at December 31, 1996, have been adjusted from those
shown in the Company's Form 10-KSB for the year ended December 31, 1996. The
items affected are as follows:
Per 10-KSB Restated
Dec 31, 1996 Comparatives
------------ ------------
CURRENT LIABILITIES
Accounts payable $ 535,259 $ 535,259
Accrued expenses
Salaries 205,305 205,305
Interest due related parties 55,383 -
Interest due to others 70,486 125,869
Other 132,085 132,085
Due to related parties 424,143 126,589
Notes payable - others 253,129 550,683
----------- -----------
Total current liabilities 1,675,790 1,675,790
----------- -----------
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, 1997, results of
operations, and cash flows for the interim periods presented. Operating
results for the nine months ended September 30, 1997, are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997.
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 8.
8
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
BALANCE SHEETS - AFFILIATES
Nine Months Ended September 30, 1997
Seahawk I, Seahawk II, Eagle Part-
Ltd. Ltd. ners, Ltd.
------------ ------------ ------------
Current Assets
Cash $ 229 $ 52 $ -
Inventory - other 1,146 - -
----------- ----------- -----------
Total Current Assets 1,375 52 -
----------- ----------- -----------
Other Assets
Artifact inventory 625,275 - -
----------- ----------- -----------
Total Assets 626,650 52 -
----------- ----------- -----------
Current Liabilities
Accounts payable - trade 4,087 2,217 3,525
Accounts payable
- general partner 636,417 25,158 1,047,128
Accrued liabilities 576 - -
Notes payable limited partners 25,977 - -
Notes payable general partner 396,638 - 58,698
Losses in excess of investment
In Eagle Miners, Ltd. 26,138
----------- ----------- -----------
Total Current Liabilities 1,063,695 27,375 1,135,489
------------ ------------ ------------
Partners' Capital
Capital contributed 2,511,041 1,371,251 150,100
Accumulated loss (2,948,086) (1,398,574) (1,285,589)
----------- ----------- -----------
Net Capital (437,046) (27,323) (1,135,489)
----------- ----------- -----------
Total Liabilities
and Capital 626,650 52 0
----------- ----------- -----------
STATEMENTS OF OPERATION - AFFILIATES
Revenues $ 0 $ 0 $ 0
Expenses
Administrative expenses 15,461 7,500 7,500
----------- ----------- -----------
Total Expenses 15,461 7,500 7,500
----------- ----------- -----------
Other Income (Expenses) (42,685) 0 (3,699)
----------- ----------- -----------
Net (Loss) $ (58,146) $ (7,500) $ (11,199)
----------- ----------- -----------
9
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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. 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
John Balch 152,183 $21,305
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 September 30, 1996:
Number Unpaid
Name of Shares Remuneration
---------- ------------
John Lawrence 50,000 $6,125
John Balch 50,000 $6,125
NOTE 5. COMMON STOCK TRANSACTIONS WITH OTHERS
During January 1996, the Company issued 314,784 shares of its Common Stock to
twenty accredited investors. The investors originally invested in a private
offering during July through October 1995, and according to the terms of the
private offering , if the Company did not register the original shares by the
end of 1995, the Company was required to issue additional shares in an amount
equal to 25% of the shares originally purchased.
During January 1996, the Company issued 64,000 shares of common stock to a
company in exchange for accounts payable. The Company issued 200,000 shares
of common stock to three individuals for services rendered to affiliates, and
the Company issued 200,000 shares of common stock to an individual for unpaid
accrued compensation.
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.
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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.
NOTE 6. CONTINGENCIES
In December, 1998, the Company received a claim 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.
It is the Company's position that an agreement with the Securities and
Exchange Commission entered into by the Company in 1994, under which the
Company contracts not to reimburse the former directors and officers for the
expenses they are claiming in the suite, takes priority over state law and the
Company will vigorously resist the claim.
