<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from ______________ to _____________
Commission File Number 0-29796
MARINE SHUTTLE OPERATIONS INC.
(Exact name of Registrant as Specified in Its Charter)
Nevada 91-1913992
------------------------------- ------------------------------
(State or Other Jurisdiction of I.R.S. Employer Identification
Incorporation or Organization) No.)
4410 Montrose Boulevard, Houston, Texas 77006
- ---------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (713) 529-7498
--------------
Indicate by check mark whether the registrant: (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 /X/ NO / /
--- ---
Number of outstanding shares of the issuer's common stock at November 8,
1999: 33,707,357
-1-
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION........................................... 3
ITEM 1. FINANCIAL STATEMENTS............................................ 3
CONSOLIDATED BALANCE SHEET ..................................................... 3
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS.......................... 4
CONSOLIDATED STATEMENTS OF CASH FLOW............................................ 5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY................................. 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.................................. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................... 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...... 14
PART II. OTHER INFORMATION............................................... 15
ITEM 1. LEGAL PROCEEDINGS............................................... 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................ 15
SIGNATURES...................................................................... 16
INDEX OF EXHIBITS............................................................... 17
</TABLE>
- 2 -
<PAGE>
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARINE SHUTTLE OPERATIONS INC. AND SUBSIDIARIES
(A development stage company)
CONSOLIDATED BALANCE SHEET
(U.S.Dollars)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents ...................................... $ 636,120 $ 903,805
Restricted cash ................................................ 41,355 128,535
Accounts receivables ........................................... 35,989 16,254
Other current receivable ....................................... 213,023 173,577
------------ ------------
TOTAL CURRENT ASSETS ........................................... 926,487 1,222,171
Pension fund ................................................... 7,848 8,017
Property, plant and equipment, net ............................. 5,509,966 2,067,287
Debt issue cost ................................................ 854,200 --
Goodwill, net .................................................. 28,919,655 31,389,355
Patents and agreements, net .................................... 2,886,247 3,249,396
------------ ------------
TOTAL ASSETS ................................................... $ 39,104,403 $ 37,936,227
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS` EQUITY
CURRENT LIABILITY
Accounts payable ............................................... $ 1,126,922 $ 963,908
Notes payable .................................................. 4,811,167 3,605,390
Other current liabilities ...................................... 173,230 241,253
------------ ------------
TOTAL CURRENT LIABILITIES ...................................... 6,111,319 4,810,551
LONG TERM LIABILITY ............................................ 241,567 --
MINORITY INTEREST .............................................. 379,164 555,417
Contingency (Note 3)
SHAREHOLDERS' EQUITY
Authorized 75,000,000 common shares with a par value of $0.001
Issued and outstanding 33,707,357 common shares with a par value
of $0.001 at September 30, 1999 and 32,557,607 common shares at
December 31, 1998 .............................................. 33,708 32,558
Other paid in capital .......................................... 43,251,913 37,734,263
Deficit accumulated during the development stage ............... (10,896,425) (5,207,079)
Accumulated other comprehensive income ......................... (16,843) 10,517
------------ ------------
TOTAL SHAREHOLDERS' EQUITY...................................... 32,372,353 32,570,259
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................... $ 39,104,403 $ 37,936,227
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
- 3 -
<PAGE>
MARINE SHUTTLE OPERATIONS INC. AND SUBSIDIARIES
(A development stage company)
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(U.S.Dollars)
(unaudited)
<TABLE>
<CAPTION>
CUMULATIVE TO
SEPTEMBER 30,
1999 THREE MONTHS ENDED NINE MONTHS ENDED
FROM DATE OF SEPTEMBER 30, SEPTEMBER 30,
INCEPTION ------------------------------ ------------------------------
MAY 23, 1997 1999 1998 1999 1998
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES ....................... $ 76,180 $ 36,072 $ -- $ 59,804 $ --
------------ ------------ ------------ ------------ ------------
EXPENSES
Personnel costs........................... 1,500,972 534,095 64,804 1,275,478 112,255
Legal and advisory services............... 1,560,310 68,267 98,738 368,182 385,131
Cost of cancelled financing............... 606,721 -- 348,039 -- 348,039
General and administrative expenses....... 1,222,258 64, 373 59,278 767,009 272,897
Marketing expenses ....................... 904,003 76,719 615,257 251,513 615,257
Technical Development .................... 278,499 9,445 -- 278,499
Depreciation ............................. 82,958 23,076 5,275 72,491 5,275
Amortization GW and intangibles .......... 4,786,850 968,215 836,535 2,904,646 1,254,803
Write down on investment ................. 90,000 -- -- -- 90,000
Interest expense ......................... 113,158 8,612 69,415 19,890 85,196
Currency exchange loss (gain) ............ 58,669 (76,051) 7,833 28,685 1,174
------------ ------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES ................. $ 11,204,398 $ 1,676,751 $ 2,105,174 $ 5,966,393 $ 3,170,027
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Less: interest income .................... 55,540 5,058 33,482 40,990 40,689
