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                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                   FORM 10-KSB

Mark One:

         [X]  Annual  Report  pursuant to Section 13 or 15(d) of the  Securities
         Exchange Act of 1934. For the fiscal year ended December 31, 1997; or

         [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
         Exchange  Act of 1934 For the  transition  period  from  __________  to
         __________.

                           COMMISSION FILE NO. 0-18754

                          BLACK WARRIOR WIRELINE CORP.
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                 (Name of Small Business Issuer in its Charter)

DELAWARE                                                              11-2904094
(State or Other Jurisdiction of                                    (IRS Employer
Incorporation or Organization)                               Identification No.)

3748 HIGHWAY #45 NORTH, COLUMBUS, MISSISSIPPI                              39701
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(Address of Principal Executive Offices)                              (Zip Code)

                                 (601) 329-1047
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                (Issuer's Telephone Number, Including Area Code)

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

                              (Title of Each Class)
                    COMMON STOCK, PAR VALUE $.0005 PER SHARE

         Check whether the Issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past twelve (12) months (or
for such shorter period that the Issuer was required to file such reports),  and
(2) has been subject to such filing  requirements for the past ninety (90) days.
[X] Yes [ ] No

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of Regulation S-B in this form, and no disclosure will be contained, to
the best of Issuer's  knowledge,  in definitive proxy or information  statements
incorporated  by reference in Part III of this Form 10-KSB,  or any amendment to
this Form 10-KSB. [X]

          State Issuer's revenues for its most recent fiscal year:  $ 17,062,542
          State  the  aggregate  market  value  of  the  voting  stock  held  by
          non-affiliates as of April 2, 1998:

          COMMON STOCK, PAR VALUE $.0005 PER SHARE, $ 26,270,582
          (Non-affiliates  have been  determined  on the basis of  holdings  set
forth under Item 11 of this Annual Report on Form  10-KSB.)
          Indicate  the  number of shares  outstanding  of each of the  Issuer's
classes of common equity, as of the latest practicable date:

                  Class:  COMMON STOCK, PAR VALUE $.0005 PER SHARE
                  Outstanding at April 2, 1998:  3,719,587 SHARES

                       DOCUMENTS INCORPORATED BY REFERENCE

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

            Transitional Small Business Issuer Format: [ ] Yes [X] No

================================================================================

<PAGE>





                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

         Black Warrior  Wireline Corp. (the "Company") is an oil and gas service
company  currently  providing  various  services  to oil and gas well  operators
primarily in the Black Warrior and  Mississippi  Salt Dome Basins in Alabama and
Mississippi,  the Permian Basin in West Texas and New Mexico, the East Texas and
Austin Chalk Basins in East Texas,  the Anadarko  Basin in Oklahoma,  the Powder
River and Green River Basins in Wyoming and Montana,  and the Williston Basin in
North Dakota.  The Company's  principal  lines of business  include (a) wireline
services, (b) directional oil and gas well drilling activities, and (c) workover
services.  At March 16, 1998,  the Company  owned 41  operational  motor vehicle
mounted  wireline  units,  of  which  23 are  equipped  with a  state-of-the-art
computer system,  nine are equipped with an earlier generation  computer system,
four are analog equipped and five are devoted exclusively to steering tool work.
Also as of March 16, 1998, it owned seven workover rigs.

         The Company's recent growth and increased revenues has been principally
the result of five  acquisitions  completed since November 1996. On November 19,
1996, the Company  acquired the outstanding  stock of DynaJet,  Inc.,  which has
been engaged in the  wireline  business in the  Gillette,  Wyoming area for more
than  eighteen  years.  Its service area  includes the states of Wyoming,  South
Dakota,  Montana and New Mexico.  On June 6, 1997,  the  Company  completed  the
acquisition  of Production  Well  Services,  Inc.  which has been engaged in the
wireline business in southern Alabama and southern Mississippi. On June 9, 1997,
the Company completed the acquisition of Petro-Log,  Inc. which has been engaged
in the wireline  business in Wyoming,  Montana and South  Dakota.  On October 9,
1997, the Company  completed the  acquisition,  effective  September 1, 1997, of
Diamondback  Directional,   Inc.  ("Diamondback")  which  has  been  engaged  in
providing  directional  drilling and other oil and gas well drilling services in
the Texas and Louisiana  areas. On December 15, 1997, the Company  completed the
acquisition  of the  assets  of Cam  Wireline  Services,  Inc.,  which  provides
wireline services in the Permian Basin.

         On March 16, 1998, the Company acquired from Phoenix Drilling Services,
Inc. ("Phoenix") its domestic oil and gas well directional drilling and downhole
survey service business including the related operating assets (such acquisition
is herein  referred to as the "Phoenix  Acquisition").  The  purchase  price was
approximately  $19.0 million  payable in cash at the closing.  The operations of
the business acquired are conducted throughout the primary oil and gas producing
areas of the  continental  United States and employ  approximately  100 persons.
Financing for the  transaction was obtained  through secured  borrowings of $9.0
million and the sale of  convertible  notes and  warrants to St.  James  Capital
Partners, L.P. ("St. James") for $10.0 million. See "Item 11. Security Ownership
of Certain Beneficial Owners and Management" and "Item 12. Certain Relationships
and Related Transactions."

         The  domestic  oil and  gas  industry  has  experienced  a  significant
increase in drilling and workover  activity  since 1995 which has stimulated the
demand for oil and gas well  services,  including  the  services  offered by the
Company.  This  increased  activity  has been the  result  of a  combination  of
improved  oil and gas prices  and  advances  in  technology.  The  technological
advances in 3-D  seismic and  directional  drilling  in  particular  have had an
impact.

         Through its recent acquisition of Diamondback and the completion of the
Phoenix  Acquisition,  the  Company  has  expanded  its  activities  to  include
directional  drilling as well as providing downhole steering tools.  Directional
drilling  entails  entering a producing zone  directionally,  using  specialized
drilling  equipment,  which expands the area of interface with  hydrocarbons and
thereby  greatly  enhancing  recoverability.  The Company engages in directional
drilling  activities as well as providing  steering  services to other  drilling
contractors which do not have "in house" steering tools. The Phoenix Acquisition
also  includes the  multi-shot  downhole well services  survey  division,  which
provides survey services to the oil and gas industry.




<PAGE>





         In February  1996,  the Company began to assemble and install  wireline
service  equipment on motor  vehicles.  During the year ended December 31, 1997,
the Company completed four new and seven remanufactured vehicles and its current
plans  call  for the  Company  to  continue  its  production  at the rate of two
vehicles  per month  through  the  remainder  of 1998.  To date,  except for one
vehicle to be delivered in 1998, all of the vehicles  produced have been used by
the Company in its  operations.  The Company may in the future  produce and sell
additional  vehicles  to others.  The  Company is  equipping  all new cased hole
wireline trucks with a state-of-the-art computer system.

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

RECENT ACQUISITIONS AND ACQUISITION STRATEGY

         The   following   table  sets  forth   information   regarding   recent
acquisitions made by the Company:

<TABLE>
<CAPTION>
<S>               <C>                              <C>                                 <C>               
  DATE (1)        COMPANY ACQUIRED                 BUSINESS LOCATION                    PURCHASE PRICE   
--------------    ----------------                 -----------------                    --------------   
                                                                                                         
March 16, 1998    Phoenix                          Continental United States            $19.0 million    
                                                                                                         
December 15,      CAM Wireline Services, Inc.      Texas                                $850,000 (3)     
   1997                                                                                                  
                                                                                                         
October 9, 1997   Diamondback Directional, Inc.    Texas and Louisiana                  $ 8.9 million (2)
                                                                                                         
                                                                                                         
June 9, 1997      PetroLog, Inc.                   Wyoming, Montana and South Dakota    $ 2.1 million    
                                                                                                         
June 6, 1997      Production Well Services, Inc.   Southern Mississippi and Alabama     $940,000 (4)     
                                                                                                         
November 19,      Dyna-Jet, Inc.                   Wyoming, South Dakota, Montana       $758,000         
   1996                                             and New Mexico                                       
                                                                                                         
</TABLE>                                                                     

------------------------------

(1)      Date the acquisition was closed.
(2)      Includes 647,569 shares of the Company's Common Stock. 
(3)      Includes 24,969 shares of the Company's Common  Stock.
(4)      Includes 133,333 shares of the Company's Common Stock.

         The Company  intends to seek to expand its  wireline  and other oil and
gas  service  areas by  completing  strategic  acquisitions  of other  companies
engaged  in such  activities.  Currently  the  Company is  primarily  seeking to
consolidate its management of the operations  acquired throughout 1997 and early
1998; however, it continues to explore and evaluate additional  acquisitions and
may seek to pursue additional acquisition opportunities if it



                                      -2-


<PAGE>


believes  the terms are  favorable.  The  Company  currently  has no  definitive
agreements  to  acquire  any  additional  wireline  companies.  There  can be no
assurance  that the Company will acquire any  additional  wireline  companies or
that any such  acquisitions  will be beneficial  to the Company.  The process of
integrating  acquired  properties  into  the  Company's  operations  can  create
unforeseen   difficulties   and  may  require  a   disproportionate   amount  of
management's   attention  and  the  Company's  resources.   In  connection  with
acquisitions,  the  Company  could  become  subject  to  significant  contingent
liabilities  arising from the activities of the acquired companies to the extent
the  Company  assumes,  or an acquired  entity  becomes  liable for,  unknown or
contingent  liabilities or in the event that such liabilities are imposed on the
Company under theories of successor liability.

ACQUISITION FINANCING

         To date, the Company has funded its  acquisition  activities  using the
proceeds from secured lending from banks and other  institutional  lenders,  the
private or public sale of debt and equity  securities and the cash flow from its
current  operations.  Financing obtained to date has included borrowings secured
by substantially all of the Company's assets. The Company intends to continue to
use these sources to finance any future  acquisitions.  Any such capital that is
raised will be on terms yet to be negotiated and may be on terms that dilute the
interests of current stockholders of the Company. There can be no assurance that
the Company  will raise  additional  capital when it is required to complete any
proposed  acquisitions  or that  the  Company  will  have  or be  able to  raise
sufficient capital to fund its acquisition strategy.

GLOSSARY OF INDUSTRY TERMS

         The following are  definitions of certain  technical terms used in this
Annual Report relating to the Company's business:

         "3-D Seismic"  Involves the acquisition of a dense grid of seismic data
over a precisely defined area. An energy source creates an acoustic impulse that
penetrates  the subsurface  and is reflected off  underlying  rock layers.  This
reflected  energy is recorded by  sensitive  receivers  (geophones  connected to
sophisticated computers). The resulting data is then analyzed and interpreted by
geophysicists  and  used by oil  and  natural  gas  producing  companies  in the
acquisition of new leases, the selection of drilling locations and for reservoir
management. The technology is particularly useful with directional drilling. 3-D
Seismic data provides greater precision and improved subsurface  resolution than
is provided by 2-D seismic surveys.

         "Casing" Steel pipe lowered into the drilled hole (borehole) to prevent
"caving  in"  and to  provide  isolation  of  zones  and  permit  production  of
hydrocarbons

         "Cased  Hole" The  drilled  hole  after  casing  has been  lowered  and
cemented in place.

         "Directional   Drilling"   Enables  the  drilling  of  computer  guided
directional  wellbores from existing or newly drilled wells intended to increase
the  exposure  of the well  bore to  producing  hydrocarbon  zones.  Directional
drilling is facilitated through the use of 3-D Seismic technology.

         "Downhole" Any part of the borehole below the ground surface.




                                      -3-


<PAGE>


         "Junk  Basket" A  mechanical  device  lowered  into the  borehole  with
wireline  to  remove  extraneous  or  unwanted  debris.  A  gauge  ring  is  run
simultaneously to check conformity of hole size.

         "Cement  Bond Log" A cement  quality and bonding  evaluation  performed
with sonic  transmitters and receivers  lowered into the borehole with wireline.
This survey is recorded by surface computers.

         "Hoisting  and  Steering  Services"  Services  provided  utilizing  the
Company's  wireline trucks and equipment for operating  surveying  equipment and
steering tools owned and operated by others.

         "Logs"     (a) Open Hole:  The  measurement of properties of formations
to  determine  hydrocarbon  bearing  characteristics.  Open hole logs are mainly
radioactive (porosity) and electric (resistivity).

                    (b) Cased Hole:  The  measurement  of gamma rays  (different
formations  have  different  levels),  casing  collars  (joints in  casing)  for
correlation to open hole depths,  and cement quality and bonding.  Porosity logs
can be run in cased holes with Compensation Neutron Tools.

         "Rigs"     (a) A drilling  rig is one which drills the  borehole.  This
rig normally is used for setting the casing in the borehole.

                    (b) A completion or workover rig is used to position tubing,
pumps and other production  equipment in the cased hole. As the name plies, this
is used for subsequent "workover" or remedial service.

         "Winch Unit" A powerful machine with one or more drums on which to coil
a cable or chain for hauling or hoisting.

         "Workover"  Operations pertaining to work on wells previously placed in
production  but  needing  additional  work  in  order  to  restore  or  increase
production.

WIRELINE SERVICES

         The Company's wireline logging service activities  contributed revenues
of $9.2  million  (approximately  54.0%  of  revenues)  in  1997,  $5.6  million
(approximately 73.7% of revenues) in 1996, and $4.6 million (approximately 74.9%
of revenues) in 1995.

         Wireline logging services are used to evaluate  downhole  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 and  abandoned.
Such services are provided using a truck-mounted  wireline unit equipped with an
armored cable that is lowered by winch into an existing well.  The cable,  which
contains one or more electrical  conductors,  lowers  instruments and tools into
the well to  perform a variety  of  services  and  tests.  The  wireline  unit's
truck-mounted  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 systems, DRS computerized
systems  (which  is  an  earlier  generation   computerized  system)  or  analog
equipment.


                                       -4-

<PAGE>

         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,   which  opens  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. The Company performs these services on
a  contract  basis at the well site for  operators  and  producers  of the wells
primarily 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 drilling.  These  procedures  generally
take approximately one to one-and-one-half days to perform.

         The Company owns as of March 16, 1998, 41 wireline  units. Of these, 23
are  state-of-the-art  computer  equipped,  nine are  equipped  with an  earlier
generation  computer  system,  four are  analog  equipped  and five are  devoted
exclusively  to  steering  tool work.  The Company  anticipates  placing 16 more
state-of-the-art  computer  equipped  units  into  service  during the last nine
months of 1998.

DIRECTIONAL DRILLING SERVICES

         The Company's  directional  drilling services  contributed  revenues of
$5.9 million  (approximately  34.8% of revenues) in 1997,  substantially  all of
which was  realized  during the four  months  ended  December  31,  1997.  These
revenues were primarily the result of the  acquisition by the Company in October
1997  of  Diamondback  Directional,  Inc.  The  Company  had  no  revenues  from
directional drilling services in 1996 and 1995.

         Directional  drilling entails  entering a producing zone  horizontally,
using  specialized  drilling  equipment,  which expands the area of interface of
hydrocarbons and thereby greatly enhancing recoverability.

         On March 16, 1998, the Company completed the Phoenix Acquisition.  This
acquisition  is expected to  contribute  to further  increases in the  Company's
revenues  from  directional   drilling  services.   In  addition,   the  Phoenix
Acquisition  will enable the Company to provide  downhole survey services to the
oil and gas industry.

WORKOVER AND COMPLETION SERVICES

         These activities  contributed  revenues of $1.6 million  (approximately
9.5% of revenues) in 1997,  $1.7  million  (approximately  22.5% of revenues) in
1996, and $1.3 million (approximately 21.4% of revenues) in 1995.

These services are performed primarily on an hourly basis.

         Workover  services  include  those  operations  performed on wells when
originally  completed and on wells previously placed in production and requiring
additional work to restore or increase production.  A completion or workover rig
is used to position  tubing,  pumps and other  production  equipment  in a cased
hole.  The unit is used for the initial  completion  of the well and  subsequent
workover and remedial service.  A completion or workover rig is generally a four
to six axle  truck-mounted  hoist unit with a 60 to 90 foot  derrick  capable of
lowering  and  hoisting


                                      -5-

<PAGE>

up to 300,000  pound loads.  The Company  expects its  workover  equipment to be
fully utilized by existing  customers in 1998 and is exploring  opportunities to
expand this source of revenue.

OTHER ACTIVITIES

         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.  These  activities  contributed  revenues  of
$290,000  (approximately 1.7% of revenues) in 1997, $288,000 (approximately 3.8%
of revenues) in 1996, and $229,000 (approximately 3.7% of revenues) in 1995.

         The Company also conducts tool and  equipment  inspection,  maintenance
and testing services.  Rubber goods, gaskets,  seats and seals are disassembled,
cleaned, inspected,  replaced if necessary,  reassembled and tested. Packers and
other  equipment  rented by the Company are  reconditioned  and  returned to the
Company's rental inventory.

PRINCIPAL CUSTOMERS AND MARKETING

         During  the years  ended  December  31,  1997,  December  31,  1996 and
December 31, 1995, three customers accounted for a total of approximately 22.7%,
63.8% and 61.6%,  respectively,  of the Company's  net  revenues.  The Company's
principal  customers and the  percentage of the Company's net revenues  received
from each of such  customers  during the three years ended December 31, 1997 are
as follows:

<TABLE>
<CAPTION>
                                                                    1997              1996             1995
                                                               ---------------------------------------------------
<S>                                                                 <C>              <C>               <C>  
Taurus Exploration, Inc.                                            10.3%            25.3%             31.1%
Pioneer Resources, Inc.
(Parker & Parsley Development L.P.)                                 12.4%            23.7%             12.5%
Becfield Drilling Company                                           3.0%             14.8%             18.0%
                           TOTALS                                   25.7%            63.8%             61.6%
                                                               ===================================================

</TABLE>

         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 20 persons working from its District Offices and a
sales office in Denver,  Colorado.  See "Item 2. Properties." The Company relies
extensively  on its reputation in the industry to create  customer  awareness of
its services.

         Generally,  the Company  experiences  lower  revenues  during the first
calendar  quarter  of each year than it  experiences  in other  quarters  due to
adverse weather affecting working conditions.


                                      -6-

<PAGE>



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  damage  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  Operating  Officer,  and maintains
$1.0   million   policies   on  the  lives  of  each  of  Danny  Ray   Thornton,
Vice-President,  and  Allen  R.  Neel,  Executive  Vice-President.  See  Item 9,
"Directors,  Executive Officers,  Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act." The benefits under such policies are payable
to the Company.

BUSINESS ENVIRONMENT

         The  business of the  Company is affected by the general  demand in the
economy for petroleum products;  availability of drilling rigs, casing and other
necessary goods and services;  revision in governmental policies with respect to
oil and gas imports  and other  factors  affecting  potential  competition  from
foreign sources of oil and gas; and state  conservation  commission  regulations
affecting allowable rates of production, well spacing and other factors. Oil and
gas  prices  continue  to have  moderate  fluctuations  increasing  the  overall
instability of the market.

