ITEM 1. BUSINESS
General
Marine Shuttle Operations Inc. (the "Company"), through its wholly-owned Norwegian subsidiary, Marine Shuttle Operations AS, is seeking to become a leading player in the market for decommissioning, installing, and transporting offshore oil and gas structures. The Company is 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 2003, at the earliest.
Offshore oil and gas structures typically are decommissioned or installed using crane ships and other support vessels. Most structures, however, are too large to be lifted by existing cranes. As a result, decommissioning is accomplished by cutting the particular structure into many pieces before being lifted. For installation, the structure must be fabricated in numerous pieces and assembled at the installation site. In both cases, the procedure is difficult, dangerous, expensive, and time consuming.
The Company has designed a vessel, the "Offshore Shuttle," which it believes will be capable of lifting and carrying large offshore oil and gas structures, eliminating the need for extensive cutting prior to decommissioning and permitting onshore assembly prior to installation. The Company anticipates that construction of the first Offshore Shuttle will begin six months after sufficient financing is obtained and will be operational approximately 18 months thereafter. Construction of a second Offshore Shuttle is intended to commence one year after construction of the first Offshore Shuttle begins, and construction of a third and a fourth Offshore Shuttle is intended to commence one year after construction of the second begins.
The Company has formed strategic alliances with Thyssen Krupp Stahlunion GmbH, RC Consultants AS, and Schuller Industrieentsorgung AG to test, develop, manufacture, and commercialize the Offshore Shuttle concept.
The Market
There are now more than 6,500 offshore oil and gas installations worldwide located on the continental shelf of approximately 53 countries. Of these, there are approximately 4,000 structures in the Gulf of Mexico, 950 in Asia, 700 in the Middle East, 400 in Europe, and the balance are scattered throughout the rest of the world. Of the European total, more than 300 are in the North Sea and the North East Atlantic.
Many different types of installations exist, each one being uniquely designed based on the characteristics of the installation site, including the water depth, the seabed characteristics, and the reservoir, wave, and current conditions. Of the current installed base of structures, more than 5,800 are fixed steel installations. Although most fixed steel installations are situated in shallow waters (i.e., less than 75 meters), there are three hundred to four hundred fixed steel installations situated in intermediate water depths (i.e., 75 to 200 meters). These deeper water structures tend to be much larger than their shallow water counterparts.
Fixed steel installations are comprised of two elements: the topside and the substructure or "jacket." The topside is the above-water portion of the installation that contains the processing, drilling, and accommodation facilities. Topsides vary enormously in size and function. Weights range from a few hundred tons for small topsides in the Gulf of Mexico to over 50,000 tons for large topsides in the North Sea. Topsides may be built as separate modules, as an integrated unit, or as a combination of the two (i.e., an integrated deck containing process facilities topped by individual modules). The choice of system depends on the facilities required and the method by which the topside is installed. Topsides typically are transported offshore either on barges or on the deck of the crane vessels.
A jacket is a lattice-work of steel tubes anchored to the seabed by piles driven up to 100 meters into the soil. They can weigh over 30,000 tons, have a wide base (up to 120 meters across), and taper towards the top. The vast majority of jackets are transported to their offshore site by barge. Small jackets can be lifted off the barge and placed in the water vertically. Large
jackets, whether barge launched or crane lifted, enter the water horizontally and are then ballasted by controlled flooding to the vertical position before being lowered into place. Once the jacket is piled into the seabed, the topside generally is installed by crane.
In addition to fixed steel structures, the current installed base of structures includes:
o concrete gravity base structures (typically found in shallow and intermediate water depths);
o various types of floating structures such as tension leg platforms, deep draft caisson vessels, compliant towers, spars, and floating production, storage and offloading vessels (typically situated in deep waters --i.e., more than 200 meters), and
o subsea structures which include the equipment needed to develop satellite fields and the seabed equipment associated with floating installations.
The Company believes that over the next 20 years, approximately $35 billion will be spent on the installation of new structures. The Company also believes that over the next 30 years, most of the currently installed base of structures will have to be decommissioned at an estimated cost of $20 billion to $40 billion. It is anticipated that significant portion of this amount will be spent on the three hundred to four hundred large, steel, intermediate water depth installations that are substantially more difficult to remove using existing technology than their shallow water counterparts. This is most evident in the North Sea and the North East Atlantic where, due to the harsh environment and the significant number of large, intermediate depth steel structures, the anticipated decommissioning costs are considerably greater than in the rest of the world. Indeed, it is estimated that approximately fifty to sixty percent of worldwide decommissioning costs will be spent in the North Sea and the North East Atlantic, even though such regions account for just five percent of the total number of installations. The Company's initial decommissioning efforts will focus on these large, intermediate depth steel structures.
Decommissioning
Decommissioning is the multi-stage process of removing an offshore oil or gas installation. The process includes planning and engineering the removal of the installation, obtaining necessary regulatory approvals, removing the installation, sealing the wells, and transporting the installation for re-use, recycling, or disposal. Removal costs can range from $2 million for smaller platforms in shallow waters to more than $140 million for larger ones in deeper waters.
A number of different methods currently are utilized to remove an offshore installation. Determining which method is most appropriate for a particular installation is a function of numerous factors, including:
o the installation's size, weight, construction type, and distance from shore;
o the water depth, seabed characteristics, reservoir, wave, and current conditions of the site of installation; and
o safety considerations.
The typical method of removal involves cutting the particular structure into many pieces. Crane ships and other support vessels are used to lift the pieces onto barges or, in some instances, onto the deck of the crane ships themselves. The cutting is necessitated by the limited lifting capabilities of existing crane ships. Complications often arise, however, in determining the maximum lift capability during decommissioning operations. The largest cranes theoretically are capable of lifting objects up to 14,000 tons. During an actual lift, however, various factors will significantly reduce the theoretical lift capability including:
o vertical and horizontal clearance;
o the required outreach and/or upreach of the crane boom;
o anchoring requirements;
o proximity to other facilities, subsea wellheads, and pipelines;
o location characteristics, and
o the size and structural integrity of the pieces to be lifted.
This is best illustrated by the removal of the Odin jacket in Norway. Two cranes, with a combined maximum theoretical lift capacity of 14,000 tons, were engaged to remove a jacket that weighed approximately 10,000 tons. Despite the significant disparity between the cranes' maximum theoretical lift capacity and the weight of the jacket, the jacket had to be cut into four sections, each of which was lifted separately.
Several companies have offered and/or have proposed solutions for lifting large platforms in one piece. These involve the use of multiple barges, twin-hull tankers, split-hull tankers, and U-shaped semi-submersibles. One such solution, known as Versatruss, is comprised of two barges and an array of booms, rigging, and winches. The components are assembled together to produce what is essentially a giant scissors jack. The barges are symmetrically placed around the platform, and the booms from each barge are placed in receptacles that have been welded to the platform deck. The barges are pulled together sideways using winches. This causes the angle of inclination of the booms to increase, forcing the deck upwards. The Company believes that the utility of Versatruss and most of these other alternative solutions will be limited to the lifting of topsides in calm waters. Although some of such lifting systems may be capable of lifting jackets, the Company believes that the vertical clearance limitations inherent in each of such systems will inhibit their ability to lift the jackets onshore. Rather, the Company believes that such systems only will be capable of towing jackets from one installation site to another. The Company cannot assure you that its beliefs will prove to be accurate.
Removal of a few of the larger, older jackets that are equipped with flotation systems may be attempted by re-floating them. During installation, the flotation systems were used to float the jackets while being towed to the installation site. At the site, the flotation tanks were ballasted, foundation piles were then added to fasten these structures to the seabed, and any temporary buoyancy aids were removed. If the foundation piles can be removed and the flotation tanks can be deballasted or temporary buoyancy aids can be added, then it might be possible to refloat the structures. Given the age of these structures, however, the condition of the flotation systems is questionable.
Certain countries also permit the decommissioning of offshore oil and gas structures by partially removing them or by toppling the structures and leaving them on the seabed. Many countries, however, citing environmental and other concerns, do not allow these forms of decommissioning in their territorial waters.
The Company believes that the Offshore Shuttle will represent a new, cost-effective alternative for decommissioning offshore oil and gas platforms, particularly large, intermediate depth structures.
Installation
Limited crane capacity also affects the topside installation market. Topsides often are installed by transporting the topside to the site on a barge, and using cranes to lift it from the barge onto the structure on which it is to be installed. The Company believes that many of the topsides that will be installed over the next 20 years will be too large to be lifted by existing cranes, precluding them from being assembled onshore and installed in one piece. Rather, they will have to be fabricated in numerous pieces and assembled at the installation site. This is not ideal since offshore platform assembly can cost up to ten times more than onshore assembly. As an alternative, topside installation can be accomplished by transporting the topside to the site using two vessels aligned in a catamaran-type fashion, floating over the structure on which the topside is to be installed, and lowering the topside onto the structure by flooding the tanks in the transport vessels. The weight of the topsides that can be installed using this "float over" method is limited, however, because of the pitching and heaving of the transport vessels during transport and installation. As offshore exploration increases with increased
demand for oil and gas, the Company believes that the cost savings from a "single lift" solution will become even more prominent. The Company believes the Offshore Shuttle will provide such a solution.
The Offshore Shuttle
Operation. The Offshore Shuttle's design is based on the Archimedes principle: putting water into a floating object will cause it to submerge, and letting water out will cause it to rise. In essence, the Offshore Shuttle is designed to be a large buoyancy tank that can be submerged for placement under or adjacent to an offshore installation and then elevated to lift the installation.
The Company envisions a typical platform removal operation commencing with the preparation of the Offshore Shuttle at its home base and the preparation of the platform for removal. Pre-removal preparations will include:
o conducting a detailed analysis and preparing a comprehensive method statement of all of the tasks to be performed in the removal operation,
o adjusting the Offshore Shuttle's lifting frame for the installation to be removed, and
o equipping the topside support legs or the underside of the topside deck with specially prepared docking connections.
Upon completion of the pre-removal preparations, the Offshore Shuttle will be towed--it is not a self-propelled vessel--to the offshore site by several vessels, one of which will serve as the control center for the removal operation.
The topside will be removed first. The Offshore Shuttle will be partially submerged (i.e., ballasted) and guided into position under the topside by the use of guidance tugs or mooring anchors. The tugs or anchors will keep the Offshore Shuttle in position while the topside is cut from the jacket. Alternatively, the Offshore Shuttle can be moved into position after cutting the topside from the jacket. Once cut, the topside and the jacket will be temporarily secured to each other by clamps that will be designed specifically for the installation being removed. The Offshore Shuttle will be deballasted, causing it to rise in the water until the lifting frame on the Offshore Shuttle connects with the docking connections on the topside. The temporary clamps then will be unfastened from the jacket. Once the topside is lifted, it can be seafastened to the Offshore Shuttle for transport to another offshore site, or to a land site for dismantling or refurbishment.
The Offshore Shuttle then will be towed to the offshore location to perform the jacket removal. At the site, the Offshore Shuttle will be ballasted at one end so that it is sitting vertically in the water. It will be maneuvered by tugs or mooring anchors into position and connected with the jacket. The tugs or anchors will keep the Offshore Shuttle in place while the connection to the jacket is made. The top of the jacket will be connected by tension mechanisms to the top of the Offshore Shuttle and the jacket legs will be cut at the seabed. Alternatively, the Offshore Shuttle can be moved into position after cutting the jacket legs at the seabed. The Offshore Shuttle will "scoop up" the jacket by deballasting into its original horizontal position. The jacket will be seafastened to the Offshore Shuttle and transported to another offshore site, or to a land site for dismantling or refurbishment.
