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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, 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
----------------------------------------------------------
(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 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 - September 30, 1999
and December 31, 1998............................ 3 - 4
Consolidated Statements of Operations - Three
Months Ended September 30, 1999 and 1998, and
Nine Months Ended September 30, 1999 and 1998 ... 5
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1999 and
1998 ............................................ 6 - 7
Notes to Consolidated Financial Statements....... 8 - 11
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
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS (Unaudited)
September 30 December 31
1999 1998
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 3,964 $ 16,510
Accounts receivable Other 58,893 6,200
Prepaid expenses 10,945 11,115
------------ ------------
Total current assets 73,802 33,825
------------ ------------
PROPERTY AND EQUIPMENT
Net of accumulated depreciation
of $900,557 and $880,744 326,562 526,523
------------ ------------
OTHER ASSETS
Accounts and notes receivable -
affiliates less losses in excess
of investment in affiliates
of $46,075 and $41,775 - -
Deposits 6,575 14,025
------------ ------------
Total other assets 6,575 14,025
------------ ------------
TOTAL ASSETS $ 406,939 $ 574,373
============ ============
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
September 31 December 31
1999 1998
------------ ------------
CURRENT LIABILITIES
Accounts payable $ 271,178 $ 264,664
Accrued expenses
Salaries 21,164 45,284
Interest due related parties 146,832 198,415
Interest due to others 45,797 29,131
Other 41,750 23,905
Provision for lawsuit 700,000 700,000
Due to related parties 1,110,800 293,800
Accrued officers' salaries 110,000 574,900
Notes payable - others 340,680 176,747
------------ ------------
Total current liabilities 2,788,201 2,306,845
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock - no par value
60,000,000 shares authorized;
14,712,416 and 552,460 shares
issued and outstanding 405,274 116,500
Common stock - no par value;
30,000,000 shares authorized;
28,501,991 and 28,181,991 shares
issued and outstanding 13,605,227 13,595,628
Paid in capital-stock options 5,191 5,191
Accumulated (deficit) (16,396,954) (15,449,791)
------------ ------------
Total Stockholders' equity ( 2,381,262) ( 1,727,472)
------------ ------------
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY $ 406,939 $ 574,373
============ ============
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Three Months Nine Months
Ended September 30 Ended September 30
1999 1998 1999 1998
--------- --------- --------- ---------
REVENUES
Income from affiliates $ 2,500 $ 5,000 $ 7,500 $ 20,000
Income from others 45,404 119,035 121,209 227,285
Gain from sale of artifacts - - - 439,356
--------- --------- --------- ---------
Total Revenues 47,904 124,035 128,709 686,641
--------- --------- --------- ---------
OPERATING EXPENSES
Vessel Operations 120,093 65,485 194,166 299,210
South American project - - - 22,387
Conservation - - - 3,000
Depreciation 27,221 35,843 90,855 106,040
Rent 15,030 20,195 46,983 55,370
--------- --------- --------- ---------
Total Operating Expenses 162,344 121,523 332,004 486,007
GENERAL AND ADMINISTRATIVE
EXPENSES 118,908 148,653 438,603 402,130
--------- --------- --------- ---------
Total Expenses 281,252 270,176 770,607 888,137
--------- --------- --------- ---------
(LOSS) FROM OPERATIONS (233,348) (146,141) (641,898) (201,497)
--------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest income - 1,260 11 17,348
Interest expense (56,015) (87,711) (187,359) (193,451)
Reduction of accounts payable
provision - - 67,092 -
Loss on sale
of marketable securities - - - (476,425)
Gain (Loss) on disposal
of equipment 8,462 - 12,640 (12,751)
Provision for loss on sale of
vessel - - (193,350) -
Gain (Loss) on investment in
less than 50% owned entities 700 10,278 (4,300) 751,307
--------- --------- --------- ---------
Total Other Income (Expense) (46,853) (76,173) (305,266) 86,028
--------- --------- --------- ---------
NET (LOSS) (280,202) (244,449) (947,164) (115,468)
========= ========= ========= =========
(LOSS) PER SHARE $( 0.01) $( 0.01) $ ( 0.01) $( 0.02)
--------- --------- --------- ---------
Weighted average number of
common shares and common shares
equivalents outstanding. 28209169 27767222 27767222 27767222
--------- --------- --------- ---------
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
Source (use) of Cash
Nine Months Ended September 30
1999 1998
------------ ------------
Cash Flows from Operating Activities
Net Profit( Loss) $ (947,164) $ (115,468)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 90,854 106,040
(Decrease in) provision for bad debt - (21,539)
