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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K


              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                     FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR


             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                           OF THE EXCHANGE ACT OF 1934

                        COMMISSION FILE NUMBER 333-38157

                             FIRST WAVE MARINE, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


           Delaware                                     76-0461352
(STATE OR OTHER JURISDICTION OF            (I.R.S. EMPLOYER IDENTIFICATION NO.)
 INCORPORATION OR ORGANIZATION)

             2102 Broadway
            Houston, Texas                                 77012
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                 (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 847-4600

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x]   No

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. NOT APPLICABLE

         Number of shares of common stock outstanding as of March 1, 2000:
11,756,955.

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         This report on Form 10-K contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts, included in this Form 10-K, and as
may be made by management, orally or in writing, are forward-looking statements.
Such forward-looking statements are subject to certain risks, uncertainties and
assumptions, including the risks specifically set forth below. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected. The forward-looking statements speak only
as of the date of this report, and we caution you not to place undue reliance on
those statements. We believe that the expectations reflected in such
forward-looking statements are reasonable, but we cannot assure you that such
expectations will prove to be correct.

                                  RISK FACTORS

         An investment in First Wave involves a high degree of risk. You should
carefully consider the risks and uncertainties described below and the other
information in this report. The risks and uncertainties described below are not
the only ones we face. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also impair our business.

WE HAVE A SIGNIFICANT AMOUNT OF DEBT.

         We have significant indebtedness and will require substantial cash flow
to meet our debt service requirements. At December 31, 1999, our total
indebtedness was approximately $105 million. The high level of indebtedness will
affect our future operations in several ways, including the following:

         o     A substantial amount of our cash flow from operations is
               dedicated to the payment of interest on our indebtedness and is
               not available for other purposes.

         o     We may be more vulnerable to general adverse economic and
               industry conditions than some of our competitors who have less
               debt, and therefore, we may be at a competitive disadvantage.

         o     Covenants in our debt obligations require us to meet certain
               financial tests and limit our ability to borrow additional funds
               or to sell assets. These restrictions reduce our flexibility in
               planning for, and reacting to, changes in our business and our
               industry.

         o     We may experience difficulties in obtaining additional financing
               in the future for working capital, capital expenditures,
               acquisitions or general corporate purposes.

         Our ability to meet our debt obligations will depend on our future
performance, which is subject to general economic and business factors beyond
our control. To the extent that we are unable to repay our indebtedness as it
becomes due or at maturity with cash on hand or from other sources, we will need
to refinance our debt, sell assets or repay the debt with the proceeds of an
equity offering. There is no assurance that additional indebtedness or equity
financing will be available to us in the future for the refinancing or repayment
of existing indebtedness, nor can we give any assurance as to the timing of any
asset sales or the proceeds that could be realized by us from any such asset
sale. In addition, our debt instruments contain covenants that restrict our
ability to sell assets and freely use the proceeds from sale.

WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND OUR OPERATIONS WHEN
NEEDED.

         We believe that our cash reserves, cash flows and bank line of credit
should be adequate to fund our operations through the balance of the year. If
our capital requirements or revenue vary materially from our current plans
or if unforeseen circumstances occur, we may require additional financing
sooner than we anticipate. This financing may not be available on a timely
basis, in sufficient amounts, or on terms acceptable to us. Restrictive
covenants in the indenture governing our Senior Notes or in other loan documents
may limit our ability to obtain additional debt financing.


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         If we cannot obtain adequate funds on acceptable terms, then we may not
be able to:

         o     fund our capital requirements;

         o     take advantage of strategic opportunities;

         o     develop or enhance our services; or

         o     respond to competitive pressures.

         Any of these failures could have a material adverse effect on our
business, operating results and financial condition.

WE HAVE INCURRED LOSSES; WE EXPECT THE LOSSES TO CONTINUE IN THE NEAR TERM; AND
WE MAY NOT ACHIEVE OR SUSTAIN PROFITABILITY.

         We incurred a net loss in each quarter of 1999 and in the first and
fourth quarters of 1998. We expect to continue to incur losses in 2000. If our
revenue does not increase substantially, we may not be able to return to
profitability. Even if we do achieve profitability, we may not sustain or
increase profitability on a quarterly or annual basis.

OUR BUSINESS IS CLOSELY RELATED TO OFFSHORE SUPPORT VESSELS AND OFFSHORE
DRILLING MARKETS AND DEPENDS HEAVILY ON THE OIL AND GAS INDUSTRY.

         Repair services to offshore drilling rigs and mobile production units
accounted for a significant portion of our revenues in 1999, and we expect to
derive a significant portion of our revenues in 2000 from this sector. Customer
demand for repair and conversion services to offshore support vessels and
offshore drilling rigs depends on, among other things, the levels of activity in
offshore oil and gas exploration, development and production, particularly in
the Gulf of Mexico where many of the offshore drilling rigs and support vessels
serviced by us operate. The level of activity in offshore oil and gas
exploration, development and production is affected by factors such as:

         o     prevailing oil and gas prices;

         o     expectations about future prices;

         o     the cost of exploring for, producing and delivering oil and gas;

         o     the sale and expiration dates of available offshore leases;

         o     the rate of discovery of new oil and gas reserves in offshore
               areas;

         o     local and international political and economic conditions;

         o     technological advances; and

         o     the ability of oil and gas companies to generate or otherwise
               obtain funds for capital expenditures.

         We believe that the demand for offshore support vessels and offshore
drilling rigs, and the repair and maintenance of such vessels, will increase.
However, we cannot predict future levels of activity in offshore oil and gas
exploration, development and production.

OUR PROFITABILITY DEPENDS UPON OUR ABILITY TO PROPERLY ESTIMATE COSTS AND BID
JOBS.

         More than half of our commercial contracts are currently performed on a
fixed-priced basis, which requires us to absorb any cost overruns relating to
the contract. We try to estimate possible increases in labor and material costs
and include the estimated increases in our original fixed-price bid. However, we
may not be able to accurately estimate such increases, as we are not able to
predict certain changes in job conditions and variations in labor and material
costs over the term of the contract. Therefore, the revenue, cost and gross
profit realized on a fixed-price contract will often vary from the estimated
amounts. These variations and the risks generally inherent in the shipbuilding
and repair industry may result in our gross profits being different from
original estimates and may result in reduced profitability or losses on
projects. Depending on the size of the project, these variations from estimated
contract performance could have a significant effect on our operating results
within any given period.

         In addition, our contract revenues related to fixed-priced contracts
are recognized on a percentage of completion basis. Accordingly, revenue and
cost estimates are reviewed periodically as the work progresses. Adjustments
proportionate to the percentage of completion are reflected in income in the
period when such estimates are revised. To the extent that these adjustments
result in a loss or a reduction or elimination of previously reported profits
with respect to a project, we would recognize a charge against current earnings,
which could be material and have a material adverse effect on the Company's
financial statements.


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WE MAY NOT BE ABLE TO HIRE TRAINED SHIPYARD WORKERS.

         Shipyards located in certain areas of the U.S. Gulf Coast have in the
past experienced shortages of skilled shipyard labor. These labor shortages
occurred as a result of increases in demand for shipyard services, offshore
drilling activities, the construction of offshore facilities and offshore field
service personnel. The labor shortages have resulted in increased costs of labor
and limitations on production capacity for certain shipyards. Although there
have been no labor shortages in 1999 and the earlier shortages did not
materially impact us, we may experience shortages at our shipyards in the
future. Labor shortages could increase our cost of labor, limit our production
capacity, and have a material adverse effect on our business, financial
condition and results of operations.

OUR BUSINESS DEPENDS UPON A FEW SIGNIFICANT CUSTOMERS.

         Due to recent consolidation of the inland barge industry, a large
portion of our revenue has been generated by a relatively small number of
customers, although not necessarily the same customers from year to year. During
1999, Canal Barge Company accounted for 13.5% of our revenues, Diamond Offshore
(U.S.A.) Inc. accounted for 10.6% of our revenues, and our five largest
customers accounted for 45.9% of our revenues. Because the level of services
that we may provide to any particular customer depends on that customer's needs
for repairs in a particular year, customers that account for a significant
portion of revenue in one fiscal year may represent an immaterial portion of
revenue in subsequent years. However, the loss of a significant customer for any
reason, including a sustained decline in that customer's capital expenditure
budget or competitive factors, could result in a substantial loss of revenue and
have a material adverse effect on our operating performance.

WE FACE INTENSE COMPETITION THAT COULD ADVERSELY AFFECT OUR BUSINESS.

         The shipbuilding and repair industry is a highly competitive industry.
In recent years, the U.S. shipbuilding and repair industry has been
characterized generally by substantial excess capacity, which is partly due to
the following factors:

         o     U.S. Navy shipbuilding spending has declined significantly.

         o     U.S. shipbuilders have difficulty in competing successfully for
               commercial projects against foreign shipyards, many of which are
               heavily subsidized by their governments.

         These factors have caused competition by U.S. shipyards for domestic
commercial projects to increase significantly. The increased competition has
resulted in substantial downward pressure on pricing and profit margins.

         Contracts for the construction and conversion of vessels are often
awarded on a competitive bid basis. A substantial portion of our repair work is
awarded on a competitive bid basis. Although customers may consider the
availability and technical capabilities of equipment and personnel, efficiency,
condition of equipment, safety record and reputation, we believe that price is a
primary factor in determining which qualified shipyard is awarded a job.

         We currently compete for a range of domestic commercial shipyard
projects with approximately 10 to 20 principal U.S. shipyards, but usually with
only 2 to 4 shipyards for any given job. The number and identity of competitors
on particular projects vary greatly, depending on the type of service performed,
the type of vessel and size of project. Additional competition, competitive
bidding and downward pressures on profits and pricing margins could have a
material adverse effect on our business, financial condition and results of
operations.

OUR BUSINESS INVOLVES OPERATING HAZARDS AND RISKS OF LIABILITY.

         Our business requires us to repair, convert and construct large steel
structures and operate cranes and other heavy machinery. In addition, our marine
rails and drydock vessels could sink, collide with other vessels or structures,
catch fire or cause other marine casualties. These and other operating hazards
can cause personal injury or loss of life, as well as severe damage to or
destruction of property and equipment. We could be required to suspend our
operations or request that others suspend their operations as a result of these
hazards. Third parties may have significant claims against us for damages due to
personal injury, death, property damage, pollution and loss of business. In
addition, our


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facilities could be damaged by hurricanes or flooding, due to our proximity to
open water areas where hurricanes are prevalent.

COMPLIANCE WITH ENVIRONMENTAL LAWS MAY INCREASE OUR COST OF DOING BUSINESS, AND
INCREASED GOVERNMENT REGULATION MAY REQUIRE US TO CHANGE THE WAY WE CONDUCT OUR
BUSINESS.

         We must comply with extensive and changing federal, state and local
laws (including common law) and regulations designed to protect the environment.
We are occasionally involved in administrative and other proceedings under
environmental laws concerning our operations and facilities. We could be liable
for remediation costs or civil or criminal penalties in cases of non-compliance
with environmental laws. Compliance with environmental laws increases our costs
of doing business. Additionally, environmental laws change frequently.
Therefore, we are unable to predict the future costs or other future impact of
environmental laws on our operations. There is no assurance that we will not
incur material civil or criminal liability related to our operations and
properties under environmental laws.

FEDERAL LAW REQUIRING CERTAIN VESSELS TO BE CONSTRUCTED AND REPAIRED ONLY IN
U.S. SHIPYARDS MAY BE RESCINDED OR MODIFIED, RESULTING IN GREATER COMPETITION
FROM FOREIGN SHIPYARDS WHO OPERATE WITH LOWER COSTS THAN WE CAN OPERATE.

         The Merchant Marine Act of 1920 (commonly referred to as the Jones Act)
requires all vessels engaged in coastwise trade (i.e., transporting products
between U.S. ports) to be constructed and repaired in U.S. shipyards, owned and
crewed by U.S. citizens and registered under U.S. law. Many customers elect to
have vessels initially intended for international use constructed and repaired
at U.S. shipyards to preserve the ability to use such vessels in the U.S.
coastwise trade in the future. We believe that a substantial amount of our
revenues result from the sale and repair of vessels capable of engaging in U.S.
coastwise trade. In 1996, proposed legislation was introduced in Congress to
change the Jones Act requirement that only U.S. constructed vessels be allowed
to engage in U.S. coastwise trade. Similar bills seeking to rescind or
substantially modify the Jones Act and eliminate or reduce the competitive
advantages it affords to U.S. shipyards have been introduced in Congress from
time to time and are expected to be introduced in the future. Although
management believes it is unlikely that the Jones Act requirements will be
rescinded or materially modified in the foreseeable future, there is no
assurance that this will not occur. Many foreign shipyards are heavily
subsidized by their governments. There is no assurance that we would be able to
effectively compete with foreign shipyards if they were permitted to construct
vessels for use in the U.S. coastwise trade. The repeal of the Jones Act or any
amendment of the Jones Act that would eliminate or reduce the competitive
advantages provided to U.S. shipyards could have a material adverse effect on
our business, financial condition and results of operations.

CONTROL BY OUR EXECUTIVE OFFICERS AND DIRECTORS MAY LIMIT THE ABILITY OF
STOCKHOLDERS TO INFLUENCE THE OUTCOME OF DIRECTOR ELECTIONS AND OTHER MATTERS
REQUIRING STOCKHOLDER APPROVAL.

         Our executive officers and directors, in the aggregate, beneficially
own approximately 92.4% of the outstanding common stock. In addition, Samuel F.
Eakin, our Chairman of the Board and Chief Executive Officer beneficially owns
approximately 55.3% of the outstanding common stock. Consequently, these
persons, if they were to act together, would have the ability to:

         o     exercise control over our affairs;

         o     elect all directors in the class standing for election in any
               given year; and

         o     control the disposition of any matter submitted to a vote of
               stockholders.

         This concentration of ownership may also have the effect of delaying or
preventing a change of control, which could result in a lower stock price.


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CERTAIN PROVISIONS IN OUR CORPORATE DOCUMENTS AND IN DELAWARE LAW MAY DISCOURAGE
A TAKEOVER.

         Our corporate documents and Delaware law could make it more difficult
for a third party to acquire us, even if a change in control would be beneficial
to our stockholders. Specifically, our corporate documents:

         o     authorize the issuance of "blank check" preferred stock;

         o     divide our board of directors into three classes, the members of
               which serve for three-year terms;

         o     establish advance notice requirements for director nominations
               and stockholder proposals to be considered at annual meetings;

         o     prohibit stockholder action by written consent; and

         o     prohibit stockholders from calling a special meeting of
               stockholders.

        In addition, Delaware law restricts certain mergers and other business
combinations between us and any holder of 15% or more of our common stock. These
and other provisions might hinder, delay or prevent a change in control of us or
of our management. These provisions could also limit the price that investors
might be willing to pay in the future for shares of our common stock.

THERE MAY NOT BE A LIQUID MARKET FOR OUR SECURITIES, AND INVESTORS MAY NOT BE
ABLE TO RECOUP THEIR INVESTMENT.

         The Senior Notes may be resold or otherwise transferred by the holders
(who are not our affiliates) without further compliance with the registration
requirements under the Securities Act. However, the Senior Notes are not listed
on a national securities exchange or quoted on an automated dealer quotation
system. Although certain securities dealers currently make a market in the
Senior Notes, they are not obligated to do so, and any such market-making may be
discontinued at any time without notice. The liquidity of any market for the
Senior Notes depends upon the number of holders, the interest of securities
dealers in making a market, and other factors. Accordingly, there can be no
assurance as to the maintenance or liquidity of any market for the Senior Notes.
If an active trading market for the Senior Notes is not maintained, the market
price and liquidity of the Senior Notes may be adversely affected. If the Senior
Notes are traded, they may trade at a discount from their face value, depending
upon prevailing interest rates, the market for similar securities, our
performance and certain other factors. Notwithstanding the registration of the
Senior Notes, holders who are "affiliates" (as defined under Rule 405 of the
Securities Act) of First Wave may publicly offer for sale or resell the Senior
Notes only in compliance with provisions of Rule 144 under the Securities Act.
Additionally, there is no public market for our common stock.


PART I

ITEMS 1 - 2.      BUSINESS AND PROPERTIES

                                   THE COMPANY

         First Wave Marine, Inc. ("First Wave" or the "Company") is a leading
provider of shipyard services to the inland and offshore barge and boat,
offshore support vessel and offshore drilling industries. The Company offers a
full range of repair, conversion, new construction and related environmental
services. The Company is the largest shipyard operator in the Houston-Galveston
area with six major shipyard facilities.

         The Company was incorporated in Delaware in September 1997. The
Company's predecessor, a Texas corporation, merged into the Company on September
30, 1997. The Company's principal executive offices are located at 2102
Broadway, Houston, Texas 77012, and its telephone number is (713) 847-4600.

         Since it acquired its first facility in December 1993, First Wave has
significantly expanded its operations. The Company's success has been the
product of a focused strategy to build a high quality, dedicated workforce,
provide a high level of customer service, diversify the markets it serves and
optimize the mix of its services to maximize capacity and utilization.


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BACKGROUND

         Brady Island. The Company's Brady Island facility was originally
acquired through a 1993 lease of the facilities and equipment from Newpark
Resources, Inc., an unrelated corporation. In August 1996, the Company purchased
the Brady Island leased assets from Newpark Resources. The Brady Island shipyard
provides repair, conversions, new construction and related environmental
services for the inland and offshore barge and boat markets, as well as
conversions and repairs for the offshore support vessel industry. Additionally,
the Brady Island shipyard, provides non-hazardous wastewater treatment on a fee
basis. The Brady Island facility provides accounting, training, sales,
estimating, risk management and general administrative functions to the Greens
Bayou and Pasadena shipyards. The interchangeability of the labor force among
the Company's facilities, as well as the ability of the Greens Bayou and
Pasadena barge customers to use Brady Island's environmental services, has
resulted in economic benefits for the Company and its customers.

         Greens Bayou. In August 1997, the Company acquired the Greens Bayou
facility through a capital lease of certain repair and new construction assets
of Platzer Shipyard, Inc., a subsidiary of Trinity Industries, Inc. This
facility is specifically designed to service the barge industry with eight
haul-up facilities, including a major seven position rail transfer system. The
Company believes it efficiently operates this Houston area shipyard by using the
Brady Island facility to provide most of its administrative services.

         Pasadena and West Pelican Island Facilities. In February 1998, the
Company acquired all of the outstanding capital stock of John Bludworth Marine,
Inc. The acquisition provided the Company with the Newpark
Shipbuilding--Pasadena facility in Pasadena, Texas, which is near the Company's
other Houston shipyards, and the West Pelican Island facility which is adjacent
to the Company's East Pelican Island facility in Galveston, Texas. Newpark
Shipbuilding-Pasadena is an established regional shipbuilder focusing on inland
barge repair and inland boat construction and repair, as well as offshore
support vessel repair. To increase efficiencies, the Company operates this
Houston area shipyard by using the Brady Island facility to provide most of its
administrative services. As part of this acquisition, the Company gained
significant drydock capacity within its area of operation and diversified its
mix of services to include expanded capabilities in the inland boat and offshore
support vessel segment of the marine industry. The West Pelican Island facility
now forms part of the Company's Galveston operations. The West Pelican Island
facility uses the East Pelican Island facility to provide most of its
administrative services, making it an efficient low cost operation. The West
Pelican facility has over two acres of covered fabrication area enabling the
Company to provide 24-hour all weather shipyard and fabrication services.

         East Pelican Island Facility. After acquiring PMB Engineering Inc.'s
lease of the 110-acre East Pelican Island facility in Galveston, Texas, the
Company signed an amendment to such lease with Galveston Wharves, providing for,
among other things, a term of 15 years with 28 three-year options (for up to 99
years) at an annual rate of $700,000, subject to adjustment. Effective November
1, 1999, the annual rate was adjusted to $719,000 through October 31, 2000.
Thereafter, the rate will again be subject to a cost of living adjustment.
Pursuant to the terms of the amended lease, the Company committed to make $20
million in capital improvements and equipment at the East Pelican Island
shipyard over a three year period. The Company has satisfied this commitment
with approximately $23 million for capital improvements and equipment expended
in 1998 and $3.8 million expended in 1999. The capital investment included the
construction and commissioning of a drydock with approximately 9,500 tons of
lifting capacity, the addition of substantial crane capacity, extensive
refurbishment to the existing piers and bulkheads, dredging to increase water
depth and the addition of other infrastructures and support facilities. This
facility provides accounting, human resources, training, sales estimating, risk
management and other general administrative functions to the nearby West Pelican
Island facility and the Galveston Island facility. The East Pelican Island
facility currently provides repair and conversion services to offshore drilling
equipment, including jack-ups, semi-submersible drilling rigs, drillships,
exploration, vessels, offshore support vessels, offshore barges and small
commercial ships. Upon completion of certain additional capital improvements to
the East Pelican Island shipyard, the Company intends to offer drydocking
services for larger commercial ships.

         Galveston Island Facility. In May 1998, the Company acquired land,
buildings and certain new construction assets of the barge building division of
Galveston Shipbuilding Company. This facility is specifically designed for
inland and offshore barge new construction with a fully automated panel line,
automated cutting equipment and a side-launch system. The Galveston Island
shipyard uses the nearby East Pelican Island facility to provide most of its
administrative services.


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                                INDUSTRY OVERVIEW

         The Company's business is impacted by fundamentals and trends specific
to the inland and ocean-going transportation market and the offshore drilling
industry. At present, the Company's revenues are divided among the U.S. inland
marine transportation markets, the ocean-going transportation markets and the
offshore energy services markets. The offshore energy service market which is
comprised of the offshore drilling rig market and the offshore support vessel
market is primarily dependent upon the demand for offshore drilling and related
services in the Gulf of Mexico which has experienced a very low level of in
activity during the last 12 to 18 months. The Company anticipates the inland
transportation markets, the ocean-going transportation market as well as the
offshore energy services markets will improve in 2000. Detailed descriptions of
industry fundamentals and trends influencing these markets are summarized below.

INLAND AND OCEAN-GOING TRANSPORTATION MARKET

         Inland Barges. Tank barges, hopper barges and deck barges transport a
wide range of commodities including petroleum, petrochemicals, fuels,
construction materials and other bulk products. The Company provides shipyard
services primarily to the tank barge segment of this market. Domestic production
of petrochemicals has continued to increase annually, which increase is
attributable to growth in the economy, continued growth of the United States
population and the continued substitution of plastics and synthetics in a wide
variety of products. Texas and Louisiana currently account for approximately 80%
of the total United States production of petrochemicals. This strong
petrochemical presence in the Texas - Louisiana area provides the Company with a
large and stable market for tank barge services.

         Based on industry sources, the Company estimates that the total number
of tank barges that operate in the inland waters of the United States has
declined from an estimate of approximately 4,200 in 1981 (1,600 of which were
double skinned barges) to approximately 2,900 in 1998; (2,436 of which were
double skinned barges). The Company believes this decrease primarily resulted
from: (i) increasing ages of the domestic tank barge fleet resulting in
scrapping; (ii) rates inadequate to justify new construction; (iii) a reduction
in financial and tax incentives which previously encouraged speculative
construction of new equipment; (iv) trends toward fewer captive fleets, (v) more
stringent operating standards to adequately cope with safety and environmental
risks; and (vi) an increase in environmental regulations that mandate expensive
equipment modification which some owners are unwilling or unable to undertake
given current rate levels and the age of their fleet.

