-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AOALr22g72LPzKFUrQxd44WFEIyQBiEVRavCWbthw5mfPu624yLy3E7G0kl5+mld Ch5SFcWJfewT28cPsjXaag== /in/edgar/work/20000726/0000948830-00-000337/0000948830-00-000337.txt : 20000921 0000948830-00-000337.hdr.sgml : 20000921 ACCESSION NUMBER: 0000948830-00-000337 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 20000726 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAHAWK DEEP OCEAN TECHNOLOGY INC CENTRAL INDEX KEY: 0000833020 STANDARD INDUSTRIAL CLASSIFICATION: [4400 ] IRS NUMBER: 841087879 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-18239 FILM NUMBER: 679400 BUSINESS ADDRESS: STREET 1: 5102 S WESTSHORE BLVD CITY: TAMPA STATE: FL ZIP: 33611 BUSINESS PHONE: 8138324040 MAIL ADDRESS: STREET 1: 5102 SOUTH WESTSHORE BOULEVARD CITY: TAMPA STATE: FL ZIP: 33611 FORMER COMPANY: FORMER CONFORMED NAME: FOX RIDGE CAPITAL INC DATE OF NAME CHANGE: 19890924 10QSB 1 0001.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 Commission File Number: 0-18239 SEAHAWK DEEP OCEAN TECHNOLOGY, INC. ---------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Colorado 84-1087879 - ------------------------------- --------------------------------- (State of other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 5102 SOUTH WESTSHORE BLVD. TAMPA, FLORIDA 33611 ---------------------------------------------------------- (Address of principal executive offices including zip code) (813) 831-4040 -------------------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ As of July 20, 2000, the Registrant had 28,477,614 shares of common stock, no par value per share, outstanding. Transitional Small Business Disclosure Format (check one): Yes__ No X SEAHAWK DEEP OCEAN TECHNOLOGY, Inc. FORM 10-QSB INDEX Part I: Financial Information............................... Page No. Item 1. Financial Information: Consolidated Balance Sheets - March 31, 1999 and December 31, 1998............................ 3 - 4 Consolidated Statements of Operations - Three Months Ended March 31, 1999 and 1998 ............ 5 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998 ............................................ 6 - 7 Notes to Consolidated Financial Statements....... 8 - 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 14 - 17 Part II: Other Information................................ 18 Item 1. Legal Proceedings....................... 18 Item 2. Change in Securities.................... 18 Item 3. Defaults Upon Senior Securities......... 18 Item 4. Submission of Matters to a Vote of Security Holders..................... 18 Item 5. Other Information....................... 18 Item 6. Exhibits and Reports on Form 8-K........ 18 Signatures... .............................................. 19 -2- SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ASSETS (Unaudited) March 31 December 31 1999 1998 ------------ ------------ CURRENT ASSETS Cash and cash equivalents $ 33,217 $ 16,510 Marketable securities - Accounts receivable Other 11,605 6,200 Prepaid expenses 22,947 11,115 ------------ ------------ Total current assets 67,769 33,825 ------------ ------------ PROPERTY AND EQUIPMENT Net of accumulated depreciation of $917,263 and $880,744 299,447 526,523 ------------ ------------ OTHER ASSETS Accounts and notes receivable affiliates less losses in excess of investment in affiliates of $44,275 and $41,775 - - Deposits 19,075 14,025 ------------ ------------ Total other assets 19,075 14,025 ------------ ------------ TOTAL ASSETS $ 386,291 $ 574,373 ============ ============ -3- SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) March 31 December 31 1999 1998 ------------ ------------ CURRENT LIABILITIES Overdraft $ - $ - Accounts payable 222,542 264,664 Accrued expenses Salaries 48,130 45,284 Interest due related parties 233,010 198,415 Interest due to others 32,095 29,131 Other 28,204 23,905 Provision for lawsuit 700,000 700,000 Due to related parties 308,800 293,800 Accrued officers' salaries 640,900 574,900 Notes payable - others 327,930 176,747 ------------ ------------ Total Current Liabilities 2,541,611 2,306,845 ------------ ------------ STOCKHOLDERS' EQUITY Preferred stock - no par value 60,000,000 shares authorized; 4,152,700 and 552,460 shares issued and outstanding 172,500 116,500 Common stock - no par value; 30,000,000 shares authorized; 28,181,991 and 28,181,991 shares issued and outstanding 13,595,627 13,595,628 Paid in capital-stock options 5,191 5,191 Accumulated (deficit) (15,928,638) (15,449,791) ------------ ------------ Total Stockholders' Equity ( 2,155,320) ( 1,727,472) ------------ ------------ TOTAL LIABILITY AND STOCKHOLDERS' EQUITY $ 386,291 $ 574,373 ============ ============ -4- SEAHAWK