SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1998; 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 small business issuer 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)
(601) 329-1047
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (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
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State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class Outstanding at
May 15, 1998
----------------------- ----------------
COMMON STOCK, PAR VALUE 3,721,087 SHARES
$.0005 PER SHARE
Transitional Small Business Disclosure Format
YES NO X
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BLACK WARRIOR WIRELINE COPR.
QUARTERLY REPORT ON FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1998
and December 31, 1997 3
Consolidated Statements of Operations -
Three Months Ended March 31, 1998 and
March 31, 1997 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and
March 31, 1997 5
Notes to Consolidated Financial Statements -
Three Months Ended March 31, 1998 and
March 31, 1997 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 13
Item 6. Exhibits and Reports on Form 8-K 15
2
PART I - FINACIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
MARCH 31 DECEMBER 31
1998 1997
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,948,186 $ 435,845
Short-term investments 50,000 50,000
Accounts receivable, less allowance for doubtful
accounts of $146,884 and $143,559 7,754,413 5,459,689
Inventories 2,418,159 386,683
Prepaid expenses 340,609 390,144
Deferred tax asset 80,815 80,815
Other receivables 514,946 514,946
--------------- --------------
Total current assets 13,107,128 7,318,122
Land and building 245,000
Property, plant, and equipment, less accumulated
depreciation of 5,474,467 and 4,791,052 26,713,489 9,347,685
Other assets 607,862 358,521
Goodwill, less accumulated amortization of $236,498
and $134,421 11,192,048 9,061,655
--------------- -------------
Total assets $ 51,865,527 $ 26,085,983
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 5,405,645 $ 3,619,466
Accounts payable, related parties 6,090 6,090
Accrued salaries and vacation 391,147 124,376
Income tax payable 860,278 599,877
Accrued interest payable 127,333 69,041
Other accrued expenses 1,104,302 289,445
Deferred revenue 181,000 100,000
Current maturites of notes payable to banks 0 7,624
Mortgage notes payable, related party 380,000 380,000
Current maturities of long-term debt and capital
lease obligations 860,755 793,618
--------------- ------------
Total current liabilities 9,316,550 5,989,537
Deferred tax liability 1,132,513 1,132,513
Long-term accrued interest payable 194,169 150,364
Notes payable to related parties 18,070,549 8,070,549
Notes payable to banks, less current maturities 22,212
Long-term debt and capital lease obligations, less
current maturities 14,268,233 5,123,535
--------------- ------------
Total liabilities 42,982,014 20,488,710
--------------- ------------
Stockholder's equity:
Preferred stock, $.0005 par value, 2,500,000
shares authorized; none issued
at March 31, 1998
Common stock, $.0005 par value, 12,500,000
shares authorized;
3,721,087 and 2,180,596 shares issued 1,860 1,495
Additional paid-in capital 11,160,154 7,744,953
Common stock to be issued in connection with
acquisition (133,333) shares 280,000
Accumulated deficit (1,695,108) (1,845,782)
Treasury stock, at cost, 4,620 shares (583,393) (583,393)
--------------- ------------
Total stockholder's equity 8,883,513 5,597,273
--------------- ------------
Total liabilities and stockholder's equity $ 51,865,527 $ 26,085,983
=============== ============
See accompanying notes to the consolidated financial statements.
3
BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARIES
- ---------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended March 31, 1998 and March 31, 1997
March 31, 1998 March 31, 1997
(unaudited) (unaudited)
Revenues $ 9,666,024 $ 2,165,018
Operating costs 7,265,888 1,558,366
Selling, general, and administrative expenses 840,679 370,577
Depreciation and amortization 809,690 196,027
-------------- --------------
Income from operations 749,767 40,048
Interest expense and amortization of debt discount (434,760) (39,759)
Net gain on sale of fixed assets 1,944 12,059
Other income 17,345 21,593
-------------- --------------
Income before provision for
income taxes 334,296 33,941
Provision for income taxes 183,619 0
-------------- --------------
Net income $ 150,677 $ 33,941
============== ==============
Net income per common share - basic $ 0.05 $ 0.02
============== ==============
Net income per common share - diluted $ 0.03 $ 0.01
============== ==============
Weighted average common shares outstanding-
basic 3,211,678 2,180,596
============== ==============
Weighted average common shares outstanding
with dilutive securities 5,169,182 2,369,358
============== ==============
See accompanying notes to the consolidated financial statements.
