SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1999;
or
__ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from_____________
to____________ .
Commission File Number 0-18754
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BLACK WARRIOR WIRELINE CORP.
------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 11-2904094
----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S employer
incorporation of organization) identification no.)
3748 HIGHWAY 45 NORTH, COLUMBUS, MISSISSIPPI 39701
--------------------------------------------------
(Address of principal executive offices, zip code)
(601) 329-1047
-----------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
proceeding 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES X NO
------- -------
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at May 20, 1999
----------------------- ---------------------------
COMMON STOCK, PAR VALUE 3,947,451 SHARES
$.0005 PER SHARE
Transitional Small Business Disclosure Format
YES NO X
------- -------
<PAGE>
BLACK WARRIOR WIRELINE CORP.
QUARTERLY REPORT ON FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1999
and December 31, 1998 3
Consolidated Statements of Operations -
Three Months Ended March 31, 1999 and
March 31, 1998 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1999 and
March 31, 1998 5
Notes to Consolidated Financial Statements -
Three Months Ended March 31, 1999 and
March 31, 1998 6
Item 2. Management's Discussion and Analysis or Plan of
Operations 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 18
Item 6. Exhibits and Reports on Form 8-K 20
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARY
- -------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 369,214 $1,041,242
Short-term investments 50,000 50,000
Accounts receivable, less allowance for doubtful
accounts of $ 1,788,723 and $ 2,157,421, respectively 3,393,424 3,596,004
Prepaid expenses 170,749 110,579
Other receivables 425,487 236,273
Other current assets 439,714 498,812
------- -------
Total current assets 4,848,588 5,532,910
Land and building held for sale 400,000 400,000
Inventories 4,249,445 4,278,601
Property, plant, and equipment, less accumulated
depreciation of $ 10,270,115 and $ 8,986,893, respectively 21,594,985 22,628,601
Other assets 637,791 539,537
Goodwill, less accumulated amortization of $ 237,236
and $ 215,678, respectively 3,412,223 3,435,201
--------- ---------
Total assets $ 35,143,032 $ 36,814,850
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 5,526,622 $ 5,964,266
Accrued salaries and vacation 127,919 91,275
Accrued interest payable 1,873,151 1,527,674
Other accrued expenses 732,875 826,366
Deferred revenue 155,016
Current maturities of notes payable to banks 78,501
Note payable, related party 23,162,890 20,662,890
Current maturities of long-term debt and capital
lease obligations 17,359,626 18,923,719
---------- ----------
Total liabilities 48,861,584 48,151,206
Stockholders' deficit:
Preferred stock, $.0005 par value, 2,500,000 shares
authorized none issued at March 31, 1999 and
December 31, 1998
Common stock, $.0005 par value, 12,500,000 shares
authorized; 3,947,451 and 3,897,451 shares issued
and outstanding at March 31, 1999 and December 31, 1998,
respectively 1,973 1,948
Additional paid-in capital 12,193,276 12,107,551
Accumulated deficit (25,330,408) (22,862,462)
Treasury stock, at cost, 4,620 shares (583,393) (583,393)
--------- ---------
Total stockholders' deficit (13,783,552) (11,336,356)
------------ -----------
Total liabilities and stockholders' deficit $ 35,143,032 $ 36,814,850
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARY
- -------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended March 31, 1999 and March 31, 1998
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 6,072,282 $ 9,666,024
Operating costs 5,554,290 7,265,888
Selling, general and administrative expenses 830,002 840,679
Depreciation and amortization 1,323,357 809,690
------------ ----------
Income (loss) from operations (1,635,367) 749,767
Interest expense and amortization of debt discount (844,340) (434,760)
Net gain (loss) on sale of fixed assets (9,000) 1,944
Other income 20,761 17,345
------------ ----------
Income (loss) before provision for
income taxes (2,467,946) 334,296
Provision for income taxes 183,619
------------ ----------
Net income (loss) $ (2,467,946) $ 150,677
============= ==========
Net income (loss) per common share- basic $(0.63) $0.05
======= =====
Net income (loss) per common share- diluted $(0.63) $0.03
======= =====
Weighted average common shares outstanding 3,914,109 3,211,678
========= =========
Weighted average common shares outstanding
with dilutive securities 3,914,109 5,169,182
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARY
- -------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended March 31, 1999 and March 31, 1998
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Cash (used in) provided by operations: $ (1,413,212) $ 766,649
Cash flows from investing activities:
Acquisitions of property, plant, and equipment (223,605) (1,634,485)
Proceeds from sale of property, plant and equipment 26,000 28,970
Acquisition of business, net of cash acquired (397,485)
------------ ----------
Cash used in investing activities: (197,605) (2,003,000)
Cash flows from financing activities:
Debt issuance costs (37,868) (135,000)
Proceeds from bank and other borrowings 2,500,000 520,373
Principal payments on long-term debt, notes payable
and capital lease obligations (394,209) (449,936)
Payments on working revolver, net (1,129,134)
Proceeds from issuance of common stock, net
of offering costs 2,813,255
--------- ----------
Cash provided by financing activities: 938,789 2,748,692
Net (decrease) increase in cash and cash equivalents (672,028) 1,512,341
Cash and cash equivalents, beginning of period 1,041,242 435,845
--------- -------
Cash and cash equivalents, end of period $ 369,214 $ 1,948,186
========= ===========
Supplemental disclosure of cash flow information:
Interest paid $ 498,862 $ 329,663
Supplemental disclosure of noncash investing
and financing activities:
Notes payable incurred in connection with
business acquisition $ 19,000,000
Notes payable and capital lease obligations incurred
to acquire property, plant & equipment $ 78,501 $ 111,562
Stock warrants issued in conjunction with notes payable $ 20,750
Stock issued as consideration for option to purchase
company (Note 4) $ 65,000
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
BLACK WARRIOR WIRELINE CORP. AND SUBSIDARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying consolidated financial statements reflect all
adjustments that, in the opinion of management, are necessary for a fair
presentation of the consolidated financial position, results of operations and
cash flows of Black Warrior Wireline Corp. and subsidiary (the "Company"). Such
adjustments are of a normal recurring nature. The accompanying consolidated
financial statements have been prepared assuming that the Company will continue
as a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty. See Note 17
of the Company's Annual Report on Form 10-KSB for the year ended December 31,
1998. The results of operations for the interim period are not necessarily
indicative of the results to be expected for the full year. The Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1998 should be read
in conjunction with this document.
