SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934 for the quarterly period ended June 30, 2000;
or
Transition report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934 for the transition period from to .
------- --------
Commission File Number 0-18754
-------
BLACK WARRIOR WIRELINE CORP.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-2904094
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S employer
incorporation of organization) identification no.)
3748 HIGHWAY 45 NORTH, COLUMBUS, MISSISSIPPI 39701
--------------------------------------------------
(Address of principal executive offices, zip code)
(662) 329-1047
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the proceeding 12 months (or for such shorter period that the issuer
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
-------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of August 10, 2000, 7,478,927 shares of the Registrant's Common
Stock, $.0005 par value, were outstanding.
<PAGE>
BLACK WARRIOR WIRELINE CORP.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Financial Statements
Condensed Balance Sheets - June 30, 2000
and December 31, 1999 3
Condensed Statements of Operations -
Three Months Ended June 30, 2000 and
June 30, 1999 4
Condensed Statements of Operations -
Six Months Ended June 30, 2000 and
June 30, 1999 5
Condensed Statements of Cash Flows -
Six Months Ended June 30, 2000 and
June 30, 1999 6
Notes to Condensed Financial Statements -
Six Months Ended June 30, 2000 and
June 30, 1999 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLACK WARRIOR WIRELINE CORP.
----------------------------
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 509,457 $ 2,425,808
Short-term investments 50,000 50,000
Accounts receivable, less allowance for doubtful
accounts of $ 992,881 and $ 1,006,068, respectively 7,299,000 4,971,251
Prepaid expenses 440,994 175,268
Other receivables 150,967 146,392
Other current assets 630,844 526,884
------------ ------------
Total current assets 9,081,262 8,295,603
Land and building, held for sale 400,000 400,000
Inventories 4,641,356 4,285,206
Property, plant, and equipment, less accumulated
depreciation of $ 16,233,271 and $ 13,810,841 18,932,764 19,457,361
Other assets 1,276,951 604,649
Goodwill, less accumulated amortization of $ 385,505
and $361,714, respectively 3,241,475 3,289,165
------------ ------------
Total assets $ 37,573,808 $ 36,331,984
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 3,321,378 $ 6,936,572
Accrued salaries and vacation 364,051 249,296
Accrued interest payable 4,206,535 3,027,901
Other accrued expenses 942,632 777,598
Deferred revenue 100,000 100,000
Notes payable to related parties 25,797,540 3,041,234
Current maturities of long-term debt and capital
lease obligations 21,218,834 8,391,346
------------ ------------
Total current liabilities 55,950,970 22,523,947
Notes Payable to related parties 21,412,356
Long-term debt and capital lease obligations, less
Current maturities 10,542,555
------------ ------------
Total liabilities 55,950,970 54,478,858
Stockholders' deficit:
Preferred stock, $.0005 par value, 2,500,000 shares authorized
none issued at June 30, 2000 and December 31, 1999,
respectively
Common stock, $.0005 par value, 12,500,000 shares authorized;
7,478,927 and 4,812,260 shares issued and outstanding
at June 30, 2000 and December 31, 1999, respectively 3,739 2,406
Additional paid-in capital 15,828,958 13,316,081
Accumulated deficit (33,626,466) (30,881,968)
Treasury stock, at cost, 4,620 shares (583,393) (583,393)
Total stockholders' (deficit) (18,377,162) (18,146,874)
------------ ------------
Total liabilities and stockholders' deficit $ 37,573,808 $ 36,331,984
============ ============
</TABLE>
See accompanying notes to the condensed financial statements.
3
<PAGE>
BLACK WARRIOR WIRELINE CORP.
----------------------------
CONDENSED STATEMENTS OF OPERATIONS
For the three months ended June 30, 2000 and June 30, 1999
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 9,458,689 $ 7,261,416
Operating costs 6,981,658 5,409,635
Selling, general and administrative expenses 1,479,282 2,503,561
Depreciation and amortization 1,266,775 1,138,553
----------- -----------
Net Loss from operations (269,026) (1,790,333)
Interest expense and amortization of debt discount (1,241,013) (842,987)
Net Loss on sale of fixed assets -0- 1,737
Other income 37,295 7,868
----------- -----------
Loss before extraordinary gain (1,472,744) (2,623,715)
Extraordinary gain on extinguishments of debt,
Net of income taxes of $0 68,639 -0-
----------- -----------
Net Loss $(1,404,105) $(2,623,715)
=========== ===========
EARNINGS PER COMMON SHARE
Loss before extraordinary item $ (0.20) $ (0.62)
Extraordinary item $ 0.01 --
----------- -----------
Net Loss $ (0.19) $ (0.62)
=========== ===========
EARNINGS PER COMMON SHARE - ASSUMING DILUTED
Loss before extraordinary item $ (0.20) $ (0.62)
Extraordinary item $ 0.01 --
----------- -----------
Net Loss $ (0.19) $ (0.62)
Weighted average common shares outstanding 7,474,307 4,199,619
=========== ===========
Weighted average common shares outstanding
with dilutive securities 7,474,307 4,199,619
=========== ===========
</TABLE>
See accompanying notes to the condensed financial statements.
