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
September 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 November 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
Page
----
Item 1. Financial Statements
Condensed Balance Sheets - September 30, 2000
and December 31, 1999 3
Condensed Statements of Operations -
Three Months Ended September 30, 2000 and
September 30, 1999 4
Condensed Statements of Operations -
Nine Months Ended September 30, 2000 and
September 30, 1999 5
Condensed Statements of Cash Flows -
Nine Months Ended September 30, 2000 and
September 30, 1999 6
Notes to Condensed Financial Statements -
Nine Months Ended September 30, 2000 and
September 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
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLACK WARRIOR WIRELINE CORP.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 932,892 $ 2,425,808
Short-term investments 50,000 50,000
Accounts receivable, less allowance for doubtful
accounts of $ 925,288 and $ 1,006,068, respectively 9,051,053 4,971,251
Prepaid expenses 748,180 175,268
Other receivables 147,059 146,392
Other current assets 699,501 526,884
------------ ------------
Total current assets 11,628,685 8,295,603
Land and building, held for sale 400,000 400,000
Inventories 5,277,308 4,285,206
Property, plant, and equipment, less accumulated
depreciation of $ 17,507,399 and $ 13,810,841 19,049,569 19,457,361
Other assets 1,118,108 604,649
Goodwill, less accumulated amortization of $ 433,413
and $ 361,714, respectively 3,217,466 3,289,165
------------ ------------
Total assets $ 40,691,136 $ 36,331,984
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 3,873,088 $ 6,936,572
Accrued salaries and vacation 603,630 249,296
Accrued interest payable 4,775,733 3,027,901
Other accrued expenses 1,174,726 777,598
Deferred revenue 100,000 100,000
Notes payable to related parties 26,284,016 3,041,234
Current maturities of long-term debt and capital
lease obligations 22,926,390 8,391,346
------------ ------------
Total current liabilities 59,737,583 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 59,737,583 54,478,858
Stockholders' deficit:
Preferred stock, $.0005 par value, 2,500,000 shares authorized
none issued at September 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 September 30, 2000 and December 31, 1999, respectively 3,739 2,406
Additional paid-in capital 15,828,958 13,316,081
Accumulated deficit (34,295,751) (30,881,968)
Treasury stock, at cost, 4,620 shares (583,393) (583,393)
------------ ------------
Total stockholders' (deficit) (19,046,447) (18,146,874)
------------ ------------
Total liabilities and stockholders' deficit $ 40,691,136 $ 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 September 30, 2000 and September 30, 1999
<TABLE>
<CAPTION>
September 30, 2000 September 30, 1999
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 12,947,142 $ 7,379,236
Operating costs 9,167,013 5,600,718
Selling, general and administrative expenses 1,791,142 1,150,576
Depreciation and amortization 1,307,055 1,244,405
------------ -------------
Net income (loss) from operations 681,932 (616,463)
Interest expense and amortization of debt discount (1,358,749) (844,596)
Net loss on sale of fixed assets -0- -0-
Other income 7,532 49,383
------------ -------------
Net loss $ (669,285) $ (1,411,676)
============ =============
EARNINGS PER COMMON SHARE
Net loss $ (0.09) $ (0.30)
============ =============
EARNINGS PER COMMON SHARE - ASSUMING DILUTED
Net loss $ (0.09) $ (0.30)
============ =============
Weighted average common shares outstanding 7,474,307 4,758,319
============ =============
Weighted average common shares outstanding
with dilutive securities 7,474,307 4,758,319
============ =============
</TABLE>
See accompanying notes to the condensed financial statements.
4
<PAGE>
BLACK WARRIOR WIRELINE CORP.
