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Conformed copy
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
----------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1998 COMMISSION FILE NUMBER 1-13817
BOOTS & COOTS INTERNATIONAL
WELL CONTROL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2908692
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5151 SAN FELIPE, SUITE 450
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(713) 621-7911
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE:)
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
The number of shares of the Registrant's Common Stock, par value .00001 per
share, outstanding at August 12, 1998, was 31,791,074.
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I. Item 1. Financial Statements................................... 3
Consolidated Balance Sheets.................................... 3
Consolidated Statements of Operations.......................... 4
Consolidated Statements of Cash Flows.......................... 5
Notes to Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 9
PART II. Other Information.............................................. 11
Item 2. Change in Securities and Use of Proceeds............... 11
Item 6. Exhibits and Reports on Form 8-K....................... 13
</TABLE>
2
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PART I
ITEM 1. FINANCIAL STATEMENTS.
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1997 1998
------ ------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENTS ASSETS:
Cash............................................... $ 1,718,000 $ 308,000
Receivables........................................ 2,766,000 19,163,000
Inventories........................................ 1,131,000 7,009,000
Prepaid expenses and other current assets.......... 427,000 2,044,000
----------- -----------
Total current assets............................. 6,042,000 28,524,000
PROPERTY, PLANT AND EQUIPMENT, net................... 6,948,000 8,488,000
OTHER ASSETS:
Deferred financing costs and other assets--net..... 87,000 1,795,000
Goodwill--net...................................... 984,000 9,001,000
----------- -----------
Total assets................................... $14,061,000 $47,808,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable................................... $ 1,679,000 $15,987,000
Accrued liabilities and customer advances.......... 486,000 4,912,000
Notes payable--current portion..................... 1,565,000 7,566,000
----------- -----------
Total current liabilities........................ 3,730,000 28,465,000
----------- -----------
NOTES PAYABLE--net of current portion................ 9,000 83,000
12% SENIOR SUBORDINATED NOTES........................ 90,000 90,000
COMMITMENTS AND CONTINGENCIES........................ -- --
SHAREHOLDERS' EQUITY:
Preferred stock ($.00001 par, 5,000,000 shares
authorized, 0 and 196,000 shares issued and
outstanding at December 31, 1997 and June 30,
1998, respectively)............................... -- --
Common stock ($.00001 par, 50,000,000 shares
authorized, 29,998,662 and 31,013,797 shares
issued and outstanding at December 31, 1997 and
June 30, 1998, respectively)...................... -- --
Additional paid-in capital......................... 11,213,000 19,945,000
Accumulated deficit................................ (981,000) (775,000)
----------- -----------
Total shareholders' equity....................... 10,232,000 19,170,000
----------- -----------
Total liabilities and shareholders' equity....... $14,061,000 $47,808,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ----------------------
1997 1998 1997 1998
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES........................ $1,585,000 $18,565,000 $1,825,000 $30,524,000
COSTS AND EXPENSES:
Operating expenses............ 648,000 13,487,000 862,000 21,582,000
Selling, general and
administrative............... 348,000 3,665,000 691,000 6,237,000
Depreciation and amortization. 78,000 448,000 111,000 759,000
---------- ----------- ---------- -----------
1,074,000 17,600,000 1,664,000 28,578,000
---------- ----------- ---------- -----------
Operating Income................ 511,000 965,000 161,000 1,946,000
Other Expenses.................. 53,000 651,000 62,000 1,218,000
---------- ----------- ---------- -----------
Income Before Income Taxes...... 458,000 314,000 99,000 728,000
Income Tax Expense (Benefit).... (1,000) 16,000 12,000 274,000
---------- ----------- ---------- -----------
Net Income...................... 457,000 298,000 87,000 454,000
Required Preferred Dividends.... -- 248,000 -- 248,000
---------- ----------- ---------- -----------
Net Income to Common
Shareholders................... $ 457,000 $ 50,000 $ 87,000 $ 206,000
========== =========== ========== ===========
Basic Earnings Per Common Share. $ 0.03 $ 0.00 $ 0.01 $ 0.01
========== =========== ========== ===========
Diluted Earnings Per Common
Share.......................... $ 0.03 $ 0.00 $ 0.01 $ 0.01
========== =========== ========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING...... 14,043,000 30,773,000 13,096,000 30,490,000
========== =========== ========== ===========
DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING... 14,856,000 33,609,000 13,444,000 33,326,000
========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1997 1998
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income to common shareholders.................... $ 87,000 $ 206,000
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization...................... 111,000 759,000
Warrants issued with bridge financing.............. -- 516,000
Allowance for doubtful accounts.................... -- 134,000
Preferred stock dividends.......................... -- 248,000
Changes in operating assets and liabilities, net of
assets acquired:
Receivables...................................... (1,162,000) (12,826,000)
Inventories...................................... (288,000) (4,106,000)
Prepaid expenses and other current assets........ 58,000 (1,401,000)
Deferred costs and other assets (not current).... 165,000 (3,527,000)
Accounts payable................................. 392,000 10,910,000
Accrued liabilities and customer advances........ -- 3,886,000
---------- -----------
Net cash used in operating activities............ (637,000) (5,201,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of ITS Supply Corporation.............. -- (6,000,000)
Acquisition of Code 3, Inc......................... -- (1,226,000)
Property and equipment additions................... (247,000) (560,000)
---------- -----------
Net cash used in investing activities............ (247,000) (7,786,000)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock options exercised..................... 247,000 114,000
Deferred financing cost............................ (155,000) (398,000)
Proceeds from issuance of debt..................... 1,555,000 8,250,000
Proceeds from issuance of preferred stock.......... -- 4,678,000
Debt repayments.................................... (62,000) (1,067,000)
---------- -----------
Net cash provided by financing activities........ 1,585,000 11,577,000
---------- -----------
NET INCREASE (DECREASE) IN CASH...................... 701,000 (1,410,000)
CASH, beginning of period............................ -- 1,718,000
---------- -----------
CASH, end of period.................................. $ 701,000 $ 308,000
========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for acquisition of Code 3,
Inc............................................... $ -- $ 2,282,000
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Generally Accepted Accounting Principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. They do not include all information and notes
required by Generally Accepted Accounting Principles for complete financial
statements. The accompanying financial statements include all adjustments,
including normal recurring accruals, which in the opinion of management are
necessary in order to make the financial statements not be misleading.
The accompanying consolidated financial statements should be read in
conjunction with the Audited Financial Statements for the Six Months Ended
December 31, 1997 and the notes thereto contained in the Company's Annual
Report on Form 10-KSB for the transition period from July 1, 1997 to December
31, 1997.
The results of operations for the three and six months ended June 30, 1997
and the three and six months ended June 30, 1998 are not necessarily
indicative of the results to be expected for the full year.
NOTE B--BUSINESS ACQUISITIONS
On July 31, 1997, Boots & Coots International Well Control, Inc. (the
"Company") acquired all of the operating assets, including stock of the
foreign subsidiaries, of Boots & Coots, L.P. ("Boots & Coots"), an oil and gas
well control firefighting, snubbing and industrial and marine firefighting
company. The consideration paid consisted of (i) $370,000 cash payable to
Boots & Coots, (ii) $681,000 placed in escrow to pay certain debts of Boots &
Coots, (iii) the issuance of secured promissory notes of the Company in the
aggregate principal amount of $4,761,000 and (iv) 260,000 shares of Common
Stock of the Company. The promissory notes were secured by the acquired assets
of Boots & Coots, and have been paid, with the exception of approximately
$1,044,000 outstanding at June 30, 1998 pending final determination of foreign
tax obligations. The amount of such obligations have been resolved and the
Company paid $820,000 in full satisfaction of such note on July 6, 1998. This
transaction was accounted for as a purchase and the acquired assets of Boots &
Coots were revalued at fair market value as of July 31, 1997 resulting in
goodwill of $50,000 which will be amortized over 15 years.
On September 25, 1997, the Company formed a wholly-owned subsidiary company,
ABASCO, Inc. ("ABASCO") to purchase the assets of ITS Environmental, a
manufacturer and distributor since 1975 of rapid response oil and chemical
spill containment and reclamation equipment and products. The Company paid
$1,590,000 cash and issued 300,000 shares of common stock to acquire the
manufacturing equipment, inventory and customer lists. This transaction was
accounted for as a purchase and the acquired assets of ABASCO were revalued at
fair market value effective as of September 12, 1997 resulting in goodwill of
approximately $749,000 which will be amortized over 25 years.
