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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, 2001

                                      OR

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

                       For the transition period from to

                         Commission File No. 000-24263

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

                            CONRAD INDUSTRIES, INC.
            (Exact name of registrant as specified in its charter)

              Delaware                                 72-1416999
   (State or other jurisdiction of                    (IRS Employer
   incorporation or organization)                  Identification No.)

          1501 Front Street
       Morgan City, Louisiana                             70380
   (Address of principal executive                     (Zip code)
              offices)

                                (985) 384-3060
             (Registrant's telephone number, including area code)

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

          Securities Registered Pursuant to Section 12(b) of the Act:

                                     None

          Securities Registered Pursuant to Section 12(g) of the Act:

                    Common Stock, $0.01 par value per share

   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 Regulations 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 this Form 10-K or any
amendment to this Form 10-K. [X]

   The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $11.7 million as of March 27, 2002, based on
the closing sales price of the registrant's common stock on the Nasdaq
National Market on such date of $4.34 per share. For purposes of the preceding
sentence only, all directors, executive officers and Katherine Conrad Court
are assumed to be affiliates. As of March 27, 2002, 7,233,454 shares of common
stock of Conrad Industries, Inc. were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

   Portions of Conrad Industries, Inc.'s definitive proxy statement relating
to the registrant's 2002 annual meeting of stockholders, which proxy statement
will be filed under the Securities Exchange Act of 1934 within 120 days of the
end of the registrant's fiscal year ended December 31, 2001, are incorporated
by reference into Part III of this Form 10-K.

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                                    PART I

Item 1: Business

                                   BUSINESS

General

   Conrad Industries, Inc. (the "Company") specializes in the construction,
conversion and repair of a wide variety of marine vessels for commercial and
governmental customers and the fabrication of modular components of offshore
drilling rigs and floating, production, storage and offloading vessels
("FPSOs"). The Company was incorporated in March 1998 to serve as the holding
company for Conrad Shipyard, Inc. ("Conrad") and Orange Shipbuilding Company,
Inc. ("Orange Shipbuilding"). Conrad has operated since 1948 at its shipyard
in Morgan City, Louisiana. In December 1997, Conrad acquired Orange
Shipbuilding to increase its capacity to serve Conrad's existing markets and
to expand its product capability into the construction of additional types of
marine vessels. In February 1998, Conrad commenced operations at a conversion
and repair facility in Amelia, Louisiana, thereby expanding its capacity to
provide conversion and repair services for marine vessels. The Company
completed its initial public offering of common stock (the "Offering") on June
15, 1998. In 2000, Conrad Shipyard, Inc. was converted into a Louisiana
limited liability company named Conrad Shipyard, L.L.C. In March 2001, Conrad
put in service, at the Company's Morgan City shipyard, an internally
constructed drydock which is 280' long and 160' wide with a lifting capacity
of 10,000 tons. This dock will allow the Company to increase repair and
conversion capacity. In October 2000, the Company purchased 52 acres of land
in Amelia, Louisiana and work is currently underway to develop a portion of
the land as a repair and conversion facility, which the Company anticipates
putting in service during the fourth quarter of 2002.

   The Company constructs a variety of marine vessels, including large and
small deck barges, single and double hull tank barges, lift boats, push boats,
tow boats, offshore tug boats and offshore supply vessels (OSVs). The Company
fabricates components of offshore drilling rigs and FPSOs, including sponsons,
stability columns, blisters, pencil columns and other modular components. The
Company's conversion projects primarily consist of lengthening the midbodies
of vessels, modifying vessels to permit their use for a different type of
activity and other modifications to increase the capacity or functionality of
a vessel. The Company also derives a significant amount of revenue from
repairs made as a result of periodic inspections required by the U.S. Coast
Guard, the American Bureau of Shipping ("ABS") and other regulatory agencies.

   The Company serves a variety of customers and markets, including the
offshore oil and gas industry, other commercial markets and the U.S.
government. The Company believes that its ability to construct a variety of
vessels on a cost-effective basis allows it to selectively pursue vessel
construction opportunities that arise out of the changing demands of the
industries served by the Company.

   The Company currently owns and operates three shipyards located along the
Gulf Coast in Morgan City, Louisiana, Orange, Texas and Amelia, Louisiana. The
Company's shipyard in Morgan City is located on approximately 11 acres on the
Atchafalaya River, approximately 30 miles from the Gulf of Mexico, and its
Orange shipyard is located on approximately 12 acres on the Sabine River, 37
miles from the Gulf of Mexico. In February 1998, the Company commenced
operations at a conversion and repair facility in Amelia, Louisiana located on
approximately 16 acres on Bayou Boeuf, approximately five miles from Morgan
City. The Company conducts its marine vessel construction activities indoors
at its Morgan City and Orange shipyards in approximately 220,000 square feet
of enclosed building space designed specifically for the construction of
marine vessels up to 400 feet in length. In addition, the Company is currently
constructing another fabrication building at the Morgan City yard at a cost of
approximately $800,000, which will increase the Company's enclosed building
space by approximately 15,000 square feet and will increase capabilities for
pre-fabricated components and modular construction techniques.

   On October 23, 2000, the Company purchased 52 acres of land in Amelia,
Louisiana for $1.3 million. The land is strategically located on the
Intracoastal Waterway approximately 30 miles from the Gulf of Mexico and

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is within one mile of the other existing Amelia facility. Work is currently in
progress to develop approximately 16 acres of the property as a repair and
conversion facility. The initial development included clearing land, grubbing
and dredging at a total cost of $0.9 million. The next phase of development
will include additional site preparation, installation of a steel sheet-pile
bulkhead system, dry excavation and dredging, other infrastructure
improvements and outfitting with tools and equipment at an anticipated cost of
approximately $6.7 million. Current plans are to move the Company's two
largest drydocks to the facility which is estimated to be in service during
the fourth quarter of 2002.

   The Company began construction in May 2000 of a new ABS classed and
certified state-of-the-art drydock with a lifting capacity of 10,000 tons,
which is 7,000 tons greater than the 3,000 ton lifting capacity of the
Company's next largest drydock. The cost was $5.7 million. The new 280' long
by 160' wide dock allows the Company to (1) increase repair and conversion
capacity; (2) lift and compete to repair larger vessels such as derrick and
pipe laying barges and the large offshore service vessels recently built for
the deep water drilling activities in the Gulf of Mexico; and (3) launch
larger new vessel construction projects more competitively. The drydock was
put into operation during the first part of March 2001 at the Morgan City
shipyard, bringing the total number of drydocks operated by the Company to
six.

Historical Background

   The Company was founded in 1948 by J. Parker Conrad, the Company's Co-
Chairman of the Board of Directors, and began operations at its shipyard in
Morgan City, Louisiana. In 1952, the Company expanded its operations into the
repair business through the acquisition of one of the first drydocks on the
Gulf Coast. In 1962, the Company began building steel barges and other vessels
for the offshore oil and gas industry. Due to adverse conditions in the oil
and gas industry, the Company refocused its operations in 1984 on the
construction and repair of vessels for other commercial and foreign markets.
During 1996, the Company acquired its conversion and repair facility in
Amelia, Louisiana, which commenced operations in the first quarter of 1998.

   In December 1997, Conrad purchased Orange Shipbuilding (the "Orange
Acquisition") to expand its construction capacity and to expand its production
capabilities into additional types of marine vessels, including vessels for
the U.S. government and the fabrication of modular components for offshore
drilling rigs and FPSOs. Orange Shipbuilding has been engaged in shipbuilding
since 1974. The Orange shipyard designed and built a variety of vessels for
use in offshore Gulf of Mexico oil and gas exploration and production
activities before that sector collapsed in 1983. Orange Shipbuilding refocused
its operations on small to medium-sized vessels for the U.S. government after
this decline. During 1996 and 1997, in connection with the upturn in offshore
oil and gas exploration and production in the Gulf of Mexico, Orange
Shipbuilding capitalized on the demand for subcontractors that could fabricate
modular components for offshore drilling rigs and FPSOs on a timely and cost
effective basis.

Operations

   The Company's principal operations consist of the construction of marine
vessels, and repair and conversion services.

 Current Projects

   The Company's construction and fabrication projects in progress as of
December 31, 2001 consisted of 11 vessels (including one lift boat, one lift
boat hull, six barges, and three ST tugs) with aggregate remaining contract
revenue of approximately $10.4 million (excluding unexercised options held by
customers). The Company's backlog (including such remaining contract revenue
for projects currently in progress) as of December 31, 2001 was approximately
$10.4 million as compared to the Company's backlog of $20.2 million as of
December 31, 2000. Of this remaining contract revenue, approximately $5.5
million was attributable to contracts to build vessels for the U.S. Army. The
Company anticipates that all of the aggregate remaining revenue from firm
contracts as of December 31, 2001 will be realized during fiscal 2002.

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 Construction of Vessels

   The Company manufactures a variety of small and medium sized vessels
principally for commercial and governmental customers. This activity accounted
for 71.7%, 60.7 %, and 73.3% of the Company's total revenue for 2001, 2000 and
1999, respectively. The following is a description of the types of vessels
manufactured by the Company:

   Offshore and Inland Barges. The Company builds a variety of offshore
barges, including tank, container and deck barges for commercial customers and
YCs (yard carrier barges) and YONs (yard oil Navy barges) for the U.S. Navy.
The Company also builds a variety of inland barges, including deck and tank
barges. The Company has constructed a variety of barges used in the offshore
oil and gas industry, including shale barges, pipe laying barges, oil and gas
drilling barges, and oil and gas production barges. The Company's barges are
also used in marine construction and are used by operators to carry liquid
cargoes such as petroleum and drilling fluids, dry bulk cargoes such as
aggregate, coal and wood products, deck cargoes such as machinery and
equipment, and other large item cargoes such as containers and rail cars.
Other barges function as cement unloaders and split-hull dump scows. The
Company has built barges ranging from 50 feet to 400 feet in length, with as
many cargo tanks, decks and support systems as necessary for the barges'
intended functions.

   Lift Boats. Lift boats are used primarily to furnish a stable work platform
for drilling rigs, to house personnel, equipment and supplies for such
operations and to support construction and ongoing operation of offshore oil
and gas production platforms. Lift boats are self-propelled, self-elevating
and self-contained vessels that can efficiently assist offshore platform
construction and well servicing tasks that traditionally have required the use
of larger, more expensive mobile offshore drilling units or derrick barges.
Lift boats have different water depth capacities and have legs, ranging from
65 to 250 feet, that are used to elevate the deck of the boat in order to
perform required procedures on a platform at different heights above the
water.

   Tug Boats. The Company builds tug boats for towing and pushing, anchor
handling, mooring and positioning, dredging assistance, tanker escort, port
management, shipping, piloting, fire fighting and salvage.

   Other Offshore Support Vessels. In addition to lift boats and tug boats,
the Company builds other types of offshore support vessels that serve
exploration and production facilities and support offshore construction and
maintenance activities. These offshore support vessels include supply vessels,
utility vessels and anchor handling vessels.

   Push Boats/Tow Boats. Push boats, also known as tow boats, are used by
inland waterway operators to push barges.

   Drydocks. Drydocks are used to lift marine vessels from the water in order
to facilitate the inspection and/or repair of the vessels' underwater areas. A
drydock is composed of a floodable pontoon with wing walls and its designated
capacity identifies the number of tons it is capable of safely lifting from
the water. The drydock is submerged by opening valves to flood compartments,
the vessel is placed over the submerged deck of the drydock, and the vessel is
lifted from the water by closing the valves and pumping the water out of the
flooded compartments.

 Conversion and Repair Services

   Since 1952, the Company's Morgan City facility has been involved in the
repair of vessels and barges. Conversion and repair services accounted for
28.3%, 39.3% and 26.7% of the Company's total revenue for 2001, 2000, and
1999, respectively. The Company has six drydocks and dockside space capable of
accommodating vessels and barges up to 500 feet long. The Company's marine
repair activities include shotblasting, painting, electrical system and piping
repairs, propeller and shaft reconditioning and ABS certified welding. The
Company's conversion projects primarily consist of lengthening the midbodies
of vessels, modifying vessels to permit their use for a different type of
activity and other modifications to increase the capacity or functionality of
a vessel. All U.S. Coast Guard inspected vessels and ABS classed vessels are
required to undergo periodic

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inspections and surveys which require regular drydock examination. Non-U.S.
flag vessels are subject to similar regulations. The inspection of vessels
generally results in repair work being required in order to pass inspection.
In addition, vessel owners often elect to make other repairs or modifications
to vessels while in drydock undergoing required repairs. While the Company is
not aware of any proposals to reduce the frequency or scope of such
inspections, any such reduction could adversely affect the Company's results
of operations.

 Fabrication of Modular Components

   The Company has been involved in the fabrication of modular components for
offshore drilling rigs and FPSOs for the offshore oil and gas industry since
1996. The Company did not engage in any fabrication of modular components
during 2001 and 2000, and this activity accounted for 1.9% of the Company's
total revenue for 1999. The Company's Orange shipyard has performed this
fabrication work as a subcontractor for other marine construction companies
that specialize in these types of rigs and vessels. These fabrication projects
include sponsons, stability columns, blisters, pencil columns, a 350-ton flare
buoy and a 66-man quarters house.

Customers

   The Company services a wide variety of customers domestically and
internationally. Customers include marine service companies, offshore support
companies, rig fabricators, offshore and inland barge and support vessel
operators, offshore construction and drilling contractors, diving companies,
energy companies, the U. S. Army, U.S. Navy, U.S. Coast Guard and Corps of
Engineers, many of whom have been customers of the Company on a recurring and
long-term basis. The Company has also provided and continues to provide repair
and conversion services to many of the major offshore support vessel companies
and barge operators. The Company's principal customers may differ
substantially on a year-to-year basis due to the size and limited number of
new construction projects performed each year.

   During fiscal 2001, the Company derived 15.8% of its revenues from Danos &
Curole Marine for construction of a lift boat, 12.4% from Marine Industrial
Fabricators for the construction of five lift boat hulls, and 10.8% from the
U. S. Army for the construction of six S.T. Tugs. The remaining 61.0% of
revenues was attributable to 96 other customers.

   During fiscal 2000, the Company derived 19.4% of its revenues from R & B
Falcon Marine for repair and conversion services, 16.3% from the U. S. Army
for the construction of eight S.T. Tugs and 12.1% from Marine Industrial
Fabricators for the construction of five lift boat hulls. The remaining 52.2%
of revenues was attributable to 94 other customers.

   During fiscal 1999, the Company derived 21.1% of its revenues from the U.
S. Army for the construction of nine S.T. Tugs, 14.8% from R & B Falcon Marine
for repair and conversion services, 11.5% from the Corp of Engineers for the
construction of two barges and 11.2% from North American Shipbuilding for the
construction of two offshore supply vessel hulls. The remaining 41.4% of
revenues was attributable to 90 other customers.

Contract Procedure, Structure and Pricing

   The Company's contracts for new commercial construction projects generally
are obtained through a competitive bidding process. In addition, contracts for
the construction and conversion of vessels for the U.S. government are
generally subject to competitive bidding. As a safeguard to anti-competitive
bidding practices, the U.S. Army, the U.S. Navy, the U.S. Coast Guard and the
Corps of Engineers employ the concept of "cost realism," which requires that
each bidder submit information on pricing, estimated costs of completion and
anticipated profit margins. The government agencies use this and other data to
determine an estimated cost for each bidder. They then conduct a cost
comparison of the bidders' estimates against an independent estimate to arrive
at a close approximation of the real cost. The award is then made on the basis
of the expected cost to build, which often results in an award to a higher
bid.

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   The Company submits a large number of bids to commercial customers.
However, in the case of U.S. government contracts for which the bidding
process is significantly more detailed and costly, the Company tends to be
more selective regarding the projects on which it bids.

   Most of the contracts entered into by the Company, whether commercial or
governmental, are fixed-price contracts under which the Company retains all
cost savings on completed contracts but is liable for all cost overruns.

   Contracts with the U.S. government are subject to termination by the
government either for its convenience or upon default by the Company. If the
termination is for the government's convenience, the contracts provide for
payment upon termination for items delivered to and accepted by the
government, payment of the Company's costs incurred through the termination
date, and the costs of settling and paying claims by terminated
subcontractors, other settlement expenses and a reasonable profit. Under the
Truth in Negotiations Act, the U.S. government has a right for three years
after final payment on substantially all negotiated U.S. government contracts
to examine all of the Company's cost records with respect to such contracts to
determine whether the Company used and made available to the U.S. government,
or to the prime contractor in the case of a subcontract, accurate, complete
and current cost or pricing information in preparing bids and conducting
negotiations on the contracts or any amendments thereto.

   Although varying contract terms may be negotiated on a case-by-case basis,
the Company's commercial and government contracts ordinarily provide for a
downpayment, with progress payments at specified stages of construction and a
final payment upon delivery. Final payment under U.S. government contracts may
be subject to deductions if the vessel fails to meet certain performance
specifications based on tests conducted by the Company prior to delivery.

   Under commercial contracts, the Company generally provides a three-month to
six-month warranty with respect to workmanship and materials furnished by the
Company. In the majority of commercial contracts, the Company passes through
the suppliers' warranties to the customer and does not warrant materials
acquired from its suppliers. The Company's government contracts typically
contain warranties up to two years covering both materials and workmanship.
Expenses of the Company to fulfill warranty obligations have not been material
in the aggregate.

Bonding and Guarantee Requirements

   Although the Company generally meets financial criteria that exempt it from
bonding and guarantee requirements for most contracts, certain contracts with
federal, state or local governments require contract performance bonds, and
foreign governmental contracts generally require bank letters of credit or
similar obligations. Commercial contracts also may require contract bid and
performance bonds if requested by the customer. As of December 31, 2001, the
Company had no amounts outstanding for such obligations. The market for
companies engaged in marine fabrication to obtain bonding has become more
difficult during the first quarter of 2002. The Company is currently
attempting to secure adequate bonding for potential future job prospects.
Although the Company believes that it will be able to obtain contract bid and
performance bonds, letters of credit, and similar obligations on terms it
regards as acceptable, there can be no assurance it will be successful in
doing so. In addition, the cost of obtaining such bonds, letters of credit and
similar obligations may increase.

Engineering

   The Company generally builds vessels or fabricates modular components based
on its customers' drawings and specifications. The Company also develops in-
house custom designs for customers' special requirements using its computer
aided design (CAD) capabilities and has designed and built numerous barges,
pusher tugs and other vessels. The process of computer drafting, preparation
of construction drawings and development of cut tapes for numerically
controlled plasma cutting of steel with the latest 3-D software programs
allows the Company to minimize engineering mistakes and costly rework, thereby
ensuring the vessel's intended function while meeting budget estimates.