         Demand for the Company's  services  depends on the condition of the oil
and gas industry, and in particular, demand for oil and gas well services. These
activities traditionally have been cyclical and influenced by prevailing oil and
gas prices,  expectations  about future demand and prices, the cost of exploring
for,  producing and developing  oil and gas services,  the discovery rate of new
oil  and  gas  reserves,   political  and  economic   conditions,   governmental
regulations and the availability and cost of capital.  Historically, oil and gas
prices and the level of exploration  and  development  activity have  fluctuated
substantially  resulting in significant  fluctuations  in demand for oil and gas
well  services.  The Company's  results in recent  periods have  benefited  from
improved market  conditions for the Company's  services as a result of increased
oil and gas exploration and development activity. There can be no assurance that
the current market conditions will continue. Recently, oil prices have decreased
primarily as a result of, among other things, decreased international demand and
economic  uncertainty in the Far East. The Company is unable to predict  whether
these  industry  conditions  will  continue and what impact they may have on the
Company's  operations.  However, any significant decline in worldwide demand for
oil and gas or a prolonged  reduction  in oil or gas prices in the future  would
likely depress development  activity and could have a material adverse effect on
the Company's revenues and profitably.


                                      -7-

<PAGE>

COMPETITION

         Most of the Company's  competitors are divisions of larger  diversified
corporations  which  offer  a  wide  range  of oil  field  services.  Its  chief
competitors  include  Halliburton  Company and Schlumberger,  Ltd., 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.  Competition principally occurs in the
areas of technology,  price, quality of products and field personnel,  equipment
availability and facility locations.  Although price competition has been in the
past a  significant  characteristic  of the industry,  the Company's  ability to
offer more  technologically  advanced services is believed by management to have
reduced its exposure to severe price competition.  The Company continues to make
a conscious  effort to compete,  not just on price,  but 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 oil field and management  personnel.  The  competition  for such
qualified  employees  is intense and there can be no assurance  that  sufficient
qualified  persons will be available at such times as the Company requires their
services.

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.  Serious  penalties  and fines are
imposed for violations from such  directives and violations  could result in the
loss of licenses and other penal proceedings.

         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 16, 1998, the Company employed approximately 280 persons on
a full-time basis. Of the Company's employees,  33 are management personnel,  19
are administrative personnel and 228 are operational personnel. The Company also
uses  the  services  of 20 to 30  independent  contract  drillers.  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.

         The Company  has a  three-year  employment  agreement  with  William L.
Jenkins,  its President,  Chief Operating Officer and a Director and stockholder
of the Company.  The Company also has employment  agreements with Allen R. Neel,
Executive Vice-President, and Danny Ray Thornton, Vice-President of the Company.
The  Company's  success  is  currently  dependent  upon  the  efforts  of  these
individuals, and the loss of the services of any of these individuals could have
a  material  adverse  effect  on the  Company's  business,  unless  a  qualified
replacement


                                      -8-

<PAGE>

can be obtained by the  Company.  See Item 9,  "Directors,  Executive  Officers,
Promoters  and Control  Persons;  Compliance  with Section 16(a) of the Exchange
Act." The Company relies  substantially  on their efforts to expand its services
and for its marketing and sales activities. If the Company is unable to continue
to contract for these services,  or if these services are lost for any reason in
the future, the Company will be substantially and adversely affected.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.

         With the exception of historical matters, the matters discussed in this
Report are "forward-looking statements" as defined under the Securities Exchange
Act of 1934, as amended,  that involve risks and uncertainties.  Forward-looking
statements include, but are not limited to, the matters described below, as well
as "Item 1.  Description  of Business -  General,"  "- Recent  Acquisitions  and
Acquisition  Strategy," "- Acquisition  Financing,"  "- Principal  Customers and
Marketing," "Item 6. Management's  Discussion and Analysis or Plan of Operations
- General," "- Liquidity and Capital Resources." Such forward-looking statements
relate to the Company's  ability to attain and maintain  profitability  and cash
flow, the stability of and future prices for oil and gas, pricing in the oil and
gas  services  industry and the ability of the Company to compete in the premium
services market,  the ability of the Company to expand through  acquisitions and
to redeploy its equipment among regional operations,  the ability of the Company
to upgrade,  modernize and expand its equipment,  including its wireline  fleet,
the ability of the Company to expand its tubing conveyed  perforating  services,
the ability of the Company to provide services using the newly acquired state of
the art tooling,  and the ability of the Company to raise additional  capital to
meet its  requirements  and to  obtain  additional  financing,  its  ability  to
successfully  implement  its  business  strategy,  and its  ability to  maintain
compliance with the covenants of its various loan documents and other agreements
pursuant to which  securities have been issued.  The inability of the Company to
meet  these   objectives  or  the  consequences  on  the  Company  from  adverse
developments in general economic conditions, adverse developments in the oil and
gas  industry,  and other factors  could have a material  adverse  effect on the
Company.  The Company cautions readers that various risk factors described below
could cause the  Company's  operating  results to differ  materially  from those
expressed  in any  forward-looking  statements  made by the  Company  and  could
adversely affect the Company's financial condition and its ability to pursue its
business  strategy.  Risk  factors  that could  affect the  Company's  revenues,
profitability  and  future  business  operations  include,   among  others,  the
following:

         Substantial  Indebtedness.  At December 31, 1997,  the Company's  total
indebtedness,  including current maturities, was approximately $14.8 million. In
addition  subsequent  to December 31, 1997 through  March 16, 1998,  the Company
incurred  additional  indebtedness of approximately  $19.0 million  primarily in
connection with financing the Phoenix Acquisition and has an available borrowing
ability of an additional $10.0 million,  substantially  all of which is expected
to be borrowed  during the current year. The Company expects that if it acquires
additional  oil and gas well  service  companies  that it may  incur  additional
indebtedness.  The Company's level of indebtedness may pose substantial risks to
the Company and the holders of its securities,  including the  possibility  that
the  Company  may  not be  able  to  refinance  such  indebtedness  or  generate
sufficient  cash flow to pay the  principal of and interest on the  indebtedness
when due.  During the years ended  December  31,  1998 and  December  31,  1999,
reflecting  the  indebtedness  incurred  through  March 16,  1998 the Company is
obligated to repay  approximately  $2.2 million and $8.3 million,  respectively,
principal  amount of such  indebtedness,  plus  interest  payments.  The Company
anticipates that such  indebtedness  will be repaid out of the public or private
sale of its  debt or  equity  securities  as well as from  its  cash  flow  from
operations.  There  can be no  assurance  that  the  Company  will  be  able  to
consummate a public or private sale of debt or equity securities or otherwise be
successful


                                      -9-

<PAGE>

in  refinancing  this  indebtedness  or  that  the  terms  of any  such  sale of
securities  or  refinancing  may  not  dilute  the  interests  of the  Company's
stockholders.

         Availability  of Trained  Personnel.  The  operation  of the  wireline,
directional  drilling 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  reports  and  operational  results.
Currently, such personnel are in considerable demand. The number of employees of
the Company has increased from 197 at December 31, 1996 to approximately  280 as
of March 16, 1998,  and the Company  expects  that its number of  employees  may
increase further to support its anticipated  level of operations.  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.  The Company has  historically  experienced a
high rate of  employee  turnover.  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 its  operations  could be adversely  affected.
While the  Company  believes  that its wage rates are  competitive  and that its
relationship  with its  workforce is good, a  significant  increase in the wages
paid by other employers could result in a reduction in the Company's  workforce,
increases  in wage rates,  or both.  If either of these  events  occurred  for a
significant period of time, the Company's revenues could be impaired.

         Dependence  on Major  Customers.  Historically,  a large portion of the
Company's  revenues  has  been  generated  from a  relatively  small  number  of
companies.  While the Company  believes its  relationship  with its customers is
good, the loss of any of its principal customers,  or a significant reduction in
business  done with the  Company by these  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.

         Substantial  Control by Principal  Investor.  As of March 16, 1998, St.
James Capital Partners,  L.P. ("St. James") held promissory notes of the Company
convertible  into 2,781,827 shares of Common Stock and held warrants to purchase
an additional 3,391,000 shares of Common Stock. Upon conversion of the notes and
exercise of the warrants,  St. James would hold an aggregate of 6,172,827 shares
representing 62.4% of the Company's shares of Common Stock then outstanding.  In
addition, St. James has certain additional contractual rights which, among other
things,  give to St.  James the right to nominate one person 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 St. James. St.
James has agreed to convert an aggregate of $4.9 million principal amount of its
notes into an aggregate of 1,353,257 shares of Common Stock (26.7% of the shares
then issued and  outstanding)  at such time as the Company files a  registration
statement  under the Securities Act of 1933, as amended,  relating to the shares
of  Common  Stock  issuable  on  conversion  and  exercise  of all the notes and
warrants  held  by St.  James,  and  such  registration  statement  is  declared
effective.  The  foregoing  give St.  James  the  ability  to exert  significant
influence  over the business and affairs of the  Company.  The  interests of St.
James  may not  always  be the  same as the  interests  of the  Company's  other
securityholders.

         Dependence on Volatile Oil and Gas Industry.  Demand and prices for the
Company's  services  depend  upon  the  level  of  activity  in the  oil and gas
exploration  and  production  industry in those areas of the United States where
the Company  offers its services.  This activity  depends upon numerous  factors
over  which  the  Company  has no  control,  including  the level of oil and gas
prices,  expectations  about  future  oil and gas  prices,  the  ability  of the
Organization  of  Petroleum  Exporting  Countries  ("OPEC") to set and  maintain
production  levels  and  prices,  the  cost  of  exploring  for,  producing  and
delivering  oil and gas,  the  level  and price of  foreign  imports  of oil and
natural gas, the discovery rate of new oil and gas reserves,  available pipeline
and other oil and gas  transportation  capacity,


                                      -10-

<PAGE>

worldwide weather conditions,  international political, military, regulatory and
economic  conditions  and the ability of oil and gas companies to raise capital.
Recently,  oil prices  have  decreased  primarily  as a result of,  among  other
things, decreased international demand and economic uncertainty in the Far East.
Domestic exploration activity also has been particularly affected by an increase
in the  exploration  and demand for gas.  The level of drilling  activity in the
onshore oil and gas exploration and production industry in the United States has
been volatile and no assurance  can be given that current  levels of oil and gas
exploration  activities in the areas where the Company  offers its services will
continue or that demand for the Company's  services will correspond to the level
of activity in the industry  generally.  Further,  any  material  changes in the
demand for or supply of natural gas could  materially  impact the demand for the
Company's  services.  Prices  for oil and gas are  expected  to  continue  to be
volatile and to affect the demand for and pricing of the Company's  services.  A
material decline in oil or gas prices or industry  activity in the United States
could have a material adverse effect on the Company's  results of operations and
financial condition.

         Market Conditions Affecting Demand for the Company's Services.  The oil
and gas well service  industry is currently  characterized by an increased level
of demand for wireline, directional drilling, recompletion and other oil and gas
well  services  and a limited  supply of equipment  available  to perform  these
services in a timely manner.  The industry has been characterized by substantial
fluctuations  in the demand for such services and the supply of  equipment.  The
Company's  revenues  in the future can be  expected to be impacted to a material
extent not only by the demand  throughout the industry but the supply of oil and
gas well service equipment available to operators to perform these services. The
Company's revenues could be adversely affected by a substantial  increase in the
equipment  available to other  providers of oil and gas well services to perform
these services.

         Acquisition  Activity  Dependent Upon  Availability  of Capital.  Since
November  1996,  the  Company's  growth has been  substantially  impacted by the
acquisition of other oil and gas well service businesses. The Company intends to
continue to seek to expand its business through further  acquisitions.  In order
to complete additional acquisitions,  the Company will need to have available to
it on acceptable terms the capital  necessary to meet the purchase price for any
businesses acquired.  Financing obtained to date has included borrowings secured
by  substantially  all of the  Company's  assets.  Additionally,  the  Company's
acquisition   activity  will  be  substantially   dependent  upon  stock  market
conditions  in general as well as the price for its common  equity being such as
to enable its  securities to be used in  completing  such  transactions.  In the
event the Company should be unable to raise  additional  capital or stock market
or other economic  conditions become  unfavorable,  the Company may be unable to
pursue its business  strategy of acquiring  additional  companies in the oil and
gas well service industry.

         Availability and Assimilation of Acquisitions. The Company's growth has
been  enhanced  materially  by strategic  acquisitions  that have  substantially
increased the Company's  operating  activities  and revenues.  While the Company
believes that the oil and gas wireline  service and drilling  industry is highly
fragmented and that significant acquisition  opportunities are available,  there
can be no assurances that suitable acquisition  candidates can be found, and the
Company  faces  increased   competition   from  other  companies  for  available
acquisition opportunities.  If the prices paid by other buyers for the available
acquisition   opportunities  continue  to  rise,  the  Company  may  find  fewer
acceptable  acquisition  opportunities.  The Company may elect or be required to
incur substantial indebtedness to finance future acquisitions and also may issue
equity   securities  or   convertible   securities   in  connection   with  such
acquisitions. Additional debt service requirements could represent a significant
burden on the Company's results of operations and financial  condition,  and the
issuance of additional equity or convertible securities could result in dilution
to  stockholders.  In addition,  there can be no assurance that the Company will
successfully  integrate  the  operations  and assets of its recent or any future
acquisition  with its own, that the Company's  management will be able to manage
effectively  the growth and  increased  size of the  Company or that the Company
will be successful in deploying wireline service and other equipment acquired by
it or in maintaining the crews and market share


                                      -11-

<PAGE>

attributable to wireline  service and other  equipment  acquired by the Company.
Any failure by the Company to successfully  effect and implement its acquisition
strategy could have a material adverse effect on the Company's future results of
operations and financial condition.

         Competition.  The  wireline,  directional  drilling,  workover and well
servicing industry is a  highly-fragmented,  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 is 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
existing or new equipment.

         Labor Shortages.  Increases in domestic  drilling demand since mid-1995
and increases in oil and gas service  activities  have resulted in a shortage in
many areas of qualified personnel in the industry.  These shortages make it more
difficult for the Company and other contractors to utilize  available  equipment
and to retain crews.  If the Company is unable to attract and retain  sufficient
qualified  personnel,  its ability to market and operate its  equipment  will be
restricted,  which could have a material adverse effect on the Company's results
of operations.  Further, wage rates of qualified crews have begun to rise in the
oil and gas service  industry in response to the increasing  competition,  which
could ultimately have the effect of reducing the Company's operating margins and
results of operations.

         Operating  Hazards and Uninsured  Risks. The Company's 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. Such insurance coverage,
however,  may not in all  situations  provide  sufficient  funds to protect  the
Company from all liabilities that could result from its operations.

         Environmental  Risks.  The  Company  is subject  to  numerous  domestic
governmental  regulations  that relate directly or indirectly to its operations,
including  certain  regulations  controlling the discharge of materials into the
environment,  requiring  removal and cleanup  under  certain  circumstances,  or
otherwise  relating to the protection of the  environment.  Laws and regulations
protecting the environment have become more stringent in recent years and may in
certain  circumstances impose "strict liability" and render a company liable for
environmental  damage  without regard to negligence or fault on the part of such
company.  Such laws and  regulations may expose the Company to liability for the
conduct of, or  conditions  caused by,  others,  or for acts of the Company that
were  in  compliance  with  all  applicable  laws at the  time  such  acts  were
performed.  The  application  of  these  requirements  or  the  adoption  of new
requirements could have a material adverse effect on the Company.

         Seasonality  and Weather Risks.  The Company's  operations in the Rocky
Mountain  area and certain  other of its  service  areas are subject to seasonal
variations  in  weather  conditions  and  daylight  hours.  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.



                                      -12-


<PAGE>

         Dependence on Key Personnel.  The Company's  success  depends on, among
other  things,  the  continued  active  participation  of  William  L.  Jenkins,
President,  Allen  R.  Neel,  Executive  Vice-President,   Danny  Ray  Thronton,
Vice-President,  Operations, and certain of the Company's other officers and key
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  September 1999) and Thornton and Neel  (throughApril 1, 2000),
and has purchased "key-man" life insurance with respect to Mr. Jenkins.

ITEM 2.  PROPERTIES

         The  Company  leases  6,500  square feet of office  space in  Columbus,
Mississippi  for a  five-year  term  expiring  on  September  30,  2001  for its
executive  offices.  The  monthly  rental  is  $1,900,  plus  electric  and  gas
utilities.  In addition,  the Company maintains District Offices at 21 locations
throughout  its  service  area,  a  sales  office  in  Denver,  Colorado  and  a
manufacturing facility in Laurel,  Mississippi.  The aggregate annual rental for
these facilities is $222,000.  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.

         On  March  9,  1998,  the  Company  entered  into a Real  Estate  Sales
Agreement  to purchase an  approximately  13 acre parcel  located in  Montgomery
County,  Texas for a  purchase  price of  approximately  $186,000.  The  Company
presently plans to construct an approximately 50,000 square foot building on the
property that it intends to use for office and other general corporate purposes.

ITEM 3.  LEGAL PROCEEDINGS

         The Company and certain of its officers and Directors  are  respondents
in an arbitration  proceeding commenced by Monetary  Advancement  International,
Inc.  before the American  Arbitration  Association  in New York,  New York. The
claimant seeks  recompense  against the Company and the other named  respondents
for the alleged  failure to pay  compensation  in the form of shares of stock of
the Company for services allegedly  rendered.  The respondents have submitted an
answer and counterclaims and have initiated a Court proceeding seeking a partial
stay of the  arbitration  proceeding.  The Company deems the  allegations of the
claimant to be without merit and intends to vigorously contest the case.

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


                                      -13-

<PAGE>



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, 1997, to a vote of security  holders of the Company,  through
the solicitation of proxies, or otherwise.


                                      -14-


<PAGE>



                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

         The  Company's  Common Stock is quoted in the OTC Bulletin  Board under
the trading symbol BWWL.  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:

<TABLE>
<CAPTION>
                                                                      BID PRICES
                                                  ----------------------------------------------------
                             1996                           HIGH                      LOW

              ----------------------------------------------------------------------------------------
<S>                                                        <C>                       <C>  
              First Quarter                                $6.50                     $2.00
              Second Quarter                               $6.50                     $4.00
              Third Quarter                                $6.50                     $1.06
              Fourth Quarter                               $4.55                     $1.75


                                                                      BID PRICES
                                                  ----------------------------------------------------
                             1997                           HIGH                      LOW

              ----------------------------------------------------------------------------------------

              First Quarter                                $4.44                     $2.75
              Second Quarter                               $4.19                     $2.56
              Third Quarter                                $6.81                     $3.13
              Fourth Quarter                               $9.63                     $6.00


                                                                      BID PRICES
                                                  ----------------------------------------------------
                             1998                           HIGH                      LOW

              ----------------------------------------------------------------------------------------

              First Quarter                                $8.00                     $5.88
              Second Quarter
                 (through April 9)                         $7.94                     $7.50

</TABLE>

         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 April 9, 1998, the closing bid quotation
for the Common Stock, as reported by the OTC Bulletin Board, was $7.56.

         As of March 16, 1998, the Company had approximately 345 shareholders of
record and  believes  it has in excess of 500  beneficial  holders of its Common
Stock,  including  in excess of 350 holding 100 shares or more.  The Company has
never paid a cash  dividend on its Common  Stock and  management  has no present
intention of commencing to pay dividends.