4
BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARIES
- ---------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended:
March 31, March 31,
1998 1997
(unaudited) (unaudited)
Cash provided by operations : $ 766,649 $ 325,969
-------------------------------------------
Cash flows from investing activities:
Acquisitions of property, plant, and equipment (1,634,485) (252,573)
Proceeds from sale of fixed assets 28,970 29,448
Acquisition of business, net of cash acquired (397,485)
Cash used in investing
activities: (2,003,000) (223,125)
--------------------------------------------
Cash flows from financing activities:
Proceeds from bank and other borrowings 520,373
Debt issuance costs (135,000)
Principal payments on long-term debt, notes payable
and capital lease obligations (449,936) (104,954)
Proceeds from issuance of common stock, net
of offering costs 2,813,255
--------------------------------------------
Cash provided by (used in)
financing activities: 2,748,692 (104,954)
--------------------------------------------
Net increase (decrease) in cash and
cash equivalents 1,512,341 (2,110)
Cash and cash equivalents, beginning of period 435,845 727,454
---------------------------------------------
Cash and cash equivalents, end of period $ 1,948,186 $ 725,344
=============================================
Supplemental disclosure of cash flow information:
Interest paid $ 972,667 $ 37,759
Income taxes paid $ 0 $ 0
Supplemental disclosure of noncash investing and financing activities:
Notes payable incurred in connection
with business acquisition $ 19,000,000
Capital lease obligations incurred
to acquire property, plant, and
equipment $ 111,562
See accompanying notes to the consolidated financial statements.
5
BLACK WARRIOR WIRELINE CORP. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying consolidated financial statements reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the consolidated financial position of Black Warrior Wireline
Corp. and subsidiaries (the "Company"). Such adjustments are of a normal
recurring nature. 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,
1997 should be read inconjuction 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 Black Warrior
and Mississippi Salt Dome Basins in Alabama and Mississippi, the Permian Basin
in West Texas and New Mexico, the East Texas and Austin Chalk Basins in East
Texas, the Anadarko Basin in Oklahoma, the Powder River and Green River Basins
in Wyoming and Montana, and the Williston Basin in North Dakota. The Company's
principal lines of business include (a) wireline services, (b) directional oil
and gas well drilling activities, and (c) workover services.
The Company's recent growth and increased revenues has been principally
the result of five acquisitions completed since November 1996. On November 19,
1996, the Company acquired the outstanding stock of DynaJet, Inc., which has
been engaged in the wireline business in the Gillette, Wyoming area for more
than eighteen years. Its service area includes the states of Wyoming, South
Dakota, Montana and New Mexico. On June 6, 1997, the Company completed the
acquisition of Production Well Services, Inc. which has been engaged in the
wireline business in southern Alabama and southern Mississippi. On June 9, 1997,
the Company completed the acquisition of Petro-Log, Inc. which has been engaged
in the wireline business in Wyoming, Montana and South Dakota. On October 9,
1997, the Company completed the acquisition, effective September 1, 1997, of
Diamondback Directional, Inc. ("Diamondback") which has been engaged in
providing directional drilling and other oil and gas well drilling services in
the Texas and Louisiana areas. On December 15, 1997, the Company completed the
acquisition of the assets of Cam Wireline Services, Inc., which provides
wireline services in the Permian Basin. On March 16, 1998, the Company acquired
from Phoenix Drilling Services, Inc. ("Phoenix") its domestic oil and gas well
directional drilling and downhole survey service business including the related
operating assets (such acquisition is herein referred to as the "Phoenix
Acquisition") for approximately 19 million with majority of purchase price being
allocated to property, plant and equipment.