NET LOSS BEFORE MINORITY INTEREST ........ $(11,072,678) $ (1,635,621) $ (2,071,692) $ (5,865,599) $ (3,129,338)
------------ ------------ ------------ ------------ ------------
MINORITY INTEREST ........................ (176,253) (28,956) -- (176,253) --
------------ ------------ ------------ ------------ ------------
NET LOSS ................................. $(10,896,425) $ (1,606,665) $ (2,071,692) $ (5,689,346) $ (3,129,338)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Other comprehensive loss:
Accumulated other comprehensive income
(loss) ................................... (16,843) (32,773) 23,881 (27,360) (15,921)
------------ ------------ ------------ ------------ ------------
COMPREHENSIVE LOSS ....................... $(10,913,268) $ (1,639,438) $ (2047,811) $ (5,716,706) $ (3,145,259)
------------ ------------ ------------ ------------ ------------
Basic and diluted loss per share ......... $ (0.05) $ (0.08) $ (0.17) $ (0.12)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average shares outstanding....... 33,707,357 27,620,000 33,605,996 25,086,667
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE>
MARINE SHUTTLE OPERATIONS INC. AND SUBSIDIARIES
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOW
(U.S.Dollars)
(unaudited)
<TABLE>
<CAPTION>
CUMULATIVE TO
SEPTEMBER 30,
1999
FROM DATE OF NINE MONTHS ENDED SEPTEMBER 30,
INCEPTION -------------------------------
MAY 23, 1997 1999 1998
-------------- ------------ -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Loss for the period ........................ $(10,896,425) $ (5,689,346) $ (3,129,338)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. 4,869,808 2,977,137 1,260,078
Minority interest .............................. 176,253) (176,253) --
Writedown of investments ....................... 90,000 -- 90,000
Unrealized loss on foreign currency ............ 94,747 62,657 --
Changes in working capital components:
Accounts receivable ............................ (35,989) (19,735) --
Other current receivables and restricted cash .. (39,196) 47,734 --
Accounts payable ............................... 1,126,923 163,014 20,256
Other current liabilities ...................... (19,513) (159,500) --
Due to related party ........................... -- -- (3,854)
------------ ------------ ------------
NET CASHFLOW USED ON OPERATING ACTIVITIES ...... $ (5,125,885) $ (2,654,305) $ (1,713,348)
------------ ------------ ------------
INVESTING ACTIVITIES
Investments .................................... (100,000) -- (100,000)
Capital expenditures ........................... (4,302,643) (3,586,968) (490,913)
Proceeds on sale of investment ................. 10,000 -- 10,000
Advance to Marine Shuttle Operations AS ........ (249,986) -- (249,986)
Acquisition of Marine Shuttle Operations AS .... 416,635 -- 416,635
Advance to Offshore shuttle AS ................. (100,000) -- --
Acquisition of Offshore Shuttle AS ............. 482,476 -- --
------------ ------------ ------------
NET CASHFLOW USED ON INVESTING ACTIVITIES ...... $ (3,843,518) $ (3,586,968) $ (414,264)
------------ ------------ ------------
FINANCING ACTIVITIES
Issuance of capital stock ...................... 5,918,750 5,748,750 --
Share issue cost ............................... (245,950) (229,950)
Debt issue cost ................................ (854,200) (854,200)
Payment on Note payable ........................ (3,500,000) (3,500,000)
Borrowing on Note payable ...................... 8,441,567 4,941,567 2,300,000
------------ ------------ ------------
NET CASHFLOW PROVIDED BY FINANCING ACTIVITIES .. $ 9,760,167 $ 6,106,167 $ 2,300,000
------------ ------------ ------------
Effect of exchange rate change in cash and
cash equivalents ............................. (154,644) (132,579) (15,921)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIV . $ 636,120 $ (267,685) $ 156,467
------------ ------------ ------------
Cash and cash equivalents at beginning of period -- 903,805 9,015
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..... $ 636,120 $ 636,120 $ 165,482
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE>
MARINE SHUTTLE OPERATIONS INC.
AND SUBSIDIARIES
(A development stage company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(U.S.Dollars)
(unaudited)
<TABLE>
<CAPTION>
DEFICIT
CUMULATIVE ACCUMULATED
COMMON SHARES OTHER DURING THE TOTAL
------------------------- PAID-IN COMPREHENSIVE DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT CAPITAL INCOME STAGE EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issued on incorporation .......... 10,000,000 10,000 $ $ $ $ 10,000
Private placement ................ 10,020,000 10,020 133,980 $ $ 144,000
Net loss ......................... (164,931) (164,931)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 ..... 20,020,000 20,020 133,980 -- (164,931) (10,931)
Issued on acquisition
of MSO AS ........................ 7,600,000 7,600 22,792,400 22,800,000
Issued on acquisition
OSAS ............................. 4,937,607 4,938 14,807,883 14,812,821
Other comprehensive income--
foreign currency adjustments ... 10,517 10,517
Net loss ......................... (5,042,148) (5,042,148)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 ..... 32,557,607 $ 32,558 $ 37,734,263 $ 10,517 $ (5,207,079) $ 32,570,259
- -----------------------------------------------------------------------------------------------------------------------------------
Private placement ................ 1,149,750 1,150 5,517,650 5,518,800
Other comprehensive income--
foreign currency adjustments ... (27,360) (27,360)
Net loss ......................... (5,689,346) (5,689,346)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1999 .... 33,707,357 $ 33,708 $ 43,251,913 $ (16,843) $(10,896,425) $ 32,372,353
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- 6 -
<PAGE>
MARINE SHUTTLE OPERATIONS INC. AND SUBSIDIARIES
(A development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
1999 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999. These financial statements should be read in
conjunction with the financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1998.
