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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

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, 2002; 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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         (Exact name of Registrant as specified in its charter)

DELAWARE                                                          11-2904094
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(State or other jurisdiction of                                    (IRS Employer
Incorporation or organization)                               Identification No.)

100 ROSECREST, COLUMBUS, MISSISSIPPI                           39701
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(Address of Principal Executive Offices)                    (Zip Code)

                                 (662) 329-1047
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          (Registrant'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

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past twelve (12) months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days. [X] Yes [ ] No

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

         State the aggregate market value of the voting stock held by
non-affiliates as of March 1, 2003:

              COMMON STOCK, PAR VALUE $.0005 PER SHARE, $1,869,732

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

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

                              Class: COMMON STOCK,
PAR VALUE $.0005 PER SHARE Outstanding at March 1, 2003: 12,499,528 SHARES

                       DOCUMENTS INCORPORATED BY REFERENCE

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

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<PAGE>


                                     PART I

         ITEM 1.  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 San Juan Basin
in New Mexico, Colorado and Utah, the East Texas and Austin Chalk Basins in East
Texas, the Powder River and Green River Basins in Wyoming and Montana, the
Williston Basin in North Dakota and areas of the Gulf of Mexico offshore
Louisiana and South Texas. The Company's principal lines of business include (a)
wireline services and (b) directional oil and gas well drilling and downhole
surveying services. In July 2001, the Company sold its workover and completion
line of business. The Company has restated its operations for December 31, 2000
for the discontinued operations (see Note 22 to Notes to Financial Statements).

WIRELINE SERVICES

         The Company's wireline logging service activities contributed revenues
of $34.1 million (approximately 60.3% of revenues) in 2002, $39.7 million
(approximately 52.1% of revenues) in 2001, and $21.6 million (approximately
48.5% of revenues) in 2000. At December 31, 2002, the Company owned 51
operational motor vehicle mounted wireline units, of which 37 are equipped with
a state-of-the-art computer system, 8 are devoted exclusively to hoisting
operations. In addition, as of December 31, 2002, the Company owned 14
operational cased-hole wireline units skid-mounted for offshore work, all of
which are equipped with state of the art computers and 2 skid-mounted plug and
abandon ("P&A") packages.

         Truck or skid-mounted 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 wireline unit
equipped with an armored cable that is lowered by winch into an existing well.
The cable lowers instruments and tools into the well to perform a variety of
services and tests. The wireline unit's instrument cab contains electronic
equipment to supply power to the downhole instruments, to receive and record
data from those instruments in order to produce the "logs" which define specific
characteristics of each formation and to display the data received from
downhole. The Company's wireline units are equipped with state-of-the-art
computerized systems or analog equipment.


<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 operation. These procedures generally
take approximately one to one-and-one-half days to perform.

         Manufacturing. The Company operates a manufacturing facility located in
Laurel, Mississippi to assemble and install wireline service equipment, both
mounted on motor vehicles and on wireline skids, for internal use and for sale
to others. During the year ended December 31, 2002, the Company manufactured for
internal use 5 new wireline trucks, 2 new P&A packages and 1 new offshore
wireline skids. The manufacturing facility also totally refurbished for internal
use 4 wireline trucks and 2 offshore wireline skids.

DIRECTIONAL DRILLING SERVICES

         The Company's directional drilling services contributed revenues of
$22.5 million (approximately 39.7% of revenues) in 2002, $36.4 million
(approximately 47.8% of revenues) in 2001, and $22.9 million (approximately
51.3% of revenues) in 2000.

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

         The Company also provides directional surveying services and
directional surveying equipment to operators in the oil and gas industry. These
services include gyros, magnetic, single shot, high accuracy magnetic probe,
electric surface recording gyro, and MWD (measurement while drilling).
Management of the Company believes these services are state-of-the-art.


                                        2

<PAGE>

OTHER SERVICES

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

PRINCIPAL CUSTOMERS AND MARKETING

         There were no customers from which the Company earned in excess of 10%
of its revenues during the three years ended December 31, 2002.

         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 37 persons working from its district offices. The
Company relies extensively on its reputation in the industry to create customer
awareness of its services.

OPERATING HAZARDS AND INSURANCE

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

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


                                       3
<PAGE>


         The Company maintains two policies totaling $2.0 million on the life of
William L. Jenkins, its President and Chief Executive Officer, and maintains
$1.0 million policies on the lives of each of Allen R. Neel, Executive
Vice-President and Danny Ray Thornton, Vice President. See Item 10, "Directors
and Executive Officers of the Registrant." The benefits under such policies are
payable to the Company.

COMPETITION

         Most of the Company's competitors are divisions of larger diversified
corporations which offer a wide range of oilfield services. Its chief
competitors include Halliburton Company, Schlumberger, Ltd. and Baker Hughes
Incorporated, as well as a number of other companies active in the industry.
These competitors have substantially greater economic resources than the
Company. Recent business combinations involving oil and gas service companies
may have the effect of intensifying competition in the industry. Periods of
declines in oil and natural gas commodity prices result in reduced demand for
oil and natural gas well services and thereby intensified competition adversely
affecting the Company's revenues and financial condition. While competition at
the present time is intense, with the improvement in prices for oil and natural
gas in 2002 demand for oil and gas well services increased and the Company's
ability to compete with other suppliers of services improved.

         Competition principally occurs in the areas of technology, price,
quality of products and field personnel, equipment availability and facility
locations. Although price competition remains a significant characteristic of
the industry, the Company's ability to offer more technologically advanced
services is believed by management to have reduced the extent of the Company's
exposure to severe price competition. The Company continues to make a conscious
effort to compete, not just on price, but also on its ability to offer advanced
technology, experienced personnel, and a safe working environment.

         The Company's growth is dependent upon its ability to attract and
retain skilled oilfield and management personnel. The competition for such
qualified employees is frequently intense and there can be no assurance that
sufficient qualified persons will be available at such times as the Company
requires their services.