         The U.S. Maritime Administration ("MARAD") has estimated that
approximately 25% of the current domestic tank barge fleet between 10,000 and
30,000 barrels in capacity is more than 25 years old and more than 8% is at
least 30 years old. Due to the average age of the fleet and the consolidation of
the barge transportation industry by well capitalized towing companies, demand
for tank barge repair and deck barge repair has been steady over the past few
years and is expected to remain relatively the same in the near future. Although
well-maintained tank barges can be efficiently operated for more than 30 years,
the cost of hull work for required annual U.S. Coast Guard certificates, as well
as general safety and environmental concerns, force operators to periodically
reassess their ability to recover maintenance costs.

         Towboats and Tug Boats. Towboats or "pushboats" are vessels used on
rivers and intracoastal waterways to push barges. Barge transportation companies
own and operate the majority of the towboat fleet used for this purpose, and
much of the independent fleet of towboats is under contract to these towing
companies. These towboats typically transport multiple barges. Because towboats
and barges provide transportation for a wide variety of commodities, the Company
believes this segment is less dependent on fluctuations in the price of oil. Tug
boats are typically used to guide ships through a ship channel or other narrow,
heavily trafficked waterway to their destination and assist in the docking at
ports. The demand for repair services for these boats is relatively stable as
the Port of Houston is one of the busiest ports in the United States and a major
hub in the inland transportation segment.


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         Ocean Barges and Integrated Tug-Barges (ITB). Ocean barges and
integrated tug barges are much larger than inland barges and are built to more
rigorous specifications. Consequently, they cost much more to build than inland
barges. Most of the existing U.S. fleet of ocean barges is single-hulled. The
Oil Pollution Act of 1990 ("OPA '90") mandates that all tank barges over 5000
gross tons be double-hulled by 2010. Given the size of the fleet, the small
number of conversions done to date by shipyards, and the lead times for
conversion work, this market is expected to become increasingly active in the
near future. The Company successfully performed one of the first such
conversions on an ocean-going barge. As an alternative to these conversions,
barge owners may also consider the feasibility of building new and improved
ocean-barge to replace the aging single hull fleet.

         Commercial Ships. Commercial ships include freighters, tankers, car
carriers, and passenger vessels. In 1999 commercial ships made approximately
6,800 calls to the Port of Houston. Based on industry statistics, the Company
believes commercial shipping is affected more by global economies than the price
of oil and gas, as these vessels transport a wide variety of commodities. Other
factors influencing the potential volume of commercial ship repair services are:
(i) annual growth in the volume of trade and shipping traffic; (ii) certain
reductions in subsidies to overseas shipyards which may make prices at U.S.
shipyards more attractive to foreign owners; (iii) the lack of a substantial
ship repair presence in the western Gulf of Mexico; (iv) the aging U.S. Jones
Act fleet which is in need of repair; and (v) the Company's proximity to the
Port of Houston which ranks first in the United States for foreign tonnage and
second in total tonnage. Demand for ship repair services has been impacted by
the slowdown in Asian and South American economies. The Company expects the
demand should continue to grow as these economies recover.

         Specialty Vessels. Specialty vessels like power barges, crane barges
and dredges form an important market niche for repair and new construction. This
market is growing due to a strong economy and an aging fleet. The Company has
previously successfully built and delivered a power barge hull. These vessels
are typically larger and more complex than inland barges and cost more to build
and outfit

         Government-owned Vessels. Repair and new construction of
Government-owned vessels is another specialized market. Due to an aging fleet,
the Company believes there is significant demand for repair services to these
vessels. The Company has experience in providing repair services to federal and
state owned vessels.

OFFSHORE ENERGY SERVICES

         Offshore Drilling Rigs and Drill Ships. The offshore drilling industry
experienced a significant decline in activity during the last twelve to eighteen
months. This decline follows two years of high activity during which oil and gas
companies increased their exploration and production budgets in response to
increasing demand and stronger oil and gas prices. The first half of 1998
reflected this increased demand with offshore drilling rig capacity in the Gulf
of Mexico at or near full utilization. During the second half of 1998 and early
1999, oil prices declined. This resulted in reduced demand for drilling rigs
worldwide substantially. Utilization rates for semisubmersibles and jackups were
75 and 76 percent in 1999, respectively, compared to 97 and 94 percent,
respectively, in 1998. The Company experienced reduced opportunities at its East
Pelican Island facility in 1999 as a result of reduced spending by offshore
energy contractors. The Company is not able to predict when and to what extent
the level of oil field activity will recover, but expects that as oil prices
recover and exploration activity increases, drilling contractors should increase
their expenditures for maintenance and conversions.

         Offshore Support Vessels. The primary role of offshore support vessels
("OSVs") is to deliver equipment, personnel and supplies to offshore drilling
rigs and production facilities. In recent years, a few offshore support vessel
operators have significantly consolidated the offshore support vessel market.

         Although there has been recent construction of new offshore support
vessels, a majority of the support vessels currently in service in the Gulf of
Mexico are 16 or more years old and a majority of the remainder are between 11
and 16 years old. As these vessels age, maintenance and repair costs increase.

         During 1999, offshore support vessel day rates declined dramatically.
From November 1998 to October 1999, average day rates for vessels up to 200 feet
and vessels over 200 feet dropped by 39 percent and 24 percent, respectively.
Day rates are expected to improve in 2000 as increased drilling rig activity
creates more demand for OSV services. In turn, operators should be increasingly
able to justify the shipyard costs associated with returning vessels to service
from "cold stack" status. The economics for vessel conversion projects should
also improve.


                                       9
<PAGE>   10


         While the operating fleet still must pass U.S. Coast Guard inspections
every two years which generally require shipyard services, the Company does not
expect to see significant improvement in this market until day rates for
offshore support vessels improve. At that time, a significant portion of the
currently stacked vessels should require shipyard service.

         FPSO (Floating, Production Storage, and Offloading) Vessel Conversions.
When oil prices recover and deep water drilling and production moves away from
established infrastructure, the Company believes the use of FPSOs should
increase. Ships are sometimes converted to FPSOs at a lower cost than new
construction. FPSOs are not currently allowed in the Gulf of Mexico, but it is
expected that the U.S. Minerals Management Service will approve the U.S. Gulf
utilization of FPSOs within the next two years.

                                    SERVICES

         The Company earns approximately 72% of its revenues from repair and
maintenance services to inland barges, boats, ocean barges, integrated
tug-barges, commercial ships, specialty vessels, offshore drilling rigs,
offshore support vessels and liftboats. The balance of its revenues are earned
from new construction, conversions and environmental services.

REPAIR

         Inland barges. The Company's inland barge repairs involve tasks as
simple as minor hull or outfitting repairs to more complex services such as
re-skinning with new bottom plates, side shells and knuckles, including surface
preparation and painting. The vessels in the aging domestic coastwise fleet are
in frequent need of repairs as they reach the end of their useful lives.
Further, U.S. Coast Guard regulations require that double-skinned inland barges
be drydocked for bottom gauging to detect thickness and structural fatigue every
10 years. Other inland barges require both an inspection of the internal
structures and drydocking once every five years. Normally at this time, the
customer will request removal and replacement of pitted and deteriorated steel
as well as blasting and coating services.

         Boats. The Company offers a comprehensive range of services to the boat
repair market, from minor hull repairs to engine and propulsion system
replacement. Boat repair work requires a high level of precision and expertise
in machinery and equipment repairs. Frequent unscheduled repairs requiring fast
turnarounds characterize this segment.

         Ocean barges and Integrated Tug-Barges (ITBs). Ocean barges and ITBs
are subject to drydock inspections every five years as well as annual
inspections for which drydocking is not required. These vessels are subjected to
a higher standard of maintenance than inland barges. Additionally, salt water
operation requires more frequent hull coating than fresh water vessels. During
the course of these mandated inspections, the Company's customers often discover
the need for additional repairs. Because ocean barges and ITBs are larger and
more complex than inland barges, repair costs tend to be higher. Due to high day
rates for these vessels, fast turnarounds are a key success factor in this
segment. OPA `90 regulations mandate that tank vessels be double-hulled over the
next fifteen years, the exact date dependent upon the size and age of the
vessel. Most ocean barges and ITBs must be double-hulled by 2010. Since most
existing ocean barges are single hulled, the Company believes that conversions
to double hull in this market segment may become increasingly active. Conversion
of these single hull vessels is complex, expensive, and can require long lead
times. The Company has performed one of the first such double-hull conversions
in 1995.

         Commercial Ships. The Company offers topside repair services for
commercial ships and drydock services for small ships. Typical topside work
includes structural repairs, outfitting repairs, and repairs to machinery and
equipment. Drydock repairs include hull steel replacement, propeller and
thruster repairs and vessel coating. Since the loss of revenue to a commercial
ship during a shipyard visit can be significant, these vessels typically come
into a shipyard only for major repairs, emergency repairs or mandatory
maintenance. At this time, minor repairs are also performed. In this sector,
ship owners place a high priority on fast turnaround as well as high-quality
work. The Company is continuing to pursue a strategy to provide drydocking
services for large ships in Galveston.

         Specialty Vessels. The Company provides a full range of repair and
maintenance services to a variety of specialty vessels such as crane barges and
dredges. Typical topside work includes minor structural repairs, outfitting
repairs and repairs to machinery and equipment. Drydock repairs include hull
steel replacement, equipment/machinery replacement and vessel coating.


                                       10
<PAGE>   11


         Government-Owned Vessels. The Company provides repair and maintenance
services for State-owned ferries, and other government owned vessels. Repair
services to Government-owned ferries are sometimes provided under multi-year
contracts. Many of the vessels in this sector demand a high level of quality and
craftsmanship as these vessels must be maintained to a high regulatory standard.
Typical topside work includes minor structural repairs, outfitting repairs and
machinery and equipment repairs. Drydock repairs include hull steel replacement,
engine replacement, propeller repairs or vessel coating.

         Offshore Drilling Rigs and Drillships. The Company performs repairs for
offshore drilling rigs and drillships at its East Pelican Island facility. The
Company also performs on-board repair services, which involve transporting
workers, materials and equipment to a vessel located away from a shipyard or
other infrastructure. These are highly complex vessels that operate in remote
areas. Consequently, drilling vessels typically come into a shipyard only for
major repairs, emergency repairs, or mandatory maintenance. The Company's
services include repairs and maintenance to the vessel hull, on-board equipment
and various systems, as well as upgrading and repowering to improve vessel
performance or capability. Shipyard location in proximity to the rig's operating
area is important to the drilling contractor so the cost of transit time is
reduced and lost revenue is minimized. Other key success factors in rig and
drillship repair include unrestricted access to the shipyard, ample water depth,
complete dock-side facilities, sufficient craneage and experience in managing
large-scale projects.

         Offshore Support Vessels (OSVs). The Company offers a comprehensive
range of services for OSVs, from minor hull repairs to conversion jobs. These
vessels require a high level of precision and expertise in machinery and
equipment repairs. OSVs are subject to higher regulatory standards than the
inland boats. These vessels are also larger and repairs are usually more complex
than the inland boats.

NEW CONSTRUCTION

         Inland barges. During 1999, the Company earned approximately 23.3% of
its current revenues from barge new construction. Historically, the Company's
new construction activities have been primarily for inland tank and deck barges.
New construction is performed under fixed-price contracts, with prices depending
on the size and type of barge. The acquisition of the Greens Bayou facility in
August 1997, the West Pelican Island facility in February 1998 and the Galveston
Island facility in May 1998 provided the Company the capacity to build up to 40
barges per year depending on the mix of barge types.

         Boats. Acquisitions provided the Company with the capability to compete
for new construction of tow boats (pushboats) and tug boats. The presence of a
large number of boat builders on the Gulf Coast makes this a highly competitive
market. However, the Company believes that with its engineering, technical and
production capabilities it is well-positioned to successfully compete in this
market.

         Specialty Vessels. Specialty vessels like power barges, crane barges
and dredges are complex and require much more work in the design and engineering
phase than other types of vessels. Due to their size and complexity, these
vessels typically cost substantially more to build than inland barges. The
Company has successfully built and delivered a power barge hull in 1995.

CONVERSIONS

         Offshore Drilling Rigs. Conversions of offshore drilling rigs can
involve converting a slot jack-up rig to a cantilevered jack-up rig,
strengthening and extending rig legs, reinforcing spud cans on existing legs and
modifying older designs to incorporate newer technology. Drilling rigs can be
converted to production rigs and vice versa. The Company has the experience and
is well positioned to perform conversions.

         Offshore Support Vessels. As oil and gas operations move to deeper
waters, demand for a larger class of offshore support vessels has grown. In
response, over the last two years owners of offshore support vessel fleets have
built new vessels or have converted existing vessels in their fleet into vessels
capable of operating further offshore. This trend resulted in an increase in
conversion projects for the Company during 1996, 1997 and the first half of
1998. No OSV conversions were performed in 1999. These conversions typically
consist of lengthening the vessels and installing liquid mud tanks, dynamic
positioning and other specialized features. The Company has also widened
offshore support vessels to significantly increase their deck and cargo
capacity.


                                       11
<PAGE>   12



         FPSO Vessel Conversion. Floating Production, Storage and Offloading
vessels are used for petroleum production operations in remote areas with no
existing infrastructure. FPSOs, although not currently allowed to operate in the
U.S. Gulf of Mexico, remain onsite and are periodically lightered by shuttle
tankers. Certain tankers can be converted to FPSO use at a much lower cost than
new construction. An FPSO conversion was performed successfully at the East
Pelican Island facility before its acquisition by the Company.

ENVIRONMENTAL

         Environmental Services - Degassing/Cleaning Operations. These services
are provided at the Company's Brady Island facility. In order for a barge to
change the type of cargo it holds, the barge generally requires cleaning. The
Company provides cleaning services for change of cargo as well as in preparation
for repairs and maintenance at the shipyard. The cleaning process begins with
vapor recovery of gasses, if necessary. The barge is then cleaned with water
using special industrial cleaning equipment. The water is vacuumed into the
Company's wastewater treatment facility for proper treatment and disposal. If
the barge requires "hot work" (cutting or welding) while in the shipyard, safety
regulations require that it be "gas free" (non-explosive) as certified by a
marine chemist. The Company employs its own certified marine chemist.

         Environmental Services - Wastewater Treatment Services. The Company
provides non-hazardous wastewater treatment services on a fee basis. The Company
has a two million gallon wastewater storage tank, completed in January 1998. In
an average job, a tank truck arriving at the facility pumps out approximately
5,000 gallons of wastewater into the Company's tanks after being tested. The
non-hazardous wastewater is then treated at the Company's bio-treatment plant
and disposed of in accordance with all applicable regulations.

                               SHIPYARD PROPERTIES

         The Company currently operates the following six shipyard facilities:

         Brady Island. The Brady Island shipyard was originally acquired in
December 1993 and is located on the Houston Ship Channel on approximately 23
acres. The shipyard has the capability to handle the repair, construction and
related environmental services for both offshore and inland vessels. It provides
repair and conversion services for offshore support vessels and offers repair,
conversion and new construction services for offshore and inland barges and
boats. In addition to the traditional shipyard assets described below, the Brady
Island facility has a high capacity bio-treatment plant, state-of-the-art vapor
control equipment and a two million gallon wastewater storage tank. The shipyard
has six haul-up facilities that include three dry docks, two marine rails and
one transfer system from drydock to rail. The drydock lifting capacities range
from 800 to 3,200 tons. Over 2,200 feet of pier space is available for topside
and outfitting repairs. The facility's equipment consists of three crawler
cranes, two tower cranes and one cherry picker. The fabrication facility has
over 13,000 square feet under roof, which enables the Company to provide
all-weather, 24-hour fabrication services for new construction and repair work.
Two 20 ton overhead cranes service the fabrication shop.

         Pasadena. The Pasadena facility is conveniently located on the Houston
Ship Channel in Pasadena, Texas on approximately 63 acres. The shipyard performs
repair services for offshore support vessels, inland and offshore barges, inland
and offshore boats, and small ships. The shipyard has five dry-docks, with
lifting capacities ranging from 600 to 3,000 tons. Over 2,500 feet of pier space
is available for top-side and outfitting repairs. The facility's equipment
consists of six mobile cranes, with lifting capacities ranging from 19 to 85
tons.

         Greens Bayou. The Greens Bayou shipyard was acquired, through a capital
lease, on August 11, 1997. The shipyard is located near Houston, Texas on
approximately 25 acres, near the Houston Ship Channel and the Company's Brady
Island facility. The shipyard performs repair, conversion and new construction
services for barges. The shipyard has eight haul-up facilities, which includes a
single rail and the main rails with seven transfer positions. The barge lifting
capacities range from 800 to 1,200 tons. Over 1,400 feet of pier space is
available for top-side and outfitting repairs. The facility's equipment consists
of two crawler cranes, two tower cranes and two cherry pickers. The fabrication
facility has over 50,000 square feet under roof, which enables the Company to
provide all-weather, 24-hour fabrication services for new construction and
repair work. Seven overhead cranes ranging from 10 to 40 tons service the
fabrication shops. The fabrication equipment includes an NC plate cutting
machine, a 750 ton press brake, angle rolls and several semi-automatic welders.


                                       12
<PAGE>   13


         East Pelican Island. The Company acquired the East Pelican Island
shipyard through an assignment of the PMB Engineering, Inc. lease with Galveston
Wharves. Galveston Wharves has amended the PMB Engineering, Inc. lease,
extending the possible eight years remaining on such term of the lease to a
lease with a potential 99-year term, among other things. This facility can serve
most classes of offshore drilling rigs, offshore support vessels, offshore
barges and small and large ships. Located in Galveston, Texas on approximately
110 acres, this facility is located on the Galveston Ship channel and offers
excellent accessibility to all types of vessels from the Gulf of Mexico and
beyond. With a 9,500 ton drydock and over 3,000 feet of full service piers, this
shipyard offers turn-key services to most vessels. Available water depth at this
facility ranges from 25 to 50 feet, which is ideally suited for large offshore
drilling rigs and other offshore vessels, including ships. The lifting equipment
consists of nine cranes ranging from 22 to 250 tons, including several mobile
cranes servicing the piers and the drydock. The shipyard has over 30,000 square
feet under roof, providing efficient fabrication services for repairs and
conversions. A 10 ton and a 5 ton crane service the fabrication shops.
Management has developed a program for the capital improvements to this
shipyard. The Company committed to making $20 million in capital improvements to
the facility over a three year period. Approximately $23 million was expended in
1998 and $3.8 million in 1999. The capital investment included the construction
and commissioning of a drydock with approximately 9,500 tons of lifting
capacity, and extensive refurbishments to the existing piers. Extensive repairs
were also made to the existing bulkheads. Additionally, the Company began
initial stages of construction of a new slip and bulkhead, that will ultimately
accommodate additional drydocks. Dredging was performed in all of the slips and
wet berths to provide the required water depth for the offshore rigs, vessels
and ships. Utility services were installed to provide full service at several
locations in the assembly area and on the piers. A portion of the capital
investment was applied towards the purchase of equipment such as mobile and
gantry cranes, rolling stock, production equipment and tools.

         West Pelican Island. This shipyard is located on Pelican Island in
Galveston, Texas on approximately 23 acres. Located on the Galveston Ship
Channel, this facility offers easy accessibility from the Gulf of Mexico and
beyond. The renovated fabrication facility has over two acres under roof, which
enables the Company to provide all-weather, 24-hour service for fabrication,
assembly conversions and new construction. The plate and pipe shops are serviced
by two 30 ton and two 5 ton overhead cranes. Two 250 ton overhead cranes,
providing the capability to lift modules or vessels up to 500 tons, service the
main fabrication shop. Part of this main fabrication shop extends over a 180
foot slip way (wet berth), providing the facility with a unique advantage of
lifting and launching modules and vessels up to 500 tons. The lifting equipment
outside the fabrication area consists of a 150 ton crawler crane and a 28 ton
cherry picker.

         Galveston Island. This shipyard is located in Galveston, Texas on
approximately 28 acres. Located off the Galveston Ship Channel, this facility
offers easy accessibility from the Gulf of Mexico and beyond. The Company uses
this facility primarily for new construction of all types of barges. In
addition, this facility is used for the fabrication of panels and modules for
the other five facilities. This fabrication facility has over 35,000 square feet
under roof, which enables the Company to provide all-weather, 24-hour service
for fabrication of panels and modules for new construction, conversions and
repair services. The fabrication shops are serviced by one 11 ton and two 5 ton
overhead cranes. The fabrication equipment at this facility include two NC
plasma plate cutting machines, an automatic panel line, 6000 ton press brake and
several semi-automatic welders. The lifting equipment outside the assembly and
erection area consists of two 120 ton gantry cranes, one 120 ton crawler crane
and a 20 ton cherry picker. The compact, but efficient layout of the assembly
area enables the shipyard to assemble and erect up to 4 vessels simultaneously,
resulting in reduced construction duration and hence increasing the new
construction capacity of the Company. The launching of barges is accomplished by
a side-launch that is capable of launching vessels up to 600 feet long and 100
feet wide.

PRINCIPAL CUSTOMERS

         Following the consolidation of the inland barge industry, a large
portion of the Company's revenue has been generated by a relatively small number
of customers, although not necessarily the same customers from year to year. For
1999, the Company derived 13.5% of its revenue from Canal Barge Company, 10.6%
of its revenue from Diamond Offshore (U.S.A.) Inc., and 45.9% from its five
largest customers. Because the level of services that the Company may provide to
any particular customer depends on that customer's needs for repairs in a
particular year, customers that account for a significant portion of revenue in
one fiscal year may represent an immaterial portion of revenue in subsequent
years. However, the loss of a significant customer for any reason, including a
sustained decline in that customer's capital expenditure budget or competitive
factors, could result in a substantial loss of revenue and could have a material
adverse effect on the Company's operating performance.


                                       13
<PAGE>   14



CONTRACT PROCEDURE, STRUCTURE AND PRICING

         The Company performs its repair and conversion services, on a
fixed-price basis, a unit price basis, a time and materials basis or a
combination of these methods. More than half of the Company's commercial
projects are currently performed on either a fixed-priced or unit price basis.
The Company attempts to cover anticipated increased costs of labor and material
through an estimation of such costs, which is reflected in the original price.
Despite these attempts, however, the revenue, cost and gross profit realized on
a fixed-price arrangement will often vary from the estimated amounts because of
changes in job conditions and variations in labor and material costs over the
term of the project. These variations and the risks generally inherent in the
shipbuilding and repair industry may result in gross profits realized by the
Company being different from those originally estimated and may result in the
Company experiencing reduced profitability or losses on projects. Revenues from
repair and conversion services performed under time and material and fixed-price
arrangements are recognized as the services are provided. Adjustments to such
revenues and costs recognized on fixed-price arrangements are made in the period
in which the adjustments are determined. Depending on the size of the project,
variations from estimated fixed-price arrangements could have a significant
effect on the Company's operating results for any particular fiscal quarter or
year.

         The Company's new construction contract revenues are recognized on a
percentage of completion basis. Accordingly, contract price and cost estimates
are reviewed periodically as the work progresses, and adjustments proportionate
to the percentage of completion are reflected in the income of the period when
such estimates are revised. To the extent that these adjustments result in a
loss or a reduction or elimination of previously reported profits with respect
to a project, the Company recognizes a charge against current earnings, which
could be material.

