Our forward-looking statements are basedoil and natural gas producing countries and merger and divestiture activity among oil and natural gas producers. The volatility of oil and natural gas prices and the consequential effect on assumptions that we believeexploration and production activity could adversely impact the Company’s customers' activity levels. One indicator of drilling and production spending is fluctuation in rig count which the Company actively monitors to be reasonable, but that may not prove to be accurate. All of our forward-looking information is, therefore, subject to risksgauge market conditions and uncertainties thatforecast product and service demand. A reduction in drilling activity could cause actual results to differ materially froma decline in the results expected. Although it is not possible to identify all factors, these risks and uncertainties includedemand for, or negatively affect the risk factors discussed below.

Risks Related to Our Business

We have not had profitable operations during 2009 and may not be profitable in 2010.

We have experienced net losses during the last two fiscal years, including a loss in eachprice of, some of the four quartersCompany’s products and services. Domestic demand for oil and natural gas could also be uniquely affected by public attitude regarding drilling in environmentally sensitive areas, vehicle emissions and other environmental standards, alternative fuels, taxation of 2009. There can be no assurance that we will be able to successfully execute our planoil and gas, perception of operations for 2010,“excess profits” of oil and that even if we are successfulgas companies, and anticipated changes in execution of our plan, that we will be profitable in 2010.

governmental regulation and policy.

The reduction inthe Company.

We depend primarily on our customers’ willingness to make operatinghire experienced personnel, capable of using and capital expenditures to explore for, develop and produce oil and gas inmaintaining the United States. Customers’ expectations of market prices for oil and gas may curtail spending thereby reducing demand for our products and services. Industry conditions inERP system. If the United States are influenced by numerous factors over which we have no control, suchERP system does not operate as the supply of and demand for oil and gas, domestic and international economic conditions, political instability in oil and gas producing countries and merger and divestiture activity among oil and gas producers. The volatility of the oil and gas industry and the consequent effect on exploration and production activityintended, it could adversely affect the levelfinancial reporting systems, the Company’s ability to produce financial reports, and/or the effectiveness of drilling and production activity by some of our customers. One indication of drilling and production activity and spending is rig count, which the company monitors to gauge market conditions. A reduction in drilling may cause a decline in the demand for, or adversely affect the price of, our products and services. Reduced discovery rates of new oil and gas reserves in our market areas could also have a negative long-term impact on our business, even in an environment of stronger oil and gas prices. In addition, domestic demand for oil and gas may be uniquely affected by public attitudes regarding drilling in environmentally sensitive areas, vehicle emissions and other environmental standards, alternative fuels, taxation of oil and gas and “excess profits” of oil and gas companies,internal control over financial reporting, and the costs to remediate these deficiencies could be material.

Wethe Company may not be able to generate sufficient cash flows,finance strategic growth plans, to meet our debt service obligationstake advantage of business opportunities or other liquidity needs, and we may not be able to successfully negotiate waivers or a new credit agreement to cure any covenant violations under our current credit agreements.

On several occasions we have failed to meet, or have projected that we would in the future fail to meet, the financial covenant requirements in our bank credit facility. We have been required on these occasions to seek waivers of such covenant violations and amendments to our bank credit facility to modify these covenants. Most recently, we were not in compliance with certain of the financial covenants in our bank credit agreement as of December 31, 2009.

Our ability to generate sufficient cash flows from operations to make scheduled payments or mandatory prepayments on our current debt obligations and other future debt obligations we may incur will depend on our future financial performance, which may be affected by a range of economic, competitive, regulatory and

industry factors, many of which are beyond our control. If as a result of our financial performance or other events we violate the financial covenants in our debt agreements or are unable to generate sufficient cash flows or otherwise obtain the funds required to make principal and interest payments on our indebtedness, we may have to seek waivers of these covenants from our lenders or undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital expenditures or seeking to raise additional capital through the issuance of debt securities or other securities. We cannot assure you that we will be able to obtain any required waivers from our lenders or that we will be able to accomplish any necessary refinancing, sale of assets or issuance of securities on terms that are acceptable. Our inability to obtain any required waivers, to generate sufficient cash flows to satisfy such obligations, or to refinance our obligations on commercially reasonable terms, would have an adverse effect on our business, financial condition and results of operations.

