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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, 1999
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
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(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
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(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 July 20, 2000, the Registrant had 28,477,614 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, 1999
and December 31, 1998............................ 3 - 4
Consolidated Statements of Operations - Three
Months Ended March 31, 1999 and 1998 ............ 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1999 and
1998 ............................................ 6 - 7
Notes to Consolidated Financial Statements....... 8 - 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 14 - 17
Part II: Other Information................................ 18
Item 1. Legal Proceedings....................... 18
Item 2. Change in Securities.................... 18
Item 3. Defaults Upon Senior Securities......... 18
Item 4. Submission of Matters to a Vote
of Security Holders..................... 18
Item 5. Other Information....................... 18
Item 6. Exhibits and Reports on Form 8-K........ 18
Signatures... .............................................. 19
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS (Unaudited)
March 31 December 31
1999 1998
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 33,217 $ 16,510
Marketable securities -
Accounts receivable Other 11,605 6,200
Prepaid expenses 22,947 11,115
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Total current assets 67,769 33,825
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PROPERTY AND EQUIPMENT
Net of accumulated depreciation
of $917,263 and $880,744 299,447 526,523
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OTHER ASSETS
Accounts and notes receivable
affiliates less losses in excess
of investment in affiliates
of $44,275 and $41,775 - -
Deposits 19,075 14,025
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Total other assets 19,075 14,025
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TOTAL ASSETS $ 386,291 $ 574,373
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
March 31 December 31
1999 1998
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CURRENT LIABILITIES
Overdraft $ - $ -
Accounts payable 222,542 264,664
Accrued expenses
Salaries 48,130 45,284
Interest due related parties 233,010 198,415
Interest due to others 32,095 29,131
Other 28,204 23,905
Provision for lawsuit 700,000 700,000
Due to related parties 308,800 293,800
Accrued officers' salaries 640,900 574,900
Notes payable - others 327,930 176,747
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Total Current Liabilities 2,541,611 2,306,845
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STOCKHOLDERS' EQUITY
Preferred stock - no par value
60,000,000 shares authorized;
4,152,700 and 552,460 shares
issued and outstanding 172,500 116,500
Common stock - no par value;
30,000,000 shares authorized;
28,181,991 and 28,181,991 shares
issued and outstanding 13,595,627 13,595,628
Paid in capital-stock options 5,191 5,191
Accumulated (deficit) (15,928,638) (15,449,791)
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Total Stockholders' Equity ( 2,155,320) ( 1,727,472)
------------ ------------
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY $ 386,291 $ 574,373
============ ============
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
1999 1998
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REVENUES
Income from affiliates $ 2,500 $ 10,000
Income from others 5,405 58,250
Gain on sale of artifacts - 439,356
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Total Revenues 7,905 507,606
OPERATING EXPENSES
Vessel operations 37,056 162,975
South American project - 1,923
Conservation - -
Depreciation 36,519 35,783
Rent 10,562 17,588
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Total Operating Expenses 84,137 218,269
GENERAL AND ADMINISTRATIVE EXPENSES 153,421 143,696
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Total Expenses 237,558 361,965
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PROFIT(LOSS) FROM OPERATIONS (229,653) 145,641
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OTHER INCOME (EXPENSE)
Interest income - affiliate 7 14,841
Interest income - others - -
Interest expense (65,351) (67,287)
Other income - -
Provision for Loss on sale of
marketable securities - (476,425)
Provision for Loss on sale of vessel (193,350)
(Loss)Gain on disposal of equipment 12,000 (12,751)
Gain (Loss) on investment in less
than 50% owned entities (2,500) 747,275
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Total Other Income (Expense) (249,194) 205,653
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NET PROFIT(LOSS) $ (478,847) $ 351,294
============ ============
NET PROFIT(LOSS) PER SHARE $ (0.02) $ 0.01
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Weighted average number of common
shares and common shares equivalents
outstanding. 28,181,991 27,693,991
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
Source (use) of Cash
Three Months Ended March 31,
1999 1998
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Cash Flows from Operating Activities
Net Profit( Loss) $ (478,847) $ 351,294
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 36,519 35,783
(Decrease) in provision for bad debts - (16,539)
Provision for loss on impairment
of vessel 193,350 -
(Gain)Loss on disposal of equipment (12,000) 12,750