DEEP OCEAN TECHNOLOGY, INC AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Three Months Ended March 31, 1999 1998 ------------ ------------ REVENUES Income from affiliates $ 2,500 $ 10,000 Income from others 5,405 58,250 Gain on sale of artifacts - 439,356 ------------ ------------ Total Revenues 7,905 507,606 OPERATING EXPENSES Vessel operations 37,056 162,975 South American project - 1,923 Conservation - - Depreciation 36,519 35,783 Rent 10,562 17,588 ------------ ------------ Total Operating Expenses 84,137 218,269 GENERAL AND ADMINISTRATIVE EXPENSES 153,421 143,696 ------------ ------------ Total Expenses 237,558 361,965 ------------ ------------ PROFIT(LOSS) FROM OPERATIONS (229,653) 145,641 ------------ ------------ OTHER INCOME (EXPENSE) Interest income - affiliate 7 14,841 Interest income - others - - Interest expense (65,351) (67,287) Other income - - Provision for Loss on sale of marketable securities - (476,425) Provision for Loss on sale of vessel (193,350) (Loss)Gain on disposal of equipment 12,000 (12,751) Gain (Loss) on investment in less than 50% owned entities (2,500) 747,275 ------------ ------------ Total Other Income (Expense) (249,194) 205,653 ------------ ------------ NET PROFIT(LOSS) $ (478,847) $ 351,294 ============ ============ NET PROFIT(LOSS) PER SHARE $ (0.02) $ 0.01 ------------ ------------ Weighted average number of common shares and common shares equivalents outstanding. 28,181,991 27,693,991 ------------ ------------ -5- SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES STATEMENT OF CASH FLOWS Source (use) of Cash Three Months Ended March 31, 1999 1998 ------------ ------------ Cash Flows from Operating Activities Net Profit( Loss) $ (478,847) $ 351,294 Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 36,519 35,783 (Decrease) in provision for bad debts - (16,539) Provision for loss on impairment of vessel 193,350 - (Gain)Loss on disposal of equipment (12,000) 12,750 (Gain)Loss on Investment in less than 50% owned entities 2,500 (742,301) Services acquired through issuance of stock - 55,000 Decrease(increase) in: trade accounts receivable (7,780) - trade accounts receivable-affiliates - - other receivables 2,375 (214,922) other receivables-affiliates (2,500) 626,240 inventory - 303,073 prepaid expense (11,832) (14,586) deposits (5,050) 250 (Decrease) increase in: accounts payable (35,081) (9,334) accrued expenses 47,035 154,378 ------------ ------------ Total Adjustments 207,536 189,791 ------------ ------------ Net cash generated (used) by operating activities $ (271,311) $ 541,086 ------------ ------------ Cash Flows from Investing Activities Purchase of equipment $ (9,831) $ ( 990) Increase in other investments - (603,696) Proceeds from disposal of equipment 12,000 - Proceeds from the sale of marketable securities - - Payments received on notes receivable - 423,856 Decrease in investment in affiliate - - ------------ ------------ Net cash provided (used) by investing activities $ 2,169 $ (180,830) ------------ ------------ -6- Source (use) of Cash Three Months Ended March 31, 1999 1998 ------------ ------------ Cash Flows from Financing Activities Proceeds from issuance of common stock - - Proceeds from issuance of preferred stock 56,000 - Advances from related parties 81,001 1,000 Issuance of notes payable - other 162,500 98,961 Issuance of notes payable - related - - Repayment of notes - other (13,652) - Repayment of notes - related - (425,026) ----------- ----------- Net cash provided (used) by financing activities 285,849 (325,065) ----------- ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENT 16,707 35,191 CASH AND CASH EQUIVALENT BEGINNING OF QUARTER 16,510 (871) ----------- ----------- CASH AND CASH EQUIVALENT END OF QUARTER $ 33,217 $ 34,320 =========== =========== SUPPLEMENTAL DISCLOSURES: Interest paid $ 2,335 $ 115,144 =========== =========== Taxes paid $ - $ - =========== =========== Summary of significant non cash transactions In February 1998, the Company issued 550,000 shares of its Series 3 Preferred Stock to a non-affiliated company as payment for subcontracted services valued at $55,000. -7- SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES NOTES ON FINANCIAL STATEMENTS MARCH 31, 1999 (Unaudited) NOTE 1 BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Seahawk Deep Ocean Technology, Inc. and subsidiaries (Company) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and the instructions to Form 10-QSB and, therefore, do not include all information and footnotes normally included in financial statements prepared in accordance with generally accepted accounting principles. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Form 10-KSB for the year ended December 31,1998. In the opinion of management, these financial statements reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation of the financial position as of March 31, 1999, results of operations, and cash flows for the interim periods presented. Operating results for the three months ended March 31, 1999, are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. NOTE 2 GOING CONCERN CONSIDERATION The Company earned a net loss of $478,847 for the first quarter of 1999 and has incurred substantial net losses for each of the past several years resulting in an accumulated deficit of $15,928,638 at March 31, 1999. At that date the Company had negative working capital as indicated by current liabilities exceeding current assets by $2,473,842. These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern NOTE 3 AFFILIATES FINANCIAL INFORMATION The Company is the General Partner and a less than 50% interest owner Seahawk II, Ltd. and Eagle Partners, Ltd., both Florida limited partnerships. These partnerships are accounted for on the equity method. Summarized financial statement information is shown on page 9. -8- SEAHAWK DEEP OCEAN TECHNOLOGY, INC. AND SUBSIDIARIES BALANCE SHEETS - AFFILIATES Three Months Ended March 31, 1999 Seahawk II,Ltd. ------------------ Current Assets Cash $ 52 ---------- Total Current Assets 52 ---------- Current Liabilities Accounts payable - general partner 44,275 ---------- Total Current Liabilities 44,275 ---------- Partners' Capital Capital contributed 1,371,251 Accumulated loss (1,415,474) ---------- Net Capital (44,223) ---------- Total Liabilities and Capital 52 ---------- STATEMENTS OF OPERATION - AFFILIATES Revenues $ 0 Expenses Administrative expenses 2,500 ---------- Total Expenses 2,500 ---------- Other Income (Expenses) 0 ---------- Net (Loss) $ (2,500) ---------- In accordance with the December 31, 1998 Eagle Partners Ltd. plan of liquidation, the financial statements for that partnership, as of December 31, 1998, were stated on a liquidation basis with an estimated liquidation value of zero. Accordingly, the Company wrote off its investment and related receivable accounts from Eagle Partners, Ltd. at December 31, 1998, which resulted in a net loss of $zero because the investment and related receivable accounts had already been provided for. -9- NOTE 4 INCOME TAXES The Company provides for deferred income taxes resulting from the timing differences in reporting income and expenses for financial statement purposes compared to the method of reporting for income tax purposes. No deferred income taxes are reflected in the accompanying financial statements due to the Company's losses from operations. NOTE 5 STOCK TRANSACTIONS WITH RELATED PARTIES In February 1999, the company issued 20,000 shares of its common stock to Robert Shaw as compensation for acting as sole officer and director of its subsidiary RV Seahawk, Inc. In February 1999, the two executive directors each donated 50,000 of their unrestricted common stock in the Company to a lender as an incentive to lend the Company $154,000. In compensation the Company agreed to pay each executive director $3,500 in cash and issued each of the directors 100,000 shares of its common stock. NOTE 6 STOCK TRANSACTIONS WITH OTHERS In March, 1999 the Company entered an agreement with Drexel Aqua Technologies, Inc., a Delaware corporation, under which Drexel was to purchase 36,000,000 shares of the Company's Series 2 Preferred Stock for $500,000. The consideration was to be paid at the rate of $50,000 or more each month and the stock was to be issued on a pro rata basis. On payment of the first $50,000 Drexel were entitled to appoint two directors to the board of the Company and on payment of the second $50,000 Drexel were entitled to appoint a third director. On full payment of the consideration Drexel were entitled to appoint a total of four directors. The proceeds of the sale were to be used specifically for current payroll, taxes, rent, administrative expenditures, legal fees and the costs of shareholder meetings. At the same time the Company and Drexel signed an agreement subject to due diligence, for the Company to acquire the entire share capital of Drexel's wholly owned subsidiary, Sindia Expedition, Inc.