Click here to Contents





|
|
|
|




United States  SECURITIES AND EXCHANGE COMMISSION  Washington, DC  20549





FORM 10-K





|Mark One: |                                                            
|--------- | -----------------------------------------------------------
|          |                                                            
|          | For the fiscal year ended December    31, 2004; or         
|          |                                                            
|          |                                                            
|          | For the transition period from    __________ to __________.




Commission File No. 0-18754





|BLACK WARRIOR WIRELINE CORP.                             
|---------------------------------------------------------
|                                                         
|(Exact name    of Registrant as specified in its charter)




|Delaware                                                              |  | 11-2904094                           
|--------------------------------------------------------------------- |  | -------------------------------------
|                                                                      |  |                                      
|(State or other jurisdiction of 
      Incorporation or organization) |  | (IRS Employer
    Identification No.)
|                                                                      |  |                                      
|100    Rosecrest, Columbus, Mississippi                               |  | 39701                                
|                                                                      |  |                                      
|(Address    of Principal Executive Offices)                           |  | (Zip Code)                           




|(662)  329-1047                                           
|----------------------------------------------------------
|                                                          
|(Registrants
      telephone number, including area code)




Securities Registered
Pursuant to Section 12(b) of the Act: NONE





Securities Registered Pursuant to Section 12(g) of the Act:


(Title of Each Class)Common Stock, par value $.0005 per share





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  past twelve (12) months (or for such shorter period that the registrant was  required to file such reports), and (2) has been subject to such filing  requirements for the past ninety (90) days.       Yes      No





Indicate by  check mark if disclosure of delinquent filers pursuant to Item 405 of  Regulation S-K is not contained herein and will not be contained, to the best  of registrants knowledge, in definitive proxy or information statements  incorporated by reference in Part III of this Form 10-K, or any amendment to  this Form 10-K.





Indicate by  check mark whether the registrant is an accelerated filer (as defined in Rule  12b-2 of the Act).   Yes      No





State the  aggregate market value of the voting and non-voting common equity held by  non-affiliates computed by reference to the price at which the common equity  was last sold, or the average bid and asked price of such common equity, as of  the last business day of the registrants most recently completed second fiscal  quarter.





$2,749,896





(Non-affiliates  have been determined on the basis of holdings set forth under Item 12 of this  Annual Report on Form 10-K.)





Indicate  the number of shares outstanding of each of the registrants classes of common  stock, as of the latest practicable date:





| | Class:  Common    Stock, par value $.0005 per share
| | ---------------------------------------------------
| | Outstanding at February 28, 2005:12,499,528 shares 




DOCUMENTS INCORPORATED BY  REFERENCE





No documents are  incorporated by reference into this Annual Report on Form 10-K





|
|
|
|



Back to Contents





Table of Contents





|Item    Number |                                                                                                                    | Page
|-------------- | ------------------------------------------------------------------------------------------------------------------ | ----
|               |                                                                                                                    |     
|               | Part I                                                                                                             |     
|               |                                                                                                                    |     
|Item 1.        | Business                                                                                                           | 1   
|               |                                                                                                                    |     
|Item 2.        | Properties                                                                                                         | 18  
|               |                                                                                                                    |     
|Item 3.        | Legal    Proceedings                                                                                               | 19  
|               |                                                                                                                    |     
|Item 4.        | Submission    of Matters to a Vote of Security Holders                                                             | 19  
|               |                                                                                                                    |     
|               | Part II                                                                                                            |     
|               |                                                                                                                    |     
|Item 5.        | Market for    Registrants Common Equity, Related Stockholder Matters and Issuer Purchases    of Equity Securities | 20  
|               |                                                                                                                    |     
|Item 6.        | Selected    Financial Data                                                                                         | 21  
|               |                                                                                                                    |     
|Item 7.        | Managements    Discussion and Analysis of Financial Condition and Results of Operations                           | 23  
|               |                                                                                                                    |     
|Item 7A.       | Quantitative    and Qualitative Disclosures About Market Risk                                                      | 36  
|               |                                                                                                                    |     
|Item 8.        | Financial    Statements and Supplementary Data                                                                     | 37  
|               |                                                                                                                    |     
|Item 9.        | Changes    in and Disagreements With Accountants on Accounting and Financial Disclosure                            | 37  
|               |                                                                                                                    |     
|Item 9A.       | Controls    and Procedures                                                                                         | 38  
|               |                                                                                                                    |     
|Item 9B.       | Other    Information                                                                                               | 38  
|               |                                                                                                                    |     
|               | Part III                                                                                                           |     
|               |                                                                                                                    |     
|Item 10.       | Directors    and Executive Officers of the Registrant                                                              | 39  
|               |                                                                                                                    |     
|Item 11.       | Executive    Compensation                                                                                          | 41  
|               |                                                                                                                    |     
|Item 12.       | Security    Ownership of Certain Beneficial Owners and Management and Related Stockholder    Matters               | 46  
|               |                                                                                                                    |     
|Item 13.       | Certain    Relationships and Related Transactions                                                                  | 48  
|               |                                                                                                                    |     
|Item 14.       | Principal    Accountant Fees and Services                                                                          | 51  
|               |                                                                                                                    |     
|               | Part IV                                                                                                            |     
|               |                                                                                                                    |     
|Item 16.       | Exhibits    and Financial Statement Schedules                                                                      | 52  




---



Back to Contents





PART I





Item 1.  Business





General





Black  Warrior Wireline Corp. (the Company) is an oil and gas well service company  currently primarily providing wireline services to oil and gas well  operators.  The Companys service area  includes primarily the Black Warrior and Mississippi Salt Dome Basins in  Alabama and Mississippi, the Permian Basin in West Texas and New Mexico, the  San Juan Basin in New Mexico, Colorado and Utah, the East Texas and Austin  Chalk Basins in East Texas, the Powder River and Green River Basins in Wyoming  and Montana, the Williston Basin in North Dakota and areas of the Gulf of  Mexico offshore Louisiana and South Texas.   In July 2001, the Company sold its workover and completion line of  business and in August 2004, the Company sold its directional oil and gas well  drilling and downhole surveying business.     The Company has been engaged in the oil
 and gas well
service business  for over 21 years.





On
    December 17, 2004, the Company announced in a press release that it had entered
    into a letter of intent dated November 11, 2004 with Lincolnshire Management,
    Inc. for the sale of the Company to an affiliate of Lincolnshire Management,
    Inc.  At
    April 12, 2005, the Company is engaged in negotiations relating to the terms
    and
conditions of that transaction, among other matters.  There  can be no assurance
that these negotiations will be successfully concluded resulting in terms acceptable
to the Company or that the Company will enter into a transaction on the terms
described in the December 17, 2004 announcement or on any other terms.





Wireline Services





The  Companys wireline logging service activities produced revenues of $53.8  million in 2004, $45.8 million of revenues in 2003, and $34.1 million of  revenues in 2002.   At December 31,  2004, the Company owned 39 operational motor vehicle mounted wireline units all  of which are equipped with a state-of-the-art computer system, six are equipped  with an analog computer system and eight are devoted exclusively to hoisting  operations.  In addition, as of December  31, 2004, the Company owned 15 operational skid-mounted cased-hole wireline  units, all of which are equipped with state of the art computers, and three  additional skid-mounted units are devoted to providing services for the plug  and abandonment (P&A) of wells.   The skid-mounted units are able to be used for offshore work by being hoisted  aboard barges and
 platforms.





The truck  or skid-mounted wireline logging services are used to evaluate downhole well  conditions at various stages of the process of drilling and completing oil and  gas wells as well as at various times thereafter until the well is depleted,  plugged and abandoned.  Such services  are provided using a wireline unit equipped with an armored cable that is  lowered by winch into an existing well.  The cable lowers  instruments and tools into the well to perform a variety of services and  tests.  The wireline units instrument  cab contains electronic equipment to supply power to the downhole instruments,  to receive and record data from those instruments in order to produce the  logs which define specific characteristics of each formation and to display  the data received from downhole.  The  Companys wireline units are equipped with
 state-of-the-art computerized





-1-


---



Back to Contents





Open-hole  wireline services are performed after the drilling of the well but prior to its  completion.  Cased-hole wireline  services are performed during and after the completion of the well, as well as  from time to time thereafter during the life of the well.  The Companys services primarily relate to  providing cased-hole wireline services. Cased-hole services include radioactive  and acoustic logging used to evaluate downhole conditions such as lithology,  porosity, production patterns and the cement bonding effectiveness between the  casing and the formation.  Other  cased-hole services include perforating, using conventional wireline methods  and tubing conveyed perforating (TCP), both of which open up the casing to  allow production from the formation(s), and free-point and back-off, which  locates and frees pipe that has become lodged in the
 well. 
Cased-hole services are used in the initial  completion of the well and in virtually all subsequent workover and stimulation  projects throughout the life of the well.   After depletion of a well, the operator is required to plug the well  prior to its abandonment.  The Companys  plug and abandonment equipment is utilized for this purpose by pumping cement  into the well and capping the well.





The Company  performs its wireline services at the well site for operators of the wells  primarily pursuant to contracts entered into on a bid basis at prices related  to Company standard prices.





These  services are routinely provided to the Companys customers and are subject to  the customers time schedule, weather conditions, availability of Company  personnel and complexity of the operation.   These wireline service procedures generally take approximately one to  one-and-one-half days to perform.  These  services are provided using Company-owned equipment throughout its service area  dispatched from its sixteen service facilities located throughout its service  area.  During the year ended December  31, 2004, approximately 48.5% of the Companys wireline service revenues were  derived from onshore activities and approximately 51.5% from offshore  activities.





Manufacturing.  The Company operates a manufacturing  facility located in Laurel, Mississippi to assemble and install wireline  service equipment, both mounted on motor vehicles and on wireline skids, for  internal use and for sale to others.   During the year ended December 31,2004,  the Company manufactured for internal use four new wireline trucks and two new  offshore wireline skids.  The  manufacturing facility also totally refurbished for internal use seven wireline  trucks.





-2-


---



Back to Contents





Discontinued  Directional Drilling Services





The  Companys discontinued directional drilling services contributed revenues of  $10.5 million in 2004, $19.7 million in 2003, and $22.5 million in 2002.  Commencing in 1997 through August 2004, the  Company was engaged in the directional drilling service business since its  acquisitions of Diamondback Directional, Inc. in 1997 and Phoenix Drilling Services  in 1998.  The Company sold its directional  drilling services business in August 2004.





Directional  drilling is the intentional deviation of a well bore.  The deviation is achieved by utilizing downhole motors and  guidance equipment to move the well bore in a given direction and intersect a  target formation at an angle up to horizontal.





The Company  also provided directional surveying services and directional surveying  equipment to operators in the oil and gas industry.  These services include gyros, magnetic, single shot, high  accuracy magnetic probe, electric surface recording gyro, and measurement while  drilling services.





Sale  of Directional Drilling Services.  On August 6, 2004, the  Company completed the sale of its assets associated with its directional drilling  business, (referred to as the Multi-Shot Business) pursuant to an Asset  Purchase Agreement entered into on June 3, 2004. The buyer of the Multi-Shot  Business was a newly-organized Texas limited liability company, with the name  Multi-Shot, LLC, which included among its members Allen Neel, formerly the  Executive Vice President of the Company, as well as two of the Companys other  former employees employed in the Multi-Shot Business.  These persons are referred to as the Key Multi-Shot  Employees.  The Company has been advised  that as of August 6, 2004, these persons held less than an approximately 10%  equity interest in the buyer.





The  transaction included the sale of all the Companys assets used in the  Multi-Shot Business, including certain real property located in Odessa, Texas;  improvements and fixtures located on the property; machinery, equipment,  trucks, trade fixtures, data processing equipment, furniture, spare parts, and  all other tangible personal property used in connection with the Multi-Shot  Business; raw materials, jobs in progress, equipment and components held for  service, rent or sale, and supply inventory; customer and supplier files,  accounting and financial and other records; contracts, leases, agreements and  other written or verbal arrangements and customer pre-payments for unshipped  goods and services; technical data, written specifications, assembling and  process information; governmental and other licenses and permits, to the extent  transferable; service marks, trade
 marks and
intellectual property; general  intangibles; accounts and other receivables as of the closing date; deposits,  goodwill; and prepaid rentals.





-3-


---



Back to Contents





The  assets sold excluded the Companys cash and cash equivalents, real property  located in Broussard, Louisiana and Corpus Christi, Texas, investments, the  purchase price for the Multi-Shot Business, and all assets of the Company used  in its wireline, P&A and TCP business.   The buyer assumed specified liabilities, jobs in progress, current  liabilities of approximately $3.7 million, as of the closing date, and  obligations of the Company under contracts assumed.  Liabilities assumed by the buyer do not include taxes imposed on  the Company arising out of the operation of the Multi-Shot Business,  liabilities or expenses of the Company arising out of the transaction,  obligations of the Company under employee benefit plans, liabilities arising  from the sale of products or services by the Multi-Shot Business prior to the  closing date of the sale, including
 claims asserted
under pre-closing  warranties, liabilities associated with any claim, proceeding or litigation,  deferred revenue, and liabilities and obligations arising out of non-compliance  with environmental laws.





The  purchase price was $11.0 million consisting of $10.4 million in cash and  approximately $628,000 payable by assignment and release by the three Key  Multi-Shot Employees of their claims under their employment agreements with the  Company to change of control payments that may be due in the aggregate of that  amount.  The purchase price was subject  to adjustment at and as of the closing of the sale for increases and decreases  in the Multi-Shot Business net working capital of $270,000 as of November 30,  2003 and increases and decreases in its inventory of approximately $5,207,000  as of December 31, 2003.  On the basis  of an initial closing date balance sheet prepared by the Company and delivered  at the closing of the sale on August 6, 2004, the purchase price was reduced by  a net adjustment of approximately $22,000.   This net adjustment reflected a
 decrease in net
working capital  subsequent to November 30, 2003 through the closing of approximately $552,000,  and an increase in inventory value subsequent to December 31, 2003 through the  closing of approximately $530,000.





The  Asset Purchase Agreement provides that within 45 days after the closing, the  buyer was to prepare and deliver a proposed final closing date balance sheet to  include the buyers calculation of the final adjustment amounts for increases  and decreases as of the closing date in net working capital of $270,000 as of  November 30, 2003 and increases and decreases as of the closing date in  inventory of approximately $5,207,000 as of December 31, 2003, which  adjustments, when determined, would result in establishing the final purchase  price.





In  addition to post closing adjustments, at the closing of the transaction the  buyer issued a note payable to the Company in the principal amount of $146,085  for certain capital expenditures made by the Company related to the Multi-Shot  Business prior to the closing. The Asset Purchase Agreement provides that the  note is to bear interest at the prime interest rate and was to become due two  years after the closing of the transaction, but would become immediately due  upon a change of control of the Company or upon a sale or merger of Multi-Shot  LLC or a sale of all or substantially all of the assets of Multi-Shot LLC.  The final amount of the note at closing was  calculated based on the capital expenditures made by the Company related to the  Multi-Shot Business through the date of the closing of the transaction.





-4-


---



Back to Contents





In  the Asset Purchase Agreement, the Company made representations and warranties  as to its due organization, authority to execute and perform the Asset Purchase  Agreement, its title to and condition of the assets sold, matters relating to  the contracts assumed by the buyer, ownership and condition of the equipment  sold, title to inventory and absence of liens, the existence of licenses to  conduct the Multi-Shot Business, matters as to employment of employees,  compliance with laws, absence of litigation and default or breach of any  leases, contracts or licenses, the absence of any lien or breach of the Asset  Purchase Agreement arising out of the transaction, the enforceability of the  Asset Purchase Agreement, the accuracy of certain financial information provided  to the buyer, employee benefits, the absence of certain changes or events,  required consents and approvals,
 absence of adverse
information, liens on  assets, identity of customers, insurance, interest in customers, business  practices, environmental laws and accuracy of disclosure.





The  buyer represented and warranted its due organization, its authority to execute  and perform the Asset Purchase Agreement, the enforceability against it of the  Asset Purchase Agreement, and the absence of any breach or violation of other  agreements.





The closing  of the transaction was conditioned on the accuracy as of the closing of the  respective representations and warranties of the parties, the absence of any  condition or event that had or would reasonably be expected to have a material  adverse effect on the Multi-Shot Business or on the Companys ability to  complete the transaction, the compliance by the parties with all the covenants  and agreements contained in the Asset Purchase Agreement as of the closing, the  delivery of closing officers certificates, documents and opinions, the absence  of any litigation seeking to restrain or prohibit the transaction or asserting  ownership of a material portion of the assets sold or any claim by any person  that it is entitled to all on any portion of the purchase price, the buyer  obtaining financing for the transaction, the Company having obtained all  necessary
 approvals and
consents to complete the transaction, and the Company  having obtained a fairness opinion from Simmons & Company International.





The Asset  Purchase Agreement provides that the Company will indemnify the buyer, its  members, managers, officers, partners, agents and employees against costs,  lawsuits, liabilities, deficiencies, claims and expenses (referred to in the  Asset Purchase Agreement as Damages) arising out of a breach of a covenant or  warranty, the inaccuracy of any representation in the Asset Purchase Agreement  or other document furnished under the Asset Purchase Agreement, or based upon  or arising out of any liability or obligation of the Multi-Shot Business  relating to any period prior to the closing date, other than assumed  liabilities, arising out of facts and circumstances existing prior to the  closing date, other than assumed liabilities, or arising out of facts or  circumstances existing on the closing date which are a violation of the Asset  Purchase Agreement or relate to the violation
 of any
government regulation with  respect to real property while the Company was in possession of the property.





-5-


---



Back to Contents





The  Asset Purchase Agreement provides that the buyer will indemnify the Company,  its directors, officers, partners, agents and employees from Damages arising  out of a breach of a covenant or warranty, the inaccuracy of any representation  in the Asset Purchase Agreement or other document furnished under the Asset  Purchase Agreement, or based upon or arising out of any liability or obligation  of the Multi-Shot Business relating to any period on and after the closing  date, arising out of facts and circumstances existing as of or after the  closing date, other than those based upon or arising out of liabilities  retained by the Company, or arising out of facts or circumstances existing on  and after the closing date which are a violation of the Asset Purchase  Agreement.





As entered into, the Asset Purchase  Agreement provides that the  Companys representations and warranties as to title to assets, taxes and  environmental matters survive the closing of the transaction for the period of  the applicable statute of limitations.   The Companys other representations and warranties survive the closing  for a period ending on the earlier of twenty-four (24) months following the  closing date or a change of control of the Company, provided in any event such  representations and warranties will survive the closing for a period of twelve  (12) months.  The representations and  warranties of the buyer survive the closing for a period ending on the earlier  of twenty-four (24) months from the closing or a change in control of the  Company, provided in any event such representations and warranties will survive  the closing for a period of
 twelve (12)
months.  Neither party is entitled to indemnification for any individual  claim of less than $5,000 or until the total of all individual claims exceeding  that amount exceed $100,000, at which time the indemnified party will be  entitled to indemnification for all amounts exceeding $100,000.  The Companys liability to the buyer for  indemnification arising out of breaches of representations and warranties  relating to title of assets, taxes and environmental matters, and including any  other indemnification payments, is limited to the amount of the final purchase  price.  Otherwise, a partys liability  to the other for indemnification is limited to $5.0 million with respect to  claims made during the first twelve months after the closing date or $2.5  million with respect to claims made during the second twelve months after the  closing date, provided, however, if there is a change in control of the Company  consummated at any time prior to twenty-four
 months after the
closing date,  then upon the later of (a) the change in control of the Company, or (b) one  year following the closing date, the liability of both parties is reduced to  $-0- as to claims for Damages occurring thereafter.





Other  covenants in the Asset Purchase Agreement as entered into include the  following:





| |  | If, within twelve months of the
closing, there is a change of control of the Company, the Company has agreed
that it will not dissolve its corporate entity prior to the end of the
indemnification period described above and it will deposit $500,000 to be held in escrow and if such change of    control occurs prior to December 31, 2004, the Company agreed not to    distribute prior to December 31, 2004 the proceeds from such event to its    stockholders to the extent it causes the Company to have less than $5.0    million in liquid assets,
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




-6-


---



Back to Contents





| |  | After termination of the Agreement or the closing,    the parties will not divulge, communicate or use to the detriment of the    other or for the benefit of any other person, any confidential information or    trade secrets of such party.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




In  addition, the Asset Purchase Agreement provided that at the closing each party  would execute a non-competition agreement, whereby each party agrees that for a  period of two years from the closing date neither party (and including the  affiliates of the parties) will participate in a business in competition with  the business engaged in by the other party as of the closing under the Asset  Purchase Agreement in the Gulf Coast, Rocky Mountain or Mid-Continent areas of  the United States.  The Companys  non-competition agreement will terminate upon the sale of 50% or more of the  capital stock of the Company in a bona-fide transaction to a third party  purchaser in which the current officers or directors of the Company own,  cumulatively, not more than a 10% interest.   Additionally, the Companys non-competition agreement will not apply to  any third party
 purchaser of 50% or
more of the assets of the Company in a  bona-fide transaction to a third party purchaser in which the current officers  or directors of the Company own, cumulatively, not more than a 10% interest,  nor will the provisions of the Companys non-competition agreement apply to any  third party, unrelated investment entity and its affiliates that become an  affiliate of the Company by virtue of making an investment in the Company.





The parties  also entered into a transition services agreement at the closing whereby the  Company agreed to provide for up to 180 days after the closing to the buyer  certain consulting services of its director of information technology, human  services, chief financial officer and human resources and benefits  administrator, as well as access to the Companys computer network.





The parties  entered into an amendment to the Agreement on June 10, 2004 to correct a  drafting error.





Out of the net cash proceeds from the sale of  the Multi-Shot Business, approximately $9.6 million was applied to the  reduction of indebtedness owing to the Companys senior secured creditor.





In  February 2005, the Company entered into a Compromise Agreement with the buyer  resolving certain matters that had arisen under the Asset Purchase Agreement  subsequent to the closing.  Among the  matters resolved was the determination of the final purchase price adjustment  under the asset purchase agreement and resolution of the capital expenditure  note issued by the buyer at the closing.  Pursuant to the Compromise Agreement, the  Company paid to the buyer $940,000, and the principal amount of the buyers  capital expenditure note, which was increased to approximately $168,000, was  deemed paid.  Among other things, the  Companys payment reflected a compromise with respect to any and all claims of  the buyer with respect to accounts receivable and also reflected a compromise  with respect to the final purchase price adjustment.  In addition, the
 Companys
 representations warranties and  covenants in the Asset Purchase Agreement as to the Multi-Shot Business  relating to inventory, net working capital, purchase price adjustments,  financial statements, accounts receivable, condition of assets (other than real  property and leased real property) were agreed not to survive the execution of  the Compromise Agreement.  Otherwise,  the representations warranties and covenants
of the Asset Purchase Agreement  continue in effect.  The Compromise  Agreement also effected an amendment of events constituting a change of control  of the Company to provide that if the obligations of the Company survive the  transaction, then neither a merger of the Company with any other person or firm  nor a sale of 50% or more of the Companys issued and outstanding stock would  be deemed to be a change of control of the Company for the purposes of Section  6.11 of the Asset Purchase Agreement.   Section 6.11 of the Asset Purchase Agreement provides that if a change  of control of the Company occurs on or before August 6, 2005, the Company will  not dissolve until the end of the Companys indemnification obligation period  under the Asset Purchase Agreement and the Company will deposit $500,000 in  escrow to be held subject to the claims of the buyer under the indemnification  provisions of the Asset Purchase Agreement.   The Compromise also provided
 that the transition
services agreement  expired.





-7-


---



Back to Contents





Other  Services





The Company  also engages in other oil and gas well service activities including, primarily,  the sale, rental and service of tools and equipment used in the oil field  services industry and conducts tool and equipment inspection, maintenance and  testing services.  These activities are  not deemed by management to be material.





Principal  Customers and Marketing





There were  no customers from which the Company earned in excess of 10% of its revenues  during the three years ended December 31, 2004.  The Company does not have any long-term agreements with its  customers and services are provided pursuant to short-term agreements  negotiated by the Company with the customer.





The  Companys services are marketed by its executive officers and a sales staff of  approximately 30 persons working  from its district offices.    The  Company relies extensively on its reputation in the industry to create customer  awareness of its services.





-8-





---



Back to Contents





Operating  Hazards and Insurance





The  services of the Company are used in oil and gas well drilling, workover and  production operations that are subject to inherent risks such as blow-outs, fires,  poisonous gas and other oil and gas field hazards, many of which can cause  personal injury and loss of life, severely damage or destroy equipment, suspend  production operations and cause substantial damage to property of others.  Ordinarily, the operator of the well assumes  the risk of damage to the well, the producing reservoir and surrounding  property and revenue loss in the event of accident, except in the case of gross  or willful negligence on the part of the Company or its employees.





The Company  has general liability, property, casualty, officers and directors, and  workers compensation insurance.   Although, in the opinion of the Companys management, the limits of its  insurance coverage are consistent with industry practices, such insurance may  not be adequate to protect the Company against liability or losses occurring  from all the consequences of such risks or incidents.  The occurrence of an event not fully covered by insurance (and a  determination of the liability of Company for consequential losses or damages)  could result in substantial losses to the Company and have a materially adverse  effect upon its financial condition, results of operations, and cash flows.





The Company  maintains two policies totaling $2.0 million on the life of William L. Jenkins,  its President and Chief Executive Officer, and maintains a $1.0 million policy  on the life of Danny Ray Thornton, Vice President.  See Item 10, Directors and Executive Officers of the  Registrant.  The benefits under such  policies are payable to the Company.





Competition





Most of the  Companys competitors are divisions of larger diversified corporations which  offer a wide range of oilfield services.   Its chief competitors include Halliburton Company, Schlumberger, Ltd.  and Baker Hughes Incorporated, as well as a number of other companies active in  the industry.  These competitors have  substantially greater economic resources than the Company.  Recent business combinations involving oil  and gas service companies may have the effect of intensifying competition in  the industry.  Periods of declines in  oil and natural gas commodity prices result in reduced demand for oil and  natural gas well services and thereby intensified competition adversely  affecting the Companys revenues and financial condition.





-9-


---



Back to Contents





Competition  principally occurs in the areas of technology, price, quality of products and  field personnel, equipment availability and facility locations. Because most  services are awarded based on competitively quoted bids, price competition  remains a significant characteristic of the industry.  Salesmanship and equipment availability are also important  factors in securing the award of contracts.   The Companys ability to offer more technologically advanced services is  believed by management to have reduced the extent of the Companys exposure to  severe price competition.  The Company  continues to make a conscious effort to compete, not just on price, but also on  its ability to offer advanced technology, experienced personnel, and a safe  working environment.





The  Companys growth is dependent upon its ability to attract and retain skilled  oilfield, marketing and management personnel.   The competition for such qualified employees is frequently intense and  there can be no assurance that sufficient qualified persons will be available  at such times as the Company requires their services or that the services of  such persons will not be attracted by the Companys competitors.  Losses of marketing and sales personnel to  competitors has adversely affected and could in the future adversely affect the  Companys revenues.





Regulation





The oil and  gas business is a heavily regulated industry.   The Companys activities are subject to various licensing requirements  and minimum safety procedures and specifications, anti-pollution controls on  equipment, waste discharge and other environmental and conservation  requirements imposed by federal and state regulatory authorities.  Numerous governmental agencies issue  regulations to implement and enforce laws which are often difficult and costly  to comply with, and the violation of which may result in the revocation of  permits, issuance of corrective action orders, assessment of administrative and  civil penalties and even criminal proceedings.





In its  operations, the Company is subject to the following statutes, among others:





| |  | The federal Resource Conservation and Recovery Act    and comparable state statutes.  The    U.S. Environmental Protection Agency (EPA) and state agencies have limited    the approved methods of disposal for some types of hazardous and    non-hazardous wastes.  The Company    generates wastes, some of which are hazardous wastes.                                                                                                                                                                                                                                                                                       
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | The federal Comprehensive Environmental Response,    Compensation, and Liability Act, also known as the Superfund law, and    comparable state statutes impose liability, without regard to fault or    legality of the original conduct, on classes of persons that are considered    to have contributed to the release of a hazardous substance into the    environment.  These persons include    the owner or operator of the disposal site or the site where the release    occurred and companies that disposed of or arranged for the disposal of the    hazardous substances at the site where the release occurred.