2. NATURE OF OPERATIONS
Marine Shuttle Operations Inc. (the "Company"), through its 81.13%
owned Norwegian subsidiary, Marine Shuttle Operations AS ("MSOAS"), is seeking
to become a leading player in the market for decommissioning, installing and
transporting of offshore oil and gas structures. The Company, being in the
development stage, has not generated any revenues from operations and does not
expect to generate any significant revenues from operations until the year 2002,
at the earliest. There can be no assurance, however, that the Company will ever
achieve commercially significant sales. To date, the Company has not entered
into any contracts for the use of its proposed services, and no assurance can be
given that any such contracts will materialize.
In 1998, the Company acquired 100% of MSOAS, and approximately 68% of
the outstanding capital stock of Offshore Shuttle AS ("OSAS"). At the time, OSAS
held the licensing and marketing rights to the "Offshore Shuttle", a vessel
being developed to lift and carry large installations without extensive cutting
or dismantling.
To benefit from a more rational and cost efficient use of the resources
in MSOAS and OSAS, the Board of Directors of the two companies approved the
merger of OSAS with and into MSOAS. The merger was effective September 24, 1999,
and the shareholders of OSAS received 1.5 new shares in MSOAS for each of their
OSAS shares. As a result, the Company now owns approximately 81% of MSOAS, and
MSOAS is the holder of the licensing and marketing rights to the Offshore
Shuttle. The merger was accounted for in a manner similar to the pooling of
interests method. The Company currently is in discussions to acquire an
additional 8.4% of the outstanding shares of MSOAS from two individuals in
exchange for an aggregate of 1,030,002 shares of common stock. In the first
quarter 2000, the Company intends to offer the rest of the minority shareholders
of MSOAS the opportunity to exchange their MSOAS shares for shares of the
Company. The offer will be subject to the condition that more than 90% of the
minority shareholders accept the offer.
- 7 -
<PAGE>
MARINE SHUTTLE OPERATIONS INC. AND SUBSIDIARIES
(A Development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
3. CONTINUING OPERATIONS
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the financial
statements, the Company is in the development stage and, at September 30, 1999
has accumulated losses from operations amounting to $10,896,425 and a working
capital deficit of $5,184,832.
The ability of the Company to continue as a going concern is dependent
on obtaining financing. To address this concern, the Company is seeking to raise
up to $20 million in a private placement of common stock through Christiania
Markets, a Norwegian investment bank, and Berliner Effektenbank AG, a German
investment bank. In addition, the Company has entered into an engagement letter
with MFC Merchant Bank S.A. pursuant to which MFC shall act, on a best-efforts
basis, as agent for the Company in raising additional capital. As consideration
for its services, MFC shall receive a success fee equal to five percent of the
money raised plus DM 100,000 (approximately $60,000) per month until the
completion or termination of the MFC financing. All of MFC's out-of-pocket
expenses shall be reimbursed, and if the Company raises the necessary funds
through another source, MFC shall receive a break-up fee equal to the greater of
$1,200,000 or 350,000 shares of common stock.
In September 1999, the Board of Westdeutsche Landesbank Girozentrale
(WestLB) of Dusseldorf issued its conditional approval to underwrite a U.S.
$157.5 million loan facility for the first Offshore Shuttle. Based on such
approval, the Company has mandated WestLB to act as sole arranger and
underwriter for the financing. WestLB's commitment is subject to several
material conditions, including satisfactorily completing its due diligence, the
Company obtaining European government guarantees to secure a significant portion
of the loan facility, and the Company completing an additional equity financing.
The Company is seeking to fulfill these conditions within the next few months.
There can be no assurance that the private placement or the WestLB
financing will be consummated on reasonable terms or at all.
4. EXTERNAL FINANCING
During January and February 1999, the Company raised $5,748,750 in
gross proceeds from the sale of approximately 1.15 million shares of common
stock in an offshore transaction pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended. Berliner Effektenbank AG, a German
investment bank, received a fee of $229,950 (renegotiated from $575,000) for
serving as placement agent in connection with the transaction. The proceeds have
been used to fund operating expenses and to pay off bridge notes.
In March 1998, the Company entered into a loan agreement with
ValorInvest Ltd, an investment company based in Geneva, Switzerland, pursuant to
which ValorInvest agreed to lend an aggregate of up to $3,500,000 to the Company
at such times as the Company requested, provided that advances were to be made
in increments of $250,000 and were not to exceed $500,000 in any single month.
Pursuant to the loan agreement, the Company borrowed an aggregate of $3,500,000
which amount was evidenced by three non-negotiable promissory notes bearing
interest at the rate of 7.5% per annum. In February 1999, the Company repaid all
monies due under the notes, including interest, and the loan agreement was
terminated.
- 8 -
<PAGE>
MARINE SHUTTLE OPERATIONS INC. AND SUBSIDIARIES
(A Development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
On March 1, 1999, the Company entered into a new loan agreement with
ValorInvest pursuant to which ValorInvest agreed to lend an aggregate of up to
$6,000,000 to the Company at such times as the Company shall request, provided
that advances shall be made in increments of $250,000 and shall not exceed
$1,000,000 in any single month unless agreed to by ValorInvest. In connection
with the new loan agreement, the Company issued a non-negotiable promissory note
to ValorInvest in the principal amount of $6,000,000. Any monies advanced under
such note shall bear interest at the rate of 7.5% per annum and shall be due and
payable upon the earlier of December 31, 1999 or the completion of an equity
financing for gross proceeds of at least $10,000,000. As of September 30, 1999,
$4,700,000 had been advanced under such note.
