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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
Mark One:
|X| Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the fiscal year ended December 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 NO. 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 of (IRS Employer
Incorporation or Organization) Identification No.)
3748 HIGHWAY #45 NORTH, COLUMBUS, MISSISSIPPI 39701
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(Address of Principal Executive Offices) (Zip Code)
(662) 329-1047
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(Issuer's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Exchange Act: NONE
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
(Title of Each Class)
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 twelve (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 ninety (90) days.
|X| Yes |_| 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 Issuer'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. |X|
State Issuer's revenues for its most recent fiscal year: $29,293,373
State the aggregate market value of the voting stock held by non-affiliates
as of March 31, 2000:
COMMON STOCK, PAR VALUE $.0005 PER SHARE, $5,609,195
(Non-affiliates have been determined on the basis of holdings set forth
under Item 11 of this Annual Report on Form 10-KSB.)
Indicate the number of shares outstanding of each of the Issuer's classes
of common equity, as of the latest practicable date:
Class: COMMON STOCK, PAR VALUE $.0005 PER SHARE
Outstanding at March 31, 2000: 7,478,927 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 |X| No
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Black Warrior Wireline Corp. (the "Company") is an oil and gas service
company currently providing various services to oil and gas well operators
primarily in the Black Warrior and Mississippi Salt Dome Basins in Alabama and
Mississippi, the Permian Basin in West Texas and New Mexico, the San Juan Basin
in New Mexico, Colorado and Utah, the East Texas and Austin Chalk Basins in East
Texas, the Anadarko Basin in Oklahoma, the Powder River and Green River Basins
in Wyoming and Montana, the Williston Basin in North Dakota and areas of the
Gulf of Mexico offshore Louisiana and South Texas. The Company's principal lines
of business include (a) wireline services, (b) directional drilling services ,
and (c) workover services. Since November 1996, the Company completed seven
acquisitions, the most recent of which were the acquisitions of the drilling
assets of Phoenix Drilling Services, Inc., in March 1998 and Petro Wireline in
June 1998.
RECENT RECAPITALIZATION
On January 24, 2000, the Company entered into a Loan and Security Agreement
(the "Loan Agreement") with Coast Business Credit, a division of Southern
Pacific Bank ("Coast") pursuant to which it is enabled to make secured
borrowings in the aggregate amount of up to the lesser of $25.0 million or such
maximum aggregate amount as is available to be borrowed under a receivables loan
and two term loans described below. Of such amount, $14.5 million, based on the
lesser of 75% of the appraised net eligible forced liquidation value of the
Company's equipment or $14.5 million, is a term loan, an additional $2.0 million
is a term loan, and the balance is available to be borrowed in an amount not
exceeding 80% of the Company's eligible receivables. On February 15, 2000, the
Company borrowed an aggregate of $15.6 million pursuant to the Loan Agreement.
The proceeds were used to repay the Company's former senior secured lender in
the amount of $13.5 million, to repay other indebtedness aggregating $1.5
million, and the balance was used for general corporate purposes, including the
payment of outstanding accounts payable. In addition, commencing on December 17,
1999 and during the first quarter of 2000, the Company sold to private investors
$7.0 million principal amount of convertible promissory notes due on January 15,
2001 and warrants to purchase 28.7 million shares of Common Stock. All of the
Company's remaining indebtedness is subordinate to Coast.
During the first quarter of 2000, the Company executed a Compromise
Agreement of Release with Bendover Company ("Bendover") whereby Bendover agreed
to return to the Company promissory notes aggregating $2,000,000 principal
amount and receive in exchange 2,666,666 shares of the Company's common stock
and a promissory note in the principal amount of $1,182,890 due on January 15,
2001, bearing interest at 10% per annum.
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Since October 1, 1999, the Company has resolved pending legal proceedings
including, among others, lawsuits instituted by Bendover Company, Southwick
Investments, Inc. Dreco, Inc., Thomas Tools, Inc., Greenspan and Saxon
Industries, Inc.
WIRELINE SERVICES
The Company's wireline logging service activities contributed revenues of
$17.7 million (approximately 60.5% of revenues) in 1999, $11.6 million
(approximately 33.7% of revenues) in 1998, and $9.5 million (approximately 55.7%
of revenues) in 1997. At December 31, 1999, the Company owned 48 operational
motor vehicle mounted wireline units, of which 31 are equipped with a
state-of-the-art computer system, 6 are analog equipped and 11 are devoted
exclusively to hoisting operations. In the third quarter of 1998, the Company
commenced providing wireline services offshore to customers with operations in
the Gulf of Mexico. As of December 31, 1999, the Company owned 6 operational
cased-hole wireline units skid-mounted for offshore work, all of which are
equipped with state of the art computers.
Truck or skid-mounted wireline logging services are used to evaluate
downhole conditions at various stages of the process of drilling and completing
oil and gas wells as well as at various times thereafter until the well is
depleted and abandoned. Such services are provided using a wireline unit
equipped with an armored cable that is lowered by winch into an existing well.
The cable lowers instruments and tools into the well to perform a variety of
services and tests. The wireline unit's instrument cab contains electronic
equipment to supply power to the downhole instruments, to receive and record
data from those instruments in order to produce the "logs" which define specific
characteristics of each formation and to display the data received from
downhole. The Company's wireline units are equipped with state-of-the-art
computerized systems or analog equipment.
Open hole wireline services are performed after the drilling of the well
but prior to its completion. Cased hole wireline services are performed during
and after the completion of the well, as well as from time to time thereafter
during the life of the well. The Company's services primarily relate to
providing cased hole wireline services. 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 include perforating, which
opens up the casing to allow production from the formation(s), and free-point
and back-off, which locates and frees pipe that has 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 on a contract basis at the well
site for operators and producers of the wells primarily on a bid basis at prices
related to Company standard prices.
These services are routinely provided to the Company's customers and are
subject to the customers' time schedule, weather conditions, availability of
Company personnel and
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complexity of the operation. These procedures generally take approximately one
to one-and-one-half days to perform.
Manufacturing. The Company operates a manufacturing facility located in
Laurel, Mississippi to assemble and install wireline service equipment, both
mounted on motor vehicles and on wireline skids, for internal use and for sale
to others. During the year ended December 31, 1999, the Company manufactured for
internal use three new wireline trucks and one new offshore wireline skids. The
manufacturing facility also totally refurbished for internal use six wireline
trucks and refurbished to a lesser extent one wireline truck. The Company also
manufactured and sold to a third-party customer and three wireline skids.
DIRECTIONAL DRILLING SERVICES
The Company's directional drilling services contributed revenues of $10.3
million (approximately 35.2% of revenues) in 1999, $21.3 million (approximately
61.9% of revenues) in 1998, and $5.9 million (approximately 34.8% of revenues)
in 1997. The revenues realized in 1997 were primarily the result of the
acquisition by the Company in October 1997 of Diamondback Directional, Inc.
Prior thereto, the Company had no revenues from directional drilling services.
Directional drilling is the intentional deviation of a well bore. The
deviation is achieved by utilizing downhole motors and guidance equipment to
move the well bore in a given direction and intersect a target formation at an
angle up to horizontal.
On March 16, 1998, the Company completed the acquisition of the domestic
oil and gas well directional drilling and downhole survey service business,
including the related operating assets, from Phoenix Drilling Services, Inc.
This acquisition contributed to further increases in the Company's revenues from
directional drilling services commenced by the acquisition of Diamondback
Directional, Inc. in 1997. In addition, the Phoenix acquisition has enabled the
Company to provide downhole survey services to the oil and gas industry.
The Company's Multi-Shot division provides directional surveying services
and directional surveying equipment to operators in the oil and gas industry.
These services include gyros, magnetic, single shot, high accuracy magnetic
probe, electric surface recording gyro, and MWD (measurement while drilling).
Management of the Company believes these services are state-of-the-art.
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WORKOVER AND COMPLETION SERVICES
These activities contributed revenues of $1.3 million (approximately 4.3%
of revenues) in 1999, $1.5 million (approximately 4.4% of revenues) in 1998, and
$1.6 million (approximately 9.5% of revenues) in 1997. These services are
performed primarily on an hourly basis.
Workover services include those operations performed on wells when
originally completed and on wells previously placed in production and requiring
additional work to restore or increase production. A completion or workover rig
is used to position tubing, pumps and other production equipment in a cased
hole. The unit is used for the initial completion of the well and subsequent
workover and remedial service. A completion or workover rig is generally a four
to six axle truck-mounted hoist unit with a 85 to 100 foot derrick capable of
lowering and hoisting up to 300,000 pound loads.
OTHER SERVICES
The Company also engages in other oil and gas well service activities
including, primarily, the sale, rental and service of tools and equipment used
in the oil field services industry and conducts tool and equipment inspection,
maintenance and testing services. These activities are not deemed by management
to be material.
PRINCIPAL CUSTOMERS AND MARKETING
During the year ended December 31, 1999, two customers (Collins & Ware,
Inc. and Burlington Resources) accounted for approximately 21.0% of the
Company's net revenues while no single customer accounted for more than 10% of
the Company's net revenues in 1998. During the year ended December 31, 1997,
three customers accounted for a total of approximately 25.7% of the Company's
net revenues.
The Company does not have any long-term agreements with its customers, and
services are provided pursuant to short-term agreements negotiated by the
Company with the customer.
The Company's services are marketed by its executive officers and a sales
staff of approximately eighteen persons working from its district offices. The
Company relies extensively on its reputation in the industry to create customer
awareness of its services.
OPERATING HAZARDS AND INSURANCE
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The services of the Company are used in oil and gas well drilling, workover
and production operations that are subject to inherent risks such as blow-outs,
fires, poisonous gas and other oil and gas 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.
The Company has general liability, property, casualty, officers' and
directors', and workers' compensation insurance. Although, in the opinion of the
Company's management, the limits of its insurance coverage are consistent with
industry practices, 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 the liability of Company for consequential losses or damages)
could result in substantial losses to the Company and have a materially adverse
effect upon its financial condition, results of operations, and cash flows.
The Company maintains two policies totaling $2.0 million on the life of
William L. Jenkins, its President and Chief Operating Officer, and maintains
$1.0 million policies on the lives of each of Allen R. Neel, Executive
Vice-President, Danny Ray Thornton, Vice President, and Alan Mann, Vice
President. 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 oilfield services. Its chief
competitors include Halliburton Company, Schlumberger, Ltd. and Baker Hughes
Incorporated, as well as a number of other companies active in the industry.
These competitors have substantially greater economic resources than the
Company. Recent business combinations involving oil and gas service companies
may have the effect of intensifying competition in the industry. With the
decline in 1998 and early 1999 in demand for oil and natural gas well services,
competition has intensified. Competition principally occurs in the areas of
technology, price, quality of products and field personnel, equipment
availability and facility locations. Although price competition has been in the
past a significant characteristic of the industry, the Company's ability to
offer more technologically advanced services is believed by management to have
reduced its exposure to severe price competition. 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.
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The Company's growth is dependent upon its ability to attract and retain
skilled oilfield and management personnel. The competition for such qualified
employees is frequently intense and there can be no assurance that sufficient
qualified persons will be available at such times as the Company requires their
services.
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 15, 2000, the Company employed approximately 266 persons on a
full-time basis. Of the Company's employees, 23 are management personnel, 17 are
administrative personnel and 226 are operational personnel. The Company also
uses the services of approximately 40 to 50 independent contract drillers and
directional guidance personnel. 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.
INCORPORATION
The Company was incorporated under the laws of the State of Delaware in
1987 under the name Teletek, Ltd. and in June 1989 Teletek, Ltd. merged with a
predecessor of the Company incorporated under the laws of the State of Alabama
and concurrently changed its name to Black Warrior Wireline Corp. The Company
and its predecessors have been engaged in providing wireline and other oil and
gas well support services since 1984.
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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 below, as well
as "Item 1. Description of Business - General," "- Principal Customers and
Marketing," "--Operating Hazards and Insurance," "--Competition," and
"--Regulations." "Item 6. Management's Discussion and Analysis or Plan of
Operations - General," "-Twelve-Month Periods Ended December 31, 1999 and 1998",
"- Liquidity and Capital Resources." Such forward-looking statements relate to
the Company's ability to maintain, implement and, if appropriate, expand its
cost-cutting 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 as
required, the ability of the Company to provide services using state of the art
tooling, the ability of the Company to raise additional capital to meet its
requirements and to obtain additional financing when required, and its ability
to maintain compliance with the covenants of its various loan documents and
other agreements pursuant to which securities have been issued. 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, decline and fluctuations in the prices for oil and natural
gas and the absence of any material decline in those prices, and other factors
could have a material adverse effect on the Company. The Company cautions
readers that various risk factors described below could cause the Company's
operating results, and financial condition to differ materially from those
expressed in any forward-looking statements made by the Company and could
adversely affect the Company's financial condition and its ability to pursue its
business strategy and plans. Risk factors that could affect the Company's
revenues, profitability and future business operations include, among others,
the following:
Substantial Indebtedness. At December 31, 1999, the Company's total
indebtedness, inclusive of accrued interest, was approximately $46.4 million.
After reflecting a refinancing of the Company's senior secured indebtedness and
an additional $7.0 million of junior indebtedness borrowed in December 1999 and
the first quarter of 2000, the Company had outstanding at February 29, 2000
total indebtedness of $49.5 million. The Company's level of indebtedness and the
potential defaults thereunder pose substantial risk to the Company and the
holders of its securities, including the possibility that the Company may not be
able to generate sufficient cash flow to pay the principal of and interest on
the indebtedness when due or to refinance such indebtedness.
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Restrictions Imposed by Lenders; Secured Borrowing; Reliance on St. James.
The Company has outstanding at February 29, 2000 senior secured indebtedness
aggregating approximately $17.8 million under the Loan Agreement with Coast
dated January 24, 2000. The Company's initial borrowings under the Loan
Agreement were made on February 15, 2000, at which time it repaid in full all
outstanding indebtedness to its prior senior secured lender and eliminated all
defaults under its outstanding indebtedness. The instruments governing the
Company's indebtedness to Coast 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 certain 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 under this revolving credit arrangement is necessary
to fund the Company's ongoing operations. The collateral under the Loan
Agreement includes substantially all of the Company's assets. If the Company
were to default on its indebtedness owing to Coast and such indebtedness was
accelerated, so as to become due and immediately payable, 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 Coast 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.
Principal and interest under the Loan Agreement has been guaranteed,
subject to certain limitations, by St. James, principal stockholders of the
Company, and Charles Underbrink, a partner of St. James and a Director of the
Company. In addition, St. James has guaranteed all of the Company's obligations
under the Loan Agreement, subject to certain limitations. The guaranty of St.
James is backed by a pledge of certain securities owned by it, subject to
certain limitations. Loans under the Loan Agreement were subject to the
fulfillment of a number of closing conditions and the accuracy of the Company's
representations and warranties in the Loan Agreement.
By virtue of such guarantees, in the event of a default under the Company's
Loan Agreement with Coast, Coast may seek to collect from St. James Capital
Partners, L.P. ("SJCP") and SJMB, L.L.C ("SJMB"), as well as Mr. Underbrink, the
outstanding principal and interest on the Company's obligation to Coast, and
such persons have advised the Company of their willingness and ability to meet
such obligations. Mr. Underbrink's liability is limited to no more than $5.0
million. Such persons have further advised the Company of their willingness and
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ability to support the Company's operations at least through January 2, 2001 and
in that connection have waived any default that may occur on indebtedness owing
to them through April 12, 2000. Without material improvement in the Company's
revenues, the Company may be substantially dependent upon the continuing support
of SJCP and SJMB during 2000 to fund its ongoing obligations.
Fluctuations in Levels of Prices for Oil and Natural Gas; Recent Business
Environment. The business environment for the Company and its corresponding
operating results are affected significantly by petroleum industry exploration
and production expenditures. These expenditures are influenced strongly by oil
company expectations about the supply and demand for oil and natural gas, energy
prices, and finding and development costs. Petroleum supply and demand, pricing,
and finding and development costs, in turn, are influenced by numerous factors
including, but not limited to the extent of domestic production, the level of
imports of foreign natural gas and oil, the general level of market demand on a
regional, national and worldwide basis, domestic and foreign economic conditions
that determine levels of industrial production, political events in foreign oil
producing regions, and variations in governmental regulations and tax laws or
the imposition of new governmental requirements upon the natural gas and oil
industry, among other factors. Prices for natural gas and oil are subject to
worldwide fluctuation in response to relatively minor changes in supply of and
demand for natural gas and oil, market uncertainty and a variety of additional
factors that are beyond the Company's control.
Crude oil prices experienced record low levels in 1998, trading below
$15/bbl for most of the year and averaging only $14.41/bbl - the lowest yearly
average recorded since 1983 and down over 30 percent from prior-year levels.
Prices were lower due to increased supply from renewed Iraqi exports, increased
OPEC and non-OPEC production, higher inventories (particularly in North America)
and a simultaneous slowing of demand growth due to the Asian economic downturn
and a generally warmer than normal winter. U.S. natural gas weakened in 1998
compared to the prior year periods, also due to abnormally warm winter weather.
In response to lower oil prices which continued into 1999, oil companies cut
upstream capital spending, particularly in the second half of 1998.
As a consequence of the decline in levels of oil and natural gas prices
throughout 1999 from levels experienced in 1997 and 1996, producers of oil and
natural gas curtailed their utilization of oil and natural gas well service
activities. Recent increases since mid-1999 in prices for oil and natural gas
have led industry analysts to believe there will be a resultant increase in
demand for oil and natural gas well services. There can be no assurance that the
Company will experience any material increase in the demand for and utilization
of its services.
Material Charge to Operations During 1998. In accordance with SFAS No. 121
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, the Company recognizes impairment losses on long-lived assets
used in operations when
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indicators of impairment are present and the projected undiscounted cash flows
over the life of the assets are less than the asset's carrying amount. If an
impairment exists, the amount of such impairment is calculated based on
projections of future discounted cash flows. These projections are for a period
of five years using a discount rate and terminal value multiple that would be
customary for evaluating current oil and gas service company transactions.
The Company considers external factors in making its assessment.