-10-


---



Back to Contents





| |  | The federal Water Pollution Control Act and    analogous state laws impose restrictions and strict controls regarding the    discharge of pollutants into state waters or waters of the United    States.  The discharge of pollutants    are prohibited unless permitted by the EPA or applicable state agencies.  In addition, the Oil Pollution Act of 1990    as amended by the Coast Guard Authorization Act of 1996, imposes a variety of    requirements on responsible parties related to the prevention of oil spills    and liability for damages, including natural resource damages, resulting from    such spills in waters of the United States.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Management of the Company believes that the Company is in substantial  compliance with the above laws.





The Company  is not currently the subject of any, nor is it aware of any, threatened  investigations or actions under any federal or state environmental,  occupational safety or other regulatory laws.   The Company believes that it will be able to continue compliance with  such laws and regulations without a material adverse effect on its earnings and  competitive position.  However, there  can be no assurance that unknown future changes in such laws and regulations  would not have such an effect if and when such changes occur.





Employees





As of March  1, 2005, the Company employed approximately 337 persons on a full-time basis.  Of the Companys employees, 19 are management personnel, 16 are administrative  personnel and 302 are operational personnel.   None of the Companys employees is represented by a labor union, and the  Company is not aware of any current activities to unionize its employees.  Management of the Company considers the  relationship between the Company and its employees to be good.





Incorporation





The Company  was incorporated under the laws of the State of Delaware in 1987 under the name  Teletek, Ltd. and in June 1989 changed its name to Black Warrior Wireline Corp.  concurrently with merging with a predecessor of the Company incorporated under  the laws of the State of Alabama.  The  Company and its predecessors have been engaged in providing oil and gas well support  services since 1984.





-11-


---



Back to Contents





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.  The Company intends that the forward-looking  statements herein be covered by the safe-harbor provisions for forward-looking  statements contained in the Securities Exchange Act of 1934, as amended, and  this statement is included for the purpose of complying with these safe-harbor  provisions.  Forward-looking statements  include, but are not limited to, the matters described below as risk factors,  as well as under Item 1.   Business - General, - Principal Customers and  Marketing, -Operating Hazards and Insurance, --Competition, and  --Regulation. Item 7. 
Managements  Discussion and Analysis of Financial Condition and Results of Operations  - General, -Twelve-Month Periods Ended December 31, 2004 and 2003,  -Twelve-Month Periods Ended December 31, 2003 and 2002, -Possible Future  Impairment of Long-Lived Assets, - Liquidity and Capital Resources,  -Significant Accounting Policies and Item 7A. Quantitative and Qualitative  Disclosure About Market Risk.  Such  forward-looking statements relate to the Companys ability to generate revenues  and attain and maintain profitability and cash flow, the stability and level of  prices for oil and natural gas, predictions and expectations as to the  fluctuations in the levels of oil and natural gas prices, pricing in the oil  and gas services industry and the willingness of customers to commit for oil  and natural gas well services, the ability of the Company to engage in any  other strategic
 transaction,
including any possible merger, sale of all or a  portion of the Companys assets or other business combination transaction  involving the Company, the ability of the Company to negotiate acceptable terms  and conclude a transaction with an affiliate of Lincolnshire Management, Inc.  for a sale of the Company, the ability of the Company to raise additional debt  or equity capital to meet its requirements and to obtain additional financing  when required, the ability of the Company to maintain compliance with the  covenants of its various loan documents and other agreements pursuant to which  securities, including debt instruments, have been issued and obtain waivers of  violations that occur and consents to amendments as required, the Companys  ability to implement and, if appropriate, expand a cost-cutting program, the  ability of the Company to compete in the premium oil and gas services market,  the ability of the Company to re-deploy its equipment among regional
 operations  if and when
required, and the ability of the Company to provide services using  state of the art tooling.  The inability  of the Company to meet these objectives or requirements or the consequences on  the Company from adverse developments in general economic conditions, changes  in capital markets, adverse developments in the oil and gas industry,  developments in international relations and the commencement or expansion of  hostilities by the United States or other governments and events of terrorism,  declines and fluctuations in the prices for oil and natural gas, and other  factors could have a material adverse effect on the Company.  Material declines in the prices for oil and  gas can be expected to adversely affect the Companys revenues.  The Company cautions readers that various  risk factors described below could cause the Companys operating results and  financial  condition 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  and plans.  Risk factors that could  affect the Companys revenues, profitability and future business operations  include, among others, the following:





-12-


---



Back to Contents





Risks  Related to the Company





Restrictions  On Operations Imposed by Lenders; Borrowings Secured by Substantially All the  Companys Assets.  The  Company has outstanding at December 31, 2004 senior secured indebtedness  aggregating approximately $7.9 million under its Restated Credit Agreement with  General Electric Capital Corporation (GECC).   This indebtedness is collateralized by substantially all the Companys  assets.  The instruments governing the  Companys indebtedness to GECC impose significant operating and financial  restrictions on the Company.  Failure to  maintain compliance with these covenants could result in the Company being  unable to make further borrowings under its revolving credit arrangement with  GECC which borrowings are necessary to enable the Company to fund its ongoing  operations.  The financial covenants prohibit the
 Company from making
capital  expenditures in any fiscal year in an aggregate amount exceeding $3.0 million  and require the Company to have at the end of each fiscal quarter commencing  with the quarter ending December 31, 2004 a ratio of EBITDA to fixed charges,  including interest expense, scheduled payments of principal, capital  expenditures paid and income taxes paid, for the twelve months then ended of  1.5 to 1.0.  For the purpose of such  calculation, fixed charges for the twelve months ended December 31, 2004 are  calculated as the fixed charges for the quarter ended December 31, 2004  multiplied by four, fixed charges for the twelve months ended March 31, 2005  are calculated as the fixed charges for the six months ended March 31, 2005  multiplied by two, and fixed charges for the twelve months ended June 30, 2005  are calculated as the fixed charges for the nine months  ended June 30, 2005 multiplied by one and  one-third.  Such restrictions, as  well as various other
 affirmative and negative
covenants in the Credit  Agreement, affect, and in many respects significantly limit or prohibit, among  other things, the ability of the Company to incur additional indebtedness, pay  dividends, repay indebtedness prior to its stated maturity, sell assets or  engage in mergers or acquisitions.   These restrictions also limit the ability of the Company to effect  future financings, make certain capital expenditures, withstand a downturn in  the Companys business or economy in general, or otherwise conduct necessary  corporate activities.  The Credit  Agreement places restrictions, and under certain circumstances prohibitions, on  the Companys ability to borrow money under the revolving credit provisions of  the Credit Agreement.  The Companys  ability to borrow under this revolving credit arrangement is necessary to fund  the Companys ongoing operations and a default under the Credit Agreement could  impair or terminate the Companys ability
 to borrow funds
under the revolving  credit provisions.   If the Company were  to default on its indebtedness owing to GECC and such indebtedness was  accelerated so as to become due and immediately payable, there can be no  assurance that the assets of the Company would be sufficient to repay in full  such indebtedness and the Companys other liabilities.  In addition, the acceleration of the Companys indebtedness owing to GECC would constitute a default under  other indebtedness of the Company owing to other creditors, which may result in  such other indebtedness also becoming immediately due and payable. Under such  circumstances, the holders of the Companys Common Stock may realize little or  nothing on their investment in the Company.





-13-


---



Back to Contents





On various  occasions in the past, the Company was in violation of covenants contained in  the Companys Credit Agreement with GECC entered into in on September 14, 2001.  There can be no assurance that the Company  will not again violate certain of the covenants of its existing Credit  Agreement.





Substantial  Dilution.  The Company has  outstanding as of February 28, 2005, common stock purchase warrants, options  and convertible notes which, including accrued interest that is also  convertible, are entitled to purchase or be converted into an aggregate of  135,256,461 shares of the Companys Common Stock at exercise and conversion  prices ranging from $0.75 to $2.63.   Accordingly, if all such securities were exercised or converted, the  12,499,528 shares of Common Stock issued and outstanding on February 28, 2005,  would represent 8.5% of the shares outstanding on a fully diluted basis.  Of the Companys outstanding common stock  purchase warrants, options and convertible notes, including interest,  135,251,461 shares of Common Stock are issuable at an exercise or conversion  price of $0.75 per share.   At February  28, 2005, the
 exercise price of
the warrants exceeded the market price of the  Companys Common Stock on the OTCBB (Over the Counter Bulletin Board).





The  Companys convertible notes outstanding in the principal amount of $23.0  million as of December 31, 2004, accrue interest at the rate of 15% per annum.  Under the terms of the Companys Credit  Facility, the Company is prohibited from paying interest currently on such  indebtedness.  During the year ended  December 31, 2004, $3.5 million of interest accrued on such indebtedness which,  at a conversion price of $0.75 of accrued interest for one share of the  Companys Common Stock, is convertible into approximately 4.6 million  shares.  During the year ending December  31, 2005, the Company expects that an additional $3.5 million of interest will  accrue on such notes which at December 31, 2005 will be convertible into  approximately 4.6 million additional shares.   As extended, such notes are due and payable on February 13 and February  14,
 2008 and, if such
notes remain outstanding, can be expected to accrue interest  through such time.  As a consequence, in  the event the notes and accrued interest were converted, the holders of the  Companys shares outstanding will experience additional potential dilution.





Dependence  on Major Customers.     A large portion of the Companys revenues has been generated from a  relatively small number of companies.   During the year ended December 31, 2004, one customer, Apache  Corporation, accounted for 7.4% of the Companys revenues.  During the year ended December 31, 2003, that  same customer accounted for 5.2% of the Companys revenues.  A significant reduction in business done by  the Company with its principal customers, if not offset by revenues from new or  existing customers, could have a material adverse effect on the Companys  business, results of operations and prospects.





-14-


---



Back to Contents





Substantial  Control by Principal Investors.  As of February 28, 2005, St. James Capital Partners, L.P., its  affiliated entity SJMB, L.P., (such limited partnerships are collectively  referred to as the St. James Partnerships) and Charles E. Underbrink,  Chairman of both of the general partners of the St. James Partnerships, held  directly or indirectly 5,157,481 shares of Common Stock, representing  approximately 41.3% of the Companys shares outstanding.  As of February 28, 2005, the subordinated  promissory notes of the Company, including accrued interest, convertible at a  per share conversion price of $0.75 of principal and interest, were convertible  into an aggregate of approximately 53,902,477 shares of Common Stock.  As of February 28, 2005 warrants exercisable  at $0.75 per share to purchase an aggregate of approximately 70,761,185
 shares  of Common
Stock were outstanding.  In  the event of the conversion of the principal of and accrued interest on the  notes and exercise of the warrants and including the 5,157,481 shares held by  the St. James Partnerships and Mr. Underbrink, such persons would hold an  aggregate of 90,142,987 shares representing approximately 92.5% of the  Companys shares of Common Stock then outstanding, as of February 28,  2005.  Other holders (collectively  referred to as the Other Subordinated Debtholders), of the Companys other outstanding  subordinated promissory notes, including accrued interest outstanding as of  February 28, 2005, which are convertible at a per share conversion price of  $0.75 of principal and interest, have the right to convert the principal and  accrued interest on their notes into an aggregate of approximately 4,012,491  shares of Common Stock and hold in the aggregate warrants exercisable at $0.75  per share to purchase an additional 14,435,000
 shares of Common
Stock.  The St. James Partnerships also have certain  additional contractual rights which, among other things, give to the St. James  Partnerships the right to nominate two persons for election to the Companys  Board of Directors, certain preferential rights to provide future financings  for the Company, subject to certain exceptions, prohibitions against the  Company consolidating, merging or entering into a share exchange with another  person, with certain exceptions, without the consent of the St. James  Partnerships.  As of February 28, 2005,  two of the Companys three Directors are a principal or employee of the general  partners of the St. James Partnerships.   The foregoing gives the St. James Partnerships and Mr. Underbrink, as  well as the Other Subordinated Debtholders, the ability to exert significant  influence over the business and affairs of the Company.  The interests of the St. James Partnerships  and Mr. Underbrink and the Other
 Subordinated Debtholders
may not always be the  same as the interests of the Companys other securityholders.





Dependence  on Key Personnel.  The  Companys success depends on, among other things, the continued active  participation of William L. Jenkins, President, Danny R. Thornton,  Vice-President, Wireline Services, and certain of the Companys other officers  and operating personnel.  The loss of  the services of any one of these persons could have a material adverse effect  on the Company.  The Company has entered  into employment agreements with each of its executive officers, including  Messrs. Jenkins (through January 1, 2008) and Thornton (through April 1, 2006),  and has purchased key-man life insurance with respect to Messrs. Jenkins and  Thornton.





-15-


---



Back to Contents





Material  Charges to Operations.   In accordance with SFAS No. 144 Accounting for the Impairment or Disposal of  Long-Lived Assets, the Company recognizes impairment losses on  long-lived assets used in operations when indicators of impairment are present  and the projected undiscounted cash flows over the life of the assets are less  than the assets carrying amount. In accordance with SFAS No. 142 Goodwill and Other Intangible Assets, the  Company must assess annually the potential of impairment of the carrying value  of its goodwill and other indefinite-lived intangible assets.  If circumstances indicate that an impairment  has occurred, the assessment must be performed more frequently.





In 2003, in  connection with the Companys plans to dispose of its directional drilling  division, management analyzed under SFAS No. 142 the carrying value of its goodwill  carried on its balance sheet arising out of the 1997 acquisition of Diamondback  Directional, Inc and Phoenix Drilling Services in 1998.  This analysis resulted in a charge to  operations for the year ended December 31, 2003 in the amount of approximately  $1.7 million.





There can  be no assurance that the Company will not experience further impairment charges  in the future which could adversely affect its operating results.





Risks  Related to the Oil and Gas Well Service Business





Intense Competition.  The wireline oil and gas well service  business is an intensely competitive and cyclical business.  A number of large and small contractors  provide competition in all areas of the Companys business.  The wireline service trucks and other  equipment used are mobile and can be moved from one region to another in  response to increased demand.  Many of  the Companys competitors have greater financial resources than the Company,  which may enable them to better withstand industry downturns, to compete more  effectively on the basis of price, and to acquire new equipment.    Competition exists not only for revenues but  also for employees and the loss of marketing or sales or other employees can  lead to a loss of revenues.  Strong and  stable market conditions and the Companys ability to meet
 intense
competitive  pressures are essential to the Companys maintaining a positive liquidity  position and meeting debt covenant requirements.  Decreases in market conditions or failure to mitigate competitive  pressures could result in non-compliance of its debt covenants and the  triggering of the prepayment clauses of the Companys debt.





-16-


---



Back to Contents





Fluctuations in Levels of Prices for Oil and Natural Gas; Possible Adverse Impact on  the Companys Revenues.  The  business environment for the Company and its corresponding operating results  are affected significantly by petroleum industry exploration and production  expenditures.  These expenditures are  influenced strongly by oil and natural gas production company expectations  about the supply and demand for oil and natural gas, energy prices, and finding  and development costs.  Petroleum supply  and demand, pricing, and exploration and development costs, in turn, are  influenced by numerous factors including, but not limited to, the extent of  domestic production, the level of imports of foreign natural gas and oil, the  general level of market demand on a regional, national and worldwide basis,  domestic and foreign economic conditions that
 determine levels
of industrial  production, political events in foreign oil producing regions, hostilities,  strikes and other disruptions affecting the production of oil and natural gas  as well as the delivery of those commodities, and variations in governmental  regulations and tax laws or the imposition of new governmental requirements  upon the natural gas and oil industry, among other factors.  Prices for natural gas and oil are subject  to worldwide fluctuation in response to relatively minor changes in supply of  and demand for natural gas and oil, the activities of OPEC, market uncertainty  and a variety of additional factors that are beyond the Companys control.





Industry  activity in the form of active drilling rig activity in the continental United  States materially impacts the results in the Companys wireline business. The Companys revenues tend to increase and decrease as the active  oil and gas well drilling rig count increases and decreases.  Oil and natural gas prices materially affect  the numbers of oil and gas wells drilled during any given period of time and  the number of active drilling rigs in operation during the period.  There can be no assurance that there will be  a continued improvement in oil and natural gas prices and active rig counts or  that the current levels of prices and rig counts will be maintained. There can  be no assurance that the  improvement in  prices as has occurred will enable the Company to operate profitably or that  the Company will continue to experience an ongoing
 increase in the
demand for  and utilization of its services.  Future  declines in oil and natural gas prices can be expected to adversely impact the  Companys revenues.





Possible Scarcityof Trained and Other Personnel.  The operation of the wireline and other oil  and gas well service equipment utilized by the Company requires the services of  employees having the technical training and experience necessary to obtain the  proper operational results.  The  Companys operations are to a considerable extent dependent upon the continuing  availability of personnel with the necessary level of training and experience  to adequately operate its equipment.  In  addition, the Companys sales personnel are largely responsible for assuring satisfactory  relationships with customers and furthering the Companys ability to bid for  and obtain contracts to provide further services.  In the event the Company should suffer any material loss of  personnel to competitors or be unable to employ additional or replacement
  personnel with
the requisite level of training and experience to adequately  operate its equipment and sales experience and ability, its operations could be  adversely affected.  While the Company  believes that its wage rates and compensation policies are competitive and that  its  relationship with its workforce is good, a significant increase in the  wages or compensation paid by other employers could result in a reduction in  the Companys workforce, increases in wage and compensation rates, or  both.  If either of these events  occurred for a significant period of time, the Companys revenues could be  impacted.  There can be no assurance  that the Companys operations and a continued improvement in its revenues may  not be adversely affected by a scarcity of operating and other personnel.








-17-


---



Back to Contents





Operating  Hazards and Uninsured Risks.   The Companys insurance coverage may not in all situations provide  sufficient funds to protect the Company from all liabilities that could result  from its operations.   Oil and gas well  service operations are subject to the many hazards inherent in the oil and gas  drilling and production industry.  These  hazards can result in personal injury and loss of life, severe damage to or  destruction of property and equipment, pollution or environmental damage and  suspension of operations.  The Company  maintains insurance protection as it deems appropriate, but injuries and losses  may occur under circumstances not covered by the Companys insurance.





Seasonality  and Weather Risks.   The Companys operations are subject to seasonal variations in weather  conditions, daylight hours and favorable weather conditions for its off-shore  wireline operations.  Offshore wireline  service activities can be materially adversely affected by tropical storm and  hurricane activity.  Since the Companys  activities take place outdoors, the average number of hours worked per day, and  therefore the number of wells serviced per day, generally is less in winter  months than in summer months, due to an increase in snow, rain, fog and cold  conditions and a decrease in daylight hours.   Furthermore, demand for the Companys wireline services by oil and gas  companies in the first quarter is generally lower than at other times of the  year.  As
 a result, the
Companys  revenue and gross profit during the first quarter of each year are typically  low as compared to the other quarters.





Item  2.  Properties





The Company  leases 5,000 square feet of office space in Columbus, Mississippi for a  five-year term expiring on December 31, 2006 for its executive offices.  The monthly rental is $5,000, plus electric  and gas utilities.





The Company  maintains district offices at 16 locations throughout its service area and a  manufacturing facility in Laurel, Mississippi.   The aggregate annual rental for these facilities is approximately  $434,000.  Of such facilities, three are  owned by the Company and the others are leased with rental periods of from a  month-to-month basis to five years.     The Company believes that all of the facilities are adequate for its  current requirements.





-18-


---



Back to Contents





Item  3.  Legal Proceedings





The Company  is a defendant in a number of legal proceedings which it considers to be  ordinary routine litigation that is incidental to its business.  The Company does not expect to incur any  material liability as a consequence of such litigation.





Item  4.  Submission of Matters to a Vote of  Security Holders





No matter  was submitted during the fourth quarter of the fiscal year ended December 31,  2004, to a vote of security holders of the Company, through the solicitation of  proxies, or otherwise.





-19-


---



Back to Contents





PART II





Item  5.  Market for Registrants Common  Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities





Market Information





Quotations  for the Companys Common Stock appeared in the OTC Bulletin Board® under the  trading symbol BWWL through March 22, 2005.   The following table sets forth the bid prices for the Companys Common  Stock for the periods indicated as provided by the OTC Bulletin Board:





|               |  | Bid Prices |     
|-------------- |  | ---------- | ----
|               |  |            |     
|2003           |  | High       |     
|               |  |            |     
|First Quarter  |  | $          | 0.40
|Second Quarter |  | $          | 0.50
|Third Quarter  |  | $          | 0.50
|Fourth Quarter |  | $          | 0.44




|               |  | Bid Prices |     
|-------------- |  | ---------- | ----
|               |  |            |     
|2004           |  | High       |     
|               |  |            |     
|First Quarter  |  | $          | 0.39
|Second Quarter |  | $          | 0.40
|Third Quarter  |  | $          | 0.20
|Fourth Quarter |  | $          | 0.20




|                                    |  | Bid Prices |     
|----------------------------------- |  | ---------- | ----
|                                    |  |            |     
|2005                                |  | High       |     
|                                    |  |            |     
|First Quarter (through    March 22) |  | $          | 0.27
|                                    |  |            |     




There  is very limited trading activity in the Companys Common Stock.  There can be no assurance that there will be  an active trading market for its Common Stock at the time a stockholder should  seek to sell his or her shares.  By  reason of this limited trading activity, the quoted prices for the Companys  Common Stock are subject to wide fluctuations on very limited trading activity  in the Common Stock.





-20-


---



Back to Contents





The  foregoing amounts represent inter-dealer quotations without adjustment for  retail markups, markdowns or commissions, and do not represent the prices of  actual transactions.  On March 22, 2005,  the closing bid quotation for the Common Stock, as reported by the OTC Bulletin  Board, was $0.20.





As of March  22, 2005, the Company had approximately 426 shareholders of record and believes  it has in excess of 500 beneficial holders of its Common Stock.





Dividends





The Company  has never paid a cash dividend on its Common Stock and management has no  present intention of commencing to pay dividends.  The Company is prohibited from paying dividends under the terms  of its outstanding loan agreements.





Recent Sales of  Unregistered Securities





During the  year ended December 31, 2004, the Company did not sell any securities not  registered under the Securities Act of 1933, as amended.





Purchase of Equity  Securities by the Issuer and Affiliated Purchasers





Neither the  Company nor any affiliated purchaser, as defined in Rule 10b-18(a)(3),  repurchased any shares of the Companys Common Stock during the quarter ended  December 31, 2004.





-21-


---



Back to Contents





Item 6.  Selected Financial Data





Set  forth below is certain financial information for each of the five years ended  December 31, 2004 taken from the Companys audited financial statements.  Prior period income statement items have  been restated for continued operations:





|                                             |  | December    31, |           
|-------------------------------------------- |  | --------------- | ----------
|                                             |  |                 |           
|                                             |  | 2004            |           
|                                             |  |                 |           
|Revenues(1)                                  |  | $               | 53,686,837
|Income (loss) from continuing operations     |  | $               | 4,629,943 
|Net income (loss) per common
share  diluted |  | $               | (0.14     
|Current assets                               |  | $               | 15,665,316
|Total assets                                 |  | $               | 30,109,230
|Current liabilities                          |  | $               | 8,789,469 
|Total Liabilities(2)                         |  | $               | 55,317,864
|Cash Dividends                               |  |                 | -0-       




|   
|---
|(1)
|(2)




-22-


---



Back to Contents





Item  7.  Managements Discussion and Analysis  of Financial Condition and Results of Operation





General





The  Companys results of operations are affected primarily by the extent of  utilization and rates paid for its wireline services and equipment.  The energy services sector is completely  dependent upon the upstream spending by the oil and natural gas exploration and  production side of the industry.  A  decline in oil and gas commodity prices can be expected to result in a decline  in the demand for the Companys services and equipment.  The Company believes that information  regarding the count of active drilling rigs in use in the continental United  States as well as offshore in the Gulf of Mexico can be used as an indicator of  current likely demand for oil and gas well services.  Fluctuations in oil and gas commodity prices is frequently  followed by fluctuations in the number of active drilling rigs.  The Company showed improvement in
 revenues  during 2004
over 2003 and 2002 reflecting the increased count of active  drilling rigs during those years.     Inasmuch as oil and gas commodity prices are subject to frequent  material fluctuations, there can be no assurance that the Companys revenues in  2005 will equal or exceed its revenues in 2004 and prior years.  There can be no assurance that the Company  will continue to experience any material increase in the demand for and  utilization of its services or that the Company will achieve profitability.





Operating Results





The  following table sets forth the Companys revenues from its continuing  operations for each of the years ended December 31, 2004, 2003, and 2002 (in  thousands).





|                  |  | 2004 |        | 2003 |   | 2002   | 
|----------------- |  | ---- | ------ | ---- | - | ------ | 
|                  |  |      |        |      |   |        | 
|Wireline Services |  | $    | 53,687 |      | $ | 45,757 | 
|                  |  |      |        |      |   |        | 




-23-


---



Back to Contents





Oil and  natural gas commodity prices declined throughout much of 2001, impacting the  Companys operations in the fourth quarter of 2001 and into 2002.  Throughout much of 2002, oil and gas prices  improved resulting in improved demand for the Companys services, however, this  improved demand and greater revenues to the Company were insufficient to enable  the Company to operate profitably.   Revenues for 2003 increased by approximately 15.7% over the year 2002  levels.  During  2003, the Company benefited from increased  oil and natural gas prices which resulted in an increase in demand for the  Companys wireline services, mainly in the second and third quarters of 2003,  this resulted in an approximately 34.2% increase in wireline services  revenues.  Oil and natural gas commodity  prices remained strong throughout 2004 which further aided
 in improving the
 Companys revenues from wireline  operations during the year ended December 31, 2004, resulting in an  approximately 17.3% increase in wireline service revenues.  The Companys third and fourth quarter  operating results in 2004 were favorably impacted as a consequence of the  completion of the sale of the Companys directional drilling business.  There can be no assurance that in the  current oil and natural gas prices will be sustainable, that such improvement  in prices as has occurred will enable the Company to maintain in 2005 the level  of revenues realized in 2004 and 2003, or that the Company will be able to  operate profitably in 2005.  Future  declines in oil and natural gas prices can be expected to adversely impact the  Companys revenues.  See Cautionary  Statement for Purposes of the Safe Harbor Provisions of the Private  Securities Litigation Reform Act of
1995 and the risk factors described  thereunder.





Twelve Month Periods Ended December  31, 2004 and 2003





Revenues  from continuing operations increased by approximately $7.9 million or 17.3 % to  $53.7 million for the year ended December 31, 2004 as compared to revenues from  continuing operations of $45.7 million for the year ended December 31,  2003.  The increase in revenues in 2004  from 2003 was primarily due to the increased demand for the Companys services  which primarily resulted from increased drilling activity, evidenced by the  higher rig count and continued high prices for oil and natural gas.





Operating  costs increased by $4.0 million for the year ended December 31, 2004, as  compared to 2003.  This increase was due  primarily to the increase in revenues of the Company and the level of its  operations in 2004 as compared to 2003.   Salaries and benefits increased by approximately $1.8 million for 2004  as compared to 2003.  This was due  primarily to the Companys increased employee base.  Operating costs as a percentage of revenues decreased to 64.1 %  in 2004 from 66.6 % in 2003 primarily because of the increased utilization of  the Companys assets as well as increases in pricing of the Companys  services.  The increases in pricing were  largely the outgrowth of and were dependent upon the increase in demand for  services in the oil and gas well services sector.





In 2004,  the Company recorded a $1.4 million writedown related to the impairment of its  directional drilling assets resulting from the sale of these assets.





