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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
|X| Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended December
31, 1995; or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
______ to ______
Commission File Number 0-18754
BLACK WARRIOR WIRELINE CORP.
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(Name of Small Business Issuer in its Charter)
Delaware 11-2904094
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(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
3748 Highway 45 North
Columbus, Mississippi 39701
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(Address of Principal Executive (Zip Code)
Offices)
Registrant's Telephone Number, Including Area Code: (601) 329-1047
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Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Title of Each Class
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Common Stock, par value
$.0005 per share
Check whether the Issuer (1) filed all Reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year: $ 6,179,218
State the aggregate market value of the voting stock held by
non-affiliates as of April 9, 1996:
Common Stock, par value $.0005 per share -- $1,072,786
Indicate the number of shares outstanding of each of the Registrant's
classes of common equity, as of the latest practicable date.
Class Outstanding at April 13, 1995
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Common Stock, par value
$.0005 per share 759,052 shares
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into this
Annual Report on Form 10-KSB.
Transitional Small Business Issuer Format: Yes [ ] No |X|
Page 1 of ____ Pages
Index to Exhibits Page ___
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PART I
Item 1. Description of Business.
General
Black Warrior Wireline Corp. (The Company) is an integrated oil and gas
service company providing various services to oil and gas well operators
primarily in the Black Warrior Basin in Alabama and Mississippi and the Permian
Basin in Texas and New Mexico. The Company's businesses include (a) electric
wireline services, (b) completion and workover services and (c) sales, rentals
and service of wireline and completion tools and equipment.
Spurred by changes in the oil and gas industry, the Company has
undertaken a realignment of its activities around services in which it maintains
key competitive advantages. This realignment has resulted in a shift in activity
from the coal bed methane fields of western Alabama to the Permian Basin of
northwest Texas and New Mexico. The industry has experienced a significant
resurgence of activity in this area as some independent operators began using
enhanced 3-D seismic technology to pinpoint previously undiscovered oil and gas
reserves. Furthermore, some drilling contractors are using horizontal drilling
techniques to maximize pay zones on not only new wells, but older wells once
considered near depletion. The Company has developed an alliance with one such
drilling contractor and is positioned to obtain an important share in this
rapidly expanding market. In 1995, management will continue to develop and
expand its use of new and emerging technologies to obtain increases in market
share. See the discussion herein on "Services to Non-conventional Fuel Sectors"
and "Services to Conventional Fuel Sectors".
The Company has abandoned all efforts to establish a base of operations
in the Middle East due to the exceedingly high costs of penetrating these
markets. Equipment held by the joint venture formed to explore such activities
is currently being liquidated by the joint venture partners. The Company expects
to receive no benefit from this liquidation and there is no indication the
Company will be successful in recouping any expenditures related to this
venture. See Note 5 of "Notes to Consolidated Financial Statements" in Item 7,
and Item 6, "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
It should be noted that Coopers & Lybrand L.L.P., the Company's
independent accountants, have qualified their report on the Company's
consolidated financial statements at December 31, 1995 by including an
explanatory paragraph as to the ability of the Company to continue as a going
concern and cite the Company's default on its debenture agreements, operating
losses and lack of liquidity. See Item 7 of "Notes to Consolidated Financial
Statements" and "Report of Independent Accountants".
1995 Restructuring
The Company executed a Reorganization Agreement with the holders of
certain debt of the Company (the "Debt Holders") on November 30, 1995 pursuant
to which such Debt Holders agreed to exchange the debt held by them for shares
of the Company's Common Stock, as follows:
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Debt Holder Debt Exchanged Shares Received
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Morgan D. Everett $131,250 56,112
International Trust $131,250 56,112
Mansfield Soderberg $131,250 56,112
Pangaea Investment $262,500 131,250
Employee Group $297,110 148,565
William Jenkins $400,000 200,000
In connection with the reorganization discussed above, the Company also effected
a 1-for-200 reverse stock split on October 30, 1995.
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Glossary of Industry Terms
The following are definitions of certain technical terms used in this
Annual Report on Form 10-KSB relating to the Company's business:
"Acid Job": Hydraulically forcing acid into the zone of interest.
Additives are used for particular properties to prevent casing
deterioration and formation plugging. The acid creates channels
immediately around the well bore to permit flow of gas or oil into the
wellbore.
"Bridge Plug": A permanent or temporary plug used to seal or isolate
between multiple zones.
"Casing": Steel pipe lowered into the drilled hole (borehole) to
prevent "caving in" and to provide isolation of zones and permit
production of hydrocarbons.
"Cased Hole": The drilled hole after casing has been lowered and
cemented in place.
"Downhole": Any part of the borehole below the ground surface.
"Formations"; "Lithology": Lithology is the relative position of
various formations below ground level. Formations are the various
layers of rock, limestone, shales, etc. deposited over the geologic
ages.
"Junk Basket": A mechanical device lowered into the borehole with
wireline to remove extraneous or unwanted debris. A gauge ring is run
simultaneously to check conformity of hole size.
"Cement Bond Log": A cement quality and bonding evaluation performed
with sonic transmitters and receivers lowered into the borehole with
wireline. This survey is recorded by surface computers.
"Logs":
a. Open Hole -- The measurement of properties of formations to
determine hydrocarbon bearing characteristics. Open hole logs
are mainly radioactive (porosity) and electric (resistivity).
b. Cased Hole -- The measurement of gamma ray (different
formations have different levels), casing collars (joints in
casing) for correlation to open hole depths, and cement
quality and bonding. Porosity logs can be run in cased holes
with Compensated Neutron Tools.
"mcf", "bcf" or "tcf": One million, one billion or one trillion cubic
feet of gas, respectively.
"Meter Runs": Measuring devices which record the flow/volume of
produced hydrocarbons.
"Multi-form Completions": The use of various techniques to retrieve
hydrocarbons from formations at different depths in the same wellbore.
"Porosity": The available pore space in a given formation for storage
of fluids/gases.
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"Rigs":
a. A drilling rig is one which drills the borehole. This rig
normally is used for setting the casing in the borehole.
b. A completion or workover rig is used to position tubing, pumps
and other production equipment in the cased hole. As the name
implies, this is used for subsequent "workover" or remedial
service.
"Winch Unit": A powerful machine with one or more drums on which to
coil a cable or chain for hauling or hoisting.
"Workover": Operations pertaining to work on wells previously placed in
production but needing additional work in order to restore or increase
production.
Business Environment
The business of the Company is affected by the general demand in the
economy for petroleum products; availability of drilling rigs, casing and other
necessary goods and services; revision in governmental policies with respect to
oil imports and other factors affecting potential competition from foreign
sources of oil and natural gas; and state conservation commission regulations
affecting allowable rates of production, well spacing and other factors. Oil and
gas prices continue to see moderate fluctuations increasing the overall
instability of the market.
Nationally, there has been an excess supply of gas over demand, which
has resulted in unfavorably low prices, curtailment of production and a decline
in exploration activity. All of these factors have had an adverse effect on
business of the Company. In recent months there has been a reduction in this
over supply and that adverse effect may be reduced in the future. The continued
trend of major oil companies selling existing properties to independents is
producing new opportunities for the Company to perform additional services. As
these independents with lower overhead expenses, we are able to direct capital
to upgrading and expanding these properties. Also, the Company is hopeful that
recent changes in the U.S Government will result in a more "pro-business
attitude" and therefor a more favorable outlook for the oil industry.
History
The Company is the successor to several entities. One of these
entities, Teletek, Ltd. ("Teletek") was formed under the laws of the State of
Delaware in 1987 as a "blind pool", to evaluate, structure and complete a merger
with, or acquisition of, prospects consisting of private companies, partnerships
or sole proprietorships. On June 22, 1989, Teletek merged with Black Warrior
Wireline Corp. ("Black Warrior Alabama"), an Alabama corporation engaged
primarily in providing services in support of drilling, completion, production
and work-over operations for oil and gas wells, and changed its name from
Teletek to Black Warrior Wireline Corp. Black Warrior Alabama, formerly Alavest
Corp., was incorporated in the State of Alabama in March 1989. Black Warrior
Alabama was organized to acquire substantially all the assets of Black Warrior
Wireline Service Co., Inc. ("Black Warrior Mississippi"), a Mississippi
corporation engaged in electric wireline service operations since 1984. Such
acquisition was consummated in March 1989. Upon the merger, the original
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officers and directors of Teletek resigned and the officers and directors of
Black Warrior Alabama were elected to serve as the officers and directors of the
Company.
In August of 1990, the Company, operating as Black Warrior Drilling &
Completion, acquired most of the workover service equipment of Graves Well
Drilling Co., Inc. ("Graves") Simultaneously, the Company also acquired the
rights of Graves under its Well Services Agreement with Taurus Exploration, Inc.
(Taurus). Pursuant to the Well Services Agreement, which expired on May 31,
1993, the Company performed significant workover services for Taurus.
In October 1990, the Company's Boone Wireline Co. Inc., subsidiary
("Boone") acquired certain assets from Bell Petroleum Services, Inc, (Bell)
consisting of substantially all of the assets of Bell located at its field
offices in Odessa, Texas, Brownfield, Texas, and Hobbs, New Mexico. Through such
acquisition, Boone was able to commence provision of services to conventional
fuel well operators in the Permian Basin of Texas and New Mexico. In early 1992,
in response to increased demand, Boone opened a base of operations in Sonora,
Texas.
Services to Nonconventional Fuel Sector
Approximately 42% of the Company's revenues in 1995, 43% of the
Company's revenues in 1994 and 58% of its revenues in 1993 were attributable to
services provided to operators in the Black Warrior Basin seeking to recover
coal bed methane gas, which is considered a nonconventional fuel source. The
Black Warrior Basin saw a tremendous increase in activity in 1989, 1990, and
most of 1991 due to Government incentives in the form of tax credits associated
with the production of coal bed methane gas. Since the elimination of these
incentives, activity in this area has declined to a level which should remain
stable for some time. Prices have improved and the Company is gaining some
market share as smaller service suppliers have left the area. The Company
anticipates that revenues from services provided to coal bed methane operators
will remain stable in 1996 and the foreseeable future.
Services to Conventional Fuel Sector
The Company continues to shift its focus away from the nonconventional
fuel sector. Accordingly, it is seeking to increase its business with operators
of conventional fuel (all sources other than coal bed methane) wells.
Approximately 58% of the Company's revenues in 1995 were attributable to
operators in the Permian Basin. The Company's Boone Division has implemented a
marketing strategy to increase its share in certain key market areas. One
notable success of this strategy was an alliance formed with a major directional
drilling contractor which operates throughout the United States. The Company
continues to explore shifts in market activity which would warrant establishing
bases of operations in other areas of the country.
Because the Company's equipment and personnel can, in general, be
deployed to provide services to either conventional or nonconventional
operators, the Company believes that it is well-positioned to diversify its
operations and take advantage of opportunities which present themselves in
either sector. The Company continually evaluates such opportunities to determine
the best utilization of its resources.
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Electric Wireline Services
Electric wireline service activities contributed revenues of $4,625,744
(approximately 75% of net revenues) in 1995, $4,275,433 (approximately 70% of
net revenues) in 1994, and $4,280,550 (approximately 60% of net revenues) in
1993. Wireline logging services are required to evaluate downhole conditions at
various stages of the drilling process. Such services are provided with a winch
unit equipped with an armored cable which is mounted on a truck. The cable,
which contains one or more electrical conductors, is used to lower instruments
and tools into an existing well to perform a variety of services and tests. The
winch unit's instrument cab contains both computerized and electronic equipment
to supply power to downhole instruments, to receive and record data from these
instruments in order to produce the "logs" which define specific characteristics
of each formation, and to display the data received from downhole.
These services are performed at various times from the time a well is
first drilled until it is depleted and abandoned. Open hole wireline services
are performed after the drilling of the well. Cased hole wireline services are
performed after the casing is set in the well and cemented into place, and from
time to time thereafter during the life of the well. Cased hole services include
radioactive and acoustic logging used to evaluate downhole conditions such as
lithology, porosity, production patterns and the cement bonding effectiveness
between the casing and the formation. Other cased hole services are perforating,
which opens up the casing to allow production from the formation(s), and
free-point and back-off, which locates and frees pipes that have become lodged
in the well. Cased hole services are used in the initial completion of the well
and in virtually all subsequent workover and stimulation projects throughout the
life of the well. The Company performs these services at the well site for
operators and producers of the wells.
The Company provides a variety of cased hole wireline services,
including:
(1) Cement Bond Logs
(2) Gamma Ray Logs
(3) Neutron or Compensated Neutron Logs
(4) Casing Collar Logs
(5) Free-Point, Back-Off Services
(6) Perforating
(7) Plug and Packer Setting
(8) Acid Spotting (with Bailer)
(9) Sand Dumping (with Bailer)
(10) Junk Catcher with Gauge Ring
(11) Steering Tool Services
These services are routinely provided to the Company's customers and
are dependent upon the customers' time schedule, weather conditions,
availability of frac crews and complexity of the drilling. These procedures take
approximately one to one-and-a-half days to perform.