2. EARNINGS PER SHARE
THE CALCULATION OF BASIC AND DILUTED EPS IS AS FOLLOWS:
FOR THE THREE FOR THE THREE
MONTHS ENDED 1998 MONTHS ENDED 1997
---------------------------------------- ----------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
---------------------------------------- ------------ ---------------------------
NET INCOME $150677 $33941
============= ============
BASIC EPS
INCOME AVAILABLE TO COMMON
STOCKHOLDERS $150677 3211678 $0.05 $33941 2180596 $0.02
EFFECT OF DILUTIVE SECURITIES
STOCK WARRANTS 836291 140925
STOCK OPTIONS 393940 47837
CONVERTIBLE DEBT DEBENTURE 27945 727273
---------------------------------------- ------------ ---------------------------
DILUTED EPS
INCOME AVAILABLE TO COMMON
STOCKHOLDERS PLUS ASSUMED
CONVERSIONS $178622 5169182 $0.03 $33941 2369358 $0.01
======================================== ============ ===========================
OPTIONS TO PURCHASE 12,500 SHARES OF COMMON STOCK AT $8.01 PER SHARE WERE
OUTSTANDING DURING THE THREE MONTHS ENDING MARCH 31, 1998 BUT ARE NOT INCLUDED
IN THE COMPUTATION OF DILUTED EPS BECAUSE THE OPTIONS' EXERCISE PRICE WAS
GREATER THAN THE AVERAGE MARKET PRICE OF THE COMMON SHARES. THE OPTIONS, WHICH
EXPIRE DECEMBER 2002, WERE STILL OUTSTANDING AT MARCH 31, 1998.
CONVERTIBLE DEBT INTRUMENTS WHICH WOULD RESULT IN THE ISSUANCE OF 625,985 AND
1,428,571 SHARES OF COMMON STOCK, IF THE CONVERSION FEATURE WAS EXERCISED, WERE
OUTSTANDING DURING THE THREE MONTHS ENDING MARCH 31, 1998 BUT WERE NOT INCLUDED
IN THE COMPUTATION OF DILUTED EPS BECAUSE THE AFFECT WOULD BE ANTI-DILUTIVE. THE
INSTRUMENTS CAN BE CONVERTED AT $4.63 AND $7.00 PER SHARE, RESPECTIVELY AND
REMAINED OUTSTANDING AT MARCH 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
6
The Company intends to seek to expand its wireline and other oil and
gas service areas by completing strategic acquisitions of other companies
engaged in such activities. Currently the Company is primarily seeking to
consolidate its management of the operations acquired throughout 1997 and early
1998; however, it continues to explore and evaluate additional acquisitions and
may seek to pursue additional acquisition opportunities if it believes the terms
are favorable. The Company currently has no definitive agreements to acquire any
additional wireline companies. There can be no assurance that the Company will
acquire any additional wireline companies or that any such acquisitions will be
beneficial to the Company. The process of integrating acquired properties into
the Company's operations can create 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 arising from the activities of the acquired companies to
the extent the Company assumes, or an acquired entity becomes liable for,
unknown or contingent liabilities or in the event that such liabilities are
imposed on the Company under theories of successor liability.
To date, the Company has funded its acquisition activities using the
proceeds from secured lending from banks and other institutional lenders, the
private or public sale of debt and equity securities and the cash flow from its
current operations. Financing obtained to date has included borrowings secured
by substantially all of the Company's assets. The Company intends to continue to
use these sources to finance any future acquisitions. Any such capital that is
raised will be on terms yet to be negotiated and may be on terms that dilute the
interests of current stockholders of the Company. There can be no assurance that
the Company will raise additional capital when it is required to complete any
proposed acquisitions or that the Company will have or be able to raise
sufficient capital to fund its acquisition strategy.
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 Operations - General," "-
Liquidity and Capital Resources." 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, pricing in the oil and gas
services industry and the ability of the Company to compete in the premium
services market, 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, and the
7
ability of the Company to raise additional capital to meet its requirements and
to obtain additional financing, its ability to successfully implement its
business strategy, and its ability to maintain compliance with the covenants of
its various loan documents and other agreements pursuant to which securities
have been issued. The inability of the Company to meet these objectives or the
consequences on the Company from adverse developments in general economic
conditions, adverse developments in the oil and gas industry, and other factors
could have a material adverse effect on the Company. 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, 1997 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.
CONSOLIDATED RESULTS OF OPERATIONS, THREE MONTHS ENDED MARCH 31, 1998 COMPARED
TO THREE MONTHS ENDED MARCH 31, 1997
The Company's Consolidated results of operations are affected primarily
by the extent of utilization and rates paid for its services and equipment.