Selling,  general and administrative expenses increased by approximately $209,000 to $9.5  million in 2004.  As a percentage of  revenues, selling, general and administrative expenses decreased to 17.6 % in  2004 from 20.2 % in 2003, primarily as a result of the increased revenue level  generated in 2004 which did not require a corresponding increase in selling,  general and administrative expenses.





-24-


---



Back to Contents





Depreciation  and amortization increased from $4.7 million in 2003 to $5.2 million in 2004,  primarily because of the increase in the Companys asset base resulting from  capital expenditures in the second half of 2003 and 2004.





Interest  expense and amortization of debt discount decreased by approximately $531,000  for 2004 as compared to 2003.  This was  directly related to lower interest rates on outstanding senior debt in 2004 as  well as the reduced levels of senior debt outstanding in 2004.





Net gain on  sale of fixed assets decreased in 2004 to a net gain of approximately $53,000  from an approximate $239,000 net gain in 2003. Other income decreased by  approximately $98,000 in 2004.





The  provision for income taxes was $0 in 2004 and 2003.   A full valuation allowance has been recorded against the net  deferred tax assets generated each year from the net operating losses to be  carried forward.





The  Companys net loss for 2004 was $1.8 million, compared with a net loss of $5.5  million in 2003. The improvement in the Companys results in 2004 over 2003 was  primarily attributable to the increased demand for the Companys services in  2004 primarily resulting from the improved commodities prices in 2004 and  offset by the impairment recorded of $1.4 million resulting from the sale of  the directional assets.





Twelve  Month Periods Ended December 31, 2003 and 2002





Revenues  from continuing operations increased by approximately $11.7 million or 34.2% to  $45.8 million for the year ended December 31, 2003 as compared to revenues of  $34.1 million for the year ended December 31, 2002.  Wireline services revenues increased primarily due to the  increased demand for the Companys services.





Operating  costs increased by $5.9 million for the year ended December 31, 2003, as  compared to 2002.  This increase was due  primarily to the increase in corresponding revenues of the Company as compared  to 2002.  Salaries and benefits  increased by approximately $3.9 million for 2003 as compared to 2002.  This was due primarily to the Companys  increased employee base as the Company expanded its services to include tubing  conveyed perforating and plugging and well abandoning services in the second  half of 2002.  Operating costs as a  percentage of revenues decreased to 66.6% in 2003 from 71.9% in 2002 primarily  because of the increased utilization of the Companys assets as well as  increases in pricing of the Companys services.





In 2003,  the Company recorded a $3.1 million writedown related to the impairment of its  directional drilling assets.





-25-


---



Back to Contents





Selling,  general and administrative expenses increased by approximately $242,000 to $9.3  million in 2003.  As a percentage of  revenues, selling, general and administrative expenses decreased to 20.2% in  2003 from 26.4% in 2002, primarily as a result of the increased revenue level  generated in 2003 which did not require a corresponding increase in selling,  general and administrative expenses.





Depreciation  and amortization decreased by approximately $56,000 in 2003, primarily because  of the decrease in capital expenditures in 2003 resulting in a decreased asset  base.





Interest  expense and amortization of debt discount decreased by approximately $65,000  for 2003 as compared to 2002.  This was  directly related to lower interest rates on outstanding senior debt in 2003 as  well as the amortization of senior debt in 2003.





Net gain on  sale of fixed assets increased in 2003 to a net gain of $239,000 from a  $105,000 net gain in 2002. Other income increased by approximately $65,000 in  2003.





The  provision for income taxes was $0 in 2003 and 2002.   A full valuation allowance has been recorded against the net  deferred tax assets generated each year from the net operating losses to be  carried forward.





The  Companys net loss for 2003 was $5.5 million, compared with a net loss of $7.6  million in 2002. The improvement in the Companys results in 2003 over 2002 was  primarily attributable to the increased demand for the Companys services in  2003 and offset by the impairment of $3.1 million recorded on the directional  assets.





Liquidity  and Capital Resources





Cash  provided by the Companys operating activities was $3.5 million for the year  ended December 31, 2004 as compared to cash provided by operating activities of  $10.6 million for the year ended December 31, 2003.  The decrease in cash provided by operating activities was due  mainly as a result of the change in the Companys prepaid assets associated  with the financing of insurance premiums, the assignment of current assets and  current liabilities in connection with the sale of the directional division and  the timing of other current assets and liabilities.  Investing activities of the Company used cash of approximately  $7.5 million during the year ended December 31, 2004 for the acquisition  of property, plant and equipment and was offset by proceeds from the sale of  discontinued operations and fixed assets of $10.7 million.  During the year
 ended December 31,
2003,  acquisitions of property, plant and equipment used cash of $3.1 million offset  by proceeds of $685,000 from the sale of fixed assets.  Financing activities during the year ended  December 31, 2004 provided cash of $13.6 million offset by principal payments  on long-term notes and the Companys working capital revolving loan of $23.0  million and debt issuance costs of approximately $378,000.  Financing activities provided cash of $5.4 million from  borrowings during the year ended December 31, 2003 offset by principal payments  on long-term notes and the Companys working capital revolving loan of $10.3  million and debt issuance costs of approximately $48,000.





-26-


---



Back to Contents





During the  year ended December 31, 2004, the Company expended approximately $841,000 for  the acquisition of property, plant and equipment financed under notes  payable.  During the year ended December  31, 2003, the Company expended $3.3 million for the acquisition of property,  plant and equipment financed under the senior credit facility with General  Electric Capital Corporation (GECC) and notes payable.





The  Companys outstanding indebtedness includes primarily senior secured  indebtedness aggregating approximately $7.9 million at December 31, 2004, other  indebtedness of approximately $2.7 million, and $23.0 million of principal and  $17.2 million of accrued interest owing to the St. James Partnerships, Charles  E. Underbrink and the Other Subordinated Debtholders.





The  following table sets forth information as of December 31, 2004 with respect to  the Companys known contractual obligations of the types specified below:





|                            |  | Payments    Due By Period |           
|--------------------------- |  | ------------------------- | ----------
|                            |  |                           |           
|Contractual     Obligations |  | Total                     |           
|                            |  |                           |           
|Long Term Debt              |  | $                         | 33,552,426
|Capital Leases              |  | $                         |          
|Operating Leases            |  | $                         | 898,967   
|Purchase Obligations        |  | $                         |          
|Other Long-term Liabilities |  | $                         |          




-27-


---



Back to Contents





The  Company believes that with the extension in November 2004 of its revolving and  term credit facility with GECC with an expiration of November 14, 2007, the  extension of the maturity of its subordinated indebtedness to February 2008 and  the current and projected operating environment of the oil and gas industry, it  will be able to meet its 2005 liquidity requirements.  In addition to funding operating expenses, cash requirements for  2005 and 2006 are expected to be comprised mainly of amortization payments on  indebtedness and funding capital improvements.   Such cash requirements are expected to be funded from the Companys  operating cash flows.  For a full  discussion of risk factors, please see the Risks Related to the Company and  Risk Factors Related to the Oil and Gas Well Service Business.





The
    St. James Partnerships, their general partners and Charles E. Underbrink,
    who is a Director of the Company and a director of the general partners of
    the St. James Partnerships, were added as defendants in an amended complaint
    filed in March 2005 in Texas by two of the limited partners of the St. James
    Partnerships.  The action was originally  instituted in December 2004
    against the auditors of the St. James Partnerships. The plaintiffs brought
    the action as a class action on behalf of all the limited partners of the
    St. James Partnerships and are seeking class action certification.  No
    claim has been asserted against the Company and the Company is not a defendant
    in the action.  However, the complaint and the amended  complaint in
    the action contain allegations that the Company participated with Mr. Underbrink
    in actions the plaintiffs allege were fraudulent and
constituted  securities violations.  The Company has  not concluded that
it is probable that a claim will be asserted against it and does not believe
that if a claim is asserted that there is a reasonable possibility that the outcome
would be unfavorable to the Company or that any resulting liability would be
material to the Companys financial condition.  In the view of the
Company, the allegations in the complaint and amended complaint relating to it
to the extent those allegations relate to the Company or its participation in
the activities alleged against the defendants are
baseless,
without factual foundation and untrue.





GECC  Credit Facility.  On November 14, 2004, the Company entered  into the Restated Credit Agreement with GECC providing for the extension of  revolving and term credit facilities to the Company aggregating up to $18.0  million.  The Restated Credit Agreement  amends, restates and modifies the Original Credit Agreement entered into as of  September 14, 2001, including the amendments thereto.  The Restated Credit Agreement includes a revolving loan of up to  $10.0 million, but not exceeding 85% of eligible accounts receivable and a term  loan of $8.0 million.  Eligible accounts  are defined to exclude, among other items and subject to certain exceptions,  accounts outstanding of debtors that are more than 60 days overdue or 90 days  following the original invoice date and of debtors that have suspended business  or commenced various insolvency proceedings
 and accounts with
reserves  established against them to the extent of such reserves as GECC may set from  time to time in its reasonable credit judgment.  The interest rate on borrowings under the revolving loan is 1.75%  above a base rate and on borrowings under the term loan is 2.5% above the base  rate.  The base rate is the higher of  (i) the rate publicly quoted from time to time by the Wall Street Journal as the base rate on  corporate  loans posted by at least 75% of the nations  thirty largest banks, or (ii) the average of the rates on overnight Federal  funds transactions by members of the Federal Reserve System, plus 0.5%.  Subject to the absence of an event of  default and fulfillment of certain other conditions, the Company can elect to  borrow or convert any loan and pay interest at the LIBOR rate plus applicable  margins of 3.25% on the revolving loan and 4.0% on the term loan.  If an event of default has occurred, the  interest rate is increased by
 2%.   Advances under the
 Restated Credit Agreement are collateralized by a  senior lien against substantially all of the Companys assets.  The Restated Credit Agreement expires on  November 14, 2007.





-28-


---



Back to Contents





Initial  borrowings under the Restated Credit Agreement advanced on September 14, 2004  were $8.0 million borrowed under the term loan.  No borrowings were made under the revolving loan during the year  ended December 31, 2004.  Proceeds of  the initial borrowings were used to repay indebtedness outstanding under a  capex loan under the Original Credit Agreement in the amount of approximately  $4.3 million, approximately $1.8 million was placed in escrow for the possible  repayment of principal and accrued interest on subordinated secured  indebtedness and approximately $1.9 million was borrowed to be used by the  Company for general corporate purposes. Any funds placed in escrow not used for  the repayment of subordinated secured indebtedness were returned to the  Company.  Borrowings under the revolving  loan are able to be repaid and re-borrowed from time to time
 for working
capital and general corporate needs, subject to the Companys continuing  compliance with the terms of the agreement, with the outstanding balance of the  revolving loan to be paid in full at the expiration of the Restated Credit  Agreement on November 14, 2007.  The  term loan is to be repaid in 35 equal monthly installments of $133,333 with a  final installment of $3,333,345 due and payable on November 14, 2007.





Borrowings  under the Restated Credit Agreement may be prepaid or the facility terminated  or reduced by the Company at any time subject to the payment of certain  pre-payment fees declining from 3% to 1% in the event the termination or  reduction during the first, second or third year of the term of the Restated  Credit Agreement, providing a reduced fee is payable in the event the  indebtedness is prepaid out of the proceeds of a sale of the Company.  The Company is required to prepay borrowings  out of the net proceeds from the sale of any assets, subject to certain  exceptions, or the stock of any subsidiary, the net proceeds from the sale of  any stock or debt securities by the Company, and any borrowings in excess of  the applicable borrowing availability, including borrowings under the term loan  in excess of 70% of the forced liquidation value of eligible term loan
 equipment.  The
forced liquidation value  of the eligible term loan equipment is established by appraisal conducted from  time to time but not more than twice per year.





Initial borrowings under the Restated Credit  Agreement were subject to the fulfillment at or before the closing of a number  of closing conditions, including among others, the accuracy of the  representations and warranties made by the Company in the loan agreement,  delivery of executed loan documents, officers  certificates, an opinion of counsel, the extension of the maturity date of  approximately $5.4 million principal amount of the Companys outstanding  subordinated notes to a date 90 days after the maturity date of the Restated  Credit Facility with no payments of principal or interest to be made prior to  that date, and the completion of legal due diligence.  Future advances are subject to the continuing accuracy of the  Companys representations and warranties as of such date (other than those  relating expressly to an earlier date), the absence
 of any event or
 circumstance constituting a material adverse effect, as defined, the absence  of any default or event of default under the Restated Credit Agreement, and the  borrowings not exceeding the applicable borrowing availability under the  Restated Credit Agreement, after giving effect to such advance.  A material adverse
effect is defined to  include an event having a material adverse effect on the Companys business,  assets, operations, prospects or financial or other condition, on the Companys  ability to pay the loans, or on the collateral and also includes a decline in  the Average Rig Count (excluding Canada and international rigs) published by Baker  Hughes, Inc. falling below 675 for 12 consecutive weeks.





-29-


---



Back to Contents





Under  the Restated Credit Agreement, the Company is obligated to maintain compliance  with a number of affirmative and negative covenants.  Affirmative covenants the Company must comply with include  requirements to maintain its corporate existence and continue the conduct of  its business substantially as conducted in November 2004, promptly pay all  taxes and governmental assessments and levies, maintain its corporate records,  maintain insurance, comply with applicable laws and regulations, provide  supplemental disclosure to the lenders, conduct its affairs without violating  the intellectual property of others, conduct its operations in compliance with  environmental laws and provide a mortgage or deed of trust to the lenders  granting a first lien on the Companys real estate upon the request of the  lenders, and provide certificates of title on newly acquired
 equipment with the
lenders lien noted.





Negative covenants the Company may not  violate include, among others, (i) forming or acquiring a subsidiary, merging  with, acquiring all or substantially all the assets or stock of another person,  (ii) making an investment in or loan to another person, (iii) incurring any  indebtedness other than permitted indebtedness, (iv) entering into any  transaction with an affiliate except on fair and reasonable terms no less  favorable than would be obtained from a non-affiliated person, (v) making loans  to employees in amounts exceeding $50,000 to any employee and a maximum of  $250,000 in the aggregate, (vi) making any change in its business objectives or  operations that could adversely affect repayment of the loans or in its capital  structure, including the issuance of any stock, warrants or convertible  securities or any revision in the terms of outstanding stock except for
 permitted
payments to holders of subordinated debt and options granted under an  existing or future incentive option plan, amend its charter or by-laws in a  manner that would adversely affect the duty or ability of the Company to repay  the indebtedness, or engage in any business other than that engaged in by it on  November 14, 2004 (vii) creating or permitting to exist any liens on its properties or assets, with the exception of  those granted to the lenders or in existence on the date of making the loan,  (viii) selling any of its properties or other assets, including the stock of  any subsidiary, except inventory in the ordinary course of business and  equipment or fixtures with a value not exceeding $100,000 per transaction and  $250,000 per year, (ix) failing to comply with the various financial covenants  in the loan agreement, (x) making any restricted payment, including payment of  dividends, stock or warrant redemptions, repaying subordinated debt, rescission  of the sale of
 outstanding stock, (xi) making
 any payments to stockholders of  the Company other than compensation to employees and payments of management  fees to any stockholder or affiliate of the Company, or (xii) amending or  changing the terms of the Companys subordinated debt.





-30-


---



Back to Contents





The  financial covenants prohibit the Company from making capital expenditures in  any fiscal year in an aggregate amount exceeding $3.0 million and require the  Company to have at the end of each fiscal quarter commencing with the quarter  ending December 31, 2004 a ratio of EDITDA to fixed charges, including interest  expense, scheduled payments of principal, capital expenditures paid and income  taxes paid, for the twelve months then ended of 1.5 to 1.0.  For the purpose of such calculation, fixed  charges for the twelve months ended December 31, 2004 are calculated as the  fixed charges for the quarter ended December 31, 2004 multiplied by four, fixed  charges for the twelve months ended March 31, 2005 are calculated as the fixed  charges for the six months ended March 31, 2005 multiplied by two, and fixed  charges for the twelve months ended June 30, 2005 are calculated as
 the fixed
charges for the nine months  ended June  30, 2005 multiplied by one and one-third.





Events of default under the Restated Credit  Agreement include, among others, (a) the failure to pay when due principal or  interest or fees owing under the Restated Credit Agreement, (b) the failure to  perform the covenants under the Restated Credit Agreement relating to use of  proceeds, maintenance of a cash management system, maintenance of insurance,  delivery of certificates of title, delivery of certain post closing documents,  including evidence of key man life insurance on the lives of William Jenkins  and Ron Whitter, maintenance of compliance with the financial covenants in the  loan agreement and maintenance of compliance with the loan agreements negative  covenants, (c) the failure, within specified periods of 3 or 5 days of when  due, to deliver monthly un-audited and annual audited financial statements,  annual operating plans, and other reports, notices
 and information,
(d) the  failure to perform any other provision of the loan agreement which remains  un-remedied for 20 days or more, (e) a default or breach under any other  agreement to which the Company is a party beyond any grace period that involves  the failure to pay in excess of $250,000 or causes or permits to cause in  excess of $250,000 of indebtedness to become due prior to its stated maturity,  (f) any representation or warranty or certificate delivered to the lenders  being untrue or incorrect in any material respect, (g) a change of control of  the Company, (h) the occurrence of an event having a material adverse effect,  and (i) the attachment, seizure or levy upon of assets of the Company which  continues for 30 days or more and various other bankruptcy and other  events.  Upon the occurrence of a  default or event of default, the lenders may discontinue making loans to the  Company.  Upon the occurrence of an  event of default, the lenders may terminate the Restated Credit
 Agreement,
declare all indebtedness outstanding under the Restated Credit Agreement due  and payable, and exercise any of their rights under the Restated Credit  Agreement which includes the ability to foreclose on the Companys assets.





-31-


---



Back to Contents





There  can be no assurance that the Company will be able to remain in compliance with  these financial and other covenants or be able to obtain such amendments,  consents or waivers of with respect to potential violations of these covenants  when required.  The Companys inability  to do so may result in the Company being placed in violation of those financial  and other covenants.  The Company can  make no assurances that it will remain in compliance with its debt covenants or  generate sufficient cash flows to service its debt and fund operations.  Failure to comply with these debt covenants  and or generate sufficient cash flow from operations could significantly impair  the Companys liquidity position and could result in GECC exercising mandatory  prepayment options under the Companys Restated Credit Agreement.  Should the Company be unable to
 borrow funds
under its Restated Credit Agreement or if prepayment of those borrowings were  required, the Company can make no assurances that alternative funding could be  obtained.





Reference  is made to the Credit Agreement, filed as an Exhibit  to the Companys Current Report on Form 8-K for November 14,  2004, for a complete statement of the terms and conditions.





Subordinated  Secured Indebtedness - Note Extensions.     In connection with entering into the GECC  refinancing in November 2004, the Company agreed with the holders to extend the  maturity date of the Companys outstanding subordinated secured promissory  notes from December 31, 2004 to February 13 and February 14, 2008 on $23.0  million of the total $23.9 million principal amount of the notes.  The remainder of the outstanding principal  was repaid.  The notes bear interest at  15% per annum and are convertible into shares of the Companys common stock at  a conversion price of $0.75 per share, subject to an anti-dilution adjustment  for certain issuances of securities by the Company at prices per share of  common stock less than the conversion price then in effect, in which event the  conversion price is reduced to the lower
 price at which the
shares were issued.  As a condition to extend the maturity date,  the Company extended the expiration date of 66.1 million  outstanding common stock purchase warrants  to December 31, 2009.





All  of the debt and interest owed under the subordinated secured promissory notes  is subordinated to the Companys senior credit facility and cannot be repaid  until all the amounts owed pursuant to the Credit Facility have been  repaid.





Substantially all of the Companys assets are pledged as  collateral for the indebtedness outstanding under the subordinated secured promissory notes, which are subordinated in the  payment of principal and interest to indebtedness owing to GECC, the Companys  senior lender.





-32-


---



Back to Contents





Other  Indebtedness.In December  2004, the Company incurred indebtedness of approximately $2.3 million in  connection with financing the payment of annual insurance premiums in that  amount.  The indebtedness is payable in  monthly installments ending in September 2005.





Possible Future Impairment of  Long-Lived Assets





In
    accordance with SFAS No. 144 Accounting for the Impairment or Disposal
    of Long-Lived Assets, the Company recognizes impairment losses on  long-lived
    assets used in operations when indicators of impairment are present and the
    undiscounted cash flows over the life of the assets are less than the assets
    carrying amount. If an impairment exists, the amount of such impairment is
    calculated based on projections of future discounted cash flows. These projections
    use a discount rate and terminal value multiple that would be customary for
evaluating current oil and gas service company transactions.





The Company  considers external factors in making its assessment. Specifically, changes in  oil prices and other economic conditions surrounding the industry,  consolidation within the industry, competition from other oil and gas well  service providers, the ability to employ and maintain a skilled workforce, and  other pertinent factors are among the factors that could lead management to  reassess the realizability of its long-lived assets.





During  2003, management evaluated the recoverability of its long-lived assets in  relation to its business segments.  The  analysis was performed using the proposed sale prices for the directional  drilling segment.  As a result of this  analysis an impairment was indicated for which the Company reduced the carrying  amount of property, plant and equipment for the directional drilling segment  and recognized an impairment expense of $1.4 million.





Recently  Issued Accounting Pronouncements





On  December 21, 2004, FASB Staff Position (FSP) FAS 109-1, Application of FASB  Statement No. 109, Accounting for Income Taxes, to the Tax  Deduction on Qualified Production Activities Provided by the American Jobs  Creation Act of 2004, was issued. FSP FAS 109-1 clarifies that this tax  deduction should be accounted for as a special deduction in accordance with  Statement 109.  As such, the special  deduction has no effect on deferred tax assets and liabilities existing at the  date of enactment.  Rather, the impact  of this deduction will be reported in the period in which the deduction is claimed  on the Companys tax return beginning in 2005. As regulations are still  pending, the Company has not been able to quantify the impact.





-33-


---



Back to Contents





EITF  Issue 03-13, Applying the Conditions in Paragraph 42 of FASB Statement No.  144, Accounting  for the Impairment or Disposal of Long-Lived Assets, in Determining Whether to  Report Discontinued Operations, provides guidance regarding the  application of paragraph 42 of Statement 144 (AC Section I14) in determining  whether to report discontinued operations and is effective for components  classified as held for sale or disposed of in fiscal periods beginning after  December 15, 2004.  The Company is  currently evaluating this proposed statement and its effects on its results of  operations.





In
    December 2004, the Financial Accounting Standards Board issued Statement
    123 (revised 2004), Share-Based Payment (Statement 123(R)).  This Statement
    requires that the costs of employee share-based payments be measured at fair
    value on the awards grant  date using an option-pricing model and recognized
    in the financial statements over the requisite service period.  This
    Statement does not change the accounting for stock ownership plans, which
    are subject to American Institute of Certified Public Accountants SOP 93-6,  Employers
    Accounting for Employee Stock Ownership Plans.  Statement 123(R)
    supersedes Opinion 25, Accounting for Stock Issued to Employees and its related
    interpretations, and eliminates the alternative to use Opinion 25s
    intrinsic value method of accounting, which the Company is currently using.
    Certain stock awards may be considered liabilities instead of equity components
    under Statement 123(R).





Statement  123(R) allows for two alternative transition methods.  The first method is the modified prospective application whereby  compensation cost for the portion of awards for which the requisite service has  not yet been rendered that are outstanding as of the adoption date will be  recognized over the remaining service period.   The compensation cost for that portion of awards will be based on the  grant-date fair value of those awards as calculated for pro forma disclosures  under Statement 123, as originally issued.   All new awards and awards that are modified, repurchased, or cancelled  after the adoption date will be accounted for under the provisions of Statement  123(R).  The second method is the  modified retrospective application, which requires that the Company restates  prior period financial statements.  The  modified retrospective
 application may be applied
either to all prior periods  or only to prior interim periods in the year of adoption of this  statement.  The Company is currently  determining which transition method it will adopt and is evaluating the impact  Statement 123(R) will have on its financial position, results of operations,  EPS and cash flows when the Statement is adopted.





In  November 2004, the Financial Accounting Standards Board issued Statement 151, Inventory Costs, an amendment of ARB No.  43, Chapter 4, which is effective for inventory costs incurred during fiscal  years beginning after June 15, 2005.   The amendments made by Statement 151 will improve financial reporting by  clarifying that abnormal amounts of idle facility expense, freight, handling  costs, and wasted materials (spoilage) should be recognized as current-period  charges and by requiring the allocation of fixed production overheads to  inventory based on the normal capacity of the production facilities.  The Company does not believe that the  adoption of Statement 151 will have a significant effect on its financial  statements.





-34-


---



Back to Contents





In  December 2003, the Financial Accounting Standards Board (FASB) issued  Interpretation No. 46 (revised December 2003) (FIN 46R), Consolidation of Variable Interest Entities, an  interpretation of ARB 51. The primary objectives of FIN 46R are to  provide guidance on the identification of entities for which control is  achieved through means other than through voting rights (variable interest  entities or VIEs) and how to determine if a business enterprise should  consolidate the VIEs. This new model for consolidation applies to an entity for  which either: the equity investors (if any) do not have a controlling financial  interest; or the equity investment at risk is insufficient to finance the  entitys activities without receiving additional subordinated financial support  from other parties. In addition, FIN 46R
 requires that all
enterprises with a  significant variable interest in a VIE make additional disclosures regarding  their relationship with the VIE. The interpretation requires public entities to  apply FIN 46R to all entities that are considered Special Purpose Entities in  practice and under the FASB literature that was applied before the issuance of  FIN 46R. The adoption of FIN 46R had no effect on the Companys financial  statements.





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 2004.





Significant  Accounting Policies





The  Companys Discussion and Analysis of Financial Condition and Results of  Operations is based upon its financial statements, which have been prepared in  accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires the Company to make  estimates and judgments that affect the reported amounts of assets,  liabilities, revenues and expenses, and related disclosures of contingent  assets and liabilities. On an on-going basis, the Company evaluates its  estimates, including those related to the allowance for bad debts, inventory,  long-lived assets, intangibles and goodwill. The Company bases its estimates on  historical experience and on various other assumptions that are believed to be  reasonable under the circumstances, the results of which form the basis for  making judgments about the carrying value
 of assets and
liabilities that are  not readily apparent from other sources. Actual results may differ from these  estimates under different assumptions or conditions.





The Company  maintains allowances for doubtful accounts for estimated losses resulting from  the inability of its customers to make required payments. If the financial  condition of the Companys customers were to deteriorate, resulting in an  impairment of their ability to make payments, additional allowances may be  required.





-35-


---



Back to Contents





The  Companys inventory consisted of tool components, sub-assemblies and expendable  parts used in directional oil and gas well drilling activities.  Components, sub-assemblies and expendable  parts are capitalized as long-term inventory and expensed based on a per hour  of motor use calculation and then adjusted to reflect physical inventory  counts.  The Companys classification  and treatment is consistent with industry practice.  The directional oil and gas well drilling division was sold in  2004.





The Company  assesses the impairment of identifiable intangibles, long-lived assets and  related goodwill whenever events or changes in circumstances indicate that the  carrying value may not be recoverable. When the Company determines that the  carrying value of intangibles, long-lived assets and related goodwill may not  be recoverable, any impairment is measured based on a projected net cash flows  expected to result from that asset, including eventual disposition.





Property  and equipment are carried at original cost less applicable depreciation.  Depreciation is recognized on the straight  line basis over lives ranging from two to ten years.  Major renewals and improvements are capitalized and depreciated  over each assets estimated remaining useful life. Maintenance and repair costs  are charged to expense as incurred. When assets are sold or retired, the  remaining costs and related accumulated depreciation are removed from the  accounts and any resulting gain or loss is included in income. Property and  equipment held and used by the Company are reviewed for impairment whenever  events or changes in circumstances indicate that the carrying amounts may not  be recoverable. The Company estimates the future undiscounted cash flows of the  affected assets to determine the recoverability of carrying amounts.  Warrants are
 valued based upon
an  independent valuation.  The amount by  which the value based upon the independent valuation exceeds the face value of  the warrant issued is amortized as interest expense over the life of the  related debt instrument.