NOTE 7. SUBSEQUENT EVENTS
LEASE AND SALE OF ARTIFACTS
In October 1997, the Company signed an agreement with Michael's International
Treasure Jewelry, Inc., Key West Florida, to exhibit certain artifacts for a
minimum period of 12 months, at a rental of $57,500 per quarter in advance.
The artifacts included the entire inventory of Seahawk I, Ltd. The agreement
also provided for Michael's to have an option to purchase the artifacts for
$2,500,000 ($750,000 cash and $1,750,000 in common stock of Vanderbilt Square,
Inc., a publicly quoted affiliate of Michael's) at any time during the term of
the lease. Any revenue from the agreement was to be divided between the
Company and Seahawk I, Ltd. in the ratio of the respective book values of the
assets involved. On February 10, 1998, Vanderbilt changed its name to Treasure
and Exhibits International, Inc.("TEI"). Prior to the agreement, the Company
signed an agreement with Odyssey Marine Exploration, Inc. to pay Odyssey 10%
of any proceeds from the lease or subsequent sale pursuant to their
introduction of Michaels and Vanderbilt.
On March 19, 1998, TEI 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.
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 tranches, $180,270 on the date of the
agreement and at least $50,000 during each of September, October and November
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1998 with the balance in by December 31, 1998. In the event, after paying the
first tranche, 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.
The transactions with TEI can be summarized as follows:
i) In total.
Cash Shares Shares Total
$ # $ $
------- --------- --------- ---------
Artifacts sold for 822,056 9,500,000 1,615,000 2,437,056
Less commission 76,750 1,008,827 166,500 243,250
Net Sale proceeds 745,306 8,491,173 1,448,500 2,193,806
Less provision for
costs and subse-
quent loss on
sale of stock 5,000 250,392 255,392
Net proceeds after
provision 740,306 8,491,173 1,198,108 1,938,413
Book value of arti-
facts sold 928,348
Profit on sale of
Artifacts 1,010,066
ii) In the books of the Company.
Cash Shares Shares Total
$ # $ $
------- --------- --------- ---------
Artifacts sold for 280,074 3,236,650 550,230 830,304
Less commission 26,149 343,708 56,727 82,875
Net Sale proceeds 253,926 2,892,942 493,503 747,429
Less provision for
costs and subse-
quent loss on sale
of stock 5,000 250,392 255,392
Net proceeds after
provision 248,926 2,892,942 243,111 492,037
Book value of arti-
facts sold 303,073
Profit on sale of
Artifacts 188,964
iii) In the books of Seahawk I, Ltd.
Cash Shares Shares Total
$ # $ $
------- --------- --------- ---------
Artifacts sold for 541,982 6,263,350 1,064,771 1,606,752
Less commission 50,601 665,119 109,773 160,375
Net Sale proceeds 491,380 5,598,231 954,997 1,446,377
Book value of artifacts
sold 625,275
Profit on sale of
Artifacts 821,102
12
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ISSUANCE OF SERIES 3 PREFERRED STOCK
In February 1998, the Company issued 550,000 shares of Series 3 preferred
stock to a non affiliated company as part payment for subcontracted services
valued at $55,000.
SETTLEMENT OF REMARC DEBT
In May 1998, the Company, under the Pesqamar joint venture agreement with
Remarc International, Inc. dated August 17,1995, had accrued a debt due to
Remarc for running expenses of Pesqamar in the sum of $153,018. In payment of
that amount, the Company transferred to Remarc 1 million restricted shares of
common stock in Vanderbilt Square Corporation, and, in lieu of the agreement
from Remarc that all future Pesqamar expenses would be borne fully by Remarc,
the Company transferred 2.5% of its holding in Pesqamar to Remarc.
13
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996.
The net loss for the three months to September 30, 1997 was $181,190 compared
to a loss of $220,924 in the corresponding quarter of 1996.