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Materials and Supplies

   The principal materials used by the Company in its marine vessel
construction, conversion and repair and modular component fabrication
businesses are standard steel shapes, steel plate and paint. Other materials
used in large quantities include aluminum, steel pipe, electrical cable and
fittings. The Company also purchases component parts such as propulsion
systems, hydraulic systems, generators, auxiliary machinery and electronic
equipment. All these materials and parts are currently available in adequate
supply from domestic and foreign sources. All of the Company's shipyards
obtain materials and supplies by truck or barge, and the Company's Orange
shipyard is located on a railroad service line and receives much of its steel
by rail. The Company has not engaged, and currently does not intend to engage,
in hedging transactions with respect to its purchase requirements for
materials.

Vessel Construction Process

   Once a contract has been awarded to the Company, a project manager is
assigned to supervise all aspects of the project, from the date the contract
is signed through delivery of the vessel. The project manager oversees the
engineering department's completion of the vessel's drawings and supervises
the planning of the vessel's construction. The project manager also oversees
the purchasing of all supplies and equipment needed to construct the vessel,
as well as the actual construction of the vessel.

   The Company constructs each vessel from raw materials, which are fabricated
by shipyard workers into the necessary shapes to construct the hull and vessel
superstructure. Component parts, such as propulsion systems, hydraulic systems
and generators, auxiliary machinery and electronic equipment, are purchased
separately by the Company and installed in the vessel. The Company uses job
scheduling and costing systems to track progress of the construction of the
vessel, allowing the customer and the Company to remain apprised of the status
of the vessel's construction.

   With the assistance of computers, construction drawings and bills of
materials are prepared for each module to be fabricated. Modules are built
separately, and penetrations for piping, electrical and ventilation systems
for each module are positioned and cut during the plasma cutting operation.
Piping, raceways and ducting are also installed prior to the final assembly of
modules. After the modules are assembled to form the vessel, piping,
electrical, ventilation and other systems, as well as machinery, are installed
prior to launching, testing and final outfitting and delivery of the vessel.

Sales and Marketing

   The Company believes that its reputation and experience facilitate the
Company's marketing efforts. The Company believes that its customer-driven
philosophy of quality, service and integrity leads to close customer
relationships that provide the Company with on-going opportunities to be
invited to bid for customer projects.

   The Company's marketing and sales strategy led by the Director of Marketing
includes utilizing key employees as salespersons to target relationships
previously established and develop new relationships with customers in the
targeted markets. The Company's personnel identify future projects by
contacting customers and potential customers on a regular basis in order to
anticipate projects that will be competitively bid or negotiated exclusively
with the Company. The Company's personnel also keep its customers advised of
available capacity for drydocking, conversion and repair activity.

   Marketing efforts are currently focused in four areas: (i) new construction
of all types of barges, drydocks, lift boats, push boats, tug boats and
offshore support vessels; (ii) conversion and repair of barges and offshore
support vessels; (iii) fabrication of modular components of offshore drilling
rigs and FPSOs; and (iv) construction of vessels and barges for the U.S. Army,
U.S. Navy, U.S. Coast Guard and Corps of Engineers.

   The Company is actively involved in strengthening its relationships with
customers through continuous interaction among the Company's key personnel,
project managers and the customers' project supervisors with

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respect to ongoing projects. To accommodate the needs of the customers'
project supervisors, the Company has established on-site office facilities
that such project supervisors may use during the construction, repair or
conversion project. The Company also seeks to anticipate the current and
future needs of its customers as well as broader industry trends through these
relationships.

Competition

   U.S. shipbuilders are generally classified in two categories: (i) the two
largest shipbuilders, which are capable of building large scale vessels for
the U.S. Navy and commercial customers; and (ii) other shipyards that build
small to medium-sized vessels for governmental and commercial markets. The
Company does not compete for large vessel construction projects. The Company
competes for U.S. government contracts to build small to medium-sized vessels
principally with 10 to 15 U.S. shipbuilders, which may include one or more of
the two largest shipbuilders. The Company competes for domestic commercial
shipbuilding contracts principally with approximately 15 U.S. shipbuilders.
The number and identity of competitors on particular projects vary greatly
depending on the type of vessel and size of the project, but the Company
generally competes with only three or four companies with respect to a
particular project. The Company competes with over 70 shipyards for its
conversion and repair business.

   Competition is based primarily on price, available capacity, service,
quality, and geographic proximity. The Company believes that it competes
effectively because of its hands-on, team management approach to design,
project management and construction, its indoor vessel construction
capabilities, its specialized equipment, its advanced construction techniques
and its skilled work force. The Company seeks to differentiate itself from its
competition in terms of service and quality (i) by investing in enclosed work
spaces, modern systems and equipment, (ii) by offering a broad range of
products and services, including modular component fabrication, (iii) through
its hands-on team management, (iv) by targeting of profitable niche products
and (v) by maintaining close customer relationships.

Employees

   At December 31, 2001, the Company had 333 employees, of which 35 were
salaried and 298 were hourly. At December 31, 2000, the Company had 342
employees, of which 29 were salaried and 313 were hourly. At December 31,
1999, the Company had 288 employees, of which 27 were salaried and 261 were
hourly. The Company is not a party to any collective bargaining agreements.

Insurance

   The Company maintains insurance against property damage caused by fire,
flood, explosion and similar catastrophic events that may result in physical
damage or destruction to the Company's facilities and equipment. All policies
are subject to deductibles and other coverage limitations. The Company also
maintains commercial general liability insurance, including builders' risk
coverage, employment practices, professional (design), and directors and
officer's liability. The Company currently maintains excess and umbrella
policies. Other overages currently in place include workers compensation,
water pollution, automobile, and hull/P&I. The Company also maintains a type
of business interruption insurance that would compensate the Company for the
loss of business income and would reimburse the Company for additional
expenses resulting from certain specified events such as floods, hurricanes
and fire. These policies are subject to deductibles, maximum coverage amounts
and various exclusions.

Regulation

 Environmental Regulation

   The Company is subject to extensive and changing federal, state and local
laws (including common law) and regulations designed to protect the
environment ("Environmental Laws"), including laws and regulations that relate
to air and water quality, impose limitations on the discharge of pollutants
into the environment and

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establish standards for the treatment, storage and disposal of toxic and
hazardous wastes. Stringent fines and penalties may be imposed for non-
compliance with these Environmental Laws. Additionally, these laws require the
acquisition of permits or other governmental authorizations before undertaking
certain activities limit or prohibit other activities because of protected
areas or species and impose substantial liabilities for pollution related to
Company operations or properties. The Company cannot predict how existing laws
and regulations may be interpreted by enforcement agencies or court rulings,
whether additional laws and regulations will be adopted, or the effect such
changes may have on the Company's business, financial condition or results of
operations.

   The Company's operations are potentially affected by the federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended ("CERCLA"). CERCLA (also known as the "Superfund" law) imposes
liability, without regard to fault, on certain categories of persons for
particular costs related to releases of hazardous substances at a facility
into the environment and for liability for natural resource damages.
Categories of responsible persons under CERCLA include certain owners and
operators of industrial facilities and certain other persons who generate or
transport hazardous substances. Liability under CERCLA is strict and generally
is joint and several. Persons potentially liable under CERCLA may also bring a
cause of action against certain other parties for contribution. In addition to
CERCLA, similar state or other Environmental Laws may impose the same or even
broader liability for the discharge, release or the mere presence of certain
substances into and in the environment.

   Because industrial operations have been conducted at some of the Company's
properties by the Company and previous owners and operators for many years,
various materials from these operations might have been disposed of at such
properties. This could result in obligations under Environmental Laws, such as
requirements to remediate environmental impacts. There could be additional
environmental impact from historical operations at the Company's properties
that require remediation under Environmental Laws in the future. However, the
Company currently is not aware of any such circumstances that are likely to
result in any such impact under Environmental Laws.

   Although no assurances 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
operations.

 Health and Safety Matters

   The Company's facilities and operations are governed by laws and
regulations, including the federal Occupational Safety and Health Act,
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. Orange Shipbuilding
entered into a settlement agreement with the Occupational Safety and Health
Administration ("OSHA") during August 2001 following a six-month investigation
by OSHA of the Orange shipyard. In the settlement, Orange agreed to employ a
full time safety and health professional on location at the shipyard, employ
an independent outside auditor to audit its OSHA 200 logs for 2001 through
2003, correct conditions relating to alleged violations and pay a fine of
$149,850. The settlement did not constitute an admission by Orange that it
violated any laws, regulations or safety standards.

 Jones Act

   Section 27 of the Merchant Marine Act of 1920 (the "Jones Act") requires
that all vessels transporting products between U.S. ports must be constructed
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

                                       9
<PAGE>

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 vessels in the
U.S. coastwise trade in the future. 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 rescission or modification will not occur. Many foreign
shipyards are heavily subsidized by their governments and, as a result, there
can be no assurance that the Company would be able to effectively compete with
such shipyards if they were permitted to construct vessels for use in the U.S.
coastwise trade.

 OPA '90

   Demand for double-hull carriers has been created by the Oil Pollution Act
of 1990 ("OPA '90"), which generally requires U.S. and foreign vessels
carrying oil and certain other hazardous cargos and entering U.S. ports to
have double-hulls by 2015. OPA '90 establishes a phase-out schedule that began
January 1, 1995 for all existing single-hull vessels based on the vessel's age
and gross tonnage. OPA '90's single-hull phase-out requirements do not apply
to most offshore supply vessels.

 Title XI and the OECD Accord

   Title XI of the Merchant Marine Act of 1936 permits the Secretary of
Transportation to provide a U.S. government guarantee for certain types of
financing for the construction, reconstruction, or reconditioning of U.S.-
built vessels. As a result of amendments in 1993, the Secretary of
Transportation was authorized to guarantee loan obligations of foreign vessel
owners for foreign-flagged vessels that are built in U.S. shipyards on terms
generally more advantageous than available under guarantee or subsidy programs
of foreign countries. Additionally, Title XI includes tax and subsidy programs
that provide benefits limited to vessels constructed in the U.S. The U.S.
Congress may reduce or eliminate funding for the Title XI program. Also, if
the Congress adopts the Agreement Respecting Normal Competitive Conditions in
the Commercial Shipbuilding and Repair Industry (the "OECD Accord"), which was
signed in December 1994, among the U.S., the European Union (on behalf of the
twelve European member countries), Finland, Japan, Korea and Norway and Sweden
(which collectively control a significant portion of the market for worldwide
vessel construction), the Title XI guarantee program would need to be amended
to eliminate its competitive advantages. However, management believes that the
OECD Accord would significantly improve the ability of U.S. shipbuilders to
compete successfully for international commercial contracts with foreign
shipbuilders, many of which currently are heavily subsidized by their
governments. Although the Congress has failed to adopt or ratify the OECD
Accord, proponents of the Accord may seek to introduce the legislation in the
future.

Cautionary Statements

   In this Form 10-K and in the normal course of its business, the Company, in
an effort to help keep its stockholders and the public informed about the
Company's operations, may from time to time issue or make certain statements,
either in writing or orally, that are or contain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. All statements contained herein,
other than statements of historical fact, are forward-looking statements. When
used in this Form 10-K, the words "anticipate," "believe," "estimate" and
"expect" and similar expressions are intended to identify forward-looking
statements. Such statements reflect the Company's current views with respect
to future events and are subject to certain risks, uncertainties and
assumptions, including but not limited to those discussed 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, believed, estimated or expected. The Company does not intend to
update these forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable,
no assurance can be given that such expectations will prove correct. Factors
that could cause or contribute to such difference include those discussed
below, as well as those discussed elsewhere herein.

                                      10
<PAGE>

Risks Related to our Business

Because a significant portion of our revenues comes from customers in the
offshore oil and gas industry, decreases in offshore oil and gas activities
tend to reduce demand for our products and services and negatively impact our
revenues and profits. The level of offshore oil and gas activities is affected
by prevailing oil and gas prices, which historically have fluctuated
significantly.

   Demand for our products and services depend in part upon the financial
condition and prospects of our customers. For 2001, 2000 and 1999, we received
approximately 66.8%, 57.6% and 48.8%, respectively, of our revenues from
customers in the offshore oil and gas industry, 11.7%, 22.4% and 34.6% from
government customers and 21.5%, 20.0% and 16.6% from other commercial
customers. The offshore oil and gas industry is affected by prevailing oil and
gas prices, which historically have fluctuated significantly. Low oil or gas
prices or a decline in demand for oil or gas can depress offshore exploration,
development and production activity and result in decreased spending by our
offshore oil and gas industry customers. This can result in a decline in the
demand for our products and services and can have a substantial negative
effect on our revenues and profits.

We perform a significant amount of our work under U. S. and other government
contracts. Reductions in government spending on the types of products and
services we offer or our inability to secure new government contracts could
have a substantial negative impact on our revenues and profits.

   We have built vessels for the U.S. Army, U.S. Navy, U.S. Coast Guard and
Corp of Engineers. We have also built vessels and performed conversion or
repair services for local, state and foreign governments, either directly or
as a subcontractor. Revenue derived from U.S. government customers accounted
for approximately 10.8%, 19.0% and 32.6% of our total revenue in 2001, 2000
and 1999, respectively. Government contracts accounted for approximately
52.9%, 24.9% and 61.9% of our backlog at December 31, 2001, 2000 and 1999,
respectively. U.S. government contracts are generally subject to strict
competitive bidding requirements. In addition, the number of vessels that are
purchased by the U.S. government varies with the federal budget and
appropriation of government funds. Although we have never been subject to
suspension or disbarment, the U.S. government has the right to refuse to award
contracts to a contractor for significant violations of government procurement
regulations. As a result of these factors, we cannot predict whether we will
be able to secure new government contracts. If we do not secure new government
contracts, our revenues and profits could decline substantially. See
"Business--Contract Procedure, Structure and Pricing."

A decline in general economic conditions or a deterioration in the financial
condition of a particular customer or that customer's industry can increase
our customer credit risk, which may adversely affect our profits.

   Although varying contract terms may be negotiated on a case-by-case basis,
the Company's commercial and government contracts ordinarily provide for a
downpayment, with progress payments at specified stages of construction and a
final payment upon delivery. Final payment under U.S. government contracts may
be subject to deductions if the vessel fails to meet certain performance
specifications based on tests conducted by the Company prior to delivery. The
Company generally performs conversion and repair services on the basis of
cost-plus-fee arrangements pursuant to which the customer pays a negotiated
labor rate for labor hours spent on the project as well as the cost of
materials plus a margin on materials purchased. Typically repair and
conversion customers are billed on a monthly basis as hours and material
charges are incurred. If we are unable to collect an account receivable in the
amount we have estimated to be collectible, we must recognize a charge to
earnings that is in effect a reversal of previously recorded profits.

The loss of a significant customer could result in a substantial loss of
revenue.

   A relatively small number of customers have historically generated a large
portion of our revenue, although not necessarily the same customers from year
to year. For the years ended December 31, 2001, 2000 and 1999, our ten largest
customers collectively accounted for 74.8%, 79.4% and 84.9% of our revenues,
respectively. The loss of a significant customer could result in a substantial
loss of revenue and significantly reduce our earnings. See "Business--
Customers."

                                      11
<PAGE>

Measures we may take to respond to a slowdown in new construction or repair
projects due to a deterioration in general economic conditions or in our
customer's industries may not be sufficient to prevent a decline in earnings.

   Reductions in activities in our business may cause us to reevaluate our
operations. We may respond to these conditions by reducing our prices and
anticipated profit margins in order to attempt to maintain activity levels in
our yards and thereby maintain our workforce. Price and profit margin
reductions may lead to decreased profitability, particularly over the short
term. We may also respond by cutting costs, including through employee
attrition or layoffs. Decreases in costs may not be adequate to offset losses
in revenues, particularly over the short term. We may also seek new customers
or different types of projects, which may increase our marketing and other
costs. These measures, among others we may take, may not be sufficient to
prevent a decline in our earnings.

We could incur losses under our fixed-price contracts as a result of cost
overruns or delays in delivery.

   Most of our contracts for marine vessel construction, including government
contracts, are fixed-price contracts. Under fixed-price contracts, we retain
all cost savings on completed contracts but are liable for the full amount of
all cost overruns. We attempt to anticipate increases in costs of labor and
materials in our bids on fixed-price contracts. However, the costs and gross
profits realized on a fixed-price contract may vary from our estimates due to
factors such as:

  .  unanticipated variations in labor and equipment productivity over the
     term of a contract;

  .  unanticipated increases in costs of labor and materials; and

  .  errors in estimates and bidding.

Depending on the size of the project, variations from estimated contract
performance could significantly reduce our earnings, and could result in
losses, during any fiscal quarter or year. In addition, some of our fixed-
price contracts provide for incentive payments for early delivery and
liquidated damages for late delivery. If we miss a specified delivery deadline
under one of those contracts, we may be subject to liquidated damages. From
time to time, we bid on fixed-price contracts to construct vessels that we
have not constructed in the past. We believe we have sufficient related
experience to perform these contracts profitably. However, the risks of cost
overruns or delays in delivery on those contracts are greater than for
contracts for vessels that we have built in the past.

   We perform many of our repair and conversion projects on a time and
materials basis. Under those projects, we receive a specified hourly rate for
direct labor hours (which exceeds direct labor costs) and a specified mark-up
over our cost of materials. Those contracts protect us against cost overruns
but do not provide us with any benefits for cost savings.

Inaccurate estimates we may make in applying percentage-of-completion
accounting could result in a reduction of previously reported profits and have
a significant impact on quarter-to-quarter operating results.

   We use the percentage-of-completion method to account for our construction
contracts in process. Under this method, revenue and expenses are based on the
percentage of labor hours incurred as compared to estimated total labor hours
for each contract. As a result, the timing of recognition of revenue and
expenses we report may differ materially from the timing of actual contract
payments received and expenses paid. We make provisions for estimated losses
on uncompleted contracts in the period in which the losses are determined. To
the extent that those provisions result in a reduction of previously reported
profits on a project, we must recognize a charge against current earnings.
These charges may significantly reduce our earnings, depending on the size of
the contract and the adjustment. In addition, because many of these contracts
are completed over a period of several months, the timing of the recognition
of related revenue and expense could have a significant impact on quarter-to-
quarter operating results.

                                      12
<PAGE>

Our internal expansion projects may not produce the revenues and profits that
we anticipate.

   We are currently engaged in a significant expansion of our Amelia Deep
Water facility. In addition, we are constructing a new fabrication building in
our Morgan City shipyard. We cannot predict whether or when these projects
will result in increased revenues or profits for our company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

We actively pursue acquisition opportunities, but may not be able to complete
acquisitions on terms we find acceptable. Any completed acquisitions may not
produce the financial results we anticipate.

