<PAGE>

                       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, 2002

                                       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 number: 0-22595

                           Friede Goldman Halter, Inc.
                            (as Debtor in Possession)
             (Exact name of registrant as specified in its charter)

             Mississippi                               72-1362492
  (State or other jurisdiction of                   (I.R.S.Employer
  incorporation or organization)                   Identification No.)

                                13085 Seaway Road
                              Gulfport, Mississippi
                    (Address of principal executive offices)
                                      39503
                                   (Zip Code)

                                 (228) 896-0029
              (Registrant's telephone number, including area code)

     Securities Registered Pursuant to Section 12(b) of the Act: Common Stock,
$.01, par value

     Securities Registered Pursuant to Section 12(g) of the Act: None

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (S) 229.405 under the Securities Exchange Act of 1934) is
not contained herein, and will not be contained, to the best of

                                       1

<PAGE>

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. Yes. [X] No. [_]


     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes. [_] No. [X]

     The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant was approximately $2,153,887 as of June 30,
2002 (computed by reference to the quoted closing price of the registrant's
common stock on the Over the Counter Bulletin Board on June 28, 2002). Shares of
common stock held by each officer and director and by each person who owns 5% or
more of the outstanding stock have been excluded from this computation in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.

     As of April 4, 2003 there were 48,710,579 shares of Common Stock, $.01 par
value, of Friede Goldman Halter, Inc. issued and outstanding, 39,216,845 of
which shares having an aggregate market value of approximately $58,825, were
held by non-affiliates of the registrant (affiliates being, for these purposes
only, directors, executive officers and holders of more than 5% of the
registrant's Common Stock).

                                       2

<PAGE>

                                TABLE OF CONTENTS

                                     PART I

<TABLE>
<CAPTION>
                                                                                               Page
                                                                                               ----
<S>                                                                                            <C>
 Item 1.     Business ......................................................................      3
             Risk Factors ..................................................................      7
 Item 2.     Properties ....................................................................      8
 Item 3.     Legal Proceedings .............................................................      8
 Item 4.     Submission of Matters to a Vote of Security Holders ...........................      8

   PART II

 Item 5.     Market for the Registrant's Common Equity and Related Stockholder Matters .....      8
 Item 6.     Selected Financial Data .......................................................      9
 Item 7.     Management's Discussion and Analysis of Financial Condition and Results of
             Operations ....................................................................     12
 Item 8.     Financial Statements and Supplementary Data ...................................     22
 Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial
             Disclosure ....................................................................     22

   PART III

 Item 10.    Directors and Executive Officers of the Registrant ............................     23
 Item 11.    Executive Compensation ........................................................     24
 Item 12.    Security Ownership of Certain Beneficial Owners and Management ................     29
 Item 13.    Certain Relationships and Related Transactions ................................     30

   PART IV

 Item 14.    Controls and Procedures .......................................................     30
 Item 15.    Exhibits, Financial Statement Schedules and Reports on Form 8-K ...............     31
</TABLE>

                           FORWARD-LOOKING STATEMENTS

     Forward-looking statements in this Annual Report on Form 10-K, future
filings by the Company with the Securities and Exchange Commission (the
"Commission"), the Company's press releases and oral statements by authorized
officers of the Company are intended to be subject to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that all forward-looking statements involve risks and uncertainty, including
without limitation, the risks set forth under the caption "Significant Factors
That may Affect Forward-Looking Statements" appearing in Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Company believes that forward-looking statements made by it are based on
reasonable expectations; however, no assurances can be given that actual results
will not differ materially from those contained in such forward-looking
statements. Forward-looking statements involve statements that are predictive in
nature, which depend upon or refer to future events or conditions, or which
include the words "estimate," "project," "anticipate," "expect," "predict,"
"believe," "could," "would," "may" and similar expressions.

ITEM 1.  Business

General

     On April 19 and 20, 2001, Friede Goldman Halter, Inc., including 31 of our
subsidiaries (collectively, the "Company"), elected to file separate petitions
for relief under Chapter 11 of the United States Bankruptcy Code which allows
for the reorganization of our debts. We filed petitions in the U.S. Bankruptcy
Court for the Southern

                                       3

<PAGE>

District of Mississippi which are being jointly administered under Case No.
01-52173 SEG. Since the date of the petition, we have maintained possession of
our property, and have continued to remain in control of our on going business
affairs as a Debtor in Possession.

     Under Chapter 11, certain claims against us in existence prior to the
filing of the petitions for relief under the federal bankruptcy laws are stayed
while we continue business operations as Debtor in Possession. These claims are
reflected in the December 31, 2002 and December 31, 2001 balance sheets as
"liabilities subject to compromise." Claims secured against our assets ("secured
claims") also are stayed, although the holders of such claims have the right to
move the court for relief from the stay. Secured claims are secured primarily by
liens on our property, plant, and equipment. Additional claims (liabilities
subject to compromise) have arisen subsequent to the filing date resulting from
rejection of executory contracts, including leases, and from the determination
by the court (or agreed to by parties in interest) of allowed claims for
contingencies and other disputed amounts.

     We retained the investment banking firm of Houlihan, Lokey, Howard & Zukin
and restructuring advisor, Glass and Associates, Inc. to assist in the
preparation of a plan of reorganization. These advisors assisted management and
our Board of Directors in evaluating various alternatives including, but not
limited to, sales of assets and our business unit(s), infusion of capital, debt
restructuring and any combination of these options. Upon the sale of our
Offshore segment in January 2003, Houlihan, Lokey, Howard & Zukin completed
their engagement. Glass and Associates continues to assist management and the
Board of Directors in preparation of an amended plan of reorganization and with
other operational matters.

     As further described in Note 4 to the Consolidated Financial Statements, on
March 22, 2002, we filed a plan of reorganization with the United States
Bankruptcy Court. We anticipate amending the plan of reorganization due to the
sale of the Vessels and Offshore segments. The amended plan will result in no
recovery for current equity interests. The amount of any recovery to general
creditors will depend primarily on, but will not be limited to the following
factors: (a) the ultimate value of pre-petition claims and (b) the dollar amount
of claims associated with the administration of this case. Note 4 also contains
information regarding the sale of the Vessels and Offshore segments as well as
their asset sales and dispositions.

     We cannot provide assurance that the amended plan will be approved. It is
not possible to assess the outcome of our bankruptcy proceeding or whether we
will operate in accordance with the amended plan, if approved.

Description of Operations

   Offshore Segment

     On January 29, 2003, we sold substantially all the assets of the Company's
Offshore segment constituting the Company's Mississippi and Texas operations; on
March 22, 2002 , we sold substantially all the Company's Offshore assets located
in Newfoundland, Canada. Prior to the sale, primary customers of our Offshore
segment were drilling contractors with operations offshore in the Gulf of
Mexico, the North Sea, West Africa, eastern Canada and South America and other
offshore areas of the world. These drilling contractors generally owned and
operated offshore drilling rigs and provided drilling services to oil and gas
companies. In addition, we contracted for the construction of rigs with
customers who did not operate the equipment but intended to charter the rigs to
drilling contractors.

     In our Offshore segment, operations during 2002 consisted of several
conversion, retrofit and repair projects for offshore drilling contractors as
well as work on the completion of one new construction semi-submersible offshore
drilling unit and the continuing new construction of three semi-submersible
offshore drilling units. Significant conversion or retrofit projects generally
took eight to fourteen months to complete, whereas certain repair projects
required only one to three months to complete. New rig construction projects
required from 18 to 30 months to complete.

     Several factors determined the type of rig most suitable for a particular
project, the more significant of which are the marine environment, water depth
and seabed conditions at the proposed drilling location, whether the drilling
was to be done over a production platform or other fixed structure, the intended
well depth, and variable deck load and well control requirements.

                                       4

<PAGE>

     On June 30, 2002, we sold the assets of Friede & Goldman Ltd. ("F&G Ltd.").
Prior to the sale, we performed design and engineering of offshore drilling and
production units, including jackups, semi-submersibles, drillships and floating
production, storage and offloading vessels. F&G Ltd. had a long history of
successful designs with 50 F&G Ltd. designed semi-submersible drilling,
pipelaying, and accommodation units in service worldwide, and over 30 jackup
drilling units of F&G Ltd. design operating worldwide.

   Vessels Segment

     On October 23, 2002, we sold the Vessels segment. Prior to the sale,
primary customers of our Vessels segment were offshore energy service companies,
marine transportation companies, domestic and foreign governments and other
commercial enterprises. Services provided by the Vessels segment included the
design, new construction, and conversion of ocean-going vessels including OSVs
for energy service companies, cargo ships, oceanographic research and survey
ships, high speed patrol boats and ferries for domestic and foreign governments,
and double-hull tank barges; tugboats, towboats and other types of barges for
other commercial enterprises.

   Engineered Products Segment

     On April 25, 2002, we sold the assets of Amclyde Engineered Products, Inc.,
which made up the Engineered Products Segment. Prior to the sale, primary
customers of our Engineered Products segment, in addition to the customers of
our Offshore and Vessels segments, included offshore construction contractors,
shipyards, commercial cruise-liner ship-owners, general merchant marine
operators, the fishing industry, on-land general construction contractors and
the U.S. Government. The Engineered Products segment services included the
design and manufacture of the world's largest cranes, mooring systems, marine
deck equipment, jacking systems, specialty mechanical systems, and a
comprehensive aftermarket repair and retrofitting operation.

Backlog

     As of December 31, 2002, our backlog was $39.3 million which consisted of
FGO and FGOT's backlog in the amounts of $35.7 million and $3.6 million,
respectively. We completed the sale of FGO and FGOT on January 29, 2003.

Government and Environmental Regulation

     Overview. Many aspects of our operations and properties are materially
affected by foreign, federal, state and local regulation, as well as certain
international conventions and private industry organizations. These regulations
govern worker health and safety and the manning, construction and operation of
vessels. For example, we are subject to the jurisdiction of the U.S. Coast
Guard, the National Transportation Safety Board, the U.S. Customs Service and
the Maritime Administration of the U.S. Department of Transportation, as well as
private industry organizations such as the American Bureau of Shipping. These
organizations establish safety criteria and are authorized to investigate vessel
accidents and recommend improved safety standards. In addition, the exploration
and development of oil and gas properties located on the outer continental shelf
of the United States is regulated primarily by the Minerals Management Service
("MMS"). The MMS has promulgated federal regulations under the Outer Continental
Shelf Lands Act requiring the construction of offshore platforms located on the
outer continental shelf to meet stringent engineering and construction
specifications. Violations of these regulations and related laws can result in
substantial civil and criminal penalties as well as injunctions curtailing
operations. We believe that our operations are in compliance with these and all
other regulations affecting the fabrication of platforms for delivery to the
outer continental shelf of the United States.

     Environmental. Our operations and properties are subject to a wide variety
of increasingly complex and stringent foreign, federal, state and local
environmental laws and regulations, including those governing discharges into
the air and water, the handling and disposal of solid and hazardous wastes, the
remediation of soil and groundwater contaminated by hazardous substances and the
health and safety of employees. These laws may provide for "strict liability"
for damages to natural resources and threats to public health and safety,
rendering a

                                       5

<PAGE>

party liable for the environmental damage without regard to negligence or fault
on the part of such party. Sanctions for noncompliance may include revocation of
permits, corrective action orders, administrative or civil penalties and
criminal prosecution. Certain environmental laws provide for strict, joint and
several liability for remediation of spills and other releases of hazardous
substances, as well as damage to natural resources. In addition, we may be
subject to claims alleging personal injury or property damage as a result of
alleged exposure to hazardous substances. Such laws and regulations may also
expose us to liability for the conduct of or conditions caused by others, or for
our acts that were in compliance with all applicable laws at the time such acts
were performed.

     The Resource Conservation and Recovery Act ("RCRA") and similar state laws
regulate the generation, treatment, storage, disposal, and other handling of
solid wastes, with the most stringent regulations applying to solid wastes that
are considered hazardous wastes. RCRA also may impose stringent requirements on
the closure, and the post-closure care, of facilities where hazardous waste was
treated, disposed of or stored. We generate solid waste, including hazardous and
non-hazardous waste, in connection with our routine operations. We believe that
our waste is handled properly under RCRA.

     Amendments to the federal Clean Air Act in 1990 resulted in numerous
changes which the Environmental Protection Agency and similar state agencies
fully implemented by regulations. The Clean Air Act amendments have not resulted
in the Company incurring material expenses at our properties.

     In connection with our purchase of the Marystown Facilities in Canada, the
Newfoundland provincial government agreed to carry out and pay for a complete
environmental assessment and remediation program. The Phase I investigation
identified several issues surrounding possible subsurface contamination on site
at one of the Marystown Facilities. As a result of Phase I findings, remediation
work was completed in 2000. Remediation efforts included the removal of
underground oil storage tanks, removal and proper disposal of contaminated soils
and re-installation of new oil storage tanks at the shipyard facility. The Phase
II investigation has been completed and additional environmental issues were
identified. Additional remediation efforts were required for asbestos and lead
paint abatement. Remediation work was substantially completed in 2001. The
Newfoundland Provincial Government funded the cost of remediation procedures
associated with the Marystown Facilities as agreed upon at the time the facility
was purchased. In addition, the Newfoundland Provincial Government will
indemnify us against any environmental liabilities associated therewith. The
asset sale agreement executed in March 2002 continues this indemnification.

     At December 31, 2002 and 2001, the Company had accrued $6.0 million related
to remediation of certain contaminated sites. This liability is primarily the
result of liabilities retained in the sale of the Company's Vessel Repair
division to Bollinger Shipyards in August 2000. Negotiations are ongoing with
the Louisiana Department of Environmental Quality as to the ultimate resolution
of this matter. This liability is included in liabilities subject to compromise
at December 31, 2002 and 2001. There is no assurance that the amount of this
estimate will be adequate to cover the costs of the eventual resolution of this
matter. There is also no assurance that this liability will ultimately be deemed
a liability subject to compromise. The Bankruptcy Court could rule this to be an
administrative claim.

     Our compliance with environmental laws and regulations has entailed certain
additional expenses and changes in operating procedures. Because substantially
all of the Company's assets have been sold, compliance with these laws and
regulations is not anticipated to have a material adverse effect on our business
or financial condition for the foreseeable future. However, future events, such
as changes in existing laws and regulations or their interpretation, more
vigorous enforcement policies of regulatory agencies, or stricter or different
interpretations of existing laws and regulations, may require additional
expenditures on our part, which expenditures may be material.

Insurance

     We maintain a property and casualty insurance program protecting us against
damage caused by fire, flood, explosion and similar catastrophic events. We also
maintain commercial general liability insurance including coverage for products
and completed operations. We have in place both builder's risk and ship
repairer's construction risk programs. We maintain a workers' compensation and
employers' liability insurance program with respect to our operations that
satisfies the Federal and State Workers' Compensation Acts and includes the U.S.

                                       6

<PAGE>

Longshore and Harbor Workers Act and maritime and outer continental shelf
endorsements. We currently maintain limits we deem are proper and necessary in
the course of our business. Although management believes that our insurance is
adequate with respect to all of our domestic and international operations, there
can be no assurance that we will be able to maintain adequate insurance at rates
which management considers commercially reasonable, nor can there be any
assurance such coverage will be adequate to cover all claims that may arise.

Employees

     Our workforce has varied based on the level of ongoing fabrication activity
at any particular time. As of December 31, 2002, we had approximately 1,445
employees which included 1,432 related to the Offshore segment sold in January,
2003 and 13 related to the corporate office estate stay-team. The Company's
total workforce included contract labor of approximately 223 employees at
December 31, 2002 related to the Offshore segment.

     None of our employees are employed pursuant to a collective bargaining
agreement. We believe that our relationship with our employees is good.

                                  RISK FACTORS

     Due to the Chapter 11 filing, there will be no recovery for our equity
security holders. There is also no assurance that our plan of reorganization
will ultimately be approved by the Bankruptcy Court.

     On April 19 and 20, 2001, we, including 31 of our subsidiaries, elected to
file separate petitions for relief under Chapter 11 of the United States
Bankruptcy Code. At this time, we are focusing on maximizing the recoveries for
the creditors. Under our current plan of reorganization, equity holders would
not receive any recovery. In addition, there can be no assurance that our plan
of reorganization will ultimately be approved by the Bankruptcy Court.

     Proofs of claim filed with the Bankruptcy Court significantly exceed the
estimation of our liabilities subject to compromise.

     As a result of certain contractual matters described in Note 17 to the
Consolidated Financial Statements and other claims asserted by secured and
unsecured creditors, we have been notified that proofs of claims filed with the
Bankruptcy Court related to its Chapter 11 filing significantly exceed the
liabilities we have recorded. At December 31, 2002 and December 31, 2001, we
accrued an estimate of the liability for the resolution of these claims. This
estimate has been developed in consultation with outside counsel that is
handling the bankruptcy and defense of these matters. To the extent additional
information arises or the Bankruptcy Court approves the proofs of claims as
filed, it is possible that our estimate of our liability in these matters may
significantly change. Our management believes any change to the estimate will
increase the balance of our liabilities subject to compromise. Additionally,
some items classified as liabilities subject to compromise could be deemed
priority or administrative claims through the Bankruptcy Courts and could
thereby become current liabilities.

     Our business involves significant operating risks and our insurance
protection could be insufficient or ineffective.

     Our operational activities involved the fabrication, refurbishment and
repair of large steel structures, including drilling rigs, vessels, cranes and
production units. These activities have inherent risks associated with them that
could result in significant injury and loss of life, severe damage and
destruction of property and suspension of operations. These risks include:

     .    operating hazards, including the operation of cranes and other heavy
          machinery;

     .    the structural failure of a drilling rig, crane, vessel or other
          equipment;

     .    liabilities associated with a defect in design or a failure or
          malfunction of a product developed or manufactured by us;

                                       7

<PAGE>

     .    marine accidents, including collisions with other vessels and
          sinkings;

     .    physical damage of our facilities caused by hurricanes or flooding;
          and

     .    employment practices within our operating divisions.


     Litigation arising from any of these occurrences may result in the Company
being named as a defendant in lawsuits asserting large claims. Although we
maintain and will continue to maintain insurance that we consider to be
economically prudent, it cannot be assured that this insurance will be
sufficient or effective under the circumstances. A successful claim for which we
are not fully insured could have a material adverse effect on the Company.

     Available Information

     We file annual, quarterly and current reports and other information with
the SEC. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K, along with any amendments to those reports, are not
posted on our corporate website as we no longer have a corporate website.
However we will provide, free of charge upon request, electronic or paper copies
of its filings.

ITEM 2.  Properties

     As of April 1, 2003, substantially all of the Company's assets have been
sold except those discussed below.

     Our corporate headquarters is located in Gulfport, Mississippi occupying
approximately 5,000 square feet of leased office space. In addition, we own two
separate parcels of real property, the Three Rivers Yard in Gulfport,
Mississippi and the FGOT Central Yard in Sabine Pass, Texas. The Texas shipyard
is under contract and is anticipated to be sold in the second quarter of 2003.

     We also own a Series 4600 Manitowac Ringer Crane (the "Crane") which had
been used by Friede Goldman Newfoundland. All assets of Friede Goldman
Newfoundland were sold in the spring of 2002 except for the Crane which was part
of the Offshore business. The Crane was relocated from Canada to Mississippi.

ITEM 3.  Legal Proceedings

     We are involved in various claims and legal actions arising in the ordinary
course of business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a description of these significant
matters. See Item 15--Notes 16 and 17 to the Consolidated Financial Statements
for more information on the significant legal and contractual matters in which
we are involved.

ITEM 4.  Submission of Matters to a Vote of Security Holders

     None.

                                     PART II

ITEM 5.  Market for the Registrant's Common Equity and Related Stockholder
         Matters

     Our Common Stock is listed for trading on the Over the Counter Bulletin
Board under the symbol "FGHLQ" due to our Chapter 11 bankruptcy filing on April
20, 2001. Prior to filing bankruptcy, our stock was listed on the New York Stock
Exchange under the symbol "FGH".

     The following table sets forth the high and low sales price per share of
the Common Stock, as reported on the

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New York Stock Exchange composite tape from January 1, 2001 through April 20,
2001 and on the Over the Counter Bulletin Board from April 23, 2001 through
December 31, 2002, for the periods indicated:

                        2002
                   --------------
      Quarter       High    Low
      ---------    ------  ------
      First .....  $0.290  $0.055
      Second ....   0.150   0.050
      Third .....   0.079   0.012
      Fourth ....   0.024   0.001

                        2001
                   --------------
      Quarter       High    Low
      ---------    ------  ------
      First .....  $ 6.60  $ 1.24
      Second ....    2.45    0.18
      Third .....    0.85    0.40
      Fourth ....    0.53    0.18

     We will not be paying any cash dividends on our Common Stock. In addition,
under our current plan of reorganization, equity holders would not receive any
recovery in the bankruptcy.

     The following table sets forth information as of December 31, 2002, with
respect to compensation plans under which equity securities of the Company are
authorized for issuance:

<TABLE>
<CAPTION>
                                                         (a)
                                                      Number of                                            (c)
                                                    securities to              (b)                Number of securities
                                                      be issued         Weighted-average           remaining available
                                                    upon exercise         exercise price               for future
                                                   of outstanding        of compensation          issuance under equity
                                                  options, warrants     plans outstanding         (excuding securities
                                                      and rights        options, warrants          reflected in column
                  Plan category                    (in thousands)           and rights             (a)) (in thousands)
                  -------------                   -----------------     -----------------         ---------------------
<S>                                               <C>                   <C>                       <C>
Equity compensation plans approved by security
   holders .....................................            414,551      $           8.72                            --
Equity compensation plans not approved
   by security holders .........................                 --                    --                            --
                                                  -----------------     -----------------         ---------------------
     Total .....................................            414,551      $           8.72                            --
                                                  =================     =================         =====================
</TABLE>

ITEM 6.  Selected Financial Data

     The following table sets forth selected historical financial data as of the
dates and for the periods indicated. The historical financial data set forth
below are derived from the audited consolidated financial statements of Friede
Goldman Halter, Inc. ("FGH"). The consolidated financial statements include the
accounts of FGH and its wholly-owned subsidiaries, including, among others,
Friede Goldman Offshore, Inc. ("FGO"), Friede & Goldman, Ltd. ("F&G Ltd"),
Friede Goldman Newfoundland Limited ("FGN"), Friede Goldman France S.A.S.
("FGF"), AmClyde Engineered Products Company , Inc. ("Amclyde"), and Halter
Marine, Inc. ("Halter").