The Company currently owns nineteen operational wireline units (seven
computer trucks and twelve analog trucks). During 1994, the Company successfully
completed the refurbishing of a technologically advanced computer equipped
wireline truck and placed it into service in Odessa, Texas. A second truck was
constructed in 1995 and placed into service in Hobbs, New Mexico. A third truck
was completed during the first quarter of 1996. It is in service in Odessa,
Texas.
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Due to the loss of tax incentives for the exploration of natural gas in
the Sonora area, major customers reduced their drilling programs and, as part of
the ongoing cost cutting efforts by management, the Company closed its Sonora,
Texas district office in October 1995. This district contributed revenues of
$310,355 in 1995, $550,939 in 1994, and $354,428 in 1993.
Completion and Workover Services
The Company provides completion and workover services to oil and gas
well operators in the Black Warrior Basin. These activities contributed revenues
of $1,324,095 (approximately 21% of net revenues in 1995), $1,464,815
(approximately 24% of net revenues) in 1994 and $2,368,803 (approximately 33% of
net revenues) in 1993.
Workover services include those operations performed on wells when
originally completed and on wells previously placed in production and needing
additional work to restore or increase production. The Company performed
significant workover services for Taurus pursuant to the Well Services
Agreement, which expired on May 31, 1993. The expiration of the Well Services
Agreement has not had a material effect on business relations with Taurus or the
value of work performed for Taurus by the Company. The Company expects its
workover equipment to be fully utilized by existing customers in 1996 and is
exploring opportunities to expand this business.
Tools and Equipment
The Company's third current business division involves the sale, rental
and service of tools and equipment used in the oil field services industry.
These activities contributed revenues of $229,379 (approximately 4% of net
revenues) in 1995, revenues of $333,952 (approximately 6% of net revenues) in
1994, and revenues of $491,712 (approximately 7% of net revenues) in 1993. The
division began when the Company became the Black Warrior Basin distributor for
Arrow Oil Tools. The primary products sold or rented by the Company include
Arrow tools and packers. Other items sold or rented include high pressure
valves, tubing and tubing equipment and wireline set tools.
The Company does not operate the tool and equipment division as an
independent unit. Rather, all tool and equipment division activities are
incidental to the wireline and workover services provided by the Company. Tool
and equipment inventory is replenished on an as-needed basis. Most of the
Company's inventory is purchased from a variety of manufacturers, and some used
tools and equipment are purchased at auction. The Company attempts to maintain
in its inventory the brands which are popular among operators in the geographic
areas it serves.
The Company also conducts extensive tool and equipment inspection,
maintenance and testing services. Rubber goods, gaskets, seats and seals are
disassembled, cleaned, inspected, replaced if necessary, reassembled and tested.
Packers and tubing rented by the Company are reconditioned and returned to the
Company's rental inventory.
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On February 28, 1994, as part of the general cost-cutting program
commenced by management, the Laurel, Mississippi district closed due to poor
performance. This district office had generated revenues of $46,370 in 1994 and
$302,830 in 1993.
Insurance
The services of the Company are used in drilling, workover and
production operations that are subject to inherent risks such as blow-outs,
fires, poisonous gas and other oil field hazards, many of which can cause
personal injury and loss of life, severely damage or destroy equipment, suspend
production operations and cause substantial damage to property of others.
Ordinarily, the operator of the well assumes the risk of damage to the well, the
producing reservoir and surrounding property and revenue loss in the event of
accident, except in the case of gross or willful negligence on the part of the
Company or its employees.
To protect the assets of the Company, general liability, property
damage and workers' compensation insurance is maintained. Although, in the
opinion of the Company's management, the limits of its insurance coverage
against the inherent risks of its business and a catastrophic incident are in
accordance with industry practice, such insurance may not be adequate to protect
the Company against liability or losses occurring from all the consequences of
such risks or incidents. The occurrence of an event not fully covered by
insurance (and a determination of liability of the Company for consequential
loss or damage) could result in substantial losses to the Company and have a
materially adverse effect upon its financial condition, results of operations,
and cash flows.
In addition to the foregoing insurance policies, the Company maintains
three policies totaling $3,000,000 of "key-man" life insurance on William L.
Jenkins, its President and Chief Operating Officer. See Item 9, "Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)
of the Exchange Act". The Company also maintains a $1,000,000 policy on Danny
Thornton, its Vice President, and a $1,000,000 policy on Allen Neel, its Vice
President, as well. See Item 9, "Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)of the Exchange Act". The benefits
under such policies are payable to the Company.
Competition
Most of the Company's competitors are divisions of larger diversified
corporations which offer a wide range of oil field services. Its chief
competitors include Halliburton Company and Schlumberger, Ltd., as well as other
companies active in the industry. Some of these companies have substantially
greater economic resources than the Company. Competition principally occurs in
the areas of technology, quality of products and field personnel, equipment
availability, facility locations and price. The Company believes that its
products and services are competitive and match or exceed the level of service
of its competition. The industry has seen an extended period of price
competition. Deep discounts are commonplace and are expected in the industry.
The Company continues to make a conscious effort to compete, not just on price,
but on its ability to offer advanced technology, experienced personnel, and a
safe working environment.
The Company's growth is dependent upon its ability to attract and
retain skilled oil field and management personnel. The competition for such
qualified employees is intense and there can be no assurance that sufficient
qualified persons will be available at such times as the Company's needs may
require.
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Regulation
The oil and gas business is a heavily regulated industry. The Company's
activities are subject to various licensing requirements and minimum safety
procedures and specifications, anti-pollution controls on equipment, waste
discharge and other environmental and conservation requirements imposed by
federal and state regulatory authorities. Serious penalties and fines are
imposed for violations from such directives and violations could result in the
loss of licenses and other penal proceedings.
The Company is not currently the subject of any, nor is it aware of
any, threatened investigations or actions under any Federal or state
environmental, occupational safety or other regulatory laws. The Company
believes that it will be able to continue compliance with such laws and
regulations without a material adverse effect on its earnings and competitive
position. However, there can be no assurance that unknown future changes in such
laws and regulations would not have such an effect if and when such changes
occur.
Employees
As of March 31, 1996, the Company employed 82 persons, 80 of whom were
full-time and two of whom were part-time employees. Five of the Company's
employees are employed at the Company's headquarters in Columbus, Mississippi.
None of the Company's employees is represented by a labor union, and the Company
is not aware of any current activities to unionize its employees. Management of
the Company considers the relationship between the Company and its employees to
be good.
William L. Jenkins is the President, Chief Operating Officer, a
Director and a stockholder of the Company. The Company also has employment
agreements with Danny Ray Thornton and Allen Neel, Vice Presidents of the
Company. The Company's success is currently dependent upon the efforts of these
individuals, and the loss of the services of any of these individuals could have
a material adverse effect on the Company's business, unless a qualified
replacement can be obtained by the Company. See Item 9, "Directors, Executive
Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act". The Company relies heavily on their efforts to expand its
services and marketing and sales activities, and if the Company is unable to
contract for these services or if these services are lost for any reason in the
future, the Company will be substantially and adversely affected.
Item 2. Properties.
The Company leases 6,500 square feet of office space under a one year
renewable lease in Columbus, Mississippi for its executive offices at a monthly
rental of $1,900. This space, leased in October of 1994, was partially renovated
at a cost of $18,671. William L. Jenkins, President of the Company, is the owner
of the building. See Item 12, "Certain Relationships and Related Transactions",
and Note 4 of "Notes to Consolidated Financial Statements". The Company also
leases a maintenance area in Tuscaloosa, Alabama of approximately 5,000 square
feet on a one-year lease at $1,700 per month.
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In addition, the Company leases shop sites and maintenance areas in Odessa,
Texas (11,250 square feet at $1,100 per month), Hobbs, New Mexico (10,000 square
feet at $1,800 per month), Brownfield, Texas (4,388 square feet at $1,225 per
month), and Sonora, Texas (5,000 square feet at $500 per month which was leased
until October, 1995).
The Company owns nineteen operational electric wireline service trucks,
all of which are in operation. The Company owns five workover rigs, all of which
are operational. The Company's one remaining drilling rig was sold in November
1994. The Company's H2S equipment inventory is offered for sale. This equipment
is operated from service facilities which are leased by the Company. The Company
believes that all of its properties and mobile electric wireline equipment are
well maintained and suitable for their intended uses.
Item 3. Legal Proceedings.
The Company is not a party to nor is its property the subject of any
material legal proceedings other than ordinary routine litigation incidental to
its business, or which is covered by insurance, except as set forth below.
The Company received a "thirty day letter" from the District Director
of the Internal Revenue Service (the IRS) on March 10, 1995. The thirty day
letter formally notified Black Warrior Wireline Corp. that the IRS has
preliminarily calculated deficiencies of $35,057 and $541,727 in federal taxes
for the years ended December 31, 1989 and December 31, 1990, respectively. The
Company disagrees with the findings of the IRS and plans to appeal the letter
within the thirty day statutory period with extensions by requesting a
conference with the Office of the Regional Director of Appeals. The adjustments
proposed by the IRS include the valuation of bonus stock compensation to an
officer, the amortization of intangibles, and the adjustment of net operating
loss carry back claims. The Company agreed to pay the officer's tax liability
related to the bonus; thus, the Company will be liable for any additional taxes
resulting from an unfavorable resolution of the Service's proposed adjustment.
While the ultimate outcome of this matter cannot currently be determined, the
Company has sufficient net operating losses to completely offset any additional
tax liability resulting from the aforementioned adjustments proposed by the IRS.
Management does not believe the ultimate outcome of this action will have a
materially adverse effect on the assets, liabilities, stockholders' deficit,
results of operations or liquidity of the Company. See the "Report of
Independent Accountants" contained in Item 7, "Financial Statements and
Supplementary Data", and Notes 15 and 16 of "Notes to Consolidated Financial
Statements".
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year
ended December 31, 1995, to a vote of security holders of the Company, through
the solicitation of proxies, or otherwise.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Market Information
The Company's Common Stock was quoted in the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") from May 26, 1991
through September 4, 1992, and before and after those dates in the
over-the-counter market. Trading activity has been very limited.
According to the information obtained by management from the pink
sheets listings of the National Quotation Bureau, Inc.(for the 1994 bid ) and
predicated from the "NASDAQ Stock Market OTC Bulletin Board (for the 1995 bid),
the following table represents the bid prices (which reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions) for the Company's Common Stock for the periods
indicated, adjusted for the 1-for-200 revenue split the Company effectuated on
October 30, 1995.
Bid Prices
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1994 High Low
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First Quarter $ 44 $ 12
Second Quarter 38 12
Third Quarter 26 2
Fourth Quarter 6 2
1995
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First Quarter $ 6.25 4
Second Quarter 10 4
Third Quarter 8 6
Fourth Quarter 6 6
On March 29, 1996, there were 318 stockholders of record of the
Company's Common Stock (including those shares held by depository companies for
beneficial owners).
Dividend Policy
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying any dividends in the foreseeable future. Under the
covenants of the Company's 14% subordinated debentures and 13% convertible
subordinated debentures, the Company is prohibited from declaring or paying any
dividends to shareholders as long as the debentures are in default.
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Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Industry Overview and Economic Factors
Impacting Company Operations
The level of activity and profitability experienced by the Company is
directly related to the demand for the Company's services by the domestic oil
and gas industry. The market price of oil and natural gas is the principal
factor driving this demand. Since the collapse of the domestic oil industry in
1982 there have been some periods of relative price stability but only isolated
areas of real growth. One such area was the coal bed methane "boom" which lasted
from 1988 until 1991. There has been a steady downward trend in overall prices
and activity in the domestic oil industry since this period. Gas prices began to
increase through the fourth quarter due to unusually cold winters in much of the
US. These increases coupled with a decline in gas storage reserves has spurred
domestic natural gas industry. The Company expects this trend to continue
through 1996.
Competition from other providers of the Company's services has
restricted the Company's ability to maintain acceptable profit margins.
Predatory pricing, used by the major service companies to gain market share, has
forced many weaker competitors out of the industry. There exist a smaller
segment within the industry that offers cut-rate services at cut-rate prices.
These companies have very low overhead and have maintained a small but
significant share of the market. Although the Company has maintained a
relatively high utilization rate for its equipment, profit margins remain low.
The Company feels that prices have bottomed and has formulated a marketing
policy which stresses the safety, reliability, technology advantage and overall
quality of its services. Many of the customers in the marketplace consider these
factors foremost in their selection criteria for subcontractors. The Company is
committed to these efforts and feels they will be rewarded in the long term.
The Company continues to explore new markets which would benefit from
its services. One area of recent expansion is the directional drilling
activities increasing in many areas of the country. Through this technique, well
operators can increase the "pay zone" of old wells once considered near
depletion. The Company is aligned with a major drilling contractor and provides
substantially all of its electric wireline services. Two other areas are
tomography and tubing conveyed perforating. Both services are less subject to
discount pricing and the Company will explore these areas in 1996.