The tightening of the credit markets or a downgrade in our credit ratings could increase our borrowing costs and make it more difficult for us to access funds, to refinance our existing indebtedness, to enter into agreements for new indebtedness or to obtain funding through the issuance of securities. If such conditions were to persist, we would seek alternative sources of liquidity, but may not be able to meet our obligations as they become due.

Our debt agreements also contain representations, warranties, fees, affirmative and negative covenants, and default provisions. A breach of any of these covenants could result in a default under these agreements. Upon the occurrence of an event of default under our debt agreements, the lenders could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. If the lenders accelerate the repayment of borrowings, we may not have sufficient assets to repay our indebtedness. Also, should there be an event of default, or should we need to obtain waivers following an event of default, we may be subject to higher borrowing costs and/or more restrictive covenants in future periods. Acceleration of any obligation under any of our material debt instruments will permit the holders of our other material debt to accelerate their obligations.

On March 31, 2010, we entered into an Amended and Restated Credit Agreement with new lenders which refinanced our existing bank credit facility. The new credit agreement restricts the payment of dividends and does not contain a revolving line of credit facility, however, it does not contain quarterly or annual covenants. See “Item 8. Financial Statements and Supplementary Data,” Note 19 of our consolidated financial statements for a description of our new senior credit facility.

Our new senior credit facility contains certain covenants that could limit our flexibility and prevent us from taking certain actions, which could adversely affect our ability to execute our business strategy.

Our new senior credit facility, as amended includes a number of significant restrictive covenants. These covenants could adversely affect us by limiting our ability to plan for or react to market conditions, meet our capital needs and execute our business strategy. The new senior credit facility contains covenants that, among other things, limit our ability, without the consent of the lender, to:

These covenants may restrict our operating and financial flexibility and limit our ability to respond to changes in our business or competitive activities. If we fail to comply with these covenants, we could be in default, and our new senior credit facility lender could elect to declare all the amounts borrowed and due to them, together with

accrued and unpaid interest, to be due and payable. In addition, we or one or more of our subsidiaries could be forced into liquidation or bankruptcy. Any of the foregoing consequences could restrict our ability to execute our business strategy. In addition, such default and acceleration of our new senior credit facility could lead to a default under our convertible senior notes.

Ourpressures.

insufficient or unavailable to protect against potential loss exposures.

We are

In 2005, the Kyoto Protocol to the 1992 United Nations Framework Convention on Climate Change, which establishes a binding set of emission targets for greenhouse gases, became binding on the countries that had ratified it. In the United States, federal legislation imposing restrictions on greenhouse gases is under consideration. Proposed legislation has been introduced that would establish an economy-wide cap on emissions of greenhouse gases and would require most sources of greenhouse gas emissions to obtain greenhouse gas emission “allowances” corresponding to their annual emissions. In addition, the Environmental Protection Agency (the “EPA”) is taking steps that would result in the regulation of greenhouse gases as pollutants under the Clean Air Act. To date, the EPA has issued (i) a “Mandatory Reporting of Greenhouse Gases” final rule, effective December 29, 2009, which establishes a new comprehensive scheme requiring operators of stationary sources in the United States emitting more than established annual thresholds of carbon dioxide-equivalent greenhouse gases to inventory and report their greenhouse gas emissions annually; and (ii) an “Endangerment Finding” final rule, effective January 14, 2010, which states that current and projected concentrations of six key greenhouse gases in the atmosphere, as well as emissions from new motor vehicles and new motor vehicle engines, threaten public health and welfare, allowing the EPA to finalize motor vehicle greenhouse gas standards (the effect of which could reduce demand for motor fuels refined from crude oil). Finally, according to the EPA, the final motor vehicle greenhouse gas standards will trigger construction and operating permit requirements for stationary sources. As a result, the EPA has proposed to tailor these programs such that only large stationary sources will be required to have air permits that authorize greenhouse gas emissions.

is no assurance that the measures we have taken or may take in the future, will prevent misappropriation of our proprietary information or provide us with a competitive advantage, or thatdissuade others will not independently developfrom independent development of similar products or services, design around our proprietary or patented technology or duplicate our products or services. Moreover, there can beis no assurance that these protectionsthe Company will be available in all cases or will be adequateable to prevent our competitors from copying, reverse engineering or otherwise obtaining andand/or using ourthe Company’s technology and proprietary rights orfor products. We haveAs of the date of this Annual Report, the Company has not

