<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 June 30, 2000
---------------------------------------------
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
Incorporation or Organization) Identification 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 August 11,
2000: 43,988,356
1
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SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION ........................................... 3
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) ................................ 3
CONSOLIDATED BALANCE SHEETS ............................................... 3
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS .................... 4
CONSOLIDATED STATEMENTS OF CASH FLOWS ..................................... 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ............................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................. 10
PART II. OTHER INFORMATION ............................................... 15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ....................... 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ................................ 15
SIGNATURES ................................................................ 16
INDEX OF EXHIBITS ......................................................... 17
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
CONSOLIDATED BALANCE SHEETS
(U.S.Dollars)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 373,442 $ 1,119,564
Restricted cash 38,833 54,478
Accounts receivables -- 38,619
Other current receivables 188,858 114,305
------------ ------------
Total Current Assets 601,133 1,326,966
Property, plant and equipment, net 6,841,991 5,980,857
Debt issue cost 1,463,084 1,109,510
Goodwill, net 27,631,949 28,096,422
Patents and agreements, net 3,023,677 2,732,240
------------ ------------
TOTAL ASSETS $ 39,561,834 $ 39,245,995
============ ============
LIABILITIES AND SHAREHOLDERS` EQUITY
Current Liability
Accounts payable $ 447,371 $ 933,817
Notes payable 3,900,000 2,550,000
Other current liabilities 825,755 341,246
------------ ------------
Total current liabilities 5,173,126 3,825,063
Long Term Debt 276,023 293,379
Minority interest -- 228,826
Contingency (Note 2)
SHAREHOLDERS' EQUITY
Authorized 75,000,000 common shares with a par
value of $0.001. Issued and outstanding 43,988,356,
and 40,750,642 common shares with a par value of $0.001
at June 30, 2000 and December 31, 1999 respectively 43,988 40,751
Other paid in capital 50,103,423 47,684,739
Deficit accumulated during the development stage (15,624,429) (12,570,929)
Accumulated other comprehensive loss (410,297) (255,834)
------------ ------------
Total shareholders' equity 34,112,685 34,898,727
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 39,561,834 $ 39,245,995
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
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MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(U.S.Dollars)
(unaudited)
<TABLE>
<CAPTION>
Cumulative to
June 30, 2000 Three Months Ended Six Months Ended
From date of June 30, June 30,
inception ---------------------------- ----------------------------
May 23, 1997 2000 1999 2000 1999
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 121,512 $ -- $ 23,732 $ -- $ 23,732
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES
Personnel costs 2,040,407 221,165 330,753 536,975 741,383
Legal, audit and advisory services 1,895,704 115,311 119,082 230,617 299,914
Cost of cancelled financing 606,721 -- -- -- --
General and administrative 2,105,372 128,843 442,069 377,855 702,638
Marketing 1,057,198 49,396 70,149 104,552 174,794
Technical development 581,547 -- 72,465 29,197 269,054
Depreciation 143,913 13,726 24,929 37,229 49,415
Amortization - goodwill and intangibles 7,736,311 996,369 937,306 1,968,939 1,936,431
Loss on investment 90,000 -- -- -- --
Currency exchange loss (gain) (4,592) (1,944) 89,350 (6,572) 104,736
------------ ------------ ------------ ------------ ------------
Total operating expenses $ 16,252,581 $ 1,522,866 $ 2,086,102 $ 3,278,792 $ 4,278,366
------------ ------------ ------------ -------- ------------
Interest expense, net of capitalized 125,155 1,151 (5,974) 8,498 11,278
Interest income (79,276) (3,432) (14,210) (7,863) (35,932)
Net loss before minority interest $(16,176,947) $(1,520,585) $ (2,042,186) $ (3,279,428) $ (4,229,980)
------------ ------------ ------------ ------------ ------------
Minority interest (552,518) (44,302) (88,728) (225,927) (147,296)
------------ ------------ ------------ ------------ ------------
Net loss $(15,624,429) $ (1,476,282) $ (1,953,458) $ (3,053,500) $ (4,082,684)
============ ============ ============ ============ ============
Other comprehensive loss:
Accumulated other comprehensive loss (410,297) (79,860) 58,571 (154,462) 5,413