(Gain)Loss on disposal of equipment (12,640) 12,750
Provision for impairment in value
Of vessel 193,350 -
Loss on sale of marketable securities - 476,425
(Gain)Loss on Investment in less than
50% owned entities 4,300 (751,333)
Services acquired through issuance
of stock 9,600 55,000
Decrease(increase) in:
trade accounts receivable (58,893) -
other receivables 6,200 (326,270)
other receivables - affiliates (4,300) 1,064,128
inventory - 303,073
prepaid expense 170 (71,065)
deposits 7,450 750
(Decrease) increase in:
accounts payable 6,514 (138,171)
accrued expenses 317,873 284,350
------------ ------------
Total Adjustments 560,478 994,138
------------ ------------
Net Cash generated (used)
by operating activities $ (386,686) $ 878,669
------------ ------------
Cash Flows from Investing Activities
Purchase of equipment $ (11,645) $ (4,340)
Increase in other investments - (927,092)
Proceeds from disposal of equipment 33,004 -
Payments received on notes receivable - 450,677
------------ ------------
Net Cash provided (used) by investing
activities $ 21,359 $ (480,755)
------------ ------------
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Cash Flows from Financing Activities
Proceeds from issuance of stock 188,774 -
Advances from related parties 17,000 75,500
Issuance of notes payable - other 182,000 87,868
Issuance of notes payable - related - -
Repayment of notes (34,993) (538,015)
Repayment of notes - related - -
------------ ------------
Net Cash provided (used) by
financing activities 352,781 (374,647)
------------ ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENT (12,546) 23,267
CASH AND CASH EQUIVALENT
BEGINNING OF QUARTER 16,510 (871)
------------ ------------
CASH AND CASH EQUIVALENT
END OF QUARTER $ 3,964 $ 23,396
============ ============
Summary of significant non cash transactions
In August 1998, the Company converted 200,000 shares of its series 1 preferred
stock into 200,000 shares of common stock and converted a note payable of
$36,000 into 288,000 shares of its common stock.
In April 1999, accrued salaries of $641,785 and interest thereon of $177,715
was converted into notes totalling $819,500.
In August 1999, the Company issued 1,000,000 shares of its Series 3 Preferred
Stock to a corporation in payment for equipment valued at $100,000.
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SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES CONSOLIDATED ON FINANCIAL STATEMENTS
SEPTEMBER 30 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, 1999.
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, 1999, results of
operations, and cash flows for the interim periods presented. Operating
results for the nine months ended September 30, 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 suffered a net loss of $947,164 for the first nine months of 1999
and has incurred substantial net losses for each of the past several years
resulting in an accumulated deficit of $16,396,954 at September 30, 1999. At
that date the Company had negative working capital as indicated by current
liabilities exceeding current assets by $2,714,399. 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 II, Ltd., a Florida limited partnership. The partnership is 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
SEAHAWK II, LTD.
BALANCE SHEET AT SEPTEMBER 30, 1999
Current Assets
Cash $ 52
------------
Total Current Assets 52
------------
Current Liabilities
Accounts payable - general partner 46,075
------------
Total Current Liabilities 46,075
------------
Partners' Capital
Capital contributed 1,371,251
Accumulated loss (1,417,274)
------------
Net Capital (46,023)
------------
Total Liabilities and Capital $ 52
------------
STATEMENTS OF OPERATION FOR THE NINE MONTHS TO SEPTEMBER 30, 1999
Revenues $ 3,200
Expenses
Administrative Expenses 7,500
------------
Net (Loss) $ (4,300)
------------
As of December 31, 1998 Eagle Partners, Ltd. was accounted for on a
Liquidation basis. At that date the Partnership had no assets to use to pay
its liabilities, which were all due to the Company. He debts were fully
provided for in the books of the Company. The Partnership was closed on
December 31, 1998.
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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.
In March, 1999 the Company entered an agreement with Drexel Aqua Technologies,
Inc., a Delaware corporation controlled by Mr. Parisi, 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. During the third quarter of 1999 the Company issued
1,440,000 shares of its Series 2 Preferred Stock for $20,000 pursuant to this
agreement. 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.
NOTE 6 STOCK TRANSACTIONS WITH OTHERS
In May 1999, the Company issued 100,000 shares of its common stock to an
individual as an inducement to sign an employment contract.
In August 1999 the Company issued 1,000,000 shares of its Series 3 Preferred
stock to a non-affiliated company in payment for equipment valued at $100,000.