On January 2, 1998, the Company completed the funding of the acquisition,
effective as of December 31, 1997, of all of the capital stock of ITS Supply
Corporation ("ITS") for aggregate consideration of $6,000,000. Financing for
the acquisition of ITS was provided from working capital ($500,000); proceeds
from the issuance of 10% Senior Secured Notes due May 2, 1998 ($4,500,000);
and short-term bridge financing from the seller ($1,000,000). In connection
with the sale through private placement of the 10% Senior Secured Notes on
January 2, 1998, the Company entered into a financial advisory arrangement
pursuant to which the note holders are to provide a certain level of
financial, merger and acquisition advisory services over a three-year period
in consideration of an advance cash consulting fee of $500,000, all of which
was added to the principal balance of the Senior Secured Notes. The commitment
for the Senior Secured Notes by the note holders also required the
6
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
payment by the Company of a $50,000 commitment fee. The note holders of the
10% Senior Secured Notes were also issued warrants exercisable over a six year
term to purchase an aggregate of 2,000,000 shares of the Company's Common
Stock at a price of $2.62 per share. The ITS seller obligation of $1,000,000,
which bears interest at the rate of 10% per annum, was payable on March 31,
1998. This note was extended on a month to month basis. On June 8, 1998,
$700,000 of the seller's obligation was paid. On July 22, 1998 the remaining
$300,000 was paid. This transaction was accounted for as a purchase and the
acquired net assets of ITS have been revalued on a preliminary basis resulting
in goodwill of $4,115,000 which will be amortized over 25 years.
On February 20, 1998, the Company completed the acquisition of all of the
stock of Code 3, Inc. ("Code 3"). Consideration for the acquisition of Code 3,
with an effective date for audited purchase price adjustments as of December
31, 1997, was $570,568 cash; the repayment of Code 3 corporate secured debt
and interest thereon of approximately $1,250,000; the allotment of $550,000 of
Code 3 accounts receivable to the former shareholders; and the issuance of
488,136 shares of the Company's Common Stock, of which 158,646 shares were
delivered into escrow to secure the indemnification obligations of the
stockholders of Code 3. On March 5, 1998, the Company sold through private
placement to the note holders providing financing for the ITS acquisition an
additional $2,250,000 of 10% Senior Secured Notes due June 15, 1998. In
addition, these note holders were issued warrants, exercisable over a six year
term, to purchase an additional 500,000 shares of the Company's common stock
at a price of $4.50 per share. This transaction was accounted for as a
purchase and the acquired underlying net assets of Code 3 have been revalued
on a preliminary basis resulting in goodwill of $3,551,000 which will be
amortized over 25 years.
An estimated fair value of $516,000 has been attributed to the warrants
issued in connection with the 10% Senior Secured Notes. $332,000 has been
charged to operations as interest expense for the three months ended March 31,
1998, and $184,000 has been charged to operations for the three months as
interest expense for the three months ended June 30, 1998.
The Company's Chairman and Chief Executive Officer, Larry H. Ramming, was
granted a waiver of the lock-up restrictions on his shares of Common Stock
with respect to a pledge of such shares to secure a loan, the proceeds of
which were used by Mr. Ramming on April 30, 1998 to purchase the 10% Senior
Secured Notes issued by the Company, in the aggregate principal amount of
$7,250,000, of which $5,000,000 was due May 2, 1998 and $2,250,000 was due
June 15, 1998. Mr. Ramming has agreed to extend the maturity dates of such
notes to October 1, 1998, in exchange for a fee of 1% of the principal
balances of such notes.