------------ ------------ ------------ ------------ ------------
Comprehensive loss $(16,034,727) $ (1,556,143) $ (1,894,887) $ (3,207,962) $ (4,077,271)
============ ============ ============ ============ ============
Basic and diluted loss per share $ (0.03) $ (0.06) $ (0.07) $ (0.12)
============ ============ ============ ============
Basic and diluted weighted average
shares outstanding 42,460,399 33,707,357 41,605,521 33,555,315
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S.Dollars)
(unaudited)
<TABLE>
<CAPTION>
Cumulative to
June 30, 1999 Six Months Ended
from date of June 30,
inception ------------------------------
May 23, 1997 2000 1999
------------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Loss $(15,624,429) $ (3,053,500) $ (4,082,684)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 7,880,224 2,006,168 1,985,846
Minority interest (552,517) (225,927) (147,296)
Loss on investment 90,000 -- --
Unrealized gain on foreign currency 33,218 (6,572) 136,605
Changes in working capital:
Accounts receivable -- 38,619 (15,904)
Other current receivables and restricted cash (227,690) (58,908) (108,415)
Accounts payable 447,371 (486,446) 181,889
Other current liabilities 792,536 491,080 164,430
------------ ------------ ------------
Net cash used in operating activities $ (7,161,287) $ (1,295,486) $ (1,885,529)
------------ ------------ ------------
INVESTING ACTIVITIES
Investments (100,000) -- --
Capital expenditures (5,788,202) (913,870) (2,674,333)
Proceeds on sale of investment 10,260 -- --
Advance to Marine Shuttle Operations AS (249,986) -- --
Acquisition of Marine Shuttle Operations AS 416,635 -- --
Advance to Offshore Shuttle AS (100,000) -- --
Acquisition of Offshore Shuttle AS 482,476 -- --
------------ ------------ ------------
Net cash used in investing activities $ (5,328,817) $ (913,870) $ (2,674,333)
------------ ------------ ------------
FINANCING ACTIVITIES
Issuance of capital stock 11,564,050 715,000 5,748,750
Share issue cost (746,881) (10,500) (229,950)
Debt issue cost (1,463,084) (353,574) (583,726)
Payment on Note payable (6,275,000) -- (3,500,000)
Borrowing on Note payable 10,468,378 1,350,000 2,500,000
------------ ------------ ------------
Net cash provided by financing activities $ 13,547,463 $ 1,700,926 $ 3,935,074
------------ ------------ ------------
Effect of exchange rate change in cash and
cash equivalents (683,917) (237,692) (97,400)
Net increase (decrease) in cash and cash equiv . $ 373,442 $ (746,122) $ (722,188)
------------ ------------ ------------
Cash and cash equivalents at beginning of period -- 1,119,564 903,805
------------ ------------ ------------
Cash and cash equivalents at end of period $ 373,442 $ 373,442 $ 181,617
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
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 accounting principles generally accepted
in the United States 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
six month period ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000. In connection
with the preparation of these financial statements, management was required to
make estimates and assumptions that affect the reported amount of assets,
liabilities, revenues, expenses and disclosure of contingent liabilities. Actual
results could differ from such estimates. 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,
1999. Unless the context otherwise requires, the term "Company" hereinafter
includes Marine Shuttle Operations Inc. and its subsidiary.
2. NATURE OF OPERATIONS
Marine Shuttle Operations Inc. (the "Company"), through its wholly-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 significant revenues from operations
and does not expect to generate any significant revenues from operations until
the year 2003 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. In September 1999, OSAS merged into MSOAS, and as a result,
MSOAS became the holder of the licensing and marketing rights to the Offshore
Shuttle, and the Company's ownership interest in MSOAS was reduced to
approximately 81%. The merger was accounted for in a manner similar to the
pooling of interests method. Prior results were not restated because the impact
on the consolidated financial statements from inception through September 1999
was not material.
In April 2000, the Company acquired an additional 8.41% of the outstanding
shares of MSOAS in exchange for an aggregate of 1,030,002 shares of Common
Stock. In June 2000, the Company acquired an additional 9.69% of the outstanding
shares of MSOAS in exchange for an aggregate of 1,186,283 shares of Common
Stock, and acquired the remaining MSOAS shares (approximately 0.77%) for cash.
These acquisitions were accounted for as a purchase. As a result, the Company
now owns 100% of the outstanding shares of MSOAS.