   We routinely pursue acquisition opportunities that are presented to us or
that we identify. However, we may not be able find sellers willing to sell to
us at prices and on other terms we find acceptable, and/or we may not be able
to obtain financing on terms we find acceptable. We may need additional debt
or equity financing to complete an acquisition, which may result in increased
leverage and/or dilution of existing stockholders' interests. In addition, any
acquisitions that we complete may not produce the financial results we
anticipated. We have not made any acquisitions since our acquisition of Orange
Shipbuilding Company, Inc. in December 1997.

From time to time, we may not be able to hire sufficient numbers of trained
shipyard workers. Any labor shortage may increase our cost of labor, limit our
production capacity and adversely impact our earnings.

   Shipyards along the Gulf Coast have experienced shortages of skilled labor
from time to time as a result of low unemployment in the economy in general
and/or increased demand for skilled labor in the offshore oil and gas and
related industries in particular. We believe that our shipyards are not
currently experiencing labor shortages, although we may experience labor
shortages in the future. Labor shortages could increase our cost of labor,
limit our production capacity, and materially decrease our earnings.

If our customers terminate projects, our reported backlog could decrease,
which could substantially reduce our revenues and earnings.

   Our backlog is based on unearned revenue attributable to projects for which
a customer has authorized us to begin work or purchase materials. Our
contracts with commercial customers generally do not permit the customer to
terminate the contract. However, some of our government projects included in
our backlog are subject to change or termination at the option of the
customer. In the case of a termination, the government is generally required
to pay us for work performed and materials purchased through the date of
termination and, in some cases, pay us termination fees. Our backlog of $10.4
million at December 31, 2001 was attributable to eleven projects, of which
52.9% was attributable to four government projects. Either the change or
termination of those contracts could substantially change the amount of
backlog currently reported and could substantially decrease our revenue and
earnings.

We rely on key personnel.

   We are dependent on the continuing efforts of our executive officers and
key operating personnel. The loss of the services of any of these persons
could result in inefficiencies in our operations, lost business opportunities
and the loss of one or more customers. We generally do not have employment
agreements with our employees other than our executive officers and we do not
carry key person life insurance.

Our principal stockholders may control the outcome of stockholder voting.

   J. Parker Conrad, John P. Conrad, Jr. and Katherine Conrad Court own or
control through trusts 4,500,978 shares of our common stock, or 62.2% of the
outstanding shares of our common stock. In addition, our executive officers
and directors and their affiliates as a group, which includes J. Parker Conrad
and John P. Conrad, beneficially own approximately 3,089,666 shares or 42.7%
of our common stock. If they act in concert, these holders will be able to
exercise control over our affairs, elect our entire board of directors, and
control substantially all matters submitted to a vote of our stockholders. The
interests of these holders may differ from

                                      13
<PAGE>

the interests of our minority stockholders, and they may vote their shares in
a manner adverse to our minority stockholders.

Sales, or the availability for sale, of substantial amounts of our common
stock in the public market could adversely affect the market price of our
common stock.

   Of the 7,233,454 shares of our common stock currently outstanding,
2,691,470 are freely tradable. The remaining outstanding shares may be resold
publicly only following their registration under the Securities Act of 1933,
as amended, or under an available exemption. We provided registration rights
to each of our stockholders prior to our initial public offering, including
three demand and specified piggyback registration rights, which currently
apply to approximately 4,519,451 shares.

   We also have outstanding options to purchase up to a total of 241,742
shares of our common stock that we granted to some of our directors, executive
officers and employees. We have registered all the shares subject to these
options under the Securities Act. These shares generally are freely tradable
after their issuance to persons who are not our affiliates unless we
contractually restrict their resale. We also issued warrants to purchase
72,000 shares of our common stock at our initial public offering price to
Morgan Keegan & Company, Inc. and granted Morgan Keegan one demand
registration right and specified piggy back registration rights.

   In addition, the average daily trading volume in our common stock for 2001
was 6,571 shares. The availability of a large block of stock for sale in
relation to our normal trading volume can result in a decline in the market
price of our common stock.

   Among other things, a decline in the price of our common stock can
adversely affect our ability to raise equity capital in the future and to
complete acquisitions using our common stock.

Some provisions of our corporate documents and Delaware law may discourage a
takeover.

   Our Amended and Restated Certificate of Incorporation (the "Charter") 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 Charter:

  .  authorizes the issuance of "blank check" preferred stock;

  .  divides our board into three classes, the members of which serve three-
     year terms;

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

  .  prohibits stockholder action by written consent; and

  .  prohibits stockholders from calling special meetings of stockholders.

   In addition, Delaware law restricts specified mergers and other business
combinations between us and any holder of 15% or more of our common stock.
Delaware law also permits us to adopt a shareholder rights plan without
stockholder approval, if the board determines that doing so would be in the
best interests of the company's stockholders. We also have employment
agreements with our executive officers that provide for benefits in specified
circumstances if there is a change of control of our company. These provisions
might hinder, delay or prevent a change of control of our company. These
provisions could also limit the price that investors might be willing to pay
in the future for shares of our common stock.

We do not intend to pay dividends in the near future.

   We currently intend to retain any earnings to meet our working capital
needs and to finance the growth of our business. In addition, our loan
agreement restricts us from paying dividends. Accordingly, an investor in our
common stock should not expect to receive periodic income from an investment
in our common stock.

                                      14
<PAGE>

                         Risks Related to our Industry

Our business is highly competitive. As a result, we may lose business and
employees to our competitors or may experience lower profit margins than we
would in the absence of competition. In addition, we may lose acquisition
opportunities to competitors or may pay more for an acquisition than we would
in the absence of competition.

   The marine vessel construction, conversion and repair business is highly
competitive. We compete with a large number of shipbuilders on a national,
regional and local basis. Some of our competitors have substantially greater
financial resources than we do, and some are public companies or divisions of
public companies. Although we believe that the bankruptcies of some of our
competitors such as Friede Goldman Halter and First Wave Marine have made
additional opportunities available to us, we continue to experience
significant competitive pressure on pricing and profit margins. We also face
competition for acquisition candidates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" and
"Business--Operations."

Excess capacity in our industry has placed downward pressure on pricing and
profit margins.

   Since approximately the mid 1980s, the U.S. shipbuilding and repair
industry has been characterized generally by substantial excess capacity,
which is partly due to the following factors:

  .  the significant decline in U.S. Navy shipbuilding spending;

  .  the difficulty U.S. shipyards have competing successfully for commercial
     projects against foreign shipyards, many of which are heavily subsidized
     by their governments; and

  .  the overall decline in the construction of vessels utilized by the
     offshore oil and gas industry.

   These factors have caused competition by U.S. shipyards for domestic
commercial projects to increase significantly, resulting in substantial
pressure on pricing and profit margins.

Federal law favoring U.S. shipyards over foreign shipyards may be modified or
rescinded, resulting in greater competition from foreign shipyards that
operate with lower costs.

   Our commercial shipbuilding opportunities are materially dependent on U.S.
laws and regulations, such as:

  .  the Jones Act, which requires that vessels transporting products between
     U.S. ports be constructed by U.S. shipyards; and

  .  Title XI of the Merchant Marine Act of 1936, which permits the U.S.
     government to guarantee financing for vessels built in U.S. shipyards.

   The U.S. Congress may reduce or eliminate funding for the Title XI
guarantee program. Legislation seeking to rescind or substantially modify
provisions of the Jones Act is also introduced from time to time. We believe
that Congress is unlikely to rescind or materially modify the Jones Act in the
foreseeable future. However, we can provide no assurance that the Jones Act or
other legislation that benefits U.S. shipbuilders will not be modified or
rescinded. Many foreign shipbuilders are heavily subsidized by their
governments and thus may have significant cost advantages over U.S.
shipbuilders. As a result, the elimination or modification of legislation that
benefits U.S. shipbuilders may reduce our ability to effectively compete with
foreign shipbuilders, causing downward pressure on prices and profit margins
and decreased revenues and earnings.

New regulations or modifications to existing regulations affecting our
significant customers could decrease demand for our products and services and
result in significantly lower revenues and earnings.

   New legislation or changes to existing legislation affecting our
significant customers could decrease demand for our products and services. For
example, the adoption of any laws or regulations curtailing the exploration,

                                      15
<PAGE>

development and production activities of oil and gas companies in the Gulf of
Mexico would likely limit the demand for our products and services. In
addition, Coast Guard regulations specify maintenance requirements for vessels
used in the offshore oil and gas business, and a reduction in these
requirements could have a materially adverse impact on revenues and earnings
in our repair business.

Compliance with environmental laws and other government regulations may
increase our cost of doing business.

   We are subject to various federal, state and local environmental laws and
regulations. These laws and regulations impose limitations on the discharge of
pollutants into the environment and establish standards for the
transportation, storage and disposal of hazardous waste. The government may
impose significant fines or penalties for violations of these environmental
laws and regulations. Some environmental laws impose joint and several "strict
liability" for remediation of spills and releases of oil and hazardous
substances. Under these laws and regulations, a person may be liable for
environmental damages without regard to negligence or fault on the part of
that person. As a result, these laws may expose us to liability for the
conduct of or conditions caused by others. We may also be liable for our own
acts that are or were in compliance with all applicable laws at the time such
acts were performed. Environmental laws have historically been subject to
frequent change. We are unable to predict the future costs or other future
effects of environmental laws on our operations. In addition, any changes in
environmental or other laws affecting our business may further increase our
costs.

Our business involves operating hazards and risks of liability and our
insurance coverage may be insufficient to cover all losses that we experience.

   Our activities involve the fabrication and refurbishment of large steel
structures, the operation of cranes and other heavy machinery and other
operating hazards. These activities can cause personal injury or loss of life,
severe damage to and destruction of property and equipment and suspension of
operations. The failure of a vessel structure after it leaves our shipyard can
result in similar injuries and damages. Litigation arising from these
occurrences may result in us being named as a defendant in lawsuits asserting
significant damages. In addition, our facilities are located in close
proximity to the Gulf of Mexico and rivers in flood plains. As a result, our
facilities are subject to the possibility of significant physical damage
caused by hurricanes or flooding. Although we maintain insurance protection
from these events, our insurance coverage may not be sufficient in coverage or
effective under all circumstances to protect us against all hazards to which
we are subject. A successful claim against us for which we are not fully
covered by insurance could result in substantial losses to us. In addition, we
may not be able to maintain adequate insurance in the future at rates that we
consider economically prudent.

The terrorist attacks that took place on September 11, 2001 in the U.S. were
unprecedented, and we cannot predict the long-term effect of those attacks on
our business.

   The September 11, 2001 terrorist attacks in the U.S. and related weakness
in the economy in general and the offshore oil and gas industry in particular
decreased demand for our products and services, and had a negative effect on
our financial performance, for the fourth quarter of 2001. Those attacks have
resulted, among other things, in increased concern regarding the potential for
future attacks, hostilities involving the U.S. in Afghanistan, and other
political and economic uncertainties. The attacks were unprecedented, and we
cannot predict their long-term effects on our business.

Item 2: Properties

   Shipyards. The Company conducts its marine vessel construction, conversion
and repair operations at its shipyards in Morgan City and Amelia, Louisiana,
and Orange, Texas. The Company has owned and operated the Morgan City shipyard
since 1948. The Company acquired the conversion and repair facility in Amelia,
Louisiana for approximately $1.0 million in 1996 and commenced conversion and
repair services at this facility during February 1998. In December 1997, the
Company acquired Orange Shipbuilding for a purchase price of approximately
$22.8 million (net of cash acquired). This acquisition significantly increased
the shipbuilding capacity of the Company.

                                      16
<PAGE>

   During the past five years, the Company has made, in the aggregate,
approximately $14.5 million of capital expenditures to add capacity and
improve the efficiency of its Morgan City and Orange Shipbuilding shipyards.
Of this amount, Conrad spent approximately $13.2 million at the Morgan City
shipyard for improvements to its building and facilities, to purchase cranes
and other fabrication equipment, to purchase and modify a drydock and launch
barge, and to construct a drydock. A portion of Conrad's expenditures in 1998
and 1997 were incurred to increase the heavy lifting and drydocking
capabilities of one of its drydocks. These shipyard improvements allow barges
and vessels to be moved from drydock space to dockside land repair areas,
thereby enabling the Company to perform major modifications and repairs, such
as lengthening of vessel midbodies, on previously unused dockside land while
freeing the drydock for other projects. During 2001, $1.3 million of capital
expenditures related to the Company's completion of construction of its new
280' long by 160' wide, ABS classed and certified state-of-the-art drydock
with a lifting capacity of 10,000 tons. The Company's capital expenditures
during the last five years also included approximately $1.3 million incurred
by Orange Shipbuilding for improvements to its buildings and facilities and to
purchase cranes and other fabrication equipment.

   All of the Company's new vessel construction is done indoors in well-
lighted space specifically designed to accommodate construction of marine
vessels up to 400 feet in length. As a result, marine vessel construction is
not hampered by weather conditions, and the Company is able to more
effectively utilize its workforce and equipment, thereby allowing it to
control costs and meet critical construction schedules. The Company employs
modular construction techniques and zone outfitting, which involve the
installation of pipe, electrical wiring and other systems at the modular
stage, thereby reducing construction time while at the same time simplifying
systems integration and improving quality. The Company also uses computerized
plasma arc metal cutting for close tolerances and automated shotblasting and
painting processes for efficiency and high quality.

   Morgan City. The Company's Morgan City, Louisiana shipyard is located on
the Atchafalaya River approximately 18 miles from the Gulf of Mexico on
approximately 11 acres. The shipyard has 14 buildings containing approximately
110,000 square feet of enclosed building area and nine overhead cranes. In
addition, the shipyard has six drydocks, one submersible launch barge, 1,700
feet of steel bulkhead, six rolling cranes and two slips. The buildings
include the Company's headquarters as well as three large fabrication
warehouses specifically designed to accommodate marine vessel construction. In
addition, the Company is currently constructing another fabrication building
at the Morgan City yard at a cost of approximately $800,000, which will
increase the Company's enclosed building space by approximately 15,000 square
feet and will increase capabilities for pre-fabricated components and modular
construction techniques.

   The drydocks consist of two 120-foot by 52- foot drydocks, two 200-foot by
70-foot drydocks and one 200-foot by 95-foot drydock with lifting capacities
of 900, 2,400 and 3,000 tons, respectively. In addition, The Company began
construction in May 2000 of a new ABS classed and certified state-of-the-art
drydock with a lifting capacity of 10,000 tons, which is 7,000 tons greater
than the 3,000 ton lifting capacity of the Company's next largest drydock. The
cost was $5.7 million. The new 280' long by 160' wide dock allows the Company
to (1) increase repair and conversion capacity; (2) lift and compete to repair
larger vessels such as derrick and pipe laying barges and the large offshore
service vessels recently built for the deep water drilling activities in the
Gulf of Mexico; and (3) launch larger new vessel construction projects more
competitively. The drydock was put into operation during the first part of
March 2001 at the Morgan City shipyard, bringing the total number of drydocks
operated by the Company to six.

   Orange. The Company's Orange, Texas shipyard is located on the Sabine River
approximately 37 miles from the Gulf of Mexico on approximately 12 acres. The
shipyard has six construction bays under approximately 110,000 square feet of
enclosed building area with 14 overhead cranes. The site also has 150 feet of
steel bulkhead and one slip. The Company's Orange shipyard equipment includes
a Wheelabratore, a "gantry" type NC plasma burner with a 21-foot by 90-foot
table, over 60 automatic and semi-automatic welding machines, three rolling
cranes, 600, 800 and 1,600-ton transfer/load-out systems and a marine railway
with side transfer system.

                                      17
<PAGE>

   Amelia. The Company's Amelia, Louisiana conversion and repair facility is
located on Bayou Boeuf approximately 30 miles from the Gulf of Mexico on
approximately 16 acres. This facility has six buildings containing
approximately 30,000 square feet of enclosed building area. The site also has
2,100 feet of bulkhead and two slips. The Company commenced marine repair and
conversion operations at this shipyard during February 1998. The Company
maintained a lease/business agreement with RB Falcon, a vessel operator, for
the use of approximately two-thirds of the property in return for RB Falcon
contracting with Conrad for a certain minimum amount of business for marine
repair services. This lease/business agreement was transferred by RB Falcon to
Delta Towing LLC as of February 2001 and subsequently terminated in January
2002. The Company is currently utilizing this facility for repair and
conversion activity.

   On October 23, 2000, the Company purchased 52 acres of land in Amelia,
Louisiana for $1.3 million. The land is strategically located on the
Intracoastal Waterway approximately 30 miles from the Gulf of Mexico and is
within one mile of the other Amelia facility. Work is currently in progress to
develop approximately 16 acres of the property as a repair and conversion
facility. The initial development included clearing land, grubbing and
dredging at a total cost of $0.9 million. The next phase of development will
include additional site preparation, installation of steel sheet-pile bulkhead
system, dry excavation and dredging, other infrastructure improvements and
outfitting with tools and equipment at an anticipated cost of approximately
$6.7 million. Current plans are to move the Company's two largest drydocks to
the facility which is estimated to be in service during the fourth quarter of
2002.

Item 3: Legal Proceedings

   The Company is a party to various routine legal proceedings primarily
involving commercial claims and workers' compensation claims. While the
outcome of these claims and legal proceedings cannot be predicted with
certainty, management believes that the outcome of such proceedings in the
aggregate, even if determined adversely, would not have a material adverse
effect on the Company's business or financial condition.

Item 4: Submission of Matters to Vote of Security Holders

   The Company did not submit any matters to a vote of security holders during
the fourth quarter of its fiscal year ended December 31, 2001.

                                      18
<PAGE>

                                    PART II

Item 5: Market for the Registrant's Common Stock and Related Stockholder
Matters

   The Company's common stock, par value $0.01 per share, (the "Common Stock")
is traded on the Nasdaq National Market System under the symbol "CNRD." At
March 22, 2002, there were approximately 730 holders of the Common Stock of
record.

   The following table sets forth the high and low bid prices per share of the
Common Stock, as reported by the Nasdaq National Market, for each fiscal
quarter during the last two fiscal years.