REGULATION

         The oil and gas business is a heavily regulated industry. The Company's
activities are subject to various licensing requirements and minimum safety
procedures and specifications, anti-pollution controls on equipment, waste
discharge and other environmental and conservation requirements imposed by
federal and state regulatory authorities. Numerous governmental agencies issue
regulations to implement and enforce laws which are often difficult and costly
to


                                       4
<PAGE>


comply with, and the violation of which may result in the revocation of permits,
issuance of corrective action orders, assessment of administrative and civil
penalties and even criminal proceedings.

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

     o   The federal Resource Conservation and Recovery Act and comparable state
         statutes. The U.S. Environmental Protection Agency (EPA) and state
         agencies have limited the approved methods of disposal for some types
         of hazardous and non-hazardous wastes. The Company generates wastes,
         some of which are hazardous wastes.

     o   The federal Comprehensive Environmental Response, Compensation, and
         Liability Act, also known as the "Superfund" law, and comparable state
         statutes impose liability, without regard to fault or legality of the
         original conduct, on classes of persons that are considered to have
         contributed to the release of a "hazardous substance" into the
         environment. These persons include the owner or operator of the
         disposal site or the site where the release occurred and companies that
         disposed of or arranged for the disposal of the hazardous substances at
         the site where the release occurred.

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

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

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


                                       5
<PAGE>


EMPLOYEES

         As of March 1, 2003, the Company employed approximately 344 persons on
a full-time basis. Of the Company's employees, 21 are management personnel, 16
are administrative personnel and 307 are operational personnel. The Company also
uses the services of approximately 8 independent contract drillers and
directional guidance personnel. None of the Company's employees is represented
by a labor union, and the Company is not aware of any current activities to
unionize its employees. Management of the Company considers the relationship
between the Company and its employees to be good.

INCORPORATION

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



                                       6
<PAGE>



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

         With the exception of historical matters, the matters discussed in this
Report are "forward-looking statements" as defined under the Securities Exchange
Act of 1934, as amended, that involve risks and uncertainties. The Company
intends that the forward-looking statements herein be covered by the safe-harbor
provisions for forward-looking statements contained in the Securities Exchange
Act of 1934, as amended, and this statement is included for the purpose of
complying with these safe-harbor provisions. Forward-looking statements include,
but are not limited to, the matters described below as risk factors, as well as
under "Item 1. Business - General," "- Principal Customers and Marketing,"
"-Operating Hazards and Insurance," "--Competition," and "--Regulation." "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations - General," "-Twelve-Month Periods Ended December 31, 2002 and 2001",
"-Twelve-Month Periods Ended December 31, 2001 and 2000", "-Possible Future
Impairment of Long-Lived Assets," "- Liquidity and Capital Resources,"
"-Significant Accounting Policies" and "Item 7A. Quantitative and Qualitative
Disclosure About Market Risk." Such forward-looking statements relate to the
Company's ability to generate revenues and attain and maintain profitability and
cash flow, the improvement in, stability and level of prices for oil and natural
gas, predictions as to the fluctuations in the levels of oil and natural gas
prices, pricing in the oil and gas services industry and the willingness of
customers to commit for oil and natural gas well services, the ability of the
Company to implement any of the possible alternative means to maximize
shareholder value, including any possible merger, sale of assets or other
business combination transaction involving the Company or raising additional
debt or equity capital, the Company's ability to implement and, if appropriate,
expand a cost-cutting program, the ability of the Company to compete in the
premium oil and gas services market, the ability of the Company to meet or
refinance its debt obligations as they come due or to obtain extensions of the
maturity dates for the payment of principal, the ability of the Company to
re-deploy its equipment among regional operations as required, the ability of
the Company to provide services using state of the art tooling, the ability of
the Company to raise additional capital to meet its requirements and to obtain
additional financing when required, and its ability to maintain compliance with
the covenants of its various loan documents and other agreements pursuant to
which securities, including debt instruments, have been issued and obtain
waivers of violations that occur and consents to amendments as required. The
inability of the Company to meet these objectives or requirements or the
consequences on the Company from adverse developments in general economic
conditions, adverse developments in the oil and gas industry, developments in
international relations and the commencement of possible hostilities by the
United States or other governments and events of terrorism, declines and
fluctuations in the prices for oil and natural gas and the absence of any
material decline in those prices, 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 and
financial condition to differ materially from those expressed


                                       7
<PAGE>


in any forward-looking statements made by the Company and could adversely affect
the Company's financial condition and its ability to pursue its business
strategy and plans. Risk factors that could affect the Company's revenues,
profitability and future business operations include, among others, the
following:

         Substantial Outstanding Indebtedness; Recent Losses; Current Maturities
of Indebtedness; Risks of Defaults. At December 31, 2002, the Company's total
indebtedness, inclusive of accrued interest of $10.8 million, was approximately
$58.3 million. The Company had outstanding at February 28, 2003 total
indebtedness, inclusive of accrued interest of $11.5 million, of $60.9 million.
The Company had net income (loss) for the three years ended December 31, 2002,
2001, and 2000 of approximately ($7.6 million), $5.0 million and ($4.0 million),
respectively. Cash flows provided by (used in) operations were approximately
$5.4 million, $16.3 million and ($2.9 million) for the years ended December 31,
2002, 2001, and 2000, respectively. The Company is highly leveraged. Its credit
facility, pursuant to which $22.1 million of indebtedness was outstanding as of
December 31, 2002, expires on September 14, 2004 and indebtedness then
outstanding under the credit facility will be due and payable. The Company's
level of indebtedness and the potential defaults thereunder, together with its
history of losses for the years ended December 31, 2002, December 31, 2000 and
prior years, and periodic covenant violations and events of default under loan
agreements, pose substantial risks to the Company and the holders of its
securities, including the possibility that the Company may not be able to
generate sufficient cash flow to pay the principal of and interest on the
indebtedness when due or to refinance such indebtedness. Defaults in the
repayment of this indebtedness, either at maturity or by acceleration of the due
date, could lead the creditors to foreclose on substantially all of the
Company's assets resulting in loss to the Company's stockholders.

