SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 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.
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(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
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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)
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 May 15, 2000, 7,478,927 shares of the Registrant's Common Stock,
$.0005 par value, were outstanding.
<PAGE>
BLACK WARRIOR WIRELINE COPR.
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Page
----
<S> <C>
Item 1. Financial Statements
Condensed Balance Sheets - March 31, 2000
and December 31, 1999 3
Condensed Statements of Operations -
Three Months Ended March 31, 2000 and
March 31, 1999 4
Condensed Statements of Cash Flows -
Three Months Ended March 31, 2000 and
March 31, 1999 5
Notes to Condensed Financial Statements -
Three Months Ended March 31, 2000 and
March 31, 1999 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 15
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLACK WARRIOR WIRELINE CORP.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 35,600 $ 2,425,808
Short-term investments 50,000 50,000
Accounts receivable, less allowance for doubtful
accounts of $ 982,281 and $ 1,006,068, respectively 5,541,398 4,971,251
Prepaid expenses 339,373 175,268
Other receivables 148,392 146,392
Other current assets 571,814 526,884
--------------- ---------------
Total current assets 6,686,577 8,295,603
Land and building, held for sale 400,000 400,000
Inventories 4,544,407 4,285,206
Property, plant, and equipment, less accumulated
depreciation of $ 14,999,294 and $ 13,810,841 19,407,304 19,457,361
Other assets 1,392,758 604,649
Goodwill, less accumulated amortization of $ 385,505
and $ 361,714, respectively 3,265,374 3,289,165
--------------- ---------------
Total assets $ 35,696,420 $ 36,331,984
=============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 2,700,408 $ 6,936,572
Accrued salaries and vacation 350,014 249,296
Accrued interest payable 260,803 3,027,901
Other accrued expenses 1,018,172 777,598
Deferred revenue 100,000 100,000
Current maturities of notes payable to banks
Notes payable to related parties 1,282,890 3,041,234
Current maturities of long-term debt and capital
lease obligations 13,189,776 8,391,346
--------------- ---------------
Total current liabilities 18,902,063 22,523,947
Accrued interest payable 3,395,727
Notes Payable to related parties 22,636,525 21,412,356
Long-term debt and capital lease obligations, less
Current maturities 7,805,872 10,542,555
--------------- ---------------
Total liabilities 52,740,187 54,478,858
Stockholders' deficit:
Preferred stock, $.0005 par value, 2,500,000 shares
authorized none issued at March 31, 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 March 31, 2000 and December 31,
1999, respectively 3,739 2,406
Additional paid-in capital 15,758,248 13,316,081
Accumulated deficit (32,222,361) (30,881,968)
Treasury stock, at cost, 4,620 shares (583,393) (583,393)
--------------- ---------------
Total stockholders' (deficit) (17,043,767) (18,146,874)
--------------- ---------------
Total liabilities and
stockholders' deficit $ 35,696,420 $ 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 March 31, 2000 and March 31, 1999
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 8,276,366 $ 6,072,282
Operating costs 6,733,912 5,554,290
Selling, general and administrative expenses 1,509,212 830,002
Depreciation and amortization 1,299,337 1,323,357
--------- -------------
Net Loss from operations (1,266,095) (1,635,367)
Interest expense and amortization of debt discount (996,040) (844,340)
Net Loss on sale of fixed assets -0- (9,000)
Other income 21,806 20,761
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Loss before extraordinary gain (2,240,329) (2,467,946)
Extraordinary gain on extinguishments of debt,
Net of income taxes of $0 899,936 -0-
------- ---
Net Loss $ (1,340,393) $ (2,467,946)
============= =============
Net Loss per common share- basic $(0.19) $(0.63)
======= =======
Net Loss per common share- diluted $(0.19) $(0.63)
======= =======
Weighted average common shares outstanding 7,151,963 3,914,109
========= =========
Weighted average common shares outstanding
with dilutive securities 7,151,963 3,914,109
========= =========
</TABLE>
See accompanying notes to the condensed financial statements.
4
<PAGE>
BLACK WARRIOR WIRELINE CORP.
CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2000 and March 31, 1999
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
(Unaudited) (Unaudited)
<S> <C> <C>
Cash used in operations: $ (3,800,802) $ (1,413,212)
Cash flows from investing activities:
Acquisitions of property, plant, and equipment (793,193) (223,605)
Proceeds from sale of property, plant and equipment 26,000
Acquisition of business, net of cash acquired (362,705) -0-
------------ ------------
Cash used in investing activities: (1,155,898) (197,605)
Cash flows from financing activities:
Debt issuance costs (1,050,205) (37,868)
Proceeds from bank and other borrowings 20,733,733 2,500,000
Principal payments on long-term debt, notes payable
and capital lease obligations (17,117,036) (394,209)
Net payments on working revolver -0- (1,129,134)
------------ ------------
Cash provided by financing activities: 2,566,492 938,789
Net decrease in cash and cash equivalents (2,390,208) (672,028)
Cash and cash equivalents, beginning of period 2,425,808 1,041,242
------------ ------------
Cash and cash equivalents, end of period $ 35,600 $ 369,214
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 313,036 $ 498,862
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 $ 78,501
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 $ 300,000
</TABLE>
See accompanying notes to the condensed financial statements.
5
<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
consolidated 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").
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
6
<PAGE>
purchase 28.7 million shares of Common Stock. All of the Company's remaining
indebtedness is subordinated to the indebtedness owing to Coast.
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 March 31, 2000 Ended March 31, 1999
-------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loss Shares Per Share Income Shares Per Share
Numerator Denominator Amount Numerator Denominator Amount
----------------------------------------------------------------------------------------------
Net income (loss) $ (1,340,393) $(2,467,946)
============= ============
BASIC EPS
Income (loss) available
to common
shareholders $(1,340,393) 7,151,963 $(0.19) $(2,467,946) 3,914,109 $(0.63)
----------------------------------------------------------------------------------------------
EFFECT OF DILUTIVE SECURITIES
Stock warrants
Stock options
Convertible debt securities
DILUTED EPS
Income (loss) available
to common
shareholders $(1,340,393) 7,151,963 $(0.19) $(2,467,946) 3,914,109 $(0.63)
-----------------------------------------------------------------------------------------------
</TABLE>
Options and warrants to purchase 63,531,394 and 19,539,747 shares of
common stock at prices ranging from $0.75 to $8.01 in 2000 and $1.50 to $8.01 in
1999 were outstanding during the three months ended March 31, 2000 and 1999,
respectively, but were not included in the computation of diluted EPS because
the effect would be anti-dilutive.
Convertible debt instruments which would result in the issuance of
35,200,000 and 12,933,333 shares of common stock, if the conversion features
were exercised, were outstanding during the three months ended March 31, 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 March 31, 2000.
7
<PAGE>
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 consolidated
financial position, results of operations or cash flows of the Company.
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 consolidated
financial position, results of operations or cash flows of the Company.
5. SEGMENT AND RELATED INFORMATION
At March 31, 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 ending March 31,
2000 included Burlington Resources, Collins & Ware, Inc., 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
8
<PAGE>
customers of this segment for the quarter ending March 31, 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 March
31, 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 months ended March 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
WORKOVER
DIRECTIONAL AND
2000 WIRELINE DRILLING COMPLETION TOTAL
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment revenues $ 4,353,486 $ 3,626,146 $ 296,734 $ 8,276,366
Segment EBITDA $ 439,650 $ 186,915 $ 25,876 $ 652,441
<CAPTION>
WORKOVER
DIRECTIONAL AND
1999 WIRELINE DRILLING COMPLETION TOTAL
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment revenues $ 3,554,374 $ 2,191,878 $ 326,030 $ 6,072,282
Segment EBITDA 83,783 (35,052) 51,297 100,028
</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 March 31, 2000 and 1999 is presented as
follows:
<TABLE>
<CAPTION>
EBITDA 2000 1999
<S> <C> <C>
Total segment EBITDA $ 652,441 $ 100,028
Depreciation and amortization (1,299,337) (1,323,357)
Unallocated corporate expense (619,199) (412,038)
---------------- -----------------
Income (loss) from operations $ (1,266,095) $ (1,635,367)
=============== ==============
</TABLE>
6. RELATED PARTY TRANSACTIONS
The Company opened a wireline facility in South Texas in January 1999
primarily to service a customer who has some common ownership with the Company.
During the three months ended March 31, 2000, this customer accounted for
approximately 6.25% of total revenues.
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
9
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affiliated with a member of the Company's Board of Directors, 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.
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 March 31, 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 March 31,
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 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 $17.2 of indebtedness secured 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 quarter 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 $899,936. Accordingly, the Company has recognized an extraordinary gain on
extinguishments of debt of $899,936, net of income taxes of $0. An additional
$300,000 of related party debt was waived and recorded as an increase in
additional paid in capital.
10
<PAGE>
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 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 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.