(Gain)Loss on Investment in less than
50% owned entities 2,500 (742,301)
Services acquired through issuance
of stock - 55,000
Decrease(increase) in:
trade accounts receivable (7,780) -
trade accounts receivable-affiliates - -
other receivables 2,375 (214,922)
other receivables-affiliates (2,500) 626,240
inventory - 303,073
prepaid expense (11,832) (14,586)
deposits (5,050) 250
(Decrease) increase in:
accounts payable (35,081) (9,334)
accrued expenses 47,035 154,378
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Total Adjustments 207,536 189,791
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Net cash generated (used)
by operating activities $ (271,311) $ 541,086
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Cash Flows from Investing Activities
Purchase of equipment $ (9,831) $ ( 990)
Increase in other investments - (603,696)
Proceeds from disposal of equipment 12,000 -
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 $ 2,169 $ (180,830)
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Source (use) of Cash
Three Months Ended March 31,
1999 1998
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Cash Flows from Financing Activities
Proceeds from issuance of common stock - -
Proceeds from issuance of preferred stock 56,000 -
Advances from related parties 81,001 1,000
Issuance of notes payable - other 162,500 98,961
Issuance of notes payable - related - -
Repayment of notes - other (13,652) -
Repayment of notes - related - (425,026)
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Net cash provided (used) by
financing activities 285,849 (325,065)
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NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENT 16,707 35,191
CASH AND CASH EQUIVALENT
BEGINNING OF QUARTER 16,510 (871)
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CASH AND CASH EQUIVALENT
END OF QUARTER $ 33,217 $ 34,320
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SUPPLEMENTAL DISCLOSURES:
Interest paid $ 2,335 $ 115,144
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Taxes paid $ - $ -
=========== ===========
Summary of significant non cash transactions
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, 1999 (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 31,1998.
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, 1999, results of
operations, and cash flows for the interim periods presented. Operating
results for the three months ended March 31, 1999, are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999.
NOTE 2 GOING CONCERN CONSIDERATION
The Company earned a net loss of $478,847 for the first quarter of 1999 and
has incurred substantial net losses for each of the past several years
resulting in an accumulated deficit of $15,928,638 at March 31, 1999. At that
date the Company had negative working capital as indicated by current
liabilities exceeding current assets by $2,473,842. 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 Seahawk
II, Ltd. and Eagle Partners, Ltd., both 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, 1999
Seahawk II,Ltd.
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Current Assets
Cash $ 52
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Total Current Assets 52
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Current Liabilities
Accounts payable - general partner 44,275
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Total Current Liabilities 44,275
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Partners' Capital
Capital contributed 1,371,251
Accumulated loss (1,415,474)
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Net Capital (44,223)
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Total Liabilities and Capital 52
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STATEMENTS OF OPERATION - AFFILIATES
Revenues $ 0
Expenses
Administrative expenses 2,500
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Total Expenses 2,500
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Other Income (Expenses) 0
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Net (Loss) $ (2,500)
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In accordance with the December 31, 1998 Eagle Partners Ltd. plan of
liquidation, the financial statements for that partnership, as of December 31,
1998, were stated on a liquidation basis with an estimated liquidation value
of zero. Accordingly, the Company wrote off its investment and related
receivable accounts from Eagle Partners, Ltd. at December 31, 1998, which
resulted in a net loss of $zero because the investment and related receivable
accounts had already been provided for.
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NOTE 4 INCOME TAXES
The Company provides for deferred income taxes resulting from the timing
differences in reporting income and expenses for financial statement purposes
compared to the method of reporting for income tax purposes. No deferred
income taxes are reflected in the accompanying financial statements due to the
Company's losses from operations.
NOTE 5 STOCK TRANSACTIONS WITH RELATED PARTIES
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
In March, 1999 the Company entered an agreement with Drexel Aqua Technologies,
Inc., a Delaware corporation, under which Drexel was to purchase 36,000,000
shares of the Company's Series 2 Preferred Stock for $500,000. The
consideration was to be paid at the rate of $50,000 or more each month and the
stock was 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 were entitled to appoint
a total of four directors.