In August 1999, MSOAS entered into a loan agreement with Statens
naerings og distriktsutviklingsfond (the Norwegian Industrial and Regional
Development Fund) pursuant to which SND agreed to lend MSOAS an aggregate of up
to NOK 4,000,000, (approximately $515,200), to finance specific tasks within the
Offshore Shuttle project. As of September 30, 1999, NOK1,855,400 (approximately
$238,953) had been advanced under the loan agreement.
5. INCOME TAX
The Company has not provided for an income tax liability due to the
availability of operating loss carry-forwards. The Company has net operating
losses which may give rise to future tax benefits of approximately $1,703,282 as
of December 31, 1998. To the extent not used, net operating loss carry-forwards
expire in varying amounts beginning in the year 2007. Based on available
evidence, including the Company's history of operating losses, the uncertainty
of future profitability and the impact of tax laws which may limit the Company's
ability to utilize such loss carry-forwards, management has recorded a valuation
allowance against the realization of the deferred tax assets.
6. RECENT PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging
Activities, which standardizes the accounting for derivative instruments. SFAS
133, as amended, is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The impact on the Company's financial statements
has not been determined.
- 9 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULT OF OPERATIONS
The following discussion and analysis of our financial condition and
result of operations should be read in conjunction with the financial statements
and the notes thereto which appear elsewhere in this quarterly report and our
Annual Report on Form 10-K for the year ended December 31, 1998.
GENERAL
Through our majority-owned Norwegian subsidiary, Marine Shuttle
Operations AS ("MSOAS"), we are seeking to become a leading player in the market
for decommissioning, installing, and transporting offshore oil and gas
structures.
There are now more than 6,500 offshore oil and gas installations
worldwide located on the continental shelf of approximately 53 countries. We
believe that over the next 30 years, most of these structures will have to be
decommissioned at an estimated cost of $20 billion to $40 billion. We have
designed a vessel, the "Offshore Shuttle", which we believe will be capable of
lifting and carrying most of the largest installations without extensive cutting
or dismantling.
We are in the process of evaluating bids received from a number of
construction yards which we believe have the capacity and capability to build an
Offshore Shuttle. Construction of the first Offshore Shuttle is intended to
start during summer 2000. We anticipate that the construction of the first
Offshore Shuttle will be completed by the second quarter of 2002, at the
earliest. Construction of a second Offshore Shuttle is intended to commence two
years after ordering the first Offshore Shuttle and construction of an
additional Offshore Shuttle is intended to commence one year later.
In 1998, we acquired approximately 68% of the outstanding stock of
Offshore Shuttle AS ("OSAS") in exchange for 4,937,657 shares of common stock.
At the time, OSAS was the holder of the licensing and marketing rights to the
Offshore Shuttle. To benefit from a more rational and cost efficient use of the
resources in MSOAS and OSAS, the Board of Directors of the two companies
approved the merger of OSAS with and into MSOAS. The merger was effective
September 24, 1999, and the shareholders of OSAS received 1.5 new shares in
MSOAS for each of their OSAS shares. The merger was accounted for in a manner
similar to the pooling of interests method. As a result, we now own
approximately 81% of MSOAS, and MSOAS is the holder of the licensing and
marketing rights to the Offshore Shuttle. We currently are in discussions to
acquire an additional 8.4% of the outstanding shares of MSOAS from two
individuals in exchange for an aggregate of 1,030,002 shares of common stock. In
the first quarter 2000, we intend to offer the rest of the minority shareholders
of MSOAS the opportunity to exchange their MSOAS shares for shares of our
company. The offer will be subject to the condition that more than 90% of the
minority shareholders accept the offer.
RESULTS OF OPERATIONS
We are in the development stage and have generated revenues to date
only from study work. We acquired MSOAS and OSAS in April 1998 and December
1998, respectively. Our main operations were conducted through MSOAS and OSAS
until the two companies merged in September 1999. The following comparisons will
be affected by these 1998 acquisitions since the results of operations of MSOAS
and OSAS have been included in our consolidated results of operations only since
their respective acquisition dates.
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998:
OPERATING REVENUES. Operating revenues for the three month period ended
September 30, 1999 were $36,072, compared to no revenue for the same period in
1998. The revenues are related to study work performed for clients.
PERSONNEL COSTS. Personnel costs includes costs for both employees and
hired personnel and were $534,095 for
- 10 -
<PAGE>
the three month period ended September 30, 1999, an increase of $469,291 over
personnel costs of $64,804 for the three month period ended September 30, 1998.
The increase in costs was a result of increased activity in MSOAS.
LEGAL AND ADVISORY SERVICES. Legal and advisory services for the three
month period ended September 30, 1999 were approximately $68,267, a decrease of
$30,471 compared to legal and advisory services of $98,738 for the same period
in 1998. The decrease was mainly due to costs related to lower consulting fees
as work was shifted from consultants to our personnel.
COST OF CANCELLED FINANCING. The cost of cancelled financing for the
three month period ended September 30, 1998 was $348,039, which was a result of
cost incurred in connection with a planned public offering in 1998. The public
offering was cancelled and the incurred cost was expensed accordingly.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the three month period ended September 30, 1999 were $64,373, an
increase of $5,095 over the general and administrative expenses of $59,278 for
the same period in 1998.