CONDENSED STATEMENTS OF OPERATIONS
For the nine months ended September 30, 2000 and September 30, 1999
<TABLE>
<CAPTION>
September 30, 2000 September 30, 1999
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 30,682,197 $ 20,712,934
Operating costs 22,882,574 16,564,643
Selling, general and administrative expenses 4,779,645 4,484,139
Depreciation and amortization 3,873,167 3,706,315
------------ ------------
Net Loss from operations (853,189) (4,042,163)
Interest expense and amortization of debt discount (3,595,802) (2,531,923)
Net Loss on sale of fixed assets -0- (7,263)
Other income 66,633 78,012
------------ ------------
Loss before extraordinary gain (4,382,358) (6,503,337)
Extraordinary gain on extinguishments of debt,
Net of income taxes of $0 968,575 -0-
------------ -------------
Net Loss $ (3,413,783) $ (6,503,337)
============= =============
EARNINGS PER COMMON SHARE
Loss before extraordinary item $(0.60) $(1.52)
Extraordinary item $0.14 --
------------ -------------
Net Loss $(0.46) $(1.52)
============= =============
EARNINGS PER COMMON SHARE - DILUTED
Loss before extraordinary item $(0.60) $(1.52)
Extraordinary item $0.14 --
------------ -------------
Net Loss $(0.46) $(1.52)
============= =============
Weighted average common shares outstanding 7,357,519 4,290,682
============= =============
Weighted average common shares outstanding
with dilutive securities 7,357,519 4,290,682
============= =============
</TABLE>
See accompanying notes to the condensed financial statements.
5
<PAGE>
BLACK WARRIOR WIRELINE CORP.
CONDENSED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2000 and September 30, 1999
<TABLE>
<CAPTION>
September 30, 1999 September 30, 2000
(Unaudited) (Unaudited)
<S> <C> <C>
Cash provided by (used in) operations: $ (4,982,909) $ 515,329
Cash flows from investing activities:
Acquisitions of property, plant, and equipment (2,308,939) (1,670,580)
Proceeds from sale of property, plant and equipment 34,820
Acquisition of business, net of cash acquired (511,827) -0-
------------ -----------
Cash used in investing activities: (2,820,766) (1,635,760)
Cash flows from financing activities:
Debt issuance costs (1,050,205) (319,687)
Proceeds from bank and other borrowings 21,749,391 3,266,678
Principal payments on long-term debt, notes payable
and capital lease obligations (19,440,573) (1,194,264)
Net draws (payments) on working revolver 5,052,146 (1,297,119)
------------ -----------
Cash provided by financing activities: 6,310,759 455,608
Net decrease in cash and cash equivalents (1,492,916) (664,823)
Cash and cash equivalents, beginning of period 2,425,808 1,041,242
------------ -----------
Cash and cash equivalents, end of period $ 932,892 $ 376,419
============ ===========
Supplemental disclosure of cash flow information:
Interest paid $ 1,583,118 $ 1,099,446
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 $ 129,931
Note Payable released by related party resulting in
an increase to Additional paid-in capital $ 300,000
Stock Issued as compensation $ 914,807
Capital lease obligations to acquire property, plant and equipment $ 468,000
</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 position 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, 2000.
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.
"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 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. Per the Loan Agreement, on August 31, 2000, the Company was
required a principal payment equal to fifty percent of the difference of such
projected amount minus the actual amount. The actual amount of such payment is
as yet undetermined but is anticipated to be not less than approximately $1.5
million. It is anticipated that such payment will be made from the Company's
cash resources, additional borrowings from St. James Capital Partners, L.P.
("SJCP") or its affiliates, or from certain stockholders of SJCP as their
performance under personal guarantees on the Coast indebtedness (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 completed the
purchase of MSI. The Company paid the outstanding notes payable related to the
acquired assets of approximately $363,000 and previously issued 144,445 shares
of its common stock in connection with the acquisition.
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 September 30, 2000 Ended September 30, 1999
-------------------------------------------- --------------------------------------------
Loss Shares Per Share Loss Shares Per Share
Numerator Denominator Amount Numerator Denominator Amount
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net loss $ (669,285) $ (1,411,676)
---------------------------------------------------------------------------------------------
BASIC EPS
Loss available
to common $ (669,285) 7,474,307 $ (0.09) $ (1,411,676) 4,758,319 $ (0.30)
shareholders ---------------------------------------------------------------------------------------------
EFFECT OF DILUTIVE SECURITIES
Stock warrants
Stock options
Convertible debt securities ---------------------------------------------------------------------------------------------
DILUTED EPS
Loss available
to common $ (669,285) 7,474,307 $ (0.09) $ (1,411,676) 4,758,319 $ (0.30)
shareholders ---------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
For the Nine Months For the Nine Months
Ended September 30, 2000 Ended September 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 $ (4,382,358) $ (6,503,337)
BASIC EPS
Loss available
to common $ (4,382,358) 7,357,519 $ (0.60) $ (6,503,337) 4,290,682 $ (1.52)
shareholders ---------------------------------------------------------------------------------------------
EFFECT OF DILUTIVE SECURITIES
Stock warrants
Stock options
Convertible debt securities ----------------------------------------------------------------------------------------------
DILUTED EPS
Loss available
to common $ (4,382,358) 7,357,519 $ (0.60) $ (6,503,337) 4,290,682 $ (1.52)
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 nine months ended September 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 nine months ended
September 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 September 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 September 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 September
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 September
30, 2000 included Swift Energy, Northfield Enterprises and Encor.
