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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to __________
Commission File No. 0-18239
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
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Name of Small Business Issuer in its Charter
Colorado 84-1087879
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State or Other Jurisdiction I.R.S. Employer Identification
of Incorporation or Organization Number
5102 South Westshore Boulevard, Tampa, Florida 33611
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Address of Principal Executive Offices, Including Zip Code
Registrant's telephone number, including area code: (813) 832-4040
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock.
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 [ ] No [x]
The Issuer's revenues for the most recent fiscal year were $797,356.
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
As of July 20, 2000, 28,477,614 shares of the Registrant's Common Stock were
outstanding, and the aggregate market value of the shares held by
non-affiliates was approximately $444,000.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (Check One:) Yes [ ] No [X]
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PART I
ITEM 1. BUSINESS.
THE COMPANY
Seahawk Deep Ocean Technology, Inc. (the "Company") was formed under the laws
of the State of Colorado on September 17, 1986, for the purpose of creating a
corporate vehicle to seek and acquire a business opportunity.
In October of 1988, the Company completed a public offering of 1,200,000
shares of Common Stock at an offering price of $.50 per share. The net
proceeds of that offering to the Company were approximately $490,000.
On March 13, 1989, the Company issued 2,000,000 shares of its no par value
Common Stock to the holders of 100% of the outstanding common stock of R/V
Seahawk, Inc. ("R/V Seahawk") in an exchange transaction in which R/V Seahawk
became a wholly owned subsidiary of the Company. During September 1989 the
Company's name was changed from Fox Ridge Capital, Inc. to Seahawk Deep Ocean
Technology, Inc. On March 2, 1992, R/V Seahawk was merged into the Company.
On June 12, 1992, the Company effected a one for fifty reverse split of the
shares of the Company's Common Stock outstanding. All financial information
and share data in this Form 10-KSB give retroactive effect to the reverse
split.
On September 12, 1989, the Company organized Seahawk Artifact Recovery, Inc.
and acquired 100% interest with the purchase of 625,000 shares of its no par
value common stock for $35,000 cash. This subsidiary was inactive throughout
1989 and 1990. In January 1991, its name was changed to Seahawk Museum
Development, Inc. This subsidiary was developing plans for a shipwreck and
treasure museum in St. Petersburg, Florida, however, the Company's inability
to finance the museum forced the Company to put the museum plans on hold
indefinitely and Seahawk Museum Development, Inc. has been inactive since
1993.
On February 4, 1991, the Company acquired all of the outstanding stock of
Valley Marine, Inc. ("VMI") in exchange for 600,000 newly issued shares of the
Company's Common Stock. VMI owned the Seahawk Retriever, a 204-foot vessel.
During February 1991, VMI merged into R/V Seahawk.
R/V Seahawk was formed on May 23, 1988, for the purpose of serving as general
partner for one or more limited partnerships, which were to be formed to
search for valuable shipwrecks. R/V Seahawk was initially capitalized with
$200,000 by five investors. R/V Seahawk then purchased equipment to be used
for the search operations and signed an agreement with marine archaeologist
Robert Marx for the right to use data for a suspected shipwreck site. R/V
Seahawk then formed its first partnership, Seahawk I, and raised $175,000 to
fund the search activity. The fund raising and initial search efforts were
carried on during the remainder of 1988 and into 1989 until April 1989, when
the Seahawk I partnership located its first shipwreck.
In November 1995, the Company acquired all the outstanding stock of Seahawk,
Inc. in exchange for 2,400,000 newly issued shares of the Company's common
stock. Seahawk, Inc. owned the R/V Seahawk, an 86 foot vessel. On March 31,
1996, Seahawk Inc. merged into the Company.
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In February 1999, the Company organized RV Seahawk, Inc., a Florida
Corporation, and acquired its entire share capital for $100. The Company then
transferred the R/V Seahawk into RV Seahawk, Inc.
Unless the context otherwise requires, the term "Company" as used herein
refers to Seahawk Deep Ocean Technology, Inc. and its wholly owned
subsidiaries, Seahawk Museum Development, Inc. and RV Seahawk, Inc.
The Company is an oceanographic service company that is involved in deep-
water search, survey and recovery operations. The Company has served as the
general partner for limited partnerships that were formed for the purpose of
raising money to search for and locate shipwrecks. Until January 2000, the
Company owned and operated a variety of sub-ocean equipment including an 83
foot survey vessel, ROVs (Remotely Operated Vehicles), and other specialized
search and recovery equipment which enabled the Company to locate, photograph
and retrieve items lost on the seabed in deep water. In January 2000, the
vessel was arrested in Gibraltar and sold at auction (see NOTE 18 SUBSEQUENT
EVENTS, Arrest and Sale of the R/V Seahawk on page F-26). In view of the lack
of available funding and the increasingly difficult legal ramifications and
hostile political climate that surrounds the business of shipwreck recovery,
the Company is seeking to enter new business areas unrelated to shipwrecks. It
will nevertheless maintain its interests in the South American Project (see
below) and may invest in others if they are deemed suitable by management.
The partnerships formed by the Company and for which the Company served as the
general partner were engaged in the business of attempting to locate,
identify, recover and market the cargoes and artifacts associated with one or
more shipwrecks in a specific area. The Company, on the other hand, provided
to the partnerships the data, manpower and equipment necessary for the
partnerships to carry out this business purpose. The Company has also engaged
in the business of locating, identifying, recovering and marketing the cargoes
and artifacts associated with shipwrecks on its own behalf and for others on a
world wide basis.
SEAHAWK I, LTD., SEAHAWK II, LTD. AND EAGLE PARTNERS, LTD.
The Company has formed three limited partnerships (Seahawk I, Ltd., Seahawk
II, Ltd. and Eagle Partners, Ltd.) for the purpose of funding the search for
deep-water shipwrecks in pre-designated areas.
SEAHAWK I, LTD. Seahawk I, Ltd. was a Florida limited partnership that was
formed on May 23, 1988, with R/V Seahawk as the sole general partner. The
Partnership was initially funded with a total of $175,000 that was raised from
private investors. During April 1989, the partnership located and photographed
a Spanish wreck that the Company believed was one of the vessels lost during a
storm in 1622. The wreck was found approximately 1,500 feet deep in
international waters south of the Florida Keys. During June 1989 a bell was
recovered from the site in order to perfect the admiralty claim in the United
States District Court.
During June 1990, Seahawk I commenced its pre-disturbance survey on this wreck
and during August 1990, Seahawk I commenced actual recovery operations. The
recovery operations continued until October 1991. The Company decided that the
Partnership had reached a point of diminishing returns and will not return to
the wreck site.
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A total of 16,480 artifacts were recovered from the site. These included
twenty-seven gold finger bars, fourteen gold fragments, over eleven hundred
silver coins, a gold emerald ring, three mariner's astrolabes (a navigational
device used during the early 1600's), over 6,000 pearls, seventy six clay
olive jars and other miscellaneous items including musket balls, wood, pottery
and pottery shards. Seahawk I incurred expenses in locating, recovering,
conserving and storing these artifacts of approximately $3,391,000 since
inception, of which $625,275 was capitalized into the historical costs of
artifacts on Seahawk I's books at December 31, 1997. The Company has
contributed $1,190,900 since inception to the capital of Seahawk I. Seahawk I
engaged the Company to provide certain services, and the Company provided
vessel operations and conservation and administrative services in the amount
of $646,081 that were billed to Seahawk I but had not been paid by December
31, 1997. These were carried in the Company's books at that date as accounts
receivable - affiliate. In March 1998, this account receivable was settled by
payment of $491,381 in cash and restricted securities in an unrelated publicly
quoted corporation valued at $81,112.
The salvage operations for this shipwreck required the Partnership to raise
additional funding. The Company was to split with the limited partners on a
50/50 basis the proceeds from the sale of all the valuable objects or
artifacts after payment of the partnership expenses and a return of all
capital contributions to both the limited partners and the Company. The
expenses of the Partnership include the payment of ten percent (10%) of all
items salvaged to Tanit Corp., a company owned by Robert Marx, the marine
archaeologist who provided research and data relevant to this particular
project. Seahawk I raised an additional one million dollars ($1,000,000)
during 1990 to finance the initial salvage operations. In order to do this,
Seahawk I created a new class of limited partner which is entitled to twenty
percent (20%) of the partnership's net distributable income in return for an
investment of $500,000. The Company also invested an additional $500,000 to
maintain its right, as General Partner, to receive 50% of the partnership's
net distributable income.
During March, 1991, Seahawk I created a new class of limited partners and
raised a total of $691,800 to finance the recovery and conservation of
artifacts of the Partnership. The Company also invested an additional
$690,800 to maintain its right to receive 50% of the net distributable income.
As of December 31, 1997, in addition to the account receivable from Seahawk I,
Ltd. of $646,081 and a note receivable from Seahawk I, Ltd. of $300,000, less
a provision for losses in excess of investment of $742,301. In March 1998, the
Partnership's artifacts were sold and the proceeds used to repay the accounts
receivable and note receivable by the Company. On September 30, 1998 the
Partnership was terminated after a first and final distribution to the Limited
Partners.
SEAHAWK II, LTD. During May 1989, R/V Seahawk formed Seahawk II, Ltd., a
Florida limited partnership ("Seahawk II"), and agreed to serve as the sole
general partner. Seahawk II is structured very similar to Seahawk I except
that the expenses of the Partnership include a payment of 5% of all items
salvaged to a fund for the crew. Seahawk II sold 50 Units at a price of
$30,000 per Unit. During 1989, Seahawk II commenced its proposed business of
attempting to locate deep water shipwrecks in a specific area off the east
coast of Florida, and found what management believed to be a colonial era
shipwreck. This belief was based on, among other things, the opinions of Dave
Moore described below relating to the age of the silver coins and cannons
found on the wreck. A cooking pot and piece of rigging were recovered from
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the site in order to perfect the admiralty claim. During October 1990,
Seahawk II conducted a pre-disturbance survey of this wreck site (referred to
as the "St. Augustine" site) utilizing Harbor Branch Oceanographic
Institution's Johnson SeaLink manned submersible. During this survey,
approximately 90 artifacts were recovered including two cannons, numerous
cannon balls, and a dozen copper cooking pots. Dave Moore, an archaeologist
who used to be employed by the Company, estimated the cannon is from the
1700's. Dave Moore holds a Masters Degree in Maritime History and Underwater
Research and he has over 10 years' experience in archaeology.
During April 1991, the Johnson SeaLink returned to the site to continue work
on the shipwreck for 6 days. A good portion of the area surrounding the
ballast pile was uncovered and some timbers and ribs of the ship were exposed
which, according to archaeologist Robert Marx, indicated that the ship was
small in size most likely in the 50 to 75 ton range. During this trip, a
number of artifacts were recovered, including 6 Spanish silver coins, three
four foot cannons, more copper cooking pots, scores of lead musket and pistol
balls, pulley blocks and sheaves and other miscellaneous items. According to
Mr. Moore, the coins date between 1712 and 1714. Mr. Marx has reported to the
Company that he believes that the ship was a small Spanish vessel known as an
"Adviso" or advice boat sometimes called a "Patache." One or more of these
ships was usually employed in each treasure fleet with their main purposes
being to carry mail and official communications between the king and
government officials. According to Mr. Moore, this class of vessel was never
authorized to carry treasure, but contraband treasure was sometimes carried on
these ships. He has also stated that he could say whether or not this
shipwreck contains substantial amounts of treasure.
The Company made repeated attempts to sell the Partnership's artifacts without
success. In September 1999, the Company was in urgent need of cash to pay rent
and arranged a loan of $3,200 secured by the Partnership's artifacts. In
January, 2000, the Company acquired the artifacts by cancellation of the debt
due by the Partnership to the Company in the amount of $48,575. In February,
2000, the Company was unable to repay the loan secured by the artifacts and
the Lender foreclosed and acquired the artifacts in settlement of the loan.
The Seahawk II Partnership currently has no cash, and the Partnership has no
plans. In December 1994 and November 1995 the Company asked the Partners to
vote on terminating the Partnership. The result of both votes was
inconclusive and the Company intends to ask the Partners to vote again on
termination.
The Company carried an account receivable from Seahawk II, Ltd. of $40,875 as
of December 31, 1998, less a provision for doubtful debts of $55 and losses in
excess of investment of $40,820.
EAGLE PARTNERS, LTD. AND EAGLE MINERS, LTD. During November, 1991, the
Company formed Eagle Partners, Ltd., a Florida limited partnership ("Eagle
Partners"), with the Company serving as the general partner. Eagle Partners
sold 3 Units for a total of $150,000. The partnership is operating under a
joint venture agreement with a nonaffiliated researcher who has provided the
research and data for a 19th Century shipwreck off the east coast of the
United States. The joint venture agreement was entered into between the
Company and the researcher, and the Company assigned its rights and
responsibilities in the joint venture to Eagle Partners. According to the
researcher and newspaper accounts of the sinking, the vessel was believed to
have a valuable cargo of specie on board at the time of the sinking, although
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there is no assurance that the researcher is correct or that the shipwreck
will be located. The researcher holds a Bachelor's Degree in
Interdisciplinary Studies with a concentration in Marine Archaeology, and he
has been involved in underwater archaeology and searching for shipwrecks for
over 25 years. He has written over 10 books and a number of articles on the
history of shipwrecks.
Pursuant to the terms of the joint venture agreement, the researcher was to
receive twenty percent (20%) of any items recovered from the ship in return
for his research and data. The partnership is responsible for conducting and
paying expenses of the search and recovery of the shipwreck and if successful,
for marketing any cargo which is recovered.
The joint venture agreement required the partnership to dedicate the vessel
R/V Seahawk (or a similar vessel with similar equipment) to work on this
project at least 120 days during 1992, and each year thereafter, beginning not
later than May 30 of each year. The joint venture agreement was amended in
June 1994. The amended agreement required the partnership to work on the
project for at least 60 days during 1994. The partnership did not meet this
schedule and was in default on the agreement. In such an event, the agreement
provided that all rights to conduct search and/or salvage efforts relative to
this wreck would revert to the researcher. The Company negotiated an
extension to the joint venture agreement under which the researcher's share of
any successful recovery was reduced to ten percent (10%) and the requirement
for the partnership to work on the project for a minimum number of days each
year was removed. In return the Company agreed to issue the researcher 60,000
shares of its Common Stock. The Company will attempt to raise additional
financing for this project but there is no assurance that it will be able to
do so.
The partnership's eighty percent interest in the joint venture was to be
allocated among the Company and the limited partners as follows: after the
return of all contributed capital each $50,000 unit was to receive 5% of the
first $1 million distributed, 4% of the second $1 million distributed, 3% of
the third $1 million distributed, 2% of the fourth $1 million distributed and
1% of anything over $4 million distributed. The Company, as the general
partner, was to receive the balance of any distribution. In early 1995, the
Company became aware of another company ("Sea Miners, Inc.") that was
searching for the same shipwreck (code-named "Golden Eagle"). In order to pool
research and resources and to remove all-or-nothing competition, Eagle
Partners and Sea Miners formed an equal joint venture to search for the
vessel. The joint venture is operated via a Florida Limited Partnership
called Eagle Miners Limited. Eagle Partners and Sea Miners are equal and
joint General Partners of Eagle Miners. As a result of the joint venture,
each of the limited partners of Eagle Partners agreed to reduce their
entitlement of any distribution to one-half of the original amount. Eagle
Miners has contracted to use the Company for all of its offshore services.
$100,000 was raised by the joint venture to finance the initial inspection of
certain sites that Sea Miners has revealed as possible shipwrecks in its
search area.
After reviewing the research, Eagle Partners established a primary search area
of 100 square miles and a larger search area of 600 square miles. During
1992, Eagle Partners searched approximately 500 square miles and located six
shipwrecks. During May 1993, using newly acquired research data; Eagle
Partners searched approximately 140 square miles and located five shipwrecks.
During 1994, Eagle Partners searched approximately 140 square miles.
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During 1995 Eagle Partners inspected a number of seabed anomalies that might
have been sunken ships in the combined search areas of Eagle Partners and Sea
Miners. One such site was estimated to have similar general dimensions to the
Golden Eagle, and to protect its title to the wreck it was arrested in the
Untied States District Court Middle District of Tampa Division. The wreck was
not positively identified as the Golden Eagle. Further visual investigations
of the site took place during 1996 but bad visibility prevented a positive
identification. Yet further visual investigations of the site took place
during 1997 which established that the wreck was not the Golden Eagle.
The terms of the original Partnership Agreement provided for the termination
of the Partnership on December 31, 1996. However, the partners agreed to
extend the termination date to December 31, 1999, on which date the
Partnership was terminated.
As of December 31, 1998, the Company carried an account receivable from Eagle
Partners of $1,071,444, a note receivable from Eagle Partners of $50,000,
accrued interest of $14,932 and a provision for losses in excess of investment
of $1,164,806.As of December 31, 1998, the Company carried an account
receivable from the Eagle Miners Joint Venture of $53,023 less a provision for
doubtful debt of $24,593.
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. and Eagle Miners Ltd. at
December 31, 1998.
MANAGEMENT OF PARTNERSHIPS
The following table sets forth information concerning the authority of the
general partner in the three partnerships referred to above for which the
Company serves as general partner. The purpose of this table is to disclose
generally the types of actions that the general partner can take without
needing approval of the limited partners and the types of actions where
approval of the limited partners is required.
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ACTION APPROVAL OF LIMITED PARTNERS REQUIRED
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1. Enter into contracts and agreements 1. No.
which the general partner ("G.P.")
deems necessary or advisable for the
conduct of the partnership's business.
2. Enter into partnerships or joint 2. No.
ventures.
3. Employ advisers or agents. 3. No.
4. Borrow money on secured or 4. No.
unsecured basis.
5. Amend limited partnership agreement. 5. Yes (by the holders of a majority
of the limited partnership units)
6. Admit additional G.P.'s. 6. Yes (by the holders of a majority
of the limited partnership units).