Item 7A.  Quantitative and Qualitative Disclosures About Market Risk





From  time to time, the Company holds  financial instruments comprised of debt securities and time deposits.  All such instruments are classified as  securities available for sale.  The  Company does not invest in portfolio equity securities, or commodities, or use  financial derivatives for trading or hedging purposes.  The Companys debt security portfolio  represents funds held temporarily pending use in its business and operations.  The Company manages these funds  accordingly.  The Company seeks  reasonable assuredness of the safety of principal and market liquidity by  investing in rated fixed income securities while, at the same time, seeking to  achieve a favorable rate of return.  The  Companys market risk exposure consists of exposure to changes in interest  rates and to the risks of changes in the credit quality of
 issuers.  The Company
typically invests in investment  grade securities with a term of three years or less.  The Company believes that any exposure to interest rate risk is  not material.  At December 31, 2004 the  Company held no investments.





-36-


---



Back to Contents





Under the  Credit Facility with GECC, the Company is subject to market risk exposure  related to changes in the prime interest rate.   Assuming the Companys level of borrowings from GECC at December 31,  2004 remained unchanged throughout 2005, if a 100 basis point increase in  interest rates under the Credit Agreement from rates in existence at December  31, 2004 prevailed throughout the year 2005, it would increase the Companys  2005 interest expense by approximately $79,000.





Item  8.  Financial Statements and  Supplementary Data





Financial  Statements of the Company meeting the requirements of Regulation S-K are filed  on the succeeding pages of this Item 8 of this Annual Report on Form 10-K, as  listed below:





|Report of Independent Registered Public Accounting    Firm for the Years Ended December 31, 2004, 2003 and 2002 |  | F-1
|--------------------------------------------------------------------------------------------------------------- |  | ---
|Balance Sheets as of December 31, 2004, and 2003                                                                |  | F-2
|Statements of Operations for the Years Ended    December 31, 2004, 2003 and 2003                                |  | F-3
|Statements of Stockholders Deficit for the Years    Ended December 31, 2004, 2003, and 2002                     |  | F-4
|Statements of Cash Flows for the Years Ended    December 31, 2004, 2003, and 2002                               |  | F-5
|Notes to Financial Statements                                                                                   |  | F-6




Item  9.  Changes in and Disagreements With  Accountants on Accounting and Financial Disclosure





No  disclosure is required in response to this Item 9.





-37-


---



Back to Contents





Item 9A.Controls and Procedures





Under  the supervision and with the participation of the Companys management,  including William Jenkins, its President and Chief Executive Officer, and  Ronald Whitter, its Chief Financial Officer, the Company has evaluated the  effectiveness of the design and operation of its disclosure controls and  procedures as of the end of the period covered by this report, and, based on  their evaluation, Mr. Jenkins and Mr. Whitter have concluded that these  controls and procedures are effective. There were no significant changes in the  Companys internal controls or in other factors that could significantly affect  these controls subsequent to the date of their evaluation.





Disclosure  controls and procedures are the Companys controls and other procedures that  are designed to ensure that information required to be disclosed by it in the  reports that it files or submits under the Exchange Act are recorded,  processed, summarized and reported, within the time periods specified in the  Securities and Exchange Commissions rules and forms. Disclosure controls and  procedures include, without limitation, controls and procedures designed to  ensure that information required to be disclosed by the Company in the reports  that it files or submits under the Exchange Act is accumulated and communicated  to the Companys management, including Mr. Jenkins and Mr. Whitter, as  appropriate to allow timely decisions regarding required disclosure.





Item  9B.  Other Information





No information  is required to be disclosed in response to this Item 9B.





-38-


---



Back to Contents





PART III





Item  10.  Directors and Executive Officers of  the Registrant





The  following table contains information concerning the current Directors and  executive officers of the Company:





|Name                  |  | Age |  | Position                                          
|--------------------- |  | --- |  | --------------------------------------------------
|                      |  |     |  |                                                   
|William L. Jenkins    |  | 51  |  | President, Chief    Executive Officer and Director
|                      |  |     |  |                                                   
|Danny R. Thornton     |  | 53  |  | Vice-President                                    
|                      |  |     |  |                                                   
|Ron E. Whitter        |  | 43  |  | Chief Financial Officer                           
|                      |  |     |  |                                                   
|Charles E. Underbrink |  | 50  |  | Director                                          
|                      |  |     |  |                                                   
|James H. Harrison     |  | 36  |  | Director                                          




William L.  Jenkins has been President, Chief Executive Officer and a Director  of the Company since March 1989.  From  1973 until 1980, Mr. Jenkins held a variety of field engineering and training  positions with Welex - A Halliburton Company, in the South and Southwest.  From 1980 until March 1989, Mr. Jenkins  worked with Triad Oil & Gas, Inc., as a consultant, providing services to a  number of oil and gas companies.  During  that time, Mr. Jenkins was involved in the organization of a number of drilling  and oil field service companies, including a predecessor of the Company, of  which he served as Secretary/Treasurer until 1988.  Mr. Jenkins has over twenty years experience in the oil field  service business.  Mr. Jenkins is Mr.  Thorntons brother-in-law.





Danny  R. Thornton is a Vice-President of the Company and has been  employed by the Company since March 1989.   From 1982 to March 1989, Mr. Thornton was the president and a principal  stockholder of Black Warrior Mississippi, the Companys operational  predecessor.  Mr. Thornton has been  engaged in the oil and gas services industry in various capacities since  1978.  His principal duties with the  Company include supervising and consulting on the Companys onshore wireline  operations.  Mr. Thornton is Mr. Jenkins  brother-in-law.





Ron  E. Whitter is the Chief Financial Officer of the Company and  has been employed in that capacity since August 1999.  Prior to joining the Company, Mr. Whitter was employed by Oil  States as Controller.  From 1987 until  1993, Mr. Whitter was employed by Norfolk Energy as Financial Accounting Manager  and was employed by Transco Energy from 1985 to 1987.





-39-


---



Back to Contents





Charles
      E. Underbrinkwas elected a Director on April 1, 1998.  For more
      than the past five years, he has been employed as the Chairman of St. James
      Capital Corp. and SJMB, L.L.C., Houston based merchant banking firms.   From
      the inception of St. James Capital Corp. and SJMB, L.L.C. until March 1,
      2001 he also served as the Chief Executive Officer of each.





James H. Harrison was elected a Director  on February 25, 2003.  He is the Chief  Financial Officer of St. James Capital Corp. and SJMB, L.L.C., Houston-based  merchant banking firms.  Prior to joining  St. James Capital Corp. and SJMB, L.L.C. in January of 1998, he served as a  Manager at Ernst & Young LLP, a national public accounting firm.  Mr. Harrison has been employed by SJMB,  L.L.C. and its affiliates for more than the past five years.





The Company has agreed that one person  designated by the St. James Partnerships will be nominated for election to the  Companys Board of Directors.





Audit  Committee and Audit Committee Financial Expert





The  Companys Board of Directors has appointed an Audit Committee consisting of  Messrs. Jenkins, Underbrink and Harrison.   The Companys Audit Committee, among other things, meets with its  independent accountants to review its accounting policies, internal controls  and other accounting and auditing matters; approves the engagement of the  Companys independent accountants; and reviews the engagement and fees relating  to the scope of the annual audit, special audit work and non-audit services  which may be recommended or required by the independent accountants.  The Companys securities are not listed on a  registered national securities exchange or in an automated inter-dealer  quotation system and, accordingly, it is not subject to the listing standards  imposed by rules adopted under the U.S. Securities Exchange Act of 1934, as  amended, relating
 to audit
committees.





The  Companys Board of Directors has determined that it does not have an Audit  Committee Financial Expert serving on its Audit Committee.  The Company does not have an Audit Committee  Financial Expert serving on its Audit Committee because at this time the  limited magnitude of its revenues and operations does not, in the view of its  Board of Directors, justify or require that it obtain the services of a person  having the attributes required to be an Audit Committee Financial Expert  serving on its Board of Directors and Audit Committee.  The Board of Directors may in the future  determine that a member elected to the Board in the future has the attributes  to be determined to be an Audit Committee Financial Expert.





-40-


---



Back to Contents





Compliance  with Section 16(a) of the Securities Exchange Act of 1934





Section  16(a) of the Securities Exchange Act of 1934 requires the Companys officers  and Directors, and persons who beneficially own more than ten percent (10%) of a  registered class of the Companys equity securities, to file reports of  ownership and changes in ownership with the Securities and Exchange  Commission.  Officers, directors and  beneficial owners of more than ten percent (10%) of the Companys Common Stock  are required by SEC regulations to furnish the Company with copies of all  Section 16(a) forms that they file.  To  the best of the Companys knowledge, based solely on a review of such reports  as filed with the Securities and Exchange Commission, all such persons have  complied with such reporting requirements during the Companys most recent  fiscal year.





Code of Ethics





The Company  has adopted a Code of Ethics that applies to its principal executive officer  and principal financial and accounting officer.  A copy of the Companys Code of Ethics was filed as an exhibit to  the Companys Annual Report on Form 10-K for the year ended December 31, 2003.





Item  11.   Executive Compensation





Executive  Compensation - General





The  following table sets forth the compensation paid or awarded to the President  and Chief Executive Officer of the Company and each other executive officer of  the Company who received compensation exceeding $100,000 during 2004 for all  services rendered to the Company in each of the years 2004, 2003, and  2002.





Summary Compensation Table





|                                |  | Annual    Compensation |      | Long-Term    Compensation |   |         |  |                                  
|------------------------------- |  | ---------------------- | ---- | ------------------------- | - | ------- |  | ---------------------------------
|                                |  |                        |      |                           |   |         |  |                                  
|Name and     Principal Position |  | Year                   |      | Salary                    |   | Bonus   |  | Other     Annual     Compensation
|                                |  |                        |      |                           |   |         |  |                                  
|William L.    Jenkins           |  |                        | 2004 |                           | $ | 350,000 |  | $                                
|President                       |  |                        | 2003 |                           | $ | 361,667 |  | $                                
|                                |  |                        | 2002 |                           | $ | 363,333 |  |                                  
|                                |  |                        |      |                           |   |         |  |                                  
|Danny R.    Thornton            |  |                        | 2004 |                           | $ | 115,000 |  | $                                
|Vice    President               |  |                        | 2003 |                           | $ | 115,000 |  | $                                
|                                |  |                        | 2002 |                           | $ | 115,000 |  | $                                
|                                |  |                        |      |                           |   |         |  |                                  
|Ron E.    Whitter               |  |                        | 2004 |                           | $ | 128,333 |  |                                  
|Chief    Financial Officer      |  |                        | 2003 |                           | $ | 102,042 |  |                                  
|                                |  |                        | 2002 |                           | $ | 93,750  |  |                                  




Footnotes on following page.





-41-


---



Back to Contents





|   
|---
|(1)
|(2)
|(3)




Compensation Decisions.The Companys full Board of Directors acts on matters  involving the compensation of the Companys President and Chief Executive  Officer.  Mr. Jenkins acts on matters concerning  executive officer compensation other than to himself.   Mr. Jenkins does not participate as a Director in board actions  regarding his compensation.    The  Companys Board of Directors also acts on matters involving the grant of  options under the Companys option plans other than the 2000 Stock Incentive  Plan.  Messrs. Jenkins and Harrison have  been appointed to the option committee under the 2000 Stock Incentive  Plan.  At the present time, a  compensation committee of the Board of Directors has not been appointed.





Stock  Option Exercises and Holdings at December 31, 2004.





The  following table provides information with respect to the above named executive  officers regarding Company options exercised during the year ended December 31,  2004 and options held at December 31, 2004 (such officers did not exercise any  options during the most recent fiscal year).





|                   |  | Shares     Acquired     on     Exercise |     | Value     Realized |  | Number of    Unexercised     Options at December 31,     2004 |  | Value of    Unexercised     In-the-Money Options     At December 31, 2004 (1) |          
|------------------ |  | --------------------------------------- | --- | ------------------ |  | ------------------------------------------------------------- |  | ----------------------------------------------------------------------------- | ---------
|                   |  |                                         |     |                    |  |                                                               | 
|Name               |  |                                         |     | Exercisable        |  | Unexercisable                                                 |  | Exercisable                                                                   |          
|                   |  |                                         |     |                    |  |                                                               |  |                                                                               |          
|William L. Jenkins |  |                                         | -0- |                    |  | -0-                                                           |  |                                                                               | 3,000,000
|Danny R. Thornton  |  |                                         | -0- |                    |  | -0-                                                           |  |                                                                               | 1,250,000
|Ron E. Whitter     |  |                                         | -0- |                    |  | -0-                                                           |  |                                                                               | 400,000  




|   
|---
|(1)




No options were granted to the above named executive officers during  2004.





Other Plans





The  Company has not adopted any other long-term incentive plans or defined benefit  or actuarial pension plans.





-42-


---



Back to Contents





Employment  Agreements





On March 16, 2005, the Company entered into  an extension through January 1, 2008 of its employment agreement with Mr.  William L. Jenkins, its President and Chief Executive Officer on substantially  the same terms.  Under the agreement,  Mr. Jenkins serves as the Companys President, Chief Executive Officer  and a Director.  Under the agreement,  Mr. Jenkins receives a base salary of not less than $350,000 per year.  If the Company achieves, during any calendar  quarter during the period of Mr. Jenkins employment, a ratio of EBITDA to  sales of 20% or more, Mr. Jenkins will be paid a bonus for the quarter of 1% of  the Companys EBITDA during the quarter.   In the event of a Change of Control, as defined, the Company agrees that  the employment agreement will terminate and Mr. Jenkins will be paid a sum  equal to three times the compensation paid
 to Mr. Jenkins
during the twelve  months preceding the Change of Control.   A Change of Control is defined in the agreement as any of the following  occurring after January 1, 2005: any person or group of persons acquiring 20%  or more of the outstanding shares of voting capital stock of the Company, the  sale of more than 25% of the assets of the Company in a single or series of  related transactions, a merger of the Company with any other person or firm, a  change, during any period of twelve consecutive calendar months, in the  individuals who were Directors at the beginning of such period (including  Directors whose election or nomination for election was approved by at least  two-thirds of the Directors then in office who were Directors at the beginning  of the period or whose election was so approved) and such persons cease for any  reason other than death or disability to constitute a majority of the Directors  then in office, St. James Capital Corp. ceases to be the general partner,
 managing partner or
otherwise ceases to control St. James Capital Partners,  L.P. or SJMB, L.L.C. ceases to be the general partner, managing partner or  otherwise ceases to control SJMB, L.P.   In the event of Mr. Jenkins death, subject to any restrictions  contained in the Companys credit agreement with General Electric Capital  Corporation, the Companys senior secured lender, the Company agreed to  repurchase the shares and options held by Mr. Jenkins at the fair market value  of the shares, as to shares repurchased, and the difference between the fair  market value and the option exercise price, as to options repurchased.  Under the agreement, the fair market value  is the average of the mid-point between the bid and asked prices for the Companys  common stock for the twenty trading days preceding death.  The Company also restated its prior  agreement to pay to Mr. Jenkins in the event of a sale of the Company or a  significant division thereof, a bonus equal to
 1% of the gross
sale proceeds or  gross value of any stock received, subject to a maximum payment of $500,000. The  Companys employment agreement further provides that while in the employ of the  Company and thereafter Mr. Jenkins will not divulge or use any confidential  information of the Company and during the term of his employment will not  engage in activities in competition with the Company.





The Company agreed to keep in full force and  effect and Mr. Jenkins is entitled to participate in all employee benefit plans  in effect on the date of the agreement or other arrangements with at least  equivalent benefits.  Mr. Jenkins is  also entitled to the same benefits package as the other employees of the  Company.





-43-


---



Back to Contents





The Company  has entered into a five-year employment agreement terminating on April 1, 2006  with Danny R. Thornton, Vice President, Operations, of the Company.  Under his agreement, Mr. Thornton receives  base compensation of $115,000 per year.   On each anniversary date of the agreement, the Company and Mr. Thornton  agree to renegotiate the base salary taking into account the rate of inflation,  overall profitability and the cash position of the Company, the performance and  profitability of the area for which Mr. Thornton is responsible and other factors.  The agreement contains restrictions on Mr.  Thornton engaging in activities in competition with the Company during the term  of his employment.  The agreement also  contains provisions, added by an amendment in 2003, whereby in the event of a  change of control of the Company, Mr. Thornton is to be paid a
 sum equal to his
total annual compensation as in effect for the twelve months preceding the  change of control.  A change of control  is defined under the agreement the same as under Mr. Jenkins contract described  above with the addition of a provision that if Mr. Jenkins ceases to be  President, Chief Executive Officer, a Director or an employee of the Company, a  change of control will have occurred for the purposes of the agreement.





On September 17, 2004, the Company entered  into a three-year employment agreement, effective September 1, 2004, with Mr.  Ron E. Whitter, its present Chief Financial Officer.  Under the agreement, Mr. Whitter agrees to serve as the Companys  Chief Financial Officer for the term of the agreement.  His compensation under the agreement is  $135,000 per year plus a one-time signing bonus of $25,000.  Mr. Whitters compensation is to be reviewed  on each anniversary date of the agreement for possible adjustments in line with  the policies and practices of the managers and officers of the Company.  In addition to his salary, Mr. Whitter  receives a $750 monthly car allowance.   The agreement restricts Mr. Whitter from being employed or associated  with any person engaged in the operation of a wireline or directional drilling  business in the general
 business area of the
Company for the duration of his  employment.  The agreement also  contains provisions whereby in the event of a change of control of the Company,  Mr. Whitter is to be paid a $125,000.  A  change of control is defined under the agreement the same as under Mr. Jenkins  contract described above with the addition of a provision that if Mr. Jenkins  ceases to be President, Chief Executive Officer, a Director or an employee of  the Company, a change of control will have occurred for the purposes of the  agreement.





In  the event of a sale of the Company or a sale of substantially all of the assets  of the Company, the Company shall either (i) cause the purchaser to assume its rights  and obligations under the agreement, or (ii) terminate the agreement and pay to  Mr. Whitter an early termination fee equal to fifty (50%) percent of the  compensation due to Mr. Whitter during the remainder of the term of the  agreement.





-44-


---



Back to Contents





Mr.  Whitter is also entitled to the same benefits package as the other employees of  the Company and, so long as the senior executives of the Company receive  company-paid family health coverage, Mr. Whitter shall receive the same  benefit.





Directors Compensation





Non-employee  Directors of the Company are authorized to receive compensation in the amount  of $5,000 each quarter.  In addition,  the Companys Directors are reimbursed for their out-of-pocket expenses in  attending meetings of the Board of Directors and committees of the Board.





Under the  Companys Stock Incentive Plan, on the date of each annual meeting of  stockholders held after January 1, 2000, each non-employee Director automatically  receives an option grant for 50,000 shares on the date such person joins the  Board of Directors and each individual who is to continue to serve as a  non-employee Board member is automatically granted a Non-Statutory Option to  purchase 5,000 shares of the Companys Common Stock, provided such individual  has served as a non-employee Board member for at least six (6) months.  No options were granted during 2003 under  the automatic grant provisions of the Plan because no annual meeting of  stockholders was held.  Upon his  election to the Board in February 2003, Mr. Harrison declined the automatic  option grant of 50,000 shares.  No  meeting of stockholders was held in 2004.





-45-


---



Back to Contents





Item  12.  Security Ownership of Certain  Beneficial Owners and Management and Related Stockholder Matters





The  following table sets forth certain information regarding the beneficial  ownership of the Companys Common Stock as of March 1, 2005 (a) by each person  who is known by the Company to own beneficially more than five percent (5%) of  the Companys Common Stock, (b) by each of the Companys Directors and  executive officers named in response to Item 11 of this Annual Report, and (c)  by all Directors and executive officers as a group.  As of March 1, 2005, the Company had 12,499,528 shares of Common  Stock outstanding.





|Name and    Address (1)(2)                                                                                       |  | Number of    Shares     Owned |  | Percentage    of     Outstanding     Shares(3)
|---------------------------------------------------------------------------------------------------------------- |  | ----------------------------- |  | ----------------------------------------------
|                                                                                                                 |  |                               |  |                                               
|William L. Jenkins                                                                                               |  | 5,708,252 (4)                 |  | 31.4%                                         
|                                                                                                                 |  |                               |  |                                               
|Danny R. Thornton                                                                                                |  | 1,250,666 (5)                 |  | 9.1%                                          
|                                                                                                                 |  |                               |  |                                               
|Ron E. Whitter                                                                                                   |  | 400,000(6)                    |  | 3.1%                                          
|                                                                                                                 |  |                               |  |                                               
|Charles E. Underbrink
    c/o  St. James Capital Corp.
    4299 San Felipe
    Suite  120
    Houston, TX  77027 |  | 103,935,880(7)                |  | 93.4%                                         
|                                                                                                                 |  |                               |  |                                               
|James H. Harrison
    c/o  St. James Capital Corp. 
    4299 San Felipe - Suite 120 
    Houston, TX  77027      |  | 89,313,321(8)                 |  | 92.3%                                         
|                                                                                                                 |  |                               |  |                                               
|St. James Partnerships(9)4299 San Felipe - Suite 120Houston, Texas  77027                                        |  | 89,313,321 (10)               |  | 92.3%                                         
|                                                                                                                 |  |                               |  |                                               
|Bendover Corp.
    Alan W. Mann 
    M. Dale Jowers 
    1053 The Cliffs Blvd.
    Montgomery, TX  77356         |  | 3,314,235(11)                 |  | 26.6%                                         
|                                                                                                                 |  |                               |  |                                               
|All Directors and Officers as a Group (5 persons)                                                                |  | 111,294,798                   |  | 94.0%                                         




Footnotes on following page.





-46-


---



Back to Contents





|    
|----
|(1) 
|(2) 
|(3) 
|(4) 
|(5) 
|(6) 
|(7) 
|(8) 
|(9) 
|(10)
|    
|(11)




Securities Authorized for Issuance  Under Equity Compensation Plans





The Company  has three equity compensation plans for its employees, Directors and  consultants pursuant to which options, rights or shares may be granted or  issued.  See Note 14 to the Notes to  Financial Statements for further information on the material terms of these  plans.





The  following table provides information as of December 31, 2004 with respect to  compensation plans (including individual compensation arrangements), under  which securities are authorized for issuance aggregated as to (i) compensation  plans previously approved by stockholders, and (ii) compensation plans not  previously approved by stockholders:





-47-


---



Back to Contents





Equity Compensation  Plan Information





|Plan Category                                                 |  | (a)Number of     securities to be     issued upon     exercise of     outstanding     options, warrants     and rights |            | (b)Weighted-    average exercise     price of     outstanding     options,     warrants and     rights |   | (c)Number of    securities     remaining available for     future issuance under     equity compensation     plans (excluding     securities reflected in     column (a)) | 
|------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------- | ---------- | ------------------------------------------------------------------------------------------------------ | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                              |  |                                                                                                                        |            |                                                                                                        |   |                                                                                                                                                                           | 
|Equity compensation plans approved by security    holders     |  |                                                                                                                        | 18,800,000 |                                                                                                        | $ | 0.75                                                                                                                                                                      | 
|Equity compensation plans not approved by security    holders |  |                                                                                                                        | -0-        |                                                                                                        |   | -0-                                                                                                                                                                       | 
|Total                                                         |  |                                                                                                                        | 18,800,000 |                                                                                                        | $ | 0.75                                                                                                                                                                      | 




Item  13.  Certain Relationships and Related  Transactions





Commencing  in June 1997 through February, 1999, the Company entered into a series of  transactions whereby it sold to the St. James Partnerships $19.4 million  principal amount of its convertible promissory notes and common stock purchase  warrants to purchase an aggregate of 30,320,276 shares of its Common Stock for  an aggregate consideration of $19.4 million.   The foregoing excludes an additional $3.0 million borrowed in June 1997  that was repaid in October 1997.  Of  these notes and warrants, $1.0 million of promissory notes and warrants to  purchase 1,800,000 shares of Common Stock were subsequently transferred by a  St. James Partnership in October 1998 to one of the Other Subordinated  Debtholders.





In December  1999 and February 2000, the Company sold to one of the St. James Partnerships,  the Other Subordinated Debtholders and Mr. Underbrink, who participated with  the St. James Partnerships in the transaction an additional $7.0 million  principal amount of its convertible promissory notes and common stock purchase  warrants to purchase an aggregate of 28,700,000 shares of Common Stock to the  Other Subordinated Debtholders.  The St.  James Partnerships originally acquired in the transaction $750,000 principal  amount of the $7.0 million convertible promissory notes and common stock  purchase warrants to purchase an aggregate of 3,075,000 shares of Common Stock  of the common stock purchase warrants.





-48-


---



Back to Contents





On various  dates subsequent to February 2000, the St. James Partnerships purchased from  third parties an additional $1,200,000 principal amount of notes and warrants  to purchase an additional 3,690,000 shares of Common Stock.





Except
    for those terms relating to the amounts of securities purchased, maturity
    and expiration dates, interest rates, and conversion and exercise prices,
    each of such transactions when entered into contained substantially identical
    terms and conditions relating to the purchase of the securities involved.
    Payment of principal and interest on all the notes is collateralized by substantially
    all the assets of the Company, subordinated to borrowings by the Company
    from GECC presently in the maximum aggregate amount of $18.0 million.  After
    reflecting adjustments under the anti-dilution provisions of the notes, the
    principal and accrued interest on the notes are convertible into shares of
    the Companys Common Stock at a conversion price of $0.75 per  share.  Reflecting
    extensions through 2004 of the maturity dates, the notes are due and payable
    on February 13 and February 14,  2008, subject to the subordination agreements
    relating to the notes.  The warrants are exercisable, as  extended through
    2004, until December 31, 2009, at a price of $0.75 per share.  The conversion
    price of the notes and the exercise price of the warrants is subject to anti-dilution
    adjustments for certain issuances of securities by the Company at prices
    per share of Common Stock less than the conversion or exercise price then
    in effect in which event the conversion price and exercise price are reduced
    to the lower price at which such shares were issued.   As a consequence
    of several transactions involving the Company, the St. James Partnerships,
    and the Other Subordinated Debtholders occurring in December 1999, the conversion
    and exercise prices of the securities when initially issued were reduced
    pursuant to the anti-dilution adjustments to the current price of $0.75 per
    share.    The  shares issuable on conversion of the notes
    and exercise of the warrants  have demand and piggy-back registration rights
    under the Securities Act of 1933.  The Company agreed that one  person
    designated by the St. James Partnerships would be nominated for election
    to the Companys Board of Directors.   Mr. Charles E. Underbrink,
    Chairman of the general partners of the St. James Partnerships, serves on
    the Companys Board of Directors.  In addition, since February
    2003, Mr. James H. Harrison, an employee of one of the general partners of
    the St. James Partnerships, has served as a Director of the Company.  The
    agreements grant the St. James Partnerships certain preferential rights to
    provide future financings to the Company, subject to certain exceptions.
    The notes also contain 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 the St. James Partnerships.  Events of
default under the notes include,  among other events, (i) a default in the payment
    or mandatory prepayment of principal or interest when due; (ii) a default
    in the performance of any covenant made by the Company and such default remains
    uncured for a period of 45 days in the note purchase agreement, the warrants,
    the registration rights agreement, the security agreement or the notes (other
    than a default in a covenant specifically addressed elsewhere, with certain
    exceptions); (iii) a default in the payment of principal or interest when
    due on any of the Companys other indebtedness having an aggregate principal
    amount in excess of $100,000 and such default remains uncured for a period
    of 45 days ; (iv) judgment is entered against the Company for the payment
    of money aggregating $100,000 or more in excess of applicable insurance coverage
    and such default remains uncured for a period of 45 days; (v) any person
    or group of persons acquires 40% or more of the voting power of the Companys
    outstanding shares who was not the owner thereof as of October 30, 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 bankruptcy
    or insolvency related proceedings.  In the  event of a default under
    any of the notes, subject to the terms of subordination agreements between
    the St. James Partnerships, Charles E. Underbrink, a Director of the Company,
    and the Other Subordinated Debtholders with GECC, the St. James Partnerships
    could seek to foreclose against the collateral for the notes.