Specifically, changes in oil prices and other economic conditions surrounding
the industry, consolidation within the industry, competition from other oil and
gas well service providers, the ability to employ and maintain a skilled
workforce, and other pertinent factors are among the factors that could lead
management to reassess the realizability and/or amortization periods of its
goodwill.
In 1998, the Company experienced a large decline in demand for its services
as a result of a large decrease in the price of oil and natural gas, as well as
the loss of a major customer. Consequently, management evaluated the
recoverability of its long-lived assets in relation to its business segments.
The analysis was first performed on an undiscounted basis which indicated
impairment in its directional drilling segment. The impairment was then
calculated using projections of discounted cash flows over five years utilizing
a discount rate and terminal value multiple commensurate with current oil and
gas services company transactions. At December 31, 1998, the discount rate and
the terminal multiple used was 12% and 6.5, respectively. The assumptions used
in this analysis represent management's best estimate of future results.
The analysis resulted in a charge to operations for the year ended December
31, 1998 of $11.1 million which consisted of a write-down of approximately $8.1
million, approximately $2.4 million, and approximately $624,000, to goodwill,
property, plant and equipment, and inventory, respectively.
Substantial Dilution; Possible Defaults on Obligations. The Company has
outstanding as of February 29, 2000, common stock purchase warrants, options and
convertible securities entitled to purchase or be converted into an aggregate of
99,116,011 shares of the Company's Common Stock at exercise and conversion
prices ranging from $0.75 to $8.01. Accordingly, if all such securities were
exercised or converted, the 7,478,927 shares of Common Stock issued and
outstanding on February 29, 2000, would represent 7.0% of the shares outstanding
on a fully diluted basis.
As of February 29, 2000, the Company's Certificate of Incorporation permits
it to issue up to 12,500,000 shares of Common Stock. Accordingly, the Company
has an insufficient number of shares of Common Stock authorized for issuance in
the event all its outstanding warrants and options were exercised in full and
convertible securities fully converted. The Company's loan agreement dated
February 18, 1999 with SJMB, an affiliate of SJCP, provides that the Company
shall, at or before its next annual meeting of shareholders, secure an amendment
to its Certificate of Incorporation to increase the number of shares that the
Company
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is authorized to issue to a number sufficient to authorize the issuance of its
current outstanding shares and all shares that are issuable upon conversion of
the Company's outstanding shares and all shares that are issuable upon
conversion of the Company's outstanding convertible notes and exercise of any
warrants or options to purchase Common Stock. Pursuant to this provision, the
Company intends to submit to a vote of its shareholders at its next annual
meeting a proposal to increase the number of shares of Common Stock authorized
to 150 million shares. Approval of this amendment will require the favorable
vote of the holders of a majority of the shares of Common Stock issued and
outstanding. Management believes it will be able to obtain the required
shareholder approval.
The failure of the shareholders of the Company to approve the amendment of
the Certificate of Incorporation will constitute a breach of the Company's
agreement with SJMB and, if such default remains uncured for 45 days, constitute
an Event of Default under the Company's $2.5 million promissory note held by
SJMB. Under those circumstances, the principal of the note and all accrued
interest would become automatically immediately due and payable. Such default
would also constitute a default under all of the Company's other indebtedness
owing to SJCP and its affiliates, aggregating $20.9 million as of February 29,
2000, as well as a default under the Company's borrowings from Coast.
Accordingly, an aggregate of $38.7 million of the Company's indebtedness would
be in default and would entitle the creditors to foreclose on substantially all
of the Company's assets.
Availability of Trained Personnel. The operation of the wireline,
directional drilling and other oil and gas well service equipment utilized by
the Company requires the services of employees having the technical training and
experience necessary to obtain the proper operational results. The Company's
operations are to a considerable extent dependent upon the continuing
availability of personnel with the necessary level of training and experience to
adequately operate its equipment. In the event the Company should suffer any
material loss of personnel to competitors or be unable to employ additional or
replacement personnel with the requisite level of training and experience to
adequately operate its equipment its operations could be adversely affected.
While the Company believes that its wage rates are competitive and that its
relationship with its workforce is good, a significant increase in the wages
paid by other employers could result in a reduction in the Company's workforce,
increases in wage rates, or both. If either of these events occurred for a
significant period of time, the Company's revenues could be impacted.
Dependence on Major Customers. Historically, a large portion of the
Company's revenues has been generated from a relatively small number of
companies. During the year ended December 31, 1999, two customers (Collins &
Ware, Inc. and Burlington Resources) accounted for approximately 21.0% of the
Company's revenues. A significant reduction in business done by the Company with
its principal customers, if not offset by revenues from new or existing
customers, could have a material adverse effect on the Company's business,
results of operations and prospects.
11
<PAGE>
Substantial Control by Principal Investor. As of February 29, 2000, SJCP,
including certain of its affiliated entities and partners, collectively referred
to as ("St. James") held promissory notes of the Company convertible into
26,866,667 shares of Common Stock and held warrants to purchase an additional
36,145,276 shares of Common Stock. Upon conversion of the notes and exercise of
the warrants, St. James would hold an aggregate of 63,011,943 shares
representing 89.4% of the Company's shares of Common Stock then outstanding. In
addition, St. James has certain additional contractual rights which, among other
things, give to St. James the right to nominate one person for election to the
Company's Board of Directors, certain preferential rights to provide future
financings for the Company, subject to certain exceptions, prohibitions against
the Company consolidating, merging or entering into a share exchange with
another person, with certain exceptions, without the consent of St. James. The
foregoing give St. James the ability to exert significant influence over the
business and affairs of the Company. The interests of St. James may not always
be the same as the interests of the Company's other securityholders.
Competition. The wireline, directional drilling, workover and well
servicing industry is a intensely competitive and cyclical business. A number of
large and small contractors provide competition in all areas of the Company's
business. The wireline service trucks and other equipment used is mobile and can
be moved from one region to another in response to increased demand. Many of the
Company's competitors have greater financial resources than the Company, which
may enable them to better withstand industry downturns, to compete more
effectively on the basis of price, and to acquire existing or new equipment.
Operating Hazards and Uninsured Risks. The Company's oil and gas well
service operations are subject to the many hazards inherent in the oil and gas
drilling and production industry. These hazards can result in personal injury
and loss of life, severe damage to or destruction of property and equipment,
pollution or environmental damage and suspension of operations. The Company
maintains insurance protection as it deems appropriate. Such insurance coverage,
however, may not in all situations provide sufficient funds to protect the
Company from all liabilities that could result from its operations.
Environmental Risks. The Company is subject to numerous domestic
governmental regulations that relate directly or indirectly to its operations,
including certain regulations controlling the discharge of materials into the
environment, requiring removal and cleanup under certain circumstances, or
otherwise relating to the protection of the environment. Laws and regulations
protecting the environment have become more stringent in recent years and may in
certain circumstances impose "strict liability" and render a company liable for
environmental damage without regard to negligence or fault on the part of such
company. Such laws and regulations may expose the Company to liability for the
conduct of, or conditions caused by, others, or for acts of the Company that
were in compliance with all applicable laws at the time
12
<PAGE>
such acts were performed. The application of these requirements or the adoption
of new requirements could have a material adverse effect on the Company.
Seasonality and Weather Risks. The Company's operations are subject to
seasonal variations in weather conditions, daylight hours and favorable weather
conditions for its off-shore wireline operations. Since the Company's activities
take place outdoors, the average number of hours worked per day, and therefore
the number of wells serviced per day, generally is less in winter months than in
summer months, due to an increase in snow, rain, fog and cold conditions and a
decrease in daylight hours. Furthermore, demand for the Company's wireline
services by oil and gas companies in the first quarter is generally lower than
at other times of the year. As a result, the Company's revenue and gross profit
during the first quarter of each year are typically low as compared to the other
quarters.
Dependence on Key Personnel. The Company's success depends on, among other
things, the continued active participation of William L. Jenkins, President,
Allen R. Neel, Executive Vice-President, Danny R. Thornton, Vice-President,
Wireline Operations, Alan W. Mann, Vice-President, Diamondback Directional, Gary
J. Vaughn, Vice-President, Multi-Shot, and certain of the Company's other
officers and key operating personnel. The loss of the services of any one of
these persons could have a material adverse effect on the Company. The Company
has entered into employment agreements with each of its executive officers,
including Messrs. Jenkins (through December 2001) and Thornton and Neel (through
April 1, 2003), and has purchased "key-man" life insurance with respect to each
of such persons.
Absence of Dividends. The Company has not declared or paid any cash
dividends on the Common Stock and currently anticipates that, for the
foreseeable future, any earnings will be retained for the development of the
Company's business. Accordingly, no cash dividends are contemplated to be
declared or paid on the Common Stock. In addition, the Company's existing loan
agreements prohibit the payment of cash dividends. See "Price Range of Common
Stock; Dividend Policy."
ITEM 2. PROPERTIES
The Company leases 3,500 square feet of office space in Columbus,
Mississippi for a five-year term expiring on September 30, 2001 for its
executive offices. The monthly rental is $1,900, plus electric and gas
utilities.
The Company also maintains an approximately 787 square foot office in
Conroe, Texas used for executive offices. These offices are leased for a rental
of $1,049 per month pursuant to a lease expiring October 1, 2000.
13
<PAGE>
The Company maintains District Offices at 21 locations throughout its
service area and a manufacturing facility in Laurel, Mississippi. The aggregate
annual rental for these facilities is $522,000. Of such facilities three are
owned by the Company and the others are leased with rental periods of from a
month-to-month basis to five years. The Company believes that all of the
facilities are adequate for its current requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company and certain of its officers and Directors are respondents in an
arbitration proceeding commenced by Monetary Advancement International, Inc.
before the American Arbitration Association in New York, New York. The claimant
seeks recompense against the Company and the 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 a 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.
The Company is a defendant in a number of other legal proceedings which it
considers to be routine litigation that is incidental to its business. The
Company does not expect to incur any material liability as a consequence of such
litigation.
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, 1999, to a vote of security holders of the Company, through the
solicitation of proxies, or otherwise.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is quoted in the OTC Bulletin Board under the
trading symbol BWWL. The following table sets forth the bid prices for the
Company's Common Stock for the periods indicated as provided by the OTC Bulletin
Board:
<TABLE>
<CAPTION>
BID PRICES
---------------------------------------------------
1998 HIGH LOW
----------------------------------------------------------------------------------------
<S> <C> <C>
First Quarter $8.00 $5.88
Second Quarter $9.34 $5.00
Third Quarter $5.75 $2.38
Fourth Quarter $2.69 $0.88
</TABLE>
<TABLE>
<CAPTION>
BID PRICES
---------------------------------------------------
1999 HIGH LOW
---------------------------------- ------------------------- -------------------------
<S> <C> <C>
First Quarter $2.50 $1.00
Second Quarter $1.25 $0.88
Third Quarter $1.56 $0.81
Fourth Quarter $1.00 $0.25
</TABLE>
<TABLE>
<CAPTION>
BID PRICES
---------------------------------------------------
2000 HIGH LOW
---------------------------------- ------------------------- -------------------------
<S> <C> <C>
First Quarter $0.88 $0.38
</TABLE>
The foregoing amounts represent inter-dealer quotations without adjustment
for retail markups, markdowns or commissions, and do not represent the prices of
actual transactions. On March 30, 2000, the closing bid quotation for the Common
Stock, as reported by the OTC Bulletin Board, was $0.75.
As of April 6, 2000, the Company had approximately 445 shareholders of
record and believes it has in excess of 500 beneficial holders of its Common
Stock. The Company has never paid a cash dividend on its Common Stock and
management has no present intention of commencing to pay dividends.
15
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
The Company's results of operations are affected primarily by the extent of
utilization and rates paid for its services and equipment. The energy services
sector is completely dependent upon the upstream spending of the exploration and
production side of the industry. Much of the activity increase from the
exploration and production side of the industry during the latter half of 1999
was in the area of infield recovery of properties shut-in as a result of
depressed commodity prices. These infield recovery efforts were those that would
provide the least capital expenditure, least risk of capital and would result in
a more rapid improvement of cash flow streams due to higher commodity pricing.
With the continued increase of commodity prices and anticipated price stability
along with the Company's debt refinancing, the Company believes it is positioned
to experience an increase in demand for its services due in large part to the
broad base of services offered. While the aforementioned factors are expected to
continue to increase the Company's revenues, there can be no assurance that the
Company will experience any material increase in the demand for and utilization
of its services.
The following table sets forth the Company's revenues from its three
principal lines of business for each of the years ended December 31, 1999, 1998
and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------- ------------------------- ------------------------- --------------------------
<S> <C> <C> <C>
Wireline Services $ 17,727 $11,592 $ 9,513
Directional Drilling 10,310 21,311 5,932
Workover and Completion 1,256 1,533 1,618
------------------------- ------------------------- --------------------------
$ 29,293 $34,437 $17,063
========================= ========================= ==========================
</TABLE>
TWELVE-MONTH PERIODS ENDED DECEMBER 31, 1999 AND 1998
Revenues decreased by $5.1 million or 14.9% to $29.3 million for the year
ended December 31, 1999 as compared to revenues of $34.4 million for the year
ended December 31, 1998. Wireline services revenues increased by $6.1 million in
1999 primarily because of the acquisition of Petro Wireline, the Company's
establishment of an offshore wireline operation and a new onshore wireline
facility at Minden, Louisiana and Corpus Christi, Texas. Directional
16
<PAGE>
drilling revenues decreased as a consequence of the general level of oil and
natural gas well drilling activity which remained depressed for most of 1999.
Operating costs decreased by $7.7 million for the year ended December 31,
1999, as compared to 1998. This decrease was due primarily to a combination of
the Company's cost reduction program and the reduced demand for the Company's
services. Salaries and benefits decreased by $3.9 million for 1999 as compared
to 1998. This was due primarily to the Company's cost reduction program
implemented in 1998 and continuing through 1999. Operating costs as a percentage
of revenues decreased to 77.8% in 1999 from 88.5% in 1998 primarily because of
the cost reduction program implemented in 1998.
Selling, general and administrative expenses decreased by approximately
$1.2 million from $7.5 million in 1998 to $6.3 million in 1999. As a percentage
of revenues, selling, general and administrative expenses decreased from 21.6%
in 1998 to 21.4% in 1999, primarily as a result of the revenue level generated
in 1999 and the cost reduction program implemented in 1998.
Depreciation and amortization increased from $4.8 million in 1998, to $5.0
million in 1999, primarily because of the higher asset base of depreciable
properties in 1999 over 1998 due to the inclusion of a full year's depreciation
on the assets associated with the Phoenix and Petro-Log acquisitions and
operations in Houma, Louisiana.
In accordance with SFAS No. 121 Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, the Company recognizes
impairment losses on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows over the life of the
assets are less than the asset's carrying amount. If an impairment exists, the
amount of such impairment is calculated based on projections of future
discounted cash flows. These projections are for a period of five years using a
discount rate and terminal value multiple that would be customary for evaluating
current oil and gas service company transactions.
The Company considers external factors in making its assessment.
Specifically, changes in oil prices and other economic conditions surrounding
the industry, consolidation within the industry, competition from other oil and
gas well service providers, the ability to employ and maintain a skilled
workforce, and other pertinent factors are among the factors that could lead
management to reassess the realizability and/or amortization periods of its
goodwill.
In 1998, the Company experienced a large decline in demand for its services
as a result of a large decrease in the price of oil and natural gas, as well as
the loss of a major customer. Consequently, management evaluated the
recoverability of its long-lived assets in relation to its business segments.
The analysis was first performed on an undiscounted basis which indicated
impairment in its directional drilling segment. The impairment was then
calculated using
17
<PAGE>
projections of discounted cash flows over five years utilizing a discount rate
and terminal value multiple commensurate with current oil and gas services
company transactions. At December 31, 1998, the discount rate and the terminal
multiple used was 12% and 6.5, respectively. The assumptions used in this
analysis represent management's best estimate of future results.
The analysis resulted in a charge to operations for the year ended December
31, 1998 of $11.1 million which consisted of a write-down of approximately $8.1
million, approximately $2.4 million, and approximately $624,000, to goodwill,
property, plant and equipment, and inventory, respectively.
Interest expense and amortization of debt discount increased by $0.6
million for 1999 as compared to 1998. This was directly related to the increased
amounts of indebtedness outstanding incurred to finance acquisitions completed
in 1998.
Net gain or loss on sale of fixed assets decreased in 1999 to a net loss of
$7,000 from a $155,000 net gain in 1998. Other income increased by $45,000 in
1999.
Income tax benefit was $0 million in 1999 compared to $1.1 million for
1998. The income tax benefit arises out of the Company's net losses for the
year. See "Note 10 of Notes to Consolidated Financial Statements."
The Company's net loss for 1999 was $8.0 million. The Company's loss was
primarily attributable to declines in demand for the Company's services and
equipment utilization which arose in 1998 and continued into the first half of
1999 resulting from the declines in prices for oil and natural gas.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in Company operating activities was $517,000 for the year ended
December 31, 1999 as compared to cash used in operating activities of $826,000
for the year ended December 31, 1998. Investing activities of the Company used
cash of $1.8 million during the year ended December 31, 1999 for the acquisition
of property, plant and equipment and was offset by proceeds from the sale of
fixed assets of $35,000. During the year ended December 31, 1998, acquisitions
of property, plant and equipment and other businesses used cash of $6.5 million
offset by proceeds of $296,000 from the sale of fixed assets. Financing
activities provided cash of $6.9 million from the net proceeds from the issuance
of convertible notes and warrants and other borrowings during the year ended
December 31, 1999 offset by principal payments on long-term notes and capital
lease obligations and loan origination costs of $3.2 million. During the year
ended December 31, 1998, the sale of convertible notes and warrants, the sale of
common stock and other borrowings resulted in proceeds of $10.4 million offset
by principal payments on long-term debt and capital lease obligations and loan
origination costs of $2.7 million.
18
<PAGE>
During the year ended December 31, 1999, the Company expended $108,000 for
the acquisition of property, plant and equipment financed under capital leases
and notes payable. During the year ended December 31, 1998, the Company expended
$898,000 for the acquisition of property, plant and equipment financed under
capital leases and notes payable and incurred an additional $20.2 million of
notes payable in connection with the acquisition of businesses.