MARKETING. Marketing expenses for the three month period ended
September 30, 1999 were $76,719, a decrease of $538,538 from the marketing
expenses of $615,257 for same period in 1998. The decrease was a result of
purchasing fewer marketing materials and services in the current period, and
higher costs in the same period last year related to participation in the
Offshore Northern Sea Exhibition in Norway.
TECHNICAL DEVELOPMENT. Technical development costs for the three month
period ended September 30, 1999 were $9,445, compared to no cost for technical
development during the same period in 1998. The reason for this difference is
that most of the technical development expenses were incurred in OSAS which was
acquired in December 1998, and thus not included in the consolidated financial
statements for the period ended September 30, 1998.
AMORTIZATION OF GOODWILL AND INTANGIBLES. AMORTIZATION of goodwill and
intangibles for the three month period ended September 30, 1999 was $968,215,
which was $131,680 over amortization of goodwill and intangibles of $836,535 for
the same period in 1998. This increase is due to amortization of goodwill and
intangibles acquired in connection with the acquisition of approximately 68% of
the OSAS common stock which has been consolidated with effect from December 31,
1998.
INTEREST EXPENSES. Interest expenses for the three month period ended
September 30, 1999 were $8,612 which was $60,803 below interest expenses of
$69,415 for the same period in 1998. The decrease in expensed interest is a
result of capitalization of interest related to financing of the Offshore
Shuttle construction in progress in 1999.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998:
OPERATING REVENUES. Operating revenues for the nine month period ended
September 30, 1999 were $59,804, compared to no revenue for the same period in
1998. The revenues are related to study work performed for clients.
PERSONNEL COSTS. Personnel costs includes costs for both employees and
hired personnel and were $1,275,478 for the nine month period ended September
30, 1999, an increase of approximately $1,163,223 over personnel costs of
$112,255 for the nine month period ended September 30, 1998. The increase was a
result of increased activity in MSOAS.
LEGAL AND ADVISORY SERVICES. Legal and advisory services for the nine
month period ended September 30, 1999 were $368,182, a decrease of approximately
$16,949 from legal and advisory services of $385,131 for the same period in
1998.
COST OF CANCELLED FINANCING. The cost of cancelled financing for the
nine month period ended September 30, 1998 was $348,039, which was a result of
cost incurred in connection with a planned public offering in 1998. The
- 11 -
<PAGE>
public offering was cancelled and the incurred cost expensed accordingly.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the nine month period ended September 30, 1999 were $767,009, an
increase of $494,112 over the general and administrative expenses of $272,897
for the same period in 1998. The increase was mainly due to increased activity
in MSOAS and the inclusion of cost incurred in OSAS during 1999 which was not
included in the consolidated financial statements for the same period in 1998.
MARKETING. Marketing expenses for the nine month period ended September
30, 1999 were $251,513, a decrease of $363,744 from the marketing expenses of
$615,257 for same period in 1998. The decrease was a result of purchasing fewer
marketing materials and services in the current period, and higher costs in the
same period last year related to participation in the Offshore Northern Sea
Exhibition in Norway.
TECHNICAL DEVELOPMENT. Technical development costs for the nine month
period ended September 30, 1999 were $278,499, compared to no cost for technical
development during the same period in 1998. The reason for this difference is
that most of the technical development expenses were incurred in OSAS which was
acquired in December 1998 and thus not included in the consolidated financial
statements for the period ended September 30, 1998.
AMORTIZATION OF GOODWILL AND INTANGIBLES. Amortization of goodwill and
intangibles for the nine month period ended September 30, 1999 was $2,904,646,
which was $1,649,843 over amortization of goodwill and intangibles of $1,254,803
for the same period in 1998. This increase is due to amortization of goodwill
and intangibles acquired in connection with the acquisition of approximately 68%
of the common stock in OSAS which has been consolidated with effect from
December 31, 1998.
INTEREST EXPENSES. Interest expenses for the nine month period ended
September 30, 1999 were approximately $19,890 which was $65,306 below interest
expenses of $85,196 for the same period in 1998. The decrease in expensed
interest is a result of capitalization of interest related to financing of the
Offshore Shuttle construction in progress in 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, we had cash of $636,120, an accumulated
deficit of $10,896,425, stockholders' equity of $32,372,353 and a working
capital deficit of $5,184,832. Net cash flow used on operating activities was
$2,654,305 for the nine month period ended September 30, 1999. For the nine
month period ended September 30, 1999 we used $3,586,968 on capital assets. The
main part of this (approximately $3,442,000) is capitalized engineering cost for
the Offshore Shuttle. Net cash from financing activities for the nine month
period ended September 30, 1999 was $6,106,167 primarily due to cash received
from the issuance of capital stock and notes payable offset by the repayment of
certain loans.
On March 1, 1999, we entered into a loan agreement with ValorInvest
Ltd., an investment company based in Geneva, Switzerland, pursuant to which
ValorInvest agreed to lend us an aggregate of up to $6,000,000, provided that
advances shall be made in increments of $250,000 and shall not exceed $1,000,000
in any single month unless agreed to by ValorInvest. In connection with the loan
agreement, we issued a non-negotiable promissory note to ValorInvest in the
principal amount of $6,000,000. Any monies advanced under such note shall bear
interest at the rate of 7.5% per annum and shall be due and payable upon the
earlier of December 31, 1999 or the completion of an equity financing for gross
proceeds of at least $10,000,000. As of September 30, 1999, $4,700,000 had been
advanced under such note.