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
September 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 nine months ended September 30, 2000 and 1999 is as follows:
10
<PAGE>
Three months ended September 30, 2000
<TABLE>
<CAPTION>
WORKOVER
DIRECTIONAL AND
WIRELINE DRILLING COMPLETION TOTAL
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Segment revenues $6,134,689 $6,515,607 $296,846 $12,947,142
Segment EBITDA $1,114,409 $1,092,528 $ 3,606 $ 2,210,543
</TABLE>
Three months ended September 30,1999
<TABLE>
<CAPTION>
WORKOVER
DIRECTIONAL AND
WIRELINE DRILLING COMPLETION TOTAL
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment revenues $4,839,942 $2,228,014 $311,280 $7,379,236
Segment EBITDA $1,095,349 $ 59,547 $ 64,375 $1,219,271
</TABLE>
Nine months ended September 30, 2000
<TABLE>
<CAPTION>
WORKOVER
DIRECTIONAL AND
WIRELINE DRILLING COMPLETION TOTAL
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment revenues $14,989,409 $14,810,050 $882,738 $30,682,197
Segment EBITDA $ 1,735,482 $ 2,082,162 $ 65,379 $ 3,883,023
</TABLE>
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
WORKOVER
DIRECTIONAL AND
WIRELINE DRILLING COMPLETION TOTAL
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment revenues $13,100,512 $6,666,625 $ 945,797 $20,712,934
Segment EBITDA $ 2,128,286 $ 36,855 $ 140,655 $2,305,796
</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 September 30, 2000 and 1999 is presented
as follows:
Three months ended September 30:
2000 1999
Total segment EBITDA $ 2,210,543 $ 1,219,271
Depreciation and amortization (1,307,055) (1,244,405)
Unallocated corporate expense (221,556) (591,329)
----------- -----------
Income (Loss) from operations $ 681,932 $ (616,463)
=========== ===========
11
<PAGE>
Nine months ended September 30:
2000 1999
Total segment EBITDA $ 3,883,023 $ 2,305,796
Depreciation and amortization (3,873,167) (3,706,315)
Unallocated corporate expense (863,045) (2,641,644)
----------- -----------
Loss from operations $ (853,189) $(4,042,163)
=========== ===========
6. RELATED PARTY TRANSACTIONS
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 September 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.
In the third quarter of 2000, the Company entered into capital lease
agreements for approximately $468,000 with MWD Technology, Inc. which is owned
by an employee of the Company.
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 September 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 September 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
Company intends to present a resolution to increase the number of authorized
shares to 150,000,000 at a shareholders meeting in January 2001.
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
12
<PAGE>
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 $28.7
million. Under such circumstances, the holders of such indebtedness, including
Coast which holds $20.6 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 two 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 for the nine months ended September 30, 2000. Accordingly, the
Company has recognized an extraordinary gain on extinguishments of debt of
$968,575, net of income taxes of $0, for the nine months ended September 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 September 30, 2000, the Company failed certain
debt covenants 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 covenants, 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 September 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 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.
13
<PAGE>
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 SEPTEMBER 30, 2000 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1999 AND NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1999
The following table sets forth the Company's revenues from its three
principal lines of business for the three and nine months ended September 30,
2000 and 1999 respectively:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------------------------------------
9/30/00 9/30/99 9/30/00 9/30/99
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wireline $ 6,134,689 $ 4,839,942 $14,989,409 $13,100,512
Directional Drilling 6,515,607 2,228,014 14,810,050 6,666,625
Workover and Completion 296,846 311,280 882,738 945,797
------------------------------------------------------------------------
$12,947,142 $ 7,379,236 $30,682,197 $20,712,934
</TABLE>
Total revenues increased by approximately $5.6 million to approximately
$12.9 million for the three months ended September 30, 2000 as compared to total
revenues of approximately $7.3 million for the three months ended September 30,
1999. Total revenues increased by approximately $9.9 million to approximately
$30.7 million for the nine months ended September 30, 2000 as compared to
revenues of approximately $20.8 million the nine months ended September 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 $3.6 million for the three
months ended September 30, 2000, as compared to the same period of 1999.