The Company believes the Offshore Shuttle will be able to remove 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 maximum weight of the structures which can be handled is a matter of design, but the Company believes that a 19,000 ton Offshore Shuttle will be capable of lifting topsides weighing up to approximately 22,000 tons and jackets weighing up to approximately 12,000 tons in one piece without the use of large crane barges.
Once a structure is removed, the Company believes that the Offshore Shuttle will be able to be used as a barge for transport. It is anticipated that the removed structure will lie in project-specific cradles on the Offshore Shuttle to help prevent damage to the object during transportation. This is particularly important where reuse of the marine structure is of interest. In
addition, the Company believes that it may be possible to design the Offshore Shuttle with a cover at one end so that by ballasting it 180 degrees into a vertical position, a very large working deck would be created 50 to 60 meters above water level. If so, the working deck could be positioned above structures (e.g., ships) or beneath structures (e.g., bridges) for use as a platform from which equipment could be operated.
The cost of constructing an Offshore Shuttle is estimated to be between $100 million and $200 million, depending on size. Moreover, the Company anticipates that approximately 20 people will be required for a typical Offshore Shuttle decommissioning operation compared to the typical crane ship operation that requires up to 200 people. Additional support vessels are needed for both crane ship and Offshore Shuttle operations.
The Company believes that the Offshore Shuttle's principal advantage over existing decommissioning methods will be its ability to remove and carry large structures in one piece. By eliminating the need to cut installations into many smaller units, offshore operation time, costs, and risks will be significantly reduced and reuse of the installation will become a more viable alternative. The Company believes the Offshore Shuttle's anticipated versatility will make it a unique alternative for handling marine objects, both inshore and offshore.
Dimensions. Based on current designs, each Offshore Shuttle will consist of six longitudinal tubes, four transverse tubes, and twelve vertical tubes. Although the dimensions of each Offshore Shuttle will vary based on the average size installation a particular Offshore Shuttle is designed to handle, it is anticipated that each Offshore Shuttle will be 130 to 200 meters long, 70 to 95 meters wide, and 60 meters high. The diameter of each tube will be approximately 10 meters. Each tube will be ring-stiffened in order to resist the hydrostatic pressure associated with installation or retrieval of marine structures. The longitudinal tubes may be ballasted by letting water in or deballasted by pumping water out.
There may be a fixed, 4,000 ton ballast in one of the outer transverse tubes to ensure sufficient stability. In addition, there will be separate ballasting compartments at one end of the two outer lower longitudinal tubes. These compartments will enable the Offshore Shuttle to maintain a horizontal position when the center of gravity of the object being transported or unloaded is close to the bottom of the Offshore Shuttle.
It is anticipated that the total weight of each Offshore Shuttle will range from 8,000 tons to 20,000 tons, depending upon the task for which it is designed. The main dimensions (as described above) may be changed depending on the Company's determination of the number and types of marine objects which are to be installed or removed in the foreseeable future. It is the Company's intention to have each Offshore Shuttle built for a dedicated region, however, it is anticipated that only the first Offshore Shuttle will be capable of diving partly below the surface to remove a jacket.
Testing. The Company believes that the technical risks associated with the Offshore Shuttle concept have been reduced by extensive model testing and rigorous calculations.
o Using a 1:50 scale model of an Offshore Shuttle, motions in different ballast conditions were tested.
o Ballasting/deballasting sequences were tested without any marine object, with a 1:50 scale model of 7,000 ton jacket, and with a 1:50 scale model of an 8,000 ton topside.
o Hydrodynamics were tested by examining the motions of the Offshore Shuttle (with and without a marine object) in different positions and when subjected to wave forces, as well as its towing resistance in calm water and storm.
In addition, based on engineering documentation, calculations, and model testing, Det Norske Veritas AS, an internationally-recognized society responsible for classification and technical inspections of merchant vessels, issued a Statement of Approval verifying the technical feasibility of the Offshore Shuttle concept for the transport and removal of certain offshore platform deck structures and jackets.
Despite the testing, documentation, and approval, there can be no assurance that construction of the Offshore Shuttle will be successfully completed or that, if constructed, the Offshore Shuttle will function properly,
will be operationally safe and environmentally friendly, or will enable the Company to provide decommissioning, installation, and transportation services in an effective manner or at all.
Business Strategy
The Company is in the process of evaluating bids received from a number of construction yards which it believes have the capacity and capability to build an Offshore Shuttle. Construction of the first Offshore Shuttle is intended to start approximately six months after sufficient financing is obtained, and it is expected to be operational approximately 18 months thereafter. Construction of a second Offshore Shuttle is intended to commence one year after construction of the first Offshore Shuttle begins, and construction of a third and a fourth Offshore Shuttle is intended to commence one year after construction of the second begins.
Subject to market demand, performance results, and other factors, the Company anticipates that the first Offshore Shuttle will conduct two commercial operations in its first year in service, five operations each year the next two years, and six operations in each year thereafter. The Company anticipates that the second, third and fourth Offshore Shuttles will perform four operations in their first year of service, and six in each year thereafter. In making the foregoing forecasts, the Company has assumed that each commercial operation, including all pre-engineering work, will take up to one year to complete, with the offshore portion calculated to be four weeks on average.
The Company intends to focus its initial efforts on installing topsides in the Gulf of Mexico and off the coast of West Africa and Brazil, and on decommissioning large, intermediate depth structures in the North Sea, the North East Atlantic, and other regions where the Company anticipates the advantages of using the Offshore Shuttle will be most prominent. The Company ultimately intends to provide a full range of services, including decommissioning, installing, transporting, and recycling/disposing of various types of structures.
Offshore decommissioning activity in the North Sea and the North East Atlantic is highly seasonal, principally as a result of weather conditions. Historically, the greatest demand for offshore decommissioning services in such regions has been during the period from May through September. The Company may seek to partially offset the anticipated seasonality of its proposed operations by pursuing other potential opportunities such as leasing the Offshore Shuttle to third parties for bridge building, dry docking ships and floating platforms, and other uses. The Company cannot assure you that such other opportunities, if successful, will result in the anticipated offset of the seasonality of its proposed operations.
Strategic Alliances
The Company's business strategy is dependent upon forming strategic alliances and relationships with joint venture partners, contract manufacturers, or other third parties, and upon the subsequent success of these parties in performing their responsibilities. In this regard, the Company has formed strategic alliances with Thyssen Krupp Stahlunion GmbH, RC Consultants AS, and Schuller Industrieentsorgung AG.
o Thyssen Krupp Stahlunion GmbH. Thyssen Krupp Stahlunion GmbH, a subsidiary of Thyssen Krupp AG, will assist the Company in its marketing efforts and will provide it with the material and equipment procurement services necessary to build the Offshore Shuttle. Jurgen Ternieden, a director of the Company, is an officer and the head of the Pipes, Offshore, Special Products Department of TKSU.
o RC Consultants AS. RC Consultants AS, a Norwegian engineering company with more than 400 skilled offshore engineers, will assist in the Company's engineering and operational activities.
o Schuller Industrieentsorgung AG. Schuller Industrieentsorgung AG, a German service company, will provide the Company with expertise regarding waste management, onshore dismantling, and oil pollution prevention and cleanup. Franz Eder, the Company's President and Chairman of the Board, and Dr. Hubert Besner, a director of the Company, are members of the Supervisory Board of Schuller. Mr. Eder also is a shareholder of Schuller.
In addition, the Company's proposed offshore activities may require the use of large tug boats, unloading docks, subsea specialists, marine operators, diving support vessels, and various safety and supply boats. The Company may seek to form strategic alliances and relationships with third parties who provide these and other services.
The Company believes that the use of these outside parties will help minimize its fixed costs and increase its flexibility by gaining access to qualified personnel when needed. The Company cannot assure you that such arrangements will be successful. If any of these arrangements are cancelled and/or are unsuccessful, and if the Company is unable to secure new alliances in their place, there would be a material adverse effect on the Company.
Proprietary Protection
The Company has seven patents regarding various aspects of the Offshore Shuttle design and operation, and numerous patent applications are pending. In addition, the Company relies on unpatented proprietary know-how and trade secrets, and employs various methods including confidentiality agreements with employees, consultants and marketing partners to protect its trade secrets and know-how.
Competition
The Company will face competition from companies which provide decommissioning, installation, or transport services using cranes and barges. In addition, several companies have offered or have proposed solutions for lifting large platforms in one piece. These involve the use of multiple barges, twin-hull tankers, split-hull tankers, and U-shaped semi-submersibles. Competition may also arise from vessels, processes, and/or technologies currently in development, or developed in the future, by other companies.
The Company believes that its ability to compete will depend on many factors, both within and beyond its control, including the reliability and cost-effectiveness of the Offshore Shuttle, the effectiveness of its sales and marketing efforts, the quality of its strategic partners, and the timing and market acceptance of new or improved vessels, processes, or technologies developed by the Company or others.
Regulations
Decommissioning of facilities is governed by national legislation within the framework of international and regional regulations. Determining the applicable regulatory framework will depend, in part, on how the Offshore Shuttles are classified--e.g., as "ships," "vessels," "installations," etc., whether, and if so, where the Offshore Shuttles are registered or documented, and where its intended operations are performed.
Although details differ, most oil and gas producing countries have adopted a similar approach to decommissioning. All feasible options for removal and disposal of offshore installations are assessed on a case-by-case basis. The offshore platform operator is required to prepare a decommissioning and abandonment plan which identifies the decommissioning and abandonment options, evaluates the technical feasibility of each option, assesses impacts on the environment and on society, and minimizes risks to human health and safety. The offshore platform operator then recommends to the responsible ministry the option which best balances the factors involved.
In 1989, the International Maritime Organization, a technical arm of the United Nations dealing with safety of navigation, issued guidelines dealing with the removal of offshore platforms. Recognizing the magnitude and complexity of removal operations, the IMO Guidelines took into account not only the size of the platforms but also the capabilities of the removal vessels. The IMO Guidelines provide that installations weighing less than 4,000 tons that are in less than 75 meters of water must be completely removed, while bigger and deeper structures need be only partially removed provided the remains are covered by an unobstructed water column at least 55 meters deep. For structures emplaced on the seabed on or after January 1, 1998, the water depth threshold increases from 75 meters to 100 meters. In addition, all platforms installed on or after January 1, 1998 must be designed so that removal is feasible.
In July, 1998, the contracting parties to the Convention for the Protection of the Marine Environment of the North East Atlantic (also known as
the "OSPAR Convention"), which include the United Kingdom, Ireland, France, Spain, Portugal, Belgium, Germany, Denmark, Norway, Sweden, Finland, Luxembourg, the Netherlands, Iceland, the European Union, and Switzerland, agreed to restrictions more stringent than those set forth in the IMO Guidelines. Based on the premise that reuse, recycling, or onshore disposal generally will be the preferred options for decommissioning offshore platforms, the OSPAR Convention provides for a ban, effective February, 1999, on the dumping and the leaving (wholly or partially) in place of disused offshore installations located in the North Sea, the North East Atlantic, and certain other regions. Permits may be issued for alternative means of disposal if significant reasons can be shown as to why such alternative means are preferable to reuse, recycling, or onshore disposal.
Employees
Marine Shuttle Operations Inc. employs three people, all of whom are executive officers. Marine Shuttle Operations AS employs four people. The employees are not unionized or employed pursuant to any collective bargaining agreement or any similar agreement. The Company believes that the relationship with its employees is satisfactory.
Technical Development
Technical development expenses for the year ended December 31, 2000, and 1999 were $27,267 and $554,206, respectively. The Company did not incur technical development costs in 1998. The Company intends to continue to devote resources and capital, to the extent available, to technical development so it can develop and commercialize the Offshore Shuttle.