("SEI") for shares of Common Stock in the Company. The number of shares to be issued for the acquisition of SEI was to depend on the valuation of that corporation. SEI is the sole owner of all the rights to a shipwreck in Ocean City, New Jersey known as the Sindia. The receipts from the Drexel private placement enabled the Company to pay its day to day expenses while the installments were received. However, after the first three installments the payments were always later and less than provided for by the contract. As of May 15, 2000 the Company had received only $257,374 of the $500,000 due under the Drexel arrangement and the agreement was canceled. -10- NOTE 7 SUBSEQUENT EVENTS EXTENSION OF LOAN FOLLOWING REQUEST FOR CONVERSION During 1997 Carl Anderson, a principal shareholder of the Company, advanced the Company $278,200. In September 1997 Mr. Anderson applied to the Company to exercise his AH1 warrants and requested that the advances be converted into 2,140,000 shares of the Company's common stock. The Company had insufficient unissued authorized stock and were unable to comply with the request. In May 1999 the Company entered into an Agreement with Mr. Anderson under which the $278,000 was incorporated into a convertible note with interest accruing on an annual basis at 18% from September 1997. The note provided that the loan and accrued interest would be repaid in cash or, at Anderson's option, in the Company's common stock at the conversion rate of $0.035 per share on December 31, 1999 (the "First Due Date"). The Agreement also provided that in the event that the Company does not repay the loan on that date, the Note will be extended on the same terms for one year to December 31, 2000, at which time the principal and accrued interest must be repaid in cash or, at the at Anderson's option, in the Company's common stock at the conversion rate of $0.025 per share. As an incentive to enter this agreement the Company extended the expiration date of Mr. Anderson's T1 and AH2 warrants to December 31, 2000, and reduced the exercise price to $0.05 per share. In June 2000, Mr. Anderson agreed to convert the Loan and accrued interest, together with $10,000 owed to him for leasing a car to the company into 414,000 shares of the Company's Series 5 Preferred Stock. ISSUE OF SERIES 3 PREFERRED STOCK In August 1999, the Company issued 1,000,000 shares of its Series 3 Preferred Stock to Deep Sea Discoveries, Inc. in payment for a purchase of an ROV and other related equipment valued at $100,000. MORTGAGE ON THE R/V SEAHAWK In February 1999, the Company organized a wholly owned subsidiary, RV Seahawk, Inc., a Florida corporation, and transferred the vessel R/V Seahawk into the new subsidiary. At the same time RV Seahawk, Inc. borrowed $154,000 from First Capital Services Inc. The loan was for six months, was secured by a first preferred ships mortgage on the R/V Seahawk and carried an interest rate of 15.88%. RV Seahawk, Inc. paid the 6 months interest of $12,230 in advance together with a commitment fee of $12,500 and as an incentive to agree to the loan Mr. John Lawrence gave 100,000 of his free trading shares of the Company's common stock to First Capital. The Company guaranteed the loan. The Note provided for the loan to be renewed on payment of 6 months interest in advance, a further commitment fee of $1,500 and a further transfer to First Capital of 100,000 free trading common shares in the Company. In the event, the loan was not repaid or renewed, and on December 2, 1999, First Capital submitted a demand to the Company and RV Seahawk, Inc. for $164,476. Following the sale of the vessel by auction in January 2000 approximately $157,000 of the proceeds was applied to the outstanding principal and accrued interest. -11- ARREST AND SALE OF THE R/V SEAHAWK On December 1, 1999, certain crew members of the R/V Seahawk filed for the arrest of the vessel with the Supreme Court of Gibraltar against debts for past due wages in the sum of $37,378. In January 2000, the Court sold the vessel for $207,000 at public auction to First Capital Services, Inc. From the proceeds of the sale, the Court paid the crew members and the balance of the net proceeds of was applied to the principal and accrued interest due First Capital under its first preferred ships mortgage. As a result of the sale the Company suffered a loss on disposal of equipment of $193,350. SETTLEMENT OF DEMAND FOR INDEMNITY FROM FORMER DIRECTORS In March, 1998, the Company received a demand for indemnity from Greg Stemm, John Morris and Dan Bagley, all former directors and officers of the Company, for payment of the sum of expenses they incurred in defending an action brought against them by the Securities and Exchange Commission. The indemnification claim was made under Colorado corporate law. The Company has received itemization of the purported legal fees and costs incurred in the defense of the former directors and officers in the amount of approximately $700,000. In addition the former directors and officers claim that they are due consequential damages for lost wages of approximately $425,000. The