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NOTE 11 - SUBSEQUENT EVENTS
ACQUISITION OF CONSOLIDATED HOLDINGS INVESTMENT & PHILANTHROPIC GROUP, INC.
On June 25, 2000, the Company signed letter of intent 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. Unaudited pro forma information related to this
potential acquisition is not included in these financial reports due to the
uncertainty of the acquisition proceeding to completion and the uncertainty of
the exact mix of assets that would be acquired in the event that the
acquisition is completed.
DEBT CONVERSION AND ISSUE OF SERIES 5 PREFERRED STOCK
In July 2000, the Company designated 2,500,000 of its preferred stock as
Series 5 Preferred stock. The Series 5 Preferred stock has a liquidation
preference over the Common Stock at a value of $1.00 per share, is redeemable
at par on 2002, is convertible into Common Stock on a 1 for 1 basis, such
conversion not to be affected by any splits of the Common Stock and each share
of Series 5 Preferred stock entitles the holder to 100 votes and votes with
holders of the Common Stock as a single class.
Pursuant to the terms of the acquisition of CHIP, all the creditors of the
Company in an amount greater than $5,000 at June 30, 2000, were offered Series
5 Preferred Stock in payment of their debt on a 1 share for $1 basis. As of
July 10, 2000, $2,045,000 of such creditors had agreed to the conversion.
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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
judgment 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
result 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 under "RISK FACTORS" in the Company's Form 10-KSB for the year
ended December 31, 1998.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998.
The net loss for the three months to September 30, 1999 was $280,202 compared
to a loss of $244,449 in the corresponding quarter of 1998.
Total revenues in the 1999 quarter at $47,904 were down $76,131 from the 1998
quarter. Total expenses of $281,252 were incurred in the third quarter of
1999, compared to $270,176 in the equivalent period in 1998. Operating
expenses Increased to $162,344 in the third quarter of 1999 from $121,523 in
the equivalent quarter in 1998 but there was a decrease in general and
administrative expense to $118,908 during the 1999 quarter from $148,654 in
the 1998 quarter. This resulted in the 1999 quarter's loss from operations
being higher at $233,348 in 1999 compared to $146,141 in 1998.
The Company's cost of vessel operations in the quarter ended September 30,
1999 was $120,093 compared to $65,485 for the third quarter of 1998. In the
1999 quarter the RV Seahawk was working in the Mediterranean, and the higher
expenditure was a result of higher crew and equipment rental charges.
Depreciation was $27,221 for the quarter ending September 30, 1999, and
$35,843 in the equivalent period in 1998. The reduction reflects the effect of
assets becoming fully depreciated at the end of 1998.
Rent was $15,030 for the quarter ending September 30, 1999 compared to $20,195
for the equivalent quarter during 1998 because the Company occupied smaller
premises in the 1999 quarter.
Administrative costs decreased by $29,745 to $118,908 for the quarter ending
September 30, 1999 from $148,653 during the same period of 1998. The
difference resulted largely from a in bad debt provision of $16,539 in the
1998 period and the lower charge of $6,254 for travel and subsistence costs
compared to $24,754 in the 1998 quarter.
Interest expense was $56,016 for the quarter ending September 30, 1999
compared to $87,711 in the third quarter of 1998. The difference was due
largely to a one-time charge of $61,192 for interest on past due salaries in
the 1998 quarter, offset by a higher debt burden in the third quarter of 1999.
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NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
The net loss for the nine months ending September 30, 1999 was $947,163, this
compared to a loss of $115,468 in the corresponding period of 1998.
Total revenues in the nine months ended September,30 1999 were $128,709, a
decrease of $557,932 over the 1998 equivalent period due mainly to a one time
$439,356 gain on sale of artifacts in 1998 and reduced revenues from the
supply of survey services to $114,900 from $227,285. As a result of the lower
activity, total expenditure in the first nine months of 1999, at $770,606, was
$117,532 less than the $888,138 expended in the first nine months of 1998 and
an operating loss of $641,898 was suffered in the 1999 period compared to a
loss of $201,497 in the 1998 period.
The vessel RV Seahawk was working only intermittently in the first three
quarters of 1999 whereas she was more fully operational and working in the
Caribbean and the Mediterranean in the first nine months of 1998. Consequently
the cost of vessel operations in the nine months ended September 30, 1999, was
$105,044 lower at $194,166 than the $299,210 incurred during the 1998 period.
The maid difference was exhibited by subcontracted crew and equipment costs
which were $142,523 in the 1999 period down from $206,500 for the 1998 period.