Safe Harbor For Forward Looking Statements Under the Securities Litigation Reform Act of 1995; Risk Factors
This Annual Report on Form 10-K and the other reports, releases, and statements (both written and oral) issued by the Company and its officers from time to time may contain statements concerning the Company's future results, future performance, intentions, objectives, plans, and expectations that are deemed to be "forward-looking statements". Such statements are made in reliance upon safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company's actual results, performance, and achievements may differ significantly from those discussed or implied in the forward-looking statements as a result of a number of known and unknown risks and uncertainties including, without limitation, those discussed below and in "Management's Discussion and Analysis of Financial Condition and Results of Operations." In light of the significant uncertainties inherent in such forward-looking statements, the inclusion of such statements should not be regarded as a representation by the Company or any other person that the Company's objectives and plans will be achieved. 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. The Company undertakes no obligation to revise any of these forward-looking statements.
The risks presented below may not be all of the risks the Company may face. These are the factors that the Company believes could cause actual results to be different from expected and historical results. Other sections of this report include additional factors that could have an effect on the Company's business and financial performance. The industry that the Company competes in is very competitive and changes rapidly. Sometimes new risks emerge and management may not be able to predict all of them, or be able to predict how they may cause actual results to be different from those contained in any forward-looking statements. You should not rely upon forward-looking statements as a prediction of future results.
The Company has a limited operating history and no revenues from operations
The Company was incorporated in May 1997 to serve as a holding company for one or more unidentified operating subsidiaries. The Company's limited operating history makes it difficult to evaluate its performance and prospects, and its proposed operations are subject to all of the risks inherent in the establishment of a new business enterprise. To date, the Company has no significant assets and the Company has not generated any revenues from
operations. The Company believes that it will not generate any revenues from operations until 2003, at the earliest. The Company cannot assure you that significant revenues will ever develop, or that the Company will achieve profitable operations. The likelihood of the Company's success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with a new business, particularly one that is seeking to develop and commercialize a new product and operate in a competitive environment.
The Company needs additional capital to implement its business strategy
As of December 31, 2000, the Company had an accumulated deficit of $18,933,079 and a working capital deficit of $6,191,824. The Company needs additional funds to finance its proposed operations. If additional funds are raised through the issuance of equity or convertible debt securities, the Company's stockholders may experience dilution and the securities may have rights, preferences and privileges senior to those of the common stock. If capital is raised through a debt financing with financial institutions, the Company would likely become subject to restrictive covenants relating to its operations and finances.
In September 1999, the Board of Westdeutsche Landesbank Girozentrale (WestLB) of Dusseldorf, Germany issued its conditional approval to underwrite a U.S. $157.5 million loan facility for the first Offshore Shuttle. The West LB financing is subject to numerous material conditions, none of which have been satisfied. The Company cannot assure you 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 the Company is not able to raise a substantial amount of additional capital, the Company may be required to significantly curtail or cease its proposed activities.
Due to the Company's holding company structure, any funds distributed to the Company from its subsidiary may be subject to domestic and foreign taxes
The Company currently own all of the issued and outstanding capital stock of MSOAS. Based on this ownership structure, any dividends paid to the Company by MSOAS are subject to Norwegian withholding taxes and U.S. income taxes (which can be offset to the extent of the Norwegian withholding taxes). Thus, the amount of funds that may be distributed by MSOAS to the Company for working capital, acquisitions, investments, or other purposes will be reduced to the extent such taxes are payable.
The Company may lose the rights to the offshore shuttle concept
The intellectual property rights to the Offshore Shuttle concept were transferred to the Company by Gunnar Foss and Per Bull Haugs0en, the developers of the Offshore Shuttle concept. The Company granted Messrs. Foss and Haugs0en a right of first refusal with respect to the transfer of the intellectual property rights. In addition, if the Company ceases to actively engage in activities relating to the Offshore Shuttle concept, then the intellectual property rights will revert back to them. In such event, the Company would be unable to obtain any value from the future sale or exploitation of the rights. Messrs. Foss and Haugs0en have agreed to relinquish their right of first refusal and their right to have the intellectual property rights transferred back to them, but only if certain conditions are satisfied. These conditions include the Company's receipt of a written commitment for the financing of the first Offshore Shuttle, and the Company entering into contracts for the design, construction, and fabrication of the first Offshore Shuttle. The Company cannot assure you that these conditions will be met.
A substantial amount of time will lapse until commercial introduction of the first Offshore Shuttle
The Company is in the process of evaluating bids received from a number of construction yards which the Company believes have the capacity and capability to build an Offshore Shuttle. The Company cannot assure you that it will be able to negotiate acceptable contract manufacturing arrangements. The Company anticipates that physical construction of the first Offshore Shuttle will start six months after the receipt of sufficient capital and will be operational 18 months thereafter. Construction of a second Offshore Shuttle is intended to commence one year after construction of the first Offshore Shuttle
begins, and construction on a third and a fourth Offshore Shuttle is intended to commence one year after construction of the second begins. The Company cannot assure you as to the time required to complete construction or that construction will be successfully completed at all.
The Company anticipates that each Offshore Shuttle will conduct between two and six commercial operations per year. The Company does not anticipate generating any significant revenues until the year 2003, at the earliest. The Company cannot assure you that its assumptions regarding the number of operations to be performed will prove to be accurate, or 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 the Company cannot assure you that any such contracts will materialize.
The Offshore Shuttle may not function as intended
The Company cannot assure you that construction of the Offshore Shuttle will be successfully completed or that, if constructed, the Offshore Shuttle will function properly, will be operationally safe and environmentally friendly, or will enable the Company to provide decommissioning, installation, and transportation services in an effective manner or at all. In addition, the Company anticipates that the Offshore Shuttle will be equipped with an adjustable lifting frame, and specially-prepared docking connections will be utilized during removal operations. To date, neither the lifting frame nor the docking connections have been completely engineered, and the Company cannot assure you that such engineering will be successfully completed. If the Company is unable to engineer the lifting frame and/or the docking connections, it could have a material adverse effect on the Company.
The Company may face intense competition and its technology may become obsolete
The Company will face competition from companies that provide decommissioning, installation, and transport services using cranes and barges. In addition, several companies have offered or have proposed solutions for lifting large platforms in one piece. These involve the use of multiple barges, twin-hull tankers, split-hull tankers, and U-shaped semi-submersibles. Competition also may arise from vessels, processes, and/or technologies currently in development, or developed in the future, by other companies. The development by others of new or improved vessels, processes, or technologies may make the services to be marketed by the Company less competitive or obsolete. Many of the Company's current and potential competitors are likely to have substantially greater financial, managerial, and technical resources than the Company. The Company cannot assure you that it will be able to compete successfully in the marketplace, if at all.
Protection of the Company's proprietary rights may be inadequate
The Company has seven Norwegian patents regarding various aspects of the Offshore Shuttle design and operations, and numerous patent applications are pending in Norway, the United States, and other countries. The Company cannot assure you that patents will issue from any of its patent applications or as to the range or degree of protection the issued patents will afford. In addition, the Company cannot assure you that others will not obtain patents claiming aspects similar to those covered by the patent applications or patents or that the Company's patents will not be challenged by third parties, invalidated, rendered unenforceable, or designed around.
If a competitor were to infringe on the Company's patents, the costs of enforcing the patent rights may be substantial or even prohibitive. The Company cannot assure you that the Company will be successful in any action for infringement. In addition, the Company cannot assure you that the Offshore Shuttle will not infringe on the patent rights of others, or that patents do not exist or will not be issued in the future that would have an adverse effect on its ability to manufacture or operate the Offshore Shuttle. The Company is aware of the existence of a Norwegian patent which claims the use of a U-shaped structure designed for removing and/or installing topsides. Based on the opinion of patent counsel, Bryns Patentkontor A/S, the Company believes that the Offshore Shuttle will not infringe on this Norwegian patent because, unlike the structure covered by the Norwegian patent, the Offshore Shuttle will not utilize movable transverse beams mounted to its upper beams. The Company cannot assure you that infringement proceedings will not be brought against the Company.
The Company also may desire or be required to obtain licenses from others in order to further develop, produce, and market the Offshore Shuttle
effectively. The Company cannot assure you that licenses will be obtainable on commercially reasonable terms, if at all, that the patents underlying the licenses will be valid and enforceable, or that the proprietary nature of the unpatented technology underlying the licenses will remain proprietary. In addition, the Company relies on unpatented proprietary know-how and trade secrets, and employs various methods including confidentiality agreements with employees, consultants and marketing partners to protect its trade secrets and know-how. These methods may not afford complete protection and the Company cannot assure you that others will not independently develop trade secrets and know-how or obtain access to them.
The Company must maintain and establish strategic alliances and other third party relationships to implement its business strategy
The Company's strategy for testing, developing, manufacturing, and commercializing the Offshore Shuttle concept is dependent upon forming strategic alliances and relationships with joint venture partners, contract manufacturers, or other third parties, and upon the subsequent success of these parties in performing their responsibilities. The Company cannot assure you that the Company's arrangements with Thyssen Krupp Stahlunion GmbH, RC Consultants AS, and Schuller Industrieentsorgung AG will be successful. If any of these arrangements are cancelled or are unsuccessful, and if the Company is unable to secure new alliances in their place, there would be a material adverse effect on the Company.
In addition, the Company's proposed offshore activities may require the use of large tug boats, unloading docks, subsea specialists, marine operators, diving support vessels, and various safety and supply boats. The Company may seek to form strategic alliances and relationships with third parties who provide these and other services. If the Company is unable to negotiate acceptable arrangements, or if any of such arrangements are unsuccessful, it could have a material adverse effect on the Company.
The Company has no manufacturing facilities
Physical construction of the first Offshore Shuttle is intended to commence six months after receipt of sufficient capital. However, the Company does not have the ability to manufacture the Offshore Shuttle. The Company is in the process of evaluating bids received from a number of construction yards which the Company believes have the capacity and capability to build an Offshore Shuttle. The Company cannot assure you that the Company will be able to negotiate acceptable joint venture or contract manufacturing arrangements, or that any of these arrangements will be successful.
The Company has limited marketing and sales capabilities
The Company has limited marketing and sales capabilities. Thyssen Krupp Stahlunion GmbH has agreed to assist the Company in its marketing efforts. The Company cannot assure you that the Company will be able to effectively market or sell its services through sales representatives, through arrangements with an outside sales force, or through strategic partners.
The Company's services may not be readily accepted by the market
As with any new technology, there is the risk that the market may not recognize the benefits or the potential applications of the Offshore Shuttle or other future products or technologies that may be developed by the Company. Market acceptance of the Company's proposed services will depend, in large part, on the Company's ability to demonstrate to prospective customers the potential advantages of the Offshore Shuttle over other types of vessels and/or technologies performing similar functions. The Company cannot assure you that the Company will be successful in marketing its services to the oil and gas industry or other markets, or that the use of the Offshore Shuttle will be embraced by the oil and gas industry or other markets.
The Company's business is subject to factors outside its control
The Company's business may be affected by a variety of factors, many of which are outside its control. Factors that may affect the Company's business include:
o the success of the Company's marketing campaign;
o competition;
o the Company's ability to attract qualified personnel;
o technical difficulties in building the Offshore Shuttle;
o the amount and timing of operating costs and capital expenditures necessary to establish the Company's business, operations, and infrastructure;
o governmental regulation; and
o general economic conditions as well as economic conditions specific to the offshore oil and gas industry.
The Company will be exposed to numerous risks associated with international operations.
The Company intends to market the Company's 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;
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.