                                      -15-


<PAGE>



ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

GENERAL

         The  Company's  results of  operations  are  affected  primarily by the
extent of utilization  and rates paid for its services and  equipment.  Revenues
are also  affected  by the  success of the  Company's  efforts to  increase  its
penetration of the market for its services both through the acquisition of other
oil and natural gas well service  companies and by intensified  marketing of its
services. Incremental demand for the Company's services is affected by the level
of oil and  natural  gas  well  drilling  activity  and  efforts  by oil and gas
producers to improve well production and operating efficiencies. Both short-term
and long-term trends in oil and natural gas prices affect the utilization of the
Company's  services.  This effect has been offset in recent years by a number of
industry trends,  including  advances in technology that have increased drilling
success rates and efficiency and an general  upgrading in technology used on the
Company's equipment.

         The following  table sets forth the  Company's  revenues from its three
principal lines of business for each of the three years ended December 31, 1997:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31
                                              1997                       1996                      1995
------------------------------------------------------------------------------------------------------------------
                                                                   (IN THOUSANDS)
                                    ------------------------------------------------------------------------------

<S>                                           <C>                      <C>                       <C>    
Wireline Services                             $ 9,223                  $ 5,585                   $ 4,626

Directional Drilling                            5,932                       -0-                       -0-

Workover and Completion                         1,618                    1,709                     1,324

Other                                             290                      289                       229

                                    -------------------------- ------------------------- -------------------------

                                              $17,063                   $7,582                    $6,179

                                    ========================== ========================= =========================

</TABLE>

TWELVE-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996

         The  Company  had income  before  extraordinary  gain of  approximately
$447,000  for the year ended  December 31,  1997,  as compared to income  before
extraordinary  gain of approximately  $427,000 in 1996. The Company  experienced
net income of $447,000 for the year ended  December  31,1997 as compared to $2.0
million for the year ended December 31, 1996, after reflecting the extraordinary
gain on extinguishment of debt, net of income taxes, in 1996.

         Revenues  increased  by $9.5  million or 125% to $17.1  million for the
year ended  December  31, 1997 as  compared to revenues of $7.6  million for the
year ended December 31, 1996. Of such increase,  approximately  $8.2 million was
the result of acquisitions  completed during 1997 and approximately $1.3 million
was the result of the improved market and pricing for the Company's services. Of
the increase in wireline  services  revenue,  $2.3 million


                                      -16-

<PAGE>

was the result of the  acquisition  of Petrolog and PWS and $1.3 million was the
result of increases in the Company's other operations. The remaining increase of
$5.9 million was due to directional  drilling revenues resulting  primarily from
the Diamondback  acquisition.  Revenues from workover and completion  activities
declined primarily because of the completion of a project undertaken in 1996.

         Operating  costs  increased by $7.1 million for the year ended December
31, 1997,  as compared to 1996.  This increase was due primarily to the increase
in the  level of  activities  primarily  as a  consequence  of the  acquisitions
completed in 1997.  Salaries and benefits increased by $1.8 million for 1997, as
compared to 1996,  while the total  number of  employees  increased  from 110 at
December 31, 1996 to 280 at December 31, 1997. This was due to salary  increases
and hiring of additional personnel.  Operating costs as a percentage of revenues
increased  to  71.7%  in 1997  from  67.5% in 1996  primarily  because  of costs
relating to commencing operations at newly acquired locations.

         Selling, general and administrative expenses increased by approximately
$889,000  from $1.3 million in 1996 to $2.1 million in 1997.  As a percentage of
revenues,  selling,  general and administrative  expenses declined from 17.2% in
1996 to 12.8% in  1997,  primarily  as a result  of  increased  revenues  due to
acquisitions   completed  without  a  significant   increase  in  executive  and
administrative personnel.

         Depreciation and amortization  increased from $574,000 in 1996, 7.6% of
revenues,  to $1.4 million in 1997, 8.2% of revenues,  primarily  because of the
higher asset base of depreciable properties in 1997 over 1996.

         Interest  expense  and  amortization  of  debt  discount  increased  by
$267,000  for  1997 as  compared  to  1996.  This was  directly  related  to the
increased  amounts  of  indebtedness  outstanding  in 1997  incurred  to finance
acquisitions. See "Note 6 of Notes to Consolidated Financial Statements."

         Net gain on sale of fixed  assets  decreased  in 1997 to  $26,000  from
$77,000 in 1996 because of the sale of smaller amounts of equipment in 1997 from
1996. Other income increased by $33,000 in 1997 because of interest income.

         Income tax expense totaled approximately  $222,000 for 1997 compared to
a benefit of $66,000 for 1996.  These totals contain  Federal and State deferred
as well as  current  amounts.  See "Note 10 of Notes to  Consolidated  Financial
Statements."  The  federal  and  state tax  benefits  in 1996  results  from the
elimination of the Company's  valuation  allowance  associated with its deferred
tax assets.

LIQUIDITY AND CAPITAL RESOURCES

         Cash provided by Company operating  activities was $1.2 million for the
year ended December 31, 1997 as compared to $771,000 for the year ended December
31, 1996.  Investing  activities of the Company used cash of $3.8 million during
the year ended  December 31, 1997 for the  acquisition  of  property,  plant and
equipment and other businesses  offset by proceeds from the sale of fixed assets
of $74,000.  During the year ended December 31, 1996,  acquisitions of property,
plant  and  equipment  and other  businesses  used  cash of  $725,000  offset by
proceeds of $95,000 from the sale of fixed assets. Financing activities provided
cash of $2.6  million from the net  proceeds  from the  issuance of  convertible
notes and warrants  and the sale of common stock during the year ended  December
31,  1997 offset by  principal  payments on  long-term  notes and capital  lease
obligations  of $347,000.  During the year ended  December 31, 1996, the sale of
shares of Common  Stock  resulted in proceeds  of $643,000  offset by  principal
payments on long-term debt and capital lease obligations of $342,000.
                                      -17-


<PAGE>

         Cash at  December  31,  1997 was  $436,000  as  compared  with  cash at
December 31, 1996 of $727,000.

         During the year ended  December 31,  1997,  the Company  expended  $1.5
million for the  acquisition  of property,  plant and equipment  financed  under
capital  leases and notes  payable and  incurred an  additional  $9.1 million of
notes payable in connection with the acquisition of businesses.  During the year
ended December 31, 1996, the Company  expended  $797,000 for the  acquisition of
property, plant and equipment.

         The Company's recent growth and increased revenues has been principally
the result of the  completion  of five  acquisitions  since  November  1996.  On
November 19, 1996, the Company acquired the outstanding stock of DynaJet,  Inc.,
which has been engaged in the wireline  business in the  Gillette,  Wyoming area
for more than eighteen  years.  Its service area includes the states of Wyoming,
South Dakota, Montana and New Mexico. On June 6, 1997, the Company completed the
acquisition  of Production  Well  Services,  Inc.  which has been engaged in the
wireline business in southern Alabama and southern Mississippi. On June 9, 1997,
the Company completed the acquisition of Petro-Log,  Inc. which has been engaged
in the wireline  business in Wyoming,  Montana and South  Dakota.  On October 9,
1997, the Company  completed the  acquisition,  effective  September 1, 1997, of
Diamondback  Directional,  Inc. which has been engaged in providing  directional
drilling and other oil and gas well  services in the Texas and  Louisiana  area,
and on December 15, 1997, the Company completed the acquisition of the assets of
Cam Wireline  Services,  Inc., which provides  wireline  services in the Permian
Basin.

         On March 16, 1998,  the Company  acquired from Phoenix its domestic oil
and gas well directional drilling and downhole survey service business including
the related operating assets and properties (such acquisition is herein referred
to as the "Phoenix  Acquisition").  The purchase price was  approximately  $19.0
million payable in cash at the closing.  The operations of the business acquired
are  conducted  throughout  the  primary  oil and  gas  producing  areas  of the
continental  United States and employ  approximately 100 persons.  Financing for
the transaction was obtained through secured  borrowings of $9.0 million and the
sale of convertible notes and warrants to St. James Capital Partners, L.P. ("St.
James")  for  $10.0  million.  See  "Item  11.  Security  Ownership  of  Certain
Beneficial  Owners  and  Management"  and "Item 12.  Certain  Relationships  and
Related Transactions."

         Currently,  the Company  has no  definitive  agreements  to acquire any
additional  wireline  companies.  However,  there can be no  assurance  that the
Company will not acquire  additional  wireline  companies in the future, or that
any such acquisitions,  if made, will be beneficial to the Company.  The process
of integrating  acquired properties into the Company's  operations may result in
unforeseen   difficulties   and  may  require  a   disproportionate   amount  of
management's   attention  and  the  Company's  resources.   In  connection  with
acquisitions,  the  Company  could  become  subject  to  significant  contingent
liabilities  arising from the activities of the acquired companies to the extent
the  Company  assumes,  or an acquired  entity  becomes  liable for,  unknown or
contingent  liabilities or in the event that such liabilities are imposed on the
Company under theories of successor liability.

         The Company intends to fund its  acquisitions  using cash flow from its
current  operations as well as the possible  proceeds from secured  lending from
banks or other institutional  lenders and the private or public sale of debt and
equity  securities.  Any such  capital that is raised will be on terms yet to be
negotiated and may be on terms that dilute the interests of current stockholders
of the Company.  Loans may be collateralized by all or a substantial  portion of
the  Company's  assets.  There can be no  assurance  that the Company will raise
additional  capital when it is required or that the Company will have or be able
to raise sufficient capital to fund its acquisition strategy.

         In March 1998, in  connection  with  providing  funding to complete the
Phoenix  Acquisition,  the Company  completed the sale in a private placement of
596,000  shares of Common Stock at a price of $5.50 per share for gross proceeds
of approximately $3.3 million.



                                      -18-


<PAGE>

         Under the terms of its  agreement to acquire  Diamondback,  the Company
agreed to commit to make approximately $4.0 million available to the Diamondback
business for capital improvements during the years 1998 and 1999.

         The Company  believes that cash flow generated from  operations will be
sufficient to fund its normal working capital needs and capital expenditures for
at least the next 12 months.

         Credit Facility. On March 16, 1998, the Company entered into a Loan and
Security  Agreement  (the  "Credit  Facility")  with Fleet  Capital  Corporation
("Fleet")  pursuant to which the  Company is able to borrow,  subject to meeting
certain lending conditions,  a total of $19.0 million. Of such amount, $9.0 is a
term loan (the "Term  Loan"),  substantially  all of which was borrowed to pay a
portion of the purchase  price for the Phoenix  acquisition,  up to $2.0 million
(the  "Equipment  Line") is  available  to be  borrowed  to  acquire  additional
equipment,  and up to $8.0  million  (the  "Revolving  Line") is available to be
borrowed  for  general  operating  capital  purposes.   The  Equipment  Line  is
available,  subject to certain  limitations,  in amounts up to 80% the  purchase
price or appraised  value of new  equipment  and is  repayable in equal  monthly
installments  over five years.  The  Revolving  Line is available to be borrowed
from time to time,  subject to no default under the Credit Facility,  in amounts
up to 85% of the  Company's  eligible  accounts  receivable  subject to the $8.0
million  limitation.  Interest on the Credit  Facility is equal to Fleet's  base
rate plus 0.5% on the  Revolving  Line and  Fleet's  base rate plus 0.75% on the
other borrowings  under the Credit Facility.  Amounts repaid under the Term Loan
and the Equipment Line cannot be reborrowed. The Credit Facility terminates and,
subject  to all  prepayment  obligations,  the  outstanding  balance  is due and
payable on March 15, 2001. The Credit  Facility can be terminated by the Company
prior thereto  subject to a prepayment  penalty,  under  certain  circumstances,
declining  from 3% during the first year after  March 16,  1998 to 1% during the
last year the Credit Facility is outstanding.  The Credit Facility is secured by
a senior  and  prior  lien  against  substantially  all the  Company's  real and
personal  property,  including the assets  acquired in the Phoenix  Acquisition,
subject  to  certain  exceptions.  The  Credit  Facility  includes  a number  of
affirmative and negative covenants including  requirements as to providing Fleet
with access to the  Company's  facilities,  financial and other  information,  a
requirement  that St. James  convert not less than $4.9 million of  indebtedness
owed by the Company to St. James into capital stock of the Company no later than
May 31, 1998, restrictions on mergers, consolidations, acquisitions, limitations
on total indebtedness,  restrictions on liens, subject to certain exceptions, on
its  properties,  prohibitions  against  the  payments  of  dividends  and other
distributions   to   stockholders,   restrictions   on   capital   expenditures,
dispositions  of assets and sales of subsidiary  stock,  among other  covenants.
Such covenants also prohibit the Company from making  payments on the promissory
note owing to Diamondback Drilling, Inc. in the amount of $3.0 million except on
terms approved by Fleet or (i) out of a minimum  borrowing  availability of $2.0
million, or (ii) a secondary offering of the Company's capital stock. The Credit
Facility  contains a number of  affirmative  covenants  requiring the Company to
maintain  compliance  with various  financial  ratios relating to fixed charges,
interest coverage ratios, tangible net worth, total indebtedness to tangible net
worth, among other things.  Events of default under the Credit Facility include,
among other things,  the failure to pay principal and interest when due,  making
any  misrepresentations  to Fleet in any of the loan  documents,  breach  of the
covenants  contained  in the Credit  Facility  or  defaults  under the  security
documents under the Credit  Facility,  defaults on other  indebtedness,  adverse
changes in the Company's financial condition or prospects,  insolvency and other
bankruptcy proceedings,  the failure of St. James to own at 55% of the Company's
issued and  outstanding  capital stock of the Company (on a fully diluted basis)
prior to a secondary  offering of the Company's  securities,  or,  pursuant to a
secondary  public offering of capital stock of the Company,  at least 30% of the
Company's issued and outstanding capital stock, on a fully diluted basis. In the
event of a default  under  the  Credit  Facility,  at the  option of Fleet,  all
amounts  thereunder become  immediately due and payable and Fleet would have the
right  as a  secured  lender  to  foreclose  against  substantially  all  of the
Company's assets.

                                      -19-

<PAGE>

YEAR 2000 COMPUTER ISSUES

         The Company has reviewed  its  computer  systems and hardware to locate
potential  operational  problems associated with the year 2000. Such review will
continue  until all  potential  problems are located and  resolved.  The Company
believes that all year 2000  problems in its computer  systems have been or will
be resolved in a timely manner and have not caused and will not cause disruption
of its operations or have a material  adverse effect on its financial  condition
or results of operations.  However, it is possible that the Company's cash flows
could  be  disrupted  by  year  2000  problems  experienced  by the  oil and gas
production companies that utilize its services,  financial institutions or other
persons.  The  Company is unable to quantify  the  effect,  if any, of year 2000
computer problems that may be experienced by these third parties.

INFLATION

         The  Company's  revenues  have been and are  expected to continue to be
affected by fluctuations in the prices for oil and gas. Inflation did not have a
significant effect on the Company's operations in 1997.

RECENTLY ISSUED ACCOUNTING STANDARDS

         The Financial  Accounting Standards Board (the "Board") has issued SFAS
No. 130, Reporting Comprehensive Income that establishes standards for reporting
and display of  comprehensive  income and its  components  (revenues,  expenses,
gains and losses) in the financial  statements.  Comprehensive income is defined
as  the  change  in  equity  of a  business  enterprise  during  a  period  from
transactions  and other events and  circumstances  from  non-owner  sources.  It
includes  all changes in equity  during a period  except  those  resulting  from
investments  by owners and  distributions  to owners.  This  Statement  does not
require a specific format for the  presentation  of  comprehensive  income,  but
requires an amount representing total comprehensive  income for the period. This
Statement is effective for fiscal years  beginning  after December 15, 1997 with
reclassification  of  earlier  periods  required.   Other  than  the  additional
presentation  requirements of this Statement,  the Company does not anticipate a
material impact on the consolidated  financial position,  results of operations,
earnings per share, or cash flows.

         The Board has issued SFAS No.  131,  Disclosures  About  Segments of an
Enterprise and Related Information which establishes  standards for the way that
public business  enterprises  report  information  about  operating  segments in
annual financial  statements and requires  selected  information about operating
segments in interim financial reports.

         This  Statement  requires  that a  public  business  enterprise  report
financial and descriptive  information about its reportable  operating segments.
Operating  segments  are  components  of  an  enterprise  about  which  separate
financial  information  is available  that is  evaluated  regularly by the chief
operating  decision maker in deciding how to allocate resources and in assessing
performance.  Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.

         The financial information required includes a measure of segment profit
or loss,  certain  specific  revenue and  expense  items,  segment  assets and a
reconciliation  of  each  category  to the  general  financial  statements.  The
descriptive  information  required includes the way that the operating  segments
were determined,  the products and services provided by the operating  segments,
differences  between the measurements used in reporting segment



                                      -20-


<PAGE>

information  and those used in the general  purpose  financial  statements,  and
changes in the measurement of segment amounts from period to period.

         This  Statement  is  effective  for  financial  statements  for periods
beginning after December 15, 1997 with  restatement of earlier periods  required
in the  initial  year of  application.  This  Statement  need not be  applied to
interim  financial  statements  in the  initial  year  of its  application,  but
comparative  information  for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second year
of  application.  The  Company  is  currently  determining  if these  disclosure
requirements will be applicable and, therefore, required in future periods.

ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Consolidated   Financial   Statements   of  the  Company   meeting  the
requirements of Regulation S-B are filed on the succeeding  pages of this Item 7
of this Annual Report on Form 10-KSB, as listed below:

<TABLE>
<CAPTION>
                                                                                                Page
                                                                                                ----
<S>     <C>                                                                                     <C>
         Report of Independent Accountants for the Years Ended
         December 31, 1997, 1996 and 1995....................................................   F-1

         Consolidated Balance Sheets as of
         December 31, 1997 and 1996..........................................................   F-2

         Consolidated Statements of Operations for the Years Ended
         December 31, 1997, 1996 and 1995....................................................   F-3

         Consolidated Statements of Stockholders' Equity for the
         Years Ended December 31, 1997, 1996 and 1995........................................   F-4

         Consolidated Statements of Cash Flows for the Year Ended
         December 31, 1997, 1996 and 1995....................................................   F-5

         Notes to Consolidated Financial Statements..........................................   F-6

</TABLE>


ITEM 8.  CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE:

         During the two fiscal years ended  December  31, 1997,  the Company has
not filed any Current  Report on Form 8-K reporting any change in accountants in
which there was a reported  disagreement on any matter of accounting  principles
or practices, financial statement disclosure or auditing scope or procedure.


                                      -21-


<PAGE>



                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

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

<TABLE>
<CAPTION>
                          NAME                       AGE                         POSITION
           ---------------------------------------------------------------------------------------------

<S>              <C>                                  <C>           <C>                               
                   William L. Jenkins                 44            President, Chief Operating Officer
                                                                               and Director

                     Allen R. Neel                    40                 Executive Vice-President

                   Danny Ray Thornton                 46               Vice-President - Operations

                  John A. McNiff, Sr.                 70                  Secretary and Director

                      Michael Brod                    52                         Director

                    John L. Thompson                  39                         Director

                   Charles Underbrink                 44                         Director

</TABLE>

         William L. Jenkins has been President,  Chief  Operating  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.