Twelve-Month Periods Ended December 31, 1995 and 1994
The Company experienced a loss before extraordinary gain $545,562 and a
net loss of $158,149 for the year ended December 31, 1995 as compared to a net
loss of $1,142,118 for 1994.
Revenues increased by $105,018 to $6,179,218 for the year ended
December 31, 1995, mainly as a result of the increase in directional drilling
projects in the western divisions. Tools and Packers sales are closely related
to activity in the Black Warrior Basin and thus showed a decline of $104,573
from 1994.
- 13 -
<PAGE>
Revenues by business line are summarized below:
Year Ended December 31,
------------------------------------
1995 1994
---- ----
Wireline Services (logging,
perforating, crane rental) $ 4,625,744 $ 4,275,433
Drilling and Completion
(workover and Pump
sales) 1,324,095 1,464,815
Tools and Packers (sales and
rentals of bridge plugs
and packers) 229,379 333,952
-------------- ---------------
$ 6,179,218 $ 6,074,200
============== ===============
Wireline services in the Black Warrior Basin and the Permian Basin of
Texas and New Mexico increased $386,926 during 1995. The increase in the Black
Warrior Basin is related to the amplified programs of two primary customers. The
increase in sales in the Permian Basin of Texas and New Mexico was attributed to
the expansion of an alliance in the directional drilling programs. Revenues from
the completion and workover division declined $140,720 from its 1994 level
primarily because the Company had five rigs operating in 1995 compared to the
six rigs in 1994.
Costs and expenses decreased by $386,926 for the year ended December
31, 1995 as compared to 1994. Salaries and benefits increased by $51,782 for
1995 as compared to 1994 while the total number of field employees decreased
from 90 at December 31, 1994 to 82 at December 31, 1995. Depreciation and
amortization expense decreased by $130,142 for 1995 as compared to 1994. Other
expense components such as tools, supplies, parts and fuel decreased slightly
with the increased monitoring efforts enacted by management. In the first
quarter of 1995, the Company successfully renegotiated its worker's compensation
insurance coverage with Liberty Mutual Insurance. Effective January 10, 1995,
Liberty Mutual began providing coverage for all of the Company's employees. By
doing so, the Company should realize a reduction in overall insurance costs. The
Company will continue to closely monitor all expenses in its effort to reduce
waste and cut expenses wherever possible.
Interest and amortization of debt discount and expense increased by
$40,104 for the year ended December 31, 1995, as compared to 1994 as the Company
incurred additional long-term debt to finance new wireline trucks. See Item 1,
"Electric Wireline Services".
The benefit for income taxes was 29.3% and 6.6% of pretax loss for 1995
and 1994, respectively. The current federal and state tax benefits in 1995
results from the utilization of the net operating losses generated in 1995 to
offset the income tax expense associated with the extraordinary gain on
extinguishment of debt described in Note 7, "Notes to Consolidated Financial
Statements".
Twelve-Month Periods Ended December 31, 1994 and 1993
The Company experienced a net loss of $1,142,118 for the year ended
December 31, 1994 as compared to a net loss of $1,701,414 for 1993. Results of
operations for 1993 was adversely affected by management's efforts to acquire
concessions for drilling and production in the Syrian Arab Republic.
- 14 -
<PAGE>
Revenues decreased by $1,066,865 to $6,074,200 for the year ended
December 31, 1994,a result of the continued slowdown in non-conventional fuel
source activity in the Black Warrior Basin. Tools and Packers sales related to
activity in the Black Warrior Basin and thus showed a decline of $157,760 from
1993. Revenues by business line are summarized below:
Year Ended December 31,
------------------------------------
1994 1993
---- ----
Wireline Services (logging,
perforating, crane rental) $ 4,275,433 $ 4,280,550
Drilling and Completion
(drilling, workover and
pump sales) 1,464,815 2,368,803
Tools and Packers (sales and
rentals of bridge plugs
and packers) 333,952 491,712
-------------- ---------------
$ 6,074,200 $ 7,141,065
============== ===============
Wireline services in the Black Warrior Basin decreased $448,552 during
1994 primarily due to the continuing effects of the completion of the Taurus,
MetFuel and Torch drilling, completion and workover programs in prior years.
This decline was almost completely offset by a $443,435 increase in sales in the
Permian Basin of Texas and New Mexico. While the Company was successful in
achieving slight price increases in its workover and completion services,
overall activity was down from 1993. Revenues from this division declined
$903,988 from its 1993 level primary because the Company no longer operated as a
pump distributor for Robbins & Myers.
Costs and expenses decreased by $1,367,689 for the year ended December
31, 1994 as compared to 1993. Salaries and benefits decreased by $270,735 for
1994 as compared to 1993 while the total number of field employees decreased
from 101 at December 31, 1993 to 90 at December 31, 1994. Depreciation and
amortization expense decreased by $204,018 for 1994 as compared to 1993.
Workers' compensation and general liability insurance decreased by $144,912 in
1994 as compared to 1993. This decrease was directly related to the decline in
wages. Also, during the fourth quarter of 1994, the Company utilized the
services of a temporary employment agency to provide crews for its workover
division. This allowed the Company to take advantage of the significantly lower
workman's compensation insurance costs. Other expense components such as tools,
supplies, parts and fuel decreased with the increased monitoring efforts enacted
by management. The Company will continue to closely monitor all expenses in its
effort to reduce waste and cut expenses wherever possible.
Interest and amortization of debt discount and expense decreased by
$94,969 for the year ended December 31, 1994, as compared to 1993 as the Company
refinanced its chattel notes at lower market rates.
The benefit for income taxes was 6.6% and 4.11% of pre-tax loss for
1994 and 1993, respectively. The effective income tax rates differ from
statutory federal rates primarily due to the non- utilization of net operating
losses in 1994 and 1993.
- 15 -
<PAGE>
Liquidity and Capital Resources
Cash flow provided by Company operations was $609,218 for the year
ended December 31, 1995, as compared to $227,677 for the year ended December 31,
1994. The Company's net loss of $158,149 increased operating cash flow by
$532,452 after adjusting for depreciation and amortization of $690,601.
Additionally, the Company decreased inventory by $42,381. The Company received
$120,031 during the year from the sale of equipment.
The Company is in default in payment of principal and interest in
aggregate principal amount of its 14% Subordinated Debentures due August 31,
1993. At December 31, 1995, the Company had failed to make principal payments
aggregating $900,000 and interest payments aggregating $788,500 including
interest at the penalty rate, as discussed below. The holders of $800,000 of
such debentures have given notice of the default and acceleration thereunder.
Under the terms of the debentures, the entire principal balance plus accrued but
unpaid interest is due by virtue of the notice of default and acceleration. In
addition, the stated interest rate applicable to the debentures was increased to
2% per month as of November 30, 1991.
The Company is also in default of payment of interest under in
outstanding aggregate principal amount of 13% Convertible Subordinated
Debentures due August 31, 1995. At December 31, 1995, interest arrearages for
the 14% and 13% amounted to $1,343,750.
The Company executed a Reorganization Agreement with the holders of
certain debt of the Company (the "Debt Holders") on November 30, 1995 pursuant
to which such Debt Holders agreed to exchange the debt held by them for shares
of the Company's Common Stock as follows:
- 16 -
<PAGE>
Debt Holder Debt Exchanged Shares Received
----------- -------------- ---------------
Morgan D. Everett $131,250 56,112
International Trust $131,250 56,112
Mansfield Soderberg $131,250 56,112
Pangaea Investment $262,500 131,250
Employee Group $297,132 148,565
William Jenkins $400,000 200,000
In connection with the reorganization discussed above, the Company also effected
a 1-for-200 reverse stock split on October 30, 1995.
The Company continues to explore potential sources of capital, but has
no definitive financing plans in place. The Company continues to suffer from a
severe lack of liquidity and working capital shortages. It should be noted that
Coopers & Lybrand L.L.P., the Company's independent accountants, have qualified
their report on the Company's consolidated financial statements at December 31,
1995 by including an explanatory paragraph as to the ability of the Company to
continue as a going concern and the Company's default on its debenture
agreements, operating losses and lack of liquidity. See the "Report of
Independent Accountants" contained in Item 7, "Financial Statements", and Note 3
of "Notes to Consolidated Financial Statements".
- 17 -
<PAGE>
Item 7. Financial Statements and Supplementary Data.
Consolidated financial statements of the Company meeting the
requirements of Regulation S-B are filed on the succeeding pages of this Item 7
of this Annual Report on Form 10-KSB, as listed below:
Page
Report of Independent Accountants for the Years Ended December 31,
1995, 1994, and 1993 20
Consolidated Balance Sheets as of December 31, 1995 and 1994 21
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994, and 1993 22
Consolidated Statements of Stockholders' Deficit for the
Years Ended December 31, 1995, 1994, and 1993 23
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994, and 1993 24
Notes to Consolidated Financial Statements 25
- 18 -
<PAGE>
Report of Independent Accountants
The Stockholders and Board of Directors
Black Warrior Wireline Corp.
Columbus, Mississippi
We have audited the accompanying consolidated balance sheets of Black Warrior
Wireline Corp. and subsidiaries (the Company) as of December 31, 1995 and 1994,
and the related consolidated statements of operations, stockholders' deficit,
and cash flows for the three years in the period ended December 31, 1995. 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 generally accepted auditing
standards. Those standards require that we plan and perform an 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 Black Warrior
Wireline Corp. and subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company's default on its debenture
agreements, operating losses and lack of liquidity raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 3 to the consolidated
financial statements. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Coopers & Lybrand L.L.P.
Birmingham, Alabama
March 15, 1996
- 19 -
<PAGE>
<TABLE>
<CAPTION>
Black Warrior Wireline Corp. and Subsidiaries
Consolidated Balance Sheets
December 31, 1995 and 1994
ASSETS 1995 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 284,825 $ 40,453
Accounts receivable, less allowance for doubtful accounts of
$130,115 and $117,540 830,384 875,011
Inventories 185,813 228,194
Prepaid expenses 31,917 73,755
Federal income tax receivable 80,432 80,432
Other receivables 178 20,435
------------ ------------
Total current assets 1,413,549 1,318,280
Property, plant, and equipment, less accumulated depreciation of
$3,311,919 and $3,200,235 1,306,126 1,380,157
Other assets 5,405 3,842
------------ ------------
Total assets $ 2,725,080 $ 2,702,279
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 821,254 $ 867,814
Accrued salaries and vacation 15,839 59,290
Accrued interest payable 1,214,422 1,276,675
Other accrued expenses 229,446 158,390
Notes payable to banks 68,575 82,227
Notes payable, related parties 623,530
Current maturities of long-term debt and capital lease obligations 1,526,127 2,151,444
------------ ------------
Total current liabilities 3,875,663 5,219,370
Long-term debt and capital lease obligations, less current maturities 385,696 237,341
------------ ------------
Total liabilities 4,261,359 5,456,711
------------ ------------
Commitments and contingencies (Notes 7, 8, 15, and 16)
Common stock, par value $.0005 per share, 50,000,000 shares authorized, 759,052
and 14,169,252 shares issued at 1995
and 1994, respectively 380 7,085
Additional paid-in capital 3,375,702 1,992,695
Accumulated deficit (4,328,968) (4,170,819)
Treasury stock, at cost, 4,073 and 814,626 shares at 1995 and 1994,
respectively (583,393) (583,393)
------------ ------------
Total stockholders' deficit (1,536,279) (2,754,432)
------------ ------------
Total liabilities and stockholders' deficit $ 2,725,080 $ 2,702,279
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- 20 -
<PAGE>
<TABLE>
<CAPTION>
Black Warrior Wireline Corp. and Subsidiaries
Consolidated Statements of Operations
for the years ended December 31, 1995, 1994, and 1993
1995 1994 1993
<S> <C> <C> <C>
Net revenues $ 6,179,218 $ 6,074,200 $ 7,141,065
Operating costs 4,522,920 4,813,755 5,517,625
Selling, general, and administrative expenses 1,187,900 1,283,991 1,947,810
Depreciation and amortization 690,601 820,743 1,024,761
------------ ------------ -------------
Loss from operations (222,203) (844,289) (1,349,131)
Interest expense and amortization of debt discount (625,990) (585,886) (680,855)
Net gain on sale of fixed assets 65,450 201,933 245,622
Other income 10,627 5,692 9,950
------------ ------------ -------------
Loss before benefit for income taxes
and extraordinary gain (772,116) (1,222,550) (1,774,414)
Benefit for income taxes (226,554) (80,432) (73,000)
------------ ------------ -------------
Loss before extraordinary gain (545,562) (1,142,118) (1,701,414)
Extraordinary gain on extinguishment of debt,
net of income taxes of $226,554 (Note 7) 387,413
------------ ------------ -------------
Net loss $ (158,149) $ (1,142,118) $ (1,701,414)
============ ============ =============
Loss per average common share*:
Loss before extraordinary gain $ (6.14) $ (17.30) $ (26.54)
Extraordinary gain, net of income taxes $ 4.36
Net loss $ (1.78) $ (17.30) $ (26.54)
Average common and common equivalent shares
outstanding* 88,905 66,008 64,111
<FN>
* 1994 and 1993 loss per average common share and average common and common
equivalent shares outstanding have been restated to reflect a 1 for 200
reverse stock split effected during 1995. See Note 10.