Revenues are also affected by the success of the Company's efforts to increase
its penetration of the market for its services both through the acquisition of
other oil and natural gas well service companies and by intensified marketing of
its services. Incremental demand for the Company's services is affected by the
level of oil and natural gas well drilling activity and efforts by oil and gas
producers to improve well production and operating efficiencies. Both short-term
and long-term trends in oil and natural gas prices affect the utilization of the
Company's services. This effect has been offset in recent years by a number of
industry trends, including advances in technology that have increased drilling
success rates and efficiency and general upgrading in technology used on the
Company's equipment.
The following table sets forth the Company's revenues from its three
principal lines of business and other revenues for the three months ended March
31, 1998 and March 31, 1997:
8
THREE MONTHS ENDED MARCH 31
1998 1997
- -----------------------------------------------------------------------------------------------
-----------------------------------------------------------
Wireline Services $ 2,873,831 $ 1,675,522
Directional Drilling 6,320,599 -0-
Workover and Completion 428,230 395,876
Other 43,364 93,620
-----------------------------------------------------------
$ 9,666,024 $ 2,165,018
===========================================================
The Company had income before provision for income taxes of $334,266
for the three months ended March 31, 1998, as compared to income before before
provision for income taxes of $33,941 in 1997. The Company experienced net
income of $150,677 for the three months ended March 31,1998 as compared to
$33,941 for the three months ended March 31,1997, after reflecting the provision
for income taxes in 1998.
Revenues increased by $7,501,006 to $9,666,024 for the three months
ended March 31, 1998 as compared to revenues of $2,165,018 for the three months
ended March 31, 1997. Of such increase, $6,750,905 was the result of
acquisitions completed during 1997 and the first quarter of 1998 and $750,101
was the result of the improved market and pricing for the Company's services. Of
the increase in wireline services revenue, $647,087 was the result of the
acquisition of Petro-Log, Inc., Production Well Services, and CAM Wireline
Services, Inc., and $551,222 was the result of increases in the Company's other
operations. The remaining increase of $6,320,599 was attributable to directional
drilling revenues resulting primarily from the Diamondback and Phoenix
acquisitions. Revenues from workover and completion activities increased 8%
during the three months ended March 31, 1998 as compared to the same period in
1997. This is a result of increased activity in workover services in the Alabama
and Mississippi area.
Operating costs increased by $5,707,522 for the three months ended
March 31, 1998, as compared to 1997. Operating costs were approximately 75.2% of
revenues in 1998 as compared with 71.9% of revenues in 1997. This increase was
due primarily to
9
the increase in the level of activities primarily as a consequence of the
acquisitions completed in 1997 and the first quarter in 1998. Salaries and
benefits increased by $146,439 for the three months ended March 31, 1998, as
compared to 1997, while the total number of employees increased from 112 at
March 31, 1997 to 317 at March 31, 1998. This was due to salary increases,
hiring of additional personnel, and the number of employees hired in conjunction
with the Phoenix Acquisition .
Selling, general and administrative expenses increased by approximately
$470,102 from $370,577 in the three months ended March 31, 1997 to $840,679 in
the three months ended March 31, 1998. As a percentage of revenues, selling,
general and administrative expenses declined from 17.1% in the three months
ended March 31, 1997 to 8.6% in 1998, primarily as a result of increased
revenues due to acquisitions completed without a significant increase in
executive and administrative personnel.
Depreciation and amortization increased from $196,027 in the three
months ended March 31, 1997, 9.0% of revenues, to $809,690 million in 1998, 8.3%
of revenues, primarily because of the higher asset base of depreciable
properties in the three months ended March 31, 1998 over the same period in
1997.
Interest expense and amortization of debt discount increased by
$395,001 for the three months ended March 31, 1998 as compared to the same
period in 1997. This was directly related to the increased amounts of
indebtedness outstanding in 1998 incurred to finance acquisitions. 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, 1997.
Income tax expense totaled approximately $183,619 for the period ended
March 31, 1998. These totals contain Federal and State deferred as well as
current amounts.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by Company operating activities was $766,649 for the
three months ended March 31, 1998 as compared to cash provided of $325,969 for
the sames period in 1997. Investing activities used cash of $2,003,000 during
the three months ended March 31, 1998, net of cash acquired, for the acquisition
of property, plant and equipment and other businesses offset by proceeds from
the sale of fixed assets of $28,970. During the three months ended March 31,
1997, acquisitions of property, plant and equipment used cash of $252,573 offset
by proceeds of $29,448 from the sale of fixed assets. Financing activities
provided cash of $2,748,692 from the net proceeds from the issuance of common
stock and $520,373 from the proceeds from bank and
10
other borrowings during the three months ended March 31, 1998 offset by
principal payments on long-term notes and capital lease obligations of $449,936.