         Restrictions On Operations Imposed by Lenders; Borrowings Secured by
Substantially All the Company's Assets. The Company has outstanding at December
31, 2002 senior secured indebtedness aggregating approximately $22.1 million
under its Credit Agreement with General Electric Capital Corporation ("GECC").
This indebtedness is collateralized by substantially all the Company's assets.
The instruments governing the Company's indebtedness to GECC impose significant
operating and financial restrictions on the Company. Failure to maintain
compliance with these covenants could result in the Company being unable to make
further borrowings under its revolving credit arrangement with GECC which
borrowings are necessary to enable the Company to fund its ongoing operations.
As amended through April 2003, the financial covenants in the Credit Agreement
that the Company is required to comply with include: (a) limitations on capital
expenditures to $8.0 million during each of the years 2002 and 2003 and $5.0
million during the six-months ended June 30, 2004, (b) having a fixed charge
coverage ratio at the end of each quarter, commencing with the quarter ended
March 31, 2004, of not less than 1.3:1.0 for the preceding twelve-month period,
(c) having an interest coverage ratio at the end of each quarter, commencing
with the quarter ended March 31, 2004, of not less than 3.0:1.0 for the


                                       8
<PAGE>



preceding twelve-month period, and (d) commencing with the quarter ending March
31, 2004, having a ratio of senior funded debt to EBITDA, minus capital
expenditures paid in cash, of not more than 2:0:1.0 for the four fiscal quarters
then ended. The Company is required to maintain a cumulative operating cash flow
at the end of each month, increasing in monthly increments from $800,000 for the
three months ended March 31, 2003 to $9.5 million for the twelve months ended
February 28, 2004. Such restrictions, as well as various other affirmative and
negative covenants in the Credit Agreement, affect, and in many respects
significantly limit or prohibit, among other things, the ability of the Company
to incur additional indebtedness, pay dividends, repay indebtedness prior to its
stated maturity, sell assets or engage in mergers or acquisitions. These
restrictions also limit the ability of the Company to effect future financings,
make certain capital expenditures, withstand a downturn in the Company's
business or economy in general, or otherwise conduct necessary corporate
activities. The Credit Agreement places restrictions, and under certain
circumstances prohibitions, on the Company's ability to borrow money under the
revolving credit provisions of the Credit Agreement. The Company's ability to
borrow under this revolving credit arrangement is necessary to fund the
Company's ongoing operations and a default under the Credit Agreement could
impair or terminate the Company's ability to borrow funds under the revolving
credit provisions. If the Company were to default on its indebtedness owing to
GECC and such indebtedness was accelerated, so as to become due and immediately
payable, there can be no assurance that the assets of the Company would be
sufficient to repay in full such indebtedness and the Company's other
liabilities. In addition, the acceleration of the Company's indebtedness owing
to GECC would constitute a default under other indebtedness of the Company owing
to other creditors, which may result in such other indebtedness also becoming
immediately due and payable. Under such circumstances, the holders of the
Company's Common Stock may realize little or nothing on their investment in the
Company. Even if additional financing could be obtained, there can be no
assurance that it would be on terms that are favorable or acceptable to the
Company or its equity security holders.

         At December 31, 2001, before reflecting an amendment to the Credit
Facility entered into in June 2002, the Company was in violation of financial
covenants relating to its fixed charge coverage ratio, minimum interest coverage
ratio, and ratio of senior funded debt to EBITDA. By amendment to the Credit
Facility entered into as of June 10, 2002, GECC waived these defaults as well as
violations relating to the Company's failure to timely deliver its financial
statements for the year ended December 31, 2001 as required by the Credit
Facility and selling certain assets in violation of the terms of the Credit
Facility. The Company and GECC entered into further amendments to the financial
covenants favorable to the Company in October 2002, February 2003 and April
2003.

         Intense Competition. The wireline and directional drilling industry is
an intensely competitive and cyclical business. A number of large and small
contractors provide competition in all areas of the Company's business. The
wireline service trucks and other equipment used are mobile and can be moved
from one region to another in response to increased demand. Many of


                                       9
<PAGE>


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.
Strong and stable market conditions and the Company's ability to meet intense
competitive pressures are essential to the Company's maintaining a positive
liquidity position and meeting debt covenant requirements. Decreases in market
conditions or failure to mitigate competitive pressures could result in
non-compliance of its debt covenants and the triggering of the prepayment
clauses of the Company's debt.

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

         Crude oil prices experienced record low levels in 1998, trading below
$15/bbl for most of the year and averaging only $14.41/bbl - the lowest yearly
average recorded since 1983 and down over 30 percent from prior-year levels.
Prices were lower due to increased supply from renewed Iraqi exports, increased
OPEC and non-OPEC production, higher inventories (particularly in North America)
and a simultaneous slowing of demand growth due to the Asian economic downturn
and a generally warmer than normal winter in the United States. U.S. natural gas
weakened in 1998 compared to the prior year periods, also due to abnormally warm
winter weather. In response to lower oil prices which continued into 1999, oil
companies cut upstream capital spending, particularly in the second half of
1998. As a consequence of the decline in levels of oil and natural gas prices
throughout 1999 from levels experienced in 1996 and 1997, producers of oil and
natural gas curtailed their utilization of oil and natural gas well service
activities. Similar events occurring in the future can again adversely affect
the Company's operations.


                                       10
<PAGE>

         Increases in oil and natural gas prices subsequent to mid-1999 through
2000 resulted in an increase in demand for oil and natural gas well services.
This impacted favorably the utilization of the Company's services and revenues
through the third quarter of 2001. Oil and natural gas commodity prices declined
throughout much of 2001, impacting the Company's operations in the fourth
quarter of 2001 and into the first half of 2002. In the first quarter of 2002,
oil and natural gas commodity prices began to show improvement which continued
through much of 2002. There can be no assurance that this improvement in prices
will favorably impact the Company's operating results in 2003. There can be no
assurance that there will be a continued improvement in oil and natural gas
prices, that prices will be maintained at their current levels, that such
improvement in prices as has occurred will enable the Company to operate
profitably or that the Company will continue to experience an ongoing increase
in the demand for and utilization of its services. Future declines in oil and
natural gas prices can be expected to adversely impact the Company's revenues.

         Material Charge to Operations During 1998. In accordance with SFAS No.
144 Accounting for the Impairment or Disposal of Long-Lived Assets, the Company
recognizes impairment losses on long-lived assets used in operations when
indicators of impairment are present and the projected undiscounted cash flows
over the life of the assets are less than the asset's carrying amount. If an
impairment exists, the amount of such impairment is calculated based on
projections of future discounted cash flows. These projections are for a period
of five years using a discount rate and terminal value multiple that would be
customary for evaluating current oil and gas service company transactions.