     The selected financial data includes the accounts of FGF for all periods
from February 6, 1998 through its sale date of May 22, 2001, FGN for all periods
from January 1, 1998 through its sale date of March 22, 2002, Amclyde

                                       9

<PAGE>

for all periods from November 4, 1999 through its sale date of April 25, 2002,
FGL for all periods from January 1, 1998 through its sale date of June 30, 2002,
and Halter for all periods from November 4, 1999 through its sale date of
October 23, 2002, and all other subsidiaries for all periods presented. All
significant intercompany accounts and transactions have been eliminated. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and the related notes thereto.

                                       10

<PAGE>

                  FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                    For the Years Ended December 31,
                                                                                    --------------------------------

                                                                           2002          2001      2000       1999         1998
                                                                        ---------   ----------  ---------  ---------    ---------
<S>                                                                     <C>         <C>         <C>        <C>          <C>
Revenues (See Footnote 1) ...........................................   $      --   $       --  $      --  $      --    $      --
Selling, general and administrative expenses ........................       9,590       18,236     24,564     16,770       11,464
Goodwill amortization ...............................................          --       11,153      7,524      1,576          334
Goodwill impairment .................................................          --      201,622         --         --           --
                                                                        ---------   ----------  ---------  ---------    ---------
Operating loss ......................................................      (9,590)    (231,011)   (32,088)   (18,346)     (11,798)
                                                                        ---------   ----------  ---------  ---------    ---------

Other expense (income):
   Interest expense (income), net (contractual interest
      of $18,186 and $21,825 for the years
      ended December 31, 2002 and 2001, respectively) ...............       9,826       15,913     30,242      5,930         (634)
   Discount on convertible subordinated notes .......................          --       54,878         --         --           --
   Other ............................................................        (116)          --         --         --          313
                                                                        ---------   ----------  ---------  ---------    ---------
           Total other expense ......................................       9,710       70,791     30,242      5,930         (321)
                                                                        ---------   ----------  ---------  ---------    ---------

Loss before reorganization items, discontinued operations,
  income taxes and extraordinary item ...............................     (19,300)    (301,802)   (62,330)   (24,276)     (11,477)

Reorganization items:
   Professional fees ................................................      12,911       11,691         --         --           --
   Loss on investment in unconsolidated subsidiary ..................          --        1,371         --         --           --
   Write-off of deferred financing costs ............................       1,971        2,618         --         --           --
   Loss on termination of employee benefit plan .....................         339           --         --         --           --
                                                                         --------   ----------  ---------  ---------    ---------
           Total reorganization items ...............................      15,221       15,680         --         --           --
                                                                         --------   ----------  ---------  ---------    ---------

Loss before discontinued operations, income taxes and
  extraordinary item  ...............................................     (34,521)    (317,482)   (62,330)   (24,276)     (11,477)
Income tax expense (benefit) ........................................         251        9,510    (21,042)   (17,141)      20,679
                                                                        ---------   ----------  ---------  ---------    ---------
Loss before discontinued operations and extraordinary item ..........     (34,772)    (326,992)   (41,288)    (7,135)     (32,156)

Discontinued operations:
   Income (loss) from operations of Vessels segment .................     (12,465)     (13,202)    13,747      4,214           --
   Loss on disposal of Vessels segment ..............................     (37,527)          --         --         --           --
   Income (loss) from operations of Offshore segment ................       8,164      (20,816)   (86,093)   (28,395)      63,121
   Loss on disposal of Offshore segment .............................     (16,230)     (21,951)        --         --           --
   Income from operations of Engineered
        Products segment ............................................         497        7,337     11,116        490        4,321
   Income (loss) on disposal of Engineered
       Products segment .............................................         720      (25,983)        --         --           --
                                                                        ---------   ----------  ---------  ---------    ---------
           Total discontinued operations ............................     (56,841)     (74,615)   (61,230)   (23,691)      67,442
                                                                        ----------  ----------  ---------  ---------    ---------
Net loss before extraordinary item ..................................     (91,613)   ($401,607)  (102,518)   (30,826)      35,286
Extraordinary loss ..................................................          --           --     (3,853)        --           --
                                                                        ----------  ----------  ---------  ---------    ---------
Net income (loss) ...................................................   $ (91,613)  $ (401,607) $(106,371) $ (30,826)   $  35,286
                                                                        =========   ==========  =========  =========    =========

Net income (loss) per share, basic
   Net loss before discontinued operations
           and extraordinary item ...................................   $   (0.71)  $    (6.71) $   (0.93) $   (0.27)   $   (1.33)
 Discontinued operations ............................................       (1.17)       (1.54)     (1.37)     (0.91)        2.79
 Extraordinary loss .................................................          --           --      (0.09)        --           --
                                                                        ---------   ----------  ---------  ---------    ---------
 Net income (loss) ..................................................   $   (1.88)  $    (8.25) $   (2.39) $   (1.18)   $    1.46
                                                                        =========   ==========  =========  =========    =========
</TABLE>

                                       11

<PAGE>

                  FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF OPERATIONS , CONT.

                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                       Years Ended December 31,
                                                                                  --------------------------------------
                                                                        2002          2001       2000         1999        1998
                                                                     ----------   ---------   ----------    ----------  ---------
                                                                                  (in thousands, except per share data)
<S>                                                                  <C>          <C>         <C>           <C>         <C>
Net income (loss) per share, diluted
     Net loss before discontinued operations
         and extraordinary item ..................................   $    (0.71)  $    (6.71) $    (0.93)        (0.27) $   (1.32)
     Discontinued operations .....................................        (1.17)       (1.54)      (1.37)        (0.91)      2.75
     Extraordinary loss ..........................................           --           --       (0.09)           --         --
                                                                     ----------   ----------  ----------    ----------  ---------
     Net income (loss) ...........................................   $    (1.88)  $    (8.25) $    (2.39)   $    (1.18) $    1.43
                                                                     ==========   ==========  ==========    ==========  =========
Weighted average shares outstanding:
     Basic .......................................................       48,711       48,711      44,562        26,148     24,211
     Diluted .....................................................       48,711       48,711      44,562        26,148     24,599

Statement of Cash Flows Data:
Cash provided by (used in) operating activities ..................   $  (36,924)  $  (33,267) $  (53,767)   $  (61,061) $  21,088
Cash provided by (used) in investing activities ..................       95,350        6,824      95,813        (4,747)   (77,299)
Cash provided by (used in) financing activities ..................      (64,700)      21,949     (31,739)       39,558     41,156
Balance Sheet Data:
Working capital (deficit) ........................................   $   10,693   $  (24,578) $ (140,423)   $   83,819  $   5,859
Net property, plant and equipment ................................           --      155,458     261,337       334,642    139,078
Long-lived assets held for disposition ...........................       49,284       56,930          --            --         --
Total assets .....................................................      147,124      361,621     822,014     1,010,491    314,560
Debt .............................................................       48,712      115,355     222,274       312,720     61,992
Liabilities subject to compromise ................................      346,015      360,697          --            --         --
Stockholders' equity (deficit) ...................................     (285,090)    (193,346)    209,793       248,121     85,290
</TABLE>

(1)  Revenues are zero for all periods presented because revenues are included
     in the determination of income (loss) from operations of discontinued
     segments. There were no revenues from continuing operations for all periods
     presented.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

Introduction

Overview

     On March 22, 2002, we filed a Plan of Reorganization with the United States
Bankruptcy Court, which included the reorganization of substantially all of our
Offshore and Vessels segments and the disposition of our Engineered Products
segment as well as the disposition through sale, or otherwise, of other
subsidiaries and assets as described below. As discussed in Note 2 to the
Consolidated Financial Statements, we anticipate amending the plan of
reorganization due to the sale of the Vessels and Offshore segments. We have no
ongoing operations after the Offshore sale in January 2003.

  Backlog

                                       12

<PAGE>

     As of December 31, 2002, our backlog was $39.3 million which consisted of
FGO and FGOT's backlog in the amounts of $35.7 million and $3.6 million,
respectively. We completed the sale of the assets of FGO and FGOT on January 29,
2003.

  Critical Accounting Policies

     Our discussion and analysis of financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those
related to contract revenue and costs, property, plant and equipment including
related goodwill, income taxes, and contingencies. We base 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.

     We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

     Revenue Recognition--Long-Term Contracts. We recognize revenue and profit
as work on long-term contracts progresses using the percentage of completion
method of accounting, which relies on estimates of total expected contract
revenues and costs. We follow this method since reasonably dependable estimates
of the revenue and costs applicable to various stages of a contract can be made.
Since the financial reporting of these contracts depends on estimates, which are
assessed continually during the term of the contract, recognized revenues and
profit are subject to revisions as the contract progresses to completion.
Revisions in profit estimates are reflected in the period in which the facts
that give rise to the revision become known. Accordingly, favorable changes in
estimates result in additional profit recognition, and unfavorable changes in
estimates result in the reversal of previously recognized revenue and profits.
When estimates indicate a loss under a contract, cost of revenue is charged with
a provision for such loss. As work progresses under a loss contract, revenue
continues to be recognized, and a portion of the contract costs incurred in each
period is charged to the contract loss reserve.

     Property, Plant, & Equipment Held for Disposition. We evaluated our
property, plant, and equipment held for disposition for impairment based on the
asset purchase agreement entered into during November 2002 for the Offshore
segment. As a result, in 2002, we recognized a loss on assets held for sale of
$28.7 million related to the disposition of the Offshore segment.

     Liabilities Subject to Compromise. We have been notified that proofs of
claims filed with the bankruptcy court related to our Chapter 11 filing
significantly exceed the liabilities we have recorded. As discussed in the notes
to our consolidated financial statements, as of December 31, 2002, we have
accrued an estimate of the probable liability for the resolution of these
claims. This estimate has been developed in consultation with outside counsel
that is handling our bankruptcy and defense in these matters. To the extent
additional information arises or the bankruptcy court approves the proofs of
claims as filed, it is possible that our estimate of the liability in these
matters could significantly change. We believe any change to our estimate will
increase the balance of our liabilities subject to compromise.

     Income Taxes. We recognize deferred tax assets and liabilities based on the
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities. We regularly review our deferred tax assets for
recoverability and establish a valuation allowance based upon historical losses,
projected future taxable income and the expected timing of the reversals of
existing temporary differences. As a result of this review, we have established
a full valuation allowance against our deferred tax assets.

                                       13

<PAGE>

  Contracts

     A significant portion of our contracts were on a fixed-price basis.
Revenue, cost and gross profit realized on a fixed-price contract will often
vary from the estimated amounts because of many factors, including changes in
job conditions and variations in labor and equipment productivity over the term
of the contract.

     The construction of offshore drilling rigs, vessels and other equipment
frequently involves complex design and engineering, and equipment and supply
delivery coordination throughout construction periods that may extend from
several months to two years. It is not unusual in such circumstances to
encounter design, engineering, equipment delivery schedule changes and other
factors that impact the builder's ability to complete construction of the
project in accordance with the original contractual delivery schedule. Our
construction contracts generally required the customer to compensate us for
additional work as well as reassess delivery dates or expenses incurred due to
customer requested change orders or failure of the customer to provide us with
design or engineering information or equipment, if specified in the contract for
the customer to provide these items. Under these circumstances, we generally
negotiated with the customer with respect to the amount of compensation to be
paid to us following the time at which the change order was requested or the
customer failed to provide us with items required by the contract to be provided
by the customer to us.

  The Ocean Rig, Petrodrill, Pasha and CNOOC Contracts

     Our results of operations for the year ended December 31, 2001 and our
current financial condition have been materially and adversely impacted by
contracts for the construction of four semi-submersible drilling rigs (Ocean Rig
and Petrodrill contracts), one vehicle car carrier (Pasha contract) and one
heavy derrick-lay barge (CNOOC contract), as further described below.

Ocean Rig

     In December 1997 and June 1998, we entered into contracts to construct two
semi-submersible drilling rigs for Ocean Rig ASA, a Norwegian company. We
commenced construction of one rig in June 1998 and the other in January 1999.
Since January 2000, when we entered into a Confidential Settlement Agreement
with Ocean Rig to resolve disputes with respect to these contracts, we continued
to experience significant cost overruns and delays in the construction of these
rigs. As a result, we recorded provisions for contract losses during the second,
third and fourth quarters of 2000 of approximately $24.6 million, $7.0 million
and $38.2 million, respectively, related to this project. Losses for the fourth
quarter include a provision for all costs we incurred through the date of the
March 9, 2001 amendment to the contract, at which time the contract was
converted to a "time and materials" contract. Shipyard construction of the first
rig was completed in May 2001 and that rig left our facility to undergo final
outfitting, including the installation of the dynamic positioning thruster
system. This rig has completed final sea trial commissioning and is in
operation. The second rig left our facility in July 2001 and construction was
completed at a Canadian shipyard.

     On December 10, 2001, we entered into a Delivery and Close-Out Agreement
with Ocean Rig (the "Agreement") under which both parties waived and released
all claims each had against the other except certain limited claims reserved in
the Agreement. The Agreement was subject to the approval of the Bankruptcy
Court. The Bankruptcy Court's approval of the Agreement was not received prior
to the deadline for filing proofs of claim in the Bankruptcy Court. In order to
preserve its rights, Ocean Rig filed unquantified proofs of claim for both rigs.
On May 16, 2002, the Court entered an order approving the Agreement. Pursuant to
the order, the proofs of claim filed by Ocean Rig are deemed held in abeyance.
If we fail to comply with the mutual waivers and releases of the Agreement, the
proofs of claim could be reactivated and amended. We do not believe that the
proofs of claim will be reactivated and amended.

Petrodrill

     In April 1998, one of our subsidiaries, Friede Goldman Offshore-Texas
("FGOT") entered into contracts to construct two semi-submersible drilling rigs
for two newly formed entities, Petrodrill IV, Ltd. and Petrodrill V, Ltd.
("Petrodrill"). After the commencement of construction, FGOT began to experience
delays in the production schedule and increased costs due, in whole or part, to
delays caused by Petrodrill and by subcontractors nominated

                                       14

<PAGE>

by Petrodrill. In addition, FGOT had to perform as the lead yard as opposed to a
follow-on yard as initially anticipated by the contracting parties.

     In April 1999, and in connection with a transaction whereby the United
States Maritime Administration ("MARAD") agreed to finance the Petrodrill rigs,
FGOT and Petrodrill entered into an amendment to the contracts that provided,
among other things, for extensions to the delivery dates of approximately nine
months for each rig. Thereafter, production delays continued. Under the
contracts, FGOT was entitled to extensions of the delivery dates for permissible
delay as defined in the contracts ("Permissible Delay") and for delays caused by
Petrodrill breaches of contract. FGOT notified Petrodrill that, as a result of
such delays, it was entitled to additional extensions of the delivery dates and
to additional compensation. Petrodrill refused to acknowledge FGOT's right to an
extension of the delivery dates. Petrodrill was also advised that the rigs could
not be completed by their respective existing delivery dates.

     In January 2000, FGOT notified Petrodrill that it was mitigating FGOT's and
Petrodrill's damages by deferring certain fabrication efforts until engineering
work could be completed so that we could determine the ultimate cost of the
project and permit construction to go forward in an efficient manner. FGOT also
notified Petrodrill that it believed it was entitled to additional monetary
compensation from Petrodrill as a result of delay, disruption, inefficiencies
and other direct and indirect costs caused by, among other things, delays by
Petrodrill and its nominated subcontractors and by FGOT being required to
perform as the lead yard. Consequently, we and Petrodrill filed a series of
actions against one another in the United States federal court and in a court in
London, England. In May 2000, FGOT and Petrodrill finalized an agreement to
amend the construction contract and dismiss the litigation previously filed
against each other. The amendment extended delivery dates, capped liquidated
damages and increased our contract value.

     On February 28, 2001, we announced an agreement in principle with Fireman's
Fund, the surety company which wrote the performance bonds of $87.0 million per
rig on the Petrodrill project, pursuant to which the surety company had agreed
to provide certain funding for the completion of construction of the two
semi-submersible drilling rigs. The agreement provided that the surety company
would contract with FGOT for fringe benefit costs, materials, subcontractor and
other costs and an allocation for overhead and general and administrative
expenses. The terms of the final agreement were not successfully negotiated,
thereby resulting in the surety ceasing to provide funding.

     On May 4, 2001, we announced that we filed with the Bankruptcy Court a
motion to reject the contracts related to the Petrodrill project. This motion
was approved by the Bankruptcy Court in June 2001 and finalized in July 2001.
Work on the projects was discontinued effective May 4, 2001. Construction on the
projects resumed pursuant to a Bankruptcy Court motion effective September 6,
2001. This motion provided for us to work as authorized by the customer and
surety company for a 120-day period on Rig I and a 150-day period on Rig II.
These periods began on September 6, 2001. The construction was to be performed
at specified labor, equipment and material billing rates. In December 2001, we,
Petrodrill and Fireman's Fund jointly moved for and were granted an extension of
time to April 4, 2002 for the removal of the first rig from our Pascagoula,
Mississippi shipyard and to May 9, 2002 for the removal of the second rig from
our shipyard in Orange, Texas. Work continued past the deadlines based on a
mutual agreement by both parties under the same terms of the Bankruptcy Court
agreement. Our work was completed on the first rig and it was removed from our
property on May 3, 2002. Our work was completed on the second rig and it was
removed from our property on July 26, 2002.

     At December 31, 2002, $19.2 million was included in our reserve for
estimated costs to compete the contract, which represents our estimate of the
remaining cost of completion in excess of future billings at the time work on
the project was suspended. Our estimate was based on an uninterrupted work plan
we developed during the first quarter of 2001. At December 31, 2002, $25.2
million was included in our liabilities related to costs funded to date by the
surety. We believe our liability related to the project at December 31, 2002 is
limited to the sum of these two liabilities, approximately $44.4 million. This
amount is included in liabilities subject to compromise in the Consolidated
Financial Statements.

     Petrodrill has submitted proofs of claim totaling $477.0 million based on
estimated costs to complete the rigs and lost revenues. Fireman's Fund has
submitted proofs of claim which are unquantified at this time. We believe the
amount of Petrodrill's asserted claim substantially exceeds our reserve of $44.4
million as of December 31, 2002

                                       15

<PAGE>

due to delays caused by the customer/surety and the customer's/surety's inaction
on resolving the strategy to complete construction of the rigs. We are not
privileged to the customer's/surety's final strategy for completion of these
projects and their claims and do not have information as to the estimated final
cost to complete under the customer's/surety's strategy. We believe the claims
made by Petrodrill and the surety, if substantiated, would be a liability
subject to compromise. There is no assurance that management's position
regarding the value of the claims of Petrodrill and Fireman's Fund will be
upheld by applicable courts and additional liabilities will not result in excess
of the reserve recorded at December 31, 2002.

PASHA

     On December 28, 1999, we signed a contract for the construction of a 4,000
car-carrier vessel for transport of vehicles between the West Coast and the
Hawaiian Islands. On May 1, 2001, we gave notice that we were not financially
capable of completing this contract without further funding to ensure a cash
flow positive contract from the date of filing Chapter 11 reorganization on
April 20, 2001. This additional funding was anticipated to come from the surety
company which wrote the performance bond for the project. The surety company
provided additional funding for the project under court order until July 27,
2001 when it informed us that it would not fund completion of the vessel.
Construction on the project was suspended when this funding ceased. We and the
customer maintain that this is a violation of the terms of the performance bond.
The customer has sued the surety in federal court. The United States Department
of Justice ("USDOJ"), which represents the United States Maritime Administration
("MARAD") (the provider of customer financing) and the customer have also sued
the surety in Mississippi state court. The suits are seeking specific
performance of the surety under the terms of the performance bond. This suit was
settled, but the agreement was sealed by the federal court. Because
substantially all of the assets of our Vessels segment were sold on October 23,
2002, we will not complete the project.

     At December 31, 2002, $2.4 million was included in our reserve for
estimated costs to complete the contract, which represents our estimate of the
remaining costs of completion in excess of future billings at the time work on
the project was suspended. The customer has submitted proofs of claim totaling
$906.0 million and the surety has submitted proofs of claim which are
unquantified at this time. We believe that these pre-petition claims made by the
customer and the surety are objectionable on one or more grounds, although no
such objections have been made to date. If the claims are substantiated, then
they would be a liability subject to compromise. There is no assurance that
management's position regarding the value of the claims of the customer and the
surety will be upheld by applicable courts and additional liabilities will not
result in excess of the reserve recorded at December 31, 2002. The surety also
asserts certain secured claims against our assets and post-petition
administrative claims for payments made under the payment bond. Pending
resolution of the surety's lien and claim rights, the Bankruptcy Court has
ordered us to maintain a minimum balance of $7.5 million in the sales proceed
cash account for the Vessels segments subject to certain adjustments.

CNOOC

     We filed a motion with the Bankruptcy Court to reject the contract with
China National Offshore Oil Company ("CNOOC") for the construction of a heavy
derrick-lay barge. Liberty Mutual Insurance Company ("Liberty Mutual") opposed
the contract rejection. Pursuant to the contract, CNOOC was provided a bank
guarantee from Royal Bank of Canada ("Royal Bank"). After we filed for
bankruptcy, CNOOC received approximately $10.9 million from Royal Bank under the
bank guarantee. Under a counter guarantee, Royal Bank received from Liberty
Mutual the same amount that Royal Bank paid to CNOOC. Prior to filing for
bankruptcy, we and certain of our subsidiaries entered into an indemnification
agreement with Liberty Mutual providing that we would indemnify Liberty Mutual
for any amount paid to Royal Bank under the counter guarantee. At December 31,
2002, approximately $10.9 million was included in our liabilities subject to
compromise for the indemnification agreement. Liberty Mutual has submitted
proofs of claim which are unquantified at this time. Liberty Mutual has also
asserted claims against proceeds received by a subsidiary of ours under
post-petition contacts between the subsidiary and CNOOC. We believe any claim
made by Liberty Mutual would be a liability subject to compromise and no loss
exposure exists in excess of the liability recorded. Pending resolution of
certain rights asserted by Liberty Mutual, the Bankruptcy Court has ordered us
to maintain a minimum balance of $10.5 million in the sales proceed cash account
for the Engineered Products segment subject to certain adjustments.

                                       16

<PAGE>

Results of Operations

     The consolidated financial statements include the accounts of FGH, Inc. and
its wholly-owned subsidiaries, including, among others, FGO, F&G Ltd., FGN, FGF
and Amclyde (collectively referred to as the "Company").

     Revenues

     Revenues are zero for all periods presented because revenues are included
in the determination of income (loss) from operations of discontinued segments.
There were no revenues from continuing operations for all periods presented.