- 12 -
<PAGE>
In August 1999, we entered into a loan agreement with Statens naerings
og distriktsutviklingsfond (the Norwegian Industrial and Regional Development
Fund) pursuant to which SND agreed to lend us an aggregate of up to NOK
4,000,000, (approximately $515,200), to finance specific tasks within the
Offshore Shuttle project. As of September 30, 1999, NOK1,855,400 (approximately
$238,953) had been advanced under the loan agreement.
Our ability to continue as a going concern is dependent on our
obtaining financing. We currently are seeking to raise up to $20 million in a
private placement of common stock through Christiania Markets, a Norwegian
investment bank, and Berliner Effektenbank AG, a German investment bank There
can be no assurance that the private placement will be consummated on reasonable
terms or at all. In addition, we have entered into an engagement letter with MFC
Merchant Bank S.A. pursuant to which MFC shall act, on a best-efforts basis, as
agent for us in raising additional capital. As consideration for its services,
MFC shall receive a success fee equal to five percent of the money raised plus
DM 100,000 (approximately $60,000) per month until the completion or termination
of the MFC financing. In addition, all of MFC's out-of-pocket expenses shall be
reimbursed, and if we raise the necessary funds through another source, MFC
shall receive a break-up fee equal to the greater of $1,200,000 or 350,000
shares of common stock.
In September 1999, the Board of Westdeutsche Landesbank Girozentrale
(WestLB) of Dusseldorf issued its conditional approval to underwrite a U.S.
$157.5 million loan facility for the first Offshore Shuttle. Based on such
approval, we have mandated WestLB to act as sole arranger and underwriter for
the financing. WestLB's commitment is subject to several material conditions,
including satisfactorily completing its due diligence, our obtaining European
government guarantees to secure a significant portion of the loan facility, and
our completing an additional equity financing. We are seeking to fulfill these
conditions within the next few months.
There can be no assurance that the conditions to the WestLB financing
will be satisfied or, if satisfied, that the WestLB financing will be
consummated on reasonable terms or at all. If it is not completed, we may be
required to significantly curtail or cease our proposed activities. Although we
believe that the proceeds from the WestLB financing, if completed, will enable
us to construct the first Offshore Shuttle, we cannot assure you in that regard.
Moreover, even if the WestLB financing is consummated, our future capital
requirements could vary significantly and will depend on certain factors, many
of which are not within our control. Such factors include
-- the need for cash to fund the construction of additional Offshore
Shuttles;
-- greater than anticipated expenses; and
-- longer engineering, development, and construction times than now
contemplated.
If we are successful in completing the first Offshore Shuttle, we
believe we will be able to fund the construction of additional Offshore Shuttles
from our future operating cash flows and/or short or medium term debt financing.
We cannot assure you, however, that our beliefs will prove to be accurate.
YEAR 2000 ISSUE
Many computer systems record years in a two-digit format. Such systems,
if not modified, will be unable to recognize and properly process information
with dates beyond the year 1999. The potential problems arising out of this
inability commonly are referred to as the "Year 2000 Issue." Our current
operations utilize computer hardware and software acquired during 1997 and 1998
which manufacturers have warranted to be Year 2000 compliant. Since we currently
do not have any material relationships with any suppliers or clients, no
assessment can be made at this time as to the effect third party non-compliance
will have on our proposed operations. In the future, we intend to verify that
any suppliers or clients with whom we may develop a material relationship are
Year 2000 compliant. However, we cannot assure you that our operations will not
be adversely affected by unforeseen Year 2000 problems or third party
non-compliance.
- 13 -
<PAGE>
INTERNATIONAL OPERATIONS
We intend to market our services in international markets.
International operations entail various risks, including economic instability
and recessions, exposure to currency fluctuations, difficulties of administering
foreign operations generally, and obligations to comply with a wide variety of
foreign laws and other regulatory requirements. A portion of our sales, if any,
and expenditures may be collected or paid, as the case may be, in currencies
other than U.S. dollar. Therefore, significant exchange rate fluctuations could
have an effect on our results of operations. In addition, the laws of certain
foreign countries may not protect our proprietary rights to the same extent as
the laws of the United States.