The operations of the four acquired businesses (Boots & Coots, ABASCO, ITS
and Code 3) are included in the Company's consolidated operations from the
respective acquisition dates. The Company's revenues, net income applicable to
common shareholders, and net income per share on an unaudited pro forma basis,
assuming that the Boots & Coots, ABASCO, ITS Supply, and Code 3 acquisitions
occurred on January 1, 1997, would be as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1997 1997
------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues........................................ $14,009,000 $33,474,000
Net Income...................................... $ 345,000 $ 427,000
Net Earnings per common share................... $ 0.01 $ 0.02
</TABLE>
7
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE C--SUBSEQUENT EVENTS
On July 23, 1998, the Company completed the acquisition of 100% of the
outstanding shares of common stock of Elmagco, Inc., a Delaware Corporation
("Elmagco") from Begemann, Inc., a Delaware Corporation ("Begemann"). Elmagco
and its subsidiaries conduct business using the tradename Baylor Company
("Baylor"). Baylor is engaged in the design and manufacture of electrical
braking and control equipment predominantly used in the drilling and marine
markets, highly engineered specialty products such as SCR systems and custom
pedestal leg locking systems for the offshore market. Additionally, Baylor
designs and manufactures a broad line of custom AC generators, which are used
in a variety of industrial, commercial and governmental applications. Baylor
reported audited revenues of $31 million and net income of $3.5 million for
its most recent fiscal year ended December 31, 1997.
Consideration for the acquisition of Baylor with a June 30, 1998 effective
date was $25,000,000 in cash, retirement of $7,654,000 in secured indebtedness
of Baylor and the issuance at closing of 540,443 shares of the Company's
common stock. Concurrent with the acquisition, and to provide the Company with
cash to fund the acquisition and for other corporate purposes, the Company
completed the sale of $15,000,000 of Senior Secured Notes due January 23, 1999
(the "Senior Notes") and $30,000,000 of 11.28% Senior Subordinated Notes due
July 23, 2006 (the "Subordinated Notes") to The Prudential Insurance Company
of America ("Prudential"). Proceeds from these financing transactions were
used to fund the Baylor acquisition, repay $5,000,000 in bridge financing
provided through Prudential Securities Credit Corporation on July 6, 1998 and
provide working capital.
The Senior Notes bear interest at the Eurodollar Rate plus 5.5% during the
first ninety days after issuance, the Eurodollar Rate plus 7.5% for the next
thirty days, and thereafter the interest rate increases by an additional 1.0%
for each thirty day period. The Senior Notes are secured by a first priority
lien on substantially all of the assets of the Company and its subsidiaries
and are guaranteed by the domestic subsidiaries of the Company. The
Subordinated Notes are similarly secured and guaranteed but are subordinate in
right of repayment to the Senior Notes.
The loan agreement relating to the Senior Notes requires that the Company
use its best efforts to cause the refinancing of the Senior Notes as soon as
possible and imposes certain restrictions on the Company's activities,
including, without limitation, with respect to the payment of dividends or
other distributions on its capital stock; incurring additional indebtedness;
granting liens to secure any other indebtedness; making loans or advances to,
or investments in, other persons or entities; liquidating, dissolving or
merging with another company; dispositions of assets; transactions with
affiliates; changing the nature of its business; and the issuance of
additional shares of preferred stock.
The Subordinated Note and Warrant Purchase Agreement relating to the
Subordinated Notes imposes restrictions on the Company's activities which are
similar to those imposed by the Senior Loan Agreement but additionally
requires that the Company meet certain minimum financial tests so long as the
Subordinated Notes are outstanding. The Senior Loan Agreement and the
Subordinated Note and Warrant Purchase Agreement also provide for customary
affirmative and negative covenants.
In conjunction with the sale of the Notes, the Company issued to Prudential
a warrant to purchase 3,165,396 shares of common stock (the "Warrant") of the
Company at an initial exercise price of $6.70 per share. The Warrant contains
anti-dilution and repricing provisions that may result in downward adjustments
to the exercise price upon the occurrence of certain events and a provision
for the "cashless" exercise of the Warrant. The Company granted Prudential a
one-time demand registration right and unlimited "piggyback" registration
rights for the shares of common stock issuable upon the exercise of the
Warrant. The Company and certain stockholders of the Company also agreed with
Prudential that in the event of significant sales of securities of the Company
by the Company or such stockholders, Prudential would be entitled to
participate in such sale.