During 1998 and 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 1999. Management of the
Company believes that an improvement in its revenues will be dependent upon a
continuing period of improved pricing 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 $18.9 million at December 31, 1999, other
indebtedness of approximately $3.6 million, and $20.9 million owing to SJCP and
its affiliates.
Coast Business Credit Loan and Security Agreement
On January 24, 2000, the Company entered into the Loan Agreement with Coast
pursuant to which it is enabled to make secured borrowings in the aggregate
amount of up to the lesser of $25.0 million or such maximum aggregate amount as
is available to be borrowed under a receivables loan and two term loans
described below. Of such amount, $14.5 million, based on the lesser of 75% of
the appraised net eligible forced liquidation value of the Company's equipment
or $14.5 million, is a term loan (the "Equipment Loan"), an additional $2.0
million is a term loan (the "Installment Loan"), and the balance is available to
be borrowed in an amount not exceeding 80% of the Company's eligible receivables
(the "Receivables Loan"). The Equipment Loan is repayable commencing on August
30, 2000 in monthly installments over a term of six years, with interest only
payable monthly prior to August 1, 2000. The Equipment Loan further requires
that the Company make additional monthly principal payments of 50% of its excess
cash flow during the preceding month during the period ending February 28, 2001,
and thereafter additional monthly principal payments of 40% of its excess cash
flow during the preceding month. Excess cash flow is defined to be the Company's
net income before income taxes, depreciation and amortization during a month
minus the sum of principal and interest payments made and taxes paid in cash
("EBITDA"). The Installment Loan is repayable in monthly installments over four
years commencing March 31, 2000, and, after the Equipment Loan is paid in full,
is also repayable out of excess cash flow as provided above. The Loan Agreement
ceases to be in effect on February 28, 2003, provided, however, the Loan
Agreement will automatically renew for additional terms of one year unless
either party elects not to renew the term. In the event the Loan Agreement is
not renewed on February 28, 2003, or at the end of
19
<PAGE>
any renewal term thereafter, all borrowings then outstanding under the Loan
Agreement are then due and payable.
On February 15, 2000, the Company borrowed an aggregate of $15.6 million
pursuant to the Loan Agreement. The proceeds were used to repay the Company's
former senior secured lender in the amount of $13.5 million, to repay other
indebtedness aggregating $1.5 million, and the balance was used for general
corporate purposes, including the payment of outstanding accounts payable.
The Equipment Loan and the Installment Loan bear interest at the prime
rate, as defined, plus 2% per annum, and the Receivables Loan bears interest at
the prime rate, as defined, plus 1% per annum. The Company's obligations under
the Loan Agreement are collateralized by a senior lien and security interest in
substantially all of the Company's assets. Principal and interest under the Loan
Agreement has been guaranteed, subject to certain limitations, by St. James,
principal stockholders of the Company, and Charles Underbrink, a partner of St.
James and a Director of the Company. In addition, St. James has guaranteed all
of the Company's obligations under the Loan Agreement, subject to certain
limitations. The guaranty of St. James is backed by a pledge of certain
securities owned by it, subject to certain limitations. Loans under the Loan
Agreement were subject to the fulfillment of a number of closing conditions and
the accuracy of the Company's representations and warranties in the Loan
Agreement.
By virtue of such guarantees, in the event of a default under the Company's
loan agreement with Coast, Coast may seek to collect from SJCP and SJMB, as well
as Mr. Underbrink, the outstanding principal and interest on the Company's
obligation to Coast, and such persons have advised the Company of their
willingness and ability to meet such obligations. Mr. Underbrink's liability is
limited to no more than $5.0 million. Such persons have further advised the
Company of their willingness and ability to support the Company's operations at
least through January 2, 2001 and in that connection have waived any default
that may occur on indebtedness owing to them through April 12, 2000. Without
material improvement in the Company's revenues, the Company may be substantially
dependent upon the continuing support of SJCP and SJMB during 2000 to fund its
ongoing obligations.
Based on the guarantee of the debt and the willingness and ability to
support the Company's operations, the Company's financial statements have been
prepared on a going concern basis. Absent this guarantee and support, there
would be substantial doubt about the Company's ability to continue as a going
concern.
Events of default under the Loan Agreement include (i) any warranty,
representation, statement, report or certificate delivered to Coast by the
Company being untrue or misleading, (ii) the failure of the Company to pay when
due any loans under the Loan Agreement or any other monetary obligation under
the Loan Agreement, (iii) the total of the Company's loans outstanding exceeding
the Company's maximum borrowing limit under the Loan Agreement, (iv) the breach
of various covenants and obligations of the Company under the Loan Agreement,
(v) the insolvency or business failure of the Company or the commencement of any
reorganization or bankruptcy proceedings, (vi) a change of control of the
Company without Coast's consent, (vii) the inability of the Company to pay its
debts as they come due, and (viii)
20
<PAGE>
certain other events. Upon such an event of default, Coast may cease making
loans to the Company and accelerate the due date of all indebtedness outstanding
under the Loan Agreement.
The Company is obligated to fulfill various affirmative and negative
covenants contained in the Loan Agreement. The affirmative covenants include
requirements to comply with various financial covenants, maintain insurance
coverage, apply 30% of the proceeds from the sale of equity securities to the
repayment of principal of the term loans, provide written reports to Coast, and
provide Coast with access to the collateral for the indebtedness. The financial
covenants require the Company to have a tangible net worth as defined in the
Loan Agreement of $5.0 million on the closing date under the Loan Agreement and
increasing quarterly thereafter by 80% of the Company's net income for the
quarter, have a debt service coverage ratio of 1.25 to 1.00 quarterly,
commencing March 31, 2000, and have actual revenue and EBIDTA of no less than
80% of an amount projected by the Company. Negative covenants prohibit the
Company, without Coast's consent, from merging or consolidating with another
entity; acquiring assets, subject to certain exceptions; entering into any other
transaction outside the ordinary course of business; selling any assets except
in the ordinary course of business; restrictions on the disposition of
inventory; loaning money, subject to certain exceptions; incurring indebtedness
outside the ordinary course of business which has a material adverse effect on
the Company; paying or declaring any dividend or making any other distributions;
or a change in the Company's capital structure that has a material adverse
effect on it.
At the closing of its initial borrowings, the Company paid a loan fee of 2%
of the maximum amount able to be borrowed under the Loan Agreement and is
obligated to pay an annual fee of 0.5% of such amount. In addition, the Company
is obligated to pay a facility fee of $15,000 each quarter and an unused
facility fee of 0.375% of the undrawn portion of the maximum amount able to be
borrowed. In the event of the sale or transfer of substantially all the assets
or ownership interests in the Company prior to February 28, 2003, Coast is
entitled to a success fee of $250,000. In the event the Loan Agreement is
terminated by the Company prior to February 15, 2001, Coast is entitled to a fee
of $750,000 and of $500,000 thereafter, provided, if the termination occurs at
any time as a result of the sale of substantially all the Company's assets or a
controlling interest in the Company and the indebtedness to Coast is repaid, the
fee will be $500,000.
Private Sale of $7.0 Million of Notes and Warrants
Commencing on December 17, 1999 and during the first quarter of 2000, the
Company sold $7.0 million principal amount of convertible promissory notes (the
"Notes") due on January 15, 2001 and warrants ("Warrants") to purchase 28.7
million shares of Common Stock. The Notes and Warrants were purchased by 47
"accredited investors," (the "Purchasers") as defined in Regulation D under the
Securities Act of 1933, as amended. Payment of principal and interest on the
Notes is collateralized by substantially all the assets of the Company, subject,
however, to the terms of a subordination agreement between the Purchasers and
Coast. The Notes bear
21
<PAGE>
interest at 10% per annum through September 30, 2000 and thereafter at the rate
of 15% per annum and are convertible into shares of the Company's Common Stock
at a conversion price of $0.75 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 were issued.
The Warrants are exercisable at a price of $0.75 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 were issued and the number of shares issuable is adjusted upward. The
shares issuable on conversion of the Notes and exercise of the Warrants have
demand and piggy-back registration rights under the Securities Act of 1933. The
Notes contain various affirmative and negative covenants, including, among
others, a prohibition against the Company consolidating, merging or entering
into a share exchange with another person, with certain exceptions, without the
consent of the Purchasers. Events of default under the Notes include, among
other events, (i) a default in the payment of principal or interest on the
Notes; (ii) a default in the performance of any covenant of the Note Purchase
Agreement or other agreement entered into in connection therewith and the
failure to cure such default; (iii) any representation or warranty of the
Company in the Note Purchase Agreement or other agreement entered into in
connection therewith being untrue in any material respect and such default
remains uncured; (iv) the Company defaults in the payment when due or by
acceleration of any other indebtedness having an aggregate principal amount
outstanding in excess of $100,000 and such default remains uncured; (v) a
judgment for the payment of money in excess of $100,000 is entered against the
Company; and (vi) the commencement of certain bankruptcy or insolvency
proceedings. If an event of default occurs, the Notes may become immediately due
and payable.
INFLATION
The Company's revenues have been and are expected to continue to be
affected by fluctuations in the prices for oil and gas. Inflation did not have a
significant effect on the Company's operations in 1999.
22
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BLACK WARRIOR WIRELINE CORP.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 1999, 1998, 1997
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:
Report of Independent Accountants for the Years Ended
December 31, 1999, 1998 and 1997................................... F-1
Consolidated Balance Sheets as of
December 31, 1999 and 1998......................................... F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997................................... F-3
Consolidated Statements of Stockholders' Equity (Deficit) for the
Years Ended December 31, 1999, 1998 and 1997....................... F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997................................... F-5
Notes to Consolidated Financial Statements......................... F-6
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders and Board of Directors
Black Warrior Wireline Corp.
Columbus, Mississippi
In our opinion, the accompanying balance sheets and related statements of
operations, stockholders' (deficit), and cash flows present fairly, in all
material respects, the financial position of Black Warrior Wireline Corp. (the
Company) at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. 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 of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
March 17, 2000, except as to the first
paragraph of Note 18, which is as of
April 12, 2000
F-1
<PAGE>
BLACK WARRIOR WIRELINE CORP.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,425,808 $ 1,041,242
Short-term investments 50,000 50,000
Accounts receivable, less allowance of $1,006,068 and $2,157,421, respectively 4,971,251 3,596,004
Prepaid expenses 175,268 110,579
Other receivables 146,392 236,273
Other current assets 526,884 498,812
--------------- ---------------
Total current assets 8,295,603 5,532,910
Land and building, held for sale 400,000 400,000
Inventories 4,285,206 4,278,601
Property, plant, and equipment, less accumulated depreciation 19,457,361 22,628,601
Other assets 604,649 539,537
Goodwill, less accumulated amortization of $361,714 and $215,678, respectively 3,289,165 3,435,201
--------------- ---------------
Total assets $ 36,331,984 $ 36,814,850
=============== ===============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable $ 6,936,572 $ 5,964,266
Accrued salaries and vacation 249,296 91,275
Accrued interest payable 3,027,901 1,527,674
Other accrued expenses 777,598 826,366
Deferred revenue 100,000 155,016
Notes payable to related parties 3,041,234 20,662,890
Current maturities of long-term debt and capital lease obligations 8,391,346 18,923,719
--------------- ---------------
Total current liabilities 22,523,947 48,151,206
Notes payable to related parties 21,412,356
Long-term debt and capital lease obligations, less current maturities 10,542,555
--------------- ---------------
Total liabilities 54,478,858 48,151,206
--------------- ---------------
Commitments and contingencies (Notes 6, 7, 14, 15, and 19)
Stockholders' (deficit):
Preferred stock, $.0005 par value, 2,500,000 shares authorized none issued
at December 31, 1999
Common stock, $.0005 par value, 12,500,000 shares authorized in 1999 and
1998, respectively; 4,812,260 and 3,897,451 shares
issued at December 31, 1999 and 1998, respectively 2,406 1,948
Additional paid-in capital 13,316,081 12,107,551
Accumulated deficit (30,881,968) (22,862,462)
Treasury stock, at cost, 4,620 shares at December 31, 1999 and 1998 (583,393) (583,393)
--------------- ---------------
Total stockholders' (deficit) (18,146,874) (11,336,356)
--------------- ---------------
Total liabilities and stockholders' (deficit) $ 36,331,984 $ 36,814,850
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
BLACK WARRIOR WIRELINE CORP.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- ----------------
<S> <C> <C> <C>
Revenues $ 29,293,373 $ 34,436,553 $ 17,062,542
Operating costs 22,788,586 30,484,788 12,247,630
Selling, general, and administrative expenses 6,258,365 7,453,547 2,191,785
Depreciation and amortization 5,008,078 4,815,955 1,442,635
Loss from impairment of goodwill, inventories,
and property, plant, and equipment (Notes 2 and 20) 11,100,000
---------------- ----------------- ----------------
Income (loss) from operations (4,761,656) (19,417,737) 1,180,492
Interest expense and amortization of debt discount (3,484,999) (2,867,575) (609,430)
Net (loss) gain on sale of fixed assets (7,263) 154,986 25,584
Other income 106,741 61,948 72,642
---------------- ----------------- ----------------
Income (loss) before provision (benefit) for income
taxes (8,147,177) (22,068,378) 669,288
Provision (benefit) for income taxes (1,051,698) 222,041
---------------- ----------------- ----------------
Income (loss) before extraordinary gain (8,147,177) (21,016,680) 447,247
Extraordinary gain on extinguishment of debt, net of
income taxes of $0 (see Note 13) 127,671
---------------- ----------------- ----------------
Net income (loss) $ (8,019,506) $ (21,016,680) $ 447,247
================ ================== ================
Net income (loss) per common share - basic $ (1.81) $ (5.86) $ .18
================ ================== ================
Net income (loss) per common share - diluted $ (1.81) $ (5.86) $ .14
================ ================== ================
Weighted average common shares outstanding 4,424,035 3,589,235 2,533,650
================ ================== ================
Weighted average common shares outstanding
with dilutive securities 4,424,035 3,589,235 3,759,756
================ ================== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
BLACK WARRIOR WIRELINE CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON
COMMON STOCK STOCK TREASURY STOCK
------------------------ PAID-IN ACCUMULATED TO BE -----------------------
SHARES PAR VALUE CAPITAL DEFICIT ISSUED SHARES COST
----------- ---------- ------------- ------------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 2,185,216 $ 1,093 $ 5,133,087 $ (2,293,029) 4,620 $ (583,393)
Shares issued in consider-
ation for consulting
services 65,000 32 136,461
Shares issued for
acquisitions 672,538 336 2,239,664
Shares to be issued in
connection with
acquisition (133,333 shares) $ 280,000
Issuance of warrants 69,550
Shares issued from exercise
of warrants 67,500 34 134,966
Stock option plan
compensation expense 31,225
Net income for the year ended
December 31, 1997 447,247
----------- ---------- ------------- ------------- ------------ --------- ------------
Balance, December 31, 1997 2,990,254 1,495 7,744,953 (1,845,782) 280,000 4,620 (583,393)
Shares issued in private
placement 596,000 298 3,035,268
Shares issued in private
placement 176,364 88 902,012
Shares issued in connection
with prior year acquisition 133,333 66 279,934 (280,000)
Shares issued from exercise of
warrants 1,500 1 2,999
Issuance of warrants 142,385
Net loss for the year ended
December 31, 1998 (21,016,680)
----------- ---------- ------------- ------------- ------------ --------- ------------
Balance, December 31, 1998 3,897,451 1,948 12,107,551 (22,862,462) -- 4,620 (583,393)
Shares issued to individuals in
settlement of potential
litigation 770,364 386 914,421
Shares issued in connection
with acquisition 94,445 47 64,884
Shares issued in connection
with acquisition 50,000 25 64,975
Issuance of warrants 164,250
Net loss for the year ended
December 31, 1999 (8,019,506)
----------- ---------- ------------- ------------- ------------ --------- ------------
Balance, December 31, 1999 4,812,260 $ 2,406 $ 13,316,081 $ (30,881,968) $ -- 4,620 $ (583,393)
----------- ---------- ------------- ------------- ------------ --------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
BLACK WARRIOR WIRELINE CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(8,019,506) $(21,016,680) $ 447,247
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation 4,850,772 4,398,762 1,308,214
Amortization 157,306 417,193 134,421
Provision for doubtful accounts 255,595 2,279,922 96,359
Recoveries of doubtful accounts (942,391)
Issuance of shares in consideration of claims released 914,807
Net loss (gain) on disposition of property, plant, and equipment 7,263 (154,986) (124,384)
Loss on impairment of goodwill, inventories, and property,
plant, and equipment 11,100,000
Compensation, consulting, and management expenses paid
by issuance of common stock 167,725
Extraordinary gain on extinguishment of debt 127,671
Deferred tax expense (benefit) (1,051,698) 185,245
Other 188,953
Change in:
Accounts receivable (688,451) (416,237) (1,843,476)
Inventories (6,605) 97,304
Prepaid expenses (64,689) 174,006 (336,720)
Other receivables 89,881 (221,327) (310)
Other current assets (28,072) (18,497) (148,313)
Other assets 253,131 331,133 (283,551)
Accounts payable and accrued liabilities 2,387,829 3,255,141 1,562,981
------------- -------------- --------------
Cash (used in) provided by operating activities (516,506) (825,964) 1,165,438
------------- -------------- --------------
Cash flows from investing activities:
Acquisitions of property, plant, and equipment (1,803,041) (5,992,397) (3,087,666)
Proceeds from sale of property, plant, and equipment 34,820 295,658 74,448
Purchase of short-term investments (50,000)
Acquisitions of businesses, net of cash acquired (533,224) (697,224)
------------- -------------- --------------
Cash used in investing activities (1,768,221) (6,229,963) (3,760,442)
------------- -------------- --------------
Cash flows from financing activities:
Proceeds from bank and other borrowings 6,921,955 3,697,054 2,515,303
Proceeds (payments) from (on) working revolver, net (1,424,378) 2,769,856
Debt issue costs (188,312) (369,765)
Proceeds from issuance of common stock, net 3,940,666 135,000
Principal payments on long-term debt, notes payable, and
capital lease obligations (1,639,972) (2,376,487) (346,908)
------------- -------------- --------------
Cash provided by financing activities 3,669,293 7,661,324 2,303,395
------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents 1,384,566 605,397 (291,609)
Cash and cash equivalents, beginning of year 1,041,242 435,845 727,454
------------- -------------- --------------
Cash and cash equivalents, end of year $2,425,808 $ 1,041,242 $ 435,845
============= ============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $1,984,772 $ 1,559,296 $ 419,555
============= ============== ==============
Income taxes $ -- $ -- $ 132,649
============= ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
BLACK WARRIOR WIRELINE CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------- --------------- -------------
<S> <C> <C> <C>
Supplemental schedule of noncash investing and financing activities:
Land and building with basis of $400,000 exchanged for a $500,000 note $ 500,000
Default on notes receivable relating to land and building sale (Note 2) $ 500,000
Acquisition of property, plant, and equipment financed under capital
leases and notes payable $ 107,527 $ 897,509 $1,528,347
Notes payable incurred in connection with acquisitions of businesses $20,201,140 $9,148,449
Borrowings to refinance existing debt $4,500,000
Stock warrants issued $ 164,250 $ 142,383 $ 69,550
Acquisition of property, plant, and equipment through stock issuance $ 129,859
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
NOTE 1 - GENERAL INFORMATION
Black Warrior Wireline Corp. (the Company), a Delaware corporation, is an oil
and gas service company currently providing various services to oil and gas well
operators primarily in the Black Warrior and Mississippi Salt Dome Basins in
Alabama and Mississippi, the Permian Basin in West Texas and New Mexico, the
East Texas and Austin Chalk Basins in East Texas, the Anadarko Basin in
Oklahoma, the Powder River and Green River Basins in Wyoming and Montana,
Williston Basin in North Dakota, and the Gulf of Mexico offshore of Louisiana
and in South Texas. The Company's principal lines of business include (a)
wireline services, (b) directional oil and gas well drilling activities, and (c)
workover services. Further discussion on business segments is located in Note
17.