Total revenues in the 1997 quarter at $25,465 were up $22,950 from the 1996
quarter. Total expenses of $217,975 were incurred in the third quarter of
1997, compared to $206,837 in the equivalent period in 1996. While operating
expenses decreased to $88,388 in the third quarter of 1997 from $114,038 in
the equivalent quarter in 1996, there was an increase in general and
administrative expense to $129,587 during the 1997 quarter from $92,798 in the
1996 quarter. This resulted in the quarter's loss from operations being lower
at $192,510 in 1997 compared to $204,311 in 1996.
The Company's cost of vessel operations lower at $18,524 for the quarter
ending September 30, 1997 from $43,716 for the third quarter in 1996. In both
of these quarters the RV Seahawk was laid up in dock awaiting work, and the
expenditure consisted mainly of dockage, insurance, minimum crew and
maintenance costs.
Conservation and archaeology expenses were $20,464 for the quarter ending
September 30, 1997 as compared to $12,297 for the equivalent period during
1996. This was a result of maintaining a higher level of activity for the
quarter ending September 30, 1997 than that of the equivalent quarter of 1996.
Depreciation was $34,484 for the quarter ending September 30, 1997, similar
to the $37,194 charge for depreciation in the equivalent period in 1996.
Rent at $14,916 was $5,917 less for the quarter ending September 30, 1997
compared to the $20,833 charge the equivalent quarter during 1996. This was
because a lower rate was negotiated with the lessor pending the completion of
certain renovations.
Administrative costs increased to $129,798 for the quarter ending September
30, 1997 as compared to $92,798 during the same period of 1996. The increase
resulted largely from higher payroll costs accrued for the executive directors
($66,000 in the 1997 quarter compared to $50,000 in the 1996 quarter), and
higher travelling and administrative costs of the project in Brazil.
Interest expense increased to $30,164 for the quarter ending September 30,
1997 compared to $20,885 in the third quarter of 1996. The increase was due to
additional loans.
Interest income was $14,844 for the third quarter of 1997 resulting from a
note receivable from affiliates. There was $8,822 interest income for the
equivalent period during 1996. The increase is due to a higher compounded
balance of notes payable during the 1997 quarter.
14
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The loss on investment in less than 50% owned entities was $10,255 in the 1997
quarter, up $2,234 from the third quarter of 1996. 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 general partner.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
The net loss for the nine months ending September 30, 1997 was $614,726
compared to a loss of $834,662 in the corresponding period of 1996.
Total revenues of $60,257 for the nine months ended September 30, 1997 were
similar to the $59,270 earned in the equivalent period during 1996. Total
expenses of $606,637 were incurred during the nine months ending September 30,
1997, compared to $815.096 in the equivalent period in 1996. Operating
expenses decreased to $259,873 in the nine month period of 1997 from $449,585
during the equivalent period in 1996. There was a decrease in general and
administrative expense to $346,764 during the nine months ending September 30
1997 from $365,512 in the 1996 period. This resulted in the loss from
operations being lower at $546,380 in the nine months ending September 30,
1997 as compared to $755,827 during the nine months ending September 30, 1996.
The Company's cost of vessel operations were down by $145,055 to $57,902 for
the nine months ending September 30, 1997 as compared to the equivalent period
in 1996 when vessel operations were $202,957. This resulted mainly from
decreased marine expenses related to the MV Seahawk Retriever, which was sold
in April 1996. The main constituents of these savings were: Insurance of
$14,477, Payroll of $92,290, travel and communication costs of $9,760 and
repairs and maintenance costs of $24,238.
Conservation and archaeology expenses were similar at $44,510 for the nine
months ending September 30, 1997 to the $38,057 for the equivalent period
during 1996. Depreciation was $103,353 for the nine months ending September
30, 1997, $41,250 lower than the charge for depreciation in the equivalent
period in 1996. 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 lower for the nine month period ending
September 30, 1997 at $60,708 compared to $63,668 during the equivalent period
of 1996, because a lower rate was negotiated with the lessor from July 1997,
pending the completion of certain renovations.