SALES AND MARKETING

         The Company's marketing efforts are coordinated in Houston, Texas.
Marketing efforts historically were focused in three areas: traditional shipyard
services including repair and conversion; new construction opportunities and
environmental services including barge cleaning and wastewater treatment.

COMPETITION

         The Company principally competes in each of its service lines with
multiple companies, based on the scope of work to be performed and the type of
projects. Some of these competitors have significantly greater financial
resources than the Company. Although the Company believes customers consider,
among other things, the availability and technical capabilities of equipment and
personnel, efficiency, condition of equipment, safety record and reputation,
price competition is still a primary factor in determining which qualified
shipbuilder is awarded a job.

INSURANCE

         The Company maintains insurance against property damage caused by fire,
explosion and similar catastrophic events that may result in physical damage or
disruption to the Company's premises or properties. The Company also maintains
general liability and umbrella liability insurance in amounts it deems
appropriate for the Company's business.

EMPLOYEES

         At December 31, 1999, the Company had approximately 1,100 employees.
None of the Company's employees are represented by any collective bargaining
unit. Management believes that the Company's relationship with its employees is
excellent. The Company has not experienced any significant labor problems.
Management also believes the Company should invest in its people and has
implemented improvements in the work environment which benefit the employees.
These improvements, as well as active communication with employees, have helped
to foster a closely-knit, supportive culture at the Company.


                                       14
<PAGE>   15



HEALTH AND SAFETY

         The Company has one of the best safety records in its industry. For the
last six consecutive years, Newpark Shipbuilding was recognized with the
national safety award given annually by the Shipyard Council of America
(formerly, National Shipyard Association) designating it as one of the safest
shipyards in the country. Management is concerned with the safety and health of
the Company's employees and maintains a safety assurance program to reduce the
possibility of costly accidents. The Company's safety department establishes
guidelines for compliance with all applicable state and federal safety
regulations. Such laws and regulations are complex, stringent and are often
changed. The Company provides training and safety education through orientations
for new employees and regular employee meetings on safety and environmental
compliance. The Company also has a comprehensive drug testing program. The
Company's commitment to the safety of its employees supports its labor
management strategy and translates into reduced costs for workers' compensation
benefits.

ENVIRONMENTAL REGULATION

         GENERAL. The Company's operations are subject to a variety of federal,
state and local laws and regulations governing the discharge of materials into
the environment or otherwise relating to environmental protection
("Environmental Laws"). Like other members of the industry, the Company is
periodically subject to governmental compliance inspections in the ordinary
course of business. The Company is committed to full compliance with applicable
environmental laws and has instituted an environmental compliance program to
ensure such compliance on an ongoing basis. Although no assurance can be given,
Management believes that the Company and its operations are in compliance in all
material respects with all Environmental Laws. However, stricter interpretation
and enforcement of Environmental Laws and compliance with potentially more
stringent future Environmental Laws could materially and adversely affect the
Company's operation. To the extent laws are enacted or other governmental action
is taken that imposes environmental protection requirements that result in
increased costs to the shipbuilding and repair business in general, the business
and prospects of the Company could be adversely affected. With respect to air
emissions, the Company anticipates that additional expenditures may be required
if federal or state air emissions requirements were to be more strictly
interpreted or strengthened. The Company has taken a leadership position in a
shipyard industry group that has been working with the Texas Natural Resources
Conservation Commission ("TNRCC") to determine additional controls that could be
required on abrasive blasting particulate air emissions from shipyards. This
initiative has been successful in preventing additional control requirements in
the agency's implementation of "Best Available Control Technology". The Company
is continuing to work with the agency to define modifications to existing
regulations that will allow shipyard facilities that currently have
"grandfathered" status which allows such facilities to operate without an air
permit, to now obtain air permits. The Company cannot predict with certainty
whether new requirements will be proposed in the future, or the extent of an
effect on the Company.

         Permits. Under federal and state environmental laws, the Company's
operations are subject to a variety of requirements for permits or other
governmental authorizations governing emissions to air; discharges to water;
dredging of waterways (for example, to maintain or improve access by vessels);
generation, storage, and shipment of wastes; and other operational aspects of
the business.

         Certain operational assets of the Company are subject to the terms of
agreed orders negotiated with governmental agencies with enforcement authority
under environmental laws. The State of Texas has allowed Newpark
Shipbuilding--Pasadena, Inc. to operate under an agreed order on an interim
basis pending issuance of a final permit that addresses Newpark Pasadena's
change in blast medium. The State of Texas has also allowed Newpark Shipbuilding
- Galveston Island, Inc. to operate under an agreed order on an interim basis
pending issuance of a final permit covering painting and abrasive blasting
operations. Finally, the Board of Trustees of Galveston Wharves, the Company's
lessor at the East Pelican Island facility, is also operating under an agreed
order with the TNRCC with respect to the discharge from its sewage collection
system and septic tank wastewater treatment plant at such facility. The Company
has installed, at the East Pelican Island facility, an upgraded sewage treatment
plant and has received from the TNRCC the approved wastewater discharge permit
for this wastewater stream. The Company believes these actions should satisfy
the issues listed in the agreed order.


                                       15
<PAGE>   16



         RCRA. The Federal Resource Conservation and Recovery Act ("RCRA") and
similar state laws regulate the generation, treatment, storage, disposal and
other handling of hazardous and non-hazardous solid wastes, with the most
stringent regulations applying to solid wastes that are considered hazardous.
The Company generates both hazardous and non-hazardous wastes in connection with
routine operations. Management believes that the wastes it generates are handled
in substantial compliance with RCRA and analogous state statutes. The Greens
Bayou property contains a solid waste landfill which was closed in compliance
with applicable federal and state laws as a non-hazardous industrial solid waste
site. Management believes that any environmental liability arising from this
landfill will be the primary responsibility of the previous owners; however,
there can be no assurances that the Company will not be subject to liability for
this matter in the future.

         CERCLA. The Federal Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended ("CERCLA" or the "Superfund Law") and
analogous state laws, impose liability without regard to fault or the legality
of the original conduct, on certain classes of persons with respect to the
release or imminent threat of release of a "hazardous substance" into the
environment. The classes of persons potentially held responsible include all
owners and operators of a site where a hazardous substance was released since
the time of disposal and any party that disposed of, or arranged for the
disposal of, or transported the hazardous substance found at the site. CERCLA
has been interpreted to create strict, joint and several liability for the cost
of removal and remediation, other necessary response costs and damages for
injury to natural resources unless there is a reasonable basis for divisibility
of the harm done by the potentially responsible party. The Company has never
been named as a potentially responsible party in any CERCLA action, and the
Company does not believe that there is any basis for such a claim. However,
because industrial operations have been conducted at some of the Company's
properties by the Company and previous owners and operators for years, various
materials from these operations might have been disposed of at such properties
or at other locations. The identification of one or more sites at which cleanup
action is required or has been completed could subject the Company to
liabilities that could have a material adverse effect on the Company's business,
financial condition and results of operation.

         OPA '90. The Oil Pollution Act of 1990 ("OPA `90") and similar state
laws, and regulations promulgated thereunder impose a variety of regulations on
"responsible parties: related to the prevention of oil spills and liability for
damages resulting from such spills in the waters of the U.S. A "responsible
party" includes the owner or operator of a facility or vessel from which the
spill occurs. OPA '90 assigns liability, which can be joint and several, to each
responsible party for oil spill removal costs and for a variety of public and
private damages from oil spills. While OPA '90 defined "oil" to include
petroleum, fuel oil, sludge, oil refuse and oil mixed with other water wastes,
it specifically excludes any material defined as a hazardous substance under
CERCLA. Liability limits apply in some circumstances, however, a party cannot
take advantage of liability limits if the spill is caused by gross negligence or
willful misconduct, if the spill resulted from violation of a federal safety,
construction or operation regulation, or if a party fails to report a spill or
to cooperate fully in the cleanup. Few defenses exist to the liability imposed
under OPA `90 for oil spills. Management is currently unaware of any oil spills
for which the Company has been designated as a responsible party under OPA '90
which would have a material adverse impact on the Company.

         CWA. The Federal Clean Water Act ("CWA") and similar state laws
regulate the discharge of pollutants into all navigable waters of the U.S. They
also establish a system of standards, permits and enforcement procedures for the
discharge of pollutants from industrial and municipal wastewater sources. The
Company's facilities have federal and Texas state permits that allow it to
discharge non-hazardous wastewater, sanitary sewer treatment plant discharges
and stormwater. Management believes that it is in compliance with the CWA and
analogous state statutes and its discharge permits. The CWA also requires
persons who dredge or fill wetlands in navigable waters of the U.S. to obtain a
permit or meet management practice standards to qualify for an exemption from
permitting requirements. The Company must obtain such a permit or qualify for an
exemption if it needs to dredge or place fill material in wetlands in order to
continue or modify operations at any of its facilities in the future.

         CAA. The Federal Clean Air Act and its 1990 Amendments ("CAA") and
similar state laws govern the control of emissions from sources of air
pollution. Amendments to the CAA were adopted in 1990 and contain provisions
that may result in the gradual imposition of certain pollution amendments could
increase the Company's capital and operational expenses after the U.S.
Environmental Protection Agency and similar state agencies fully implement
regulations authorized by the Amendments. Although the Company does not expect
these CAA amendments to result in material expenses at its properties, the
amount of increased expenses, if any, resulting from such amendments is not
presently determinable. There can be no assurance that the Company will not
incur material expenses in connection with these amendments in the future.
Additionally, the Company has a tank cleaning and degassing operation at its


                                       16
<PAGE>   17


Brady Island facility that involves removal of residue fumes from vapor spaces
in barges. Federal laws requires the Company to identify, prepare for and
respond to risks associated with this operation, including possible explosion
and emission of hazardous substances to the environment.

OTHER REGULATION

         Health and Safety Regulations. The Company's facilities and operations
are governed by laws and regulations, including the federal Occupational Safety
and Health Act ("OSHA"), relating to worker health and workplace safety. The
Company believes that appropriate precautions are taken to protect employees and
others from workplace injuries and harmful exposure to materials handled and
managed at its facilities. While it is not anticipated that the Company will be
required in the near future to expend material amounts by reason of such health
and safety laws and regulations, the Company is unable to predict the ultimate
cost of compliance with these changing regulations.

         Jones Act. The Jones Act requires that all vessels transporting
products between U.S. Ports must be constructed and repaired in U.S. shipyards,
owned and crewed by U.S. citizens and registered under U.S. law, thereby
eliminating competition from foreign shipbuilders with respect to vessels to be
constructed for the U.S. coastwise trade. Many customers elect to have vessels
constructed at U.S. shipyards, even if such vessels are intended for
international use, in order to maintain flexibility to use such vessel in the
U.S. coastwise trade in the future. A legislative bill seeking to substantially
modify the provisions of the Jones Act mandating the use of ships constructed in
the United States for U.S. coastwise trade has been introduced in Congress.
Similar bills seeking to rescind or substantially modify the Jones Act and
eliminate or adversely affect the competitive advantages it affords to U.S.
shipbuilders have been introduced in Congress from time to time and are expected
to be introduced in the future. Although management believes it is unlikely that
the Jones Act requirements will be rescinded or materially modified in the
foreseeable future, there can be no assurance that such will not occur. Many
foreign shipyards are heavily subsidized by their governments and, as a results,
there can be no assurance that the Company would be able to effectively compete
with such shipyards if they were permitted to construct and repair vessels for
use in the U.S. coastwise trade.

ITEM 3.   LEGAL PROCEEDINGS

         On August 11, 1999, one of the Company's subsidiaries, Newpark
Shipbuilding--Brady Island, Inc. ("Newpark-Brady"), received an Information from
the State of Texas charging Newpark-Brady with a one count water pollution
misdemeanor, for allegedly discharging industrial waste from a barge in
violation of Texas Water Code Section 26.121(a)(1) on or about July 30, 1997. In
February 2000, Newpark-Brady plead nolo contendere to a reduced charge of Texas
Water Section 26.2121(g), a strict liability misdemeanor, related to
sandblasting activities on July 30, 1997. Newpark-Brady paid a $10,000 fine and
made a $90,000 contribution to the City of Houston Supplemental Environmental
Projects Fund.

         On August 13, 1998, one of the Company's subsidiaries, Newpark-Brady
was the subject of a search warrant executed by a multi-agency environmental
task force. The government's search warrant was primarily directed at the
facility's wastewater treatment plant. The Board of Directors of the Company
authorized outside legal counsel to conduct an internal corporate investigation
of the matters raised by the agencies in their investigation. In addition, the
Company promptly undertook aggressive measures to assure environmental
compliance. In December, 1998, the internal investigation concluded that no
officer or director of Newpark-Brady or the Company participated in or had
knowledge of any non-compliance or wrongdoing. In 1999, the Board adopted a
Compliance and Ethics Code with a third party anonymous hotline to further
strengthen the Company's legal compliance in all areas, including environmental.
This Code was implemented in all facilities in February 2000.

         In March 2000, to settle all issues relating to the task force's
investigation, Newpark-Brady negotiated agreements with both the Federal and
State governments. Newpark-Brady agreed with the Harris County District
Attorney's office to plead nolo contendere to two State Informations as follows:
(i) a misdemeanor for a permit discharge violation of the Texas Water Code based
on the sampling and conduct of a Newpark-Brady employee on February 16, 1998,
and (ii) a misdemeanor for failure to notify or report based on February 18,
1998 conduct of the same employee. In late March 2000, Newpark-Brady made these
pleas and paid a $100,000 fine for each violation charged. Newpark-Brady further
agreed with the U.S. Attorney's Office to plead guilty to a one-count federal
Information. The federal Information charges a misdemeanor violation of the
Clean Water Act citing Newpark's negligent failure to take samples that were
representative of the volume and nature of discharges from its wastewater
treatment plant. The federal plea was also entered in late March 2000; in
connection therewith, Newpark-Brady paid a $25,000 fine. In addition,


                                       17
<PAGE>   18


Newpark-Brady separately agreed to contribute over a period of approximately
eighteen months, $550,000 to the Galveston Bay Foundation and $425,000 to the
Coastal Conservation Association of Texas to be used in projects benefiting the
local environment.

         The Company is a party to various routine legal proceedings primarily
involving commercial claims and workers' compensation claims. While the outcome
of these lawsuits, legal proceedings and claims cannot be predicted with
certainty, management believes that the outcome of all such proceedings, even if
determined adversely, would not have a material adverse effect on the Company's
business or financial condition. Also, the Company has entered into certain
agreed orders with which it believes it is in compliance in all material
respects.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         The Company's Annual Meeting of Stockholders was held on October 5,
1999, at which the stockholders of the Company voted on the election of two
Class II Directors of the Company. At the meeting, Frank W. Eakin and David B.
Ammons each received 11,545,320 votes in favor of their election as Class II
Directors, representing more than the plurality of shares present at the
meeting required to elect Class II Directors. No votes were withheld. Directors
whose term of office continued were Samuel F. Eakin, Paul E. O'Neill, III and
James D. Cole.

PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS

MARKET INFORMATION

         There is no established public trading market for the Company's common
stock. As of March 1, 2000, the Company had 11,756,955 shares outstanding which
was held of record by 27 stockholders. The Company has not paid any dividends on
the First Wave common stock and anticipates that for the foreseeable future, any
earnings will be retained for the development of the Company's business.
Furthermore, pursuant to the terms of the indenture under which the Senior
Notes (as hereinafter defined) are issued, the Company may be restricted from
declaring or paying dividends.


                                       18
<PAGE>   19



ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA

         The following table sets forth selected financial data (in thousands,
except per share data) for the dates and periods indicated. The selected
financial data have been derived from audited consolidated financial statements
of the Company. The selected consolidated financial data set forth below 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 included elsewhere in this report.

<TABLE>
<CAPTION>

                                                         1999            1998          1997           1996         1995
                                                       ---------      ---------      ---------     ---------     ---------
<S>                                                    <C>            <C>            <C>           <C>           <C>
OPERATING DATA:
  Revenues:
     Repair and upgrades                               $  63,129      $  63,587      $  28,331     $  20,997     $  15,392
     New construction                                     20,425         13,206          1,002         2,841         3,321
     Environmental services                                4,076          5,229          5,283         4,119         3,287
                                                       ---------      ---------      ---------     ---------     ---------
         Total revenues                                   87,630         82,022         34,616        27,957        22,000
     Cost of revenues                                     79,786         63,285         22,975        20,719        18,790
                                                       ---------      ---------      ---------     ---------     ---------
         Gross profit                                      7,844         18,737         11,641         7,238         3,210
     General and administrative                            9,634          7,685          4,414         3,533         1,876
     Environmental settlement and
       related legal expenses                              1,846            434             --            --            --
     Asset impairments                                       735            128             --            --            --
     Unusual items                                         1,762             --             --            --            --
     Interest expense - net                               10,406          8,390          1,815           829           247
     Minority interest                                        --             --            750           219            76
     Income tax expense (benefit)                         (5,272)           945          2,001         1,098           283
     Extraordinary item                                       --           (933)            --            --            --
                                                       ---------      ---------      ---------     ---------     ---------
         Net income (loss)                             $ (11,267)     $     222      $   2,661     $   1,559     $     728
                                                       =========      =========      =========     =========     =========

  Basic and diluted earnings per share:
     Income (loss) before extraordinary item           $   (0.96)     $    0.10      $    0.25     $    0.15     $    0.07
     Extraordinary item                                       --          (0.08)            --            --            --
                                                       ---------      ---------      ---------     ---------     ---------
         Net income (loss)                             $   (0.96)     $    0.02      $    0.25     $    0.15     $    0.07
                                                       =========      =========      =========     =========     =========

  Weighted-average shares:
     Basic and diluted                                    11,757         11,757         10,680        10,650        10,650
                                                       =========      =========      =========     =========     =========

AT YEAR-END DATA:
  Cash and cash equivalents                            $   8,379      $   1,654      $     378     $      --     $      66
  Total assets                                         $ 123,115      $ 128,383      $  39,546     $  24,932     $   6,794
  Long-term debt                                       $ 104,609      $  99,736      $  24,872     $  18,663     $   1,128
  Stockholders' equity (deficit)                       $  (2,991)     $   8,276      $   8,054     $   1,893     $     334
</TABLE>


                                       19
<PAGE>   20

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

         The following discussion of the Company's financial condition, results
of operations, liquidity and capital resources should be read in conjunction
with the "Consolidated Financial Statements" and the "Notes to the Consolidated
Financial Statements" included elsewhere in this report.

         The Company's business is primarily derived from providing repair and
upgrade services to operators of inland and offshore marine vessels, including
barges, boats, drilling rigs and commercial ships. To a lesser extent the
Company engages in new construction of such inland and offshore marine vessels.
The Company believes the demand for repair services is generally less cyclical
than the demand for new construction and continually monitors the mix of new
construction and repair services to achieve optimum results. While trends in oil
and natural gas prices can affect the demand for offshore support vessels and
drilling rigs, the Company believes demand should exist for repair activity even
with a short-term downturn in oil and gas activity. Any prolonged depression in
the number of offshore support vessels and drilling rigs in active service in
the Gulf of Mexico will adversely effect the Company.


                                       20
<PAGE>   21


         The Company also provides related environmental services, including
cleaning, degassing and wastewater treatment. Although this business comprises a
small percentage of the Company's total revenues, it generates attractive
margins and enhances the Company's strategy to be the only one-stop source of
all shipyard services for all segments of the inland marine and offshore markets
in Texas.

         The Company currently operates three shipyards in the Houston, Texas
area (Brady Island, Greens Bayou and Pasadena) and three in the Galveston, Texas
area (East Pelican Island, West Pelican Island and Galveston Island). At
December 31, 1999, the Company had approximately 1,100 employees.

RESULTS OF OPERATIONS

         Comparison of Year Ended December 31, 1999 to Year Ended December 31,
1998

         Revenue for 1999 increased a modest 6.8% over 1998. However, relatively
profitable barge and boat repair and OSV revenue decreased approximately 17% and
87%, respectively, and were offset by increases in less profitable barge new
construction and rig repair revenue.

         Barge and boat repair activity decreased in 1999 due to reduced
maintenance spending on the part of customers which stemmed primarily from a
combination of a weaker market for commodities transportation and a delay of
maintenance spending arising out of the market consolidation of barge operators.
The customer base in this segment has experienced significant consolidation over
the last three years. In the short run, customer consolidation has a negative
impact on activity and this was the case in 1999 as the organizations first
focus on adjusting the management of the combined entity before turning to
rationalizing the combined entity's equipment. During this period, maintenance
programs are delayed.

         The reduced OSV activity was the direct result of lower exploration and
production activity in the Gulf of Mexico resulting from the downturn in oil
prices starting early in 1998 and continuing through the first part of 1999.
While the commodity price has increased significantly during 1999, the increases
in exploration and production activity have been modest to date.

         Barge new construction activity increased by more than 50% with
substantially all the increase attributable to the Company's Galveston Island
facility which was acquired in 1998 and reached full operating levels in early
1999. The Company expects that barge new construction work will wind down in
2000. This segment of the market is becoming increasingly competitive and the
Company's policy is to be highly selective in accepting work in this area.
Margins in this segment are traditionally low and were lower in 1999 because the
Company made a strategic decision to accept over staffing of this work in the
face of downturns in other sectors in order to keep the Company's work force in
tact. The Company's rig repair revenue is generated at the Pelican Island east
and west facilities which were substantially in start-up mode during 1998 and
early 1999.

         Gross profit decreased 58.1% to $7.8 million in the 1999 period from
$18.7 million in the 1998 period. The gross profit margin decreased to 8.9% in
1999 from 22.8% in 1998 due in large part to the decrease in higher margin OSV
and barge and boat repair revenue as a percentage of total revenue.
Additionally, the Company elected to preserve its capabilities by maintaining
its infrastructure at the Houston Operations while shifting excess labor
capacity to the new construction facility in Galveston. As a result, already
thin margins in the barge new construction work tightened while yard-operating
costs increased as a percentage of revenue at the Houston Operations. Also the
volume of work at the Pelican Island facilities increased several fold over
1998. Revenue in this rig repair sector has a higher component of material cost
and subcontractor cost which results in a lower gross profit percentage.

         During 1999, the Company undertook a study of its cost classification
system. The study included an account by account analysis as well as a review of
industry practices. Based on the results of the study, reclassifications have
been made between general and administrative expenses and cost of revenues for
all periods presented.


                                       21
<PAGE>   22



         General and administrative expenses increased 25.4% to $9.6 million in
the 1999 period from $7.7 million in the 1998 period. General and administrative
expenses as a percentage of revenue for the 1999 period represented 11.0% of
total revenue as compared to 9.4% for the 1998 period. The increase was due to
increased staffing at the Galveston Operations Center (Pelican Island East) a
start-up facility in 1998 and at the corporate office, and expenses related to
development of the Company's strategy for future expansion.

         The environmental settlement and related legal expenses of $1.8 million
reflected in the 1999 period relates to the settlement and related legal
expenses for environmental investigations at the Company's Brady Island
facility. In March 2000, the Company reached an agreement with both the Federal
and State governments to settle all outstanding issues relating to environmental
compliance at the Company's Newpark Shipbuilding -- Brady Island, Inc. ("Newpark
-- Brady") subsidiary. In connection with the settlement, Newpark -- Brady has
made payments to the government totaling $225,000. In addition, the Company has
separately agreed to contribute over a period of approximately eighteen months,
$550,000 to the Galveston Bay Foundation and $425,000 to the Coastal
Conservation Association of Texas to be used in projects benefiting the local
environment. The cost of the settlement along with related legal fees have been
reflected in the Company's 1999 results.