Seasonality, weather conditions, and other factors may affect the Company's business
Offshore decommissioning and installation activity in the North Sea and the North East Atlantic is highly seasonal, principally as a result of weather conditions. Historically, the greatest demand for offshore decommissioning and
installation services in such regions has been during the period from May through September. As a result, the Company anticipates that a disproportionate amount of the Company's future revenues, if any, will be generated during the second and third quarters of each year. In addition, full year results are not likely to be a direct multiple of any particular quarter or combination of quarters. The Company may seek to partially offset the anticipated seasonality of the Company's proposed operations by pursuing other potential opportunities such as leasing the Offshore Shuttles to third parties for bridge building, dry docking ships and floating platforms, and other uses. The Company cannot assure you that such other opportunities, if successful, will result in the anticipated offset of the seasonality of the Company's proposed operations.
Demand for the Company's proposed services also will be affected by the level of spending by oil and gas companies for decommissioning, installation, and other similar activities. The expenditures are influenced by the price of oil and gas, the discovery rates of new oil and gas reserves in offshore areas, local and international regulations and political and economic conditions, and the oil and gas industry's access to capital.
The Company's business is dependent upon Franz Eder, the Company's Chairman and President, and the Company's ability to attract and retain other key personnel
The Company's success depends to a significant extent upon the services of Franz Eder, the Company's President and Chairman of the Board. Mr. Eder has entered into an employment agreement with the Company which provides that he shall devote only so much (but not less than 75%) of his professional and business time, attention, and energies to his duties and responsibilities as is reasonable to insure the Company's proper conduct. The Company does not have, and the Company has no current plans to obtain, key person life insurance covering Mr. Eder or any of the Company's other executive officers. The loss of Mr. Eder's services could have a material adverse effect on the Company.
The Company believes that the Company's future success also will depend on the Company's ability to attract and retain highly-skilled managerial and technical personnel. Competition for such personnel is intense. The Company competes for such personnel with other companies, academic institutions, governmental entities and other organizations, some of which may have substantially greater capital resources than the Company. The Company cannot assure you that it will be successful in attracting and retaining such personnel.
The Company's proposed operations are inherently risky, and the Company has no insurance to protect against these risks
The Company's proposed operations will be subject to all of the inherent risks of offshore marine activity, including accidents, environmental mishaps, mechanical failures, and vessels colliding, capsizing, grounding, or sinking. These occurrences can result in significant personal injury or loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage, and suspension of the Company's proposed operations. Moreover, litigation arising from any such occurrence may result in the Company being named as a defendant in lawsuits asserting large claims.
The Company intends to obtain insurance against some of these types of risks. The Company also anticipates that the Company will be adequately protected by the insurance policies of the companies that utilize its services, and the Company intends to further limit the Company's risk by capping the Company's liability exposure in its service contracts with these companies. The Company cannot assure you that the policies of these companies will cover the Company or, if they do, that the insurance (or the insurance obtained by the Company, if any) will be sufficient or effective under all circumstances or against all hazards to which the Company may be subject. In addition, the Company cannot assure you that any contractual limits on liability will be enforceable or will adequately and effectively limit the Company's liability exposure, or that the companies that use the Company's proposed services will nevertheless seek to be indemnified by the Company with respect to the losses or damages they suffer or incur.
Governmental and environmental laws and regulations may restrict the Company's business
The Company's operations may be subject to and affected by various types of national and international laws and regulations. The technical requirements of the various laws and regulations are complex and stringent, and compliance is often difficult and expensive. The Company may be required to obtain certain permits, licenses and certificates with respect to the Company's proposed operations and to comply with rigorous safety, workplace, and environmental standards. Moreover, certain of the Company's employees may be covered by laws that operate to make liability limits, if any, established by state workers' compensation laws inapplicable to these employees and permit the employees and their representatives to pursue actions against the Company for job related injuries with generally no limits on the Company's potential liability.
Violations of various statutes and regulations that may be applicable to the Company's proposed operations can result in, among other things,
o civil penalties;
o remediation expenses;
o monetary damages;
o injunctions;
o cease and desist orders; and
o criminal penalties.
Some environmental statutes impose strict liability, rendering a person liable for environmental damage without regard to negligence or fault on the part of such person. In addition, because such laws and regulations are changed frequently, it is difficult for the Company to accurately predict the cost or impact of such laws and regulations on its planned operations.
The Company's President currently controls approximately 14% of common stock
Franz Eder, the Company's President and Chairman of the Board, presently owns 7,722,000 shares of common stock (approximately 14% of the common stock currently outstanding). As such, Mr. Eder will have a significant voice in all matters submitted to stockholders for approval and in the Company's management and affairs.
A substantial number of the Company's shares are reserved for issuance
The Company has reserved a total of 2,000,000 shares of common stock for issuance upon the exercise of options that may be granted pursuant to the Company's 1998 Stock Option Plan. The issuance of options pursuant to the Stock Option Plan may adversely affect the Company's ability to consummate future equity financing. Further, the holders of such options may exercise them at a time when the Company would otherwise be able to obtain additional equity capital on terms more favorable to the Company. The exercise and sale of the common stock underlying the options would have a dilutive effect on the Company's stockholders, and may have a material adverse effect on the market price of the common stock.
Anti-takeover provisions may discourage takeover attempts
Provisions of the Nevada General Corporation Law could have the effect of delaying or preventing a change of control of the Company.
There is a limited public market for the common stock; the Company's stock is a "penny stock"
There is a limited public market for the Company's common stock, and the Company cannot assure you that a more active public market for the common stock will ever develop or be sustained. The development of a more active public market for the Company's common stock may be impaired because the common stock currently falls within the definition of a "penny stock." The Securities and Exchange Commission has adopted regulations which define a "penny stock" to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions, including an exception for securities authorized for quotation on certain stock exchanges and on the Nasdaq Small Cap Market. For any transaction involving a penny stock, the rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure also must be made about commissions payable to both the broker-dealer and the registered representative, and about current quotations for the security. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. As long as the Company's common stock continues to trade below $5.00 per share, the trading market for the Company's common stock could be materially adversely affected.
The availability of a substantial number of shares eligible for future sale may adversely affect the Company's stock price and ability to raise capital
A substantial number of shares are available for future sale. No prediction can be made as to the effect, if any, that sales of these shares, or even the availability of such shares for sale, will have on the market prices prevailing from time to time. The possibility that substantial amounts of common stock may be sold in the public market may adversely affect prevailing market prices for the common stock and could impair the Company's ability to raise capital through the sale of the Company's equity securities.
ITEM 2.
ITEM 2. PROPERTIES
MSOAS leases office space in Sandnes, Norway pursuant to a lease agreement with RC Group ASA. The lease agreement provides for an average annual rent of NOK 435,852 (approximately $49,027), and expires in 2003. Sverre Hanssen, the Chairman of Marine Shuttle Operations AS, is the Chairman and the principal shareholder of RC Group ASA.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company currently is not a party to any material legal proceeding.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock commenced trading on the OTC Bulletin Board on December 22, 1997 and is traded under the symbol "ZSUB". The following table sets forth for the periods indicated the high and low bid quotations for the common stock as reported on the OTC Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
Price Range ----------- High Low ---- ---
Year Ended December 31, 2000 - ----------------------------
1st Quarter $1.75 $0.62 2nd Quarter $0.968 $0.562 3rd Quarter $0.75 $0.437 4th Quarter $0.593 $0.14
Year Ended December 31, 1999 - ----------------------------
1st Quarter $5.0625 $1.625 2nd Quarter $2 $1.0625 3rd Quarter $4.25 $0.875 4th Quarter $1.4375 $0.6875
As of March 9, 2001, there were approximately 200 holders of record of the common stock, including record holders which may hold such stock for beneficial owners and which have not been polled to determine the extent of beneficial ownership.
The Company has never declared or paid dividends, and does not intend to pay any dividends in the foreseeable future on shares of common stock. Earnings of the Company, if any, are expected to be retained for use in expanding the Company's business. The payment of dividends is within the discretion of the Board of Directors of the Company and will depend upon the Company's earnings, if any, capital requirements, financial condition, and such other factors as are considered to be relevant by the Board of Directors from time to time.
In December 2000, the Company sold 475,000 shares of common stock to a foreign person pursuant to Regulation S for gross proceeds of $190,000.
In January 2001, the $1,450,000 that had been advanced to the Company by a foreign person under a loan agreement, plus $42,396 in interest thereon, was converted into 3,730,990 shares of the Company's common stock. The shares were issued pursuant to Regulation S.
In January 2001, the Company sold 1,000,000 shares of common stock to a foreign investor pursuant to Regulation S for gross proceeds of $200,000.
In February and March 2001, the Company sold 5,000,000 shares and warrants to purchase 5,000,000 shares exercisable at $0.10 per share to various foreign persons pursuant to Regulation S for aggregate gross proceeds of $505,000. The warrants expire on July 1, 2001. Also in February and March 2001, the Company sold a total of 650,000 shares to various of its officers, directors and employees, pursuant to Regulation S, for aggregate gross proceeds of $65,000.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from the consolidated financial statements of the Company. The data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes thereto included herein.
(1) In April 1998, the Company acquired all of the outstanding stock of MSOAS. In December 1998, the Company acquired approximately 68% of the outstanding stock of Offshore Shuttle AS ("OSAS"). OSAS merged with and into MSOAS in September 1999, and the Company acquired the remaining minority interest in MSOAS in April and June 2000. See further information at Item 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information contains forward-looking statements which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, actual results may differ from those expressed or implied by the forward looking statements. The following information should be read in conjunction with the consolidated financial statements of the Company and the notes thereto set forth elsewhere herein.
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 installing, decommissioning, and transporting offshore oil and gas structures.
The Company has designed a vessel, the "Offshore Shuttle," which it believes will be capable of lifting large 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 commence six months after the receipt of sufficient capital and will be operational 18 months thereafter. Construction of a second Offshore Shuttle is intended to commence one year after the first Offshore Shuttle begins, and construction of a third and a fourth Offshore Shuttle is intended to commence one year after construction of the second begins.
The Company was incorporated in Nevada in May 1997 under the name Geoteck International, Inc. On May 29, 1998, the Company 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. 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. This transaction was accounted for using the purchase method.
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 proposed to merge the two companies. The proposed merger plan was approved by the shareholders of both companies on May 30, 1999, and the merger became effective in September 1999. The OSAS shareholders received 1.5 MSOAS shares for each of their OSAS shares. As a result of the merger, the Company owned approximately 81% of MSOAS, and MSOAS acquired the licensing and marketing rights to the Offshore Shuttle.
In April 2000, the Company acquired 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 June 2000, the Company acquired an additional 9.7% of the outstanding shares of MSOAS in exchange for an aggregate of 1,186,283 shares of its common stock, and the Company acquired the remaining 1% of the MSOAS shares for cash. These acquisitions were accounted for as purchases. The Company now owns all of the outstanding shares of MSOAS.
Results of Operations
Year Ended December 31, 2000 compared with Year Ended December 31, 1999
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. The Company incurred net losses of $6,362,150 for 2000 compared with $7,363,850 for 1999.
Operating revenues. Operating revenues for 2000 were $218,088, an increase of $112,952 compared to $105,136 in 1999. The revenues were generated from sporadic study work reimbursed by clients. The Company is still in the development stage and does not expect to generate significant revenues from operations until 2003 at the earliest, except from some sporadic study work.
Personnel costs. Personnel costs include costs for both employees and hired personnel and were $1,494,695 for 2000, an increase of $216,757 from the
personnel costs of $1,277,938 in 1999. The increase in costs was mainly due to more personnel working on client studies.
Legal, audit and advisory services. Legal, audit and advisory services for 2000 were approximately $396,432, a decrease of $76,526 compared to legal, audit and advisory services of $472,958 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 2000 were $639,430, a decrease of $630,983 from the general and administrative expenses of $1,270,413 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, and a slowdown of spending by the Company to conserve capital.