The Company is an oil and gas service company currently providing
various services to oil and gas well operators primarily in the continental
United States and in the Gulf of Mexico. The Company's principal lines of
business include (a) wireline services, (b) directional oil and gas well
drilling activities, and (c) workover services. The Company's recent growth has
been principally the result of seven acquisitions completed since November 1996,
including two acquisitions in 1998.
On March 16, 1998, the Company acquired from Phoenix Drilling
Services, Inc., ("Phoenix") the assets of its domestic oil and gas well
directional drilling and downhole survey service business ("Phoenix
Acquisition") for approximately $19 million. For financial statement purposes,
the Phoenix Acquisition was accounted for as a purchase and, accordingly,
Phoenix's results are included in the consolidated financial statements since
the date of acquisition. The excess of the purchase price of Phoenix over net
assets acquired, goodwill, approximated $2.76 million and was being amortized
over twenty-five years. During the fourth quarter of 1998, the Company assessed
the recoverability of long-lived assets, which includes assets purchased in the
Phoenix Acquisition. The Company concluded the goodwill and certain inventories
and property, plant and equipment related to its directional drilling business
were impaired. As a result of this impairment, the Company recorded an
impairment charge of approximately $11.1 million in the fourth quarter of 1998.
This impairment charge included reducing the goodwill associated with the
Phoenix Acquisition to $0, as well as the writedowns of certain inventories and
property, plant and equipment. See Note 19 in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1998. On June 1, 1998, the Company
acquired Petro Wireline ("Petro Acquisition") which is engaged in the wireline
business in the four corners region of New Mexico, Colorado, Utah and Arizona
for $875,000. For financial statement purposes, the Petro Acquisition was
accounted for as a purchase and, accordingly, Petro Wireline's results are
included in the consolidated financial statements since the date of acquisition.
The excess of the purchase price of Petro Wireline over net assets acquired,
goodwill, approximated $87,000 and is being amortized over twenty-five years.
The following table presents unaudited pro forma consolidated results
of operations for the three months ended March 31, 1998 as if the acquisitions
above had occurred at the beginning of the period presented. The pro forma
summary information does not necessarily reflect the consolidated results of
operations as they actually would have been if the acquisitions had occurred at
the beginning of the period presented. The unaudited consolidated results of
operations for the three months ended March 31, 1999 are presented for
comparative purposes as both acquisitions are included in the consolidated
operating results of this period.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 6,072,282 $ 13,878,745
Income (loss) before income tax effect $ (2,467,946) $ 59,571
Net income (loss) $ (2,467,946) $ 39,317
Net income (loss) per common share - basic $ (0.63) $ 0.01
============ ===============
Net income (loss) per common share - diluted $ (0.63) $ 0.01
============ ===============
</TABLE>
6
<PAGE>
The unaudited pro forma consolidated results for the three months ended
March 31, 1998 include historical accounts of the Company and historical
accounts of the acquired business and pro forma adjustments, including the
amortization of the excess purchase price over fair value of net assets
acquired, applicable tax effects, an increase in interest expense, and the
increase in depreciation expense as a result of purchase price adjustments.
2. EARNINGS PER SHARE
The calculation of basic and diluted earning per share ("EPS") is as follows:
<TABLE>
<CAPTION>
For the Three Months For the Three Months
Ended March 31, 1999 Ended March 31, 1998
-------------------------------------------- -------------------------------------
Loss Shares Per Share Income Shares Per Share
Numerator Denominator Amount Numerator Denominator Amount
<S> <C> <C> <C> <C>
Net income (loss) $ (2,467,946) $ 150,677
BASIC EPS
Income (loss) available
to common shareholders $ (2,467,946) 3,914,109 $ (0.63) $ 150,677 3,211,678 $0.05
==========================================================================================
EFFECT OF DILUTIVE SECURITIES
Stock warrants 836,291
Stock options 393,940
Convertible debt securities $ 27,945 727,273
------------------------------------------------------------------------------------------
DILUTED EPS
Income (loss) available
to common shareholders $ (2,467,946) 3,914,109 $ (0.63) $ 178,622 5,169,182 $0.03
==========================================================================================
</TABLE>
Options and warrants to purchase 19,539,747 shares of common stock at
prices ranging from $1.50 to $8.01 were outstanding during the three months
ended March 31, 1999 but were not included in the computation of diluted EPS
because the effect would be anti-dilutive. Options to purchase 12,500 shares of
common stock at $8.01 per share were outstanding during the three months ended
March 31, 1998 but are not included in the computation of diluted EPS because
the effect would be anti-dilutive.
Convertible debt instruments which would result in the issuance of
12,933,333 and 2,054,556 shares of common stock, if the conversion features were
exercised, were outstanding during the three months ended March 31, 1999 and
1998, respectively, but were not included in the computation of the diluted EPS
because the effect would be anti-dilutive. The conversion price of these
instruments is $1.50 per share and these instruments remained outstanding at
March 31, 1999.
3. INVENTORIES
Inventories consist of tool components, subassemblies, and expendable
parts used in directional oil and gas well drilling activities. Once tools are
manufactured and assembled they are transferred to property, plant and equipment
completed at the total cost of components, subassemblies, and expendable parts
of each tool. Components, subassemblies, and expendable parts are capitalized as
inventory and expensed as tools are repaired and maintained. Inventories are
classified as a long-term asset rather than a current asset as is consistent
with industry practice.