<TABLE>
<CAPTION>
            Fiscal Year 2001                                         High   Low
            ----------------                                        ------ -----
      <S>                                                           <C>    <C>
      First Quarter................................................ $ 8.00 $5.00
      Second Quarter...............................................   8.45  5.95
      Third Quarter................................................   7.24  4.10
      Fourth Quarter...............................................   6.27  4.50

<CAPTION>
            Fiscal Year 2000                                         High   Low
            ----------------                                        ------ -----
      <S>                                                           <C>    <C>
      First Quarter................................................ $ 5.00 $3.00
      Second Quarter...............................................   6.75  3.00
      Third Quarter................................................  10.50  5.38
      Fourth Quarter...............................................   8.00  4.38
</TABLE>

   The Company currently intends to retain all its earnings, if any, to meet
its working capital requirements and to finance the expansion of its business.
Accordingly, the Company does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. In addition, the Term Loan restricts
the payment of dividends by the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

                                      19
<PAGE>

Item 6: Selected Financial Data

   The following table sets forth selected historical consolidated financial
data of the Company as of the dates and for the periods indicated. The
historical financial data for each year in the five-year period ended
December 31, 2001 are derived from the historical audited financial statements
of the Company. The following table also set forth unaudited pro forma
financial information that gives effect to the Company's S Corporation status,
as further explained in the notes. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements
and notes thereto included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                  --------------------------------------------
                                   2001     2000     1999     1998      1997
                                  -------  -------  -------  -------  --------
                                   (In thousands, except per share data)
<S>                               <C>      <C>      <C>      <C>      <C>
Statement of Operations Data
Revenues......................... $46,904  $38,516  $32,555  $46,313  $ 22,117
Cost of revenue..................  37,017   29,168   25,618   34,120    15,032
                                  -------  -------  -------  -------  --------
Gross profit.....................   9,887    9,348    6,937   12,193     7,085
Selling, general and
 administrative expenses.........   5,077    4,661    3,857    3,515     2,242
Executive compensation (1).......   2,613       --       --    4,676        --
                                  -------  -------  -------  -------  --------
Income from operations...........   2,197    4,687    3,080    4,002     4,843
Interest and other income
 (expense), net..................     (49)      31     (326)  (1,141)       62
                                  -------  -------  -------  -------  --------
Income before income taxes.......   2,148    4,718    2,754    2,861     4,905
Provision for income taxes.......   1,115    2,021    1,252    1,932        --
Cumulative deferred tax
 provision.......................      --       --       --      675        --
                                  -------  -------  -------  -------  --------
Net income....................... $ 1,033  $ 2,697  $ 1,502  $   254  $  4,905
                                  =======  =======  =======  =======  ========
Net Income Per Common Share
  Basic.......................... $  0.14  $  0.38  $  0.21  $  0.04  $   1.05
  Diluted........................ $  0.14  $  0.38  $  0.21  $  0.04  $   1.05
Weighted Average Common Shares
 Outstanding
  Basic..........................   7,129    7,067    7,078    6,167     4,660
  Diluted........................   7,149    7,076    7,078    6,167     4,660
Unaudited Pro Forma Data
  Net income as reported above...                            $ 2,861  $  4,905
  Pro forma provision for income
   taxes (2).....................                              2,596     1,815
                                                             -------  --------
  Pro forma net income (2).......                            $   265  $  3,090
                                                             =======  ========
  Pro forma net income per share
   (2)(3)........................                            $  0.04  $   0.55
  Common and equivalent shares
   outstanding...................                              6,569     5,577
Statement of Cash Flows Data
  Cash provided by operating
   activities.................... $ 4,098  $ 8,457  $ 4,520  $ 1,988  $  6,114
  Cash used in investing
   activities (4)................ $(4,776) $(6,692) $  (744) $(1,718) $(23,872)
  Cash provided by (used in )
   financing activities.......... $ 4,074  $(2,504) $(2,598) $(4,747) $ 22,100
Other Financial Data
  Depreciation & amortization.... $ 2,326  $ 2,199  $ 2,263  $ 2,249  $    850
  Capital expenditures (4)....... $ 4,320  $ 6,692  $   744  $ 1,718  $ 23,872
  EBITDA (5)..................... $ 6,070  $ 6,886  $ 5,343  $10,927  $  5,693
  EBITDA margin (6)..............    12.9%    17.9%    16.4%    23.6%     25.7%
  Operating profit margin (7)....     4.7%    12.2%     9.5%     8.6%     21.9%
</TABLE>


                                      20
<PAGE>

<TABLE>
<CAPTION>
                                                  As of December 31,
                                        ---------------------------------------
                                         2001    2000    1999    1998    1997
                                        ------- ------- ------- ------- -------
                                                    (In thousands)
<S>                                     <C>     <C>     <C>     <C>     <C>
Balance Sheet Data
  Working capital...................... $ 9,312 $ 4,107 $ 8,163 $ 7,678 $ 7,760
  Property, plant & equipment, net..... $25,486 $22,675 $17,377 $18,104 $18,304
  Total assets......................... $52,756 $47,964 $45,120 $47,519 $48,945
  Long term debt, including current
   portion............................. $ 9,007 $ 4,806 $ 7,314 $ 9,912 $25,338
  Shareholders' equity................. $36,696 $34,685 $31,984 $30,482 $15,279
</TABLE>
--------
(1) For 2001, represents non-recurring executive compensation expense incurred
    in the third quarter related to the issuance of shares of common stock,
    forgiveness of notes and related interest, severance payment and cash
    bonuses to William H. Hidalgo, the Company's former President and Chief
    Executive Officer, and Cecil A. Hernandez, the Company's Vice President-
    Finance and Administration and Chief Financial Officer as detailed in
    "Recent Events" in Item 7 and in notes to the financial statements. For
    1998, represents non-cash executive compensation expense related to the
    issuance of shares of restricted common stock in the first quarter of 1998
    to William H. Hidalgo, the Company's President and Chief Executive
    Officer, and Cecil A. Hernandez, the Company's Vice President-Finance and
    Administration and Chief Financial Officer.
(2) Gives effect to the application of federal and state income taxes to the
    Company as if it were a C corporation for tax purposes. Prior to May 28,
    1998, Conrad operated as an S corporation for federal and state income tax
    purpose.
(3) Pro forma income per share consists of the Company's historical income as
    an S corporation, adjusted for income taxes that would have been recorded
    had the Company operated as a C corporation and excludes the one-time
    charge of $675,000 to record the cumulative deferred income tax provision.
    This amount is divided by the weighted average shares of common stock
    outstanding which are increased to reflect additional shares to pay the
    $10.0 million distribution of estimated undistributed earnings to
    shareholders (916,591 shares). All such additional shares are based on the
    initial public offering price of $12.00 per share, net of offering
    expenses.
(4) Includes acquisition expenditures of $22.8 million (net of cash acquired)
    incurred in December 1997 in connection with the Orange Acquisition.
(5) Represents income from operations before deduction of depreciation,
    amortization and non-cash compensation expense related to the issuance of
    stock and stock options to employees. EBITDA is not a measure of cash
    flow, operating results or liquidity as determined by generally accepted
    accounting principles. The Company has included information concerning
    EBITDA as supplemental disclosure because management believes that EBITDA
    provides meaningful information regarding a company's historical ability
    to incur and service debt. EBITDA as defined and measured by the Company
    may not be comparable to similarly titled measures reported by other
    companies. EBITDA should not be considered in isolation or as an
    alternative to, or more meaningful than, net income or cash flow provided
    by operations as determined in accordance with generally accepted
    accounting principles as an indicator of the Company's profitability or
    liquidity.
   The following table sets forth how EBITDA was determined for the periods
presented (in thousands):

<TABLE>
<CAPTION>
                                             2001   2000   1999   1998    1997
                                            ------ ------ ------ ------- ------
   <S>                                      <C>    <C>    <C>    <C>     <C>
   Income from operations.................. $2,197 $4,687 $3,080 $ 4,002 $4,843
   Depreciation and amortization...........  2,326  2,199  2,263   2,249    850
   Non-cash executive compensation.........  1,547     --     --   4,676     --
                                            ------ ------ ------ ------- ------
   EBITDA.................................. $6,070 $6,886 $5,343 $10,927 $5,693
                                            ====== ====== ====== ======= ======
</TABLE>
(6) Represents EBITDA as a percentage of revenues.
(7) Represents income from operations as a percentage of revenues.

                                      21
<PAGE>

Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations

   The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and the Notes to Consolidated Financial
Statements included elsewhere in this Form 10-K.

Overview

   The demand for the Company's products and services is dependent upon a
number of factors, including the economic condition of the Company's customers
and markets, the age and state of repair of the vessels operated by the
Company's customers and the relative cost to construct a new vessel as
compared with repairing an older vessel. A significant portion of the
Company's revenues comes from customers in the offshore oil and gas industry.
Accordingly, demand for the Company's products and services was adversely
impacted beginning in the latter part of 1998 by decreased activity in the
offshore oil and gas industry. During 2000, the Company began to experience a
modest increase in demand for products and services due to the upturn in
activity in the offshore oil and gas industry. During the fourth quarter of
2001, weakness in the economy in general and the offshore oil and gas industry
in particular resulted in decreased demand and negatively affected the
Company's financial performance. The Company has experienced increased demand
for repair and conversion services and increased bid activity in the first
quarter of 2002, although it cannot determine whether the increase is
indicative of a trend. Activity by other commercial and government customers
to construct new vessels to replace older vessels and upgrade the capacity or
functionality of existing vessels has remained steady.

   The Company is engaged in various types of construction under contracts
that generally range from one month to 36 months in duration. The Company uses
the percentage-of-completion method of accounting and therefore, takes into
account the estimated costs, estimated earnings and revenue to date on fixed-
price contracts not yet completed. The amount of revenue recognized is equal
to the portion of the total contract price that the labor hours incurred to
date bears to the estimated total labor hours, based on current estimates to
complete. This method is used because management considers expended labor
hours to be the best available measure of progress on these contracts.
Revenues from cost-plus-fee contracts are recognized on the basis of cost
incurred during the period plus the fee earned.

   Most of the contracts entered into by the Company for new vessel
construction, whether commercial or governmental, are fixed-price contracts
under which the Company retains all cost savings on completed contracts but is
liable for all cost overruns. The Company develops its bids for a fixed price
project by estimating the amount of labor hours and the cost of materials
necessary to complete the project and then bids such projects in order to
achieve a sufficient profit margin to justify the allocation of its resources
to such project. The Company's revenues therefore may fluctuate from period to
period based on, among other things, the aggregate amount of materials used in
projects during a period and whether the customer provides materials and
equipment. The Company generally performs conversion and repair services on
the basis of cost-plus-fee arrangements pursuant to which the customer pays a
negotiated labor rate for labor hours spent on the project as well as the cost
of materials plus a margin on materials purchased.

Recent Events

   In May 2000 the Company began construction of a new ABS classed and
certified state-of-the-art drydock with a lifting capacity of 10,000 tons,
which is 7,000 tons greater than the 3,000 ton lifting capacity of the
Company's next largest drydock. The cost was $5.7 million. Funds for the
construction of the drydock came from cash and internally generated funds. The
new 280' long by 160' wide dock allows the Company to (1) increase repair and
conversion capacity; (2) lift and compete to repair larger vessels such as
derrick and pipe laying barges and the large offshore service vessels recently
built for the deep water drilling activities in the Gulf of Mexico; and (3)
launch larger new vessel construction projects more competitively. The drydock
was put into operation during the first part of March 2001 at the Morgan City
shipyard, bringing the total number of drydocks operated by the Company to
six.

                                      22
<PAGE>

   On October 23, 2000, the Company purchased 52 acres of land in Amelia,
Louisiana for $1.3 million. The land is strategically located on the
Intracoastal Waterway approximately 30 miles from the Gulf of Mexico and is
within one mile of the other existing Amelia facility. Work is currently in
progress to develop approximately 16 acres of the property as a repair and
conversion facility. The initial development included clearing land, grubbing
and dredging at a total cost of $0.9 million. The next phase of development
will include additional site preparation, installation of steel sheet-pile
bulkhead system, dry excavation and dredging, other infrastructure
improvements and outfitting with tools and equipment at an anticipated cost of
approximately $6.7 million. Current plans are to move the Company's two
largest drydocks to the facility which is estimated to be in service during
the fourth quarter of 2002.

   In addition, the Company is currently constructing another fabrication
building at the Morgan City yard at a cost of approximately $800,000, which
will increase the Company's enclosed building space by approximately 15,000
square feet and will increase capabilities for pre-fabricated components and
modular construction techniques.

   The Company has appointed Kenneth G. "Jerry" Myers, Jr. as President and
Chief Executive Officer, effective August 27, 2001, pursuant to the terms of
an employment agreement described in Note 5 to the Company's consolidated
financial statements included herein. Mr. Myers has spent the past 21 years
with Avondale Industries serving in various senior management positions. Most
recently, he served as Vice President in charge of managing Avondale's largest
shipbuilding program. While at Avondale, Mr. Myers has also held positions
including Chief Information Officer, Vice President-Business Review, in charge
of government program accounting, where he managed over $10 billion in
government contracts, Assistant Vice President responsible for mergers and
acquisitions and Assistant Controller.

   In August 2001, the Company and William H. Hidalgo entered into a
transition agreement and terminated his employment agreement. The agreement
provided that he would remain employed by the Company as President and Chief
Executive Officer through August 26, 2001 and as Special Advisor to the new
Chief Executive Officer through October 31, 2001. In consideration of past
services, assistance with an orderly transition, surrender of his stock
options, execution of the agreement (including a one-year non-competition
covenant) and severance, Mr. Hidalgo received 132,820 shares of common stock
and, on February 28, 2002, received a severance payment of $195,290 and bonus
of $622,500. Options to purchase 285,957 shares of common stock previously
granted to Mr. Hidalgo have been cancelled. His $233,327 promissory note and
related accrued interest payable to the Company have also been cancelled.

   The Company also granted Cecil A. Hernandez, the Company's Chief Financial
Officer, in consideration for past services and surrender of his stock
options, 44,261 shares of common stock and a cash bonus paid on February 28,
2002, of $248,000. Options to purchase 114,043 shares of common stock
previously granted to Mr. Hernandez have been cancelled. His $139,277
promissory note and related accrued interest payable to the Company have also
been cancelled. Mr. Hernandez will remain as the Company's Chief Financial
Officer and a director.

   Messers. Hidalgo and Hernandez executed notes payable to the Company in the
amount of their related withholding tax obligations, which were repaid on
February 28, 2002 by an offset against the bonuses due on that date. In
addition, the Company purchased 19,683 shares of common stock from the
executives to assist them in meeting their income tax obligations relating to
these transactions.

   As a result of these transactions, the Company incurred a one-time, after
tax earnings charge of approximately $1.6 million, or $0.23 per diluted share,
in the quarter ended September 30, 2001. The transactions will have a minimal
effect on the Company's cash flow due to the income tax implications of the
non-cash portion of the charge related to the issuance of the common stock.

                                      23
<PAGE>

Results of Operations

   The following table sets forth certain historical data of the Company and
percentage of revenues for the periods presented (in thousands):

<TABLE>
<CAPTION>
                                     Years Ended December 31,
                                ---------------------------------------
                                 2001            2000            1999
                                -------         -------         -------
<S>                             <C>      <C>    <C>      <C>    <C>      <C>
Financial Data:
Revenue
  Vessel construction.......... $33,610   71.7% $23,398   60.7% $23,870   73.3%
  Repair and conversions.......  13,294   28.3%  15,118   39.3%   8,685   26.7%
                                -------         -------         -------
    Total revenue..............  46,904  100.0%  38,516  100.0%  32,555  100.0%
                                -------         -------         -------
Cost of revenue
  Vessel construction..........  26,677   79.4%  17,993   76.9%  18,458   77.3%
  Repair and conversions.......  10,340   77.8%  11,175   73.9%   7,160   82.4%
                                -------         -------         -------
    Total cost of revenue......  37,017   78.9%  29,168   75.7%  25,618   78.7%
                                -------         -------         -------
Gross profit
  Vessel construction..........   6,933   20.6%   5,405   23.1%   5,412   22.7%
  Repair and conversions.......   2,954   22.2%   3,943   26.1%   1,525   17.6%
                                -------         -------         -------
    Total gross profit.........   9,887   21.1%   9,348   24.3%   6,937   21.3%
                                -------         -------         -------
S G & A expenses...............   5,077   10.8%   4,661   12.1%   3,857   11.8%
Executive compensation (1).....   2,613    5.6%      --    0.0%      --    0.0%
                                -------         -------         -------
Income from operations.........   2,197    4.7%   4,687   12.2%   3,080    9.5%
Interest expense...............    (193)   0.4%    (386)   1.0%    (639)   2.0%
Other income, net..............     144   -0.3%     417   -1.1%     313   -1.0%
                                -------         -------         -------
Income before income taxes.....   2,148    4.6%   4,718   12.2%   2,754    8.5%
Income taxes...................   1,115    2.4%   2,021    5.2%   1,252    3.8%
                                -------         -------         -------
Net income..................... $ 1,033    2.2% $ 2,697    7.0% $ 1,502    4.6%
                                =======         =======         =======
EBITDA (2)..................... $ 6,070   12.9% $ 6,886   17.9% $ 5,343   16.4%
                                =======         =======         =======
Operating Data: Labor Hours....     623             528             537
</TABLE>
--------
(1) For 2001 represents, non-recurring executive compensation expense incurred
    in the third quarter related to the issuance of shares of common stock,
    forgiveness of notes and related interest, severance payment and cash
    bonuses to executives as detailed in "Recent Events" and notes to the
    financial statements.
(2) Represents income from operations before deduction of depreciation,
    amortization and non-cash compensation expense related to the issuance of
    common stock and stock options to employees. EBITDA is not a measure of
    cash flow, operating results or liquidity as determined by generally
    accepted accounting principles. The Company has included information
    concerning EBITDA as supplemental disclosure because management believes
    that EBITDA provides meaningful information regarding a company's
    historical ability to incur and service debt. EBITDA as defined and
    measured by the Company may not be comparable to similarly titled measures
    reported by other companies. EBITDA should not be considered in isolation
    or as an alternative to, or more meaningful than, net income or cash flow
    provided by operations as determined in accordance with generally accepted
    accounting principles as an indicator of the Company's profitability or
    liquidity.