Marketing. Marketing expenses for 2000 were $167,736, a decrease of $132,421from the marketing expenses of $300,157 in 1999. The decrease was a result of purchasing fewer marketing materials and services in the current period.
Technical Development. Technical development costs for 2000 were $27,267, a decrease of $526,939 compared to $554,206 in 1999. The decrease was due to less technical development work performed in the current period.
Interest income. The interest income for 2000 was $12,266, a decrease of $44,598 from the interest income of $56,864 in 1999. The decrease was a result of less interest bearing cash and cash equivalents during 2000.
Year Ended December 31, 1999 compared with Year Ended December 31, 1998
The following comparisons are affected by the 1998 acquisitions of OSAS and MSOAS since their results of operations are only included in the consolidated results of operations since their respective acquisition dates.
The Company incurred net losses of $7,363,850 for 1999 compared with $5,042,148 for 1998.
Operating Revenues. Operating revenues for 1999 were $105,136 compared to $16,376 in 1998. The increase was due to increased study work performed for clients.
Personnel costs. Personnel costs includes costs for both employees and contract personnel and were $1,277,938 for 1999, an increase of $1,092,444 over personnel costs of $185,494 in 1998. The increase in costs was a result of increased activities and increased personnel in MSOAS.
Legal, audit and advisory services. Legal, audit and advisory services for the year ended December 31, 1999 were approximately $472,958, a decrease of $646,742 compared to legal, audit and advisory services of $1,119,700 in 1998. The decrease from 1998 to 1999 was mainly due to lower consulting fees as work was shifted from consultants to Company personnel.
Cost of cancelled financing. The cost of cancelled financing in 1998 was $606,721, which was incurred in connection with a planned public offering in 1998. The public offering was cancelled and the costs were expensed.
General and administrative expenses. General and administrative expenses for 1999 were $1,270,413, an increase of $867,667 over the general and administrative expenses of $402,745 in 1998. The increase was due to increased activities in MSOAS and MSOAS moving into new offices during 1999.
Marketing. Marketing expenses for 1999 were $300,157, a decrease of $352,333 from $652,490 for 1998. The decrease was a result of purchasing fewer marketing materials and services in 1999, and higher costs in 1998 related to participation in the Offshore Northern Sea Exhibition in Norway.
Technical Development. Technical development costs for 1999 were $554,206 compared to no cost in 1998. The majority of these expenses were
incurred by OSAS, which majority-interest was acquired in December 1998.
Amortization of goodwill and intangibles. Amortization of goodwill and intangibles for 1999 was $3,885,167, an increase of $2,002,963 over the amortization of goodwill and intangibles of $1,882,204 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 in 1998. Goodwill of $32,929,340 and other purchased intangibles of $3,591,615 were acquired in the acquisition and all being amortized over 10 and 5 to 10 years, respectively.
Interest expense. Interest expense for 1999 was $23,389, which was $69,880 below interest expenses of $93,268 in 1998. The reason for the decrease in interest expense is that in 1999, a larger portion of the borrowings were allocated to the construction of the Offshore Shuttle and therefore were capitalized rather then expensed.
Results of operations for 2000, 1999 and 1998 are not indicative of the results expected in future periods due to increased costs to be incurred in developing, financing and constructing the first Offshore Shuttle, with no anticipated revenues from operation of the first Offshore Shuttle until 2003, at the earliest.
Business Strategy
The Company is in the process of evaluating bids received from a number of construction yards which it believes have the capacity and capability to build an Offshore Shuttle. Construction of the first Offshore Shuttle is intended to start approximately six months after sufficient financing is obtained, it is expected to be operational approximately 18 months thereafter. Construction of a second Offshore Shuttle is intended to commence one year after construction of the first Offshore Shuttle begins, and construction of a third and a fourth Offshore Shuttle is intended to commence one year after construction of the second begins.
Subject to market demand, performance results, and other factors, the Company anticipates that the first Offshore Shuttle will conduct two commercial operations in its first year in service, five operations each year the next two years, and six operations in each year thereafter. The Company anticipates that the second, third and fourth Offshore Shuttles will perform four operations in their first year of service, and six in each year thereafter. In making the foregoing forecasts, the Company has assumed that each commercial operation, including all pre-engineering work, will take up to one year to complete, with the offshore portion calculated to be four weeks on average.
The Company intends to focus its initial efforts on installing topsides in the Gulf of Mexico and off the cost of West Africa and Brazil, and on decommissioning large, intermediate depth structures in the North Sea, the North East Atlantic, and other regions where it anticipates the advantages of using the Offshore Shuttle will be most prominent. The Company ultimately intends to provide a full range of services, including decommissioning, installing, transporting, and recycling/disposing of various types of structures.
Rights to the Offshore Shuttle
The intellectual property rights to the Offshore Shuttle concept (the "Rights") were transferred to MSOAS (by virtue of its merger with OSAS) by two individuals, the developers of the Offshore Shuttle concept, pursuant to an Agreement Regarding Intellectual Property dated March 31, 1998 (the "Intellectual Property Agreement"). The Intellectual Property Agreement provides that if MSOAS shall cease to actively engage in its activities relating to the Offshore Shuttle concept, then, subject to a six-month cure period, the Rights shall revert back to the two individuals. In such event, the Company would be unable to obtain any value from the future sale or exploitation of the rights. In addition, if MSOAS desires to transfer the Rights, the two individuals have a right of first refusal with respect to such transfer. In March, 2000, an Addendum to the Intellectual Property Agreement was signed which provide that the two individuals shall waive their right to have the Rights transferred back to them as well as their right of first refusal. The waiver is subject to fulfillment of certain conditions, including that the Company receive a written commitment for the financing of the first Offshore Shuttle, and that the Company enter into contracts for the design, construction, and fabrication of the first Offshore Shuttle. In consideration of the waiver, the Company shall grant each of the two individuals, upon the satisfaction of such conditions, warrants to purchase 125,000 shares of Common Stock at $1 per share.
Goodwill and Other Intangibles
Goodwill and other purchased intangibles arising from the acquisitions of MSOAS and OSAS are being amortized over periods ranging from 5 to 10 years, their estimated useful lives. Goodwill is being amortized over 10 years which is the expected future benefit period over which cash flows will be generated to recover the goodwill. Since the Company is a development stage company, there can be no assurance that such cash flows will be generated. As of December 31, 2000, goodwill represented 69.45% of total assets and 84.82% of total shareholders' equity.
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 December 31, 2000, the Company had cash and cash equivalents of $203,207, an accumulated deficit of $18,933,079, shareholders' equity of $30,563,623, and a working capital deficit of $6,191,824. The Company is in the development stage with no operating assets presently generating cash to fund its operating and capital requirements. Accordingly, the independent auditor's report on the Company's financial statements has an explanatory paragraph addressing the Company's ability to continue as a going concern.
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, and was further amended as of December 31, 2000. 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 June 30, 2001; except that if the Company raises, in the aggregate, in excess of $5,000,000 from equity or long term debt financing after January 1, 2000, then the loan shall be due to the extent of 25% of such excess. As of December 31, 2000, $3,875,000 had been advanced under the loan agreement, and $2,550,000 was outstanding under the 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 $450,000), to finance specific tasks within the Offshore Shuttle project. As of December 31, 2000, NOK 2,358,617 ($265,300) had been advanced under the loan agreement. The principal is repayable over a five year period commencing two years after disbursement, in semi-annual installments, each in the amount of NOK 400,000.
In February 2000, the Company entered into a loan agreement with MFC Merchant Bank S.A, an investment company, pursuant to which MFC agreed to lend an aggregate of up to $2,000,000, provided that advances shall not exceed $350,000 in any single month. Any monies advanced under this 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 December 31, 2000, $900,000 was outstanding under this agreement. MFC has agreed to extend the maturity date of the $900,000 loan to June 30, 2001.
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. In December 2000 the Company consummated a private placement of 475,000 shares of common stock for gross proceeds of $190,000.
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 Mr. Timm into shares of our 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. In January 2001, the $1,450,000 that had been advanced under the loan agreement plus $42,396 in interest thereon was converted into shares of
the Company's common stock at $0.40 per share.
In January 2001 the Company sold 1,000,000 shares of common stock for gross proceeds of $200,000.
In February and March 2001, the Company sold 5,000,000 shares and warrants to purchase 5,000,000 shares exercisable at $0.10 per share for aggregate gross proceeds of $505,000. The warrants expire on July 1, 2001. Also in February and March 2001, the Company sold a total of 650,000 shares to various of its officers, directors and employees for aggregate gross proceeds of $65,000.
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 $47,350) 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. MFC agreed to defer the monthly fee obligation from May 1, 2000 through December 1, 2000. In return for granting this deferral, the deferred fees were increased by 10%. This 10% premium may be paid with shares of common stock. Effective April 1, 2001, MFC will no longer receive a monthly fee, but will invoice the Company for services rendered at the request of the Company.
In November, 2000, the Company retained Frost & Partner GbR ("F&P") to help arrange a $20 million to $40 million financing for the Company. Under the terms of the agreement, F&P received $15,000 upon being retained, and will receive up to an additional $30,000 in connection with their due diligence and the preparation of presentation documents. In addition, F&P will receive a success fee equal to two percent of the capital raised during the term of the agreement or during the six month period thereafter (or 1% if the money is raised other than through F&P's efforts). The agreement expires March 31, 2001.
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.
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, the Company may be required to significantly curtail or cease its proposed activities. Although the Company believes that the proceeds from the WestLB financing, if completed, will enable it to construct the first Offshore Shuttle, there can be no assurance in that regard. Moreover, even if the WestLB financing is consummated, the Company's future capital requirements could vary significantly and will depend on certain factors, many of which are not within its 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.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. The adoption of Statement No. 133 on January 1, 2001 will result
in no cumulative effect of an accounting change as the Company does not utilize derivatives.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates relates primarily to the Company's notes payable and long-term debt. The Company believes its exposure to interest rate risk is not material since its current notes payable consist of fixed rate indebtedness, and the long-term variable rate debt obligation is not material. The fair value of the fixed rate notes payable approximates its carrying value due to its short-term maturity.
Interest rate risk may arise if the Company is successful in obtaining debt financing to finance the building of the first Offshore Shuttle. In such an event, the Company will assess the extent of its interest rate risk and may enter into hedging transactions to reduce its exposure and to ensure its ability to service its debt.
Foreign Exchange Risk
Foreign exchange risk may arise if the Company is required to use different currencies for various aspects of its operations. Although the principal currency used in the offshore decommissioning industry in the U.S. Dollar, the local expenditures of MSOAS (e.g., rent, telephone, payroll, etc.) 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. The Company currently has no foreign exchange contracts.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page -------- Financial Statements of Marine Shuttle Operations Inc.: Reports of Independent Auditors..................................... 27 Consolidated Balance Sheets...................................... 29 Consolidated Statements of Loss and Comprehensive Loss........... 30 Consolidated Statements of Cash Flows............................ 31 Consolidated Statements of Shareholders' Equity.................. 32 Notes to Consolidated Financial Statements....................... 33
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors Marine Shuttle Operations Inc.
We have audited the accompanying consolidated balance sheets of Marine Shuttle Operations Inc. (a development stage enterprise) as of December 31, 2000 and 1999, and the related consolidated statements of loss and comprehensive loss, shareholders' equity, and cash flows for the years then ended, and for the period from May 23, 1997 (inception) through December 31 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements as of December 31, 1998, and for the period May 23, 1997 (inception) through December 31, 1998, were audited by other auditors whose report dated March 18, 1999 expressed an unqualified opinion on those statements and included an explanatory paragraph for the going concern uncertainty discussed in Note 2 to the financial statements. The financial statements for the period May 23, 1997 (inception) through December 31, 1998 include total revenues and net loss of $16,376 and $5,207,079, respectively. Our opinion on the consolidated statements of loss and comprehensive loss, shareholders' equity, and cash flows for the period May 23, 1997 (inception) through December 31, 2000 insofar as it related to amounts for prior periods through December 31, 1998, is based solely on the report of other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Marine Shuttle Operating Inc. at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 and the period from May 23, 1997 (inception) through December 31, 2000, in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that Marine Shuttle Operations Inc. will continue as a going concern. As more fully described in Note 2, the Company has incurred recurring operating losses and has a working capital deficit. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements 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.