  Selling, general and administrative expenses

     Selling, general and administrative expenses ("SG&A expenses") were $9.6
million from continuing operations for the year ended December 31, 2002 compared
to $18.2 million from continuing operations for the year ended December 31,
2001. The decrease in SG&A expenses is due to personnel reductions and other
cost-saving measures we implemented.

     SG&A expenses were $18.2 million from continuing operations for the year
ended December 31, 2001 compared to $24.6 million from continuing operations for
the year ended December 31, 2000. The decrease in SG&A expenses is due to
personnel reductions and other cost-saving measures we implemented.

  Amortization of Goodwill

     Amortization of goodwill increased $3.6 million from continuing operations
for the year ended December 31, 2001 compared to the year ended December 31,
2000 as a result of adjustments to goodwill in 2000. As of December 31, 2002, we
have no goodwill as a result of an impairment recorded in 2001.

  Impairment of Goodwill

     During 2001, we completed an evaluation of the impairment in carrying
values of our long-lived assets, including goodwill, in conjunction with the
development of our plan of reorganization. We recorded a goodwill impairment
charge of $201.6 million for the year ended December 31, 2001 related to our
Vessel and Offshore segments. This charge was estimated based on our projection
of cash flow that would be generated from the operation of these segments in
future periods. This adjustment related to an analysis performed by comparing
the total book value of property, plant, equipment and goodwill to the total
undiscounted cash flows for a period of five years as it relates to the assets
we acquired in the merger with Halter Marine Group in November 1999. The
adjustment was based on the amount by which the carrying amount of the
long-lived assets, including goodwill, exceeded the estimated fair market value.

  Net interest expense

     Net interest expense decreased to $9.8 million from continuing operations
for the year ended December 31, 2002 from $15.9 million from continuing
operations for the year ended December 31, 2001. The decrease of $6.1 million is
primarily the result of interest expense recorded on the 4 1/2% convertible
subordinated notes from January 2001 through April 18, 2001, before the Chapter
11 filing, while no related interest was recorded in the year ended December 31,
2002. Contractual interest expense of $8.4 million and $5.9 million on the 4
1/2% convertible subordinated notes was not recorded in the years ended December
31, 2002 and 2001, respectively, due to the Chapter 11 filing.

     Net interest expense decreased to $15.9 million for the year ended December
31, 2001 from $30.2 million for the year ended December 31, 2000. The decrease
of $14.3 million is primarily the result of interest expense recorded on the 4
1/2% convertible subordinated notes from January 2001 through April 18, 2001,
before the Chapter 11 filing, while twelve months of related interest was
recorded in the year ended December 31, 2000. Contractual interest

                                       17

<PAGE>

expense of $5.9 million on the 4 1/2% convertible subordinated notes was not
recorded in the year ended December 31, 2001 due to the Chapter 11 filing.

     We recorded discount accretion of $54.9 million during the year ended
December 31, 2001 related to the reclassification of the $185.0 million, 4 1/2%
convertible subordinated notes as a liability subject to compromise.

  Reorganization items

     We incurred professional fees of $12.9 million related to the bankruptcy
proceeding and reorganization in the year ended December 31, 2002 compared to
$11.7 million in the year ended December 31, 2001.

     Due to the agreement to satisfy our obligations to Foothill, we recorded a
loss of $2.0 million during the year ended December 31, 2002 to write-off the
remaining balance of the deferred financing costs related to this debt. In 2001,
we also wrote-off $2.6 million of debt issuance costs related to the 4 1/2%
subordinated convertible notes due to the notes being reclassified as a
liability subject to compromise.

     In September 2002, the Bankruptcy Court issued an order limiting the amount
of cash that could be disbursed to the participants in our deferred compensation
program, which was less than the recorded liability. We reported a $1.2 million
gain in the third quarter of 2002 as a result of reducing our liabilities
subject to compromise related to our deferred compensation program. The $1.2
million gain was offset by a $1.5 million loss on the write-off of prepaid
pension costs due to the termination of the Halter Marine Group defined benefit
plan in 2003.

  Discontinued Operations of Vessels Segment

     We recorded a loss from discontinued operations of our Vessels segment of
$12.5 million for the year ended December 31, 2002 as compared to a loss of
$13.2 million for the year ended December 31, 2001. We recorded a loss from
discontinued operations of our Vessels segment of $13.2 million for the year
ended December 31, 2001 as compared to income of $13.7 million for the year
ended December 31, 2000. The losses from discontinued operations in 2002 and
2001 are primarily the result of the sale of the higher margin repair business
in August 2000, overhead inefficiencies due to lower sales volume, losses
incurred on a contract to build a car carrier vessel and losses incurred on the
construction of an ocean going barge. The losses on these contracts were
primarily attributable to delays and disruption caused by our working capital
deficit prior to filing Chapter 11 bankruptcy.

     We recorded a loss on disposal of our Vessels segment of $37.5 million for
the year ended December 31, 2002 as a result of the sale of the Vessels segment
in October 2002.

  Discontinued Operations of Offshore Segment

     We recorded income from discontinued operations of our Offshore segment of
$8.2 million for the year ended December 31, 2002 as compared to a $20.8 million
loss for the year ended December 31, 2001 primarily due to an increase in the
reserve for obsolete inventories of $10.5 million and the recording of the
performance bank guarantee liability on the heavy derrick-lay barge contract in
2001. In addition, earnings on new repair and conversion projects were included
in the year ended December 31, 2002, most of which were not in progress in the
year ended December 31, 2001.

     We recorded a loss from discontinued operations of our Offshore segment of
$20.8 million for the year ended December 31, 2001 as compared to a loss of
$86.1 million from discontinued operations recorded for the year ended December
31, 2000. This $65.3 million decrease in loss from discontinued operations is
primarily the result of $69.6 million in losses recorded in 2000, including a
provision for future losses of $21.1 million, on a contract to construct two
semi-submersible drilling rigs for Ocean Rig ASA requiring increased estimated
man-hours to complete this project. The gross profit margin was also impacted by
an increase in the reserve for obsolete inventories of $10.5 million and the
recording of the performance bank guarantee liability on the heavy derrick-lay
barge contract in 2001.

     During the year ended December 31, 2001, we recorded a loss on disposal of
the Offshore segment in the amount of $22.0 million. This loss relates to the
write-down of $17.1 million on certain assets of the Offshore

                                       18

<PAGE>

segment to an amount equal to the debt owed to our secured lenders since we
intended to satisfy this debt by relinquishing control of the assets to our
lender. We also recorded a write-down of $4.9 million on the asset value of FGN
based on the estimated net proceeds that we would receive from the sale of this
facility.

     During the year ended December 31, 2002, we recorded a gain of $1.1 million
related to an adjustment on the sale of FGN and a gain of $11.4 million on the
sale of FGL. In addition, during the forth quarter of 2002, we recorded a $28.7
million write-down of the asset values of FGO and FGOT based on the proceeds
received from the sale of these facilities in January 2003 pursuant to an asset
purchase agreement entered into in November 2002.

Discontinued Operations of Engineered Products Segment

     We recorded income from discontinued operations of our Engineered Products
segment of $0.5 million for the year ended December 31, 2002 compared to income
of $7.3 million for the year ended December 31, 2001 primarily due to the sale
of its assets in April 2002. We recorded income from discontinued operations of
our Engineered Products segment of $7.3 million for the year ended December 31,
2001 compared to income of $11.1 million for the year ended December 31, 2000
primarily due to higher sales volumes in 2000.

     In 2001, we recorded a net loss of $26.0 million relating to the
disposition of our Engineered Products segment. This included a $16.0 million
gain on the sale of the BLM division in May 2001 offset by a loss on the sale of
the Amclyde division of $42.0 million. The sale of the Amclyde division was
completed on April 25, 2002.

     In 2002, we recorded a gain of $0.7 million related to an adjustment to the
sale of Amclyde.

  Income taxes

     We had income tax expense of $0.3 million in 2002 compared to $9.5 million
in 2001. As a result of losses incurred in prior years, we were not able to
record income tax benefits for financial reporting purposes during 2002. The
income tax expense recorded during the year ended December 31, 2001 related to
income generated by BLM and an increase in the valuation allowance on deferred
tax assets.

     We had income tax expense of $9.5 million in 2001 compared to an income tax
benefit of $21.0 million in 2000. As a result of losses recorded during the
fourth quarter of 2000 and during the year ended December 31, 2001, the benefits
available for financial reporting purposes were limited significantly. We have
recorded a valuation allowance which offsets substantially all of the deferred
tax assets arising from contract reserves and net operating loss carry-forwards
generated through the current period. The income tax expense recorded during the
year ended December 31, 2001 related to income generated by BLM and an increase
in the valuation allowance on deferred tax assets.

  Extraordinary Item

     During 2000, we recorded an extraordinary loss of $3.9 million related to
the write-offs of deferred loan costs associated with the portion of deferred
loan fees related to the previous credit facility which were written off when
the agreement was re-negotiated and restated in October 2000.

Liquidity and Capital Resources

  Overview

     As further described in the introduction section of Item 7, Management's
Discussion and Analysis, we filed a petition for relief under Chapter 11 of the
United States Bankruptcy Code in April 2001.

                                       19

<PAGE>

  Cash flow summary

     During the year ended December 31, 2002, we financed our business
activities through funds generated from cash balances, including those generated
through collections of accounts receivable, borrowings under the Restated Credit
Agreement and proceeds from the sale of assets of FGN, Amclyde, F&G Ltd., and
the Vessels segment.

     Net cash used in operating activities during 2002 was approximately $36.9
million including a net loss of $91.6 million for the twelve months ended
December 31, 2002 and a gain on termination of the deferred compensation plan of
$1.2 million, offset by non-cash depreciation and amortization of $13.8 million,
write-off of deferred financing costs of $2.0 million and termination of the
defined benefit plan of $1.5 million. Funds generated through operating
activities include a $6.4 million decrease in contract and other receivables and
a $2.8 million decrease in inventories. Funds used by operating activities
included a $7.6 million decrease in billings related to costs and estimated
earnings on uncompleted contracts, an $8.4 million decrease in liabilities
subject to compromise, and an $8.5 million decrease in accounts payable and
accrued liabilities. In addition, loss on disposal of the Vessels and Offshore
segments recorded during 2002 were $37.5 million and $16.2 million,
respectively. Gain on disposal of the Engineered Products segment was $0.7
million in 2002.

     Net cash provided by investing activities during 2002 was $95.4 million. We
generated cash of $123.7 million from the sale of business units including $62.7
million and $41.7 million related to the sale of the Vessels segment and
Engineered Products segment, respectively. In addition, $15.1 million and $4.2
million was received related to the sale of F&G Ltd and FGN, respectively.
During 2002, we paid $0.3 million for capital expenditures and received $0.2
million in proceeds from the sale of property, plant and equipment.
Additionally, restricted cash increased by $28.2 million primarily due to $6.0
million in cash collateral and a $14.4 million escrow account established in
2002 related to Foothill Capital Corporation. (See Note 3 of the Consolidated
Financial Statements for further detail.) The remaining increase in restricted
cash is primarily the result of the remaining proceeds from the sale of
divisions in 2002.

     Net cash used in financing activities during 2002 was $64.7 million.
Sources of cash included borrowings under debt facilities of $1.3 million. Funds
used in financing activities included net repayments under our line of credit of
$62.3 million and repayments on other debt facilities of $3.7 million.

     Net cash used in operating activities during 2001 was approximately $33.3
million including a net loss of $401.6 million for the twelve months ended
December 31, 2001 offset by non-cash depreciation and amortization of $32.3
million and goodwill impairment of $201.6 million. Funds generated through
operating activities include a $42.3 million decrease in contract and other
receivables and a $18.2 million increase in accounts payable and accrued
liabilities. Funds used by operating activities included a $17.0 million
decrease in billings related to costs and estimated earnings on uncompleted
contracts and a $36.4 million decrease in the reserve for uncompleted contracts.
Additionally, loss on disposal of the Engineered Products segment, discount on
convertible notes, and loss on disposal of Offshore segment were recorded in
2001 in the amounts of $26.0 million, $55.9 million, and $22.0 million,
respectively.

     Net cash provided by investing activities during 2001 was $6.8 million. We
generated cash of $26.6 million from the sale of our French subsidiaries;
however, use of these funds is restricted and subject to the approval of the
unsecured creditor's committee and/or an order of the Bankruptcy Court. These
funds were used to pay the professional fees and other administrative costs
related to our bankruptcy filing. During 2001, we paid approximately $4.0
million for capital expenditures.

     Net cash provided by financing activities during 2001 was $22.0 million.
Sources of cash included net borrowings under our line of credit of $22.8
million, borrowings under other debt facilities of $8.9 million, and repayments
on other debt facilities of $9.7 million.

  Restated Credit Agreement

     Effective October 24, 2000, we entered into a $110.0 million amended and
restated credit agreement with Foothill Capital Corporation ("Foothill"),
comprised of a $70.0 million line of credit and a $40.0 million term loan
(collectively, the "Restated Credit Agreement"). The Restated Credit Agreement
has a three-year term. The line of credit is secured by substantially all of our
otherwise unencumbered assets, including accounts receivable, inventory,

                                       20

<PAGE>

equipment, real property and all of the stock of our domestic subsidiaries. The
term loan is secured by a subordinated security interest in the line of credit
collateral.

     On October 29, 2002, the Bankruptcy Court entered an order authorizing us
to pay, upon the sale of the Vessels segment to Foothill approximately $64.0
million in undisputed principal and undisputed non-default rate interest, and to
provide $6.0 million in cash collateral to secure a letter of credit. An escrow
account of $14.4 million was also authorized to satisfy potentially disputed
charges, which include default interest and various fees that might be awarded
by the Bankruptcy Court. As of November 25, 2002, we had made all payments
required by the court order. Although the court order requires use of the escrow
account for payment of disputed charges, Foothill retains all of its liens on
our assets pending final resolution.

     Total balances outstanding under the Restated Credit Agreement at December
31, 2002 were $9.3 million, excluding $5.7 million in outstanding letters of
credit. The letter of credit was provided to secure our worker's compensation
obligations.

   Notes Payable to Financial Institutions

     Notes payable to financial institutions were $3.4 million at December 31,
2002 which includes $2.5 million in debt assumed by the buyer in connection with
the sale of the Offshore segment in January 2003.

   MARAD Financing Agreement

     As of December 31, 2002, we had approximately $19.9 million in outstanding
principal related to our demand notes payable to the U.S. Maritime
Administration ("MARAD"). The demand notes resulted from MARAD making payment
under its guarantee agreement to the holders of the bonds originally issued in
December 1997, under Title XI, to partially finance construction of the FGO East
Facility. Pursuant to the disposition of the Offshore segment in January 2003,
the debt owed to Marad was assumed by the buyer of the Offshore segment, and the
Company has no further obligations thereunder.

   Bonds Payable - Capital Public Finance Agreement

     The balance of the GE Capital Public Finance ("GEPF") debt at December 31,
2002 was $13.6 million. Pursuant to the disposition of the Offshore segment in
January 2003, the debt owed to GEPF was assumed by the buyer of the offshore
segment, and the Company has no further obligations thereunder.

   Notes Payable - GE Capital Corporation Debt

   The balance of the GE Capital Corporation ("GECC") debt at December 31,
2002 was $2.5 million. Pursuant to the disposition of the Offshore segment in
January 2003, the debt owed to GECC was assumed by the buyer of the Offshore
segment, and the Company has no further obligations thereunder.

   Liabilities Subject to Compromise

     The Company has liabilities subject to compromise of $346.0 million over
and above the previously discussed debt. These liabilities have resulted from
certain contractual matters and other claims asserted by creditors (as further
described in Notes 9, 13, 16, 17 and 19 of the Consolidated Financial
Statements). The Company has been notified that proofs of claims filed with the
Bankruptcy Court related to its Chapter 11 filing significantly exceed the
liabilities the Company has recorded. At December 31, 2002 and December 31,
2001, the Company accrued its estimate of the liability for the resolution of
these claims. This estimate has been developed in consultation with outside
counsel that is handling the bankruptcy and defense of these matters. To the
extent additional information arises or the Bankruptcy Court approves the proofs
of claims as filed, it is possible that the Company's estimate of its liability
in these matters may change. Management believes any change to the Company's
estimate will increase the balance of its liabilities subject to compromise.
Based upon an assessment of information currently

                                       21

<PAGE>

available, management believes that a reasonable estimate of the possible claims
that could be approved by the court could be as much as $575.0 million. There is
no assurance that either of these estimates will reflect the ultimate position
of the Bankruptcy Court. The amount of the awarded claim could be higher. (See
Note 12 of the Consolidated Financial Statements.)

Recently Issued Accounting Pronouncements

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." This statement provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation and amends the disclosure
requirement of SFAS No. 123, "Accounting for Stock-Based Compensation." This
statement is effective for fiscal years ending after December 15, 2002 and did
not have an impact on our financial condition or operating results. The
disclosure requirements are included in this report.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

     We are exposed to interest rate risk due to changes in interest rates,
primarily in the United States. Our policy is to manage interest rates through
the use of a combination of fixed and floating rate debt. We currently do not
use any derivative financial instruments to manage our exposure to interest rate
risk.

     The table below provides information about future maturities of principal
for our outstanding debt instruments and fair value at December 31, 2002. All
instruments described are non-trading instruments ($ in thousands). See Note 11
of the Consolidated Financial Statements for further discussion of the Company's
debt.

                                      December 31,
                                          2002
                                         ------
      Fixed rate debt:
          Fixed rate ................   $39,367
          Average interest rate .....      6.90%

      Variable rate debt:
           Variable rate: ...........   $ 9,345
           Average interest rate ....     LIBOR
                                           plus

Foreign Currency Risks

     Although the majority of our transactions were in U.S. dollars, FGN and FGF
conducted some of their operations in various foreign currencies. We currently
do not use any off balance sheet hedging instruments to manage risks associated
with our operating activities conducted in foreign currencies unless that
particular operation enters into a contract in a foreign currency which is
different than the local currency of the particular operation. In limited
circumstances and when considered appropriate, we will utilize forward exchange
contracts to hedge the anticipated purchases and/or sales. We have historically
used these instruments primarily in the manufacturing and selling of certain
marine deck equipment. We attempt to minimize our exposure to foreign currency
fluctuations by matching our revenues and expenses in the same currency for our
contracts. As of December 31, 2002, we do not have any outstanding forward
exchange contracts. FGN and FGF were sold in March 22, 2002 and May 23, 2001,
respectively.

ITEM 8. Financial Statements and Supplementary Data

     The information required by this Item 8 is contained in a separate section
of this report. See Consolidated Financial Statements in Item 14 of this report.

                                       22

<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 directors of the Company were elected at the annual meeting of
shareholders held on May 16, 2000 to serve as directors of our Company until the
annual meeting of stockholders in the year 2002 and until their respective
successors are duly elected and qualified. As a result of the cancellation of
such annual meeting until such future time as may be appropriate, no election of
directors of our Company will occur at this time. Our Executive Officers are
elected annually to serve for the ensuing year or until their successors have
been elected. The following table sets forth certain information with respect to
the directors and executive officers of the Company as of April 1, 2003:

                 DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY


<TABLE>
<CAPTION>
             Name               Age                        Position
      -------------------       ---     --------------------------------------------------
<S>                            <C>      <C>
      T. Jay Collins             56     Chief Executive Officer and Chairman of the Board
      Alan A. Baker              71     Director
      Angus R. Cooper, II        61     Director
      Barry J. Galt              69     Director
      Gary L. Kott               61     Director
      Raymond E. Mabus           54     Director
      Marilyn L. Cameron         53     Assistant Secretary
</TABLE>

     T. JAY COLLINS, age 56, has been Chief Executive Officer since June 4,
2002, Chairman of the Board since May 4, 2002 and Director since 1997. He is
currently the President of Oceaneering International, Inc., a position he has
held since November 1998. From May 1995 to November 1998, he served as Executive
Vice President of Oilfield Marine Service at Oceaneering International, Inc.
From 1993 to 1996, Mr. Collins served as Senior Vice President and Chief
Financial Officer of Oceaneering International, Inc., an applied technology
company providing services and products to the oil and gas industry.

     ALAN A. BAKER, age 71, has been a Director since 1997. Mr. Baker is the
retired Chairman of Halliburton Energy Services, an oil and gas service company,
a position he held from 1992 to 1995. He also served as the Chief Executive
Officer of Halliburton Energy Services Group from 1992 to 1993. Mr. Baker has
served as a consultant to Halliburton Company, a director of Noble Affiliates,
Inc., a worldwide oil and gas exploration and production company, Crestar
Energy, an oil and gas exploration and production company and Nova Technology, a
deepwater oil and gas service company.

     ANGUS R. COOPER, II, age 61, has been a Director since November 3, 1999.
Mr. Cooper served as a Director of Halter Marine Group, Inc. from April 1997
through the time of the merger with the Company. Mr. Cooper is Chairman of the
Board and Chief Executive Officer of Cooper/T. Smith Corporation, a stevedoring
company. He currently serves as a Director of Whitney National Bank. He also
serves on the Board of Trustees of the University of Alabama.

                                       23

<PAGE>

     BARRY J. GALT, age 69, has been a Director since November 3, 1999. Mr. Galt
was a director of Halter Marine Group, Inc. from November 1997 through the time
of the merger with the Company. Prior to his retirement on March 30, 1999, Mr.
Galt served since 1983 as Chairman and Chief Executive Officer of Ocean Energy,
Inc., formerly named Seagull Energy Corporation, a diversified energy company
engaged in oil and gas exploration and development. He is also a director of
Trinity Industries, Inc., a diversified industrial company, a director of
StanCorp Financial Corp., Inc., an insurance company, and a director of Dynegy,
Inc., a diversified energy company.

     GARY L. KOTT, age 61, has been a Director since March 1999. Mr. Kott has
served has a consultant in the private sector since July 1998. From April 1997
through June 1998, Mr. Kott served as Senior Vice President and Chief Financial
Officer of Global Marine, Inc., an international drilling contracting company.
Mr. Kott also is a director of Tesco Corporation, a drilling technology company
based in Calgary, Canada, and NS Group, Inc., a manufacturer of oilfield
tubulars.

     RAYMOND E. MABUS, age 54, has been a Director since 1997. Mr. Mabus has
served as President of Frontline Global Resources, a consulting company since
October 1998 and as Of Counsel to the law firm of Baker, Donelson, Bearman &
Caldwell since October 1996. Mr. Mabus also serves as a director of the
Kroll-O'Gara Company, a publicly-traded risk mitigation company and Foamex, Inc,
a publicly traded maker of foam.