                                      24
<PAGE>

     The following table sets forth how EBITDA was determined for the periods
  presented (in thousands):

<TABLE>
<CAPTION>
                                                            2001   2000   1999
                                                           ------ ------ ------
   <S>                                                     <C>    <C>    <C>
   Income from operations................................. $2,197 $4,687 $3,080
   Depreciation and amortization..........................  2,326  2,199  2,263
   Non-cash executive compensation........................  1,547     --     --
                                                           ------ ------ ------
   EBITDA................................................. $6,070 $6,886 $5,343
                                                           ====== ====== ======
</TABLE>

 Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

   During the year ended December 31, 2001, the Company generated revenue of
$46.9 million, an increase of approximately $8.4 million, or 21.8%, compared to
$38.5 million generated for 2000. The increase was due to a $10.2 million
(43.6%) increase in vessel construction revenue to $33.6 million for 2001
compared to $23.4 million for 2000. The increase was partially offset by a $1.8
million (12.1%) decrease in repair and conversion revenue to $13.3 million for
2001, compared to $15.1 million for 2000. The increase in vessel construction
revenue was attributable to the increase in vessel construction production
hours by 36.5% during 2001 compared to 2000. This was due to (1) greater demand
for vessel construction jobs during the first three quarters of 2001, (2) the
fact that the construction of the drydock by production personnel during 2000
absorbed hours during that period which could otherwise have been available for
billable work, and (3) the nature of the jobs during 2001 required more
material and equipment compared to jobs during 2000. The decrease in repair and
conversion revenue during 2001 compared to 2000 was primarily attributable to
(1) decreased demand for repair and conversion services during the fourth
quarter of 2001 due to decreased offshore oil and gas activity and (2) the fact
that two conversion jobs in progress during 2000 required more material and
equipment as compared to projects completed or in progress during 2001. Repair
and conversion hours decreased by 2.4% during 2001 compared to 2000. Vessel
construction revenue was 71.7% of total revenue compared to 60.7% for 2000 and
repair and conversion revenue was 28.3% of total revenue compared to 39.3% in
2000. For 2001, 66.8% of revenue was energy related, 11.7% was government and
21.5% was other commercial. This compares to 57.6% energy, 22.4% government and
20.0% other commercial in 2000.

   Gross profit increased $539,000, or 5.8% to $9.9 million (21.1% of revenue)
for 2001 as compared to gross profit of $9.3 million (24.3% of revenue) for
2000. Affecting gross profit for 2001 was an agreement between Conrad
subsidiary Orange Shipbuilding Company, Inc. and the Occupational Safety and
Health Administration in which Orange agreed to pay a fine of $149,850 to
settle alleged violations at its Orange, Texas shipyard. This amount was
expensed in the three month period ended June 30, 2001. Gross profit for 2001
was positively impacted by a reduction in estimated medical insurance costs
based on actual experience during the policy year ended May 31, 2001. Vessel
construction gross profit increased $1.5 million or 28.3% to $6.9 million for
2001 compared to $5.4 million for 2000. Repair and conversion gross profit
decreased $1.0 million or 25.1% to $3.0 million for 2001 compared to $3.9
million for 2000. The increase in vessel construction gross profit was
primarily due to the increase in vessel production hours and the factors
discussed above. The decrease in repair and conversion gross profit was
primarily due to the fact that jobs during 2000 were more profitable than jobs
during 2001 and the decrease in repair and conversion hours during 2001
(primarily in the fourth quarter) as compared to 2000.

   Vessel construction gross profit margins decreased to 20.6% for 2001,
compared to gross profit margins of 23.1% for 2000 primarily due to some jobs
in 2001 being more material intensive and some jobs in 2001 having lower profit
margins due to greater job cost. Repair and conversion gross profits margins
were 22.2% for 2001, compared to gross profit margins of 26.1% for 2000. The
decrease was primarily due to higher cost of jobs completed during the fourth
quarter of 2001 due to lower activity.

   Selling, general and administrative expenses increased $416,000, or 8.9%, to
$5.1 million (10.8% of revenue) for 2001, as compared to $4.7 million (12.1% of
revenue) for 2000. These increases were primarily due to an increase in
employee related costs, legal and sales expenses and a bad debt expense of
$153,000.

                                       25
<PAGE>

   Included in selling, general and administrative expenses was amortization
expense of existing goodwill of approximately $0.8 million for the years ended
December 31, 2001 and 2000. SFAS No. 142 changes the accounting for goodwill
from an amortization method to an impairment-only approach. Amortization of
goodwill will cease on January 1, 2002 upon adoption of this statement.

   Income before income taxes decreased $2.6 million to $2.1 million for 2001
as compared to net income before income taxes of $4.7 million for 2000,
primarily due to the non-recurring executive compensation charge of $2.6
million (described in "Recent Events").

   The Company had net income of $1.0 million for 2001 as compared to net
income of $2.7 million for 2000. Interest expense decreased $193,000 to
$193,000 for 2001 as compared to interest expense of $386,000 for 2000 due to
a reduction of average debt outstanding during the year and lower interest
rates.

   The Company had income tax expense of $1.1 million (51.9% effective tax
rate) for 2001, compared to income taxes of $2.0 million (42.8% effective tax
rate) for 2000. The Company's effective tax rate is higher than its statutory
tax rate primarily because its cost in excess of net assets acquired is not
amortized for tax purposes.

 Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

   During the year ended December 31, 2000, the Company generated revenue of
$38.5 million, an increase of approximately $6.0 million, or 18.3%, compared
to $32.6 million generated for 1999. The increase was due to a $6.4 million
(74.1%) increase in repair and conversion revenue to $15.1 million for 2000
compared to $8.7 million for 1999. The increase was partially offset by a
$472,000 (2.0%) decrease in vessel construction revenue to $23.4 million for
2000, compared to $23.9 million for 1999. The decrease in vessel construction
revenue was attributable to the decrease in vessel construction production
hours by 22.2% during 2000 compared to 1999. This decline was primarily due to
the construction of the drydock by production personnel. The increase in
repair and conversion revenue during 2000 compared to 1999 was primarily
attributable to (1) two conversion jobs in progress during 2000, which
required more material and equipment as compared to projects completed or in
progress during 1999, and (2) increased demand for repair and conversions due
to increased offshore oil and gas activity. Repair and conversion hours
increased by 38.7% during 2000 compared to 1999.

   Gross profit increased $2.4 million, or 34.8% to $9.3 million (24.3% of
revenue) for 2000 as compared to gross profit of $6.9 million (21.3% of
revenue) for 1999. Vessel construction gross profit was $5.4 million for 2000
which was basically the same as 1999. Repair and conversion gross profit
increased $2.4 million or 158.6% to $3.9 million for 2000 as compared to
repair and conversion gross profit of $1.5 million for 1999. Vessel
construction gross profit was affected by the decrease in revenue generating
hours caused by the internal construction of the drydock during 2000 as
compared to 1999. The increase in repair and conversion gross profit was
primarily due to greater activity and more profitable jobs completed or in
progress during 2000 as compared to 1999.

   Vessel construction gross profit margins increased to 23.1% for 2000,
compared to gross profit margins of 22.7% for 1999. Repair and conversion
gross profits margins were 26.1% for 2000, compared to gross profit margins of
17.6% for 1999.

   Selling, general and administrative expenses increased $804,000, or 20.8%,
to $4.7 million (12.1% of revenue) for 2000, as compared to $3.9 million
(11.8% of revenue) for 1999. These increases were primarily due to an increase
in employee related costs, taxes, licenses and legal expenses.

   Income before income taxes increased $2.0 million to $4.7 million for 2000
as compared to a net income before income taxes of $2.8 million for 1999,
primarily due to the factors listed above.

                                      26
<PAGE>

   The Company had net income of $2.7 million for 2000 as compared to net
income of $1.5 million for 1999. Interest expense decreased $253,000 to
$386,000 for 2000 as compared to interest expense of $639,000 for 1999 due to
a reduction of debt and capitalization of construction interest related to the
drydock.

   The Company had income tax expense of $2.0 million (42.8% effective tax
rate) for 2000, compared to income taxes of $1.3 million (45.5% effective tax
rate) for 1999. The Company's effective tax rate is higher than its statutory
tax rate because its cost in excess of net assets acquired is not amortized
for tax purposes.

Liquidity and Capital Resources

   Historically, the Company has funded its business through funds generated
from operations. Net cash provided by operations was $4.1 million, $8.5
million, and $4.5 million for 2001, 2000, and 1999, respectively. The decrease
in 2001 was principally due to a decrease in net income, increases in accounts
receivable, inventory and other assets, decreases in accounts payable and
accrued expenses offset by the decrease in net change in billings related to
cost and estimated earnings on uncompleted contracts. The increase in 2000 was
principally due to an increase in net income, decreases in accounts
receivable, inventory and other assets and net change in billings related to
cost and estimated earnings on uncompleted contracts and increase in accounts
payable and accrued expenses. The Company has borrowed in the past to expand
its facilities and to fund the Orange acquisition. The Company had a net
increase in debt of $4.2 million in 2001 and net reductions of $2.5 million in
2000 and $2.6 million in 1999. The Company's working capital position was $9.3
million, $4.1 million, and $8.2 million at December 31, 2001, 2000, and 1999,
respectively.

   The Company's capital requirements historically have been primarily for
improvements to its facilities and equipment. Capital expenditures were $4.3
million for 2001 of which approximately $1.2 million was for the completion of
the construction of a new drydock, $0.9 million was for improvements to the 52
acres of land in Amelia, Louisiana, $695,000 was for the purchase and
implementation of enterprise resource planning system software and hardware,
and $1.5 million was for improvements to its other facilities and equipment.
Capital expenditures were $6.7 million for 2000 of which approximately $4.6
million was for work in progress of the construction of a new drydock and
other improvements to repair segment facilities and equipment, $1.3 million
was for the purchase of 52 acres of land in Amelia, Louisiana and $800,000 was
for improvements to its other facilities and equipment.

   In March 2001, the Company completed construction of a new drydock, which
is 280' long and 160' wide with a lifting capacity of up to 10,000 tons. The
cost was $5.7 million. Funds for the construction of the drydock came from
cash and internally generated funds.

   On October 23, 2000, the Company purchased 52 acres of land in Amelia,
Louisiana for $1.3 million. The land is strategically located on the
Intracoastal Waterway approximately 30 miles from the Gulf of Mexico. Work is
currently in progress to develop approximately 16 acres of the property as a
repair and conversion facility. The initial development included clearing
land, grubbing and dredging at a total cost of $0.9 million. The next phase of
development will include additional site preparation, installation of steel
sheet-pile bulkhead system, dry excavation and dredging, other infrastructure
improvements and outfitting with tools and equipment at an anticipated cost of
approximately $6.7 million. The Company has received a commitment letter from
its lending institution to finance the expansion. This project was
strategically slowed down in the fourth quarter of 2001 but, based on
anticipated demand for repair and conversion services, is now underway.
Current plans are to move the Company's two largest drydocks to the facility,
which is estimated to be in service during the fourth quarter of 2002.

   In addition to the $6.7 million in capital expenditures relating to the
development of the Amelia property discussed above, for 2002 the Board of
Directors has approved $2.2 million in capital expenditures for the
maintenance, repair and upgrade of existing facilities. This includes $800,000
for the expansion of the Company's new construction facilities in Morgan City,
which the Company expects to complete during the third quarter of 2002.

                                      27
<PAGE>

   Net cash provided by financing activities was $4.1 million for 2001 which
included borrowing $8.7 million, the repayment of debt of $4.5 million, and
$127,000 for the purchase of stock from executives as described in "Recent
Events."

   During December 2001, the Company borrowed $6.5 million in additional long-
term debt and refinanced the remaining $2.5 million balance on its term loan,
resulting in a total term loan of $9.0 million at December 31, 2001. The
additional borrowing was arranged to provide long-term financing on recent
capital additions, which included the $5.7 million drydock placed in service
in the first quarter of 2001.

   The Company has a Loan Agreement with a commercial bank, which specifies
the terms of the Term Loan and the Revolving Credit Facility. Interest accrues
at LIBOR plus 1.75% until March 31, 2002, and thereafter at the option of the
Company either at the lender's prime rate minus 0.5% or LIBOR plus 1.75%. The
Loan Agreement is secured by substantially all of the Company's assets,
contains customary restrictive covenants and requires the maintenance of
certain financial ratios, including a current ratio requirement of 1.25 to 1.0
that could limit the Company's use of available capacity under the Revolving
Credit Facility. In addition, the Loan Agreement prohibits the Company from
paying dividends without the consent of the lender and restricts the ability
of the Company to incur additional indebtedness. At December 31, 2001, the
Company was in compliance with these covenants.

   The Term Loan is payable in 40 monthly principal payments of $107,000 plus
interest, with a final payment of $4.7 million due on May 31, 2005. At
December 31, 2001, the Term Loan balance outstanding was $9.0 million.

   The Revolving Credit Facility permits the Company to borrow up to $10.0
million for working capital and other general corporate purposes, including
the funding of acquisitions, and matures on May 31, 2003. No draws were
outstanding as of December 31, 2001.

   The table below sets out the cash contractual obligations of the Company at
December 31, 2001 (in thousands). Each contractual obligation included in the
table contains various terms conditions and covenants which, if violated,
accelerate the payment of that obligation.

<TABLE>
<CAPTION>
                                                Payment Due by the Year Ending
                                              ----------------------------------
           Contractual Obligation             Total   2002   2003   2004   2005
           ----------------------             ------ ------ ------ ------ ------
<S>                                           <C>    <C>    <C>    <C>    <C>
Long-term Debt
  Term loan.................................. $9,007 $1,284 $1,284 $1,284 $5,155
  Revolving credit facility..................     --     --     --     --     --
                                              ------ ------ ------ ------ ------
                                              $9,007 $1,284 $1,284 $1,284 $5,155
                                              ====== ====== ====== ====== ======
</TABLE>

   The Company has received a commitment letter from its lending institution
to provide a loan totaling $6.7 million to fund the development of the Amelia
facility discussed above. The credit facilities will include a revolver that
will convert to a term loan. Payments under the revolver will include interest
only until December 31, 2002, at which time it will convert to a term loan to
be repaid in 52 monthly principal payments of $58,000 plus interest with a
final payment of $3.7 million due on May 31, 2007.

   In the normal course of its business, the Company is required to provide
letters of credit to secure the payment of workers' compensation obligations.
Additionally, under certain contracts the Company may be required to provide
letters of credit and bonds to secure certain performance and payment
obligations of the Company thereunder. At December 31, 2001, no such amounts
were outstanding. The market for companies engaged in marine fabrication to
obtain bonding has become more difficult during the first quarter of 2002. The
Company is currently attempting to secure adequate bonding for potential
future job prospects. Although the Company believes that it will be able to
obtain contract bid and performance bonds, letters of credit, and similar
obligations on terms it regards as acceptable, there can be no assurance it
will be successful in doing so. In addition, the cost of obtaining such bonds,
letters of credit and similar obligations may increase.

   The Company's backlog of $10.4 million at December 31, 2001 was
attributable to 11 projects, of which $5.5 million was attributable to three
government projects.

                                      28
<PAGE>

   Management believes that the Company's existing working capital, cash flows
from operations and bank commitments will be adequate to meet its working
capital needs for operations and capital expenditures through 2002. The
Company may pursue acquisition opportunities it believes are attractive if and
when such opportunities arise. The timing, size or success of any acquisition
effort and the associated potential capital commitments cannot be predicted.

   Due to the relatively low levels of inflation experienced in fiscal 2001,
2000, and 1999, inflation did not have a significant effect on the results of
the Company in those fiscal years.

Critical Accounting Policies and Estimates

   The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the Untied States of America. The preparation of these
consolidated financial statements require the Company to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosures of contingent assets and liabilities. On
an on-going basis, the Company evaluates its estimates, including those
related to revenue recognition, allowances for doubtful accounts and long-
lived assets. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions. The Company believes the following
critical accounting policies affect its more significant judgments and
estimates used in preparation of its consolidated financial statements.

   The Company is engaged in various types of construction under long-term
construction contracts. The Company's financial statements have been prepared
using the percentage-of-completion method of accounting and, therefore, take
into account the estimated cost, estimated earnings and revenue to date on
contracts not yet completed. The amount of revenue recognized is equal to the
portion of the total contract price that the labor hours incurred to date
bears to the estimated total labor hours, based on current estimates to
complete. Contract costs include all direct material, labor, and
subcontracting costs, and those indirect costs related to contract
performance, such as indirect labor, supplies, tools, repairs, depreciation,
and insurance costs. Indirect costs are allocated to contracts on the basis of
direct labor charges. Revisions in estimates of cost and earnings during the
course of the work are reflected in the accounting period in which the facts
which required the revision become known. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Significant changes in estimates of cost due to adverse market
conditions or poor contract performance could affect estimated gross profit,
possibly resulting in a contract loss.

   The Company estimates its allowance for doubtful accounts receivable based
on an evaluation of individual customer financial strength, current market
conditions, and other information. If the Company's evaluation of its
significant customers' and debtors' creditworthiness should change or prove
incorrect, then the Company may have to recognize additional allowances in the
period that it identifies the risk of loss.

   Long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The Company assesses the recoverability of
long-lived assets by determining whether the carrying values can be recovered
through projected cash flows and operating results over their remaining lives.
Any impairment of the asset is recognized when it is probable that such future
undiscounted cash flows will be less than the carrying value of the asset.
Future adverse market conditions or poor operating results could result in the
inability to recover the current carrying value of the long-lived asset,
thereby possibly requiring an impairment charge in the future.

New Accounting Pronouncements

   The Company adopted Statement of Financial Accounting Standards ("SFAS" )
No. 133, Accounting for Derivative Instruments and Hedging Activities as
amended by SFAS No. 138 on January 1, 2001. SFAS No.

                                      29
<PAGE>

133, as amended, establishes accounting and reporting standards for derivative
and hedging activities and requires, among other things, that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. Management has concluded that the
adoption of SFAS 133 did not have a significant impact on the financial
position, results of operations, or cash flows of the Company.

   In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations." SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after
June 30, 2001. Goodwill and certain intangible assets will remain on the
balance sheet and not be amortized. On an annual basis, and when there is
reason to suspect that their values have been diminished or impaired, these
assets must be tested for impairment, and write-downs may be necessary. The
Company implemented SFAS No. 141 on July 1, 2001, as required and it had no
impact on the Company's financial position.

   In June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach. Amortization of goodwill, including
goodwill recorded in past business combinations, will cease upon adoption of
this statement. Amortization expense of existing goodwill was approximately
$0.8 million for the year ended December 31, 2001. As SFAS No. 142 allows, the
Company will complete the required impairment test in the second quarter of
2002. The Company has not determined the impact that this statement will have
on its consolidated financial position or results of operations. The Company
will adopt SFAS No. 142 beginning January 1, 2002.

   In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 requires the recording of liabilities for all legal
obligations associated with the retirement of long-lived assets that result
from the normal operation of those assets. These liabilities are required to
be recorded at their fair values (which are likely to be the present values of
the estimated future cash flows) in the period in which they are incurred.
SFAS 143 requires the associated asset retirement costs to be capitalized as
part of the carrying amount of the long-lived asset. The asset retirement
obligation will be accreted each year through a charge to expense. The amounts
added to the carrying amounts of the assets will be depreciated over the
useful lives of the assets. The Company is required to implement SFAS No. 143
on January 1, 2003, and it has not determined the impact that this statement
will have on its consolidated financial position or results of operations.