7
<PAGE>
4. COMMITMENTS AND CONTINGENCIES
The Board of Directors has authorized the Company to offer an
aggregate of 772,727 common shares to certain persons who purchased shares of
the Company's common stock at a price of $5.50 per share in private sales of the
Company's securities which occurred in March and April 1998. Such persons assert
excessive delays were encountered in effecting the registration of their shares
under the Securities Act of 1933, as amended, and that therefore such persons
were unable to liquidate their securities. The Company disagrees with these
assertions but has agreed to the issuance of the shares to resolve any claims.
The shares are to be issued in consideration of the release of these claims. The
offering of shares of common stock to such persons was granted on April 27, 1999
and is scheduled to expire on May 28, 1999.
On December 15, 1998, the Company entered into an agreement with
Measurement Specialists, Inc. (MSI) to create an alliance between the two
companies. This agreement contains an option for the Company to acquire MSI.
Both the alliance and the option to purchase were to expire on April 15, 1999.
The agreement was extended on April 15, 1999 to run thru September 30, 1999. The
alliance between the Company and MSI was effective December 1, 1998 and was
created in order to pursue Measurement While Drilling services using the tools
and equipment owned or leased by the Company, employees of the Company, and the
technology of MSI. During the term of the alliance, the Company will rent
equipment and inventory from MSI, with a monthly rental payment of $12,206 and
$15,000, respectively. The agreement grants the Company the option to acquire
substantially all of the assets of MSI. If the option is exercised, the Company
agrees to pay MSI $74,982 in cash, 144,445 shares of common stock of the Company
of which 50,000 shares have been previously advanced to MSI, and payment of the
notes payable not to exceed $479,416. Under the original agreement, the owner of
MSI would be employed by the Company for four months. If the option to purchase
MSI is not exercised, then the employment agreement terminates.
The Company and certain of its officers and directors are respondents
in an arbitration proceeding commenced by Monetary Advancements International,
Inc. before the American Arbitration Association in New York, New York. The
claimant seeks to recompense against the Company and other named respondents for
the alleged failure to pay compensation in the form of shares of stock of the
Company for services allegedly rendered. The respondents have submitted an
answer and counterclaims and have initiated a Court proceeding seeking partial
stay of the arbitration proceeding. The Company deems the allegations of the
claimant to be without merit and intends to vigorously contest the case.
Management does not believe the ultimate outcome of these actions will have a
materially adverse effect on the consolidated financial position, results of
operations or cash flows of the Company.
On July 9, 1998, Southwick Investments Inc. ("Southwick") commenced a
lawsuit against the Company in the Superior Court of Fulton County, Georgia,
based on a Professional Services Agreement dated March 26, 1997, entered into
between Southwick and the Company pursuant to which Southwick was to develop and
implement a plan for raising additional capital and provide certain financial
advisory services. Southwick is seeking to be awarded damages in an unspecified
amount for breach of contract and the loss in value to Southwick of an option to
purchase 50,000 shares of the common stock of the Company at an exercise price
of $4.00 per share, together with court costs and attorney's fees. The Company
intends to defend this action vigorously and believes that it has good and
meritorious defenses. Management does not believe the ultimate outcome of these
actions will have a materially adverse effect on the consolidated financial
position, results of operations or cash flows of the Company.
The Company is a defendant in a lawsuit served on the Company on May
10, 1999 instituted in the District Court, Montgomery County, Texas by Bendover
Company (formerly known as Diamondback Directional, Inc.). In the action, the
plaintiff is seeking to recover the sum of $3,070,301, plus interest,
post-default interest and attorney's fees, on a promissory note of the Company
dated September 1, 1997. The promissory note was executed by the Company in
connection with the purchase of the assets of the plaintiff. The Company intends
to interpose defenses to the lawsuit and to assert counterclaims. The Company is
unable to state at this time whether or not the plaintiff is likely to be
successful in its action or the likelihood that the counterclaims intended to be
asserted by the Company will be successful.
8
<PAGE>
The Company is a defendant in a lawsuit served on the Company on May
7, 1999 instituted in the District Court of Fort Bend County, Texas by Dreco,
Inc. seeking to recover payment for goods and services allegedly provided by the
plaintiff to the defendant. The plaintiff is seeking to recover the sum of
$876,802 plus interest and attorney's fees. The Company intends to file an
answer in this action interposing defenses and assetting counterclaims. The
Company is unable to state at this time whether or not the plaintiff is likely
to be successful in its action.
The Company is a defendant in a lawsuit served on the Company on May
17, 1999 instituted in the District Court of Montgomery County, Texas by Thomas
Tools, Inc. seeking to recover payment for tools allegedly provided by the
plaintiff to the defendant. The plaintiff is seeking to recover the some of
$156,534 plus interest and consequential damages and attorney's fees. The
Company is at present considering the claims asserted in this litigation.
The Company is a defendant in seven other lawsuits instituted by
vendors and others seeking to recover an aggregate of approximately $135,000.
Although the Company is seeking to resolve these claims, in the light of the
nature of the claims asserted, the Company considers it likely that judgments
may be entered against it in these actions.
The Company receives demands from creditors for payment of outstanding
payables, as well as other claims. These creditors may institute additional
lawsuits against the Company. There can be no assurance that judgments may not
be entered against the Company arising out of such lawsuits, if instituted.
The Company is a defendant in 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 consolidated financial
position, results of operations or cash flows of the Company.
On December 15, 1998, the Company entered into an agreement with
Measurement Specialists, Inc. (MSI) to create an alliance between the two
companies. This agreement contains an option for the Company to acquire MSI.
Both the alliance and the option to purchase were to expire on April 15, 1999.