     MARILYN CAMERON, age 53, has been Assistant Secretary of the Company since
October 2001 and was previously the Company's Director of Corporate Governance
since 1998.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

     Section 16(a) of the Securities Exchange Act of 1934 requires our executive
officers, directors and persons who own more than ten percent (10%) of the
Company's Common Stock to file initial reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). These reports are
also filed with the New York Stock Exchange and a copy of each report is
required to be furnished to us.

     In addition, SEC regulations require that the we identify any individuals
for whom one of the referenced reports was not filed on a timely basis during
the most recent fiscal year. To our knowledge, based solely on a review of the
reports furnished to us and written representations that no other reports were
required during and with respect to the year ended December 31, 2002, each
individual who was required to file such reports during the year complied with
the applicable filing requirements.

ITEM 11. Executive Compensation

   Cash Compensation

     The following table sets forth certain summary information for the prior
three years concerning the compensation earned by our current Chief Executive
Officer and Chairman of the Board (Mr. Collins), our former President and Chief
Executive Officer (Mr. Alford), our former President and Chief Executive Officer
(Mr. Stone, Jr.) and the four other most highly compensated individuals who
earned in excess of $100,000 and were employed by the Company on December 31,
2002 (Messrs. Shepherd, Schnoor, Cunningham and Haley).

                                       24

<PAGE>

                           Summary Compensation Table


<TABLE>
<CAPTION>
                                                                     Annual            Long-Term
         Name and Principal Position                              Compensation        Compensation
         ---------------------------                           -------------------    ------------
                                                                                      Stock Option
                                                                                         Awards           All Other
                                                        Year    Salary     Bonus        (Shares)       Compensation (1)
                                                        ----   ---------  --------    ------------     ----------------
<S>                                                     <C>    <C>        <C>         <C>              <C>
T. Jay Collins                                          2002   $      --  $     --              --       $      59,224
   Chief Executive Officer and                          2001   $      --  $     --              --       $      42,316
   Chairman of the Board (see note 2)                   2000   $      --  $     --              --       $      29,936

Jack R. Stone, Jr.                                      2002   $      --  $     --              --       $          --
   Former President and Chief                           2001   $      --  $     --              --       $          --
   Executive Officer   (see note 3)                     2000   $      --  $     --              --       $          --

John Alford                                             2002   $ 102,308  $     --              --       $      19,871
   Former President and Chief                           2001   $ 366,667  $     --              --       $       5,128
   Executive Officer (see note 4)                       2000   $ 399,449  $     --         250,000       $      48,770

Ronald W. Schnoor                                       2002   $ 216,050  $ 68,935(5)           --       $      30,044
   Group President--Offshore                            2001   $ 210,664  $     --              --       $       4,573
                                                        2000   $ 255,626  $     --              --       $       7,665

Robert Shepherd                                         2002   $ 216,250  $     --              --       $     232,693(6)
   Executive Vice-President                             2001   $ 191,543  $     --              --       $      31,502
                                                        2000   $      --  $     --              --

Chris Cunningham                                        2002   $ 110,000  $ 60,302(5)           --       $      17,349
   Chief Accounting Officer                             2001   $ 110,000  $     --              --       $      20,012
                                                        2000   $ 106,250  $ 24,134              --       $       7,647

John Haley                                              2002   $ 162,083  $ 26,358(5)           --       $     104,111
   President--Friede Goldman Offshore Texas             2001   $ 143,125  $     --              --       $          --
                                                        2000   $ 147,500  $     --              --       $          --
</TABLE>

(1)  All Other Compensation consists principally of the Company's deferred
     compensation payments, matching contributions to 401(k) Retirement Plan
     accounts, term life insurance premiums paid by the Company, automobile
     allowances, vacation pay and relocation expenses.

(2)  Mr. Collins' other compensation payments include director's fees.

(3)  Mr. Jack R. Stone, Jr., currently serving as the Chief Restructuring
     Advisor to FGH, was elected to the additional post of President and CEO
     effective April 5, 2002 though June 3, 2002. Mr. Stone, a principal of
     Glass & Associates, Inc., a nationally prominent management-consulting
     firm, has been advising the Board of Directors since October 2001 on
     restructuring matters. Payments to Glass & Associates, Inc. for Mr. Stone's
     compensation and restructuring services totaled $0.2 million for the period
     April 5, 2002 through June 3, 2002.

(4)  Effective April 4, 2002, Mr. Alford resigned as our President and Chief
     Executive Officer.

(5)  The amount represents bonus paid pursuant to a retention plan approved by
     the Bankruptcy Court.

(6)  Mr. Shepherd received a $200,000 payment upon the termination of his
     employment with Friede Goldman Newfoundland, when substantially all the
     assets of FGN were sold.

                                       25

<PAGE>

INCENTIVE AND OTHER EMPLOYEE BENEFIT PLANS

   Stock Options

     No stock options with respect to fiscal 2002 were granted to, or exercised
by, the executives named in the Summary Compensation Table.

   Employment Agreements

     John F. Alford. Mr. Alford resigned as our President and CEO effective
April 4, 2002. The following paragraphs describe his employment agreement as it
existed prior to his resignation.

     Mr. Alford's employment agreement, as amended on August 7, 2000, had a
three-year term ending August 7, 2003 and was subject to automatic annual
renewal beginning on the second anniversary of the effective date of the
agreement; provided that either Friede Goldman Halter or Mr. Alford, as the case
may be, could elect to terminate the agreement by providing the other party with
at least 90 days' written notice prior to any year, beginning with the second
anniversary of the effective date of the agreement.

     Mr. Alford received an annual base salary of at least $500,000 and was
eligible to participate in the annual bonus plan and earn an annual bonus in an
amount up to 150% of his annual base salary (as determined by the compensation
committee of the board of directors of Friede Goldman Halter). Mr. Alford also
received options to purchase 250,000 shares of the Company's common stock,
100,000 of which vested immediately with the remaining 150,000 options vesting
ratably over the next three years. In addition, Mr. Alford was eligible to
receive incentive compensation awards on a year-to-year basis.

     The failure of Friede Goldman Halter to extend the term of Mr. Alford's
employment agreement would have resulted in a severance payment. If Mr. Alford's
employment was terminated by Friede Goldman Halter without "cause" or Mr. Alford
resigns for "good reason," Mr. Alford would have been entitled to the same
severance benefits as provided to Mr. Holloway; provided, however, that Mr.
Alford would have been entitled to a lump sum cash payment of $750,000 and an
additional lump sum payment of up to $750,000 based on the fair market value of
his options at the date his employment terminated.

     For purposes of determining "good reason" in Mr. Alford's employment
agreement, "good reason" generally consisted of: (i) a material breach by Friede
Goldman Halter of the employment agreement; (ii) a diminution of his
responsibilities or title; (iii) a reduction in his base salary, annual bonus
opportunity, welfare plan benefits, fringe benefits or incentive plan benefits;
(iv) the failure of Friede Goldman Halter to pay any compensation to him when
due; (v) a substantial increase in his travel obligations; (vi) a relocation of
his workplace without accommodation by Friede Goldman Halter; (vi) failure by
Friede Goldman Halter to obtain a satisfactory agreement from a successor
company to assume the obligations under his employment agreements; and (vii)
termination of his employment without providing a notice of non-renewal of the
employment agreement.

     Under his employment agreement, Mr. Alford had non-solicitation and
non-competition obligations toward Friede Goldman Halter for a period of two
years following the effective date of the merger.

     The employment agreement for Mr. Alford also provided that in the event any
payments received by him under his employment agreement or under any other plan
of Friede Goldman Halter was subject to any excise tax imposed under Section
4999 of the Internal Revenue Code of 1986 or any other similar tax or
assessment, Friede Goldman Halter would pay Mr. Alford the amount necessary to
fully reimburse him for these excise taxes or assessments.

     In exchange for a waiver and release of amounts owing, if any, under his
employment agreement, and other consideration and pursuant to an order of the
Bankruptcy Court entered on December 23, 2002, Mr. Alford received vacation pay
in the amount of $17,307, additional salary in the amount of $75,000 and
benefits valued at $1,416. Pursuant to the Order, Mr. Alford was also paid
$19,000 on account of his share of funds paid into the Friede Goldman Halter,
Inc. deferred Compensation Plan.

                                       26

<PAGE>

     Ronald W. Schnoor. Mr. Schnoor resigned from the Company in January 2003.
The following paragraphs describe his employment agreement as it existed before
Mr. Schnoor waived his rights pursuant to it by agreeing to participate in the
Debtor's Retention and Incentive Program.

     Mr. Schnoor's employment agreement had a term of three years provided that
on the second anniversary of the completion of the merger and on each
anniversary of this date, the term of the agreement would be automatically
extended for one year. Either Friede Goldman Halter or Mr. Schnoor could elect
to terminate the agreement by providing the other party with at least six
months' written notice prior to each anniversary of the completion of the
merger.

     The employment agreement provided for an annual base salary of $256,000,
subject to increases in the discretion of the compensation committee. Mr.
Schnoor's employment agreement could be terminated at any time by Friede Goldman
Halter for "cause" ten days after written notice was provided to Mr. Schnoor.
Upon termination, Mr. Schnoor would not have been entitled to severance
compensation. "Cause" was defined to include a material and irreparable breach
of the agreement, gross negligence or a willful failure by Mr. Schnoor in
performing his material duties under the employment agreement, acts of
dishonesty or misconduct which had an adverse effect on Friede Goldman Halter, a
conviction of or plea of nolo contendere to a felony crime involving moral
turpitude, or chronic alcohol abuse or illegal drug abuse.

     If Mr. Schnoor's employment was terminated by Friede Goldman Halter without
"cause" or he resigned for "good reason" (as defined below), he would be
entitled to receive a lump-sum payment equal to one year's base salary at the
rate in effect at that time. If Mr. Schnoor resigned his employment without
"good reason," he would have received no severance compensation. Upon
termination for any reason, Mr. Schnoor would have been entitled to receive all
compensation earned and all vested benefits and reimbursements through the
effective date of his termination.

     "Good Reason" was defined in Mr. Schnoor's employment agreement to consist
of a material breach by Friede Goldman Halter of the employment agreement
occurring during the 30-day period preceding the date written notice of
termination for good reason was provided to Friede Goldman Halter which was not
remedied by Friede Goldman Halter within 30 days after receipt of the notice.

     Under his employment agreement, Mr. Schnoor had non-solicitation and
non-competition obligations toward Friede Goldman Halter for a period of one
year following any termination of his employment.

     Mr. Schnoor was entitled to receive $156,878.00 under the Company's
Retention and Incentive Program, $19,008 of which amount constituted his pro
rata share of the funds held by the Friede Goldman Halter, Inc. Deferred
Compensation Program. Mr. Schnoor received one-half of the total amount in 2002.
The R&I Program, the purpose of which was to provide an incentive pool for
certain employees of the Company, was approved by Order of the Bankruptcy Court
entered on June 26, 2002.

Additional Information with Respect to Compensation Committee Interlocks and
Insider Participation in Compensation Decisions

     None.

Report of the Compensation Committee on Executive Compensation; Retention and
Incentive Plan

     The following report is submitted by the Compensation Committee for
inclusion in this annual report pursuant to the rules of the Securities and
Exchange Commission with respect to Executive Compensation:

     The Compensation Committee (the "Committee"), subject to direction from the
Board of Directors, determines the general compensation policies of the Company,
determines the compensation to be paid to certain officers and certain other
persons in senior management positions and administers the Company's Stock
Option Plan. The Committee is composed of three directors consisting of T. Jay
Collins, Angus R. Cooper II, and Raymond E. Mabus.

                                       27

<PAGE>

     Retention and Incentive Plan

     During the year ended December 31, 2002, the principal objective of the
Company's compensation policy was to retain executives and other employees
needed to continue the Company's operations until its operating divisions were
sold or reorganized. Toward this end, the Company adopted a retention and
incentive plan involving cash payments during the 2002 and 2003 calendar years
in order to retain the services of Company personnel. The retention and
incentive plan was developed with the assistance of the Company's restructuring
consulting firm, and was approved by the Company's compensation committee and by
the Bankruptcy Court. No long-term compensation was granted to Company employees
last year.

     Policy on Deductibility of Compensation

     Section 162(m) of the Internal Revenue Code of 1986 limits the
deductibility for federal income taxes of compensation in excess of $1 million
paid to a publicly held company's chief executive officer and any of the other
four highest-paid executive officers, except for "performance-based"
compensation. The Committee is aware of this limitation and intends to consider
the effects of Section 162(m) on the Company when making compensation decisions.

                                        Compensation Committee

                                        T. Jay Collins, Member
                                        Raymond E. Mabus, Member
                                        Angus R. Cooper, II, Member


                                       28

<PAGE>


Performance Table

     The following table shows a comparison of cumulative return (assuming
reinvestment of any dividends) for the Company, the Standard & Poor's Small Cap
600 Index (the "S&P Small Cap Index") and the Philadelphia Stock Exchange, Inc.
Oil Services Index (the "OSXIndex"). Since there is no widely recognized
standard industry group comprising the Company and peer companies, the peer
groups are composed of companies which have one or more products that compete
with products of the Company and are believed by the Company to be companies
that analysts frequently use to compare with an investment in the Company. The
information contained in this table was prepared by Research Data Group, Inc.

<TABLE>
<CAPTION>
--------------------------------------- ------------ ----------- ----------- ----------- ----------- -----------
                                           1997         1998        1999        2000        2001        2002
--------------------------------------- ------------ ----------- ----------- ----------- ----------- -----------
<S>                                      <C>          <C>         <C>         <C>        <C>          <C>
Friede Goldman Halter, Inc.                 $100.00      $38.08      $23.22      $11.92       $0.64      $0.003
--------------------------------------- ------------ ----------- ----------- ----------- ----------- -----------
Oilfield Service Index                       100.00       51.42       68.98       95.20       67.03       62.36
--------------------------------------- ------------ ----------- ----------- ----------- ----------- -----------
S&P Small Cap 600                            100.00       98.69      110.94      124.03      132.14      112.81
--------------------------------------- ------------ ----------- ----------- ----------- ----------- -----------
</TABLE>

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and
         Related Stockholder Matters

     The following table shows the number of shares of Common Stock beneficially
owned by each director; by our Chief Executive Officer; by each of our executive
officers named in the "Summary Compensation Table"; by all directors and
executive officers (12 persons) as a group; and by such persons known to us to
own beneficially more than five percent (5%) of our outstanding Common Stock.

                                       29

<PAGE>

     The information set forth in the following table, except where indicated,
is as of March 31, 2003 and, is based upon information supplied or confirmed by
the named individuals:

<TABLE>
<CAPTION>
                                                              Number of
                                                               Shares
                                                            Beneficially    Percent
                         Name                                 Owned(1)      of Class
      -----------------------------------------------       ------------    --------
      <S>                                                   <C>             <C>
      T. Jay Collins ................................            20,333         *
      Jack R. Stone, Jr. ............................                --         --
      John F. Alford(2) .............................            92,050        0.2%
      Angus R. Cooper II ............................             8,333         *
      Barry J. Galt .................................             8,333         *
      Gary L. Kott ..................................             9,333         *
      Raymond E. Mabus ..............................            17,333         *
      Alan A. Baker .................................            16,333         *
      Ronald W. Schnoor .............................           610,262        1.3%
      Robert Shepherd ...............................            33,652        0.1%
      John Haley ....................................                --         --
      Chris Cunningham ..............................                --         --
      Directors and Executive Officers as a Group ...            815,962       1.6%
</TABLE>

     *  Less than one percent (1%).

     Unless otherwise noted, all shares are owned directly and the owner has the
right to vote the shares.

     (1) Includes shares which the individual has the right to acquire by March
31, 2003 pursuant to exercise of options granted under the Company's Stock
Option Plan: Mr. Baker (16,333 shares), Mr. Collins (16,333 shares), Mr. Cooper
(8,333 shares), Mr. Galt (8,333 shares), Mr. Kott (9,333 shares), Mr. Mabus
(17,333 shares), Mr. Schnoor (25,000 shares), Mr. Shepherd (33,652 shares),
Directors and Executive Officers as a Group (134,650 shares).

     (2) Mr. Alford's shares in the amount of 92,050 are as of both the
effective date of his resignation, April 4, 2002 and March 31, 2003.

ITEM 13. Certain Relationships and Related Transactions

     None.

ITEM 14. Controls and Procedures

     (a) Evaluation of Disclosure Controls and Procedures

     Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based upon that evaluation, the
Company's management, including the Chief Executive Officer and Chief Financial
Officer, concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in the
Company's periodic SEC filings.

                                       30

<PAGE>

     (b)  Changes in Internal Controls

     There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.

                                     PART IV

ITEM 15  Exhibits, Financial Statement Schedules and Reports on Form 8-K

     (a)(1) Financial Statements

     The Consolidated Financial Statements listed by the Registrant on the
accompanying Index to Consolidated Financial Statements are filed as part of
this Annual Report. (See page 1).

     (a)(2) Financial Statement Schedules

     The required information is included in the Consolidated Financial
Statements or Notes thereto.

     (a)(3) Exhibits

Exhibits

   Exhibit
   No.                                    Description
   -------             ---------------------------------------------------

     *10.1    Amended and Restated Certificate of Incorporation, dated February
              28, 1997 (filed as Exhibit 3.1 to the Company's Form S-1 dated May
              22, 1997 and incorporated herein by reference).

     *10.2    Bylaws, dated February 28, 1997 (filed as Exhibit 3.2 to the
              Company's Form S-1, dated May 22, 1997, and incorporated herein by
              reference).

     *10.3--  Amended and Restated Loan and Security Agreement, dated October
              24, 2000, by and among Friede Goldman Halter, Inc. and each of its
              subsidiaries as signatories thereto and Foothill Capital
              Corporation, as arranger and administrative agent (Filed as
              Exhibit 10.1 to the Company's Form 10-Q, dated November 14, 2000,
              and incorporated herein by reference)

     *10.4    Amendment No. 1, dated December 1999, to Credit Agreement, among
              Friede Goldman Halter, Inc. and Wells Fargo Bank (Texas) National
              Association, as administrative agent and co-arranger, Banc One
              Capital Markets, Inc. as co-arranger and syndication agent, and
              the lenders party thereto (filed as Exhibit 10.2 to the Company's
              Form 10-K, dated March 30, 2000, and incorporated hereby
              reference)

     *10.5--  Amendment No. 2, dated March 28, 2000, to Credit Agreement, among
              Friede Goldman Halter, Inc. and Wells Fargo Bank (Texas) National
              Association, as administrative agent and co-arranger, Banc One
              Capital Markets, Inc., as co-arranger and syndication agent, and
              the lenders party thereto (filed as Exhibit 10.1 to the Company's
              Form 10-Q, dated May 15, 2000, and incorporated herein by
              reference)

     *10.6--  Amendment No. 3, dated June 9, 2000, to Credit Agreement, among
              Friede Goldman Halter, Inc. and Wells Fargo Bank (Texas) National
              Association, as administrative agent and co-arranger, Bank One
              Capital Markets, Inc. as co-arranger and syndication agent, and
              the lenders party thereto (filed as Exhibit 10.1 to the Company's
              Form 10-Q, dated August 14, 2000, and incorporated herein by
              reference)

                                       31

<PAGE>


     *10.7--  Amendment No. 4 to Title XI Reserve Fund and Financial Agreement,
              dated October 27, 2000, between Friede Goldman Offshore, Inc. and
              the United States of America, represented by the Secretary of
              Transportation acting by and through the Maritime Administrator
              pursuant to the provisions of Title XI of the Merchant Marine Act,
              1936, as Amended. (Filed as Exhibit 10.6 to the Company's Form
              10-K405, dated April 2, 2001, and incorporated herein by
              reference)

     *10.8--  Asset Purchase Agreement, dated February 15, 2002, between Friede
              Goldman Halter, Inc. and Hydralift ASA (filed as Exhibit 10.9 to
              the Company's Form 10-K, dated April 16, 2002, and incorporated
              herein by reference).

     *10.9--  Amendment No. 1 to Asset Purchase Agreement, dated March 14, 2002,
              between Friede Goldman Halter, Inc. and Hydralift ASA (filed as
              Exhibit 10.10 to the Company's Form 10-K, dated April 16, 2002,
              and incorporated herein by reference)

    *10.10--  Asset Purchase Agreement, dated March 14, 2002, between Friede
              Goldman Halter, Inc. and FGL Acquisitions, LLC (filed as Exhibit
              10.11 to the Company's Form 10-K, dated April 16, 2002, and
              incorporated herein by reference)

    *10.11--  Asset Purchase Agreement, dated March 22, 2002, between Friede
              Goldman Newfoundland, Limited and Peter Kiewit Sons Co. LTD (filed
              as Exhibit 10.12 to the Company's Form 10-Q, dated May 15, 2002,
              and incorporated herein by reference)

    *10.12--  Asset Purchase Agreement, dated May 20, 2002, between Friede
              Goldman Halter, Inc. and Bollinger Shipyards, Inc. (filed as
              Exhibit 10.13 to the Company's Form 10-Q, dated August 14, 2002,
              and incorporated herein by reference)

    *10.13--  Asset Purchase Agreement, dated July 23, 2002, between Friede
              Goldman Halter, Inc. and Vision Technologies Kinetics, Inc. (filed
              as Exhibit 10.14 to the Company's Form 10-Q, dated August 14,
              2002, and incorporated herein by reference)

    *10.14--  Amendment #1 to the Asset Purchase Agreement, dated June 21, 2002,
              between Friede Goldman Halter, Inc. and Bollinger Shipyards, Inc.
              (filed as Exhibit 10.15 to the Company's Form 10-Q, dated August
              14, 2002, and incorporated herein by reference)

    *10.15--  Amendment #2 to the Asset Purchase Agreement, dated June 21, 2002,
              between Friede Goldman Halter, Inc. and Bollinger Shipyards, Inc.
              (filed as Exhibit 10.16 to the Company's Form 10-Q, dated August
              14, 2002, and incorporated herein by reference)

    *10.16--  Amendment #1 to the Asset Purchase Agreement, dated July 23, 2002,
              between Friede Goldman Halter, Inc. and Vision Technologies
              Kinetics, Inc. (filed as Exhibit 10.17 to the Company's Form 10-Q,
              dated August 14, 2002, and incorporated herein by reference)

    *10.17--  Amendment #2 to the Asset Purchase Agreement, dated July 23, 2002,
              between Friede Goldman Halter, Inc. and Vision Technologies
              Kinetics, Inc. (filed as Exhibit 10.18 to the Company's Form 10-Q,
              dated August 14, 2002, and incorporated herein by reference)

    *10.18--  Amendment #3 to the Asset Purchase Agreement, dated October 4,
              2002, between Friede Goldman Halter, Inc. and Vision Technologies
              Kinetics, Inc. (filed as Exhibit 10.19 to the Company's Form 10-Q,
              dated February 11, 2002, and incorporated herein by reference)

    *10.19--  Amendment #4 to the Asset Purchase Agreement, dated October 23,
              2002, between Friede

                                       32

<PAGE>

              Goldman Halter, Inc. and Vision Technologies Kinetics, Inc. (filed
              as Exhibit 10.20 to the Company's Form 10-Q, dated February 11,
              2002, and incorporated herein by reference)

   **10.20--  Asset Purchase Agreement, dated November 14, 2002, between Friede
              Goldman Halter, Inc. and ACON Offshore Partners.