         During 1999, the Company recognized several unusual items which
consisted primarily of approximately $740,000 related to unsuccessful
acquisition and equity offering efforts, approximately $400,000 for the repair
of certain equipment to be returned off of long-term lease, approximately
$205,000 of postemployment benefits related to the former president, and asset
write-downs of $357,000 related to the cancellation of the purchases of two
pieces of equipment.

         During the 1999 period, the Company recognized asset impairments of
approximately $735,000. The asset impairments included the following: (a) an
impairment loss of $329,000 related to a specialized piece of equipment that is
not in use, (b) an impairment loss of $218,000 related to the disposal of a
dry-dock that was leased to a third-party, and (c) an impairment loss of
$188,000 related to a dry-dock that was adjusted to estimated fair value.

         Net interest expense rose to $10.4 million in 1999 from $8.4 million in
1998 due primarily to only eleven months of interest expense on the $90 million
11% Senior Notes reflected in the 1998 period, and the reduction of interest
income on investments during 1999.

         During 1999 the Company recorded an income tax benefit of approximately
$5.3 million on net operating loss generated during the year.

         Comparison of Year Ended December 31, 1998 to Year Ended December 31,
1997

         Revenues increased 137% to $82.0 million in 1998 compared to $34.6
million in 1997 primarily due to additional shipyards in operation during 1998.
The Greens Bayou facility, a start-up, began generating revenues in the third
quarter of 1997. The East Pelican Island facility, another start-up, began
generating revenues in the first quarter of 1998. The Pasadena and West Pelican
Island facilities were acquired on February 2, 1998 and the Galveston Island
facility was acquired on May 15, 1998. Overall growth in repair and upgrade
activity, which accounted for approximately 78% of total revenues in 1998, rose
124% over 1997.

         Gross profits increased by 61% to $18.7 million in 1998 from $11.6
million in 1997 due to the additional shipyards in operation during 1998. The
gross profit margin decreased to 22.8% in 1998 from 33.6% in 1997, due in part
to certain operational inefficiencies associated with the start-up nature of the
East Pelican Island shipyard and Greens Bayou shipyard which affected gross
profit margins, the decrease in higher margin environmental services revenue as
a percentage of total revenue, the increase in lower margin new construction
revenue as a percentage of total revenue, significant training expenses at all
acquired facilities and a decline in higher margin OSV repair and conversion
work.

         During 1999, the Company undertook a study of its cost classification
system. The study included an account by account analysis as well as a review of
industry practices. Based on the results of the study, reclassifications have
been made between general and administrative expenses and cost of revenues for
all years presented.


                                       22
<PAGE>   23



         General and administrative expenses increased 74% to $7.7 million in
1998 from $4.4 million in 1997. General and administrative expenses as a
percentage of revenue for 1998 represented 9.4% of total revenues, as compared
to 12.8% for 1997. The decrease in general and administrative expenses as a
percentage of revenue is due in part to the leveraging of overhead expense over
greater revenues and approximately $430,000 in bonuses paid to three executive
officers in 1998 as opposed to approximately $1.3 million in bonuses paid to
three executive officers in 1997. General and administrative expenses as a
percentage of revenues were negatively impacted by the full staffing and certain
overhead expenses incurred at start-up operations in advance of revenue
generation, as well as expenses related to development of the Company's strategy
for future expansion.

         During 1998, the Company incurred approximately $434,000 of legal costs
related to an environmental investigation at one of the Company's subsidiaries.

         Net interest expense rose to $8.4 million in 1998 from $1.8 million in
1997 due primarily to eleven months of interest expense on the $90 million 11%
Senior Notes reflected in the 1998 period, which was partially offset by
interest earned on the unused proceeds of the Senior Notes Offering.

         The elimination of minority interest in 1998 is due to all minority
shareholders of Brady Island exchanging their shares for shares in First Wave
effective December 31, 1997.

         The decrease in income tax expense to $945,000 in 1998 from $2.0
million in 1997 is directly attributable to the decrease in income before income
taxes.

         The extraordinary item reflected in 1998 of approximately $933,000, net
of income tax benefit of approximately $559,000, relates to approximately
$1,022,000 of prepayment penalties and the write-off of approximately $470,000
in loan origination costs as a result of the early extinguishment of debt.

         The decrease in net income from 1997 to 1998 is primarily due to the
loss on the extinguishment of debt, the additional interest expense related to
the $90 million 11% Senior Notes, the increase in depreciation and amortization
as a result of the acquisitions, and higher general and administrative expenses.

INFLATION AND CHANGING PRICES

         The Company does not believe that general price inflation has had a
significant impact on the Company's results of operations during the periods
presented. To the extent that the effects of inflation are not offset by
improvements in construction and purchasing efficiency and labor productivity,
the Company generally has been able to take such effects into account in pricing
its contracts with customers. There can be no assurance, however, that inflation
will not have a material effect on the Company's business in the future.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's ongoing liquidity requirements arise primarily from its
need to service debt, fund working capital, and make capital improvements to its
facilities. Funds remaining from the Company's senior notes offering discussed
below, bank financing and internally generated funds provided funding for these
activities in 1999.

         The Company completed a $90 million 11% Senior Notes ("Senior Notes")
offering on February 2, 1998. Proceeds from the offering were primarily used to
complete two acquisitions, pay-off debt, pay the first two semi-annual interest
payments on the Senior Notes, fund capital expenditures, and pay the expenses of
the offering.

         Under its indenture entered into in connection with the Senior Notes
offering, the Company is permitted to borrow up to the greater of $20 million or
85% of its accounts receivable plus up to an additional $5 million. In October
1999, the Company entered into a $20 million revolving credit and term loan
facility (the "Facility") that matures on October 14, 2003. The revolving
portion of the Facility, initially $16 million, is secured by accounts
receivable of all but one of the Company's subsidiaries. It bears interest at
0.50% per annum in excess of The Wall Street Journal prime rate. There were no
advances on the revolving portion of the facility in 1999. The term portion of
the Facility ("Term Loan"), $4 million (the Company has approximately $1 million
of other debt), is secured by certain dry-docks and real estate. The Term Loan
bears interest at 1.00% per annum in excess of The Wall Street Journal prime
rate. The Term Loan requires monthly principal payments of $56,000, with the
unpaid balance due at the maturity of the Facility. The Facility requires that
cumulative net losses of the Company as defined in the agreement after October
1, 1999 not exceed $3.0 million. The Company is required to pay a fee of 0.25%
per annum on the unused


                                       23
<PAGE>   24


portion of the total facility, based on a minimum total loan amount of $5
million, and certain other administrative costs. In early April 2000, the
Company entered into an amendment to the Facility. The amendment provided for a
200 basis point adjustment to the Facility interest rates in exchange for an
increase to $4.5 million of the cumulative net loss covenant commencing
January 1, 2000. The increased interest rates will be reduced back to the
original Facility rate upon the Company reporting a positive net income. The
rates will adjust quarterly thereafter, remaining at the original rates for each
quarter the Company reports a positive net income. The Company is presently
engaged in discussions with the lender regarding additional changes to this
facility to add to the revolving portion of the facility the receivables of the
remaining subsidiary not originally included.

         Net cash (used in) provided by operating activities for the year ended
December 31, 1999 and 1998 was $(156,000) and $1.5 million, respectively.

         Net cash provided by (used in) investing activities was $3.3 million
and $(52.3) million for the year ending December 31, 1999 and 1998,
respectively. During the year ending December 31, 1999, cash provided by
investing activities was primarily due to sales and maturities of investments,
offset by cash used to purchase property and equipment.

         The Company took aggressive measures to reduce capital requirements for
1999 due to market conditions in the oil and gas sectors. The Company currently
has budgeted for 2000 approximately $5 million for planned capital projects at
it facilities. The Company currently has no formal commitments for these
projects.

         Management believes that with the cash generated from operations, and,
if necessary, borrowings under the Company's lines of credit, the Company will
have sufficient resources available to meet its anticipated requirements for
capital expenditures, working capital needs and debt service for fiscal year
2000. If capital requirements or revenue vary materially from our current
expectations or if unforeseen circumstances occur, we may require additional
equity sooner than we anticipated.

YEAR 2000 DISCLOSURES

         Many computer software systems, as well as certain hardware and
equipment containing date sensitive data, were structured to utilize a two-digit
date field meaning that they may not have been able to properly recognize dates
in the Year 2000 and beyond. This could have resulted in significant system and
equipment failures. The Company completed a detailed process to identify
potential Year 2000 problems and implemented solutions for all of its
information technology ("IT") as well as non-IT systems. Necessary actions were
taken to ensure that essential IT and Non-IT systems and services would continue
to operate on and after January 1, 2000. The Company implemented changes and
upgrades utilizing a combination of internal and external resources. In
addition, the Company communicated with its major customers, suppliers and
financial institutions to coordinate year 2000 readiness.

         Based on steps the Company took to address this issue, the financial
impact of Year 2000 date conversion was not material to its financial
statements. The Company did not experience any problems as a result of Year 2000
issues.

ITEM 7A.   QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company is exposed to interest rate risk in connection with its
variable rate debt instruments. The Company does not enter into market risk
sensitive instruments for trading purposes. The information below summarizes the
Company's interest rate risk associated with its principal variable rate debt
instruments outstanding at December 31, 1999, and should be read in conjunction
with Note I of the Notes to the Company's Consolidated Financial Statements.
Borrowings under the Company's Revolving Credit and Term Loan Facilities bear
interest at variable rates equal to the prime rate as quoted in The Wall Street
Journal plus the applicable margin. Because The Wall Street Journal rate may
increase or decrease at any time, the Company is exposed to market risk as a
result of the impact that changes in this rate may have on the interest rate
applicable to borrowings under the Revolving Credit and Term Loan Facilities.
Increases in the interest rate applicable to borrowings under the Revolving
Credit and Term Loan Facilities would result in increased interest expense and a
reduction in the Company's net income and after tax cash flow. At December 31,
1999, there was approximately $3.9 million indebtedness outstanding under the
term portion of the Revolving Credit and Term Loan Facilities, or approximately
4% of the Company's outstanding long-term debt obligations on that date, bearing
interest at variable rates. The Company had total borrowings of only $500,000 on
both of its credit facilities during 1999. The aggregate interest expense for
1999 with respect to borrowings under the Company's variable rate credit
facilities was approximately $71,000, and the weighted average rate applicable
to those borrowings during 1999 was 9.41%. Assuming that the weighted average
interest rate was 200-basis points higher (that is 11.41% rather than 9.41%),
the Company's 1999 interest expense would have been approximately $15,000
higher.

         The Company attempts to mitigate the interest rate risk resulting from
its variable interest rate long-term debt instruments by also issuing fixed rate
long-term debt instruments and maintaining a balance over time between the
amount of variable rate and fixed rate indebtedness. In the event of an increase
in interest rates, the Company may take further actions to mitigate its
exposure. The Company cannot guarantee, however, that actions that it may take
to mitigate this risk will be feasible or that if these actions are taken, that
they will be effective.
                                       24
<PAGE>   25


ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

           INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                                    Page
                                                                                    ----
<S>                                                                                 <C>
           Report of Independent Certified Public Accountants                        25

           Consolidated Balance Sheets as of December 31, 1999 and 1998              26

           Consolidated Statements of Operations for the years ended
             December 31, 1999, 1998 and 1997                                        27

           Consolidated Statement of Stockholders' Equity (Deficit) for the
             years ended December 31, 1997, 1998 and 1999                            28

           Consolidated Statements of Cash Flows for the years ended
             December 31, 1999, 1998 and 1997                                        29

           Notes to Consolidated Financial Statements                                30
</TABLE>


                                       25
<PAGE>   26


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
First Wave Marine, Inc.


We have audited the accompanying consolidated balance sheets of First Wave
Marine, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with 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 provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of First Wave Marine,
Inc. and Subsidiaries as of December 31, 1999 and 1998, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.




Grant Thornton LLP

Houston, Texas
March 24, 2000 (except for
the third paragraph of
Note I, as to which the
date is April 11, 2000)




                                       26
<PAGE>   27


                    FIRST WAVE MARINE, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except per share data)

                                     ASSETS

<TABLE>
<CAPTION>


                                                                                                DECEMBER 31,
                                                                                          -------------------------
                                                                                             1999           1998
                                                                                          ----------     ----------
<S>                                                                                       <C>            <C>
Current assets:
   Cash and cash equivalents                                                              $    8,379     $    1,654
   Investments available-for-sale                                                                 --          2,102
   Investments held-to-maturity                                                                   --          6,262
   Accounts receivable, less allowance of $160 in 1999 and $145 in 1998                       12,691         19,369
   Inventories                                                                                 1,042            857
   Costs and estimated earnings in excess of billings on uncompleted contracts                 5,096          2,615
   Prepaid expenses and other                                                                  1,112            785
   Income tax receivable                                                                       1,841            492
   Deferred income taxes                                                                         755            826
                                                                                          ----------     ----------
         Total current assets                                                                 30,916         34,962
Property and equipment, net                                                                   72,675         73,067
Financing costs, net                                                                           3,765          4,021
Goodwill and other intangibles, net                                                           14,702         15,214
Shareholder lines of credit                                                                      783            715
Deposits and other                                                                               274            404
                                                                                          ----------     ----------
                                                                                          $  123,115     $  128,383
                                                                                          ==========     ==========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:

   Accounts payable                                                                       $    4,834      $    2,944
   Accrued liabilities                                                                         8,073           6,041
   Billings in excess of costs and estimated earnings on uncompleted contracts                   235             255
   Accrued interest payable                                                                    4,611           4,125
   Current portion of long-term debt                                                             894             167
   Notes payable                                                                                 182             199
                                                                                          ----------      ----------
         Total current liabilities                                                            18,829          13,731

Long-term obligations                                                                          7,205           3,042
Subordinated debt                                                                              6,328           6,328
Senior notes                                                                                  90,000          90,000
Deferred income taxes                                                                          2,234           5,727
Other liabilities                                                                              1,510           1,279
Commitments and contingencies                                                                     --              --
Stockholders' equity (deficit):
   Preferred stock, $.01 par value, 2,000 shares authorized, no shares issued                     --              --

   Common stock, $.01 par value, 21,000 shares authorized, 11,757 shares issued and
     outstanding at December 31, 1999 and 1998                                                   118             118

   Additional paid-in capital                                                                  3,490           3,490
   Retained earnings (deficit)                                                                (6,599)          4,668
                                                                                          ----------      ----------
         Total stockholders' equity (deficit)                                                 (2,991)          8,276
                                                                                          ----------      ----------
                                                                                          $  123,115      $  128,383
                                                                                          ==========      ==========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       27
<PAGE>   28



                    FIRST WAVE MARINE, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                             YEAR ENDED DECEMBER 31,
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                                                    1999           1998             1997
                                                                 ----------      ----------      ----------
<S>                                                              <C>             <C>             <C>
Revenues:
  Repair and upgrade                                             $   63,129      $   63,587      $   28,331
  New construction                                                   20,425          13,206           1,002
  Environmental services                                              4,076           5,229           5,283
                                                                 ----------      ----------      ----------
                                                                     87,630          82,022          34,616
Cost of revenues                                                     79,786          63,285          22,975
                                                                 ----------      ----------      ----------
  Gross profit                                                        7,844          18,737          11,641
General and administrative expenses                                   9,634           7,685           4,414
Environmental settlement and related legal expenses                   1,846             434              --
Asset impairments                                                       735             128              --
Unusual items                                                         1,762              --              --
                                                                 ----------      ----------      ----------
  Income (loss) from operations                                      (6,133)         10,490           7,227
Interest expense - net                                               10,406           8,390           1,815
Minority interest in net earnings of subsidiary                          --              --             750
                                                                 ----------      ----------      ----------
  Income (loss) before income taxes and extraordinary
     item                                                           (16,539)          2,100           4,662
Income tax expense (benefit)                                         (5,272)            945           2,001
                                                                 ----------      ----------      ----------
  Income (loss) before extraordinary item                           (11,267)          1,155           2,661
Extraordinary item - loss on extinguishment of debt,
  net of income tax benefit of $559                                      --            (933)             --
                                                                 ----------      ----------      ----------
  Net income (loss)                                              $  (11,267)     $      222      $    2,661
                                                                 ==========      ==========      ==========

Basic and diluted earnings (loss) per share:
  Income(loss) before extraordinary item                         $    (0.96)     $     0.10      $     0.25
  Extraordinary item                                                     --           (0.08)             --
                                                                 ----------      ----------      ----------
  Net income (loss)                                              $    (0.96)     $     0.02      $     0.25
                                                                 ==========      ==========      ==========
Weighted-average shares:
  Basic and diluted                                                  11,757          11,757          10,680
                                                                 ==========      ==========      ==========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       28
<PAGE>   29



                    FIRSTWAVE MARINE, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                  YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                                 Total
                                                                                                                 Stock-
                                                        Common Stock            Additional      Retained        holders'
                                                  ------------------------       Paid-in        Earnings         Equity
                                                    Shares         Amount        Capital        (Deficit)       (Deficit)
                                                  ----------     ----------     ----------     ----------      ----------
<S>                                               <C>            <C>            <C>            <C>             <C>
Balance at December 31, 1996                          10,650     $        1     $       --     $    1,892      $    1,893
   Change in par value                                    --              9             --             (9)             --
   Issuance of common stock                              108             --              2             --               2
   Stock split effected in the form of a
     dividend                                             --             98             --            (98)             --
   Issuance of common stock in
     exchange for minority interest of
     subsidiary                                          999             10          3,488             --           3,498
   Net income                                             --             --             --          2,661           2,661
                                                  ----------     ----------     ----------     ----------      ----------
Balance at December 31, 1997                          11,757            118          3,490          4,446           8,054
   Net income                                             --             --             --            222             222
                                                  ----------     ----------     ----------     ----------      ----------
Balance at December 31, 1998                          11,757            118          3,490          4,668           8,276
   Net loss                                               --             --             --        (11,267)        (11,267)
                                                  ----------     ----------     ----------     ----------      ----------
Balance at December 31, 1999                          11,757     $      118     $    3,490     $   (6,599)     $   (2,991)
                                                  ==========     ==========     ==========     ==========      ==========
</TABLE>

         The accompanying notes are an integral part of this statement.


                                       29
<PAGE>   30



                    FIRST WAVE MARINE, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             YEAR ENDED DECEMBER 31,
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                                 1999          1998          1997
                                                                                               --------      --------      --------
<S>                                                                                            <C>           <C>           <C>
Cash flows from operating activities:
   Net income (loss)                                                                           $(11,267)     $    222      $  2,661
     Adjustments to reconcile net income (loss) to net cash (used in)
       provided by operating activities:
     Depreciation and amortization                                                                6,444         4,209         1,521
     Accretion of discounts on investments held-to-maturity                                         (33)         (521)           --
     Minority interest on earnings                                                                   --            --           750
     Provision for doubtful accounts                                                                120           149            37
     Loss on sale of property and equipment                                                          13             4             4

     Write-off of property and equipment                                                          1,092           128            --
     Write-off of financing costs                                                                    --           469            --
     Deferred income tax provision                                                               (3,422)          315           138
Change in assets and liabilities, net of effects from acquisitions:
     Accounts receivable                                                                          6,558        (7,402)       (3,378)
     Inventories                                                                                   (185)          (35)         (226)
       Costs and estimated earnings in excess of billings on uncompleted contract                (2,481)       (1,125)          332
     Prepaids and other assets                                                                     (327)          317           (58)
     Income tax receivable                                                                       (1,349)         (761)         (634)
     Deposits and other                                                                              62          (767)           22
     Due to bank                                                                                     --            --           (88)
    Accounts payable                                                                              1,890           490           457
     Accrued liabilities                                                                          2,032         1,473         2,768

       Billings in excess of costs and estimated earnings on uncompleted contract                   (20)          255            --
     Accrued interest payable                                                                       486         3,488            --
     Other liabilities                                                                              231           621           621
                                                                                               --------      --------      --------
       Net cash (used in) provided by operating activities                                         (156)        1,529         4,927
                                                                                               --------      --------      --------
Cash flows from investing activities:
   Acquisition of property and equipment                                                         (5,273)      (25,008)       (3,256)
   Acquisition of businesses, net of cash acquired                                                   --       (19,399)           --
   Purchase of investments held-to-maturity                                                          --       (10,792)           --
   Purchase of investments available-for-sale                                                        --        (2,000)           --
   Proceeds from maturity of investments held-to-maturity                                         6,274         4,950            --
   Proceeds from sales of investments available-for-sale                                          2,123            --            --
   Proceeds from sales of property and equipment                                                    165            34            12
   Asset acquisition costs                                                                           --          (103)         (298)
                                                                                               --------      --------      --------
       Net cash provided by (used in) investing activities                                        3,289       (52,318)       (3,542)
                                                                                               --------      --------      --------
Cash flows from financing activities:
   Proceeds from issuance of debt                                                                 4,000        90,000         1,130
   Payments on long-term debt and notes payable                                                    (190)      (33,415)       (1,251)
   Net (payments) proceeds on revolving lines of credit                                              --        (1,027)           81
   Financing costs                                                                                 (218)       (3,493)         (969)
   Issuance of common stock                                                                          --            --             2
                                                                                               --------      --------      --------
       Net cash provided by (used in) financing activities                                        3,592        52,065        (1,007)
                                                                                               --------      --------      --------
Net increase in cash and cash equivalents                                                         6,725         1,276           378
Cash and cash equivalents at beginning of period                                                  1,654           378            --
                                                                                               --------      --------      --------
Cash and cash equivalents at end of period                                                     $  8,379      $  1,654      $    378
                                                                                               ========      ========      ========
</TABLE>


        The accompanying notes are an integral part of these statements.


                                       30
<PAGE>   31


                    FIRST WAVE MARINE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         PRINCIPLES OF CONSOLIDATION AND NATURE OF BUSINESS. The accompanying
consolidated financial statements include the accounts of First Wave Marine,
Inc. and its wholly-owned subsidiaries (the "Company"). Material intercompany
balances and transactions have been eliminated in consolidation.

         The Company's business is concentrated in providing shipyard and
related environmental services to the inland marine, offshore barge, commercial
ship, and offshore drilling industries, and the Company customarily extends
credit to such customers. The Company provides a full range of repair and
construction services as well as environmental services including cleaning,
degassing and wastewater disposal from its six locations along the Houston Ship
Channel in Houston, Texas and in Galveston, Texas.

         The minority interest stockholders of one of the Company's
subsidiaries, Newpark Shipbuilding--Brady Island, Inc. ("Brady Island")
exchanged their shares of Brady Island for shares of the Company effective
December 31, 1997 (See Note C).

         USE OF ESTIMATES. In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

         FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated fair values of all
significant financial instruments have been developed based on available market
information and appropriate valuation methodologies. However, considerable
judgment is required in developing the estimates of fair value. Therefore, such
estimates are not necessarily indicative of the amounts that could be realized
in a current market exchange. After such analysis, management believes the
carrying values of the Company's receivables and payables approximate fair
values at December 31, 1999 and 1998. The fair values of other significant
financial instruments are disclosed in the appropriate footnotes.