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7. Admit additional limited partners. 7. No.
8. Sell additional units in the 8. No unless it requires amendment
partnership to partnership agreement
9. Remove G.P. 9. Yes* (by the holders of 75% of
the limited partnership units
10. Dissolve partnership. 10. Yes (by the holders of a majority
of the limited partnership units).
*In Seahawk II and Eagle Miners Limited, the limited partners do not have the right to
remove the general partner.
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BACKGROUND
During the past few years, the number and seriousness of approaches by various
groups interested in ocean salvage have increased significantly, principally
because the development and application of new technology have improved
working capability in the deep sea. The Company operated the research vessel
Seahawk (the "Seahawk") from 1989 through 1999. In addition, it acquired
highly specialized search, survey and recovery equipment. The Company has
worked closely with both consultants and employees considered to be some of
the leading experts at deep ocean search and recovery. However, In view of the
lack of available funding and the increasingly difficult legal ramifications
and hostile political climate that surrounds the business of shipwreck
recovery, the Company is seeking to enter new business areas unrelated to
shipwrecks. It will nevertheless maintain its interests in the South American
Project (see below) and may invest in others if they are deemed suitable by
management. The Company would adopt the following Plan of Operation for any
such shipwreck project.
PLAN OF OPERATION
The Company expects that, at least initially, any deep ocean shipwreck search
and recovery activities that it engages in will be funded by entities similar
to Seahawk I, Seahawk II and Eagle Partners thereby transferring most of the
economic risk of finding shipwrecks to the investors in these partnerships.
As soon as the Company believed that it had sufficient capital of its own to
finance such activities, it would do so in order to avoid diluting the
Company's interest in the wrecks. Management's only experience in forming and
marketing partnerships for the purpose of funding shipwrecks is Seahawk I,
Seahawk II, Eagle Partners and Eagle Miners.
The Company and its partnerships expect to follow the following seven steps in
their deep-water expeditions.
1. DETERMINE TARGET SEARCH AREAS THROUGH RESEARCH. The first step in a deep
water search operation is to develop data on proposed sites through a
combination of research conducted by the Company or research purchased by the
Company from others. For example, the wreck located by Seahawk I, Ltd. was
based on research conducted by an archaeologist who was paid with a 10%
interest in the wreck. The Company has received research on numerous wrecks
throughout the world, and is continually, as time permits, reviewing this
research for possible recovery projects.
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2. SEARCH FOR ANOMALIES IN THE TARGET AREAS. Once the target area search
sequence has been determined, the search will then be undertaken to locate
promising anomalies utilizing suitable equipment.
If an anomaly is found, its precise location will be noted and mapped using a
navigational system which utilizes digital output from sensing devices and
logs it into the onboard computer's target navigational database.
After completing the search of a grid, a preliminary analysis will be made and
the position of promising targets will be noted. This will indicate those
sites and anomalies, which will be revisited for visual verification and
inspection with ROVs.
3. SURVEY AND VERIFICATION OF THE ANOMALY SITE. The initial verification
phase will serve to provide visual confirmation of the nature and composition
of the anomaly. In most cases, a look at the subject sites will quickly
determine whether they are natural bottom structures, manmade objects that
hold little interest (steel drums, cable, modern anchors, fishing equipment,
etc.) or potentially valuable sites. If the site looks promising, small
artifacts will be recovered in an attempt to date and identify the vessel.
This entire phase will be accomplished using ROVs, incorporating onboard
lights, cameras, sonar and tracking navigation systems.
Using video records and items recovered from the wreck site, the Company and
its partners will attempt to identify the wreck(s) with the help of maritime
historians and marine archaeologists. Identifying ancient shipwrecks is
extremely difficult, however, and the Company was unable to definitely define
the shipwrecks discovered by Seahawk I and Seahawk II. Once the wreck has
been identified, a determination of the cargo carried and historical and
archaeological significance of the wreck can be made.
4. ESTABLISHING LEGAL CLAIM TO THE SITE. If the site appears valuable, the
Company will take the necessary steps to legally claim title to the shipwreck.
This will usually involve a filing in the U.S. Admiralty Court. See "Legal
Aspects of International Salvage."
5. PLANNING AND EXECUTION OF RECOVERY. Planning the actual recovery will
depend on a large number of factors such as condition of shipwreck, depth,
bottom conditions, current and tidal conditions. In the anticipated operating
depths, several pieces of equipment will play vital roles in the recovery
operation. First, a safe, stable ship must be used as the recovery platform.
The vessel must also be large enough from which to deploy the submersibles
that will be used as the actual salvage and recovery tools. These recovery
tools will include ROVs, some of which will be significantly larger and
capable of greater working ability than the ROVs used for initial visual
investigations.
6. CONSERVATION OF ARTIFACTS. Complete conservation of artifacts recovered
from shipwreck sites is an integral part of the Company's business plan.
These conservation efforts begin as soon as the ROV reaches the ocean floor.
The Company takes the utmost care in removing each artifact from the seabed,
using specialized tools that are built on site and carried to the sea floor by
the ROV. Examples of such tools are specially built baskets and platforms
that are constructed to accommodate artifacts once they have been identified.
The ROV uses these tools, built to interface with its computer controlled
manipulators, to recover each artifact from the ocean floor as gently as
possible. The artifacts are then placed in a larger recovery platform, which
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is designed to separate and protect the artifacts from damaging each other
during the trip to the surface. On deck, the artifacts are then catalogued,
photographed and secured in specially constructed storage containers. The
recovery process is supervised by the project's archaeologist who assists with
the recovery, coordinates data management, ensures proper artifact handling,
and initiates interpretation and analysis.
7. MARKETING OF ARTIFACTS. The Company intends to realize revenue from
artifacts as follows:
(a) By Direct Sales - Artifacts which have been properly categorized and
recorded and which are not deemed to be a necessary part of an archaeological
collection may be sold.
(b) By Sale of Replicas - Replicas of certain artifacts may be produced
and sold as such.
(c) Display - Artifacts may be displayed in museum attractions that
would generate revenue from entrance charges and merchandise sales.
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 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
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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.
SOUTH AMERICAN PROJECT
The South American Project is a project attempting to locate, identify,
recover, conserve and market the cargo of an early 18th century shipwreck that
sunk while carrying a large cargo of gold.
On June 1, 1994, the Company signed an Agreement for Consulting Services with
Odyssey Marine Exploration, Inc.,(formerly Remarc International, Inc.). The
Agreement provided that Odyssey will, at its own expense, seek to obtain for
the Company a permit from the appropriate government to search for and salvage
the particular shipwreck involved in the South American Project. If such a
permit were obtained for the Company by Odyssey, then the Company agreed to
grant Odyssey between 6% and 9-1/2% of the gross proceeds of any successful
recovery from the project. The actual percentage granted to Odyssey was to
depend on the size of portion of the recovery that would be taken by the South
American government in return for the permit.
In furtherance of the negotiations for the permit, it became prudent to join
forces with a South American competitor, Salvanav, to form a bidding
Consortium. The Consortium rendered the original South American Consultancy
Agreement with Odyssey inappropriate, and under a Joint Venture Agreement
dated August 1995 with the Company, Odyssey agreed to forego its entitlement
to the percentage of the gross recovery of the project and instead become
equal partners with the Company in a South American company known as Pesqamar,
that owned half of a consortium, known as Conpas. The Company and Odyssey each
owned 24.5% of Pesqamar, with the remaining 51% being owned by Brazilians. By
May 1998, Pesqamar had incurred over $300,000 of expenses, half of which was
payable by the Company. Under an agreement dated June 1, 1998, the Company's
portion of the expenditure was satisfied by the transfer of 1 million shares
of common stock of Treasure & Exhibits international, Inc. to Odyssey on the
basis that (a) the Company also transferred 165.5 shares of Preferred
Non-Voting shares in Pesqamar to Odyssey and (b) Odyssey be responsible for
all future expenditure of Pesqamar. Following the completion of the agreement,
the Company owns 428.75 of the 1,750 shares of Common Voting Stock and 1,459.5
of the 3,250 shares of Preferred Non-Voting stock in Pesqamar. In October
1996, Conpas completed a search of almost 400 square miles of its search area
and revealed 25 anomalies with characteristics indicative of possible sites of
shipwrecks. Conpas visually inspected some of these anomalies with an ROV
during 1997 and 1998. On April 27, 1999 the members of the Consortium of
Conpas signed an agreement to terminate Conpas and apply for two new permits
in the names of Pesqamar and Salvanav. The permits will be for separate areas
of approximately 50% each of the previously permitted search area. The
Pesqamar area includes the prime anomalies previously revealed in the search
of October 1996. Under the terms of the Agreement, the previous members of the
Consortium of Conpas will operate independently, including the provision of
project finance and offshore operations. In the event either party recovers
the particular shipwreck involved in the Project, it must share with the other
party 4% of the gross proceeds of the shipwreck after the South American
Government has been paid. On April 31, 1999 the applications for the new
permits were submitted to the South American Government and Pesqamar received
its new permit in July 1999. The Company plans for Pesqamar to visually
inspect the balance of the 25 anomalies before the end of 2000.
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LEGAL ASPECTS OF INTERNATIONAL SALVAGE
The question of legal ramifications with regard to the recovery of shipwrecks
raises a number of issues. Salvors, historical interests and individuals
claiming ownership based on the payment of insurance claims all have potential
claims on goods brought up from the sea floor.
The seas are divided into four basic zones: the territorial sea, the
contiguous zone, the continental shelf and the high seas. The Company expects
that most of its activities will be conducted in what is considered the high
seas. No international agreement prevents the salvage of a shipwreck from the
high seas. Some countries, however, may claim a 200-mile territorial limit
and may assert claims to all shipwrecks located within that distance from
their coast. Generally, there are two doctrines of maritime law that govern
legal claims to salvageable shipwrecks in the high seas. These are the law of
finds and the law of salvage. Both are well documented and accepted in United
States common law, and are also generally accepted as international law in
practice. This discussion centers on application of these laws in
jurisdiction of U.S. courts. The entity responsible for salvage is entitled
to sue in rem. against the ship in federal admiralty court to establish its
claim to the shipwreck and cargo against all other claimants, known and
unknown. The court employs a fiction of convenience that a ship is a person
against whom suits can be filed and judgments entered, allowing actions to be
brought against the vessel when the owner is unknown or unreachable.
Legally, the claim may be decided according to the two competing maritime law
doctrines. If title to the wrecked ship or cargo is disputed, the salvaging
entity will seek to assert ownership under the law of finds. If the original
owner or owners are known, then the salvor will be entitled to a salvage award
under the law of salvage.
The first step in making claim is to establish control, or possession-in-fact,
over the shipwreck. To do so, the salvor must actually reduce objects from the
shipwreck to possession. Discovery of the shipwreck, or the mere intent to
raise the shipwreck or to recover objects from it, does not establish control.
Under the maritime law of finds, where a vessel has been abandoned, the finder
in possession becomes the owner of the vessel. Proof of abandonment includes
two factors: (1) the intent of the original owners to abandon the ship and
its cargo, and (2) the external act of abandonment, which may be either
express or constructive.
United States courts may interpret liberally constructive abandonment in
shipwreck cases where the ship has remained sunken for many years,
particularly if no serious previous salvage efforts have been made.
An entity responsible for the salvage of a sunken vessel and its cargo may
expect to defend its claim to title against the original owners or their
successors-in-interest, against rival Salvors, and against governments
asserting a historic interest in the shipwreck or cargo.
Potential claimants might include the insurers of the shipwreck as in the case
of "Columbus America Discovery Group v. The Unidentified Wrecked and Abandoned
Sailing Vessel" (Civil Action 87-0363N). Unless the insurers expressly
disclaimed title after payment of a claim, and depending on the length of time
the ship has remained sunken, the insurers might have a valid claim of title
to recovered objects. The Courts in the Columbus America case held that the
insurers were entitled to up to 10% of the recovered objects that they can
demonstrate they provided coverage for.
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EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON THE BUSINESS
To the extent that the Company engages in shipwreck search and recovery
activities in the territorial, contiguous or exclusive economic zones of
countries, the Company must comply with applicable regulations and treaties.
In addition, there is currently an initiative being considered in the United
Nations Educational, Scientific & Cultural Organization ("UNESCO") known as
the Convention on the Protection of Underwater Cultural Heritage. If adopted,
it would restrict access to historical shipwrecks throughout the world to the
extent that it would require compliance with guidelines set forth by the
International Council of Monuments and Sites (ICOMOS). These guidelines
require adherence to strict archeological practices, and the Company intends
to follow these guidelines in all projects to which they are applicable. The
article in the ICOMOS guideline, which may be problematic to the Company, is
the requirement that items of cultural significance not be traded. The
Company believes that the primary value of the cargoes it sells is trade goods
(such as coins, bullion, and gems), and therefore the Company does not believe
that these items constitute articles of cultural significance. Nevertheless,
The Company believes that the proposed convention, if adopted, would increase
regulation of shipwreck recovery operations and result in higher costs.
RISK FACTORS
Shareholders or investors in shares of the Company's common or preferred stock
should consider the following risk factors, in addition to other information
in this report:
1. HISTORY OF OPERATING LOSSES. The Company has incurred substantial
operating losses since its inception. During the fiscal year ended December
31, 1998, the Company had a net loss of $1,114,032 and had an accumulated
deficit of $15,444,791. In the Company's financial statements for the year
ended December 31, 1998, Giunta, Ferlita & Walsh, P.A., the Company's
independent certified public accountants, included an opinion which expressed
substantial doubt as to the Company's ability to continue as a going concern.
A similar qualification is likely to be expressed in the 1999 audit report.
There can be no assurance that the Company will be able to continue in
business or that it will ever be able to achieve profitable operations. (See
"FINANCIAL STATEMENTS.")
2. NEED FOR ADDITIONAL FINANCING. The Company needs additional financing
in order to finance the search for additional ship wrecks, the continued
excavation of wreck sites and to pay the continuing overhead expenses of the
Company. The Company currently has no clear source for any material revenues
or financing. The Company's future revenues or financing will depend upon the
sale of artifacts, the formation of new partnerships to pay for search and
recovery, the leasing of equipment to others, the issue of new shares or the
exercise of outstanding warrants. See also "NEED FOR REORGANIZATION."
3. SPECULATIVE NATURE OF SHIPWRECK SEARCH AND RECOVERY. The search for
possible shipwrecks and the recovery of objects therefrom, particularly in
deep water, is an extremely speculative, high risk venture. Even though the
Company's first two partnerships, Seahawk I, Ltd. and Seahawk II, Ltd., have
each located shipwreck sites, there is no assurance that any objects located
will be of any significant actual value. In addition, the retrieval and
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identification of such objects will be costly and time consuming. If a
shipwreck is determined by the Company to be worthy of salvage, because of the
costs and inherent risks of deep-water salvage, there can be no assurance that
sufficient additional funds or salvage contracts with others can be obtained
for such salvage. Even if funds are obtained, there can be no assurance that
such salvage will prove successful.
4. SEC INVESTIGATION. On July 30, 1992, the SEC issued an order directing
the staff of the Division of Enforcement (the "Division") to conduct an
examination pursuant to Section 8(e) of the Securities Act of 1933 (the "Act")
to determine whether a stop order should be issued relating to a registration
statement which the Company had filed during March 1992 and which had become
effective by the passage of time on August 1, 1992. Under Section 8(d) of the
Act, a stop order proceeding was instituted against the Company by order of
the SEC dated January 12, 1993. A hearing was held before an SEC
Administrative Law Judge during late January and early February 1993.
On May 26, 1993, the Administrative Law Judge issued his Initial Decision.
The Judge concluded that the registration statement filed by the Company was
materially false and misleading and that the Company failed to cooperate with
the examination conducted by the Division's staff. A stop order was issued
suspending the effectiveness of the Company's registration statement.
The primary focus of the proceeding was the value of shipwreck artifacts owned
by the Company and an affiliated partnership, Seahawk I, Ltd. The Judge found
that the Company had overstated the value of the artifacts on its balance
sheet and in other financial information provided in its registration
statement. The Judge concluded that the total net realizable value of all the
artifacts owned by the Company and Seahawk I was $1,356,361 of which amount
$285,413 was attributed to the Company artifacts and $1,070,948 was attributed
to the Seahawk I artifacts. As a result of this decision, the Company and
Seahawk I, Ltd. restated its December 31, 1990 and 1991 financial statements.
The SEC authorized the staff of the Division to file a civil action against
the Company and three former officers and directors of the Company seeking
injunctive relief against the Company and injunctive and monetary relief
against the former officers and directors. The SEC did not seek any financial
penalties or other monetary relief against the Company.
The Complaint filed by the SEC alleged that the Company violated Section 17(a)
of the Securities Act of 1933 and Sections 10(b), 13(a) and 13(b) of the
Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13 and
13b2-1 promulgated thereunder. The SEC alleged that between April, 1989, and
July, 1991, the Company and three former directors and officers disseminated
to the public, in the form of television broadcasts, videotapes and press
releases, false and misleading material information and failed to disclose
certain material information concerning the Dry Tortugas shipwreck discovered
and excavated by the Company. The SEC also alleged, as it did in the stop
order proceeding, that the Company materially overstated the value of
artifacts on its balance sheet and in other financial information provided in
the registration statement of the Company and two amendments thereto filed in
1992 with the SEC and in certain periodic reports of the Company filed in 1992
with the SEC.
The Company and the staff have negotiated a settlement of the matter that has
been approved by the SEC. The Company has agreed to consent to the entry of a
final judgment of permanent injunction, without admitting or denying any of
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the allegations in the complaint to be filed by the SEC, enjoining the Company
from violations of certain provisions of the federal securities law referenced
in the preceding paragraph. In addition, the Company agreed that it will not
employ the former officers and directors as officers and directors of the
Company or any subsidiaries of the Company, use corporate funds to pay for or
reimburse any costs incurred by them for the defense of any civil or
administrative action instituted against them by the SEC, or redeem or
purchase any stock they own until after the termination of any such action.