4
<PAGE>
BLACK WARRIOR WIRELINE CORP.
----------------------------
CONDENSED STATEMENTS OF OPERATIONS
For the six months ended June 30, 2000 and June 30, 1999
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 17,735,055 $ 13,333,698
Operating costs 13,715,561 10,963,925
Selling, general and administrative expenses 2,988,503 3,333,563
Depreciation and amortization 2,566,112 2,461,910
------------ ------------
Net Loss from operations (1,535,121) (3,425,700)
Interest expense and amortization of debt discount (2,237,053) (1,687,327)
Net Loss on sale of fixed assets -0- (7,263)
Other income 59,101 28,629
------------ ------------
Loss before extraordinary gain (3,713,073) (5,091,661)
Extraordinary gain on extinguishments of debt,
Net of income taxes of $0 968,575 -0-
------------ ------------
Net Loss $ (2,744,498) $ (5,091,661)
============ ============
EARNINGS PER COMMON SHARE
Loss before extraordinary item $ (0.51) $ (1.26)
Extraordinary item $ 0.13 --
------------ ------------
Net Loss $ (0.38) $ (1.26)
============ ============
EARNINGS PER COMMON SHARE - DILUTED
Loss before extraordinary item $ (0.51) $ (1.26)
Extraordinary item $ 0.13 --
------------ ------------
Net Loss $ (0.38) $ (1.26)
============ ============
Weighted average common shares outstanding 7,298,483 4,056,864
============ ============
Weighted average common shares outstanding
with dilutive securities 7,298,483 4,056,864
============ ============
</TABLE>
See accompanying notes to the condensed financial statements.
5
<PAGE>
BLACK WARRIOR WIRELINE CORP.
----------------------------
CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2000 and June 30, 1999
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
(Unaudited) (Unaudited)
<S> <C> <C>
Cash used in operations: $ (4,603,246) $ (663,514)
Cash flows from investing activities:
Acquisitions of property, plant, and equipment (1,535,128) (883,977)
Proceeds from sale of property, plant and equipment 30,400
Acquisition of business, net of cash acquired (362,705) -0-
------------ ------------
Cash used in investing activities: (1,897,833) (853,577)
Cash flows from financing activities:
Debt issuance costs (1,050,205) (152,086)
Proceeds from bank and other borrowings 20,766,981 3,149,371
Principal payments on long-term debt, notes payable
and capital lease obligations (18,137,262) (694,984)
Net draws (payments) on working revolver 3,005,214 (1,616,040)
------------ ------------
Cash provided by financing activities: 4,584,728 686,261
Net decrease in cash and cash equivalents (1,916,351) (830,830)
Cash and cash equivalents, beginning of period 2,425,808 1,041,242
------------ ------------
Cash and cash equivalents, end of period $ 509,457 $ 210,412
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 876,642 $ 778,020
Income taxes paid $ 0 $ 0
Supplemental disclosure of noncash investing and financing activities:
Stock issued to related party as consideration for
Promissory note (Note 1) $ 2,000,000
Notes payable and capital lease obligations incurred
to acquire property, plant & equipment $ 107,527
Stock warrants issued in conjunction with notes payable
to related party $ 143,500 $ 20,750
Stock issued as consideration for option to purchase
Company
$ 65,000
Note Payable released by related party resulting in
an increase to Additional paid-in capital $ 300,000
Stock Issued as compensation $ 914,807
</TABLE>
See accompanying notes to the condensed financial statements.
6
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. GENERAL
The accompanying condensed financial statements reflect all adjustments
that, in the opinion of management, are necessary for a fair presentation of the
financial positions of Black Warrior Wireline Corp. (the "Company"). Such
adjustments are of a normal recurring nature. The accompanying condensed
financial statements have been prepared assuming that the Company will continue
as a going concern. The results of operations for the interim period are not
necessarily indicative of the results to be expected for the full year. The
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999 should be read in conjunction with this document.