RESULTS OF OPERATIONS. THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1999
The following table sets forth the Company's revenues from its three
principal lines of business for the three months ended March 31, 2000 and 1999
respectively:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------
3/31/00 03/31/99
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Wireline $ 4,353,486 $ 3,554,374
Directional Drilling 3,626,146 2,191,878
Workover and Completion 296,734 326,030
------------------------------------------
$ 8,276,366 $ 6,072,282
</TABLE>
11
<PAGE>
Total revenues increased by approximately $2.2 million to approximately
$8.3 million for the three months ended March 31, 2000 as compared to total
revenues of approximately $6.1 million for the three months ended March 31,
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.
Operating costs increased by approximately $1.2 million for the three
months ended March 31, 2000, as compared to the same period of 1999. Operating
costs were 81.4% of revenues for the three months ended March 31, 2000 as
compared with 91.5% of revenues in the same period in 1999. The increase was
primarily the result of the higher overall level of activities in the first
quarter of 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 $483,000 for the three
months ended March 31, 2000, as compared to the same period in 1999, while the
total number of employees increased from 221 at March 31, 1999 to 266 at March
31, 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 increased by $679,000 from
$830,002 in the three months ended March 31, 1999 to $1.5 million in the three
months ended March 31, 2000. As a percentage of revenues, selling, general and
administrative expenses increased from 13.7% in the three months ended March 31,
1999 to 18.2% in 2000, primarily as a result of bad debt recoveries in 1999 as
well as increases in loan administrative costs, bad debts and insurance expenses
during 2000.
Depreciation and amortization decreased from $1,323,357 in the three
months ended March 31, 1999, or 21.8% of revenues, to approximately $1.3 million
in 2000 or 15.7% of revenues, primarily because of the lower net asset base of
depreciable properties in the three month period ended March 31, 2000 over the
same period in 1999.
Interest expense and amortization of debt discount increased by
$152,000 for the three months ended March 31, 2000 as compared to the same
period 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 quarter 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 $899,936. Accordingly, the Company has recognized an extraordinary gain on
extinguishments of debt of $899,936, net of income taxes of $0.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by the Company's operating activities was approximately $3.8
million for the three months ended March 31, 2000 as compared to cash used of
$1.4 million for the same period in 1999. Investing activities used cash of $1.2
million during the three months ended March 31, 2000 for the acquisition of
property, plant and equipment and businesses, net of cash acquired. During
12
<PAGE>
the three months ended March 31, 1999, investing activities used cash of
approximately $224,000 for the acquisition of property, plant and equipment and
businesses, net of cash acquired, offset by proceeds of $26,000 from the sale of
fixed assets. Financing activities provided net cash of $2.8 million from the
proceeds from bank and other borrowings of approximately $20.8 million during
the three months ended March 31, 2000 offset by principal payments on bank and
other borrowings and capital leases of $17.1 million and $1.1 million of costs
related to debt issuance. For the same period in 1999 financing activities
provided net cash of approximately $2.5 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
$1.5 million and $37,868 of costs related to debt issuances.
Cash at March 31, 2000 was $35,600 as compared with cash at March 31,
1999 of approximately $369,000.
The Company's outstanding indebtedness includes primarily senior
indebtedness aggregating approximately $17.2 million at March 31, 2000, owed to
Coast, other indebtedness of approximately $7.1 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 March 31, 2000, the Company failed
to meet the debt service ratio test under the Loan Agreement with Coast. The
Company has requested and received a waiver of compliance with the covenant at
March 31, 2000.
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, and such person 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.
Management may also seek to raise additional capital in conjunction
with the Company's recent recapitalization, which may be either debt or equity
capital or a combination thereof. 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 quarter of
2000, the implementation of the foregoing plan together with the cost reduction
program implemented in 1998, should enable the Company to
13
<PAGE>
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.
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 $37.9 million. Under
such circumstances, the holders of such indebtedness, including Coast which
holds $17.2 million of indebtedness secured by a senior lien on the Company's
assets, could foreclose on substantially all of the Company's assets.
INFLATION
The Company's revenues have been and are expected to continue to be
affected by fluctuations in the prices for oil and gas. Inflationary pressures
did not have a significant effect on the Company's operations in the three
months ended March 31, 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
14
<PAGE>
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 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. 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. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the period through February 14, 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 the
Company's senior secured lender, Coast Business Credit, a division of Southern
Pacific Bank. The Notes bear 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
15
<PAGE>
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. The securities were sold in reliance upon the exemption from the
registration requirements of the Securities Act of 1933 afforded by Section 4(2)
thereof and Regulation D there under.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLACK WARRIOR WIRELINE CORP.
----------------------------
(Registrant)
Date: May 15, 2000 /S/ William L. Jenkins
--------------------------------
William L. Jenkins
President and Chief Executive Officer
/S/ Ronald Whitter
--------------------------------
Ronald Whitter
Principal Financial Officer
16
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