   **10.21--  Amendment #1 to Asset Purchase Agreement, dated January 29, 2003,
              between Friede Goldman Halter, Inc. and ACON Offshore Partners.

   **10.23--  John Alford Employment Termination Agreement

   **10.24--  Ron Schnoor Employee Retention and Incentive Agreement

   **10.25--  Chris Cunningham Employee Retention and Incentive Agreement

   **10.26--  John Haley Employee Retention and Incentive Agreement

    **21.1--  Subsidiaries of Friede Goldman Halter, Inc.

    **23.0--  Consent of Ernst & Young LLP

    **99.1    CEO Certification

  *  Previously filed.

**   Filed herewith.

     (b) Reports on 8-K

     The Company filed Current Reports on From 8-K on the following dates:

        November 26, 2002
        October 29, 2002

                                       33

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Friede Goldman Halter, Inc.

     We have audited the accompanying consolidated balance sheets of Friede
Goldman Halter, Inc. and Subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the three years in the period ended December 31,
2002. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Friede Goldman
Halter, Inc. and Subsidiaries at December 31, 2002 and 2001, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002 ended in conformity with
accounting principles generally accepted in the United States.

     The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As more fully described
in Note 2 to the consolidated financial statements, the Company had substantial
losses in each of the three years in the period ended December 31, 2002 and had
deficiency in assets at December 31, 2002. Further, on April 19, 2001, the
Company elected to file a voluntary petition for reorganization under Chapter 11
of the United States Bankruptcy Code. On March 22, 2002, the Company filed a
Plan of Reorganization (the Plan) with the United States Bankruptcy Court (the
Court). After the Plan was filed, the Company sold substantially all of its
operating assets. There can be no assurance that the Plan, including any
amendments thereto, will be approved by the Court, or that the Company will
continue to operate in some form. It is not possible to assess the outcome of
the Company's bankruptcy proceeding or whether the Company will operate in
accordance with the Plan, if approved. The outcome of these uncertainties raises
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of these
uncertainties.

                                                ERNST & YOUNG LLP

New Orleans, Louisiana
March 26, 2003

                                       34

<PAGE>
                  FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                                  ----------------------
                                                                                      2002       2001
                                                                                  ----------  ----------
<S>                                                                               <C>         <C>
                                     ASSETS

 Current assets:
    Cash and cash equivalents ..................................................  $   14,453  $   20,403
    Restricted cash ............................................................      56,107      27,870
    Receivables, net:
      Contract receivables .....................................................       7,442      23,705
      Other receivables ........................................................       1,346         526
    Income tax receivable ......................................................          --         206
    Inventories, net ...........................................................       4,067      17,580
    Costs and estimated earnings in excess of billings on uncompleted
      contracts ................................................................       5,074      16,557
    Prepaid expenses and other .................................................       8,403      11,625
    Deferred income tax asset ..................................................          --      25,353
                                                                                  ----------  ----------
         Total current assets ..................................................      96,892     143,825
 Property, plant and equipment, net of accumulated depreciation. ...............          --     155,458
 Long-lived assets held for disposition ........................................      49,284      56,930
 Other assets ..................................................................         948       5,408
                                                                                  ----------  ----------
         Total assets ..........................................................  $  147,124  $  361,621
                                                                                  ==========  ==========

                     LIABILITIES AND STOCKHOLDERS' DEFICIT

 Current liabilities:
    Accounts payable  ..........................................................  $   10,705  $   13,948
    Accrued liabilities. .......................................................      23,655      23,976
    Billings in excess of costs and estimated earnings on uncompleted
      contracts ................................................................       3,127      15,124
    Debt .......................................................................      48,712     115,355
                                                                                  ----------  ----------
         Total current liabilities  ............................................      86,199     168,403
 Liabilities subject to compromise .............................................     346,015     360,697
 Deferred income tax liability .................................................          --      25,867
 Stockholders' deficit:
    Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares
      issued and outstanding ...................................................          --          --
    Common stock, $0.01 par value; 125,000,000 shares authorized;
      48,710,579 and 48,708,979 shares issued and outstanding at December
      31, 2002 and 2001, respectively ..........................................         487         487
    Additional paid-in capital  ................................................     299,357     299,357
    Retained deficit  ..........................................................    (581,071)   (489,458)
    Accumulated other comprehensive loss .......................................      (3,863)     (3,732)
                                                                                  ----------  ----------
         Total stockholders' deficit ...........................................    (285,090)   (193,346)
                                                                                  ----------  ----------
         Total liabilities and stockholders' deficit  ..........................  $  147,124  $  361,621
                                                                                  ==========  ==========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       35

<PAGE>

                  FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                      For the Years Ended December 31,
                                                                     ----------------------------------
                                                                        2002        2001         2000
                                                                     ---------   ----------   ---------
<S>                                                                  <C>         <C>          <C>
Revenues ..........................................................  $      --   $       --   $      --
Selling, general and administrative expenses ......................      9,590       18,236      24,564
Goodwill amortization .............................................         --       11,153       7,524
Goodwill impairment ...............................................         --      201,622          --
                                                                     ---------   ----------   ---------
Operating loss ....................................................     (9,590)    (231,011)    (32,088)
                                                                     ---------   ----------   ---------
Other expense (income):
     Interest expense, net (contractual interest of  $18,186
       and $21,825 for the years ended December 31, 2002
       and 2001, respectively) ....................................      9,826       15,913      30,242
     Discount on convertible subordinated notes ...................         --       54,878          --
     Other ........................................................       (116)          --          --
                                                                     ---------   ----------   ---------
            Total other expense ...................................      9,710       70,791      30,242
                                                                     ---------   ----------   ---------
Loss before reorganization items, discontinued operations,
  income taxes and extraordinary item .............................    (19,300)    (301,802)    (62,330)
Reorganization items:
     Professional fees ............................................     12,911       11,691          --
     Loss on investment in unconsolidated subsidiary ..............         --        1,371          --
     Write-off of deferred financing costs ........................      1,971        2,618          --
     Loss on termination of employee benefit plans ................        339           --          --
                                                                     ---------   ----------   ---------
            Total reorganization items ............................     15,221       15,680          --
                                                                     ---------   ----------   ---------
Loss before discontinued operations, income taxes and
  extraordinary item ..............................................    (34,521)    (317,482)    (62,330)
Income tax expense (benefit) ......................................        251        9,510     (21,042)
                                                                     ---------   ----------   ---------
Loss before discontinued operations and extraordinary item ........    (34,772)    (326,992)    (41,288)
Discontinued operations:
     Income (loss) from operations of Vessels segment .............    (12,465)     (13,202)     13,747
     Loss on disposal of Vessels segment ..........................    (37,527)          --          --
     Income (loss) from operations of Offshore segment ............      8,164      (20,816)    (86,093)
     Loss on disposal of Offshore segment .........................    (16,230)     (21,951)         --
     Income from operations of Engineered Products segment ........        497        7,337      11,116
     Gain (loss) on disposal of Engineered Products segment .......        720      (25,983)         --
                                                                     ---------   ----------   ---------
            Total discontinued operations .........................    (56,841)     (74,615)    (61,230)
                                                                     ---------   ----------   ---------
Net loss before extraordinary item ................................    (91,613)  $ (401,607)   (102,518)
Extraordinary loss ................................................         --           --      (3,853)
                                                                     ---------   ----------   ---------
Net loss ..........................................................  $ (91,613)  $ (401,607)  $(106,371)
                                                                     =========   ==========   =========
Net loss per share, basic and diluted:
     Net loss before discontinued operations and extraordinary
       item .......................................................  $   (0.71)  $    (6.71)  $   (0.93)
     Discontinued operations ......................................      (1.17)       (1.54)      (1.37)
     Extraordinary loss ...........................................         --           --       (0.09)
                                                                     ---------   ----------   ---------
     Net loss .....................................................  $   (1.88)  $    (8.25)  $   (2.39)
                                                                     =========   ==========   =========
 Weighted average shares outstanding:
     Basic ........................................................     48,711       48,711      44,562
     Diluted ......................................................     48,711       48,711      44,562
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       36

<PAGE>

                  FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                              Accumulated
                                                                                              -----------
                                                           Additional   Retained                 Other
                                                           ----------   --------                 -----
                                          Common Stock       Paid-In    Earnings    Treasury  Comprehensive
                                        ----------------     -------    --------    --------  -------------
                                        Number    Amount     Capital    (Deficit)     Stock   Income(Loss)       Total
                                        ------    ------   ----------   ---------   --------  -------------   ----------
<S>                                     <C>       <C>      <C>          <C>         <C>       <C>             <C>
Balance, December 31, 1999 ...........  39,973    $  400   $  230,166   $  18,520    $   --      $   ( 965)   $  248,121
Comprehensive loss:
  Net loss ...........................      --        --           --    (106,371)       --             --      (106,371)
  Other comprehensive loss:
     Net change in foreign currency
       translation adjustment ........      --        --           --          --        --         (1,228)       (1,228)
                                        ------    ------   ----------   ---------   --------  -------------   ----------
Total comprehensive loss .............                                                                          (107,599)
Stock options exercised ..............       3        --            5          --        --             --             5
Stock issuance .......................   8,750        87       69,378          --        --             --        69,465
Purchase of treasury stock ...........      --        --           --          --      (199)            --          (199)
Retirement of treasury stock .........     (17)       --         (199)         --       199             --            --
                                        ------    ------   ----------   ---------   --------  -------------   ----------
Balance, December 31, 2000 ...........  48,709       487      299,350     (87,851)       --         (2,193)      209,793
  Net loss ...........................      --        --           --    (401,607)       --             --      (401,607)
  Other comprehensive loss:
    Net change in foreign currency
       translation adjustment ........      --        --           --          --        --         (1,539)       (1,539)
                                        ------    ------   ----------   ---------   --------  -------------   ----------
Total comprehensive loss .............      --        --           --          --        --                     (403,146)
Stock options exercised ..............       2        --           --          --        --             --            --
Stock issuance .......................      --        --            7          --        --             --             7
                                        ------    ------   ----------   ---------   --------  -------------   ----------
Balance, December 31, 2001 ...........  48,711       487      299,357    (489,458)       --         (3,732)     (193,346)
  Net loss ...........................      --        --           --     (91,613)       --             --       (91,613)
  Other comprehensive loss:
    Net change in foreign currency
       translation adjustment ........      --        --           --          --        --           (131)         (131)
                                        ------    ------   ----------   ---------   --------  -------------   ----------
Total comprehensive loss .............      --        --           --     (91,613)       --           (131)      (91,744)
                                        ------    ------   ----------   ---------   --------  -------------   ----------
Balance, December 31, 2002 ...........  48,711    $  487   $  299,357   $(581,071)   $   --      $  (3,863)   $ (285,090)
                                        ======    ======   ==========   =========   ========  =============   ==========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       37

<PAGE>

                  FRIEDE GOLDMAN HALTER, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                      For the Years Ended December 31,
                                                                                  ----------------------------------------
                                                                                     2002          2001            2000
                                                                                  ---------     ----------      ----------
<S>                                                                               <C>           <C>             <C>
Cash flows from operating activities:
   Net loss ....................................................................  $ (91,613)    $ (401,607)     $ (106,371)
   Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization .............................................     13,807         32,349          39,578
     Goodwill impairment .......................................................         --        201,622              --
     Extraordinary loss ........................................................         --             --           3,853
     Provision for losses ......................................................         --             25          74,364
     Loss on investment in unconsolidated subsidiary ...........................         --          1,371              --
     Loss on termination of employee benefit plans .............................        339             --              --
     Write-off of deferred financing costs .....................................      1,971          2,618              --
     Loss on disposal of segments ..............................................     53,036         47,933              --
     Discount on convertible notes .............................................         --         55,883              --
     (Gain) loss on sale of assets .............................................         65           (145)             --
     Other non-cash changes ....................................................         --             28             221
     Deferred income taxes .....................................................        140         10,373         (17,962)
     Changes in operating assets and liabilities:
       Decrease in contract and other receivables ..............................      6,364         42,344          56,584
       Decrease in income tax receivable .......................................        206            385          38,066
       (Increase) decrease in inventories ......................................      2,803         10,866          (3,357)
       Net increase (decrease) in billings related to costs and
         estimated earnings on uncompleted contracts............................     (7,601)       (17,049)         50,184
       (Increase) decrease in other assets .....................................        452         (2,015)         (6,322)
       Increase in reinsurance receivables .....................................         --             --              --
       Increase in non-current liabilities .....................................         --             --          19,376
       Decrease in liabilities subject to compromise ...........................     (8,400)            --              --
       Increase (decrease) in accounts payable and accrued liabilities .........     (8,493)        18,168        (106,479)
       Decrease in reserve for losses on uncompleted contracts .................         --        (36,416)        (95,502)
                                                                                  ---------     ----------      ----------
         Net cash used in operating activities .................................    (36,924)       (33,267)        (53,767)
                                                                                  ---------     ----------      ----------
 Investing activities:
   Capital expenditures for plant and equipment ................................       (340)        (4,039)         (5,578)
   Proceeds from sale of business units ........................................    123,720         26,559          80,755
   Proceeds from sale of unconsolidated subsidiary .............................         --             --          13,035
   Proceeds from sale of property, plant and equipment .........................        207          2,302           7,601
   Restricted cash .............................................................    (28,237)       (17,998)             --
                                                                                  ---------     ----------      ----------
         Net cash provided by  investing activities ............................     95,350          6,824          95,813
                                                                                  ---------     ----------      ----------
 Financing activities:
   Proceeds from sale and issuance of stock ....................................         --             --          69,470
   Repayments on borrowings under debt facilities ..............................     (3,670)        (9,713)        (50,267)
   Net borrowings (repayments) under line of credit ............................    (62,286)        22,781         (61,987)
   Proceeds from borrowings under debt facilities ..............................      1,256          8,881          11,244
   Purchase of treasury stock ..................................................         --             --            (199)
                                                                                  ---------     ----------      ----------
         Net cash provided by (used in) financing activities ...................    (64,700)        21,949         (31,739)
                                                                                  ---------     ----------      ----------
   Effect of exchange rate changes on cash .....................................        324           (347)           (187)
                                                                                  ---------     ----------      ----------
   Net increase (decrease) in cash and cash equivalents ........................     (5,950)        (4,841)         10,120
   Cash and cash equivalents at beginning of year ..............................     20,403         25,244          15,124
                                                                                  ---------     ----------      ----------
   Cash and cash equivalents at end of year ....................................  $  14,453     $   20,403      $   25,244
                                                                                  =========     ==========      ==========
 Supplemental disclosures:

   Cash paid for interest ......................................................  $  10,544     $   12,305      $   23,511
   Cash refunds received for income taxes ......................................  $     692     $      271      $   42,344
   Cash paid for income taxes ..................................................  $      --     $      385      $    1,446
 Cash flows from operating activities before reorganization items:
   Cash receipts from customers ................................................  $ 163,653     $   73,628      $       --
   Cash payments to vendors, suppliers and employees ...........................  $ 183,906     $   69,149      $       --

 Non-cash investing activities:
   Acquisitions:
     Fair value of assets acquired and subsequent adjustments ..................  $      --        $    --      $   (4,139)
     Fair value of liabilities assumed and subsequent adjustments ..............  $      --        $    --      $   93,930
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                       38

<PAGE>

                           FRIEDE GOLDMAN HALTER, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

     On November 3, 1999, Friede Goldman International, Inc. ("FGI") merged with
Halter Marine Group, Inc. ("HMG") with FGI continuing as the surviving
corporation. Effective with the merger, the corporate name was changed to Friede
Goldman Halter, Inc. ("FGH"). FGH is incorporated under the laws of the State of
Mississippi. The consolidated financial statements include the accounts of FGH,
Inc. and its wholly-owned subsidiaries, including, among others, Friede Goldman
Offshore, Inc. ("FGO"), Friede & Goldman, Ltd. ("FGL"), Friede Goldman
Newfoundland Limited ("FGN"), Friede Goldman France S.A.S. ("FGF"), Amclyde
Engineered Products Inc. ("Amclyde") and Halter Marine, Inc.
("Halter")(collectively referred to as the "Company"). These consolidated
financial statements include the accounts of FGF for all periods through its
sale date of May 22, 2001, FGN for all periods through its sale date of March
22, 2002, Amclyde for all periods through its sale date of April 25, 2002, FGL
for all periods through its sale date of June 30, 2002, and HMG for all periods
through its sale date of October 23, 2002. All significant intercompany accounts
and transactions have been eliminated.


2. Voluntary Filing under Chapter 11 of the United States Bankruptcy Code

     The Company incurred substantial operating losses during 2000 and the first
quarter of 2001 and had a working capital deficit of $140.4 million and $343.9
million at December 31, 2000 and March 31, 2001, respectively. On April 13,
2001, the Company received a Notice of Continuing Events of Default and Demand
for Payment (the "Notice") from Foothill Capital Corporation, as agent for
itself and another lender under the Restated Credit Agreement, which demanded
the immediate payment of $85.7 million plus interest and various other costs,
within five days of the Notice. Further, the Company did not pay the $4.2
million interest payment due on March 15, 2001, on the Company's outstanding 4
1/2% convertible subordinated notes due in 2004 (the "Subordinated Notes") in
the principal amount of $185.0 million which resulted in the entire principal
amount becoming immediately callable. The Company's inability to meet the
obligations under the Restated Credit Agreement and the Subordinated Notes, the
working capital deficit, and the expectation of continued operating losses in
the short term had generated substantial uncertainty regarding the Company's
ability to meet its obligations in the ordinary course of business. As a result,
on April 19 and 20, 2001, the Company, including 31 of its subsidiaries, elected
to file separate petitions for relief under Chapter 11 of the United States
Bankruptcy Code which allows for the reorganization of its debts. The Company
filed the petitions in the U.S. Bankruptcy Court for the Southern District of
Mississippi and are being jointly administered under Case No. 01-52173 SEG.
Since the date of the petition, the Company has maintained possession of its
property, and has continued to remain in control of its ongoing business affairs
as a Debtor in Possession.

     Under Chapter 11, certain claims against the Company in existence prior to
the filing of the petitions for relief under the federal bankruptcy laws are
stayed while it continues business operations as Debtor in Possession. These
claims are reflected in the December 31, 2002 and December 31, 2001 balance
sheets as "liabilities subject to compromise." Claims secured against its assets
("secured claims") also are stayed, although the holders of such claims have the
right to move the court for relief from the stay. Secured claims are secured
primarily by liens on the Company's property, plant, and equipment. Additional
claims (liabilities subject to compromise) have arisen subsequent to the filing
date resulting from rejection of executory contracts, including leases, and from
the determination by the court (or agreed to by parties in interest) of allowed
claims for contingencies and other disputed amounts.

     The Company retained the investment banking firm of Houlihan, Lokey, Howard
& Zukin and restructuring advisor, Glass and Associates, Inc. to assist in the
preparation of a plan of reorganization. These advisors assisted management and
our Board of Directors in evaluating various alternatives including, but not
limited to, sales of assets and the Company's business unit(s), infusion of
capital, debt restructuring and any combination of these options. Upon the sale
of the Offshore segment in January 2003, Houlihan, Lokey, Howard & Zukin
completed

                                       39

<PAGE>

their engagement. Glass and Associates continues to assist management and the
Board of Directors in preparation of an amended plan of reorganization and with
other operational matters.

     As further described in Note 4, on March 22, 2002, the Company filed a plan
of reorganization with the United States Bankruptcy Court. The Company
anticipates amending the plan of reorganization due to the sale of the Vessels
and Offshore segments. The amended plan will result in no recovery for current
equity interests. The amount of any recovery to general creditors will depend
primarily on, but will not be limited to the following factors: (a) the ultimate
value of pre-petition claims, and (b) the dollar amount of claims associated
with the administration of this case. Note 4 also contains information regarding
the sale of the Vessels and Offshore segments as well as their asset sales and
dispositions.


     The Company cannot provide assurance that the amended plan will be
approved. It is not possible to assess the outcome of the Company's bankruptcy
proceeding or whether the Company will operate in accordance with the amended
plan, if approved.

3. Summary of Significant Accounting Policies

     The consolidated financial statements reflect accounting principles and
practices set forth in the American Institute of Certified Public Accountants
Statement of Position ("SOP") 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code," which provides guidance for financial
reporting by entities that have filed voluntary petitions for relief under the
Bankruptcy Code.

  Construction Contracts

     The Company's revenue is earned on the percentage-of-completion method.
Under the percentage-of-completion method used in its Offshore and Vessels
segments, revenues from construction contracts are measured by the percentage of
labor hours incurred to date to estimated total labor hours for each contract.
Under the percentage of completion method used in its Engineered Products
segment, substantially all of the revenues from construction contracts are
measured based upon the percentage that incurred costs to date bear to total
estimated costs. Contract price and cost estimates are reviewed periodically as
the work progresses, and adjustments proportionate to the percentage of
completion are reflected in the accounting period in which the facts that
require such adjustments become known.

     Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are identified. Other changes, including those
arising from contract penalty provisions and final contract settlements, are
recognized in the period in which the revisions are determined. To the extent
that these adjustments result in a reduction or elimination of previously
reported profits, the Company would report such a change by recognizing a charge
against current earnings, which might be significant. Cost of revenue earned
includes costs associated with the fabrication process and can be further broken
down between direct costs allocated to specific projects (such as direct labor
costs and raw materials) and indirect costs (such as supervisory labor,
utilities, supplies, equipment costs, and depreciation) that are associated with
production but are not directly related to a specific project. Selling, general
and administrative costs are charged to expense as incurred.

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

     Revenues are zero for all periods presented because revenues are included
in the determination of income (loss) from operations of discontinued segments.
There were no revenues from continuing operations for all periods presented.