During the third quarter of 1999, the Company merged Boone Wireline Co., its
wholly-owned subsidiary, into Black Warrior Wireline Corp. Boone Wireline Co.
was subsequently dissolved. The dissolution had no effect on prior or current
year earnings or equity.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE - Included in accounts receivable are recoverable costs and
related profits not billed, which consist primarily of revenue recognized on
contracts for which billings had not been presented to the contract owners
because the amounts were not billable at the balance sheet date. Unbilled
amounts included in accounts receivable totaled $492,550 and $48,000 at December
31, 1999 and 1998, respectively.
INVENTORIES - Inventories consist of tool components, subassemblies, and
expendable parts used in directional oil and gas well drilling activities. Tools
manufactured and assembled are transferred to property, plant, and equipment as
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 (see Note 20).
LAND AND BUILDING, HELD FOR SALE - Land and building held for sale was stated at
the lower of cost or estimated net realizable value. During 1997, the Company
exchanged land and building with a basis of $400,000 for a $500,000 note
receivable. The Company did not recognize the $100,000 gain as no down payment
was received. The $100,000 was included in deferred revenue at December 31,
1997. During 1998, the buyer failed to pay the note receivable when it became
due. Accordingly, the transaction has been reversed and the land and building
are recorded on the balance sheet at cost.
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 which range from two to ten years. At December 31,
1999, significantly all of the property, plant, and equipment has been pledged
as collateral for the Company's borrowings (see Note 20).
F-7
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
GOODWILL - Goodwill is stated at cost and is being amortized on a straight-line
basis principally over twenty-five years. The Company assesses the
recoverability and the amortization period of goodwill not identified with
impaired assets by determining whether the amount can be recovered through
undiscounted cash flows of the businesses acquired, excluding interest expense
and amortization, over the remaining amortization period. If impairment was
indicated by this analysis, measurement of the loss would be based on the fair
market value of the businesses acquired calculated by discounting projected
future cash flows. The projections would be over a five year period using a
discount rate and terminal value multiple commensurate with current oil and gas
service companies.
The Company considers external factors in making its assessment. Specifically,
changes in oil and natural gas prices and other economic conditions surrounding
the industry, consolidation within the industry, competition from other oil and
gas well service providers, the ability to employ and maintain a skilled
workforce, and other pertinent factors are among the items that could lead
management to reassess the realizability and/or amortization periods of its
goodwill (see Note 20).
LONG-LIVED ASSETS - In accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the
Company recognizes impairment losses on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows over
the life of the assets are less than the asset's carrying amount. If an
impairment exists, the amount of such impairment is calculated based on
projections of future discounted cash flows. These projections are for a period
of five years using a discount rate and terminal value multiple that would be
customary for evaluating current oil and gas service company transactions.
The Company considers external factors in making its assessment. Specifically,
changes in oil and natural gas prices and other economic conditions surrounding
the industry, consolidation within the industry, competition from other oil and
gas well service providers, the ability to employ and maintain a skilled
workforce, and other pertinent factors are among the items that could lead
management to reassess the realizability and/or amortization periods of its
long-lived assets (see Note 20).
INCOME TAXES - The Company accounts for income taxes under an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. In estimating
future tax consequences, the Company generally considers all expected future
events other than enactments of changes in the tax laws or rates.
STOCK-BASED COMPENSATION - In accordance with the provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, the Company has chosen to continue to
apply the accounting provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, to its stock-based employee
compensation arrangements.
USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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.
REVENUE RECOGNITION - Revenues are recognized at the time services are
performed.
F-8
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
EARNINGS PER SHARE - In accordance with SFAS No. 128, Earnings per Share, the
Company presents basic and diluted earnings per share (EPS) on the face of the
statement of operations and a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted EPS
computation.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that shared in the
earnings of the entity. The number of common stock equivalents is determined
using the treasury stock method. Options have a dilutive effect under the
treasury stock method only when the average market price of the common stock
during the period exceeds the exercise price of the options.
SEGMENT REPORTING - In 1998, the Company adopted SFAS 131, Disclosures about
Segments of an Enterprise and Related Information, which establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements, and requires selected information about
operating segments in interim financial reports. Financial information is
required to be reported on the basis that is used internally for evaluating
segment performance and deciding how to allocate resources to segments. The
financial information required includes a measure of segment profit or loss,
certain specific revenue and expense items, segment assets, and a reconciliation
of each category to the general financial statements. The descriptive
information required includes the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the general purpose financial statements, and changes in the
measurement of segment amounts from period to period. The adoption of SFAS No.
131 did not affect results of operations or financial position, but did affect
the disclosure of segment information (see Note 17).
NOTE 3 - ACQUISITIONS
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 $19,000,000. A
portion of the purchase price was financed with the proceeds of a $9,000,000
note bearing interest at 9%. The remaining purchase price was financed through
two additional notes, $9,000,000 and $1,000,000, both of which bear interest at
8% (see Note 4). For financial statement purposes, the Phoenix Acquisition was
accounted for as a purchase and, accordingly, Phoenix's results are included in
the financial statements since the date of acquisition. The excess of the
purchase price of Phoenix over net assets acquired, goodwill, approximated
$2,760,000 and was being amortized over twenty-five years. During the fourth
quarter of 1998, the Company finalized its allocation of the purchase price of
Phoenix which resulted in an increase to goodwill of approximately $260,000. The
following is a summary of assets acquired, liabilities assumed, and
consideration paid in connection with the acquisition:
<TABLE>
<S> <C>
Fair value of assets acquired, including goodwill $ 20,219,422
Cash paid for assets acquired and transaction costs incurred (510,765)
----------------
Liabilities assumed or debt incurred $ 19,708,657
================
</TABLE>
F-9
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
During the fourth quarter of 1998, the Company assessed the recoverability of
long-lived assets relating to the Phoenix acquisition. The Company concluded the
goodwill and certain inventories and property, plant, and equipment were
impaired (see Note 20).
On June 1, 1998, the Company acquired Petro Wireline, Inc. (Petro Acquisition),
which is engaged in the wireline business in the four-corners region of New
Mexico, Colorado, Utah, and Arizona, for $875,000. A portion of the purchase
price was financed with the proceeds of a $525,000 note that bears interest at
9%. The Company entered into a promissory note with the former owner for the
remaining amount of the purchase price. The $350,000 note bears interest at 1.5%
above the prime rate for commercial loans adjusted as of the first day of each
month during the term of the note (see Note 4). For financial statement
purposes, the Petro Acquisition was accounted for as a purchase and,
accordingly, Petro Wireline's results are included in the 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.
<TABLE>
<S> <C>
Fair value of assets acquired, including goodwill $ 966,091
Cash paid for assets acquired and transaction costs incurred (22,459)
----------------
Liabilities assumed or debt incurred $ 943,632
================
</TABLE>
The following table presents unaudited pro forma results of operations for the
years ended December 31, 1999 and 1998, as if the acquisitions had occurred at
the beginning of the years presented. The pro forma summary information does not
necessarily reflect the results of operations as they actually would have been
if the acquisitions had occurred at the beginning of the years presented.
<TABLE>
<CAPTION>
1999 1998
(UNAUDITED) (UNAUDITED)
---------------- ------------------
<S> <C> <C>
Revenues $ 29,293,373 $ 38,688,771
================ =================
Loss before benefit for income taxes $ (8,147,177) $ (22,259,312)
================ =================
Net loss $ (8,019,506) $ (21,278,034)
================ =================
Net loss per common share - basic $ (1.81) $ (5.72)
================ =================
Net loss per common share - diluted $ (1.81) $ (5.72)
================ =================
</TABLE>
The unaudited pro forma results include the historical accounts of the Company
and historical accounts of the acquired businesses and pro forma adjustments,
including the amortization of the excess purchase price over the fair value of
the net assets acquired, the increase in interest expense resulting from
borrowings used to finance the acquisitions, and the increase and decrease in
depreciation expense as a result of purchase price adjustments.
F-10
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
NOTE 4 - RELATED PARTY TRANSACTIONS
During 1997, the Company acquired substantially all of the assets and certain of
the liabilities of Diamondback Directional Drilling, Inc. (DDI). In connection
with the acquisition, the Company issued debt of approximately $3,200,000 to the
former owners of DDI. The two majority stockholders (85%) of DDI are now
employees of the Company and one is an officer and director of the Company. The
notes bear interest at 6.5% and are due August 1999, with quarterly interest
payments due beginning in January 1998. Interest payments were made in December
1999 for all accrued interest through that date (see Note 19 for the description
of the restructuring of this debt).
During 1997, the Company completed the acquisitions of Production Well Services,
Inc. (PWS) and Petro-Log, Inc. (Petro-Log). In connection with the PWS and
Petro-Log acquisitions, the Company borrowed approximately $7,900,000 from St.
James Capital Partners, L.P. (SJCP), whose chief executive officer and president
both serve on the Company's Board of Directors. Of the amount borrowed,
$4,900,000 remained outstanding at December 31, 1999. A note for $2,900,000
bearing interest at 7% with the principal and interest originally due October
1999 extended to March 2001 in connection with the refinancing plan described in
Notes 6 and 19 remained outstanding as of December 31, 1999. Accrued interest
payable on this borrowing totaled approximately $455,000 and $250,000 as of
December 31, 1999 and 1998, respectively. The other note for $2,000,000 bears
interest at 9% with the principal and interest due June 2002. Accrued interest
payable on this borrowing totaled approximately $477,000 and $283,000 as of
December 31, 1999 and 1998, respectively.
In connection with the Phoenix Acquisition, the Company borrowed $9,000,000 from
St. James Merchant Bankers, L.P. (SJMB) and $1,000,000 from Falcon Seaboard
Investment Co., L.P. (Falcon Seaboard), both affiliated with SJCP. The notes
bear interest at 8% with the principal and interest due in March 2001. Accrued
interest payable on this borrowing totaled approximately $1,500,000 and $688,000
as of December 31, 1999 and 1998, respectively.
The Company borrowed $2,000,000 from SJMB pursuant to an agreement dated October
30, 1998. This note bears interest at 10% with the principal and interest due
March 16, 2001. Accrued interest payable on this borrowing totaled approximately
$243,000 and $45,000 as of December 31, 1999 and 1998, respectively.
The Company borrowed $2,500,000 from SJMB pursuant to an agreement dated
February 18, 1999. This note bears interest at 10% with principal and interest
due March 16, 2001. Accrued interest payable on this borrowing totaled
approximately $221,000 as of December 31, 1999.
The Company borrowed an additional $750,000 from SJMB and $800,000 from two
directors of SJMB in connection with its December 1999 debt issuance of
$3,500,000 pursuant to an agreement dated December 17, 1999. These notes bear
interest at 10% with principal and interest due January 15, 2001.
At December 31, 1999 and 1998, the Company has a mortgage note payable of
$230,000, to the former owner of Dyna Jet, an employee of the Company through
November 1998 (see Note 6).
In connection with the Petro Acquisition, the Company has a $175,000 promissory
note to a limited partnership partially owned by a person who is now an employee
of the Company. The note bears interest at 1.5% above the prime rate for
commercial loans adjusted as of the first day of each month during the term of
the note. Principal of $116,667 and accrued interest to date are due and payable
each June until
F-11
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
June 1, 2001. At December 31, 1999 and 1998, the Company had accrued interest
payable of approximately $56,000 and $21,000, respectively, relating to this
note. At December 31, 1999 and 1998, the Company had a remaining accrual of
approximately $21,000 relating to the Company's commitment to pay the
president's tax liability resulting from previously issued common stock as a
bonus.
At December 31, 1999, SJMB held a significant ownership interest in Collins and
Ware, Inc., which is a customer of the Company. Sales to Collins and Ware, Inc.
during 1999 were $2,955,918.
At December 31, 1999 and 1998 the Company was in default with SJCP, SJMB, and
Falcon Seaboard based on cross default provisions in the agreements. During the
first quarter of 2000, the Company executed a refinancing plan, as more
completely described in Notes 6 and 19. As a result of this plan, the
outstanding debt at December 31, 1999 has been classified on the balance sheet
in accordance with the maturity terms of the new indebtedness. All notes payable
and accrued interest to related parties have been classified as current on the
balance sheet as of December 31, 1998. The Company was also in default on the
notes payable relating to the DDI acquisition (see Note 6).
During the year ended December 31, 1998, the Company paid approximately $902,000
to SJCP for consulting fees.
See Notes 6 and 8 for financing arrangements and common stock transactions with
related parties.
NOTE 5 - PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment includes the following at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Vehicles $ 8,672,351 $ 7,875,896
Land and building 245,000 245,000
Workover rigs and related equipment 438,155 686,317
Operating equipment 23,336,048 22,270,613
Office equipment 576,648 537,668
---------------- ----------------
33,268,202 31,615,494
Less accumulated depreciation 13,810,841 8,986,893
---------------- ----------------
Net property, plant, and equipment $ 19,457,361 $ 22,628,601
================ ================
</TABLE>
Depreciation expense for the years ended December 31, 1999, 1998, and 1997 was
$4,850,772, $4,398,762, and $1,308,214, respectively.
F-12
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
The following is a summary of the equipment under capital leases (included
above) at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Workover rigs and related equipment $ 158,909 $ 158,909
Vehicles 257,508 257,508
---------------- ----------------
416,417 416,417
Less accumulated depreciation 170,248 74,496
---------------- ----------------
Net equipment under capital lease $ 246,169 $ 341,921
================ ================
</TABLE>
NOTE 6 - LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
At December 31, 1999 and 1998, long-term debt and other financing arrangements
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
--------------- --------------
<S> <C> <C>
Notes payable to Trustmark Bank, monthly payments in varying amounts
through January 2004, including interest ranging from 7.75% to 8.75%. $ 91,371 $ --
Installment notes payable, monthly payments required in varying amounts
through November 2003, interest at rates ranging from 5.9% to 12.54%. 1,708,658 1,302,669
Capitalized leases, monthly payments required in varying amounts through
July 2001, including interest ranging from 5.0% to 6.25%. 173,065 243,156
Notes payable to General Electric Capital Corporation, monthly payments
required in varying amounts through January 2003, interest at 8.75%. 4,383,546 4,577,904
Notes payable to Fleet Capital Corporation, monthly payments required in
varying amounts through March 2002, interest rates ranging from 8.75% to 9.0%. 10,707,211 12,799,990
10% convertible note payable to various individuals. Principal and
interest due January 2001. Convertible at $0.75 per share at anytime up
to 30 business days following maturity. 1,950,000 --
--------------- --------------
19,013,851 18,923,719
Less:
Current portion of long-term debt (see below) 8,391,346 18,923,719
Unamortized discount on long-term debt 79,950 --
--------------- --------------
Long-term debt and capital lease obligations, less current maturities $ 10,542,555 $ --
=============== ==============
</TABLE>
F-13
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
Notes payable to related parties consist of the following at December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Note payables to former owner of DDI, principal due August 1999, interest due
quarterly at 6.5% (see description below regarding extension of
maturity date) $ 3,182,890 $ 3,182,890
7% convertible note payable to SJCP, principal and interest due October 1999.
Convertible at $0.75 per share at any time up to 30 business days following
maturity (see description below regarding extension of maturity date). 2,900,000 2,900,000
9% convertible note payable to SJCP, principal and interest due June 2002.
Convertible at $0.75 per share at any time up to 30 business days following
maturity (see description below regarding extension of maturity date). 2,000,000 2,000,000
Promissory note payable to the former owners of Petro Wireline, Inc., due and
payable each year in 1/3 increments starting in June 1999, including interest of
1.5% above the prime rate for commercial loans adjusted first
day of every month. 175,000 350,000
8% convertible note payable to SJMB, principal and interest due March 2001.
Convertible at $0.75 per share at anytime up to 30 business days following
maturity (see description below regarding extension of maturity date). 9,000,000 9,000,000
8% convertible note payable to Falcon Seaboard, principal and interest due March
2001. Convertible at $0.75 per share at any time up to 30 business days
following maturity (see description below regarding
extension of maturity date). 1,000,000 1,000,000
10% convertible note payable to SJMB, principal and interest due March 2001.
Convertible at $0.75 per share at anytime up to 30 business days following
maturity (see description below regarding extension of maturity date). 2,000,000 2,000,000
10% convertible note payable to SJMB, principal and interest due March 2001.
Convertible at $0.75 per share at anytime up to 30 business days following
maturity (see description below regarding extension of maturity date). 2,500,000 --
10% convertible note payable to SJMB, principal and interest due January 2001.