During the three months ended March 31, 1997 principal payments on long-term
debt and capital lease obligations totaled $104,954. For the three months ended
March 31, 1998, the Company incurred debt issuance costs of $135,000.
Cash and cash equivalents at March 31, 1998 was $1,948,186 as compared
with cash at December 31, 1997 of $435,845.
The Company's recent growth and increased revenues has been principally
the result of the completion of five acquisitions since November 1996. See Note
1 to Notes to Consolidated Financial Statements.
On March 16, 1998, the Company completed the Phoenix Acquisition. The
purchase price for the Phoenix Acquisition was approximately $19.0 million.
Financing for the transaction was obtained through the sale of convertible notes
and warrants to St. James Capital Partners, L.P. ("St. James") for $10.0
million. An additional $9 million was borrowed under the Company's Loan and
Security Agreement with Fleet Capital Corp., and $3.3 million raised from the
sale in a private placement of 596,000 shares of Common Stock at a price of
$5.50 per share. See "Item 11. Security Ownership of Certain Beneficial Owners
and Management" and "Item 12. Certain Relationships and Related Transactions" in
the Company's Annual Report of Form 10-KSB for the fiscal year ended December
31, 1997. See the Company's Current Report filed March 16, 1998 for a
description of the Company's Loan and Security Agreement with Fleet Capital
Corp.
Currently, the Company has no definitive agreements to acquire any
additional wireline companies. However, there can be no assurance that the
Company will not acquire additional wireline companies 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 arising from the activities of the acquired companies to the extent
the Company assumes, or an acquired entity becomes liable for, unknown or
contingent liabilities or in the event that such liabilities are imposed on the
Company under theories of successor liability.
The Company intends to fund its acquisitions using cash flow from its
current operations as well as the possible proceeds from secured lending from
banks or other institutional lenders and the private or public sale of debt and
equity securities. Any such capital that is raised will be on terms yet to be
negotiated and may be on terms that dilute the interests of current stockholders
of the Company. Loans may be collateralized by all or a substantial portion of
the Company's assets. There can be no assurance that the Company will raise
additional capital when it is required or that the Company will have or be able
to raise sufficient capital to fund its acquisition strategy.
11
Under the terms of its agreement to acquire Diamondback, the Company
agreed to commit to make approximately $4.0 million available to the Diamondback
business for capital improvements during the years 1998 and 1999.
The Company believes that cash flow generated from operations will be
sufficient to fund its normal working capital needs and capital expenditures for
at least the next 12 months.
YEAR 2000 COMPUTER ISSUES
The Company has reviewed its computer systems and hardware to locate
potential operational problems associated with the year 2000. Such review will
continue until all potential problems are located and resolved. The Company
believes that all year 2000 problems in its computer systems have been or will
be resolved in a timely manner and have not caused and will not cause disruption
of its operations or have a material adverse effect on its financial condition
or results of operations. However, it is possible that the Company's cash flows
could be disrupted by year 2000 problems experienced by the oil and gas
production companies that utilize its services, financial institutions or other
persons. The Company is unable to quantify the effect, if any, of year 2000
computer problems that may be experienced by these third parties.
INFLATION
The Company's revenues have been and are expected to continue to be
affected by fluctuations in the prices for oil and gas. Inflation did not have a
significant effect on the Company's operations in the three months ended March
31, 1998.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Board has issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information which establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports.
This Statement requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.
12
The financial information required includes a measure of segment profit
or loss, certain specific revenue and expense items, segment assets and a
reconciliation of each category to the general financial statements. The
descriptive information required includes the way that the operating segments
were determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the general purpose financial statements, and changes in the
measurement of segment amounts from period to period.