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion is intended to assist in an understanding of the
unaudited consolidated financial position and results of operations of Boots &
Coots International Well Control, Inc. (the "Company") for the six months
ended June 30, 1997 and 1998 and the three months ended June 30, 1997 and
1998. The following discussion should be read in conjunction with the
unaudited Consolidated Financial Statements and the notes thereto included
elsewhere herein. Certain forward-looking statements are made pursuant 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 uncertainties which may cause actual results to differ from
anticipated results, including risks associated with the timing and
development of, and market acceptance of, the Company's services and products
as well as risks of downturns in economic conditions generally, risks
associated with competition and competitive pricing pressures, and other risks
detailed from time to time in the Company's filings with the Securities and
Exchange Commission, including its latest Form 10-KSB for the six months ended
December 31, 1997.
As discussed in Note B, the Company completed the acquisitions of Boots and
Coots L.P. as of July 31, 1997; ABASCO, Inc. as of September 25, 1997; ITS
Supply Corporation as of January 1, 1998; and, Code 3, Inc. as of February 20,
1998. The results of operation for such acquisitions are included in the
accompanying Statements of Operations from the respective dates of acquisition
through the reporting quarter ends.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND JUNE 30,
1998
Revenues were $1,585,000 for the three months ended June 30, 1997 compared
to $18,565,000 for the three months ended June 30, 1998. This increase
principally resulted from increased market share of IWC Services' well control
and fire fighting client-base ($2,395,000) and business acquisitions
($14,585,000).
Operating expenses were $648,000 for the three months ended June 30, 1997
compared to $13,487,000 for the three months ended June 30, 1998. This
increase principally resulted from increased market share of IWC Services'
well control and fire fighting client-base ($1,784,000) and business
acquisitions ($11,055,000).
Selling, general and administrative expenses were $348,000 for the three
months ended June 30, 1997 compared to $3,665,000 for the three months ended
June 30, 1998. This increase principally resulted from increased market share
of IWC Services' well control and fire fighting client-base ($971,000) and
business acquisitions ($2,346,000).
Depreciation and amortization expense increased from $78,000 for the three
months ended June 30, 1997 to $448,000 for the three months ended June 30,
1998 primarily due to the effect of business acquisitions completed subsequent
to June 30, 1997.
The increase in other expenses from $53,000 for the three months ended June
30, 1997 to $650,000 for the three months ended June 30, 1998 is principally
due to interest expense on increased debt incurred for business acquisitions.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
Revenues were $1,825,000 for the six months ended June 30, 1997 compared to
$30,524,000 for the six months ended June 30, 1998. This increase was the
result of increased market share from diversification of IWC Services' well
control and fire fighting client-base ($4,489,000) and business acquisitions
($24,210,000).
Operating expenses were $862,000 for the six months ended June 30, 1997
compared to $21,582,000 for the six months ended June 30, 1998. The increase
was the result of expanded well control operations beginning in the fourth
quarter of fiscal 1997 ($2,570,000) and business acquisitions ($18,150,000).
Selling, general and administrative expenses were $691,000 for the six
months ended June 30, 1997 compared to $6,237,000 for the six months ended
June 30, 1998. The increase was primarily the result of
9
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investments in expanded corporate infrastructure and expanded marketing and
advertising to increase market share and diversify the Company's well control
client base ($1,581,000) and business acquisitions ($3,965,000).
Depreciation and amortization expense increased from $111,000 for the six
months ended June 30, 1997 to $759,000 for the six months ended June 30, 1998,
primarily as the result of depreciation and amortization relating to business
acquisitions.
Other expenses was $62,000 for the six months ended June 30, 1997 compared
to a net expense of $1,218,000 for the six months ended June 30, 1998,
primarily from higher interest expense on increased debt incurred for business
acquisitions.
Income taxes for the six months ended June 30, 1997, includes a credit for
the reversal of a deferred federal income tax provision of $66,000.