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MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
3. GOING CONCERN
The Company's ability to continue as a going concern is dependent on its
ability to obtain significant additional financing. As shown in the financial
statements, the Company is in the development stage and at June 30, 2000 had
accumulated losses from operations amounting to $15,624,429 and a working
capital deficit of $4,571,993, with no operating assets presently generating
cash to fund its operating and capital requirements. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The Company is seeking to raise additional capital. There can be no assurance
that the Company will be able to raise additional capital on reasonable terms,
if at all, or that any financing transaction will not be dilutive to current
shareholders. If the Company is not able to raise additional capital, it may be
required to significally curtail or cease its operating activities. The
financial statements have been prepared assuming that the Company will continue
as a going concern, and do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
4. EXTERNAL FINANCING
On March 1, 1999, the Company entered into a loan agreement with
ValorInvest Ltd., an investment company, pursuant to which ValorInvest agreed to
lend the Company an aggregate of up to $6,000,000. The loan agreement was
amended and restated as of December 31, 1999. The loan agreement provides that
advances shall be made in increments of $250,000 and shall not exceed $500,000
in any single month unless agreed to by ValorInvest. Any monies advanced under
the loan agreement shall bear interest at the rate of 7.5% per annum and shall
be due and payable on December 31, 2000; except that if the Company raises, in
the aggregate, in excess of $2,000,000 from equity or long term debt financings
after January 1, 2000, then the loan shall be repayable to the extent of 25% of
such excess. As of June 30, 2000, $2,550,000 had been advanced under this loan
agreement.
In August 1999, the Company entered into a loan agreement with Statens
naerings og distriktsutviklingsfond (the Norwegian Industrial and Regional
Development Fund, "SND"), pursuant to which SND agreed to lend the Company an
aggregate of up to NOK 4,000,000 (approximately $467,000) to finance specific
tasks within the Offshore Shuttle project. As of June 30, 2000, NOK 2,358,617
(approximately $275,368) had been advanced under the loan agreement. The
principal is repayable over five years commencing two years after disbursement,
in semi-annually installments, each in the amount of NOK 400,000.
In October 1998, the Company 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 capital
raised plus DM 100,000 (approximately $54,000) 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 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 June 2000, MFC agreed to defer
the monthly fee obligation from May 1, 2000 through December 1, 2000 or until
additional equity is raised, whichever comes first. In return for granting this
deferral, the deferred fees will be increased by 10%. This 10% premium may be
paid with shares of common stock.
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<PAGE>
MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
4. EXTERNAL FINANCING (continued)
In September 1999, the Board of Westdeutsche Landesbank Girozentrale
(WestLB) of Dusseldorf issued its conditional approval to underwrite a $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's obtaining
European government guarantees to secure a significant portion of the loan
facility, and its completing of an additional equity financing. The Company is
seeking to fulfill these conditions. The Company has deferred debt issue costs
related to the financing.
In February 2000, the Company signed a Memorandum of Understanding with
the Italian Ministry of Industry and various other Italian governmental entities
with respect to the financing of the first Offshore Shuttle. The financial
support from the various governmental entities would be in the form of equity,
debt and government guarantee, and is subject to numerous material conditions,
including the satisfactory completion of due diligence, the submission by an
Italian shipyard of a competitive construction bid with terms and conditions
acceptable to the Company, the arrangement of sufficient commercial debt
financing with a major bank, and the raising of additional equity capital.
In February 2000, the Company entered into a loan agreement with MFC
Merchant Bank S.A pursuant to which MFC agreed to lend the Company an aggregate
of up to $2,000,000, provided that advances shall not exceed $350,000 in any
single month. Any monies advanced under the loan agreement shall bear interest
at the rate of LIBOR plus 3.5% per annum and shall be due and payable in full on
February 25, 2001. As of June 30, 2000, $900,000 had been advanced under the
loan agreement.
As of June 30, 2000, $450,000 had been advanced under a bridge loan to a
new loan agreement finalized in July 2000. (See note 10).
In April 2000, the Company consummated a private placement of 450,000
shares of common stock for gross proceeds of $315,000.
In June 2000, the Company consummated a private placement of 571,429
shares of common stock for gross proceeds of $400,000.
5. INCOME TAXES
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 $3,307,400 as
of June 30, 2000. 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 full
valuation allowance against the realization of the net deferred tax assets.