                                       40

<PAGE>

   Cash Equivalents

     The Company considers all short-term cash investments with an original
maturity of less than three months to be cash equivalents.

     Cash equivalents include the sum of $1.5 million Canadian dollars ($951,442
U.S. dollars) as of December 31, 2002 plus $0.2 million United States dollars
related to Friede Goldman Newfoundland. The Company's ability to transfer these
funds to the United States is subject to the completion of an audit by Revenue
Canada of the tax returns of Friede Goldman Newfoundland Limited and Friede
Goldman Canada, Inc. and the satisfaction of any remaining liabilities
associated with closing down the Canadian companies.

   Restricted  Cash

     As discussed in Note 11, on October 29, 2002, the Bankruptcy Court entered
an order authorizing the Company to pay, upon the sale of Halter Marine, Inc.,
to Foothill Capital Corporation approximately $64.0 million in undisputed
principal and undisputed non-default rate interest, and to provide $6 million in
cash collateral to secure a letter of credit. An escrow account of $14.4 million
was also authorized to satisfy potentially disputed charges, which include
default interest and various fees that might be awarded by the Court. As of
November 25, 2002, the Company had made all payments required by the court
order. Although the court order requires use of the escrow account for payment
of disputed charges, Foothill retains all of its liens on the Company's assets
pending final resolution. The cash collateral and escrow account of $6.0 million
and $14.4 million, respectively, are included in restricted cash at December 31,
2002.

     At December 31, 2002 and 2001, restricted cash also includes cash of $1.2
million and $8.6 million, respectively, that has been pledged to secure bonds
relating to construction contracts.

     The remaining restricted cash primarily includes non-disbursed cash from
the sale of the Company's Vessels and Engineered Products segments. Disbursement
of these funds is subject to approval by the Bankruptcy Court and is primarily
reserved for payment of administrative expenses related to the Company's
bankruptcy filing.

   Receivables

     The Company provides for allowances for receivables, which are deemed to be
uncollectible. Provision for such losses is made in the period in which the loss
is probable and subject to reasonable estimation. The Company had allowances for
doubtful accounts of $0.4 million and $1.2 million as of December 31, 2002 and
2001, respectively.

   Inventories

     Inventories are valued at the lower of cost or market. Inventory cost is
determined principally on the specific identification method. Market is net
realizable value.

   Prepaid Expenses

     Prepaid expenses include insurance premiums of approximately $1.4 million
which the Company believes to be refundable. Approximately $3.1 million of the
prepaid expense represents premiums to be expensed during the year ended
December 31, 2003.

   Property, Plant and Equipment

     Property, plant and equipment is stated at cost less accumulated
depreciation. Long-lived assets held for disposition is stated at the estimated
sales price or disposal value less the selling or disposal costs. Ordinary
maintenance and repairs that do not extend the physical or economic lives of the
assets are charged to expense as incurred. Depreciation is computed on the
straight-line basis over the estimated useful lives of the assets.

                                       41

<PAGE>

     Useful lives utilized in the calculation of depreciation for each class of
property, plant and equipment are as follows:

     Class                                    Life
   -------                                  --------
     Buildings and improvements .........   15--40 years
     Leasehold improvements .............   10--40 years
     Machinery and equipment ............    3--20 years
     Other ..............................     3--7 years


   Goodwill

     Goodwill was recognized for the excess of the purchase price over the fair
value of identifiable net assets acquired and was amortized over a 25-year
period. Accumulated amortization was $20.6 million as of December 31, 2001.
During 2001, the Company recognized a goodwill impairment charge of $201.6
million and recorded this amount as a permanent write-down of goodwill. The
Company also recognized a write-down of goodwill totaling $42.0 million related
to the disposition of its Engineered Products segment and this amount is
included in the loss on disposal of Engineered Products segment in the
accompanying statements of operations.

   Long-Lived Assets

     The Company periodically evaluates the carrying value of long-lived assets
to be held and used, including goodwill, in accordance with Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
disposal of Long-Lived Assets (SFAS 144). SFAS 144 requires impairment losses to
be recorded on long-lived assets used in operations, including goodwill, when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. In
that event, a loss is recognized based on the amount by which the carrying
amount exceeds the fair market value of the long-lived asset. Losses on
long-lived assets to be disposed of is determined in a similar manner, except
that fair market values are reduced for the cost of disposal.

     FAS 144 also supersedes certain aspects of APB 30 - "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
with regard to reporting the effects of a disposal of a segment of a business.
FAS 144 requires expected future operating losses from discontinued operations
to be reported in discontinued operations in the period incurred rather than as
of the measurement date as previously required by APB 30.

   Stock-Based Compensation

     The Company accounts 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. 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.

   Income Taxes

     The Company follows the asset and liability method of accounting for
deferred income taxes prescribed by Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (SFAS 109). Under this method, deferred
tax assets and liabilities are recorded for temporary differences that occur
between the financial


                                       42

<PAGE>

reporting and tax bases of assets and liabilities based on enacted tax rates and
laws that will be in effect when the differences are expected to reverse.

   Reorganization Items

     In accordance with SOP 90-7, costs, losses and other items incurred
directly related to the bankruptcy proceeding are classified as Reorganization
Items in the accompanying statements of operations.

   Use of Estimates

     These consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States. Such
preparation requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities as of the dates of the balance sheets and the reported
amounts of revenues and expenses for the years presented. Actual results could
differ materially from those estimates. Areas requiring significant estimates to
be made by management include the application of the percentage-of-completion
accounting method; allowance for doubtful accounts; recoverability of
inventories, property, plant, equipment and goodwill; depreciation and
amortization; income taxes; and accruals for certain estimated liabilities,
including liabilities subject to compromise and loss contingencies.

   Fair Value of Financial Instruments

     The carrying amounts of the Company's cash and cash equivalents approximate
fair value. The fair values of the Company's debt are based on quoted market
prices, if available, or discounted cash flows.

   Environmental Liability

     The Company provides for liabilities for environmental exposure pursuant to
the requirements of SOP 96-1, "Environmental Remediation Liabilities." At
December 31, 2002 and 2001, the Company had accrued $6.0 million related to
remediation of certain contaminated sites. This liability is primarily the
result of liabilities retained in the sale of the Company's Vessel Repair
division to Bollinger Shipyards in August 2000. Negotiations are ongoing with
the Louisiana Department of Environmental Quality as to the ultimate resolution
of this matter. This liability is included in liabilities subject to compromise
at December 31, 2002 and 2001. There is no assurance that the amount of this
estimate will be adequate to cover the costs of the eventual resolution of this
matter. There is also no assurance that this liability will ultimately be deemed
a liability subject to compromise. The Bankruptcy Court could rule this to be an
administrative claim.

   Net Loss Per Share

     Basic and dilutive net loss per share is calculated based on the weighted
average number of shares of common stock outstanding for the periods presented.

   Foreign Currency Translation

     The financial statements of foreign subsidiaries, FGN and FGF, are measured
using the local currency as the functional currency. Assets and liabilities of
these subsidiaries are translated at the rates of exchange at the balance sheet
dates. The resulting translation adjustments are included as a separate
component of stockholders' equity. Income and expense items are translated at
average monthly rates of exchange during the period.


                                       43

<PAGE>

   Reclassifications

     Certain reclassifications have been made in the prior consolidated
financial statements to conform to the classifications used in the current year.

   Derivatives

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. The Company adopted SFAS 133
beginning January 1, 2001. As the Company does not use any of these types of
instruments, there was no impact on its consolidated financial statements for
the years ended December 31, 2002 and 2001.

   Recent Accounting Pronouncements

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." This statement provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation and amends the disclosure
requirement of SFAS No. 123, "Accounting for Stock-Based Compensation." This
statement is effective for fiscal years ending after December 15, 2002 and did
not have an impact on our financial condition or operating results. The
disclosure requirements are included in this report.

4. Plan of Reorganization and Disposition of Assets

       On March 22, 2002, the Company filed a Plan of Reorganization with the
United States Bankruptcy Court, which included the reorganization of
substantially all of its Offshore and Vessels segments and the disposition of
its Engineered Products segment as well as the disposition through sale, or
otherwise, of other of its subsidiaries and assets as described below. As
discussed in Note 2, the Company anticipates amending the plan of reorganization
due to the sale of the Vessels and Offshore segments. On October 22, 2002, a
hearing took place on the sale of Friede Goldman Offshore and the United States
Bankruptcy Court approved the bidding procedures and set the auction for
November 5, 2002. The sale of the Offshore segment completed on January 29,
2003.

   Disposition of Vessels Segment

     In May 2002, the Company entered into a contract with Bollinger
Shipyards, Inc. to sell the assets and operations of its Vessels segment for
$48.0 million cash and other consideration. The agreement was subject to an
auction and approval by the United States Bankruptcy Court. The auction
commenced on July 16, 2002 and was continued through the morning of July 23,
2002. During the auction, Vision Technologies Kinetics, Inc. submitted the
winning bid of $65.2 million, subject to certain net working capital
adjustments, to purchase Halter Marine, Inc. from the Company. As a result of
this overbid, Bollinger Shipyards was paid $2.5 million of these sales proceeds
as a contractual "break-up" fee. The proceeds of the sale were also subject to a
sales commission to the Company's investment banker. The sale includes
substantially all the operating assets and properties of Halter Marine, Inc.,
including the assets at Halter Pascagoula, Halter Moss Point, Moss Point Marine,
Halter Port Bienville, Halter Lockport, Halter Gulfport, and Halter Gulfport
Central. The closing was finalized on October 23, 2002.


                                       44

<PAGE>

       The Company has reported the operating results of the Vessels segments
separately in the consolidated statements of operations as a component of
discontinued operations. For the years ended December 31, 2002 and 2001, the
Company recorded losses from discontinued operations of $12.5 million and $13.2
million, respectively. For the year ended December 31, 2000, the Company
recorded income from discontinued operations of $13.8 million. Additionally, in
2002, the Company recorded a loss on the disposal of the Vessels segment of
$37.5 million.


       Revenue for the Vessels segment was $57.4 million, $125.9 million, and
$215.2 million for the years ended December 31, 2002, 2001 and 2000,
respectively.

       At December 31, 2001, the consolidated financial statements include
current assets of $24.2 million and current liabilities of $7.9 million related
to the Vessels segment. Long-lived assets held for disposition at December 31,
2002 and 2001 include $1.0 million and $2.0 million, respectively, related to
the Vessels segment.


       Restricted cash at December 31, 2002 includes the proceeds remaining from
the sale of the Vessels segment.

     Disposition of Engineered Products Segment

         In May 2001, the Company completed the sale of its French subsidiaries,
Brissoneau et Lotz Marine, S.A., in Nantes, France, and BOPP S.A., in Brest,
France to Hydralift A.S.A. of Kristiansand, Norway for cash consideration of
$33.5 million, before expenses. Pursuant to an order of the Bankruptcy Court,
the Company agreed to escrow funds from the sale. Disbursement of such funds is
subject to the review and approval of legal counsel representing the Official
Committee of Unsecured Creditors and/or an order of the Bankruptcy Court. The
funds held in escrow are presented as restricted cash and cash equivalents in
the accompanying balance sheet as of December 31, 2002 and 2001. The Company
recorded a gain of approximately $16.0 million related to this transaction in
the second quarter of 2001.


       In April 2002, the Company completed the sale of the assets and
operations of the Engineered Products segment ("Amclyde") to Hydralift A.S.A.
for cash consideration of approximately $36.0 million subject to certain net
working capital adjustments. The proceeds of the sale were subject to a sales
commission to the Company's investment banker. The Company recorded a loss on
disposal of approximately $42.0 million related to this transaction in the
fourth quarter of 2001. This loss was adjusted during 2002 and a $0.7 million
gain on disposal was recorded after the consummation of the sale primarily
related to the working capital adjustment.

       In addition, the Company has reported the operating results of its
Engineered Products segments separately in its consolidated statements of
operations as a component of discontinued operations. The Company recorded
income from discontinued operations of approximately $0.5 million, $7.4 and
$11.1 million for the years ended December 31, 2002, 2001 and 2000,
respectively.

       Revenue for the Engineered Products segment was $22.7 million, $86.8
million and $124.1 million for the years ended December 31, 2002, 2001 and 2000,
respectively.

       At December 31, 2001, the Company's consolidated financial statements
include current assets of $17.5 million and current liabilities of $6.4 million
related to the Engineered Products segment. Long-lived assets held for
disposition at December 31, 2001 include $29.8 million related to the Engineered
Products segment.

       Restricted cash at December 31, 2002 includes the proceeds remaining from
the sale of the Engineered Products segment.

Disposition of Offshore Segment

       Friede Goldman Newfoundland Limited. In March 2002, the Company completed
the sale of substantially all the assets of its wholly-owned subsidiary, Friede
Goldman Newfoundland Limited ("FGN") for cash consideration of $5.0 million
which primarily represents repayment of intercompany debt. In addition, the
Province of Newfoundland agreed to waive certain liquidated damages related to
alleged noncompliance with minimum employment levels at the Company's Canadian
shipyards during 1999 and 2000. In the fourth quarter of 2001, the Company wrote
down the assets of this subsidiary to their net realizable value and recorded a
loss on disposal of


                                       45

<PAGE>

Offshore segment of approximately $4.9 million pursuant to an asset purchase
agreement entered into in November 2001. The loss was adjusted and a gain of
$1.1 million was recorded in 2002 after the consummation of the sale. The
property, plant and equipment of FGN is included in long-lived assets held for
disposition at December 31, 2001. Certain assets were excluded from the sale of
FGN, including a Manitowoc Series 4600 Ringer Crane, (the "Crane") jack-up rig
components, free issue steel and spud cans. The assets were transported from
Friede Goldman Newfoundland to Friede Goldman Offshore's West Bank Facility.
These assets, excluding the Crane, were included in the sale of the Offshore
segment discussed below.

       Sale of Friede & Goldman, Ltd. In June 2002, the Company completed the
sale of substantially all the assets of its wholly owned subsidiary, Friede &
Goldman, Ltd. ("FGL") for cash consideration of $15.0 million subject to certain
net working capital adjustments. The proceeds of the sale, which were received
on July 5, 2002, were subject to a sales commission to the Company's investment
banker. The Company recorded a gain on disposal of Offshore segment of $11.4
million related to this transaction in 2002. The property, plant and equipment
of FGL is included in long-lived assets held for disposition at December 31,
2001. Restricted cash at December 31, 2002 includes the proceeds remaining from
the sale of FGL.

    Friede Goldman Offshore

     On October 22, 2002, a hearing took place on the sale of Friede Goldman
Offshore and the United States Bankruptcy Court approved the bidding procedures
and set the auction for November 5, 2002. On January 29, 2003, the Company
completed the sale of the Offshore segment for a purchase price of $18.0 million
in cash and the assumption of $38.4 million principal plus accrued interest in
secured debt including the MARAD, GE Capital Corporation, and GE Capital Public
Finance Agreement debt. As a result of the sale of FGO and FGOT in January 2003,
the Company wrote down their assets to the net realizable value and recorded a
loss on the disposal of Offshore segment of $28.7 million in December 2002. The
property, plant and equipment of the Offshore segment is included in long-lived
assets held for disposition at December 31, 2002 .

       The Company has approximately $19.9 million in outstanding principal
related to its demand notes payable to the U. S. Maritime Administration
("MARAD"). The demand note resulted from MARAD making payment under its
guarantee agreement to the holders of the bonds originally issued in December
1997, under Title XI, to partially finance construction of the Company's FGO
Mississippi East Facility. The Company's plan of reorganization filed March 22,
2002 contemplates abandoning this facility to MARAD in satisfaction of its
secured claims. As a result, the Company recorded a loss on disposal of Offshore
segment of approximately $17.1 million in the fourth quarter of 2001, which
represents the excess of the carrying value of the Company's FGO Mississippi
Facility's fixed assets over the outstanding principal amount of the MARAD
demand notes.

       The Company has reported the operating results of the Offshore segment
separately in its consolidated statements of operations as a component of
discontinued operations. For the years ended December 31, 2002, 2001 and 2000,
the Company recorded income from discontinued operations of approximately $8.2
million and loss from discontinued operations of $20.8 million and $86.1
million, respectively. Revenue for the Offshore segment was $99.1 million,
$120.2 and $365.8 million for the years ended December 31, 2002, 2001 and 2000,
respectively.

       At December 31, 2002, the consolidated financial statements include
current assets of $15.7 million and current liabilities of $17.5 million related
to the Offshore segment. At December 31, 2001, the consolidated financial
statements include current assets of $21.0 million and current liabilities of
$16.0 million related to the Offshore segment. Long-lived assets held for
disposition at December 31, 2002 and 2001 include $48.3 million and $25.1
million, respectively, related to the Offshore segment. Subsequent to the sale
of the Offshore segment in 2003, long-lived assets held for disposition total
$1.1 million which represents the Crane.


                                       46

<PAGE>

       The following schedule reflects the effect of the disposition of the
Offshore segment as if the sale had occurred on December 31, 2002 (after giving
effect to changes in working capital, as defined in the purchase price
agreement, from December 31, 2002 to January 29, 2003, the date of the sale.)

                                                     (in thousands)
 Cash and cash equivalent                              $   5,973
 Restricted cash                                          56,107
 Other current assets                                     12,054
 Non-current assets                                        2,100
                                                       ---------
       Total assets                                    $  76,234
                                                       =========

 Current liabilities                                   $  22,365
 Liabilities subject to compromise                       346,015
 Debt                                                     10,253
 Stockholders' Deficit                                  (302,399)
                                                       ---------
     Total liabilities and stockholder's deficit       $  76,234
                                                       =========

     $6.0 million in restricted cash was securing a letter of credit.


5. Inventories

     At December 31, 2002 and 2001, inventories consisted of the following:

                                                    December 31,
                                                  ----------------
                                                   2002      2001
                                                  ------    ------
                                                   (in thousands)
     Jack-up rig components. ..................   $15,381   $15,381
     Steel and other raw materials ............     2,763    14,487
     Other                                             --     3,704
                                                  -------   -------
                                                  $18,144    33,572
     Less reserve for obsolete inventories ....    14,077    15,992
                                                  -------   -------
                                                  $ 4,067   $17,580
                                                  =======   =======

     As discussed in Note 4, certain assets were excluded from the sale of FGN,
including the Crane, jack-up rig components, free issue steel and spud cans, and
were transported from Friede Goldman Newfoundland to Friede Goldman Offshore's
Mississippi Facility. These assets, excluding the Crane, are included as part of
the sale of the Offshore segment in January 2003.


                                       47

<PAGE>

 6. Costs and Estimated Earnings on Uncompleted Contracts

     The Company's contracts in progress at December 31, 2002 and 2001, consist
of the following components:

<TABLE>
<CAPTION>

                                                                                   December 31,
                                                                                -----------------
                                                                                  2002     2001
                                                                                -----------------
                                                                                  (in thousands)
<S>                                                                           <C>         <C>
 Costs incurred on uncompleted contracts. .................................   $ 459,219   $754,719
 Estimated losses .........................................................    (227,625)  (284,468)
                                                                              ---------   --------
                                                                                231,594    470,251
 Less billings to date ....................................................     267,072    510,323
                                                                              ---------   ---------
                                                                              $ (35,478)  $(40,072)
                                                                              =========   =========
 Included in the following balance sheet captions:
     Costs and estimated earnings in excess of billings on uncompleted
       Contracts ..........................................................   $   5,074   $ 16,557
     Billings in excess of costs and estimated earnings on uncompleted
       contracts ..........................................................      (3,127)   (15,124)
     Reserve for losses on uncompleted contracts (included in liabilities
       subject to compromise) .............................................     (37,425)   (41,505)
                                                                              ---------   ---------
                                                                              $ (35,478)  $(40,072)
                                                                              =========   =========
</TABLE>

 7. Property, Plant and Equipment

                                                          December 31,
                                                        ----------------
                                                         2002     2001
                                                        ----------------
                                                         (in thousands)
 Land. ..............................................   $  --    $ 24,640
 Buildings and improvements .........................      --      73,309
 Machinery and equipment ............................      --      93,449
 Construction in progress ...........................                 129
                                                        -----    --------
     Total property, plant and equipment. ...........      --     191,527
 Less accumulated depreciation. .....................      --      36,069
                                                        -----    --------
     Total property, plant and equipment, net. ......   $        $155,458
                                                        =====    ========

     Depreciation expense was $13.1 million, $18.0 million, and $20.1 million
for the years ended December 31, 2002, 2001 and 2000, respectively.

     Substantially all of the assets of the Company have been pledged as
collateral under various debt arrangements entered into by the Company.

 8. Long-Lived Assets Held for Disposition

      At December 31, 2002 and 2001, long-lived assets held for disposition by
business unit consisted of the following:

<TABLE>
<CAPTION>

                                                                                          December 31,
                                                                                     ---------------------
                                                                                        2002       2001
                                                                                     ---------------------
                                                                                         (in thousands)
<S>                                                                                  <C>         <C>
      Vessels                                                                        $  1,000    $   1,950
      Friede Goldman Offshore East and Friede Goldman Offshore Texas                   47,184       19,854
      Friede & Goldman, Ltd.                                                               --          326
      Friede Goldman Newfoundland, Limited                                              1,100        5,000
      Amclyde (including goodwill of $23,479 at December 31, 2001)                         --       29,800
                                                                                     --------    ----------
                                                                                     $ 49,284    $  56,930
                                                                                     ========    ==========
</TABLE>


                                       48

<PAGE>

9. Workers Compensation Programs

      Prior to March 1, 2000, Offshore Marine Indemnity Company ("OMIC"), a
wholly-owned subsidiary of the Company domiciled in Vermont, acted as a fronting
reinsurance captive company for the Company workers' compensation insurance
program. On June 7, 2001, the Commissioner of the Vermont Department of Banking,
Insurance, Securities and Healthcare Administration was ordered by the
Washington County Superior Court in the State of Vermont to take possession and
control of all or part of the property, books and accounts, documents and other
records of OMIC. OMIC and its officers, managers, agents, employees and other
persons were also enjoined from disposing of its property and from transacting
its business except with the written consent of the Commissioner. Based on the
court order, the Company does not exercise control over OMIC. Accordingly, the
subsidiary was deconsolidated and the Company eliminated the insurance reserves
and reinsurance receivables from its balance sheet and wrote off its investment
in OMIC totaling $1.4 million during 2001. At December 31, 2002, the Company had
recorded a $5.7 million liability in accrued liabilities in the accompanying
Consolidated Balance Sheet representing the remaining balance on an outstanding
letter of credit described below.