         Allen R. Neel, is the Executive  Vice-President  of the Company and has
been employed by the Company since August 1990. He is currently in charge of the
Company's  directional  drilling  activities.  In 1981, Mr. Neel received his BS
Degree in Petroleum  Engineering  from the  University of Alabama.  From 1981 to
1987, Mr. Neel worked in engineering  and sales for Halliburton  Services.  From
1987 to 1989, he worked as a District  Manager for Graves Well Drilling Co. When
the Company  acquired the assets of Graves in 1990,  Mr. Neel assumed a position
with the Company.

         Danny Ray  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


                                      -22-


<PAGE>

services  industry in various  capacities  since 1978. His principal duties with
the  Company  include  supervising  and  consulting  on  wireline  and  workover
operations. Mr. Thornton is Mr. Jenkins' brother-in-law,

         John A.  McNiff,  Sr., a Director and  Secretary  of the Company  since
1991, has served as President and Chief Executive Officer,  and is a Director of
Pangaea  Investment  Consultants,  Ltd.,  a  Bermuda-based  company  engaged  in
providing financial  consulting services and raising capital for emerging United
States,  Canadian and Mexican companies,  since its inception in 1990. From 1981
to 1989, Mr. McNiff was chairman and chief executive  officer of Wycombe,  Ltd.,
and its subsidiaries,  a broker/dealer firm, a syndicator and general partner of
cable television investments and a syndicator and general partner of oil and gas
investments.  From 1970 to 1980, Mr. McNiff was a senior partner of the New York
City law firm of Wagner,  McNiff and Dimaio and  therefter  "of  counsel" to the
firm.

         Michael Brod was elected a Director of the Company in January 1997. Mr.
Brod is a  former  Allied  member  of the New York  Stock  Exchange  and  former
President of a member firm. He was employed in the corporate finance  department
of  Dickinson  &  Company,  Inc.  from  November  1995 to  February  1997 and is
currently  engaged  as a  financial  consultant  to  Swartwood,  Hesse  Inc.,  a
registered broker/dealer.

         John L.  Thompson is a director  and  President  of St.  James  Capital
Corp.,  a  Houston-based  merchant  banking firm.  St. James Capital Corp.  also
serves as the General Partner of St. James Capital Partners, L.P., an investment
limited  partnership  specializing  in  merchant  banking  related  investments.
Additionally,  he is  Chairman  of the  Board  of  Herlin  Industries,  Inc.,  a
publicly-held  holding  company  engaged in energy services and is a Director of
Industrial  Holdings,  Inc., a publicly-held  company.  Prior to co-founding St.
James, Mr. Thompson served as a Managing Director of Corporate Finance at Harris
Webb & Garrison,  a regional investment banking firm with a focus on mergers and
acquisitions,  financial restructuring and private placements of debt and equity
issues. Mr. Thompson was elected to the Company's Board of Directors pursuant to
the terms of agreements between the Company and St. James Capital Partners, L.P.
See "Certain Transactions" for a description of the transaction.

         Charles  Underbrink  is was elected a Director on April 1, 1998.  He is
the Chief Executive Officer and Chairman of St. James Capital Corp., the general
partner of St. James Capital  Partners,  L.P., a position he has held since July
1995.

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.


                                      -23-

<PAGE>



ITEM 10.   EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION - GENERAL

         The  following  table  sets forth  compensation  paid or awarded to the
President and Chief Executive  Officer of the Company for all services  rendered
to the  Company in each of the years  1997,  1996 and 1995.  No other  executive
officer received compensation exceeding $100,000 in any of those years.

<TABLE>
<CAPTION>
                                               SUMMARY COMPENSATION TABLE

                                      ANNUAL COMPENSATION                  LONG-TERM COMPENSATION
                          ----------------------------------------------------------------------------
                                                         BONUS/ANNUAL    SECURITIES      LONG-TERM
        NAME AND                                          INCENTIVE      UNDERLYING      INCENTIVE       ALL OTHER
   PRINCIPAL POSITION         YEAR          SALARY          AWARD          OPTIONS        PAYOUTS      COMPENSATION
---------------------------------------------------------------------------------------------------------------------

<S>                           <C>          <C>               <C>             <C>            <C>           <C>   
William L. Jenkins,           1997         $110,000          -0-             -0-            -0-           $1,216
   President                  1996          $95,000          -0-             -0-            -0-           $1,216(1)
                              1995          $63,000          -0-             -0-            -0-               -0-
</TABLE>


---------------------------------

(1)      Includes  the premiums  paid by the Company on a  $1,000,000  insurance
         policy on the life of Mr.  Jenkins which names his wife as  beneficiary
         and owner of the policy.

         No options were granted to or exercised by Mr.  Jenkins during the year
ended December 31, 1997 and Mr. Jenkins held no options at that date.

EMPLOYMENT AGREEMENTS

         The Company has entered into an Employment  Agreement,  dated September
18, 1996,  with William L. Jenkins,  to serve as its President,  Chief Executive
Officer  and  a  Director  of  the  Company.  The  Employment  Agreement,  which
terminates  on  September  30,  1999,  provides  for an  annual  base  salary of
$110,000,   adjusted  annually  for  inflation.  With  certain  exceptions,  the
agreement  restricts Mr. Jenkins from engaging in activities in competition with
the Company  during the term of his  employment  and,  in the event Mr.  Jenkins
terminates  the  agreement  prior to its  termination  date,  for a period of 18
months  thereafter  and also in the  event he  terminates  the  agreement,  from
soliciting  for employment any employee of the Company for a period of two years
after termination.

         The Company has entered into two-year employment agreements terminating
on April 1, 2000 with each of Allen R. Neel, Executive  Vice-President and Danny
Ray Thornton, Vice-President, Operations, of the Company, pursuant to which they
receive base  compensation of $75,000 per year. On each  anniversary date of the
agreements,  the Company and the employee 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 areas for
which the employee is  responsible  and other factors.  The  agreements  contain
restrictions  on such persons  engaging in  activities in  competition  with the
Company  during  the term of their  employment  and for a  period  of two


                                      -24-

<PAGE>

years  thereafter.  In addition,  the  agreements  provide for the grant to such
employees of options to purchase 50,000 shares of the Company's  Common Stock on
execution  of the  agreements  and  10,000  shares  on each of the  first  three
anniversary  dates of the  agreements,  provided  such  persons  continue  to be
employed by the Company, exercisable at a price of $2.625 per share.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding beneficial
ownership of the Company's  Common Stock as of March 16, 1998 (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 officers,
and (c) by all  Directors  and  officers  as a group.  As of April 2, 1998,  the
Company had 3,719,587 shares of Common Stock outstanding.

<TABLE>
<CAPTION>
                                                                                       PERCENTAGE OF
                                                            NUMBER OF SHARES            OUTSTANDING
                     NAME AND ADDRESS (1)(2)                      OWNED                  SHARES(3)
            ------------------------------------------- -------------------------- -----------------------

<S>         <C>                                                    <C>                      <C> 
            William L. Jenkins                                     210,000                  5.6%

            John A. McNiff, Sr.                                     20,000(4)               0.1%
            Trallers Modernos
            Varsovia #44, Piso 11
            Col Juarez, Mexico, D.F. 06600

            Michael Brod                                            30,000(4)               0.1%
            180 East 88th Street - #8
            New York, New York  10128

            International Trust Company of                         260,032(5)               6.9%
              Bermuda Ltd.
            Bermuda Commercial Bank Building
            44 Church Street
            Hamilton, HM12, Bermuda

            Danny Ray Thornton                                      80,666(6)               2.1%

            Allen R. Neel                                           80,000(6)               2.1%

            St. James Capital Partners, L.P. (7)                 6,172,827                 62.4%
            1980 Post Oak Boulevard - Suite 2030
            Houston, Texas  77056

</TABLE>



                                      -25-

<PAGE>

<TABLE>
<CAPTION>
                                                                                       PERCENTAGE OF
                                                            NUMBER OF SHARES            OUTSTANDING
                     NAME AND ADDRESS (1)(2)                      OWNED                  SHARES(3)
            ------------------------------------------- -------------------------- -----------------------

<S>                                                              <C>                       <C>  
            Bendover Corp.(8)                                    647,569                   17.4%
            Alan W. Mann (9)
            M. Dale Jowers
            13843 Highway 105 West - Suite 212
            Conroe, Texas 77304

            All Directors and Officers as a Group              6,393,493(7)(10)            63.1%
               (5 persons including the above)
</TABLE>

-----------------------------------

*        Less than 1%.

(1)      This  tabular  information  is  intended  to  conform  with Rule  13d-3
         promulgated  under the Securities  Exchange Act of 1934 relating to the
         determination  of  beneficial  ownership  of  securities.  The  tabular
         information  gives  effect  to the  exercise  of  warrants  or  options
         exercisable within 60 days of the date of this table owned in each case
         by the person or group whose percentage ownership is set forth opposite
         the respective  percentage and is based on the assumption that no other
         person or group exercise their option.
(2)      Unless  otherwise  indicated,  the address for each of the above is c/o
         Black  Warrior  Wireline  Corp.,  3748  Highway  #45  North,  Columbus,
         Mississippi 39701.
(3)      The  percentage  of  outstanding   shares  calculation  is  based  upon
         3,806,420 shares  outstanding as of March 16, 1998, except as otherwise
         noted.
(4)      Includes an option to purchase  20,000 share of Common Stock,  of which
         5,000 shares are immediately exercisable and an additional 5,000 shares
         become  exercisable  on May 1,  1998 and each  anniversary  thereafter,
         provided such person remains a Director of the Company,  at an exercise
         price of $2.63 per share.
(5)      Includes  39,375  shares  issuable on exercise of warrants at $2.00 per
         share.
(6)      Includes  80,000 shares issuable on exercise of an option at a price of
         $2.625 per share,  of which 50,000 shares are  immediately  exercisable
         and an  additional  10,000 shares will become  exercisable  on April 1,
         1998 and each anniversary  thereafter,  provided,  the employee remains
         employed by the Company.
(7)      Includes  shares  issuable  to  St.  James  Capital  Partners,   LP  on
         conversion  of notes and  exercise of warrants.  See "Item 12.  Certain
         Relationships and Related Transactions."
(8)      Based on  information  contained in the  Schedule 13D dated  October 9,
         1997. On October 9, 1997,  the Company  issued  647,569 shares and paid
         $586,000  in  cash  to  purchase   substantially   all  the  assets  of
         Diamondback  Directional,  Inc. (which corporation subsequently changed
         its  name  to  Bendover  Corp.).  Messrs.  Mann  and  Jowers  each  own
         approximately 42.5% of the outstanding capital stock of Bendover Corp.
(9)      Mr. Mann also holds  directly 784 shares of Common Stock in addition to
         the 647,569  shares held by Bendover  Corp. in which he has an indirect
         beneficial interest.
(10)     Also includes the shares  issuable on exercise of the vested portion of
         the options held by Messrs. McNiff, Brod, Thornton and Neel.



                                      -26-


<PAGE>



ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  Company  executed  Reorganization  Agreements  with the holders of
certain debentures of the Company on November 30, 1995 (the "1995 Reorganization
Agreements"),  including  Pangaea  Investment  Consultants,  Ltd.,  Morgan Devin
Everett & Co. Ltd.,  International  Trust  Company of Bermuda Ltd. and Mansfield
Soderberg & Co. Ltd. (the "Shareholder  Group"),  principal  stockholders of the
Company,  pursuant to which such persons agreed to exchange the debentures  held
by them for shares of the Company's Common Stock In accordance with the terms of
the agreements,  through  December 31, 1995, the Shareholder  Group exchanged an
aggregate of $656,250 principal amount of debentures for an aggregate of 299,586
shares of Common  Stock.  Morgan Devin Everett & Co. Ltd.,  International  Trust
Company of Bermuda Ltd. and Mansfield  Soderberg & Co. Ltd. continued to hold at
December 31, 1995 an aggregate of $393,750  principal amount of debentures which
were to be exchanged in the aggregate for an additional 225,414 shares of Common
Stock and two new classes of Common  Stock  Purchase  Warrants.  Pursuant to the
1995  Reorganization  Agreements,  the first  series of  warrants  (the "Class A
Warrants")  were to be  exercisable  at $3.00 per share for a period of four (4)
years and the second  series of  warrants  (the "Class B  Warrants")  were to be
exercisable at prices  increasing in annual  increments over the first three (3)
years after  issuance from $3.00 per share to $5.00 per share and were to expire
five (5) years  after  issuance.  On  September  20,  1996,  the Company and the
Shareholder  Group, as well as certain other  debtholders,  amended the terms of
the 1995  Reorganization  Agreements to provide for the exchange of the $393,750
of debentures  three members of the  Shareholder  Group continued to hold for an
aggregate  of 225,414  shares of Common  Stock and also so as to provide that in
lieu of the  issuance  of the Class A  warrants  to the  Shareholder  Group,  an
aggregate of 52,500  shares of Common  Stock would be issued to the  Shareholder
Group and the exercise  price of the Class B warrants  would be reduced to $2.00
per share throughout the five-year term of such warrants.

         In addition, pursuant to the 1995 Reorganization Agreements, two of the
Company's  current  executive  officers  and a  third  person  who is  currently
employed by the Company (herein such persons are collectively referred to as the
"Employee  Group")  agreed to convert  secured loans to the Company  aggregating
$297,131 into shares of the Company's  Common Stock on the basis of one share of
Common  Stock for each $2 of  indebtedness  exchanged  and sell their  shares in
accordance  with the terms of the  agreement.  The Employee Group (listed below)
exchanged  the  following  amounts of  indebtedness  for the number of shares of
Common Stock set forth:

<TABLE>
<CAPTION>
                                                       AMOUNT OF                        NUMBER OF SHARES
         NAME                                        INDEBTEDNESS                       OF COMMON STOCK
         ----                                        ------------                       ---------------

<S>      <C>                                           <C>                                   <C>   
         Danny Ray Thornton                            $127,342                              63,671

         Allen R. Neel                                 $ 42,447                              21,223

         Reese James                                   $127,342                              63,671
</TABLE>

         The 1995  Reorganization  Agreements  contained  the  agreement  of the
members of the Employee Group to sell the shares they received  through Monetary
Advancement  International,  Inc. ("MAII") at a price of $2 per share during the
twelve months following the closing under the 1995 Reorganization Agreements. In
addition,  the  Employee  Group  and the  Company  entered  into a  supplemental
agreement  pursuant to which,  among other things,  the Company  guaranteed that
MAII or another purchaser would purchase the shares issued to them at a price of
$2 per share during the twelve  months  following  the  closing.  It was further
agreed in the supplemental agreement that


                                      -27-

<PAGE>

if the shares were not purchased  within such twelve month period,  the Employee
Group would suffer  damages  which were  stipulated to be $.71942 per share with
maximum liquidated damages of $100,000. The Company collateralized its guarantee
with a  pledge  of all its  accounts  receivable  with the  Company's  liability
limited  to the first  $100,000  of  receivables  collected.  Subsequently,  the
Employee  Group  delivered  certificates  and stock  powers for an  aggregate of
148,565  shares  to MAII to be sold in  accordance  with  the  terms of the 1995
Reorganization  Agreements and the  supplemental  agreement.  The Employee Group
received payment from MAII for an aggregate of 26,234 shares and an aggregate of
122,331  shares  were  transferred  by MAII  into  its  name  (and  subsequently
transferred into a street name) without paying for such shares. MAII has refused
to either return or pay for such shares.

         On March 9, 1998,  the Employee Group agreed to release its lien on the
Company's  receivables  in  exchange  for  confirmation  by the  Company  of its
obligations to the Employee  Group,  which consist of (i)  reimbursement  of the
Employee  Group for their legal fees and expenses  incurred in  connection  with
their efforts to recover from MAII,  and (ii) the agreement to make the Employee
Group whole by issuing stock of the Company having a value of $240,000, based on
the bid price at the date of issuance, less any recover from MAII.

         In October 1994, the Company  entered into an agreement with William L.
Jenkins, President of the Company, to lease 6,500 square feet of office space in
a building  owned by him. The Company  leased these  premises  from Mr.  Jenkins
through  October 1996 when he sold the building to a  non-affiliated  person who
continues to lease the space to the Company at the same rental.  Through October
1996, the Company made rental payments to Mr. Jenkins aggregating $19,000.

         In March 1995, the Company received a letter from the District Director
of the Internal  Revenue  Service (the "IRS") in which he formally  notified the
Company that the IRS had  preliminarily  calculated  deficiencies of $35,057 and
$541,727 in federal taxes for the years ended December 31, 1989 and December 31,
1990,  respectively.  The adjustments proposed by the IRS included the valuation
of bonus stock compensation to William L. Jenkins,  President of the Company, as
well as certain  other items.  The Company  agreed to pay whatever  personal tax
liability was determined to be owing by Mr.  Jenkins  related to the bonus stock
resulting from an  unfavorable  resolution of the IRS' proposed  adjustment.  In
June 1996,  the Company  settled this matter with the IRS on terms which,  among
other  things,  resulted in an additional  tax  liability to Mr.  Jenkins in the
amount of $98,524 for taxes,  penalties and interest related to the bonus stock.
The  Company  reimbursed  Mr.  Jenkins  for this sum on January 23, 1997 and has
agreed to further  reimburse Mr.  Jenkins for the tax liability  resulting  from
this payment and any further tax  reimbursement  payments made to Mr. Jenkins in
future years.

         During the year ended  December 31,  1997,  the Company  issued  65,000
shares of Common  Stock  valued at $136,500 to Pangaea  Investment  Consultants,
Ltd. in exchange for consulting services to be rendered through May 1999.

         During the year ended  December 31,  1996,  the Company  issued  12,000
shares of Common  Stock,  valued at $15,000 to Pangaea  Investment  Consultants,
Ltd. in reimbursement of expenses.


                                      -28-


<PAGE>



         Commencing  in June 1997 through  March 31, 1998,  the Company  entered
into a series of  transactions  with St.  James  whereby the Company sold on the
following dates for an aggregate purchase price of $14.9 million,  the following
securities:

<TABLE>
<CAPTION>
                 DATE                                       SECURITY                           PRINCIPAL AMOUNT
---------------------------------------         ------------------------------------   ------------------------------

<S>                                             <C>                                       <C>
June 6, 1997                                    9% Convertible Promissory Note              $2.0 million(1)
October 9, 1997                                 7% Convertible Promissory Note              $2.9 million(2)
January 23, 1998                                8% Convertible Promissory Note             $10.0 million(3)(4)



<CAPTION>
          DATE                          NUMBER OF WARRANTS (5)           EXERCISE PRICE            EXPIRATION DATE
---------------------------         ----------------------------   ------------------------   ------------------------

June 6, 1997                                   666,000                     $2.75(4)               June 5, 2002

October 9, 1997                                725,000                     $4.6327(4)           October 10, 2002

January 23,1998                              2,000,000                     $6.75(4)             January 23, 2003

</TABLE>

---------------------------

(1)      Convertible at a current exercise price of $2.75 per share,  subject to
         anti-dilution  adjustments,  into an  aggregate  of  727,272  shares of
         Common Stock. Effective June 5, 1998, the conversion price increases to
         $3.75 per share.
(2)      Convertible  at an  exercise  price of $4.6327  per  share,  subject to
         anti-dilution  adjustments,  into an  aggregate  of  625,985  shares of
         Common Stock.
(3)      Convertible  at an  exercise  price  of $7.00  per  share,  subject  to
         anti-dilution  adjustments,  into an aggregate  of 1,428,571  shares of
         Common Stock (assuming all $10.0 million is borrowed).
(4)      Subject to anti-dilution adjustment.
(5)      Each warrant represents the right to purchase one share of Common Stock
         at the exercise price.