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

         In 1998, the Company experienced a large decline in demand for its
services as a result of a substantial decrease in the price of oil and natural
gas, as well as the loss of a major customer. Consequently, management evaluated
the recoverability of its long-lived assets in relation to its business
segments. The analysis was first performed on an undiscounted basis which
indicated impairment in its directional drilling segment. The impairment was
then calculated using projections of discounted cash flows over five years
utilizing a discount rate and terminal value multiple commensurate with current
oil and gas services company transactions. At December 31, 1998, the discount
rate and the terminal multiple used was 12% and 6.5, respectively. The
assumptions used in this analysis represent management's best estimate of future
results.

         The analysis resulted in a charge to operations for the year ended
December 31, 1998 of $11.1 million which consisted of a write-down of
approximately $8.1 million, approximately


                                       11
<PAGE>


$2.4 million, and approximately $624,000, to goodwill, property, plant and
equipment, and inventory, respectively.

         Substantial Dilution. The Company has outstanding as of February 28,
2003, common stock purchase warrants, options and convertible notes which,
including accrued interest that is also convertible, are entitled to purchase or
be converted into an aggregate of 138,395,792 shares of the Company's Common
Stock at exercise and conversion prices ranging from $0.75 to $8.01.
Accordingly, if all such securities were exercised or converted, the 12,499,528
shares of Common Stock issued and outstanding on February 28, 2003, would
represent 8.3% of the shares outstanding on a fully diluted basis. Of the
Company's outstanding common stock purchase warrants, options and convertible
notes, including interest, 138,330,792 shares of Common Stock are issuable at an
exercise price of $0.75 per share.

         The Company's convertible notes outstanding in the principal amount of
$24.6 million as of December 31, 2002, accrue interest at the rate of 15% per
annum. Under the terms of the Company's Credit Facility, the Company is
prohibited from paying interest currently on such indebtedness. During the year
ended December 31, 2002, $3.7 million of interest accrued on such indebtedness
which, at a conversion price of $0.75 of accrued interest for one share of the
Company's Common Stock, is convertible into 4.9 million shares. During the year
ending December 31, 2003, the Company expects that an additional $3.7 million of
interest will accrue on such notes which at December 31, 2003 will be
convertible into 4.9 million shares. Such notes are due and payable on December
31, 2004 and can be expected to accrue interest through such time which accrued
interest will be convertible at the same conversion price into shares of the
Company's Common Stock. As a consequence, the holders of the Company's shares
outstanding will experience additional potential dilution.

         Under the terms of agreements entered into by the Company with the
holders of outstanding convertible notes extending the maturity date of such
notes, if the Company has not entered into a purchase or merger agreement on or
before certain dates, the holders become entitled to receive five-year common
stock purchase warrants exercisable at $0.75 per share. Because such an
agreement was not entered into by December 31, 2001, the Company became
obligated to issue approximately 2.4 million additional warrants. Because such
an agreement was not entered into by December 31, 2002, the Company became
obligated to issue an additional approximately 5.2 million additional warrants.
If such agreement is not entered into by December 31, 2003 with a closing by
March 31, 2004, the Company will be obligated to issue an additional
approximately 10.4 million additional warrants. Under the terms of the note
extensions, in the event that the Company has not entered into a purchase or
merger agreement by December 31, 2003 with a closing date no later than March
31, 2004, an aggregate of 18.0 million additional warrants will have been
issued. As a consequence, the holders of the Company's shares outstanding will
experience additional potential dilution by virtue of the terms of these
agreements.


                                       12
<PAGE>

         Possible Scarcity 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 operational results. The Company's
operations are to a considerable extent dependent upon the continuing
availability of personnel with the necessary level of training and experience to
adequately operate its equipment. In 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 impacted. There can
be no assurance that the Company's operations and a continued improvement in its
revenues may not be adversely affected by a scarcity of operating personnel.

         Dependence on Major Customers. In 2002 and prior to 2001, a large
portion of the Company's revenues has been generated from a relatively small
number of companies. During the year ended December 31, 2002, one customer
(Encore Operating) accounted for 7.9% of the Company's revenues. During the year
ended December 31, 2000, one customer (Burlington Resources) accounted for
approximately 7.1% of the Company's revenues. During 1999, two customers each
accounted for in excess of 10% of the Company's revenues. Collins & Ware, Inc.,
a company in which St. James Capital Corp. and its affiliate SJMB, L.L.C.
(together referred to as "SJMB") had a significant ownership interest, accounted
for 10.1% of revenues and Burlington Resources accounted for 10.9% of revenues.
A significant reduction in business done by the Company with its principal
customers, if not offset by revenues from new or existing customers, could have
a material adverse effect on the Company's business, results of operations and
prospects.

         Substantial Control by Principal Investor. As of February 28, 2003, St.
James, including its affiliates and partners, held 5,017,481 shares of Common
Stock, promissory notes of the Company, including accrued interest, convertible
into 47,585,328 shares of Common Stock and warrants to purchase an additional
70,478,846 shares of Common Stock. Upon conversion of the principal and accrued
interest of the notes and exercise of the warrants, St. James, and its
affiliates and partners, would hold an aggregate of 123,081,655 shares
representing 94.2% 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. As of
February 28, 2003, two of the


                                       13
<PAGE>


Company's three Directors are a principal or employee of St. James. 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.

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

         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 are subject to
seasonal variations in weather conditions, daylight hours and favorable weather
conditions for its off-shore wireline operations. 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.

         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 R. Thornton,
Vice-President, Wireline Services, and certain of the Company's other officers
and operating personnel. The loss of the services of any one of these persons
could have a material adverse effect on the Company. The Company has entered
into


                                       14
<PAGE>


employment agreements with each of its executive officers, including Messrs.
Jenkins (through December 31, 2005) and Thornton and Neel (through April 1,
2006), and has purchased "key-man" life insurance with respect to each of such
persons.