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MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
6. STOCK OPTIONS
As of June 30, 2000, options to purchase 100,000 shares were outstanding
under the Stock Option Plan. The Company applies APB 25 in accounting for its
stock option plans. Accordingly, because the option price is equal to the fair
market price at the date of grant, no compensation expense has been recognized
for its stock option plans.
7. RECENT PRONOUNCEMENTS
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 fiscal years beginning after June 15, 2000.
The impact on the Company's financial statements has not been determined, but
the Company currently does not use derivatives to manage its exposure to foreign
exchange and interest rate risk. The Company will adopt SFAS 133 as of January
1, 2001.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation. This interpretation modifies the current practice of accounting
for certain stock award agreements and is generally effective beginning July 1,
2000. The initial impact of this interpretation on the Company's results of
operations and financial position will not be material.
8. GOODWILL
June 30, December 31,
2000 1999
----------- -----------
Total cost $34,127,919 $32,929,340
Accumulated amortization 6,495,970 4,832,918
----------- -----------
$27,631,949 $28,096,422
=========== ===========
9. ROYALTY AGREEMENT
In June 2000, the Company entered into a royalty agreement with one of the
developers of the Offshore Shuttle concept and former Board Member of OSAS.
According to the agreement, an annual royalty of $120,000 will be paid in twelve
monthly instalments for a period of 10 consecutive years subject to the
fulfillment of certain conditions.
10. SUBSEQUENT EVENTS
In July 2000, the Company entered into a loan agreement with Mr. Holger
Timm, a foreign individual, pursuant to which Mr. Timm agreed to lend the
Company an aggregate of up to $1,500,000, provided that advances shall not
exceed $500,000 in any single month. Any monies advanced under the loan
agreement shall bear interest at the rate of 7.5% per annum and shall be due and
payable in full on December 31, 2000. The advances may be converted at the
option of the lender into the Company's common stock at 80% of the five day
average trading price of the common stock prior to conversion, but not less than
a floor price as calculated pursuant to the loan agreement. As of June 30, 2000,
$450,000 had been advanced under a bridge loan to the loan agreement.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
The following discussion and analysis of the Company's 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 the Company's Annual Report on Form 10-K for the year ended December 31,
1999.
General
The Company, through its wholly-owned Norwegian subsidiary, Marine Shuttle
Operations AS ("MSOAS"), is seeking to become a leading player in the market for
decommissioning, installing, and transporting offshore oil and gas structures.
The Company has designed a vessel, the "Offshore Shuttle," which it
believes will be capable of lifting most of the largest topsides in one piece
and also will be capable of diving partly below the water surface to remove a
complete jacket in one operation. The Company anticipates that construction of
the first Offshore Shuttle will be completed by the end of 2002, at the
earliest. Construction of a second Offshore Shuttle is intended to commence
after successful completion and testing of the first Offshore Shuttle, and
construction of a third Offshore Shuttle is intended to commence one year after
the second is ordered.
The Company was incorporated in Nevada in May 1997 under the name Geoteck
International, Inc. On May 29, 1998, it changed its name to Marine Shuttle
Operations Inc. In 1998, the Company acquired all of the outstanding stock of
MSOAS in exchange for 7,600,000 shares of Common Stock. In 1998, the Company
also acquired approximately 68% of the outstanding stock of Offshore Shuttle AS
("OSAS"), the holder of the licensing and marketing rights to the Offshore
Shuttle design, in exchange for 4,937,607 shares of Common Stock.
In September 1999, OSAS merged into MSOAS. As a result, MSOAS became the
holder of the licensing and marketing rights to the Offshore Shuttle, and the
Company's ownership interest in MSOAS was reduced to approximately 81%.
In April 2000, the Company acquired an additional 8.41% of the outstanding
shares of MSOAS in exchange for an aggregate of 1,030,002 shares of Common
Stock. In June 2000, the Company acquired an additional 9.69% of the outstanding
shares of MSOAS in exchange for an aggregate of 1,186,283 shares of Common
Stock, and acquired the remaining MSOAS shares (approximately 0.77%) for cash.
As a result, the Company now owns 100% of the outstanding shares of MSOAS.
Results of Operations
The Company is in the development stage and has generated revenues to date
only from study work. Since the merger of OSAS into MSOAS, the Company's main
operations have been conducted through MSOAS.