      OMIC assumed certain risks from Reliance Insurance Company (Reliance)
under a reinsurance agreement from March 1997 to March 2000. In general, OMIC
assumed risk for the first $250,000 on individual workers' compensation losses
written through Reliance for the Company. Further, pursuant to the terms of the
reinsurance agreement with Reliance, amounts due from OMIC to Reliance are
secured by a letter of credit issued in favor of Reliance. At December 31, 2002,
the remaining balance of this letter of credit was $5.7 million. The Company
believes that Reliance may take the position that the letter of credit was
issued for the benefit of all of Reliance's policyholders. Due to the dispute
over Reliance's rights to the use of the letter of credit, the Company filed
suit against Reliance to prevent any draws on the letter of credit that would
fund claim payments other than payments related to OMIC. This suit was dismissed
as premature but will be restated if Reliance asserts the position previously
described regarding the letter of credit.

      Prior to its deconsolidation, OMIC had a reinsurance receivable from
Reliance of approximately $11.0 million. On or about October 3, 2001, Reliance
was placed into liquidation by the Pennsylvania Insurance Commissioner. The
Company believes the liquidation of Reliance triggers relevant state guaranty
association statutes and that the guaranty associations become obligated, to the
extent of each state's statutory coverage, for payment of the claims of
Reliance's insureds and claimants. As a result, management believes that amounts
due from Reliance to the Company and its claimants will be paid by the
applicable state guaranty association. However, the state guaranty associations
may assert claims against OMIC and the Company for payments made to claimants.
Current estimates of these claims are approximately $10.0 million. There is no
assurance that the Company's analysis of the relevant payment obligations will
be upheld by applicable courts and that additional liabilities in excess of the
$5.7 million would not result.

      After March 1, 2000, the Company's workers' compensation programs were
provided by several insurance companies with self insurance limits. At December
31, 2002, the Company has recorded liabilities of approximately $3.3 million
relating to these programs. This liability includes pre-petition claims of $1.3
million which are included in liabilities subject to compromise.

      There is no assurance that the Company's analysis of these payment
obligations will be upheld by applicable courts and that additional liabilities
in excess of the $3.3 million reserve will not result. Additionally, some or all
of the pre-petition liability could be deemed an administrative claim by the
bankruptcy court.

10. Other Assets

      Other assets includes net debt issuance costs of $0.9 million and $4.1
million at December 31, 2002 and 2001, respectively. The Company recorded a loss
of $1.9 million during 2002 to write-off the remaining balance of the deferred
financing costs related to the Foothill debt (see Note 11). Accumulated
amortization of debt issuance costs was $7.1 million and $5.6 million at
December 31, 2002 and 2001, respectively.


                                       49

<PAGE>

 11. Debt

      The following table includes the Company's debt obligations at December
31, 2002 and 2001. These debt obligations are not subject to compromise.

<TABLE>
<CAPTION>

                                                                                                              December 31,
                                                                                                         -------------------
                                                                                                            2002       2001
                                                                                                         -------------------
                                                                                                            (in thousands)
<S>                                                                                                      <C>          <C>
Borrowings under the Restated Credit Agreement:
      Line of credit ................................................................................    $   47       $ 28,346
      Term loan                                                                                           9,298         43,284
Notes payable to financial institutions and others bearing interest at rates ranging from 6.15% to
   12.00%, payable in monthly installments, maturing at various dates through March 2014 and
   secured by equipment, a lease and real property ..................................................     3,405          4,237
Demand note payable to MARAD bearing interest at 6.35%, secured by equipment.........................    19,854         19,854
Bonds payable, bearing interest at 7.99% payable in monthly installments commencing
   January 1999, maturing December 2008, secured by equipment .......................................    13,608         14,982
Capital lease obligations bearing interest at rates ranging from 6.84% to 10.22% maturing at dates
  ranging from October 2002 through September 2004 ..................................................        --          2,152
Note payable, bearing interest at 7.05%, payable in quarterly installments, matured March 2002,
   secured by equipment .............................................................................     2,500          2,500
                                                                                                        -------     ----------
                                                                                                        $48,712     $  115,355
                                                                                                        =======     ==========
</TABLE>

      Accrued interest on these debt obligations was included in accrued
liabilities at December 31, 2002 and 2001 in the amounts of $4.5 million and
$2.4 million, respectively.

   Restated Credit Agreement

      Effective October 24, 2000, the Company entered into a $110.0 million
amended and restated credit agreement with Foothill Capital Corporation
("Foothill"), comprised of a $70.0 million line of credit and a $40.0 million
term loan (collectively, the "Restated Credit Agreement"). The Restated Credit
Agreement has a three-year term. The line of credit is secured by substantially
all of the Company's otherwise unencumbered assets, including accounts
receivable, inventory, equipment, real property and all of the stock of its
domestic subsidiaries. The term loan is secured by a subordinated security
interest in the line of credit collateral.

      On October 29, 2002, the Bankruptcy Court entered an order authorizing the
Company to pay, upon the sale of the Vessels segment to Foothill, approximately
$64.0 million in undisputed principal and undisputed non-default rate interest,
and to provide $6 million in cash collateral to secure a letter of credit. An
escrow account of $14.4 million was also authorized to satisfy potentially
disputed charges, which include default interest and various fees that might be
awarded by the Bankruptcy Court. As of November 25, 2002, the Company had made
all payments required by the court order. Although the court order requires use
of the escrow account for payment of disputed charges, Foothill retains all of
its liens on the Company's assets pending final resolution.


      Total balances outstanding under the Restated Credit Agreement at December
31, 2002 were $9.3 million excluding $5.7 million in outstanding letters of
credit. The letter of credit was provided to secure the Company's worker's
compensation obligations.

   Notes Payable to Financial Institutions

      Notes payable to financial institutions were $3.4 million at December 31,
2002 which includes $2.5 million in debt assumed by the buyer in connection with
the sale of the Offshore segment in January 2003.

                                       50

<PAGE>

 MARAD Financing Agreement

     As of December 31, 2002, the Company had approximately $19.9 million in
outstanding principal related to its demand notes payable to the U.S. Maritime
Administration ("MARAD"). The notes resulted from MARAD making payment under its
guarantee agreement to the holders of the bonds originally issued in December
1997, under Title XI, to partially finance construction of the FGO East
Facility. Pursuant to the disposition of the Offshore segment in January 2003,
the debt owed to Marad was assumed by the buyer of the Offshore segment, and the
Company has no further obligations thereunder.

  Bonds Payable - GE Capital Public Finance Agreement

     The balance of the GE Capital Public Finance ("GEPF") debt at December 31,
2002 was $13.6 million. Pursuant to the disposition of the Offshore segment in
January 2003, the debt owed to GEPF was assumed by the buyer of the Offshore
segment, and the Company has no further obligations thereunder.

  Notes Payable - GE Capital Corporation Debt

     The balance of the GE Capital Corporation debt ("GECC") at December 31,
2002 was $2.5 million. Pursuant to the disposition of the Offshore segment in
January 2003, the debt owed to GECC was assumed by the buyer of the Offshore
segment, and the Company has no further obligations thereunder.

  Fair Value of Debt

     The fair value of the Company's long-term debt, including the debt under
the Restated Credit Facility, was approximately its carrying value at December
31, 2002. The fair value of the Company's 4 1/2% Convertible Subordinated Notes
as of December 31, 2002 was not estimable because of the uncertainties related
to the Company's plan of reorganization and the recoveries that unsecured
creditors will receive.

     The Company recognized interest expense in 2001 for the unaccreted discount
on the convertible subordinated notes totaling $54.8 million.

12. Liabilities Subject to Compromise

     As a result of certain contractual matters and other claims asserted by
creditors (as further described in Notes 9, 13, 16, 17, and 19 of the
Consolidated Financial Statements), the Company has been notified that proofs of
claims filed with the Bankruptcy Court related to its Chapter 11 filing
significantly exceed the liabilities the Company has recorded. At December 31,
2002 and December 31, 2001, the Company accrued its estimate of the liability
for the resolution of these claims. This estimate has been developed in
consultation with outside counsel that is handling the bankruptcy and defense of
these matters. To the extent additional information arises or the Bankruptcy
Court approves the proofs of claims as filed, it is possible that the Company's
estimate of its liability in these matters may change. Management believes any
change to the Company's estimate will increase the balance of its liabilities
subject to compromise. Based upon management's assessment of information
currently available, management believes that a reasonable estimate of the
possible claims that could be approved by the court could be as much as $575.0
million. There is no assurance that either of these estimates will reflect the
ultimate position of the Bankruptcy Court. The amount of the awarded claim could
be higher.

                                       51

<PAGE>

     At December 31, 2002 and 2001, liabilities subject to compromise included
the following (in thousands):

                                                  December 31,
                                             ---------------------
                                               2002         2001
                                             ---------------------
                                                 (in thousands)
      Convertible subordinated notes ....... $185,000     $185,000
      Accounts payable .....................   74,774       86,739
      Contract liabilities .................   68,142       63,542
      Accrued interest .....................    5,041        5,338
      Other accrued liabilities ............   13,058       20,078
                                             --------     --------
                                             $346,015     $360,697
                                             ========     ========

     At December 31, 2001, other accrued liabilities include $3.8 million
related to the Company's deferred compensation program. In September 2002, the
Bankruptcy Court issued an order limiting the amount of cash that could be
disbursed to the participants. This amount was less than the recorded liability.
The Company reported a $1.2 million gain in the third quarter of 2002 as a
result of reducing its liabilities subject to compromise related to its deferred
compensation program. During 2002, the Company paid $1.3 million to participants
in partial satisfaction of this liabiliy. The remaining balance of deferred
compensation in the amount of $1.3 million was reclassed from liabilities
subject to compromise to accrued liabilities in the fourth quarter of 2002 as
the payment was made in April 2003.

     The remaining decreases in liabilities subject to compromise in 2002
resulted from payments authorized by the Bankruptcy Court, reclassifications,
and changes in estimates of certain liabilities.

  4 1/2% Convertible Subordinated Notes

     The 4 1/2% Convertible Subordinated Notes (the "Notes") were issued by
Halter Marine Group on September 15, 1997 and mature on September 15, 2004. The
Notes were issued under an Indenture Agreement (the "Indenture") that provides
that the Notes are convertible at the option of the holder into shares of common
stock of the Company at a conversion price of $55.26 per share. As a result of
the November 3, 1999 merger, the recorded book value of the Notes was adjusted
to reflect the fair market value on the date of the merger and a discount of
$70.3 million was recorded. Interest on the Notes is payable semiannually, in
arrears, on March 15 and September 15 of each year, with principal due at
maturity. The Company has included the outstanding principal balance of $185.0
million in liabilities subject to compromise as of December 31, 2002 and 2001.
Pursuant to the requirements of Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code," the Company ceased
accruing interest related to these Notes beginning April 19, 2001.

13. Employee Benefit Plans

  Pension Plan

     In conjunction with the HMG merger, the Company assumed responsibility for
HMG's defined benefit plan which had been frozen effective March 31, 1998. The
plan provides income and death benefits for eligible employees who were members
of the plan at the time it was frozen in 1998. The Company's policy was to fund
retirement costs accrued but only to the extent such amounts are deductible for
income tax purposes. The assets of the plan are held in various types of
investments. Benefits are based on years of credited service and compensation.
The Pension Benefit Guaranty Corporation ("PBGC") is expected to assume
responsibility for the administration of the plan in the second quarter of 2003.
The Company has recorded no liability related to the plan. PBGC may assert a
claim against the Company for the portion of the Plan's obligations the PBGC is
required to fund. The Company does not believe this claim will exceed $5.0
million, if allowed, and would be classified as a liability subject to
compromise. There is no assurance that this estimate will reflect the ultimate
position of the Bankruptcy Court. The amount of the awarded claim could be
higher.

                                       52

<PAGE>

  401(k) Plan

     The Company has a contributory 401(k) plan in which employees of the
Company may participate. Under the plan, eligible employees are allowed to make
voluntary pretax contributions which are matched, up to certain limits, by the
Company. Employer contributions to the plan are subject to approval by the Board
of Directors and were $0.5 million and $2.7 million during the years ended
December 31, 2001 and 2000, respectively. In March 2001, the Company suspended
its matching contributions to the 401(k) plan. The 401(k) plan is expected to be
dissolved by the second quarter of 2003.

  Incentive Compensation Plan

     The Company has an Incentive Compensation Plan (the Plan) under which both
qualified and non-qualified options, and restricted stock and other forms of
incentive compensation may be granted. As of December 31, 2002, 17,599,611
shares of common stock were reserved for issuance under the Plan. The Plan is
administered by a committee of the Board, which selects persons eligible to
receive options and determines the number of shares subject to each option, the
vesting schedule, the exercise price and the duration of the option. The
exercise price of any option granted under the Plan cannot be less than 100% of
the fair market value of the Company's common stock on the date of grant and its
duration cannot exceed 10 years.

     Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," (SFAS 123), allows companies to record expense based
on the fair value of stock-based compensation upon issuance or elect to remain
under the current Accounting Principles Board Opinion No. 25 ("APB 25") method
whereby no compensation cost is recognized upon grant if certain requirements
are met. The Company accounts for its stock-based compensation under APB 25.
However, pro forma disclosures as if the Company adopted the cost recognition
requirements under SFAS 123 are presented below.

     If the compensation cost for the Company's 2002, 2001, and 2000 grants for
stock-based compensation plans had been determined consistent with SFAS 123, the
Company's net loss per common share for the years ended December 31, 2002, 2001
and 2000 would have approximated the pro forma amounts in the following table.

<TABLE>
<CAPTION>
                                 2002                      2001                    2000
                          -------------------   ----------------------   ---------------------
                             As                    As                        As
                         Reported    Proforma   Reported      Proforma   Reported     Proforma
                         --------    --------   --------      --------   --------     --------
                                        (in thousands, except per share data)
<S>                     <C>        <C>        <C>          <C>         <C>         <C>
Net loss. ............. $(91,613)  $(92,038)  $(401,607)   $(407,607)  $(106,371)  $(110,837)
Net loss per share:
     Basic ............ $  (1.88)  $  (1.89)  $   (8.25)   $   (8.37)  $   (2.39)  $   (2.49)
     Diluted. ......... $  (1.88)  $  (1.89)  $   (8.25)   $   (8.37)  $   (2.39)  $   (2.49)
</TABLE>

     There were no options granted during the years ended December 31, 2002 and
2001.

     The weighted average grant date fair value of options granted during the
year ended December 31, 2000 was $5.95. The fair value of options was estimated
using the Black-Scholes option-pricing model with the following assumptions: (a)
dividend yield of 0%; (b) expected volatility of 1.04% (c) risk-free interest
rate ranging from 5.00% to 5.27%; and (d) average expected life of 7 years.

                                       53

<PAGE>

     Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing model does not necessarily provide a reliable
single measure of the fair value of its employee stock options.

     A summary of the Company's stock options as of December 31, 2002, 2001 and
2000 and changes during the years then ended is presented below:

<TABLE>
<CAPTION>
                                               2002                    2001                   2000
                                       ---------------------   ---------------------  ---------------------
                                                    Wgt. Avg.               Wgt. Avg.              Wgt. Avg.
                                                    --------               ---------               --------
                                        Number Of    Exer.     Number Of     Exer.    Number Of     Exer.
                                        Options      Price     Options       Price    Options       Price
                                        -------      -----     -------       -----    ---------     -----
<S>                                    <C>           <C>       <C>         <C>      <C>             <C>
Outstanding at beginning of year .....  3,670,238    $ 9.25    4,118,959   $ 9.12    4,880,893      $10.45
Granted ..............................         --        --           --       --      782,650        6.44
Forfeited ............................ (3,255,687)     9.31     (447,121)    8.09   (1,541,584)      11.48
Exercised ............................         --        --       (1,600)    0.50       (3,000)       0.50
                                       ----------              ---------             ---------
Outstanding at end of year ...........    414,551      8.72    3,670,238     9.25    4,118,959        9.12
                                       ==========              =========             =========
Options exercisable at year-end ......    377,551    $ 8.82    2,796,658   $ 9.51    2,192,350      $ 9.65
Options vesting in future years ......     37,000      7.71      873,580     8.40    1,926,609        8.51
                                       ----------              ---------             ---------
Options outstanding at year-end ......    414,551      8.72    3,670,238     9.25    4,118,959        9.12
                                       ==========              =========             =========
</TABLE>

     The following table summarizes information about stock options outstanding
at December 31, 2002:

<TABLE>
<CAPTION>
                            Options Outstanding             Options Exercisable
                          --------------------------  ------------------------------
                                         Weighted
                                          Average     Weighted              Weighted
                                         Remaining     Average               Average
                             Number     Contractual   Exercise    Number    Exercise
Range of Exercise Prices   Outstanding  Life (Years)   Price   Exercisable    Price
------------------------   -----------  -----------   -----    -----------    -----
<S>                        <C>          <C>          <C>       <C>          <C>
$0.500                        36,800         5.0     $ 0.500      36,800     $ 0.500
$5.630                         8,000         8.0       5.630       5,333       5.630
$7.870-7.875                 103,000         8.0       7.870      68,667       7.870
$8.500                       126,451         5.0       8.500     126,451       8.500
$8.750                        53,800         7.0       8.750      53,800       8.750
$11.375                       77,500         7.0      11.375      77,500      11.375
$13.688                        1,000         7.0      13.688       1,000      13.688
$37.125-38.969                 8,000         5.8      37.586       8,000      37.590
</TABLE>

14. Leases

     The Company leases certain land, office space, drydocks, and machinery and
equipment under non-cancelable operating leases which expire at various dates
through the year 2037.

     Future minimum lease payments for long-term non-cancelable lease
arrangements are as follows:

     Years Ending December 31,        Amount
     -------------------------        ------
                                In thousands)

     2003                                $687
     2004                                 679
     2005                                 496
     2006                                 462
     2007                                 512
     Thereafter                         3,616

     The future lease payments above relate to FGO and FGOT, which were sold in
January 2003. These lease obligations were assumed by the buyer.

                                       54

<PAGE>

     Lease expense on long-term lease arrangements was $0.8 million, $4.0
million, and $6.8 million for the years-ended December 31, 2002, 2001, and 2000
respectively. The Company enters into short-term lease arrangements for
equipment needed to fulfill the requirements of specific jobs. Any payments owed
or committed under these lease arrangements as of December 31, 2002 are not
included as part of total minimum lease payments. Rent expense for these
arrangements was $0.8 million, $1.8 million, and $5.4 million for the years
ended December 31, 2002, 2001 and 2000, respectively.

15. Related Party Transactions

     During 2001, the Company maintained cash deposits in a financial
institution on whose board of directors the Company's former Chairman served as
a member until April 2001.

     The Company had a cancelable lease arrangement on an aircraft with
Equipment Management Systems, a company primarily owned by the Company's former
Chairman. Pursuant to the lease agreement, the Company paid $0.2 million and
$0.7 million to this company in the years ended December 31, 2001 and 2000.

16. Contingencies

  Economic Incentive Program

     In connection with the construction of the FGO East Facility, the County of
Jackson, Mississippi, agreed to dredge the ship channel and build roads and
other infrastructure under an economic incentive program. The terms of the
economic incentive program require that the Company maintain a minimum
employment level of 400 jobs through the FGO East Facility during the primary
term of the FGO East Facility's 20-year lease. If the Company fails to maintain
the minimum employment level, the Company could be required to pay interest to
the county based upon the labor shortfall or pay the remaining balance of the
$6.0 million loan incurred by the county to finance such improvements. The
Company was in compliance with this provision at December 31, 2002. Pursuant to
the definitive agreement to sell FGO in January 2003, this agreement will be
assumed by the buyer.

  Liberty Mutual and Wausau

     On December 5, 2000, the Company reached a settlement agreement with a
former workers' compensation provider. In conjunction with this agreement, the
Company was to pay approximately $3.0 million as its share of the settlement of
all claims arising from this case. As of the bankruptcy filing date, the Company
had paid approximately $1.75 million of the settlement. The Bankruptcy Court on
October 2, 2001 denied the Company and another co-defendant permission to pay
the remaining $1.25 million of the settlement. As a result of this ruling, the
insurer may file a claim for an amount substantially greater than the remaining
installment. As of December 31, 2002, $1.25 million, the amount of the remaining
installment, was included in liabilities subject to compromise in the
accompanying balance sheet. The Company believes that any additional amounts,
which may be approved by the Bankruptcy Court, will also be a liability subject
to compromise.

  Yacht Fire

     The Company is a subcontractor in the construction of a vessel which was
damaged by fire on July 2, 2002. Subsequently, the owner of the vessel and
Trinity Yachts, Inc. have each filed motions with the United States Bankruptcy
Court seeking administrative claims against the Company in the amounts of
approximately $19.0 million and $24.0 million, respectively, relating to their
alleged damages. The Company believes any losses or damages incurred by the
vessel owner or Trinity Yachts, Inc. will be covered by its builders' risk
insurance policy. Insurance claims have been filed by Felham Enterprises (vessel
owner), Trinity Yachts, Inc. and the Company and are being reviewed by the
Company's insurance carrier. One underwriter which holds 15% of the risk, has
denied coverage. The Company believes the denial of its claim is without merit.
The Company has recorded a $1.1 million receivable at December 31, 2002 for the
amount of the expected recovery.

                                       55

<PAGE>

  Warn Act

     A class-action lawsuit has been filed in United States Bankruptcy Court
naming Friede Goldman Halter, Inc. and Friede Goldman Offshore, Inc. as the
defendants. The suit alleges wrongful termination in violation of the Workers
Adjustment and Retraining Notification Act (WARN Act), and seeks wages for each
member of the proposed class in an amount equal to the employee's wage rate
times the workdays within the 60-day notification period required by the WARN
Act, coverage for medical expenses incurred by each member of the proposed class
that would have been covered under a benefit plan during the 60-day notification
period required by the WARN Act, prejudgment interest, attorney fees and costs.
Based on the latest information available, the Company estimates its maximum
exposure to be approximately $4.0 million. The Company believes it has
sufficient defenses to mitigate and/or eliminate this claim and has recorded no
liability. The eventual outcome of this matter or the potential monetary
liability can not be determined at this time.

  General Exposure to Industry Conditions

     The nature of the Company's activities relating to the conversion, retrofit
and repair of drilling rigs subjects its property and employees, along with the
property and employees of its customers and others, to hazards which can cause
personal injury or damage or destruction of property. Although the Company
maintains such insurance protection as it considers economically prudent, there
can be no assurance that any such insurance will be sufficient or effective
under all circumstances or against all hazards to which the Company may be
subject. In particular, due to the cost of errors and omissions policies related
to the design of drilling rigs and production units, the Company does not carry
insurance covering claims for personal injury, loss of life or property damage
relating to such design activity. A successful claim for which the Company is
not fully insured could have a material adverse effect on the Company's
financial position and results of operations.