Finally, the Company agreed to withdraw its pending appeal to the SEC of the
Initial Decision issued in the stop order proceeding.
5. DIFFICULTY IN OBTAINING FINANCING FOR SEARCH AND SALVAGE. The Company's
survival and potential for profitability depends on the projects in which it
is engaged being properly financed. There is no assurance that the Company or
a partnership set up for the purpose, as the case may be, will be able to
successfully raise such funds. Once a shipwreck is found, additional financing
will generally be necessary to finance the salvage activities. There can be
no assurance that the Company, or the Partnership, as the case may be, will be
able to successfully raise additional funds at an acceptable cost, if at all.
6. SUCCESS DEPENDENT ON MANAGEMENT. Success of the Company depends on the
active participation of John T. Lawrence. The Company has no "key-man" life
insurance on, or employment agreement with, Mr. Lawrence. The loss of the
services of Mr. Lawrence would adversely affect the Company's business and its
likelihood of continuing operations.
7. NATURAL HAZARDS. Underwater salvage and recovery operations are
inherently difficult and dangerous and may be delayed or suspended by weather,
sea conditions and other natural hazards. Further, such operations may be
undertaken more safely during certain months of the year than during others.
There can be no assurances that the Company and or entities it is affiliated
with will be able to conduct their search and or recovery operations only
during such favorable periods. In addition, even though sea conditions in the
search location are somewhat predictable, the possibility exists that
unexpected conditions in the search area may occur and that such unexpected
conditions might adversely affect the Company's operations. Further, it is
possible that natural hazards may prevent or significantly delay search and or
recovery operations and therefore any distributions.
8. TITLE TO OBJECTS LOCATED. Persons and entities other than the Company
(both private and governmental) may claim title to shipwrecks or objects
located by the Company. Even if the Company is successful in locating and
salvaging one or more shipwrecks, there is no assurance that the Company will
be able to establish its right to property recovered as against governmental
entities claiming an interest therein, prior owners, insurance claims or other
attempted salvors.
9. UNCERTAIN MARKET FOR AND VALUE OF RECOVERED OBJECTS. Even if valuable
items can be located and salvaged by the Company, it is difficult to predict
the price that might be realized for these items. The value of many recovered
items will fluctuate with a precious metals market that has been highly
volatile in recent years. Additionally, sale for historical or numismatic
value may require the assistance of experts, which assistance might not be
readily available and could be prohibitively expensive. Moreover, the
entrance on the market of a large supply of antique items from shipwrecks
located and salvaged by the Company or others could itself depress the market
for these items.
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10. DELAY IN DISTRIBUTION OR SALE OF RECOVERED ITEMS. The methods and
channels to be used in the disposition of the salvaged items are uncertain at
present. Ready access to buyers for disposition of any artifacts or other
valuable salvaged items recovered by the Company, cannot be assured and delays
in the disposition of such salvaged items are very possible. In fact, the
Company may decide to not sell all or a portion of the salvaged items for a
certain period of time in an attempt to enhance their value. The storage and
security of salvaged items pending sale will most likely be expensive.
11. COMPETITION. There are currently a number of entities competing in the
business segments the Company is engaged in, and other companies are likely to
enter these areas of business in the future. In such cases, the competitors
may have greater financial resources than those of the Company.
12. OUTSTANDING WARRANTS. At the date of this report the Company has
outstanding 8,944,632 Common Stock Purchase Warrants that may be exercised at
prices per share ranging from $0.05 to $5.00. The Company does not have enough
authorized and unissued Common Stock to issue to the Warrant Holders if they
all exercise their warrants. Consequently it is inevitable that the Company
will take steps to increase its authorized Common Stock as soon as it is able
to fund the necessary Shareholders' Meeting. The exercise of such Warrants
could have an adverse effect on the market price for the Company's Stock.
13. DIVIDENDS. No dividend has been paid on the Common Stock since
inception and none is contemplated at any time in the foreseeable future.
14. PREFERRED STOCK. The Company is authorized to issue 60,000,000 shares
of Preferred Stock, no par value. The Preferred Stock may be issued in series
from time to time with such designation, rights, preference and limitations as
the Board of Directors of the Company may determine by resolution. The
potential exists, therefore, that preferred stock might be issued which would
grant dividends preferences and liquidation preferences to preferred
shareholders over common shareholders. Unless the nature of a particular
transaction and applicable statutes require such approval, the Board of
Directors has the authority to issue these shares without shareholder
approval. The issuance of Preferred Stock may have the effect of changing the
control of the Company without any further action by shareholders.
15. PUBLIC MARKET FOR COMPANY'S COMMON STOCK. Presently there is a limited
market for the Company's Common Stock on the "Pink Sheets". The stock was
quoted on the NASD OTC Bulletin Board, but under a new rule announced in
January 1999, after a phasing in period, the NASD eliminated from the OTC
Bulletin Board any company that was not up to date with filing its financial
reports with the SEC. The Company was unable to pay independent accountants to
audit its financial reports and so was unable to keep its filings up to date.
Consequently, the Company's stock was removed from the OTC Bulletin Board in
March 2000. The investment community could show little or no interest in the
Company in future. As a result, purchasers of the Company's securities may
have difficulty in selling such securities should they desire to.
16. DIFFICULTY IN TRADING "PENNY STOCKS". The Company's securities may be
subject to a rule that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers (as defined in the rule) and accredited investors (generally,
institutions and, for individuals, an investor with assets in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 together with such
investor's spouse). For transactions covered by this rule, the broker-dealer
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must make a special suitability determination for the purchaser and must have
received the purchaser's written consent to the transaction prior to the
purchase. Consequently, many brokers may be unwilling to engage in
transactions in the Company's securities because of the added disclosure
requirements, thereby making it more difficult for shareholders to resell
common stock in the secondary market.
17. CONFLICTS OF INTEREST. The Company has formed in the past, and may in
the future, form partnerships to pay for the search and recovery of shipwrecks
where the Company serves as the general partner of the partnership. Potential
conflicts of interest may exist between the Company and the partnerships.
18. NEED FOR REORGANIZATION. The Company is in a serious financial condition
and is in imminent threat of bankruptcy. Under these circumstances it is
inevitable that the management will have to reorganize the capital of the
Company and this will almost certainly mean that existing shareholders will be
substantially diluted. As of the date of this report an acquisition Agreement
has been signed that provides for the acquisition of another corporation
which, if agreed at a Special Meeting of Shareholders, will require a one
hundred for one reverse split of the Company's common stock, and a new issue
of approximately 8 million shares of the Company's post reverse split common
stock. Furthermore, for the acquisition to proceed it is anticipated that a
further approximately 2 million shares of the post reverse split common stock
will be issued to clear up current debt. This transaction will dilute existing
shareholdings of the Company's stock.
EQUIPMENT
Following are descriptions of the vessel R/V Seahawk, which was operated by
the Company from 1989 through 1999, and the other primary equipment that is
operated by the Company and normally available for search, survey and recovery
operations.
RESEARCH VESSEL SEAHAWK. The Vessel R/V Seahawk (the "Seahawk") is an 83 foot
vessel owned by Seahawk, Inc., a 100% subsidiary of the Company. Until it was
sold to the Company in November 1995, Seahawk, Inc. was an affiliate of the
Company. (See "TRANSACTIONS WITH MANAGEMENT AND OTHERS.") The Seahawk was
built in 1977 and extensively renovated in 1982. Its former owner, the
University of North Carolina, used the Seahawk for oceanographic research
projects. The Seahawk has accommodations for 11 persons for periods of up to
30 continuous days at sea. The Seahawk is equipped with midrange diving
equipment (including a decompression chamber) and an array of navigational and
positioning equipment.
From March 1989 to November 1995, the Company rented the R/V Seahawk from
Seahawk, Inc. During November 1995, the Company acquired 100% of the
outstanding common stock of Seahawk, Inc. in a transaction where the Company
issued 2,400,000 shares of its Common Stock to the shareholders of Seahawk,
Inc. On March 31, 1996, Seahawk Inc. was merged into the Company. In January
2000, the vessel was arrested by the courts in Gibraltar pursuant to an action
brought against the Company for the past due wages of the crew, and the vessel
was sold at auction for $207,000.
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ROVS. The Company currently owns or one Phantom ROV. This remotely controlled
underwater vehicle provides a cost-effective method of inspecting wrecks and
bottom structure down to 1500 feet. Designed by Deep Ocean Engineering, the
Phantoms are capable of transmitting real time video of the bottom directly
back to the ship. The ROV design consists of syntactic foam molded to
anodized aluminum tubes. An assortment of machined parts, electronics and
motors are then added to complete the subsea package. The vehicle is then
fitted into a stainless steel crash frame. Several connectors are attached to
an umbilical that leads up to the surface controller.
ROV LEASING ACTIVITIES. The Company has from time to time leased some or all
of its equipment to outside contractors.
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 internet 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 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 did not
experience any year 2000 related software problems.
COMPETITION
There are several companies operating on a worldwide basis that have the
technological capability necessary to compete with Seahawk. In the event
these companies decided to enter the shipwreck business, they may have greater
experience, technology and financial resources. In addition, there are a
number of investor groups, or other entities, which have been formed for the
purpose of searching for shipwrecks. As different technologies which can be
utilized in the search and recovery of shipwrecks are developed or improved
the likelihood of competitors may increase.
EMPLOYEES
The Company has 1 employee, John Lawrence, an executive officer of the
Company.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company and its subsidiaries maintain their offices at 5102 South
Westshore Boulevard, Tampa, Florida. The space was leased on a month-to-month
basis from RFK Investments, a nonaffiliated partnership, pursuant to a lease
that expired March 1, 1996. The lease ran on a month-to-month basis while
disputes with the landlord over past due rent and building repairs were being
solved. Pursuant to the expired lease, the Company leased the first floor
(approximately 5,200 square feet) for $5,500 per month, and the second floor
(approximately 5,000 square feet) for $1,000 per month.
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On July 1999, the Company and RFK signed an interim lease agreement by which
all past disputes were resolved and the basis of a future long term lease were
defined. Until a new lease was signed, it was agreed that the Company should
pay on a monthly basis for the space that it occupied. From August 1999, the
Company Occupied approximately 50% of the building, at a monthly rent of
$3,359 and from February through April 2000, the Company occupied
approximately 2,000 square feet at a monthly rent of $1,875. On May 1, 2000,
the Company signed a new 1 year lease for approximately 1,117 square feet at a
monthly rent of $894.30.
The leased space provides the Company with corporate offices and storage
facilities.
ITEM 3. LEGAL PROCEEDINGS.
There are no current legal proceedings, and the Company is not aware of any
threatened legal proceedings to which the Company is a party except the
following:
CLAIM AGAINST INTERNATIONAL DIVING AND CONSULTING SERVICES, INC.
On June 5, 1996, the Company filed a claim and a motion for payment in the
Bankruptcy Court against International Diving and Consulting Service, Inc.
("International Diving"), a Lafayette, Louisiana based underwater services
company, and against one of the principals of International Diving as
guarantor for the company, in the sum of $1,486,374. The claim was for damages
and other amounts payable by International Diving for breach of an Agreement
to charter the M/V Seahawk Retriever, then owned by the Company, for the five
year period commencing September 1, 1994. The claim reflected credit for sums
received as a result of the sale of the vessel to a third party following the
breach by the debtor. Management believes it unlikely that the Company will
recover any of the sum claimed and in accordance with Company policy, the
claim has not been recorded in the financial statements, and will not be
unless and until any proceeds are received.
LAWSUIT BY FORMER OFFICERS AND 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.
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The Company is of the opinion that the agreement with the Securities and
Exchange Commission takes priority over state law and in January, 1999, the
Company filed in the state court a Motion to Dismiss Complaint, a Motion for
More Definite Statement and Motion to Strike. At the same time the Company
filed a Motion for Preliminary and Permanent Injunction in the federal court.
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. Morris's 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of shareholders during the
fourth quarter of the fiscal year ended December 31, 1998.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) PRINCIPAL MARKET OR MARKETS. The Company's common stock is traded on
the over-the-counter market. The Company's common stock has been traded on the
NASDAQ system under the symbol "SDOT" since January 24, 1990, but on February
10, 1994, was delisted from the NASDAQ Small Caps Stock Exchange for
noncompliance with the rule that requires companies with net equity lower than
$2,000,000 to maintain a minimum bid stock price of $1.00. The stock was then
quoted on the OTC Bulletin Board until March 2000, when it was removed because
of the Company's failure to maintain its SEC filings up to date. The stock is
currently quoted on the "Pink Sheets". In February the Company's symbol was
changed to SHWK when the original symbol was taken by NASD and allocated to a
company on a more senior market. The following table sets forth the range for
high and low bid quotations for the Company's securities as reported by the
OTC Bulletin Board. These prices are believed to be representative
inter-dealer quotations, without retail markup, markdown or commissions, and
may not represent actual transactions.
Bid
Quarter Ended High Low
------------- ---- ---
March 31, 1996 $0.15625 $0.12500
June 30, 1996 $0.12500 $0.10938
September 30, 1996 $0.12500 $0.12500
December 31, 1996 $0.18750 $0.14063
March 31, 1997 $0.12500 $0.12500
June 30, 1997 $0.12500 $0.10938
September 30, 1997 $0.18750 $0.14063
December 31, 1997 $0.15625 $0.12500
March 31, 1998 $0.15600 $0.15600
June 30, 1998 $0.11000 $0.09000
September 30, 1998 $0.08000 $0.06000
December 31, 1998 $0.00500 $0.03000
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK. The number of
beneficial holders of the Company's no par value Common Stock at December 31,
1998, was approximately 6,000
(c) DIVIDENDS. Holders of Common Stock are entitled to receive such
dividends as may be declared by the Company's Board of Directors. The Company
has not paid any dividends on its Common Stock and the Board of Directors of
the Company presently intends to pursue a policy of retaining earnings, if
any, for use in the Company's operations and to finance expansion of its
business. The declaration and payment of dividends in the future, of which
there can be no assurance, will be determined by the Board of Directors in
light of conditions then existing, including the Company's earnings, financial
condition, capital requirements and other factors.
21
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
The Company was formed on September 17, 1986 for the purpose of creating a
corporate vehicle to seek and acquire a business opportunity. The Company
completed a public offering during October, 1988 and received net proceeds of
approximately $490,000. On March 13, 1989 the Company acquired 100% of the
outstanding stock of R/V Seahawk, Inc. ("R/V Seahawk") in exchange for
100,000,000 shares of the Company's Common Stock. The Company had no
significant operations prior to the March 1989, acquisition of R/V Seahawk.
On March 2, 1992, R/V Seahawk was merged into the Company.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The net loss for the year ended December 31, 1998 was $1,119,032, this
compared to a loss of $697,937 in the corresponding period of 1997.
Total revenues in the year ended December 31 1998 were $797,356, an increase
of $620,247 over the 1997 equivalent period due to a $459,356 gain on sale of
artifacts and revenues of $313,000 from the supply of survey services. In the
year to December 31, 1997 the Company gained $1,392 from the sale of artifacts
and $135,717 from survey services. As a result of the higher activity, total
expenditure in the year ended December 31, 1998, at $1,242,582, was $340,571
more than the $902,011 expended in the 1997 and an operating loss of $445,226
was suffered in the 1998 compared to a loss of $724,902 in 1997.
The vessel R/V Seahawk was fully operational and working in the Caribbean and
the Mediterranean in 1998 whereas she was laid up without work for the first
nine months of 1997. Consequently the cost of vessel operations, including
$235,458 for subcontracted crew and equipment costs in the year ended
December 31, 1998 were $347,707 higher at $424,747 than the $77,040 incurred
during the 1997 period. As well as the subcontracted crew and equipment costs,
the 1988 vessel operations absorbed $10,965 in travel expenses, $25,974 for
repairs and renewals, 56,972 for consumables and $24,471 for fuel while there
such costs in the period to December 31, 1997 were considerably lower.
During the year ended December 31, 1998 the Company's share of administrative
expenditure of a South American joint venture amounted to $22,387. In the 1997
period, such costs amounted to 36,305. No further costs of that nature were
incurred after June 1998 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.
Conservation and archaeology expenses were $3,000 for the year ended December
31, 1998 compared to $36,305 for the equivalent period during 1997. This was a
result of reduced activity in the conservation laboratory following the sale
of the Company's artifacts.
Depreciation was $137,781 for the year ending December 31, 1998, and $139,424
for the 1997 period indicating a negligible change in the depreciating assets
from the earlier year to the next.
Rent was $64,838 for the year ending December 31, 1998 compared to $33,413 for
the equivalent period during 1997. In 1998 there was a one-time reduction in
rent resulting from negotiations over past due rent with the landlord.
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<PAGE>
Administrative costs increased by $29,211 to $589,829 for the year ending
December 31, 1998 from $560,618 during 1997. Most categories of administrative
expenditure saw small differences in the 1998 period compared to the 1997
period but there were significant increases in executive pay (271,100 from
247,000) and legal and professional fees ($80,917 from $63,239).
Interest expense increased to $248,042 for the year ended December 31, 1998
compared to $123,718 in 1997. The increase was due to a charge for interest on
past due salaries being commenced in 1998 and to the effect of default
interest on overdue notes.
Interest income was down to $23,638 for 1998 from $59,930 in 1997 because the
$300,000 interest bearing note receivable from Seahawk I, Ltd. was repaid at
the end of March 1998.
Assets with a net book value of $12,750 were retired during the year ended
December 31, 1998, causing a loss on disposal of assets of that amount.
During 1998 one of the Company's affiliates paid off its note and account
payable to the Company, releasing a provision for non payment of $742,301.
The $7,120 loss on investment in affiliates represented the company's share of
losses of Seahawk II, Ltd., a partnership in which the company is the general
partner. In the equivalent period of 1997, the loss on investment in the
affiliates was $82,530. That loss represented 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.