Three months ended June 30, 2000 and 1999:
Personnel costs. Personnel costs include costs for both employees and
hired personnel and were $221,165 for the three month period ended June 30,
2000, a decrease of $109,588 from the personnel costs of $330,753 for the three
month period ended June 30, 1999. The decrease in costs was mainly due to cost
savings achieved as a result of the merger between MSOAS and OSAS in September
1999.
Legal, audit and advisory services. Legal, audit and advisory services for
the three month period ended June 30, 2000 were approximately $115,311 and were
consistent with the cost for the same period in 1999 of $119,082.
General and administrative expenses. General and administrative expenses
for the three month period ended June 30, 2000 were $128,843, a decrease of
$313,226 from the general and administrative expenses of $442,069 for the
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<PAGE>
same period in 1999. The decrease in costs was mainly due to cost savings
achieved as a result of the merger between MSOAS and OSAS in September 1999.
Marketing. Marketing expenses for the three months period ended June 30,
2000 were $49,396, a decrease of $20,753 from the marketing expenses of $70,149
for same period in 1999. The decrease was a result of purchasing fewer marketing
materials and services in the current period.
Technical Development. The Company did not incur any technical development
costs for the three month period ended June 30, 2000. For the three months
period ended June 30, 1999 the Company incurred technical development costs of
$72,465.
Interest income. The interest income for the three months period ended
June 30, 2000 were $3,432, a decrease of $10,778 from the interest income of
$14,210 for same period in 1999. The decrease was a result of less interest
bearing cash and cash equivalents during the three months period in 2000.
Currency exchange loss/gain. For the three months period ended June 30,
2000 the Company had a currency exchange gain of $1,944, compared to a loss of
$89,350 for same period in 1999. The difference of $91,294 was a result of
weakening of the Norwegian Kroner against the US Dollars during the period in
2000.
Minority interest. Through June 30, 1999 the minority interest was
approximately 32% of OSAS. After the merger between OSAS and MSOAS in September
1999, the minority interest became approximately 19% of the merged company. This
resulted in a larger minority interest loss, which has partially been offset by
the elimination of the minority interest as a result of the Company's
acquisition of the remaining minority interest in April and June 2000.
Six months ended June 30, 2000 and 1999:
Personnel costs. Personnel costs include costs for both employees and
hired personnel and were $536,975 for the six month period ended June 30, 2000,
a decrease of $204,408 from the personnel costs of $741,383 for the six month
period ended June 30, 1999. The decrease in costs was mainly due to cost savings
achieved as a result of the merger between MSOAS and OSAS in September 1999.
Legal, audit and advisory services. Legal, audit and advisory services for
the six month period ended June 30, 2000 were approximately $230,617, a decrease
of $69,297 compared to legal, audit and advisory services of $299,914 for the
same period in 1999. The decrease was mainly due to lower consulting fees as
work was shifted from consultants to our personnel.
General and administrative expenses. General and administrative expenses
for the six month period ended June 30, 2000 were $377,855, a decrease of
$324,783 from the general and administrative expenses of $702,638 for the same
period in 1999. The decrease in costs was mainly due to cost savings achieved as
a result of the merger between MSOAS and OSAS in September 1999.
Marketing. Marketing expenses for the six month period ended June 30, 2000
were $104,552, a decrease of $70,242 from the marketing expenses of $174,794 for
same period in 1999. The decrease was a result of purchasing fewer marketing
materials and services in the current period.
Technical Development. Technical development costs for the six month
period ended June 30, 2000 were $29,197, a decrease of $239,857 compared to
$269,054 for same period in 1999. The decrease was due to less technical
development work performed in the current period.
Interest income. The interest income for the six months period ended June
30, 2000 were $7,863, a decrease of $28,069 from the interest income of $35,932
for same period in 1999. The decrease was a result of less interest bearing cash
and cash equivalents during the six months period in 2000.
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Currency exchange loss/gain. For the six months period ended June 30, 2000
the Company had a currency exchange gain of $6,572, compared to a loss of
$111,308 for same period in 1999. The difference of $98,164 was a result of
weakening of the Norwegian Kroner against the US Dollars during the period in
2000.
Minority interest. Through June 30, 1999 the minority interest was
approximately 32% of OSAS. After the merger between OSAS and MSOAS in September
1999, the minority interest became approximately 19% of the merged company. This
resulted in a larger minority interest loss, which has been offset by the
elimination of the minority interest as a result of the Company's acquisition of
the remaining minority interest in April and June 2000.