During the nine months ended September 30, 1998 the Company's share of
administrative expenditure of a South American joint venture amounted to
$22,387. In the 1999 period, there were no such costs because a settlement
agreement made in that month with the Company's partner in the joint venture
provided that all future administrative costs will be borne by that partner.
Depreciation was $90,855 for the nine months ending September 30, 1999, and
$106,040 for the 1998 period. The reduction reflects the effect of assets
becoming fully depreciated at the end of 1998.
Rent was $46,983 for the nine months ending September 30, 1998 compared to
$$55,370 for the equivalent period during 1997 because the Company occupied
smaller premises from the second quarter of 1999.
Administrative costs increased by $36,473 to $438,603 for the nine months
ending September 30, 1999 from $402,130 during the same period of 1998. Most
categories of administrative expenditure saw small increases in the 1999
period compared to the 1998 period but there were significant increases in
Professional fees ($99274 from $40,460), due to extra audit work and the costs
of defending the lawsuit brought by three of the Company's former directors.
Interest expense at $187,359 for the nine months ending September 30, 1999 was
similar to the $193,451 incurred in the first nine months of 1998.
Interest income was down to $11 for the first three quarters of 1999 from
$17,348 in the 1998 equivalent because the $50,000 Note receivable from Eagle
Partners, Ltd. was written off at the end of 1998.
Assets with a net book value of $20,364 were sold for $33,004 during the first
nine months of 1999 producing a profit on disposal of $12,640. Assets with a
net book value of $12,751 were retired during the nine months ended September
30, 1998, causing a loss on disposal of assets of that amount.
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In 1999 a one time provision for the impairment in value of the R/V Seahawk of
$193,350 was made to reflect the loss made when the vessel was disposed of in
January 2000 under a forced sale resulting from an action brought against the
vessel for unpaid wages of her crew.
In the nine months ended September 30,1999, the loss on investment in the
affiliates was $4,300. That loss represented the company's share of losses of
Seahawk II, Ltd., a partnership in which the company is the general partner.
During 1998, the equivalent loss on investment in affiliates for 1998 was
$5,994. During 1998 Seahawk I, Ltd., one of the Company's affiliates, paid off
its note and account payable to the Company thereby releasing a provision for
non payment of $757,301.
During 1998, the Company acquired shares in the common stock of a non
affiliated company, partly as payment for the sale of artifacts and partly as
payment of amounts due from Seahawk I, Ltd. The securities were valued at
$0.17 per share at the time of the sale of artifacts and the same price was
used when Seahawk, I, Ltd. repaid part of its debt to the Company with the
securities. The Company used certain of the securities, again at $0.17 per
share, to pay debt to unrelated parties, but the remaining investment was
disposed of at $0.085 per share for cash, creating a one-time loss on disposal
of the marketable securities of $486,833.
Also during 1998, the Company made a one time provision of $700,000 for the
cost of settlement of the lawsuit brought against the Company by three former
directors for legal fees they expended in successfully defending an SEC action
against them.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1999, the Company's working capital
deficit increased by $441,379 to a negative $(2,714,399). At December 31,
1998 the Company had a working capital deficit of $(2,273,020).
The deficit increased due to a net loss before depreciation and before the
provision for impairment of the value of the R/V Seahawk during the year of
$662,958, the effect of which was offset by the sale of preferred stock for
$238,774.
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 Partnership,
Seahawk II, Ltd., is out of cash and the partners have decided they are not
willing to invest additional funds to continue further excavation of the wreck
site.
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<PAGE>
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.
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 1999 the Company generated over $121,209 selling its services to
shipwreck related customers. In 1998 $313,000 was generated by that means.
Since the R/V Seahawk has been disposed of it is unlikely that the Company
will be able to generate such revenue in the future unless it acquires another
vessel. The R/V Seahawk was sold for $207,000 by the Supreme Court of
Gibraltar and the proceeds were used by the court to pay costs, past due
remuneration of the crew and some of the loan that was secured on the vessel.
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. Since all the Company's artifacts have
been sold it is unlikely that it will be able to generate revenue of that
nature in the future.
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
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.
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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 25, 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 may have
become non-functional due to year 2000 problems.
The Company utilizes commonly used software packages, the vendors of which had
all addressed the issue of year 2000 compliance, and the Company did not
experience any year 2000 related software problems.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities
During the three months ended September 30, 1999, the Company issued 1,000,000
shares of its Series 3 Preferred Stock to a corporation in payment for
equipment valued at $100,000 and issued 1,440,000 shares of its Series 2
Preferred Stock to a corporate investor for cash. The common stock was issued
pursuant to the exemption provided by Rule 506 to corporate investors 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 common 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