The Company is an oil and gas service company currently providing
various services to oil and gas well operators primarily in the continental
United States and in the Gulf of Mexico. The Company's principal lines of
business include (a) wireline services, (b) directional oil and gas well
drilling and downhole surveying services, and (c) workover services. Since
November 1996, the Company completed eight acquisitions, the most recent of
which was the acquisition of the measurement while drilling ("MWD") assets of
Measurement Specialists, Inc. ("MSI") on March 1, 2001.
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 subordinated to the indebtedness owing to
Coast.
7
<PAGE>
Under its Term Loan with Coast, the Company is obligated to repay the
loan over a period of seventy-two months, commencing February 15, 2000, plus
interest on the then outstanding balance. In addition, on the last day of each
month during the first year following the closing of the loan, the Company is
obligated to make principal payments in the amount of fifty percent of its
Excess Cash Flow (as defined) during the immediately preceding month, and
thereafter, the Company is required to make principal payments in the amount of
forty percent of its Excess Cash Flow during the immediately preceding month. In
the event the actual amount of the Excess Cash Flow during the three (3) months
ended July 31, 2000 was less than the projected amount of the Company's cash
flow as presented to Coast, then on August 31, 2000, the Company is required to
make a principal payment equal to fifty percent of the difference of such
projected amount minus the actual amount. "Excess Cash Flow" during any month
means the EBITDA of the Company during such month, minus the sum of (1)
principal and interest payments made by the Company during such month, plus (2)
taxes paid by the Company in cash during such month. The Company anticipates
that by virtue of such provision, and on the basis of operations through July
31, 2000, a payment to Coast will be required. The actual amount of such payment
is as yet undetermined but is anticipated to be not less than approximately
$500,000. It is anticipated that such payment will be made from the Company's
cash resources or additional borrowings from St. James Capital Partners, L.P. or
its affiliates (see Note 9.).
During the first quarter of 2000, the Company executed a Compromise
Agreement With 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.
On March 1, 2000 the Company exercised its option and purchased the
assets of MSI. The Company paid the outstanding notes payable related to the
acquired assets of approximately $363,000.
2. EARNINGS PER SHARE
The calculation of basic and diluted earning per share ("EPS") is as follows:
<TABLE>
<CAPTION>
For the Three Months For the Three Months
Ended June 30, 2000 Ended June 30, 1999
--------------------------------------------- -----------------------------------------------
Loss Shares Per Share Loss Shares Per Share
Numerator Denominator Amount Numerator Denominator Amount
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loss before extraordinary item $ (1,472,744) $ (2,623,715)
============= =============
BASIC EPS
Loss available
to common $ (1,472,744) 7,474,307 $ (0.20) $ (2,623,715) 4,199,619 $ (0.62)
shareholders -----------------------------------------------------------------------------------------------
EFFECT OF DILUTIVE SECURITIES
Stock warrants
Stock options
Convertible debt securities
DILUTED EPS
Loss available
to common $ (1,472,744) 7,474,307 $ (0.20) $ (2,623,715) 4,199,619 $ (0.62)
shareholders -----------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
For the Six Months For the Six Months
Ended June 30, 2000 Ended June 30, 1999
--------------------------------------------- ----------------------------------------------
Loss Shares Per Share Loss Shares Per Share
Numerator Denominator Amount Numerator Denominator Amount
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loss before extraordinary item $ (3,713,073) $ (5,091,661)
============= =============
BASIC EPS
Loss available
to common $ (3,713,073) 7,298,483 $ (0.51) $ (5,091,661) 4,056,864 $ (1.26)
shareholders -----------------------------------------------------------------------------------------------
EFFECT OF DILUTIVE SECURITIES
Stock warrants
Stock options
Convertible debt securities
DILUTED EPS
Loss available
to common $ (3,713,073) 7,298,483 $ (0.51) $ (5,091,661) 4,056,864 $ (1.26)
shareholders -----------------------------------------------------------------------------------------------
</TABLE>
Options and warrants to purchase 63,531,394 and 19,559,474 shares of
common stock at prices ranging from $0.75 to $8.01 in 2000 and $1.31 to $8.01 in
1999 were outstanding during the three and six months ended June 30, 2000 and
1999, respectively, but were not included in the computation of diluted EPS
because the effect would be anti-dilutive (see Note 7.).