</FN>
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- 21 -
<PAGE>
<TABLE>
<CAPTION>
Black Warrior Wireline Corp. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
for the years ended December 31, 1995, 1994, and 1993
Common Stock Treasury Stock
------------------------- Paid-In Accumulated -------------------------
Shares Par Value Capital Deficit Shares Cost
------------ ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 13,623,252 $ 6,812 $1,878,469 $(1,327,287) 814,626 $ (583,393)
Shares issued as
consideration for
consulting services 246,000 123 76,876
Net loss for the year ended
December 31, 1993 (1,701,414)
----------- --------- ---------- ---------- ---------- ----------
Balance, December 31, 1993 13,869,252 6,935 1,955,345 (3,028,701) 814,626 (583,393)
Shares issued in settlement of
accrued liability 300,000 150 37,350
Net loss for the year ended
December 31, 1994 (1,142,118)
----------- --------- ---------- ---------- ---------- ----------
Balance, December 31, 1994 14,169,252 7,085 1,992,695 (4,170,819) 814,626 (583,393)
Effect of 1 for 200 reverse
stock split (14,098,351) (7,049) 7,049 (810,553)
Conversion of notes payable
and subordinated debentures
to common stock 648,151 324 1,295,978
Shares issued in consideration
for consulting services 40,000 20 79,980
Net loss for the year ended
December 31, 1995 (158,149)
----------- --------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 759,052 $ 380 $3,375,702 $(4,328,968) 4,073 $ (583,393)
----------- --------- - --------- ---------- ---------- - ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- 22 -
<PAGE>
<TABLE>
<CAPTION>
Black Warrior Wireline Corp. and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31, 1995, 1994, and 1993
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (158,149) $ (1,142,118) $ (1,701,414)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 690,601 787,543 898,717
Amortization 33,200 126,044
Amortization of deferred gain (141,637) (137,986)
Allowance for doubtful accounts 12,575 26,286 131,224
Net gain on disposition of assets (65,450) (60,296) (107,636)
Compensation, consulting, and management expenses paid
by issuance of common stock 80,000 76,999
Gain on extinguishment of debt, net of income taxes (387,413)
Benefit for income taxes (226,554) (80,432) (73,000)
Change in:
Accounts receivable 32,052 57,341 974,698
Inventories 42,381 137,984 51,807
Prepaid expenses 41,838 11,870 5,775
Other receivables 20,257 (16,135) (800)
Other assets (1,563) 991 (115)
Accounts payable and accrued liabilities 528,643 613,080 25,123
Due to affiliate (1,23,449)
----------- ------------ ------------
Cash provided by operating activities 609,218 227,677 145,987
----------- ------------ ------------
Cash flows from investing activities:
Acquisitions of property, plant, and equipment (299,306) (104,818) (120,180)
Proceeds from sale of fixed assets 120,031 178,260 231,103
----------- ------------ ------------
Cash (used in) provided by investing activities (179,275) 73,442 110,923
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from bank and other borrowings 41,959 56,561 111,034
Principal payments on long-term debt, notes payable, and
capital lease obligations (227,530) (378,043) (480,335)
----------- ------------ ------------
Cash used in financing activities (185,571) (321,482) (369,301)
----------- ------------ ------------
Net increase (decrease) in cash and cash 244,372 (20,363) (112,391)
equivalents
Cash and cash equivalents, beginning of year 40,453 60,816 173,207
----------- ------------ ------------
Cash and cash equivalents, end of year $ 284,825 $ 40,453 $ 60,816
=========== ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 78,392 $ 59,444 $ 302,447
=========== ============ ============
Income taxes $ 0 $ 0 $ 0
=========== ============ ============
Supplemental schedule of noncash investing and financing activities:
Shares issued as consideration for consulting services $ 80,000 $ 76,999
Notes payable and subordinated debentures converted to common
stock (Note 7) 1,296,302
Accrued interest forgiven (Note 7) 556,889
Accrued interest converted to notes payable 52,962
Shares issued in settlement of accrued liability $ 37,500
Acquisition of property, plant, and equipment financed under
capital leases and notes payable 371,846 361,244 42,347
Vehicles sold to officer for reduction in notes payable, 5,300
related parties
Accounts payable to legal counsel converted to notes payable 81,404
Accrued salaries and loans converted to notes payable, related 113,037
parties
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- 23 -
<PAGE>
Black Warrior Wireline Corp. and Subsidiaries
Notes to Consolidated Financial Statements
1. General Information
Black Warrior Wireline Corp., a Delaware corporation, is an integrated
oil and gas well servicing company which provides wireline, drilling,
completion, and workover services primarily in the Black Warrior Basin of
Alabama and Mississippi and the Permian Basin of Texas and New Mexico.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of Black Warrior Wireline Corp. and its wholly-owned
subsidiary, Boone Wireline Co., and the following inactive subsidiaries:
Black Warrior International, Inc., Black Warrior International (Bermuda),
Ltd., Black Warrior Oil and Gas, Ltd., and Black Warrior Syria, Ltd. (the
Company). All significant intercompany accounts and transactions have
been eliminated.
Cash and Cash Equivalents - The Company considers all investments with an
original maturity of three months or less to be cash equivalents.
Inventories - Inventories, which consist primarily of supplies used in
well servicing activities, have useful lives of less than one year and
are stated at the lower of cost (first-in, first-out method) or net
realizable value.
Property, Plant, and Equipment - Property, plant, and equipment is stated
at cost. The cost of maintenance and repairs is charged to expense when
incurred; the cost of betterments is capitalized. The cost of assets sold
or otherwise disposed of and the related accumulated depreciation are
removed from the accounts and the gain or loss on such disposition is
included in income. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets (buildings - 30
years, vehicles and other equipment - 2 to 10 years).
Investment in Partnerships - The Company has a 50% ownership interest in
two partnerships, Black Warrior Mideast Partnership (inactive) and Black
Warrior Mideast Company (see Note 5). The investments are carried at cost
and adjusted for equity in undistributed earnings or losses of the
partnerships. The investment is not reduced below zero for losses because
the underlying debt is nonrecourse. Equity income from the partnerships
will not be recognized until the cumulative income exceeds the cumulative
unrecognized losses.
Income Taxes - The Company uses an asset and liability approach for
financial accounting and reporting for income taxes. Deferred tax assets
are recognized only to the extent of their anticipated realization.
- 24 -
<PAGE>
Notes to Consolidated Financial Statements, Continued
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from these estimates.
3. Results of Operations and Management's Plans
The Company incurred a loss before benefit for income taxes and
extraordinary gain of $772,116 in 1995 and had current liabilities in
excess of current assets of $2,462,114 at December 31, 1995. As discussed
in Note 7, at December 31, 1995 and 1994, the Company was in default of
its 14% subordinated debenture agreement and 13% convertible subordinated
debenture agreement, due to lack of payment of principal and interest and
certain other covenant violations. Accordingly, the 14% and 13%
debentures have been classified as current liabilities at December 31,
1995 and 1994. Currently, the Company does not have the liquidity
necessary to satisfy its current obligations. These factors raise
substantial doubt about the Company's ability to continue as a going
concern.
The Company is currently attempting to negotiate the conversion of its
remaining 14% and 13% subordinated debentures to equity. At December 31,
1995, the total subordinated debentures outstanding and the accrued
interest on the subordinated debentures was $1,343,750 and $1,146,767,
respectively. There can be no assurance that such a conversion can be
consummated. In the event that a debt to equity conversion occurs, the
Company would still be required to find additional sources of working
capital in order to meet its outstanding obligations and finance its
operations. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
4. Related Party Transactions
The Company had an outstanding balance of $289,293 included in notes
payable, related parties, at December 31, 1994 and accrued interest
payable of $2,497 at December 31, 1994 relating to a financing agreement
with RABAD, a partnership comprised of officers and spouses of officers
of the Company, whereby RABAD advanced funds to the Company for
operations. These advances were collateralized by accounts receivable and
bore interest at a rate of prime plus 2%. Interest expense recognized on
these advances for 1995, 1994, and 1993 was $20,954, $27,353, and
$36,771, respectively.
On December 20, 1995, RABAD accepted 148,565 shares of common stock of
the Company in full satisfaction of advances totaling $297,131 (see Note
7).
The Company had an outstanding balance of $334,237 in notes payable and
$8,976 in accrued interest at December 31, 1994 to the president of the
Company and his spouse. Interest expense recognized on the notes payable
for 1995, 1994, and 1993 was $28,611, $31,491, and $11,600, respectively.
- 25 -
<PAGE>
Notes to Consolidated Financial Statements, Continued
On December 20, 1995, the president of the Company and his spouse
accepted 200,000 shares of the Company's common stock in full
satisfaction of the outstanding balance of notes payable totaling
$400,000 (see Note 7).
During 1994, the Company sold two vehicles with a net book value of
$7,500 to the president of the Company in exchange for a $5,300 reduction
in notes payable due him.
During October 1994, the Company began leasing office space from the
president of the Company. The lease agreement is currently on a
month-to-month basis. The total amount paid to the president during the
years ended December 31, 1995 and 1994 was $22,262 and $3,200,
respectively.
See Note 9 for a description of the sale of fixed assets to the Delaware
Partnership.
See Note 10 for common stock transactions with related parties.
5. Investment in Black Warrior Mideast Company (BWMC)
BWMC ceased operations during the year ended December 31, 1993, and the
Company anticipates dissolving the partnership when BWMC's obligations
have been settled. The anticipated dissolution has no impact on the
Company's financial statements since substantially all of the liabilities
of the partnership are non-recourse. BWMC's non-current assets consist
primarily of drilling and other operating equipment. The equipment is in
the possession of the Company's Middle East agent, which has impaired
BWMC's ability to remove the equipment from the Middle East.
As described in Note 2, the Company has reported the investment in BWMC
using the equity method. However, since substantially all of BWMC's
liabilities are non-recourse to the Company, losses are not recognized
which would reduce the Company's investment basis below zero. If the full
equity method had been utilized, losses recognized by the Company would
have increased approximately $2,019,000 at December 31, 1993, of which
approximately $875,000 would have been recognized in 1993. Financial
information for the years ended December 31, 1995 and 1994 is not
available.
- 26 -
<PAGE>
Notes to Consolidated Financial Statements, Continued
6. Property, Plant, and Equipment
Property, plant, and equipment includes the following at December 31,
1995 and 1994:
1995 1994
Vehicles $ 2,078,292 $ 2,114,840
Drilling rigs and related equipment 312,231 351,000
Operating equipment 1,989,420 1,881,368
Office equipment 238,102 233,184
---------- ----------
4,618,045 4,580,392
Less accumulated depreciation 3,311,919 3,200,235
---------- ----------
Net property, plant, and equipment $ 1,306,126 $ 1,380,157
========== ==========
The Company had equipment with a net book value of $58,803 and $58,571 at
December 31, 1995 and 1994, respectively, that is not being used in
operations but is being maintained for future service.
The following is a summary of the equipment under capital leases
(included above) at December 31, 1995 and 1994:
1995 1994
Vehicles $ 15,600 $ 63,255
Operating equipment 28,834 28,834
Office equipment 9,955 9,955
--------- ----------
54,389 102,044
Less accumulated depreciation 43,434 50,266
--------- ----------
Net equipment under capital lease $ 10,955 $ 51,778
========== ==========
- 27 -
<PAGE>
7. Long-Term Debt and Other Financing Arrangements
At December 31, 1995 and 1994, long-term debt and other financing
arrangements consisted of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Note payable to Trustmark National Bank, interest and principal due
January 1997, interest at prime as reported by Trustmark National
Bank, collateralized by three vehicles and equipment with a net book
value of $26,383 at December 31, 1995. Prime rate at December 31, 1995
was 8.5%.
$ 28,829
Note payable to First Columbus National Bank, interest and principal
due April 1995, interest at prime as reported by First Columbus
National Bank, collateralized by four vehicles and equipment with a
net book value of $76,938 at December 31, 1994. Prime rate at December
31, 1994 was 8.5%.
$ 29,559
Note payable to Sunburst Bank, monthly payments of $1,017 required
through September 1995, including interest at 9.00% collateralized by
one vehicle with a net book value of $8,168.
8,822
Note payable to Trustmark National Bank, monthly payments of $1,733
required through August 1996, including interest at 8.8%
collateralized by a vehicle and equipment with a net book value of
$26,813 at December 31, 1995.
13,477 32,170
Note payable to Trustmark National Bank, monthly payments of $1,502
required through April 1997 including interest at 9.5%, collateralized
by a vehicle and equipment with a net book value of $32,542.