Company resisted the claim and in December, 1998, the former directors and officers filed a lawsuit pursuant to their claim. The Company's directors have investigated the merits of the claim including the fact that the Company formerly agreed with the Securities and Exchange Commission that it would not pay the legal expenses of the former officers and directors in their defense of the action in question. The Company was of the opinion that the agreement with the Securities and Exchange Commission took priority over state law and in January, 1999, the Company filed in the state court a Motion to Dismiss Complaint, a Motion for More Definite Statement and Motion to Strike. At the same time the Company filed a Motion for Preliminary and Permanent Injunction in the federal court. On June 23, 1999, the federal court denied the Company's Motion for Preliminary and Permanent Injunction. The Company filed a Motion for Reconsideration in the federal court but that was also denied. On July 19, 1999, the state court dismissed the complaint against the Company, without prejudice, for failure to state cause of action. On July 20, 1999, an amended complaint was served. On November 9, 1999 the plaintiffs filed for partial summary judgment and on the Company filed for summary judgment. On March 3, 2000, the court granted final summary judgment in respect of Mr. Bagley's claim in the sum of $179,429 with interest at the statutory rate, reserving jurisdiction to determine entitlement to pre-judgment interest and attorneys' fees. On May 11, 2000, the Company's Motion for Summary Judgment was denied. On May 31, 2000, the Company agreed a combined settlement of the lawsuit with all three plaintiffs. Bagley's claim was settled by (i) the assignment of an account receivable from Odyssey Marine Exploration, Inc. in the sum of $37,000, (ii) the Company's complete dossier, including all survey information for the Golden Eagle project, and (iii)a 3 year Note for $143,000 with interest at 10% per annum payable quarterly, secured on 97.15% of the Company's Shares in Pesqamar, repayable as to principal at $13,000 on August 1, 2000,and 25,000 on the first and second anniversaries of the Note with the balance on the third anniversary. -12- Morris' claim was settled by a 2 year Note for $275,000 at 10% per annum interest convertible into the Company's Series 5 Preferred Stock at 1 share for $1.00 of debt. Stemm's claim was settled by a 2 year Note for $225,000 at 10% per annum interest convertible into the Company's Series 5 Preferred Stock at 1 share for $1.00 of debt. Both Morris's and Stemm's notes were secured by a secondary position on the 97.15% of the Company's Pesqamar shares. A provision of $700,000 was made in the financial statements for the year ended December 31, 1998, for the combined settlement. ACQUISITION OF CONSOLIDATED HOLDINGS INVESTMENT & PHILANTHROPIC GROUP, INC. On May 26, 2000, the Company signed an agreement with Consolidated Holdings Investment & Philanthropic Group, Inc.,(CHIP)a privately held Pennsylvania corporation, which has options to acquire investments in companies involved in engineering, manufacturing and real estate, to acquire the entire share capital of CHIP for newly issued shares of the Company's no par common stock. The Agreement is subject to due diligence being performed by and appropriate warranties being given by both parties and subject to approval at a Special Meeting of the Company's stockholders. Immediately prior to the acquisition, the Company plans to effect a one for one hundred reverse split of its common stock and issue CHIP's shareholders with approximately 8 million shares of Common stock in exchange for CHIP's share capital. Immediately after the acquisition, CHIP's shareholders will own approximately 75 % of the Company's issued common shares. -13- ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS This Report contains forward-looking statements that involve a number of risks and uncertainties. While these statements represent the Company's current judgement in the future direction of the business, such risks and uncertainties could cause actual results to differ materially from any future performance suggested herein. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Certain factors that could cause results to differ materially from those projected in the forward-looking statements are set forth in ``Risk Factors,'' and ``Business'' in the Company's annual report on Form 10KSB for the year ended December 31, 1998. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998 The net loss for the first quarter of 1999 was $478,847 compared to a loss of $351,294 in the corresponding quarter of 1998. Total revenues in the 1999 quarter were $7,905, a decrease of $499,701 from the 1998 quarter, which included a $439,356 gain on sale of artifacts and revenues of $58,356 from the supply of survey services. In the three months to March 31, 1999 the Company received no revenue from either of these sources. As a result of the lower activity, total expenditure in the first quarter of 1999, at $237,559, was $124,406 less than the $361,965 expended in the first three months of 1998 and an operating loss of $229,654 was suffered in the 1999 period compared to an operating profit of $145,641 in the 1998 period. During the first quarter of 1999, the RV Seahawk was between assignments and docked in Gibraltar, whereas she was fully operational and working in the Caribbean in the first quarter of 1998. Consequently the cost of vessel operations in the three months ended March 31, 1999 were $125,919 less at $37,056 than the $162,975 incurred during the 1998 quarter. The main reduction was seen in the subcontracted crew and equipment costs, which were $25,368 in the quarter to March 31, 1999 compared to $133,617 in the equivalent 1998 quarter. Depreciation charges for the quarter ended March 31, 1999 at $36,519 were of the same order as the $35,783 charged for the 1998 quarter because largely the same equipment was being depreciated. Rent for the Company's premises cost $10,562 in the 1999 quarter, $7,025 less than the rent costs in the 1998 quarter because of a credit negotiated on the previous years rent. General and administrative costs totalled $153,421 in the first quarter of 1999. In the equivalent quarter of 1998 they totalled $143,695. Most categories of expenditure were lower in the 1999 quarter as a result of economies but these were offset by an increase in legal fees of $22,278 incurred largely in defending the lawsuit brought against the Company by former directors. -14- In the first quarter of 1999, interest expense was $65,355, similar to the $67,287 charged in the first quarter of 1998. In the three months to March 31, 1999, a profit on the disposal of some redundant equipment provided a profit on disposal of $12,000, but this was offset by a provision for devaluation of the RV Seahawk in the sum of $193,350. The provision was estimated to be the loss that would be suffered on the forced sale of the vessel that eventually took place in January 2000. Assets with a net book value of $12,751 were retired during the three months ended March 31, 1998, causing a loss on disposal of assets of that amount. During the first quarter of 1999, the loss on investment in the Company's affiliates was $2,500. During the first quarter of 1998 the Company's affiliate, seahawk I, Ltd. paid off its note and and its account payable to the Company releasing a provision for non payment of $742,301 which accounted for most of the $747,275 gain on investment in affiliates for that quarter. LIQUIDITY AND CAPITAL RESOURCES During the three months ended March 31, 1999, the Company's working capital deficit increased by $200,822 to a negative $(2,473,842). At December 31, 1998 the Company had a working capital deficit of $(2,273,020). The deficit increased during the first quarter of 1999 because of a net loss before depreciation and before the provision for devaluation during the period of $248,982, which was offset by the sale of preferred stock for $56,000. As a result, the Company continues to have very restricted liquidity. This situation results principally through the lack of revenue from operations. The Company has sought to produce operational revenue through the following: 1. Sales of subsea services to entities involved in shipwreck recovery projects, which are originated by the Company. 2. Sales of subsea services to other entities. 3. Lease of ships and subsea equipment. 4. Sale of artifacts and artifact related merchandise. 5. Acquisition of revenue earning businesses for stock. Sales to affiliated project entities such as Limited Partnerships, depends on those partnerships being properly funded. The existing Limited Partnerships, Seahawk II, Ltd., and Eagle Partners, Ltd., are out of cash. Seahawk II, Ltd. is out of funds and the partners have decided they are not willing to invest additional funds to continue further excavation of the wreck site. The General Partner is unable to identify additional working capital to work on the Partnership's wreck off St. Augustine, and has asked the partners on two occasions to vote on terminating the Partnership. The results of those votes were inconclusive. In 2000, the General Partner will again seek to close down Seahawk II, Ltd., to eliminate the expenses of administration of the Partnership. Eagle