The agreement was extended on April 15, 1999 to run thru September 30, 1999. The
alliance between the Company and MSI was effective December 1, 1998 and was
created in order to pursue Measurement While Drilling services using the tools
and equipment owned or leased by the Company, employees of the Company, and the
technology of MSI. During the term of the alliance, the Company will rent
equipment and inventory from MSI, with a monthly rental payment of $12,206 and
$15,000, respectively. The agreement grants the Company the option to acquire
substantially all of the assets of MSI. If the option is exercised, the Company
agrees to pay MSI $74,982 in cash, 144,445 shares of common stock of the Company
of which 50,000 shares have been previously advanced to MSI, and payment of the
notes payable not to exceed $479,416. Under the agreement, the owner of MSI
shall be employed by the Company for four months. If the option to purchase MSI
is not exercised, then the employment agreement terminates.
At March 31, 1999, the Company was not in compliance with certain
financial covenants of its Amended and Restated Loan and Security Agreement
dated October 30, 1998 and its Forbearance Agreement and Amendment to Loan and
Security Agreement dated February 17, 1999, both with Fleet Capital Corporation.
See Part II, Item 3. Defaults Upon Senior Securities in this Quarterly Report.
5. SEGMENT AND RELATED INFORMATION
At March 31, 1999, the Company is organized into, and manages its
business based on the performance of, five business units. The business units
have separate management teams and infrastructures that offer different oil and
gas well services. The business units have been aggregated into three reportable
segments: wireline, directional drilling, and workover and completion since the
long-term financial performance of these reportable segments is affected by
similar economic conditions.
WIRELINE - This segment consists of two business units that perform
various procedures to evaluate downhole conditions at different stages of the
process of drilling and completing oil and gas wells as well as various times
thereafter until the well is depleted and abandoned. This segment engages in
onshore and offshore servicing, as well as other oil and gas well service
activities including renting and repairing equipment. The principal markets for
this segment include all major oil and gas producing regions of the United
States. Major customers of this segment for the quarter ending March 31, 1999
included Collins & Ware, Inc., Burlington Resources, and Chevron Corp.
DIRECTIONAL DRILLING - This segment consists of two business units. One
unit performs procedures to enter a oil producing zone directionally, using
specialized drilling equipment, and expand the area of interface of hydrocarbons
and thereby greatly enhances recoverability of oil. The second business unit
engages in oil and gas well surveying activities. The principal markets for this
segment include all major oil and gas producing regions of the United States.
Major customers of
9
<PAGE>
this segment for the quarter ending March 31, 1999 included Phillips Petroleum,
Jones Energy, Arco Oil & Gas, and Chesapeake.
WORKOVER AND COMPLETION - This segment consists of a business unit in
which services include those operations performed on wells when originally
completed or on wells previously placed in production and requiring additional
work to restore or increase production. The principal market for this segment is
the Black Warrior Basin of Alabama. The major customer of this segment for the
quarter ended March 31, 1999 was Energen Resources.
The accounting policies of the reportable segments are the same as
those described in Note 2 of the Company's Annual Report of Form 10-KSB for the
fiscal year ended December 31, 1998. The Company evaluates the performance of
its operating segments based on earnings before interest, taxes, depreciation,
and amortization (EBITDA), which is derived from revenues less operating
expenses and selling, general, and administrative expenses. Segment information
for the three months ended March 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Workover
Directional And
Wireline Drilling Completion Total
--------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Segment revenues $ 3,554,374 $ 2,191,878 $ 326,030 $ 6,072,282
Segment EBITDA 83,783 (35,052) 51,297 (100,028)
1998
Segment revenues $ 2,917,195 $ 6,320,599 $ 428,230 $ 9,666,024
Segment EBITDA 566,223 1,154,262 8,009 1,728,494
</TABLE>
The Company has certain expenses that are not allocated to the individual
operating segments. A reconciliation of total segment EBITDA to income (loss)
from operations for the three months ended March 31, 1999 and 1998 is presented
as follows:
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Total segment EBITBA $ (100,028) $ 1,728,494
Depreciation and amortization (1,323,357) (809,690)
Unallocated corporate expense (412,038) (169,037)
---------- --------------
Income (loss) from operations $ (1,635,367) $ 749,767
============== ============
</TABLE>
6. RELATED PARTY TRANSACTIONS
The Company opened a wireline facility in South Texas in January 1999
primarily to service a customer who has some common ownership with the Company.
During the three months ended March 31, 1999, this customer accounted for
approximately 6.25% of total revenues.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Company's consolidated results of operations are affected
primarily by the extent of utilization and rates paid for its services and
equipment. Revenues are also affected by the success of the Company's efforts to
increase its penetration of the market for its services by intensified marketing
of its services. Incremental demand for the Company's services is affected by
the level of oil and natural gas well drilling activity and efforts by oil and
gas producers to improve well production
10
<PAGE>
and operating efficiencies. Both short-term and long-term trends in oil and
natural gas prices affect the utilization of the Company's services. Declines in
1998 and early 1999 in the prevailing prices for oil and natural gas adversely
impacted the Company's operations. These lower oil and gas prices have
negatively impacted the Company's revenues for the three months ended March 31,
1999. Management of the Company expects that prices for oil and gas will
continue to be volatile and to affect the demand for and pricing of the
Company's services. A further material decline in oil or gas prices or industry
activity in the United States could have a material adverse effect on the
Company's consolidated results of operations, financial condition and cash flows
RESULTS OF CONSOLIDATED OPERATIONS. THREE MONTHS ENDED MARCH 31, 1999 COMPARED
TO THREE MONTHS ENDED MARCH 31, 1998
The following table sets forth the Company's revenues from its three
principal lines of business for the three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
3/31/99 3/31/98
------------------------------
<S> <C> <C>
Wireline $ 3,554,374 $ 2,917,195
Directional Drilling 2,191,878 6,320,599
Workover and Completion 326,030 428,230
---------------------------------
$ 6,072,282 $9,666,024
=================================
</TABLE>
Total revenues decreased by $3.6 million to $6.1 million for the three
months ended March 31, 1999 as compared to total revenues of $9.7 million for
the three months ended March 31, 1998. The decrease in directional drilling
revenues was the result of reduced demand for the Company's services and
downward pressure on pricing that primarily resulted from the decline in oil and
gas prices in 1998 and early 1999. The Company's wireline revenues also were
adversely affected by reduced demand and downward pressure on pricing, however,
this was more than offset by increased activity from wireline locations opened
or acquired in the past year.