Convertible debt instruments which would result in the issuance of
35,200,000 and 12,933,333 shares of common stock, if the conversion features
were exercised, were outstanding during the three and six months ended June 30,
2000 and 1999, respectively, but were not included in the computation of the
diluted EPS because the effect would be anti-dilutive. The conversion price of
these instruments is $0.75 per share and remained outstanding at June 30, 2000
(see note 7.).
3. INVENTORIES
Inventories consist of tool components, subassemblies, and expendable
parts and supplies used in all segments of the Company's operations. Inventories
are classified as a long-term asset rather than a current asset as is consistent
with industry practice.
4. COMMITMENTS AND CONTINGENCIES
The Company and certain of its officers and directors are respondents
in an arbitration proceeding commenced by Monetary Advancements International,
Inc. before the American Arbitration Association in New York, New York. The
claimant seeks to recompense against the Company and other named respondents for
the alleged failure to pay compensation in the form of shares of stock of the
Company for services allegedly rendered. The respondents have submitted an
answer and counterclaims and have initiated a Court proceeding seeking partial
stay of the arbitration proceeding. Management believes the ultimate outcome of
these actions will not have a materially adverse effect on the financial
position, results of operations or cash flows of the Company.
9
<PAGE>
The Company is also a defendant in various legal actions in the ordinary
course of business. Management does not believe the ultimate outcome of these
actions will have a materially adverse effect on the financial position, results
of operations or cash flows of the Company.
5. SEGMENT AND RELATED INFORMATION
At June 30, 2000, 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 and modify downhole conditions at different
stages of the process of drilling and completing oil and gas wells as well as
various times thereafter until the well is depleted and abandoned. This segment
engages in onshore and offshore servicing, as well as other oil and gas well
service activities including renting and repairing equipment. The principal
markets for this segment include all major oil and gas producing regions of the
United States. Major customers of this segment for the quarter ended June 30,
2000 included Burlington Resources, Denbury Management and Chevron USA.
DIRECTIONAL DRILLING - This segment consists of two business units. One
unit performs procedures to enter hydrocarbon producing zone directionally,
using specialized drilling equipment, and expand the area of interface of
hydrocarbons and thereby greatly enhancing recoverability . The second business
unit engages in oil and gas well downhole 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 quarter ended June 30,
2000 included Swift Energy, Clayton Williams, Collins & Ware, Inc. and Tom
Brown, Inc.
WORKOVER AND COMPLETION - This segment consists of a business unit which
provides services performed on wells when originally completed or on wells
previously placed in production and requiring additional work to restore or
increase production. The principal market for this segment is the Black Warrior
Basin of Alabama. The major customer of this segment for the quarter ended June
30, 2000 was Energen Corporation.
The accounting policies of the reportable segments are the same as those
described in Note 2 of the Company's Annual Report of Form 10-KSB for the fiscal
year ended December 31, 1999. The Company evaluates the performance of its
operating segments based on earnings before interest, taxes, depreciation, and
amortization (EBITDA), which is derived from revenues less operating expenses
and selling, general, and administrative expenses. Segment information for the
three and six months ended June 30, 2000 and 1999 is as follows:
10
<PAGE>
Three months ended June 30, 2000
<TABLE>
<CAPTION>
WORKOVER
DIRECTIONAL AND
WIRELINE DRILLING COMPLETION TOTAL
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment revenues $ 4,501,234 $ 4,668,297 $ 289,158 $ 9,458,689
Segment EBITDA $ 181,423 $ 802,719 $ 35,897 $ 1,020,039
</TABLE>
Three months ended June 30,1999
<TABLE>
<CAPTION>
WORKOVER
DIRECTIONAL AND
WIRELINE DRILLING COMPLETION TOTAL
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment revenues $ 4,706,198 $ 2,246,731 $ 308,487 $ 7,261,416
Segment EBITDA $ 949,154 $ 12,360 $ 24,983 $ 986,497
</TABLE>
Six months ended June 30, 2000
<TABLE>
<CAPTION>
WORKOVER
DIRECTIONAL AND
WIRELINE DRILLING COMPLETION TOTAL
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment revenues $ 8,854,720 $ 8,294,443 $ 585,892 $17,735,055
Segment EBITDA $ 621,073 $ 989,634 $ 61,773 $ 1,672,480
</TABLE>
Six months ended June 30, 1999
<TABLE>
<CAPTION>
WORKOVER
DIRECTIONAL AND
WIRELINE DRILLING COMPLETION TOTAL
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment revenues $ 8,260,572 $ 4,438,609 $ 634,517 $13,333,698
Segment EBITDA $ 1,032,937 $ (22,692) $ 76,280 $ 1,086,525
</TABLE>
The Company has certain expenses that are not allocated to the individual
operating segments. A reconciliation of total segment EBITDA to loss from
operations for the three months ended June 30, 2000 and 1999 is presented as
follows:
Three months ended June 30:
2000 1999
Total segment EBITDA $ 1,020,039 $ 986,497
Depreciation and amortization (1,200,710) (1,138,553)
Unallocated corporate expense (88,355) (1,638,277)
----------- -----------
Loss from operations $ (269,026) $(1,790,333)
=========== ===========
Six months ended June 30:
11
<PAGE>
2000 1999
Total segment EBITDA $ 1,672,480 $ 1,086,525
Depreciation and amortization (2,500,029) (2,461,910)
Unallocated corporate expense (707,572) (2,050,315)
----------- -----------
Loss from operations $(1,535,121) $ (3,425,700)
=========== ============
6. RELATED PARTY TRANSACTIONS
The Company opened a wireline facility in South Texas in January 1999
primarily to service a customer who has some common ownership with the Company.