Substantially all of the balance of income taxes for both the six months ended
June 30, 1997 and 1998 represents foreign taxes on international operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash expenditures in connection with the acquisitions of Boots
& Coots L.P., Abasco, ITS and Code 3 required a substantial portion of the
Company's then existing cash reserves. Further, the terms upon which Abasco,
ITS and Code 3 were acquired allowed the sellers to retain most or all of the
working capital of such companies. To date, the Company has funded its
operations and acquisitions from: equity capital contributed by its officers,
directors and principal stockholders; proceeds from the sale in July 1997 of
$3,000,000 of the Company's 12% Senior Subordinated Notes due December 31,
2000 (the "Subordinated Notes") of which $2,900,000 has been converted into
3,867,000 shares of Common Stock; $6,481,000 in net proceeds from the private
placement, in September 1997, of 7,475,000 shares of Common Stock (the
"September Private Placement"); $4,500,000 in net proceeds from the private
placement, in January 1998, of the Company's 10% Senior Secured Notes due May
2, 1998 (the "Senior Notes"); $2,250,000 in net proceeds from the private
placement, in March 1998, of additional Senior Notes due June 15, 1998
("Additional Senior Notes"); seller financing on the acquired businesses in
the aggregate principal amount of $5,761,000, of which all has been retired as
of the date hereof; and approximately $4,678,000 in net proceeds from the
private placement of 196,000 Units of the Company's 10% Junior Redeemable
Convertible Preferred Stock, each Unit consisting of one share of the
Preferred Stock and one Unit Warrant representing the right to purchase five
shares of Common Stock of the Company at a price of $5.00 per share.
As discussed in Note C, on July 23, 1998, the Company completed a $45
million financing package with The Global Energy division of Prudential
Capital Group, consisting of $15 million senior secured notes due in January
1999 and $30 million in senior subordinated notes due in 2006. Proceeds were
used to fund the acquisition of Baylor Company and to provide working capital.
10
<PAGE>
PART II--OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds.
10% Junior Redeemable Convertible Preferred Stock
Between April 17, 1998 and June 8, 1998, the Company issued 196,000 shares
of its 10% Junior Redeemable Convertible Preferred Stock, $.00001 par value
per share (the "Redeemable Stock" and warrants to acquire 980,000 shares of
the Company's common stock at $5 per share). The Redeemable Stock is senior to
the Common Stock of the Company with respect to the payment of dividends and
rights upon liquidation, dissolution or winding up of the affairs of the
Company. The holders of the Redeemable Stock are entitled to cumulative
dividends at the rate of 10% per annum on the face value per share thereof
($25.00). Dividends on the Redeemable Stock may be paid in cash or, at the
election of the Company, in additional shares of Redeemable Stock, each such
share being valued for such purposes at $25.00 per share. The Company may not
pay dividends or make any other distribution on any shares of Common Stock or
any equity securities of the Company junior to the Redeemable Stock in respect
of dividends so long as dividends on the Redeemable Stock are in arrears. In
the event of the liquidation, voluntary or involuntary, dissolution or winding
up of the affairs of the Company, the holders of the Redeemable Stock then
outstanding will be entitled to be paid out of the assets of the Company
available for distribution to its stockholders, an amount equal to $25.00 per
share, plus any accrued and unpaid dividends on such shares, before any
payment or distribution is made with respect to any Common Stock or equity
securities of the Company junior to the Redeemable Stock in respect of
distributions upon liquidation, dissolution or winding up of the affairs of
the Company. The Redeemable Stock may be redeemed by the Company at any time
on or before the six month anniversary of the date of the issuance (from
October 17, 1998 through December 8, 1998) without prior written notice in an
amount per share equal to $25.00, plus any accrued and unpaid dividends
thereon. After the six month anniversary of the date of issuance of the
Redeemable Stock and for so long as such shares are outstanding, the Company
may redeem such shares upon fifteen days prior written notice. The warrants
were ascribed a value of approximately $1,600,000 of the $4,900,000 raised up
issuance of the preferred shares and warrants. This value will be amortized as
preferred stock dividends over the term of the preferred shares.
In the event shares of Redeemable Stock are not redeemed by the Company on
or before the six month anniversary of the date of issuance, each unredeemed
share shall thereafter, until the nine month anniversary of the date of
issuance, by convertible by the holder into such number of shares of Common
Stock as shall be obtained by dividing $25.00 by 85% of the average of the
last reported sales prices of shares of the Common Stock (or the average of
the closing bid and asked prices if no transactions have been reported), not
to exceed $6.00 per share, for the 10 trading days immediately preceding the
receipt by the Company of written notice from the holder thereof of an
election to so convert such share of Redeemable Stock. In the event the
Company has not redeemed shares of Redeemable Stock on or before the nine
month anniversary of the date of issuance, each unredeemed share shall become
immediately convertible, at the election of the holder thereof, into such
number of shares of Common Stock as shall be obtained by dividing $25.00 by
$2.75 (proportionately adjusted for Common Stock splits, combinations of
Common Stock and dividends paid in shares of Common Stock). The discount to
market on the conversion feature has been calculated at approximately
$850,000, which is being amortized as preferred stock dividends over six
months, the date the preferred shares first become convertible.