Partners, Ltd. is also out of cash but has continued its search for a shipwreck, known as the Golden Eagle, believed to have sunk off the east coast of the Untied States. The Company has in the past provided survey services to Eagle Partners, Ltd. on credit but has in effect provided in full against the account receivable by assuming losses on investments sufficient to create a negative balance on investment in the Partnership that is equal to the account receivable. -15- On July 18, 1995 the Company announced that Eagle Partners Limited had entered into a limited partnership agreement with Sea Miners, Inc. a Baltimore, MD company, to resume the search for this shipwreck. The name of the new limited partnership was Eagle Miners Limited. The joint venture incorporated research by both parties concerning the Golden Eagle and a pooling of resources to continue the search operations. Under the agreement, the Company continued to be the offshore contractor to Eagle Miners Limited for all marine operations. The Company earned no revenues during 1997,1998 and 1999 from this Joint Venture and will not earn revenue in the future. Eagle Partners Limited and Eagle Miners Limited were dissolved on December 31, 1999. In accordance with the December 31, 1998 Eagle Partners Ltd. plan of liquidation, the financial statements for that partnership, as of December 31, 1998, were stated on a liquidation basis with an estimated liquidation value of zero. Accordingly, the Company wrote off its investment and related receivable accounts from Eagle Partners, Ltd. at December 31, 1998 against a provision for losses in excess of investment and the provision for doubtful debt, totalling $1,151,376. The net effect was zero. The Company is reviewing other potential shipwreck projects and it is anticipated that if the Company were to proceed with any of these projects, it may help to form limited partnerships or similar entities for the purpose of funding the projects. There is no assurance that any of the partnerships would be successful in raising the necessary amount of funding. During 1998 the Company generated over $313,000 selling its services to shipwreck related customers. In 1999 $121,209 was generated by that means. On March 19, 1998, Treasure & Exhibits International, Inc. entered an agreement with the Company and Seahawk I, Ltd. to purchase all of Seahawk I, Ltd.'s artifacts, their related documentation and all of the Company's artifacts. The consideration was $822,056 in cash and 9,500,000 newly issued shares of TEI's common stock, which were valued at the time of the agreement at $0.17 per share or $1,615,000. Immediately thereafter, Seahawk I, Ltd. repaid all its debt to the Company in cash and TEI stock, repaid other loans to two of the limited partners and made a pro rata distribution to the limited partners of the remaining TEI stock based on the limited partners' total investment in Seahawk I, Ltd. On July 20, 1998, the Company agreed to sell its remaining holding of 5,302,084 shares in TEI to First Consolidated Financial Corp., a Florida corporation, for a total consideration of $450,677 ($0.085 per share). The agreement provided for the cash to be paid in five installments, $180,270 on the date of the agreement and at least $50,000 during each of September, October and November 1998 with the balance in by December 31, 1998. In the event, after paying the first installment, no further payment was made until November 10, 1998, when the Company accepted a discount of $10,407 in return for the whole of the balance being paid on that date. Apart from seeking to raise revenue from assets the Company has also sought to raise cash from issues of stock and conserve cash by the conversion of debt into equity. In March, 1999 the Company entered an agreement with Drexel Aqua Technologies, Inc., a Delaware corporation, under which Drexel was to purchase 36,000,000 shares of the Company's Series 2 Preferred Stock for $500,000. The consideration was to be paid at the rate of $50,000 or more each month and the -16- stock was to be issued on a pro rata basis. On payment of the first $50,000 Drexel were entitled to appoint two directors to the board of the Company and on payment of the second $50,000 Drexel were entitled to appoint a third director. On full payment of the consideration Drexel were entitled to appoint a total of four directors. The proceeds of the sale were to be used specifically for current payroll, taxes, rent, administrative expenditures, legal fees and the costs of shareholder meetings. At the same time the Company and Drexel signed an agreement subject to due diligence, for the Company to acquire the entire share capital of Drexel's wholly owned subsidiary, Sindia Expedition, Inc.