         REVENUE RECOGNITION. Revenues from construction performed under fixed
price contracts are recognized on the percentage-of-completion method based upon
current estimates to complete such contracts, commencing where progress reaches
a point where experience is sufficient to estimate final results with reasonable
accuracy. That portion of the total contract price is accrued which is
allocable, on the basis of engineering estimates of the percentage of
completion, to contract expenditures incurred and work performed, or on the
basis of labor hours incurred to date to estimated total labor hours, whichever
method is determined to be most appropriate by management.

         Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs, and depreciation costs. The Company attempts to
recover costs of labor and material through an estimation of such costs, which
is reflected in the original price. Despite these attempts, however, the
revenue, cost and gross profit realized on a fixed-price arrangement will often
vary from the estimated amounts because of changes in job conditions and
variations in labor and material costs over the term of the project. These
variations and the risks generally inherent in the shipbuilding and repair
industry may result in gross profits realized by the Company being different
from those originally estimated and may result in the Company experiencing
reduced profitability or losses on projects. Adjustments to revenues and costs
recognized on fixed-price arrangements are made in the period in which the
adjustments are determined. Variations from estimated fixed-price arrangements
could have a significant effect on the Company's operating results for any
particular fiscal quarter or year.

         Revenues from repairs, upgrades and environmental services performed
under time-and-materials arrangements are recognized as the services are
provided.


                                       31
<PAGE>   32


         The asset, "costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The liability, "billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.

         Included in accounts receivable are unbilled receivables in the amounts
of $4,498 and $3,913 at December 31, 1999 and 1998, respectively, all of which
are due within a one year period.

         CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
short-term investments purchased with an original maturity of three months or
less to be cash equivalents.

         The Company maintains cash and cash equivalents with various financial
institutions. At times, the balances in these accounts could exceed the FDIC
insured balance limit of $100 per bank. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant credit
risks on cash and cash equivalents.

         INVENTORIES. Inventories consist of raw materials and repair parts.
Inventories are valued at the lower of cost or market using the first-in,
first-out method.

         DEPRECIATION AND AMORTIZATION. Property and equipment are stated at
cost. Depreciation and amortization are provided principally on the
straight-line method over the estimated useful lives of the assets.

         Interest is capitalized in connection with qualifying construction
projects. The capitalized interest is recorded as part of the asset to which it
relates and is amortized over the asset's estimated useful life. In 1999 and
1998, $501 and $958 of interest cost was capitalized, respectively. No interest
was capitalized in 1997.

         Goodwill resulting from acquisitions is being amortized on a
straight-line method over 40 years. Organizational costs are amortized on a
straight-line method over a period of five years. Accumulated amortization on
goodwill and other intangibles at December 31, 1999 and 1998 was $1,213 and
$688, respectively.

         Financing costs are amortized over the life of the related obligation.
Accumulated amortization on financing costs at December 31, 1999 and 1998 was
$908 and $433, respectively.

         When events and circumstances so indicate that the net book value of a
long-lived asset may not be recoverable, the asset is reviewed for impairment.
An impairment loss will be recognized if the sum of the expected future cash
flows (undiscounted and before interest) from the use of the asset is less than
the net book value of the asset. The amount of the impairment loss will
generally be measured as the difference between the net book value of the assets
and the estimated fair value of the related assets. During 1999, impairment
losses of $735 were recognized. No impairment losses were recognized in 1998 or
1997.

         INCOME TAXES. Deferred tax assets and liabilities are determined based
on the differences between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect when
these differences reverse. Deferred tax expense (benefit) is the result of
changes in deferred tax assets and liabilities.

         EARNINGS PER SHARE. Basic earnings per share is calculated by dividing
net income by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is calculated by dividing net income by
the weighted-average number of common shares outstanding during the period,
adjusted for any dilutive potential common shares outstanding during the period.

         On September 30, 1997, the Company merged into and became a Delaware
corporation which effectively resulted in a stock split of 1,000 for 1 and the
establishment of a $.01 par value on the common stock. On November 20, 1997, the
Company's common stock was split 10.65 for 1 to stockholders of record on that
date, and was effected as a stock dividend. All share and per share data have
been restated to give effect to the stock splits.


                                       32
<PAGE>   33



         RECLASSIFICATIONS. Certain reclassifications have been made to the
prior years financial statements to conform to the current year presentation.
During 1999, the Company undertook a study of its cost classification system.
The study included an account by account analysis as well as a review of
industry practices. Based on the results of the study, reclassifications have
been made between general and administrative expenses and cost of revenues for
all years presented.

NOTE B - SENIOR NOTES OFFERING

         On February 2, 1998, the Company completed a registered offering of
$90,000 aggregate principal amount of senior notes. The senior notes bear
interest at the rate of 11% per annum; interest due semi-annually on February 1
and August 1; principal due at maturity in February 2008. The senior notes are
fully and unconditionally guaranteed, jointly and severally, by all of the
Company's direct and indirect subsidiaries. Each subsidiary guarantor is 100%
owned by the Company.

         The Company is subject to restrictive covenants under the related trust
indenture. The indenture contains covenants that, among other things, limit the
ability of the Company and its subsidiaries to incur additional indebtedness,
make certain investments, create some types of liens, enter into certain
transactions with affiliates, sell assets, enter into some types of mergers and
consolidations, allow subsidiaries to create certain dividend and other payment
restrictions, enter into sale and leaseback transactions, and issue or sell
capital stock of subsidiaries.

         Separate financial statements and other disclosures concerning the
subsidiary guarantors are not presented because management has determined such
financial statements and other disclosures are not material to investors. The
combined condensed income statement information for the Company's subsidiary
guarantors is the same as the Company's. The combined condensed balance sheet
information of the Company's subsidiary guarantors is as follows:

<TABLE>
<CAPTION>

                                                     December 31, December 31,
                                                         1999         1998
                                                     ------------ ------------
<S>                                                  <C>          <C>
Current assets:
  Cash and cash equivalents                            $     --     $     --
  Accounts receivable                                    12,652       19,255
  Other                                                   9,931        5,647
                                                       --------     --------
                                                         22,583       24,902
Property and equipment                                   71,301       71,883
Intangible assets                                        12,443       12,895
Other                                                       149          377
                                                       --------     --------
Total assets                                           $106,476     $110,057
                                                       ========     ========

Current liabilities                                    $ 13,630     $ 10,480
Non-current liabilities                                  82,145       77,536
Stockholders' equity                                     10,701       22,041
                                                       --------     --------
Total liabilities and stockholders' equity             $106,476     $110,057
                                                       ========     ========
</TABLE>



NOTE C - ACQUISITIONS

         On February 2, 1998, the Company completed the acquisition of all of
the outstanding capital stock of John Bludworth Marine, Inc. ("Newpark
Shipbuilding--Pasadena"), a company that owns and operates shipyard facilities
in Pasadena, Texas and Galveston, Texas. The Company paid $15,000 in cash and
issued a promissory note in the amount of $4,000. The Company used a portion of
the proceeds from its $90,000 senior notes offering (discussed above) to fund
the cash portion of the acquisition. The purchase price and promissory note were
adjustable upward or downward based upon outstanding debt and a final
calculation of earning before interest, taxes, depreciation and amortization
("EBITDA") of the acquired company. The final calculation of the applicable
outstanding debt of Newpark Shipbuilding--Pasadena resulted in an increase to
the purchase price of approximately $5,157. The final calculation of EBITDA
resulted in an increase to the purchase price of approximately $1,480. The
promissory note bore interest at 8.5% per annum and was paid in full by July 31,
1998.


                                       33
<PAGE>   34


         The acquisition has been accounted for as a purchase and the results of
Newpark Shipbuilding--Pasadena have been included in the accompanying
consolidated financial statements since the date of the acquisition. The
allocation of the purchase price resulted in intangibles, primarily goodwill, of
approximately $14,100 which are being amortized on a straight-line basis over a
forty year period.

         On May 15, 1998, the Company completed the acquisition of certain
assets of the Barge Building Division of Galveston Shipbuilding Company
("Newpark Shipbuilding--Galveston Island"). The Company acquired the fixed
assets, including land, a contract to build four tank barges and up to five
barge covers, and the name "Galveston Shipbuilding Company" for $5,500, subject
to a final purchase price adjustment based upon the performance of the business.
The acquisition has been accounted for as a purchase and the results of Newpark
Shipbuilding--Galveston Island have been included in the accompanying
consolidated financial statements since the date of the acquisition.

         The following unaudited pro forma consolidated results of operations
have been prepared as if Newpark Shipbuilding--Pasadena and Newpark
Shipbuilding--Galveston Island had been acquired as of January 1 of fiscal 1998
and 1997. This pro forma information is not necessarily indicative of the
results of operations that would have occurred had the acquisitions been made on
those dates or of results which may occur in the future.

<TABLE>
<CAPTION>

                                                   1998         1997
                                                  -------     -------
<S>                                               <C>         <C>
Revenues                                          $90,004     $77,402
Income before extraordinary item                    2,082       6,191
Net income                                          1,149       1,191
Basic and diluted earnings per share:
  Before extraordinary item                       $  0.18     $  0.58
  Net income                                      $  0.10     $  0.58
</TABLE>

         In conjunction with the Newpark Shipbuilding--Pasadena acquisition, the
Company acquired assets with a fair value of $41,315 and assumed liabilities of
$26,315. In conjunction with the Newpark Shipbuilding--Galveston Island
acquisition, the Company acquired assets with a fair value of $5,796 and assumed
liabilities of $296.

         Effective December 31, 1997, the Company completed the acquisition of
all the minority interests of one of its subsidiaries, Brady Island, pursuant to
a Stock Exchange Agreement dated October 16, 1997. The minority shareholders of
Brady Island exchanged shares representing 17% ownership in Brady Island for a
total of 999 shares of common stock of the Company. The 999 shares of the
Company were valued at $3.50 per share based on the fair value of the Company.
Goodwill resulting from the exchange of approximately $2,400 is being amortized
over a period of 40 years.

NOTE D - INVESTMENTS AVAILABLE-FOR-SALE

         Included in investments available-for-sale in 1998 is an investment in
a mutual fund which invests in another portfolio that invests primarily in "loan
interest" - portions of senior, floating-rate loans made by U.S. banks and other
financial institutions to large corporate customers. The fund seeks to achieve a
high level of current income while minimizing fluctuations in net asset values.
The investment was sold in 1999.

NOTE E - INVESTMENTS HELD-TO-MATURITY

         As a result of the 11% Senior Notes Offering, the Company was required
to deposit funds into a trust account to pay the first and second semi-annual
interest payments on the notes. Two securities were purchased with maturity
dates as near as possible to the interest payment dates. At maturity, the value
of both securities approximated the amount of the semi-annual interest payment,
which is $4,950. A Fannie Mae Discount Note which matured on July 27, 1998 was
purchased for approximately $4,824 to cover the August 1, 1998 interest payment.
A U.S. Treasury Bill with a maturity date of January 7, 1999 was purchased for
approximately $4,718 to cover the February 1, 1999 interest payment.


                                       34
<PAGE>   35


         Also included in "Investments held-to-maturity" in 1998 are a
certificate of deposit with a financial institution in the amount of $1,000 with
a maturity date of February 4, 1999, and another certificate of deposit with
another financial institution in the amount of $250 with a maturity date of
February 3, 1999. The balances of both certificates of deposit exceed the FDIC
insured balance limit of $100 per bank.

NOTE F - CONTRACTS IN PROGRESS

         Information regarding construction under fixed price contracts in
progress as of December 31, are as follows:

<TABLE>
<CAPTION>

                                                         1999          1998          1997
                                                       --------      --------      --------
<S>                                                    <C>           <C>           <C>
Expenditures on uncompleted contracts                  $ 14,830      $  3,731      $  1,379
Estimated earnings                                        2,761         1,172         1,123
                                                       --------      --------      --------
                                                         17,591         4,903         2,502
Less billings applicable thereto                         12,730         2,543         1,709
                                                       --------      --------      --------
                                                       $  4,861      $  2,360      $    793
                                                       ========      ========      ========
Included in the accompanying balance sheets
  under the following captions:
  Costs and estimated earnings in excess
     of billings on uncompleted contracts              $  5,096      $  2,615      $    793
  Billings in excess of costs and estimated
     earnings on uncompleted contracts                     (235)         (255)           --
                                                       --------      --------      --------
                                                       $  4,861      $  2,360      $    793
                                                       ========      ========      ========
</TABLE>


NOTE G - PROPERTY AND EQUIPMENT

         Property and equipment as of December 31 is as follows:

<TABLE>
<CAPTION>


                                                    ESTIMATED
                                                  USEFUL LIVES
                                                    IN YEARS           1999              1998
                                                  -------------    --------------    --------------
<S>                                               <C>              <C>               <C>
Land                                                    --           $ 16,182          $ 15,704
Buildings                                            31-40              7,670             7,510
Transportation                                         5-7                719               581
Office furniture, fixtures and  equipment              3-5              2,377             1,258
Machinery and equipment                               5-20             38,358            38,177
Leasehold improvements                                3-15             10,800             9,056
Construction in progress                                --              7,424             6,237
                                                                     --------          --------
                                                                       83,530            78,523
Less accumulated depreciation                                         (10,855)           (5,456)
                                                                     --------          --------
                                                                     $ 72,675          $ 73,067
                                                                     ========          ========
</TABLE>

         Included in construction in progress at December 31, 1999, are costs
related to the construction of a dry-dock, and costs related to facility
improvements, primarily craneage, at the Company's East Pelican Island Facility.

NOTE H - SHAREHOLDER LINES OF CREDIT

         In February 1998, the Board of Directors of the Company approved a
maximum $1.0 million line of credit available to three employee director
shareholders of the Company. The line of credit allows borrowings of up to $600
to one individual, and up to $200 to each of the other two individuals.
Borrowings under the lines of credit bear interest at 6% per annum with interest
payable annually. The principal is to be amortized over a ten year period
through the pro rata reduction of the line of credit commencing March 2001. At
December 31, 1999 and 1998, the total principal due under these lines of credit
was $783 and $715, respectively.


                                       35
<PAGE>   36



NOTE I - LONG-TERM OBLIGATIONS AND NOTES PAYABLE

         Long-term obligations and notes payable as of December 31, consist of
the following:

<TABLE>
<CAPTION>

                                                                                       1999            1998
                                                                                    ----------      ----------
<S>                                                                                 <C>             <C>
11% Senior Notes; interest due semi-annually; principal due
   at maturity in February 2008; guaranteed by all
   subsidiaries of the Company                                                       $   90,000      $   90,000
Subordinated note payable to a corporation; interest at 5%; principal
   and interest due September 2003, collateralized by all assets of one of
   the Company's subsidiaries and stock issued, and guaranteed by the
   chairman of the Company                                                                6,328           6,328
$20 million revolving credit and term loan facility
   maturing October 14, 2003                                                              3,945              --
Note payable to an affiliated corporation; unsecured; due on demand;
   interest at 7%                                                                           182             199
Note payable; interest at 8%, principal and interest payment of $13 per
   month, balloon payment of approximately $86 due October 2006                             781              --
Note payable; interest at 8%, principal and interest of $4 per month,
   balloon payment of approximately $11 due March 2002                                      112              --
Note payable; interest at 9.25%, principal and interest payment of $1
   per month, balloon payment of $36 due February 2000                                       36              --
Note payable; interest at 9.25%, principal and interest payment of $1
   per month, balloon payment of $16 due February 2000                                       16              --

Capital lease obligation                                                                  3,209           3,209
                                                                                     ----------      ----------
                                                                                        104,609          99,736
   Less current portion                                                                  (1,076)           (366)
                                                                                     ----------      ----------
                                                                                     $  103,533      $   99,370
                                                                                     ==========      ==========
</TABLE>

         In October 1999, the Company entered into a $20 million revolving
credit and term loan facility (the "Facility"). The revolving portion of the
Facility, initially $16 million, is secured by accounts receivable of all but
one of the Company's subsidiaries. It bears interest at 0.50% per annum in
excess of The Wall Street Journal prime rate. The term portion of the Facility
("Term Loan"), initially $4 million, is secured by certain dry-docks of two of
the Company's subsidiaries and certain real estate of one of the Company's
subsidiaries. The Term Loan bears interest at 1.00% per annum in excess of The
Wall Street Journal prime rate. The Term Loan requires monthly principal
payments of $56, with the unpaid balance due at the maturity of the Facility.
The Facility requires that cumulative net losses of the Company after October 1,
1999 not exceed $3.0 million. The Company is required to pay a fee of 0.25% per
annum on the unused portion of the total facility, based on a minimum total loan
amount of $5 million, and certain other administrative costs. The Facility
matures on October 14, 2003.

         On April 11, 2000, the Company entered into an amendment to the
Facility. The amendment provides for a 200 basis point adjustment to the
Facility interest rates in exchange for an increase to $4.5 million of the
cumulative net loss covenant commencing January 1, 2000. The increased interest
rates will be reduced back to the original Facility rate upon the Company
reporting a positive net income. The rates will adjust quarterly thereafter,
remaining at the original rates for each quarter the Company reports a positive
net income.

         Amounts due on long-term debt are $1,076 in 2000, $993 in 2001, $3,831
in 2002, $8,389 in 2003, $126 in 2004 and $90,247 thereafter.


                                       36
<PAGE>   37


         In February 1998, several debt obligations of the Company were paid in
full with proceeds from the $90 million senior notes offering. In connection
with the early extinguishment of these obligations, the Company incurred
prepayment penalties of approximately $1,022 and the write-off of approximately
$470 in loan origination costs.

         Certain obligations are subject to loan agreements which contain, among
other things, provisions restricting other borrowings, acquisitions, capital
expenditures, redemption of the Company's stock and dividends, and require the
Company to maintain certain financial ratios.

         The $6,328 subordinated note payable contains a default penalty of
$2,206 if the note is not fully paid by the maturity date, September 30, 2003.

         The fair value of the Company's long-term debt at December 31, 1999 and
1998 was $58,514 and $93,876, respectively.

NOTE J - INCOME TAXES

         The components of income tax expense (benefit) are as follows:

<TABLE>
<CAPTION>

                                               YEAR ENDED DECEMBER 31,
                                        -----------------------------------
                                          1999          1998          1997
                                        --------      --------     --------
<S>                                     <C>           <C>          <C>
Current tax expense (benefit)             (1,850)          630     $  1,863
Deferred tax expense (benefit)            (3,422)          315          138
                                        --------      --------     --------
                                        $ (5,272)     $    945     $  2,001
                                        ========      ========     ========
</TABLE>

         The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:

<TABLE>
<CAPTION>

                                                      DECEMBER 31,
                                                  --------------------
                                                    1999         1998
                                                  -------      -------
<S>                                               <C>          <C>
Deferred tax assets:
  Reserves and allowances                         $   185      $   129
  Expenses not currently deductible                   769          136
  Net operating losses                              3,675          437
  Other                                               133          124
                                                  -------      -------
     Deferred tax assets                            4,762          826
  Valuation allowance                                (493)          --
                                                  -------      -------
     Deferred tax assets, net                       4,269          826
Deferred tax liability-depreciation
                                                   (5,748)      (5,727)
                                                  -------      -------
Net deferred tax liability                        $(1,479)     $(4,901)
                                                  =======      =======
Balance sheet caption reported in:
   Deferred tax asset - current                   $   755      $   826
   Deferred tax liability - long term              (2,234)      (5,727)
                                                  -------      -------
Net deferred tax liability                        $(1,479)     $(4,901)
                                                  =======      =======
</TABLE>

         The Company incurred a federal net operating loss ("NOL") in 1999.
Approximately $4,500 of such loss will be carried back in order to recover taxes
paid in a prior year. The remaining federal NOL of approximately $8,500 will be
carried forward and expires in 2018. The Company also has state NOL
carryforwards of approximately $17,000. The Company has established a valuation
allowance for certain NOLs. Management believes that, based on a number factors,
it is more likely than not that the Company will not be able to fully utilize
certain NOLs.


                                       37
<PAGE>   38


         The reconciliation between the Company's effective income tax rate and
the statutory federal income tax rate is as follows:

<TABLE>
<CAPTION>

                                               YEAR ENDED DECEMBER 31,
                                             ----------------------------
                                              1999        1998       1997
                                             -----       -----      -----
<S>                                         <C>          <C>        <C>
Statutory federal income tax rate           (34.00%)     34.00%     34.00%
Non-deductible goodwill amortization          1.00        6.01         --
Minority interest                               --          --       5.47
State taxes                                  (3.99)       1.67       3.99
Other                                         2.13        3.32      (0.53)
Valuation allowance                           2.98          --         --
                                             -----        -----      -----
                                            (31.88%)     45.00%     42.93%
                                             =====       =====      =====
</TABLE>

         Certain of the Company's franchise tax returns are currently under
examination by state authorities. The current year's tax provision includes an
accrual for the estimated tax due as a result of the examiner's preliminary
findings.

NOTE K - LEASING ARRANGEMENTS

         The Company's leases its East Pelican Island facility in Galveston,
Texas. The lease agreement provides for an initial term of fifteen years with
options to renew up to a total term of ninety-nine years with monthly payments
of $60. The Company leases its Greens Bayou facility under a capital lease. The
lease is non-cancelable and expires in August 2002, at which time ownership of
the assets will transfer to the Company.

         Assets under capital leases are summarized as follows:

<TABLE>
<CAPTION>

                                            December 31,
                                        --------------------
                                          1999         1998
                                        -------      -------
<S>                                     <C>          <C>
Land                                    $ 1,417      $ 1,417
Buildings and Equipment                   1,792        1,792
                                        -------      -------
                                          3,209        3,209
Less accumulated depreciation              (216)        (127)
                                        -------      -------
                                        $ 2,993      $ 3,082
                                        =======      =======
</TABLE>

         Commitments for minimum lease payments under non-cancelable leases are
as follows:

<TABLE>
<CAPTION>

                                              CAPITAL     OPERATING
                                             --------     ---------
<S>                                          <C>           <C>
2000                                         $    595      $    719
2001                                              655           719
2002                                            3,323           719
2003                                               --           719
2004                                               --           719
Thereafter                                         --         5,628
                                             --------      --------
Total minimum lease payments                    4,573      $  9,223
                                                           ========
Less amount representing interest              (1,364)
                                             --------
                                                3,209
Current portion                                    --
                                             --------
Non-current portion                          $  3,209
                                             ========
</TABLE>


         Total rent expense for all operating leases amounted to $1,968 for
1999, $1,799 for 1998 and $278 for 1997.

         In 1997, the Company leased an airplane from an entity that is owned by
two directors of the Company. The lease provided for a term of five years at a
monthly rental of $5. During 1999, the lease was terminated.

                                       38
<PAGE>   39



NOTE L - CONTINGENCIES

         On August 11, 1999, one of the Company's subsidiaries, Newpark
Shipbuilding--Brady Island, Inc. ("Newpark-Brady"), received an Information from
the State of Texas charging Newpark-Brady with a one count water pollution
misdemeanor, for allegedly discharging industrial waste from a barge in
violation of Texas Water Code Section 26.121(a)(1) on or about July 30, 1997. In
February 2000, Newpark-Brady plead nolo contendere to a single count violation
of Texas Water Section 26.2121(g), a strict liability misdemeanor, related to
sandblasting activities on July 30, 1997. Newpark-Brady paid in 2000 a $10 fine
and made a $90 contribution to the City of Houston Supplementary Environmental
Projects Fund. The fine and contribution of $100 is reflected in the Company's
financial statements in the fourth quarter of 1999.