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.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The net loss for the year ending December 31, 1997 was $697,937 compared to a
loss of $1,200,846 for the year ending December 31, 1996, a decrease in losses
of about 43%.
The increase in revenues to $179,265 in 1997 from $69,386 in 1996 resulted
from an increase in offshore operations to $154,411 in 1997 from $930 in 1996,
a decrease in revenue from sales of artifacts to $3,548 from $19,363. Revenue
from affiliated partnerships was negligible in 1997 and 1996 due to the
absence of project finance in the affiliates.
Operating expenses were reduced to $343,549 in 1997 from $714,140 in 1996, a
54% reduction due largely to the curtailment of offshore activity and lower
project costs in Brazil. There was a decrease in expense associated with
vessel operations to $77,041 in 1997 from $278,433 in 1996. This resulted
primarily from decreases in the costs of personnel (to $2,190 from $106,686),
the costs of subcontracted services (to $6,427 from $61,493) and repairs and
23
<PAGE>
maintenance (to $8,902 from $23,208). The costs of personnel and subcontract
services were down due to the reduced crewing requirements. A one-time cost of
$33,177 was incurred in 1996 as a result of an abortive sale and lease back
arrangement on the vessel.
Depreciation expense decreased to $141,744 in 1997 from $179,867 in 1996 the
difference being due to depreciation charged in 1996 on the M/V Seahawk
Retriever, which was still owned by the Company until its sale in early 1996.
The costs of renting the Company's premises was reduced in 1997 to $33,413
from $83,070 in 1996 because of a reduction in rent negotiated with the
lessor.
A $102,570 increase in general and administrative expense to $560,619 in 1997
from $458,049 in 1996, resulted primarily from the increase in the provision
for bad debt expense (to $23,267 from $2,730) and increased payroll charges
(to $278,556 in 1997 from $205,694 in 1996). The payroll increases reflect an
increase in salary for the two executive directors.
Interest expense was up by $43,894 to $129,089 in 1997 due to additional loans
and default levels of interest incurred on overdue notes. Interest income at
$58,930 in 1997 compared to $35,151 in 1996 reflected the higher default rate
of interest charged by the Company to Seahawk I, Ltd. on an overdue note. An
increase in losses resulting from partnership operations to $56,613 in 1997
from $44,356 in 1996 was due to increased administrative costs in each of the
partnerships.
In 1997 the Company decided to write back provisions made for accounts payable
relating to expenditure prior to 1993 no longer considered payable by
management. The total gain on this one time write back was $169,242.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1998, the Company's working capital deficit
increased by $225,261 to a negative $(2,273,020). At December 31, 1997 the
Company had a working capital deficit of $(2,047,760).
The deficit increased due to a net loss before depreciation during the year of
$981,251, the effect of which was mitigated somewhat because of cash generated
by the sale the Company's artifacts and the recovery of the account receivable
from Seahawk I, Ltd. The cash so generated was used to repay expensive short
term and overdue debt.
Despite these profitable liquidations, the Company continues to have very
restricted cash flow. 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.
24
<PAGE>
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. 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 $114,900 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
25
<PAGE>
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
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.
ITEM 7. FINANCIAL STATEMENTS.
Please see pages F-1 through F-52.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no disagreements between the Company and its independent
certified public accountants on any matter of accounting principles or
practices or financial statement disclosure since the Company's inception.
26
<PAGE>
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The Directors and Officers of the Company are as follows:
Name Age Positions and Offices Held
John T. Lawrence 52 Chief Executive Officer, President,
Director of the Company, and Chairman
of the Board
John B. Balch 52 Secretary, Chief Operating Officer and
Director of the Company
J. Robert Shaw 46 Director of the Company
Dennis Parisi 54 Director
There is no family relationship between any Director or executive officer of
the Company. All Directors and Officers will hold office until the next Annual
Meeting of Shareholders.
The following sets forth biographical information as to the business
experience of each Officer and Director of the Company for at least the past
five years.
JOHN T. LAWRENCE has served as one of the Company's Directors since September
1991, as President of the Company since June 1993, as Chief Executive Officer
since January 1994, and as Chairman of the Board since February 1995. Mr.
Lawrence has served as Chairman of OSEL GROUP since November 1988. OSEL
GROUP, located in the United Kingdom, is engaged in the business of designing
and manufacturing subsea vehicles and sensors. The main trading company in
OSEL was placed into receivership in 1992, and its business and assets were
sold. From 1984 until 1988, Mr. Lawrence served as the Managing Director of
OSEL GROUP and from 1979 until 1984, he served as the Financial Director of
OSEL GROUP. From 1975 until 1979, he served as financial director of an oil
business subsidiary of the John Mowlem Group. In 1968, Mr. Lawrence joined
the London office of KPMG Peat Marwick where he qualified as a Chartered
Accountant in 1971 and he continued with KPMG until 1975. Mr. Lawrence gained
an honors degree in Chemistry from University College of London in 1968. Mr.
Lawrence is Treasurer and a founding Board Member of the Professional
Shipwreck Explorers Association (ProSEA). ProSEA is a non-profit trade
association which provides a forum through which deep sea salvors,
archaeologists and government entities work together to promote a high
standard of ethics and principles in dealing with deep sea shipwreck
resources.
JOHN P. BALCH has served as a Director of the Company and as Chief Operating
Officer from May 1994 to December 1999. Mr. Balch has also served as Managing
Director of OSEL GROUP (see above) since November 1988. Mr. Balch served as
General Manager and Director of OSEL GROUP from 1983 until 1988. From 1975
until 1979, he served as Operations Manager for DHB, a subsidiary of
Oceaneering International, Inc., which manufactured Atmospheric Diving
Systems. From 1979 until 1983, Mr. Balch served as Managing Director of DHB
and Worldwide Program Manager for Oceaneering ADS. From 1969 until 1975, he
progressed from toolmaker to development engineer then product manager in
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<PAGE>
three precision engineering companies. Mr. Balch received a City and Guilds
HNC in Mechanical Engineering from Highbury College, Portsmouth, England in
1969.
JAMES ROBERT SHAW Joined the Board of Directors of the Company in July 1997.
Mr. Shaw has also served, since 1994, as President and CEO of Classic
Restaurants International, Inc., a publicly traded company engaged in the
entertainment business. Prior to that appointment he was an investment banker
for several years and owned a franchise of a Broker-Dealership at Schneider
Securities. Mr. Shaw received a BA from Carson Newman College in 1979 and an
MA from the Southern Baptist Theological Seminary in 1983.
DENNIS PARISI Joined the Board of Directors on June 23, 1999 pursuant to a
stock purchase agreement entered into between Drexel Aqua Technologies, inc.
and the Company. For the past five years Mr. Parisi has been President and
principal shareholder of Drexel Aqua Technologies, inc., a New Jersey based
corporation specializing in the financing of, and investment in, shipwreck
projects.
COMPLIANCE WITH SECTION 12(A) OF THE SECURITIES EXCHANGE ACT OF 1934
ITEM.10 EXECUTIVE COMPENSATION
The following table summarizes the compensation for the years ended December
31, 1996, 1997 and 1998, of the Company's Chief Executive Officer and Chief
Operating Officer:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ ----------------- ---------------
SECURI-
TIES
UNDERLY-
OTHER RE- ING ALL
ANNUAL STRICTED OPTIONS/ OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER) PAYOUTS SATION
------------------ ---- ------ ----- ------ -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John T. Lawrence, 1998 $132,000 -0- -0- -0- -0- -0- -0-
Chief Executive 1997 $132,000 -0- -0- -0- -0- -0- -0-
Officer 1996 $120,000 -0- -0- -0- -0- -0- -0-
John P. Balch, 1998 $132,000 -0- -0- -0- -0- -0- -0-
Chief Operating 1997 $132,000 -0- -0- -0- -0- -0- -0-
Officer 1996 $120,000 -0- -0- -0- -0- -0- -0-
</TABLE>
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<PAGE>
OSEL Group Ltd., a UK corporation that supplied the services of Mr. Lawrence
and Mr. Balch was paid only $16,800 of their $200,000 remuneration in 1995.
The balance was accrued in the financial statements as of December 31, 1995.
In 1996, OSEL Group was paid a total of $105,176 in cash and 304,366 shares of
the Company's common stock as payment for the accrued 1995 remuneration. The
number of shares was calculated monthly based on the average closing bid
prices of the Company's Common Stock during each month.
In 1996, Mr. Lawrence and Mr. Balch were each paid $37,600 of their $120,000
salary and the balance of $82,400 was accrued for each of them as at December
31, 1996.
In 1997, Mr. Lawrence and Mr. Balch were each paid $0 of their $132,000 salary
and the balance of $132,000 was accrued for each of them as at December 31,
1997.
In 1998, Mr. Lawrence and Mr. Balch were each paid $44,856 of their $132,000
salary and the balance of $87,144 was accrued for each of them as at December
31, 1998.
The unpaid salary accrues interest at the rate of 12% per annum.
The following table sets forth certain information relating to option grants
pursuant to the Company's Employee Stock Option Plan in the year ended
December 31, 1998, to the individual named in the Summary Compensation Table
above.
PERCENTAGE OF
TOTAL OPTIONS/
NAME AND PRINCIPAL OPTIONS/ SARs GRANTED EXERCISE
POSITION SARs TO EMPLOYEES OF BASE EXPIRATION
------------------- -------- -------------- -------- ----------
John T. Lawrence -0- -0- -0- -0-
John P. Balch -0- -0- -0- -0-
EMPLOYEE STOCK OPTION PLAN
During April 1990, the Board of Directors adopted the Employee Stock Option
Plan (the "Plan") which was approved by the Company's shareholders on December
14, 1990. The Plan terminated in April, 2000. The Plan authorized the issuance
of options to purchase up to 400,000 shares of the Company's Common Stock.
The Plan allowed the Board to grant stock options from time to time to
employees, officers and directors of the Company. The Board has the power to
determine at the time the option is granted whether the option will be an
Incentive Stock Option (an option which qualifies under Section 422 of the
Internal Revenue Code of 1986) or an option which is not an Incentive Stock
Option. Vesting provisions were determined by the Board at the time options
were granted. The option price for any option was to be no less than the fair
market value of the Common Stock on the date the option was granted.
In January 1999, the Company issued to Mr. Lawrence and Mr. Balch options to
purchase 100,000 shares each at a price of $0.03 per share, pursuant to the
renewal of their employment contracts.
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<PAGE>
OTHER STOCK OPTIONS AND WARRANTS
In January 1997, the Company issued to Mr. Lawrence and Mr. Balch warrants to
purchase 50,000 shares each at a price of $0.13 per share and 500,000 shares
each at $0.13 per share pursuant to the renewal of their employment contracts.
In July 1997, Mr. Shaw was granted 200,000 warrants to purchase shares at a
price of $0.11 per share as compensation for joining the Board of Directors.
In January 1999, the Company issued to Mr. Lawrence and Mr. Balch options to
purchase 100,000 shares each at a price of $0.03 per share and issued to Mr.
Shaw options to purchase 50,000 shares at $0.03 per share pursuant to the
renewal of their terms of office as directors.
ITEM 11. SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth, as of July 20, 2000, the stock ownership of
each person known by the Company to be the beneficial owner of five percent or
more of the Company's common Stock, all Directors individually and all
Directors and Officers of the Company as a group. Except as noted, each
person has sole voting and investment power with respect to the shares shown.
AMOUNT OF
NAME AND ADDRESS BENEFICIAL PERCENTAGE
OF BENEFICIAL OWNER OWNERSHIP OF CLASS
------------------- ---------- ----------
Carl Anderson 8,411,612 (1) 18.4%
19235 Highway 41 North
Lutz, FL 33549
Dennis Parisi 4,354,183 (2) 9.5%
99 E. Main Street
E. Islip, NY 11730
John T. Lawrence 2,436,116 (3) 5.3%
5102 South Westshore Boulevard
Tampa, FL 33611
John P. Balch 2,332,183 (4) 5.1%
5102 South Westshore Boulevard
Tampa, FL 33611
J. Robert Shaw 320,000 (5) .6%
5102 South Westshore Boulevard
Tampa, FL 33611
All Officers and 4,188,295 (2)(3) 20.5%
Directors as a Group (4)(5)
(4 Persons)
_________________
(1) Includes 5,046,250 shares underlying currently exercisable warrants held
by Mr. Anderson and 400,000 shares that Mr. Anderson's Series 4 Preferred
Stock is currently convertible into.
30
<PAGE>
(2) Comprises of 4,354,183 shares that Drexel Aqua Technology, Inc., a
corporation controlled by Mr. Parisi, can currently convert its Series 2
Preferred Stock into.
(3) Includes 1,600,000 shares underlying currently exercisable options and
50,000 shares underlying currently exercisable warrants held by Mr. Lawrence,
and 400,000 shares that Mr. Lawrence's Series 4 Preferred Stock is currently
convertible into.
(4) Includes 1,600,000 shares underlying currently exercisable options and
50,000 shares underlying currently exercisable warrants held by Mr. Balch, and
400,000 shares that Mr. Balch's Series 4 Preferred Stock is currently
convertible into.
(5) Includes 300,000 shares underlying currently exercisable options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During 1997, Carl Anderson loaned to the Company a total of $322,650 interest
free. In September 1997, Anderson expressed his intention to convert $278,200
of the loans into 2,140,000 shares of common stock of the Company by
exercising his AH1 warrants and the Company issued a 1 year note for the
balance of $45,000 repayable on October 31, 1998 with 12% annual interest. The
note was repaid in December 1998 but the Company was unable to comply with the
request to convert the $278,200 because it had insufficient authorized common
stock available. In May 1999 the Company entered into an Agreement with Mr.
Anderson under which the remaining $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.
In May 1998, Anderson loaned the Company $73,500 for one month at an annual
interest of 18% and secured with 3,500,000 shares of common stock in
Vanderbilt Square Corporation. As part of the consideration for making the
loan the Company agreed to extend the validity of certain warrants belonging
to Anderson. The loan was repaid on the due date.
In July 1997, J. Robert Shaw was appointed a director of the Company and
issued 200,000 options to purchase the Company's common stock at $0.11 per
share.
In January 1999, the Company issued 100,000 stock options to purchase the
Company's common stock at $0.03 per share to each of the two executive
directors and 50,000 stock options to purchase the Company's common stock at
$0.03 per share to Mr. Shaw. At the same time the Company issued 100,000 stock
31
<PAGE>
options to purchase the Company's common stock at $0.03 per share to each of
the two executive directors pursuant to their renewing their contracts of
employment.
In February 1999, the company issued 20,000 shares of its common stock to Mr.
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 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. 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.
As of December 31, 1998, John Balch and John Lawrence were each owed $287,450
in past due salaries and 67,447 in interest thereon calculated at 12% per
year. In April 1999, the Company settled all past due payroll commitments by
issuing a 2 year 12% per annum Note to four individuals, secured by the
Company's interest in Pesqamar. At that date John Balch and John Lawrence were
owed an aggregate of $800,000 for past due salaries and accrued interest. That
sum was incorporated into a 2 year 12% per annum Note in the name of United
Commodities International, Ltd.(UCIL), a corporation controlled by Mr. Balch
and Mr. Lawrence. In June 2000, UCIL agreed to convert the Note and accrued
interest into 1,000,000 shares of the company's Series 5 Preferred Stock.
Since October 1996, Mr. Anderson has leased an automobile to the Company at
the rate of $5,000 per year.
In June 2000, Carl Anderson was awarded 500,000 warrants to purchase the
Company's common stock at $2.00 per share, in recognition of services he and
his employees had performed on behalf of the Company.
32
<PAGE>
As of June, 2000, Mr. Shaw was owed $22,000 by the Company for unpaid
director's fees. At that date Mr. Shaw agreed to convert that debt into 22,000
shares of the Company's Series 5 Preferred Stock.
The Board of Directors was of the opinion that the terms of the above
transactions were at least as favorable as those which could be obtained from
independent third parties.
33
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8K.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
<S> <C> <C>
3 Articles of Incorporation and Bylaws Incorporated by reference to
Exhibit No. 3 to the
Registrant's Registration
Statement (No. 33-22037)
10.1 Agreement and Plan of Reorganization Incorporated by reference to
between Fox Ridge Capital, Inc. and Exhibit No. 10.2 to the
R.V. Seahawk, Inc. Registrant's Registration
Statement (No. 33-22037)
10.2 Agreement Among Fox Ridge Capital, Incorporated by reference to
Inc., Timothy J. Brasel, Janelle K. Exhibit No. 10.3 to the
Johnson and Susan A. Brasel dated Registrant's Registration
April 24, 1989 Statement (No. 33-22037)
10.3 Charter Agreement between Seahawk, Incorporated by reference to
Inc. and R/V Seahawk, Inc. Exhibit No. 10.4 to the
Registrant's Registration
Statement (No. 33-22037)
10.4 Contract for the Purchase of 2000 Incorporated by reference to
Series ROV between R/V Seahawk, Inc., Form 8-K dated December 7,
AOSC and Commercial Union Capital Ltd. 1989
10.5 Master Lease Purchase Agreement be- Incorporated by reference to
tween Commercial Union Capital Lim- Form 8-K dated December 7,
ited and R/V Seahawk, Inc. 1989
10.6 Letter of Guarantee from Seahawk Deep Incorporated by reference to
Ocean Technology, Inc. to Commercial Form 8-K dated December 7,
Union Capital Limited 1989
10.7 Option and Agreement by and among Incorporated by reference to
Valley Resources, Ltd., Valley Marine, Form 10-K for the fiscal year
Inc. and Seahawk Deep Ocean Tech- ended December 31, 1989
nology, Inc.