The holders of the Redeemable Stock are entitled (i) to cast a number of
votes equal to the number of shares of Common Stock in which such shares are
convertible, at the record date for the determination of stockholders entitled
to vote on such matters or, if no record date is established, at the date such
is taken, and (ii) have voting rights and powers equal to the voting rights
and powers of the Common Stock, except that the holders of the Redeemable
Stock have the right to vote as a separate class to amend, alter, waive the
application of, or repeal (whether by merger, consolidation or otherwise) any
provision of the Certificate of Designation thereof.
11
<PAGE>
Senior Secured Notes and Subordinated Secured Notes
On July 23, 1998, the Company completed the sale of $15,000,000 of Senior
Secured Notes due January 23, 1999 (the "Senior Notes") to The Prudential
Insurance Company of America ("Prudential") and $30,000,000 of 11.28% Senior
Subordinated Notes due July 23, 2006 (the "Subordinated Notes") to The
Prudential Insurance Company of America.
The Senior Notes bear interest at the Eurodollar Rate plus 5.5% during the
first ninety days after issuance, the Eurodollar Rate plus 7.5% for the next
thirty days, and thereafter increase by an additional 1.0% for each thirty day
period. The Senior Notes are secured by a first priority lien in substantially
all of the assets of the Company and its subsidiaries and are guaranteed by
the domestic subsidiaries of the Company. The Subordinated Notes are similarly
secured and guaranteed but are subordinate in right of repayment to the Senior
notes.
The loan agreement relating to the Senior Notes and the purchase agreement
relating to the Subordinated Notes impose restrictions on the Company's
ability to pay dividends or other distributions on its capital stock.
12
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
2.1 --Stock Purchase Agreement dated June 22, 1998 by and among
Elmagco, Inc., Begemann, Inc. and Boots & Coots
International Well Control, Inc. (4)
2.2 --First Amendment to Stock Purchase Agreement dated June 22,
1998 by and among Elmagco, Inc., Begemann, Inc. and Boots &
Coots International Well Control,
Inc. (4)
2.3 --Second Amendment to Stock Purchase Agreement dated June 22,
1998 by and among Elmagco, Inc., Begemann, Inc. and Boots &
Coots International Well Control,
Inc. (4)
3.01 --Amended and Restated Certificate of Incorporation (1)
3.02 --Amendment to Certificate of Incorporation (1)
3.03 --Amended Bylaws (1)
4.01 --Specimen Certificate for the Registrant's Common Stock (1)
4.02 --Form of 12% Senior Subordinated Notes due December 31, 2000
(1)
4.03 --Form of Noteholders' Warrants to Purchase $3,000,000 of
Common Stock (1)
4.04 --Form of Employees Option to Purchase 690,000 Shares of
Common Stock (1)
4.05 --Form of Contractual Options to Purchase 1,265,000 Shares of
Common Stock (1)
4.06 --Note Purchase Agreement with Main Street/Geneva (2)
4.07 --First Amendment to Note Purchase Agreement with Main
Street/Geneva (2)
4.08 --Certificate of Designation of 10% Junior Redeemable
Convertible Preferred Stock (4)
9.01 --Voting Trust Agreement between Larry H. Ramming, Raymond
Henry, Richard Hatteberg, Danny Clayton and Brian Krause (as
amended) (2)
10.01 --Alliance Agreement between IWC Services, Inc. and
Halliburton Energy Services, a division of Halliburton
Company (1)
10.02 --Executive Employment Agreement of Larry H. Ramming (1)
10.03 --Executive Employment Agreement of Raymond Henry (1)
10.04 --Executive Employment Agreement of Brian Krause (1)
10.05 --Executive Employment Agreement of Richard Hatteberg (1)
10.06 --Executive Employment Agreement of Danny Clayton (1)
10.07 --Security Agreement and Financing Statement with Main
Street/Geneva (2)
10.08 --First Amendment to Security Agreement (2)
10.09 --Stock Pledge Agreement with Main Street/Geneva (2)
10.10 --First Amendment to Stock Pledge Agreement (2)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
10.11 --Form of Warrant issued to Main Street/Geneva (2)