         On August 13, 1998, one of the Company's subsidiaries, Newpark-Brady
was the subject of a search warrant executed by a multi-agency environmental
task force. The government's search warrant was primarily directed at the
facility's wastewater treatment plant. The Board of Directors of the Company
authorized outside legal counsel to conduct an internal corporate investigation
of the matters raised by the agencies in their investigation. In addition, the
Company promptly undertook aggressive measures to assure environmental
compliance. As of December, 1998, the internal investigation concluded that no
officer or director of Newpark or the Company participated in or had knowledge
of any non-compliance. In 1999, the Board adopted a Compliance and Ethics Code
with a third party anonymous hotline to further strengthen the Company's legal
compliance in all areas, including environmental. This Code was implemented in
all facilities in February 2000.

         In March 2000, to settle all issues relating to the task force's
investigation, Newpark-Brady negotiated agreements with both the Federal and
State governments. Newpark-Brady agreed with the Harris County District
Attorney's office to plead nolo condendere to two State Informations as follows:
(i) a misdemeanor for a permit discharge violation of the Texas Water Code based
on the sampling and conduct of a Newpark-Brady employee on February 18, 1998,
and (ii) a misdemeanor for failure to notify or report based on the conduct of
the same employee. In late March 2000, Newpark-Brady made these pleas and paid a
$100 fine for each violation charged. Newpark-Brady further agreed with the U.S.
Attorney' Office to plead guilty to a federal one-count Information. The federal
Information charges a misdemeanor violation of the Clean Water Act citing
Newpark's negligent failure to take samples that were representative of the
volume and nature of discharges from its wastewater treatment plant. The federal
plea was also entered in late March 2000; in connection therewith, Newpark-Brady
paid a $25 fine. In addition, Newpark-Brady separately agreed to contribute over
a period of approximately eighteen months, $550 to Galveston Bay Foundation and
$425 to Coastal Conservation Association to be used in projects benefiting the
local environment. The fines and contributions of $1,200 are reflected in the
Company' financial statements in the fourth quarter of 1999.

         The Company is a party to various routine legal proceedings primarily
involving commercial claims and workers' compensation claims. While the outcome
of these lawsuits, legal proceedings and claims cannot be predicted with
certainty, management believes that the outcome of all such proceedings, even if
determined adversely, would not have a material adverse effect on the Company's
business or financial condition. Also, the Company has entered into certain
agreed orders with which it believes it is in compliance in all material
respects.

NOTE M - BENEFIT PLAN

         Eligible employees of the Company participate in a 401(k) deferred
savings plan (the "Plan"). Under the Plan, participating employees may allocate
up to 15% of their salary and the Company, at its direction, may make
contributions to the Plan. The Company contributed approximately $104, $89 and
$39 for the years ended December 31, 1999, 1998, and 1997.

NOTE N - RELATED PARTY TRANSACTIONS

         Employees of a subsidiary of the Company share office space with an
entity that is owned 100% by two directors. During 1999, the subsidiary paid
$150 to this entity for the use of office space, office equipment and
administrative support personnel.


                                       39
<PAGE>   40



         In February 1998, the Board of Directors of the Company approved a
maximum $1,000 line of credit available to three employee director shareholders
of the Company. The line of credit allows borrowings of up to $600 to one of the
shareholders and up to $200 to each of the other two shareholders. Borrowings
under the line of credit bear an interest rate of 6% per annum with interest
payable annually and principal to be amortized over a ten year period through
the pro rata reduction of the line of credit commencing March 2001.

         On occasion, the Company charters its Cessna 340 twin-engine airplane
to affiliated entities owned by certain shareholders of the Company. The charter
rate is considered a market rate. Included in accounts receivable in the
consolidated balance sheet of the Company at December 31, 1999 is approximately
$39 related to chartered flights by these affiliated entities.

         As discussed in "Note K - Leasing Arrangements," the Company leased an
airplane from an entity that is owned by two directors of the Company.

         Three employee directors have agreed to enter into employment
agreements with the Company. The agreements provide for base salaries
aggregating $630 per year and semi-annual incentive bonuses aggregating 3% of
EBITDA. The contracts provide for a term of three years from January 1998.
Although the Company has not formally entered into these agreements, it is
operating under those terms with respect to Mssrs. S. Eakin and Ammons. Mr. F.
Eakin's employment arrangement ceased November 30, 1999. Effective December 1,
1999, the Company entered into a consulting arrangement with Mr. F. Eakin
providing for payment of $15,200 per month in consulting fees through May 31,
2000. Under the new consulting arrangement, Mr. F. Eakin is also entitled to a
semi-annual fee equal to 0.85% of semi-annual EBITDA for the year 2000. The
terms of the employment and consulting agreements between Messrs. S. Eakin, F.
Eakin and Ammons cannot be considered to have been determined through
arms-length negotiations.

NOTE O - MAJOR CUSTOMERS

         The Company had the following customers to which it had sales exceeding
10% of total Company sales for the year ended December 31,:

<TABLE>
<CAPTION>
                      1999       1998      1997
                      ----       -----     -----
<S>                   <C>        <C>       <C>
Company A             13.5%       (a)        (a)
Company B             10.6%       (a)        (a)
Company C              (a)       11.6%       (a)
Company D              (a)        (a)       11.0%
Company E              (a)        (a)       20.7%
</TABLE>

------------
(a) less than 10%

NOTE P - SUPPLEMENTAL CASH FLOW INFORMATION

         Interest of $10,282 was paid in 1999, net of capitalized interest of
$501. Interest of $4,709 was paid in 1998, net of capitalized interest of $958.
Interest of $1,389 was paid in 1997.

         Income tax refunds of $588 were received in 1999. Income taxes of
$1,575 were paid in 1998. Income tax refunds of $773 were received in 1998.
Income taxes of $2,107 were paid in 1997.

         During 1999, the Company financed the purchase of assets with term debt
in the amount of $1,063. During 1997, the Company financed the purchase of
assets with term debt and notes payable in the amount of $4,730.


                                       40
<PAGE>   41



NOTE Q - INCENTIVE EQUITY PLAN

         The Company's incentive equity plan provides for the issuance of a
maximum of 1,800 shares at an exercise price of not less than 100% of the fair
market value of a share of common stock of the Company at the date of grant.
Certain options under the plan provide for an annual vesting of 20% per year
beginning with the first anniversary of the date of grant. Other options under
the plan provide for an annual vesting of 33-1/3% per year beginning with the
first anniversary of the date of grant. All options under the plan provide for a
term of ten years.

         The Company applies Accounting Principles Board Opinion 25 (APB 25) and
related Interpretations in accounting for its plan. Accordingly, no compensation
cost has been recognized for its stock option plan, as the exercise price of all
stock options granted there under is equal to the fair value at the date of
grant. Had compensation costs for the Company's stock-based plan been determined
based on the fair value at the grant date, consistent with the method of
Statement of Financing Accounting Standards No. 123 (SFAS 123), the Company's
net income (loss) and earnings (loss) per share would have been as follows:

<TABLE>
<CAPTION>

                                                1999            1998            1997
                                             ----------      ----------      ----------
<S>                                          <C>             <C>             <C>
Net income (loss)
  As reported                                $  (11,267)     $      222      $    2,661
  Proforma                                   $  (11,600)     $     (348)     $    2,658
Basic and diluted earnings (loss) per share
  As reported                                $    (0.96)     $     0.02      $     0.25
  Proforma                                   $    (0.99)     $    (0.03)     $     0.25
</TABLE>

         The fair value of options granted in 1999 and 1998 was estimated using
the minimum value method as permitted by SFAS 123 for a nonpublic company. The
following assumptions were used for the options granted in 1999: no dividend
yield; weighted-average risk-free interest rate of 5.24%; and an expected life
of 7 1/2 years. The following assumptions were used for the options granted in
1998: No dividend yield; weighted average risk-free interest rate of 5.10%; and
an expected life of 7 1/2 years. The following assumptions were used for the
options granted in 1997: no dividend yield; risk-free interest rate of 5.725%;
and an expected life of 7-1/2 years.

         A summary of the status of the Company's stock option plan as of
December 31, 1999 and 1998, and changes during the years ending on those dates
is presented below:

<TABLE>
<CAPTION>

                                                       1999                                    1998
                                        ------------------------------------    ------------------------------------
                                                            Weighted-Average                        Weighted-Average
                                            Shares           Exercise Price         Shares           Exercise Price
                                        ---------------     ----------------    ----------------    ----------------
<S>                                     <C>                 <C>                 <C>                 <C>
Outstanding at beginning of year            1,595,225         $   3.44               1,482,201        $    3.50
Granted                                       149,500         $   2.50                 135,021        $    2.78
Exercised                                          --               --                      --               --
Cancelled                                    (162,455)        $   3.32                 (21,997)       $    3.50
                                            ---------                                ---------
Outstanding at end of year                  1,582,270         $   3.36               1,595,225        $    3.44
                                            =========                                =========

Shares exercisable                            706,768         $   3.47                 367,423        $    3.50
                                            =========                                =========
Weighted-average fair value of
options granted during the year                               $   0.81                                $    0.90
                                                              ========                                =========
</TABLE>



                                       41
<PAGE>   42


         The following table summarizes information about stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>

                                      OPTIONS OUTSTANDING                           OPTIONS EXERCISABLE
                    --------------------------------------------------------    -----------------------------
                                          Weighted-
                                          Average                                                 Weighted-
                                          Remaining                                               Average
        Exercise         Number          Contractual        Weighted-Average      Number          Exercise
         Prices        Outstanding          Life            Exercise Price      Exercisable        Price
       ------------    -----------     ----------------     ----------------    -----------     -------------
       <S>             <C>             <C>                  <C>                 <C>             <C>
         $ 2.00            63,000           8.945               $ 2.00              12,600         $ 2.00
         $ 2.50           122,000           9.386               $ 2.50                  --         $  --
         $ 3.50         1,397,270           8.006               $ 3.50             694,168         $ 3.50
                       -----------                                              -----------
                        1,582,270                                                  706,768
                       ===========                                              ===========
</TABLE>

         On December 30, 1997, the Company granted a total of 1,482,201 options
to employees at an option price of $3.50, the fair market value at the date of
grant. Of the total options granted, 942,201 were granted with a vesting period
of five years and 540,000 were granted with a vesting period of three years. The
fair value of options granted during 1997 was $1.22.

NOTE R - SUPPLEMENTAL SELECTED QUARTERLY DATA (UNAUDITED)

<TABLE>
<CAPTION>

                                                         FIRST          SECOND           THIRD          FOURTH
                                                        QUARTER         QUARTER         QUARTER         QUARTER
                                                       ----------      ----------      ----------      ----------
<S>                                                    <C>             <C>             <C>             <C>
       FISCAL YEAR 1999
Revenues                                               $   25,901      $   18,063      $   19,834      $   23,832
Gross profit                                                4,181             541             515           2,607
Income (loss) from operations                               1,593          (2,965)         (2,760)         (2,001)
Income (loss) before extraordinary item                      (636)         (3,513)         (3,432)         (3,686)
Net income (loss)                                            (636)         (3,513)         (3,432)         (3,686)
 Basic and diluted earnings per share:
   Income(loss) before extraordinary item              $    (0.05)     $    (0.30)     $    (0.29)     $    (0.31)
   Net income (loss)                                        (0.05)          (0.30)          (0.29)          (0.31)

 Basic and diluted weighted-average shares                 11,757          11,757          11,757          11,757


        FISCAL YEAR 1998
Revenues                                               $   15,767      $   21,379     $   25,460     $   19,416
Gross profit                                                3,422           5,710          6,120          3,485
Income from operations                                      1,881           3,895          3,696          1,018
Income (loss) before extraordinary item                        72             911            788           (616)
Net income (loss)                                            (861)            911            788           (616)

Basic and diluted earnings per share:
  Income before extraordinary item                     $     0.01      $     0.08     $     0.07     $    (0.05)
  Net income (loss)                                         (0.07)           0.08           0.07          (0.05)

Basic and diluted weighted-average shares                  11,757          11,757         11,757         11,757
</TABLE>


                                       42
<PAGE>   43


         In the fourth quarter of 1999, the Company recorded an accrual for the
environmental settlements of $1,300, the impairment of certain assets of $406,
and the accrual of $400 for the repair of certain equipment to be returned off
of long-term lease. The aggregate of these three adjustments had a negative
affect on the net loss of approximately $1,832.

         In the fourth quarter of 1998, the Company adjusted interest
capitalized on self-constructed assets, resulting in an increase to net income
of approximately $207.



                                       43
<PAGE>   44



ITEM 9.   CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
          DISCLOSURE.

         None

PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The Company's Board of Directors currently has five directors. In
accordance with the Certificate of Incorporation of the Company (the "Charter"),
the members of the Board of Directors are divided into three classes and are
elected for a term of three years, or until a successor is duly elected and
qualified. The terms of office of the Class I, Class II and Class III directors
expire at the annual meeting of stockholders to be held in 2001, 2002 and 2003,
respectively. All officers serve at the discretion of the Board of Directors.

         The following table sets forth certain information with respect to the
Company's executive officers and directors.

<TABLE>
<CAPTION>

NAME                         AGE     TITLE
----                         ---     ------
<S>                          <C>     <C>
Samuel F. Eakin               45     Chairman of the Board, Chief Executive Officer (a)
H. Grady Walker               40     President, Chief Operating Officer
David B. Ammons               49     Executive Vice President, Secretary, Director (b)
Frank R. Pierce               50     Senior Vice President and Chief Financial Officer
Suzanne B. Kean               43     Senior Vice President and General Counsel
Dale E. Schexnayder           34     Corporate Controller
Frank W. Eakin                39     Director (b)
James D. Cole                 58     Director (c)
Paul E. O'Neill, II           50     Director (c)
</TABLE>

-------------------
(a)  Class III Director
(b)  Class II Director
(c)  Class I Director

         Set forth below is a description of the backgrounds of each of the
executive officers and directors of the Company:

         Samuel F. Eakin has served as Chairman of the Board and Chief Executive
Officer of the Company since December 1993. In 1987, he founded Eakin & Co. for
the purpose of acquiring distressed companies and restructuring complex credits
and continues to be a principal in that company. Mr. Eakin is the brother of
Frank W. Eakin, a Director of the Company.

         H. Grady Walker has served as President and Chief Operating Officer of
the Company since December, 1999. Prior to his election to President, Mr. Walker
served in several other positions with the Company including, Executive Vice
President-Houston Operations. Prior to joining the Company in 1996, Mr. Walker
was employed for fourteen years with Chevron, where he served in various
capacities in engineering, project management and operations management.

         David B. Ammons has served as Executive Vice President, Secretary and
Director of the Company since December 1993. Prior to Mr. Pierce joining the
Company in 1999, Mr. Ammons served as the Company's principal financial officer.
Mr. Ammons is a Certified Public Accountant with a background in public
accounting and has owned and operated several businesses. In 1987, Mr. Ammons
became a principal in Eakin & Co. and continues to serve in that capacity.

         Frank R. Pierce serves as Senior Vice President and Chief Financial
Officer of the Company. From 1990 until joining the Company in April 1999,
Mr. Pierce served as Executive Vice President, Secretary and Treasurer of
GulfMark Offshore, Inc. (NASDAQ: GMRK) where he had been employed since 1987.



                                       44
<PAGE>   45


         Suzanne B. Kean serves as Senior Vice President and General Counsel of
the Company. Prior to joining the Company in October 1998, Ms. Kean served as a
shareholder and director of Griggs & Harrison, P.C., a Houston law firm,
focusing on mergers and acquisitions and securities law for the energy and
marine industries, from 1987 through September 1998. Ms. Kean was employed as an
associate with Griggs & Harrison from 1981 through 1987. Ms. Kean serves on the
Board of Directors of HYPLife, Inc., an internet based company owned by Mr.
Frank Eakin, a director of the Company.

         Dale E. Schexnayder joined the Company in December 1997 as Corporate
Controller. Prior to joining the Company, Mr. Schexnayder was employed as an
auditor by Deloitte & Touche LLP from 1988 through December 1997. In 1996 he was
promoted to Audit Senior Manager at Deloitte & Touche LLP. Mr. Schexnayder is a
certified public accountant.

         Frank W. Eakin has served as Director of the Company since October
1997. Since January, 2000, Mr. Eakin has been the Chairman and Chief Executive
Officer of HYPLife, Inc., a start-up internet company. Prior to that he served
as President and Chief Operating Officer of the Company from 1997 until December
1999. Mr. Eakin also served as President of Newpark Shipbuilding--Brady Island,
Inc. from December 1993 to 1997. From 1983 to 1989, he founded and operated a
successful international food processing and distribution company. Mr. Eakin is
the brother of Samuel F. Eakin, Chairman and Chief Executive Officer of the
Company.

         James D. Cole has served as a Director of Newpark Shipbuilding--Brady
Island, Inc., a subsidiary of the Company since late 1993. Mr. Cole is the
Chairman of the Board, President and a Director of Newpark Resources, Inc.
(NYSE: NR), an unaffiliated public company listed on the New York Stock
Exchange. He has served in various positions in that company since 1976.

         Paul E. O'Neill, II has served as a Director of the Company since
October 1997. Mr. O'Neill is President, Director and Chief Operating Officer of
Acadian Group, Ltd., a holding company formed in 1996 to oversee various
construction and service companies. Prior to joining Acadian Group, Ltd., Mr.
O'Neill served for two years as President and four years as a Director of C-K
Associates, Inc., a regional Gulf Coast environmental engineering and consulting
firm. Mr. O'Neill spent 17 years in various positions, including Vice President
and General Manager with TEAM, Inc. (AMEX: TMT), a public company listed on the
American Stock Exchange, which provides various industrial and environmental
services in the U.S. and 13 foreign countries.

COMMITTEES AND MEETINGS OF DIRECTORS

         The standing committees of the Board of Directors of the Company
include an Executive Committee and an Audit Committee. The function of each of
these two committees is described and the members of each are listed below.

         Messrs. O'Neill, Cole and Ammons are the current members of the
Company's Audit Committee. The Audit Committee makes recommendations to the
Board concerning the selection and discharge of the Company's independent
auditors, reviews professional services performed by the auditors, the results
of their audit engagement and the fees charged for services performed by the
auditors and evaluates the Company's system of internal accounting controls.

         Messrs. S. Eakin, F. Eakin and Ammons are the current members of the
Executive Committee, which acts on behalf of the Board of Directors between
regularly scheduled meetings of the Board of Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         Paul E. O'Neill, President and Director of Acadian Group, Ltd., serves
on the Board of Directors of the Company which Board determines the compensation
for the executive officers of the Company, including David B. Ammons and Samuel
F. Eakin. Messrs. S. Eakin and Ammons serve on the Board of Directors of Acadian
Group, Ltd. which Board determines the compensation of Mr. O'Neill.
Additionally, Suzanne B. Kean, an executive officer of the Company serves on the
Board of Directors of HYPLife, Inc., a privately held company wholly owned by
Frank W. Eakin, a director of the Company.


                                       45
<PAGE>   46


ITEM 11.  DIRECTOR AND EXECUTIVE OFFICER COMPENSATION

         Director Compensation. Directors who are employees of the Company are
not entitled to receive additional compensation for serving as directors. Each
non-employee director of the Company is paid $1,000 for each meeting of the
Board of Directors he attends, $500 for each telephonic meeting participated in,
and $500 for each committee meeting he attends which does not fall on the same
day as a Board of Directors meeting. In addition, a $1,250 retainer is paid to
each non-employee director of the Company for each quarter of the year in which
such director serves as a director, plus such director's direct out-of-pocket
expenses for attendance at meetings. Total compensation paid in 1999 to the
non-employee directors, including directors' fees and retainers was $5,750 for
Mr. Cole and $5,750 for Mr. O'Neill. The retainer of $1,250 for the fourth
quarter of 1999 was paid in 2000.

         Executive Officer Compensation. The following table sets forth the
aggregate compensation for each of the Company's last three fiscal years of (i)
the Company's chief executive officer and (ii) for the four most highly
compensated executive officers (plus one former executive officer)of the Company
whose total annual salary during 1999 exceeded $100,000.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                              ANNUAL COMPENSATION
                              ------------------------------------------------------------------
                                                                                    LONG-TERM
                                                                                   COMPENSATION
                                                                                      AWARDS
                                                                                     SECURITIES
NAME AND PRINCIPAL                                               OTHER ANNUAL        UNDERLYING        ALL OTHER
    POSITION                   YEAR      SALARY       BONUS     COMPENSATION(A)     OPTIONS/SARS     COMPENSATON(b)(c)
    --------                   ----      ------       -----     ---------------    ---------------   -----------------
<S>                            <C>      <C>          <C>        <C>                <C>                 <C>
Samuel F. Eakin                1999     $250,000     $ 70,000     $  6,750             $     --           $ 17,685
Chief Executive                1998      250,000      169,000           --                   --             18,755
Officer                        1997      153,000      370,000           --              180,000             13,275

H. Grady Walker, III           1999       97,500       37,500     $  5,920                   --              1,360
President and Chief            1998       90,000       30,000           --                   --              1,385
Operating Officer
  (12/1/99)                    1997       78,000        7,000        4,475               70,646                445

Frank W. Eakin                 1999      183,000       36,000           --                   --           $212,650(d)
Director (President and        1998      200,000      135,000           --                   --              3,540
Chief Operating Officer        1997      154,000      275,000           --              180,000              2,040
until 12/1/99)

David B. Ammons                1999      180,000       34,000           --                   --              5,555
Executive Vice President       1998      180,000      122,000           --                   --              5,300
                               1997      125,000      190,000           --              180,000              4,220

Suzanne B. Kean                1999      140,000       37,500           --                   --              1,330
Senior Vice President and      1998       26,000           --           --               50,000                 50
General Counsel                1997           --           --           --                   --

Frank R. Pierce                1999      102,000       31,250           --               25,000              6,250
Senior Vice President and      1998           --           --           --                   --                 --
Chief Financial Officer        1997           --           --           --                   --                 --
</TABLE>
------------------

(a)  Other annual compensation excludes perquisites and other benefits because
     the aggregate amount of such compensation was less than 10% of the combined
     total for salary and bonus.

(b)  Amounts shown in this column for the last fiscal year include matching
     contributions made by the Company pursuant to its 401(k) savings plan of
     $1,080, $1,440 and $1,215 for Messrs. S. Eakin, Ammons and Walker,
     respectively, and $1,070 for Ms. Kean. Additionally, the amounts include
     premiums associated with a term life insurance policy of $11,924, $2,025,
     $4,115, $300 and $145 for Messrs. S. Eakin, F. Eakin, Ammons, Pierce and
     Walker, respectively, and $260 for Ms. Kean.


                                       46
<PAGE>   47


(c)  Amounts shown in this column for the last fiscal year include $4,681,
     $5,475, and $5,950 for a car allowance for Messrs. S. Eakin, F. Eakin and
     Pierce, respectively.