/s/ ERNST & YOUNG AS Gustav Eriksen Stavanger, Norway March 28, 2001
Independent Auditors' Report
[Deloitte & Touche logo] ____________________________________ Deloitte & Touche LLP Telephone: (604) 669-4466 Suite 2100 Facsimile: (604) 685-0458 1055 Dunsmuir Street P.O. Box 49279 Four Bentall Centre Vancouver, British Columbia V7X 1P4
To the Board of Directors and Stockholders of Marine Shuttle Operations Inc.
We have audited the consolidated statements of loss and comprehensive loss, shareholders' equity (deficiency) and cash flows for the year ended December 31, 1998 of Marine Shuttle Operations Inc. and subsidiaries (collectively, the "Company"). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all material respects, the results of operations and cash flows for the year ended December 31, 1998, in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company's negative working capital and deficit raises substantial doubt about its ability to continue as a going concern. Management's plans concerning this matter are also described in Note 2. The financial statements do not contain any adjustments that might result from the outcome of this uncertainty.
/s/DELOITTE & TOUCHE Chartered Accountants Vancouver, British Columbia, Canada March 18, 1999
See accompanying notes to consolidated financial statements.
MARINE SHUTTLE OPERATIONS INC. (A development stage company)
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (U.S.Dollars)
See accompanying notes to consolidated financial statements.
MARINE SHUTTLE OPERATIONS INC. (A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S.Dollars)
See accompanying notes to consolidated financial statements.
MARINE SHUTTLE OPERATIONS INC. (A development stage company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (U.S.Dollars)
See accompanying notes to consolidated financial statements.
MARINE SHUTTLE OPERATIONS INC. (A development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000
1. 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 installing, decommissioning, and transporting 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 offshore oil and gas installations. 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 became approximately 81%. In April and June 2000, the Company acquired the remaining outstanding minority interest and the Company now owns all of the outstanding shares of MSOAS. See Note 8. Unless the context otherwise requires, the term "Company" hereinafter includes Marine Shuttle Operations Inc. and its subsidiaries.
2. 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 December 31, 2000 had accumulated losses from operations amounting to $18,933,079 and a working capital deficit of $6,191,824, 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.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with generally accepted accounting principles in the United States and reflect the following significant accounting principles:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and MSOAS. Intercompany transactions and balances have been eliminated.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
MARINE SHUTTLE OPERATIONS INC. (A development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
MARKETING
All marketing and advertising costs are expensed as incurred.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, deposits in banks and highly liquid investments with an original maturity of three months or less.
EQUIPMENT
Equipment is recorded at cost. Depreciation is charged to operations over the estimated useful lives of the assets as follows: Computer equipment............ 30-35% Office equipment.............. 20-30%
The average building period for an Offshore Shuttle is estimated to be 18 months. All direct costs including interest related to the construction of the Offshore Shuttle are capitalized as incurred, and depreciation will commence when the Offshore Shuttle is available for operation.
GOODWILL AND OTHER INTANGIBLES
Goodwill arising from acquisitions and other purchased intangibles are amortized on a straight-line basis over 10 years and 5 years to 10 years, respectively.
Patents are recorded at cost or fair value at date of acquisition less accumulated amortization, which is calculated on a straight-line basis over their estimated lives.
IMPAIRMENT OF LONG-LIVED ASSETS
The carrying value of long-lived assets, principally goodwill and equipment, is reviewed for potential impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. For goodwill and equipment, the determination of recoverability is made based upon the estimated undiscounted future net cash flows of the related assets.
OPERATING REVENUE RECOGNITION
As discussed in Note 1, the Company is in its development stage and therefore has no significant operating revenue. However, if and when the operations for installing, decommissioning or transporting offshore oil or gas installations begin, the Company will recognize revenue based on contractual terms as services are performed. Operating revenue recognized in 2000, 1999 and 1998 pertains to study work performed on behalf of clients and was recognized as the work was performed.
MARINE SHUTTLE OPERATIONS INC. (A development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
STOCK-BASED COMPENSATION
In accordance with the provisions of the Financial Accounting Standards Board's ("FASB") Statement of Accounting Standard ("SFAS") No. 123, Accounting for Stock-Based Compensation, the Company has elected to follow the Accounting Principles Board's Opinion No. 25, Accounting for Stock Issued to Employees and the related interpretations (`APB 25") in accounting for its employee stock-based compensation plans. Under APB 25, if the exercise price of employee stock options equals or exceeds the fair value of the underlying stock on the date of grant, no compensation expense is recognized.
FINANCIAL INSTRUMENTS AND RISK CONCENTRATION
The Company estimates that the carrying values of its cash and cash equivalents, current receivables and, payables, and notes payable approximate fair value at December 31, 2000 and 1999 due to the short-term maturity of the balances. Financial instruments which potentially subject the Company to concentration of credit risk are primarily cash and cash equivalents. It is the Company's practice to place its cash and cash equivalents in time deposits at commercial banks with high credit ratings. In foreign locations, local financial institutions are generally utilized for local currency needs. The Company limits the amount of exposure to any one institution and does not believe it is exposed to any significant credit risk.
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is the functional currency of Marine Shuttle Operations Inc. MSOAS uses Norwegian Kroner ("NOK") as its functional currency. Accordingly, MSOAS translate assets and liabilities at current rates of exchange in effect at the balance sheet date. The resulting gains and losses from translation are deferred and recorded as a separate component of comprehensive income (loss) and as a component of shareholders' equity. Revenue and expense for MSOAS is translated using the average exchange rates in effect for the period. Foreign currency exchange gains and losses are recognized in other income (expense) as incurred.
Revenues and expenses are translated at the average exchange rate for the reporting period. Gains and losses arising from translation of financial statements of subsidiaries not reporting in U.S. dollars are deferred and recorded as a separate component of comprehensive income (loss). The exchange rate between the NOK and U.S. dollar at December 31, 2000 was 8.89 NOK to the US dollar.
RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. The adoption of Statement No. 133 on January 1, 2001 will result in no cumulative effect of an accounting change as the Company does not utilize derivatives.
MARINE SHUTTLE OPERATIONS INC. (A development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2000
4. RESTRICTED CASH
Restricted cash includes taxes withheld from employees of the Norwegian subsidiaries of $21,863 and $33,791, for 2000 and 1999, respectively. In 1999 the Company also had rental deposits of $20,687.
5. ACCOUNTS RECEIVABLE
Accounts receivable are recorded at net realizable value. No allowance for doubtful accounts has been provided.
6. OTHER CURRENT ASSETS
December 31, 2000 1999 - ----------------------------------- ------------------- ------------------- Prepaid expenses $ 17,344 $ 35,519 VAT receivable 25,200 30,162 Other current assets 14,260 48,623 ------------------- ------------------- Total other current assets $ 56,804 $114,304 ------------------- -------------------
7. LOSS ON INVESTMENT
On December 31, 1997, the Company entered into a Securities Purchase Agreement ("Agreement") to acquire 100 shares (constituting a 50% interest) of Kaizen Food Corporation ("Kaizen"), a Canadian private company. Pursuant to the Agreement the Company purchased 100 shares of Kaizen for $100,000, and was required to raise $500,000 on or before January 20, 1998 to fund Kaizen's research and development activities. Kaizen repurchased the stock during 1998 for $10,000 in full payment of the repurchase price.
8. ACQUISITIONS
On April 14, 1998, the Company acquired 100% of the issued and outstanding stock of Marine Shuttle Operations AS, a Norwegian company ("MSOAS"), in exchange for 7,600,000 common shares of the Company. 6,840,000 of such shares (the "Trust Shares") are held by a trustee pursuant to the terms of a trust agreement. The Trust Shares cannot be sold prior to the release from the trust. 2,280,000 of the Trust Shares are to be released on each of July 1, 2001, 2002, and 2003. This transaction was accounted for using the purchase method of accounting. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill and is being amortized on a straight-line basis over 10 years. The result of operations of MSOAS have been consolidated from April 14, 1998.
In 1998, the Company acquired 3,291,738 shares of Offshore Shuttle AS ("OSAS"), a Norwegian limited company, representing approximately 68% of the outstanding OSAS capital stock, in exchange for 4,937,607 shares of the Company's common stock. The shares of the Company's common stock that were issued were recorded at a deemed value of $3.00 per share based on the estimated fair value of the net assets acquired from OSAS. This transaction was accounted for using the purchase method. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill and identified intangibles and is being amortized on a straight-line basis over 10 years. The results of operations of OSAS have been consolidated from December 31, 1998.
In September 1999, OSAS merged into MSOAS. As a result, the Company's ownership in MSOAS became approximately 81%, and MSOAS became the holder of the licensing and marketing rights to the Offshore Shuttle. In April and June 2000, the Company acquired the remaining outstanding minority interest in MSOAS and the Company now owns all of the outstanding shares of MSOAS.
MARINE SHUTTLE OPERATIONS INC. (A development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2000
8 ACQUISITIONS (continued)
The selected pro forma consolidated financial information for the Company set forth below gives effect to the acquisitions of the shares of MSOAS and OSAS, and presents the results of operations of the Company for 1997 and 1998, as if the MSOAS and OSAS acquisitions were made effective May 23, 1997.
9. EQUIPMENT
Cumulative capitalized interest on construction in progress was $543,961 and $226,665, for the years ending December 31, 2000 and 1999 respectively.
10. GOODWILL
11. PATENTS AND AGREEMENTS
12. OTHER CURRENT LIABILITIES
MARINE SHUTTLE OPERATIONS INC. (A development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2000
13. EXTERNAL FINANCING
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 $47,350) 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. MFC agreed to defer the monthly fee obligation from May 1, 2000 through December 1, 2000. In return for granting this deferral, the deferred fees were increased by 10%. This 10% premium may be paid with shares of common stock. Effective April 1, 2001, MFC will no longer receive a monthly fee, but will invoice the Company for services rendered at the request of the Company.
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, and was further amended as of December 31, 2000. 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 June 30, 2001, except that if the Company raises, in the aggregate, in excess of $5,000,000 from equity or long term debt financings after January 1, 2000, then the loan shall be due to the extent of 25% of such excess. As of December 31, 2000, $3,875,000 had been advanced under the loan agreement, and $2,550,000 was outstanding under the 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 $450,000) to finance specific tasks within the Offshore Shuttle project. As of December 31, 2000, NOK 2,358,617 (approximately $265,300) had been advanced under the loan agreement. The principal is repayable two years after disbursement, over five years in semi-annually installments, each in the amount of NOK 400,000.
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. The Company has deferred debt issue costs related to the financing.
In February 2000, the Company entered into a loan agreement with MFC Merchant Bank S.A pursuant to which MFC agreed to lend an aggregate of up to $2,000,000, provided that advances shall not exceed $350,000 in any single month. Any monies advanced under this 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 December 31, 2000, $900,000 was outstanding under this agreement. MFC has agreed to extend the maturity date of the $900,000 loan to June 30, 2001.
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.
MARINE SHUTTLE OPERATIONS INC. (A development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2000
13. EXTERNAL FINANCING (continued)
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 Mr. Timm into shares of 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. In January 2001, the $1,450,000 that had been advanced under the loan agreement plus $42,396 in interest thereon was converted into shares of the Company's common stock at $0.40 per share.