Operating costs decreased by $1.7 million for the three months ended
March 31, 1999, as compared to the same period of 1998. Operating costs were
91.5% of revenues for the three months ended March 31, 1999 as compared with
75.2% of revenues in the same period in 1998. The decrease was primarily the
result of the lower overall level of activities in the first quarter of 1999
compared with 1998. The increase in operating costs as a percentage of revenues
was primarly because of declining billing rates and equipment utilization.
Salaries and benefits increased by $505,960 for the three months ended March 31,
1999, as compared to the same period in 1998. The total number of employees
decreased from 317 at March 31, 1998 to 221 at March 31, 1999. The increase in
salaries and benefits is primarily due to the March 1998 Phoenix acquisition,
the June 1998 Petro Wireline acquisition, and the establishment of the offshore
wireline facility in July 1998. The number of employees was higher at March 31,
1998 than at March 31, 1999 due to the significant addition of employees in
connection with the March 1998 Phoenix acquisition.
Selling, general and administrative expenses decreased by $10,677 from
$840,679 in the three months ended March 31, 1998 to $830,002 in the three
months ended March 31, 1999. As a percentage of revenues, selling, general and
administrative expenses increased from 8.7% in the three months ended March 31,
1998 to 13.7% in 1999, primarily as a result of lower than anticipated revenues
due to adverse market conditions with an increased level of fixed expenses
associated with the recent acquisitions.
11
<PAGE>
Depreciation and amortization increased from $809,690 in the three
months ended March 31, 1998, or 8.4% of revenues, to approximately $1.3 million
in 1999 or 21.8% of revenues, primarily because of the higher asset base of
depreciable properties in the three month period ended March 31, 1999 over the
same period in 1998.
Interest expense and amortization of debt discount increased by
$409,580 for the three months ended March 31, 1999 as compared to the same
period in 1998. This was directly related to the increased amounts of
indebtedness outstanding in 1999. See "Note 6 of Notes to Consolidated Financial
Statements" in the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1998.
Net loss on sale of fixed assets was $9,000 for the three months ended
March 31, 1999 as compared to a net gain of $1,944 for the same period in 1998.
The Company had a loss before provision for income taxes of
approximately $2.5 million for the three months ended March 31, 1999, as
compared to income before provision for income taxes of $344,296 for the same
period in 1998.
Income tax expense totaled $0 for the three months ended March 31, 1999
as compared to income tax expense of $183,619 for the three months ended March
31, 1998. These totals contain Federal and State deferred taxes as well as
current amounts.
The Company had a net loss of approximately $2.5 million for the three
months ended March 31, 1999, as compared to a net income of $150,677 for the
same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by the Company's operating activities was approximately $1.4
million for the three months ended March 31, 1999 as compared to cash provided
of $766,649 for the same period in 1998. Investing activities used cash of
$223,605 during the three months ended March 31, 1999 for the acquisition of
property, plant and equipment, offset by proceeds from the sale of fixed assets
of $26,000. During the three months ended March 31, 1998, investing activities
used cash of approximately $2.0 million for the acquisition of property, plant
and equipment and businesses, net of cash acquired, offset by proceeds of
$28,970 from the sale of fixed assets. Financing activities provided net cash of
$938,789 from the proceeds from bank and other borrowings of approximately $2.5
million during the three months ended March 31, 1999 offset by principal
payments on bank, other borrowings and capital leases of $394,209, net payments
on the working capital revolver of approximately $1.1 million and $37,868 of
costs related to debt issuances. For the same period in 1998 financing
activities provided net cash of approximately $2.7 million from the net proceeds
from the issuance of common stock of approximately $2.8 million and $520,373
from the proceeds from bank and other borrowings offset by principal payments on
bank, other borrowings and capital lease obligations of $449,936 and $135,000 of
costs related to debt issuances.
12
<PAGE>
Cash at March 31, 1999 was $369,214 as compared with cash at March 31,
1998 of approximately $1.9 million.
During 1998 and the first quarter of 1999, the Company experienced a
decline in the demand for its products and services as a result of a significant
decrease in the price of oil and natural gas. The decline in demand materially
impacted the Company's revenues, liquidity and its ability to remain in
compliance with covenants in its loan agreements and meet its obligations during
the last half of 1998 and first quarter of 1999. While these conditions
continued throughout much of the first quarter of 1999, prices for oil and
natural gas had improved significantly by the middle of the second quarter.
Management of the Company believes that an improvement in its revenues will be
dependent upon a continuing period of stabilized pricing at levels similar to
those at the end of the first quarter of 1999 and decisions by oil and natural
gas producers to make commitments to engage in oil and natural gas well
enhancements.
The Company's outstanding indebtedness includes primarily senior
indebtedness aggregating approximately $15.8 million at March 31, 1999, owed to
Fleet Capital Corporation ("Fleet") and GE Capital Corporation ("GECC"), other
indebtedness of approximately $9.7 million, and $19.4 million owed to St. James
Capital Partners, L.P. ("SJCP") and its affiliates. All of this indebtedness is
shown as currently due and payable on the Company's consolidated balance sheet
at March 31, 1999. In addition, the Company is currently in default on its
indebtedness owing to Fleet. See Part II, Item 3. Defaults Upon Senior
Securities in this Quarterly Report.
Management's plans with respect to addressing its current financial
situation include primarily the following:
o In March 1999 the Company borrowed an additional $2.5 million from an
affiliate of SJCP, the Company's principal investor.
o The Company is engaged in efforts to refinance its senior indebtedness
which is intended to provide, among other things, more favorable terms and
thereby improve liquidity.
o In March 1999, the Company entered into a forbearance agreement with Fleet
Capital Corp. which, among other things, permitted the Company to defer
payments of principal to Fleet through June 30, 1999.
o In April 1999, GECC agreed to defer payments of interest on an aggregate of
$3.9 million of secured indebtedness through June 30, 1999.
o The Company has continued through the first quarter of 1999 to further
implement a cost reduction program first implemented in the last half of
1998 and intends to continue its focus on cost reduction opportunities
through 1999.