During the three and six months ended June 30, 2000, this customer accounted for
approximately 0.61% and 4.41% of total revenues, respectively.
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 affiliated with a member of the Company's
Board of Directors, for $200,000. As of June 30, 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.
7. ISSUANCE OF COMMON STOCK
During the first quarter of 2000, the Company executed a Compromise
Agreement With Release with Bendover Company 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.
As of June 30, 2000, the Company's certificate of incorporation permits
it to issue up to 12,500,000 shares of common stock of which 7,478,927 shares
were issued and outstanding. The Company has outstanding at June 30, 2000 common
stock purchase warrants, options and convertible debt securities entitled to
purchase or to be converted into an aggregate 98,731,393 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 note purchase agreements entered into in connection with the private
sale of $7.0 million of the Company's notes during the period December 1999
through February 2000 contain a covenant whereby the Company has agreed that at
or before the Company's next annual meeting of stockholders it will secure an
amendment to its Certificate of Incorporation to increase the number of shares
that it is authorized to issue to a number sufficient to authorize the issuance
of its currently outstanding shares and all shares that are issuable upon the
conversion of all its outstanding convertible notes and securities and upon the
exercise of any warrants or options to purchase the Company's Common Stock.
Accordingly, the failure of the stockholders of the Company to approve the
proposal to increase the number of shares of Common Stock the Company is
authorized
12
<PAGE>
to issue will be a breach of a covenant under the note purchase agreements and a
default under the notes. The default under the notes could result, at the option
of the holders, in the notes becoming immediately due and payable and would also
lead, under the cross default provisions of the instruments under which such
indebtedness was incurred, to a default under all the Company's other
outstanding indebtedness aggregating $37.9 million. Under such circumstances,
the holders of such indebtedness, including Coast which holds $19.4 million of
indebtedness collaterilized by a senior lien on the Company's assets, could
foreclose on substantially all of the Company's assets.
8. EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT
During the first and second quarters of 2000, 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 $68,639 and $968,575 for the three and six months ended June 30,
2000. Accordingly, the Company has recognized an extraordinary gain on
extinguishments of debt of $68,639 and $968,575, net of income taxes of $0, for
the three and six months ended June 30,2000. An additional $300,000 of related
party debt was waived and recorded as an increase in additional paid-in capital.
9. DEFAULTS UPON SENIOR SECURITIES
For the quarter ended June 30, 2000, the Company failed to meet the
debt service ratio test under the Loan Agreement with Coast. The Company is in
the process of negotiating revised covenants with Coast based on current
operating trends. The Company expects to have ongoing discussions with Coast
regarding the default and intends to seek to amend the terms of the debt service
ratio test, among other provisions, and continue to seek to obtain a waiver of
the default from Coast. There can be no assurance that a waiver will be
forthcoming. As a consequence of this default and under the cross default
provisions of the Company's other indebtedness, the Company's indebtedness to
Coast as well as SJCP and others has been shown as currently due on the
Company's condensed balance sheet at June 30, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
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<PAGE>
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
subordinated to the indebtedness owing to Coast.
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 a continued 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 Company's plan for an improvement in
its financial condition is subject to its ability to participate in improved
revenues for the oil and gas service segment of the industry resulting from the
improvement in oil and natural gas commodity prices. There can be no assurance
that the Company will experience a sufficient increase in its revenues so as to
materially benefit its current financial condition.