10.8 Bareboat Charter Party between Valley Incorporated by reference to
Marine, Inc. and Seahawk Deep Ocean Form 10-K for the fiscal year
Technology, Inc. ended December 31, 1989
10.9 Common Stock Option for John C. Incorporated by reference to
Morris Form 10-K for the fiscal year
ended December 31, 1989
10.10 Common Stock Option for Gregory P. Incorporated by reference to
Stemm Form 10-K for the fiscal year
ended December 31, 1989
10.11 Lease with RFK Partnership for build- Incorporated by reference to
ing at 5102 South Westshore Boulevard Form 10-K for the fiscal year
ended December 31, 1989
34
<PAGE>
10.12 Statement of Intent with Harbor Branch Incorporated by reference to
Oceanographic Institution, Inc. Form 10-K for the fiscal year
ended December 31, 1989
10.17 Termination of Lease Agreement and Incorporated by reference to
Release of Liability dated Registrant's Registration
February 7, 1992 Statement on Form S-1 (filed
March 18, 1992)
10.18 Trust Indenture with R/V Seahawk, Incorporated by reference to
Inc. dated August 16, 1991, as Registrant's Registration
supplemented Statement on Form S-1 (filed
March 18, 1992)
10.19 Exchange Agreement with R/V Seahawk Incorporated by reference to
dated August 16, 1991 Registrant's Registration
Statement on Form S1 (filed
March 18, 1992)
10.20 Option Agreement dated January 24, Incorporated by reference to
1992 with Carl Anderson Registrant's Registration
Statement on Form S-1 (filed
March 18, 1992)
10.21 Loan Agreement dated January 6, 1992 Incorporated by reference to
with Carl Anderson Registrant's Registration
Statement on Form S-1 (filed
March 18, 1992)
10.22 Private Placement Agreement dated Incorporated by reference to
January 24, 1992 with Carl Anderson Registrant's Registration
Statement on Form S1 (filed
March 18, 1992)
10.23 Agreement to Modify Warrant Exercise Incorporated by reference to
Price and Shares Subject to Option Registrant's Form 10K for the
fiscal year ended December 31,
1992
10.24 Lease Termination Agreement dated Incorporated by reference to
October 1, 1992 with Seahawk, Inc. Registrant's Form 10K for the
fiscal year ended December 31,
1992
22 Subsidiaries of the Registrant Attached
</TABLE>
During the quarter ended December 31, 1997, there were no Form 8K's filed.
35
<PAGE>
(a) 1. The following Financial Statements are filed as part of this
Form KSB.
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
Page
Report of Independent Certified Public Accountants ............... F-3
Consolidated Balance Sheet as of December 31, 1998 ............... F-4
Consolidated Statements of Operations for the Years
Ended December 31, 1998 and 1997.................................. F-5
Consolidated Statement of Stockholders' Equity for
the Years Ended December 31, 1998 and 1997........................ F-6
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998 and 1997.................................. F-7-8
Notes to Consolidated Financial Statements ....................... F-9-28
SEAHAWK I, LTD.
Report of Independent Certified Public Accountants ............... F-29
Statement of Liquidating Activities For the nine
months ended September 30, 1998 .................................. F-30
Notes to the Financial Statements ................................ F-31-33
SEAHAWK II, LTD.
Reports of Independent Certified Public Accountants .............. F-34
Balance Sheet as of December 31, 1998 ............................ F-35
Statements of Operations for the Years Ended December 31,
1998 and 1997 .................................................... F-36
Statements of Partners' Capital for the Years Ended
December 31, 1998 and 1997 ....................................... F-37
Statements of Cash Flows for the Years Ended December 31,
1998 and 1997 .................................................... F-38
Notes to Financial Statements .................................... F-39-42
EAGLE PARTNERS, LTD.
Reports of Independent Certified Public Accountants .............. F-43
Statement of Net Assets (Liabilities) in Liquidation
as of December 31, 1998 .......................................... F-44
Statements of Changes in Net Assets (Liabilities) in
Liquidation on December 31, 1998 ................................. F-45
F-1
<PAGE>
Statement of Operations for the Years Ended
December 31, 1998 and 1997 - Historical Basis .................. F-46
Statements of Partners' Capital for the Years Ended
December 31, 1998 and 1997 - Historical Basis .................... F-47
Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997 ....................................... F-48
Notes to Financial Statements .................................... F-49-52
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
Seahawk Deep Ocean Technology, Inc.
Tampa, Florida
We have audited the accompanying consolidated balance sheet of Seahawk Deep
Ocean Technology, Inc. as of December 31, 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1998 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Seahawk Deep Ocean
Technology, Inc. as of December 31, 1998 and the results of its operations,
changes in stockholders' equity and its cash flows for the years ended
December 31, 1998 and 1997 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statements, the Company incurred a net loss of $1,119,032 for 1998 and has
incurred substantial net losses for each of the past several years resulting
in an accumulated deficit of $15,449,791. At December 31, 1998, the Company
has negative working capital as indicated by current liabilities exceeding
current assets by $2,273,020. These factors, in addition to other factors as
discussed in Note 13, raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classification of liabilities that might be
necessary in the event the Company cannot continue in operation.
/s/ Giunta, Ferlita & Walsh, P.A.
Giunta, Ferlita & Walsh, P.A.
Tampa, Florida
July 1, 2000
F-3
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
CURRENT ASSETS
Cash and cash equivalents $ 16,510
Accounts receivable - other 6,200
Prepaid expenses 11,115
-----------
Total current assets 33,825
-----------
PROPERTY AND EQUIPMENT, Net 526,523
OTHER ASSETS
Accounts and notes receivable - affiliate,
less losses in excess of investment in
affiliate of $40,820 -
Deposits and advances 14,025
Purchased shipwreck research, net of $25,000
amortization -
-----------
Total other assets 14,025
TOTAL ASSETS $ 574,373
===========
CURRENT LIABILITIES
Accounts payable $ 264,663
Accrued expenses
Salaries 45,284
Interest due related parties 198,415
Interest due others 29,131
Other 23,905
Provision for lawsuit 700,000
Due to related parties 293,800
Accrued officers' salaries 574,900
Notes payable - others 176,747
-----------
Total current liabilities 2,306,845
STOCKHOLDERS' EQUITY
Preferred stock - no par value,
60,000,000 shares authorized, 552,460
shares issued and outstanding 116,500
Common stock - no par value, 30,000,000
shares authorized, 28,181,991 shares
issued and outstanding 13,595,628
Paid in capital-stock options 5,191
Accumulated (deficit) (15,449,791)
-----------
(1,727,472)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 574,373
===========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------- -----------
REVENUES
Income - affiliates $ 25,000 $ 40,000
Rental income - others 313,000 135,717
Gain on sales of artifacts 459,356 1,392
----------- -----------
Total revenues 797,356 177,109
OPERATING EXPENSES
Vessel - operations 424,747 77,041
South American Project 22,387 36,305
Conservation 3,000 53,210
Depreciation and amortization 137,781 141,424
Rent 64,838 33,413
----------- -----------
Total operating expenses 652,753 341,393
GENERAL AND ADMINISTRATIVE EXPENSES 589,829 560,618
----------- -----------
Total expenses 1,242,582 902,011
(LOSS) FROM OPERATIONS (445,226) (724,902)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income - affiliate 23,638 58,930
Interest expense (248,042) (123,718)
Other income (expense) - 1,624
Gain (Loss) on sale of marketable
securities (486,833) -
Gain (Loss) on sale of equipment (12,750) 3,295
Reduction of accounts payable provision - 169,364
Provision for lawsuit (700,000) -
Release of provision for receivables
from Seahawk I, Ltd. 757,301 -
Gain (Loss) on investment in less
than 50 % owned entities (7,120) (82,530)
----------- -----------
Total other income (expense) (673,806) 26,965
----------- -----------
NET (LOSS) $(1,119,032) $ (697,937)
=========== ===========
NET (LOSS) PER SHARE $ (0.04) $ (0.02)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON SHARES EQUIVALENTS
OUTSTANDING 27,871,766 26,653,790
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
PAID IN
PREFERRED STOCK COMMON STOCK CAPITAL ACCUMULATED
SHARES AMOUNT SHARES AMOUNT STOCK DEFICIT
$ $ $ $
------- ------- ---------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1996 200,000 50,000 26,134,366 13,281,498 5,191 (13,632,822)
Common Stock
Issued:
For cash 270,185 36,050
For services 280,000 35,000
For debt 784,444 127,580
Issued to
officers for
accrued
remuneration 100,000 12,500
For extending
a loan 25,000 4,500
As penalty on
contract 100,000 12,500
Net (loss) (697,937)
------- ------ ---------- ---------- ----- ------------
Balance,
December 31,
1997 200,000 50,000 27,693,991 13,509,628 5,191 (14,330,759)
Stock
Converted (200,000) (50,000) 200,000 50,000
Issued:
For cash 2,460 61,500
For services 550,000 55,000
For debt 288,000 36,000
Net (loss) ( 1,119,032)
------- ------ ---------- ---------- ----- -----------
Balance,
December 31,
1998 552,460 116,500 28,181,991 13,595,628 5,191 (15,449,791)
======= ======= ========== ========== ====== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(1,119,032) $ (697,937)
Adjustments to reconcile net loss to net
cash (used)provided by operating activities:
Depreciation and amortization 137,781 139,424
Provision for bad debt 10,109 15,000
(Gain)Loss on sale of equipment 12,750 (3,295)
(Gain)Loss on sale of artifact inventory (459,356) -
Loss on marketable securities 486,833 -
Stock issued for services 55,000 92,500
(Gain)Loss on investment in less than
50% owned entities 7,120 82,510
Release of provision for Seahawk I receivables (757,301) -
(Increase) decrease in:
Other receivables (3,238) 10,889
Inventory - 3,687
Prepaid expenses (5,817) 36,515
Accounts receivable affiliates 1,031,328 (60,435)
Deposits 750 (3,089)
Increase (decrease) in:
Accounts payable (139,842) (208,867)
Accrued expenses 936,111 324,818
----------- -----------
Net cash (used) provided by operating
activities 193,196 (268,279)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment - 5,295
Proceeds from sale of marketable securities 414,522 -
Marketable securities acquired from artifact
sale and repayment of Seahawk I debt (901,354) -
Proceeds from sale of artifact inventory 762,429 -
Purchases of property and equipment (4,340) (76,529)
----------- -----------
Net cash (used)provided by investing
activities 271,257 71,234
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of notes payable - related 78,100 218,200
Issuances of notes payable - other 220,924 208,655
Repayment of notes payable - related (126,186) -
Repayment of notes payable - other (681,410) (124,799)
Proceeds from issuance of stock 61,500 36,050
----------- -----------
Net cash (used)provided by financing
activities (447,072) 338,106
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 17,381 (1,407)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR (871) 536
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 16,510 $ (871)
----------- -----------
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 186,018 $ 33,626
=========== ===========
Taxes paid $ - $ -
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-7
SUMMARY OF SIGNIFICANT NON-CASH TRANSACTIONS
During 1997:
1. Several debt holders converted their debt to stock. A summary of the debt
converted to stock is as follows:
Common Stock
Amount Shares
-------- --------
Accounts payable $ 31,500 195,107
Accrued salary 12,500 100,000
Notes payable-other 96,080 589,333
-------- -------
$140,080 884,440
======== =======
2. 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 Pesqamar.
3. 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.
4. The Company issued 25,000 shares of its Common Stock to a person as an
inducement to extend a loan for a further period of 12 months.
During 1998:
1. The Company issued 288,000 shares of its Common Stock to a person in
payment of a note for $36,000.
2. The Company issued 200,000 shares of its Common stock to a corporation to
redeem 200,000 shares of its Series 1 Preferred stock with a redemption value
of $50,000.
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
Organization
Seahawk Deep Ocean Technology, Inc. (the "Company") was organized as a
Colorado corporation on September 17, 1986 for the purpose of acquiring a
business opportunity. On October 14, 1988 the Company completed its initial
public offering of 1,200,000 shares of common stock at an offering price of
$.50 per share. On March 13, 1989, the Company issued 2,000,000 shares of its
no par value common stock to the holders of 100% of the outstanding common
stock of R/V Seahawk, Inc. (a Florida corporation organized on May 23, 1988)
in an exchange transaction in which R/V Seahawk, Inc. became a wholly owned
subsidiary of the Company. On March 2, 1992, R/V Seahawk Inc. was merged into
the Company. On September 12, 1989 the Company organized Seahawk Museum
Development, Inc. and acquired 100% interest with the purchase of 625,000
shares of its common stock.On November 3, 1995, the Company issued 2,400,000
shares of its no par value common stock to the holders of 100% of the
outstanding common stock of Seahawk, Inc. (an Alabama corporation organized on
March 6, 1987 for the purpose of chartering a research vessel) in an exchange
transaction in which Seahawk, Inc. became a wholly owned subsidiary of the
Company. On March 31, 1996, Seahawk, Inc. was merged into the Company.
In February, 1999, the Company organized RV Seahawk, Inc., a Florida
Corporation, and acquired its entire share capital for $100. The Company then
transferred the R/V Seahawk into RV Seahawk, Inc.
Nature of Business
The Company is an oceanographic service company that is involved in deep water
search, survey and recovery operations. The Company has also served as the
general partner for limited partnerships that were formed for the purpose of
raising money to search for and locate shipwrecks. The Company owned and
operated a variety of sub-ocean equipment including an 83 foot research
vessel, ROVs (Remote Operated Vehicles), and other specialized search and
recovery equipment which enabled it to locate, photograph and retrieve items
lost in deep water. In January 2000, the research vessel was sold. (see Note
18). Under the terms of a Letter of Intent dated June 20, 2000, with
Consolidated Holdings Investment & Philanthropic Group, Inc.(CHIP), a private
Pennsylvanian corporation, it is proposed that the Company acquires several
separate businesses that include industrial engineering, real estate
investment, and asset chartering. If the acquisition is completed, the nature
of the Company's business will be predominantly that of an industrial holding
company, although the Company intends to continue certain of its oceanographic
activities.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to
assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management who is
responsible for their integrity and objectivity and have prepared them in
accordance with the Company's customary accounting practices.
F-9
<PAGE>
Basis of Presentation
The accompanying financial statements were prepared using the accrual basis of
accounting in accordance with generally accepted accounting principles.
Principles of Consolidation
The consolidated financial statements include the accounts of Seahawk Deep
Ocean Technology, Inc. and its wholly owned subsidiary, Seahawk Museum
Development, Inc. All significant intercompany accounts and transactions have
been eliminated.Use of EstimatesManagement uses estimates and assumptions in
preparing financial statements. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and expenses. Actual results
could differ from those estimates.Revenue RecognitionThe Company derives its
revenue primarily from rental of search and recovery vessels, deep ocean
survey and search equipment, remote operating vehicles, and other electronic
equipment to related and unrelated parties, as well as from its distributive
share of limited partnerships' net income.Accounts Receivable and Credit
ConcentrationTrade accounts receivable includes the following:
Charter payments due $ 173,620
Less provision for uncollectible
accounts since debtor has filed for
protection under the Federal Bankruptcy Act (173,620)
Due from unrelated party considered to be
100% collectible 6,200
---------
$ 6,200
=========
Accounts and Notes Receivable - Affiliate
The Company uses the allowance method to account for uncollectible affiliate
accounts. The Company has provided an allowance for uncollectible accounts
since management considers the losses in excess of its investments in
affiliates as a provision for uncollectible accounts. (See Note 3).
Depreciation
Property and equipment is stated at historical cost. Depreciation is provided
using the straight-line method for financial reporting purposes at rates based
on the assets' estimated useful lives. The major components of assets and
their estimated useful lives are as follows:
December 31,1998 Years
---------------- -----
Vessel "Seahawk" $ 675,378 10
Equipment on vessel and other 731,889 5 - 10
-----------
1,407,267
Less - accumulated depreciation (880,744)
-----------
$ 526,523
===========
For income tax purposes, depreciation is computed using accelerated methods
over statutory periods.
F-10
<PAGE>
Investment in Affiliates
The Company's investment in Seahawk I, Ltd., Seahawk II, Ltd. and Eagle
Partners, Ltd. (less than 50% owned entities) was recorded on the equity
method. Under this method, the basis of such investments, including loans,
advances, and receivables are increased or decreased by the Company's
distributive share of the Partnerships' income or loss. The partnerships were
formed for the purpose of funding the search for deep-water shipwrecks in
pre-designated areas. In March 1998, Seahawk I, Ltd. sold its entire
collection of artifacts and used most of the proceeds to repay the Note
receivable, accrued interest and accounts receivable to the Company, although
there was no repayment of the original investment. Seahawk I, Ltd. was closed
on September 30, 1998.
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 $0 because the investment and related receivable
accounts had already been provided for.
Purchased Shipwreck Research
The Company's cost of purchased shipwreck research is capitalized and
amortized over 3 years.
Loss Per Share
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common stock warrants and options are
not considered into the computation because they are antidilutive in the
aggregate.
Statement of Cash Flows
Short-term investments that have an original maturity of ninety days or less
are considered cash equivalents.
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.
F-11
<PAGE>
NOTE 3 - ACCOUNTS AND NOTES RECEIVABLE FROM AND INVESTMENTS IN AFFILIATES
The Company is a general partner and a less than 50% interest owner in Eagle
Partners, Ltd. and Seahawk II, Ltd. (Florida limited partnerships). The
partnerships are accounted for on the equity method. The report of
independent certified public accountants on the 1998 financial statements of
Seahawk II, Ltd., includes an explanatory paragraph raising substantial doubt
about the partnership's ability to continue as a going concern. Pursuant to
the partnership agreements, net losses of the Partnerships will be allocated
as follows:
For Seahawk II, Ltd. and Eagle Partners, Ltd. 99% to the Limited Partners and
1% to the General Partner until the Limited Partners' capital accounts have
been reduced to zero.
Net income is first allocated to the Limited Partners based on their
proportionate ownership interests to the extent of the net loss previously
allocated to them. Net income is then allocated to the General Partner to the
extent of the net loss previously allocated to it. Thereafter, net income will
be allocated as follows:
For Seahawk II, Ltd., the remaining net income is allocated 1% per unit of the
limited partnership interest (not to exceed 50%), and the balance to the
General Partner.