Administrative costs decreased by $18,748 to $346,764 for the nine months
ending September 30, 1997 as compared to $365,512 incurred during the same
period of 1996. There was a decrease in consulting expense of $11,269 during
the nine months ended September 30, 1997 which resulted from a reduced cost of
efforts to pursue a shipwreck project in waters off Brazil. Accrued payroll
costs were up in the first nine months of 1997 at 196,318 compared to 149,318
on the first nine months of 1996, due to an increase in executive
compensation.
Interest expense increased to $84,598 for the nine months ending September 30,
1997 compared to $61,889 in the like period of 1996. The increase was due to
the additional notes payable during the later period. Interest income was
$44,088 for the nine months ending September 30, 1997 compared to $26,178
during the equivalent period during 1996. The increase was due to the interest
earned on the increase in notes receivable from Eagle Partners, Ltd. and
Seahawk I, Ltd.
15
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The loss on investment in less than 50% owned entities was $30,736 in the nine
months to September 30, 1997 compared to $38,886 during the same period in
1996. 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
$58,146 primarily resulting from interest on loans due to the Company, 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 $7,500 and Eagle Partners, Ltd. incurred
administrative and operating costs of $11,199 which resulted in net losses of
those amounts for the nine month period.
LIQUIDITY AND CAPITAL RESOURCES
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. 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 1996 from this Joint Venture but expects to earn revenue
during 1997 if Eagle Miners Limited can raise sufficient funding.
16
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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.
In November 1996, the Company signed an agreement with the Collier County
Museum, Naples Florida, to exhibit certain of the artifacts recovered from the
Seahawk I site. Under the agreement the Company provided the artifacts and
display materials for 6 months in return for a $20,000 fee. The exhibit opened
in February 1997 and attracted record numbers of visitors to the museum.
In October 1997, the Company signed an agreement with Michael's International
Treasure Jewelry, Inc., Key West Florida, to exhibit certain artifacts for a
minimum period of 12 months, at a rental of $57,500 per quarter in advance.
The artifacts included the entire inventory of Seahawk I, Ltd. The agreement
also provided for Michael's to have an option to purchase the artifacts for
$2,500,000 ($750,000 cash and $1,750,000 in common stock of Vanderbilt Square,
Inc., a publicly quoted affiliate of Michael's) at any time during the term of
the lease. Any revenue from the agreement was to be divided between the
Company and Seahawk I, Ltd. in the ratio of the respective book values of the
assets involved. On February 10, 1998, Vanderbilt changed its name to Treasure
and Exhibits International, Inc.("TEI"). Prior to the agreement, the Company
signed an agreement with Odyssey Marine Exploration, Inc. to pay Odyssey 10%
of any proceeds from the lease or subsequent sale pursuant to the introduction
by Odyssey of Michaels and Vanderbilt to the Company.
On March 19, 1998, TEI 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 tranches, $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
tranche, 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
conserve cash by the conversion of debt into equity.
17
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During 1996 the Company issued 363,143 shares of its common stock in payment
of $65,000 of outstanding debt and 536,866 shares were issued against
exercised warrants for $77,112, to settle outstanding debt.
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 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.
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 internet 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.
18
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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
(a) Exhibits. The following exhibit is filed with this report:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K. None.
19
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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) February 25, 1999
20
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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 2, 4 and 5 of the
Company's Form 10-QSB for the nine months to September 30, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 501
<SECURITIES> 0
<RECEIVABLES> 9,237
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,746
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,276,604
<CURRENT-LIABILITIES> 2,110,915
<BONDS> 0
<COMMON> 13,358,047
0
50,000
<OTHER-SE> (14,247,549)
<TOTAL-LIABILITY-AND-EQUITY> 1,276,604
<SALES> 60,257
<TOTAL-REVENUES> 60,257
<CGS> 0
<TOTAL-COSTS> 259,873
<OTHER-EXPENSES> 346,764
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (84,598)
<INCOME-PRETAX> (614,726)
<INCOME-TAX> 0
<INCOME-CONTINUING> (614,726)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (614,726)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