  Other

     The Company is involved in various other claims and legal actions arising
in the ordinary course of business. The ultimate disposition of these matters,
management believes, will not have a material adverse effect on the Company's
financial position or results of operations. Management believes that the
Company's significant contingencies have been disclosed, however, there may be
other matters for which the ultimate disposition could have a material adverse
effect on the Company's financial position and results of operations.

17. Contractual Matters

  The Ocean Rig, Petrodrill, Pasha and CNOOC Contracts

     The Company's results of operations for the year ended December 31, 2001
and its current financial condition have been materially and adversely impacted
by contracts for the construction of four semi-submersible drilling rigs (Ocean
Rig and Petrodrill contracts), one vehicle car carrier (Pasha contract) and one
heavy derrick-lay barge (CNOOC contract), as further described below.

Ocean Rig

     In December 1997 and June 1998, the Company entered into contracts to
construct two semi-submersible drilling rigs for Ocean Rig ASA, a Norwegian
company. The Company commenced construction of one rig in June 1998 and the
other in January 1999. Since January 2000, when the Company entered into a
Confidential Settlement Agreement with Ocean Rig to resolve disputes with
respect to these contracts, the Company continued to experience significant cost
overruns and delays in the construction of these rigs. As a result, the Company
recorded provisions for contract losses during the second, third and fourth
quarters of 2000 of approximately $24.6 million, $7.0 million and $38.2 million,
respectively, related to this project. Losses for the fourth quarter include a
provision for all costs the Company incurred through the date of the March 9,
2001 amendment to the contract, at which time the contract was converted to a
"time and materials" contract. Shipyard construction of the first rig was
completed in May 2001

                                       56

<PAGE>

and that rig left the Company's facility to undergo final outfitting, including
the installation of the dynamic positioning thruster system. This rig has
completed final sea trial commissioning and is in operation. The second rig left
the Company's facility in July 2001 and construction was completed at a Canadian
shipyard in late 2002.

     On December 10, 2001, the Company entered into a Delivery and Close-Out
Agreement with Ocean Rig (the "Agreement") under which both parties waived and
released all claims each had against the other except certain limited claims
reserved in the Agreement. The Agreement was subject to the approval of the
Bankruptcy Court. The Bankruptcy Court's approval of the Agreement was not
received prior to the deadline for filing proofs of claim in the Bankruptcy
Court. In order to preserve its rights, Ocean Rig filed unquantified proofs of
claim for both rigs. On May 16, 2002, the Court entered an order approving the
Agreement. Pursuant to the order, the proofs of claim filed by Ocean Rig are
deemed held in abeyance. If the Company fails to comply with the mutual waivers
and releases of the Agreement, the proofs of claim could be reactivated and
amended. The Company does not believe that the proofs of claim will be
reactivated and amended.

Petrodrill

     In April 1998, one of the Company's subsidiaries Friede Goldman
Offshore-Texas ("FGOT") entered into contracts to construct two semi-submersible
drilling rigs for two newly formed entities, Petrodrill IV, Ltd. and Petrodrill
V, Ltd. ("Petrodrill"). After the commencement of construction, FGOT began to
experience delays in the production schedule and increased costs due, in whole
or part, to delays caused by Petrodrill and by subcontractors nominated by
Petrodrill. In addition, FGOT had to perform as the lead yard as opposed to a
follow-on yard as initially anticipated by the contracting parties.

     In April 1999, and in connection with a transaction whereby the United
States Maritime Administration ("MARAD") agreed to finance the Petrodrill rigs,
FGOT and Petrodrill entered into an amendment to the contracts that provided,
among other things, for extensions to the delivery dates of approximately nine
months for each rig. Thereafter, production delays continued. Under the
contracts, FGOT was entitled to extensions of the delivery dates for permissible
delay as defined in the contracts ("Permissible Delay") and for delays caused by
Petrodrill breaches of contract. FGOT notified Petrodrill that, as a result of
such delays, it was entitled to additional extensions of the delivery dates and
to additional compensation. Petrodrill refused to acknowledge FGOT's right to an
extension of the delivery dates. Petrodrill was also advised that the rigs could
not be completed by their respective existing delivery dates.

     In January 2000, FGOT notified Petrodrill that it was mitigating FGOT's and
Petrodrill's damages by deferring certain fabrication efforts until engineering
work could be completed so that the Company could determine the ultimate cost of
the project and permit construction to go forward in an efficient manner. FGOT
also notified Petrodrill that it believed it was entitled to additional monetary
compensation from Petrodrill as a result of delay, disruption, inefficiencies
and other direct and indirect costs caused by, among other things, delays by
Petrodrill and its nominated subcontractors and by FGOT being required to
perform as the lead yard. Consequently, Petrodrill and the Company filed a
series of actions against one another in the United States federal court and in
a court in London, England. In May 2000, FGOT and Petrodrill finalized an
agreement to amend the construction contract and dismiss the litigation
previously filed against each other. The amendment extended delivery dates,
capped liquidated damages and increased the Company's contract value.

     On February 28, 2001, the Company announced an agreement in principle with
Fireman's Fund, the surety company which wrote the performance bonds of $87.0
million per rig on the Petrodrill project, pursuant to which the surety company
had agreed to provide certain funding for the completion of construction of the
two semi-submersible drilling rigs. The agreement provided that the surety
company would contract with FGOT for fringe benefit costs, materials,
subcontractor and other costs and an allocation for overhead and general and
administrative expenses. The terms of the final agreement were not successfully
negotiated, thereby resulting in the surety ceasing to provide funding.

     On May 4, 2001, the Company announced that it filed with the Bankruptcy
Court a motion to reject the contracts related to the Petrodrill project. This
motion was approved by the Bankruptcy Court in June 2001 and finalized in July
2001. Work on the projects was discontinued effective May 4, 2001. Construction
on the projects resumed pursuant to a Bankruptcy Court motion effective
September 6, 2001. This motion provided for the Company to work as authorized by
the customer and surety company for a 120-day period on Rig I and a 150-day

                                       57

<PAGE>

period on Rig II. These periods began on September 6, 2001. The construction was
to be performed at specified labor, equipment and material billing rates. In
December 2001, the Company, Petrodrill and Fireman's Fund jointly moved for and
were granted an extension of time to April 4, 2002 for the removal of the first
rig from the Company's Pascagoula, Mississippi shipyard and to May 9, 2002 for
the removal of the second rig from the Company's shipyard in Orange, Texas. Work
continued past the deadlines based on a mutual agreement by both parties under
the same terms of the Bankruptcy Court agreement. The Company's work was
completed on the first rig and it was removed from its property on May 3, 2002.
The Company's work was completed on the second rig and it was removed from our
property on July 26, 2002.

     At December 31, 2002, $19.2 million was included in the Company's reserve
for estimated costs to compete the contract, which represents its estimate of
the remaining cost of completion in excess of future billings at the time work
on the project was suspended. The Company's estimate was based on an
uninterrupted work plan the Company developed during the first quarter of 2001.
At December 31, 2002, $25.2 million was included in the Company's liabilities
related to costs funded to date by the surety. The Company believes its
liability related to the project at December 31, 2002 is limited to the sum of
these two liabilities, approximately $44.4 million. This amount is included in
liabilities subject to compromise in the Consolidated Financial Statements.

     Petrodrill has submitted proofs of claim totaling $477.0 million based on
estimated costs to complete the rigs and lost revenues. Fireman's Fund has
submitted proofs of claim which are unquantified at this time. The Company
believes the amount of Petrodrill's asserted claim substantially exceeds the
Company's reserve of $44.4 million as of December 31, 2002 due to delays caused
by the customer/surety and the customer's/surety's inaction on resolving the
strategy to complete construction of the rigs. The Company is not privileged to
the customer's/surety's final strategy for completion of these projects and
their claims and does not have information as to the estimated final cost to
complete under the customer's/surety's strategy. The Company believes the claims
made by Petrodrill and the surety, if substantiated, would be a liability
subject to compromise. There is no assurance that management's position
regarding the value of the claims of Petrodrill and Fireman's Fund will be
upheld by applicable courts and additional liabilities will not result in excess
of the reserve recorded at December 31, 2002.

PASHA

     On December 28, 1999, the Company signed a contract for the construction of
a 4,000 car-carrier vessel for transport of vehicles between the West Coast and
the Hawaiian Islands. On May 1, 2001 the Company gave notice to the customer
that it was not financially capable of completing this contract without further
funding to ensure a cash flow positive contract from the date of filing Chapter
11 reorganization on April 20, 2001. This additional funding was anticipated to
come from the surety company which wrote the performance bond for the project.
The surety company provided additional funding for the project under court order
until July 27, 2001 when it informed the Company that it would not fund
completion of the vessel. Construction on the project was suspended when this
funding ceased. The Company and the customer maintain that this is a violation
of the terms of the performance bond. The customer has sued the surety in
federal court. The United States Department of Justice ("USDOJ"), which
represents the United States Maritime Administration ("MARAD") (the provider of
customer financing) and the customer have also sued the surety in the
Mississippi state court. The suits are seeking specific performance of the
surety under the terms of the performance bond. This suit was settled, but the
agreement was sealed by the federal court. Because substantially all of the
assets of the Company's Vessels segment were sold on October 23, 2002, the
Company will not complete the project.

       At December 31, 2002, $2.4 million was included in the Company's reserve
for estimated costs to complete the contract, which represents its estimate of
the remaining costs of completion in excess of future billings at the time work
on the project was suspended. The customer has submitted proofs of claim
totaling $906.0 million and the surety has submitted proofs of claim which are
unquantified at this time. The Company believes that these pre-petition claims
made by the customer and the surety are objectionable on one or more grounds,
although no such objections have been made to date. If the claims are
substantiated, then they would be a liability subject to compromise. There is no
assurance that management's position regarding the value of the claims of the
customer and the surety will be upheld by applicable courts and additional
liabilities will not result in excess of the reserve recorded at December 31,
2002. The surety also asserts certain secured claims against the Company's
assets and post-petition administrative claims for payments made under the
payment bond. Pending resolution of the surety's lien and claim rights, the
Bankruptcy Court has ordered the Company to maintain a minimum balance of $7.5
million in the sales proceed cash account for the Vessels segment subject to
certain adjustments.

                                       58

<PAGE>

CNOOC

     The Company filed a motion with the Bankruptcy Court to reject the contract
with China National Offshore Oil Company (CNOOC) for the construction of a heavy
derrick-lay barge. Liberty Mutual Insurance Company (Liberty Mutual) opposed the
contract rejection. Pursuant to the contract, CNOOC was provided a bank
guarantee from Royal Bank of Canada (Royal Bank). After the Company filed for
bankruptcy, CNOOC received approximately $10.9 million from Royal Bank under the
bank guarantee. Under a counter guarantee, Royal Bank received from Liberty
Mutual the same amount that Royal Bank paid to CNOOC. Prior to filing for
bankruptcy, the Company and certain of its subsidiaries entered into an
indemnification agreement with Liberty Mutual providing that the Company would
indemnify Liberty Mutual for any amount paid to Royal Bank under the counter
guarantee. At December 31, 2002, approximately $10.9 million was included in the
Company's liabilities subject to compromise for the indemnification agreement.
Liberty Mutual has submitted proofs of claim which are unquantified at this
time. Liberty Mutual has also asserted claims against proceeds received by a
subsidiary of the Company under post-petition contracts between the subsidiary
and CNOOC. The Company believes any claim made by Liberty Mutual would be a
liability subject to compromise and no loss exposure exists in excess of the
liability recorded. Pending resolution of certain rights asserted by Liberty
Mutual, the Bankruptcy Court has ordered the Company to maintain a minimum
balance of $10.5 million in the sales proceed cash account for the Engineered
Products segment subject to certain adjustments.

18.  Stockholder Rights Plan

     The Company adopted a stockholder rights plan on December 4, 1998, designed
to assure that its stockholders receive free and equal treatment in the event of
a takeover of the Company and to guard against partial tender offers,
squeeze-outs, open market accumulations, and other abusive tactics to gain
control without paying all stockholders a fair price. The rights plan was not
adopted in response to any specific takeover proposal. Under the rights plan,
the Company's stockholders were issued a Preferred Stock Purchase Right on each
share of the Company's common stock. Each right entitles its holder to purchase
one one-thousandth of a share of a new series of Junior Preferred Stock, par
value, $0.01 per share, for $75 per share. The Purchase Right grant was made on
December 21, 1998, to stockholders of record at that date. The rights will
expire on February 26, 2006.

19.  Income Taxes


                                       59

<PAGE>

     Income tax expense (benefit) included in the statements of operations for
the years ended December 31, 2002, 2001 and 2000 was as follows:

                                                     Years Ended December 31,
                                                 ------------------------------
                                                   2002        2001      2000
                                                 --------    -------   --------
                                                       (in thousands)

      Current:
           Domestic ............................ $     --    $    --    $(3,080)
           Foreign .............................      251      1,255         --
                                                 --------    -------   --------
                                                      251      1,255     (3,080)
                                                 --------    -------   --------
      Deferred:
           Domestic ............................  (12,002)   (53,457)   (23,276)
           Foreign .............................       --       (670)     1,730
           Change in valuation allowance .......   12,002     62,382      3,584
                                                 --------    -------   --------
                                                       --      8,255    (17,962)
                                                 --------    -------   --------
                Total ..........................     $251    $ 9,510   $(21,042)
                                                 ========    =======   ========

     Income tax expense (benefit) for the years ended December 31, 2002, 2001
and 2000 differs from the amount computed by applying the statutory federal
income tax rate to income (loss) before income taxes as a result of the
following:


<TABLE>
<CAPTION>
                                                                   December 31,
                                           --------------------------------------------------------------
                                                   2002                 2001                  2000
                                           -----------------    -------------------     -----------------
                                                      % of                  % of
                                                     Pretax                Pretax                  % of
                                                     Income                Income                 Pretax
                                           Tax       (Loss)      Tax       (Loss)       Tax       Income
                                         --------   -------   ---------    ------     --------    ------
                                                                    (in thousands)
<S>                                      <C>        <C>       <C>          <C>        <C>         <C>
Federal income tax expense (benefit)
  computed on loss from continuing
  operations before taxes ............... (12,082)   (35.0)%  $(111,119)    (35.0)%   $(21,816)   (35.0)%
    Amortization and impairment of
       goodwill .........................      --       --       73,609      23.2        1,910      3.1
    Domestic tax credits ................      --       --           --        --       (2,231)    (3.6)
    State income tax ....................      --       --      (10,477)     (3.3)      (2,057)    (3.3)
    Change in valuation allowance .......  12,082     35.0       62,382      19.6        3,584      5.8
    Other ...............................     251      0.7       (4,885)     (1.5)        (432)    (0.2)
                                         --------   ------    ---------    ------     --------    -----
Income tax expense (benefit) ........... $    251      0.7%   $   9,510       3.0%    $(21,042)   (33.8)%
                                         ========   ======    =========    ======     ========    =====
</TABLE>

                                       60

<PAGE>

     Temporary differences between the financial statement carrying amounts and
the tax bases of assets and liabilities gave rise to the following deferred
income taxes at December 31, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                         December 31,
                                                      --------------------------------------------------
                                                                2002                     2001
                                                      ------------------------  ------------------------
                                                                       Non-                     Non-
                                                        Current      Current      Current      Current
                                                         Asset        Asset        Asset        Asset
                                                      (Liability)  (Liability)  (Liability)  (Liability)
                                                      -----------  -----------  -----------  -----------
                                                                       (in thousands)
<S>                                                   <C>          <C>          <C>          <C>
Fixed assets. ....................................... $      --    $   2,734    $      --    $ (23,965)
Deferred government subsidy .........................        --           --           --        9,902
Foreign tax credit ..................................        --        2,276           --        2,276
Accounts receivable valuation .......................        --           --          600           --
Inventories valuation ...............................        --           --        1,657           --
Accrued liabilities .................................    11,568           --        4,389        3,169
Contact reserves ....................................    19,150           --       13,483           --
Fair value adjustment for contracts in progress at           --           --
   Acquisition ......................................                               3,405
Long-term contracts .................................        --           --        1,819           --
Other ...............................................     3,533           --
Debt discount .......................................        --        1,876           --        2,974
AMT carryforward ....................................        --        2,231           --        2,231
NOL carryforward ....................................        --      165,140           --      134,354
Valuation allowance .................................   (34,251)    (174,257)          --     (156,808)
                                                      ---------    ---------    ---------    ---------
Deferred income tax asset (liability). ..............  $     --    $      --    $  25,353    $ (25,867)
                                                      =========    =========    =========    =========
</TABLE>

     At December 31, 2002, the Company had net operating loss carryforwards
(NOLs) of $434.6 million and $4.7 million available to offset future U.S. and
Canadian taxable income, respectively. The U.S. NOLs expire in 2014 through 2017
and the Canadian NOLs expire in 2007.

     Management assesses the realizability of the net deferred tax asset based
on future reversals of existing temporary differences, recoverable taxes
previously paid and tax planning strategies. A deferred tax valuation allowance
is established, if needed, to limit the net deferred tax asset to its realizable
value. The valuation allowance at December 31, 2002 and 2001 was primarily
established for the deferred tax assets related to the Company's U.S. NOLs and
the tax effects of differences between the financial reporting values and tax
bases of certain assets acquired and liabilities assumed in the HMG merger.

     At December 31, 2002, the Internal Revenue Service (IRS) was in the process
of examining income tax returns filed by the Company or its predecessors for
various periods. The IRS has filed proofs of claim totaling $36 million with the
Bankruptcy Court pending completion of its examination of the tax returns.
Management has evaluated its exposure to various filing positions taken in the
returns under examination and does not believe any material loss exposure
exists.

     Prior to the merger between FGI and HMG, HMG filed various tax returns that
claimed income tax credits of approximately $9.0 million, excluding interest,
for qualified research and development expenditures. The IRS has examined these
tax returns and has disallowed the income tax credits. The Company has filed a
protest letter with the IRS to object to the disallowance of the credits. The
IRS responded to the protest letter and the matter has been referred to the
Appellate Division of the IRS. The Company has not recorded any benefit related
to these income tax credits in its consolidated financial statements due to the
uncertainties associated with the appellate process.

                                       61

<PAGE>

20.  Reconciliation of Net Loss Per Share

     The following table sets forth the computation of basic and diluted net
loss per share:

<TABLE>
<CAPTION>
                                                                           Years Ended December 31,
                                                                    ------------------------------------
                                                                        2002         2001        2000
                                                                    -----------   ---------    ---------
                                                                    (in thousands, except per share data)
<S>                                                                   <C>         <C>          <C>
Numerator:
     Net loss before discontinued operations and extraordinary
        item, basic and diluted ..................................    $(34,772)    $(326,992)   $(41,288)
                                                                      ========     =========    ========
Denominator:
     Weighted average shares outstanding .........................      48,711        48,711      44,562
     Effect of dilutive securities:
          Stock options. .........................................          --            --          --
                                                                      --------     ---------    --------
     Denominator for net loss before discontinued operations
        and extraordinary item per share, basic and diluted. .....      48,711        48,711      44,562
                                                                      ========     =========    ========
Net loss per share, basic and diluted. ...........................    $ (0.71)     $   (6.71)   $  (0.93)
                                                                      ========     =========    ========
</TABLE>

     The effect on net loss per share, diluted, would be anti-dilutive if the
stock options and the conversion of the 4 1/2% Convertible Subordinated Notes
had been assumed in the computation for all years presented.

21. Unaudited Quarterly Financial Data

<TABLE>
<CAPTION>
                                                              Quarter Ended
                                                        ----------------------------------
2002                                        March 31    June 30  September 30  December 31
----                                                    -------  ------------  -----------
                                                            (in thousands)
<S>                                          <C>        <C>         <C>         <C>
Operating loss ..........................    (3,459)     (1,933)     (1,691)     (2,507)
Loss before taxes .......................    (8,763)    (28,928)    (10,816)    (42,855)
Net loss ................................    (9,014)    (28,928)    (10,816)    (42,855)
Net loss per share, basic and diluted ...     (0.19)      (0.59)      (0.22)      (0.88)

2001                                        March 31    June 30  September 30  December 31
----                                                    -------  ------------  -----------
                                                               (in thousands)
Operating loss ..........................    (7,430)     (6,646)     (7,448)   (209,487)
Loss before taxes .......................   (72,767)     (5,677)    (10,838)   (302,815)
Net loss ................................   (73,204)     (9,236)    (10,822)   (307,805)
Net loss per share, basic and diluted ...     (1.50)      (0.19)      (0.22)      (6.31)
</TABLE>

     Results of operations for the second quarter of 2002 include a write-down
of the Vessels' segment assets to their net realizable value which resulted in a
loss on disposal of the Vessels segment of $34.0 million. Additionally, the
second quarter results of operations includes an $11.9 million gain on the sale
of FGL which occurred in June 2002.

     Results of operations for the fourth quarter of 2002 include a write-down
of the Offshore's segment assets to their net realizable value which resulted in
a loss on disposal of the Offshore segment of $28.7 million. Additionally, loss
on sale of the Vessels segment was adjusted by $3.3 million in the fourth
quarter primarily as a result of a $1.9 million accrual recorded for the working
capital settlement paid in 2003 and a $0.7 million write-down of remaining
property to its net realizable value.

     Results of operations for the fourth quarter of 2001 include a goodwill
impairment charge of $201.6 million, a loss on disposal of Offshore segment of
$22.0 million and a loss on disposal of the Engineered Products segment of $26.0
million.

                                       62

<PAGE>


                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on April 15, 2003

                                           FRIEDE GOLDMAN HALTER, INC.


                                           By:  /s/ T. Jay Collins

                                                    T. Jay Collins
                                               Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf of the registrant
and in the capacities indicated on April 15, 2003.

          Signature                             Title
          ---------                             -----

      /s/ T. JAY COLLINS        Chairman of the Board and Chief Executive
      ----------------------    Officer/Acting Chief Financial Officer
         T. Jay Collins

      /s/ ALAN A. BAKER         Director
      ----------------------
         Alan A. Baker


      /s/ ANGUS R. COOPER II    Director
      ----------------------
         Angus R. Cooper II

      /s/ BARRY J. GALT         Director
      ----------------------
         Barry J. Galt

      /s/ GARY L. KOTT          Director
      ----------------------
         Gary L. Kott

      /s/ RAYMOND E. MABUS      Director
      ----------------------
       Raymond E. Mabus

                                       63