The proceeds of the sale were 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 was to 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.
The receipts from the Drexel private placement enabled the Company to pay its
day to day expenses while the installments were received. However, after the
first three installments the payments were always later and less than provided
for by the contract. As of May 15, 2000 the Company had received only $257,374
of the $500,000 due under the Drexel arrangement and the agreement was
canceled.
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NOTE 7 SUBSEQUENT EVENTS
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. In June 2000, Mr.
Anderson agreed to convert the Loan and accrued interest, together with
$10,000 owed to him for leasing a car to the company into 414,000 shares of
the Company's Series 5 Preferred Stock.
ISSUE OF SERIES 3 PREFERRED STOCK
In August 1999, the Company issued 1,000,000 shares of its Series 3 Preferred
Stock to Deep Sea Discoveries, Inc. in payment for a purchase of an ROV and
other related equipment valued at $100,000.
MORTGAGE ON THE R/V SEAHAWK
In February 1999, the Company organized a wholly owned subsidiary, RV Seahawk,
Inc., a Florida corporation, and transferred the vessel R/V Seahawk into the
new subsidiary. At the same time RV Seahawk, Inc. borrowed $154,000 from First
Capital Services Inc. The loan was for six months, was secured by a first
preferred ships mortgage on the R/V Seahawk and carried an interest rate of
15.88%. RV Seahawk, Inc. paid the 6 months interest of $12,230 in advance
together with a commitment fee of $12,500 and as an incentive to agree to the
loan Mr. John Lawrence gave 100,000 of his free trading shares of the
Company's common stock to First Capital. The Company guaranteed the loan. The
Note provided for the loan to be renewed on payment of 6 months interest in
advance, a further commitment fee of $1,500 and a further transfer to First
Capital of 100,000 free trading common shares in the Company. In the event,
the loan was not repaid or renewed, and on December 2, 1999, First Capital
submitted a demand to the Company and RV Seahawk, Inc. for $164,476. Following
the sale of the vessel by auction in January 2000 approximately $157,000 of
the proceeds was applied to the outstanding principal and accrued interest.
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ARREST AND SALE OF THE R/V SEAHAWK
On December 1, 1999, certain crew members of the R/V Seahawk filed for the
arrest of the vessel with the Supreme Court of Gibraltar against debts for
past due wages in the sum of $37,378. In January 2000, the Court sold the
vessel for $207,000 at public auction to First Capital Services, Inc. From the
proceeds of the sale, the Court paid the crew members and the balance of the
net proceeds of was applied to the principal and accrued interest due First
Capital under its first preferred ships mortgage. As a result of the sale the
Company suffered a loss on disposal of equipment of $193,350.
SETTLEMENT OF 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. In addition the former directors and officers claim that they are
due consequential damages for lost wages of approximately $425,000. 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 was of the opinion that the agreement with the Securities and
Exchange Commission took 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.
On June 23, 1999, the federal court denied the Company's Motion for
Preliminary and Permanent Injunction. The Company filed a Motion for
Reconsideration in the federal court but that was also denied.
On July 19, 1999, the state court dismissed the complaint against the Company,
without prejudice, for failure to state cause of action. On July 20, 1999, an
amended complaint was served. On November 9, 1999 the plaintiffs filed for
partial summary judgment and on the Company filed for summary judgment. On
March 3, 2000, the court granted final summary judgment in respect of Mr.
Bagley's claim in the sum of $179,429 with interest at the statutory rate,
reserving jurisdiction to determine entitlement to pre-judgment interest and
attorneys' fees. On May 11, 2000, the Company's Motion for Summary Judgment
was denied. On May 31, 2000, the Company agreed a combined settlement of the
lawsuit with all three plaintiffs. Bagley's claim was settled by (i) the
assignment of an account receivable from Odyssey Marine Exploration, Inc. in
the sum of $37,000, (ii) the Company's complete dossier, including all survey
information for the Golden Eagle project, and (iii)a 3 year Note for $143,000
with interest at 10% per annum payable quarterly, secured on 97.15% of the
Company's Shares in Pesqamar, repayable as to principal at $13,000 on August
1, 2000,and 25,000 on the first and second anniversaries of the Note with the
balance on the third anniversary.