22,488
Note payable to Trustmark National Bank, monthly payments of $717
through June 1996 including interest at prime as reported by Trustmark
National Bank, collateralized by equipment with a net book value of
$11,273 at December 31, 1995. Prime rate at December 31, 1995 was
8.5%.
3,781 11,676
------------ -------------
Total notes payable to banks $ 68,575 $ 82,227
------------ -------------
- 28 -
<PAGE>
1995 1994
Installment notes payable, monthly payments required in varying
amounts through January 1999, interest at rates ranging from 7.25% to
13.24%, collateralized by vehicles and equipment with a net book value
of $512,666 at December 31, 1995.
$ 510,929 $ 271,602
Capitalized leases, monthly payments required in varying amounts
through November 1996, interest at rates ranging from 12% to 16%,
collateralized by vehicles and equipment with a net book value of
$10,955 at December 31, 1995.
8,240 35,779
Note payable to Haskell, Slaughter, Young & Johnston, Professional
Association, monthly principal payments of $2,500 plus accrued
interest required through August 1997, interest at prime plus 1% as
reported by First Alabama Bank, collateralized by $34,481 in inventory
and miscellaneous equipment with an approximate net book value of
$22,900 at December 31, 1995. Prime rate at December 31, 1995 was
8.5%.
48,904 81,404
14% subordinated debentures, original terms include quarterly
principal payments of $115,625 beginning November 30, 1991 through
August 31, 1993 and interest payable quarterly
900,000 900,000
13% convertible subordinated debentures, original terms include
quarterly interest payments of $35,750 beginning September 30, 1991,
with the principal balance due on August 31, 1995
443,750 1,100,000
------------- ------------
1,911,823 2,388,785
Current portion of long-term debt (1,526,127) (2,151,444)
------------- ------------
Total long-term debt and capital lease obligations $ 385,696 $ 237,341
============= ============
Notes payable to RABAD, partnership comprised of officers and spouses
of officers of the Company, due on demand, interest monthly at prime
plus 2%, collateralized by accounts receivable. Prime rate at December
31, 1994 was 8.5%.
$ 0 $ 289,293
Notes payable to the president of the Company and his spouse, interest
monthly at 8.5%, principal and accrued interest due June 1995,
collateralized by vehicles and equipment with a net book value of
$131,154 at December 31, 1994
0 334,237
------------ ------------
Total notes payable, related parties $ 0 $ 623,530
============= ============
</TABLE>
- 29 -
<PAGE>
On November 30, 1995, the Company executed a Reorgnaization Agreement
with the holders of certain debt of the Company whereby, the Company
converted a portion of the 13% convertible subordinated debentures and
the notes payable to related parties to common stock. In conjunction
with the conversion, accrued interest and certain debt were forgiven by
the debtholders, resulting in the recognition of an extraordinary gain
on extinguishment of debt of $387,967, net of income taxes of $226,554.
The following is a summary of the debt and accrued interest conversion
and extinguishment:
<TABLE>
<CAPTION>
Shares of Accrued
Principal Principal Common Interest
Converted Forgiven Total Stock Issued Forgiven
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
13% Convertible subordinated debentures $ 599,172 $ 57,078 $ 656,250 299,586 $ 535,344
Notes payable to the president of the
Company and his spouse 400,000 400,000 200,000 21,545
Notes payable to RABAD 297,130 297,130 148,565
-------- --------- --------- -------- ---------
$1,296,302 $ 57,078 $1,353,380 648,151 $ 556,889
========== ========= ========== ======== =========
</TABLE>
The Company guaranteed that RABAD would be able to sell its common stock
received in the conversion for $2 per share within one year of this
conversion. This agreement is collateralized by $100,000 of the Company's
accounts receivable. The collateral will be utilized to cover any
deficiencies between the actual selling price and the guaranteed price of
$2 per share.
At December 31, 1995 and 1994, the Company was in default of its 14%
subordinated debenture and 13% convertible subordinated debenture
agreements due to its failure to make scheduled principal and interest
payments. Debenture holders representing $800,000 of the 14% subordinated
debentures outstanding at December 31, 1995 and 1994 have notified the
Company of default and requested immediate payment of the entire
outstanding balance. In accordance with the default provisions in the 14%
subordinated debenture and 13% convertible subordinated debenture
agreements, the stated interest rate was increased to 2% per month
effective November 30, 1991 and June 30, 1992, respectively.
In addition, the Company is in violation of several other covenants
related to the 14% and 13% subordinated debenture agreements, including,
but not limited to, timely payment of taxes and compliance with
provisions and terms of all material agreements and commitments. Although
the 14% debenture holders and the remaining 13% debenture holders have
not notified the Company regarding acceleration of payment, the debenture
holders have the right to require immediate payment. Accordingly, the
entire balances of the debentures have been classified as current
liabilities.
Under the covenants of the debenture agreements, the Company is
prohibited from declaring or paying any dividends to shareholders as long
as the debentures are in default.
- 30 -
<PAGE>
Notes to Consolidated Financial Statements, Continued
The 13% subordinated debentures were originally convertible into shares
of common stock of the Company with the number of shares issuable upon
conversion being determined by dividing the principal amount of the
debentures to be converted by the conversion price in effect on the
conversion date. Giving effect to the 1 for 200 reverse stock split, the
debentures were convertible into 2,500 shares of common stock at the
price per share of $440 at December 31, 1995 based on the conversion
feature as defined in the debenture agreement. As noted previously,
certain of the 13% debenture holders negotiated the conversion of
principal to common stock at a price of $2 per share subsequent to the
effective date of the 1-for-200 reverse stock split.
At December 31, 1995, aggregate maturities of notes payable and long-term
debt and future minimum lease payments under capital leases are as
follows:
1997 $ 164,359
1998 117,878
1999 83,401
2000 20,058
-------------
$ 385,696
=============
8. Leases
The Company has a number of operating lease agreements primarily for
office space and equipment. These leases are cancelable and have terms of
one year or less. Rent expense was approximately $173,000, $142,000, and
$171,000 for the years ended December 31, 1995, 1994, and 1993,
respectively.
9. Deferred Gain
During November 1991, the Company sold drilling equipment with a net book
value of approximately $394,000 to BWMC for $1,250,000. The Company
included $427,800 of the gain in 1991 income and recorded $427,800 as a
deferred gain to be amortized into income over the estimated remaining
useful life of the drilling equipment of approximately four years. The
Company recognized income of approximately $142,000 and $138,000 from
amortization of the deferred gain during the years ended December 31,
1994 and 1993, respectively. The amortization is included in gain on sale
of fixed assets. The deferred gain was fully amortized at December 31,
1994.
10. Common Stock Transactions
During 1995, the Company effectuated a 1-for-200 reverse stock split
effective for each share owned by stockholders of record at the close of
business on October 30, 1995. Par value remained at $.0005 per share. The
reverse stock split reduced the 14,169,252 shares of common stock to
70,901 shares of common stock outstanding. A total of $7,049 was
reclassified from the Company's common stock to the Company's additional
paid in capital. All share and per
- 31 -
<PAGE>
Notes to Consolidated Financial Statements, Continued
share amounts in loss per share calculations have been restated to
retroactively reflect the reverse stock split.
Issuance of common stock for the settlement of liabilities of the Company
are set forth below. Since the market value of the Company's stock was
not readily available, the per share amounts for these transactions have
been determined by the Company's Board of Directors based on the
Company's financial results, business developments, common stock transfer
restrictions, number of shares issued and other factors which would
influence the fair value at the date of Board approval.
<TABLE>
<CAPTION>
Amount
Month of Month of Recorded to
Board Issuance/ Number Amount Stockholders'
Approval Purchase Description of Shares Per Share Equity
-------------- ------------- ------------------------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
July 1993 July 1993 Issued in satisfaction of
management fees 246,000 * $ .50 * $ 76,999
January 1994 January 1994 Issued to settle litigation 300,000 * .185 * 37,500
November 1995 December 1995 Issued to debt holders in
satisfaction of notes payable
subordinated debentures 648,151 2.00 1,296,302
November 1995 December 1995 Issued in satisfaction of
consulting fees 40,000 2.00 80,000
<FN>
* Data has not been restated to reflect 1-for-200 reverse stock split
effected during 1995.
</FN>
</TABLE>
11. Stock Warrants
The Company had warrants outstanding at December 31, 1994 giving the
holders the right to purchase up to 1,800,000 shares of the Company's
common stock at $2.50 per share. The warrants expired unexercised during
1995.
In conjunction with the 1990 issuance of the 14% subordinated debentures,
the Company issued warrants to purchase, at a nominal amount, an
aggregate of 2.842% of the issued and outstanding common stock of the
Company, but in no event less than 396,162 shares. The warrants expired
on August 10, 1995 as set forth in the debenture and warrant purchase
agreements.
- 32 -
<PAGE>
Notes to Consolidated Financial Statements, Continued
12. Income Taxes
The benefit for income taxes consists of the following for the years
ended December 31, 1995, 1994, and 1993:
1995 1994 1993
Federal:
Current $ (205,065) $ (80,432) $ (73,000)
Deferred 0 0 0
------------- ------------- -------------
(205,065) (80,432) 73,000)
State:
Current (21,489) 0 0
Deferred 0 0 0
------------- ------------- -------------
(21,489) 0 0
------------- ------------- -------------
Total $ (226,554) $ (80,432) $ (73,000)
============= ============== =============
The current federal and state tax benefits in 1995 result from the
utilization of the net operating losses generated in 1995 to offset the
income tax expense associated with the extraordinary gain on
extinguishment of debt described in Note 7.
The current federal tax benefit in 1994 and 1993 result from the
utilization of net operating losses generated in 1994 and 1993 to recover
taxes previously paid.
The benefit for federal income taxes differs from the amount computed by
applying the federal income tax statutory rate of 34% to the loss before
benefit for income taxes and extraordinary gain, as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Benefit at federal statutory rate $ (262,520) $ (415,667) $ (603,301)
Nondeductible tax penalties 22,941
Amortization of deferred gain (48,157 (46,915)
Write off of bad debts (4,691) (138,973)
Miscellaneous nondeductible expenses 75,093 123,299 15,167
Non-utilization of net operating losses 192,118 376,125 562,049
Utilization of net operating losses to offset
tax expense on extraordinary gain (226,554)
------------ ------------ -------------
Benefit for federal income taxes $ (226,554) $ (80,432) $ (73,000)
============ ============ =============
</TABLE>
The Company has available loss carryforwards of approximately $3,000,000
for federal and alternative minimum tax purposes that expire at various
dates to 2010. Additionally, the Company has state net operating loss
carryforwards of $2,600,000 which expire at various dates to 2010.
- 33 -
<PAGE>
Notes to Consolidated Financial Statements, Continued
Deferred income taxes reflect the impact of temporary differences between
amounts of assets and liabilities recorded for financial reporting
purposes and such amounts as measured in accordance with tax laws. In
general, these temporary differences are more inclusive than timing
differences recognized under previously applicable accounting principles.
The items which comprise a significant portion of the deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Gross deferred tax assets:
Allowance for doubtful accounts receivable $ 35,243 $ 42,549
Accrued bonuses and other 397 33,057
Operating loss carryforwards 1,126,930 1,478,853
------------- -------------
Gross deferred tax asset 1,162,570 1,554,459
------------- -------------
Gross deferred tax liabilities:
Depreciation (389,130) (179,457)
------------- -------------
Gross deferred tax liability (389,130) (179,457)
------------- -------------
Net deferred tax asset 773,440 1,375,002
Less: valuation allowance (773,440) (1,375,002)
------------- -------------
Net deferred taxes $ 0 $ 0
============= =============
</TABLE>
The Company is required to record a valuation allowance when it is more
likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of the net deferred income tax
asset depends on the Company's ability to generate sufficient taxable
income in the future. Based on the Company's results of operations, there
is substantial doubt as to the realizability of the net deferred tax
asset. Accordingly, a valuation allowance has been established for the
entire net deferred tax asset for 1995 and 1994.
13. Loss Per Share
Loss per share has been computed based on the weighted average number of
shares of common stock actually outstanding and common stock equivalents,
which include shares issuable upon exercise of stock warrants and
convertible debentures. For 1995, 1994, and 1993 common stock equivalents
have been excluded from the loss per share calculation since the common
stock equivalents are anti-dilutive. Treasury shares and an additional
547 shares surrendered to the Company have also been excluded from the
1995, 1994, and 1993 loss per share computations. All 1994 and 1993 share
and per share amounts have been restated to retroactively reflect the
1-for-200 reverse stock split.
- 34 -
<PAGE>
Notes to Consolidated Financial Statements, Continued
14. Major Customers
Most of the Company's business activity is with customers engaged in
drilling and operating natural gas wells primarily in the Black Warrior
Basin in Alabama and Mississippi and in the Permian Basin in Texas.
Substantially all of the Company's accounts receivable at December 31,
1995 and 1994 are from such customers. Performance in accordance with the
credit arrangements is in part dependent upon the economic condition of
the natural gas industry in the respective geographic areas. The Company
does not require its customers to pledge collateral on their accounts
receivable.