For Eagle Partners, Ltd., the remaining net income is allocated on a per unit
basis with each $50,000 unit receiving 2.5% of the first $1 million of income
allocated, 2% of the second $1 million of income allocated, 1.5% of the third
$1 million of income allocated, 1% of the fourth $1 million of income
allocated and 0.5% of income over $4 million allocated. The Company, as the
general partner, will receive the balance of any net income to be allocated.
In accordance with the use of the equity method of accounting for its
investment in partnerships, the Company has reduced its investment in those
partnerships by its allocated portion of the partnership's losses.
The accounts and notes receivable from affiliate, less losses in excess of
investment in affiliate at December 31, 1998 is detailed as follows:
SEAHAWK II
LTD.
Accounts receivable $ 48,575
Less losses in excess of
investment in affiliates (48,575)
--------
$ 0
========
The Company has recorded losses in excess of its investments due to
management's commitment to provide additional financial support. In 1998, the
Company recorded its share of losses from affiliates primarily as a result of
invoices billed to the affiliates for services provided. Therefore, the
Company considers the negative investment account as a provision for
uncollectible accounts.
F-12
<PAGE>
Release of Provisions for Uncollectible Accounts from Seahawk I
In March 1998, Seahawk I, Ltd. sold its entire collection of artifacts for
$541,982 cash and 6,263,350 shares in the common stock of the purchaser,
Treasure Exhibits International, Inc., a total consideration of $1,606,752. In
accordance with the Partnership Agreement the partnership used most of the
proceeds to repay the note receivable, accrued interest and accounts
receivable to the Company. Consequently, the Company released the losses in
excess of investment that it had recorded as a provision for uncollectible
accounts from Seahawk I, Ltd. in the sum of $757,301. (See Note 17 SALE OF
ARTIFACTS)
NOTE 4 - INVESTMENT IN AFFILIATES
Summarized financial statement information is shown below:
SEAHAWK II, LTD.
----------------
BALANCE SHEET
December 31, 1998
ASSETS:
CURRENT ASSETS $ 52
----------
TOTAL ASSETS $ 52
==========
LIABILITIES AND
PARTNERS' CAPITAL:
CURRENT LIABILITIES $ 41,775
PARTNERS CAPITAL:
Capital contributions 1,371,250
Accumulated deficit (1,412,973)
----------
TOTAL PARTNERS'CAPITAL (deficit) (41,723)
----------
TOTAL LIABILITIES AND PARTNERS'
CAPITAL (deficit) $ 52
==========
STATEMENT OF OPERATIONS
For the year ended December 31
SEAHAWK II, LTD.
----------------
1998 1997
-------- --------
REVENUES $ - $ -
COST OF REVENUES - -
GROSS PROFIT - -
OPERATING GENERAL
AND ADMINISTRATIVE EXPENSES 10,000 11,000
-------- --------
LOSS FROM OPERATIONS (10,000) (11,000)
OTHER EXPENSES - -
-------- --------
NET LOSS $(10,000) $(11,000)
======== ========
F-13
<PAGE>
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 $0 because the investment and related receivable
accounts had already been provided for.
NOTE 5 DEPOSITS AND ADVANCES
Deposits and advances at December 31, 1998 consist of the following:
Deposit on rented real estate $ 1,500
Utility deposits 4,870
Other deposits 205
Advance for use of automobile 7,450
-------
$14,025
=======
NOTE 6 - DUE TO RELATED PARTIES
Amounts due to related parties at December 31, 1998 comprises:
Interest Amount
Due on Rate Secured on Due
--------- -------- ---------- --------
Accrued director's
fees demand none none $ 15,000
Loan pending stock
issue none 18% none 278,200
Unsecured Note demand none none 600
--------
$293,800
========
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
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.
F-14
<PAGE>
NOTE 7 - NOTES PAYABLE - OTHERS
Notes payable - others, at December 31, 1998 comprises:
Interest Book Value Amount
Due on Rate Secured on of Security Due
-------------- ------ -------- ---------- ----------- --------
Unsecured note demand 8% $ - $ 83,129
repayable at
$1,000 monthly
Secured Loan 15% Equipment $ 26,337 24,142
repayable at
$438.95 monthly
Other demand none 69,476
--------
$176,747
========
NOTE 8 - COMMON AND PREFERRED STOCK
Common Stock
On June 12, 1992, the Company effected a one for fifty reverse split on the
shares of the Company's common stock outstanding. The per share amounts and
number of shares in the financial statements have been retroactively adjusted
for the effect of this reverse stock split. Concurrently, the Company's
stockholders approved an amendment to the Articles of Incorporation decreasing
the authorized common stock to 30,000,000 shares of no par value common stock.
Preferred Stock
The Company is authorized to issue 60,000,000 shares of Preferred Stock, no
par value. The Preferred Stock may be issued in series from time to time with
such designation, rights, preferences and limitations as the Board of
Directors of the Company may determine by resolution. The Company designated
200,000 shares of its Preferred Stock as Series 1 Convertible Preferred Stock.
All the Series 1 Convertible Preferred Stock was converted into 200,000 shares
of Common Stock in August 1998. In January 1997, the Company designated
30,000,000 shares of its Preferred Stock as Series 2 Preferred Stock. In
February 1998, the Company designated 550,000 shares of its Preferred stock as
Series 3 Preferred Stock. In February 1999, the Company designated 4,000 of
its Preferred stock as Series 4 Preferred Stock. 2,700 shares of the Series 4
were outstanding as of May 31, 2000. In March 1999, the Company designated an
additional 6,000,000 of its Preferred stock as Series 2 Preferred Stock.
Approximately 18,530,917 shares of the Series 2 were outstanding as of May 31,
2000. In August 1999, the Company designated an additional 1,000,000 shares of
its Preferred Stock as Series 3 Preferred Stock. 1,550,000 shares of the
Series 3 were outstanding as of May 31, 2000.
The Series 1 Convertible Preferred Stock had the following rights and
preferences:
Each share may be converted into one share of the Company's Common Stock at
the option of the holder.
F-15
<PAGE>
In the event that there is an effective registration statement covering the
shares of Common Stock into which the Series 1 shares may be converted and the
average closing bid price for the Company's Common Stock is at least $3.00 per
share, the Series 1 Stock will be automatically converted on a one for one
basis. The Company may redeem shares of the Series 1 Stock at any time, at its
option on giving 7 days notice, at a price equal to the higher of $0.25 or the
average closing bid and asked prices for its Common Stock for the 10 days
prior to the date of the redemption notice. The Company is required to redeem
the Series 1 shares at the price set forth in the paragraph above, on the
earliest of the following:
(i) December 1, 1999;
(ii) The date that Buckeye Communications, Inc. ("Buckeye") provides the
Company with or arranges for the Company to be provided with, a cash infusion
of $500,000 or more;
(iii) The date the Company receives a cash infusion of $1,500,000 or more in
a single transaction or a series of four or less transactions in any one year.
If the Company receives proceeds from the sale of certain pearls that were
previously used as collateral for a loan from Buckeye, in excess of $50,000,
one half of the excess shall be applied to redeem shares of the Series 1 Stock
at the price set forth above.
Each share of the Series 1 Stock is entitled to one vote and votes with
holders of the Common Stock as a single class.
The Series 2 Convertible Preferred Stock has the following rights and
preferences:
Each share may be converted into one fifth of one share of the Company's
Common Stock at the option of the holder at any time after February 1, 2000.
In the event that there is an effective registration statement covering the
shares of Common Stock into which the Series 2 shares may be converted and the
average closing bid price for the Company's Common Stock is at least $3.00 per
share, the Series 2 Stock will be automatically converted on a one for one
fifth basis.
The Company may redeem shares of the Series 2 Stock at any time, at its
option, on giving 7 days notice, at a price equal to the higher of $0.0134 per
share or the average closing bid and asked prices for its Common Stock for the
10 days prior to the date of the redemption notice. The Company is required
to redeem the Series 2 shares at the price set forth in the paragraph above on
or before February 1, 2007.
Each share of the Series 2 Stock is entitled to one vote and votes with
holders of the Common Stock as a single class.
The Series 3 Convertible Preferred Stock has the following rights and
preferences:
Each share may be converted into one share of the Company's Common Stock at
the option of the holder at any time after January 31, 2000. In the event that
the average closing bid price for the Company's Common Stock is at least $1.00
per share for 10 consecutive trading days, all the outstanding Series 3 Stock
will be automatically converted on a one for one basis.
F-16
<PAGE>
The Company may redeem shares of the Series 3 Stock at any time, at its option
on giving 7 days notice, at a price of $0.10 per share. The Company is
required to redeem the Series 3 shares at the aforementioned price on or
before July 1, 2003.
Each share of the Series 3 Stock is entitled to one vote and votes with
holders of the Common Stock as a single class.
The Series 4 Convertible Preferred Stock has the following rights and
preferences:
Each share may be converted into one thousand shares of the Company's Common
Stock at the option of the holder at any time after July 1, 1999. In the event
that the average closing bid price for the Company's Common Stock is at least
$1.00 per share for 10 consecutive trading days, all the outstanding Series 4
Stock will be automatically converted on a one thousand for one basis.
The Company may redeem shares of the Series 4 Stock at any time, at its option
on giving 7 days notice, at a price of $25.00 per share. The Company is
required to redeem the Series 4 shares at the aforementioned price on or
before July 1, 2003.
Each share of the Series 4 Stock is entitled to one vote and votes with
holders of the Common Stock as a single class.
NOTE 9 - COMMON STOCK OPTIONS AND WARRANTS
On April 18, 1990, the Company's Board of Directors approved a Stock Option
Plan (the "Plan"). Under the Plan, stock options, which qualify as "incentive
stock options" under Section 422A of the Internal Revenue Code of 1954, as
amended (the "Code"), can be issued to employees of the Company.
Additionally, options can also be issued to the directors who render valuable
contributions to the Company. Pursuant to the Plan, options to purchase up to
400,000 shares of the Company's common stock may be granted to employees
and/or Directors of the Company. The Plan is administered by the Board of
Directors, which is empowered to determine the terms and conditions of each
option, subject to the limitation that the exercise price cannot be less than
the market value of the Common Stock on the date of the grant (110% of the
market value in the case of option granted to an employee who owns 10% or more
of the Company's outstanding Common Stock) and no options can have a term in
excess of 10 years (5 years in the case of options granted to employees who
own 10% or more of the Company's Common Stock). The Plan was approved by the
shareholders of the Company on December 14, 1990 and it terminated in April
2000. Option activity during 1997 and 1998 is summarized as follows:
Number of Shares Price per Share
---------------- ---------------
Balance December 31, 1996 273,000 $0.13 - 0.83
Granted 1997 - $ -
Terminated 1997 (112,500) $0.20
Exercised 1997 - $ -
-------- -------------
Balance December 31, 1997 160,500 $0.13 - 0.83
Granted 1998 - $ -
Terminated 1998 160,500 $ -
Exercised 1998 - $ -
-------- -------------
Balance December 31, 1998 - $ -
-------- -------------
F-17
<PAGE>
The executive options as at December 31, 1998, are described as follows:
Exercise Expiration
Date Number of Shares Price Date
---- ---------------- -------- ----------
5/12/95 500,000 $0.30 Note A
6/25/96 500,000 $0.12 Note A
1/15/97 1,100,000 $0.13 Note A
7/16/97 200,000 $0.11 7/16/02
---------
2,300,000
=========
Note A: 180 Days after Termination of Employment Contract.
In January 1997, the Company issued two officers warrants to purchase 50,000
shares each at a price of $0.13 per share and 500,000 shares each at $0.13 per
share pursuant to the renewal of their employment contracts.
In July 1997, a director was granted 200,000 warrants to purchase shares at a
price of $0.11 per share as compensation for joining the Board of Directors.
Warrant activity is summarized as follows:
Number of Shares Price per Share
---------------- ---------------
Balance December 31, 1996 10,745,525 $0.130 - 5.00
Granted 1997 1,178,185 $0.110 - 0.25
Exercised 1997 (256,000) $0.180
Expired 1997 (2,813,750) $0.250 - 5.00
---------- -------------
Balance December 31, 1997 8,853,960 $0.110 - 5.00
Granted 1998 -
Exercised 1998 (288,000) $0.110
Expired 1998 (597,143) $0.250 - 4.00
---------- -------------
Balance December 31, 1998 7,968,817 $0.125 - 5.00
The following warrants were outstanding on December 31, 1998:
Date No. of Shares Exercise Price Expiration Date
---- ------------- -------------- ----------------
01/21/92 23,000 Note A Note A
01/21/92 32,191 $2.00 Note B
01/21/92 32,191 $5.00 Note A
01/21/92 119,000 Note C Note A
04/06/94 142,000 Note C Note A
04/01/94 400,000 $0.25 12/31/99
07/31/94 606,250 $0.05 12/31/00 Note G,I
11/10/94 1,800,000 $0.32 Note A
09/24/96 2,140,000 $0.13 09/02/99 Note G,H
09/24/96 2,140,000 $0.05 12/31/00 Note G,I
09/26/97 85,000 $0.13 09/26/99
10/31/97 24,000 $0.15 10/31/99
10/08/97 185,185 $0.135 10/08/99
10/20/97 240,000 $0.15 10/20/99
---------
7,968,817
=========
F-18
<PAGE>
Note A - 3 months after effective date of Registration Statement
Note B - 18 months after effective date of Registration Statement
Note C - 110% of lowest closing bid 180 days prior to exercise
Note G - Expiration date extended as part of loan agreement
Note H - Warrants had expired by the date of this report
Note I - Exercise price reduced as part of loan agreement
The Company does not have enough authorized and unissued Common Stock to issue
to the Warrant/Option Holders if they all exercise their warrants/options.
Consequently it is inevitable that the Company will take steps to increase its
authorized Common Stock as soon as it is able to fund the necessary
Shareholders' Meeting.
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation". Accordingly, no compensation has been recognized for the stock
options awarded during the year ended December 31, 1997. However, using the
Black-Scholes method of option valuation, the options granted during 1997 are
determined to have had no current value on the date of the grant and would
have had no effect on the Company's net earnings per share had compensation
costs been recorded for such options. No options were issued for the year
ended December 31, 1998.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company has earned some of its revenues from the rental of a vessel and
deep ocean search and survey equipment and the sale of services to Seahawk I,
Ltd., Seahawk II, Ltd., Eagle Partners, Ltd. and Eagle Miners Ltd. For the
years ended December 31, 1998 and 1997, the Company recorded $25,000 and $930
respectively for such revenues. At December 31, 1998 accounts
receivable-affiliates includes $41,775 from these revenues. See Note 3 for
discussion of allowances for doubtful accounts and losses in excess of
investments in affiliates and its relationship to accounts
receivable-affiliates.
From October 1995, Carl Anderson rented a motor car to the Company for $5,000
per annum. At December 31, 1998, the accrued rental due to Anderson was
$5,000.
In January, 1997, two officers were each granted 500,000 stock options as an
inducement to renew their contract of employment and three directors were each
granted 50,000 stock options, all with an exercise price of $0.13 per share.
In July 1997, J. Robert Shaw was appointed a director of the Company and
issued 200,000 options to purchase the Company's common stock at $0.11 per
share.
During 1997, Carl Anderson loaned to the Company a total of $322,650 interest
free. In November 1997, Anderson expressed his intention to convert $278,200
of the loans into 2,140,000 shares of common stock of the Company by
exercising his AH1 warrants. The Company issued a 1 year note for the
remaining balance of $45,000 repayable on October 31, 1998 with 12% annual
interest. The Company was unable to issue the shares to Anderson because it
had insufficient authorized common stock available. In May 1999 the Company
entered into an Agreement with Mr. Anderson under which the remaining $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
F-19
<PAGE>
common stock at the conversion rate of $0.035 per share on December 31, (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.
As of December 31, 1998, John Balch and John Lawrence were each owed $287,450
in past due salaries and 67,447 in interest thereon calculated at 12% per
year. In April 1999, the Company settled all past due payroll commitments by
issuing a 2 year 12% per annum Note to four individuals, secured by the
Company's interest in Pesqamar. At that date John Balch and John Lawrence were
owed an aggregate of $800,000 for past due salaries and accrued interest. That
sum was incorporated into a 2 year 12% per annum Note in the name of United
Commodities International, Ltd.(UCIL), a corporation controlled by Mr. Balch
and Mr. Lawrence. In June 2000, UCIL agreed to convert the Note and accrued
interest into 1,000,000 shares of the company's Series 5 Preferred Stock.
NOTE 11 - 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". There is no effect on prior
operations as a result of the change. This new statement changes the criteria
for the recognition and measurement of deferred tax assets or liabilities,
including net operating loss carry forwards.
As of December 31, 1998, the Company had a net operating loss carry forward of
approximately $15,000,000, which is available to offset future taxable income.
The carry forward will begin to expire in the year 2004. The Company has not
recorded a deferred tax asset since a 100% valuation allowance has been
provided for.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Legal Aspects of International Salvage
Legal ramifications with regard to the recovery of shipwrecks raise a number
of issues. Salvors, historical interests and individuals claiming ownership
based on the payment of insurance claims all have potential claims on goods
recovered.
An entity responsible for the salvage of a sunken vessel and its cargo may
expect to defend its claim to title against the original owners or their
successors-in-interest, against rival salvors, and against governments
asserting a historic interest in the shipwreck or cargo.
Potential claimants might include the insurers of the shipwreck as in the SS
Central America case (Civil Action 87-363-N). Unless the insurers expressly
disclaimed title after payment of a claim, and depending on the length of time
the ship has remained sunken, the insurers might have a valid claim of title
to recovered objects.
F-21
<PAGE>
Common Stock Commitments Exceeding Authorized Shares
The Company does not have enough authorized and unissued Common Stock to issue
to the Warrant/Option Holders if they all exercise their warrants/options.