Management also intends to raise additional capital in conjunction with
the foregoing plan, which may be either debt or equity capital or a combination
thereof, which, together with the renegotiations of certain outstanding
indebtedness, will be used to meet the Company's other current liquidity
requirements. Management expects that, upon conclusion of the plan, its
indebtedness owing to SJCP will be long-term or converted into equity
securities.
Management believes that, provided oil and natural gas prices remain
relatively stable with prices that existed at the end of the first quarter of
1999, the foregoing plan together with the cost
13
<PAGE>
reduction program implemented in 1998, which included reductions in personnel
and salaries of existing personnel, closing and consolidating certain district
offices, together with other cost reduction activities, should enable the
Company to operate, commencing with the second quarter of 1999, without a
further deterioration of its liquidity condition.
Management of the Company is unable to assure that its efforts to
implement the plan described above will be successful or state the terms under
which or when the proposed transactions will be completed. Management expects
that in order to complete such transactions substantial amounts of equity
securities may be required to be issued which may materially dilute the
Company's existing stockholders.
The Company is a defendant in a lawsuit served on the Company on May
10, 1999 instituted in the District Court, Montgomery County, Texas by Bendover
Company (formerly known as Diamondback Directional, Inc.). In the action, the
plaintiff is seeking to recover the sum of $3,070,301, plus interest,
post-default interest and attorney's fees, on a promissory note of the Company
dated September 1, 1997. The promissory note was executed by the Company in
connection with the purchase of the assets of the plaintiff. The Company intends
to interpose defenses to the lawsuit and to assert counterclaims. The Company is
unable to state at this time whether or not the plaintiff is likely to be
successful in its action or the likelihood that the counterclaims intended to be
asserted by the Company will be successful.
The Company is a defendant in a lawsuit served on the Company on May
7, 1999 instituted in the District Court of Fort Bend County, Texas by Dreco,
Inc. seeking to recover payment for goods and services allegedly provided by the
plaintiff to the defendant. The plaintiff is seeking to recover the sum of
$876,802 plus interest and attorney's fees. The Company intends to file an
answer in this action interposing defenses. The Company is unable to state at
this time whether or not the plaintiff is likely to be successful in its action
or whether the Company will be successful on counterclaims.
The Company is a defendant in a lawsuit served on the Company on May
17, 1999 instituted in the District Court of Montgomery County, Texas by Thomas
Tools, Inc. seeking to recover payment for tools allegedly provided by the
plaintiff to the defendant. The plaintiff is seeking to recover the sum of
$156,534 plus interest and consequential damages and attorney's fees. The
Company is at present considering the claims asserted in this litigation.
The Company is a defendant in seven other lawsuits instituted by
vendors and others seeking to recover an aggregate of approximately $135,000,
the largest of which seeks to recover approximately $156,500. Although the
Company is seeking to resolve these claims, in the light of the nature of the
claims asserted, the Company considers it likely that judgments may be entered
against it in these actions.
The Company receives demands from creditors for payment of outstanding
payables, as well as other claims. These creditors may institute additional
lawsuits against the Company. There can be no assurance that judgments may not
be entered against the Company arising out of such lawsuits, if instituted.
With the exception of the MSI Option the Company has no definitive
agreements to acquire any additional companies. However, there can be no
assurance that the Company will not acquire additional companies in the future,
or that any such acquisitions, if made, will be beneficial to the Company. The
process of integrating acquired properties into the Company's operations may
result in unforeseen difficulties and may require a disproportionate amount of
management's attention and the Company's resources. In connection with
acquisitions, the Company could become subject to significant contingent
liabilities arising from the activities of the acquired companies to the extent
the Company assumes, or an acquired entity becomes liable for, unknown or
contingent liabilities or in the event that such liabilities are imposed on the
Company under theories of successor liability.
14
<PAGE>
The Company intends to fund its acquisitions using cash flow from its
current operations as well as the possible proceeds from secured lending from
banks or other institutional lenders and the private or public sale of debt and
equity securities. Any such capital that is raised will be on terms yet to be
negotiated and may be on terms that dilute the interests of current stockholders
of the Company. Subject to the restrictions contained in the Company's existing
loan agreement with Fleet Capital Corporation, loans may be collateralized by
all or a substantial portion of the Company's assets. There can be no assurance
that the Company will raise additional capital when it is required or that the
Company will have or be able to raise sufficient capital to fund its acquisition
strategy.
YEAR 2000 COMPUTER ISSUES
Computer hardware and software often denote the year using two digits
rather than four; for example, the year 1998 is often denoted by such hardware
and software as "98." It is probable that such hardware and/or software will
interpret "00" as representing the year 1900 rather than the year 2000. This
"Year 2000" issue potentially affects all individuals and companies. The Company
has and continues to evaluate its information technology systems, hardware and
non-information technology systems to assess modifications needed for the Year
2000. These systems include those utilized for financial recordkeeping and
certain oil and gas service equipment. A member of senior management was
selected to oversee the Year 2000 project. The project work plan involves the
following phases: inventory of critical and non-critical systems and hardware,
assessment and certification of third party systems. The Company has completed
its inventory of systems and hardware. All critical systems are supported by
third party vendors. The Company is currently in the process of certifying these
systems with the vendors. With respect to other third party relationships, the
Company is inquiring of certain vendors, customers, and other third parties that
supply critical services to determine their preparedness and ability to continue
normal operations.
To date, the Company has incurred minimal costs related to the Year
2000 project and does not anticipate any significant additional costs. Such
costs are expensed as incurred.