In addition, some

We have from time

We

Our

Although most of ourthe Company’s international revenue is derived from transactions denominated in United StatesU.S. dollars, we havethe Company has conducted, and most likely will continue to conduct, some business in currencies other than the United StatesU.S. dollar. WeThe Company currently dodoes not hedge against foreign currency fluctuations. Accordingly, ourthe Company’s profitability could be affected by fluctuations in foreign exchange rates. We have

The loss

We also keepinternationally.

We

Ourprofits.

At

We did not file our Quarterly Reports on Form 10-Q for the quarters ended June 30 and September 30, 2009 in a timely manner. We filed requests for an extension of time to file these reports and subsequently filed our Form 10-Qs within the extension period. A failure to file our reports timely with the SEC will result in our inability to file registration statements using any registration form other than Form S-1, which is more time consuming and costly to prepare, for a period of time. This limitation, if realized, may hamper our ability to raise capital in the financial markets. Additionally, the late filing of reports with the SEC would result in a technical default of our various debt obligations.

Competition from new

Our

strategies.

If we do not meet the New York Stock exchange continued listing requirements, our common stock may be delisted, which could have an adverse impact on the liquidity and market price of our common stock.

Our common stock is currently listed on the New York Stock Exchange (“NYSE”). Under the NYSE’s continued listing standards, a company is considered to be below compliance standards if, among other things, (i) both its average global market capitalization is less than $50 million over a 30 trading-day period and its stockholders’ equity is less than $50 million; (ii) its average global market capitalization is less than $15 million over a 30 trading-day period, which will result in immediate initiation of suspension procedures; or (iii) the average closing price of a listed security is less than $1.00 over a consecutive 30 trading-day period. We have received notification from the NYSE that we are not in compliance with the NYSE’s continued listing requirements because both our 30 trading-day average global market capitalization and our last reported stockholders’ equity were below the respective $50 million requirements. When a listed company’s stock falls below the market capitalization and stockholders’ equity standard, a company is considered “below criteria,” and the company is permitted to submit a business plan demonstrating its ability to return to compliance with these continued listing standards within 18 months of receipt of the NYSE notification. We have submitted a plan of action to the NYSE which we believe will allow us to once again achieve compliance with the minimum listing requirements of the NYSE no later than June 28, 2011. During the plan implementation process, our common stock will continue to be listed on the NYSE, subject to our compliance with other NYSE continued listing requirements. On March 29, 2010, the NYSE agreed to accept our plan of action.

If our shares of common stock are delisted from the NYSE and we are unable to list our shares of common stock on another U.S. national or regional securities exchange or have our shares of common stock quoted on an established over-the-counter trading market in the United States within 30 days, we will be required to make an offer to repurchase all of our outstanding convertible notes at a price of 100% of the principal amount thereof plus accrued and unpaid interest. We may not have sufficient funds to pay the purchase price for any convertible notes that are tendered to us if we are required to make this offer to repurchase.

A delisting of our common stock could also negatively impact us by: (i) reducing the liquidity and market price of our common stock; (ii) reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; and (iii) decreasing the amount of news and analyst coverage for us. In addition, we may experience other adverse effects, including, without limitation, the loss of confidence in us by current and prospective suppliers, customers, employees and others with whom we have or may seek to initiate business relationships, and our ability to attract and retain personnel by means of equity compensation could be impaired.

We have

convertible senior notes or otherassociated with any convertible securities including our convertible preferred stock, we may issue inof the future,Company, or through exercise of outstanding warrants may create downward pressure on the trading price of ourthe Company’s common stock. WeThe Company may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock for raisingin order to raise capital or effectuate other business

On March

We2012.