Consequently it is inevitable that the Company will take steps to increase its
authorized Common Stock as soon as it is able to fund the necessary
Shareholders' Meeting.
NOTE 13 - GOING CONCERN As shown in the accompanying financial statements, the
Company incurred a net loss of $1,114,032 for 1998 and has incurred
substantial net losses for each of the past several years resulting in an
accumulated deficit of $15,444,791. At December 31, 1998, the Company has
negative working capital as indicated by current liabilities exceeding current
assets by $2,273,020. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management plans to seek
acquisitions of revenue earning companies and assets, not necessarily in the
same business as the Company, in return for its stock. Such a transaction is
discussed under SUBSEQUENT EVENTS. Management feels that such acquisitions
will contribute toward achieving profitability. The financial statements do
not include any adjustments that might be necessary if the Company is unable
to continue as a going concern.
NOTE 14 - REDUCTION OF ACCOUNTS PAYABLE PROVISION
During 1997, management reduced the portion of a provision set up in 1993 for
accounts payable, which, on the basis of experience gained since that time,
management considers no longer necessary. The amount of the reduction was
$169,364.
NOTE 15 - PESQAMAR AND ODYSSEY AGREEMENTS
On June 1, 1994, the Company signed an Agreement for Consulting Services with
Odyssey Marine Exploration, Inc.(formerly Remarc International, Inc.). The
Agreement provided that Odyssey would, at its own expense, seek to obtain for
the Company a permit from the appropriate government to search for and salvage
a particular shipwreck known as the "Santa Rosa" in Brazilian waters. If such
a permit were obtained for the Company by Odyssey, then the Company agreed to
grant Odyssey between 6% and 9-1/2% of the gross proceeds of any successful
recovery from the project. The actual percentage granted to Odyssey was to
depend on the size of portion of the recovery that would be taken by the
Brazilian government in return for the permit.In furtherance of the
negotiations for the permit, it became prudent to join forces with a Brazilian
competitor to form a bidding Consortium. The Consortium rendered the
consultancy Agreement with Odyssey inappropriate, and under a Joint Venture
Agreement dated August 1995 with the Company, Odyssey agreed to forego its
entitlement to the percentage of the gross recovery of the project and instead
become equal partners with the Company in a Brazilian domiciled company,
Pesqamar Pesquisas Arqueologicas Maritimas Ltda. (Pesqamar), that owns half of
the Consortium. The Company and Odyssey each owned 24.5% of the voting common
stock of Pesqamar with the remaining 51% being owned by Brazilians. The
Company and Odyssey also each own 50% of the non-voting preferred stock of
Pesqamar. Under the new arrangement Odyssey funded Pesqamar's costs and the
Company was to refund 50% of any costs to Odyssey when external project
funding for the Santa Rosa project is in place. By May 1998, Pesqamar had
incurred over $300,000 of expenses, half of which were payable by the Company.
Under an agreement dated June 1, 1998, the Company's portion of the
F-21
<PAGE>
expenditure was satisfied by the transfer of 1 million shares of common stock
of Treasure & Exhibits International, Inc. to Odyssey on the basis that (a)
the Company also transferred 165.5 shares of Preferred Non-Voting shares in
Pesqamar to Odyssey and (b) Odyssey to be responsible for all future
expenditure of Pesqamar. Following the completion of the agreement, the
Company owns 428.75 of the 1,750 shares of common voting stock and 1,459.5 of
the 3,250 shares of Preferred Non-Voting stock in Pesqamar.
NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1997
Revenues $ 15,698 $ 19,904 $ 25,465 $ 118,198
Net Income (loss) $ (177,568) $(220,880) $(181,190) $(118,299)
Income (loss) per share $ (0.01) $ (0.01) $ (0.01) $ (-)
Weighted average number
of common shares and
common shares equiva-
lent outstanding 26,273,699 26,514,336 26,515,032 26,653,790
1998
Revenues $ 207,606 $ 55,000 $ 124,035 $ 410,715
Net Income (loss) $ 351,294 $(244,449) $(222,314) $(1,003,563)
Income (loss) per share $ 0.01 $ (0.01) $ (0.01) $ (0.04)
Weighted average number
of common shares and
common shares equiva-
lent outstanding 27,693,991 27,693,991 27,767,222 27,871,766
During the 1998 fourth quarter a provision of $700,000 was made to account for
a settlement of a lawsuit reached in May 2000. (See NOTE 18 SUBSEQUENT
EVENTS)
NOTE 17 - 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 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.
F-22
<PAGE>
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 in
September 1998, in accordance with the Partnership Agreements, 1,998,196
shares of TEI stock were distributed to all the limited partners in proportion
to their original capital contributions, which totalled $1,311,040. Each
Limited Partner received approximately 1.52 shares for each $1 of capital they
contributed. The General Partner received no repayment of its original capital
contribution of $1,200,000. The Limited Partners voted to terminate the
partnership as of September 30, 1998.
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 due 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 56,750 1,008,827 166,500 223,250
------- --------- --------- ---------
Net Sale proceeds 765,306 8,491,173 1,448,500 2,213,806
Less provision for
costs of sale 5,000 5,000
------- --------- --------- ---------
Net proceeds after
provision 760,306 8,491,173 1,448,500 2,208,806
Book value of artifacts
sold 928,348
---------
Profit on sale of
Artifacts 1,280,458
---------
F-23
<PAGE>
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 6,149 343,708 56,727 62,875
------- --------- --------- ---------
Net Sale proceeds 273,926 2,892,942 493,503 767,429
Less provision for
costs of sale 5,000 5,000
------- --------- --------- ---------
Net proceeds after
provision 258,926 2,892,942 493,503 762,429
Book value of artifacts
sold 303,073
---------
Gain on sale of
Artifacts 459,356
---------
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 (historical
Basis) 821,102
Reduction in value of
5,598,231 shares of
TEI stock to $0.085 per
Share on liquidation
Basis 479,146
---------
Profit on sale of
Artifacts (liquidation
Basis) 341,956
=========
F-24
<PAGE>
NOTE 18 - SUBSEQUENT EVENTS
Issue of Series 2 Preferred Stock
In March, 1999 the Company entered an agreement with Drexel Aqua Technologies,
Inc., a Delaware corporation, under which Drexel 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.
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.
F-25
<PAGE>
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.
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.
F-26
<PAGE>
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. In November 1999, the plaintiffs filed for
partial summary judgment and 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 to 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. Morris's 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 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 June 25, 2000, the Company signed a 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.
F-27
<PAGE>
NOTE 19 - YEAR 2000 COMPLIANCE (UNAUDITED)
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.
F-28
<PAGE>
<PAGE>
Report of Independent Certified Public Accountants
To the Partners of
Seahawk I, Ltd.
Tampa, Florida
We have audited the accompanying statement of liquidating activities of
Seahawk I, Ltd. (a Florida limited partnership) as of September 30, 1998. This
financial statement is the responsibility of the Partnership's management.
Our responsibility is to express an opinion on the financial statement based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentations. We believe that our
audit provides a reasonable basis for our opinion.
As described in Note 5 to the financial statement, the General Partner of
Seahawk I, Ltd. approved a plan of liquidation on December 31, 1997, and the
Partnership began liquidation shortly thereafter. As a result, the Partnership
changed its basis of accounting for the period after December 31, 1997, from
going concern basis to the liquidation basis.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the liquidating activities of Seahawk I, Ltd. for the
nine months ended September 30, 1998 in conformity with generally accepted
accounted principles.
/s/ Giunta, Ferlita & Walsh, P.A.
Giunta, Ferlita & Walsh, P.A
Tampa, Florida
July 1, 2000
F-29
<PAGE>
SEAHAWK I, LTD.
STATEMENT OF LIQUIDATING ACTIVITIES
Nine Months Ended September 30, 1998
Per
Cash Shares Shares Share Total
$ # $ $ $
------- --------- ------- ----- -------
SOURCE OF CASH
AND SHARES
Proceeds from sale
of artifacts 491,381 5,598,231 475,850 0.085 967,231
------- --------- ------- ----- -------
USES OF CASH
AND SHARES
Repayment of accounts
payable 491,381 954,257 81,112 0.085 572,493
Repayment of Notes 2,645,778 224,891 0.085 224,891
Distributed to
Limited Partners 1,998,196 169,847 0.085 169,847
------- --------- ------- ------ -------
491,381 5,598,231 475,850 0.085 967,231
------- --------- ------- ------ -------
ENDING NET ASSETS
(LIABILITIES) IN
LIQUIDATION 0
=======
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
SEAHAWK I, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION, BUSINESS AND PLAN OF LIQUIDATION
Seahawk I, Ltd. (The "Partnership") was formed May 23, 1988 as a Florida
limited partnership. The Partnership consisted of several Limited Partners
and a corporate General Partner, Seahawk Deep Ocean Technology, Inc. (the
General Partner). The purpose of the Partnership was to engage in expeditions
to locate, identify, and retrieve samples from shipwrecks in waters off the
coast of Florida. When the Partnership located a colonial age sunken vessel,
the purpose of the Partnership was expanded to include the salvage and
recovery of artifacts.
On March 19, 1998, The General Partner and the Partnership agreed to sell all
of their artifacts and related documentation to Treasure & Exhibits
International, Inc.(TEI). The total consideration before a 10% commission paid
for the introduction of TEI to the Partnership, 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
the Partnership repaid all its debt to the General Partner in cash and TEI
stock using the $0.17 per share valuation, then using the TEI stock at the
$0.17 valuation, repaid other loans to two of the limited partners. The
Partnership then 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.
The Partnership's portion of the transaction with TEI can be summarized as
follows:
Per
Cash Shares Shares Share Total
$ # $ $ $
------- --------- --------- ------ --------
Artifacts sold for 541,982 6,263,350 532,385 0.085 1,074,367
Less commission 50,601 665,119 56,535 0.085 107,136
------- --------- --------- ----- ---------
Net Sale proceeds 491,381 5,598,231 475,850 0.085 967,231
Book value of
artifacts sold 625,275
Profit on sale of ---------
artifacts 341,956
Use of Proceeds: ---------
Repayment of accounts
payable 491,381 954,257 81,112 0.085 572,493
Repayment of Notes 2,645,778 224,891 0.085 224,891
Distributed to LPs 1,998,196 169,847 0.085 169,847
-------- --------- -------- ------ ---------
Total proceeds used 491,381 5,598,231 475,850 0.085 967,231
======== ========= ======== ====== ========
In accordance with the Partnership Agreements, the 1,998,196 shares of TEI
stock were distributed to the Limited Partners in proportion to their original
capital contributions, which totalled $1,311,040. Each Limited Partner
received approximately 1.52 shares for each $1 of capital they introduced. The
General Partner received no repayment of its original capital contribution of
$1,200,000.
F-31
<PAGE>
The Partnership agreement extended through December 31, 1998, but following
the sale of all the Partnership's assets in March 1998, it was terminated as
of September 30, 1998, at the election of the General Partner with the consent
of a Majority - In - Interest of the Limited Partners.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
As provided in the Partnership Agreement, the Partnership's accounts were
maintained on the cash basis of accounting for tax purposes, however, for
historical financial statement purposes they were adjusted to the accrual
basis in order to conform with generally accepted accounting principles.
As of December 31, 1997, it was the management's intention to sell the
artifacts to TEI and liquidate the Partnership, and from that date the
Partnership measured its assets and liabilities at the amounts of cash and
cash equivalents expected in liquidation and reports changes in estimates when
they became known. The financial statements were shown on the original
historical basis up to and including December 31, 1997, and restated at that
date on the new liquidation basis.
Distribution of Cash and Property
All cash and property distributed to the Limited Partners was distributed in
the proportion that the cumulative capital contribution of each partner bore
to the cumulative capital contribution of all Limited Partners
Income Taxes
In accordance with Section 701 of the Internal Revenue Code, the Partnership
is not a taxable entity, therefore the results of operations flow through to
the partners for tax purposes. The tax returns and the amounts of Partnership
income or loss distributed to the partners are subject to examination by
Federal and State taxing authorities.
NOTE 3 - ADJUSTMENTS OF ESTIMATED VALUES
Effective with the decision to liquidate, the carrying amounts of assets and
liabilities were adjusted from their historical basis to the amounts of cash
expected from their realization and settlement. The adjustment on December 31,
1997 increased net assets by $630,738 from $(457,581) to $173,157 as follows:
Historical Estimated
Basis Liquidation
Value
---------- -----------
Cash $ 224 $ 224
Artifact inventory 625,275 967,231
Accounts payable - General Partner (646,082) (569,407)
Accrued expenses - General Partner (110,248) ( 56,751)
Accrued expenses - Limited Partner ( 14,650) ( 7,510)
Notes payable - Limited Partners ( 12,100) ( 6,203)
Note payable - General Partner (300,000) (154,427)
--------- --------
$(457,581) $173,157
========= ========
F-32
<PAGE>
NOTE 4 - RELATED PARTY TRANSACTIONS
Through December 31, 1997, the liquidation conversion date, the General
Partner had performed conservation and administrative services for the
Partnership. These expenses and other amounts paid by the General Partner on
behalf of the Partnership, were reflected in the accounts payable - general
partner balances at and note payable general partner NOTE 3.
NOTE 5 - LIQUIDATION BASIS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. The historical financial statements
contemplate continuation of the Partnership as a going concern. However the
General Partner, acting in its capacity as general partner for the
Partnership, sold the artifacts owned by Seahawk I, Ltd., in March 1998. The
sale yielded enough for the General Partners to recover most of its accounts
and notes receivable. The financial statements, beginning at December 31,
1997, have been prepared on a liquidation basis using the known proceeds of
the sale to revalue the artifacts and the liabilities settled with the
proceeds.
F-33
<PAGE>
Report of Independent Certified Public Accountants
To the Partners of
Seahawk II, Ltd.
Tampa, Florida
We have audited the accompanying balance sheet of Seahawk II, Ltd. (a Florida
limited partnership) as of December 31, 1998 and the related statements of
operations, partners' capital and cash flows for the years ended December 31,
1998 and 1997. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Seahawk II, Ltd. (a Florida
limited partnership) as of December 31, 1998 and the results of its
operations, changes in partners' capital and its cash flows for the years
ended December 31, 1998 and 1997, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As shown in the financial
statements, the Partnership incurred a net loss of $10,000 for 1998 and has a
partners' deficit of $41,723. In addition, the Partnership has no cash flow
from its operating activities. These factors, in addition to other factors as
discussed in Note 5, raise substantial doubt about its ability to continue as
a going concern. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets, or the
amounts and classification of liabilities that might be necessary in the event
the Partnership cannot continue in operation.
/s/ Giunta, Ferlita & Walsh, P.A.
Giunta, Ferlita & Walsh, P.A.
Tampa, Florida
July 1, 2000
F-34
<PAGE>
SEAHAWK II, LTD.
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
Cash $ 52
==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts Payable
Affiliate $ 41,775
----------
41,775
----------
PARTNERS'CAPITAL (DEFICIT)
Capital Contributions 1,371,250
Accumulated Deficit (1,412,973)
----------
( 41,723)
----------
$ 52
==========
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
<PAGE>
SEAHAWK II, LTD
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997
1998 1997
-------- --------
REVENUES $ - $ -
-------- --------
GENERAL AND ADMINISTRATIVE EXPENSES
Administrative Fees 10,000 11,000
-------- --------
10,000 11,000
-------- --------
Total Expenses 10,000 11,000
-------- --------
(LOSS) FROM OPERATIONS (10,000) (11,000)
-------- ---------
NET (LOSS) $(10,000) $(11,000)
======== ========
The accompanying notes are an integral part of these financial statements
F-36
<PAGE>
<PAGE>
SEAHAWK II, LTD.
PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997
Subscrip-
Number Capital tions
Of Contri- Receive- Accumulated
Units butions able Deficit
------ ------- --------- -----------
BALANCE,
December 31, 1996 50 $1,371,250 $ - $(1,391,973)
NET (LOSS) 1997 - ( 11,000)
-- ---------- --------- -----------
BALANCE,
December 31, 1997 50 $1,371,250 $ - $(1,402,973)
NET (LOSS) 1998 - ( 10,000)
-- ---------- --------- -----------
BALANCE,
December 31, 1998 50 $1,371,250 $ - $(1,412,973)
-- ---------- --------- -----------
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
SEAHAWK II, LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(10,000) $(11,000)
Adjustments to reconcile net loss to
net cash used by operating activities:
Increase in accounts payable affiliates 10,000 11,000
-------- --------
Total adjustments 10,000 11,000
-------- --------
Net cash (used)by operating activities - -
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS - -
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 52 52
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 52 $ 52
======== ========
INTEREST PAID $ - $ -
======== ========
TAXES PAID $ - $ -
======== ========
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
Seahawk II, Ltd. (the "Partnership") was formed May 16, 1989 as a Florida
limited partnership. The Partnership consists of several limited partners and
a corporate general partner, Seahawk Deep Ocean Technology, Inc. The purpose
of the Partnership is to engage in expeditions to locate, identify, and
retrieve samples from ship wrecks in waters off the coast of Florida. The
Partnership has not realized any expedition revenue and since its funds are
depleted, no expedition revenue can be expected in the future.
The Partnership agreement extends through December 31, 2025, and may be
terminated earlier at any time at the election of the General Partner with the
consensus of a Majority-In-Interest of the Limited Partners.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
As provided in the Partnership Agreement, the Partnership's accounts are
maintained on the cash basis of accounting for tax purposes, however, for
financial statement purposes they are adjusted to the accrual basis in order
to conform with generally accepted accounting principles.
Use of Estimates
The Partnership uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities,
and the reported revenues and expenses.
Organizational Costs
Organizational costs, consisting principally of legal and professional service
fees, which were incurred during the formation of the Partnership were
capitalized and amortized over the initial year of operation.