         On each of June 6, 1997,  October 9, 1997 and  January  23,  1998,  the
Company  entered  into  Purchase  Agreements,  and related  notes,  warrants and
security  documents (the  "Agreements") with St. James regarding the purchase by
St. James of the  securities  referred to in the table  above.  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
Agreements  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,  as of March  16,1998,  to  borrowings  by the Company  from Fleet
Capital Corporation in the maximum aggregate amount of $19.0 million.  The notes
are  convertible  into shares of the  Company's  Common Stock at the  conversion
prices set forth in the table above,  subject to  anti-dilution  adjustments for
certain  issuances  of  securities  by the Company at prices per share of Common
Stock  less than the  conversion  price  then in  effect.  St.


                                      -29-

<PAGE>

James  agreed  to  subordinate   its  security   interests  and  rights  to  the
indebtedness and security  interests of the lenders providing up to $4.5 million
pursuant  to a term  loan  and  $3.0  million  pursuant  to a  revolving  credit
facility.  Pursuant to the Agreements,  the Company agreed to issue to St. James
for nominal consideration the warrants to purchase shares of Common Stock of the
Company  exercisable  at the  prices  set forth in the table  above,  subject to
anti-dilution  adjustment for certain  issuances of securities by the Company at
prices per share of Common Stock less than the  exercise  prices then in effect.
Under the January  23,  1998  agreement,  St.  James will be issued  warrants to
purchase  20,000  shares of Common Stock for each  $100,000  borrowed  under the
agreement,  or a maximum aggregate of warrants to purchase 2,000,000 shares, all
of which  warrants  were  issued as of March 31,  1998.  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 St.  James will be  nominated  for  election  to the
Company's Board of Directors. Mr. John L. Thompson,  currently a Director of the
Company,  serves  in this  capacity.  The  Agreements  grant St.  James  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 St.  James.  Events of default  under the notes  include,
among other events, (i) a default in the payment of principal or interest;  (ii)
a default  under any of the notes and the failure to cure such  default for five
days, which will constitute a cross default under each of the other notes; (iii)
a breach of the Company's covenants, representations and warranties under any of
the  Agreements;  (iv) a breach under any of the Agreements  between the Company
and St. James, subject to certain exceptions; (v) any person or group of persons
acquiring  40% or more of the voting power of the Company's  outstanding  shares
who was not the owner  thereof as of January 23,  1998,  a merger of the Company
with  another  person,  its  dissolution  or  liquidation  or a  sale  of all or
substantially  all its assets;  and (vi) certain  events of  bankruptcy.  In the
event of a default under any of the notes,  subject to the terms of an agreement
between  St.  James and Fleet  Capital  Corporation,  St.  James  could  seek to
foreclose against the collateral for the notes.

         In the October  1997 and January 1998  agreements,  St. James agreed to
convert  its $2.0  million  convertible  note  dated  June 5,  1997 and its $2.9
million  convertible  note dated  October 10, 1997 into shares of the  Company's
Common  Stock at such time as the  Company  has filed a  registration  statement
under the Securities  Act of 1933 relating to the shares  issuable on conversion
of such  notes and on  exercise  of the  warrants  issued to St.  James and such
registration statement has been declared effective.  The Company intends to file
a registration  statement  under the Securities Act during the second quarter of
1998 to register these shares.

         In March 1998, St. James agreed to certain amendments to its agreements
with the Company in connection with the Company's  borrowings from Fleet Capital
Corporation  to finance  the  Phoenix  Acquisition.  St.  James has  advised the
Company that it is seeking to be  compensated  for agreeing to the amendments to
the terms of its  agreements  with the  Company.  The Company and St.  James are
currently engaged in negations  regarding the terms of such compensation and the
terms of such amendment have not been finalized.


                                      -30-

<PAGE>



                                     PART IV

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

                  The Exhibits  required by Regulation  S-B 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).

           3.3             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              Employment  Agreement,   dated  September  18,  1996,
                           between William L. Jenkins and the Company. (Filed as
                           Exhibit 10.1 to the  Company's  Annual Report on Form
                           10-KSB for the fiscal year ended December 31, 1996.)

         10.2              Employment Agreement, dated January 31, 1997, between
                           Danny Ray  Thornton and the  Company,  and  amendment
                           thereto.

         10.3              Employment Agreement,  dated January 31,1997, between
                           Allen R. Neel and the Company, and amendment thereto.

         10.4              Purchase  and  Sale  Agreement  dated  June  6,  1997
                           between Black Warrior  Wireline  Corp.  and Vernon E.
                           Tew,  Jr.,  Mark R.  Roberts,  E.J.  Wooten,  Chester
                           Whatley and  William A. Tew.  (Filed as an exhibit to
                           the Company's  Current Report on Form 8-K for June 6,
                           1997)

         10.5              Purchase  and  Sale  Agreement  dated  June  9,  1997
                           between  Black  Warrior  Wireline  Corp.  and John L.
                           Morton,  Theodore  W.  Morton,  and  John D.  Morton.
                           (Filed as an exhibit to the Company's  Current Report
                           on Form 8-K for June 6, 1997)

         10.6              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)

         10.7              $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)

                                      -31-

<PAGE>

         10.8              $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)


         10.9              Warrant dated June 6, 1997 to purchase 546,000 shares
                           of Common Stock issued to St. James Capital Partners,
                           L.P. *

         10.10             Warrant dated June 6, 1997 to purchase 120,000 shares
                           of Common Stock issued to St. James Capital Partners,
                           L.P. *

         10.11             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)

         10.12             Asset  Purchase  Agreement  dated as of  September 1,
                           1997  between  Black  Warrior   Wireline   Corp.  and
                           Diamondback Directional,  Inc., Alan Mann and Michael
                           Dale  Jowers.  (Filed as an exhibit to the  Company's
                           Current Report on Form 8-K for October 9, 1997).

         10.13             Employment  Agreement  effective  as of  September 1,
                           1997 between the Company and Alan Mann.  (Filed as an
                           exhibit to the Company's  Current  Report on Form 8-K
                           for October 9, 1997).

         10.14             Employment  Agreement  effective  as of  September 1,
                           1997  between the Company  and Michael  Dale  Jowers.
                           (Filed as an exhibit to the Company's  Current Report
                           on Form 8-K for October 9, 1997).

         10.15             Registration  Rights Agreement dated October 10, 1997
                           between the Company and DDI.  (Filed as an exhibit to
                           the Company's  Current Report on Form 8-K for October
                           9, 1997).

         10.16             $3.0  million  promissory  note due August  31,  1999
                           issued to DDI.  (Filed as an exhibit to the Company's
                           Current Report on Form 8-K for October 9, 1997).

         10.17             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).

         10.18             $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).

         10.19             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).


                                      -32-

<PAGE>

         10.20             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).

         10.21             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).

         10.22             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).

         10.23             $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).

         10.24             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).

         10.25             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).

         21                Subsidiaries.

                              NAME                        STATE OF INCORPORATION
                              Boone Wireline Co., Inc.            Alabama

         27                Financial Data Schedule.

------------------------

*        Filed herewith

         (b)      Reports on Form 8-K.

                  During the fourth quarter of 1997, the Company filed a Current
Report on Form 8-K dated  October  9, 1997 and  filed an  amendment  thereto  on
December 24, 1997.


                                      -33-


<PAGE>



                                   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 14, 1998

                                                 BLACK WARRIOR WIRELINE CORP.

                                            By:  /s/ William L. Jenkins
                                                 -------------------------------
                                                 William L. Jenkins, President

         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.

<TABLE>
<CAPTION>

Signature                                            Capacity                                    Date
---------                                            --------                                    ----
<S>                                                  <C>                                         <C> 
/s/ William L. Jenkins                               President (Principal Executive,             April 14, 1998
----------------------------------                     Financial and Accounting Officer 
William L. Jenkins                                     and Director                     


/s/ John A. McNiff, Sr.                              Director                                    April 14, 1998
----------------------------------
John A. McNiff, Sr.


/s/ Michael Brod                                     Director                                    April 14, 1998         
----------------------------------
Michael Brod


/s/ John L. Thomspon                                 Director                                    April 14, 1998          
----------------------------------
John L. Thompson


/s/ Charles Underbrink                               Director                                    April 14, 1998           
----------------------------------
Charles Underbrink
</TABLE>

<PAGE>



                          BLACK WARRIOR WIRELINE CORP.
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995


<PAGE>



REPORT OF INDEPENDENT ACCOUNTANTS


The Stockholders and Board of Directors
Black Warrior Wireline Corp.
Columbus, Mississippi

We have audited the  accompanying  consolidated  balance sheets of Black Warrior
Wireline Corp. and subsidiaries  (the Company) as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the three years in the period  ended  December  31,  1997.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards  require that we plan and perform an audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
consolidated  financial  statement  presentation.  We  believe  that our  audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of Black
Warrior  Wireline Corp. and  subsidiaries  as of December 31, 1997 and 1996, and
the  consolidated  results of their  operations and their cash flows for each of
the three  years in the  period  ended  December  31,  1997 in  conformity  with
generally accepted accounting principles.

                                                        COOPERS & LYBRAND L.L.P.

Birmingham, Alabama
March 19, 1998, except Note 18, as to
  which the date is April 2, 1998


                                       1


<PAGE>


BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                      ASSETS                                                 1997             1996
<S>                                                                                  <C>               <C>           
Current assets:
   Cash and cash equivalents                                                         $       435,845   $      727,454
   Short-term investments                                                                     50,000
   Accounts receivable, less allowance for doubtful accounts of $143,559
     and $136,959                                                                          5,459,689        1,369,306
   Inventories                                                                               386,683          183,467
   Prepaid expenses                                                                          390,144           53,424
   Income tax receivable                                                                                       14,636
   Deferred tax asset                                                                         80,815          138,071
   Other receivables                                                                         514,946
                                                                                     ---------------   --------------
        Total current assets                                                               7,318,122        2,486,358
Land and building, held for sale                                                                              400,000
Property, plant, and equipment, less accumulated depreciation                              9,347,685        2,194,591
Other assets                                                                                 358,521            5,420
Goodwill, less accumulated amortization of $134,421                                        9,061,655          224,305
                                                                                     ---------------  ---------------
        Total assets                                                                 $    26,085,983  $     5,310,674
                                                                                     ===============  ===============

                       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                                                  $     3,619,466  $       808,832
   Accounts payable, related parties                                                           6,090           89,733
   Accrued salaries and vacation                                                             124,376           25,085
   Income taxes payable                                                                      599,877           52,548
   Accrued interest payable                                                                   69,041           29,530
   Other accrued expenses                                                                    289,445          381,396
   Deferred revenue                                                                          100,000
   Current maturities of notes payable to banks                                                7,624           18,272
   Mortgage notes payable, related party                                                     380,000          150,000
   Current maturities of long-term debt and capital lease obligations                        793,618          307,806
                                                                                     ---------------  ---------------
        Total current liabilities                                                          5,989,537        1,863,202
Deferred tax liability                                                                     1,132,513          214,355
Long-term accrued interest payable                                                           150,364
Notes payable to banks, less current maturities                                               22,212           31,486
Mortgage notes payable, related party                                                                         230,000
Notes payable to related parties                                                           8,070,549
Long-term debt and capital lease obligations, less current maturities                      5,123,535          713,873
                                                                                     ---------------  ---------------
        Total liabilities                                                                 20,488,710        3,052,916
                                                                                     ---------------  ---------------

Commitments and contingencies (Notes 6, 7, 13, and 15)

Stockholders' equity:
   Preferred stock, $.0005 par value, 2,500,000 shares authorized
      none issued at December 1997
   Common stock, $.0005 par value, 12,500,000 shares and 50,000,000 shares
     authorized in 1997 and 1996, respectively; 2,990,254 and 2,185,216 shares
     issued at December 31, 1997 and 1996, respectively                                        1,495            1,093
   Additional paid-in capital                                                              7,744,953        5,133,087
   Common stock to be issued in connection with acquisition (133,333 shares)                 280,000
   Accumulated deficit                                                                    (1,845,782)      (2,293,029)
   Treasury stock, at cost, 4,620 shares at 1997 and 1996                                   (583,393)        (583,393)
                                                                                     ---------------  ---------------
        Total stockholders' equity                                                         5,597,273        2,257,758
                                                                                     ---------------  ---------------
        Total liabilities and stockholders' equity                                   $    26,085,983  $     5,310,674
                                                                                     ===============  ===============
</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       2

<PAGE>

BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1997, 1996, and 1995

<TABLE>
<CAPTION>
                                                                      1997              1996              1995
<S>                                                             <C>               <C>                <C>            
Revenues                                                        $     17,062,542  $    7,582,021     $     6,179,218

Operating costs                                                       12,247,630       5,116,777           4,522,920

Selling, general, and administrative expenses                          2,191,785       1,302,994           1,187,900

Depreciation and amortization                                          1,442,635         574,400             690,601
                                                                ----------------  --------------     ---------------

      Income (loss) from operations                                    1,180,492         587,850            (222,203)

Interest expense and amortization of debt discount                      (609,430)       (342,197)           (625,990)

Net gain on sale of fixed assets                                          25,584          76,645              65,450

Other income                                                              72,642          39,425              10,627
                                                                ----------------  --------------     ---------------

      Income (loss) before provision (benefit) for income
        taxes and extraordinary gain                                     669,288         361,723            (772,116)

Provision (benefit) for income taxes                                     222,041         (65,715)           (226,554)
                                                                ----------------  ---------------    ---------------
      Income (loss) before extraordinary gain                            447,247         427,438            (545,562)

Extraordinary gain on extinguishment of debt, net of income
   taxes of  $-0- in 1996 and $226,554 in 1995 (Note 6)                                1,608,501             387,413
                                                                ----------------  --------------     ---------------
      Net income (loss)                                         $        447,247  $    2,035,939     $      (158,149)
                                                                ================  ==============     ===============

Income (loss) per common share - basic:
   Income (loss) before extraordinary gain                      $           0.18  $         0.41     $         (6.14)
   Extraordinary gain, net of income taxes                                                  1.55                4.36
                                                                ----------------  --------------     ---------------
   Net income (loss) per common share - basic                   $           0.18  $         1.96     $         (1.78)
                                                                ================  ==============     ===============

Income (loss) per common share - diluted:
   Income (loss) before extraordinary gain                      $           0.14  $         0.41   $           (6.14)
   Extraordinary gain, net of income taxes                                                  1.55                4.36
                                                                ----------------  --------------   -----------------
   Net income (loss) per common share - diluted                 $           0.14  $         1.96   $           (1.78)
                                                                ================  ==============   =================

Weighted average common shares outstanding                             2,533,650       1,040,192              88,905
                                                                ================  ==============   =================
Weighted average common shares outstanding
   with dilutive securities                                            3,759,756       1,040,192              88,905
                                                                ================  ==============   =================
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       3

<PAGE>

BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1997, 1996, and 1995

<TABLE>
<CAPTION>
                                                                                      COMMON 
                                     COMMON STOCK                                      STOCK           TREASURY STOCK
                                ------------------------   PAID-IN     ACCUMULATED     TO BE      ----------------------
                                  SHARES      PAR VALUE    CAPITAL       DEFICIT       ISSUED        SHARES       COST
                                ------------ ----------- -----------  ------------- ------------- ----------- ----------
<S>                              <C>         <C>         <C>          <C>                           <C>       <C>        
Balance, December 31, 1994       14,169,252  $    7,085  $ 1,992,695  $ (4,170,819)                 815,173   $ (583,393)

Effect of 1 for 200 reverse
   stock split                  (14,098,351)     (7,049)       7,049                               (810,553)

Conversion of notes payable and
   subordinated debentures
   to common stock                  648,151         324    1,295,978

Shares issued in consideration
   for consulting services           40,000          20       79,980

Net loss for the year ended
   December 31, 1995                                                      (158,149)
                                 ----------  ----------  ------------ ------------                 --------   ----------
Balance, December 31, 1995          759,052         380     3,375,702   (4,328,968)                   4,620     (583,393)

Shares issued in private
   placement                        600,000         300       643,080

Conversion of subordinated
   debentures to common stock
   and stock warrants               814,164         407     1,099,311

Shares  issued to related party
   in consideration for services
   performed                         12,000           6        14,994

Net income for the year ended
   December 31, 1996                                                     2,035,939
                                 ----------  ----------  ------------ ------------                 --------   ----------
Balance, December 31, 1996        2,185,216       1,093     5,133,087   (2,293,029)                   4,620     (583,393)

Shares issued in consideration
   for consulting services           65,000          32       136,461

Shares issued for acquisitions      672,538         336     2,239,664

Shares to be issued in
   connection with acquisition 
   (133,333 shares)                                                                 $  280,000

Issuance of warrants                                           69,550

Shares  issued from exercise of      67,500          34       134,966
warrants

Stock option plan  compensation
expense                                                        31,225

Net income for the year ended
   December 31, 1997                                                       447,247
                                 ----------  ----------- ------------ ------------  ----------     --------   ----------

Balance, December 31, 1997        2,990,254  $    1,495  $  7,744,953 $ (1,845,782) $  280,000        4,620   $ (583,393)
                                 ==========  ==========  ============ ============  ==========     ========   ==========

</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.