         Absence of Dividends. The Company has not declared or paid any cash
dividends on the Common Stock and currently anticipates that, for the
foreseeable future, any earnings will be retained for the development of the
Company's business. Accordingly, no cash dividends are contemplated to be
declared or paid on the Common Stock. In addition, the Company's existing loan
agreements prohibit the payment of cash dividends. See "Item 5. Market for
Registrant's Common Equity and Related Stockholder Matters."

ITEM 2.  PROPERTIES

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

         The Company maintains District Offices at 23 locations throughout its
service area and a manufacturing facility in Laurel, Mississippi. The aggregate
annual rental for these facilities is $702,500. 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 also maintains executive offices
in its Conroe, Texas District Office. The Company believes that all of the
facilities are adequate for its current requirements.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is a defendant in a number of 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.

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, 2002, to a vote of security holders of the Company, through
the solicitation of proxies, or otherwise.



                                       15
<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:

                                                     BID PRICES
                                                ---------------------
                2001                               HIGH      LOW
         ------------------------------------------------------------

         First Quarter                            $ 0.60    $ 0.31
         Second Quarter                           $ 1.25    $ 0.56
         Third Quarter                            $ 0.65    $ 0.44
         Fourth Quarter                           $ 0.55    $ 0.31


                                                     BID PRICES
                                                ---------------------
                2002                               HIGH      LOW
         ------------------------------------------------------------

         First Quarter                            $ 0.45    $ 0.30
         Second Quarter                           $ 0.60    $ 0.46
         Third Quarter                            $ 0.35    $ 0.10
         Fourth Quarter                           $ 0.20    $ 0.09


                                                     BID PRICES
                                                ---------------------
                2003                               HIGH      LOW
         ------------------------------------------------------------

         First Quarter (through March 31)         $ 0.25    $ 0.10




                                       16
<PAGE>


         The foregoing amounts represent inter-dealer quotations without
adjustment for retail markups, markdowns or commissions, and do not represent
the prices of actual transactions. On March 31, 2003, the closing bid quotation
for the Common Stock, as reported by the OTC Bulletin Board, was $0.25.

         As of March 31, 2003, the Company had approximately 451 shareholders of
record and believes it has in excess of 500 beneficial holders of its Common
Stock. The Company has never paid a cash dividend on its Common Stock and
management has no present intention of commencing to pay dividends and is unable
to do so under the terms of outstanding loan agreements.

ITEM 6.  SELECTED FINANCIAL DATA

         Set forth below is certain financial information for each of the five
years ended December 31, 2002 taken from the Company's audited consolidated
financial statements:

<TABLE>
<CAPTION>

                                                                    DECEMBER 31,
                                        -------------------------------------------------------------------------------------------
                                            2002                2001                2000               1999                1998
                                            ----                ----                ----               ----                ----
<S>                                     <C>                 <C>                <C>                 <C>                 <C>

Revenues(1)                             $ 56,583,161        $ 76,106,920       $ 44,554,536        $ 28,037,403        $ 32,903,177
Income (loss)                           $ (2,420,015)       $ 11,585,905       $     25,140        $ (4,828,759)       $(19,272,228)
from continuing
operations
Net income (loss)                       $      (0.61)       $       0.40       $      (0.55)       $      (1.81)       $      (5.86)
per common share -
diluted
Total assets                            $ 49,671,109        $ 50,480,875       $ 42,874,974        $ 36,331,984        $ 36,814,850
Total Liabilities(2)                    $ 67,719,554        $ 61,128,274       $ 58,753,433        $ 54,478,858        $ 48,151,206
Cash Dividends                                 - 0 -               - 0 -              - 0 -               - 0 -               - 0 -

</TABLE>


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

(1) See Note 5 to Notes to Financial Statements for information regarding
    acquisitions made by the Company.

(2) See Note 9 to Notes to Financial Statements for information relating to the
    Company's outstanding indebtedness.



                                       17
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION

GENERAL

         The Company's results of operations are affected primarily by the
extent of utilization and rates paid for its services and equipment. The energy
services sector is completely dependent upon the upstream spending by the
exploration and production side of the industry. A recovery in the energy
industry began in the latter half of 1999 and continued throughout 2000 and into
early 2001 due mainly to strong oil and natural gas prices. These prices
declined throughout most of 2001. As a consequence, North American drilling
activity declined as well. The Company's strong revenues and income from
operations experienced in the first three quarters of 2001 did not continue into
the fourth quarter of 2001 and into 2002. While oil and natural gas commodity
prices improved throughout much of 2002, the improved pricing did not result in
revenues and income to the Company in amounts as favorable as were experienced
in 2001. Revenues and income did, however, improve from quarter to quarter
throughout 2002. There can be no assurance that the Company will experience
continued improvement in revenues and income from operations in 2003 that were
realized in 2002. There can be no assurance that the Company will continue to
experience any material increase in the demand for and utilization of its
services and its revenues and return to profitability.

         The following table sets forth the Company's revenues from its two
principal lines of business for each of the years ended December 31, 2002, 2001,
and 2000 (in thousands). In July 2001, the Company sold its workover and
completion line of business and therefore operating results for 2000 have been
restated for the discontinued operations (see Note 22 to Notes to Financial
Statements).

                                            2002            2001          2000
--------------------------------------------------------------------------------


Wireline Services                          $34,094        $39,682        $21,637

Directional Drilling                       $22,489         36,425         22,918
                                           -------------------------------------
                                           $56,583        $76,107        $44,555
                                           =====================================



                                       18
<PAGE>

         As a consequence of the decline in levels of oil and natural gas prices
throughout 1999 from levels experienced in 1996 and 1997, producers of oil and
natural gas curtailed their utilization of oil and natural gas well service
activities. Increases in oil and natural gas prices subsequent to mid-1999
through 2000 resulted in an increase in demand for oil and natural gas well
services. This impacted favorably the utilization of the Company's services and
revenues through the third quarter of 2001. Oil and natural gas commodity prices
declined throughout much of 2001, impacting the Company's operations in the
fourth quarter of 2001 and into 2002. Throughout much of 2002, oil and gas
prices improved resulting in improved demand for the Company's services,
however, this improved demand and greater revenues to the Company were
insufficient to enable the Company to operate profitably. There can be no
assurance that this improvement in demand will favorably impact the Company's
operating results in 2003. There can be no assurance that there will be a
continued improvement in oil and natural gas prices, that such improvement in
prices as has occurred throughout much of 2002 will enable the Company to
operate profitably in 2003 or that the Company will experience an increase in
the demand for and utilization of its services that will enable it to operate
again at the levels experienced during the first three quarters of 2001. Future
declines in oil and natural gas prices can be expected to adversely impact the
Company's revenues. See "Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of 1995" and the risk
factors described thereunder.