Management expects that Year 2000 issues will be addressed on a
schedule and in a manner that will prevent such issues from having a material
effect on the Company's consolidated results of operations, liquidity or
financial condition. While the Company has and will continue to pursue Year 2000
compliance, there can be no assurance that the Company and its vendors,
customers and other third parties which supply critical services will be
successful in identifying and addressing all material Year 2000 issues. It is
possible that the Company's consolidated financial position, results of
operations, or cash flows could be disrupted by Year 2000 problems experienced
by its vendors and customers, that utilize its services, financial institutions
or other parties. The Company is unable to quantify the effect, if any, of Year
2000 computer problems that may be experienced by these third parties.
INFLATION
The Company's revenues have been and are expected to continue to be
affected by fluctuations in the prices for oil and gas. Inflationary pressures
did not have a significant effect on the Company's operations in the three
months ended March 31, 1999.
RECENTLY ISSUED ACCOUNTING STANDARDS
15
<PAGE>
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities (SFAS No.
133). SFAS No. 133 requires all derivatives to be measured at fair value and
recognized as either assets or liabilities on the balance sheet. Changes in such
fair value are required to be recognized immediately in net income (loss) to the
extent the derivatives are not effective as hedges. SFAS No. 133 is effective
for fiscal years beginning after June 15, 1999 and is effective for interim
periods in the initial year of adoption. The Company does not currently hold any
derivative financial instruments.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
With the exception of historical matters, the matters discussed in
this Report are "forward-looking statements" as defined under the Securities
Exchange Act of 1934, as amended, that involve risks and uncertainties.
Forward-looking statements include, but are not limited to, the matters
described herein, including Management's Discussion and Analysis or Plan of
Operations. Such forward-looking statements relate to the Company's ability to
implement its plan for the restructuring and refinancing of its outstanding
indebtedness, to maintain, implement and, if appropriate, expand its
cost-reduction program instituted in 1998, to generate revenues and attain and
maintain profitability and cash flow, improvement in, stability and level of
prices for oil and natural gas, pricing in the oil and gas services industry and
the willingness of customers to commit for oil and natural gas well services,
the ability of the Company to compete in the premium services market, the
ability of the Company to redeploy its equipment among regional operations, the
ability of the Company to provide services using the newly acquired state of the
art tooling, the ability of the Company to raise additional capital to meet its
requirements and to maintain compliance with the covenants of its various loan
documents and other agreements pursuant to which securities have been issued and
obtain waivers of breaches of covenants where necessary and the ability of the
Company to successfully address Year 2000 issues. The inability of the Company
to meet these objectives or the consequences on the Company from adverse
developments in general economic conditions, adverse developments in the oil and
gas industry, declines in the levels of oil and gas prices from those that
existed at the middle of the second quarter of 1999 and other factors could have
a material adverse effect on the Company. The Company cautions readers that
various risk factors described above as well as in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1998 could cause the Company's
consolidated operating results, financial condition and ability to fulfill its
restructuring plan to differ materially from those expressed in any
forward-looking statements made by the Company in this Report and could
adversely affect the Company's financial condition and its ability to pursue its
business strategy and plans. Readers should refer to the Annual Report on Form
10-KSB and the risk factors discussed therein in addition to the risk factors
discussed herein.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in a lawsuit served on the Company on May
10, 1999 instituted in the District Court, Montgomery County, Texas by Bendover
Company (formerly known as Diamondback Directional, Inc.). In the action, the
plaintiff is seeking to recover the sum of $3,070,301, plus interest,
post-default interest and attorney's fees, on a promissory note of the Company
dated September 1, 1997. The promissory note was executed by the Company in
16
<PAGE>
connection with the purchase of the assets of the plaintiff. The Company intends
to interpose defenses to the lawsuit and to assert counterclaims. The Company is
unable to state at this time whether or not the plaintiff is likely to be
successful in its action or the likelihood that the counterclaims intended to be
asserted by the Company will be successful.
The Company is a defendant in a lawsuit served on the Company on May
7, 1999 instituted in the District Court of Fort Bend County, Texas by Dreco,
Inc. seeking to recover payment for goods and services allegedly provided by the
plaintiff to the defendant. The plaintiff is seeking to recover the sum of
$876,802 plus interest and attorney's fees. The Company intends to file an
answer in this action interposing defenses and asserting counterclaims. The
Company is unable to state at this time whether or not the plaintiff is likely
to be successful in its action. or whether the Company will be successful on its
counterclaims
The Company is a defendant in a lawsuit served on the Company on May
17, 1999 instituted in the District Court of Montgomery County, Texas by Thomas
Tools, Inc. seeking to recover payment for tools allegedly provided by the
plaintiff to the defendant. The plaintiff is seeking to recover the sum of
$156,534 plus interest and consequential damages and attorney's fees. The
Company is at present considering the claims asserted in this litigation.
The Company is a defendant in seven other lawsuits instituted by
vendors and others seeking to recover an aggregate of approximately $135,000.
Although the Company is seeking to resolve these claims, in the light of the
nature of the claims asserted, the Company considers it likely that judgments
may be entered against it in these actions.
The Company receives demands from creditors for payment of
outstanding payables, as well as other claims. These creditors may institute
additional lawsuits against the Company. There can be no assurance that
judgments may not be entered against the Company arising out of such lawsuits,
if instituted.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 18, 1999, at a time when the Company was not in compliance
with the terms of its Amended and Restated Loan Agreement with Fleet Capital
Corp. ("Fleet") and was seeking to enter into a Forbearance Agreement and
Amendment to Loan and Security Agreement (the "Forbearance Agreement") with
Fleet, as a condition to Fleet entering into the Forbearance Agreement, the
Company entered into an agreement with an affiliate of St. James Capital
Partners, L.P., a principal investor of the Company, to purchase up to $2.5
million principal amount of the Company's convertible promissory note due on
March 16, 2001. The note is convertible into shares of the Company's Common
Stock at a conversion price of $1.50 per share, subject to anti-dilution
adjustment for certain issuances of securities by the Company at prices per
share of Common Stock less than the conversion price then in effect, in which
event the conversion price is reduced to the lower price at which such shares
are issued. The Company also issued warrants to purchase 2,075,000 shares of
Common Stock exercisable at a price of $1.50 per share, subject to anti-dilution
adjustment for certain issuances of securities by the Company at prices per
share of Common Stock less than the exercise price then in effect, in which
event the exercise price is reduced to the lower price at which such shares are
issued and the number of shares issuable is adjusted upward.