In November, 2000, the Company retained Frost & Partner GbR ("F&P") to help arrange a $20 million to $40 million financing for the Company. Under the terms of the agreement, F&P received $15,000 upon being retained, and will receive up to an additional $30,000 in connection with their due diligence and the preparation of presentation documents. In addition, F&P will receive a success fee equal to two percent of the capital raised during the term of the agreement or during the six month period thereafter (or 1% if the money is raised other than through F&P's efforts). The agreement expires March 31, 2001.
In December 2000, the Company consummated a private placement of 475,000 shares of common stock for gross proceeds of $190,000.
14. COMMITMENTS
The Company had rental expenses for office lease of $127,717 and $212,167 for 2000 and 1999, respectively.
MSOAS leases office space in Sandnes, Norway pursuant to a lease agreement with RC Group ASA. The lease agreement provides for an average annual rent of NOK 435,852 (approximately $49,027), and expires in 2003. Sverre Hanssen, the Chairman of MSOAS, is the President and the principal shareholder of RC Group ASA.
15. RELATED PARTY TRANSACTIONS
MSOAS is a party to a personnel services agreement with RC Consultants AS ("RCC"), and leases office space from RC Group ASA. RCC is wholly owned subsidiary of RC Group ASA. The Chairman of RCC is also the Chairman of MSOAS and the President and principal shareholder of RC Group ASA. The Company paid approximately $539,963, $2,093,701 and $532,200 in 2000, 1999 and 1998, respectively, to RCC for services under the personnel services agreement. Compensation for services rendered under such agreement is to be based on normal trade terms. The Company paid a total of approximately $677,592, $2,336,915 and $587,995, in 2000, 1999 and 1998, respectively, to companies within the RC Group.
MSOAS is a party to a cooperation agreement with Schuller Industrieentsorgung AG ("Schuller") pursuant to which Schuller shall provide waste management, onshore dismantling, oil pollution prevention, and cleanup services. The Company paid approximately $69,146, $193,309 and $127,217 in 2000, 1999 and 1998, respectively, to Schuller for marketing research and other services rendered. The President and a director of the Company are members of the supervisory board of Schuller. The President also is a shareholder of Schuller.
MSOAS has entered into an agreement with Thyssen Krupp Stahlunion GmbH ("TKSU") with respect to marketing and procurement services. The Company paid approximately $171,615, $224,217 and $65,126 in 2000,
MARINE SHUTTLE OPERATIONS INC. (A development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2000
15. RELATED PARTY TRANSACTIONS (continued)
1999 and 1998, respectively, to TKSU under such agreement. A director of the Company is an officer and the head of the Pipes, Offshore, Special Products Department of TKSU.
During the years ended December 31, 2000, 1999 and 1998, the Company paid approximately $1,606, $23,313 and $103,894, respectively, to a law firm, a member of which is a director of the Company.
Under a consultancy agreement, the Company paid remuneration of approximately $51,069, $120,350 and $127,265 in 2000, 1999 and 1998, respectively, to a shareholder of the Company and a former Board member of OSAS.
On March 31, 1998, MSOAS entered into an agreement with a former member of the Board of OSAS and a former Managing Director of OSAS regarding the exclusive transfer of the intellectual property rights relating to the Offshore Shuttle concept (the "Rights"). The agreement provides that if MSOAS for any reason whatsoever should cease to continue in an active manner its activities related to the concept, the Rights could be transferred back to them against certain compensation. In the event that MSOAS wishes to transfer the rights to a third party, the two individuals shall have the right of first refusal with respect to such transfer.
An addendum to the intellectual property agreement was signed in March, 2000 which provides that, subject to the fulfillment of certain conditions, the two individuals shall waive and relinquish the right of first refusal and any and all rights to have the Rights transferred back to them. The conditions are related to the Company achieving a written confirmation for a financing for the full and complete design and fabrication of the first Offshore Shuttle, and the Company entering into such contracts as are required for the design, construction and complete fabrication of the first Offshore Shuttle. In consideration of the waiver of the Rights, the Company shall grant to each of the two individuals warrants to purchase 125,000 shares of common stock of the Company exercisable at $1 per share. Such warrants shall be granted only upon satisfaction of the above mentioned conditions.
In June 2000, the Company sold 571,429 shares to Sylke Timm for gross proceeds of $400,000. Sylke Timm is the wife of Holger Timm, and Holger Timm is a principal stockholder of the Company.
In July 2000, the Company entered into a loan agreement with Mr. Holger Timm pursuant to which Mr. Timm agreed to lend us 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 Mr. Timm into shares of our 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. In January 2001, the $1,450,000 that had been advanced under the loan agreement plus $42,396 in interest accrued thereon was converted into shares of the Company's common stock at $0.40 per share.
Also in January 2001, the Company sold 1,000,000 shares of common stock to Holger Timm for gross proceeds of $200,000.
In February and March 2001, the Company sold to Holger Timm 2,000,000 shares and warrants to purchase 2,000,000 shares exercisable at $0.10 per share for aggregate proceeds of $202,000. The warrants are exercisable until July 1, 2001. In February 2001, the Company also sold to Intervest AS 1,000,000 shares and warrants to purchase 1,000,000 shares exercisable at $0.10 per share for aggregate proceeds of $101,000. The warrants are exercisable until July 1, 2001. Sverre Hansen, the Chairman of the Board of Directors of MSOAS, is a principal
MARINE SHUTTLE OPERATIONS INC. (A development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2000
15. RELATED PARTY TRANSACTIONS (continued)
stockholder of Intervest AS.
Also in February and March 2001, the Company sold a total of 650,000 shares for gross proceeds of $65,000 to various officers, employees and directors of the Company.
16. 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 installments for a period of 10 consecutive years subject to the fulfillment of certain conditions.
17. STOCK OPTION PLAN
The Company has established a Stock Option Plan for employees, officers, directors, consultants, and advisors. Options granted under the Stock Option Plan may be either incentive stock option or non-qualified stock options. The Company has reserved 2,000,000 common shares for issuance under the Stock Option Plan. Options granted for issuance under the Stock Option Plan generally are not transferable, and the exercise price of incentive stock options must be at least equal to 100% (110% in the case of optionees who own more than 10% of the total combined voting power of all classes of stock of the Company) of the fair market value of the common shares on the date of grant. In February 2000, a Vice President and Director of the Company was granted incentive stock options to purchase 100,000 shares of common stock at the price of $1.00 per share (the fair market value of the common stock on the date of grant). The options vested upon issuance and the calculated value of the options using the Black Scholes method under FAS 123 is immaterial. In July 2000, a consultant of the Company was granted non-qualified stock options to purchase 10,000 shares of common stock at the price of $1.00 per share (a premium over the current fair market value of the common stock on the date of grant). The options vested upon issuance and the related value of the options was immaterial and was expensed. As of December 31, 2000, options to purchase 110,000 had been granted and were outstanding under the Stock Option Plan.
The Stock Option Plan may be administered by the Board of Directors or a committee of the Board (the "Committee"). The Board of Directors or the Committee, as the case may be, has the power to determine the terms of any options granted thereunder, including the exercise price, the number of shares subject to the option, and the exercisability thereof. The term of any option granted under the Stock Option Plan may not exceed ten years. The specific terms of each option grant shall be approved by the Board of Directors or the Committee.
MARINE SHUTTLE OPERATIONS INC. (A development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2000
17. STOCK OPTION PLAN (continued)
In 1997, OSAS adopted a stock option plan which provides for the granting of incentive options to employees and board members to purchase an aggregate of 220,000 shares of OSAS common stock at prices and terms to be decided by the Board of Directors. Options granted under the stock option plan may be exercisable for a period of up to three years from the date of grant. All options granted under this plan have exercise prices equal to the fair market value of the stock on the date of grant and increasing at a rate of one percent per month. Upon the merger in 1999 with MSOAS, the OSAS stock option plan was adopted by MSOAS. Options to purchase 30,000 shares of common stock in MSOAS have been issued to employees and are outstanding.
The activities in relation to the stock incentive plan are summarized as follows:
Number of Shares ------------------- Granted in and outstanding at December 31, 1997 135,000 Granted in 1998 45,000 Exercised in 1998 15,000 Cancelled in 1998 15,000 ------------------- Outstanding at December 31, 1999 and 1998 150,000 ------------------- Expired in 2000 120,000 ------------------- Outstanding at December 31, 2000 30,000 ------------------- No stock options were granted or exercised under this plan during 2000 or 1999.
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.
18. INCOME TAXES
The Company has no provision for income taxes for the year ended December 31, 2000 because the Company generated a loss for the year which may not be currently benefited. The Company's net operating loss carry-forwards for U.S. and Norwegian tax purposes as of December 31, 2000, 1999 and 1998 were approximately as follows:
To the extent not used, the operating loss carry forwards will 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 Company's net deferred tax assets.
MARINE SHUTTLE OPERATIONS INC. (A development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2000
18. INCOME TAXES (continued)
The difference between the Company's effective tax rate and the U.S. statutory rate for income taxes was as follows:
Significant components of the Company's deferred tax assets and liabilities were approximately as follows:
19. SEGMENT DISCLOSURES
The Company is currently marketing and making preparations for the construction of its first Offshore Shuttle. In accordance with SFAS No. 131 the Company considers its business to consist of one reportable operating segment. All of the Company's physical assets are located in Norway.
20. SUBSEQUENT EVENTS
In January 2001, the $1,450,000 advanced under the loan agreement entered into in July 2000 with Mr. H. Timm and $42,396 in interest thereon was converted into 3,730,990 shares of the Company's common stock. Also in January 2001, the Company sold 1,000,000 shares of common stock for gross proceeds of $200,000.
In January 2001, three employees of the Company's subsidiary were each granted stock options to purchase 100,000 shares of common stock at the price of $0.50 per share (a premium over the current fair market price).
In February and March 2001, the Company sold 5,000,000 shares and warrants to purchase 5,000,000 shares exercisable at $0.10 per share for gross proceeds of $505,000. The warrants are exercisable until July 1, 2001. Also in February and March 2001, the Company sold 650,000 shares for gross proceeds of $65,000.
MARINE SHUTTLE OPERATIONS INC. (A development stage company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2000
21. COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On May 24, 1999 and June 24, 1999, the Company filed Current Reports on Form 8-K reporting a change in the Company's certifying accountants.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of the executive officers and directors of the Company:
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(1) Member of the Audit Committee
Franz Eder has been the Company's President and Chairman of the Board since April 14, 1998, and a director of MSOAS since December, 1997. He has been Chairman of the Supervisory Board of Schuller Industrieentsorgung AG since May, 1998, and served as the General Manager of Schuller from July, 1997 through May, 1998. From 1992 to 1997, Mr. Eder was General Manager at CETEM Industrieentsorgung und Wiederverwertung GmbH, a German company engaged in waste management. From 1990 to 1991, he was a consultant to several companies, and from 1989 to 1990, he was the head of the trade finance department at AMRO Handelsbank AG in Munich, Germany. Mr. Eder received a Masters of Business degree from Business University of Vienna in 1985.
Iqbal Akram has been a director of the Company since April 14, 1998. He has been Vice President of the Company since February 19, 1998 and served as a consultant to the Company for a period of approximately two weeks prior thereto. On July 31, 2000, Mr. Akram became Chief Financial Officer and Treasurer of the Company. Since 1992, he has been the Managing Director and a partner in Peregrine Consultants, S.A., a Luxembourg management consulting firm. He also has been the sole principal of Peregrine Consultants, United Kingdom since 1998. From February 1996 through March 1998, he served as a Group Finance and Corporate Director of the House of Habib, a Pakistani industrial, manufacturing, and financial services group. In 1995, he served as Group Financial Advisor to the Southern Electric Group in the implementation of a power project in Pakistan. He is currently a Fellow of the Institute of Directors, the Institute of Cost and Management Accountants, and the Institutes of Chartered Accountants in England, Canada, and Pakistan. He also is a director of Lombard Financial Investments S.A., an investment company located in Luxembourg, and Elan Asset Management Ltd., a SFA regulated asset management company in UK. He received a Bachelor of Science Honor degree from the London School of Economics and Political Science in 1965.