Operating costs were 70.8% of revenues for the three months ended September 30,
2000 as compared with 75.9% of revenues in the same period in 1999. Operating
costs increased by approximately $6.3 million for the nine month ended September
30, 2000, as compared to the same period in 1999. Operating costs were 74.6% of
revenues for the nine months ended September 30, 2000 as compared with 79.9% 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
nine months ended September 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 $1.5
million for the three months ended September 30, 2000, as compared to the same
period in 1999, while the total number of employees increased from 226 at
September 30, 1999 to 300 at September 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 increased by approximately
$640,000 from $1.2 million in the three months ended September 30, 1999 to $1.8
million in the three months ended September 30, 2000. As a percentage of
revenues, selling, general and administrative expenses decreased from 15.6% in
the three months ended September 30, 1999 to 13.8% in 2000, primarily as a
result of increased revenue levels. Selling, general and administrative expenses
increased by approximately $300,000 from $4.5 million in the nine months ended
September 30, 1999 to $4.8 million in the nine months ended September 30, 2000.
As a percentage of revenues, selling general and administrative expenses
decreased from 21.6% of revenues in the nine months ended September 30, 1999 to
15.6% in 2000, primarily as a result of the increase in revenues for the period.
Depreciation and amortization increased from $1.24 million in the three
months ended September 30, 1999, or 16.9% of revenues, to approximately $1.31
million in 2000 or 10.1% of revenues, primarily because of the capital
expenditures made in the second and third quarters of 2000. Depreciation and
amortization increased slightly to $3.87 million for the nine months ended
September 30, 2000 from $3.71 million for the same period in 1999. Depreciation
and amortization as a percentage of revenues decreased to 12.5% from 17.9% due
to the increased demand for the Company's services.
Interest expense and amortization of debt discount increased by
approximately $514,000 and $1.1 million for the three and nine months ended
September 30, 2000, respectively, 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 two 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 $4.9
million for the nine months ended September 30, 2000 as compared to cash
provided of $664,000 for the same period in 1999. Investing activities used cash
of $3.3 million during the nine months ended September 30, 2000 for the
acquisition of property, plant and equipment and businesses, net of cash
acquired. During the nine months ended September 30, 1999, investing activities
used cash of approximately $1.67 million for the acquisition of property, plant
and equipment and businesses, net of cash acquired, offset by proceeds of
$34,820 from the sale of fixed assets. Financing activities provided net cash of
$6.8 million from the proceeds from bank and other borrowings of $21.8 million
and net draws on working capital revolving loan of approximately $5.1 million
during the nine months ended September 30, 2000 offset by principal payments on
bank and other borrowings and capital leases of $18.9 million and $1.1 million
of costs related to debt issuance. For the same period in 1999 financing
activities provided net cash of approximately $3.3 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 the working capital
revolving loan of $1.3 million and $319,687 of costs related to debt issuances.
Cash at September 30, 2000 was $932,892 as compared with cash at
September 30, 1999 of approximately $210,000.
The Company's outstanding indebtedness includes primarily senior
indebtedness aggregating approximately $20.6 million at September 30, 2000, owed
to Coast, other indebtedness of approximately $7.7 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 September 30, 2000, the Company
failed to meet certain debt covenants 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.
16
<PAGE>
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 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.
"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 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. Per the Loan Agreement, on August 31, 2000, the Company was
required to make a principal payment equal to fifty percent of the difference of
such projected amount minus the actual amount. The actual amount of such payment
is as yet undetermined but is anticipated to be not less than approximately $1.5
million. It is anticipated that such payment will be made from the Company's
cash resources, additional borrowings from St. James Capital Partners, L.P.
("SJCP") or its affiliates, or from certain stockholders of SJCP as their
performance under personal guarantees on the Coast indebtedness.
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 late 1999 and the first three
quarters of 2000, the implementation of its plan as discussed in the Company's
Annual Report on Form 10-KSB, 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
17
<PAGE>
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 $28.7 million. Under
such circumstances, the holders of such indebtedness, including Coast which
holds $20.6 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 September 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 nine months ended September 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
18
<PAGE>
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 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 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: November 14, 2000 /S/ William L. Jenkins
-----------------------------------------
William L. Jenkins
President and Chief Executive Officer
/S/ Ronald Whitter
-----------------------------------------
Ronald Whitter
Principal Financial and Accounting Officer
20