RESULTS OF OPERATIONS. THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE
MONTHS ENDED JUNE 30, 1999 AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX
MONTHS ENDED JUNE 30, 1999
The following table sets forth the Company's revenues from its three
principal lines of business for the three and six months ended June 30, 2000 and
1999 respectively:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
6/30/00 6/30/99 6/30/00 6/30/99
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wireline $ 4,501,234 $ 4,706,198 $ 8,854,720 $ 8,260,572
Directional Drilling 4,668,297 2,246,731 8,294,443 4,438,609
Workover and Completion 289,158 308,487 585,892 634,517
----------------------------------------------------------------
$ 9,458,689 $ 7,261,416 $17,735,055 $13,333,698
</TABLE>
Total revenues increased by approximately $2.2 million to approximately
$9.5 million for the three months ended June 30, 2000 as compared to total
revenues of approximately $7.3 million for the three months ended June 30, 1999.
Total revenues increased by approximately $4.4 million to approximately $17.7
million for the six months ended June 30, 2000 as compared to revenues of
approximately $13.3 million the six months ended June 30, 1999. The increase in
directional drilling revenues was the result of increased demand for the
Company's services and upward pressure on pricing that began in the latter half
of 1999. The Company's wireline revenues also were affected by increases in
demand and commodity pricing.
14
<PAGE>
Operating costs increased by approximately $1.6 million for the three
months ended June 30, 2000, as compared to the same period of 1999. Operating
costs were 73.8% of revenues for the three months ended June 30, 2000 as
compared with 74.5% of revenues in the same period in 1999. Operating costs
increased by approximately $2.8 million for the six month ended June 30, 2000,
as compared to the same period in 1999. Operating costs were 77.3% of revenues
for the six months ended June 30, 2000 as compared with 82.2% of revenues in the
same period in 1999. The increase in operating costs was primarily the result of
the higher overall level of activities in the three and six months ended June
30, 2000 compared with 1999. The decrease in operating costs as a percentage of
revenues was primarily because of increasing billing rates and equipment
utilization. Salaries and benefits increased by $573,000 for the three months
ended June 30, 2000, as compared to the same period in 1999, while the total
number of employees increased from 226 at June 30, 1999 to 281 at June 30, 2000.
The increase in salaries and benefits is primarily due to the increase in the
number of employees, which is reflective of the overall level of activities.
Selling, general and administrative expenses decreased by
approximately$1,024,000 from $2.5 million in the three months ended June 30,
1999 to $1.5 million in the three months ended June 30, 2000. As a percentage of
revenues, selling, general and administrative expenses decreased from 34.5% in
the three months ended June 30, 1999 to 15.6% in 2000, primarily as a result of
an expense of approximately $915,000 recognized in the second quarter of 1999
related to 770,364 common shares issued to certain persons who purchased shares
of the Company's common stock. These shares were issued in consideration of the
release of certain claims asserted by these persons regarding alleged excessive
delays in effecting the registration of their shares under the Securities Act of
1933, as amended, which allegedly prevented such persons from being able to
liquidate their securities. Selling, general and administrative expenses
decreased by approximately $345,000 from $3.33 million in the six months ended
June 30, 1999 to $3.05 million in the six months ended June 30, 2000. As a
percentage of revenues, selling general and administrative expenses decreased
from 25.0% of revenues in the six months ended June 30, 1999 to 16.8% in 2000,
primarily as a result of the $915,000 settlement cost recognized in the second
quarter of 1999 offset by higher bad debt recoveries in the same period in 1999.
Depreciation and amortization increased from $1,138,553 in the three
months ended June 30, 1999, or 15.7% of revenues, to approximately $1.27 million
in 2000 or 13.4% of revenues, primarily because of the capital expenditures made
in the second quarter of 2000. Depreciation and amortization remained relatively
flat at approximately $2.56 million for the six months ended June 30, 2000
compared to $2.46 million for the same period in 1999. Depreciation and
amortization as a percentage of revenues decreased to 14.5% from 18.5% due to
the increased demand for the Company's services.
Interest expense and amortization of debt discount increased by
$398,000 and $550,000 for the three and six months ended June 30, 2000 as
compared to the same periods in 1999. This was directly related to the increased
amounts of indebtedness outstanding in 2000. See "Note 6 of Notes to
Consolidated Financial Statements" in the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1999.