(d)  In addition to the amounts described in Notes (b) and (c) above for Mr. F.
     Eakin, the amounts shown in this column include amounts paid or accrued for
     Mr. F. Eakin as follows: (i) $14,400 for 1999 consulting fees paid to Mr.
     F. Eakin, (ii) $190,750 for consulting fees accrued in 1999 but to be paid
     through May of 2000, of which $114,750 relates to the final year of an
     EBITDA bonus arrangement with Mr. F. Eakin. The consulting fees and EBITDA
     bonus have been accrued as of December 31, 1999 in accordance with
     Statement of Financial Accounting Standard No. 112, "Employers' Accounting
     for Post-employment Benefits".

     The following table represents the total number of options to purchase the
Company's common stock granted to the named executive officers during 1999.

                   OPTIONS/SAR GRANTS IN THE LAST FISCAL YEAR

<TABLE>
<CAPTION>

                                                          INDIVIDUAL GRANTS
----------------------------------------------------------------------------------------------------------------------------------

                                         Percent Of                              Potential Realizable
                        Number of          Total                                   Value At Assumed
                        Securities      Options/SARS                             Annual Rate of Stock
                        Underlying       Granted To     Exercise                  Price Appreciation
                       Options/SARS      Employees      Or Base                    for Option Term
                         Granted         In Fiscal       Price     Expiration   ----------------------        Grant Date
        Name              (#)(a)            Year         ($/Sh)       Date         5%        10%            Present Value $
        ----           ------------     ------------   ---------  ------------   -----      ----            ---------------
<S>                    <C>              <C>             <C>        <C>           <C>         <C>              <C>
  Frank R. Pierce         25,000           16.7%         $2.50      4/28/09       ---        ---              $20,000(b)
</TABLE>

-------------------

(a)  These options were granted on April 28, 1999 pursuant to the Company's
     1997 Incentive Equity Plan. The options were granted for a term of
     10 years subject to earlier termination upon certain events related to
     termination of employment. Twenty percent of such options become
     exercisable on each anniversary date of grant.

(b)  The grant date value was estimated using the minimum value method, as
     permitted by SFAS 123 for a company with private equity, with the
     following assumptions: no dividend yield; risk-free interest rate of 5.13%,
     and an expected life of 7 1/2 years.


     The following table represents the total number of options to purchase the
Company's common stock exercised by the named executive officers during 1999,
and the value of such officers unexercised options as of December 31, 1999.

             AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
                            FY-END OPTIONS/SAR VALUES


<TABLE>
<CAPTION>
                                                                                                       Value Of
                                                                                                     Unexercised
                                                                          Number of Securities       In-The-Money
                                                                               Underlying          Options/SARS At
                                                                               Unexercised         Fiscal Year-End
                                          Shares                             Options/SARS At             ($)
                                       Acquired On      Value Realized     Fiscal Year-End (#)       Exercisable/
               Name                      Exercise            ($)              Exercisable/          Unexercisable)
                                           (#)                                Unexercisable
  --------------------------------    ---------------   ---------------   ----------------------   -----------------
<S>                                   <C>               <C>               <C>                      <C>
  Samuel F. Eakin                          ---               ---             120,000/60,000             ---/---
  H. Grady Walker                          ---               ---              28,218/42,328             ---/---
  Frank W. Eakin                           ---               ---             120,000/60,000             ---/---
  David B. Ammons                          ---               ---             120,000/60,000             ---/---
  Frank R. Pierce                          ---               ---                   0/25,000             ---/---
  Suzanne B. Kean                          ---               ---              10,000/40,000             ---/---
</TABLE>



                                       47
<PAGE>   48


EMPLOYMENT AGREEMENTS

         The Company previously had agreed to enter into employment agreements
with Messrs. S. Eakin, F. Eakin and Ammons which would provide for annual base
salaries of $250,000, $200,000 and $180,000, respectively. The employment
agreements will provide for semi-annual incentive bonuses equal to 1.19%, 0.95%
and 0.86% of semi-annual EBITDA for Messrs. S. Eakin, F. Eakin and Ammons,
respectively. The employment agreements will also provide for payment of
premiums of $12,965, $1,839 and $3,691 annually for term life insurance policies
for Messrs. S. Eakin, F. Eakin and Ammons, respectively. The contracts will
provide for a term of three years from January 1998, with three months severance
upon termination by the Company without cause. Although the Company has not
formally entered into these agreements, it is operating under those terms. Mr.
F. Eakin's employment arrangement ceased upon his resignation on November 30,
1999. Effective December 1, 1999, the Company entered into a consulting
arrangement with Mr. F. Eakin providing for payment of $15,200 per month in
consulting fees through May 31, 2000. Under the new consulting arrangement,
Mr. F. Eakin is also entitled to a semi-annual fee equal to 0.85% of semi-annual
EBITDA for the year 2000. The terms of the employment and consulting agreements
between Messrs. S. Eakin, F. Eakin and Ammons cannot be considered to have
been determined through arms-length negotiations.

CASH BONUS PLANS

         The Company has approved the payment of bonuses to key employees of the
Company for 1999 under several different bonus plans and formulas. Generally,
bonuses paid to vice presidents of the Company and its subsidiaries are at the
discretion of the Board of Directors. Repair services superintendents, gas free
services superintendents and certain managers are also paid cash bonus
compensation based on a formula which includes the following factors (i)
productivity/quality, (ii) customer relations, (iii) environmental, safety and
work rules compliance, (iv) goals and (v) leadership. The Vice President of Risk
Management and his internal claims adjuster earn bonuses based on the Company's
safety and claims performance. The Company also pays discretionary bonuses to
its non-executive employees based upon project performance.

RETIREMENT PLAN

         The Company has adopted a 401(k) plan for its employees. Employees are
eligible to participate in the plan after six months of service with the
Company, provided they work at least 1,000 hours during that first year and are
at least 21 years of age. Under the plan, eligible employees are permitted to
contribute up to 15% of compensation. The plan provides that the Company will
match an amount equal to a percentage set by the Company of up to 6% of an
employee's contribution prior to the end of each calendar year. The Company is
also permitted to make qualified non-elective and discretionary contributions in
proportion to each eligible employee's compensation as a ratio of the aggregate
compensation of all eligible employees. The amounts held under the plan are
invested in investment funds maintained under the plan in accordance with the
directions of each participant.

         All employee contributions are immediately 100% vested. Contributions
by the Company vest at a rate of 10% beginning one year after the anniversary
date of employment, an additional 10% after year two and 20% each additional
year thereafter. Upon attaining age 65, participants are automatically 100%
vested, even with respect to Company contributions. Subject to certain
limitations imposed under the Internal Revenue Code, participants or their
designated beneficiaries are entitled to payment of vested benefits upon
termination of employment. On attaining age 65, participants are entitled to
distribution of the full value of their benefits even if they continue to be
employed by the Company. Such employees also have the option of deferring
payment until April 1 following the year they attain the age of 70 1/2. In
addition, hardship and other in-service distributions and loans to participants
from the plan are available under certain circumstances and subject to certain
conditions. The amount of benefits ultimately payable to a participant under the
plan depends on the level of the participant's salary deferral contributions
under the plan, the amount of Company discretionary and matching contributions
made to the plan and the performance of the investment funds maintained under
the plan in which participants are invested.


                                       48
<PAGE>   49



AMENDED AND RESTATED 1997 PLAN

         The Board of Directors of the Company has adopted an Incentive Equity
Plan for employees and non-employee directors. The Amended and Restated 1997
Incentive Equity Plan (the "1997 Plan") permits the granting of any or all of
the following types of awards ("Awards"): stock appreciation rights, stock
options and restricted stock. Under the 1997 Plan, all officers, employees and
non-employee directors of the Company, or any affiliates of the Company, are
eligible for participation in all Awards.

         An aggregate of 1,800,000 shares of Common Stock have been authorized
and reserved for issuance pursuant to the 1997 Plan. At December, 31, 1999,
options to purchase an aggregate of 1,594,352 shares of Common Stock have been
granted under the 1997 Plan, at varying exercise prices based upon the fair
market value determined by the Board of Directors on the date of grant. The 1997
Plan is administered by the entire Board of Directors. The 1997 Plan contains
appropriate provisions to assure that it complies with the provisions of Section
16(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules
promulgated thereunder. The Board of Directors, as a whole, will have sole
authority to select employees who are to be granted Awards, as well as the
amount, type and terms of the Awards to be granted. The Board of Directors, as a
whole, will be authorized to interpret the 1997 Plan. All decisions made by the
Board of Directors, as a whole, in selecting employees for Awards are final.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS

         The following table sets forth, as of March 1, 2000, the number and
percentage of shares of common stock beneficially owned by each of the Company's
directors, each executive officer named in the Summary Compensation Table and
all directors and executive officers as a group.

<TABLE>
<CAPTION>

                                          NO. OF SHARES BENEFICIALLY
                     NAME                 OWNED AS OF MARCH 1, 2000(a)(b)     PERCENT OF CLASS
--------------------------------------    ------------------------------   ----------------------
<S>                                       <C>                              <C>
Samuel F. Eakin                                    6,574,539                          55.3%
David B. Ammons                                    2,271,513(c)(d)                    19.1%
Frank W. Eakin                                     2,271,513(e)                       19.1%
H. Grady Walker, III                                  98,763                             *
Suzanne B. Kean                                       10,000                             *
Frank R. Pierce                                        5,000                             *
James D. Cole                                             --                           0.0%
Paul E. O'Neill, III                                      --                           0.0%
All directors and officers as a group
(9 persons)                                       11,234,504                          92.4%

</TABLE>
--------------
(*)   Less than 1%.

(a)  Unless otherwise indicated below, the persons listed have sole voting and
     investment power with respect to their shares of common stock.

(b)  The amounts in this column include the following shares of common stock
     considered to be beneficially owned through the holders' ability to
     exercise stock options for such shares: Messrs. S. Eakin 120,000 shares, F.
     Eakin 120,000 shares, Ammons 120,000 shares, Walker 28,218 shares, Pierce
     5,000 shares, Ms. Kean 10,000 shares, and Mr. Dale E. Schexnayder, the
     Company's Principal Accounting officer, 3,176 shares.

(c)  This amount includes 9,872 shares of common stock beneficially owned by Mr.
     Ammons' wife, 5,714 shares of common stock beneficially owned by Mr.
     Ammons' wife, as custodian for David B. Ammons II, and 5,714 shares of
     common stock beneficially owned by Mr. Ammons' wife, as custodian for Blake
     A. Ammons. Mr. Ammons disclaims any beneficial interest in the shares owned
     by his wife individually and such shares owned by his wife as custodian for
     his children.

(d)  This amount includes 777,800 shares owned by a Louisiana limited liability
     company in which Mr. Ammons controls. Mr. Ammons has sole voting and
     investment power with respect to all such shares.

(e)  This amount includes 5,714 shares of common stock beneficially owned by Mr.
     F. Eakin's wife, as custodian for Amanda C. Eakin. Mr. F. Eakin disclaims
     any beneficial interest in shares owned by his wife as custodian for his
     daughter.

                                       49
<PAGE>   50


ITEM 13.  CERTAIN TRANSACTIONS

         In February 1998, the Board of Directors of the Company approved a
maximum $1,000,000 line of credit available to three employee director
shareholders of the Company. The line of credit allows borrowings of up to
$600,000 to Mr. S. Eakin and up to $200,000 to each of Messrs. F. Eakin and
Ammons. Borrowings under the line of credit bear an interest rate of 6% per
annum with interest payable annually and principal to be amortized over a ten
year period through the pro rata reduction of the line of credit commencing
March 2001. At December 31, 1999, $453,260, $200,000 and $130,000 were
outstanding from Messrs. S. Eakin, F. Eakin and Ammons, respectively.

         Employees of a subsidiary of the Company share office space with Eakin
& Co. ("Eakin-Co"), an affiliated company owned 80% by Samuel F. Eakin and 20%
by David B. Ammons. During 1999 and 1998, the subsidiary paid $150,000 and
$110,000, respectively, to Eakin-Co. for use of office space, office equipment
and administrative support personnel.

         On occasion, the Company charters its Cessna 340 twin-engine airplane
to affiliated entities owned by certain shareholders of the Company. The charter
rate is considered a market rate. Included in accounts receivable in the
consolidated balance sheet of the Company at December 31, 1999 is approximately
$39,000 related to chartered flights by these affiliated entities.

         The Company paid management fees to Eakin-Co in 1998 of $30,000. These
fees were paid pursuant to an understanding between the Company and Eakin-Co
under which Eakin-Co provided financial advisory services to the Company for a
monthly fee of $15,000 per month. The Company ceased payment of monthly
management fees to Eakin-Co in March 1998.

         At December 31, 1999, the Company had outstanding indebtedness owed to
Newpark Resources, Inc., an unrelated corporation, in the amount of $7.4
million. James D. Cole, a director of the Company is the Chief Executive Officer
and Chairman of the Board of Newpark Resources, Inc.

         Samuel F. Eakin is the guarantor of one of the credit facilities of the
Company. Mr. S. Eakin is also the guarantor of the notes payable to Newpark
Resources.

         The Company paid SFA $30,000 and $32,500 in 1999 and 1998 in payments
under a demand promissory note in the original principal amount of $230,000
bearing interest at 7% per annum.

         In August 1997, Samuel F. Eakin and David B. Ammons formed a limited
liability company which owned a Cessna 310 twin engine airplane. The Company
leased the airplane from such entity at a market lease rate of $5,000 per month.
In addition, under the lease agreement, the Company was required to maintain the
airplane in good working condition, to pay all operating expenses related to the
airplane and to maintain insurance on the airplane. The lease agreement had a
term of five years. The Company believed that the terms of such agreement were
no less favorable than the Company could have received from an unrelated party.
The Company adopted a policy which requires an individual to reimburse the
Company for the Company's direct costs resulting from any trip on the airplane
for personal use. During 1999, the lease was terminated.

ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)   1.  FINANCIAL STATEMENTS

          The following Consolidated Financial Statements of the Company are
          included in Item 8.

          Report of Independent Certified Public Accountants
          Consolidated Balance Sheets as of December 31, 1999 and 1998
          Consolidated Statements of Income for the years ended December 31,
            1999, 1998 and 1997
          Consolidated Statement of Stockholders' Equity for the years ended
            December 31, 1997, 1998 and 1999
          Consolidated Statements of Cash Flows for the years ended December 31,
            1999, 1998 and 1997
          Notes to Consolidated Financial Statements


                                       50
<PAGE>   51


         2.    FINANCIAL STATEMENT SCHEDULES

         All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.

(b)      REPORTS ON FORM 8-K

         A current report on Form 8-K was filed December 7, 1999 reporting the
Company's change of President and Chief Operating Officer.

(c)      EXHIBITS

<TABLE>
<CAPTION>

EXHIBIT                                                                    INCORPORATED BY REFERENCE FROM THE
  NO.                        DESCRIPTION                                       FOLLOWING DOCUMENTS:
-------                      -----------                                       -------------------
<S>          <C>                                                            <C>
2.1          Stock Exchange Agreement dated as of October 16, 1997         Exhibit 2.1 to Form S-1 Registration
             between the Company and certain shareholders of Newpark       Statement No. 333-38157, filed January 26,
             Shipbuilding and Repair, Inc.                                 1998

2.2          Distribution of Stock Agreement between John Bludworth        Exhibit 2.1 to Company's Quarterly Report on
             Marine, Inc. (now known as Newpark Shipbuilding-Pasadena,     Form 10-Q for period ending June 30, 1998,
             Inc.), EAE Services, Inc., First Wave Marine, Inc., and       filed August 13, 1998
             Newpark Marine Fabricators, Inc. (now known as Newpark
             Shipbuilding-Pelican Island, Inc.), dated as of July 29,
             1998.

2.3          Articles of Merger of Bludworth Shipyard and Fabrication,     Exhibit 2.2 to Company's Quarterly Report on
             Inc. into Newpark Marine Fabricators, Inc.(now known as       Form 10-Q for period ending June 30, 1998,
             Newpark Shipbuilding-Pelican Island, Inc.), effective as of   filed August 13, 1998
             August 6, 1998.

3.1          Certificate of Incorporation of the Company                   Exhibit 3.1 to Form S-1 Registration
                                                                           Statement No. 333-38157, filed January 26,
                                                                           1998

3.2          Bylaws of the Company                                         Exhibit 3.2 to Form S-1 Registration
                                                                           Statement No. 333-38157, filed January 26,
                                                                           1998

3.3          Articles of Incorporation Newpark Shipbuilding and Repair,    Exhibit 3.13 to Form S-1 Registration
             Inc.                                                          Statement No. 333-38157, filed January 26,
                                                                           1998

3.3.1        Articles of Amendment dated February 3, 1994 to the           Exhibit 3.14 to Form S-1 Registration
             Articles of Incorporation of Newpark Shipbuilding and         Statement No. 333-38157, filed January 26,
             Repair, Inc.                                                  1998

3.3.2        Articles of Amendment dated April 25, 1994 to the Articles    Exhibit 3.15 to Form S-1 Registration
             of Incorporation of Newpark Shipbuilding and Repair, Inc.     Statement No. 333-38157, filed January 26,
                                                                           1998

3.3.3        Articles of Amendment dated August 29, 1996 to the Articles   Exhibit 3.17 to Form S-1 Registration
             of Incorporation of Newpark Shipbuilding and Repair, Inc.     Statement No. 333-38157, filed January 26,
                                                                           1998
</TABLE>


                                       51
<PAGE>   52


<TABLE>
<CAPTION>

EXHIBIT                                                                    INCORPORATED BY REFERENCE FROM THE
  NO.                        DESCRIPTION                                       FOLLOWING DOCUMENTS:
-------                      -----------                                       -------------------
<S>          <C>                                                            <C>
3.3.4        Articles of Amendment to the Articles of Incorporation of     Exhibit 3.3 to Company's  Quarterly Report on
             Newpark Shipbuilding and Repair, Inc. (now known as Newpark   Form 10-Q for period  ending  June 30,  1998,
             Shipbuilding-Brady Island, Inc.), effective as of August 7,   filed August 13, 1998
             1998.

3.4          Amended and Restated Bylaws of Newpark Shipbuilding and       Exhibit 3.16 to Form S-1 Registration
             Repair, Inc.                                                  Statement No. 333-38157, filed January 26,
                                                                           1998

3.5          Articles of Incorporation of Louisiana Ship, Inc.             Exhibit 3.3 to Form S-1 Registration
                                                                           Statement No. 333-38157, filed January 26,
                                                                           1998

3.5.1        Articles of Amendment to the Articles of Incorporation of     Exhibit 3.4 to Form S-1 Registration
             Louisiana Ship, Inc.                                          Statement No. 333-38157, filed January 26,
                                                                           1998

3.5.2        Articles of Amendment to the Articles of Incorporation of     Exhibit 3.1 to Company's  Quarterly Report on
             Louisiana Ship, Inc. (now known as Newpark                    Form 10-Q for period  ending  June 30,  1998,
             Shipbuilding-Greens Bayou, Inc.), effective as of August 7,   filed August 13, 1998
             1998.
3.6          Amended and Restated Bylaws of Louisiana Ship, Inc.           Exhibit 3.5 to Form S-1 Registration
                                                                           Statement No. 333-38157, filed January 26,
                                                                           1998

3.7          Articles of Incorporation of EAE Services, Inc.               Exhibit 3.6 to Form S-1 Registration
                                                                           Statement No. 333-38157, filed January 26,
                                                                           1998

3.8          Bylaws of EAE Services, Inc.                                  Exhibit 3.7 to Form S-1 Registration
                                                                           Statement No. 333-38157, filed January 26,
                                                                           1998

3.9          Articles of Incorporation of EAE Industries, Inc.             Exhibit 3.8 to Form S-1 Registration
                                                                           Statement No. 333-38157, filed January 26,
                                                                           1998

3.10         Articles of Amendment to the Articles of Incorporation of     Exhibit 3.9 to Form S-1 Registration
             EAE Industries, Inc.                                          Statement No. 333-38157, filed January 26,
                                                                           1998

3.11         Amended and Restated Bylaws of EAE Industries, Inc.           Exhibit 3.10 to Form S-1 Registration
                                                                           Statement No. 333-38157, filed January 26,
                                                                           1998

3.12         Articles of Incorporation of Newpark Marine Fabricators,      Exhibit 3.11 to Form S-1 Registration
             Inc.                                                          Statement No. 333-38157, filed January 26,
                                                                           1998

3.12.1       Articles of Amendment to the Articles of Incorporation of     Exhibit 3.2 to Company's  Quarterly Report on
             Newpark Marine Fabricators, Inc. (now known as Newpark        Form 10-Q for period  ending  June 30,  1998,
             Shipbuilding-Pelican Island, Inc.), effective as of August    filed August 13, 1998
             7, 1998.
</TABLE>



                                       52
<PAGE>   53


<TABLE>
<CAPTION>

EXHIBIT                                                                    INCORPORATED BY REFERENCE FROM THE
  NO.                        DESCRIPTION                                       FOLLOWING DOCUMENTS:
-------                      -----------                                       -------------------
<S>          <C>                                                            <C>
3.13         Bylaws of Newpark Marine Fabricators, Inc. (now known as      Exhibit 3.12 to Form S-1 Registration
             Newpark Shipbuilding-Pelican Island, Inc.)                    Statement No. 333-38157, filed January 26,
                                                                           1998

3.14         Articles of Incorporation of John Bludworth Marine, Inc.      Exhibit 3.14 to the Company's Annual Report
                                                                           on Form 10-K for the year ended December 31,
                                                                           1998, filed March 19, 1999

3.14.1       Articles of Amendment to the Articles of Incorporation of     Exhibit  3.14.1 to the Company's Annual
             John Bludworth Marine, Inc. (now known as Newpark             Report on Form 10-K for the year ended
             Shipbuilding-Pasadena, Inc.), effective as of August 7,       December 31, 1998, filed March 19, 1999
             1998.

3.15         Bylaws of John Bludworth Marine, Inc. (now known as Newpark   Exhibit  3.15 to the Company's Annual Report
             Shipbuilding-Pasadena, Inc.)                                  on Form 10-K for the year ended December 31,
                                                                           1998, filed  March 19, 1999

3.16         Certificate of Incorporation of FirstWave Management, Inc.    Exhibit  3.16 to the Company's Annual Report
                                                                           on Form 10-K for the year ended December 31,
                                                                           1998, filed March 19, 1999

3.17         Bylaws of FirstWave Management, Inc.                          Exhibit  3.17 to the Company's Annual Report
                                                                           on Form 10-K for the year ended December 31,
                                                                           1998, filed March 19, 1999

4.1          Indenture between First Wave Marine, Inc., as Issuer and      Exhibit 4.1 to Company's Quarterly Report on
             Newpark Shipbuilding and Repair, Inc. (now known as Newpark   Form 10-Q for period ending June 30, 1998,
             Shipbuilding-Brady Island, Inc.), EAE Services, Inc., EAE     filed August 13, 1998
             Industries, Inc., Newpark Marine Fabricators, Inc. (now
             known as Newpark Shipbuilding-Pelican Island, Inc.) and
             Louisiana Ship, Inc. (now known as Newpark
             Shipbuilding-Greens Bayou, Inc.), as Subsidiary Guarantors
             and Bank One, N.A., as Trustee, dated as of February 2,
             1998.