Convertible at $0.75 per share at anytime up to 30 business days following
maturity (see description below regarding extension of
maturity date). 750,000 --
10% convertible note payable to directors of SJMB, principal and interest due
January 2001. Convertible at $0.75 per share at anytime up to 30 business days
following maturity (see description below regarding extension of 800,000 --
maturity date).
Note payable to former owner of Dyna Jet, Inc. due and payable in November
2002 with interest at the rate of the lesser of $1,500 per month or 8% per
annum on unpaid balance. 230,000 230,000
--------------- ---------------
24,537,890 20,662,890
Less:
Current portion of notes payable to related parties (see below) 3,041,234 20,662,890
Unamortized discount on notes payable 84,300 --
--------------- ---------------
Total long-term notes payable to related parties $21,412,356 $ --
=============== ==============
</TABLE>
F-14
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
Substantially all of the Company's assets are pledged as collateral for the
various debts described above.
A certificate of deposit in the amount of $50,000 was pledged as collateral for
the Company's corporate credit card line of credit of approximately $100,000.
There were no outstanding borrowings under the corporate credit cards at
December 31, 1999 and 1998.
Under the terms of the SJCP notes payable, SJCP, among other things, has the
right to nominate one person for election to the Company's board of directors
and has certain preferential rights to provide future financing. The note
agreement also contains prohibitions against consolidating, merging, or entering
into a share exchange with another person without SJCP's consent.
On October 30, 1998, the Company amended the agreements for the $2,900,000 and
$2,000,000 convertible promissory notes with SJCP. The notes were amended to
include anti-dilution provisions that if the Company issues equity shares,
warrants, or options with a per share price or exercise price less than the
original conversion prices on the notes, the conversion prices on the notes
shall be adjusted to equal the price at which the shares, options or warrants
were issued. During 1999, the exercise price on these notes was adjusted to
$0.75 due to the anti-dilution provisions being triggered.
During 1998, the due date of the $230,000 mortgage note payable to the former
owner of Dyna Jet, Inc. was changed from August 1998 to November 2002.
At December 31, 1999 and 1998, the Company was not in compliance with certain
general and financial covenants of its loan and security agreement with Fleet.
Under the terms of the loan agreement, the breach of these covenants constitutes
events of default and, at the option of Fleet, the obligations of the Company to
Fleet are subject to being declared by Fleet to be immediately due and payable.
At December 31, 1999 and 1998, the Company was unable to obtain any waiver of
covenant violations from Fleet. Due to the indebtedness being callable at the
discretion of Fleet and normal cross default provisions of all other debt, all
of the Company's debt at December 31, 1999 is currently due and payable. During
the first quarter of 2000, the Company executed a refinancing plan. As a part of
the refinancing plan, the Company entered into a loan and security agreement
with Coast Business Credit ("Coast") in the amount of $25,000,000, obtained
private financing of $3,500,000, and executed a compromise agreement of release
with the former owner of DDI which provided for $2,000,000 conversion of debt to
equity. The proceeds of these transactions, as more completely described in Note
19, were used to satisfy the Company's obligations to its senior secured lenders
in the amount of $13,500,000 and other indebtedness aggregating $1,500,000.
In connection with the refinancing plan, which is more completely described in
Note 19, the related party debt holders signed subordination agreements with
respect to the new indebtedness. These subordination agreements preclude the
repayment of this debt prior to the repayment of the new indebtedness which is
due to be repaid during 2001.
As a result of the refinancing, all obligations currently due and payable at
December 31, 1999, pursuant to the events of default and cross defaults as
discussed in the preceding paragraph, were fully satisfied. Accordingly, the
Company has classified its long-term debt as current and long-term based on the
debt maturity schedules of the new indebtedness. The remaining outstanding
indebtedness to the former owner of DDI, subsequent to the conversion of
$2,000,000 of debt to equity, has been classified as current as no waiver for
previous defaults were obtained.
F-15
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
The loan and security agreement calls for the subordination of all notes payable
to related parties to the Coast borrowings. Agreements guaranteeing the Coast
borrowings have been signed by SJMB, SJCP and the general partner of SJMB and
SJCP.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
FISCAL
YEAR
------
<S> <C>
2000 $ 11,432,580
2001 10,058,654
2002 22,060,507
2003 --
2004 --
Thereafter --
---------------
$ 43,551,741
===============
</TABLE>
NOTE 7 - COMMITMENTS
The Company leases land, office space, and equipment under various operating
leases. The leases generally are for terms of five years and do not contain
purchase options. Rent expense was approximately $1,099,000, $922,000, and
$558,000 for the years ended December 31, 1999, 1998, and 1997, respectively.
The future minimum lease payments required under noncancelable operating leases
with initial or remaining terms of one or more years at December 31, 1999 were
as follows:
<TABLE>
<S> <C>
2000 $ 442,015
2001 182,225
2002 57,071
2003 12,665
2004 10,554
Thereafter --
----------------
$ 704,530
================
</TABLE>
NOTE 8 - COMMON STOCK TRANSACTIONS
In March 1998, the Company sold in a private placement 596,000 shares of common
stock at a purchase price of $5.50 per share. The proceeds of $3,035,268, net of
issue costs, were used to fund a portion of the purchase price and related fees
of the Phoenix Acquisition.
F-16
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
In April 1998, the Company sold in a private placement an additional 176,364
shares of common stock at a purchase price of $5.50 per share. The proceeds of
$902,012, net of issue costs, were used to pay consulting fees of SJCP.
Pursuant to an agreement dated December 15, 1998, which was amended on April 15,
1999, through September 30, 1999, the Company issued 144,445 shares of common
stock to Measurement Specialists Inc. ("MSI"). The securities have been issued
in reliance upon Regulation D under the Securities Act of 1933, as amended. The
securities were issued in connection with an option granted by MSI to the
Company to acquire the assets of MSI. The Company completed the acquisition of
MSI, as more fully described in Note 19, during the first quarter of 2000.
Commencing in April 1999, the Company offered to the subscribers in private
sales of the Company's securities which occurred in March and April 1998 the
right to receive one additional share of the Company's common stock for each
share purchased in the private sale. In exchange, the subscribers were asked to
release the Company from all claims arising out of subscribers' allegations that
the Company breached its agreement to register under the Securities Act of 1933,
as amended (the "Securities Act"), the public offer and sale of the shares sold
to the subscribers in 1998. Subscribers alleged that they were unable to
liquidate their shares purchased as they had expected because of the breach of
this agreement. The Company disputed the claim on the basis that it had timely
filed a registration statement relating to the shares in accordance with the
terms of the agreement. The registration statement remains on file but has not
been declared effective under the Securities Act. The Company made the offer to
subscribers in order to resolve the matter. The offering terminated on May 28,
1999. Accordingly, during the third quarter, the company issued 770,364 shares
of common stock to the subscribers in consideration of their release of their
claims. Two subscribers who had purchased an aggregate of 2,000 shares in the
1998 private placements did not accept the offer. Management is of the opinion
that if claims are presented by these shareholders, there would be no material
impact on the Company. No underwriter participated in the sale of the securities
and no compensation was paid to any person in connection with the soliciting the
issuance of the shares. The shares of common stock were issued in reliance upon
the exemption from registration requirements of the Securities Act afforded by
Section 4(2) and Regulation D thereunder.
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 consolidated 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>
May 1997 May 1997 Issuance to individuals in
satisfaction of consulting fees 65,000 $ 2.10 $ 136,493
June 1999 June 1999 Issuance to individuals in
settlement of potential litigation 770,365 $ 1.19 $ 914,421
</TABLE>
F-17
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
As of December 31, 1999, the Company's certificate of incorporation permits it
to issue up to 12,500,0000 shares of common stock of which 4,812,260 shares were
issued and outstanding. The Company has outstanding as of December 31, 1999
common stock purchase warrants, options and convertible debt securities entitled
to purchase or be converted into an aggregate of 84,286,806 shares of the
Company's common stock at exercise and conversion prices ranging from $0.75 to
$8.01. Accordingly, the Company has an insufficient number of shares of common
stock authorized for issuance in the event all its outstanding warrants and
options were exercised and convertible securities were converted. The Company
shall at or before its next annual meeting of shareholders secure an amendment
to its certificate of incorporation to increase the number of shares that the
Company is authorized to issue to 150,000,000 shares. Such amendment would
provide for sufficient authorization of shares in the event the warrants,
options and convertible securities were exercised and converted. The Company
intends to submit the proposed amendment to a vote of its shareholders at its
next annual meeting. Approval of this amendment will require the favorable vote
of the holders of the majority of the shares of common stock issued and
outstanding. Management believes they will be able to obtain approval of this
amendment.
The failure of the shareholders of the Company to approve the amendment of the
certificate of incorporation will result in an event of default on substantially
all the Company's outstanding notes for related parties. If such default remains
incurred for 45 days, all such debt would become immediately due and payable.
NOTE 9 - STOCK WARRANTS
During 1999, the Company issued warrants to purchase shares of the Company's
common stock with the issuance of certain debt (see Note 6). The warrants gave
the holders the right to purchase up to 1,075,000 shares at $1.50, and
14,350,000 shares at $0.75. The 1,075,000 warrants expire February 18, 2004
while the 14,350,000 warrants expire December 31, 2004.
During 1998, the Company issued warrants to purchase shares of the Company's
common stock with the issuance of certain debt (see Note 6). The warrants gave
the holders the right to purchase up to 2,000,000 shares at $5.50, 1,333,333
shares at $2.25, and 47,680 shares at $6.05. The 2,000,000 and 47,680 warrants
expire in March 2003 while the 1,333,333 warrants expire in October 2003.
During 1997, the Company issued warrants to purchase shares of the Company's
common stock in connection with the issuance of certain debt (see Note 6). The
warrants give the holder the right to purchase up to 666,000 shares of the
Company's stock at $2.75 per share through May 1998, $3.25 through May 1999 and
$3.75 thereafter and through maturity of the debt, and 725,000 shares at $4.63
per share. The 666,000 warrants expire in June 2002 while the 725,000 warrants
expire in October 2002.
F-18
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
The warrants issued during 1999, 1998 and 1997 are subject to "Full Ratchet"
anti-dilution provisions. In December of 1999, the Company issued the 14,350,000
warrants at an exercise price of $0.75. Consequently, the anti-dilution
provisions on all warrants subject to the provision were triggered. Upon each
adjustment of the exercise price, the holder of the warrant shall thereafter be
entitled to purchase, at the exercise price resulting from the adjustment, the
number of shares of common stock obtained by multiplying the exercise price in
effect immediately prior to the adjustment by the number of shares purchasable
prior to the adjustment and dividing the product thereof by the exercise price
resulting from the adjustment. The following table summarizes information about
warrants outstanding at December 31, 1999:
<TABLE>
<CAPTION>
EXERCISE
BALANCE 1999 ANTI-DILUTION 1999 BALANCE PRICE AT
12/31/98 ISSUANCE ISSUANCE EXERCISED 12/31/99 12/31/99
----------- ----------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Debt conversion ($2.00 - expires 9/30/01) 234,750 234,750 $2.00
SJCP ($2.75 - expires 6/5/02) 814,000 1,628,000 2,442,000 $0.75
SJCP ($4.6327 - expires 10/10/02) 1,492,759 2,985,518 4,478,277 $0.75
SJMB ($6.75 - expires 3/16/03) 5,400,000 10,800,000 16,200,000 $0.75
SJMB ($2.25 - expires 10/30/03) 1,333,333 2,666,666 3,999,999 $0.75
SJMB ($1.50 - expires 2/18/04) 2,075,000 2,075,000 4,150,000 $0.75
SJMB ($0.75 - expires 12/31/04) 3,075,000 3,075,000 $0.75
Denbury partners ($0.75 - expires 12/31/04) 11,275,000 11,275,000 $0.75
Falcon Seaboard ($6.75 - expires 3/16/03) 600,000 1,200,000 1,800,000 $0.75
Harris Webb & Garrison
($6.05 -expires 3/15/03) 128,206 256,412 384,618 $0.75
----------- ----------- ------------ ----------- ------------
10,003,048 16,425,000 21,611,596 -- 48,039,644
=========== =========== =========== =========== ==========
</TABLE>
During 1996, the Company issued warrants to purchase shares of the Company's
common stock in connection with the conversion of certain debt. The warrants
give holders the right to purchase up to 303,750 shares of the Company's common
stock at $2 per share. The warrants expire on September 30, 2001 and may be
redeemed, at the option of the Company, at the price of $.50 per warrant,
provided that the bid price of common stock has exceeded $5 per share ending on
the trading day prior to the date on which the notice of redemption is given.
During 1998, 1,500 of these warrants were exercised resulting in an increase to
common stock and additional paid-in capital of $3,000. No warrants were
exercised during 1999.
F-19
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
NOTE 10 - INCOME TAXES
The provision (benefit) for income taxes consists of the following for the years
ended December 31, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------- ------------
<S> <C> <C> <C>
Federal:
Current $ -- $ -- $ 13,962
Deferred -- (958,652) 161,163
----------- ------------- ------------
-- (958,652) 175,125
----------- ------------- ------------
State:
Current -- -- 22,834
Deferred -- (93,046) 24,082
----------- ------------- ------------
-- (93,046) 46,916
----------- ------------- ------------
Total $ -- $ (1,051,698) $ 222,041
=========== ============= ============
</TABLE>
The provision (benefit) for federal income taxes differs from the amount
computed by applying the federal income tax statutory rate of 34% to income
(loss) before provision (benefit) for income taxes and extraordinary gain, as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ---------------- ---------------
<S> <C> <C> <C>
Provision (benefit) at federal statutory rate $ (2,726,632) $ (7,503,249) $ 227,558
State income taxes, net of federal benefit (256,980) (202,818) 29,238
Nondeductible tax expenses 78,949
(Decrease) increase in valuation allowance 2,904,663 6,654,369
Other (34,755)
--------------- ---------------- ---------------
Provision (benefit) for federal income taxes $ -- $ (1,051,698) $ 222,041
=============== ================ ===============
</TABLE>
At December 31, 1999 and 1998, the Company has available net operating loss
carryforwards of approximately $20,308,000 and $8,697,000, respectively, for
federal tax purposes that expire at various dates through 2020. Additionally,
the Company has state net operating loss carryforwards of approximately
$13,351,000 which expire at various dates to 2020.
F-20
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
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. The items which comprise a
significant portion of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Gross deferred tax assets:
Allowance for doubtful accounts receivable $ 375,263 $ 804,718
Accrued bonuses and other 124,299 128,389
Operating loss carryforwards 7,574,846 3,243,847
Goodwill 3,993,679 4,236,568
Valuation allowance (9,559,032) (6,654,369)
---------------- ----------------
Gross deferred tax asset 2,509,055 1,759,153
---------------- ----------------
Gross deferred tax liabilities:
Depreciation (2,396,387) (1,646,485)
Other (112,668) (112,668)
---------------- ----------------
Gross deferred tax liability (2,509,055) (1,759,153)
---------------- ----------------
Net deferred tax asset (liability) $ -- $ --
---------------- ----------------
</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. At December 31, 1999 and 1998, the Company has recorded a valuation
allowance of $9,559,032 and $6,654,369 against the gross deferred tax asset.
F-21
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
NOTE 11 - EARNINGS (LOSS) PER SHARE
The calculation of basic and diluted EPS is as follows:
<TABLE>
<CAPTION>
For the Year Ended 1999 For the Year Ended 1998 For the Year Ended 1997
------------------------------------- ------------------------------------ ---------------------------------
Income Shares Per Share Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------ ----------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before (8,147,177) $(21,016,680) $ 447,247
extraordinary item
Extraordinary gain 127,671
------------- ------------- ---------
Net income (loss) $ (8,019,506) $(21,016,680) $ 447,247
============ ============ ==========
BASIC EPS
Income (loss)
available to common
stockholders $ (8,019,506) 4,424,035 $ (1.81) $(21,016,680) 3,589,235 $ (5.86) $ 447,247 $ 2,533,650 $ 0.18
Effect of Dilutive
Securities
Stock warrants 371,552
Stock options 228,883
Convertible debt
debenture 93,377 625,671
------------- ---------- --------- ------------- ----------- ----------- ---------- -------- -------
DILUTED EPS
Income (loss)
available to common
stockholders plus
assumed conversions $(8,019,506) $ 4,424,035 $ (1.81) $(21,016,680) 3,589,235 $ (5.86) $540,624 $ 3,759,756 $ 0.14
=========== =========== ======= ============= ========= ========== ======= =========== ======
</TABLE>
F-22
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
Options to purchase 1,141,750 shares of common stock and warrants to purchase
48,039,644 shares of common stock at prices ranging from $0.75 to $8.01 were
outstanding during 1999, but were not included in the computation of the 1999
diluted EPS because the effect would be anti-dilutive.
Options to purchase 1,177,750 shares of common stock and warrants to purchase
10,303,048 shares of common stock at prices ranging from $1.50 to $8.01 were
outstanding during 1998, but were not included in the computation of the 1998
diluted EPS because the effect would be anti-dilutive. There were also 24,000
options that were canceled during 1998 that are not included in the computation
of the 1998 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 1997 but are not included in the computation of the 1997
diluted EPS because the options' exercise price was greater than the average
market price of the common shares. The options, which expire December 2002, were
still outstanding at December 31, 1997.
Convertible debt instruments which would result in the issuance of 30,533,334
and 7,511,111 shares of common stock, if the conversion features were exercised,
were outstanding during 1999 and 1998, respectively, but were not included in
the computation of the 1999 or 1998 diluted EPS because the effect would be
anti-dilutive. The conversion price of these instruments was $0.75 per share at
December 31, 1999 and $2.25 per share at December 31, 1998 and remained
outstanding at December 31, 1999.