Research Costs
Research costs, consisting principally of fees paid to a related party for
information that will be useful in identifying and locating colonial ship
wrecks, were capitalized and amortized over the first two years of operations.
Allocation of Profits and Losses
Net losses of the Partnership will be allocated 99% to the Limited Partnership
and 1% to the General Partner until the limited partners' capital accounts
have been reduced to zero, thereafter, the net losses will be allocated to the
general partner. Net income is first allocated to the Limited Partners based
on their proportionate ownership interests to the extent of net losses
previously allocated to them. Net income is then allocated to the General
Partner to the extent of net losses previously allocated. All remaining net
income is allocated 1% per unit of limited partnership interest, and the
balance to the General Partner.
F-39
<PAGE>
Distribution of Cash Flow
Cash available for distribution from Partnership operations represents cash
generated from Partnership activities after payment of all expenses of the
Partnership and the establishment of any reserves deemed appropriate by the
General Partner. Cash available for distribution will be distributed to the
extent of the Limited and General Partners' initial cash contributions to the
Partnership. Then to the General Partner up to the amount of its credit
balance if any. Thereafter, cash available for distributions will be
distributed 1% per unit of limited partnership interest, and the balance to
the General Partner.
Income Taxes
In accordance with Section 701 of the Internal Revenue Code, the Partnership
is not a taxable entity, therefore the results of operations flow through to
the partners for tax purposes. The tax returns and the amounts of Partnership
income or loss distributed to the partners are subject to examinations by
federal and state taxing authorities.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Partnership has entered into a license agreement with Seahawk
Oceanographic Services, Inc. (SOS), a corporation of which its two
shareholders were also two major shareholders of the Partnership's General
Partner. Under the terms of the agreement, the Partnership acquired all
rights, title and interest in , and to certain research, data and other
information relating to potential ancient and modern shipwreck sites in the
waters off the east coast of Florida. In accordance with the agreement, the
Partnership made an initial payment of $50,000. The agreement further
specifies that upon confirmation and certification from an independent source
that the Partnership has discovered the site of a colonial shipwreck in the
research area specified by the agreement, the Partnership will pay SOS a fee
of $150,000. One colonial shipwreck has been found and certified, and the
Partnership has paid the corresponding fee. Additionally, if the Partnership
discovers any additional colonial shipwrecks in the research area, which are
also independently verified, the Partnership will pay SOS an additional fee of
$200,000 for each additional colonial shipwreck.
The Partnership leased a research vessel and on-board electronic research,
survey and salvage equipment from its General Partner to perform search,
identification and salvage equipment activities at a rate which the General
Partner established as reasonable from time to time. The leasing arrangement
was terminated at the completion of the project. In addition, the Partnership
pays an administrative fee and a fee for personnel services to its General
Partner. The total amount incurred by the Partnership during 1998 and 1997
was $10,000 and $10,000, respectively, and cumulative charges since inception
total $916,332.
F-40
<PAGE>
NOTE 4 - CONTINGENCIES
Consulting Agreement
The Partnership is contingently liable under a consulting agreement to an
unrelated company, for an amount equal to ten (10) percent of the total value
of all artifacts and other valuable items recovered, if any, from the sites
identified in an agreed research area, after subtraction of any shares taken
by any government in whose waters the recovered materials are raised, in
exchange for which the Partnership will secure the services of that company's
principal employee in connection with the historical and archeological aspects
of the Partnership operations. No valuable artifacts or other valuable items
have been recovered as of December 31, 1998.
Legal Aspects of International Salvage
The question of legal ramifications with regard to the recovery of shipwrecks
raises a number of issues. Salvors, historical interests and individuals
claiming ownership based on the payment of insurance claims all have potential
claims on goods brought up from the sea floor.
An entity responsible for the salvage of a sunken vessel and its cargo may
expect to defend its claim to title against the original owners or their
successors-in-interest, against rival salvors, and against governments
asserting a historic interest in the shipwreck or cargo. Potential claimants
might include the insurers of the shipwreck as in the SS Central America
case(Civil Action 87-363-N). Unless the insurers expressly disclaimed title
after payment of a claim, and depending on the length of time the ship has
remained sunken, the insurers might have a valid claim of title to recovered
objects.
NOTE 5 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As shown in the financial
statements, the Partnership incurred a net loss for 1997 and has an
accumulated deficit. In addition, the Partnership has no cash flow from its
operating activities. These factors raise substantial doubt about its ability
to continue as a going concern.
The Partnership is virtually out of money and the partners have decided they
are not willing to invest additional funds to continue further excavation of
the wreck site. The General Partner has been unable to obtain additional
working capital to work on the Partnership's wreck off Saint Augustine, and in
December 1994 and again in November 1995 asked the partners to vote on
terminating the Partnership. The results of the votes were inconclusive and
the General Partner will ask the partners to vote again on terminating the
Partnership.
The financial statements of the General Partner indicate that substantial
doubt exists as to the continuance of its future operations.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the
Partnership cannot continue in operation.
F-41
<PAGE>
NOTE 6 - YEAR 2000 COMPLIANCE (UNAUDITED)
The Partnership owns no computers. The General Partner 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 General Partner's computer systems are used primarily for basic
accounting, word processing, spreadsheet applications and access to the
inter-net and world wide web.
The General Partner employs three PC computers with year 2000 compliant
hardware. The General Partner does not depend on any specialized computer
hardware that might have become non-functional due to year 2000 problems.
The General partner utilizes commonly used software packages, the vendors of
which had all addressed the issue of year 2000 compliance, and the General
Partner did not experience any year 2000 related software problems.
F-42
<PAGE>
Report of Independent Certified Public Accounts
To the Partners of
Eagle Partners, Ltd.
Tampa, Florida
We have audited the accompanying statement of net assets (liabilities) in
liquidation of Eagle Partners, Ltd. (a Florida limited partnership) as of
December 31, 1998 and the related statements changes in net
assets(liabilities) in liquidation on December 31, 1998, and statements of
operations, partners' capital and cash flows for the years ended December 31,
1998 and 1997. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentations. We believe that our
audits provide a reasonable basis for our opinion.
As described in Note 5, the Partnerships's policy is to prepare its financial
statements on a liquidation basis of accounting.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the net assets (liabilities) in liquidation of Eagle
Partners, Ltd. (a Florida limited partnership) as of December 31, 1998, the
changes in net assets in liquidation and the results of its operations,
changes in partners' capital and its cash flows for the years ended December
31, 1998 and 1997, in conformity with generally accepted accounted principles.
/s/ Giunta, Ferlita & Walsh, P.A.
Giunta, Ferlita & Walsh, P.A.
Tampa, Florida
July 1, 2000
F-43
<PAGE>
EAGLE PARTNERS, LTD.
STATEMENT OF NET ASSETS (LIABILITIES) IN LIQUIDATION
DECEMBER 31, 1998
ASSETS $ -
-----------
LIABILITIES AND PARTNERS' CAPITAL $ -
-----------
$ -
-----------
NET LIABILITIES IN LIQUIDATION $ -
===========
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
EAGLE PARTNERS, LTD.
STATEMENT OF CHANGES IN NET ASSETS (LIABILITIES) IN LIQUIDATION
ON DECEMBER 31, 1998
INCREASE IN NET ASSETS (LIABILITIES) IN LIQUIDATION
Adjustments of Estimated Values $ 1,162,515
-----------
$ 1,162,515
PARTNERS' DEFICIT ON HISTORICAL BASIS
PRIOR TO RESTATEMENT ON LIQUIDATION BASIS (1,162,515)
-----------
ENDING NET LIABILITIES IN LIQUIDATION $ -
===========
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
EAGLE PARTNERS, LTD.
STATEMENT OF OPERATIONS-HISTORICAL BASIS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------- -----------
REVENUE $ - $ -
--------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES 10,000 21,817
--------- ----------
LOSS FROM OPERATIONS (10,000) (21,817)
--------- ----------
OTHER EXPENSE
Interest Expense (5,000) (4,932)
--------- ----------
(5,000) (4,932)
--------- ----------
NET LOSS $ (15,000) $ (26,749)
========= ==========
The accompanying notes are an integral part these financial statements.
F-46
<PAGE>
<PAGE>
EAGLE PARTNERS, LTD.
STATEMENT OF PARTNERS' CAPITAL HISTOICAL BASIS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Number Capital
of Contri- Accumulated
Units butions Deficit
----- ------- -----------
BALANCE, December 31, 1997 3 $150,100 $(1,297,615)
NET (LOSS) 1998 ( 15,000)
-- -------- -----------
BALANCE, December 31, 1998 3 $150,100 $(1,312,615)
== ======== ===========
The accompanying notes are an integral part these financial statements.
F-47
<PAGE>
EAGLE PARTNERS, LTD.
STATEMENTS OF CASH FLOWS HISTORICAL BASIS
FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $( 15,000) $( 26,749)
--------- ---------
Adjustments to reconcile net loss to
net cash used by operating activities:
Increase in accounts payable 15,000 26,749
--------- ---------
Total adjustments 15,000 26,749
--------- ---------
Net cash (used)by operating activities - -
CASH FLOWS FROM INVESTING ACTIVITIES - -
========= =========
CHANGE IN CASH AND CASH EQUIVALENTS - -
========= =========
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF YEAR - -
========= =========
END OF YEAR $ - $ -
========= =========
INTEREST PAID $ - $ -
========= =========
TAXES PAID $ - $ -
========= =========
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
EAGLE PARTNERS, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
Eagle Partners, Ltd. (the "Partnership") was formed November 12, 1991 as a
Florida limited partnership. The Partnership consists of three limited
partners and a corporate general partner, Seahawk Deep Ocean Technology, Inc.
The purpose of the Partnership was to engage in expeditions to locate,
identify, recover and market the cargo of a shipwreck believed to have sunk
off the east coast of the United States.
In July 1995, the General Partner became aware of another company, Sea Miners,
Inc., which was also searching for the same shipwreck. In order to pool
research and resources and to remove all-or-nothing competition, the
Partnership and Sea Miners, Inc. formed a joint venture. In March 1995, the
joint venture was formalized into a new Partnership called Eagle Miners, Ltd.
The original Partnership agreement was valid through December 31, 1995, and
was extended to December 31, 1999, by a unanimous vote of the partners. The
Partnership was terminated on December 31, 1999.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
As provided in the Partnership Agreement, the Partnership's accounts were
maintained on the cash basis of accounting for tax purposes, however, for
financial statement purposes they were adjusted to the accrual basis in order
to conform with generally accepted accounting principles.
As of December 31, 1998, it was the management's intention liquidate the
Partnership, and from that date the Partnership has measured its assets and
liabilities at the amounts of cash and cash equivalents expected in
liquidation and reports changes in estimates when they are known. The
financial statements have been shown on the original historical basis up to
and including December 31, 1998, and restated at that date on the new
liquidation basis.
Use of Estimates
The Partnership uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities,
and the reported revenues and expenses.
Income Taxes
In accordance with Section 701 of the Internal Revenue Code, the Partnership
is not a taxable entity, therefore the results of operations flow through to
the partners for tax purposes. The tax returns and the amounts of Partnership
income or loss distributed to the partners are subject to examinations by
federal and state taxing authorities.
F-49
<PAGE>
Allocation of Profits and Losses
Net losses of the Partnership are allocated 99% to the Limited Partners and 1%
to the General Partner until the limited partners' capital accounts have been
reduced to zero. All allocations of net losses thereafter are made solely to
the General Partner. Net income was to be first allocated to the Limited
Partners based on their proportionate ownership interests to the extent of net
losses previously allocated to them. Net income was then to be allocated to
the General Partner to the extent of net losses previously allocated. All
remaining net income was to be allocated on a per unit of limited partnership
interest as follows:
Each $50,000 unit will receive 2.5% of the first $1 million of income
allocated, 2% of the second $1 million allocated, 1.5% of the third $1 million
allocated, 1% of the fourth $1 million allocated, 0.5% of anything over $4
million allocated and the balance to the General Partner.
Distribution of Cash Flow
Cash available for distribution from Partnership operations represents cash
generated from Partnership activities after payment of all expenses of the
Partnership and the establishment of any reserves deemed appropriate by the
General Partner. Had cash been available for distribution it would have been
distributed to the extent of the Limited and General Partners' initial cash
contributions to the Partnership. Thereafter, cash available for
distributions would have been distributed as follows:
Each $50,000 unit will receive 2.5% of the first $1 million distributed, 2% of
the second $1 million distributed, 1.5% of the third $1 million distributed,
1% of the fourth $1 million distributed and 1% of anything over $4 million
distributed. The General Partner would have received the balance of any
distribution.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Partnership leased a research vessel and on-board electronic research,
survey and salvage equipment from its General Partner to perform search,
identification and salvage activities at a rate which the General Partner
established as reasonable from time to time. The total amount incurred by the
Partnership in 1998, 1997 and cumulative since inception are $none, $none and
$1,117,680 respectively, of which $1,028,570 is in accounts payable at
December 31, 1998.
In June 1992, the General Partner received loans of $200,000 from unrelated
parties and $50,000 from a related party. The lenders would have received (in
addition to other considerations) an aggregate of 6.25% of the General
Partner's share of the net profit, if any, from the sale of any recovered
cargo by the Partnership.
F-50
<PAGE>
NOTE 4 - CONTINGENCIES
Joint Venture Agreements
The Partnership operated under a joint venture agreement with a researcher who
provided the research and data for a 19th Century shipwreck off the east coast
of the United States. According to the researcher, the vessel was believed to
have a valuable cargo of gold coins on board at the time of the sinking,
although there is no assurance that the researcher is correct or that the
shipwreck will be located.
Pursuant to the terms of the original joint venture agreement, the researcher
was to receive twenty percent (20%) of any items recovered from the ship
provided that it is located in the designated search area in return for his
research and data. The Partnership was responsible for conducting the search
and recovery of the shipwreck and if successful, for marketing any cargo which
is recovered. The partnership was to receive eighty percent (80%) of any
recovery.
The joint venture agreement required the partnership to dedicate the vessel
R/V. Seahawk (or a similar vessel with similar equipment) to work on this
project at least 120 days during 1992, and each year thereafter, beginning not
later than May 30 of each year. The joint venture agreement was amended in
June 1994. The amended agreement required the partnership to work on the
project for at least 60 days during 1994. The partnership did not meet this
schedule and was in default on this agreement. In such an event, the
agreement provided that all rights to conduct search and/or salvage efforts
relative to this wreck would revert to the researcher. The General Partner
negotiated an extension to the joint venture agreement under which the
researcher's share of any successful recovery was reduced to ten per cent
(10%) and the requirement for the partnership to work on the project for a
minimum period each year was removed. In return the General Partner agreed to
issue the researcher 60,000 shares of its Common Stock.
Under the terms of the Partnership Agreement, after accounting for losses
previously allocated, net income was to be allocated on a per unit of Limit
Partnership interest as follows:
Each $50,000 unit was to receive 5% of the first $1 million of income
allocated; 4% of the second $1 million allocated; 3% of the third $1 million
allocated; 2% of the fourth $1 million allocated; 1% of anything over $4
million allocated and the balance to the General Partner.
In early 1995, the General Partner became aware of another company ("Sea
Miners, Inc.") that was searching for the same shipwreck (code named "Golden
Eagle") and in order to pool research and resources and to remove
all-or-nothing competition, the Partnership and Sea Miners formed an equal
joint venture to search for the vessel. The joint venture was operated via a
Florida Limited Partnership called Eagle Miners Ltd. The Partnership and Sea
Miners were equal and joint general partners of Eagle Miners. As a result of
the joint venture, each of the limited partners of Eagle Partners agreed to
reduce their entitlement of any distribution to one-half of the original
amount in the paragraph above. Eagle Miners contracted to use the General
Partner for all of its offshore services. $100,000 was raised by the joint
venture for the initial inspection of certain sites within which Sea Miners
had revealed possible shipwrecks in its search area. The joint venture
intended to raise additional financing for this project but none was
forthcoming.
F-51
<PAGE>
Legal Aspects of International Salvage
Legal ramifications with regard to the recovery of shipwrecks raise a number
of issues. Salvors historical interests and individuals claiming ownership
based on the payment of insurance claims all have potential claims on goods
brought up from the sea floor. An entity responsible for the salvage of a
sunken vessel and its cargo may expect to defend its claim to title against
the original owners or their successors -in -interest, against rival salvors,
and against governments asserting a historic interest in the shipwreck or
cargo.
Potential claimants might include the insurers of the shipwreck as in the SS
Central America case (Civil Action 87-363-N). Unless the insurers expressly
disclaimed title after payment of a claim, and depending on the length of time
the ship has remained sunken, the insurers might have a valid claim of title
to recovered objects.
NOTE 5 - LIQUIDATION BASIS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. The historical financial statements
contemplate continuation of the Partnership as a going concern. However the
Partnership was terminated at its agreed termination date of on December 31,
1999. The financial statements at December 31, 1998 have been prepared on a
liquidation basis.
NOTE 6 - YEAR 2000 COMPLIANCE (UNAUDITED)
The Partnership owns no computers. The General Partner did not experience any
year 2000 related hardware or software problems.
F-52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act, the Registrant has duly caused this Amendment to be signed on its behalf
by the undersigned thereunto duly authorized.
SEAHAWK DEEP OCEAN TECHNOLOGY, INC.
Dated: July 25, 2000 By:/s/ John T. Lawrence
John T. Lawrence, Chief Executive
Officer
Pursuant to the requirements of the Exchange Act, this Report has been signed
below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ John T. Lawrence Chief Executive Officer, July 25, 2000
John T. Lawrence President, Chairman of the
Board, Principal Financial
and Accounting Officer and
a Director
/s/ John P. Balch Secretary, Chief Operating July 25, 2000
John P. Balch Officer, and Director
/s/ J. Robert Shaw Director July 25, 2000
J. Robert Shaw
/s/ Dennis Parisi Director July 25, 2000
Dennis Parisi