                                       4

<PAGE>

BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996, and 1995

<TABLE>
<CAPTION>
                                                                               1997            1996           1995
<S>                                                                    <C>              <C>             <C>           
Cash flows from operating activities:
   Net income (loss)                                                   $     447,247    $    2,035,939  $    (158,149)
   Adjustments to reconcile net income (loss) to net cash provided by
      operating activities:
        Depreciation                                                       1,308,214           574,400        690,601
        Amortization                                                         134,421
        Allowance for doubtful accounts                                       96,359             6,844         12,575
        Net gain on disposition of assets                                   (124,384)          (76,645)       (65,450)
        Compensation, consulting, and management expenses paid
           by issuance of common stock                                       167,725            15,000         80,000
        Gain on extinguishment of debt                                                      (1,608,501)      (613,967)
        Deferred tax expense (benefit)                                       185,245          (118,262)
        Change in:
           Accounts receivable                                            (1,843,476)         (456,033)         32,052
           Inventories                                                      (148,313)            3,556         42,381
           Prepaid expenses                                                 (336,720)          (18,284)        41,838
           Other receivables                                                    (310)           65,974         20,257
           Other assets                                                     (283,551)              (15)        (1,563)
           Accounts payable and accrued liabilities                        1,562,981           347,490        528,643
                                                                       -------------   --------------- --------------
                Cash provided by operating activities                      1,165,438           771,463        609,218
                                                                       -------------   --------------- --------------

Cash flows from investing activities:
   Acquisitions of property, plant, and equipment                         (3,087,666)         (468,354)      (299,306)
   Proceeds from sale of fixed assets                                         74,448            95,072        120,031
   Purchase of short-term investments                                        (50,000)
   Acquisitions of businesses, net of cash acquired                         (697,224)         (256,783)
                                                                       -------------   --------------- --------------
                Cash used in investing activities                         (3,760,442)         (630,065)      (179,275)
                                                                       -------------   --------------- --------------

Cash flows from financing activities:
   Proceeds from bank and other borrowings                                 2,515,303                           41,959
   Proceeds from issuance of common stock, net                               135,000           643,380
   Principal payments on long-term debt, notes payable, and
      capital lease obligations                                             (346,908)         (342,149)      (227,530)
                                                                       -------------   --------------- --------------
                Cash provided by (used in) financing activities            2,303,395           301,231       (185,571)
                                                                       -------------   --------------- --------------
                Net increase (decrease) in cash and cash equivalents        (291,609)          442,629        244,372
Cash and cash equivalents, beginning of year                                 727,454           284,825         40,453
                                                                       -------------   --------------- --------------
Cash and cash equivalents, end of year                                 $     435,845   $       727,454 $      284,825
                                                                       =============   =============== ==============

Supplemental disclosure of cash flow information:
 Cash paid during the year for:
      Interest                                                         $     419,555   $        74,746 $       78,392
                                                                       =============   =============== ==============
      Income taxes                                                     $     132,649   $             0 $            0
                                                                       =============   =============== ==============

Supplemental schedule of noncash investing and financing activities:
   Land and building with basis of $400,000 exchanged for a $500,000   
        note                                                           $     500,000
   Notes payable and subordinated debentures converted to common
      stock and stock warrants (Note 6)                                                $     1,343,750 $    1,296,302
   Principal forgiven                                                                                          57,078
   Accrued interest forgiven (Note 6)                                                        1,514,468        556,889
   Accrued interest converted to notes payable                                                                 52,962
   Acquisition of property, plant, and equipment financed under
        capital leases and notes payable                                   1,528,347           796,930        371,846
   Notes payable incurred in connection with acquisitions of               
        businesses                                                         9,148,449           380,000
   Borrowings to refinance existing debt                                   4,500,000

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       5

<PAGE>

BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  1.   GENERAL INFORMATION

       Black Warrior  Wireline Corp., a Delaware  corporation,  is an integrated
       oil and gas well  servicing  company which provides  wireline,  drilling,
       completion, and workover services primarily in the Black Warrior Basin of
       Alabama and Mississippi,  the Permian Basin of Texas and New Mexico,  and
       the Powder River Basin in the Rocky Mountain region.

  2.   SIGNIFICANT ACCOUNTING POLICIES

       PRINCIPLES  OF  CONSOLIDATION  - The  consolidated  financial  statements
       include the accounts of Black Warrior Wireline Corp. and its wholly owned
       subsidiary,  Boone Wireline Co. All significant intercompany accounts and
       transactions have been eliminated.

       CASH AND CASH  EQUIVALENTS  - The  Company  considers  all highly  liquid
       investments with an original  maturity of three months or less to be cash
       equivalents.

       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  because  the amounts  were not  billable at the balance
       sheet date.  Unbilled  amounts  included in accounts  receivable  totaled
       $554,000 and $0 at December 31, 1997 and 1996, respectively.

       INVENTORIES -  Inventories,  which consist  primarily of supplies used in
       well  servicing  activities,  have useful lives of less than one year and
       are  stated  at the lower of cost  (first-in,  first-out  method)  or net
       realizable value.

       LAND AND BUILDING,  HELD FOR SALE - Land and building,  held for sale was
       stated at the lower of cost or estimated  net  realizable  value.  During
       1997, the land and building were sold in exchange for a $500,000 mortgage
       promissory  note  bearing  interest  at 8% and due August 31,  1998.  The
       mortgage  promissory  note  is  included  in  other  receivables  on  the
       consolidated  balance sheet at December 31, 1997. The gain of $100,000 on
       the  sale has been  deferred  until  payments  are  received  on the note
       inasmuch as it is a nonrecourse mortgage promissory note.

       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, 1997,  significantly  all of the property,
       plant,  and equipment  has been pledged as  collateral  for the Company's
       borrowings.


                                       6

<PAGE>




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

       GOODWILL  -  Goodwill  is  stated  at cost  and is being  amortized  on a
       straight-line  basis over ten to twenty-five  years. The Company assesses
       the  recoverability  and  the  amortization  period  of the  goodwill  by
       determining whether the amount can be recovered through undiscounted cash
       flows  of  the  businesses  acquired,   excluding  interest  expense  and
       amortization,  over the remaining  amortization period. If impairment was
       indicated by this analysis, measurement of the loss would be based on the
       fair market  value of the  businesses  acquired.  The  Company  considers
       external  factors  relating to the acquired  businesses,  including local
       market   developments,   regional   and   national   trends,   regulatory
       developments  and other pertinent  factors in making its assessment.  The
       Company does not believe there are currently  any  indicators  that would
       require  an  adjustment  to the  carrying  value  of  goodwill  or to its
       remaining life as of December 31, 1997.

       LONG-LIVED ASSETS - In accordance with Statement of Financial  Accounting
       Standards  (SFAS) No. 121  Accounting  for the  Impairment  of Long-Lived
       Assets  and  for  Long-Lived  Assets  to  be  Disposed  Of,  the  Company
       recognizes impairment losses on long-lived assets used in operations when
       indicators  of  impairment  are present and the  undiscounted  cash flows
       estimated  to be  generated  by those  assets  are less than the  asset's
       carrying amount.  There were no such impairments at December 31, 1997 and
       1996.

       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 - In 1996, the Company adopted the provisions of
       SFAS No. 123,  Accounting for Stock-Based  Compensation,  which defines a
       fair  value  based  method  of  accounting   for   stock-based   employee
       compensation  plans.  In accordance  with the provisions of SFAS No. 123,
       the Company has chosen to continue to apply the accounting  provisions of
       Accounting  Principles  Board (APB) Opinion No. 25,  Accounting for Stock
       Issued  to   Employees,   to  its   stock-based   employee   compensation
       arrangements.

       USE OF ESTIMATES - The preparation of consolidated  financial  statements
       in conformity  with generally  accepted  accounting  principles  requires
       management  to make  estimates  and  assumptions  that affect the amounts
       reported in the consolidated financial statements and accompanying notes.
       Actual results could differ from these estimates.

       REVENUE  RECOGNITION  - Revenues  are  recognized  at the time of service
       performance.

       EARNINGS PER SHARE - In 1997, the Company  adopted the provisions of SFAS
       No. 128,  Earnings  per Share.  SFAS No. 128  establishes  standards  for
       computing and presenting earnings per share (EPS) and applies to entities
       with  publicly held common stock or potential  common stock.  It replaces
       the presentation of primary EPS with a presentation of basic EPS. It also
       requires  dual  presentation  of basic and diluted EPS on the face of the
       income  statement for all entities with complex  capital  structures  and
       requires a  reconciliation  of the numerator and


                                       7

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

       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 then shared in the earnings of the entity.

       As required by this statement,  all  prior-period  EPS data presented has
       been restated.

  3.   ACQUISITIONS

       On November  20,  1996,  the Company  acquired  substantially  all of the
       assets  of  Dyna  Jet,  Inc.  (Dyna  Jet),  a  privately   owned  Wyoming
       corporation.  Dyna Jet is  engaged in the  wireline  and oil and gas well
       service business in Gillette, Wyoming.

       For financial statement purposes,  the acquisition was accounted for as a
       purchase  and,  accordingly,  Dyna  Jet's  results  are  included  in the
       consolidated  financial  statements  since the date of  acquisition.  The
       aggregate  purchase  price  was  approximately  $758,000,  consisting  of
       approximately  $288,000 in cash, funded by a portion of the proceeds from
       the issuance of common stock pursuant to a private placement (see Note 8)
       and $470,000 in  promissory  notes and payables.  The aggregate  purchase
       price has been  allocated to the assets of the Company,  based upon their
       respective fair market values.  The excess of the purchase price over net
       assets acquired,  goodwill,  approximated $224,000 and is being amortized
       over ten years.

       Effective  June  6,  1997,  the  Company  completed  the  acquisition  of
       Production Well Services,  Inc. (PWS). PWS is engaged in the wireline and
       oil and gas well  services  business  in southern  Alabama  and  southern
       Mississippi.  The purchase  price  consisted of $540,000 in cash financed
       with the proceeds of a $2,000,000, 9% convertible promissory note and the
       issuance of 133,333  shares  (issued on January 1, 1998) of the Company's
       common  stock.  In addition to  providing  the funds to complete  the PWS
       acquisition,  a portion  of the funds was used to  purchase  and  improve
       equipment.   For  financial  statement  purposes,   the  acquisition  was
       accounted for as a purchase and, accordingly,  PWS's results are included
       in the consolidated  financial  statements since the date of acquisition.
       The excess of the  purchase  price over net  assets  acquired,  goodwill,
       approximated  $718,000 and is being  amortized  over  twenty-five  years.
       During the fourth quarter of 1997,  the Company  finalized its allocation
       of the purchase price of PWS which resulted in an increase to goodwill of
       $108,000.  The  following  is a summary of assets  acquired,  liabilities
       assumed, and consideration paid in connection with the acquisition:


                                       8

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

<TABLE>
<CAPTION>

<S>                                                                                  <C>            
        Fair value of assets acquired, including goodwill                            $     1,254,055
        Cash paid for assets acquired and transaction
           costs incurred, net of cash received                                              (16,850)
        Common stock issued in connection with acquisition                                  (280,000)
                                                                                     ---------------
           Liabilities assumed or incurred                                           $       957,205
                                                                                     ===============
</TABLE>

       Effective  June  9,  1997,  the  Company  completed  the  acquisition  of
       Petro-Log, Inc. (Petro-Log). Petro-Log is engaged in the wireline and oil
       and gas well services business in Wyoming, Montana, and South Dakota. The
       $2,137,500  cash  purchase  price was  financed  from the  proceeds  of a
       $3,000,000,  10% bridge loan note (subsequently refinanced,  see Note 6).
       In addition to providing the funds to complete the Petro-Log acquisition,
       the funds were used to purchase  and  improve  equipment.  For  financial
       statement purposes,  the acquisition was accounted for as a purchase and,
       accordingly,   Petro-Log's  results  are  included  in  the  consolidated
       financial  statements  since  the date of  acquisition.  The  acquisition
       resulted in goodwill of  approximately  $286,000 which is being amortized
       over 25 years.  During the fourth quarter of 1997, the Company  finalized
       its  allocation of the purchase  price of Petro-Log  which resulted in an
       increase to fixed  assets and  goodwill  of  approximately  $485,000  and
       $286,000,  respectively.  The following is a summary of assets  acquired,
       liabilities  assumed,  and  consideration  paid in  connection  with  the
       acquisition:

<TABLE>
<CAPTION>

<S>                                                                                  <C>            
        Fair value of assets acquired, including goodwill                            $     3,438,613
        Cash paid for assets acquired and transaction costs incurred                        (595,381)
                                                                                     ---------------
           Liabilities assumed or debt incurred                                      $     2,843,232
                                                                                     ===============
</TABLE>

       On October 9, 1997, the Company acquired  substantially all of the assets
       and certain of the  liabilities,  effective as of  September 1, 1997,  of
       Diamondback Directional,  Inc. (DDI). DDI is engaged in providing oil and
       gas well drilling services, which consists of horizontal drilling as well
       as  conventional  directional  drilling.  The purchase price consisted of
       $2,750,000  in cash  financed  with  the  proceeds  of a  $2,900,000,  7%
       convertible promissory note, $3,170,549 of the Company's promissory notes
       and 647,569 shares of the Company's  common stock.  The purchase price is
       subject to adjustment, by reduction of the principal amount of the notes,
       to the extent the gross receipts,  as defined in the purchase  agreement,
       from the DDI  operations  for the twelve month period  ending  August 31,
       1998 and August 31, 1999 fail to meet a specified  performance  standard.
       The acquisition resulted in goodwill of approximately  $7,686,000,  which
       is being amortized over twenty-five  years.  During the fourth quarter of
       1997,  the Company  finalized its allocation of the purchase price of DDI
       which resulted in an increase to goodwill of approximately  $126,000. The
       following  is a summary  of assets  acquired,  liabilities  assumed,  and
       consideration paid in connection with the acquisition:


                                       9

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

<TABLE>
<CAPTION>
<S>                                                                                  <C>            
        Fair value of assets acquired, including goodwill                            $      9,771,822
        Cash paid for assets acquired and transaction
           costs incurred, net of cash received                                               (74,178)
        Common stock issued in connection with acquisition                                 (2,100,000)
                                                                                     ----------------
           Liabilities assumed or debt incurred                                      $      7,597,644
                                                                                     ================
</TABLE>

       On December  15,  1997,  the Company  acquired  substantially  all of the
       assets and certain of the liabilities of C&M Wireline  Services,  Inc., a
       Texas  corporation,  and C.A.M.  Wireline  Services,  a Texas partnership
       (collectively  CAM).  CAM is engaged in the wireline and oil and gas well
       services  business in Texas.  The purchase price consisted of $650,000 in
       cash,  financed  with the  proceeds of a 8.75% note,  and the issuance of
       24,969 shares of the  Company's  common  stock.  For financial  statement
       purposes,   the   acquisition  was  accounted  for  as  a  purchase  and,
       accordingly,  CAM's  results are included in the  consolidated  financial
       statements  since the date of  acquisition.  Goodwill  resulting from the
       transaction approximated $270,000 and is being amortized over twenty-five
       years.  The  following  is a  summary  of  assets  acquired,  liabilities
       assumed, and consideration paid in connection with the acquisition:

<TABLE>
<CAPTION>
<S>                                                                                  <C>             
        Fair value of assets acquired, including goodwill                            $        800,815
        Cash paid for assets acquired and transaction costs incurred                          (10,815)
        Common stock issued in connection with acquisition                                   (140,000)
                                                                                     ----------------
           Liabilities assumed or debt incurred                                      $        650,000
                                                                                     ================

</TABLE>

       The  Company  has  agreed  that in  the  event  it  files a  registration
       statement  under the Securities  Act of 1933 relating to an  underwritten
       public  offering  of its shares,  the holder of the shares  issued in the
       above  transactions  will have certain rights to have the shares included
       in the registration statement.

       The following table presents unaudited pro forma consolidated  results of
       operations  for the years ended  December  31,  1997 and 1996,  as if the
       acquisitions  and  private  placement  of common  stock  (see Note 8) had
       occurred at the beginning of the years  presented.  The pro forma summary
       information  does not  necessarily  reflect the  consolidated  results of
       operations  as they  actually  would  have been if the  acquisitions  and
       private placement had occurred at the beginning of the years presented.


                                       10

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

<TABLE>
<CAPTION>
                                                                                           1997              1996
                                                                                        (UNAUDITED)       (UNAUDITED)
<S>                                                                                  <C>               <C>          
        Revenues                                                                     $  26,681,392     $  18,353,362
                                                                                     =============     =============
        Income before extraordinary gain                                             $   1,192,033     $      70,858
                                                                                     =============     =============
        Net income                                                                   $   1,192,033     $   1,679,359
                                                                                     =============     =============
        Net income per common share - basic:
           Income before extraordinary gain                                          $        0.39     $        0.04
           Extraordinary gain                                                                                   0.87
                                                                                     -------------     -------------
              Net income per common share - basic                                    $        0.39     $        0.91
                                                                                     =============     =============
        Net income per common share - diluted:
           Net income before extraordinary gain                                      $        0.29     $        0.09
           Extraordinary gain                                                                                   0.47
                                                                                     -------------     -------------

              Net income per common share - diluted                                  $        0.29     $        0.56
                                                                                     =============     =============
</TABLE>

       The  unaudited  pro forma  consolidated  results  include the  historical
       accounts  of  the  Company  and  historical   accounts  of  the  acquired
       businesses and pro forma  adjustments,  including the amortization of the
       excess purchase price over the fair value of the net assets acquired, the
       elimination  of  interest  expense  on  a  note  payable  to  the  former
       stockholder  of Dyna Jet which was repaid prior to closing,  the increase
       in  interest  expense  resulting  from  borrowings  used to  finance  the
       acquisitions,  the reduction of depreciation  expense to reflect the sale
       of  certain  nonoperating  assets  to the  former  owners of Dyna Jet and
       Petro-Log,  and the  increase  in  depreciation  expense  as a result  of
       purchase price adjustments.

  4.   RELATED PARTY TRANSACTIONS

       In  connection  with the DDI  acquisition,  the  Company  issued  debt of
       approximately  $3,200,000  to the former  owners of DDI. The two majority
       stockholders  (85%) of DDI are now  employees  of the  Company.  The note
       bears interest at 6.5% and is due August 1999,  with  quarterly  interest
       payments due  beginning  in January  1998.  Interest  expense and accrued
       interest payable on these  borrowings  totaled  approximately  $69,000 at
       December 31, 1997.

       In  connection  with  the PWS and  Petro-Log  acquisitions,  the  Company
       borrowed approximately  $7,900,000 from St. James Capital Partners, L.P.,
       whose president  serves on the Company's  Board of Directors.  $3,000,000
       was repaid in November 1997 with the proceeds from other borrowings.  One
       remaining note for $2,900,000 bears interest at 7% with the principal and
       interest due October 1999.  Accrued interest payable and interest expense
       on this borrowing  totaled  approximately  $46,000 as of and for the year
       ending December 31, 1997. The other  remaining note for $2,000,000  bears
       interest at 9% with the  principal  and interest  due June 2002.  Accrued
       interest  payable  and  interest   expense  on  this  borrowing   totaled
       approximately $104,000 as of and for the year ending December 31, 1997.



                                       11

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

       At December 31, 1997 and 1996, the Company has a mortgage note payable of
       $380,000  and an accounts  payable of $6,090 to the former  owner of Dyna
       Jet, now an employee of the Company (see Note 6).

       During 1996,  a member of the  Company's  Board of Directors  served as a
       consultant to the Company on various  aspects of the  Company's  business
       and strategic  issues.  The Company  compensated  the director by issuing
       12,000 shares of common stock.  This issuance resulted in the recognition
       of $15,000  of  expense  for the year ended  December  31,  1996,  with a
       corresponding increase in common stock and additional paid in capital.

       The Company  had an  outstanding  balance of  $289,293  included in notes
       payable,  related  parties,  at December  31,  1994 and accrued  interest
       payable of $2,497 at December 31, 1994 relating to a financing  agreement
       with RABAD,  a partnership  comprised of officers and spouses of officers
       of  the  Company,  whereby  RABAD  advanced  funds  to  the  Company  for
       operations. These advances were collateralized by accounts receivable and
       bore interest at a rate of prime plus 2%. Interest expense  recognized on
       these advances for 1995 was $20,954. On December 20, 1995, RABAD accepted
       148,565  shares of common  stock of the Company in full  satisfaction  of
       advances totaling $297,131 (see Note 6).

       The Company had an  outstanding  balance of $334,237 in notes payable and
       $8,976 in accrued  interest at December 31, 1994 to the  president of the
       Company and his spouse.  Interest expense recognized on the notes payable
       for 1995 was $28,611.  On December 20, 1995, the president of the Company
       and his spouse accepted  200,000 shares of the Company's  common stock in
       exchange for their notes and accrued interest.