FORWARD-LOOKING STATEMENTS
The information set forth herein includes certain forward-looking
statements made in reliance upon the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements,
including statements regarding the capabilities of the Offshore Shuttle, the
dates on which construction of the Offshore Shuttles will commence and be
completed, the number of Offshore Shuttles to be constructed, the WestLB loan
facility and our ability to satisfy the conditions precedent to the loan
facility, the Christiania Markets/Berliner Effektenbank financing, and our
ability to fund the construction of additional Offshore Shuttles, are based on
current expectations that involve numerous risks and uncertainties. Actual
results could differ materially from those anticipated in such forward-looking
statements as result of various known and unknown factors including, without
limitation, future economic, competitive, regulatory and market conditions,
future business decisions, the receipt of financing, construction delays, demand
for our services and those risks discussed herein, in our Registration Statement
on Form S-1 declared effective by the Securities and Exchange Commission on
December 21, 1998, and in our Annual Report on Form 10-K for the year ended
December 31, 1998. Words such as "believes," "anticipates," "expects,"
"intends," "may," and similar expressions are intended to identify
forward-looking statements but are not the exclusive means of identifying such
statements. Readers are cautioned not to put undue reliance on these
forward-looking statements. We undertake no obligation to revise any of these
forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We anticipate our primary market risks, if any, will be related to
fluctuations in interest rates and exchange rates. Interest rate risk may arise
if we are successful in obtaining debt financing to finance the building of the
first Offshore Shuttle. In such an event, we will assess the extent of our
interest rate risk and may enter into hedging transactions to reduce our
exposure and to ensure our ability to service our debt. Exchange rate risk may
arise if we are required to use different currencies for various aspects of our
operations. Although the principal currency used in the offshore decommissioning
industry is the U.S. dollar, the local expenses (e.g., rent, telephone, payroll,
etc.) of our subsidiary, MSOAS, are likely to be paid in Norwegian kroner, and
it is possible that the contract for construction of the first Offshore Shuttle
will be denominated in a currency other than the U.S. dollar or the Norwegian
kroner. We intend to monitor our exchange rate risk and take necessary actions
to reduce our exposure. We do not intend to purchase and/or sell derivative
financial instruments for speculative purposes.
- 14 -
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 14, 1999, Nordas Invest AS and AS Einar Nistad Finans og
Eiendom (collectively, "Nistad") brought a claim for preliminary injunction
against us in a civil proceeding before Sandnes City court in Norway. Nistad
exchanged 304,900 shares in OSAS for 457,350 of our shares pursuant to an
exchange agreement between Nistad and us. Nistad alleged breach of contract and
demanded that the OSAS shares be transferred back to Nistad. Sandnes City court
delivered its decision on July 7, 1999 and held that we were not in breach of
contract to Nistad. The court denied Nistad's motion for preliminary injunction
against us. Since we won the case, Nistad was ordered to pay the costs of the
case. Nistad has appealed to the appeals court, Gulating Lagmannsrett, against
the decision for the reimbursement of our costs. On October 21, 1999 we were
informed by the appeals court that they sustained the decision of Sandnes city
court regarding the costs of the case.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed herewith:
10. Loan agreement (including promissory note) between Marine
Shuttle Operations AS and Statens naerings og
distriktsutviklingsfond (the Norwegian Industrial and
Regional Development Fund)
27. Financial Data Schedule
We did not file any reports on Form 8-K during the three month period
ended September 30, 1999.
- 15 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: November 8, 1999 MARINE SHUTTLE OPERATIONS INC.
By: /s/ FRANZ EDER
-------------------------------------------
Franz Eder, Chairman of the Board and President
(principal executive officer)
By: /s/ G.W. NORMAN WAREHAM
-------------------------------------------
G.W. Norman Wareham, Chief Financial Officer
(principal financial and accounting officer)
- 16 -
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Exhibit # Document Page
<S> <C> <C>
10. Loan Agreement (including promissory note) between Marine Shuttle
Operations AS and Statens naerings og distriktsutviklingsfond (the
Norwegian Industrial and Regional Development Fund)
27. Financial Data Schedule
</TABLE>
- 17 -
<PAGE>
EXHIBIT 10
STANDARD TERMS FOR LOANS
The provisions below are included as terms and conditions for the offer for a
loan in the amount of NOK 4,000,000 given on the 31.05.99 to Marine Shuttle
Operations AS, Luramyrveien 23, 4300 Sandnes.
Other terms and conditions for the loan are set out in the offering letter,
"Disbursement form and terms and conditions for loan and grants", and other loan
documents.
1. THE BORROWER'S BUSINESS
The borrower shall carry out the business which the loan offer is based
upon.
From the acceptance of the offer and during the term of the loan, audited
annual accounts and the report of the board of directors shall each year be
sent to SND in one copy as soon as possible after the close of the annual
accounts. For companies which are not subject to audit the company shall
send in normal account form, which, inter alia, is used by the tax
authorities.
The borrower shall contribute to the control which SND finds necessary. The
borrower may be charged the costs.
2. TIME LIMITS
The loan offer must be accepted within a month, otherwise the offer is no
longer valid.
If SND has received a request for disbursement within the year of the loan
offer and the two subsequent years after the offer was given, the offer is
no longer valid. SND may in special cases extend the time limit for
disbursement with a year. This time limit for disbursement does not apply
if a special time limit is set out in the loan offer.
3. RESERVATIONS REGARDING DISBURSEMENT
The loan is not disbursed if the property, machines and other assets of the
borrower or the enterprise as a whole is transferred to a new owner without
the written approval by SND.
4. MOVING AND CHANGE OF OWNERSHIP
The business of the borrowers/mortgagor must neither wholly nor partly be
moved without the prior written approval by SND.
- 18 -
<PAGE>
During the term of the loan, the borrower must not without the written
approval by SND move, sell or in any other way dispose of the assets of the
enterprise or part of these, if it is not apparent that it without
significance to SND.
If the enterprise wholly or partly is transferred to a new owner, and the
transfer is not approved by SND, the loan may be terminated. The same
applies if shares/ownership shares which give control over the company or
subsidiaries, are transferred to a new owner. This does not apply to
floated companies.