   In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-lived Assets". SFAS No. 144 promulgates standards for
measuring and recording impairments of long-lived assets. Additionally, this
standard establishes requirements for classifying an asset as held for sale,
and changes existing accounting and reporting standards for discontinued
operations and exchanges for long-lived assets. The Company is required to
implement SFAS No. 144 on January 1, 2002, and it does not expect the
implementation of this standard to have a material effect on the Company's
financial position or results of operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

   The Company is exposed to the risk of changing interest rates. Interest on
$9.0 million of the Company's long-term debt including current maturities with
an interest rate of 3.62% at December 31, 2001, was variable based on short-
term market rates. Thus a general increase of 1.0% in short-term market
interest rates would result in additional interest cost of $90,000 per year if
the Company were to maintain the same debt level and structure.

Item 8. Financial Statements and Supplementary Data

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Independent Auditors' Report.............................................  31
Consolidated Balance Sheets as of December 31, 2001 and 2000.............  32
Consolidated Statements of Operations for the Years Ended December 31,
 2001, 2000, and 1999....................................................  33
Consolidated Statements of Shareholders' Equity for the Years Ended
 December 31, 2001, 2000, and 1999.......................................  34
Consolidated Statements of Cash Flows for the Years Ended December 31,
 2001, 2000, and 1999....................................................  35
Notes to Consolidated Financial Statements...............................  36
</TABLE>

                                      30
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
Conrad Industries, Inc.

   We have audited the accompanying consolidated balance sheets of Conrad
Industries, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2001. 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 of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Conrad Industries, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted
in the United States of America.

/s/ DELOITTE & TOUCHE LLP

New Orleans, Louisiana
February 20, 2002

                                      31
<PAGE>

                    CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                       (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                December 31
                                                              ----------------
                           ASSETS                              2001     2000
                           ------                             -------  -------
<S>                                                           <C>      <C>
CURRENT ASSETS:
  Cash and cash equivalents.................................. $ 6,909  $ 3,513
  Accounts receivable, net...................................   2,353    1,622
  Costs and estimated earnings in excess of billings on
   uncompleted contracts.....................................   2,952    4,663
  Inventories................................................     247      240
  Other current assets.......................................   1,795    1,801
                                                              -------  -------
    Total current assets.....................................  14,256   11,839
PROPERTY, PLANT AND EQUIPMENT, net...........................  25,486   22,675
COST IN EXCESS OF NET ASSETS ACQUIRED........................  12,601   13,388
OTHER ASSETS.................................................     231       62
                                                              -------  -------
TOTAL ASSETS................................................. $52,574  $47,964
                                                              =======  =======

<CAPTION>
            LIABILITIES AND SHAREHOLDERS' EQUITY
            ------------------------------------
<S>                                                           <C>      <C>
CURRENT LIABILITIES:
  Accounts payable........................................... $   859  $ 1,390
  Accrued employee costs.....................................   1,564      504
  Accrued expenses...........................................     826    1,441
  Current maturities of long-term debt.......................   1,284    2,508
  Billings in excess of costs and estimated earnings on
   uncompleted contracts.....................................     411    1,889
                                                              -------  -------
    Total current liabilities................................   4,944    7,732
LONG-TERM DEBT, less current maturities......................   7,723    2,298
DEFERRED INCOME TAXES........................................   3,211    3,249
                                                              -------  -------
    Total liabilities........................................  15,878   13,279
                                                              -------  -------

COMMITMENTS AND CONTINGENCIES (Note 11)

SHAREHOLDERS' EQUITY:
  Common stock, $0.01 par value, 20,000,000 shares
   authorized, 7,273,937 and 7,091,856 shares issued in 2001
   and 2000..................................................      73       71
  Additional paid-in capital.................................  28,992   27,868
  Unearned stock compensation................................     (21)      --
  Treasury stock at cost, 40,483 and 20,800 shares in 2001
   and 2000..................................................    (211)     (84)
  Retained earnings..........................................   7,863    6,830
                                                              -------  -------
    Total shareholders' equity...............................  36,696   34,685
                                                              -------  -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................... $52,574  $47,964
                                                              =======  =======
</TABLE>

                See notes to consolidated financial statements.

                                       32
<PAGE>

                    CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                       Years Ended December
                                                                31,
                                                      -------------------------
                                                       2001     2000     1999
                                                      -------  -------  -------
<S>                                                   <C>      <C>      <C>
REVENUE.............................................. $46,904  $38,516  $32,555
COST OF REVENUE......................................  37,017   29,168   25,618
                                                      -------  -------  -------
GROSS PROFIT.........................................   9,887    9,348    6,937
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................................   5,077    4,661    3,857
EXECUTIVE COMPENSATION EXPENSE.......................   2,613       --       --
                                                      -------  -------  -------
INCOME FROM OPERATIONS...............................   2,197    4,687    3,080
INTEREST EXPENSE.....................................    (193)    (386)    (639)
OTHER INCOME, NET....................................     144      417      313
                                                      -------  -------  -------
INCOME BEFORE INCOME TAXES...........................   2,148    4,718    2,754
PROVISION FOR INCOME TAXES...........................   1,115    2,021    1,252
                                                      -------  -------  -------
NET INCOME........................................... $ 1,033  $ 2,697  $ 1,502
                                                      =======  =======  =======
Net income per common share:
  Basic.............................................. $  0.14  $  0.38  $  0.21
                                                      =======  =======  =======
  Diluted............................................ $  0.14  $  0.38  $  0.21
                                                      =======  =======  =======
Weighted average common shares outstanding:
  Basic..............................................   7,129    7,067    7,078
                                                      =======  =======  =======
  Diluted............................................   7,149    7,076    7,078
                                                      =======  =======  =======
</TABLE>



                See notes to consolidated financial statements.

                                       33
<PAGE>

                    CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (In thousands)

<TABLE>
<CAPTION>
                          Common Stock
                            $0.01 Par                             Treasury
                              Value     Additional   Unearned   Stock at Cost
                          -------------  Paid-in      Stock     -------------  Retained
                          Shares Amount  Capital   Compensation Shares Amount  Earnings  Total
                          ------ ------ ---------- ------------ ------ ------  -------- -------
<S>                       <C>    <C>    <C>        <C>          <C>    <C>     <C>      <C>
BALANCE, JANUARY 1,
 1999...................  7,078   $71    $27,780       $ --       --   $  --    $2,631  $30,482
Net income..............     --    --         --         --       --      --     1,502    1,502
                          -----   ---    -------       ----      ---   -----    ------  -------
BALANCE, DECEMBER 31,
 1999...................  7,078    71     27,780         --       --      --     4,133   31,984
Purchase of treasury
 stock..................     --    --         --         --       21     (84)       --      (84)
Exercise of stock
 options................     14    --         88         --       --      --        --       88
Net income..............     --    --         --         --       --      --     2,697    2,697
                          -----   ---    -------       ----      ---   -----    ------  -------
BALANCE, DECEMBER 31,
 2000...................  7,092    71     27,868         --       21     (84)    6,830   34,685
Purchase of treasury
 stock..................     --    --         --         --       19    (127)       --     (127)
Stock issued to
 executives.............    177     2      1,092         --       --      --        --    1,094
Restricted stock issued
 to executive...........      5    --         32        (32)      --      --        --       --
Amortization of unearned
 stock compensation.....     --    --         --         11       --      --        --       11
Net income..............     --    --         --         --       --      --     1,033    1,033
                          -----   ---    -------       ----      ---   -----    ------  -------
BALANCE, DECEMBER 31,
 2001...................  7,274   $73    $28,992       $(21)      40   $(211)   $7,863  $36,696
                          =====   ===    =======       ====      ===   =====    ======  =======
</TABLE>



                See notes to consolidated financial statements.

                                       34
<PAGE>

                    CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                      Years Ended December
                                                               31,
                                                     -------------------------
                                                      2001     2000     1999
                                                     -------  -------  -------
<S>                                                  <C>      <C>      <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income........................................ $ 1,033  $ 2,697  $ 1,502
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Depreciation and amortization...................   2,326    2,199    2,263
    Deferred income tax provision (benefit).........     174       93     (137)
    Executive compensation expense..................   1,547       --       --
    Other...........................................     153       --       13
    Changes in assets and liabilities:
      Accounts receivable...........................    (731)   1,450    4,610
      Net change in billings related to cost and
       estimated earnings on uncompleted contracts..     233      534   (1,464)
      Inventory and other assets....................    (551)     310   (1,308)
      Accounts payable and accrued expenses.........     (86)   1,174     (959)
                                                     -------  -------  -------
        Net cash provided by operating activities...   4,098    8,457    4,520
                                                     -------  -------  -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures for property, plant and
   equipment........................................  (4,320)  (6,692)    (744)
  Issuance of executive notes receivable............    (456)      --       --
                                                     -------  -------  -------
        Net cash used in investing activities.......  (4,776)  (6,692)    (744)
                                                     -------  -------  -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of debt....................   8,700       --       --
  Principal repayments of debt......................  (4,499)  (2,508)  (2,598)
  Purchase of treasury stock........................    (127)     (84)      --
  Proceeds from exercised stock options.............      --       88       --
                                                     -------  -------  -------
        Net cash provided by (used in) financing
         activities.................................   4,074   (2,504)  (2,598)
                                                     -------  -------  -------
NET INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS........................................   3,396     (739)   1,178
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR........   3,513    4,252    3,074
                                                     -------  -------  -------
CASH AND CASH EQUIVALENTS, END OF YEAR.............. $ 6,909  $ 3,513  $ 4,252
                                                     =======  =======  =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Interest paid, net of capitalized interest........ $   193  $   386  $   639
                                                     =======  =======  =======
  Taxes paid........................................ $ 2,068  $ 1,475  $ 1,957
                                                     =======  =======  =======
NON-CASH ACTIVITIES:
  Issuance of stock to executives................... $ 1,093  $    --  $    --
                                                     =======  =======  =======
  Issuance of restricted stock to executives........ $    32  $    --  $    --
                                                     =======  =======  =======
  Forgiveness of executive notes receivable and
   related interest................................. $   454  $    --  $    --
                                                     =======  =======  =======
</TABLE>

                See notes to consolidated financial statements.

                                       35
<PAGE>

                   CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Organization and Basis of Presentation--The consolidated financial
statements include the accounts of Conrad Industries, Inc. and its wholly-
owned subsidiaries (the "Company") which are primarily engaged in the
construction, conversion and repair of a variety of marine vessels for
commercial and government customers. New construction work and some repair
work is performed on a fixed-price basis. The Company performs the majority of
repair work under cost-plus-fee agreements. All significant intercompany
transactions have been eliminated.

   Use of Estimates--The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, as well as reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

   Revenue Recognition--The Company is engaged in various types of
construction under long-term construction contracts. The accompanying
financial statements have been prepared using the percentage-of-completion
method of accounting and, therefore, take into account the estimated cost,
estimated earnings and revenue to date on contracts not yet completed. The
amount of revenue recognized is equal to the portion of the total contract
price that the labor hours incurred to date bears to the estimated total labor
hours, based on current estimates to complete. This method is used because
management considers expended labor hours to be the best available measure of
progress on these contracts. Revenues from cost-plus-fee contracts are
recognized on the basis of cost incurred during the period plus the fee
earned.

   Contract costs include all direct material, labor, and subcontracting
costs, and those indirect costs related to contract performance, such as
indirect labor, supplies, tools, repairs, depreciation, and insurance costs.
Revisions in estimates of cost and earnings during the course of the work are
reflected in the accounting period in which the facts which require the
revision become known. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined.

   Indirect costs are allocated to contracts and to self-constructed equipment
and improvements on the basis of direct labor charges.

   Cash and Cash Equivalents--Cash and cash equivalents include cash on hand,
on deposit and short-term investments with original maturities of three months
or less.

   Allowance for Doubtful Accounts--The Company estimates its allowance for
doubtful accounts receivable based on an evaluation of individual customer
financial strength, current market conditions, and other information.

   Property, Plant and Equipment--Property, plant and equipment is stated at
cost. Depreciation is recorded using the straight-line method over the
estimated useful lives of the individual assets which range from three to
forty years. Ordinary maintenance and repairs which do not extend the physical
or economic lives of the plant or equipment are charged to expense as
incurred.

   Interest Capitalization--Interest costs for the construction of certain
long-term assets are capitalized and amortized over the related assets'
estimated useful lives. During the years ended December 31, 2001 and 2000,
interest costs of $77,000 and $141,000 were capitalized. No amounts were
capitalized during the year ended December 31, 1999.

   Cost in Excess of Net Assets Acquired--Cost in excess of net assets
acquired is amortized on a straight-line basis over twenty years. Management
of Conrad periodically reviews the carrying value of the excess cost in
relation to the current and expected undiscounted cash flows of the business
which benefits therefrom in order to assess whether there has been a permanent
impairment of the excess cost of the net purchased assets.

                                      36
<PAGE>

                   CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Accumulated amortization on excess cost was $3,145,000 and $2,358,000 at
December 31, 2001 and 2000, respectively. In accordance with the provisions of
SFAS No. 142, amortization of excess cost will cease on January 1, 2002, upon
adoption of this statement.

   Impairment of Long-Lived Assets--Long-lived assets held and used by the
Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company assesses the recoverability of long-lived assets by
determining whether the carrying values can be recovered through projected
cash flows and operating results over their remaining lives. Any impairment of
the asset is recognized when it is probable that such future undiscounted cash
flows will be less than the carrying value of the asset.

   Inventories--Inventories consist primarily of excess job related materials
and supplies. They are stated at the lower of cost or market. Cost is
determined on a first-in, first-out basis.

   Income Per Share--In 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share"
("SFAS 128"). SFAS 128 requires the replacement of previously reported primary
and fully diluted earnings per share required by Accounting Principles Board
Opinion No. 15 with basic earnings per share and diluted earnings per share.
The calculation of basic earnings per share excludes any dilutive effect of
stock options, while diluted earnings per share includes the dilutive effect
of stock options. Per share and weighted average share amounts for all years
presented have been restated to conform to the requirements of SFAS 128. See
Note 5.

   Fair Value of Financial Instruments--The carrying amounts of the Company's
financial instruments including cash and cash equivalents, receivables,
payables and long-term debt approximates fair value at December 31, 2001 and
2000.

   Stock-Based Compensation--Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123") encourages but
does not require companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations and has adopted the disclosure-only
provisions of SFAS 123. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock. See Note 5.

   New Accounting Pronouncements--The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments
and Hedging Activities as amended by SFAS No. 138 on January 1, 2001. SFAS No.
133, as amended, establishes accounting and reporting standards for derivative
and hedging activities and requires, among other things, that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. Management has concluded that the
adoption of SFAS No. 133 did not have a significant impact on the financial
position, results of operations, or cash flows of the Company.

   In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations." SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after
June 30, 2001. Goodwill and certain intangible assets will remain on the
balance sheet and not be amortized. On an annual basis, and when there is
reason to suspect that their values have been diminished or impaired, these
assets must be tested for impairment, and write-downs may be necessary. The
Company implemented SFAS No. 141 on July 1, 2001, as required and it had no
impact on the Company's financial position.

   In June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach. Amortization of

                                      37
<PAGE>

                   CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

goodwill, including goodwill recorded in past business combinations, will
cease upon adoption of this statement. Amortization expense of existing
goodwill was approximately $0.8 million for the years ended December 31, 2001,
2000 and 1999. As SFAS No. 142 allows, the Company will complete the required
impairment test in the second quarter of 2002. The Company has not determined
the impact that this statement will have on its consolidated financial
position or results of operations. The Company will adopt SFAS No. 142
beginning January 1, 2002.

   In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires the recording of liabilities for all legal
obligations associated with the retirement of long-lived assets that result
from the normal operation of those assets. These liabilities are required to
be recorded at their fair values (which are likely to be the present values of
the estimated future cash flows) in the period in which they are incurred.
SFAS 143 requires the associated asset retirement costs to be capitalized as
part of the carrying amount of the long-lived asset. The asset retirement
obligation will be accreted each year through a charge to expense. The amounts
added to the carrying amounts of the assets will be depreciated over the
useful lives of the assets. The Company is required to implement SFAS No. 143
on January 1, 2003, and it has not determined the impact that this statement
will have on its consolidated financial position or results of operations.

   In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-lived Assets." SFAS No. 144 promulgates standards for
measuring and recording impairments of long-lived assets. Additionally, this
standard establishes requirements for classifying an asset as held for sale,
and changes existing accounting and reporting standards for discontinued
operations and exchanges for long-lived assets. The Company is required to
implement SFAS No. 144 on January 1, 2002, and it does not expect the
implementation of this standard to have a material effect on the Company's
financial position or results of operations.

2. RECEIVABLES

   Receivables consisted of the following at December 31, 2001 and 2000 (in
thousands):

<TABLE>
<CAPTION>
                                                                  2001   2000
                                                                 ------ ------
   <S>                                                           <C>    <C>
   U.S. Government:
     Amounts billed............................................. $  357 $   --
     Unbilled costs and estimated earnings on uncompleted
      contracts.................................................  1,137  1,921
                                                                 ------ ------
                                                                  1,494  1,921
   Commercial:
     Amounts billed.............................................  1,996  1,622
     Unbilled costs and estimated earnings on uncompleted
      contracts.................................................  1,815  2,742
                                                                 ------ ------
       Total.................................................... $5,305 $6,285
                                                                 ====== ======
</TABLE>

   Included above in amounts billed is an allowance for doubtful accounts of
$20,000 at December 31, 2001 and 2000. During 2001, 2000 and 1999, there were
no significant transactions recorded in the allowance for doubtful accounts.

   Unbilled costs and estimated earnings on uncompleted contracts were not
billable to customers at the balance sheet dates under terms of the respective
contracts. Of the unbilled costs and estimated earnings at December 31, 2001,
substantially all is expected to be collected within the next twelve months.