("SEI") for shares of Common Stock in the Company. The number of shares to be issued for the acquisition of SEI was to depend on the valuation of that corporation. SEI is the sole owner of all the rights to a shipwreck in Ocean City, New Jersey known as the Sindia. The receipts from the Drexel private placement enabled the Company to pay its day to day expenses while the installments were received. However, after the first three installments the payments were always later and less than provided for by the contract. As of May 15, 2000 the Company had received only $257,374 of the $500,000 due under the Drexel arrangement and the agreement was canceled. In order for the Company to remain in business it is necessary for the Company to generate new sources of revenue or to raise additional financing. The Company's current and future efforts to obtain additional financing will concentrate on offering additional equity to investors until such time as the Company's operational cash flow is self-supporting. On June 26, 2000, the Company signed an agreement with Consolidated Holdings Investment & Philanthropic Group, Inc.,(CHIP)a privately held Pennsylvania corporation, which has options to invest in companies involved in engineering, manufacturing and real estate, to acquire the entire share capital of CHIP for newly issued shares of the Company's no par common stock. The Agreement is subject to due diligence being performed by and appropriate warranties being given by both parties and subject to approval at a Special Meeting of the Company's stockholders. Immediately prior to the acquisition, the Company plans to effect a one for one hundred reverse split of its common stock and issue CHIP's shareholders with approximately 8 million shares of Common stock in exchange for CHIP's share capital. Immediately after the acquisition, CHIP's shareholders will own approximately 75 % of the Company's issued common shares. If the acquisition is completed the Company believes that the reorganized company's operational cash flow will be sufficient to enable controlled growth by further acquisitions using stock and cash. YEAR 2000 COMPLIANCE The Company reviewed the effect that the year 2000 would have on its essential computer systems, especially those related to its ongoing operations and its internal control systems, including the preparation of financial information. The Company's computer systems are used primarily for basic accounting, word processing, spreadsheet applications and access to the inter-net and world- wide web. The Company employs three PC computers with year 2000 compliant hardware. The Company does not depend on any specialized computer hardware that became non-functional due to year 2000 problems. The Company utilizes commonly used software packages, the vendors of which all addressed the issue of year 2000 compliance, and the Company did not suffer any year 2000 related software problems and there was no significant adverse effect on its operations or accounting records related to the year 2000. -17- PART II. OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities. During the three months ended March 31, 1999, the Company issued 4,032,000 of its Series 2 Preferred Stock. The Series 2 Preferred Stock was issued pursuant to the exemption provided by Rule 506 to a corporate investor that had been supplied with information regarding the investment, and that the Company believes had knowledge and experience in financial and business matters such that the investor was capable of evaluating the merits and risks of the investment. The certificate representing the Series 2 Preferred Stock bear an appropriate legend restricting the transfer of such securities. Item 3. Defaults Upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K - None -18- SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SEAHAWK DEEP OCEAN TECHNOLOGY, INC. Date: July 25, 2000 By:/s/ John T. Lawrence John T. Lawrence, President -19- EXHIBIT INDEX EXHIBIT DESCRIPTION METHOD OF FILING 27 Financial Data Schedule Filed herewith electronically EX-27 2 0002.txt
5 This schedule contains summary financial information extracted from the balance sheets and statements of operations found on page 3, 5 and 6 of the Company's Form 10-QSB for the year to date, and is qualified in its entirety by reference to such financial statements. 3-MOS DEC-31-1999 MAR-31-1999 33,217 0 11,605 0 0 67,769 1,216,710 (917,263) 386,291 2,541,611 0 13,600,818 0 172,500 (15,928,638) 386,291 7,905 7,905 0 84,137 153,421 193,350 65,351 (478,847) 0 (478,847) 0 0 0 (478,847) (0.02) (0.02)
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