The Company earned revenues in excess of 10% of its total revenues from
the following customers for the years ended December 31, 1995, 1994, and
1993, as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Taurus Exploration, Inc. $ 1,921,808 $ 1,940,710 $ 2,804,000
Parker and Parsley Development Company 772,383 655,447 723,000
Becfield Drilling Company 1,114,473
</TABLE>
15. Employment Agreements
At December 31, 1995, the Company has an employment agreement with
William L. Jenkins, its president, which expires on March 31, 1997,
calling for a base salary of $5,250 per month, to be adjusted annually
for inflation. In addition, the agreement gives Jenkins the option to
purchase shares of the Company's common stock as follows if he remains
employed pursuant to the employment agreement: 350,000 shares at April 1,
1996; and 500,000 additional shares at April 1, 1997. The purchase price
of the common stock under the options, which is fixed on the date each
option is granted, will be 100% of the mean between the highest and
lowest price per share for transactions in common stock during the three
months prior to the dates the options are granted.
The Company paid Jenkins a discretionary bonus of $375,000 through the
issuance of 600,000 shares of common stock valued at $0.625 per share for
the year ended December 31, 1991 and agreed to pay Jenkins' tax liability
related to the bonus. The Company had a remaining accrual of
approximately $15,000 and $86,000 at December 31, 1995 and 1994,
respectively, relating to the payment of Jenkins' tax liability.
- 35 -
<PAGE>
Notes to Consolidated Financial Statements, Continued
The Company has two-year employment agreements with Danny Ray Thornton
and Allen Neel, vice presidents of the Company, which expire on February
1, 1998, calling for base salaries of $6,250 per month, to be adjusted
annually for inflation. In addition, if they remain employed pursuant to
the employment agreements, the agreements give Thornton and Neel the
option for each to purchase 10,000 shares of the Company's common stock
on each of the first three anniversary dates of the agreements. The
purchase price of the common stock under the options, which is fixed on
the date each option is granted, will be 50% of the mean between the
highest and lowest price per share for transactions in common stock
during the three months prior to the dates the options are granted.
16. Contingencies
The Company is the subject of various legal actions in the ordinary
course of business. Management does not believe the ultimate outcome of
these actions will have a materially adverse effect on the assets,
liabilities, stockholders' deficit, cash flows, or results of operations
of the Company.
In 1993 the Internal Revenue Service (IRS) proposed an adjustment of
$1,611,000 to increase the value of the stock bonus paid to the Company's
president during 1991. As discussed in Note 15, the Company agreed to pay
the president's tax liability related to the bonus; thus, the Company
will be liable for any additional taxes resulting from an unfavorable
resolution of the IRS's proposed adjustment. The Company's president is
currently appealing the IRS's proposed adjustment. The ultimate outcome
cannot presently be determined; accordingly, no provision for any
liability that may result upon final resolution of this issue has been
made in the accompanying consolidated financial statements.
17. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate fair value:
Cash and cash equivalents, accounts receivable, current portion of
long-term debt, and accounts payable - The carrying amount is a
reasonable estimate of the fair value because of the short maturity of
these instruments.
Long-term Debt - The fair value is estimated by discounting the future
cash flows using rates currently available to the Company for debt with
similar terms and remaining maturities. The carrying amount and fair
value of long-term debt was $385,696 and $359,929, respectively, at
December 31, 1995.
- 37 -
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The Company has not changed independent accountants within the
twenty-four months prior to December 31, 1995.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
The following table contains information concerning the current
Directors and executive officers of the Company:
Name Age Position
---- --- --------
William L. Jenkins 42 President, Chief Operating
Officer and Director
John A. McNiff, Sr. 68 Secretary and Director
William L. Jenkins has been President, Chief Operating Officer and a
Director of the Company since March 1989. From 1973 until 1980, Mr. Jenkins held
a variety of field engineering and training positions with Wellex - A
Halliburton Company in the South and Southwest. From 1980 until March 1989, Mr.
Jenkins worked with Triad Oil & Gas, Inc. as a consultant, providing services to
a number of oil and gas companies. During that time, Mr. Jenkins was involved in
the organization of a number of drilling and oil field service companies,
including Black Warrior Mississippi, which he served as Secretary-Treasurer
until 1988. Mr. Jenkins has over twenty years' experience in the oil field
service business. Mr. Jenkins has a two-year employment agreement with the
Company which expires on March 31, 1997. See Note 15 of "Notes to Consolidated
Financial Statements" in Item 7,
John A. McNiff, Sr. has served as president and chief executive officer
and is a director of Pangeae Investment Consultants, Ltd., a Bermuda-based
company engaged in providing financial consulting services and raising capital
for emerging U.S. companies, since its inception in 1990. From 1981 to 1989, Mr.
McNiff was chairman and chief executive officer of Wycombe, Ltd. and its
subsidiaries, a broker-dealer firm, a syndicator and general partner of cable
television investments and a syndicator and general partner of oil and gas
investments. From 1970 to 1980, Mr. McNiff was a senior partner of the New York
City law firm of Wagner, McNiff & Dimaio, and he has been affiliated with
several other New York law firms and private companies.
- 38 -
<PAGE>
Significant Employees
Danny Ray Thornton, age 44, is a Vice President of the Company. He has
been employed by the Company since March 1989. From 1982 to March 1989, Mr.
Thornton was the president and a principal stockholder of Black Warrior
Mississippi, the Company's operational predecessor. Mr. Thornton has been
engaged in the oil and gas services industry in various capacities since 1978.
His principal duties with the Company include supervising and consulting on
wireline and workover operations. Mr. Thornton has a two-year employment
agreement with the Company which expires on February 1, 1998. See Note 15 of
"Notes to Consolidated Financial Statements" in Item 7.
Allen Neel, age 38, is a Vice President of the Company. He has been
employed by the Company since August 1990. In 1981, Mr. Neel received his BS
degree in petroleum engineering from the University of Alabama. From 1981 to
1987, Mr. Neel worked in engineering and sales for Haliburton Services. From
1987 to 1989, he worked as a District Manager for Graves Well Drilling Co. When
the Company acquired the assets of Graves from Energen in 1990, Mr. Neel assumed
a position with the Company. See Note 15 of "Notes to Consolidated Financial
Statements" in Item 7.
Compliance With Section 16(a) of the
Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who beneficially own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, Directors and beneficial owners of more than 10% of the Company's
Common Stock are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms that they file. To the best of the Company's
knowledge, based solely on a review of such reports as filed with the Securities
and Exchange Commission, all such persons have complied with such reporting
requirements.
Item 10. Executive Compensation.
Executive Compensation -- General
The following table sets forth compensation paid or awarded to the
Chief Executive Officer, the only executive officer of the Company whose
compensation exceeded $100,000 for any period reported, for all services
rendered to the Company in 1995, 1994 and 1993:
- 39 -
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
----------------------------------- ------------------------
Bonus/Annual Securities Long-Term All
Incentive Underlying Incentive Other
Name and Principal Position Year Salary Award Options Payouts Compensation
- --------------------------- ---- ------------ ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William L. Jenkins 1995 $ 63,000 $ -0- -0- -0- $ -0-
President 1994 64,592 -0- -0- -0- -0-
1993 116,146 -0- -0- -0- -0-
</TABLE>
The Company was a party to an Employment Agreement, dated April 1,
1994, with William L. Jenkins, its President and Chief Executive Officer. The
Employment Agreement calls for a base salary of $5,250 per month, adjusted
annually for inflation, and expires on March 31, 1997. The Company paid Mr.
Jenkins a discretionary bonus of $375,000 through the issuance of 600,000 shares
of Common Stock, valued at $.625 per share for the year ended December 31, 1991
and agreed to pay Mr. Jenkins' tax liability related to the bonus. $142,500 in
taxes was paid pursuant to such agreement in 1992. See the "Report of
Independent Accountants" contained in Item 7, "Financial Statements and
Supplementary Data", and Note 16 of "Notes to Consolidated Financial
Statements".
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1996 (a) by each person
who is known by the Company to own beneficially more than 5% of the Company's
Common Stock, (b) by each of the Company's Directors and officers and (c) by all
Directors and officers as a group:
- 40 -
<PAGE>
<TABLE>
<CAPTION>
Number of Percentage of
Shares Outstanding
Name and Address(1) Owned Shares (2)
------------------- ----- ----------
<S> <C> <C>
William L. Jenkins 208,252(4) 27.4%
John A. McNiff, Sr. 131,625(3) 17.3%
Pangaea Investments LTD
Monetary Advancements International 40,000 5.2%
Morgan Devin Everett of Bermuda 96,112 12.6%
International Trust Company of Bermuda 56,674 7.4%
Reese James 63,671(4) 8.3%
Danny Thornton 64,337(4) 8.4%
All Directors and officers as a 339,877(3) 44.7%
Group (2 persons including the above)
<FN>
(1) The address for each of the above individual shareholders is c/o Black
Warrior Wireline Corp., 3748 Highway 45 North, Columbus, Mississippi
39701.
(2) The percentage of outstanding shares calculation is based upon 759,052
shares outstanding, except as otherwise noted.
(3) Includes 131,625 shares of Common Stock owned by a corporation over which
Mr. McNiff may be deemed to share investment control. Mr. McNiff reserves
the right to disclaim beneficial ownership of such securities. The
percentage of outstanding shares is calculated on the basis of 759,052
shares of Common Stock outstanding.
(4) Includes 328,008 shares of common stock by the "Employee Group". Mr.
Jenkins reserves the right to disclaim ownership of such securities.
</FN>
</TABLE>
Item 12. Certain Relationships and Related Transactions.
The Company executed a Reorganization Agreement with the holders of
certain debt of the Company (the "Debt Holders") on November 30, 1995 pursuant
to which such Debt Holders agreed to exchange the debt held by them for shares
of the Company's Common Stock, as follows:
- 41 -
<PAGE>
Debt Holder Debt Exchanged Shares Received
----------- -------------- ---------------
Morgan D. Everett $131,250 56,112
International Trust $131,250 56,112
Mansfield Soderberg $131,250 56,112
Pangaea Investment $262,500 131,250
Employee Group $297,130 148,565
William Jenkins $400,000 200,000
In connection with the reorganization discussed above, the Company also effected
a 1-for-200 reverse stock split on October 30, 1995.
In October 1991, the Company entered an agreement with a partnership
consisting of officers and spouses of officers of the Company, whereby such
partnership advanced funds to the Company for operations. These advances are
collateralized by certain accounts receivable of the Company and bear interest
at a rate of prime plus 2%. Aggregate advances from such partnership were
$120,807 in 1992. At December 31, 1995, such indebtedness was converted to
equity pursuant to the Reorganization Agreement.
In conjunction with the reorganization, the Company and the Employee
Group entered into a Supplemental Agreement, pursuant to which the parties
agreed as follows:
1. Debt Holders will exchange the Company debt for shares.
- 42 -
<PAGE>
2. Within (12) month period following closing, the Debt Holders shall
sell all shares received by them at the sale price of $2.00 per
share. If such shares are not purchased within such interval, the
Debt Holders will suffer damages. The parties have determined that
liquidated damages of $.71942 per share not purchased would be
fair and reasonable measure of damages, with a maximum liquidated
damages of $100,000. At closing the Company shall secure the
corporate guarantee with a pledge of its accounts receivables.
The Company had outstanding balances of $334,237 and $196,500 in notes
payable at December 31, 1994 and 1993 respectively, to the president of the
Company and his spouse. These notes are collateralized by certain assets having
a book value of $131,154 at December 31, 1994. The notes payable were converted
to equity pursuant to the Reorganization Agreement.
In October of 1994, the Company entered into an agreement with the
President of the Company to lease as office space a building owned by him. The
lease calls for monthly payments of $1,900 and is renewable at the end of 12
months. During 1995, the Company paid rentals of $22,262 pursuant to their
lease.
See Notes 4 and 7 of "Notes to Consolidated Financial Statements".
- 43 -
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The Exhibits required by Regulation S-B are set forth in the following
list and are filed either by incorporation by reference from previous filings
with the Securities and Exchange Commission or by attachment to this Annual
Report on Form 10-KSB as so indicated in such list.
Exhibit Designation
3.2 Restated Certificate of Incorporation of the Company, as filed
with the Secretary of State of the State of Delaware on June
21, 1989 (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1990).
3.3 Certificate of Incorporation of the Company (incorporated by
reference to the Company's Registration Statement on Form
S-18, effective date December 6, 1988).
3.4 Amendment to the Certificate of Incorporation of the Company
(incorporated by reference to the Company's Registration
Statement on Form S-18, effective date December 6, 1988).
3.5 By-Laws of the Company (incorporated by reference to the
Company's Registration Statement on Form S-18, effective date
December 6, 1988).
4.1 14% Debenture, dated August 10, 1990, issued to Henry Hoffman,
in the initial principal amount of $450,000 (incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990).
4.2 14% Debenture, dated August 10, 1990, issued to Stewart Cahn,
in the initial principal amount of $250,000 (incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990).