                                      38
<PAGE>

                   CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Information with respect to uncompleted contracts as of December 31, 2001
and 2000 is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                2001     2000
                                                               -------  -------
   <S>                                                         <C>      <C>
   Costs incurred on uncompleted contracts.................... $28,311  $18,577
   Estimated earnings.........................................   8,081    5,235
                                                               -------  -------
                                                                36,392   23,812
   Less billings to date...................................... (33,851) (21,038)
                                                               -------  -------
                                                               $ 2,541  $ 2,774
                                                               =======  =======
</TABLE>

   The above amounts are included in the accompanying balance sheets under the
following captions (in thousands):
<TABLE>
<CAPTION>
                                                               2001    2000
                                                              ------  ------
   <S>                                                        <C>     <C>
   Costs and estimated earnings in excess of billings on
    uncompleted contracts.................................... $2,952  $4,663
   Billings in excess of costs and estimated earnings on
    uncompleted contracts....................................   (411) (1,889)
                                                              ------  ------
     Total................................................... $2,541  $2,774
                                                              ======  ======
</TABLE>

3. PROPERTY, PLANT AND EQUIPMENT

   Property, plant and equipment consisted of the following at December 31,
2001 and 2000 (in thousands):

<TABLE>
<CAPTION>
                                                                2001     2000
                                                               -------  -------
   <S>                                                         <C>      <C>
   Land....................................................... $ 3,881  $ 3,854
   Buildings and improvements.................................  11,556   11,290
   Machinery and equipment....................................   6,254    5,781
   Drydocks and bulkheads.....................................  12,490    7,007
   Barges and boat............................................     480      480
   Office and automotive......................................     978      816
   Construction in progress...................................   2,520    4,715
                                                               -------  -------
                                                                38,159   33,943
   Less accumulated depreciation.............................. (12,673) (11,268)
                                                               -------  -------
                                                               $25,486  $22,675
                                                               =======  =======
</TABLE>

4. LONG-TERM DEBT

   Long-term debt consisted of the following at December 31, 2001 and 2000 (in
thousands):

<TABLE>
<CAPTION>
                                                                2001    2000
                                                               ------  ------
   <S>                                                         <C>     <C>
   Term loan--Bank, variable interest rate (3.62% at December
    31, 2001), due May 31, 2005..............................  $9,007  $4,806
   Less current maturities...................................  (1,284) (2,508)
                                                               ------  ------
                                                               $7,723  $2,298
                                                               ======  ======
</TABLE>

   The Company has a Loan Agreement with a commercial bank, which specifies
the terms of the Term Loan and the Revolving Credit Facility. Interest accrues
at LIBOR plus 1.75% until March 31, 2002, and thereafter at the option of the
Company either at the lender's prime rate minus 0.5% (4.25% at December 31,
2001) or LIBOR

                                      39
<PAGE>

                   CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

plus 1.75% (3.62% at December 31, 2001). The Loan Agreement is secured by
substantially all of the Company's assets, contains customary restrictive
covenants and requires the maintenance of certain financial ratios, including
a current ratio requirement of 1.25 to 1.0 that could limit the Company's use
of available capacity under the Revolving Credit Facility. In addition, the
Loan Agreement prohibits the Company from paying dividends without the consent
of the lender and restricts the ability of the Company to incur additional
indebtedness. At December 31, 2001, the Company was in compliance with these
covenants.

   The Term Loan has a maturity date of May 31, 2005 and is payable in forty
monthly principal payments of $107,000 plus interest.

   The Revolving Credit Facility permits the Company to borrow up to $10.0
million for working capital and other general corporate purposes, including
the funding of acquisitions and matures on May 31, 2003. The Company pays a
fee of 0.25% per annum on the unused portion of the facility. As of December
31, 2001, no amounts were outstanding on the Revolving Credit Facility.

   Annual maturities of long-term debt at December 31, 2001 are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                          Amount
                                                                          ------
   <S>                                                                    <C>
   2002.................................................................. $1,284
   2003..................................................................  1,284
   2004..................................................................  1,284
   2005..................................................................  5,155
                                                                          ------
                                                                          $9,007
                                                                          ======
</TABLE>
5. SHAREHOLDERS' EQUITY

 Treasury Stock

   On March 21, 2000, the Company's Board of Directors authorized management
to repurchase shares of its outstanding common stock. The Company repurchased
40,483 and 20,800 shares at a total cost of approximately $211,000 and $84,000
as of December 31, 2001 and 2000, respectively. The shares are held as
treasury stock and are available for use in connection with the Company's
stock option and other compensation programs or for other corporate purposes.

 Income Per Share

   The calculation of basic earnings per share excludes any dilutive effect of
stock options, while diluted earnings per share includes the dilutive effect
of stock options. The number of weighted average shares outstanding for
"basic" income per share was 7,128,840, 7,067,239 and 7,077,723 for the years
ended December 31, 2001, 2000 and 1999, respectively. The number of weighted
average shares for "diluted" income per share was 7,148,914, 7,076,110, and
7,077,723 for the years ended December 31, 2001, 2000 and 1999, respectively.

 Stock Issuance to Executive Officers

   In August 2001, the Company entered into an employment agreement with
Kenneth G. Myers, Jr. providing for employment as the Company's President and
Chief Executive Officer through December 31, 2004 and annual extensions
thereafter, subject to the parties' mutual agreement. The minimum annual total
compensation under

                                      40
<PAGE>

                   CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the agreement is $230,000. Pursuant to the agreement, on the executive's start
date of August 27, 2001, he was granted 5,000 restricted shares of common
stock, vesting on the anniversary of the start date, and options to purchase
50,000 shares of common stock at the market price on the start date, vesting
over a three-year period.

   In August 2001, the Company and William H. Hidalgo entered into a
transition agreement and terminated his employment agreement. The agreement
provided that he would remain employed by the Company as President and Chief
Executive Officer through August 26, 2001 and as Special Advisor to the new
Chief Executive Officer through October 31, 2001. In consideration of past
services, assistance with an orderly transition, surrender of his stock
options, execution of the agreement (including a one-year non-competition
covenant) and severance, Mr. Hidalgo received 132,820 shares of common stock
and, payable on February 28, 2002, a severance payment of $195,290 and bonus
of $622,500. Options to purchase 285,957 shares of common stock previously
granted to Mr. Hidalgo have been cancelled. His $233,327 promissory note
payable and related accrued interest payable to the Company has also been
cancelled.

   The Company also granted Cecil A. Hernandez, the Company's Chief Financial
Officer, in consideration of past services and surrender of his stock options,
44,261 shares of common stock and a cash bonus payable on February 28, 2002,
of $248,000. Options to purchase 114,043 shares of common stock previously
granted to Mr. Hernandez have been cancelled. His $139,277 promissory note
payable and related accrued interest payable to the Company has also been
cancelled. Mr. Hernandez will remain as the Company's Chief Financial Officer
and a director.

   Messrs. Hidalgo and Hernandez executed notes payable to the Company in the
amount of their related withholding tax obligations, which will be repaid on
February 28, 2002 by an offset against the bonuses due on that date. In
addition, the Company purchased 19,683 shares of common stock from the
executives to assist them in meeting their income tax obligations relating to
these transactions.

   As a result of these transactions, the Company incurred a one-time earnings
charge of approximately $2.6 million or $0.37 per diluted share ($1.6 million,
net of tax or $0.23 per diluted share), in the quarter ended September 30,
2001.

 Stock Option Plan

   The Company established the 1998 Stock Plan (the "Stock Plan") in March
1998. The Stock Plan permits the granting of any or all of the following types
of awards ("Awards"): stock appreciation rights, stock options, restricted
stock, dividend equivalents, performance units, automatic director options,
phantom shares, limited stock appreciation rights, bonus stock and cash tax
rights. All officers and employees of, and any consultants to the Company or
any affiliate of the Company will be eligible for participation in all Awards
under the Stock Plan other than directors options. The non-employee directors
of the Company will only receive automatic grants of Director options. Awards
granted under the Stock Plan have a maximum term of ten years. A total of
950,000 shares have been authorized and reserved for issuance. No awards may
be granted under the Stock Plan after March 31, 2008.

                                      41
<PAGE>

                   CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following is a summary of the option activity for the years ended
December 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                                              Weighted  Number
                                                                Avg.      of
                                                               Price   Options
                                                              -------- --------
   <S>                                                        <C>      <C>
   Outstanding at January 1, 1999............................  $6.75    492,543
   Granted...................................................   4.78     59,557
   Forfeited.................................................   6.75     (5,000)
                                                               -----   --------
   Outstanding at December 31, 1999..........................   6.54    547,100
   Granted...................................................   5.71     63,775
   Forfeited.................................................   6.75     (8,000)
   Exercised.................................................   6.22    (14,133)
                                                               -----   --------
   Outstanding at December 31, 2000..........................   6.45    588,742
   Granted...................................................   6.45     53,000
   Cancelled.................................................   6.65   (400,000)
                                                               -----   --------
   Outstanding at December 31, 2001..........................   6.12    241,742
                                                               =====   ========
   Exercisable at December 31, 2001                             6.11    188,148
                                                               =====   ========
</TABLE>

   The following table summarizes information about stock options outstanding
at December 31, 2001:

<TABLE>
<CAPTION>
                          Options Outstanding       Options Exercisable
                    ------------------------------- --------------------
                                 Weighted  Weighted             Weighted
       Exercise                  Average   Average              Average
      Price Range     Number    Remaining  Exercise   Number    Exercise
       Per Share    Outstanding    Life     Price   Exercisable  Price
      -----------   ----------- ---------- -------- ----------- --------
      <S>           <C>         <C>        <C>      <C>         <C>
      $3.25-$6.75     241,742   6.25 years  $6.12     188,148    $6.11
</TABLE>

   Options granted under the Stock Plan during 2001, 2000 and 1999 have
various vesting rights ranging from six months to two and one-half years from
the date of the grant.

   The Company accounts for options granted under the Stock Plan as prescribed
by APB 25 and, accordingly, no compensation expense has been recognized for
stock options granted as the exercise price of all stock options granted under
the Stock Plan was equal to the fair value of the Company's common stock at
the date of grant. Had compensation cost for the Stock Plan been determined
based on the fair value at the grant dates consistent with the method of SFAS
123, the Company's net income and net income per share amounts would have
approximated the following proforma amounts (in thousands, except per share
data):

<TABLE>
<CAPTION>
                                                          2001    2000    1999
                                                         ------  ------  ------
   <S>                                                   <C>     <C>     <C>
   Net income--as reported.............................. $1,033  $2,697  $1,502
   Net income--pro forma................................    796   2,233     582
   Diluted net income per share--as reported............   0.14    0.38    0.21
   Diluted net income per share--pro forma..............   0.11    0.32    0.08
   Weighted average fair value of grants................   3.64    2.93    1.50
   Black-Scholes option pricing model assumptions:
     Risk-free interest rate............................   4.00%   5.15%   5.15%
     Expected life (years)..............................    3.0     2.8     2.8
     Volatility.........................................   84.6%   92.5%   74.5%
     Dividend yield.....................................     --      --      --
</TABLE>

                                      42
<PAGE>

                   CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Warrants

   In June 1998, the Company issued to the underwriter involved in the initial
public offering, warrants to purchase 72,000 shares of common stock
exercisable for five years at the initial public offering price of $12.00 per
share. At December 31, 2001, 2000 and 1999, no warrants had been exercised.

6. EMPLOYEE BENEFITS

   In August 1997, the Company established a 401(k) plan that covers all
employees who meet certain eligibility requirements. Contributions to the plan
by the Company are made at the discretion of the Board of Directors.
Contribution expense was $128,000, $119,000 and $120,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.

7. INCOME TAXES

   Income taxes are accounted for under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") which requires
the use of the asset and liability approach for financial accounting and
reporting for income taxes.

   The Company has provided for Federal and State income taxes as follows (in
thousands):

<TABLE>
<CAPTION>
                                                           2001    2000   1999
                                                          ------- ------ ------
   <S>                                                    <C>     <C>    <C>
   Current provision..................................... $   941 $1,928 $1,389
   Deferred provision (benefit)..........................     174     93   (137)
                                                          ------- ------ ------
                                                          $ 1,115 $2,021 $1,252
                                                          ======= ====== ======
</TABLE>

   State income taxes included above are not significant for the years
presented.

   The provision for income taxes varied from the Federal statutory income tax
rate due to the following (in thousands):

<TABLE>
<CAPTION>
                                               2001        2000        1999
                                            ----------- ----------- -----------
                                            Amount  %   Amount  %   Amount  %
                                            ------ ---- ------ ---- ------ ----
<S>                                         <C>    <C>  <C>    <C>  <C>    <C>
Taxes at Federal statutory rate............ $  752 35.0 $1,651 35.0 $  964 35.0
Non-deductible goodwill amortization.......    275 12.8    276  5.8    275 10.0
Non-deductible penalty.....................     53  2.5     --   --     --   --
State income taxes.........................     35  1.6     94  2.0     13  0.5
                                            ------ ---- ------ ---- ------ ----
  Total.................................... $1,115 51.9 $2,021 42.8 $1,252 45.5
                                            ====== ==== ====== ==== ====== ====
</TABLE>

                                      43
<PAGE>

                   CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Deferred income taxes represent the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and their tax bases. The tax effects of significant items comprising
the Company's net deferred tax balances at December 31, 2001 and 2000 are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                 2001    2000
                                                                ------  ------
   <S>                                                          <C>     <C>
   Deferred Tax Liabilities:
     Differences between book and tax basis of property, plant
      and equipment...........................................  $3,269  $3,249
     Other....................................................     (58)     --
                                                                ------  ------
                                                                 3,211   3,249
                                                                ======  ======
   Deferred Tax Assets (included in other current assets):
     Contracts in progress....................................     124     (42)
     Accrued expenses not currently deductible................    (177)   (223)
                                                                ------  ------
                                                                  (53)    (265)
                                                                ------  ------
   Net deferred tax liabilities...............................  $3,158  $2,984
                                                                ======  ======
</TABLE>

8. SALES TO MAJOR CUSTOMERS

   Sales to various customers, which amount to 10% or more of the Company's
total revenues for the three years ended December 31, 2001, 2000 and 1999 are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                  2001        2000        1999
                                               ----------  ----------  -----------
                                               Amount  %   Amount  %   Amount   %
                                               ------ ---  ------ ---  ------- ---
   <S>                                         <C>    <C>  <C>    <C>  <C>     <C>
   Customer A................................. $5,065  11% $7,330  19% $10,606  33%
   Customer B.................................  7,429  16%
   Customer C.................................              7,488  19%   4,804  15%
   Customer D.................................                           3,620  11%
   Customer E.................................  5,805  12%  4,663  12%
</TABLE>

   Sales to Customers A, B, D and E for all periods presented in the table
were reported by the Company's Vessel Construction segment. Sales to Customer
C for all periods presented in table were reported by the Company's Repair and
Conversion segment.

9. RELATED PARTY TRANSACTIONS

   The Company purchases in its ordinary course of business certain components
from Johnny's Propeller Shop, Inc., a company wholly owned by John P. Conrad,
Jr., Co-Chairman of the Board of Directors. Total purchases for the three
years ended December 31, 2001, 2000 and 1999 were $211,000, $207,000 and
$89,000, respectively. The Company believes that such transactions were made
on a competitive basis at market prices.

10. SEGMENT AND RELATED INFORMATION

   The Company classifies its business into two segments:

 Vessel Construction

   The Company constructs a variety of marine vessels, including large and
small deck barges, single and double hull tank barges, lift boats, push boats,
offshore tug boats and offshore support vessels. The Company also fabricates
components of offshore drilling rigs and floating production, storage and
offloading vessels including sponsons, stability columns, blisters, pencil
columns and other modular components.

                                      44
<PAGE>

                   CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Repair and Conversions

   The Company's conversion projects primarily consist of lengthening the
midbodies of vessels, modifying vessels to permit their use for a different
type of activity and other modifications to increase the capacity or
functionality of a vessel. The Company also derives a significant amount of
revenue from repairs made as a result of periodic inspections required by the
U.S. Coast Guard, the American Bureau of Shipping and other regulatory
agencies.

   The Company evaluates the performance of its segments based upon gross
profit. Selling, general and administrative expenses, executive compensation
expense, interest expense, other income, net, and income taxes are not
allocated to the segments. Accounting policies are the same as those described
in Note 1, "Summary of Significant Accounting Policies". Intersegment sales
and transfers are not significant.

   Selected information as to the operations of the Company by segment is as
follows (in thousands):

<TABLE>
<CAPTION>
                                                       Years Ended December
                                                                31,
                                                      -------------------------
                                                       2001     2000     1999
                                                      -------  -------  -------
   <S>                                                <C>      <C>      <C>
   Revenue:
     Vessel construction............................. $33,610  $23,398  $23,870
     Repair and conversions..........................  13,294   15,118    8,685
                                                      -------  -------  -------
       Total Revenue.................................  46,904   38,516   32,555
                                                      -------  -------  -------
   Cost of Revenue:
     Vessel construction.............................  26,677   17,993   18,458
     Repair and conversions..........................  10,340   11,175    7,160
                                                      -------  -------  -------
       Total Cost of Revenue.........................  37,017   29,168   25,618
                                                      -------  -------  -------
   Gross Profit:
     Vessel construction.............................   6,933    5,405    5,412
     Repair and conversions..........................   2,954    3,943    1,525
                                                      -------  -------  -------
       Total Gross Profit............................   9,887    9,348    6,937
   Selling, General and Administrative Expenses......   5,077    4,661    3,857
   Executive Compensation Expense....................   2,613       --       --
                                                      -------  -------  -------
   Income from Operations............................   2,197    4,687    3,080
   Interest Expense..................................    (193)    (386)    (639)
   Other Income, net.................................     144      417      313
                                                      -------  -------  -------
   Income before Income Taxes........................   2,148    4,718    2,754
   Provision for Income Taxes........................   1,115    2,021    1,252
                                                      -------  -------  -------
   Net Income........................................ $ 1,033  $ 2,697  $ 1,502
                                                      =======  =======  =======
</TABLE>

                                      45
<PAGE>

                   CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Certain other financial information of the Company by segment is as follows
(in thousands):

<TABLE>
<CAPTION>
                                                          Years Ended December
                                                                  31,
                                                          --------------------
                                                           2001   2000   1999
                                                          ------ ------ ------
   <S>                                                    <C>    <C>    <C>
   Depreciation and Amortization Expense:
     Vessel construction................................. $  814 $  781 $  793
     Repair and conversion...............................    551    471    524
     Included in selling, general and administrative
      expenses...........................................    961    947    946
                                                          ------ ------ ------
       Total Depreciation and Amortization Expense....... $2,326 $2,199 $2,263
                                                          ====== ====== ======
</TABLE>

   Total assets and capital expenditures of the Company by segment are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                         Years Ended December
                                                                  31,
                                                        -----------------------
                                                         2001    2000    1999
                                                        ------- ------- -------
<S>                                                     <C>     <C>     <C>
Total Assets:
  Vessel construction.................................. $27,336 $29,565 $34,307
  Repair and conversion................................  11,720  11,759   5,663
  Other................................................  13,518   6,640   5,150
                                                        ------- ------- -------
    Total Assets....................................... $52,574 $47,964 $45,120
                                                        ======= ======= =======
Capital Expenditures:
  Vessel construction.................................. $   637 $   435 $   312
  Repair and conversion................................   1,642   4,624     160
  Other................................................   2,041   1,633     272
                                                        ------- ------- -------
    Total Capital Expenditures......................... $ 4,320 $ 6,692 $   744
                                                        ======= ======= =======
</TABLE>

   Certain assets and capital expenditures of the Company are allocated to
corporate and are included in the "Other" caption.