Also, holders

On March 31, 2010, in connection with the Exchange Agreement, we expectcertain other tax attributes to exchange $40 million of convertible senior notes foroffset future taxable income. In general, an ownership change occurs if the aggregate considerationstock ownership of $36 millioncertain stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years). An ownership change could limit the Company’s ability to utilize existing NOLs and tax attribute carryforwards for taxable years including or following an identified “ownership change.” Transactions involving the Company’s common stock, even those outside the Company’s control, such as purchases or sales by investors, within the testing period, could result in new convertible senior secured notesan “ownership change”. Limitations imposed on the ability to use NOLs and $2 milliontax credits to offset future taxable income could require the Company to pay U.S. federal income taxes in sharesexcess of our common stock.

that which would otherwise be required if such limitations were not in effect. net operating losses and tax attributes could expire unused, in each instance reducing or eliminating the benefit of the NOLs and tax attributes. Similar rules and limitations may apply for state income tax purposes.

Since August 7, 2009, several other class action suits have been commenced by others concerning the foregoing matters.

We intend to mount a vigorous defense to these claims. Discovery has not yet commenced. At this time, we are unable to reasonably estimate the outcome of this litigation.

Other Litigation

We areCompany is subject to routine litigation and other claims that arise in the normal course of business. We areManagement is not aware of any pending or threatened lawsuits or proceedings which wouldthat are expected to have a material effect on ourthe Company’s financial position, results of operations or liquidity.

Equity Compensation Plan Information

the highest average annual U.S. rig count was 1,879 in 2008. With the decline and volatility of natural gas and oil prices in 2009, tightening and uncertainty in the credit markets and the global economic slowdown, drilling rig activity in North America declined significantly. The average active North American rig count declined 42.0% in 2009 as compared to 2008.

The weakening economic conditions that began to significantly weigh upon the energy markets in early October 2008 continued throughout 2009. The slowdown in the economy, particularly the industrial sector, coupled with the successful production results in the unconventional shale and tight sands plays in the U.S. led to a natural gas oversupply situation, which negatively impacted natural gas price forecasts. This in turn reduced the return potential of drilling projects causing less drilling activity as exploration and production (“E&P”) companies slashed their 2009 capital budgets. Oil prices showed some resilience toward the end of 2009; however our business is more dependent on the North American gas markets than oil markets. Therefore, the recovery of oil prices toward the end of 2009 did little to support a significant improvement in our business performance. In total, this translated into lower demand and weaker prices for oilfield services throughout North America. Late in the fourth quarter of 2008, we began to take actions to scale our business to cope with these factors by implementing various cost containment actions such as deferring employee salaries, reducing travel levels, suspending the 401(k) match, and eliminating any non-essential discretionary expenditures. Early in 2009, we took actions to size the workforce to our expected near-term work load, resulting in headcount reductions, including contract employees and full and part time employees. In conjunction with the market downturn, we decreased inventory levels and took advantage of declining raw material prices to meet our customers demand for competitive pricing. Our Drilling Products segment is tied closely to rig count, especially vertical rigs, and the significant reductions in rig count had an adverse effect on our business. Despite these pressures we were able to maintain our market share through service quality, product innovation, and competitive bundling of product offerings.

The sharp drop in natural gas and oil prices in the latter part of 2008 resulted in lower drilling activity, higher inventories, and further market erosion in 2009 as a result of a worldwide economic slowdown which led to a rapid and substantial reduction in exploration and production expenditures. In addition, margins were under significant pressure as customers sought lower prices for oilfield services and we, in turn sought price reductions from our suppliers.

Forecasting the depth and length of the current cycle is challenging, as it is different from past cycles due to the overlay of the worldwide financial crisis in combination with broad demand weakness. During the fourth quarter of 2009, U.S. drilling rig count averaged 1,108, as compared to 970 in the third quarter, an increase of 14.2%. While we expect to see continued increases in U.S. drilling activity in 2010, the timing and magnitude of the increase remains uncertain. The acceleration of drilling activity isheavily influenced by a numberexpectations of factors including commodity prices, globalfuture supply and forecast demand for oil and natural gas supplyproducts, as well as forecast costs to find, develop and depletion rates ofproduce reserves, the continued shift in oil and natural gas reserves,exploration and production spending sustained record demand for the Company’s products and services in r 2012 and 2011, as well as broader variables such as government monetarycompared to 2010. As the Company continuously strives to maintain a dynamic focus on customers demands for products and fiscal policy.

Theservices, strategically the Company has aligned itself with oil field services sector seems to have experienced its low point earlydrilling activity, but, remains vigilantly watchful for further shifts in market and customer demands.