4.3 14% Debenture, dated September 18, 1990, issued to Lorin
Silverman, in the initial principal amount of $100,000
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990).
4.4 14% Debenture, dated September 6, 1990, issued to Martha
Heyman in the initial principal amount of $10,000
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990).
- 44 -
<PAGE>
4.5 14% Debenture, dated October 2, 1990, issued to Mark G.
Flanders, in the initial principal amount of $5,000
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990).
4.6 14% Debenture, dated November 1, 1990, issued to Helen
Margulies, in the initial principal amount of $5,000
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990).
4.7 14% Debenture, dated November 8, 1990, issued to Selma Seider,
in the initial principal amount of $5,000 (incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990).
4.8 14% Debenture, dated November 5, 1990, issued to Delaware
Charter Guarantee, in the initial principal amount of $25,000
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990).
4.9 14% Debenture, dated November 7, 1990, issued to Henry A.
Klein, in the initial principal amount of $10,000
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990).
4.10 14% Debenture, dated November 8, 1990, issued to Selma Seider,
in the initial principal amount of $5,000 (incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990).
4.11 14% Debenture, dated November 9, 1990, issued to Rebecca
Goldman, in the initial principal amount of $10,000
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990).
4.12 14% Debenture, dated November 12, 1990, issued to Cary and
Judith Fishman, in the initial principal amount of $5,000
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990).
4.13 14% Debenture, dated November 16, 1990, issued to Rebecca
Plevinsky, in the initial principal amount of $10,000
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990).
4.14 14% Debenture, dated November 19, 1990, issued to Lena
Giordano, in the initial principal amount of $5,000
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990).
4.15 14% Debenture, dated November 22, 1990, issued to Robert M.
Runyon, in the initial principal amount of $10,000
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990).
4.16 14% Debenture, dated November 26, 1990, issued to June Prall,
in the initial principal amount of $5,000 (incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990).
- 45 -
<PAGE>
4.17 14% Debenture, dated October 3, 1990, issued to Robert C.
Loeb, in the initial principal amount of $5,000 (incorporated
by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990).
4.18 14% Debenture, dated November 1, 1990, issued to Martha
Heyman, in the initial principal amount of $5,000
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990).
4.19 Form of Debenture Purchase Agreement relating to the Company's
13% Convertible Subordinated Debentures due August 31, 1995
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991).
4.20 Form of 13% Convertible Subordinated Debenture due August 31,
1995 (contained within Exhibit 4.19 above).
4.21 Warrant, dated July 1, 1991, pursuant to which the Company
granted John A. McNiff, Sr., the right to acquire 34,996
shares of Common Stock of the Company (incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991).
10.1 Employment Agreement, dated April 1, 1994, between William L.
Jenkins and the Company (incorporated by reference to the
Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1994).
10.2 Accounts Receivable Factoring and Security Agreement, dated
August 29, 1991, among Rhonda J. Jenkins, Reese James, Danny
Ray Thornton, Lanelle A. Neel and the Company (incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991).
10.3 Reorganization Agreement, dated as of November 30, 1995,
between the Company and Pengaea Investment Consultants, Ltd.
and Mansfield Soderberg & Co., Ltd., William L. Jenkins, Reese
James, Allen and Lanelle Neel and Danny Ray Thornton, Henry
Hoffman, W. Stewart Cahn, Lorin Silverman and B. and E. Deeds
(incorporated by reference to the Current Report filed on Form
8-K on December 15, 1995, by the Company).
10.4 Supplemental Agreement, dated as of November 30, 1995, between
the Company and Reese James, Allen and Lanelle Neel and Danny
Ray Thornton.
10.5 Security Agreement, dated as of December 21, 1995, between the
Company and Rhonda J. Jenkins, Reese James, Danny Ray Thornton
and Lanelle A. Neel.
10.6 Business Consulting Agreement, dated as of November 1, 1995,
between the Company and Monetary Advancement International,
Inc.
11 Computation of Earnings Per Share.
21 Subsidiaries.
27 Financial Data Schedule
- 46 -
<PAGE>
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on December 15, 1995, to
report the November 30, 1995 execution of a Reorganization Agreement pursuant to
which certain of the Company's debt holders agreed to exchange outstanding debt
for shares of the Common Stock of the Company and in connection with which the
Company effected a 1-for-200 reverse stock split on October 30, 1995.
- 47 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BLACK WARRIOR WIRELINE CORP.
By /s/WILLIAM L. JENKINS
----------------------------------
William L. Jenkins
Chief Executive Officer
Date: April 13, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
WILLIAM L. JENKINS
- -------------------------------------- President April 13, 1995
William L. Jenkins (Principal Executive, Financial and
Accounting Officer) and Director
JOHN A. McNIFF, SR. Director April 13, 1995
- --------------------------------------
John A. McNiff, Sr.
</TABLE>
- 48 -
<PAGE>
Exhibit 10.4
STATE OF MISSISSIPPI
COUNTY OF LOWNDES
SUPPLEMENTAL AGREEMENT
----------------------
This Supplemental Agreement is between and among Black Warrior Wireline
Corp., a Delaware corporation, (herein the "Company") and Reese James, Allen and
Lanelle Neel and Danny Ray Thornton (herein the "Debt Holders").
The Company and the Debt Holders are some of the parties to that
certain Reorganization Agreement dated as of November 30, 1995 (the
"Reorganization Agreement").
Section 9.3 of the Reorganization Agreement contemplates that there
shall be an additional agreement among the Company and the other parties hereto.
The parties hereby agree as follows:
1. Debt Holders have agreed to exchange the Company debt held by them
for shares pursuant to the terms of the Reorganization Agreement. Debt Holders
would not agree to such exchange without the commitments and undertakings by the
Company contained in this Supplemental Agreement.
2. At the closing contemplated by the Reorganization Agreement, Debt
Holders shall exchange all Company debt held by them for shares as indicated in
the Reorganization Agreement.
3. Prior to closing, the Company shall take such steps as are needed to
secure an opinion from its securities counsel, Haskell, Slaughter, Young &
Johnston of Birmingham,
-1-
<PAGE>
Alabama, that the shares to be issued pursuant to the Reorganization Agreement
to the Debt Holders who are parties to this Supplemental Agreement may be
publicly traded, not withstanding the fact that same have not been registered.
The Debt Holders understand that it may be necessary for them to furnish certain
certificates and documentation to the securities counsel in order for such an
opinion to be issued. The opinion itself shall be made available to Debt Holders
at closing.
4. Within the twelve (12) month period following closing, the Debt
Holders shall sell all shares received by them pursuant to the Reorganization
Agreement at the sale price of $2.00 per share. Sale of such shares shall be
arranged through Monetary Advancement International, Inc., 67 Wall Street, New
York, New York, 10005. During such twelve (12) month interval, Debt Holders
shall not sell or attempt to sell such shares other than through the firm
Monetary Advancement International, Inc., unless the Company shall grant written
consent for such other sale.
5. The Company hereby corporately guarantees that Monetary Advancement
International, Inc., or another purchaser, will purchase the shares to be issued
to Debt Holders pursuant to the Reorganization Agreement at the sum of $2.00 per
share during the twelve (12) month interval beginning on the date of closing.
The parties hereto agree that if such shares are not purchased within such
interval, the Debt Holders will suffer damages, which damages will be difficult
to establish. Therefore, the parties have determined that liquidated damages of
$.71942 per share not purchased would be a fair and reasonable measure of
damages, with a maximum liquidated damages of $100,000.
6. At closing the Company shall secure the corporate guarantee set
forth in the preceding paragraph with a pledge of its accounts receivables.
While such account pledge shall
-2-
<PAGE>
cover all accounts receivable of the Company, the security granted to Debt
Holders shall be limited to the first $100,000 collected. From time to time the
Debt Holders shall execute such documentation as is reasonably requested by the
Company so as to demonstrate to future lenders the limitation of this security
agreement and pledge.
7. At closing the Debt Holders shall release all security currently
held by them, including a prior pledge of the Company's accounts receivables.
8. This Supplemental Agreement incorporates all terms and conditions of
the Reorganization Agreement. In the event of a conflict between the terms of
the Reorganization Agreement and this Supplemental Agreement, this Supplemental
Agreement shall prevail.
Executed as of the 30th day of November, 1995.
BLACK WARRIOR WIRELINE CORP.
BY: /s/ William L. Jenkins
-------------------------------------
William L. Jenkins, President
/s/ Reese James
-------------------------------------
REESE JAMES
/s/ Allen Neel
-------------------------------------
ALLEN NEEL
/s/ Lanelle Neel
-------------------------------------
LANELLE NEEL
/s/ Danny Ray Thornton
-------------------------------------
DANNY RAY THORNTON
-3-
<PAGE>
Exhibit 10.5
STATE OF MISSISSIPPI
LOWDNES COUNTY
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT made and entered into as of the 21st day of
December, 1995 by and between BLACK WARRIOR WIRELINE CORP., a Delaware
corporation (herein the "Debtor"), and RHONDA J. JENKINS, REESE JAMES, DANNY RAY
THORNTON and LANELLE A. NEEL (collectively hereinafter referred to as "Secured
Party").
W-I-T-N-E-S-S-E-T-H:
--------------------
WHEREAS, effective the 30th day of November, 1995 the Debtor and the
Secured Party entered into that certain Reorganization Agreement effective as of
November 30, 1995, which was amended and supplemented by that certain
"Supplemental Agreement" also effective as of November 30, 1995;
WHEREAS, pursuant to Sections 5 and 6 of the Supplemental Agreement,
the Debtor is due to secure a corporate guaranty (herein the "Guaranty") of
$100,000 through a pledge of its accounts receivable, to the extent and only to
the extent of $100,000.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions set forth herein, the parties agree as follows:
-1-
<PAGE>
1. Security Interest. Subject to the applicable terms of this Security
Agreement, the Debtor grants to Secured Party a "Security Interest" in the
Collateral (hereafter defined) to secure the payment of the Guaranty and other
obligations delineated hereafter.
2. Obligation Secured. This Security Agreement applies to the following
"Obligations":
(A) The Guaranty, as defined in the second preamble paragraph
above.
(B) This Security Agreement further secures all costs incurred
by Secured Party to obtain, preserve, and enforce this Security Interest,
collect the Guaranty, and maintain and preserve the Collateral including, but
not limited to, reasonable attorneys fees and legal expenses and expenses of
sale.
3. Collateral. "Collateral" means accounts receivable of the Debtor,
including but not limited to, those accounts receivables scheduled on Exhibit
"A" hereto. Despite the fact that all accounts receivable of the Debtor are
pledged to secure the Guaranty, under this agreement Secured Party shall be
permitted to collect not more than $100,000 from such accounts receivable.
4. Agreements of Debtor.
---------------------
(A) Debtor agrees that it will: pay all costs necessary to
obtain, preserve and enforce this Security Interest, collect and preserve the
Collateral, including (but not limited to) reasonable attorneys' fees and legal
expenses and expenses of sale; furnish Secured Party with any information on the
Collateral reasonably requested by Secured Party; allow Secured Party to inspect
the Collateral, and inspect and copy all records relating to the Collateral and
the
-2-
<PAGE>
Guaranty; sign any papers furnished by Secured Party which are necessary to
obtain and maintain this Security Interest; perfect the Security Interest in the
states of Mississippi and Alabama (using a method satisfactory to Secured
Party); notify Secured Party of any change in or occurring to the Collateral, or
in any fact or circumstance warranted or represented by Debtor in this
Agreement.
(B) Debtor will not (without Secured Party's consent): sell,
lease, otherwise transfer the Collateral.
5. Representations and Warranties of the Debtor. No financing statement
has been filed with respect to the Collateral, other than relating to this
Security Interest; Debtor is the absolute owner of the Collateral, and it is not
encumbered other than by this Security Interest (and the same will be true of
Collateral acquired hereafter when acquired).
6. Rights of Secured Party. Secured Party may, in its discretion,
before or after default: take any action Debtor is required to take or which is
otherwise necessary to obtain, preserve, and enforce this Security Interest, and
maintain and preserve the Collateral, without notice to Debtor, and add cost of
same to the Guaranty and other Obligations secured hereby (but Secured Party is
under no duty to take any such action); release Collateral in its possession to
Debtor, temporarily or otherwise; waive any of its rights hereunder without such
waiver prohibiting the later exercise of the same or similar rights; revoke any
permission or waiver previously granted to Debtor.
-3-
<PAGE>
7. Default. Any of the following is an event of Default:
(A) Failure of Debtor to pay the Guaranty in accordance
with its terms, or failure to pay any other
liabilities secured by this Security Interest on
demand, or to perform any act or duty required by
this Security Agreement.
(B) Falsity of any warranty or representation in this
Agreement when made.
(C) Substantial change in any fact warranted or
represented in this Agreement.
(D) Involvement of Debtor in its own bankruptcy or
insolvency proceedings.
(E) Dissolution or other termination of Debtor's
existence, merger or consolidation of Debtor with
another.
(F) Levy on, seizure or attachment of the Collateral.