       At  December  31, 1997 and 1996,  the Company had a remaining  accrual of
       approximately  $53,000  and  $98,500,   respectively,   relating  to  the
       Company's  commitment to pay the president's tax liability resulting from
       previously issued common stock as a bonus.

       The Company  leased  office space from the  president of the Company from
       October   1994  to  October   1996  when  he  sold  the   building  to  a
       non-affiliated  person who continues to lease the space to the Company at
       the same rental.  The total amount paid to the president during the years
       ended December 31, 1996 and 1995 was $17,264 and $22,262, respectively.

       See Note 8 for common stock transactions with related parties.


                                       12

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


  5.   PROPERTY, PLANT, AND EQUIPMENT

Property,  plant, and equipment  includes the following at December 31, 1997 and
1996:

<TABLE>
<CAPTION>
                                                                                        1997              1996
<S>                                                                               <C>                 <C>          
        Vehicles                                                                  $   6,016,315       $   2,913,175
        Drilling rigs and related equipment                                             438,155             322,109
        Operating equipment                                                           7,278,663           2,401,397
        Office equipment                                                                405,604             287,280
                                                                                  -------------      --------------
                                                                                     14,138,737           5,923,961
        Less accumulated depreciation                                                 4,791,052           3,729,370
                                                                                  -------------      --------------
        Net property, plant, and equipment                                        $   9,347,685      $    2,194,591
                                                                                  =============      ==============
</TABLE>

The  following is a summary of the  equipment  under  capital  leases  (included
above) at December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                                        1997              1996
<S>                                                                               <C>                <C>           
        Drilling rigs and related equipment                                       $     158,909      $      158,909
        Vehicles                                                                                             55,122
        Operating equipment                                                                                   4,814
                                                                                  -------------      --------------
                                                                                        158,909             218,845
        Less accumulated depreciation                                                    31,782              34,432
                                                                                  -------------      --------------

             Net equipment under capital lease                                    $     127,127      $      184,413
                                                                                  =============      ==============
</TABLE>

  6.   LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS

At December 31, 1997 and 1996,  long-term debt and other financing  arrangements
consisted of the following:

<TABLE>
<CAPTION>
<S>                                                                                      <C>                <C>   
                                                                                         1997             1996
        Note payable to Trustmark  National Bank,  monthly payments  required in
        varying amounts, interest rates ranging from 8% to 9.5%.                                     $      49,758

        Note payable to Smith Bank,  monthly  payments of $704 required  through
        November 2001, including interest at 7.0%.                                $      29,836
                                                                                  -------------      -------------
                                                                                         29,836             49,758
             Current portion of notes payable to banks                                   (7,624)           (18,272)
                                                                                  --------------     -------------

             Notes payable to banks, less current maturities                      $      22,212      $      31,486
                                                                                  =============      =============
</TABLE>


                                       13

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

<TABLE>
<CAPTION>
<S>                                                                               <C>               <C>           
                                                                                         1997              1996
        Installment notes payable,  monthly payments required in varying amounts
        through November 2001, interest at rates ranging from 5.9% to 13.24%.     $    692,101       $     834,380

        Capitalized  lease,  monthly  payments of $3,750  required  through June
        2000, including interest at 6.25%.                                             103,905             170,895

        Note  payable to  Haskell,  Slaughter,  Young &  Johnston,  Professional
        Association,  monthly principal payments of $2,500 plus accrued interest
        required  through August 1997,  interest at prime plus 1% as reported by
        First Alabama Bank. Prime rate at December 31, 1996 was 8.25%.                                      16,404

        Notes payable to General Electric Capital Corporation,  monthly payments
        required in varying amounts  through January 2003,  interest at 8.75%. A
        portion of the  proceeds  were  utilized  to  refinance  the  $3,000,000
        Petro-Log  bridge loan and  $1,500,000 of existing  equipment  debt (see
        Note 3).                                                                     5,121,147
                                                                                  ------------       -------------
                                                                                     5,917,153           1,021,679
             Current portion of long-term debt                                        (793,618)           (307,806)
                                                                                  ------------       -------------

             Long-term   debt  and  capital  lease   obligations,   less  current 
             maturities                                                           $  5,123,535       $     713,873
                                                                                  ============       =============

        Note payable to former owner of Diamondback Directional, Inc., principal
        due August 1999, interest due quarterly at 6.5%.                          $  3,170,549

        7%  convertible  note  payable  to St.  James  Capital  Partners,  L.P.,
        principal  and interest  due October  1999.  Convertible  at $4.6327 per
        share at any time up to 30 business days following maturity.                 2,900,000

        9%  convertible  note  payable  to St.  James  Capital  Partners,  L.P.,
        principal  and  interest due June 2002.  Convertible  at $2.75 per share
        through May 1998,  $3.25 per share through May 1999, and $3.75 per share
        thereafter and through maturity.                                             2,000,000
                                                                                  ------------
                                                                                     8,070,549

             Current portion of notes payable to related parties                             0
                                                                                  ------------

             Total long-term notes payable to related parties                     $  8,070,549
                                                                                  ============

        Mortgage note payable to former owner of Dyna Jet, Inc., due and payable
        in April 1998, including interest at 8% per annum.                        $    150,000       $     150,000

        Mortgage  note payable to former owner of Dyna Jet, Inc. due and payable
        in August  1998 with  interest  at the rate of the  lesser of $1,500 per
        month or 8% per annum on unpaid balance.                                       230,000             230,000
                                                                                  ------------       -------------

             Total mortgage notes payable, related party                          $    380,000       $     380,000
                                                                                  ============       =============
</TABLE>

                                       14

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Substantially  all of the  Company's  assets are pledged as  collateral  for the
various debt described above.

A certificate  of deposit in the amount of $50,000 was pledged as collateral for
the Company's  corporate credit card line of credit of  approximately  $100,000.
Borrowings  under the  corporate  credit  cards at  December  31,  1997  totaled
approximately $25,000 and are included in current payables.

Interest on the notes  payable to St.  James  Capital  Partners,  L.P. is due at
maturity in October  1999 and June 2002.  Accordingly,  the accrued  interest at
December 31, 1997 of $150,364 has been classified as long-term.

Under the terms of the St. James  Capital  Partners  notes  payable,  St. James,
among other  things,  has the right to nominate  one person for  election to the
Company's  board of directors,  certain  preferential  rights to provide  future
financings and contains prohibitions against consolidating, merging, or entering
into a share exchange with another person without St. James' consent.

During 1997,  the due dates of the mortgage  note payable to the former owner of
Dyna Jet,  Inc.  were changed from November 1996 to April 1998 and from November
2002 to August 1998 for the  $150,000  and  $230,000  portions  of the  mortgage
notes, respectively.

During  September  and  October  1996,  the  Company  executed a  Reorganization
Agreement  with the holders of certain  debt of the Company  whereby the Company
converted the remaining portion of its 13% convertible  subordinated  debentures
and all of its 14%  subordinated  debentures  to common  stock and  warrants  to
purchase common stock. In conjunction with the conversion,  accrued interest was
forgiven by the debt holders,  resulting in recognition of an extraordinary gain
on extinguishment  of debt of $1,608,501,  net of income taxes of $-0- (see Note
10).

On November 30, 1995, the Company executed a  Reorganization  Agreement with the
holders of certain debt of the Company  whereby the Company  converted a portion
of its 13% convertible  subordinated debentures and the notes payable to related
parties to common stock and warrants to purchase  common stock.  In  conjunction
with the conversion, accrued interest and certain debt were forgiven by the debt
holders, resulting in the recognition of an extraordinary gain on extinguishment
of debt of $387,413, net of income taxes of $226,554.


                                       15


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The  following  is a summary of the debt and  accrued  interest  conversion  and
extinguishment:

<TABLE>
<CAPTION>
                                                                                     1996
                                                         --------------------------------------------------------------
                                                                                         WARRANTS TO
                                                                                           PURCHASE
                                                                           SHARES OF       SHARES OF         ACCRUED
                                                          PRINCIPAL         COMMON          COMMON          INTEREST
                                                          CONVERTED         STOCK            STOCK          FORGIVEN
                                                         -------------   -------------   -------------   --------------
<S>                                                      <C>                 <C>            <C>        <C>          
       13% Convertible subordinated
          debentures                                     $   443,750         305,414        165,000    $     512,868

       14% subordinated debentures                           900,000         508,750        138,750        1,001,600
                                                         -----------     -----------     ----------    -------------

                                                         $ 1,343,750         814,164        303,750    $   1,514,468
                                                         ===========     ===========     ==========    =============
<CAPTION>
                                                                              1995
                                          -----------------------------------------------------------------------------
                                                                                          SHARES OF         ACCRUED
                                           PRINCIPAL       PRINCIPAL                       COMMON           INTEREST
                                           CONVERTED       FORGIVEN          TOTAL          STOCK          FORGIVEN
                                          -------------   ------------    ------------   -------------   --------------
<S>                                       <C>             <C>             <C>              <C>           <C>        
       13% Convertible subordinated
          debentures                      $   599,172     $   57,078      $  656,250       299,586       $   535,344

       14% subordinated debentures            400,000                        400,000       200,000            21,545
       Notes payable to RABAD                 297,130                        297,130       148,565
                                          -----------     ----------      ----------     ---------       ------------

                                          $ 1,296,302     $   57,078     $ 1,353,380       648,151       $   556,889
                                          ===========     ==========    ============     =========       ===========
</TABLE>

       The Company  guaranteed that RABAD (see Note 4) would be able to sell its
       common stock received in the 1995  conversion for $2 per share within one
       year of this conversion.  This agreement is collateralized by $100,000 of
       the Company's  accounts  receivable.  The collateral  will be utilized to
       cover  any  deficiencies   between  the  actual  selling  price  and  the
       guaranteed  price  of $2  per  share,  limited  to a  maximum  deficiency
       guaranteed of $100,000. RABAD engaged Monetary Advancement International,
       Inc.  (MAII) to sell the shares  received  in this  conversion.  Due to a
       dispute  with the Company  that is more fully  described in Note 15, MAII
       has refused to pay RABAD or return any unsold  shares.  As stated in Note
       15, the Company  intends to vigorously  defend itself  against any claims
       asserted by MAII and does not believe the  aforementioned  guarantee will
       result in any  liability to the Company as RABAD has  meritorious  claims
       against MAII.

       In connection with the above proceedings, the Company has paid $12,420 in
       legal   fees   during   1997  on   behalf  of  the   president   and  two
       vice-presidents.


                                       16


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

       At December 31, 1997, aggregate maturities of notes payable and long-term
       debt and  future  minimum  lease  payments  under  capital  leases are as
       follows:

<TABLE>
<CAPTION>
                                                                 CAPITAL              OTHER
                                                                 LEASES                DEBT                TOTAL
                                                             ----------------    -----------------   ------------------
<S>                                                          <C>                 <C>                 <C>              
        1998                                                 $     41,807        $      1,145,009    $    1,186,816
        1999                                                       45,030               6,922,867         6,967,897
        2000                                                       26,250                 892,294           918,544
        2001                                                                              893,331           893,331
        2002                                                                            4,426,785         4,426,785
        Thereafter                                                                         13,347            13,347
                                                             ------------       -----------------   ---------------
                                                                  113,087              14,293,633        14,406,720
        Less amounts representing interest                          9,182                                     9,182
                                                             ------------       -----------------   ---------------
                                                             $    103,905       $      14,293,633   $    14,397,538
                                                             ============       =================   ===============
</TABLE>

7.     COMMITMENTS

       The Company  leases land,  office  space,  and  equipment  under  various
       operating leases. The leases generally are for terms of five years and do
       not contain purchase options.  Rent expense was  approximately  $557,660,
       $202,333,  and $173,000 for the years ended December 31, 1997,  1996, and
       1995, respectively.

       The future minimum lease payments required under noncancelable  operating
       leases with initial or  remaining  terms of one or more years at December
       31, 1997 were as follows:

<TABLE>
<CAPTION>

<S>        <C>                                                                        <C>             
           1998                                                                       $    242,600
           1999                                                                            188,700
           2000                                                                            152,230
           2001                                                                             82,270
           2002                                                                             11,790
                                                                                      ------------
                                                                                      $    677,590
                                                                                      ============
</TABLE>

8.     COMMON STOCK TRANSACTIONS

       On  September  18,  1996,  the  Company  offered  800,000  shares  of the
       Company's common stock, in 20 units of 40,000 shares each, at an offering
       price of $1.25 per share, pursuant to a private placement memorandum.  Of
       the 800,000  shares  offered,  600,000  shares were sold by the Company's
       placement  agent,  and the Company received net proceeds (after deducting
       issuance costs) of $643,382.  Approximately $288,000 in proceeds from the
       offering  was used to acquire  Dyna Jet,  Inc.  and the  remainder of the
       proceeds was used for future  acquisitions  and other  general  corporate
       purposes. Options to purchase 80,000 shares of the Company's common stock
       at an  exercise  price of $1.50 per share  were  issued to the  Company's
       placement agent, as additional  compensation for services  rendered.  The
       options are  exercisable  for a period of five


                                       17

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

       years from the date of the  private  placement.  None of the  options had
       been exercised as of December 31, 1997.

       During 1995,  the Company  effectuated  a 1-for-200  reverse  stock split
       effective for each share owned by  stockholders of record at the close of
       business on October 30, 1995. Par value remained at $.0005 per share. The
       reverse  stock split  reduced the  14,169,252  shares of common  stock to
       70,901  shares  of  common  stock  outstanding.  A total  of  $7,049  was
       reclassified from the Company's common stock to the Company's  additional
       paid in capital.

       Issuance of common stock for the settlement of liabilities of the Company
       are set forth below.  Since the market value of the  Company's  stock was
       not readily available,  the per share amounts for these transactions have
       been  determined  by  the  Company's  Board  of  Directors  based  on the
       Company's consolidated financial results,  business developments,  common
       stock  transfer  restrictions,  number of shares issued and other factors
       which would influence the fair value at the date of Board approval.

<TABLE>
<CAPTION>
                                                                                                         AMOUNT
         MONTH OF            MONTH OF                                                                  RECORDED TO
           BOARD             ISSUANCE/                                       NUMBER        AMOUNT     STOCKHOLDERS'
         APPROVAL            PURCHASE                DESCRIPTION            OF SHARES    PER SHARE       EQUITY
      ----------------    ----------------   ----------------------------  ------------  -----------  --------------
 <S>                                                                          <C>         <C>          <C>         
     November 1995        December 1995     Issued to debt holders in
                                              satisfaction of notes
                                              payable subordinated
                                              debentures                     648,151     $    2.00    $  1,296,302

      November 1995        December 1995     Issued in satisfaction of
                                              consulting fees                 40,000          2.00          80,000

      October 1996         October 1996      Issuance to debt holders in
                                              satisfaction of subordinated 
                                              debentures                     689,375          1.25         861,719

      October 1996         November 1996     Issuance to debt holders in
                                              satisfaction of subordinated
                                              debentures                      96,250          1.25         120,312

      December 1996        December 1996     Issued to related party in
                                              satisfaction of
                                              consulting fees                 12,000          1.25          15,000

      October 1996         December 1996     Issuance to debt holders in
                                              satisfaction of subordinated
                                              debentures                      28,539          1.25          35,674
</TABLE>

  9.   STOCK WARRANTS

       During  1997,  the Company  issued  warrants  to  purchase  shares of the
       Company's  common stock in  connection  with the issuance of certain debt
       (see Note 6). The  warrants  give the holder the right to  purchase up to
       666,000  shares of the  Company's  stock at $2.75 per share  through  May
       1998, $3.25 through May 1999 and $3.75 thereafter and through maturity of
       the debt,  and 725,000  shares at $4.63 per share.  The 666,000  warrants
       expire in June 2002 while the 725,000 warrants expire in October 2002.

       During  1996,  the Company  issued  warrants  to  purchase  shares of the
       Company's  common stock in connection with the conversion of certain debt
       (see Note 6). The warrants give holders the


                                       18

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

       right to purchase up to 303,750  shares of the Company's  common stock at
       $2 per  share.  The  warrants  expire on  September  30,  2001 and may be
       redeemed, at the option of the Company, at the price of $.50 per warrant,
       provided  that the bid price of common  stock has  exceeded  $5 per share
       ending  on the  trading  day  prior to the date on which  the  notice  of
       redemption is given. During 1997, 67,500 of these warrants were exercised
       resulting in an increase to common stock and additional  paid-in  capital
       of $135,000.

         10.      INCOME TAXES

       The provision  (benefit)  for income taxes  consists of the following for
       the years ended December 31, 1997, 1996, and 1995:

<TABLE>
<CAPTION>
                                                                     1997              1996              1995
 <S>                                                                     <C>              <C>                      <C>
       Federal:
           Current                                              $        13,962   $        39,841    $     (205,065)
           Deferred                                                     161,163          (112,096)                0
                                                                ---------------   ---------------    ---------------
                                                                        175,125           (72,255)         (205,065)
                                                                ---------------   ---------------    --------------
        State:
           Current                                                       22,834            12,706           (21,489)
           Deferred                                                      24,082            (6,166)                0
                                                                ----------------  ---------------    --------------
                                                                         46,916             6,540           (21,489)
                                                                ----------------  ---------------    --------------

             Total                                              $       222,041   $       (65,715)   $     (226,554)
                                                                ===============   ===============    ==============
</TABLE>

       In 1996 no provision or benefit has been  allocated to the  extraordinary
       gain since the taxable income generated by it consumed a large portion of
       the Company's net operating loss carryforwards.  These carryforwards were
       totally  offset by a valuation  allowance  at December  31, 1995 and this
       utilization in the 1996 reduced expense related to the extraordinary gain
       to zero.

       The  current  federal  and state tax  benefits  in 1995  result  from the
       utilization of the net operating  losses  generated in 1995 to offset the
       income  tax   expense   associated   with  the   extraordinary   gain  on
       extinguishment of debt described in Note 6.

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

<TABLE>
<CAPTION>
                                                                         1997            1996             1995

<S>                                                                 <C>           <C>              <C>          
        Provision (benefit) at federal statutory rate               $   227,558   $    122,986     $   (262,520)
        State income taxes, net of federal benefit                       29,238
        Nondeductible tax penalties                                                     27,669
        (Decrease) increase in valuation allowance                                    (230,828)          35,966
        Other                                                           (34,755)        14,458
                                                                    -----------   ------------     ------------

             Benefit for federal income taxes                       $   222,041   $    (65,715)    $   (226,554)
                                                                    ===========  =============     ============
</TABLE>


                                       19

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

       At December 31, 1997,  the Company has available  loss  carryforwards  of
       approximately  $507,000 for federal tax  purposes  that expire at various
       dates  through  2010.  Additionally,  the Company has state net operating
       loss  carryforwards of  approximately  $1,740,000 which expire at various
       dates to 2010.