This Statement is effective for financial statements for periods
beginning after December 15, 1997 with restatement of earlier periods required
in the initial year of application. This Statement need not be applied to
interim financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second year
of application. The Company is currently determining if these disclosure
requirements will be applicable and, therefore, required in future periods.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In March 1998, the Company sold 596,000 shares of Common Stock at a
purchase price of $5.50 per share. The securities were sold in a transaction
exempt from the registration requirements of the Securities Act of 1933, as
amended, in reliance on Regulation D, thereunder. All of the purchasers were
accredited investors as defined under Regulation D. Harris, Webb, & Garrison,
Inc., a registered broker dealer, acted as agent for the Company and received a
commission of $229,460. The net proceeds of $3,048,540 were used to fund a
portion of the purchase price and related fees of the Phoenix Acquisition.
On March 16,1998, the Company sold to St. James pursuant to a Purchase
Agreement dated January 23, 1998 (the "Agreement") the Company's $10.0 million
8% Convertible Promissory Note (the "Note") and warrants (the "Warrants") to
purchase 2,000,000 shares of Common Stock exercisable at $6.75 per share through
January 23, 2003. The securities were sold to St. James in a transaction exempt
from the registration requirements of the Securities Act of 1933 in reliance
upon Section 4(2) thereof. See Item 12 of the Company's Annual Report on Form
10-KSB for a description of this and other transactions with St. James. Payment
of principal and interest on the Note is collateralized by substantially all the
assets of the Company, subordinated, as of March 16,1998, to borrowings by the
Company from Fleet Capital Corp. in the maximum aggregate amount of $19.0
million. The Note is convertible into shares of the Company's Common Stock at
the conversion price of $7.00 per share, subject to anti-dilution adjustments
for certain issuances of securities by the Company at prices per share of Common
Stock less than the conversion price then in effect. St. James agreed to
13
subordinate its security interests and rights to the indebtedness and security
interests of the lenders providing up to $4.5 million pursuant to a term loan
and $3.0 million pursuant to a revolving credit facility. The exercise price of
the Warrants is 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. The shares issuable on conversion of the Note and
exercise of the Warrants have demand and piggy-back registration rights under
the Securities Act of 1933. The Company agreed that one person designated by St.
James will be nominated for election to the Company's Board of Directors. Mr.
John L. Thompson, currently a Director of the Company, serves in this capacity.
The Agreement grants St. James certain preferential rights to provide future
financings to the Company, subject to certain exceptions. The Note also contains
various affirmative and negative covenants, including a prohibition against the
Company consolidating, merging or entering into a share exchange with another
person, with certain exceptions, without the consent of St. James. Events of
default under the Note include, among other events, (i) a default in the payment
of principal or interest; (ii) a default under the Note and the failure to cure
such default for five days, which will constitute a cross default under each of
the other notes held by St. James; (iii) a breach of the Company's covenants,
representations and warranties under the Agreement; (iv) a breach under any of
the other agreements between the Company and St. James, subject to certain
exceptions; (v) any person or group of persons acquiring 40% or more of the
voting power of the Company's outstanding shares who was not the owner thereof
as of January 23, 1998, a merger of the Company with another person, its
dissolution or liquidation or a sale of all or substantially all its assets; and
(vi) certain events of bankruptcy. In the event of a default under the Note,
subject to the terms of an agreement between St. James and Fleet Capital Corp.,
St. James could seek to foreclose against the collateral for the Note.
St. James has agreed to convert its $2.0 million convertible note dated
June 5, 1997 and its $2.9 million convertible note dated October 10, 1997 into
shares of the Company's Common Stock at such time as the Company has filed a
registration statement under the Securities Act of 1933 relating to the shares
issuable on conversion of such notes and on exercise of the warrants issued to
St. James and such registration statement has been declared effective. The
Company intends to file a registration statement under the Securities Act of
1933 during the second quarter of 1998 to register these shares.
In March 1998, St. James agreed to certain amendments to its agreements
with the Company in connection with the Company's borrowings from Fleet Capital
Corp. to finance the Phoenix Acquisition. St. James has advised the Company that
it is seeking to be compensated for agreeing to the amendments to the terms of
its agreements with the Company. The Company and St. James are currently engaged
in negotiations regarding the terms of such compensation and the terms of such
amendment have not been finalized.
14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company filed Current Reports on Form 8-K on
February 6, 1998 in response to Items 5 and 7 and on
March 31, 1998 in response to Items 2, 5, and 7.
15
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, 1998 ----------------------------------------
William L. Jenkins
President and Chief Operating Officer
(Principal Executive, Financial and
Accounting Officer)