         Management may in the future seek to raise additional capital, which
may be either debt or equity capital or a combination thereof or enter into
another material transaction involving the Company, including a possible sale of
the Company. As of March 31, 2003, no specific plans or proposals have been made
with regard to any additional financing or any other transaction. The Company
may engage in other material corporate transactions.

         In November 2001, the Company retained Simmons & Company International
("Simmons") as its financial advisor in connection with examining various
alternative means to maximize shareholder value including a possible merger,
sale of assets or other business combination involving the Company. At the
Company's request, Simmons intends to intensify its efforts in this connection
and it intends, during the second quarter of 2003, to further its efforts in
this regard by soliciting the interest of persons with a strategic or other
possible interest in entering into a business combination transaction with the
Company. Any such transaction can be expected to result in a change of control
of the Company. At March 31, 2003, the Company had not entered into any
agreements or letters of intent regarding any such business combination and it
was not engaged in any substantive negotiations with any person in that regard.
Any such transaction will be dependent upon the ability of the Company to reach
an agreement on terms acceptable to its Board of Directors and principal
stockholders. There can be no assurance that the Company will enter into such a
transaction and no representation is made as to the terms on which any such a
transaction may be entered into or that such a transaction will occur.



                                       19
<PAGE>

         In the event the Company should seek or be required to raise additional
equity capital, there can be no assurance that such a transaction can be
effected in the light of the Company's existing capital structure or that such a
transaction will not dilute the interests of the Company's existing security
holders. Fluctuations in interest rates may adversely affect the Company's
ability to raise capital.

TWELVE MONTH PERIODS ENDED DECEMBER 31, 2002 AND 2001

         Revenues decreased by approximately $19.5 million or 25.7% to $56.6
million for the year ended December 31, 2002 as compared to revenues of $76.1
million for the year ended December 31, 2001. Wireline services revenues
decreased by approximately $5.6 million in 2002 from 2001 primarily due to the
decreased demand for the Company's services. Directional drilling revenues
decreased from 2001 by approximately $13.9 million mainly as a result of the
downturn in market conditions for most of 2002.

         Operating costs decreased by $8.7 million for the year ended December
31, 2002, as compared to 2001. This decrease was due primarily to the decrease
in corresponding revenues of the Company as compared to 2001. Salaries and
benefits increased by $945,000 for 2002 as compared to 2001. This was due
primarily to the Company's decreased employee base as the Company expanded its
services to include tubing conveyed perforating and plugging and well abandoning
services. Operating costs as a percentage of revenues increased to 71.2% in 2002
from 64.4% in 2001 primarily because of the decreased utilization of the
Company's assets as well as decreases in pricing of the Company's services.

         Selling, general and administrative expenses increased by approximately
$1.8 million from $8.9 million in 2001 to $10.7 million in 2002. As a percentage
of revenues, selling, general and administrative expenses increased from 11.7%
in 2001 to 18.8% in 2002, primarily as a result of the reduced revenue level
generated in 2002.

         Depreciation and amortization increased from $6.6 million in 2001, to
$8.0 million in 2002, primarily because of the higher asset base of depreciable
properties in 2002 over 2001 resulting from the Company's capital expenditures
of $7.7 million in 2002.

         Interest expense and amortization of debt discount decreased by
approximately $485,000 for 2002 as compared to 2001. This was directly related
to lower interest rates on outstanding senior debt in 2002.

          During 2001, the Company recognized an extraordinary loss of
$1,322,481, net of income taxes of $0, as a result of the repayment of
indebtedness owing to Coast Business Credit in September 2001 and a cash
collateral fee agreement entered into with St. James. The


                                       20
<PAGE>


Company recorded an extraordinary gain of $175,003, net of income taxes of $0,
as a result of a negotiated payment of promissory notes and related obligations.
The Company had no extraordinary losses in 2002.

         Net gain or loss on sale of fixed assets increased in 2002 to a net
gain of $177,000 from a $34,000 net gain in 2001. Other income decreased by
approximately $11,000 in 2002.

         The provision for income taxes was $0 in 2002 and 2001. The provision
is $0 due to the fact that a full valuation allowance has been recorded against
the net deferred tax assets generated in the years ended prior to December 31,
2002.

         The Company's net loss for 2002 was $7.6 million, compared with a net
income of $5.0 million in 2001. The Company's loss in 2002 was primarily
attributable to the reduced demand for the Company's services throughout 2002
compared with the enhanced demand for the Company's services in 2001. The
reduced operating results was the result of decreased revenues and the decrease
in demand for the Company's services throughout 2002.

TWELVE-MONTH PERIODS ENDED DECEMBER 31, 2001 AND 2000

         Revenues increased by approximately $31.6 million or 70.8% to $76.1
million for the year ended December 31, 2001 as compared to revenues of $44.6
million for the year ended December 31, 2000. Wireline services revenues
increased by approximately $18.0 million in 2001 primarily due to the increased
demand for the Company's services. Directional drilling revenues increased by
approximately $13.5 million mainly as a result of the upturn in market
conditions for most of 2001.

         Operating costs increased by $16.6 million for the year ended December
31, 2001, as compared to 2000. This increase was due primarily to the increase
in corresponding revenues of the Company as compared to 2000. Salaries and
benefits increased by $7.9 million for 2001 as compared to 2000. This was due
primarily to the Company's increased employee base as well as the level of
activity. Operating costs as a percentage of revenues decreased to 64.3% in 2001
from 72.5% in 2000 primarily because of the increased utilization of the
Company's assets as well as increases in pricing of the Company's services.

         Selling, general and administrative expenses increased by approximately
$2.0 million from $6.9 million in 2000 to $8.9 million in 2001. As a percentage
of revenues, selling, general and administrative expenses decreased from 15.4%
in 2000 to 11.7% in 2001, primarily as a result of the revenue level generated
in 2001.