(G) Judgement against Debtor.
If and when an event of default occurs, then: (i) the entire Guaranty
shall become immediately due and payable at Secured Party's option without
notice to Debtor; (ii) Secured Party may proceed to enforce payment of same and
exercise any and all rights and remedies available to Secured Party under the
Uniform Commercial Code, in effect in the State of Mississippi at the time of
such default, as well as all other rights and remedies; (iii) Debtor shall, upon
demand by Secured Party, execute all such documents as are necessary to transfer
the Collateral to Secured Party.
8. First & Prior Lien. This Security Agreement grants to Secured Party
a first lien to secure the payment of the Guaranty and other obligations
described herein, and extensions and
-4-
<PAGE>
renewals thereof. If Secured Party disposes of the Collateral following default,
the proceeds of such disposition available to satisfy the Guaranty and other
obligations shall be applied first to the Guaranty and thereafter to all
remaining indebtedness secured hereby, in the order in which such remaining
indebtedness was executed or contracted. For purposes of this section, an
extended or renewed Guaranty will be considered executed on the date of the
original Guaranty.
9. Miscellaneous.
-------------
(A) Governing Law. The laws of the State of Mississippi shall
govern the validity of this Agreement, the construction of its terms, the
interpretation of the rights, the duties of the parties, the enforcement of its
terms, and all other matters relating to this Agreement.
(B) Severability. All the terms, provisions and conditions of
this Agreement shall be deemed to be severable in nature. If, for any reason,
the restrictions and covenants contained herein are held to be of a scope or a
length of time which is unreasonable or unenforceable, or in any other way found
to be too broad or to any extent invalid, then to the extent that such
restrictions and covenants are or shall be valid and enforceable under
applicable law, a court of competent jurisdiction shall construe and interpret
this Agreement to provide for maximum enforceability both as to scope and time
and/or other provisions which shall be valid and enforceable under applicable
law.
(C) Costs of Default. In the event of any default by any party
as to any duty, warranty, or undertaking owed to another party, which default
results in legal proceedings, the defaulting party shall pay, in addition to
such other sums as may be due hereunder, the legal
-5-
<PAGE>
costs and expenses of such legal proceedings, including without limitation, a
reasonable attorney fee.
(D) Amendments. This Agreement may not be amended, modified,
altered, or changed in any respect whatsoever except by further agreement in
writing, duly executed by all of the parties.
(E) Gender. All personal pronouns used in this Agreement shall
include all genders, whether used in the masculine, feminine, or neuter gender.
Singular nouns and pronouns shall include the plural, as may be appropriate, and
vice versus.
(F) Notice. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
given and delivered upon personal delivery or, if mailed, upon depositing such
notice in the United States mail, with first-class postage prepaid, to the
address of the party as set forth below or as the same may be changed from time
to time by said party in accordance with this notice provision:
If to Debtor: BLACK WARRIOR WIRELINE CORP.
P. O. Drawer 9188
Columbus, MS 39705
ATTN: William L. Jenkins
If to Secured Party: c/o REESE JAMES
1150 Fernbank Road
Steens, MS 39766
(G) Construction. This Agreement shall be construed in its
entirety according to its plain meaning and shall not be construed against the
party who provided or drafted it.
(H) Binding. Each and all of the covenants, terms, provisions
and agreements herein contained shall be binding upon and inure to the benefit
of the parties hereto and, to the extent permitted by this Agreement, their
respective heirs, legal representatives, successors and
-6-
<PAGE>
assigns. All representations and warranties made herein shall survive the
execution of this Agreement.
(I) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
(J) Waiver. Debtor waives presentment, demand, notice of
dishonor, protest and extension of time without notice as to any instrument and
chattel paper which make up part of the Collateral.
(K) Photocopies. A photocopy or other reproduction of this
Agreement, or any financing statement signed by the Debtor is sufficient as a
financing statement.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
on the day and date first above written.
BLACK WARRIOR WIRELINE CORP.
By: /s/ William L. Jenkins
--------------------------------
William L. Jenkins, President
/s/ Rhonda J. Jenkins
--------------------------------
RHONDA J. JENKINS
/s/ Reese James
--------------------------------
REESE JAMES
/s/ Danny Ray Thornton
--------------------------------
DANNY RAY THORNTON
/s/ Lanelle A. Neel
--------------------------------
LANELLE A. NEEL
-7-
<PAGE>
LIST OF EXHIBITS NOT HEREIN INCLUDED
EXHIBIT A: LIST OF ACCOUNTS RECEIVABLE PLEDGED
<PAGE>
Exhibit 10.6
MONETARY Phone: (212) 323-8106
ADVANCEMENT Fax: (212) 943-2300
INTERNATIONAL, INC. Telex: 283814 SBILUB
BUSINESS CONSULTING AGREEMENT
-----------------------------
AGREEMENT, MADE THIS 1ST DAY OF NOVEMBER, 1995 BY AND BETWEEN BLACK
WARRIOR WIRELINE CORP., "BWWC", HAVING ITS PRINCIPAL PLACE OF BUSINESS AT 3745
HIGHWAY 45 NORTH, COLUMBUS, MISSISSIPPI 39701 ATTN: WILLIAM JENKINS, PRESIDENT
HEREINAFTER THE "COMPANY" AND MONETARY ADVANCEMENT INTERNATIONAL, INC., HAVING
ITS PRINCIPAL PLACE OF BUSINESS AT 67 WALL ST., STE. 2411, NEW YORK, NEW YORK
10005, HEREINAFTER THE "CONSULTANT."
WHEREAS, THE COMPANY DESIRES TO OBTAIN CONSULTANTS SALES,MARKETING,
MANAGEMENT AND FINANCIAL CONSULTING SERVICES IN CONNECTION WITH THE COMPANY'S
BUSINESS AFFAIRS, AND CONSULTANT IS WILLING TO UNDERTAKE TO PROVIDE SUCH
SERVICES AS HEREINAFTER FULLY SET FORTH.
WITNESSETH
----------
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS
i. ASSIST IN THE PREPARATION AND DISTRIBUTION OF PRESS RELEASES
WHENEVER APPROPRIATE TO BE MADE AVAILABLE TO THE PRESS IN GENERAL, CUSTOMERS,
SUPPLIERS, SELECT NASD BROKER/DEALERS, FINANCIAL ANALYSTS AND INSTITUTIONS, AND
THE COMPANY'S SHAREHOLDERS FOR A PERIOD OF SIC (6) MONTHS, WITH AN OPTION FOR
RENEWAL.
ii. ASSIST IN EQUITY RAISING TRANSACTIONS THROUGH THE PRIVATE PLACEMENT
OF THE COMPANY'S COMMON STOCK AND THE RESTRUCTURING OF THE COMPANY'S CURRENT
DEBT AND BALANCE SHEET.
iii. IT IS AGREED THAT THE CONSULTANTS SERVICES WILL NOT INCLUDE ANY
SERVICES THAT CONSTITUTE THE RENDERING OF LEGAL OPINIONS OR PERFORMANCE OF WORK
THAT IS IN THE ORDINARY PURVIEW OF A CERTIFIED PUBLIC ACCOUNTANT OR ANY WORK
THAT IS IN THE ORDINARY PURVIEW OF AN NASD REGISTERED BROKER/DEALER.
iv. COMPENSATION; THE COMPANY AGREES TO PAY THE CONSULTANT 200,000
SHARES OF FREELY TRADED SHARES OF COMMON STOCK OF THE COMPANY WITH 40,000 SHARES
DUE AT THE TIME OF EXECUTION OF THIS AGREEMENT AND THE BALANCE DUE DURING THE
TERM OF THIS AGREEMENT AS NEEDED BY "MAI."
v. LIABILITY OF CONSULTANT: THE PARTIES FURTHER ACKNOWLEDGE THAT
CONSULTANT UNDERTAKES NO RESPONSIBILITY FOR THE ACCURACY OF ANY STATEMENTS TO BE
MADE BY THE COMPANY CONTAINED IN PRESS RELEASES OR OTHER STATEMENTS TO BE MADE
BY THE COMPANY CONTAINED IN PRESS RELEASES OR OTHER
<PAGE>
COMMUNICATION, INCLUDING, BUT NOT LIMITED TO, FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION AND THE NATIONAL ASSOCIATION OF SECURITIES DEALERS.
vi. STATUS OF CONSULTANT SHALL BE DEEMED AN INDEPENDENT CONTRACTOR AND,
EXCEPT AS EXPRESSLY PROVIDED OR AUTHORIZED IN THIS AGREEMENT, SHALL HAVE NO
AUTHORITY TO ACT OR REPRESENT THE COMPANY.
vii. MISCELLANEOUS:
(A) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
(B) IN THE EVENT THIS AGREEMENT OR PERFORMANCE HEREUNDER CONTRAVENE
PUBLIC POLICY OR CONSTITUTE A MATERIAL VIOLATION OF ANY LAW OR REGULATION OF ANY
FEDERAL OR STATE GOVERNMENT AGENCY, OR EITHER PARTY BECOMES INSOLVENT, OR IS
ADJUDICATED BANKRUPT OR SEEKS THE PROTECTION OF ANY PROVISION OF THE NATIONAL
BANKRUPTCY ACT, OR EITHER PARTY IS ENJOINED, OR CONSENTS TO ANY ORDER RELATING
TO ANY VIOLATION OF ANY STATE OR FEDERAL SECURITIES LAW, THEN THIS AGREEMENT
SHALL BE TERMINATED, AND NULL AND VOID UPON SUCH TERMINATION; NEITHER PARTY
SHALL BE OBLIGATED HEREUNDER AND NEITHER PARTY SHALL HAVE ANY FURTHER LIABILITY
TO THE OTHER.
(C) ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATED TO THIS
AGREEMENT SHALL BE SETTLED BY ARBITRATION IN ACCORDANCE WITH THE RULES AND UNDER
THE AUSPICES OF THE AMERICAN ARBITRATION ASSOCIATION; AND ANY ARBITRATION SHALL
BE CONDUCTED IN THE CITY OF NEW YORK IN THE STATE OF NEW YORK.
AGREED AND ACCEPTED THIS 1ST DAY OF NOVEMBER, 1995.
BLACK WARRIOR WIRELINE CORP.
BY: /s/ William Jenkins
-------------------------------------
WILLIAM JENKINS, PRESIDENT
MONETARY ADVANCEMENT INTERNATIONAL, INC.
BY: /s/ Raymond Burghard
--------------------------------------
RAYMOND BURGHARD, PRESIDENT
<PAGE>
BLACK WARRIOR WIRELINE CORP.
STATEMENT REGARDING COMPUTATION OF LOSS PER SHARE
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Per share computation of common
and common equivalent shares: *
Loss before extraordinary gain
as reported in consolidated
statements of operations (545,562) (1,142,118) (1,701,414)
Extraordinary gain, net of income
taxes, as reported in consolidated
statements of operations 387,413 -- --
Loss as reported in consolidated
statements of operations (158,149) $(1,142,118) $(1,701,414)
Weighted average number of shares
outstanding during the year 88,905 66,008 64,111
Weighted average number of shares
outstanding used to calculate per
share data 88,905 66,008 64,111
Loss before extraordinary gain
per common and common equivalent
share (6.14) (17.30) (26.54)
Extraordinary gain, net of income
taxes, per common and common
equivalent share (4.36) -- --
Net loss per common and common
equivalent share $(1.78) $(17.30) $(26.54)
* 1994 and 1993 loss per common and common equivalent share and weighted
average number of shares outstanding have been restated to reflect a 1 for
200 reverse stock split effected during 1995.
<PAGE>
Black Warrior Wireline Corp.
Subsidiaries
Boone Wireline Co., Inc.
Black Warrior Syrian Services (dormant)
Black Warrior International Bermuda LTD (dormant)
Black Warrior Oil and Gas Bermuda LTD (dormant)
Black Warrior International Delaware
<PAGE>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARY
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MON
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 284,825
<SECURITIES> <blank>
<RECEIVABLES> 960,499
<ALLOWANCES> 130,115
<INVENTORY> 185,813
<CURRENT-ASSETS> 1,413,549
<PP&E> 4,618,045
<DEPRECIATION> 3,311,919
<TOTAL-ASSETS> 2,725,080
<CURRENT-LIABILITIES> 3,875,663
<BONDS> 385,696
<COMMON> 380
<blank>
<blank>
<OTHER-SE> (1,535,899)
<TOTAL-LIABILITY-AND-EQUITY> (1,536,279)
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<CGS> <blank>
<TOTAL-COSTS> 5,213,521
<OTHER-EXPENSES> <blank>
<LOSS-PROVISION> <blank>
<INTEREST-EXPENSE> 625,990
<INCOME-PRETAX> (772,116)
<INCOME-TAX> (226,554)
<INCOME-CONTINUING> (545,562)
<DISCONTINUED> <blank>
<EXTRAORDINARY> 387,413
<CHANGES> <blank>
<NET-INCOME> (158,149)
<EPS-PRIMARY> (1.78)
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<PAGE>
</TABLE>