-49-


---



Back to Contents





Subsequent  to its purchase of the notes, on December 14, 2000 SJMB, one of the St. James  Partnerships, converted $1,750,000 principal amount of a note and $2,013,111 of  accrued interest on indebtedness owing to it into 5,017,481 shares of the  Companys Common Stock at a conversion price of $0.75 per share.





During the  years ended December 31, 2004 and 2003, $2.7 million and $3.7 million,  respectively, of interest accrued on indebtedness owed by the Company to the  St. James Partnerships.  At December 31,  2004, the total accrued interest on such indebtedness is convertible into an  aggregate of 24.0 million shares.





Mr.  Underbrink, holds beneficially, directly or indirectly, as of March 1, 2005,  $1,677,375 principal amount of promissory notes.  During the years ended December 31, 2004 and 2003, approximately  $251,606 and $251,606, respectively, of interest accrued on indebtedness owed  by the Company directly or indirectly to Mr. Underbrink.  At December 31, 2004, the total accrued  interest on such indebtedness owing directly or indirectly to Mr. Underbrink is  convertible into an aggregate of 3,855,738 million shares.





In  connection with and as a condition to entering into the Companys Restated  Credit Agreement with GECC in November 2004, the holders of $23.1 million  principal amount of the indebtedness, including all of the principal amount of  indebtedness owing to the St. James Partnerships and to Mr. Underbrink, agreed  with the Company to extend the maturity date of the Companys outstanding  subordinated promissory notes from December 31, 2004 to February 13 and  February 14, 2008.  In addition, in  connection with entering into the Companys Restated Credit Agreement with  GECC, the Company repaid approximately $942,000 principal amount of the  notes.    As a condition to extending  the maturity date of the notes, the Company extended to December 31, 2009 the  expiration date of the outstanding common stock purchase warrants to purchase  an aggregate of
 66,051,185
million shares, including the warrants held by the  St. James Partnerships to purchase 40,755,276 million shares and warrants held  directly or indirectly by Mr. Underbrink to purchase 10,570,909 shares.





-50-


---



Back to Contents





In  September 2001, August 2004 and November 2004 an aggregate of $1,647,625 of the  aggregate principal balance of subordinated promissory notes was repaid,  leaving a remaining aggregate principal balance of $5,352,375 on the $7.0  million of promissory notes issued between December 1999 and February 2000  which balance is convertible into an aggregate of 7,136,500 shares of Common Stock.





The Company  agreed in September 2001 to pay to SJMB a fee of approximately $274,000 in  consideration of SJMB providing cash collateral of $8.2 million deposited to  secure the performance of a continuing guaranty extended by SJMB of the Companys  borrowing from Coast Business Credit in 2000.    The $274,000 sum due SJMB has not been paid.





Item 14.  Principal Accountant Fees and Services





The  following sets forth fees incurred by the Company for services provided by  Grant Thornton LLP for the years ended December 31, 2004 and 2003, the  Companys independent public accountant at those year ends:





|     |  | Audit Fees |         | Audit    Related Fees |   | Tax Fees |  | All Other    Fees |       
|---- |  | ---------- | ------- | --------------------- | - | -------- |  | ----------------- | ------
|     |  |            |         |                       |   |          |  |                   |       
|2004 |  | $          | 235,498 |                       | $ | 52,673   |  | $                 | 14,975
|2003 |  | $          | 239,671 |                       | $ | 8,206    |  | $                 | 48,803




The  Companys Board of Directors believes that the provision of the services during  the two years ended December 31, 2004 is compatible with maintaining the  independence of Grant Thornton LLP.  The  Companys Audit Committee approves before the engagement the rendering of all  audit and non-audit services provided to the Company by its independent  auditor.  Engagements to render services  are not entered into pursuant to any pre-approval policies and procedures  adopted by the Audit Committee.





-51-


---



Back to Contents


Black Warrior Wireline Corp.Financial  StatementsFor the  Years Ended December 2004, 
  2003 and 2002


---



Back to Contents





Report of Independent  Registered Public Accounting Firm





Board of Directors  Black Warrior Wireline Corp.:





We have audited the accompanying consolidated balance sheets of Black  Warrior Wireline Corp. (a Delaware corporation) as of December 31, 2004 and  2003, and the related statements of operations, stockholders deficit, and cash  flow for each of the three years in the period ended December 31, 2004. These  financial statements are the responsibility of the Companys management. Our  responsibility is to express an opinion on these financial statements based on  our audits.





We conducted our audits in  accordance with the standards of the Public Company Accounting Oversight Board  (United States).  Those standards  require that we plan and perform the audit to obtain reasonable assurance about  whether the financial statements are free of material misstatement.  The Company is not required to have, nor  were we engaged to perform an audit of its internal control over financial  reporting.  Our audit included  consideration of internal control over financial reporting as a basis for  designing audit procedures that are appropriate in the circumstances, but not  for the purpose of expressing an opinion on the effectiveness of the Companys  internal control over financial reporting.   Accordingly, we express no such opinion.  An audit also includes examining, on a test  basis, evidence supporting the amounts and disclosures in the financial  statements, assessing the accounting
 principles used and
significant estimates  made by management, as well as evaluating the overall financial statement  presentation.  We believe that our audits  provide a reasonable basis for our opinion.





In our opinion, the financial statements referred to above present  fairly, in all material respects, the financial position of Black Warrior  Wireline Corp. as of December 31, 2004 and 2003, and the results of its  operations and its cash flows for each of the three years in the period ended  December 31, 2004, in conformity with accounting principles generally accepted  in the United States of America.





As more fully described in Note 2, the Company is highly leveraged, has  experienced liquidity constraints and has accumulated a significant deficit.  The Companys discussion of liquidity is set forth in Note 2.





GRANT THORNTON LLP





Houston, TexasApril 1, 2005





F-1


---



Back to Contents





Black Warrior Wireline Corp.  Balance Sheets  December 31, 2004 and 2003





|                                                                                                                         |  | December    31,    2004 |             | December    31,    2003 |  
|------------------------------------------------------------------------------------------------------------------------ |  | ----------------------- | ----------- | ----------------------- | -
|                                                                                                                         |  |                         |             |                         |  
|ASSETS                                                                                                                   |  |                         |             |                         |  
|Current assets:                                                                                                          |  |                         |             |                         |  
|Cash and cash    equivalents                                                                                             |  | $                       | 2,647,980   |                         | $
|Restricted cash                                                                                                          |  |                         |            |                         |  
|Accounts receivable,    less allowance of $475,449 and $588,101, respectively                                            |  |                         | 8,330,618   |                         |  
|Other receivables                                                                                                        |  |                         | 216,195     |                         |  
|Prepaid expenses                                                                                                         |  |                         | 3,030,040   |                         |  
|Other current assets                                                                                                     |  |                         | 1,440,483   |                         |  
|                                                                                                                         |  |                         |             |                         |  
|Total current assets                                                                                                     |  |                         | 15,665,316  |                         |  
|Inventories of tool components and sub-assemblies    held for sale, net                                                  |  |                         |            |                         |  
|Property, plant and equipment, less accumulated    depreciation                                                          |  |                         | 12,978,670  |                         |  
|Other assets                                                                                                             |  |                         | 227,828     |                         |  
|Goodwill                                                                                                                 |  |                         | 1,237,416   |                         |  
|Other intangible assets                                                                                                  |  |                         |            |                         |  
|                                                                                                                         |  |                         |             |                         |  
|Total assets                                                                                                             |  | $                       | 30,109,230  |                         | $
|                                                                                                                         |  |                         |             |                         |  
|LIABILITIES    AND STOCKHOLDERS DEFICIT                                                                                 |  |                         |             |                         |  
|Current liabilities:                                                                                                     |  |                         |             |                         |  
|Accounts payable                                                                                                         |  | $                       | 2,056,832   |                         | $
|Accrued salaries and    vacation                                                                                         |  |                         | 840,537     |                         |  
|Other accrued expenses                                                                                                   |  |                         | 1,683,541   |                         |  
|Accrued interest    payable                                                                                              |  |                         | 51,789      |                         |  
|Current maturities of    long-term debt                                                                                  |  |                         | 4,156,770   |                         |  
|Accrued interest    payable to related parties                                                                           |  |                         |            |                         |  
|Notes payable to    related parties, net of unamortized discount                                                         |  |                         |            |                         |  
|                                                                                                                         |  |                         |             |                         |  
|Total current    liabilities                                                                                             |  |                         | 8,789,469   |                         |  
|Long-term debt, less current maturities                                                                                  |  |                         | 6,393,281   |                         |  
|Non current accrued interest payable to related    parties                                                               |  |                         | 17,132,739  |                         |  
|Notes payable to related parties, net of unamortized    discount                                                         |  |                         | 23,002,375  |                         |  
|Deferred revenue                                                                                                         |  |                         |            |                         |  
|                                                                                                                         |  |                         |             |                         |  
|Total liabilities                                                                                                        |  |                         | 55,317,864  |                         |  
|                                                                                                                         |  |                         |             |                         |  
|Commitments and contingencies (Notes 6,9,10,11,15 and 16)                                                                |  |                         |             |                         |  
|Stockholders deficit:                                                                                                   |  |                         |             |                         |  
|Preferred stock, $.0005    par value, 2,500,000 shares authorized, none issued at December 31, 2004 or December 31, 2003 |  |                         |            |                         |  
|Common stock, $.0005    par value, 175,000,000 shares authorized,     12,504,148 shares issued and outstanding           |  |                         | 6,252       |                         |  
|Additional paid-in    capital                                                                                            |  |                         | 20,275,963  |                         |  
|Accumulated deficit                                                                                                      |  |                         | (44,907,456 | )                       |  
|Treasury stock, at    cost, 4,620 shares                                                                                 |  |                         | (583,393    | )                       |  
|Loan to shareholder                                                                                                      |  |                         |            |                         |  
|                                                                                                                         |  |                         |             |                         |  
|Total stockholders    deficit                                                                                           |  |                         | (25,208,634 | )                       |  
|                                                                                                                         |  |                         |             |                         |  
|Total liabilities and    stockholders deficit                                                                           |  | $                       | 30,109,230  |                         | $
|                                                                                                                         |  |                         |             |                         |  




The accompanying notes  are in integral part of these financial statements.





F-2


---



Back to Contents





Black Warrior Wireline Corp.  Statement of Operations   For the Years Ended December 31, 2004 and 2003 and 2002





|                                                                                                                                                                                                             |  | 2004 |            | 2003 |   | 2002       |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                                                                                                                                                             |  |      |            |      |   |            |  
|Revenues                                                                                                                                                                                                     |  | $    | 53,686,837 |      | $ | 45,756,892 |  
|Operating costs                                                                                                                                                                                              |  |      | 34,411,488 |      |   | 30,460,570 |  
|Selling, general and administrative expenses                                                                                                                                                                 |  |      | 9,466,169  |      |   | 9,257,347  |  
|Depreciation and amortization                                                                                                                                                                                |  |      | 5,179,237  |      |   | 4,652,962  |  
|                                                                                                                                                                                                             |  |      |            |      |   |            |  
|Income (loss) from    continuing operations                                                                                                                                                                  |  |      | 4,629,943  |      |   | 1,386,013  |  
|Interest expense and amortization of debt discount    (Note 6)                                                                                                                                               |  |      | (4,820,769 | )    |   | (5,352,129 | )
|Net gain on sale of fixed assets                                                                                                                                                                             |  |      | 53,173     |      |   | 238,516    |  
|Other income                                                                                                                                                                                                 |  |      | 44,581     |      |   | 106,156    |  
|                                                                                                                                                                                                             |  |      |            |      |   |            |  
|Loss from continuing    operations before income taxes                                                                                                                                                       |  |      | (93,072    | )    |   | (3,621,444 | )
|Provision for income taxes                                                                                                                                                                                   |  |      |           |      |   |           |  
|                                                                                                                                                                                                             |  |      |            |      |   |            |  
|Loss before    discontinued operations                                                                                                                                                                       |  |      | (93,072    | )    |   | (3,621,444 | )
|Discontinued operations (Note 4)                                                                                                                                                                             |  |      |            |      |   |            |  
|Income (loss) from    operations of discontinued directional drilling segment (including loss on    disposal of $1,317,481, $0 and $0 for the years ended December 31, 2004, 2003    and 2002, respectively) |  |      | (1,673,361 | )    |   | (1,916,496 | )
|Provision for income    taxes                                                                                                                                                                                |  |      |           |      |   |           |  
|                                                                                                                                                                                                             |  |      |            |      |   |            |  
|Net loss                                                                                                                                                                                                     |  | $    | (1,766,433 | )    | $ | (5,537,940 | )
|                                                                                                                                                                                                             |  |      |            |      |   |            |  
|Net loss per share - basic and diluted:                                                                                                                                                                      |  |      |            |      |   |            |  
|Loss before discontinued    operations                                                                                                                                                                       |  | $    | (.01       | )    | $ | (.29       | )
|Discontinued operations                                                                                                                                                                                      |  |      | (.13       | )    |   | (.15       | )
|                                                                                                                                                                                                             |  |      |            |      |   |            |  
|Net loss per share - basic and diluted                                                                                                                                                                       |  | $    | (.14       | )    | $ | (.44       | )
|                                                                                                                                                                                                             |  |      |            |      |   |            |  




The accompanying notes  are in integral part of these financial statements.





F-3


---



Back to Contents





Black Warrior Wireline Corp.  Statement of Stockholders Deficit  For the Years Ended December 31, 2004, 2003 and 2002





|                                                             |  | Loan toShareholder |          | Common    Stock |      | Paid-InCapital |  | AccumulatedDeficit |       | Treasury    Stock |  
|------------------------------------------------------------ |  | ------------------ | -------- | --------------- | ---- | -------------- |  | ------------------ | ----- | ----------------- | -
|                                                             |  |                    |          |                 |      |                |  |                   
|Shares                                                       |  | Par Value          | Shares   |                 | Cost
|                                                             |  |                    |          |                 |      |                |  |                    |       |                   |  
|Balance, December 31, 2001                                   |  | $                  |         |                 |      | 12,496,408     |  | $                  | 6,248 |                   | $
|Loan to Shareholder                                          |  |                    | (144,184 | )               |      |                |  |                    |       |                   |  
|Conversion of employee    options                            |  |                    |          |                 |      | 7,740          |  |                    | 4     |                   |  
|Discount on extension of    notes payable to related parties |  |                    |          |                 |      |                |  |                    |       |                   |  
|Issuance of warrants                                         |  |                    |          |                 |      |                |  |                    |       |                   |  
|Net loss for the year ended    December 31, 2002             |  |                    |          |                 |      |                |  |                    |       |                   |  
|                                                             |  |                    |          |                 |      |                |  |                    |       |                   |  
|Balance, December 31, 2002                                   |  |                    | (144,184 | )               |      | 12,504,148     |  |                    | 6,252 |                   |  
|Loan to Shareholder                                          |  |                    | 82,391   |                 |      |                |  |                    |       |                   |  
|Net loss for the year ended    December 31, 2003             |  |                    |          |                 |      |                |  |                    |       |                   |  
|                                                             |  |                    |          |                 |      |                |  |                    |       |                   |  
|Balance, December 31, 2003                                   |  |                    | (61,793  | )               |      | 12,504,148     |  |                    | 6,252 |                   |  
|Loan to Shareholder                                          |  |                    | 61,793   |                 |      |                |  |                    |       |                   |  
|Net loss for the year ended    December 31, 2004             |  |                    |          |                 |      |                |  |                    |       |                   |  
|                                                             |  |                    |          |                 |      |                |  |                    |       |                   |  
|Balance, December 31, 2004                                   |  | $                  |         |                 |      | 12,504,148     |  | $                  | 6,252 |                   | $
|                                                             |  |                    |          |                 |      |                |  |                    |       |                   |  




The accompanying notes  are in integral part of these financial statements.





F-4


---



Back to Contents





Black Warrior Wireline Corp.  Statement of Cash Flows  For the Years Ended December 31, 2004, 2003 and 2002





|                                                                                                 |  | 2004 |             | 2003 |   | 2002       |  
|------------------------------------------------------------------------------------------------ |  | ---- | ----------- | ---- | - | ---------- | -
|                                                                                                 |  |      |             |      |   |            |  
|Cash flows from operating    activities:                                                         |  |      |             |      |   |            |  
|Net    loss                                                                                      |  | $    | (1,766,433  | )    | $ | (5,537,940 | )
|Adjustments    to reconcile net loss to net cash provided by operating activities:               |  |      |             |      |   |            |  
|Depreciation                                                                                     |  |      | 6,630,847   |      |   | 7,608,379  |  
|Amortization                                                                                     |  |      | 387,079     |      |   | 83,341     |  
|Asset    impairment                                                                              |  |      |            |      |   | 3,113,968  |  
|Amortization    of debt issue costs                                                              |  |      | 575,691     |      |   | 494,548    |  
|Amortization    of discount on notes payable                                                     |  |      | 164,313     |      |   | 164,306    |  
|Amortization    of loan to shareholder                                                           |  |      | 61,793      |      |   | 82,391     |  
|Net    recoveries of doubtful accounts                                                           |  |      | (112,652    | )    |   | (257,534   | )
|Net    gain on disposition of property, plant and equipment                                      |  |      | (53,173     | )    |   | (243,628   | )
|Loss    on disposition of discontinued operations                                                |  |      | 1,317,481   |      |   |           |  
|Change    in:                                                                                    |  |      |             |      |   |            |  
|Accounts    receivable                                                                           |  |      | 734,382     |      |   | 4,106,414  |  
|Prepaid    expenses                                                                              |  |      | (2,937,569  | )    |   | (77,151    | )
|Other    receivables                                                                             |  |      |            |      |   |           |  
|Other    current assets                                                                          |  |      | (289,282    | )    |   | (455,584   | )
|Inventories                                                                                      |  |      |            |      |   | (270,292   | )
|Other    assets                                                                                  |  |      | (107,752    | )    |   | (172,125   | )
|Loan    to shareholder                                                                           |  |      |            |      |   |           |  
|Accounts    payable and accrued liabilities                                                      |  |      | (1,042,631  | )    |   | 1,954,318  |  
|                                                                                                 |  |      |             |      |   |            |  
|Cash    provided by operating activities                                                         |  |      | 3,562,094   |      |   | 10,593,411 |  
|                                                                                                 |  |      |             |      |   |            |  
|Cash flows from investing    activities:                                                         |  |      |             |      |   |            |  
|Acquisitions    of property, plant and equipment                                                 |  |      | (7,472,757  | )    |   | (3,089,588 | )
|Change    in restricted cash                                                                     |  |      | 961,551     |      |   | (961,551   | )
|Proceeds    from sale of property, plant and equipment                                           |  |      | 371,172     |      |   | 684,499    |  
|Proceeds    from sale of discontinued operations                                                 |  |      | 10,349,862  |      |   |           |  
|                                                                                                 |  |      |             |      |   |            |  
|Cash    provided by (used in) investing activities                                               |  |      | 4,209,828   |      |   | (3,366,640 | )
|                                                                                                 |  |      |             |      |   |            |  
|Cash flows from financing    activities:                                                         |  |      |             |      |   |            |  
|Proceeds    from bank and other borrowings                                                       |  |      | 13,620,025  |      |   | 5,434,046  |  
|Principal    payments on long-term debt, notes payable and capital lease obligations             |  |      | (19,866,741 | )    |   | (7,215,600 | )
|Proceeds    (payments) from (on) working revolver, net                                           |  |      | (3,159,929  | )    |   | (3,124,596 | )
|Debt    issue costs                                                                              |  |      | (378,327    | )    |   | (48,457    | )
|                                                                                                 |  |      |             |      |   |            |  
|Cash    provided by (used in) financing activities                                               |  |      | (9,784,972  | )    |   | (4,954,607 | )
|                                                                                                 |  |      |             |      |   |            |  
|Net    increase (decrease) in cash and cash equivalents                                          |  |      | (2,013,050  | )    |   | 2,272,164  |  
|Cash and cash equivalents,    beginning of year                                                  |  |      | 4,661,030   |      |   | 2,388,866  |  
|                                                                                                 |  |      |             |      |   |            |  
|Cash and cash equivalents,    end of year                                                        |  | $    | 2,647,980   |      | $ | 4,661,030  |  
|                                                                                                 |  |      |             |      |   |            |  
|Supplemental disclosure of    cash flow information:                                             |  |      |             |      |   |            |  
|Cash    paid during the year for:                                                                |  |      |             |      |   |            |  
|Interest                                                                                         |  | $    | 2,303,791   |      | $ | 1,644,893  |  
|                                                                                                 |  |      |             |      |   |            |  
|Income    taxes                                                                                  |  | $    |            |      | $ |           |  
|                                                                                                 |  |      |             |      |   |            |  
|Supplemental schedule of    noncash investing and financing activities:                          |  |      |             |      |   |            |  
|Acquisition    of property, plant and equipment financed under capital leases and  notes payable |  | $    | 840,921     |      | $ | 3,259,382  |  
|Stock    warrants issued                                                                         |  | $    |            |      | $ |           |  
|Discount    on extension of notes payable to related parties                                     |  | $    |            |      | $ |           |  




The accompanying notes  are in integral part of these financial statements.





F-5


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





Note 1 - General Information





Black Warrior Wireline Corp. (the Company) is an oil and gas well  service company currently primarily providing wireline services to oil and gas  well operators.  The Companys service  area includes primarily the Black Warrior and Mississippi Salt Dome Basins in  Alabama and Mississippi, the Permian Basin in West Texas and New Mexico, the  San Juan Basin in New Mexico, Colorado and Utah, the East Texas and Austin  Chalk Basins in East Texas, the Powder River and Green River Basins in Wyoming  and Montana, the Williston Basin in North Dakota and areas of the Gulf of  Mexico offshore Louisiana and South Texas.   In July 2001, the Company sold its workover and completion line of  business and in August 2004, the Company sold its directional oil and gas well  drilling and downhole surveying business.





On December 17, 2004, the Company announced in a press release that it  had entered into a letter of intent dated November 11, 2004 with Lincolnshire  Management, Inc. for the sale of the Company to an affiliate of Lincolnshire  Management, Inc.  At March 31, 2005, the  Company is engaged in negotiations relating to the terms and conditions of that  transaction, among other matters.  There  can be no assurance that these negotiations will be successfully concluded  resulting in terms acceptable to the Company or that the Company will enter  into a transaction on the terms described in the December 17, 2004 announcement  or on any other terms.





Note 2  Liquidity





The Company reported a net loss for the years ended December 31, 2004,  2003, and 2002 of approximately ($1,770,000), ($5,550,000) and ($7,600,000),  respectively.  Cash flows provided by  operations were approximately $3,500,000, $10,600,000 and $5,400,000 for the  years ended December 31 2004, 2003, and 2002, respectively.  The Company is highly leveraged.  The Companys outstanding indebtedness  includes primarily senior indebtedness aggregating approximately $7.9 million  at December 31, 2004, other indebtedness of approximately $2.7 million and  approximately $40.2 million (including approximately $17.2 million of accrued  interest) owing to St. James Merchant Bankers, L.P. (SJMB),St. James Capital  Partners, L.P. (SJCP) and others who participated with SJMB in the purchase  of promissory notes and warrants of the Company (collectively St. James) and  directors, who are related
 parties. The
Companys debt and accrued interest  owed to related parties is convertible into common stock and is subordinate to  the Senior Credit Facility (see Note 9).   In addition, no repayments of the related party debt or accrued interest  can be made until the Senior Credit Facility is completely extinguished,  however the Company was allowed to repay $1.6 million of the subordinated debt  in connection with the sale of the Companys directional drilling division and  consummation of the Restated Credit Agreement with General Electric Capital  Corp. (GECC) as described below.





On November 14, 2004, the Company entered into the Restated Credit  Agreement with GECC providing for the extension of revolving and term credit  facilities to the Company aggregating up to $18.0 million.  The Restated Credit Agreement amends,  restates and modifies the Original Credit Agreement entered into as of  September 14, 2001, including the amendments thereto.  The Restated Credit Agreement includes a revolving loan of up to  $10.0 million, but not exceeding 85% of eligible accounts receivable and a term  loan of $8.0 million.  Eligible accounts  are defined to exclude, among other items and subject to certain exceptions,  accounts outstanding of debtors that are more than 60 days overdue or 90 days  following the original invoice date and of debtors that have suspended business  or commenced various insolvency proceedings and accounts with reserves  established against them to the extent of such reserves as GECC may
 set from  time to
time in its reasonable credit judgment.  The interest rate on borrowings under the revolving loan is 1.75%  above a base rate and on borrowings under the term loan is 2.5% above the base  rate.  The base rate is the higher of  (i) the rate publicly quoted from time to time by the Wall Street Journal as the base rate on  corporate loans posted by at least 75% of the nations thirty largest banks, or  (ii) the average of the rates on overnight Federal funds transactions by  members of the Federal Reserve System, plus 0.5%.  Subject to the absence of an event of default and fulfillment of  certain other conditions, the Company can elect to borrow or convert any loan  and pay interest at the LIBOR rate plus applicable margins of 3.25% on the  revolving loan and 4.0% on the term loan.   If an event of default has occurred, the interest rate is increased by  2%.  Advances under the Restated Credit  Agreement are collateralized by a senior lien against
 substantially all
of the  Companys assets.  The Restated Credit  Agreement expires on November 14, 2007.








F-6


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





Initial borrowings under the Restated Credit Agreement advanced on  November 14, 2004 were $8.0 million borrowed under the term loan.  No borrowings were made under the revolving  loan.  Proceeds of the initial  borrowings were used to repay indebtedness outstanding under a capex loan under  the Original Credit Agreement in the amount of approximately $4.3 million, approximately  $1.8 million was placed in escrow for the possible repayment of principal and  accrued interest on subordinated secured indebtedness and approximately $1.9  million was borrowed to be used by the Company for general corporate purposes.  Any funds placed in escrow not used for the repayment of subordinated secured  indebtedness were returned to the Company.   Borrowings under the revolving loan are able to be repaid and  re-borrowed from time to time for working capital and general corporate needs,  subject to the Companys continuing compliance
 with the terms of
the agreement,  with the outstanding balance of the revolving loan to be paid in full at the  expiration of the Restated Credit Agreement on November 14, 2007.  The term loan is to be repaid in 35 equal  monthly installments of $133,333 with a final installment of $3,333,345 due and  payable on November 14, 2007.





Note  Extensions.  In  connection with entering into the GECC refinancing in November 2004, the  Company agreed with the holders to extend the maturity date of the Companys  outstanding subordinated secured promissory notes from December 31, 2004 to  February 13 and February 14, 2008 on $23.0 million of the total $23.9 million  principal amount of the notes.  The  remainder of the outstanding principal was repaid.  The notes bear interest at 15% per annum and are convertible into  shares of the Companys common stock at a conversion price of $0.75 per share,  subject to an anti-dilution adjustment for certain issuances of securities by  the Company at prices per share of common stock less than the conversion price  then in effect, in which event the conversion price is reduced to the lower  price at which the shares were issued.   As a
 condition to extend
the maturity date, the Company extended the  expiration date of 66.1 million outstanding common stock purchase warrants to  December 31, 2009.





Strong and stable market conditions and the Companys ability to meet  intense competitive pressures are essential to the Companys maintaining a  positive liquidity position and meeting debt covenant requirements.  Decreases in market conditions or failure to  mitigate competitive pressures could result in non-compliance with its debt  covenants and the triggering of the prepayment clauses of the Companys debt.  The Company believes that if market  conditions remain stable during 2005, the Company will be able to generate  sufficient cash flow to meet its working capital needs and comply with its debt  covenants until the maturity of its Senior Credit Facility on September 14,  2007.  If market conditions decline  significantly, the Company may be required to obtain additional amendments to  its Senior Credit Facility, or obtain capital through equity contributions or  financing, including a possible merger or
 sale of assets,
or other business  combination.