During the first and second quarters of 2000, 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 $968,575. Accordingly, the Company has recognized an
extraordinary gain on extinguishments of debt of $968,575, net of income taxes
of $0.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash used by the Company's operating activities was approximately $4.6
million for the six months ended June 30, 2000 as compared to cash used of
$664,000 for the same period in 1999. Investing activities used cash of $1.9
million during the three months ended June 30, 2000 for the acquisition of
property, plant and equipment and businesses, net of cash acquired. During the
three months ended June 30, 1999, investing activities used cash of
approximately $884,000 for the acquisition of property, plant and equipment and
businesses, net of cash acquired, offset by proceeds of $30,400 from the sale of
fixed assets. Financing activities provided net cash of $4.6million from the
proceeds from bank and other borrowings of approximately $23.8 million during
the six months ended June 30, 2000 offset by principal payments on bank and
other borrowings and capital leases of $18.1 million and $1.1 million of costs
related to debt issuance. For the same period in 1999 financing activities
provided net cash of approximately $3.1 million from the proceeds from bank and
other borrowings offset by principal payments on bank and other borrowings and
capital lease obligations and net payments on working capital revolving loan of
$2.3 million and $152,086 of costs related to debt issuances.
Cash at June 30, 2000 was $509,457 as compared with cash at June 30,
1999 of approximately $210,000.
The Company's outstanding indebtedness includes primarily senior
indebtedness aggregating approximately $19.3 million at June 30, 2000, owed to
Coast, other indebtedness of approximately $7.0 million, and $20.9 million owed
to St. James Capital Partners, L.P. ("SJCP") and its affiliates and certain of
its limited partners. For the quarter ended June 30, 2000, the Company failed to
meet the debt service ratio test under the Loan Agreement with Coast. The
Company is in the process of negotiating revised covenants with Coast based on
current operating trends. The Company expects to have ongoing discussions with
Coast regarding the default and intends to seek to amend the terms of the debt
service ratio test, among other provisions, and continue to obtain a waiver of
the default from Coast. There can be no assurance that a waiver will be
forthcoming. As a consequence of this default and under the cross default
provisions of the Company's other indebtedness, the Company's indebtedness to
Coast as well as SJCP and others has been shown as currently due and payable.
The Company's obligations under the Loan Agreement with Coast 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, L.L.C. ("SJMB"), as well as Mr. Underbrink, the outstanding principal and
interest on the Company's obligations to Coast,
16
<PAGE>
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.
Under its Term Loan with Coast, the Company is obligated to repay the
loan over a period of seventy-two months, commencing February 15, 2000, plus
interest on the then outstanding balance. In addition, on the last day of each
month during the first year following the closing of the loan, the Company is
obligated to make principal payments in the amount of fifty percent of its
Excess Cash Flow (as defined) during the immediately preceding month, and
thereafter, the Company is required to make principal payments in the amount of
forty percent of its Excess Cash Flow during the immediately preceding month. In
the event the actual amount of the Excess Cash Flow during the three (3) months
ended July 31, 2000 was less than the projected amount of the Company's cash
flow as presented to Coast, then on August 31, 2000, the Company is required to
make a principal payment equal to fifty percent of the difference of such
projected amount minus the actual amount. "Excess Cash Flow" during any month
means the EBITDA of the Company during such month, minus the sum of (1)
principal and interest payments made by the Company during such month, plus (2)
taxes paid by the Company in cash during such month. The Company anticipates
that by virtue of such provision, and on the basis of operations through July
31, 2000, a payment to Coast will be required. The actual amount of such payment
is as yet undetermined but is anticipated to be not less than approximately
$500,000. It is anticipated that such payment will be made from the Company's
cash resources or additional borrowings from St. James or its affiliates.
Management may also raise additional capital in conjunction with the
Company's recent recapitalization, which may be either debt or equity capital or
a combination thereof. The Company has signed an agreement with Growth Capital
Partners, L.P. ("GCP") whereby GCP will act as financial advisors to the Company
in connection with a possible private placement of equity and/or equity-related
securities or to assist in the sale of the Company, assets of the Company or one
or more operating segments of the Company. The foregoing does not constitute an
offer of any securities for sale. Such securities have not been registered under
the Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from the registration
requirements. Management expects that, upon conclusion of such a capital
infusion, its indebtedness owing to St. James Capital Partners, L.P. and its
affiliates and certain of its limited partners will be long-term or converted
into equity securities.
Management believes that, provided oil and natural gas prices remain
relatively stable with prices that existed in late1999 and the first half of
2000, the implementation of its plan together with pursuing cost reduction
opportunities, should enable the Company to operate without a further
deterioration of its liquidity condition and enable it to benefit from the
improved market for its services.