                                       21
<PAGE>


         Depreciation and amortization increased from $5.4 million in 2000, to
$6.6 million in 2001, primarily because of the higher asset base of depreciable
properties in 2001 over 2000 due to the Company's capital expenditures of $11.2
million in 2001.

         Interest expense and amortization of debt discount increased by
approximately $900,000 for 2001 as compared to 2000. This was directly related
to the increased amounts of indebtedness outstanding in 2001.

         In 2001, the Company recognized an extraordinary loss of $1,322,481,
net of income taxes of $0, as a result of the repayment of indebtedness owing to
Coast Business Credit in September 2001 and the St. James Collateral
Compensation Agreement. The Company recorded an extraordinary gain of $175,003,
net of income taxes of $0, as a result of a negotiated payment of promissory
notes and related obligations. During 2000, the Company executed agreements with
certain of its vendors to discount the outstanding obligations due to these
vendors. The agreements provided for a decrease in the outstanding obligations
of $968,575. Accordingly, the Company recognized an extraordinary gain on
extinguishments of debt of $968,575, net of income taxes of $0.

         Net gain or loss on sale of fixed assets increased in 2001 to a net
gain of $34,000 from a $10,000 net gain in 2000. Other income decreased by
approximately $1,000 in 2001.

         The provision for income taxes was $0 in 2001 and 2000. The provision
is $0 due to the fact that a full valuation allowance has been recorded against
the net deferred tax assets generated in the years ended prior to December 31,
2001.

         The Company's net income for 2001 was $5.1 million, compared with a net
loss of $4.2 million in 2000. The Company's loss in 2000 was primarily
attributable to the reduced demand for the Company's services in the first half
of 2000. The improvement in operating results was the result of increased
revenues and the increase in demand for the Company's services in the latter
half of 2000 and for the first three quarters of 2001.

POSSIBLE FUTURE IMPAIRMENT OF LONG-LIVED ASSETS

         In accordance with SFAS No. 144 Accounting for the Impairment or
Disposal of Long-Lived Assets, the Company recognizes impairment losses on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows over the life of the assets are less than the
asset's carrying amount. If an impairment exists, the amount of such impairment
is calculated based on projections of future discounted cash flows. These




                                       22
<PAGE>

projections are for a period of five years using a discount rate and terminal
value multiple that would be customary for evaluating current oil and gas
service company transactions.

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

         In 1998, the Company experienced a large decline in demand for its
services as a result of a large decrease in the price of oil and natural gas, as
well as the loss of a major customer. Consequently, management evaluated the
recoverability of its long-lived assets in relation to its business segments.
The analysis was first performed on an undiscounted basis which indicated
impairment in its directional drilling segment. The impairment was then
calculated using projections of discounted cash flows over five years utilizing
a discount rate and terminal value multiple commensurate with current oil and
gas services company transactions. At December 31, 1998, the discount rate and
the terminal multiple used was 12% and 6.5, respectively. The assumptions used
in this analysis represent management's best estimate of future results.

         The analysis resulted in a charge to operations for the year ended
December 31, 1998 of $11.1 million which consisted of a write-down of
approximately $8.1 million, approximately $2.4 million, and approximately
$624,000, to goodwill, property, plant and equipment, and inventory,
respectively. There can be no assurance that such a charge to operations may not
occur again in the future.

LIQUIDITY AND CAPITAL RESOURCES

         Cash provided by the Company's operating activities was $5.4 million
for the year ended December 31, 2002 as compared to cash provided by operating
activities of $16.3 million for the year ended December 31, 2001. Investing
activities of the Company used cash of approximately $7.7 million during the
year ended December 31, 2002 for the acquisition of property, plant and
equipment and was offset by proceeds from the sale of fixed assets of $219,000.
During the year ended December 31, 2001, acquisitions of property, plant and
equipment used cash of $11.2 million offset by proceeds of $108,000 from the
sale of fixed assets and proceeds from the sale of discontinued operations of
$525,000. Financing activities provided cash of $7.6 million from borrowings
during the year ended December 31, 2002 offset by principal payments on
long-term notes and capital lease obligations of $5.6 million. During the year
ended December 31, 2001, the sale of convertible notes and warrants and other
borrowings resulted in proceeds of $18.2 million offset by principal payments on
long-term debt and capital lease obligations and loan origination costs of $20.5
million.



                                       23
<PAGE>

         During the year ended December 31, 2002, the Company expended $4.2
million for the acquisition of property, plant and equipment financed under the
capital expenditure credit facility with GECC and notes payable. During the year
ended December 31, 2001, the Company expended $1.2 million for the acquisition
of property, plant and equipment financed under capital leases and notes
payable.

         The Company's outstanding indebtedness includes primarily senior
secured indebtedness aggregating approximately $22.1 million at December 31,
2002, other indebtedness of approximately $1.2 million, and $24.2 million owing
to St. James, along with $10.8 million of accrued interest payable.

         GECC Credit Facility. On September 14, 2001, the Company entered into
the Credit Facility with GECC providing for the extension of revolving, term and
capex credit facilities to the Company aggregating up to $40.0 million. The
Company and GECC entered into amendments to the Credit Facility in January 2002,
June 2002, October 2002, February 2003 and April 2003. As amended, the Credit
Facility includes a revolving loan of up to $15.0 million, but not exceeding 85%
of eligible accounts receivable, a term loan of $17.0 million, and a capex loan
of up to $8.0 million, but not exceeding a borrowing base of the lesser of 70%
of the hard costs of acquired eligible equipment, 100% of its forced liquidation
value and the Company's EBITDA for the month then ended, less certain principal,
interest and maintenance payments. Eligible accounts are defined to exclude,
among other items, accounts outstanding of debtors that are more than 60 days
overdue or 90 days following the original invoice date and of debtors that have
suspended business or commenced various insolvency proceedings and accounts with
reserves established against them to the extent of such reserves as GECC may set
from time to time in its reasonable credit judgment. Borrowings under the capex
loan are at the sole and exclusive discretion of GECC. The interest rate on
borrowings under the revolving loan is 1.75% above a base rate and on borrowings
under the term loan and capex loan is 2.5% above the base rate. The base rate is
the higher of (i) the rate publicly quoted from time to time by the Wall Street
Journal as the base rate on corporate loans posted by at least 75% of the
nation's thirty largest banks, or (ii) the average of the rates on overnight
Federal funds transactions by members of the Federal Reserve System, plus 0.5%.
Subject to the absence of an event of default and fulfillment of certain other
conditions, , the Company can elect to borrow or convert any loan and pay
interest at the LIBOR rate plus applicable margins of 3.25% on the revolving
loan and 4.0% on the term loan and capex loan. If an event of default has
occurred, the interest rate is increased by 2%. Advances under the Credit
Facility are collateralized by a senior lien against substantially all of the
Company's assets. The Credit Facility expires on September 14, 2004.