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Morris' claim was settled by a 2 year Note for $275,000 at 10% per annum
interest convertible into the Company's Series 5 Preferred Stock at 1 share
for $1.00 of debt. Stemm's claim was settled by a 2 year Note for $225,000 at
10% per annum interest convertible into the Company's Series 5 Preferred Stock
at 1 share for $1.00 of debt. Both Morris's and Stemm's notes were secured by
a secondary position on the 97.15% of the Company's Pesqamar shares. A
provision of $700,000 was made in the financial statements for the year ended
December 31, 1998, for the combined settlement.
ACQUISITION OF CONSOLIDATED HOLDINGS INVESTMENT & PHILANTHROPIC GROUP, INC.
On May 26, 2000, the Company signed an agreement with Consolidated Holdings
Investment & Philanthropic Group, Inc.,(CHIP)a privately held Pennsylvania
corporation, which has options to acquire investments in companies involved in
engineering, manufacturing and real estate, to acquire the entire share
capital of CHIP for newly issued shares of the Company's no par common stock.
The Agreement is subject to due diligence being performed by and appropriate
warranties being given by both parties and subject to approval at a Special
Meeting of the Company's stockholders. Immediately prior to the acquisition,
the Company plans to effect a one for one hundred reverse split of its common
stock and issue CHIP's shareholders with approximately 8 million shares of
Common stock in exchange for CHIP's share capital. Immediately after the
acquisition, CHIP's shareholders will own approximately 75 % of the Company's
issued common shares.
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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, 1998.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998
The net loss for the first quarter of 1999 was $478,847 compared to a loss of
$351,294 in the corresponding quarter of 1998.
Total revenues in the 1999 quarter were $7,905, a decrease of $499,701 from
the 1998 quarter, which included 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, 1999 the Company received no revenue from either of these sources.
As a result of the lower activity, total expenditure in the first quarter of
1999, at $237,559, was $124,406 less than the $361,965 expended in the first
three months of 1998 and an operating loss of $229,654 was suffered in the
1999 period compared to an operating profit of $145,641 in the 1998 period.
During the first quarter of 1999, the RV Seahawk was between assignments and
docked in Gibraltar, whereas she was fully operational and working in the
Caribbean in the first quarter of 1998. Consequently the cost of vessel
operations in the three months ended March 31, 1999 were $125,919 less at
$37,056 than the $162,975 incurred during the 1998 quarter. The main reduction
was seen in the subcontracted crew and equipment costs, which were $25,368 in
the quarter to March 31, 1999 compared to $133,617 in the equivalent 1998
quarter.
Depreciation charges for the quarter ended March 31, 1999 at $36,519 were of
the same order as the $35,783 charged for the 1998 quarter because largely the
same equipment was being depreciated.
Rent for the Company's premises cost $10,562 in the 1999 quarter, $7,025 less
than the rent costs in the 1998 quarter because of a credit negotiated on the
previous years rent.
General and administrative costs totalled $153,421 in the first quarter of
1999. In the equivalent quarter of 1998 they totalled $143,695. Most
categories of expenditure were lower in the 1999 quarter as a result of
economies but these were offset by an increase in legal fees of $22,278
incurred largely in defending the lawsuit brought against the Company by
former directors.
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<PAGE>
In the first quarter of 1999, interest expense was $65,355, similar to the
$67,287 charged in the first quarter of 1998. In the three months to March 31,
1999, a profit on the disposal of some redundant equipment provided a profit
on disposal of $12,000, but this was offset by a provision for devaluation of
the RV Seahawk in the sum of $193,350. The provision was estimated to be the
loss that would be suffered on the forced sale of the vessel that eventually
took place in January 2000. 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 1999, the loss on investment in the Company's
affiliates was $2,500. During the first quarter of 1998 the Company's
affiliate, seahawk I, Ltd. paid off its note and and its 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.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1999, the Company's working capital
deficit increased by $200,822 to a negative $(2,473,842). At December 31,
1998 the Company had a working capital deficit of $(2,273,020).