Note 3 - Significant Accounting  Policies





Cash and  Cash Equivalents - The Company considers all highly liquid  investments with original maturities of three months or less to be cash  equivalents.  The Company had at  December 31, 2004 and 2003 $2.5 million and $4.5 million, respectively, of cash  balances in excess of the Federal Deposit Insurance Corporation insured  limits.





Restricted  Cash - Restricted cash refers to the cash receipts from  customer sales that are allocated to the repayment of the revolving line of  credit, therefore, these funds are not available to the Company for general  corporate use.  At December 31, 2004 the  Company had no balance owed on its revolving line of credit so all customer  receipts are reflected as cash.





Accounts  Receivable - Included in accounts receivable are recoverable  costs and related profits not billed, which consist primarily of revenue  recognized on contracts for which billings had not been presented to the  contract owners.  Unbilled amounts  included in accounts receivable totaled $468,696 at December 31, 2003 and are  related to the discontinued directional drilling division.  There are no unbilled amounts in accounts  receivable at December 31, 2004 as the directional oil and gas well drilling  division was sold during 2004 (see Note 4).





Allowance for Doubtful Accounts  - The allowance for doubtful accounts is maintained at an adequate level to  absorb losses in the Companys accounts receivable.  Management of the Company continually monitors the accounts  receivable from its customers for any collectability issues.  An allowance for doubtful accounts is  established based on reviews of individual customer accounts, recent loss  experience, current economic conditions, and other pertinent factors.  Accounts deemed uncollectible are charged to  the allowance.  Provisions for bad debts  and recoveries on accounts previously charged-off are added to the allowance.  All accounts outstanding more than 30 days  are considered past due.








F-7


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





Inventories  of Tool Components and Sub-Assemblies Held for Sale, Net -  Inventories consisted of tool components, subassemblies and expendable parts  used in directional oil and gas well drilling activities. Components,  subassemblies and expendable parts are capitalized as long-term inventory and  expensed based on a per hour of motor use calculation and then adjusted to  reflect physical inventory counts.  The  Companys classification and treatment is consistent with industry  practice.  The directional oil and gas  well drilling division was sold in August 2004 (see Note 4).





Property,  Plant and Equipment - Property, plant and equipment is stated  at cost. The cost of maintenance and repairs is charged to expense when  incurred; the cost of betterments is capitalized. The cost of assets sold or  otherwise disposed of and the related accumulated depreciation are removed from  the accounts and the gain or loss on such disposition is included in income.  Depreciation is computed using the straight-line method over the estimated  useful lives of the assets, which range from two to ten years. At December 31,  2004 and 2003, significantly all of the property, plant and equipment has been  pledged as collateral for the Companys borrowings (see Note 9).





Goodwill- Goodwill is stated at cost.  Goodwill is not subject  to amortization, but is assessed annually for impairment or more frequently if  events or circumstances indicate that an impairment may have occurred.  During 2004, management evaluated the  recoverability of its goodwill in relation to its business segments.    The assumptions used in this analysis  represent managements best estimates of future activity.





Long-Lived  Assets - In accordance with SFAS 144, Accounting for the Impairment or  Disposal of Long-Lived Assets, the Company recognizes impairment  losses on long-lived assets used in operations when indicators of impairment  are present and the undiscounted cash flows over the life of the assets are  less than the assets carrying amount. If an impairment exists, the amount of  such impairment is calculated based on projections of future discounted cash  flows. These projections use a discount rate and terminal value multiple that  would be customary for evaluating current oil and gas service company  transactions.





The Company considers external factors in making its assessment.  Specifically, changes in oil and natural gas prices and other economic  conditions surrounding the industry, consolidation within the industry,  competition from other oil and gas well service providers, the ability to  employ and maintain a skilled workforce and other pertinent factors are among  the items that could lead management to reassess the realizability and/or  amortization periods of its long-lived assets.





Revolving Credit Facility -The  Companys revolving credit facility requires a lock-box arrangement, which  provides for all receipts to be swept daily to reduce borrowings outstanding  under the credit facility.  This  arrangement, combined with the existence of a subjective acceleration clause in  the revolving credit facility, requires the classification of outstanding  borrowings under the revolving credit facility as a current liability.





Income  Taxes - The Company accounts for income taxes under an asset  and liability approach that requires the recognition of deferred tax assets and  liabilities for the expected future tax consequences of events that have been  recognized in the Companys financial statements or tax returns. In estimating  future tax consequences, the Company generally considers all expected future  events other than enactments of changes in the tax laws or rates.





Stock-Based  Compensation - At December 31, 2004, the Company has three  stock-based employee compensation plans, which are described more fully in Note  15.  The Company accounts for those  plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees,  and related Interpretations.  No  stock-based employee compensation cost is reflected in net income, as all  options granted under those plans had an exercise price equal to the market  value of the underlying common stock on the date of grant.  The following table illustrates the effect  on net income and earnings per share if the company had applied the fair value  recognition provisions of SFAS No. 123, Accounting  for Stock-Based Compensation,to stock-based employee compensation.








F-8


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





|                                                                                                                                                            |  | Year ended December 31, |           
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----------
|                                                                                                                                                            |  |                         |           
|                                                                                                                                                            |  | 2004                    |           
|                                                                                                                                                            |  |                         |           
|Net loss, as reported                                                                                                                                       |  | $                       | (1,766,433
|Add (deduct):  Total stock-based employee compensation    expense determined under fair value based method for all awards, net of    related tax effects(1) |  |                         | 564,607   
|                                                                                                                                                            |  |                         |           
|Pro forma net loss                                                                                                                                          |  | $                       | (1,201,826
|                                                                                                                                                            |  |                         |           
|Loss per share:                                                                                                                                             |  |                         |           
|Basic - as reported                                                                                                                                         |  | $                       | (.14      
|                                                                                                                                                            |  |                         |           
|Basic - pro forma                                                                                                                                           |  | $                       | (.10      
|                                                                                                                                                            |  |                         |           
|Diluted - as reported                                                                                                                                       |  | $                       | (.14      
|                                                                                                                                                            |  |                         |           
|Diluted - pro forma                                                                                                                                         |  | $                       | (.10      
|                                                                                                                                                            |  |                         |           




|                                                                                                      
|------------------------------------------------------------------------------------------------------
|(1)Addition    of stock-based compensation expense due to cancellation of    previously issued options




Use of  Estimates - The preparation of financial statements in  conformity with accounting principles generally accepted in the United States  of America requires management to make estimates and assumptions that affect  the amounts reported in the financial statements and accompanying notes. Actual  results could differ from these estimates.





Basis of  Presentation - Certain prior year amounts have been  reclassified to conform to current year presentation.





Revenue  Recognition - The  Company derives revenues from performance of services and the sale of  equipment.  Service revenues are  recognized at the time services are performed.   The Companys sales are typically not subject to rights of return and,  historically, sales returns have not been significant.  Revenue related to equipment sales is  recognized when the equipment has been shipped and title and risk of loss have  passed to the customer.  Deferred  revenue, net of related deferred cost of sales, is recorded as unearned  revenues in Deferred Revenue in the accompanying Balance Sheets.





Earnings  Per Share - The Company presents basic and diluted earnings  per share (EPS) on the face of the statement of operations and a  reconciliation of the numerator and denominator of the basic EPS computation to  the numerator and denominator of the diluted EPS computation.





Basic EPS excludes dilution and is computed by dividing income  available to common stockholders by the weighted-average number of common  shares outstanding for the period. Diluted EPS reflects the potential dilution that  could occur if securities or other contracts to issue common stock were  exercised or converted into common stock or resulted in the issuance of common  stock that shared in the earnings of the entity. The number of common stock  equivalents is determined using the treasury stock method. Options have a  dilutive effect under the treasury stock method only when the average market  price of the common stock during the period exceeds the exercise price of the  options.





Recent  Accounting Pronouncements  On December 21, 2004, FASB Staff  Position (FSP) FAS 109-1, Application of FASB Statement No. 109, Accounting  for Income Taxes, to the Tax Deduction on Qualified Production  Activities Provided by the American Jobs Creation Act of 2004, was issued. FSP  FAS 109-1 clarifies that this tax deduction should be accounted for as a  special deduction in accordance with Statement 109.  As such, the special deduction has no effect on deferred tax  assets and liabilities existing at the date of enactment.  Rather, the impact of this deduction will be  reported in the period in which the deduction is claimed on our tax return  beginning in 2005. As regulations are still pending, the Company has not been  able to quantify the impact.





EITF Issue 03-13, Applying the
    Conditions in Paragraph 42 of FASB Statement No. 144, Accounting for the
    Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report
    Discontinued Operations,  provides guidance regarding the application
    of paragraph 42 of Statement 144 (AC Section I14) in determining whether
    to report discontinued operations and is effective for components classified
    as held for sale or disposed of in fiscal periods beginning after December
    15, 2004.  The  Company is currently evaluating this proposed statement
    and its effects on its results of operations.





F-9


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





In December 2004, the Financial Accounting Standards Board issued  Statement 123 (revised 2004), Share-Based Payment (Statement 123(R)).  This Statement requires that the costs of  employee share-based payments be measured at fair value on the awards grant  date using an option-pricing model and recognized in the financial statements  over the requisite service period.  This  Statement does not change the accounting for stock ownership plans, which are  subject to American Institute of Certified Public Accountants SOP 93-6, Employers  Accounting for Employee Stock Ownership Plans.  Statement 123(R) supersedes Opinion 25,  Accounting for Stock Issued to Employees and its related interpretations, and  eliminates the alternative to use Opinion 25s intrinsic value method of  accounting, which the Company is currently using.  Certain stock awards may be considered liabilities instead of
 equity components
under Statement 123R.





Statement 123(R) allows for two alternative transition methods.  The first method is the modified prospective  application whereby compensation cost for the portion of awards for which the  requisite service has not yet been rendered that are outstanding as of the  adoption date will be recognized over the remaining service period.  The compensation cost for that portion of  awards will be based on the grant-date fair value of those awards as calculated  for pro forma disclosures under Statement 123, as originally issued.  All new awards and awards that are modified,  repurchased, or cancelled after the adoption date will be accounted for under  the provisions of Statement 123(R).  The  second method is the modified retrospective application, which requires that  the Company restates prior period financial statements.  The modified retrospective application may  be applied either to all prior periods or only to prior
 interim periods
in the  year of adoption of this statement.  The  Company is currently determining which transition method it will adopt and is  evaluating the impact Statement 123(R) will have on its financial position,  results of operations, EPS and cash flows when the Statement is adopted.





In November 2004, the Financial Accounting Standards Board issued  Statement 151, Inventory Costs,  an amendment of ARB No. 43, Chapter 4, which is effective for inventory costs  incurred during fiscal years beginning after June 15, 2005.  The amendments made by Statement 151 require  that abnormal amounts of idle facility expense, freight, handling costs, and  wasted materials (spoilage) be recognized as current-period charges and require  the allocation of fixed production overheads to inventory based on the normal  capacity of the production facilities.   The Company does not believe that the adoption of Statement 151 will  have a significant effect on its financial statements.





In December 2003, the Financial Accounting Standards Board (FASB)  issued Interpretation No. 46 (revised December 2003) (FIN 46R), Consolidation of Variable Interest Entities, an  interpretation of ARB 51. The primary objectives of FIN 46R are to  provide guidance on the identification of entities for which control is  achieved through means other than through voting rights (variable interest  entities or VIEs) and how to determine if a business enterprise should  consolidate the VIEs. This new model for consolidation applies to an entity for  which either: the equity investors (if any) do not have a controlling financial  interest; or the equity investment at risk is insufficient to finance the  entitys activities without receiving additional subordinated financial support  from other parties. In addition, FIN 46R requires that all enterprises with a  significant variable interest
 in a VIE make
additional disclosures regarding  their relationship with the VIE. The interpretation requires public entities to  apply FIN 46R to all entities that are considered Special Purpose Entities in  practice and under the FASB literature that was applied before the issuance of  FIN 46R. The adoption of FIN 46R had no effect on the Companys financial  statements.





Note 4 - Discontinued Operations





On August 6, 2004, the Company completed
    the sale of its assets associated with its directional drilling business,
    (referred to as the  Multi-Shot Business) pursuant to an Asset
    Purchase Agreement entered into on June 3, 2004. The buyer of the Multi-Shot
    Business was a newly-organized Texas limited liability company, with the
    name Multi-Shot, LLC, which included among its members Allen Neel, formerly
    the Executive Vice President of the Company, as well as two of the Companys
    other former employees employed in the Multi-Shot Business.  These persons
    are referred to as the Key Multi-Shot Employees.   The Company has been
    advised that as of August 6, 2004, these persons held less than a 10% equity
    interest in the buyer.





F-10


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





The transaction included the sale of all the Companys assets used in  the Multi-Shot Business, including certain real property located in Odessa,  Texas; improvements and fixtures located on the property; machinery and  equipment, receivables, inventories, tangible and intangible assets and all  books, records and files.





The purchase price was $11.0 million consisting of $10.4 million in  cash and approximately $628,000 payable by assignment and release by the Key  Multi-Shot Employees of their claims under their employment agreements with the  Company to change of control payments that may be due in the aggregate of that  amount.  The purchase price was subject  to adjustment at and as of the closing of the sale for increases and decreases  in the Multi-Shot Business net working capital of $270,000 as of November 30,  2003 and increases and decreases in its inventory of approximately $5,207,000  as of December 31, 2003.  On the basis  of an initial closing date balance sheet prepared by the Company and delivered  at the closing of the sale on August 6, 2004, the purchase price was reduced by  a net adjustment of approximately $22,000.   This net adjustment reflected a decrease in net working capital  subsequent to November 30, 2003
 through the closing of
approximately $552,000,  and an increase in inventory value subsequent to December 31, 2003 through the  closing of approximately $530,000.





The Asset Purchase Agreement provided that within 45 days after the  closing, the buyer was to prepare and deliver a proposed final closing date  balance sheet to include the buyers calculation of the final adjustment  amounts for increases and decreases as of the closing date in net working  capital of $270,000 as of November 30, 2003 and increases and decreases as of  the closing date in inventory of approximately $5,207,000 as of December 31,  2003, which adjustments, when determined, would result in establishing the  final purchase price.





Out of the net cash proceeds from the sale of the Multi-Shot Business,  approximately $9.6 million was applied to the reduction of indebtedness owing  to the Companys senior secured creditor.





In February 2005, the Company entered into a  Compromise Agreement with the buyer resolving certain matters that had arisen  under the Asset Purchase Agreement subsequent to the closing.  Among the matters resolved were the  determination of the final purchase price adjustment under the asset purchase  agreement and resolution of the capital expenditure note issued by the buyer at  the closing.  Pursuant to the Compromise  Agreement, the Company paid to the buyer $940,000, and the principal amount of  the buyers capital expenditure note, which was increased to approximately  $168,000, was deemed paid.  Among other  things, the Companys payment reflected a compromise with respect to any and  all claims of the buyer with respect to accounts receivable and also reflected  a compromise with respect to the final purchase price adjustment.  In addition, the Companys representations  warranties and covenants in
 the Asset
Purchase Agreement as to the Multi-Shot  Business relating to inventory, net working capital, purchase price  adjustments, financial statements, accounts receivable, condition of assets  (other than real property and leased real property) were agreed not to survive  the execution of the Compromise Agreement.   Otherwise, the representations warranties and covenants of the Asset Purchase  Agreement continue in effect.





Note 5   Acquisitions and Other Intangible Assets





In February 2002, the Company acquired the assets of Big Gun  Perforating, Inc. for $300,000.  The  acquisition enabled the Company to expand its tubing conveyed perforating  (TCP) services to its existing onshore and offshore customer base.  The Company entered into a non-compete  agreement associated with the purchase which was reported under goodwill and  other intangible assets on the balance sheet and was being amortized on a  straight-line basis over five years, the life of the contract.  The carrying amount was fully amortized in  2004.





The acquisition did not result in any significant changes in previously  reported revenues, income (loss) before provision for income taxes,  discontinued operations, net income (loss) or basic or diluted earnings per  share on a pro forma basis.





F-11


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





Note 6 - Related Party Transactions





The Company has executed notes payable to SJMB and SJCP.   The chairman and an employee of SJMB,  L.L.C., the general partner of SJMB, both serve on the Companys Board of  Directors.  At December 31, 2004 and  2003, notes due to SJMB, SJCP and related parties totaled $23,002,375 and  $24,566,882, respectively.  The notes  bear interest at 15%.  Interest expense  and accrued interest associated with these notes were as follows:





|                 |  | 2004 |            | 2003 |   | 2002       | 
|---------------- |  | ---- | ---------- | ---- | - | ---------- | 
|                 |  |      |            |      |   |            | 
|Interest expense |  | $    | 3,296,000  |      | $ | 3,685,000  | 
|Accrued interest |  | $    | 17,170,000 |      | $ | 14,209,000 | 




In September 2001, the Company agreed to pay to SJMB a fee of  approximately $274,000 in consideration of SJMB providing cash collateral of  $8.2 million deposited to secure the performance of the continuing guaranty  extended by SJMB of the Companys former financing arrangement with Coast  Business Credit (Coast), a financial institution.  In addition, SJMB, L.L.C., the general partner of SJMB, received  a fee in September 2001 of $200,000 for services provided by SJMB, L.L.C. in  connection with the Company acquiring a credit facility from GECC (see Note  9).  Under the terms of the Credit  Facility, the Company is restricted from paying any further sums to either SJMB  or SJMB, L.L.C. until GECC is repaid in full.    The $274,000 fee due to SJMB has not yet been paid and is included in  non-current liabilities at December 31, 2004.





In February 2001, the Company issued to a Director of the Company and  SJCP five-year warrants to purchase 700,000 and 400,000 shares, respectively,  of the Companys Common Stock at exercise prices of $0.75 per share.  The warrants were issued in consideration of  guarantees extended to Coast by the Director and SJCP in connection with the  Companys borrowings from Coast in 2000.





In connection with the five year employment agreement effective January  1, 2002 entered into with Mr. Jenkins to remain as the Companys President and  Chief Executive Officer, the Company agreed to loan Mr. Jenkins $190,000,  bearing interest at the applicable federal rate, to be repaid at the rate of  one-third of the principal, plus accrued interest on October 1 of each of the  years 2002, 2003 and 2004.  If Mr.  Jenkins remained employed by the Company on September 30 preceding the date  annual principal and interest is due on the loan, the sum due and owing the  following day is forgiven.  In the event  of a Change of Control, as defined, the death or permanent disability of Mr.  Jenkins or in the event his employment is terminated without cause, the entire  amount owing by Mr. Jenkins was to be forgiven.  The Company amortized the loan balance as compensation cost over  the life of the loan.  Compensation
 expense related to
the loan for the years ended December 31, 2004, 2003 and  2002 was approximately $62,000, $82,000 and $82,000, respectively.  At December 31, 2004, the loan had been  fully amortized and the balance of the loan was $0.





See Notes 9 and 11 for financing arrangements and common stock  transactions with related parties.





F-12


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





Note 7 - Property, Plant and  Equipment





Property, plant and equipment include the following at December 31,  2004 and 2003:





|                                     |  | 2004 |            | 2003 |  
|------------------------------------ |  | ---- | ---------- | ---- | -
|                                     |  |      |            |      |  
|Land and building                    |  | $    | 156,250    |      | $
|Vehicles                             |  |      | 15,842,461 |      |  
|Operating equipment                  |  |      | 23,974,824 |      |  
|Office equipment                     |  |      | 1,005,591  |      |  
|                                     |  |      |            |      |  
|                                     |  |      | 40,979,126 |      |  
|Less: accumulated depreciation       |  |      | 28,000,456 |      |  
|                                     |  |      |            |      |  
|Net property, plant and    equipment |  | $    | 12,978,670 |      | $
|                                     |  |      |            |      |  

Depreciation expense for the years ended December 31, 2004, 2003 and  2002 was $6,630,847, $7,608,383 and $7,888,302, respectively.





Reference is made to Note 4 for discussion of  the sale of the Companys directional drilling business.





Note 8 - Goodwill





In 2003, in connection with the Companys plans to dispose of its  directional drilling division, management analyzed under SFAS 142 the carrying  value of its goodwill carried on its balance sheet arising out of the 1997  acquisition of Diamondback Directional, Inc and the 1998 acquisition of Phoenix  Drilling Services.  This analysis  resulted in a charge to operations for the year ended December 31, 2003 in the  amount of approximately $1.7 million.   The balance in unamortized goodwill was $1,237,417 at December 31, 2004  and 2003, respectively.





F-13


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





Note 9 - Long-Term Debt and Other  Financing Arrangements





At December 31, 2004 and 2003, long-term debt and other financing arrangements  consisted of the following:





|                                                                                                                                                                                                                                         |  | 2004 |            | 2003 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | -
|                                                                                                                                                                                                                                         |  |      |            |      |  
|Installment notes payable,    monthly payments required in varying amounts through July 2007, interest at    rates ranging from 2.90% to 7.17%.                                                                                          |  | $    | 2,683,384  |      | $
|Notes payable to General    Electric Capital Corporation, monthly payments of  $133,333 through October 2007 with final installment of    $3,333,345 due in November 2007, interest at prime plus 2.50% (7.75% at    December 31, 2004). |  |      | 7,866,667  |      |  
|Revolving line of credit to    General Electric Capital Corporation, interest at prime plus 1.75%.                                                                                                                                       |  |      |           |      |  
|Capital expenditure line of    credit to General Electric Capital Corporation, interest at prime  plus 2.50%.                                                                                                                            |  |      |           |      |  
|                                                                                                                                                                                                                                         |  |      |            |      |  
|                                                                                                                                                                                                                                         |  |      | 10,550,051 |      |  
|Less:                                                                                                                                                                                                                                    |  |      |            |      |  
|Current    portion of long-term debt(see below)                                                                                                                                                                                          |  |      | 4,156,770  |      |  
|                                                                                                                                                                                                                                         |  |      |            |      |  
|Long-term    debt, less current maturities                                                                                                                                                                                               |  | $    | 6,393,281  |      | $
|                                                                                                                                                                                                                                         |  |      |            |      |  




F-14


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





Notes payable to related parties consist of the following at December  31, 2004 and 2003:





|                                                                                                                                                                                                                                                                          |  | 2004 |            | 2003 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | -
|                                                                                                                                                                                                                                                                          |  |      |            |      |  
|7%, increased to 15%    effective March 17, 2001, convertible note payable to SJCP, principal and    interest originally due October 1999, extended to February 2008. Convertible    at $0.75 per share at any time up to 30 business days following maturity             |  | $    | 2,900,000  |      | $
|9%, increased to 15%    effective March 17, 2001, convertible note payable to SJCP, principal and    interest originally due June 2002, extended to February 2008. Convertible at    $0.75 per share at any time up to 30 business days following maturity                |  |      | 2,000,000  |      |  
|8%, increased to 15%    effective March 17, 2001, convertible note payable to SJMB, principal and    interest originally due June 2002, extended to February 2008. Convertible at    $0.75 per share at any time up to 30 business days following maturity                |  |      | 7,250,000  |      |  
|8%, increased to 15%    effective March 17, 2001, convertible note payable to Falcon Seaboard,    principal and interest originally due March 2001, extended to February 2008.    Convertible at $0.75 per share at any time up to 30 business days following    maturity |  |      | 1,000,000  |      |  
|10%, increased to 15%    effective March 17, 2001, convertible note payable to SJMB, principal and    interest originally due March 2001, extended to February 2008. Convertible at    $0.75 per share at any time up to 30 business days following maturity              |  |      | 2,000,000  |      |  
|10% increased to 15%    effective March 17, 2001, convertible note payable to SJMB, principal and    interest originally due March 2001, extended to February 2008. Convertible at    $0.75 per share at any time up to 30 business days following maturity               |  |      | 2,500,000  |      |  
|15% convertible note    payable to SJMB, principal and interest originally due January 2001, extended    to February 2008. Convertible at $0.75 per share at anytime up to 30 days    following maturity                                                                  |  |      | 750,000    |      |  
|15% convertible note    payable to SJMB, principal and interest originally due January 2001, extended    to February 2008. Convertible at $0.75 per share at anytime up to 30 days    following maturity                                                                  |  |      | 1,000,000  |      |  
|15% convertible note    payable to SJMB, principal and interest originally due January 2001, extended    to February 2008. Convertible at $0.75 per share at anytime up to 30 days    following maturity                                                                  |  |      | 200,000    |      |  
|15% convertible notes    payable
      to affiliates of SJMB and certain employees, principal and interest originally
      due January 2001, extended to February 2008. Convertible at $0.75 per share
      at anytime up to 30 business days following maturity        |  |      | 3,402,375  |      |  
|                                                                                                                                                                                                                                                                          |  |      |            |      |  
|                                                                                                                                                                                                                                                                          |  |      | 23,002,375 |      |  
|Less:                                                                                                                                                                                                                                                                     |  |      |            |      |  
|Current    portion of notes payable to related parties(see below)                                                                                                                                                                                                         |  |      |            |      |  
|Unamortized    discount on notes payable                                                                                                                                                                                                                                  |  |      |           |      |  
|                                                                                                                                                                                                                                                                          |  |      |            |      |  
|Total    long-term notes payable to related parties                                                                                                                                                                                                                       |  | $    | 23,002,375 |      | $
|                                                                                                                                                                                                                                                                          |  |      |            |      |  




On November 14, 2004, the Company
    entered into the Restated Credit Agreement with GECC providing for the extension
    of revolving and term credit facilities to the Company aggregating up to
    $18.0 million.  The Restated Credit Agreement amends,  restates and
    modifies the Original Credit Agreement entered into as of September 14, 2001,
    including the amendments thereto.  The Restated Credit Agreement includes
    a revolving loan of up to $10.0 million, but not exceeding 85% of eligible
    accounts receivable and a term loan of $8.0 million.  Eligible accounts
    are defined to exclude, among other items and subject to certain exceptions,
    accounts outstanding of debtors that are more than 60 days overdue or 90
    days following the original invoice date and of debtors that have suspended
    business or commenced various insolvency proceedings and accounts with reserves
    established against them to the extent of such reserves as GECC may set from
    time to
time in its reasonable credit judgment.  The interest rate on borrowings
under the revolving loan is 1.75% above a base rate and on borrowings under the
term loan is 2.5% above the base rate.  The base rate is the higher of
(i) the rate publicly quoted from time to time by the Wall Street Journal as
the base rate on corporate loans posted by at least 75% of the nations
thirty largest banks, or (ii) the average of the rates on overnight Federal funds
transactions by members of the Federal Reserve System, plus 0.5%.   Subject
to the absence of an event of default and fulfillment of certain other conditions,
the Company can elect to borrow or convert any loan and pay interest at the LIBOR
rate plus applicable margins of 3.25% on the revolving loan and 4.0% on the term
loan.  If an event of  default has occurred, the interest rate is increased
by 2%.  Advances under the Restated Credit Agreement  are collateralized
by a senior lien against substantially all of the Companys  assets.  The
Restated Credit Agreement expires on November 14, 2007.





F-15


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





Initial borrowings under the Restated Credit Agreement advanced on  September 14, 2004 were $8.0 million borrowed under the term loan.  No borrowings were made under the revolving  loan on November 14, 2004.  Proceeds of  the initial borrowings were used to repay indebtedness outstanding under a  capex loan under the Original Credit Agreement in the amount of approximately  $4.3 million, approximately $1.8 million was placed in escrow for the possible  repayment of principal and accrued interest on subordinated secured  indebtedness and approximately $1.9 million was borrowed to be used by the  Company for general corporate purposes. Any funds placed in escrow not used for  the repayment of subordinated secured indebtedness were returned to the  Company.  Borrowings under the revolving  loan are able to be repaid and re-borrowed from time to time for working  capital and general corporate needs, subject to the Companys
 continuing
compliance with the terms of the agreement, with the outstanding balance of the  revolving loan to be paid in full at the expiration of the Restated Credit  Agreement on November 14, 2007.  The  term loan is to be repaid in 35 equal monthly installments of $133,333 with a  final installment of $3,333,345 due and payable on November 14, 2007.