The Company has no agreements or plans to acquire any additional
companies. However, there can be no assurance that the Company will not acquire
additional companies or assets in the future, or that any such acquisitions, if
made, will be beneficial to the Company. The process of integrating acquired
properties into the Company's operations may result in unforeseen difficulties
and may require a disproportionate amount of management's attention and the
Company's resources. In connection with acquisitions, the Company could become
subject to significant contingent liabilities the Company assumes, or an
acquired entity becomes liable for, unknown or contingent liabilities or in the
event such liabilities are imposed on the Company under theories of successor
liability.
17
<PAGE>
The Company's recent recapitalization and its Loan and Security
Agreement with Coast are described in Item 1 and Item 6, respectively, of its
Annual Report on Form 10-KSB for the year ended December 31, 1999.
The note purchase agreements entered into in connection with the
private sale of $7.0 million of the Company's notes during the period December
1999 through February 2000 contain a covenant whereby the Company has agreed
that at or before the Company's next annual meeting of stockholders it will
secure an amendment to its Certificate of Incorporation to increase the number
of shares that it is authorized to issue to a number sufficient to authorize the
issuance of its currently outstanding shares and all shares that are issuable
upon the conversion of all its outstanding convertible notes and securities and
upon the exercise of any warrants or options to purchase the Company's Common
Stock. Accordingly, the failure of the stockholders of the Company to approve
the proposal to increase the number of shares of Common Stock the Company is
authorized to issue will be a breach of a covenant under the note purchase
agreements and a default under the notes. The default under the notes could
result, at the option of the holders, in the notes becoming immediately due and
payable and would also lead, under the cross default provisions of the
instruments under which such indebtedness was incurred, to a default under all
the Company's other outstanding indebtedness aggregating $27.9 million. Under
such circumstances, the holders of such indebtedness, including Coast which
holds $19.3 million of indebtedness collateralized by a senior lien on the
Company's assets, could foreclose on substantially all of the Company's assets.
As mentioned, the Company's current default position with Coast has triggered
the cross-default provisions of the $7.0 million notes sold in the period of
December 1999 through February 2000 as well as the St. James indebtedness. All
of this indebtedness is shown as currently due and payable on the Company's
condensed balance sheet for June 30, 2000.
INFLATION
The Company's revenues have been and are expected to continue to be
affected by fluctuations in the prices for oil and gas. Inflationary pressures
did not have a significant effect on the Company's operations in the three
months and six months ended June 30, 2000.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters discussed in this
Report are "forward-looking statements" as defined under the Securities Exchange
Act of 1934, as amended, that involve risks and uncertainties. Forward-looking
statements include, but are not limited to, the matters described herein,
including Management's Discussion and Analysis of Financial Condition and
Results of Operations. Such forward-looking statements relate to the Company's
ability to attain and maintain profitability and cash flow, the stability of and
future prices for oil and gas, the maintenance of current price levels for oil
and gas, pricing in the oil and gas services industry, the ability of the
Company to compete in the premium services market, the decisions by oil and gas
producers to make commitments to engage in oil and natural gas well
enhancements, the ability of the Company to expand through acquisitions and to
redeploy its equipment among regional
18
<PAGE>
operations, the ability of the Company to upgrade, modernize and expand its
equipment, including its wireline fleet, the ability of the Company to expand
its tubing conveyed perforating services, the ability of the Company to provide
services using the newly acquired state of the art tooling, the ability of the
Company to raise additional capital to meet its requirement and to obtain
additional financing, the ability of the Company to successfully implement its
business strategy, the ability of the Company to maintain compliance with the
covenants of its various loan documents and other agreements pursuant to which
securities have been issued and to obtain on reasonable terms waivers of
defaults thereunder when and as required. 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
and other factors could have a material adverse effect on the Company. The
Company is substantially dependent upon its ability to implement its plan for
addressing its financial situation, as described above, for its ability to
continue its operations as presently constituted. The Company cautions readers
that various risk factors described in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999 could cause the Company's operating
results 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 . Readers
should refer to the Annual Report on Form 10-KSB and the risk factors discussed
therein.
PART II - OTHER INFORMATION
Item 2 is not required this quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLACK WARRIOR WIRELINE CORP.
----------------------------
(Registrant)
Date: August 21, 2000 /S/ William L. Jenkins
------------------------------------------
William L. Jenkins
President and Chief Executive Officer
/S/ Ronald Whitter
------------------------------------------
Ronald Whitter
Principal Financial and Accounting Officer