The deficit increased during the first quarter of 1999 because of a net loss
before depreciation and before the provision for devaluation during the period
of $248,982, which was offset by the sale of preferred stock for $56,000.
As a result, 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.
5. Acquisition of revenue earning businesses for stock.
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. In 2000, the General Partner will again seek to close
down Seahawk II, Ltd., to eliminate the expenses of administration of the
Partnership.
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.
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<PAGE>
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 was Eagle Miners Limited. The joint venture incorporated research
by both parties concerning the Golden Eagle and a pooling of resources to
continue the search operations. Under the agreement, the Company continued to
be the offshore contractor to Eagle Miners Limited for all marine operations.
The Company earned no revenues during 1997,1998 and 1999 from this Joint
Venture and will not earn revenue in the future.
Eagle Partners Limited and Eagle Miners Limited were dissolved on December 31,
1999. In accordance with the December 31, 1998 Eagle Partners Ltd. plan of
liquidation, the financial statements for that partnership, as of December 31,
1998, were stated on a liquidation basis with an estimated liquidation value
of zero. Accordingly, the Company wrote off its investment and related
receivable accounts from Eagle Partners, Ltd. at December 31, 1998 against a
provision for losses in excess of investment and the provision for doubtful
debt, totalling $1,151,376. The net effect was zero.
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
may 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 1998 the Company generated over $313,000 selling its services to
shipwreck related customers. In 1999 $121,209 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.
In March, 1999 the Company entered an agreement with Drexel Aqua Technologies,
Inc., a Delaware corporation, under which Drexel was to purchase 36,000,000
shares of the Company's Series 2 Preferred Stock for $500,000. The
consideration was to be paid at the rate of $50,000 or more each month and the
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stock was 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 were entitled to appoint
a total of four directors. The proceeds of the sale were 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 was to 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.
The receipts from the Drexel private placement enabled the Company to pay its
day to day expenses while the installments were received. However, after the
first three installments the payments were always later and less than provided
for by the contract. As of May 15, 2000 the Company had received only $257,374
of the $500,000 due under the Drexel arrangement and the agreement was
canceled. In order for the Company to remain in business it is necessary for
the Company to generate new sources of revenue or to 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. On June
26, 2000, the Company signed an agreement with Consolidated Holdings
Investment & Philanthropic Group, Inc.,(CHIP)a privately held Pennsylvania
corporation, which has options to invest in companies involved in engineering,
manufacturing and real estate, to acquire the entire share capital of CHIP for
newly issued shares of the Company's no par common stock. The Agreement is
subject to due diligence being performed by and appropriate warranties being
given by both parties and subject to approval at a Special Meeting of the
Company's stockholders. Immediately prior to the acquisition, the Company
plans to effect a one for one hundred reverse split of its common stock and
issue CHIP's shareholders with approximately 8 million shares of Common stock
in exchange for CHIP's share capital. Immediately after the acquisition,
CHIP's shareholders will own approximately 75 % of the Company's issued common
shares. If the acquisition is completed the Company believes that the
reorganized company's operational cash flow will be sufficient to enable
controlled growth by further acquisitions using stock and cash.
YEAR 2000 COMPLIANCE
The Company reviewed the effect that the year 2000 would 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 three PC computers with year 2000 compliant
hardware. The Company does not depend on any specialized computer hardware
that became non-functional due to year 2000 problems. The Company utilizes
commonly used software packages, the vendors of which all addressed the issue
of year 2000 compliance, and the Company did not suffer any year 2000 related
software problems and there was no significant adverse effect on its
operations or accounting records related to the year 2000.
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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, 1999, the Company issued 4,032,000 of
its Series 2 Preferred Stock. The Series 2 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 2 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
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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.
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
Date: July 25, 2000 By:/s/ John T. Lawrence
John T. Lawrence, President
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EXHIBIT INDEX
EXHIBIT DESCRIPTION METHOD OF FILING
27 Financial Data Schedule Filed herewith electronically