Borrowings under the Restated Credit Agreement may be prepaid or the  facility terminated or reduced by the Company at any time subject to the  payment of certain pre-payment fees declining from 3% to 1% in the event the  termination or reduction during the first, second or third year of the term of  the Restated Credit Agreement, providing a reduced fee is payable in the event  the indebtedness is prepaid out of the proceeds of a sale of the Company.  The Company is required to prepay borrowings  out of the net proceeds from the sale of any assets, subject to certain  exceptions, or the stock of any subsidiary, the net proceeds from the sale of  any stock or debt securities by the Company, and any borrowings in excess of  the applicable borrowing availability, including borrowings under the term loan  in excess of 70% of the forced liquidation value of eligible term loan  equipment.  The forced liquidation value  of the eligible
 term loan equipment
is established by appraisals conducted from  time to time but not more than twice per year.





Initial borrowings under the Restated Credit Agreement were subject to  the fulfillment at or before the closing of a number of closing conditions,  including among others, the accuracy of the representations and warranties made  by the Company in the loan agreement, delivery of executed loan documents,  officers certificates, an opinion of counsel, the extension of the maturity  date of approximately $5.4 million principal amount of the $6.3 million  principal amount of certain of the Companys outstanding subordinated notes to  a date 90 days after the maturity date of the Restated Credit Facility with no  payments of principal or interest to be made prior to that date, and the  completion of legal due diligence.   Future advances are subject to the continuing accuracy of the Companys  representations and warranties as of such date (other than those relating  expressly to an earlier date), the absence of any event or
 circumstance
constituting a material adverse effect, as defined, the absence of any  default or event of default under the Restated Credit Agreement, and the  borrowings not exceeding the applicable borrowing availability under the  Restated Credit Agreement, after giving effect to such advance.  A material adverse effect is defined to  include an event having a material adverse effect on the Companys business,  assets, operations, prospects or financial or other condition, on the Companys  ability to pay the loans, or on the collateral and also includes a decline in  the Average Rig Count (excluding Canada and international rigs) published by  Baker Hughes, Inc. falling below 675 for 12 consecutive weeks.





Under the Restated Credit Agreement, the Company is obligated to  maintain compliance with a number of affirmative and negative covenants.  Affirmative covenants the Company must  comply with include requirements to maintain its corporate existence and  continue the conduct of its business substantially as conducted in November  2004, promptly pay all taxes and governmental assessments and levies, maintain  its corporate records, maintain insurance, comply with applicable laws and  regulations, provide supplemental disclosure to the lenders, conduct its  affairs without violating the intellectual property of others, conduct its  operations in compliance with environmental laws and provide a mortgage or deed  of trust to the lenders granting a first lien on the Companys real estate upon  the request of the lenders, provide certificates of title on newly acquired  equipment with the lenders lien noted.





F-16


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





Negative covenants the Company may not violate include, among others,  (i) forming or acquiring a subsidiary, merging with, acquiring all or  substantially all the assets or stock of another person, (ii) making an  investment in or loan to another person, (iii) incurring any indebtedness other  than permitted indebtedness, (iv) entering into any transaction with an  affiliate except on fair and reasonable terms no less favorable than would be  obtained from a non-affiliated person, (v) making loans to employees in amounts  exceeding $50,000 to any employee and a maximum of $250,000 in the aggregate,  (vi) making any change in its business objectives or operations that could  adversely affect repayment of the loans or in its capital structure, including  the issuance of any stock, warrants or convertible securities or any revision  in the terms of outstanding stock except for permitted payments to holders of  subordinated debt and options
 granted under an
existing or future incentive  option plan, amend its charter or by-laws in a manner that would adversely  affect the duty or ability of the Company to repay the indebtedness, or engage  in any business other than that engaged in by it on November 14, 2004 (vii)  creating or permitting to exist any liens on its properties or assets, with the  exception of those granted to the lenders or in existence on the date of making  the loan, (viii) selling any of its properties or other assets, including the  stock of any subsidiary, except inventory in the ordinary course of business  and equipment or fixtures with a value not exceeding $100,000 per transaction  and $250,000 per year, (ix) failing to comply with the various financial  covenants in the loan agreement, (x) making any restricted payment, including  payment of dividends, stock or warrant redemptions, repaying subordinated debt,  rescission of the sale of outstanding stock, (xi) making any payments to  stockholders of the Company
 other than
compensation to employees and payments  of management fees to any stockholder or affiliate of the Company, or (xii)  amending or changing the terms of the Companys subordinated debt.





The financial covenants prohibit the Company from making capital  expenditures in any fiscal year beginning with 2005 in an aggregate amount  exceeding $3.0 million and require the Company to have at the end of each  fiscal quarter commencing with the quarter ending December 31, 2004 a ratio of  EBITDA to fixed charges, including interest expense, scheduled payments of  principal, capital expenditures paid and income taxes paid, for the twelve  months then ended of 1.5 to 1.0.  For  the purpose of such calculation, fixed charges for the twelve months ended  December 31, 2004 are calculated as the fixed charges for the quarter ended  December 31, 2004 multiplied by four, fixed charges for the twelve months ended  March 31, 2005 are calculated as the fixed charges for the six months ended  March 31, 2005 multiplied by two, and fixed charges for the twelve months ended  June 30, 2005 are calculated as the fixed charges for the nine
 months  ended June
30, 2005 multiplied by one and  one-third.





Events of default under the Restated Credit Agreement include, among  others, (a) the failure to pay when due principal or interest or fees owing  under the Restated Credit Agreement, (b) the failure to perform the covenants  under the Restated Credit Agreement relating to use of proceeds, maintenance of  a cash management system, maintenance of insurance, delivery of certificates of  title, delivery of certain post closing documents, including evidence of key man  life insurance on the lives of William Jenkins, Chief Executive Officer of the  Company and Ron Whitter, Chief Financial Officer of the Company, maintenance of  compliance with the financial covenants in the loan agreement and maintenance  of compliance with the loan agreements negative covenants, (c) the failure,  within specified periods of 3 or 5 days of when due, to deliver monthly  un-audited and annual audited financial statements, annual operating plans, and  other
 reports, notices and
information, (d) the failure to perform any other  provision of the loan agreement which remains un-remedied for 20 days or more,  (e) a default or breach under any other agreement to which the Company is a  party beyond any grace period that involves the failure to pay in excess of  $250,000 or causes or permits to cause in excess of $250,000 of indebtedness to  become due prior to its stated maturity, (f) any representation or warranty or  certificate delivered to the lenders being untrue or incorrect in any material  respect, (g) a change of control of the Company, (h) the occurrence of an event  having a material adverse effect, and (i) the attachment, seizure or levy upon  of assets of the Company which continues for 30 days or more and various other  bankruptcy and other events.  Upon the  occurrence of a default or event of default, the lenders may discontinue making  loans to the Company.  Upon the  occurrence of an event of default, the lenders may terminate the
 Restated  Credit
Agreement, declare all indebtedness outstanding under the Restated  Credit Agreement due and payable, and exercise any of their rights under the  Restated Credit Agreement which includes the ability to foreclose on the  Companys assets.





Note
      Extensions.   In  connection with entering into the
      GECC refinancing in November 2004, the Company agreed with the holders
      of certain subordinated notes to extend the maturity date of the Companys
      outstanding subordinated secured promissory notes from December 31, 2004
      to February 13 and February 14, 2008 on $23.0 million of the $23.9 million
      principal amount of the notes.  The remainder of the outstanding principal
      was repaid.  The notes bear interest at  15% per annum and are convertible
      into shares of the Companys common stock at a conversion price of
      $0.75 per share, subject to an anti-dilution adjustment for certain issuances
      of securities by the Company at prices per share of common stock less than
      the conversion price then in effect, in which event the conversion price
      is reduced to the lower price at which the shares were issued.  As
      a condition to extend the maturity date, the Company extended the expiration
      date of 66.1 million outstanding common stock purchase warrants to December
      31, 2009.





F-17


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





All of the debt and interest owed under the  subordinated secured promissory notes is subordinated to the Companys Credit  Facility and cannot be repaid until all the amounts owed pursuant to the Credit  Facility have been repaid.





Substantially all of the Companys  assets are pledged as collateral for the indebtedness outstanding under the  Restated Credit Agreement with GECC and subordinated  secured promissory notes.





Maturities of debt are as follows:








|Fiscal Year |  |   |            | 
|----------- |  | - | ---------- | 
|            |  |   |            | 
|2005        |  | $ | 4,156,770  | 
|2006        |  |   | 1,694,691  | 
|2007        |  |   | 4,698,590  | 
|2008        |  |   | 23,002,375 | 
|2009        |  |   |           | 
|Thereafter  |  |   |           | 
|            |  |   |            | 
|            |  | $ | 33,552,426 | 
|            |  |   |            | 




Note 10  - Commitments





The Company leases land, office space and equipment under various  operating leases. The leases expire at various dates through 2010.  Rent expense from continuing operations was  approximately $1,760,000, $1,648,000 and $2,512,000 for the years ended  December 31, 2004, 2003 and 2002, respectively.





The future minimum lease payments required under noncancelable leases  with initial or remaining terms of one or more years at December 31, 2004 were  as follows:





|Fiscal    Year                  |  | Operating    Leases |        
|------------------------------- |  | ------------------- | -------
|                                |  |                     |        
|2005                            |  | $                   | 449,023
|2006                            |  |                     | 249,644
|2007                            |  |                     | 96,300 
|2008                            |  |                     | 48,000 
|2009                            |  |                     | 48,000 
|Thereafter                      |  |                     | 8,000  
|                                |  |                     |        
|Total minimum lease    payments |  | $                   | 898,967
|                                |  |                     |        




F-18


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





Note 11 - Common Stock Transactions  and Warrants





As of December 31, 2004, the Companys certificate of incorporation  permits it to issue up to 175,000,000 shares of common stock, of which 12,504,148  shares were issued and outstanding at December 31, 2004 and 2003.  The Company has outstanding as of December  31, 2004 and 2003 common stock purchase warrants, options and convertible debt  securities entitled to purchase or be converted into an aggregate of  133,821,673 and 140,180,544 shares, respectively, of the Companys common stock  at exercise and conversion prices ranging from $0.75 to $6.63.





During 2004, the Company become obligated to issue 8,028,562 five-year  warrants to SJMB and related parties of SJMB exercisable at $0.75 per share in  connection with the extension of their indebtedness (see Note 9).





During 2003, the Company issued 5,187,662 five-year warrants to SJMB  and related parties of SJMB exercisable at $0.75 per share in connection with  the extension of their indebtedness (see Note 9).





During 2002, the Company issued 2,500,000 five-year warrants to William  L. Jenkins, President and Chief Executive Officer exercisable at $0.75 per  share as per his amended employment agreement effective January 1, 2002 and  expiring December 31, 2005.





During 2002, the Company issued 2,420,909 five-year warrants to SJMB  and affiliates of SJMB exercisable at $0.75 per share in connection with the  extension of their indebtedness (see Note 9).





During 2001, the Company issued to the Chairman of SJMB, L.L.C. and to  SJCP five-year warrants to purchase 700,000 and 400,000 shares, respectively,  of the Companys Common Stock at exercise prices of $0.75 per share.  The warrants were issued in consideration of  guarantees extended to a lender by the Chairman of SJMB, L.L.C. and SJCP in  connection with the Companys borrowings in 2000 and the guarantees of the  Chairman of SJMB, L.L.C. and SJCP of that indebtedness.





During 2000, the Company issued warrants to purchase shares of the  Companys common stock with the issuance of certain debt (see Note 9).  The warrants gave the holders the right to  purchase up to 14,350,000 shares at $0.75.   These warrants expire December 31, 2009.





During 1999, the Company issued warrants to purchase shares of the  Companys common stock with the issuance of certain debt (see Note 9).The warrants gave the holders the right to purchase up  to 1,075,000 shares at $1.50 (2,150,000 shares at $0.75 as adjusted for  anti-dilution) and 14,350,000 shares at $0.75.   The warrants expire December 31, 2009.





The warrants issued during 2004, 2003, 2002, 2001, 2000 and 1999 are  subject to Full Ratchet anti-dilution provisions. In December of 1999, the  Company issued the 14,350,000 warrants at an exercise price of $0.75.  Consequently, the anti-dilution provisions  on all warrants subject to the provision were triggered. Upon each adjustment  of the exercise price, the holder of the warrant shall thereafter be entitled  to purchase, at the exercise price resulting from the adjustment, the number of  shares of common stock obtained by multiplying the exercise price in effect  immediately prior to the adjustment by the number of shares purchasable prior  to the adjustment and dividing the product thereof by the exercise price  resulting from the adjustment. The following table summarizes information about  warrants outstanding at December 31, 2004:





F-19


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





|                          |  | SJCP     $2.75     Expires     12/31/09 |           | SJCP     $4.6327     Expires     12/31/09 |   | SJCP     $0.75     Expires     12/31/09 |  | Guarantor     affiliated     with SJCP     $0.75     Expires     12/31/09 |         | SJMB     $6.75     Expires     12/31/09 |  
|------------------------- |  | --------------------------------------- | --------- | ----------------------------------------- | - | --------------------------------------- |  | ------------------------------------------------------------------------- | ------- | --------------------------------------- | -
|                          |  |                                         |           |                                           |   |                                         |  |                                                                           |         |                                         |  
|Balance, 12/31/01         |  |                                         | 2,442,000 |                                           |   | 4,478,277                               |  |                                                                           | 400,000 |                                         |  
|2002 issuance             |  |                                         |           |                                           |   |                                         |  |                                                                           |         |                                         |  
|                          |  |                                         |           |                                           |   |                                         |  |                                                                           |         |                                         |  
|Balance, 12/31/02         |  |                                         | 2,442,000 |                                           |   | 4,478,277                               |  |                                                                           | 400,000 |                                         |  
|                          |  |                                         |           |                                           |   |                                         |  |                                                                           |         |                                         |  
|Exercise price, 12/31/02  |  | $                                       | 0.75      |                                           | $ | 0.75                                    |  | $                                                                         | 0.75    |                                         | $
|2003 expiration           |  |                                         |           |                                           |   |                                         |  |                                                                           |         |                                         |  
|2003 issuance             |  |                                         |           |                                           |   |                                         |  |                                                                           |         |                                         |  
|                          |  |                                         |           |                                           |   |                                         |  |                                                                           |         |                                         |  
|Balance, 12/31/03         |  |                                         | 2,442,000 |                                           |   | 4,478,277                               |  |                                                                           | 400,000 |                                         |  
|                          |  |                                         |           |                                           |   |                                         |  |                                                                           |         |                                         |  
|Exercise price, 12/31/03  |  | $                                       | 0.75      |                                           | $ | 0.75                                    |  | $                                                                         | 0.75    |                                         | $
|2004 expiration/cancelled |  |                                         |           |                                           |   |                                         |  |                                                                           |         |                                         |  
|2004 issuance             |  |                                         |           |                                           |   |                                         |  |                                                                           |         |                                         |  
|                          |  |                                         |           |                                           |   |                                         |  |                                                                           |         |                                         |  
|Balance, 12/31/04         |  |                                         | 2,442,000 |                                           |   | 4,478,277                               |  |                                                                           | 400,000 |                                         |  
|                          |  |                                         |           |                                           |   |                                         |  |                                                                           |         |                                         |  
|Exercise price, 12/31/04  |  | $                                       | 0.75      |                                           | $ | 0.75                                    |  | $                                                                         | 0.75    |                                         | $




|                          |  | SJMB    $2.25    Expires    12/31/09 |           | SJMB    $1.50    Expires    12/31/09 |   | SJMB    $0.75    Expires    12/31/09 |  | SJMB    $0.75    Expires    12/31/09 |           | SJMB    $0.75    Expires    12/31/09 |  
|------------------------- |  | ------------------------------------ | --------- | ------------------------------------ | - | ------------------------------------ |  | ------------------------------------ | --------- | ------------------------------------ | -
|                          |  |                                      |           |                                      |   |                                      |  |                                      |           |                                      |  
|Balance, 12/31/01         |  |                                      | 3,499,999 |                                      |   | 2,150,000                            |  |                                      | 3,075,000 |                                      |  
|2002 issuance             |  |                                      |           |                                      |   |                                      |  |                                      |           |                                      |  
|                          |  |                                      |           |                                      |   |                                      |  |                                      |           |                                      |  
|Balance, 12/31/02         |  |                                      | 3,499,999 |                                      |   | 2,150,000                            |  |                                      | 3,075,000 |                                      |  
|                          |  |                                      |           |                                      |   |                                      |  |                                      |           |                                      |  
|Exercise price, 12/31/02  |  | $                                    | 0.75      |                                      | $ | 0.75                                 |  | $                                    | 0.75      |                                      | $
|2003 expiration           |  |                                      |           |                                      |   |                                      |  |                                      |           |                                      |  
|2003 issuance             |  |                                      |           |                                      |   |                                      |  |                                      |           |                                      |  
|                          |  |                                      |           |                                      |   |                                      |  |                                      |           |                                      |  
|Balance, 12/31/03         |  |                                      | 3,499,999 |                                      |   | 2,150,000                            |  |                                      | 3,075,000 |                                      |  
|                          |  |                                      |           |                                      |   |                                      |  |                                      |           |                                      |  
|Exercise price, 12/31/03  |  | $                                    | 0.75      |                                      | $ | 0.75                                 |  | $                                    | 0.75      |                                      | $
|2004 expiration/cancelled |  |                                      |           |                                      |   |                                      |  |                                      |           |                                      |  
|2004 issuance             |  |                                      |           |                                      |   |                                      |  |                                      |           |                                      |  
|                          |  |                                      |           |                                      |   |                                      |  |                                      |           |                                      |  
|Balance, 12/31/04         |  |                                      | 3,499,999 |                                      |   | 2,150,000                            |  |                                      | 3,075,000 |                                      |  
|                          |  |                                      |           |                                      |   |                                      |  |                                      |           |                                      |  
|Exercise price, 12/31/04  |  | $                                    | 0.75      |                                      | $ | 0.75                                 |  | $                                    | 0.75      |                                      | $




|                          |  | Lenders    Related to    SJMB    $0.75    Expires    12/31/09 |             | Falcon    Seaboard    $6.75    Expires    12/31/09 |   | Harris Webb    & Garrison    $6.05    Expires    3/15/03 |  | W. L. Jenkins    Employment    Agreement    $0.75    Expires    12/31/06 |          | Total |  
|------------------------- |  | ------------------------------------------------------------- | ----------- | -------------------------------------------------- | - | -------------------------------------------------------- |  | ------------------------------------------------------------------------ | -------- | ----- | -
|                          |  |                                                               |             |                                                    |   |                                                          |  |                                                                          |          |       |  
|Balance, 12/31/01         |  |                                                               | 28,125,000  |                                                    |   | 1,800,000                                                |  |                                                                          | 384,618  |       |  
|2002 issuance             |  |                                                               | 1,738,409   |                                                    |   |                                                          |  |                                                                          |          |       |  
|                          |  |                                                               |             |                                                    |   |                                                          |  |                                                                          |          |       |  
|Balance, 12/31/02         |  |                                                               | 29,863,409  |                                                    |   | 1,800,000                                                |  |                                                                          | 384,618  |       |  
|                          |  |                                                               |             |                                                    |   |                                                          |  |                                                                          |          |       |  
|Exercise price, 12/31/02  |  | $                                                             | 0.75        |                                                    | $ | 0.75                                                     |  | $                                                                        | 0.75     |       | $
|2003 expiration           |  |                                                               |             |                                                    |   |                                                          |  |                                                                          | (384,618 | )     |  
|2003 issuance             |  |                                                               | 3,725,162   |                                                    |   |                                                          |  |                                                                          |          |       |  
|                          |  |                                                               |             |                                                    |   |                                                          |  |                                                                          |          |       |  
|Balance, 12/31/03         |  |                                                               | 33,588,571  |                                                    |   | 1,800,000                                                |  |                                                                          |         |       |  
|                          |  |                                                               |             |                                                    |   |                                                          |  |                                                                          |          |       |  
|Exercise price, 12/31/03  |  | $                                                             | 0.75        |                                                    | $ | 0.75                                                     |  |                                                                          |          |       | $
|2004 expiration/cancelled |  |                                                               | (12,456,225 | )                                                  |   |                                                          |  |                                                                          |          |       |  
|2004 issuance             |  |                                                               | 8,028,562   |                                                    |   |                                                          |  |                                                                          |          |       |  
|                          |  |                                                               |             |                                                    |   |                                                          |  |                                                                          |          |       |  
|Balance, 12/31/04         |  |                                                               | 29,160,908  |                                                    |   | 1,800,000                                                |  |                                                                          |         |       |  
|                          |  |                                                               |             |                                                    |   |                                                          |  |                                                                          |          |       |  
|Exercise price, 12/31/04  |  | $                                                             | 0.75        |                                                    | $ | 0.75                                                     |  |                                                                          |          |       | $




F-20


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





Note 12 - Income Taxes





The (benefit)/provision for income taxes consists of the following for  the years ended December 31, 2004, 2003, and 2002:





|         |  | 2004 |   | 2003 |   | 2002 | 
|-------- |  | ---- | - | ---- | - | ---- | 
|         |  |      |   |      |   |      | 
|Federal: |  |      |   |      |   |      | 
|Current  |  | $    |  |      | $ |     | 
|Deferred |  |      |  |      |   |     | 
|         |  |      |   |      |   |      | 
|         |  |      |  |      |   |     | 
|         |  |      |   |      |   |      | 
|State:   |  |      |   |      |   |      | 
|Current  |  |      |  |      |   |     | 
|Deferred |  |      |  |      |   |     | 
|         |  |      |   |      |   |      | 
|         |  |      |  |      |   |     | 
|         |  |      |   |      |   |      | 
|Total    |  | $    |  |      | $ |     | 
|         |  |      |   |      |   |      | 




The (benefit)/provision for federal income taxes differs from the  amount computed by applying the federal income tax statutory rate of 34% to the  Companys income/(loss) before income taxes, as follows:





|                                                |  | 2004 |           | 2003 |   | 2002       |  
|----------------------------------------------- |  | ---- | --------- | ---- | - | ---------- | -
|                                                |  |      |           |      |   |            |  
|Benefit at federal    statutory rate            |  | $    | (600,587  | )    | $ | (1,409,979 | )
|State income taxes, net of    federal benefit   |  |      | (58,292   | )    |   | (136,851   | )
|Nondeductible expenses                          |  |      | 103,137   |      |   | 105,180    |  
|Accrued liabilities and    other                |  |      | (522,358  | )    |   | (117,993   | )
|Increase in valuation    allowance              |  |      | 1,078,100 |      |   | 1,559,643  |  
|                                                |  |      |           |      |   |            |  
|(Benefit)    Provision for federal income taxes |  | $    |          |      | $ |           |  
|                                                |  |      |           |      |   |            |  




At December 31, 2004 and 2003, the Company has available federal tax  net operating loss carryforwards (NOLs) of approximately $35,556,000 and  $33,332,000, respectively, that unless previously utilized, expire at various  dates beginning 2010 through 2022. The Companys utilization of NOLs is  subject to a number of uncertainties, including the ability to generate future  taxable income.  In addition, the  Company has been subject to a number of ownership changes as defined under  Internal Revenue Code Section 382. As a result, Section 382 imposes additional  limitations on utilization of certain of the Companys NOLs.





F-21


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





Deferred income taxes reflect the impact of temporary differences  between amounts of assets and liabilities recorded for financial reporting  purposes and such amounts as measured in accordance with tax laws. The items,  which comprise a significant portion of the deferred tax assets and  liabilities, are as follows:





|                                              |  | 2004 |             | 2003 |  
|--------------------------------------------- |  | ---- | ----------- | ---- | -
|                                              |  |      |             |      |  
|Gross deferred tax assets:                    |  |      |             |      |  
|Allowance    for doubtful accounts receivable |  | $    | 177,342     |      | $
|Accrued    bonuses and other                  |  |      | 227,694     |      |  
|Operating    loss carryforwards               |  |      | 13,293,059  |      |  
|Goodwill                                      |  |      | 2,904,108   |      |  
|Asset    impairment                           |  |      |            |      |  
|Valuation    allowance                        |  |      | (14,627,450 | )    |  
|                                              |  |      |             |      |  
|Gross    deferred tax asset                   |  |      | 1,974,753   |      |  
|                                              |  |      |             |      |  
|Gross deferred tax liabilities:               |  |      |             |      |  
|Depreciation                                  |  |      | (1,862,085  | )    |  
|Other                                         |  |      | (112,668    | )    |  
|                                              |  |      |             |      |  
|Gross    deferred tax liability               |  |      | (1,974,753  | )    |  
|                                              |  |      |             |      |  
|Net    deferred tax asset (liability)         |  | $    |            |      | $
|                                              |  |      |             |      |  




The Company is required to record a valuation allowance when it is more  likely than not that some portion or all of the deferred tax assets will not be  realized. At December 31, 2004 and 2003, the Company has recorded a valuation  allowance of $14,627,450 and $13,549,350 against the gross deferred tax asset.





F-22


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





Note 13  - Income (Loss) Per Share





The calculation of basic and diluted EPS is as follows:





|                                                                                                |  | For the    Year Ended 2004 |            | For the    Year Ended 2003 |  | For the    Year Ended 2002 | 
|----------------------------------------------------------------------------------------------- |  | -------------------------- | ---------- | -------------------------- |  | -------------------------- | 
|                                                                                                |  |                            |            |                            |  |                            | 
|                                                                                                |  | Income    (Numerator)      |            | Shares    (Denominator)    |  | Per Share    Amount        | 
|                                                                                                |  |                            |            |                            |  |                            | 
|Net Loss per Share - Basic and Diluted                                                          |  |                            |            |                            |  |                            | 
|Loss before discontinued    operations and extraordinary items available to common stockholders |  | $                          | (93,072    | )                          |  | 12,499,528                 | 
|Discontinued operations                                                                         |  |                            | (1,673,361 | )                          |  | 12,499,528                 | 
|                                                                                                |  |                            |            |                            |  |                            | 
|Net loss per share  basic    and diluted                                                       |  | $                          | (1,766,433 | )                          |  | 12,499,528                 | 
|                                                                                                |  |                            |            |                            |  |                            | 




F-23


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





Options issued to purchase 10,592,800 shares of common stock and  warrants to purchase 68,551,184 shares of common stock at price ranging from  $0.75 to $6.63 were outstanding during 2004, but were not included in the  computation of the 2004 diluted EPS because the effect would be  anti-dilutive.  There were 4,847,200  options to purchase common stock cancelled during 2004 that were not included  in the computation of 2004 diluted EPS because the effect would be  anti-dilutive.





Options issued to purchase 15,440,000 shares of common stock and  warrants to purchase 73,363,465 shares of common stock at price ranging from  $0.75 to $8.01 were outstanding during 2003, but were not included in the  computation of the 2003 diluted EPS because the effect would be anti-dilutive.





Options issued to purchase 17,446,800 shares of common stock and  warrants to purchase 68,175,803 shares of common stock at prices ranging from  $0.75 to $8.01 were outstanding during 2002, but were not included in the  computation of the 2002 diluted EPS because the effect would be anti-dilutive.





Convertible debt instruments, including convertible interest, which  would result in the issuance of 54,677,691, 51,761,698 and, 46,780,080 shares  of common stock, if the conversion features were exercised, were outstanding  during 2004, 2003 and 2002 respectively, but were not included in the  computation of the 2004, 2003 or 2002 diluted EPS because the effect would be  anti-dilutive. The conversion price of these instruments was $0.75 per share at  December 31, 2004, 2003 and 2002 and remained outstanding at December 31, 2004.