Stephen Adshead has been Vice President and a director of the Company since February 8, 2000, has been Secretary of the Company since July 31, 2000, and has been Managing Director and a member of the Board of MSOAS since December, 1997. Since February, 1998, he has been the owner, an employee and a director of Mancorp AS, a consulting company. He has 26 years of experience in the oil, gas and shipbuilding industry managing large projects. From 1991 to 1998, Mr. Adshead worked for Phillips Petroleum Company Norway, where he was a member of the project management team assigned to the Ekofisk II project from 1994 to 1998. Mr. Adshead received his Honours Degree in Engineering from Edinburgh University in 1972.
Jurgen Ternieden has been a director of the Company since April 14, 1998, Chairman of the Board of Offshore Shuttle AS from March 1998 until its merger with MSOAS in September 1999, and an officer and the head of the Pipes, Offshore, Special Products Department of Thyssen Krupp Stahlunion GmbH since 1991. From 1981 to 1990, he was a senior sales manager and head of the Pipes Department at TKSU. Mr. Ternieden received his intermediate high school certificate from Realschule Muelheim in 1959.
Hubert Besner has been a director of the Company since May 6, 1998. Since January 2001, he has been partner in the international law firm Brobeck Hale and Dorr. From 1994 to 2000, he has been a partner in the law firm of Besner Kreifels Weber, Munich, Germany. From 1992 to 1994, he was the head of the legal department of Schneider AG, a German real estate development company. He currently is the head of the Supervisory Boards of Cybernet Internet-Dienstleistungen AG and PIPECAD Integrierte Softwaresysteme AG, a director of Cybernet Internet Services International, Inc., and a member of the Supervisory Boards of Schuller, Vianet Telekommunikations AG, Typhoon Networks AG, and IPO Beteiligungen. Dr. Besner received his First State Exam in Law from Ludwig-Maximilians-Universitat in 1986, and his doctorate magna cum laude from Ludwig-Maximilians-Universitat in 1988.
No family relationship exists between any director or executive officer and any other director or executive officer.
Currently, the Company does not compensate its directors for their services in such capacity.
Employment Agreements
On June 1, 1998, the Company entered into a two-year employment agreement with Franz Eder to serve as President and Chairman of the Board. On April 10, 2000, the agreement was extended to June 1, 2001. The agreement provides that Mr. Eder shall devote only so much (but not less than 75%) of his professional and business time, attention, and energies to his duties and responsibilities as is reasonable to insure the Company's proper conduct, and shall receive a salary of $100,000 per annum.
Effective April 14, 1998, the Company entered into a two-year employment agreement with Iqbal Akram to serve as Vice President. On April 10, 2000, the agreement was extended to June 30, 2001. The agreement provides that Mr. Akram shall devote at least 50% of his professional and business time to the Company and shall receive a salary of $60,000 per annum.
Effective February 8, 2000, the Company entered into a two-year loan out agreement with Mancorp AS for the services of Stephen Adshead. The agreement provides that Mancorp AS shall loan out the services of Mr. Adshead to the Company, and Mr. Adshead shall devote at least 50% of his professional and business time to the Company. In consideration thereof, Mancorp AS shall receive an annual fee of $60,000. Mr. Adshead also is paid at a daily rate of NOK6,000 (approximately $675) for serving as Managing Director of MSOAS.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information with respect to the compensation paid by the Company to its Chief Executive Officer and to each of the Company's other executive officer who received salary and bonus payments in excess of $100,000 during the year ended December 31, 2000.
Compensation Committee Interlocks and Insider Participation
Compensation decisions are made by Hubert Besner and Jurgen Ternieden, the non-employee directors of the Company. Jurgen Ternieden is an officer and the head of the Pipes, Offshore, Special Products Department of Thyssen Krupp Stahlunion GmbH ("TKSU"). During 2000, the Company paid approximately $171,615 to TKSU. During 2000, Hubert Besner was a member of the law firm Besner, Kreifels, Weber. During 2000, the Company paid approximately $1,606 to Besner, Kreifels, Weber.
No interlocking relationship exists between any member of the Company's board of directors and any member of the board of directors or compensation committee of any other company.
Section 16(a) Beneficial Ownership and Reporting Compliance
The Company's executive officers, directors, and beneficial owners of more than 10% of any class of its equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are required under the Exchange Act to file reports of ownership and changes in beneficial ownership of the Company's equity securities with the Securities and Exchange Commission. Copies of those reports must also be furnished to the Company. Based solely on a review of the copies of reports furnished to the Company pursuant to the Exchange Act, the Company believes that during the year ended December 31, 2000, all filing requirements applicable to the reporting persons were complied with.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, certain information as of March 23, 2001, regarding beneficial ownership of the common stock by (i) each stockholder known by the Company to be the beneficial owner of more than five percent (5%) of the outstanding shares of Common Stock; (ii) each director of the Company; (iii) each executive officer of the Company identified in the Summary Compensation Table above; and (iv) all of the Company's executive officers and directors as a group.
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*Less than 1% (1) 6,840,000 of such shares are being held by a trustee pursuant to the terms of a pooling trust agreement. Such shares may not be disposed of by Mr. Eder until they are released to him by the trustee. Mr. Eder will receive 2,280,000 of such shares on July 1st of each of the three years beginning in 2001. The trustee shall seek instructions from Mr. Eder before taking any action as a stockholder with respect to any of the shares held in trust. (2) Includes 100,000 shares underlying currently exercisable stock options. (3) Includes 2,000,000 shares underlying currently exercisable warrants, but does not include 571,429 shares owned by his wife. (4) Based on the Schedule 13G, dated February 11, 1999. Does not include 800,000 shares of common stock owned by Berliner Effektengesellschaft AG ("BEAG") a 40% shareholder of BEG Berliner Effektenbeteiligungsgesellschaft AG. (5) Such shares, as well as the 800,000 shares of common stock owned by BEAG, are being held by a pooling trustee pursuant to the terms of a pooling trust agreement and will not be released until August 3, 2001. During such time, the trustee shall seek instructions from BEG Berliner Effektenbeteilgungsgesellschaft AG and BEAG, respectively, before taking any action as a stockholder with respect to any of such shares.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is a party to a cooperation agreement with Schuller Industrieentsorgung AG ("Schuller") pursuant to which Schuller shall provide waste management, onshore dismantling, and oil pollution prevention and cleanup services. The Company paid approximately $69,146 in 2000 to Schuller for marketing research and other services rendered. Franz Eder and Hubert Besner are members of the supervisory board of Schuller. Mr. Eder also is a shareholder of Schuller.
The Company is a party to an agreement with Thyssen Krupp Stahlunion GmbH ("TKSU") with respect to marketing and procurement services. The Company paid approximately $171,615 in 2000 to TKSU under such agreement. Jurgen Ternieden, a director of the Company, is an officer and the head of the Pipes, Offshore, Special Products Department of TKSU.
During 2000, the Company paid approximately $1,606 to the law firm Besner, Kreifels, Weber. During 2000, Hubert Besner, a director of the Company, was a member of Besner, Kreifels, Weber.
During 2000, the Company paid approximately $539,963 to RC Consultants AS for engineering services. Sverre Hanssen served as the Chairman of the Board of RC Consultants AS until May 1999, and is the Chairman of the Board of Directors of MSOAS. In addition, MSOAS leases office space in Sandnes, Norway pursuant to a agreement with RC Group ASA. The lease agreement provides for an average annual rent of NOK 435,852 (approximately $49,027), and expires in 2003. RC Group ASA was the sole shareholder of RC Consultants AS until July 2000, and Sverre Hanssen is the Chairman and the principal shareholder of RC Group ASA.
In June 2000, the Company acquired an aggregate of 1,186,283 shares of common stock of MSOAS in exchange for an aggregate of 1,186,283 shares of the Company's common stock. As part of that transaction, Jurgen Ternieden, a director of the Company, and Stephen Adshead, an officer and director of the Company, each received 2,205 shares of the Company's common stock in exchange for their shares in MSOAS. In addition, Intervest AS received 16,500 shares of the Company's common stock in exchange for its shares in MSOAS. Sverre Hansen, the Chairman of the Board of Directors of MSOAS, is a principal stockholder of Intervest AS.
In June 2000, the Company sold 571,429 shares to Sylke Timm for gross proceeds of $400,000. Sylke Timm is the wife of Holger Timm, and Holger Timm is a principal stockholder of the Company. In addition, Mr. Timm is a stockholder and an officer Berliner Effektengesellschaft AG ("BEAG") and an officer of BEG Berliner Effektenbeteiligungsgesellschaft AG. BEAG is a stockholder of the Company and a 40% shareholder of BEG Effektenbeteiligungsgesellschaft AG, a principal stockholder of the Company.
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 Mr. Timm into shares of 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. In January 2001, the $1,450,000 that had been advanced under the loan agreement plus $42,396 in interest thereon was converted into shares of the Company's common stock at $0.40 per share.
In January 2001, the Company sold 1,000,000 shares of common stock to Holger Timm for gross proceeds of $200,000. In February and March 2001, the Company sold to Holger Timm 2,000,000 shares and warrants to purchase 2,000,000 shares exercisable at $0.10 per share for an aggregate purchase price of $202,000. The warrants are exercisable until July 1, 2001.
In February 2001, the Company sold to Intervest AS 1,000,000 shares and warrants to purchase 1,000,000 shares exercisable at $0.10 per share for an aggregate purchase price of $101,000. The warrants are exercisable until July 1, 2001. Sverre Hansen, the Chairman of the Board of Directors of MSOAS, is a principal stockholder of Intervest AS.
Also in February and March 2001, the Company sold a total of 350,000 shares for gross proceeds of $35,000 to various officers and directors of the Company as follows: 100,000 of the shares were sold to each of Stephen Adshead, a Vice President and a director of the Company, Jurgen Ternieden, a director of the Company, and Franz Eder, President and a director of the Company, and 50,000 shares were sold to Iqbal Akram, a Vice President and a director of the Company.
The Company believes that the transactions set forth above were made on terms no less favorable to the Company than could have been obtained from unaffiliated third parties.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements (included in Part II, Item 8)
Page ------- Financial Statements of Marine Shuttle Operations Inc.: Reports of Independent Auditors........................................ 27 Consolidated Balance Sheets......................................... 29 Consolidated Statements of Loss and Comprehensive Loss.............. 30 Consolidated Statements of Cash Flows............................... 31 Consolidated Statements of Shareholders' Equity..................... 32 Notes to Consolidated Financial Statements.......................... 33
3. Exhibits included herein:
See Exhibit index below for exhibits filed as part of this Form 10-K.
(b) Reports on Form 8-K. The Company filed a Form 8-K, dated October 13, 2000, disclosing an information letter that had been disseminated to its shareholders.
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.
MARINE SHUTTLE OPERATIONS INC.
/s/ Franz Eder -------------- Date: March 28, 2001 Franz Eder, Chairman of the Board and President (principal executive officer)
/s/ Iqbal Akram --------------- Iqbal Akram, Chief Financial Officer (principal financial and accounting officer)
/s/ Kirsten O. Lima ------------------- Kirsten O. Lima, Finance Director MSOAS
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
INDEX TO EXHIBITS