   Revenues included in the consolidated financial statements of the Company
are derived primarily from customers domiciled in the United States. All
assets of the Company are located in the United States.

11. COMMITMENTS AND CONTINGENCIES

   Legal Matters--The Company is a party to various legal proceedings
primarily involving commercial claims and workers' compensation claims. While
the outcome of these claims and legal proceedings 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 consolidated financial statements.

   Employment Agreements--The Company has employment agreements with certain
of its executive officers which originally provided for employment of the
officers through March 31, 2001, and provides for annual extensions at the end
of its term, subject to the parties' mutual agreement. These agreements have
been extended for a one-year term through March 31, 2002. The minimum annual
total compensation of these agreements is $570,000.

   In August 2001, the Company entered into an employment agreement with
Kenneth G. Myers, Jr. providing for employment as the Company's President and
Chief Executive Officer through December 31, 2004 and annual extensions
thereafter, subject to the parties' mutual agreement. The minimum annual total
compensation under the agreement is $230,000.

                                      46
<PAGE>

                   CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Letters of Credit and Bonds--In the normal course of its business, the
Company is required to provide letters of credit to secure the payment of
workers' compensation obligations. Additionally, under certain contracts the
Company may be required to provide letters of credit and bonds to secure
certain performance and payment obligations of the Company thereunder.
Outstanding letters of credit and bonds relating to these business activities
amounted to $1.6 million at December 31, 2000. At December 31, 2001, no such
amounts were outstanding.

12. SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

   Consolidated operating results for the four quarters of 2001 and 2000 were
as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                 Quarter Ended
                                 ----------------------------------------------
                                 March 31, June 30, September 30,  December 31,
                                 --------- -------- -------------  ------------
<S>                              <C>       <C>      <C>            <C>
Fiscal 2001
Revenue.........................  $11,885  $12,173     $12,941       $ 9,905
Gross profit....................    2,769    2,928       2,819         1,371
Net income (loss)...............      951      976        (743)(1)      (151)
Net income (loss) per share:
  Basic.........................     0.13     0.14       (0.10)(1)     (0.02)
  Diluted.......................     0.13     0.14       (0.10)(1)     (0.02)


Fiscal 2000
Revenue.........................  $ 9,875  $ 8,611     $ 8,902       $11,128
Gross profit....................    2,525    2,282       2,108         2,433
Net income......................      782      576         626           714
Net income per share:
  Basic.........................     0.11     0.08        0.09          0.10
  Diluted.......................     0.11     0.08        0.09          0.10
</TABLE>
--------
(1) Includes the effect of $2.6 million ($1.6 million after tax or $0.23 per
    diluted share) of executive compensation expense recognized in the third
    quarter ended September 30, 2001.

                                      47
<PAGE>

Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure

   None.

                                   Part III

Item 10. Directors and Executive Officers of the Registrant

   The information required by this Item as to the directors and executive
officers of Conrad Industries, Inc. is hereby incorporated by reference from
the Company's definitive proxy statement prepared in connection with the 2002
Annual Meeting of Stockholders which is to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934 within 120
days of the end of the Company's fiscal year on December 31, 2001.

Item 11. Executive Compensation

   The information required by this Item is hereby incorporated by reference
from the Company's definitive proxy statement which is to be filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934 within 120 days of the end of the Company's fiscal year on December 31,
2001. Notwithstanding the foregoing, in accordance with Items 306 and
402(a)(8) of Regulation S-K and Item 7(d)(3) of Schedule 14A, the information
contained in the Company's proxy statement under the sub-heading "Report of
the Compensation Committee" and "Performance Graph", and under the sub-heading
"Report of the Audit Committee" (except for information following the heading
"Audit Fees" therein), shall not be deemed to be filed as part of or
incorporated by reference into this Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management

   The information required by this Item as to the ownership by management and
others of securities of the Company is hereby incorporated by reference from
the Company's definitive proxy statement prepared in connection with the 2002
Annual Meeting of Stockholders which is to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934 within 120
days of the end of the Company's fiscal year on December 31, 2001.

Item 13. Certain Relationships and Related Transactions

   The information required by this Item as to certain business relationships
and transactions with management and other related parties of the Company is
hereby incorporated by reference from the Company's definitive proxy statement
prepared in connection with the 2002 Annual Meeting of Stockholders which is
to be filed with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 within 120 days of the end of the Company's
fiscal year on December 31, 2001.

                                   Part IV.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

 (a)Documents Filed as a Part of this Report

   1. Financial Statements:

   The financial statements and supplementary data required by this item are
incorporated under Item 8, Part II of this Form 10-K.

   All other schedules are omitted because they are not applicable, not
required, or because the required information is included in the financial
statements or notes thereto.

                                      48
<PAGE>

   2. Exhibits:

   Exhibits to the Form 10-K have been included only with the copies of the
Form 10-K filed with the Commission and the NASDAQ -- National Market System.
Upon request to the Company and payment of a reasonable fee, copies of the
individual exhibits will be furnished.

<TABLE>
<CAPTION>
 Exhibits                              Description
 --------                              -----------
 <C>      <S>
  3.1     --Amended and Restated Certificate of Incorporation (filed as Exhibit
           3.1 to the Company's Annual Report on Form 10-K for year ended
           December 31, 1998 and incorporated by reference herein).
  3.2     --Amended and Restated Bylaws (filed as Exhibit 3.2 to the Company's
           Annual Report on Form 10-K for year ended December 31, 1998 and
           incorporated by reference herein).
  4.1     --Specimen Common Stock Certificate (filed as Exhibit 4 to the
           Company's Registration Statement on Form 8-A and incorporated by
           reference herein).
  4.2     --Registration Rights Agreement by and among Conrad Industries, Inc.,
           J. Parker Conrad, John P. Conrad, Jr., Katherine C. Court, The John
           P. Conrad, Jr. Trust, The Daniel T. Conrad Trust, The Glen Alan
           Conrad Trust, The Kenneth C. Conrad Trust, The Katherine C. Court
           Trust, The James P. Conrad Trust, William H. Hidalgo, and Cecil A.
           Hernandez (filed as Exhibit 4.2 to the Company's Annual Report on
           Form 10-K for year ended December 31, 1998 and incorporated by
           reference herein).
  4.3     --Registration Rights Agreement between Conrad Industries, Inc. and
           Morgan Keegan & Company, Inc. (filed as Exhibit 4.3 to the Company's
           Annual Report on Form 10-K for year ended December 31, 1998 and
           incorporated by reference herein).
 10.1     --Stock Purchase Agreement dated as of December 12, 1997, by and
           among Conrad Shipyard, Inc., Orange Shipbuilding, Thomas E. Clary,
           Robert D. Clary and George B. Clary (filed as Exhibit 10.1 to the
           Company's Registration Statement on Form S-1 (Registration No. 33-
           49773)
           and incorporated by reference herein).
 10.2     --Second Amended and Restated Loan Agreement, dated as of December
           31, 1999 by and among Whitney National Bank, Conrad Shipyard, Inc.,
           Orange Shipbuilding, Co., Inc. and Conrad Industries, Inc. (filed as
           Exhibit 10.13 to the Company's Form 10-Q for the period ended June
           30, 2000 and incorporated by reference herein).
 10.3     --Stock Exchange Agreement, dated as of March 31, 1998, by and among
           Conrad Industries, Inc., Conrad Shipyard, Inc., Orange Shipbuilding,
           John P. Conrad, Jr., Katherine C. Court, The John P. Conrad, Jr.
           Trust, The Daniel T. Conrad Trust, The Glenn Alan Conrad Trust, The
           Kenneth C. Conrad Trust, the Katherine C. Court Trust, The James P.
           Court Trust, William H. Hidalgo and Cecil A. Hernandez (filed as
           Exhibit 10.4 to the Company's Registration Statement on Form S-1
           (Registration No. 33-49773) and incorporated by reference herein).
 10.4**   --Conrad Industries, Inc. Amended and Restated 1998 Stock Plan (First
           Amendment)
           (filed with the Company's Proxy Statement on Schedule 14A filed on
           April 22, 1999 and incorporated by reference herein).
 10.5**   --Officer and Director Indemnification Agreement (filed as Exhibit
           10.6 to the Company's Registration Statement on Form S-
           1)(Registration No. 33-49773) and incorporated by reference herein).
 10.6**   --Employment Agreement between Conrad Shipyard, Inc. and J. Parker
           Conrad (filed as Exhibit 10.7 to the Company's Annual Report on Form
           10-K for year ended December 31, 1998 and incorporated by reference
           herein).
 10.7**   --Employment Agreement between Conrad Shipyard, Inc. and John Parker
           Conrad, Jr. (filed as Exhibit 10.8 to the Company's Annual Report on
           Form 10-K for year ended December 31, 1998 and incorporated by
           reference herein).
</TABLE>


                                      49
<PAGE>

<TABLE>
<CAPTION>
 Exhibits                             Description
 --------                             -----------
 <C>      <S>
 10.8**   --Employment Agreement between Conrad Shipyard, Inc. and William H.
           Hidalgo (filed as Exhibit 10.9 to the Company's Annual Report on
           Form 10-K for year ended December 31, 1998 and incorporated by
           reference herein).
 10.9**   --Employment Agreement between Conrad Shipyard, Inc. and Cecil A.
           Hernandez (filed as Exhibit 10.10 to the Company's Annual Report
           on Form 10-K for year ended December 31, 1998 and incorporated by
           reference herein).
 10.10    --Warrant Agreement between Conrad Industries, Inc. and Morgan
           Keegan & Company, Inc. (filed as Exhibit 10.12 to the Company's
           Annual Report on Form 10-K for year ended December 31, 1998 and
           incorporated by reference herein).
 10.11**  --Employment Agreement effective August 13, 2001, between Conrad
           Industries, Inc. and Kenneth G. Myers, Jr (filed as Exhibit 10.2
           to the Company's Form 10-Q for the period ended September 30, 2001
           and incorporated by reference herein).
 10.12**  --Transition Agreement dated August 20, 2001, between Conrad
           Shipyard, L.L.C. and William H. Hidalgo, Sr. (filed as Exhibit
           10.3 to the Company's Form 10-Q for the period ended September 30,
           2001 and incorporated by reference herein).
 10.13**  --Agreement dated August 20, 2001, between Conrad Industries, Inc.
           and Cecil A. Hernandez. (filed as Exhibit 10.4 to the Company's
           Form 10-Q for the period ended September 30, 2001 and incorporated
           by reference herein).
 10.14*   --First Amendment To Second Amended and Restated Loan Agreement by
           Conrad Shipyard, L.L.C. and Whitney National Bank, Dated December
           31, 2001.
 21.1*    --Subsidiaries of Conrad Industries, Inc.


 23.1*    --Consent of Deloitte & Touche LLP.
</TABLE>
--------
*  Filed herewith.
** Management contract or compensation plan.

 (b) Reports on Form 8-K:

   Conrad Industries, Inc. has not filed any Current Reports on Form 8-K with
the Securities and Exchange Commission during the fourth quarter of 2001.

                                       50
<PAGE>

                                  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.

                                          CONRAD INDUSTRIES, INC.

Date: March 29, 2002
                                               /s/ Kenneth G. Myers, Jr.
                                          By: _________________________________
                                                   Kenneth G. Myers, Jr.
                                               President and Chief Executive
                                                          Officer

   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/ J. Parker Conrad            Co-Chairman of the Board     March 29, 2002
______________________________________  of Directors
           J. Parker Conrad

     /s/ John P. Conrad, Jr.           Co-Chairman of the Board     March 29, 2002
______________________________________  of Directors
         John P. Conrad, Jr.

    /s/ Kenneth G. Myers, Jr.          President, Chief Executive   March 29, 2002
______________________________________  Officer and Director
        Kenneth G. Myers, Jr.           (Principal Executive
                                        Officer)

      /s/ Cecil A. Hernandez           Vice President--Finance      March 29, 2002
______________________________________  and Administration, Chief
          Cecil A. Hernandez            Financial Officer,
                                        Secretary and Director
                                        (Principal Financial
                                        Officer and Principal
                                        Accounting Officer)

      /s/ Michael J. Harris            Director                     March 29, 2002
______________________________________
          Michael J. Harris

     /s/ Louis J. Michot, Jr.          Director                     March 29, 2002
______________________________________
         Louis J. Michot, Jr.

   /s/ Richard E. Roberson, Jr.        Director                     March 29, 2002
______________________________________
       Richard E. Roberson, Jr.
</TABLE>

                                      51
<PAGE>

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
 Exhibits                              Description
 --------                              -----------
 <C>      <S>
  3.1     --Amended and Restated Certificate of Incorporation (filed as Exhibit
           3.1 to the Company's Annual Report on Form 10-K for year ended
           December 31, 1998 and incorporated by reference herein).
  3.2     --Amended and Restated Bylaws (filed as Exhibit 3.2 to the Company's
           Annual Report on Form 10-K for year ended December 31, 1998 and
           incorporated by reference herein).
  4.1     --Specimen Common Stock Certificate (filed as Exhibit 4 to the
           Company's Registration Statement on Form 8-A and incorporated by
           reference herein).
  4.2     --Registration Rights Agreement by and among Conrad Industries, Inc.,
           J. Parker Conrad, John P. Conrad, Jr., Katherine C. Court, The John
           P. Conrad, Jr. Trust, The Daniel T. Conrad Trust, The Glen Alan
           Conrad Trust, The Kenneth C. Conrad Trust, The Katherine C. Court
           Trust, The James P. Conrad Trust, William H. Hidalgo, and Cecil A.
           Hernandez (filed as Exhibit 4.2 to the Company's Annual Report on
           Form 10-K for year ended December 31, 1998 and incorporated by
           reference herein).
  4.3     --Registration Rights Agreement between Conrad Industries, Inc. and
           Morgan Keegan & Company, Inc. (filed as Exhibit 4.3 to the Company's
           Annual Report on Form 10-K for year ended December 31, 1998 and
           incorporated by reference herein).
 10.1     --Stock Purchase Agreement dated as of December 12, 1997, by and
           among Conrad Shipyard, Inc., Orange Shipbuilding, Thomas E. Clary,
           Robert D. Clary and George B. Clary (filed as Exhibit 10.1 to the
           Company's Registration Statement on Form S-1 (Registration No. 33-
           49773) and incorporated by reference herein).
 10.2     --Second Amended and Restated Loan Agreement, dated as of December
           31, 1999 by and among Whitney National Bank, Conrad Shipyard, Inc.,
           Orange Shipbuilding, Co., Inc. and Conrad Industries, Inc. (filed as
           Exhibit 10.13 to the Company's Form 10-Q for the period ended June
           30, 2000 and incorporated by reference herein).
 10.3     --Stock Exchange Agreement, dated as of March 31, 1998, by and among
           Conrad Industries, Inc., Conrad Shipyard, Inc., Orange Shipbuilding,
           John P. Conrad, Jr., Katherine C. Court, The John P. Conrad, Jr.
           Trust, The Daniel T. Conrad Trust, The Glenn Alan Conrad Trust, The
           Kenneth C. Conrad Trust, the Katherine C. Court Trust, The James P.
           Court Trust, William H. Hidalgo and Cecil A. Hernandez (filed as
           Exhibit 10.4 to the Company's Registration Statement on Form S-1
           (Registration No. 33-49773) and incorporated by reference herein).
 10.4**   --Conrad Industries, Inc. Amended and Restated 1998 Stock Plan (First
           Amendment)
           (filed with the Company's Proxy Statement on Schedule 14A filed on
           April 22, 1999 and incorporated by reference herein).
  10.5**  --Officer and Director Indemnification Agreement (filed as Exhibit
           10.6 to the Company's Registration Statement on Form S-
           1)(Registration No. 33-49773) and incorporated by reference herein).
 10.6**   --Employment Agreement between Conrad Shipyard, Inc. and J. Parker
           Conrad (filed as Exhibit 10.7 to the Company's Annual Report on Form
           10-K for year ended December 31, 1998 and incorporated by reference
           herein).
 10.7**   --Employment Agreement between Conrad Shipyard, Inc. and John Parker
           Conrad, Jr. (filed as Exhibit 10.8 to the Company's Annual Report on
           Form 10-K for year ended December 31, 1998 and incorporated by
           reference herein).
 10.8**   --Employment Agreement between Conrad Shipyard, Inc. and William H.
           Hidalgo (filed as Exhibit 10.9 to the Company's Annual Report on
           Form 10-K for year ended December 31, 1998 and incorporated by
           reference herein).
</TABLE>


                                       52
<PAGE>

<TABLE>
<CAPTION>
 Exhibits                             Description
 --------                             -----------
 <C>      <S>
 10.9**   --Employment Agreement between Conrad Shipyard, Inc. and Cecil A.
           Hernandez (filed as Exhibit 10.10 to the Company's Annual Report
           on Form 10-K for year ended December 31, 1998 and incorporated by
           reference herein).
 10.10    --Warrant Agreement between Conrad Industries, Inc. and Morgan
           Keegan & Company, Inc. (filed as Exhibit 10.12 to the Company's
           Annual Report on Form 10-K for year ended December 31, 1998 and
           incorporated by reference herein).
 10.11**  --Employment Agreement effective August 13, 2001, between Conrad
           Industries, Inc.. and Kenneth G. Myers, Jr (filed as Exhibit 10.2
           to the Company's Form 10-Q for the period ended September 30,
           2001 and incorporated by reference herein).
 10.12**  --Transition Agreement dated August 20, 2001, between Conrad
           Shipyard, L.L.C. and William H. Hidalgo, Sr.. (filed as Exhibit
           10.3 to the Company's Form 10-Q for the period ended
           September 30, 2001 and incorporated by reference herein).
 10.13**  --Agreement dated August 20, 2001, between Conrad Industries, Inc.
           and Cecil A. Hernandez. (filed as Exhibit 10.4 to the Company's
           Form 10-Q for the period ended September 30, 2001 and
           incorporated by reference herein).
 10.14*   --First Amendment To Second Amended and Restated Loan Agreement by
           Conrad Shipyard, L.L,C. and Whitney National Bank, Dated December
           31, 2001.
 21.1*    --Subsidiaries of Conrad Industries, Inc.
 23.1*    --Consent of Deloitte & Touche LLP.
</TABLE>

--------
*  Filed herewith.
** Management contract or compensation plan.


                                       53