The proceeds from the sale of the note were used for general corporate
purposes, including the payment of outstanding accounts payable. The notes and
warrants were sold in reliance upon the exemption from the registration
requirements of the Securities Act of 1933, as amended, afforded by Section 4(2)
thereof.
As a consequence of the issuance of the convertible note and warrant to
the affiliate of St. James in February 1999 with conversion and exercise prices
of $1.50 per share, under the terms of the anti-dilution provisions of the other
outstanding convertible notes and warrants held by St.
17
<PAGE>
James, including certain of its affiliates and assignees, the conversion prices
and exercise prices of those securities were reduced to $1.50 per share with the
total number of shares issuable on conversion and exercise being adjusted upward
to 29,468,471 shares.
On February 18, 1999 the Company entered into a Purchase Agreement,
and related notes, warrants and security documents (the "Agreements") with the
affilliate of St. James regarding the purchase of the securities described
above. Pursuant to such agreement, payment of principal and interest on the $2.5
million note is collateralized by substantially all the assets of the Company,
subordinated, as of March 31, 1999, to the senior secured borrowings of the
Company from Fleet Capital Corporation ("Fleet") in the maximum aggregate amount
of approximately $11.5 million. The shares issuable on conversion of the note
and exercise of the warrants have demand and piggy-back registration rights
under the Securities Act of 1933. The Agreements grant St. James certain
preferential rights to provide future financings to the Company, subject to
certain exceptions. The note also contains various affirmative and negative
covenants, including a prohibition against the Company consolidating, merging or
entering into a share exchange with another person, with certain exceptions,
without the consent of St. James. Events of default under the note include,
among other events, (i) a default in the payment of principal or interest; (ii)
a default under any of the notes held by St. James or any of its affiliates and
the failure to cure such default for five days, which will constitute a cross
default under each of the other notes held by St. James and its affiliates;
(iii) a breach of the Company's covenants, representations and warranties under
the agreement; (iv) a breach under any of the agreements between the Company and
St. James, subject to certain exceptions; (v) any person or group of persons
acquiring 40% or more of the voting power of the Company's outstanding shares
who was not the owner thereof as of February 18, 1999, a merger of the Company
with another person, its dissolution or liquidation or a sale of all or
substantially all its assets; and (vi) certain events of bankruptcy. In the
event of a default under any of the notes held by St. James or its affiliates,
subject to the terms of an agreement between St. James and Fleet, St. James
could seek to foreclose against the collateral for the notes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has outstanding secured indebtedness aggregating
approximately $11.5 million under an Amended and Restated Loan and Security
Agreement (the "Loan Agreement") with Fleet Capital Corporation ("Fleet") dated
October 30, 1998. From time to time, including in early 1999, the Company has
not been in compliance with various covenants in the Loan Agreement. In February
1999, the Company and Fleet entered into a Forbearance Agreement and Amendment
to Loan and Security Agreement (the "Forbearance Agreement") whereby Fleet
agreed, among other things, to forebear through June 30, 1999 taking action on
defaults under the Company's Loan Agreement. Subject to the Company meeting
certain conditions and complying with certain covenants, Fleet agreed to defer
the payments of principal due on its loan during the months of March through
June 1999. At March 31 1999, the Company was in default of certain of the terms
of the Forbearance Agreement. The instruments governing the Company's
indebtedness to Fleet impose significant operating and financial restrictions on
the Company. Such restrictions affect, and in many respects significantly limit
or prohibit, among other things, the ability of the Company to incur additional
indebtedness, pay dividends, repay indebtedness prior to its stated maturity,
sell assets or engage in mergers or acquisitions. These restrictions also limit
the ability of the Company to effect future financings, make needed capital
expenditures, withstand a downturn in the Company's business or economy in
general, or otherwise conduct necessary corporate activities. The Loan Agreement
places restrictions on the Company's ability to borrow money under the revolving
credit provisions of the Loan Agreement. The Company's ability to borrow
18
<PAGE>
under this revolving credit arrangement is necessary to fund the
Company's ongoing operations. Because the Company is currently in default under
a number of provisions of its Loan Agreement and Forbearance Agreement with
Fleet. Fleet has the right to elect to declare all of the funds borrowed to be
immediately due and payable together with accrued and unpaid interest and to
refuse to make additional advances under the revolving credit arrangement. In
such event, there can be no assurance that the Company would be able to repay
such indebtedness owing to Fleet or borrow sufficient funds from alternative
sources to repay such indebtedness owing to Fleet. If the Company were unable to
repay all amounts declared due and payable under the Loan Agreement, Fleet could
proceed against the collateral granted to satisfy the indebtedness and other
obligations due and payable. This collateral includes substantially all of the
Company's assets. If the indebtedness owing to Fleet were to be accelerated,
there can be no assurance that the assets of the Company would be sufficient to
repay in full such indebtedness and the Company's other liabilities. In
addition, the acceleration of the Company's indebtedness owing to Fleet would
constitute a default under other indebtedness of the Company which may result in
such other indebtedness also becoming immediately due and payable. Under such
circumstances, the holders of the Company's Common Stock may realize little or
nothing on their investment in the Company. Even if additional financing could
be obtained, there can be no assurance that it would be on terms that are
favorable or acceptable to the Company or its equity security holders. The
Company is seeking to refinance its indebtedness owing to Fleet.
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLACK WARRIOR WIRELINE CORP.
----------------------------
(Registrant)
Date: May 20, 1999 /S/ William L. Jenkins
--------------------------------------
William L. Jenkins
President and Chief Operating Officer
(Principal Executive, Financial and
Accounting Officer)
20
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