5. MAINTENANCE AND INSURANCE
The assets of the enterprise shall be properly maintained. The borrower is
responsible that the assets of the enterprise is adequately insured against
risk of fire and other risks which one normally takes out insurance against
in the industry. If the borrower fails to take out such insurance, SND may
provide for proper insurance coverage for the account of the borrower.
6. LOANS SECURED BY MORTGAGE
For loan secured by mortgage the property mortgaged shall be free from any
alien ownership rights, liens or other encumbrances other than what is
specifies in the loan conditions and/or has been informed about in writing
to and approved by SND.
7. TERMS OF INTEREST. REDEMPTION
7.1 LOW RISK LOAN
For loans with a FLOATING INTEREST RATE SND may change the interest rate
with one week's notice. Any prepayment of the loan, prepayment of
instalments or a transfer from floating to fixed interest rate might be
done without payment of charges as long as the loan is running with a
floating interest rate.
For loans with a FIXED INTEREST RATE the interest rate is regulated at
fixed points of time which are set out in the loan offer and in accordance
with the terms which apply for similar new loans at the time of regulation
of the interest rate. Notice of regulation of the interest rate will be
sent approximately four weeks before the time of regulation of the interest
rate. A concrete interest rate offer will be sent not later than one week
before the time of regulation of the interest rate. The loan may be
redeemed at par value at the point of time when the interest rate is
regulated. During the period between these points of time when the interest
rate is regulated, the loan may normally not be redeemed. SND may accept
that the borrower prepays instalments or wholly redeems the loan, but in
such case at a premium price to be determined in each case.
7.2 OTHER LOANS
SND may at four week's notice fix new terms of interest. SND may accept
that the
- 19 -
<PAGE>
borrower prepays instalments or wholly redeems the loan.
8. DEFAULT
If instalments and interest are not paid and registered on SNDs account
within the due date, default interest is payable at a current rate of 4 %
above the normal interest rate prevailing. If reminders are made and legal
proceedings are taken to collect the loan, charges are payable in
accordance with the rates prevailing for SND loans. SND is also entitled to
change the due date.
SND may require redemption of the loan if the borrower is in material
breach of the loan conditions, including the standard conditions, or if the
borrower acts in conflict with pre-conditions upon which SNDs loan offer is
based. The same applies if the borrower significantly diminishes his
wealth, stops payments, applies for moratorium regarding his debt, enters
into bankruptcy or the company is dissolved.
9. VARIOUS PROVISIONS
If there are more than one borrower, they are jointly liable for the loan.
OSLO, 15 FEBRUARY 1998
We are familiar with SNDs standard terms for loans and accept these.
Place/date: Borrower/Signature: Registration no.:
Sandnes/10.06.99 Marine Shuttle Operations AS 979 533 624
/s/ Steve Adshead
----------------------------
Steve Adshead
Managing Director
- 20 -
<PAGE>
Promissory Note
The undersigned, Marine Shuttle Operations AS,
Registration no.: 979533624, Address: Luramyrveien 23, 4300 Sandnes
hereby promise to pay to STATENS NAERINGS- OG DISTRIKTUTVIKLINGSFOND (SND)
NOK 4,000,000 four million 00/100 Norwegian Kroner
THE PRINCIPAL IS REPAYABLE AFTER TWO YEARS AFTER DISBURSEMENT AND SHALL
THEREAFTER BE REPAID DURING A PERIOD OF FIVE YEARS IN HALF-YEARLY INSTALMENTS,
EACH IN THE AMOUNT OF NOK 400,000. THE FIRST INSTALMENT SHALL BE PAID SIX MONTHS
AFTER THE EXPIRATION OF THE TWO YEAR IRREDEEMABLE PERIOD.
Interest will accrue on the outstanding principal amount from the date of
disbursement and is payable at the end of each six months. The current interest
rate is 9.4% per annum.
Interest will accrue on any amounts of interest, instalments or principal
overdue at a rate of 4% above the fixed normal interest rate. In addition, fixed
fees will be payable.
SND can accept that the borrower prepay instalments of his loan or prepay the
loan in whole.
The loan may be enforced without any court order in accordance with the Act on
Legal Enforcement section 7-2(a).
The SNDs standard terms for loans, dated 15 February 1998, apply to the extent
that they do deviate from the terms above.
Sandnes, 10 August 1999
/s/ STEVE ADSHEAD
- -----------------------
By: Steve Adsehad
Title: Managing Director
- 21 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND THE UNAUDITED
STATEMENT OF LOSS AND COMPREHENSIVE LOSS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS OTHER
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 MAY-23-1997
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 636,120 636,120
<SECURITIES> 0 0
<RECEIVABLES> 249,012 249,012
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 926,487 926,487
<PP&E> 5,592,924 5,592,924
<DEPRECIATION> 82,958 82,958
<TOTAL-ASSETS> 39,104,403 39,104,403
<CURRENT-LIABILITIES> 6,111,319 6,111,319
<BONDS> 0 0
0 0
0 0
<COMMON> 33,708 33,708
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 39,104,403 39,104,403
<SALES> 59,804 76,180
<TOTAL-REVENUES> 59,804 76,180
<CGS> 0 0
<TOTAL-COSTS> 5,946,503 11,091,240
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 19,890 113,158
<INCOME-PRETAX> (5,865,599) (11,072,678)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,689,346) (10,896,425)
<EPS-BASIC> (0.17) 0
<EPS-DILUTED> (0.17) 0
</TABLE>