Liquidity and Capital Resources
The Company's ability to continue as a going concern is dependent on its
ability to obtain significant additional financing. As of June 30, 2000, the
Company had cash and cash equivalents of $373,442, deficit accumulated during
the development stage of $15,624,429, and a working capital deficit of
$4,571,993. The Company is in the development stage with no operating assets
presently generating cash to fund its operating and capital requirements.
Net cash used in operating activities was $1,295,486 for the six months
period ended June 30, 2000, a decrease of $590,043 compared to $1,885,529 used
for the six months period ended June 30, 1999. The decrease was the result of a
slowdown of spending as the Company has been working on additional financing.
For the six month period ended June 30, 2000 the Company incurred $913,870
on capital expenditures, a decrease of $1,760,463 from the capital expenditures
of $2,674,333 for the same period in 1999. The decrease was the result of a
slowdown of engineering work for the Offshore Shuttle as the Company has been
working on additional financing.
On March 1, 1999, the Company entered into a loan agreement with
ValorInvest Ltd., an investment company, pursuant to which ValorInvest agreed to
lend the Company an aggregate of up to $6,000,000. The loan agreement was
amended and restated as of December 31, 1999. The loan agreement provides that
advances shall be made in increments of $250,000 and shall not exceed $500,000
in any single month unless agreed to by ValorInvest. Any monies advanced under
the loan agreement shall bear interest at the rate of 7.5% per annum and shall
be due and payable on December 31, 2000; except that if the Company raises, in
the aggregate, in excess of $2,000,000 from equity or long term debt financing
after January 1, 2000, then the loan shall be repayable to the extent of 25% of
such excess. As of June 30, 2000, $2,550,000 had been advanced under this loan
agreement.
In February 2000, the Company entered into a loan agreement with MFC
Merchant Bank S.A pursuant to which MFC agreed to lend the Company an aggregate
of up to $2,000,000, provided that advances shall not exceed $350,000 in any
single month. Any monies advanced under the loan agreement shall bear interest
at the rate of LIBOR plus 3.5% per annum and shall be due and payable in full on
February 25, 2001. As of June 30, 2000, $900,000 had been advanced under the
loan agreement.
In April 2000, the Company consummated a private placement of 450,000
shares of common stock for gross proceeds of $315,000.
In June 2000, the Company the Company consummated a private placement of
571,429 shares of common stock for gross proceeds of $400,000.
In July 2000, the Company entered into a loan agreement with Mr. Holger
Timm pursuant to which Mr. Timm agreed to lend the Company an aggregate of up to
$1,500,000, provided that advances shall not exceed $500,000 in any single
month. Any monies advanced under the loan agreement shall bear interest at the
rate of 7.5% per annum and shall be due and payable in full on December 31,
2000. The advances may be converted at the option of the lender into the
Company's common stock at 80% of the five day average trading price of the
common stock prior to conversion, but not less than a floor price as calculated
pursuant to the loan agreement. As of June 30, 2000, $450,000 had been advanced
under a bridge loan to the loan agreement.
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The Company is seeking to obtain additional capital. In October 1998, the
Company 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 capital raised plus DM 100,000
(approximately $54,000) 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 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 June 2000, MFC agreed to defer the monthly fee obligation from
May 1, 2000 through December 1, 2000 or until an equity raise is completed,
whichever comes first. In return for granting this deferral, the deferred fees
will be increased by 10%. This 10% premium may be paid with 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's obtaining European government guarantees to secure a significant
portion of the loan facility, and its completing of an additional equity
financing. The Company is seeking to fulfill these conditions.
In February 2000, the Company signed a Memorandum of Understanding with
the Italian Ministry of Industry and various other Italian governmental entities
with respect to the financing of the first Offshore Shuttle, (the "Italian
Financing"). The financial support from the various governmental entities would
be in the form of equity, debt and government guarantees, and is subject to
numerous material conditions, including the satisfactory completion of due
diligence, the submission by an Italian shipyard of a competitive construction
bid with terms and conditions acceptable to the Company, the arrangement of
sufficient commercial debt financing with a major bank and the raising of
additional equity capital.