NOTE 12 - MAJOR CUSTOMERS
Most of the Company's business activity is with customers engaged in drilling
and operating oil and natural gas wells primarily in the Black Warrior and
Mississippi Salt Dome Basins in Alabama and Mississippi, the Permian Basin in
West Texas and New Mexico, the San Juan Basin in New Mexico, Colorado, and Utah,
the East Texas and Austin Chalk Basins in East Texas, the Powder River and Green
River Basins in Wyoming and Montana, the Williston Basin in North Dakota, and
the Gulf of Mexico offshore of Louisiana and in South Texas. Substantially all
of the Company's accounts receivable at December 31, 1999 and 1998 are from such
customers. Performance in accordance with the credit arrangements is in part
dependent upon the economic condition of the oil and 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, 1999, 1998 and 1997, as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ---------
<S> <C> <C>
Collins & Ware, Inc. $ 2,955,918
Burlington Resources $ 3,200,666
Taurus Exploration, Inc. $ 1,752,849
Pioneer Resources, Inc. (formerly Parker
and Parsley Development Company) $ 2,118,484
</TABLE>
F-23
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
NOTE 13 - EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT
During December of 1999, the Company executed agreements with certain of its
vendors to discount the outstanding obligations due to these vendors. The
agreements provided for a decrease in the outstanding obligations of $127,671.
Accordingly, the Company has recognized an extraordinary gain on extinguishment
of debt of $127,671, net of income taxes of $0.
NOTE 14 - STOCK OPTIONS
The 1997 Omnibus Incentive Plan (Omnibus Plan) provides for the granting of
either incentive stock options or nonqualified stock options to purchase shares
of the Company's common stock to key employees responsible for the direction and
management of the Company. The Omnibus Plan authorizes the issuance of options
to purchase up to an aggregate of 600,000 shares of common stock, with maximum
option terms of ten years from the date of grant. During 1998, the Board
authorized an amendment to the Omnibus Plan to allow additional issuances of
options to purchase 400,000 shares of common stock. This amendment increases the
total aggregate number of shares under the Omnibus Plan to 1,000,000. At
December 31, 1999, 948,750 options had been granted with 51,250 options
available for issue.
The 1997 Non-Employee Stock Option Plan (Non-Employee Plan) provides for the
granting of nonqualified stock options to purchase shares of the Company's
common stock to non-employee directors and consultants. The Non-Employee Plan
authorizes the issuance of options to purchase up to an aggregate of 100,000
shares of common stock, with maximum option terms of ten years from the date of
grant. During 1998, the Board authorized an amendment to the Non-Employee Plan
to allow additional issuances of options to purchase 200,000 shares of common
stock. This amendment increases the total aggregate number of shares under the
Non-Employee Plan to 300,000, and must be submitted to a vote of the
shareholders for final approval. At December 31, 1999 and 1998, 113,000 options
had been granted.
Additionally, of the 240,000 options outstanding at December 31, 1996, options
to purchase 160,000 shares of the Company's common stock were canceled during
1997. Pertinent information regarding stock options is as follows:
F-24
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Weighted
Average
Weighted Fair Value
Average of Stock
Number of Range of Exercise at Vesting
Options Exercise Price Grant Date Provisions
------- -------- ----- ---------- ---------
<S> <C> <C> <C> <C> <C>
Options outstanding, December 31, 1996 240,000 $1.50 - $2.00 $1.75
-----------
Options canceled (60,000) 50% of mean
share price
for 3 months prior
to grant
(100,000) $2.00 $2.00
------------
(160,000)
------------
Options granted 160,000 $2.625 2.625 $2.625 62.5% immediate; 12.5% per year
Exercise price equals FMV 67,500 $2.625 2.625 $2.625 33.3% immediate; 22.22% per year
of stock at grant date 81,250 $2.625 2.625 $2.625 20% immediate; 20% per year
40,000 $2.625 2.625 $2.625 25% immediate; 25% per year
10,000 $3.38 $3.38 $3.38 25% immediate; 25% per year
--------------
358,750
--------------
Exercise price less than FMV 20,000 $3.00 $3.00 $3.50 25% immediate; 25% per year
of stock at grant date --------------
Exercise price greater than
FMV of stock
at grant date 90,000 $4.63 $4.63 $4.25 16.67% immediate; 16.67% per year
112,000 $4.63 $4.63 $4.25 3 year pro rata
10,000 $4.63 $4.63 $4.25 2 year pro rata
30,000 $4.63 $4.63 $4.25 5 year pro rata
12,500 $8.01 $8.01 $7.94 5 year pro rata
4,000 $4.63 $4.63 $4.25 1 year cliff
--------------
258,500
---------------
Options outstanding, December 31, 1997 717,250 $1.50 - $8.01 $3.30
---------------
Options canceled (22,500) $2.63 $2.63
(60,000) $4.63 $4.63
(5,000) $4.63 $4.63
--------------
(87,500)
--------------
</TABLE>
F-25
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Weighted
Average
Weighted Fair Value
Range of Average of Stock
Number of Exercise Exercise at Vesting
Options Prices Price Grant Date Provisions
------------- --------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Options granted
Exercise price equals FMV
of stock at grant date 7,500 $6.28 $6.28 $6.28 3 year pro rata
13,000 $6.63 $6.63 $6.63 2 year pro rata
100,000 $6.50 $6.50 $6.50 5 year pro rata
68,000 $6.50 $6.50 $6.50 25% immediate; 25% per year
200,000 $6.69 $6.69 $6.69 25% immediate; 25% per year
4,500 $8.00 $8.00 $8.00 4 year pro rata
-------------
393,000
-------------
Exercise price greater than FMV
of stock at grant date 155,000 $7.50 $7.50 $6.81 4 year pro rata
-------------
Options outstanding, December 31, 1998 1,177,750 $1.50 - $8.01 $4.90
-------------
Options cancelled (10,000) $6.50 $6.50
(10,000) $4.63 $4.63
(5,000) $4.63 $4.63
(3,000) $4.63 $4.63
(3,000) $4.63 $4.63
(5,000) $6.50 $6.50
-------------
(36,000)
-------------
Options outstanding, December 31, 1999 1,141,750 $1.50 - $8.01 $3.34
=============
</TABLE>
F-26
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- -------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES 12/31/99 LIFE PRICE 12/31/99 PRICE
------ -------- ---- ----- -------- -----
<S> <C> <C> <C> <C> <C>
$1.50 80,000 1.75 $1.50 80,000 $1.50
$2.63 326,250 6.65 $2.63 197,484 $2.63
$3.00 20,000 2.42 $3.00 10,000 $3.00
$3.38 10,000 2.50 $3.38 5,000 $3.38
$4.63 160,000 2.67 $4.63 50,832 $4.63
$6.28 7,500 6.42 $6.28 -- $6.28
$6.50 153,000 4.24 $6.50 13,250 $6.50
$6.63 13,000 3.45 $6.63 -- $6.63
$6.69 200,000 8.00 $6.69 50,000 $6.69
$7.50 155,000 3.42 $7.50 -- $7.50
$8.00 4,500 3.36 $8.00 1,125 $8.00
$8.01 12,500 2.96 $8.01 2,500 $8.01
---------- ----------
1,141,750 5.02 $4.90 410,191 $3.34
========= ===========
</TABLE>
The Company applies principles from SFAS No. 123 in accounting for its stock
option plan. In accordance with SFAS No. 123, the Company has elected to not
report the impact of the fair value of its stock options in the statements of
operations but, instead, to disclose the pro forma effect and to continue to
apply APB Opinion No. 25 and related interpretations in accounting for its stock
options. Accordingly, no compensation expense has been recognized for stock
options issued to employees with an exercise price at fair market value or
above. Compensation expense of $70,710, $83,540 and $27,267 has been recognized
for the years ended December 31, 1999, 1998 and 1997, respectively, for 134,000
options granted during 1997 as compensation to non-employees at the options'
fair market value in accordance with SFAS No. 123. Had compensation cost for all
of the Company's stock options issued been determined based on the fair value at
the grant dates for awards consistent with the method prescribed in SFAS No.
123, the Company's net income (loss) and earnings (loss) per share would have
been reduced or increased to the pro forma amounts indicated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- ------------------
<S> <C> <C> <C>
Net income (loss) - as reported $(8,019,506) $ (21,016,680) $ 447,247
Net income (loss) - pro forma $(8,480,318) $ (21,530,723) $ 268,327
Earnings (loss) per share - as reported (basic) $ (1.81) $ (5.86) $ .18
Earnings (loss) per share - pro forma (basic) $ (1.92) $ (6.00) $ .11
Earnings (loss) per share - as reported (diluted) $ (1.81) $ (5.86) $ .14
Earnings (loss) per share - pro forma (diluted) $ (1.92) $ (6.00) $ .10
</TABLE>
F-27
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
The pro forma amounts reflected above are not representative of the effects on
reported net income (loss) in future years because, in general, the options
granted typically do not vest immediately and additional awards are made each
year.
The fair value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions.
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Dividend yield 0 % 0 % 0 %
Expected life (years) 5.62 5.62 4
Expected volatility 74.7 % 74.7 % 60.6 %
Risk-free interest rate 5.48 % 5.48 % 6.11 %
</TABLE>
NOTE 15 - CONTINGENCIES
The Company and certain of its officers and directors are respondents in an
arbitration proceeding commenced by Monetary Advancements International, Inc.
("MAII") before the American Arbitration Association in New York, New York. The
claimant seeks recompense from 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. Management does not believe the ultimate
outcome of these actions will have a materially adverse effect on the financial
position, results of operations or cash flows of the Company.
The Company and Southwick Investments, Inc. were parties in an arbitration
proceeding before the American Arbitration Association arising out of an
agreement entered into by the parties. Southwick was engaged to develop and
implement a plan for raising additional capital and provide certain advisory
services. Southwick was seeking to be awarded damages in an unspecified amount
for breach of the contract and the loss in value to Southwick of an option to
purchase fifty thousand shares of the common stock of the Company at an exercise
price of $4 per share. In August 1999, the arbitration panel issued its award
requiring the Company to pay Southwick $100,000, but dismissing all other
claims. This award was recognized as a charge to selling, general and
administrative expenses in the third quarter of 1999 and paid in the first
quarter of 2000.
The Company also 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 financial position, results of
operations or cash flows of the Company.
On November 30, 1995, the Company executed a Reorganization Agreement with the
holders of certain debt of the Company whereby the Company converted a note
payable to RABAD, a partnership of officers and spouses of officers of the
Company, to 148,565 shares of common stock.
F-28
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
The Company guaranteed that RABAD would be able to sell its common stock
received in the 1995 conversion for $2 per share within one year of this
conversion. RABAD engaged Monetary Advancement International, Inc. (MAII) to
sell the shares received in this conversion. Due to the dispute with the Company
described above, MAII had refused to pay RABAD or return any unsold shares.
RABAD and MAII entered into a settlement agreement in September 1998. The terms
of the agreement called for MAII to reimburse RABAD for the shares originally
transferred to MAII for sale. The Company does not believe the aforementioned
guarantee will result in any liability to the Company based on the terms of the
settlement.
In connection with the above proceedings, the Company has paid legal fees on
behalf of four employees in the amount of $5,693, $26,072 and $12,420 during
1999, 1998 and 1997, respectively.
NOTE 16 - 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, SHORT-TERM INVESTMENTS, 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 - Given the Company's operating results and severe lack of
liquidity, as discussed in Note 18, it is not practical to determine the fair
market value of the long-term debt at December 31, 1999 and 1998.
NOTE 17 - SEGMENT AND RELATED INFORMATION
At December 31, 1999 and 1998, 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 years ended December 31, 1999 and 1998
included Burlington Resources, Chevron, Inc., Collins and Ware, Inc., Pioneer
Natural Resources and Phillips Petroleum.
DIRECTIONAL DRILLING SERVICES - This segment consists of two business units that
perform procedures to enter a oil producing zone horizontally, using specialized
drilling equipment, and expand the area of interface of hydrocarbons and thereby
greatly enhances recoverability of oil. The segment also 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
this segment for the years ended December 31, 1999 and 1998 included Texaco E&P,
Union Pacific Resources, Clayton Williams Energy, and Chesapeake Operations.
F-29
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
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 years
ended December 31, 1999 and 1998 was Energen Corporation.
The accounting policies of the reportable segments are the same as those
described in Note 2 of Notes to Financial Statements. 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 years ended December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
WORKOVER
DIRECTIONAL AND
1999 WIRELINE DRILLING COMPLETION TOTAL
- -------- ----------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Segment revenues $ 17,726,484 $ 10,310,319 $ 1,255,970 $ 29,292,773
Segment EBITDA $ 1,608,648 $ 721,452 $ 145,434 $ 2,475,534
Segment assets $ 16,710,665 $ 19,305,569 $ 249,285 $ 36,265,519
</TABLE>
<TABLE>
<CAPTION>
WORKOVER
DIRECTIONAL AND
1998 WIRELINE DRILLING COMPLETION TOTAL
- -------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Segment revenues $ 11,591,727 $ 21,311,450 $ 1,533,376 $ 34,436,553
Segment EBITDA $ (1,589,874) $ (12,028,475) $ (60,260) $ (13,678,609)
Segment assets $ 15,607,165 $ 20,853,147 $ 283,868 $ 36,744,180
</TABLE>
The Company has certain expenses and assets which are not allocated to the
individual operating segments. A reconciliation of total segment EBITDA to
income (loss) from operations and total segment assets to total assets, for the
years ended December 31, 1999 and 1998 is presented as follows:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
EBITDA
<S> <C> <C>
Total segment EBITDA $ 2,475,534 $ (13,678,609)
Depreciation and amortization (5,008,078) (4,815,955)
Unallocated corporate expense (2,229,112) (923,173)
------------------ ------------------
Income (loss) from operations $ (4,761,656) $ (19,417,737)
================== ==================
ASSETS
Total segment assets $ 36,265,519 $ 36,744,180
Unallocated corporate assets 46,465 70,670
------------------ ------------------
Total assets $ 36,311,984 $ 36,814,850
================== =================
</TABLE>
F-30
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
NOTE 18 - RESULTS OF OPERATIONS AND MANAGEMENT'S PLANS
The Company incurred a loss of $8,019,506 in 1999 and had current liabilities in
excess of current assets of $14,228,344 at December 31, 1999. As discussed in
Note 6, at December 31, 1999 and 1998, the Company was in violation of certain
general and financial debt covenants. Currently, the Company does not have the
liquidity necessary to satisfy its current obligations. As discussed in Note 6
and 19, the Company executed a refinancing plan during the first quarter of 2000
that satisfied all outstanding obligations that were subject to the covenant
violations at December 31, 1999. The refinancing plan also corrected all events
of default on the outstanding obligations not refinanced. Accordingly, the
Company has classified outstanding indebtedness at December 31, 1999 in
accordance with the maturities of the new indebtedness. The outstanding
indebtedness with regard to the refinancing plan (approximately $19,000,000 as
of February 29, 2000) has been guaranteed by SJMB, SJCP, and one of the
Company's board members, who is a major investor in SJMB and SJCP. The board
member's guarantee is up to $5,000,000. Furthermore, SJMP and SJCP have
confirmed to the Company in writing that they will support operations of the
Company through at least January 2, 2001. Based on the guarantee of the debt and
the agreement to support operations, the Company's financial statements have
been prepared on a going concern basis. Absent this guarantee and support, there
would be substantial doubt about the entities' ability to continue as a going
concern.
During 1999, the Company experienced a continued decline in the demand for its
products and services as a result of a decrease in the price of oil and natural
gas for the majority of 1999. The decline in demand continued to impact the
Company's revenues, liquidity and its ability to remain in compliance with
covenants in its loan agreements and meet its obligations during most of 1999.
Management of the Company believes that an improvement in its revenues will be
bolstered by its improved financial condition while still dependent upon a
continuing period of improved pricing 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 $15,091,000 at December 31, 1999, other indebtedness
of approximately $7,511,000, and approximately $20,950,000 owed to SJMB and SJCP
and its affiliates and directors
Management believes that, provided oil and natural gas prices remain relatively
stable with the level of prices that existed as of December 31, 1999 and during
the first quarter of 2000, the refinancing plan accomplished in the first
quarter of 2000 together with the cost-reduction program implemented in 1998 and
continued in 1999, 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 return to
levels sufficient to sustain operations.
Management of the Company is unable to assure that its efforts described above
will be successful. Management expects that in order to return to levels which
will sustain operations, substantial amounts of equity securities may be
required to be issued which may materially dilute the Company's existing
stockholders.
F-31
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
NOTE 19 - SUBSEQUENT EVENTS
During the first quarter of 2000, the Company entered into a Loan and Security
Agreement (the "Loan Agreement") with Coast Business Credit, a division of
Southern Pacific Bank ("Coast"). Pursuant to the Loan Agreement, the Company may
make collateralized borrowings in the aggregate amount of up to the lesser of
$25,000,000 or such maximum aggregate amount as is available to be borrowed
under a receivables loan and two term loans described below. Of such amount,
$14,000,000, based on the lesser of 75% of the appraised net eligible forced
liquidation value of the Company's equipment or $14,000,000, is a term loan (the
"Equipment Loan"), an additional $2,000,000 is a term loan (the "Installment
Loan"), and the balance is available to be borrowed in an amount not exceeding
80% of the Company's eligible receivables (the "Receivables Loan"). The
Equipment Loan is repayable commencing on August 30, 2000 in monthly
installments over a term of six years, with interest only payable monthly prior
to August 1, 2000. The Equipment Loan further requires that the Company make
additional monthly principal payments of 50% of its excess cash flow during the
preceding month for each month during the period ending February 28, 2001, and
thereafter additional monthly principal payments of 40% of its excess cash flow
during the preceding month. Excess cash flow is defined to be the Company's net
income before income taxes, depreciation and amortization minus the sum of
principal and interest payments made and taxes paid in cash ("EBITDA"). The
Installment Loan is repayable in monthly installments over four years commencing
March 31, 2000, and, after the Equipment Loan is paid in full, is also repayable
out of excess cash flow as provided above. The Loan Agreement ceases to be in
effect on February 28, 2003, provided, however, the Loan Agreement will
automatically renew for additional terms of one year unless either party elects
not to renew the term. In the event the Loan Agreement is not renewed on
February 28, 2003, or at the end of any renewal term thereafter, all borrowings
then outstanding under the Loan Agreement are then due and payable. The Loan
Agreement has been guaranteed by SJMB, SJCP and a personal guarantee by a board
member of the Company, who is also an investor in SJMB and SJCP.
On February 15, 2000, the Company borrowed an aggregate of $15,600,000 pursuant
to the Loan Agreements. The proceeds were used to repay the Company's former
senior secured lenders in the amount of $13,000,000, to repay other indebtedness
aggregating $1,500,000, and the balance was used for general corporate purposes,
including the payment of outstanding accounts payable.