10.12 --Form of Registration Rights Agreement with Main
Street/Geneva (2)
10.13 --Form of First Amendment to Registration Rights Agreement (2)
10.14 --1997 Incentive Stock Plan (2)
10.15 --Outside Directors' Option Plan (2)
10.16 --Executive Compensation Plan (2)
10.17 --Halliburton Center Sublease (2)
10.18 --Camac Plaza Sublease (2)
10.19 --Senior Loan Agreement dated July 6, 1998, between Boots &
Coots International Well Control, Inc., and Prudential
Securities Credit Corporation. (5)
10.20 --First Amendment to Senior Loan Agreement (Bridge Facility)
dated July 23, 1998, between Boots & Coots International
Well Control, Inc., and The Prudential Insurance Company of
America. (5)
10.21 --Subordinated Note and Warrant Purchase Agreement dated July
23, 1998, between Boots & Coots International Well Control,
Inc., and The Prudential Insurance Company of America. (5)
10.22 --Registration Rights Agreement dated July 23, 1998, between
Boots & Coots International Well Control, Inc., and The
Prudential Insurance Company of
America. (5)
10.23 --Participation Rights Agreement dated July 23, 1998, by and
among Boots & Coots International Well Control, Inc., The
Prudential Insurance Company of America and certain
stockholders of Boots & Coots International Well Control,
Inc. (5)
10.24 --Common Stock Purchase Warrant dated July 23, 1998. (5)
11.01 --Computation of Per Share Earnings (2)
21.01 --List of subsidiaries (3)
*27.01 --Financial Data Schedule
</TABLE>
- --------
* Filed herewith.
(1) Incorporated herein by reference to the corresponding exhibit in the
Registrant's Form 8-K filed with the Commission on August 13, 1997.
(2) Incorporated herein by reference to the corresponding exhibit in the
Registrant's Report on Form 10-KSB filed with the Commission on March 31,
1998.
(3) Incorporated herein by reference to the corresponding exhibit in the
Registrant's Report on Form 10-KSB/A filed with the Commission on December
5, 1997.
(4) Incorporated herein by reference to the corresponding exhibit in the
Registrant's Report on Form 10-QSB filed with the Commission on May 19,
1998.
(5) Incorporated herein by reference to the corresponding exhibit in the
Registrant's Form 8-K filed with the Commission on August 7, 1998.
(b) Reports on Form 8-K.
On May 6, 1998, the Company filed an amendment to its Form 8-K filed March
9, 1998, in which the Company reported the acquisition of Code 3, Inc. The
amendment to such Form 8-K contained the financial statements required in
connection with such acquisition, including the unaudited pro forma
consolidated statements of operations of the Company for the six months ended
December 31, 1997, and the twelve months ended June 30, 1997; the unaudited
pro forma consolidated balance sheet of the Company as of December 31, 1997;
and the audited financial statements of Code 3, Inc., for the year ended
December 31, 1997, together with the auditor's report thereon.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Boots & Coots International Well
Control, Inc.
Date: August 14, 1998 By: /s/ Thomas L. Easley
----------------------------------
THOMAS L. EASLEY
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1998
<PERIOD-END> MAR-31-1998 JUN-30-1998
<CASH> 0 308,000
<SECURITIES> 0 0
<RECEIVABLES> 0 19,163,000
<ALLOWANCES> 0 0
<INVENTORY> 0 7,009,000
<CURRENT-ASSETS> 0 2,044,000
<PP&E> 0 8,488,000
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 47,808,000
<CURRENT-LIABILITIES> 0 28,465,000
<BONDS> 0 0
0 0
0 0
<COMMON> 0 19,170,000
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 47,808,000
<SALES> 0 0
<TOTAL-REVENUES> 18,565,000 30,524,000
<CGS> 13,487,000 21,582,000
<TOTAL-COSTS> 17,600,000 28,578,000
<OTHER-EXPENSES> 651,000 1,218,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 314,000 728,000
<INCOME-TAX> 16,000 274,000
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 298,000 454,000
<EPS-PRIMARY> 0.00 0.01
<EPS-DILUTED> 0.00 0.01
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