       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:

<TABLE>
<CAPTION>
                                                                                        1997              1996
<S>                                                                                     <C>               <C>      
        Gross deferred tax assets:
           Allowance for doubtful accounts receivable                              $    53,562       $    51,086   
           Accrued bonuses and other                                                    66,574            86,985   
           Operating loss carryforwards                                                189,103           402,753   
           Alternative minimum tax credit carryforwards                                 53,804            39,842   
           Goodwill                                                                        972                    
                                                                                   -----------       -----------  
             Gross deferred tax asset                                                  364,015           580,666   
                                                                                   -----------       ----------- 
                                                                                                      
        Gross deferred tax liabilities:
           Depreciation                                                              $(1,376,392        (656,950)
           Other                                                                         (39,321)
                                                                                   -------------     -----------
             Gross deferred tax liability                                             (1,415,713)       (656,950)
                                                                                   -------------     -----------
             Net deferred tax liability                                            $  (1,051,698)    $   (76,284)
                                                                                   =============     ===========
</TABLE>

       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, 1997 and 1996, the Company has recorded
       in its consolidated  balance sheet a net deferred tax liability as future
       taxable  amounts  exceed  future  deductible  amounts.  Consequently,  no
       valuation allowance has been recorded at December 31, 1997 or 1996.

                                       20



<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

11.   EARNINGS (LOSS) PER SHARE

       The calculation of basic and diluted EPS is as follows:

<TABLE>
<CAPTION>
                                                     FOR THE YEAR ENDED 1997                  FOR THE YEAR ENDED 1996        
                                             --------------------------------------------------------------------------------
                                                INCOME        SHARES       PER SHARE     INCOME        SHARES       PER SHARE
                                             (NUMERATOR)   (DENOMINATOR)    AMOUNT    (NUMERATOR)  (DENOMINATOR)     AMOUNT  
                                             ------------- -------------- ---------------------------------------- ----------
<S>                                          <C>                <C>        <C>       <C>               <C>         <C>       
      Income (loss) before extraordinary     
           item                              $   447,247                             $   427,438                             
      Extraordinary gain                                                               1,608,501                             
                                             -----------                             -----------                            
             Net income (loss)               $   447,247                             $ 2,035,939                             
                                             ===========                             ===========                            

      BASIC EPS
      Income (loss) available to common
         stockholders                        $   447,247        2,533,650  $   0.18  $ 2,035,939       1,040,192   $   1.96  

      EFFECT OF DILUTIVE SECURITIES
      Stock warrants                                              371,552
      Stock options                                               228,883
      Convertible debt debenture                  93,377          625,671
                                             -----------   --------------  --------  -----------       ---------   --------  

      DILUTED EPS
      Income (loss) available to common
         stockholders plus assumed
              conversions                    $   540,624        3,759,756  $   0.14  $ 2,035,939       1,040,192   $   1.96  
                                             ============= ==============  ========= ===========       =========   ========  


<CAPTION>

                                                       FOR THE YEAR ENDED 1995
                                            --------------------------------------------
                                                  INCOME        SHARES      PER SHARE
                                               (NUMERATOR)  (DENOMINATOR)     AMOUNT
                                            --------------------------------------------
<S>                                          <C>               <C>           <C>      
      Income (loss) before extraordinary     
           item                              $    (545,562)
      Extraordinary gain                           387,413
                                            --------------
             Net income (loss)               $    (158,149)
                                            ==============

      BASIC EPS
      Income (loss) available to common
         stockholders                        $    (158,149)    88,905        $  (1.78)

      EFFECT OF DILUTIVE SECURITIES
      Stock warrants                        
      Stock options                         
      Convertible debt debenture            
                                             -------------  ---------        --------

      DILUTED EPS
      Income (loss) available to common
         stockholders plus assumed
              conversions                    $    (158,149)    88,905        $  (1.78)
                                             =============  =========        ========

</TABLE>


                                       21


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

       Options to purchase 12,500 shares of common stock at $8.01 per share were
       outstanding  during 1997 but are not included in the  computation  of the
       1997 diluted EPS because the options' exercise price was greater than the
       average  market price of the common  shares.  The  options,  which expire
       December 2002, were still outstanding at December 31, 1997.

       Options to purchase  240,000  shares and  warrants  to  purchase  303,750
       shares of common stock were  outstanding at December 31, 1996 but are not
       included in the  computation of the 1996 diluted EPS because the options'
       and warrants' exercise price was greater than the average market value of
       the  common  shares.  There were also 7,500  options  that were  canceled
       during 1996 that are not included in the  computation of the 1996 diluted
       EPS  because the  options'  exercise  price was greater  than the average
       market price of the common shares.

       Options to purchase  7,500 shares of common stock at prices  ranging from
       $3.46 to  $22.27  per  share  were  outstanding  during  1995 but are not
       included in the  computation of the 1995 diluted EPS because the options'
       exercise  price was greater  than the average  market price of the common
       shares. These options were canceled during 1996.

         12.      MAJOR CUSTOMERS

       Most of the  Company's  business  activity is with  customers  engaged in
       drilling and operating  natural gas wells  primarily in the Black Warrior
       Basin in Alabama and  Mississippi,  the Permian  Basin in Texas,  and the
       Powder River Basin in the Rocky Mountain region. Substantially all of the
       Company's accounts receivable at December 31, 1997 and 1996 are from such
       customers.  Performance in accordance with the credit  arrangements is in
       part dependent upon the economic condition of the natural gas industry in
       the  respective  geographic  areas.  The  Company  does not  require  its
       customers to pledge collateral on their accounts receivable.

       The Company  earned  revenues in excess of 10% of its total revenues from
       the following  customers for the years ended December 31, 1997, 1996, and
       1995, as follows:

<TABLE>
<CAPTION>
                                                                       1997            1996            1995   
                                                                                                              
<S>                                                             <C>             <C>              <C>          
        Taurus Exploration, Inc.                                $    1,752,849  $   1,916,074    $  1,921,808 
        Pioneer Resources, Inc. (formerly Parker                                                            
           and Parsley Development Company)                     $    2,118,484  $   1,793,411    $    772,383 
        Becfield Drilling Company                                               $   1,120,898    $  1,114,473 

</TABLE>

 13.   EMPLOYMENT AGREEMENTS

       During 1997, the Company entered into employment  agreements with various
       key employees and non-employee  contract workers.  The agreements provide
       for  annual  compensation  and also  grant  stock  options  with  various
       exercise prices and vesting provisions.  See Note 14 for a description of
       the options granted.


                                       22

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

       On September 30, 1996, the Company  entered into an employment  agreement
       with its  president,  which expires on September 30, 1999,  calling for a
       base salary of $110,000 per annum,  to be adjusted for inflation for each
       of the two years ending  September  30, 1998 and 1999.  In addition,  the
       agreement  gives the president the option to purchase  100,000  shares of
       the Company's  common stock at an exercise price of $2 per share.  During
       1997,  these  options  were  voluntarily  canceled.  Also,  provided  the
       Company's  operating  results equal or exceed 85% of the benchmark agreed
       to between  the  Company's  Board of  Directors  and the  president,  the
       president  shall be granted,  as of the last day of the fiscal year as to
       which such benchmark  operating results related, an option to purchase an
       additional  50,000  shares of the Company's  common  stock.  Such options
       shall be  exercisable  for a period of ten years at a price  equal to the
       closing bid price of the Company's  common stock on the last business day
       of such fiscal year. No options have been issued under this  provision as
       of December 31, 1997.

14.    STOCK OPTIONS

       The 1997 Omnibus  Incentive Plan (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 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.  At December 31, 1997,  465,250  options had been
       granted with 134,750 options available for issue.

       The 1997 Non-Employee Stock Option Plan (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
       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.  At December 31, 1997,  172,000 options
       had been granted. It is anticipated that, in 1998, the Company's Board of
       Directors  will amend the  Non-Employee  Plan to  increase  the number of
       shares authorized for granting.


                                       23


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


       Additionally,  of the 240,000  options  outstanding at December 31, 1996,
       options to purchase  160,000  shares of the  Company's  common stock were
       canceled during 1997. Pertinent  information  regarding stock options are
       as follows:

<TABLE>
<CAPTION>
                                                                          WEIGHTED    FAIR VALUE                            
                                                             RANGE OF      AVERAGE    OF STOCK                              
                                                NUMBER OF    EXERCISE      EXERCISE      AT               VESTING           
                                                 OPTIONS      PRICES        PRICE     GRANT DATE         PROVISIONS         
                                                ---------- ------------- ----------- -----------  ----------------------- 
                                                                         
<S>                                             <C>        <C>               <C>        <C>         <C>           
      Options outstanding, December 31, 1994
      and 1995                                   7,500     $3.46 - 22.27     $7.24

      Options canceled                          (7,500)    $3.46 - 22.27     $7.24
      Options granted                           60,000     50% of mean       $1.66      $1.25     33.3% per year
                                                           share price for
                                                           3 months
                                                           prior to grant
      Options granted                          180,000     $1.50 - 2.00      $1.78      $1.25     immediate
                                              --------

      Options outstanding, December 31, 1996   240,000     $1.50 - 2.00      $1.75
                                              --------
      Options canceled                         (60,000)    50% of mean share
                                                           price for 3 months
                                                           prior to grant
                                              (100,000)    $2.00             $2.00
                                              --------
                                              (160,000)
                                              --------

      Options granted                          160,000   $2.625              $2.625               62.5%  immediate;  12.5% per year 
         Exercise  price equals FMV of stock                                                                                        
           at grant date                        67,500   $2.625              $2.625               33.3% immediate; 22.22% per year  
                                                81,250   $2.625              $2.625               20% immediate; 20% per year       
                                                40,000   $2.625              $2.625               25% immediate; 25% per year       
                                                10,000   $3.38               $3.38                25% immediate; 25% per year       
                                               -------                                                                       
                                               358,750                                  $2.65                             
                                               -------                                                                
                                                                                                                             
         Exercise  price less than FMV of stock 
           at grant date                        20,000   $3.00               $3.00      $3.50     25% immediate; 25% per year 
                                               ------- 

         Exercise  price  greater  than  FMV of
           stock at grant date                  90,000   $4.63               $4.63                16.67% immediate; 16.67% per year
                                               112,000   $4.63               $4.63                3 year pro rata                  
                                                10,000   $4.63               $4.63                2 year pro rata                  
                                                30,000   $4.63               $4.63                5 year pro rata                  
                                                12,500   $8.01               $8.01                5 year pro rata                  
                                                 4,000   $4.63               $4.63                1 year cliff                     
                                               -------                      
                                               258,500                                  $4.43
                                               -------                                            

      Options outstanding, December 31, 1997   717,250   $1.50 - $8.01    $3.30
                                               =======

</TABLE>

The following table summarizes  information  about stock options  outstanding at
December 31, 1997:

<TABLE>
<CAPTION>
                                                OPTIONS OUTSTANDING                  OPTIONS EXERCISABLE
                                      -----------------------------------------   --------------------------
                                                      WEIGHTED
                                                       AVERAGE       WEIGHTED                     WEIGHTED
                  RANGE OF              NUMBER        REMAINING      AVERAGE        NUMBER        AVERAGE
                  EXERCISE            OUTSTANDING    CONTRACTUAL     EXERCISE     EXERCISABLE     EXERCISE
                    PRICES             12/31/97         LIFE          PRICE        12/31/97        PRICE
                  --------            ------------   ------------   -----------   ------------   -----------
<S>               <C>                       <C>             <C>          <C>            <C>           <C>  
                  $1.50                     80000           3.75         $1.50          80000         $1.50
                  $2.63                    348750           8.69         $2.63         148525         $2.63
                  $3.00                     20000           4.42         $3.00           5000         $3.00
                  $3.38                     10000           4.50         $3.38           2500         $3.38
                  $4.63                    246000           4.67         $4.63          15003         $4.63
                  $8.01                     12500           4.96         $8.01
                                      -----------    -----------    ----------    -----------    ----------
                                           717250           6.51         $3.30         251028         $2.40
                                      ===========    ===========    ==========    ===========    ==========

</TABLE>

                                       24


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

       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 to not  report the impact of the fair value of its stock  options
       in the consolidated  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 at fair market value or above.  Compensation expense of $27,267
       has  been   recognized  for  132,000   options  granted  during  1997  as
       compensation  to  non-employees  at the  options'  fair  market  value in
       accordance  with  SFAS  No.  123.  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 income and earnings per share would have been
       reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                                          1997              1996

<S>                                                                                 <C>               <C>             
        Net income - as reported                                                    $     447247      $        2035939 
        Net income - pro forma                                                      $     268327      $        2006094 
        Earnings per share - as reported (basic)                                    $        .18      $           1.96 
        Earnings per share - pro forma (basic)                                      $        .11      $           1.93 
        Earnings per share - as reported (diluted)                                  $        .14      $           1.96 
        Earnings per share - pro forma (diluted)                                    $        .10      $           1.93 
                                                                                                      
</TABLE>

       The pro  forma  amounts  reflected  above are not  representative  of the
       effects on reported net income 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.

<TABLE>
<CAPTION>
                                                                                          1997         1996
<S>                                                                                         <C>          <C>
              Dividend yield                                                                   0%           0%
              Expected life (years)                                                            4            3
              Expected volatility                                                           60.6%        70.0%
              Risk-free interest rate                                                       6.11%        6.46%
</TABLE>

15.   CONTINGENCIES

       On  November  1, 1995,  the Company  entered  into a Business  Consulting
       Agreement  with  MAII  pursuant  to  which  MAII was to  provide  certain
       services,  including, among others, providing assistance in preparing and
       distributing press releases for a period of six months with an option for
       renewal and in equity raising  transactions through the private placement
       of common stock and the restructuring of the Company's indebtedness.  The
       Agreement  stated  that the  compensation  for these  services  was to be
       200,000  shares of freely  traded common stock of the Company with 40,000
       shares due upon execution of the Agreement and the balance due during


                                       25

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

       the term of the  Agreement  as needed by MAII.  It was agreed that MAII's
       services would not include any services that constituted the rendering of
       legal  opinions or that were within the  ordinary  purview of a certified
       public accountant or a NASD registered broker/dealer.  The Company issued
       the 40,000  shares to MAII and has taken the position  that the Agreement
       has  expired  and no further  compensation  is due and  owing,  that MAII
       failed to perform in accordance with the Agreement and that the intent of
       the  Agreement  and  understanding  of the  parties  was that the 160,000
       shares  would only be issued in  conjunction  with a private  sale of the
       Company's  securities.  On September  24, 1996,  MAII  demanded  that the
       Company issue the 160,000  shares to it which the Company  refuses to do.
       Management  of  the  Company   believes  that  it  has   substantial  and
       meritorious  defenses to the claim  asserted  by MAII,  intends to defend
       itself vigorously in any litigation  instituted by MAII. In October 1997,
       arbitration  proceedings  were  commenced  against  the  Company by MAII.
       Management  of the Company  believes  that it will not incur any material
       liability to MAII in connection with this claim nor will the claim have a
       material adverse effect on the consolidated  financial position,  results
       of operations,  or cash flows of the Company. In addition, the Company is
       reviewing the advisability of it instituting litigation or an arbitration
       proceeding  against MAII. There can be no assurance that the Company will
       be successful in an action instituted against the Company by MAII or that
       the Company will be  successful  in any action it may  institute  against
       MAII.

       The Company also 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  consolidated
       financial position, results of operations or cash flows of the Company.

 16.   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,  SHORT-TERM INVESTMENTS,  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 fair value is estimated by  discounting  the future
       cash flows using rates  currently  available to the Company for debt with
       similar  terms and  remaining  maturities.  The carrying  amount and fair
       value of long-term debt was $13,065,798 and $10,858,881, respectively, at
       December 31, 1997, and $975,359 and $870,359,  respectively,  at December
       31, 1996.


                                       26


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


17.    RECENTLY ISSUED ACCOUNTING STANDARDS

       The Financial  Accounting Standards Board (the Board) has issued SFAS No.
       130,  Reporting  Comprehensive  Income  that  establishes  standards  for
       reporting  and  display  of  comprehensive   income  and  its  components
       (revenues,  expenses,  gains,  and losses) in the  financial  statements.
       Comprehensive  income is  defined  as the  change in equity of a business
       enterprise  during  a period  from  transactions  and  other  events  and
       circumstances  from nonowner  sources.  It includes all changes in equity
       during a period except those  resulting  from  investments  by owners and
       distributions  to  owners.  This  Statement  does not  require a specific
       format for the  presentation  of  comprehensive  income but  requires  an
       amount  representing  total  comprehensive  income for the  period.  This
       Statement is effective for fiscal years beginning after December 15, 1997
       with  reclassification  of  earlier  periods  required.  Other  than  the
       additional presentation  requirements of this Statement, the Company does
       not anticipate a material impact on the consolidated  financial position,
       results of operations, earnings per share, or cash flows.

       The Board has issued  SFAS No.  131,  Disclosures  About  Segments  of an
       Enterprise and Related Information,  which establishes  standards for the
       way that public business  enterprises  report information about operating
       segments in annual financial statements and requires selected information
       about operating segments in interim financial reports.

       This  Statement  requires  that  a  public  business   enterprise  report
       financial and  descriptive  information  about its  reportable  operating
       segments.  Operating segments are components of an enterprise about which
       separate financial  information is available that is evaluated  regularly
       by the  chief  operating  decision  maker  in  deciding  how to  allocate
       resources and in assessing performance.  Generally, financial information
       is required to be  reported on the basis that it is used  internally  for
       evaluating segment  performance and deciding how to allocate resources to
       segments.

       The financial  information  required includes a measure of segment profit
       or loss, certain specific revenue and expense items, segment assets and a
       reconciliation of each category to the general financial statements.  The
       descriptive  information  required  includes  the way that the  operating
       segments  were  determined,  the products  and  services  provided by the
       operating   segments,   differences  between  the  measurements  used  in
       reporting  segment  information  and those  used in the  general  purpose
       financial  statements,  and changes in the measurement of segment amounts
       from period to period.

       This  Statement  is  effective  for  financial   statements  for  periods
       beginning  after December 15, 1997 with  restatement  of earlier  periods
       required in the initial year of  application.  This Statement need not be
       applied  to  interim  financial  statements  in the  initial  year of its
       application,  but  comparative  information  for  interim  periods in the
       initial year of application is to be reported in financial statements for
       interim  periods  in the  second  year of  application.  The  Company  is
       currently determining if these disclosure requirements will be applicable
       and, therefore, required in future periods.


                                       27


<PAGE>

18.    SUBSEQUENT EVENTS

       On  March  16,  1998,  the  Company  completed  the  acquisition  of  the
       outstanding stock of Phoenix Drilling Services,  Inc. (Phoenix),  a Texas
       based  oil  and gas  well  servicing  company.  For  financial  statement
       purposes,  the  acquisition  will  be  accounted  for as a  purchase  and
       accordingly,  Phoenix's  results  will be  included  in the  consolidated
       financial statements from the date of acquisition. The aggregate purchase
       price of approximately $19 million was funded by the issuance of debt and
       warrants. The aggregate purchase price will be allocated to the assets of
       the Company, based upon their respective fair market values.

       In connection with a private placement  transaction completed on April 2,
       1998,  the Company  issued  596,000  shares of common  stock at $5.50 per
       share.  Net  proceeds  of  the  private  placement  to the  Company  were
       approximately  $3,049,000 after deducting issuance costs of approximately
       $229,000.


                                       28