During the first quarter of 2000, the Company sold an additional $3,500,000
principal amount of promissory notes (the "Notes") due on January 15, 2001 and
warrants ("Warrants") to purchase 14,400,000 shares of common stock. Payments of
principal and interest on the Notes is collateralized by substantially all the
assets of the Company, subject, however, to terms of a subordinated agreement
between the note holders and Coast. The notes bear interest at 10% per annum
(increases to 15% after September 30, 2000) and are convertible into shares of
the Company's common stock at a conversion price of $0.75 per share, subject to
an 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 the shares were issued. The Warrants are exercisable at a price of $0.75
per share, subject to anti-dilution adjustments. The proceeds of this debt were
used to repay substantially all the nonrelated party indebtedness outstanding at
December 31, 1999.
F-32
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
During the first quarter of 2000, the Company executed a Compromise Agreement of
Release with Bendover Company ("Bendover") whereby the parties compromised and
settled their disputes arising out of the Company's acquisition of the assets of
Diamondback Directional, Inc. in October 1997. Pursuant to the agreement,
Bendover agreed to return to the Company promissory notes aggregating $2,000,000
principal amount and receive in exchange 2,666,666 shares of the Company's
common stock and a promissory note in the principal amount of $1,182,890 due on
January 15, 2001, bearing interest at 10% per annum. The agreement also provides
for the election of Alan Mann, a principal stockholder of Bendover, as a
Director of the Company, the payment of approximately $26,000 to Mr. Mann on
account of outstanding claims against the Company, and the dismissal of the
lawsuit between the Company and Bendover.
During the first quarter of 2000, the Company executed agreements with certain
of its vendors to discount the outstanding obligations to these vendors. The
agreements provided for a decrease in the outstanding obligations of $1,027,028.
During the first quarter of 2000, Hub, Inc. purchased a note payable to Fleet of
approximately $800,000 for $500,000. In connection with this transaction, Fleet
released the Company from all indebtedness to Fleet. Hub, Inc. agreed to cancel
the note in exchange for a payment of $500,000. A board member of the Company is
a principle in Hub, Inc. This note was paid in full in connection with the
refinancing plan executed in the first quarter of 2000.
On March 1, 2000, the Company executed its option to purchase the assets of MSI.
The option to purchase and extensions to the option called for the Company to
pay approximately $75,000, to issue 144,495 shares of the Company's common stock
and to pay outstanding notes payable related to the acquired assets of
approximately $385,000. The shares were issued during 1999. One of the owners of
MSI has entered into an employment agreement with the Company which expires
December 2002.
NOTE 20 - IMPAIRMENT OF LONG-LIVED ASSETS
During 1998, the Company experienced a material decline in demand for its
services as a result of a significant decrease in the price of oil and natural
gas, as well as the loss of a major customer. Consequently, management evaluated
the recoverability of its long-lived assets in relation to its business
segments. The analysis was first performed on an undiscounted cash flow basis
which indicated impairment in its directional drilling segment. The impairment
was then calculated using projections of discounted cash flows over five years
utilizing a discount rate and terminal value multiple commensurate with current
oil and gas services company transactions. The discount rate and the terminal
multiple used were 12% and 6.5, respectively. The assumptions used in this
analysis represent management's best estimate of future results.
The analysis resulted in a charge to operations for the year ended December 31,
1998 of $11,100,000 which consisted of a write-down of $8,121,684, $2,354,221,
and $624,095, to goodwill, property, plant, and equipment, and inventory,
respectively.
F-33
<PAGE>
Item 8. Changes in and Disagreements on Accounting and Financial Disclosure:
During the two fiscal years ended December 31, 1999, the Company has not filed
any Current Report on Form 8-K reporting any change in accountants in which
there was a reported disagreement on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.
24
<PAGE>
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:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------------------------------------------------------------------
<S> <C> <C>
William L. Jenkins 47 President, Chief Operating Officer
and Director
Allen R. Neel 42 Executive Vice-President and Secretary
Danny R. Thornton 49 Vice-President Operations
Alan W. Mann 45 Vice President - Operations and
Director
John L. Thompson 41 Director
Charles E. Underbrink 45 Director
</TABLE>
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 Welex - 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 a predecessor of the Company, of which he served as
Secretary/Treasurer until 1988. Mr. Jenkins has over twenty years' experience in
the oil field service business. Mr. Jenkins is Mr. Thornton's brother-in-law.
Allen R. Neel, is the Executive Vice-President and Secretary of the Company
and has been employed by the Company since August 1990. He is currently in
charge of the Company's Survey, Administration and Legal matters. 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
Halliburton Services. From 1987 to 1989, he worked as a District
25
<PAGE>
Manager for Graves Well Drilling Co. When the Company acquired the assets of
Graves in 1990, Mr. Neel assumed a position with the Company.
Danny R. Thornton is a Vice-President of the Company and 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 is Mr. Jenkins' brother-in-law.
John L. Thompson is a Director and President of St. James Capital Corp. and
SJMB, L.L.C., Houston-based merchant banking firms. St. James Capital Corp. also
serves as the general partner of St. James Capital Partners, L.P. and SJMB,
L.L.C. serves as the general partner of SJMB, L.P., investment limited
partnerships specializing in merchant banking related investments. Additionally,
he is a Director of Industrial Holdings, Inc., a publicly-held company and
Collins & Ware, Inc., a privately held energy and exploration and production
company. Prior to co-founding St. James Capital Corp. and SJMB, L.L.C., Mr.
Thompson served as a Managing Director of Corporate Finance at Harris Webb &
Garrison, a regional investment banking firm with a focus on mergers and
acquisitions, financial restructuring and private placements of debt and equity
issues. Mr. Thompson was elected to the Company's Board of Directors pursuant to
the terms of agreements between the Company and St. James Capital Partners, L.P.
See "Certain Transactions" for a description of the transaction.
Charles E. Underbrink was elected a Director on April 1, 1998. He is the
Chief Executive Officer and Chairman of St. James Capital Corp. and SJMB,
L.L.C., Houston based merchant banking firms. Mr. Underbrink has been, from
August 1996 to the present, a principal of HUB, Inc. a lender to small
capitalization businesses and the operator of mini-storage facilities located in
Minnesota and Wisconsin. Additionally, he is a Director of Industrial Holdings,
Inc., Summerset House Publishing, Inc. and Monorail Computer Corporation..
Alan W. Mann was elected a Director effective March 1, 2000. He is
Vice-President of Operations for the Diamondback Directional Division, joining
the Company with the purchase of Diamondback Directional, Inc. in 1997. Prior to
forming Diamondback Directional, Inc. in 1995, Mr. Mann was employed by Becfield
Drilling Services in operations and management. Mr. Mann was elected a Director
pursuant to the terms of an agreement entered into with the Company resolving
certain litigation between Mr. Mann and the Company.
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 ten percent
(10%) of a registered class of the Company's equity securities, to file reports
of ownership and changes in ownership
26
<PAGE>
with the Securities and Exchange Commission. Officers, Directors and beneficial
owners of more than ten percent (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 the compensation paid or awarded to the
President and Chief Executive Officer of the Company and each other executive
officer of the Company who received compensation exceeding $100,000 during 1999
for all services rendered to the Company in each of the years 1999, 1998 and
1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- ------------------------------
BONUS/ANNUAL SECURITIES LONG-TERM
NAME AND INCENTIVE UNDERLYING INCENTIVE ALL OTHER
PRINCIPAL POSITION YEAR SALARY AWARD OPTIONS PAYOUTS COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>> <C> <C>
William L. Jenkins 1999 $137,140 -0- -0- $1,216(1)
President 1998 $146,275 -0- 200,000 -0- $1,216(1)
1997 $110,000 -0- -0- -0- $1,216(1)
Allen R. Neel 1999 $ 92,761 -0- -0- $8,400(2)
Executive Vice President 1998 $131,334 -0- -0- $8,400(2)
1997 $ 78,500 -0- 80,000 -0- -0-
</TABLE>
- ---------------------------------
(1) Includes the premiums paid by the Company on a $1,000,000 insurance policy
on the life of Mr. Jenkins which names his wife as beneficiary and owner of
the policy.
(2) Automobile allowance paid to Mr. Neel.
27
<PAGE>
STOCK OPTION HOLDINGS AT DECEMBER 31, 1999.
The following table provides information with respect to the above named
executive officers regarding Company options held at the end of the Company's
year ended December 31, 1999 (such officers did not exercise any options during
the most recent fiscal year).
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1999 AT DECEMBER 31, 1999 (1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ -------------------------- ------------------------- ------------------ --------------------
<S> <C> <C> <C> <C>
William L. Jenkins 100,000 100,000 -0- -0-
Allen R. Neel 70,000 10,000 -0- -0-
</TABLE>
- ----------------------------
(1) Based on the closing sales price on December 31,1999 of $0.625.
EMPLOYMENT AGREEMENTS
The Company has entered into an Employment Agreement, dated January 1,
1998, with William L. Jenkins, to serve as its President, Chief Executive
Officer and a Director of the Company. The Employment Agreement, which
terminates on December 31, 2001, provides for an annual base salary of $225,000.
The Employment Agreement provides for certain increases in Mr. Jenkins base
compensation in the years 1999, 2000 and 2001 if the Company meets certain
performance objectives. Pursuant to the agreement, Mr. Jenkins was granted a
ten-year option to purchase 200,000 shares of the Company's common stock at an
exercise price of $6.6875 per share, the fair market value of the stock on
January 1, 1998, the date the option was granted. With certain exceptions, the
agreement restricts Mr. Jenkins from engaging in activities in competition with
the Company during the term of his employment and, in the event Mr. Jenkins
terminates the agreement prior to its termination date, for a period of eighteen
(18) months thereafter and also in the event he terminates the agreement, from
soliciting for employment any employee of the Company for a period of two years
after termination.
The Company has entered into three-year employment agreements terminating
on April 1, 2003 with each of Allen R. Neel, Executive Vice-President and Danny
R. Thornton, Vice-President, Operations, of the Company. Mr. Neel is to receive
base compensation of $135,000 per year. Mr. Thornton receives base compensation
of $75,000 per year. On each anniversary date of the agreements, the Company and
the employee agree to renegotiate the base salary taking into account the rate
of inflation, overall profitability and the cash position of the Company, the
performance and profitability of the areas for which the employee is responsible
and other factors. The agreements contain restrictions on such persons engaging
in activities in competition with the Company during the term of their
employment and for a period of two years thereafter. In addition, the agreements
provide for the grant to such employees of options
28
<PAGE>
to purchase 50,000 shares of the Company's Common Stock on execution of the
agreements and 10,000 shares on each of the first three anniversary dates of the
agreements, provided such persons continue to be employed by the Company,
exercisable at a price of $2.625 per share.
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 February 29, 2000 (a) by each
person who is known by the Company to own beneficially more than five percent
(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. As of February 29,
2000, the Company had 7,478,927 shares of Common Stock outstanding.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
NAME AND ADDRESS (1)(2) OWNED SHARES(3)
------------------------------------------- ------------------------- -----------------------
<S> <C> <C>
William L. Jenkins 410,000 (4) 5.2%
Danny R. Thornton 80,666 (5) 1.1%
Allen R. Neel 80,000 (5) 1.1%
Charles E. Underbrink 4,346,667 (8) 36.8%
John L. Thompson
777 Post Oak Blvd.
Suite 950
Houston, TX 77056
St. James Capital Partners, L.P.
and affiliates(6)
777 Post Oak Boulevard - Suite 950 63,011,943 89.4%
Bendover Corp. (7)
Alan W. Mann 3,314,235 44.3%
M. Dale Jowers
1053 The Cliffs Blvd.
Montgomery, TX 77356
All Directors and Officers as a Group
(5 persons including the above) (8) 67,929,275 (4)(5)(6) 90.0%
</TABLE>
29
<PAGE>
- -----------------------------------
(1) This tabular information is intended to conform with Rule 13d-3 promulgated
under the Securities Exchange Act of 1934 relating to the determination of
beneficial ownership of securities. The tabular information gives effect to
the exercise of warrants or options exercisable within 60 days of the date
of this table owned in each case by the person or group whose percentage
ownership is set forth opposite the respective percentage and is based on
the assumption that no other person or group exercise their option.
(2) Unless otherwise indicated, the address for each of the above is c/o Black
Warrior Wireline Corp., 3748 Highway #45 North, Columbus, Mississippi
39701.
(3) The percentage of outstanding shares calculation is based upon 7,478,927
shares outstanding as of March 31, 2000, except as otherwise noted.
(4) Includes 200,000 shares issuable on exercise of an option.
(5) Includes 80,000 shares issuable on exercise of an option at a price of
$2.625 per share, of which 75,000 shares are immediately exercisable and an
additional 12,500 shares will become exercisable on April 1, 2000 and each
anniversary thereafter, provided, the employee remains employed by the
Company.
(6) Includes shares issuable to St. James Capital Partners, LP and its
affiliates on conversion of notes and exercise of warrants. See "Item 12.
Certain Relationships and Related Transactions."
(7) Based on information contained in the Schedule 13D dated October 9, 1997.
On October 9, 1997, the Company issued 647,569 shares and paid $586,000 in
cash to purchase substantially all the assets of Diamondback Directional,
Inc. (which corporation subsequently changed its name to Bendover Corp.).
As of December 22, 1999, the Company issued an additional 2,666,666 shares
to Bendover Corp as part of the consideration paid to resolve certain
litigation. Messrs. Mann and Jowers each own approximately 42.5% of the
outstanding capital stock of Bendover Corp.
(8) Also includes the shares held by St. James and the shares issuable on
exercise of the vested portion of the options held by Messrs. Thornton and
Neel.
(9) Includes 4,075,000 shares issuable upon exercise of options held by Messrs.
Thompson and Underbrink as tenants in common and 271,667 shares issuable to
Mr. Underbrink upon exercise of an option.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 9, 1998, the Messr. Danny R. Thornton, Allen R. Neel and Reese
James, officers and employees of the Company, agreed to release their lien on
the Company's receivables in exchange for confirmation by the Company of certain
obligations to such persons which consist of (i) reimbursement of such persons
for their legal fees and expenses incurred in connection with their efforts to
recover from Monetary Advancement International Inc., and (ii) the agreement to
make such persons whole by issuing stock of the Company having a value of
$240,000, based on the bid price at the date of issuance, less any recovery from
MAII.
In March 1995, the Company received a letter from the District Director of
the Internal Revenue Service (the "IRS") in which he formally notified the
Company that the IRS had 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 adjustments proposed by the IRS included the valuation
of bonus stock compensation to William L. Jenkins, President of the Company, as
well as certain other items. The Company agreed to pay whatever personal tax
liability was determined to be owing by Mr. Jenkins related to the bonus stock
resulting from an unfavorable resolution of the IRS' proposed adjustment. In
June 1996, the Company settled this matter with the IRS on terms which, among
other things, resulted in an additional tax liability to Mr. Jenkins in the
amount of $98,524 for taxes, penalties and interest related to the bonus stock.
The Company reimbursed Mr. Jenkins for this sum on January 23, 1997 and has
agreed to further reimburse Mr. Jenkins for the tax liability resulting from
this payment and any further tax reimbursement payments made to Mr. Jenkins in
future years.
30
<PAGE>
Commencing in June 1997 through December 17, 1999, the Company entered into
a series of transactions with St. James, its affiliates and partners, whereby
the Company sold to St. James on the following dates for an aggregate purchase
price of $20.95 million, the following securities:
<TABLE>
<CAPTION>
DATE SECURITY PRINCIPAL AMOUNT
- --------------------------------------------- ------------------------------------ -------------------------
<S> <C> <C>
June 6, 1997 9% Convertible Promissory Note $2.0 million (1)
October 9, 1997 7% Convertible Promissory Note $2.9 million (2)
January 23, 1998 8% Convertible Promissory Note $10.0 million(3)
October 30, 1998 10% Convertible Promissory Note $2.0 million (4)
February 18, 1999 10% Convertible Promissory Note $2.5 million (5)
December 17, 1999 10% Convertible Promissory Note $1.55 million (6)
</TABLE>
<TABLE>
<CAPTION>
DATE NUMBER OF WARRANTS (7)(8) EXPIRATION DATE
- ------------------------------------ ------------------------------------------- ------------------------
<S> <C> <C>
June 6, 1997 2,442,000 June 5, 2002
October 9, 1997 4,478,277 October 10, 2002
January 23,1998 16,200,000 January 23, 2003
October 30, 1998 4,000,000 October 30, 2003
February 18, 1999 4,150,000 February 18, 2004
December 17, 1999 3,075,000 December 31, 2004
</TABLE>
- ---------------------------
(1) Convertible at a current conversion price of $0.75 per share, as adjusted
through December 17, 1999 pursuant to anti-dilution adjustments, into an
aggregate of 2,666,667 shares of Common Stock.
(2) Convertible at a current conversion price of $0.75 per share, as adjusted
through December 17, 1999 pursuant to anti-dilution adjustments, into an
aggregate of 3,866,667 shares of Common Stock.
(3) Convertible at an exercise price of $0.75 per share, as adjusted through
December 17, 1999 pursuant to anti-dilution adjustments, into an aggregate
of 13,333,333 shares of Common Stock.
(4) Convertible at a current conversion price of $0.75 per share, as adjusted
through December 17, 1999 pursuant to anti-dilution adjustments, into an
aggregate of 2,666,666 shares of Common Stock.
(5) Convertible at a current conversion price of $0.75 per share, as adjusted
through December 17, 1999 pursuant to anti-dilution adjustments, into an
aggregate of 3,333,333 shares of Common Stock.
(6) Convertible at a current conversion price of $0.75 per share, subject to
anti-dilution adjustments, into an aggregate of 2,066,667 Shares of Common
Stock.
(7) Each warrant represents the right to purchase one share of Common Stock at
$0.75 per share, subject to anti-dilution adjustments.
(8) As adjusted and subject to further anti-dilution adjustment.
On each of June 6 and October 9, 1997, January 23 and October 30, 1998,
February 18, 1999, and December 17, 1999 the Company entered into Purchase
Agreements, and related notes, warrants and security documents (the
"Agreements") with St. James or certain affiliated
31
<PAGE>
entities regarding the purchase of the securities described in the tables above.