4.1.1        First Supplemental Indenture between First Wave Marine,       Exhibit 4.3 to Company's Quarterly Report on
             Inc., as Issuer, Subsidiary Guarantors named therein and      Form 10-Q for period ending June 30, 1998,
             Bank One, N.A., as Trustee, dated as of February 3, 1998.     filed August 13, 1998

4.1.2        Second Supplemental Indenture between First Wave Marine,      Exhibit 4.3 to Company's Quarterly Report on
             Inc., as Issuer, Subsidiary Guarantors named therein and      Form 10-Q for period ending June 30, 1998,
             Bank One, N.A., as Trustee, dated as of May 18, 1998.         filed August 13, 1998

4.1.3        Third Supplemental Indenture between First Wave Marine,       Exhibit 4.1.3 to the Company's Annual Report
             Inc., as Issuer, Subsidiary Guarantors named therein and      on Form 10-K for the year ended December 31,
             Bank One, N.A., as Trustee, dated as of December 11, 1998.    1998, filed March 19, 1999

10.1         Stock Purchase Agreement dated October 15, 1997 between the   Exhibit 10.1 to Form S-1 Registration
             Company and John L. Bludworth, III et al.                     Statement No. 333-38157, filed January 26,
                                                                           1998

10.1.1       First Amendment to Stock Purchase Agreement dated October     Exhibit 10.5 to Form S-1 Registration
             17, 1997 between the Company and John L. Bludworth, III et    Statement No. 333-38157, filed January 26,
             al.                                                           1998

10.1.2       Second Amendment to Stock Purchase Agreement dated January Exhibit
             2.3 to the Company's Current Report 30, 1998 between the Company
             and John L. Bludworth, III et on Form 8-K, filed February 13, 1998
             al.
</TABLE>



                                       53
<PAGE>   54


<TABLE>
<CAPTION>

EXHIBIT                                                                    INCORPORATED BY REFERENCE FROM THE
  NO.                        DESCRIPTION                                       FOLLOWING DOCUMENTS:
-------                      -----------                                       -------------------
<S>          <C>                                                            <C>
10.3         Assignment and Assumption of Lease from PMB Engineering,      Exhibit 10.3 to Form S-1 Registration
             Inc. as Assignor and Newpark Marine Fabricators, Inc. as      Statement No. 333-38157, filed January 26,
             Assignee effective the first day of November 1997.            1998

10.4         Attornment Agreement by and between Newpark Marine            Exhibit 10.7 to Form S-1 Registration
             Fabricators, Inc., The Board of Trustees of the Galveston     Statement No. 333-38157, filed January 26,
             Wharves and The City of Galveston dated effective as of 1998
             November 1, 1997.

10.5         Amended and Restated 1997 Incentive Equity Plan effective     Exhibit 10.8 to Form S-1 Registration
             as of December 30, 1997.*                                     Statement No. 333-38157, filed January 26,
                                                                           1998

10.5.1       Amendment No. 1 to the First Wave Marine, Inc. Amended and    Exhibit 10.2 to the Company's Quarterly
             Restated 1997 Incentive Equity Plan*                          Report on Form 10-Q for period ending
                                                                           September 30, 1999, filed November 29, 1999

10.6         Form of Stock Option Agreement for certain options granted    Exhibit 10.9 to Form S-1 Registration
             by the Company to Messrs. S. Eakin, F. Eakin and D. Ammons    Statement No. 333-38157, filed January 26,
             dated December 30, 1997*                                      1998

10.7         Form of Stock Option Agreement for certain options granted    Exhibit 10.10 to Form S-1 Registration
             by the company to certain executives and other employees      Statement No. 333-38157, filed January 26,
             dated December 30, 1997*                                      1998

10.8         Pledge and Security Agreement between First Wave Marine,      Exhibit  10.1 to Company's  Quarterly  Report
             Inc. and Bank One, N.A., as Pledge Agent and Trustee, dated   on Form  10-Q  for  period  ending  June  30,
             as of February 2, 1998.                                       1998, filed August 13, 1998

10.9         Promissory Note of Samuel F. Eakin                            Exhibit 10.1 to Company's Quarterly Report
                                                                           on Form 10-Q for period ending March 31,
                                                                           1998, filed May 15, 1998

10.10        Promissory Note of Frank W. Eakin                             Exhibit 10.2 to Company's Quarterly Report
                                                                           on Form 10-Q for period ending March 31,
                                                                           1998, filed May 15, 1998

10.11        Promissory Note of David B. Ammons                            Exhibit 10.3 to Company's Quarterly Report
                                                                           on Form 10-Q for period ending March 31,
                                                                           1998, filed May 15, 1998

10.12        Sale and Purchase Agreement between FW Marine Properties,     Exhibit 2.1 to the Company's Current Report
             Inc. (now known as Newpark Shipbuilding-Galveston Island,     on Form 8-K, filed May 29, 1998
             Inc.) and Galveston Shipbuilding Company, dated as of May
             1, 1998.

10.13        Credit Agreement between First Wave Marine, Inc., as          Exhibit  10.3 to Company's  Quarterly  Report
             Borrower, each of the banks or lending institutions from      on Form  10-Q  for  period  ending  June  30,
             time to time party thereto, as Banks and Southwest Bank of    1998, filed August 13, 1998
             Texas, N.A., as Agent, dated as of June 9,1998.
</TABLE>



                                       54
<PAGE>   55


<TABLE>
<CAPTION>

EXHIBIT                                                                    INCORPORATED BY REFERENCE FROM THE
  NO.                        DESCRIPTION                                       FOLLOWING DOCUMENTS:
-------                      -----------                                       -------------------
<S>          <C>                                                            <C>
10.14        Loan Agreement between Newpark Shipbuilding-Brady Island,     Exhibit 10.1 to the Company's Quarterly
             Inc., as Borrower, and Sterling Bank, as Lender, dated July   Report on Form 10-Q for period ending June
             1, 1999                                                       30, 1999, filed August 13, 1999



10.15        Loan and Security Agreement between First Wave Marine,        Exhibit 10.1 to the Company's Quarterly
             Inc., Newpark Shipbuilding-Galveston Island, Inc., Newpark    Report on Form 10-Q for period ending
             Shipbuilding-Pelican Island, Inc., Newpark                    September 30, 1999, filed November 29, 1999
             Shipbuilding-Greens Bayou, Inc. and Newpark
             Shipbuilding-Pasadena, Inc., as Borrowers, and Banc of
             America Commercial Finance Corporation, as Lender, dated
             October 14, 1999

21.1         Subsidiaries of Registrant                                    Exhibit 21.1 to the Company's Annual Report
                                                                           on Form 10-K for the year ended December 31,
                                                                           1998, filed March 19, 1999

27.1         Financial Data Schedule                                       Filed herewith
</TABLE>


* This contract is a management contract or compensatory plan.


                                       55
<PAGE>   56


SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                  FIRST WAVE MARINE, INC.



                                  By: /s/ Suzanne B. Kean
                                     -------------------------------
                                     Suzanne B. Kean
                                     Senior Vice President and General Counsel

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

Signature                                   Title                                                   Date
<S>                                         <C>                                                     <C>

 /s/ Samuel F. Eakin                        Chairman of the Board, Chief Executive Officer          April 13, 2000
------------------------------------        and Director (Principal Executive Officer)
Samuel F. Eakin

 /s/ H. Grady Walker, III                   President and Chief Operating Officer                   April 13, 2000
------------------------------------
H. Grady Walker, III

 /s/ David B. Ammons                        Executive Vice President, Secretary and                 April 13, 2000
------------------------------------        Director
David B. Ammons

 /s/ Frank R. Pierce                        Senior Vice President, Chief Financial Officer          April 13, 2000
------------------------------------        (Principal Financial Officer)
Frank R. Pierce

 /s/ Dale E. Schexnayder                    Corporate Controller                                    April 13, 2000
------------------------------------        (Principal Accounting Officer)
Dale E. Schexnayder

 /s/ Frank W. Eakin                         Director                                                April 13, 2000
------------------------------------
Frank W. Eakin

 /s/ James D. Cole                          Director                                                April 13, 2000
------------------------------------
James D. Cole

 /s/ Paul E. O'Neill, II                    Director                                                April 13, 2000
------------------------------------
Paul E. O'Neill, II
</TABLE>
                                       56


<PAGE>   57



             SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS
           FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS
     WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT


      No Annual Report or proxy material has been sent to security holders.


                                       57
<PAGE>   58

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>

EXHIBIT                                                                    INCORPORATED BY REFERENCE FROM THE
  NO.                        DESCRIPTION                                       FOLLOWING DOCUMENTS:
-------                      -----------                                       -------------------
<S>          <C>                                                            <C>
2.1          Stock Exchange Agreement dated as of October 16, 1997         Exhibit 2.1 to Form S-1 Registration
             between the Company and certain shareholders of Newpark       Statement No. 333-38157, filed January 26,
             Shipbuilding and Repair, Inc.                                 1998

2.2          Distribution of Stock Agreement between John Bludworth        Exhibit 2.1 to Company's Quarterly Report on
             Marine, Inc. (now known as Newpark Shipbuilding-Pasadena,     Form 10-Q for period ending June 30, 1998,
             Inc.), EAE Services, Inc., First Wave Marine, Inc., and       filed August 13, 1998
             Newpark Marine Fabricators, Inc. (now known as Newpark
             Shipbuilding-Pelican Island, Inc.), dated as of July 29,
             1998.

2.3          Articles of Merger of Bludworth Shipyard and Fabrication,     Exhibit 2.2 to Company's Quarterly Report on
             Inc. into Newpark Marine Fabricators, Inc.(now known as       Form 10-Q for period ending June 30, 1998,
             Newpark Shipbuilding-Pelican Island, Inc.), effective as of   filed August 13, 1998
             August 6, 1998.

3.1          Certificate of Incorporation of the Company                   Exhibit 3.1 to Form S-1 Registration
                                                                           Statement No. 333-38157, filed January 26,
                                                                           1998

3.2          Bylaws of the Company                                         Exhibit 3.2 to Form S-1 Registration
                                                                           Statement No. 333-38157, filed January 26,
                                                                           1998

3.3          Articles of Incorporation Newpark Shipbuilding and Repair,    Exhibit 3.13 to Form S-1 Registration
             Inc.                                                          Statement No. 333-38157, filed January 26,
                                                                           1998

3.3.1        Articles of Amendment dated February 3, 1994 to the           Exhibit 3.14 to Form S-1 Registration
             Articles of Incorporation of Newpark Shipbuilding and         Statement No. 333-38157, filed January 26,
             Repair, Inc.                                                  1998

3.3.2        Articles of Amendment dated April 25, 1994 to the Articles    Exhibit 3.15 to Form S-1 Registration
             of Incorporation of Newpark Shipbuilding and Repair, Inc.     Statement No. 333-38157, filed January 26,
                                                                           1998

3.3.3        Articles of Amendment dated August 29, 1996 to the Articles   Exhibit 3.17 to Form S-1 Registration
             of Incorporation of Newpark Shipbuilding and Repair, Inc.     Statement No. 333-38157, filed January 26,
                                                                           1998
</TABLE>

<PAGE>   59


<TABLE>
<CAPTION>

EXHIBIT                                                                    INCORPORATED BY REFERENCE FROM THE
  NO.                        DESCRIPTION                                       FOLLOWING DOCUMENTS:
-------                      -----------                                       -------------------
<S>          <C>                                                            <C>
3.3.4        Articles of Amendment to the Articles of Incorporation of     Exhibit 3.3 to Company's  Quarterly Report on
             Newpark Shipbuilding and Repair, Inc. (now known as Newpark   Form 10-Q for period  ending  June 30,  1998,
             Shipbuilding-Brady Island, Inc.), effective as of August 7,   filed August 13, 1998
             1998.

3.4          Amended and Restated Bylaws of Newpark Shipbuilding and       Exhibit 3.16 to Form S-1 Registration
             Repair, Inc.                                                  Statement No. 333-38157, filed January 26,
                                                                           1998

3.5          Articles of Incorporation of Louisiana Ship, Inc.             Exhibit 3.3 to Form S-1 Registration
                                                                           Statement No. 333-38157, filed January 26,
                                                                           1998

3.5.1        Articles of Amendment to the Articles of Incorporation of     Exhibit 3.4 to Form S-1 Registration
             Louisiana Ship, Inc.                                          Statement No. 333-38157, filed January 26,
                                                                           1998

3.5.2        Articles of Amendment to the Articles of Incorporation of     Exhibit 3.1 to Company's  Quarterly Report on
             Louisiana Ship, Inc. (now known as Newpark                    Form 10-Q for period  ending  June 30,  1998,
             Shipbuilding-Greens Bayou, Inc.), effective as of August 7,   filed August 13, 1998
             1998.
3.6          Amended and Restated Bylaws of Louisiana Ship, Inc.           Exhibit 3.5 to Form S-1 Registration
                                                                           Statement No. 333-38157, filed January 26,
                                                                           1998

3.7          Articles of Incorporation of EAE Services, Inc.               Exhibit 3.6 to Form S-1 Registration
                                                                           Statement No. 333-38157, filed January 26,
                                                                           1998

3.8          Bylaws of EAE Services, Inc.                                  Exhibit 3.7 to Form S-1 Registration
                                                                           Statement No. 333-38157, filed January 26,
                                                                           1998

3.9          Articles of Incorporation of EAE Industries, Inc.             Exhibit 3.8 to Form S-1 Registration
                                                                           Statement No. 333-38157, filed January 26,
                                                                           1998

3.10         Articles of Amendment to the Articles of Incorporation of     Exhibit 3.9 to Form S-1 Registration
             EAE Industries, Inc.                                          Statement No. 333-38157, filed January 26,
                                                                           1998

3.11         Amended and Restated Bylaws of EAE Industries, Inc.           Exhibit 3.10 to Form S-1 Registration
                                                                           Statement No. 333-38157, filed January 26,
                                                                           1998

3.12         Articles of Incorporation of Newpark Marine Fabricators,      Exhibit 3.11 to Form S-1 Registration
             Inc.                                                          Statement No. 333-38157, filed January 26,
                                                                           1998

3.12.1       Articles of Amendment to the Articles of Incorporation of     Exhibit 3.2 to Company's  Quarterly Report on
             Newpark Marine Fabricators, Inc. (now known as Newpark        Form 10-Q for period  ending  June 30,  1998,
             Shipbuilding-Pelican Island, Inc.), effective as of August    filed August 13, 1998
             7, 1998.
</TABLE>



<PAGE>   60


<TABLE>
<CAPTION>

EXHIBIT                                                                    INCORPORATED BY REFERENCE FROM THE
  NO.                        DESCRIPTION                                       FOLLOWING DOCUMENTS:
-------                      -----------                                       -------------------
<S>          <C>                                                            <C>
3.13         Bylaws of Newpark Marine Fabricators, Inc. (now known as      Exhibit 3.12 to Form S-1 Registration
             Newpark Shipbuilding-Pelican Island, Inc.)                    Statement No. 333-38157, filed January 26,
                                                                           1998

3.14         Articles of Incorporation of John Bludworth Marine, Inc.      Exhibit 3.14 to the Company's Annual Report
                                                                           on Form 10-K for the year ended December 31,
                                                                           1998, filed March 19, 1999

3.14.1       Articles of Amendment to the Articles of Incorporation of     Exhibit  3.14.1 to the Company's Annual
             John Bludworth Marine, Inc. (now known as Newpark             Report on Form 10-K for the year ended
             Shipbuilding-Pasadena, Inc.), effective as of August 7,       December 31, 1998, filed March 19, 1999
             1998.

3.15         Bylaws of John Bludworth Marine, Inc. (now known as Newpark   Exhibit  3.15 to the Company's Annual Report
             Shipbuilding-Pasadena, Inc.)                                  on Form 10-K for the year ended December 31,
                                                                           1998, filed  March 19, 1999

3.16         Certificate of Incorporation of FirstWave Management, Inc.    Exhibit  3.16 to the Company's Annual Report
                                                                           on Form 10-K for the year ended December 31,
                                                                           1998, filed March 19, 1999

3.17         Bylaws of FirstWave Management, Inc.                          Exhibit  3.17 to the Company's Annual Report
                                                                           on Form 10-K for the year ended December 31,
                                                                           1998, filed March 19, 1999

4.1          Indenture between First Wave Marine, Inc., as Issuer and      Exhibit 4.1 to Company's Quarterly Report on
             Newpark Shipbuilding and Repair, Inc. (now known as Newpark   Form 10-Q for period ending June 30, 1998,
             Shipbuilding-Brady Island, Inc.), EAE Services, Inc., EAE     filed August 13, 1998
             Industries, Inc., Newpark Marine Fabricators, Inc. (now
             known as Newpark Shipbuilding-Pelican Island, Inc.) and
             Louisiana Ship, Inc. (now known as Newpark
             Shipbuilding-Greens Bayou, Inc.), as Subsidiary Guarantors
             and Bank One, N.A., as Trustee, dated as of February 2,
             1998.

4.1.1        First Supplemental Indenture between First Wave Marine,       Exhibit 4.3 to Company's Quarterly Report on
             Inc., as Issuer, Subsidiary Guarantors named therein and      Form 10-Q for period ending June 30, 1998,
             Bank One, N.A., as Trustee, dated as of February 3, 1998.     filed August 13, 1998

4.1.2        Second Supplemental Indenture between First Wave Marine,      Exhibit 4.3 to Company's Quarterly Report on
             Inc., as Issuer, Subsidiary Guarantors named therein and      Form 10-Q for period ending June 30, 1998,
             Bank One, N.A., as Trustee, dated as of May 18, 1998.         filed August 13, 1998

4.1.3        Third Supplemental Indenture between First Wave Marine,       Exhibit 4.1.3 to the Company's Annual Report
             Inc., as Issuer, Subsidiary Guarantors named therein and      on Form 10-K for the year ended December 31,
             Bank One, N.A., as Trustee, dated as of December 11, 1998.    1998, filed March 19, 1999

10.1         Stock Purchase Agreement dated October 15, 1997 between the   Exhibit 10.1 to Form S-1 Registration
             Company and John L. Bludworth, III et al.                     Statement No. 333-38157, filed January 26,
                                                                           1998

10.1.1       First Amendment to Stock Purchase Agreement dated October     Exhibit 10.5 to Form S-1 Registration
             17, 1997 between the Company and John L. Bludworth, III et    Statement No. 333-38157, filed January 26,
             al.                                                           1998

10.1.2       Second Amendment to Stock Purchase Agreement dated January Exhibit
             2.3 to the Company's Current Report 30, 1998 between the Company
             and John L. Bludworth, III et on Form 8-K, filed February 13, 1998
             al.
</TABLE>



<PAGE>   61


<TABLE>
<CAPTION>

EXHIBIT                                                                    INCORPORATED BY REFERENCE FROM THE
  NO.                        DESCRIPTION                                       FOLLOWING DOCUMENTS:
-------                      -----------                                       -------------------
<S>          <C>                                                            <C>
10.3         Assignment and Assumption of Lease from PMB Engineering,      Exhibit 10.3 to Form S-1 Registration
             Inc. as Assignor and Newpark Marine Fabricators, Inc. as      Statement No. 333-38157, filed January 26,
             Assignee effective the first day of November 1997.            1998

10.4         Attornment Agreement by and between Newpark Marine            Exhibit 10.7 to Form S-1 Registration
             Fabricators, Inc., The Board of Trustees of the Galveston     Statement No. 333-38157, filed January 26,
             Wharves and The City of Galveston dated effective as of 1998
             November 1, 1997.

10.5         Amended and Restated 1997 Incentive Equity Plan effective     Exhibit 10.8 to Form S-1 Registration
             as of December 30, 1997.*                                     Statement No. 333-38157, filed January 26,
                                                                           1998

10.5.1       Amendment No. 1 to the First Wave Marine, Inc. Amended and    Exhibit 10.2 to the Company's Quarterly
             Restated 1997 Incentive Equity Plan*                          Report on Form 10-Q for period ending
                                                                           September 30, 1999, filed November 29, 1999

10.6         Form of Stock Option Agreement for certain options granted    Exhibit 10.9 to Form S-1 Registration
             by the Company to Messrs. S. Eakin, F. Eakin and D. Ammons    Statement No. 333-38157, filed January 26,
             dated December 30, 1997*                                      1998

10.7         Form of Stock Option Agreement for certain options granted    Exhibit 10.10 to Form S-1 Registration
             by the company to certain executives and other employees      Statement No. 333-38157, filed January 26,
             dated December 30, 1997*                                      1998

10.8         Pledge and Security Agreement between First Wave Marine,      Exhibit  10.1 to Company's  Quarterly  Report
             Inc. and Bank One, N.A., as Pledge Agent and Trustee, dated   on Form  10-Q  for  period  ending  June  30,
             as of February 2, 1998.                                       1998, filed August 13, 1998

10.9         Promissory Note of Samuel F. Eakin                            Exhibit 10.1 to Company's Quarterly Report
                                                                           on Form 10-Q for period ending March 31,
                                                                           1998, filed May 15, 1998

10.10        Promissory Note of Frank W. Eakin                             Exhibit 10.2 to Company's Quarterly Report
                                                                           on Form 10-Q for period ending March 31,
                                                                           1998, filed May 15, 1998

10.11        Promissory Note of David B. Ammons                            Exhibit 10.3 to Company's Quarterly Report
                                                                           on Form 10-Q for period ending March 31,
                                                                           1998, filed May 15, 1998

10.12        Sale and Purchase Agreement between FW Marine Properties,     Exhibit 2.1 to the Company's Current Report
             Inc. (now known as Newpark Shipbuilding-Galveston Island,     on Form 8-K, filed May 29, 1998
             Inc.) and Galveston Shipbuilding Company, dated as of May
             1, 1998.

10.13        Credit Agreement between First Wave Marine, Inc., as          Exhibit  10.3 to Company's  Quarterly  Report
             Borrower, each of the banks or lending institutions from      on Form  10-Q  for  period  ending  June  30,
             time to time party thereto, as Banks and Southwest Bank of    1998, filed August 13, 1998
             Texas, N.A., as Agent, dated as of June 9,1998.
</TABLE>



<PAGE>   62


<TABLE>
<CAPTION>

EXHIBIT                                                                    INCORPORATED BY REFERENCE FROM THE
  NO.                        DESCRIPTION                                       FOLLOWING DOCUMENTS:
-------                      -----------                                       -------------------
<S>          <C>                                                            <C>
10.14        Loan Agreement between Newpark Shipbuilding-Brady Island,     Exhibit 10.1 to the Company's Quarterly
             Inc., as Borrower, and Sterling Bank, as Lender, dated July   Report on Form 10-Q for period ending June
             1, 1999                                                       30, 1999, filed August 13, 1999



10.15        Loan and Security Agreement between First Wave Marine,        Exhibit 10.1 to the Company's Quarterly
             Inc., Newpark Shipbuilding-Galveston Island, Inc., Newpark    Report on Form 10-Q for period ending
             Shipbuilding-Pelican Island, Inc., Newpark                    September 30, 1999, filed November 29, 1999
             Shipbuilding-Greens Bayou, Inc. and Newpark
             Shipbuilding-Pasadena, Inc., as Borrowers, and Banc of
             America Commercial Finance Corporation, as Lender, dated
             October 14, 1999

21.1         Subsidiaries of Registrant                                    Exhibit 21.1 to the Company's Annual Report
                                                                           on Form 10-K for the year ended December 31,
                                                                           1998, filed March 19, 1999

27.1         Financial Data Schedule                                       Filed herewith
</TABLE>



    *        This contract is a management contract or compensatory plan.