Note 14 - Major Customers





Most of the Companys business activity is with customers engaged in  drilling and operating oil and natural gas wells primarily in the Black Warrior  and Mississippi Salt Dome Basins in Alabama and Mississippi, the Permian Basin  in West Texas and New Mexico, the San Juan Basin in New Mexico, Colorado, and  Utah, the East Texas and Austin Chalk Basins in East Texas, the Powder River  and Green River Basins in Wyoming and Montana, the Williston Basin in North  Dakota, and the Gulf of Mexico offshore of Louisiana and Texas. Substantially  all of the Companys accounts receivable at December 31, 2004 and 2003 are from  such customers. Performance in accordance with the credit arrangements is in  part dependent upon the economic condition of the oil and natural gas industry  in the respective geographic areas. The Company does not require its customers  to pledge collateral on their accounts receivable.





There were no customers from whom the Company earned in excess of 10%  of its revenues during the years ended December 31, 2004, 2003 or 2002.





Note 15 - Stock Options





The 2000 Stock Incentive Plan (2000 Incentive Plan) provides for the  granting of incentive stock options or non-qualified stock options to purchase  shares of the Companys common stock to key employees and non-employee  directors or consultants.  The 2000  Incentive Plan authorizes the issuance of options to purchase up to an  aggregate of 17,500,000 shares of common stock with maximum option terms of ten  years from the date of the grant.  There  are five types of grants that can be made under the 2000 Incentive Plan. The  Discretionary Option Grant Program allows eligible individuals in the Companys  employ or service (including officers and consultants) to be granted options to  purchase shares of common stock at an exercise price equal to not less than the  fair market value of the stock at the date of the grant.  All grants made in 2000 were made under this  program.  The Stock Issuance
 Program is  a
non-compensatory program under which individuals in the Companys employ or  service may be issued shares of common stock directly through the purchase of  such shares at a price not less than the fair market value at the time of  issuance or as a bonus tied to performance.   The Salary Investment Option Grant Program is a compensatory program  that, if activated by the plan administrator, will allow executive officers and  other highly compensated employees the opportunity to apply a portion of their  base salary to the acquisition of special below market stock grants.  The Automatic Option Grant Program causes  options to be granted automatically at periodic intervals to eligible  non-employee members of the Board of Directors to purchase shares of common  stock at an exercise price equal to their fair market value at the date of the  grant.  The Director Fee Option Grant  Program is a compensatory program that, if activated by the plan administrator,  would
 allow non-employee
Board members the opportunity to apply a portion of  any annual retainer fee otherwise payable to them in cash each year to the  acquisition of special below market option grants.





F-24


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





The Board and shareholders approved the 2000 Incentive Plan on February  11, 2000 and an amendment on February 9, 2001, respectively.  At December 31, 2004, 19,542,500 shares had  been granted, of which 9,025,000 shares were cancelled and 6,982,500 remained  to be granted under this plan.





The 1997 Omnibus Incentive Plan (1997 Omnibus Plan) provides for the  granting of either incentive stock options or nonqualified stock options to  purchase shares of the Companys common stock to key employees responsible for  the direction and management of the Company. The 1997 Omnibus Plan authorizes  the issuance of options to purchase up to an aggregate of 600,000 shares of  common stock, with maximum option terms of ten years from the date of grant.  During 1998, the Board authorized an amendment to the 1997 Omnibus Plan to  allow additional issuances of options to purchase 400,000 shares of common  stock. This amendment increases the total aggregate number of shares under the  1997 Omnibus Plan to 1,000,000.  The  amendment was approved by the shareholders on February 9, 2001.  At December 31, 2004 and 2003, 75,300 and  430,500 options were outstanding, respectively.  At December 31, 2004, 924,700
 options remain
available to be  granted.  Options to purchase 355,200  shares of common stock were cancelled during 2004.





The 1997 Non-Employee Stock Option Plan (1997 Non-Employee Plan)  provides for the granting of nonqualified stock options to purchase shares of  the Companys common stock to non-employee directors and consultants. The 1997  Non-Employee Plan authorizes the issuance of options to purchase up to an  aggregate of 100,000 shares of common stock, with maximum option terms of ten  years from the date of grant. During 1998, the Board authorized an amendment to  the 1997 Non-Employee Plan to allow additional issuances of options to purchase  200,000 shares of common stock. This amendment increases the total aggregate  number of shares under the 1997 Non-Employee Plan to 300,000.  The amendment was approved by the  shareholders on February 9, 2001.  At  December 31, 2003 and 2002, no options were outstanding, respectively.  At December 31, 2004, 300,000 options remain  available to be granted.  Pertinent
 information regarding
stock options is as follows:





F-25


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





|                                                          |  | Number of    Options |            | Range of    Exercise    Prices |   | Weighted    Average Exercise    Price |  | WeightedAverage    Fair Value    of Stock    at    Grant Date |      | Vesting    Provisions |  
|--------------------------------------------------------- |  | -------------------- | ---------- | ------------------------------ | - | ------------------------------------- |  | ------------------------------------------------------------- | ---- | --------------------- | -
|                                                          |  |                      |            |                                |   |                                       |  |                                                               |      |                       |  
|Options outstanding,    December 31, 2001                 |  |                      | 17,358,000 |                                |   |                                       |  |                                                               |      |                       |  
|                                                          |  |                      |            |                                |   |                                       |  |                                                               |      |                       |  
|Options cancelled                                         |  |                      | (1,416,200 | )                              | $ | 0.75                                  |  | $                                                             | 0.75 |                       |  
|                                                          |  |                      |            |                                |   |                                       |  |                                                               |      |                       |  
|                                                          |  |                      | (1,416,200 | )                              |   |                                       |  |                                                               |      |                       |  
|Options Granted:                                          |  |                      |            |                                |   |                                       |  |                                                               |      |                       |  
|Exercise price greater than    FMV of stock at grant date |  |                      | 1,505,000  |                                | $ | 0.75                                  |  | $                                                             | 0.75 |                       | $
|                                                          |  |                      |            |                                |   |                                       |  |                                                               |      |                       |  
|                                                          |  |                      | 1,505,000  |                                |   |                                       |  |                                                               |      |                       |  
|Options outstanding,    December 31, 2002                 |  |                      | 17,446,800 |                                |   |                                       |  |                                                               |      |                       |  
|                                                          |  |                      |            |                                |   |                                       |  |                                                               |      |                       |  
|Options cancelled                                         |  |                      | (2,006,800 | )                              | $ | 0.75                                  |  | $                                                             | 0.75 |                       |  
|                                                          |  |                      |            |                                |   |                                       |  |                                                               |      |                       |  
|                                                          |  |                      | (2,006,800 | )                              |   |                                       |  |                                                               |      |                       |  
|Options outstanding,    December 31, 2003                 |  |                      | 15,440,000 |                                |   |                                       |  |                                                               |      |                       |  
|                                                          |  |                      |            |                                |   |                                       |  |                                                               |      |                       |  
|Options cancelled                                         |  |                      | (4,847,200 | )                              | $ | 0.75    - $6.63                       |  | $                                                             | 0.80 |                       |  
|                                                          |  |                      |            |                                |   |                                       |  |                                                               |      |                       |  
|                                                          |  |                      | (4,847,200 | )                              |   |                                       |  |                                                               |      |                       |  
|Options outstanding,    December 31, 2004                 |  |                      | 10,592,800 |                                |   |                                       |  |                                                               |      |                       |  
|                                                          |  |                      |            |                                |   |                                       |  |                                                               |      |                       |  




F-26


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





The following table summarizes information about stock options  outstanding at December 31, 2004:





|                   |  | Options    Outstanding            |            |                                                         |  | Options    Exercisable                   | 
|------------------ |  | --------------------------------- | ---------- | ------------------------------------------------------- |  | ---------------------------------------- | 
|                   |  |                                   |            |                                                         |  |                                          | 
|Exercise    Prices |  | Number    Outstanding    12/31/04 |            | Weighted    Average    Remaining    Contractual    Life |  | Weighted    Average    Exercise    Price | 
|                   |  |                                   |            |                                                         |  |                                          | 
|$    0.75          |  |                                   | 10,587,800 |                                                         |  | 5.86                                     | 
|$    2.63          |  |                                   | 5,000      |                                                         |  | 2.24                                     | 
|                   |  |                                   | 10,592,800 |                                                         |  | 5.83                                     | 
|                   |  |                                   |            |                                                         |  |                                          | 




The Company applies principles from SFAS No. 123 in accounting for its  stock option plan. In accordance with SFAS No. 123, the Company has elected not  to report the impact of the fair value of its stock options in the statements  of operations but, instead, to disclose the pro forma effect and to continue to  apply APB Opinion No. 25 and related interpretations in accounting for its  stock options. Accordingly, no compensation expense has been recognized for  stock options issued to employees with an exercise price at fair market value  or above.  Compensation expense for  options issued to non-employees of the Company are excluded from the pro forma  effect below, as compensation expense has been recognized in the accompanying  financial statements.  Had compensation  cost for all of the Companys stock options issued been determined based on the  fair value at the grant dates for awards consistent with the method prescribed
  in SFAS No.
123, the Companys net loss and income (loss) per share would have  been reduced or increased to the pro forma amounts indicated as follows:





|                                                              |  | 2004 |            | 2003 |   | 2002       |  
|------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                              |  |      |            |      |   |            |  
|Income (loss) before    discontinued operations - as reported |  | $    | (93,072    | )    | $ | (3,621,444 | )
|Discontinued operations -    as reported                      |  |      | (1,673,361 | )    |   | (1,916,496 | )
|                                                              |  |      |            |      |   |            |  
|Net loss - as reported                                        |  | $    | (1,766,433 | )    | $ | (5,537,940 | )
|                                                              |  |      |            |      |   |            |  
|Income (loss) before    discontinued operations - pro forma   |  | $    | 471,535    |      | $ | (3,198,334 | )
|Discontinued operations -    pro forma                        |  |      | (1,673,361 | )    |   | (1,916,496 | )
|                                                              |  |      |            |      |   |            |  
|Net loss - pro forma                                          |  | $    | (1,201,826 | )    | $ | (5,114,830 | )
|                                                              |  |      |            |      |   |            |  
|Income (loss) per share -    as reported (basic and diluted): |  |      |            |      |   |            |  
|Loss before discontinued    operations - as reported          |  | $    | (.01       | )    | $ | (.29       | )
|Discontinued operations -    as reported                      |  |      | (.13       | )    |   | (.15       | )
|                                                              |  |      |            |      |   |            |  
|Net loss per share - as    reported (basic and diluted)       |  | $    | (.14       | )    | $ | (.44       | )
|                                                              |  |      |            |      |   |            |  
|Income (loss) per share -    pro forma (basic and diluted):   |  |      |            |      |   |            |  
|Loss before discontinued    operations - pro forma            |  | $    | .03        |      | $ | (.26       | )
|Discontinued operations -    pro forma                        |  |      | (.13       | )    |   | (.15       | )
|                                                              |  |      |            |      |   |            |  
|Net loss per share - pro    forma (basic and diluted)         |  | $    | (.10       | )    | $ | (.41       | )
|                                                              |  |      |            |      |   |            |  




The pro forma amounts reflected above are not representative of the  effects on reported net income (loss) in future years because, in general, the  options granted typically do not vest immediately and additional awards are  made each year.





The fair value of each option grant is estimated on the grant date  using the Black-Scholes option-pricing model with the following  weighted-average assumptions:





F-27


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





|                        |  | 2004 |        | 2003 |  | 2002   |  
|----------------------- |  | ---- | ------ | ---- |  | ------ | -
|                        |  |      |        |      |  |        |  
|Dividend yield          |  |      | 0      | %    |  | 0      | %
|Expected life (years)   |  |      | 5.00   |      |  | 2.09   |  
|Expected volatility     |  |      | 100.00 | %    |  | 100.00 | %
|Risk-free interest rate |  |      | 3.70   | %    |  | 2.98   | %




Note 16  - Contingencies





The Company is the subject of 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.





The St. James Partnerships, their general partners and Charles E.  Underbrink, who is a Director of the Company and a director of the general  partners of the St. James Partnerships were added as defendants in an amended  complaint filed in March 2005 in Texas by two of the limited partners of the  St. James Partnerships.  The action was  originally instituted in December 2004 against the auditors of the St. James  Partnerships. The plaintiffs brought the action as a class action on behalf of  all the limited partners of the St. James Partnerships and are seeking class  action certification.  No claim has been  asserted against the Company and the Company is not a defendant in the  action.  However, the complaint and the  amended complaint in the action contain allegations that the Company  participated with Mr. Underbrink in actions the plaintiffs allege were fraudulent  and constituted securities violations.   The
 Company has not
concluded that it is probable that a claim will be  asserted against it and does not believe that if a claim is asserted that there  is a reasonable possibility that the outcome would be unfavorable to the  Company or that any resulting liability would be material to the Companys  financial condition.





Note 17  - Fair Value of Financial Instruments





The following methods and assumptions were used to estimate the fair  value of each class of financial instruments for which it is practicable to  estimate fair value:





Cash and  Cash Equivalents, Restricted Cash, Accounts Receivable, Current Portion of  Long-Term Debt and Accounts Payable - The carrying amount is  a reasonable estimate of the fair value because of the short maturity of these  instruments.





Long-Term  Debt - The carrying value of the Companys long-term debt  approximates fair value due to the variable nature of the interest rate and the  interest rate reset periods.





Related Party Debt  - Management is unable to estimate the fair value of the Companys related  party debt.  This debt is due in 2008  but is subject to subordination to the Companys senior debt. The debt and  accumulated accrued interest in aggregate is carried at a book value of $40.2  million in the statement of financial position at December 31, 2004.





Note 18  - Employee Benefit Plan





The Company maintains a Retirement Savings  Plan (the 401(k) Plan) for its employees, which allows participants to make  contributions by salary reduction pursuant to Section 401(k) of the Internal  Revenue Code.  The Companys  contributions to the 401(k) Plan are discretionary.  Employees vest in their contributions immediately and vest in the  Companys contributions ratably over six years.  The Company made no contributions to the 401(k) Plan for the  years ended December 31, 2004, 2003, and 2002.





F-28


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





F-29


---



Back to Contents





Black Warrior Wireline Corp.  Notes to Financial Statements  For the Years Ended December 31, 2004, 2003 and 2002





Note 19  Quarterly Financial Data  (Unaudited)





Years ended December 31, 2004 and December 31, 2003





|                  |  | Sales |            | Income    (loss) from    operations |   | Income    (loss)     before discontinued    operations |   | Income    (loss)     before discontinued     operations     per share |            | Net income        (loss) |   | Net income        (loss),      per share |  
|----------------- |  | ----- | ---------- | ----------------------------------- | - | ------------------------------------------------------ | - | --------------------------------------------------------------------- | ---------- | ------------------------ | - | ---------------------------------------- | -
|                  |  |       |            |                                     |   |                                                        |   |                                                                       |            |                          |   |                                          |  
|2004              |  |       |            |                                     |   |                                                        |   |                                                                       |            |                          |   |                                          |  
|First    Quarter  |  | $     | 10,539,320 |                                     | $ | (386,047                                               | ) | $                                                                     | (1,675,622 | )                        | $ | (0.13                                    | )
|Second    Quarter |  |       | 13,170,348 |                                     |   | 922,411                                                |   |                                                                       | (266,031   | )                        |   | (0.02                                    | )
|Third    Quarter  |  |       | 14,950,787 |                                     |   | 2,188,164                                              |   |                                                                       | 951,364    |                          |   | 0.08                                     |  
|Fourth    Quarter |  |       | 15,026,382 |                                     |   | 1,905,415                                              |   |                                                                       | 897,217    |                          |   | 0.06                                     |  
|                  |  |       |            |                                     |   |                                                        |   |                                                                       |            |                          |   |                                          |  
|                  |  | $     | 53,686,837 |                                     | $ | 4,629,943                                              |   | $                                                                     | (93,072    | )                        | $ | (0.01                                    | )
|                  |  |       |            |                                     |   |                                                        |   |                                                                       |            |                          |   |                                          |  
|2003              |  |       |            |                                     |   |                                                        |   |                                                                       |            |                          |   |                                          |  
|First    Quarter  |  | $     | 10,369,814 |                                     | $ | (522,003                                               | ) | $                                                                     | (1,591,941 | )                        | $ | (0.13                                    | )
|Second    Quarter |  |       | 12,148,679 |                                     |   | 873,460                                                |   |                                                                       | (457,258   | )                        |   | (0.04                                    | )
|Third    Quarter  |  |       | 12,731,880 |                                     |   | 1,142,632                                              |   |                                                                       | (275,615   | )                        |   | (0.02                                    | )
|Fourth    Quarter |  |       | 10,506,519 |                                     |   | (108,076                                               | ) |                                                                       | (1,296,630 | )                        |   | (0.10                                    | )
|                  |  |       |            |                                     |   |                                                        |   |                                                                       |            |                          |   |                                          |  
|                  |  | $     | 45,756,892 |                                     | $ | 1,386,013                                              |   | $                                                                     | (3,621,444 | )                        | $ | (0.29                                    | )
|                  |  |       |            |                                     |   |                                                        |   |                                                                       |            |                          |   |                                          |  




The earnings (loss) per share for each quarter is computed independently;  therefore, the sum of the four quarters may not equal the earnings (loss) per  share computed on an annual basis.





F-30


---






PART IV





Item  16.  Exhibits and Financial Statement  Schedules





The  Exhibits required by Regulation S-K are set forth in the following list and are  filed either by incorporation by reference from previous filings with the  Securities and Exchange Commission or by attachment to this Annual Report on  Form 10-KSB as so indicated in such list.





| | Exhibit |  | Designation                                                                                                                                                                                                                                                                            
| | ------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |         |  |                                                                                                                                                                                                                                                                                        
| | 3.2     |  | Restated Certificate of Incorporation of the    Company, as filed with the Secretary of State of the State of Delaware on    June 21, 1989 (incorporated by reference to the Companys Annual Report on    Form 10-KSB for the fiscal year ended December 31, 1990).                   
| |         |  |                                                                                                                                                                                                                                                                                        
| | 3.2.1   |  | Certificate of Amendment to the Companys    Certificate of Incorporation as filed with the Secretary of State of the    State of Delaware on February 13, 2001.     (incorporated by reference to the Companys Registration Statement on    Form S-8, effective date March 21, 2001.)
| |         |  |                                                                                                                                                                                                                                                                                        
| | 3.3     |  | By-Laws of the Company (incorporated by reference to    the Companys Registration Statement on Form S-18, effective date December 6,    1988).                                                                                                                                        
| |         |  |                                                                                                                                                                                                                                                                                        
| | 10.1    |  | Agreement for Purchase and Sale dated June 6, 1997    between Black Warrior Wireline Corp. and St. James Capital Partners,    L.P.  (Filed as an exhibit to the    Companys Current Report on Form 8-K for June 6, 1997)                                                              
| |         |  |                                                                                                                                                                                                                                                                                        
| | 10.2    |  | $2,000,000 Convertible Promissory Note dated June 6,    1997 issued to St. James Capital Partners, L.P.  (Filed as an exhibit to the Companys Current Report on Form    8-K for June 6, 1997)                                                                                         
| |         |  |                                                                                                                                                                                                                                                                                        
| | 10.3    |  | $3,000,000 Bridge Loan Promissory Note dated June 6,    1997 issued to St. James Capital Partners, L.P.  (Filed as an exhibit to the Companys Current Report on Form    8-K for June 6, 1997)                                                                                         
| |         |  |                                                                                                                                                                                                                                                                                        
| | 10.4    |  | Warrant dated June 6, 1997 to purchase 546,000    shares of Common Stock issued to St. James Capital Partners, L.P.  (Filed as an exhibit to the Companys    Annual Report on Form 10-KSB for the year ended December 31, 1997).                                                      
| |         |  |                                                                                                                                                                                                                                                                                        




---



Back to Contents





| | 10.5  |  | Warrant dated June 6, 1997 to purchase 120,000    shares of Common Stock issued to St. James Capital Partners, L.P.  (Filed as an exhibit to the Companys    Annual Report on Form 10-KSB for the year ended December 31, 1997).                  
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |  |                                                                                                                                                                                                                                                    
| | 10.6  |  | Registration Rights Agreement between Black Warrior    Wireline Corp. and St. James Capital Partners, L.P. dated June 6, 1997.  (Filed as an exhibit to the Companys    Current Report on Form 8-K for June 6, 1997)                              
| |       |  |                                                                                                                                                                                                                                                    
| | 10.7  |  | Agreement for Purchase and Sale dated    October 9, 1997 between Black Warrior Wireline Corp. and St. James    Capital Partners, L.P.  (Filed as an    exhibit to the Companys Current Report on Form 8-K for October 9, 1997).                   
| |       |  |                                                                                                                                                                                                                                                    
| | 10.8  |  | $2,900,000 Convertible Promissory Note dated    October 10, 1997 issued to St. James Capital Partners, L.P.  (Filed as an exhibit to the Companys    Current Report on Form 8-K for October 9, 1997).                                             
| |       |  |                                                                                                                                                                                                                                                    
| | 10.9  |  | Warrant dated October 10, 1997 to purchase    725,000 shares of Common Stock issued to St. James Capital Partners,    L.P.  (Filed as an exhibit to the    Companys Current Report on Form 8-K for October 9, 1997).                              
| |       |  |                                                                                                                                                                                                                                                    
| | 10.10 |  | Amendment No. 1 to Registration Rights Agreement    between Black Warrior Wireline Corp. and St. James Capital Partners, L.P.    dated October 10, 1997.  (Filed as an    exhibit to the Companys Current Report on Form 8-K for October 9, 1997).
| |       |  |                                                                                                                                                                                                                                                    
| | 10.11 |  | Asset Purchase Agreement dated as of January 1, 1998    between Black Warrior Wireline Corp. and Phoenix Drilling Services, Inc.  (Filed as an exhibit to the Companys    Current Report on Form 8-K for January 23, 1998).                       
| |       |  |                                                                                                                                                                                                                                                    
| | 10.12 |  | Agreement for Purchase and Sale dated January    23, 1998 between Black Warrior Wireline Corp. and St. James Capital    Partners, L.P.  (Filed as an exhibit    to the Companys Current Report on Form 8-K for January 23, 1998).                 
| |       |  |                                                                                                                                                                                                                                                    
| | 10.13 |  | $10,000,000 Convertible Promissory
      Note dated January 23, 1998 issued to St. James Capital Partners,
      L.P.  (Filed as an exhibit to the Companys    Current Report
      on Form 8-K for January 23, 1998).                            
| |       |  |                                                                                                                                                                                                                                                    




---



Back to Contents





| | 10.14   |  | Warrant dated January 23, 1998 to purchase    200,000 shares of Common Stock issued to St. James Capital Partners,    L.P.  (Filed as an exhibit to the    Companys Current Report on Form 8-K for January 23, 1998).                                 
| | ------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |         |  |                                                                                                                                                                                                                                                        
| | 10.15   |  | Amendment No. 2 to Registration Rights Agreement    between Black Warrior Wireline Corp. and St. James Capital Partners, L.P.    dated January 23, 1998.  (Filed    as an exhibit to the Companys Current Report on Form 8-K for January 23,    1998).
| |         |  |                                                                                                                                                                                                                                                        
| | 10.16   |  | Letter dated April 12, 2000 to the Company from    SJCP, SJMB and Charles Underbrink (Filed as an exhibit to the Companys    Annual Report on Form 10-KSB for the year ended December 31, 1999).                                                      
| |         |  |                                                                                                                                                                                                                                                        
| | 10.17   |  | Amended and Restated Credit Agreement dated as of    November 14, 2004 among the Company and General Electric Capital Corporation,    as agent and lender.  (Filed as an    exhibit to the Companys Current Report on Form 8-K for November 14, 2004).
| |         |  |                                                                                                                                                                                                                                                        
| | 10.18   |  | Amended and Restated Employment Agreement effective    as of January 1, 2002 with William L. Jenkins.  (Filed as an exhibit to the Companys Current Report on Form    8-K for March 16, 2005).                                                        
| |         |  |                                                                                                                                                                                                                                                        
| | 10.19.1 |  | Employment Agreement dated April 1, 2001 between the    Company and Danny R. Thornton.  (Filed    as an Exhibit to the Companys Annual Report on Form 10-K for the year ended    December 31, 2003).                                                  
| |         |  |                                                                                                                                                                                                                                                        
| | 10.19.2 |  | Amendment to Employment Agreement dated April 1,    2001 between the Company and Danny R. Thornton.  (Filed as an Exhibit to the Companys Annual Report on Form    10-K for the year ended December 31, 2003).                                        
| |         |  |                                                                                                                                                                                                                                                        
| | 10.20   |  | Asset Purchase Agreement dated June 3, 2002 between    Multi-Shot, LLC and the Registrant.     (Filed as an Exhibit to the Companys Current Report on Form 8-K for    June 3, 2004.)                                                                  
| |         |  |                                                                                                                                                                                                                                                        
| | 10.21   |  | First Amendment dated June 10, 2004 to Asset Purchase Agreement between Multi-Shot, LLC and the Registrant.  (Filed as an Exhibit to the Companys Current Report on Form 8-K for June 3, 2004.)                                                       




---



Back to Contents





| | 14   |  | Code of Ethics.     (Filed as an Exhibit to the Companys Annual Report on Form 10-K for    the year ended December 31, 2003.)
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------
| |      |  |                                                                                                                               
| | 21   |  | Subsidiaries. The Company has no subsidiaries.                                                                                
| |      |  |                                                                                                                               
| | 23   |  | Consent of Grant Thornton LLP*                                                                                                
| |      |  |                                                                                                                               
| | 31.1 |  | Certification of President and Chief Executive    Officer pursuant to Rule 13a-14(a)*                                         
| |      |  |                                                                                                                               
| | 31.2 |  | Certification of Chief Financial Officer Pursuant to    Rule 13a-14(a)*                                                       
| |      |  |                                                                                                                               
| | 32.1 |  | Certification of President and Chief Executive    Officer Pursuant to Section 1350 (furnished, not filed)*                    
| |      |  |                                                                                                                               
| | 32.2 |  | Certification of Chief Financial Officer Pursuant to    Section 1350 (furnished, not filed)*                                  




|                                                            
|------------------------------------------------------------
|*    Filed or furnished with this Annual Report on Form 10-K




---



Back to Contents





SIGNATURES





Pursuant to  the requirements of Section 13 or 15(d) 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.





Dated:  April 12, 2005





| | Black    Warrior Wireline Corp.
| | -------------------------------
| |                                
| | By:                            
| |                                
| |                                




Pursuant to  the requirements of the Securities Exchange Act of 1934, this Report has been  signed below by the following persons on behalf of the Registrant and in the  capacities and on the dates indicated.





|Signature                 |  | Capacity                                     |  | Date          
|------------------------- |  | -------------------------------------------- |  | --------------
|                          |  |                                              |  |               
|                          |  |                                              |  |               
|/s/ William L. Jenkins    |  | President,     CEO and Director              |  | April 12, 2005
|                          |  | (Principal Executive Officer)                |  |               
|William L. Jenkins        |  |                                              |  |               
|                          |  |                                              |  |               
|/s/ Ron E. Whitter        |  | Vice President - Finance                     |  | April 12, 2005
|                          |  | (Principal Financial and Accounting Officer) |  |               
|Ron E. Whitter            |  |                                              |  |               
|                          |  |                                              |  |               
|/s/ Charles E. Underbrink |  | Director                                     |  | April 12, 2005
|                          |  |                                              |  |               
|Charles E. Underbrink     |  |                                              |  |               
|                          |  |                                              |  |               
|/s/ James H. Harrison     |  | Director                                     |  | April 12, 2005
|                          |  |                                              |  |               
|James H. Harrison         |  |                                              |  |               




---



Back to Contents





Index to  Exhibits Filed With This Annual Report on Form 10-K  for the Year Ended December 31, 2004





|23   | Consent of Grant Thornton LLP                                                                            
|---- | ---------------------------------------------------------------------------------------------------------
|31.1 | Certification of President and Chief Executive    Officer pursuant to Rule 13a-14(a)                     
|31.2 | Certification of Chief Financial Officer Pursuant to    Rule 13a-14(a)                                   
|32.1 | Certification of President and Chief Executive    Officer Pursuant to Section 1350 (furnished, not filed)
|32.2 | Certification of Chief Financial Officer Pursuant to    Section 1350 (furnished, not filed)              




---