Except for those terms relating to the amounts of securities purchased, maturity
and expiration dates, interest rates, and conversion and exercise prices, each
of such Agreements contained substantially identical terms and conditions
relating to the purchase of the securities involved. Payment of principal and
interest on all the notes is collateralized by substantially all the assets of
the Company, subordinated, as of March 31, 2000, to borrowings by the Company
from Coast in the maximum aggregate amount of $25.0 million. The notes are
convertible into shares of the Company's Common Stock at the conversion prices
set forth in the tables above, subject to anti-dilution adjustments 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 were issued. Pursuant to the
Agreements, the Company agreed to issue to St. James for nominal consideration
warrants to purchase shares of Common Stock of the Company exercisable at the
prices set forth in the tables above, subject to anti-dilution adjustment for
certain issuances of securities by the Company at prices per share of Common
Stock less than the exercise prices then in effect in which event the exercise
price is reduced to the lower price at which such shares were issued. The shares
issuable on conversion of the notes and exercise of the warrants have demand and
piggy-back registration rights under the Securities Act of 1933. The Company
agreed that one person designated by St. James will be nominated for election to
the Company's Board of Directors. Mr. John L. Thompson, currently a Director of
the Company, serves in this capacity. The Agreements grant St. James certain
preferential rights to provide future financings to the Company, subject to
certain exceptions. The notes also contain 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 notes include,
among other events, (i) a default in the payment of principal or interest; (ii)
a default under any of the notes and the failure to cure such default for five
days, which will constitute a cross default under each of the other notes; (iii)
a breach of the Company's covenants, representations and warranties under any of
the Agreements; (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 October 30, 1998, 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, subject to the terms of an agreement
between St. James and Coast, St. James could seek to foreclose against the
collateral for the notes.
In March 1998, St. James agreed to certain amendments to its agreements
with the Company in connection with the Company's borrowings from Fleet Capital
Corporation ("Fleet") to finance the completion of the acquisition of assets
from Phoenix Drilling Services, Inc. Among other things, these amendments
required St. James to extend the maturity date of $10.0 million of indebtedness
owing to it from maturing in 18 months to maturing in 36 months, required St.
James to fully subordinate the payment of principal and interest on the
indebtedness
32
<PAGE>
owing to it to the prior payment in full of the Company's indebtedness to Fleet,
and required St. James to refrain from selling shares of Common Stock of the
Company below certain percentage levels of the Company's shares outstanding so
long as the indebtedness remains owing to Fleet. In consideration for these
amendments, the Company agreed to reduce the exercise and conversion prices of
the common stock purchase warrants and note issued to St. James in January 1998
to $5.50 per share and to provide that in the event shares are issued by the
Company thereafter at a price less than $5.50 per share such exercise and
conversion prices will be reduced to a price equal to the price at which the
shares are issued. The $5.50 price was based on a price at which the Company
issued shares of Common Stock in a private placement in March 1998, at the time
St. James agreed to the amendments to its agreements.
At June 30, 1998, the Company was not in compliance with certain financial
covenants of its Loan and Security Agreement with Fleet. Under the terms of the
loan agreement, the breach of these covenants constituted events of default and
at the option of Fleet, the obligations of the Company to Fleet were subject to
being declared by Fleet to be immediately due and payable.
On October 30, 1998, the Company entered into an Amended and Restated Loan
Agreement with Fleet pursuant to which, among other things, Fleet waived any and
all defaults which existed under the prior loan agreement. Under the Amended and
Restated Loan Agreement, Fleet agreed to loan to the Company up to an additional
$1.2 million, subject however to the Company borrowing an additional $1.5
million subordinated to the Company's borrowings from Fleet and an additional
$500,000 borrowed by the Company from St. James in July 1998 being converted
into a loan subordinated to the Company's indebtedness owing to Fleet.
In order to obtain the additional $1.5 million of subordinated borrowings
necessary to complete the closing of the Company's Amended and Restated Loan
Agreement with Fleet, on October 30, 1998, the Company entered into an agreement
with SJMB, whereby SJMB agreed to purchase up to $2.0 million principal amount
of the Company's convertible promissory note due on March 16, 2001. Such amount
included a refinancing of the $500,000 loaned in July 1998 and provided $750,000
to the Company on October 30, 1998 to close the amended loan agreement with
Fleet. Subject to the Company meeting certain conditions, SJMB agreed to loan an
additional $750,000 to the Company, which funds were loaned on December 1, 1998.
The note issued to SJMB is convertible into shares of the Company's Common Stock
at an original conversion price of $2.25 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 agreed to issue to SJMB warrants to purchase shares
of Common Stock exercisable at a price of $2.25 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
33
<PAGE>
which such shares are issued and the number of shares issuable is adjusted
upward. Under the agreement with SJMB, warrants to purchase 1,333,333 shares of
Common Stock were issued.
On February 18, 1999, in order to obtain the additional $2.5 million of
borrowings necessary to complete the closing under the Forebearance Agreement
with Fleet, the Company entered into an agreement with SJMB 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 an original 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.
As a consequence of the issuance of the convertible notes and warrants to
SJMB and others in December 1999 with conversion and exercise prices of $0.75,
under the terms of the anti-dilution provisions of the outstanding convertible
notes and warrants held by St. James, including certain of its affiliates and
assignees, the conversion prices and exercise prices of those securities were
reduced to $0.75 per share with the total number of shares issuable on
conversion and exercise being adjusted upward to 58,936,942 shares.
The ability of St. James and its affiliates to fully exercise or convert
their warrants and notes is dependent upon an amendment to the Company's
Certificate of Incorporation to increase the number of shares of Common Stock
the Company is authorized to issue from 12,500,000 shares to 150,000,000 shares
at the Company's forthcoming annual meeting of stockholders.
During the years ended December 31, 1998 and 1999, the Company paid
$902,012 and $0, respectively to St. James Capital Corp. for consulting fees.
At December 31, 1999 SJMB held a significant ownership interest in Collins
& Ware, Inc., which is a customer of the Company. Sales to Collins & Ware during
1999 were $2,993,470. The Company's sales to Collins & Ware, Inc., were no less
favorable to the Company than its sales to other customers.
On June 17, 1999, the Company sold approximately $329,000 of trade accounts
receivable, which was fully reserved due to the customer declaring bankruptcy,
to RJ Air, LLC, an entity partially owned by John L. Thompson, a member of the
Company's Board of Director's, for $200,000. As of March 31, 2000, the Company
has collected $100,000 of the sale price and the remaining $100,000 is included
in deferred revenue on the balance sheet.
34
<PAGE>
On December 22, 1999, the Company entered into a Compromise Agreement with
Release with Bendover Company ("Bendover") whereby the parties compromised and
settled their disputes arising out of the Company's acquisition of the assets of
Diamondback Directional, Inc. in October 1997. Pursuant to the agreement,
Bendover returned to the Company promissory notes aggregating $2.0 million
principal amount and received in exchange 2,666,666 shares of the Company's
Common Stock and a promissory note in the principal amount of $1,182,890 due on
January 15, 2001, bearing interest at 10% per annum. The note is collateralized
by the same assets of the Company as collateralize the notes owing to St. James
and is subject to a subordination agreement with Coast. The shares of Common
Stock issued to Bendover have demand and piggyback registration rights pursuant
to an agreement entered into with the Company. The agreement also provided for
the election of Alan W. Mann, a principal stockholder of Bendover, as a Director
of the Company, the payment of approximately $26,000 to Mr. Mann on account of
outstanding claims against the Company, and the dismissal of the lawsuit between
the Company and Bendover.
35
<PAGE>
GLOSSARY OF INDUSTRY TERM
The following are definitions of certain technical terms used in this
Annual Report relating to the Company's business:
"3-D Seismic" Involves the acquisition of a dense grid of seismic data over
a precisely defined area. An energy source creates an acoustic impulse that
penetrates the subsurface and is reflected off underlying rock layers. This
reflected energy is recorded by sensitive receivers (geophones connected to
sophisticated computers). The resulting data is then analyzed and interpreted by
geophysicists and used by oil and natural gas producing companies in the
acquisition of new leases, the selection of drilling locations and for reservoir
management. The technology is particularly useful with directional drilling. 3-D
Seismic data provides greater precision and improved subsurface resolution than
is provided by 2-D seismic surveys.
"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.
"Directional Drilling" Enables the drilling of computer guided directional
wellbores from existing or newly drilled wells intended to increase the exposure
of the well bore to producing hydrocarbon zones. Directional drilling is
facilitated through the use of 3-D Seismic technology.
"Downhole" Any part of the borehole below the ground surface.
"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.
"Hoisting and Steering Services" Services provided utilizing the Company's
wireline trucks and equipment for operating surveying equipment and steering
tools owned and operated by others.
"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).
36
<PAGE>
(b) Cased Hole: The measurement of gamma rays (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 Compensation Neutron Tools.
"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 plies, 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.
37
<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-KSB for the
fiscal year ended December 31, 1990).
3.3 By-Laws of the Company (incorporated by reference to the
Company's Registration Statement on Form S-18, effective
date December 6, 1988).
10.1 Employment Agreement, dated September 18, 1996, between
William L. Jenkins and the Company. (Filed as Exhibit
10.1 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996.)
10.2 Employment Agreement, dated January 31, 1997, between
Danny Ray Thornton and the Company, and amendment
thereto.
10.3 Employment Agreement, dated January 31,1997, between
Allen R. Neel and the Company, and amendment thereto.
10.4 Purchase and Sale Agreement dated June 6, 1997 between
Black Warrior Wireline Corp. and Vernon E. Tew, Jr.,
Mark R. Roberts, E.J. Wooten, Chester Whatley and
William A. Tew. (Filed as an exhibit to the Company's
Current Report on Form 8-K for June 6, 1997)
10.5 Purchase and Sale Agreement dated June 9, 1997 between
Black Warrior Wireline Corp. and John L. Morton,
Theodore W. Morton, and John D. Morton. (Filed as an
exhibit to the Company's Current Report on Form 8-K for
June 6, 1997)
38
<PAGE>
10.6 Agreement for Purchase and Sale dated June 6, 1997
between Black Warrior Wireline Corp. and St. James
Capital Partners, L.P. (Filed as an exhibit to the
Company's Current Report on Form 8-K for June 6, 1997)
10.7 $2,000,000 Convertible Promissory Note dated June 6,
1997 issued to St. James Capital Partners, L.P. (Filed
as an exhibit to the Company's Current Report on Form
8-K for June 6, 1997)
10.8 $3,000,000 Bridge Loan Promissory Note dated June 6,
1997 issued to St. James Capital Partners, L.P. (Filed
as an exhibit to the Company's Current Report on Form
8-K for June 6, 1997)
10.9 Warrant dated June 6, 1997 to purchase 546,000 shares of
Common Stock issued to St. James Capital Partners, L.P.
(Filed as an exhibit to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1997).
10.10 Warrant dated June 6, 1997 to purchase 120,000 shares of
Common Stock issued to St. James Capital Partners, L.P.
(Filed as an exhibit to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1997).
10.11 Registration Rights Agreement between Black Warrior
Wireline Corp. and St. James Capital Partners, L.P.
dated June 6, 1997. (Filed as an exhibit to the
Company's Current Report on Form 8-K for June 6, 1997)
10.12 Asset Purchase Agreement dated as of September 1, 1997
between Black Warrior Wireline Corp. and Diamondback
Directional, Inc., Alan Mann and Michael Dale Jowers.
(Filed as an exhibit to the Company's Current Report on
Form 8-K for October 9, 1997).
10.13 Employment Agreement effective as of September 1, 1997
between the Company and Alan Mann. (Filed as an exhibit
to the Company's Current Report on Form 8-K for October
9, 1997).
10.14 Employment Agreement effective as of September 1, 1997
between the Company and Michael Dale Jowers. (Filed as
an exhibit to the Company's Current Report on Form 8-K
for October 9, 1997).
39
<PAGE>
10.15 Registration Rights Agreement dated October 10, 1997
between the Company and DDI. (Filed as an exhibit to the
Company's Current Report on Form 8-K for October 9,
1997).
10.16 $3.0 million promissory note due August 31, 1999 issued
to DDI. (Filed as an exhibit to the Company's Current
Report on Form 8-K for October 9, 1997).
10.17 Agreement for Purchase and Sale dated October 9, 1997
between Black Warrior Wireline Corp. and St. James
Capital Partners, L.P. (Filed as an exhibit to the
Company's Current Report on Form 8-K for October 9,
1997).
10.18 $2,900,000 Convertible Promissory Note dated October 10,
1997 issued to St. James Capital Partners, L.P. (Filed
as an exhibit to the Company's Current Report on Form
8-K for October 9, 1997).
10.19 Warrant dated October 10, 1997 to purchase 725,000
shares of Common Stock issued to St. James Capital
Partners, L.P. (Filed as an exhibit to the Company's
Current Report on Form 8-K for October 9, 1997).
10.20 Amendment No. 1 to Registration Rights Agreement between
Black Warrior Wireline Corp. and St. James Capital
Partners, L.P. dated October 10, 1997. (Filed as an
exhibit to the Company's Current Report on Form 8-K for
October 9, 1997).
10.21 Asset Purchase Agreement dated as of January 1, 1998
between Black Warrior Wireline Corp. and Phoenix
Drilling Services, Inc. (Filed as an exhibit to the
Company's Current Report on Form 8-K for January 23,
1998).
10.22 Agreement for Purchase and Sale dated January 23, 1998
between Black Warrior Wireline Corp. and St. James
Capital Partners, L.P. (Filed as an exhibit to the
Company's Current Report on Form 8-K for January 23,
1998).
10.23 $10,000,000 Convertible Promissory Note dated January
23, 1998 issued to St. James Capital Partners, L.P.
Filed as an exhibit to the Company's Current Report on
Form 8-K for January 23, 1998).
40
<PAGE>
10.24 Warrant dated January 23, 1998 to purchase 200,000
shares of Common Stock issued to St. James Capital
Partners, L.P. (Filed as an exhibit to the Company's
Current Report on Form 8-K for January 23, 1998).
10.25 Amendment No. 2 to Registration Rights Agreement between
Black Warrior Wireline Corp. and St. James Capital
Partners, L.P. dated January 23, 1998. (Filed as an
exhibit to the Company's Current Report on Form 8-K for
January 23, 1998).
10.26 Loan and Security Agreement by and between the Company
and Coast Business Credit, a division of Southern
Pacific Bank, dated as of January 24, 2000. (Filed as an
exhibit to the Company's Current Report on Form 8-K for
February 15, 2000).
10.27 Form of Agreement for Purchase and Sale dated as of
December 17, 1999 between the Company and the
Purchasers. (Filed as an exhibit to the Company's
Current Report on Form 8-K for February 15, 2000).
10.28 Form of Promissory Note dated December 17, 1999. (Filed
as an exhibit to the Company's Current Report on Form
8-K for February 15, 2000).
10.29.1 Compromise Agreement with Release dated December 22,
1999 among the Company, Bendover Company, Alan Mann and
Michael Dale Jowers. (Filed as an exhibit to the
Company's Current Report on Form 8-K for February 15,
2000).
10.30 Letter dated April 12, 2000 to the Company from SJCP,
SJMB and Charles Underbrink
21 Subsidiaries. The Company has no subsidiaries.
27 Financial Data Schedule.
- ------------------------
(b) Reports on Form 8-K.
During the quarter ended December 31, 1999, the Company did not file any
Current Reports on Form 8-K.
41
<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.
Dated: April 12, 2000
BLACK WARRIOR WIRELINE CORP.
By: /s/ William L. Jenkins
---------------------------------
William L. Jenkins, President
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.
Signature Capacity Date
- --------- -------- ----
/s/ William L. Jenkins President, CEO and Director April 12, 2000
- -------------------------
William L. Jenkins
/s/ Ron E. Whitter CFO April 12, 2000
- -------------------------
Ron E. Whitter
/s/ John L. Thomspon Director April 12, 2000
- -------------------------
John L. Thompson
/s/ Charles E. Underbrink Director April 12, 2000
- -------------------------
Charles E. Underbrink
/s/ Alan W. Mann Director April 12, 2000
- -------------------------
Alan W. Mann
42
EXHIBIT 10.30
April 12, 2000
Mr. William L. Jenkins
President
Black Warrior Wireline Corp.
3748 Highway 45 North
Columbus, MS 39701
Dear Bill:
This letter is to confirm St. James Capital Partners, LP's ("SJCP"), SJMB, LP's
("SJMB") and Charles E. Underbrink's ("Underbrink") guarantees of Black Warrior
Wireline Corp.'s ("Black Warrior") loan with Coast Business Credit ("Coast").
SJCP, SJMB and Underbrink hereby affirm to you that they have each entered into
a Principal and Interest Payment Guaranty covering up to $5,000,000 (in the
aggregate between all three guarantors) of any principal or interest payments
that are not made by Black Warrior when due. This guaranty requires the
guarantors to cause any past due Coast indebtedness to be paid in the event
Black Warrior fails to make any payment of any indebtedness to Coast when due.
Additionally, SJCP and SJMB have each entered into an Unlimited Continuing
Guaranty. This guaranty requires the guarantors to cause any past due Coast
indebtedness to be paid in the event Black Warrior fails to make any payment of
any indebtedness to Coast when due.
This letter affirms the undersigned's obligation to perform under these guaranty
agreements. If Coast accelerates its debt due to an event of default, the
undersigned have the ability to perform and will perform under the requirements
of the guarantees. The undersigned have the ability and will support the
operations of Black Warrior through January 2, 2001.
The undersigned waive any event of default which existed as of December 31, 1999
and any defaults which have occurred through the date of this letter. Further,
the undersigned waive the right to call our existing debt, as of the date of
this letter, or any debt issued in connection with performing under the above
guarantees or support prior to January 2, 2001.
<PAGE>
Page 2
April 12, 2000
ST. JAMES CAPITAL PARTNERS, L.P., SJMB, L.P.,
By: St. James Capital Corp., its general By: SJMB, L.L.C., its general
partner partner
_______________________________ _____________________________
John L. Thompson John L. Thompson
President President
CHARLES E. UNDERBRINK, an individual
_______________________________
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