There can be no assurance that the conditions to the WestLB or the Italian
Financing will be satisfied or, if satisfied, that the WestLB or the Italian
Financing will be consummated on reasonable terms or at all. Although the
Company believes that the proceeds from the WestLB or the Italian Financing, if
completed, will enable the Company to construct the first Offshore Shuttle,
there can be no assurance in that regard. Moreover, even if the WestLB or the
Italian Financing is consummated, the Company's future capital requirements
could vary significantly and will depend on certain factors, many of which are
not within the Company's control. Such factors include
o the need for cash to fund the construction of additional Offshore
Shuttles;
o greater than anticipated expenses; and
o longer engineering, development, and construction times than now
contemplated.
If the Company is successful in completing the first Offshore Shuttle, it
believes it will be able to fund the construction of additional Offshore
Shuttles from its future operating cash flows and/or short or medium term debt
financing. There can be no assurance, however, that the Company's beliefs will
prove to be accurate. If the Company is not able to raise a substantial amount
of additional capital, it may be required to significantly curtail or cease its
proposed activities.
International Operations
The Company intends to market its services in international markets.
International operations entail various risks, including
o political instability;
o economic instability and recessions;
o exposure to currency fluctuations;
o difficulties of administering foreign operations generally;
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o reduced protection for intellectual property rights;
o potentially adverse tax consequences; and
o obligations to comply with a wide variety of foreign laws and other
regulatory requirements.
New Accounting 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 fiscal years beginning after June 15, 2000.
The impact on the Company's financial statements has not been determined, but
the Company currently does not use derivatives to manage its exposure to foreign
exchange and interest rate risk. The Company will adopt SFAS 133 as of January
1, 2001.
In March 2000, the Financial Accounting Standards Borard issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation." This interpretation modifies the current practice of accounting
for certain stock award agreements and is generally effective beginning July 1,
2000. The initial impact of this interpretation on the Company's results of
operations and financial position will not be material.
Forward-looking Statements
The information set forth herein includes certain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934. 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, the Italian financing, and
the Company's ability to satisfy the conditions precedent to either of them, and
the Company's 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 the Company's services and those risks discussed
herein, in the Company's Registration Statement on Form S-1 declared effective
by the Securities and Exchange Commission on December 21, 1998, and in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999. 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. The Company undertakes no
obligation to revise any of these forward-looking statements.
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PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In April 2000, the Company consummated a private placement of 450,000
share of Common Stock for gross proceeds of $315,000. The shares were sold to
various foreign investors pursuant to Regulation S.
In April 2000, the Company acquired 1,030,002 shares of MSOAS from two
foreign persons in exchange for the issuance of an aggregate of 1,030,002 shares
of Common Stock pursuant to Regulation S.
In June 2000, the Company acquired an additional 1,186,283 shares of MSOAS
in exchange for the issuance of an aggregate of 1,186,283 shares of the Common
Stock pursuant to Regulation S and Rule 802.
In June, 2000, the Company consummated a private placement of 571,429
shares of Common Stock for gross proceeds of $400,000. The shares were sold to a
foreign investor pursuant to Regulation S.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed herewith:
10.1 Royalty agreement, dated June 23, 2000 between the Company and Mr.
Gunnar Foss
10.2 Loan Agreement, dated July 26, 2000 between the Company and Mr.
Holger Timm (including promissory note dated July 26, 2000).
27. Financial Data Schedule
99.1 Letter Agreement, dated June 7, 2000, amending the Engagement
Letter, dated October 26, 1998, between the Company and MFC Merchant
Bank S.A.
(b) Report on Form 8-K
The Company did not file any reports on Form 8-K during the six
month period ended June 30, 2000.
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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: August 11, 2000 MARINE SHUTTLE OPERATIONS INC.
By: /s/ Iqbal Akram
------------------------------------
Iqbal Akram, Chief Financial Officer
(Principal Financial and Accounting
Officer)
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INDEX TO EXHIBITS
Exhibit # Document Page
10.1 Royalty agreement, dated June 23, 2000 between the Company and
Mr. Gunnar Foss
10.2 Loan Agreement, dated July 26, 2000 between the Company and
Mr. Holger Timm (including promissory note dated July 26,
2000).
27. Financial Data Schedule
99.1 Letter Agreement, dated June 7, 2000, amending the Engagement
Letter, dated October 26, 1998, between the Company and MFC
Merchant Bank S.A.
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