                                       24
<PAGE>

         Initial borrowings under the Credit Facility advanced on September 14,
2001 aggregated $21.6 million. Proceeds of the initial borrowings were used to
repay outstanding indebtedness aggregating $21.4 million to Coast Business
Credit Bendover Company and certain other indebtedness. At December 31, 2002,
borrowings outstanding under the Credit Facility aggregated $22.1 million, of
which $6.3 million was outstanding under the revolving loan, $12.7 million was
outstanding under the term loan and $3.1 was outstanding under the capex loan.
Borrowings under the revolving loan are able to be repaid and re-borrowed from
time to time for working capital and general corporate needs, subject to the
Company's continuing compliance with the terms of the agreement, with the
outstanding balance of the revolving loan to be paid in full at the expiration
of the Credit Facility on September 14, 2004. The term loan is to be repaid in
35 equal monthly installments of $283,333 with a final installment of $7,083,333
due and payable on September 14, 2004. The capex loan is available to be
borrowed through September 14, 2003, at the discretion of GECC, and is to be
repaid in equal monthly installments of 1/60th of each of the amounts borrowed
from time to time with the remaining outstanding balance of the entire capex
loan due and payable on September 14, 2004

         Borrowings under the Credit Facility may be prepaid or the facility
terminated or reduced by the Company at any time subject to the payment of an
amount equal to 2% of the prepayment or reduction occurring before September 14,
2003, and 1% of the prepayment or reduction occurring thereafter but before
September 14, 2004. In the event all the stock or substantially all the assets
of the Company are sold prior to September 14, 2003, and in connection
therewith, the Company pre-pays the Credit Facility, the amount of such payment
is reduced to 1%. The Company is required to prepay borrowings out of the net
proceeds from the sale of any assets, subject to certain exceptions, or the
stock of any subsidiary, the net proceeds from the sale of any stock or debt
securities by the Company, and any borrowings in excess of the applicable
borrowing availability, including borrowings under the term loan and capex loan
in excess of 50% of the forced liquidation value of the eligible capex and term
loan equipment and borrowings under the term loan in excess of 70% of the forced
liquidation value of eligible term loan equipment. The value of the term loan
equipment is established by appraisal.

         Initial borrowings under the Credit Facility were subject to the
fulfillment at or before the closing of a number of closing conditions,
including among others, the accuracy of the representations and warranties made
by the Company in the loan agreement, delivery of executed loan documents,
officers' certificates, an opinion of counsel, repayment of the Coast senior
secured loan, the extension of the maturity date of $24.6 million principal
amount of the Company's outstanding subordinated notes to December 31, 2004 with
no payments of principal or interest to be made prior to that date, and the
completion of due diligence. Future advances are subject to the continuing
accuracy of the Company's representations and warranties as of such date (other
than those relating expressly to an earlier date), the absence of any event or
circumstance constituting a "material adverse effect," as defined, the absence
of any default or event of default under the Credit Facility, and the borrowings
not exceeding the applicable


                                       25
<PAGE>


borrowing availability under the Credit Facility, after giving effect to such
advance. A "material adverse effect" is defined to include an event having a
material adverse effect on the Company's business, assets, operations, prospects
or financial or other condition, on the Company's ability to pay the loans, or
on the collateral and also includes a decline in the "Average Rig Count"
(excluding Canada and international rigs) published by Baker Hughes, Inc.
falling below 675 for 12 consecutive weeks.

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

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


                                       26
<PAGE>

         As amended through April 2003, the financial covenants the Company is
required to comply with include (a) limitations on capital expenditures to $7.7
million during the year 2002 with an exclusion on the amount spent to replace
and restore plug and abandonment equipment lost due to weather in 2002, to $8.0
million during the year 2003 and to $5.0 million during the six-months ended
June 30, 2004, (b) having a fixed charge coverage ratio at the end of each
quarter, commencing with the quarter ended March 31, 2004, of not less than
1.3:1.0 for the preceding twelve-month period, (c) having an interest coverage
ratio at the end of each quarter, commencing with the quarter ended March 31,
2004, of not less than 3.0:1.0 for the preceding twelve-month period, and (d)
commencing with the quarter ending March 31, 2004, having a ratio of senior
funded debt to EBITDA, minus capital expenditures paid in cash, of not more than
2:0:1.0 for the four fiscal quarters then ended. The Company is required to
maintain a cumulative operating cash flow at the end of each month, commencing
with the month ended March 31, 2003, increasing as follows:

                      FISCAL MONTH                CUMULATIVE OPERATING CASH FLOW
                      ------------                ------------------------------

         For the 3 Months Ending March 31, 2003             $  800,000

         For the 4 Months Ending April 30, 2003             $1,350,000

         For the 5 Months Ending May 31, 2003               $2,000,000

         For the 6 Months Ending June 30, 2003              $2,700,000

         For the 7 Months Ending July 31, 2003              $3,500,000

         For the 8 Months Ending August 31, 2003            $4,200,000

         For the 9 Months Ending September 30, 2003         $5,000,000

         For the 10 Months Ending October 31, 2003          $6,000,000

         For the 11 Months Ending November 30, 2003         $7,100,000

         For the 12 Months Ending December 31, 2003         $8,200,000

         For the 12 Months Ending January 31, 2004          $8,900,000

         For the 12 Months Ending February 28, 2004         $9,500,000


         Cumulative operating cash flow is defined, for the period March 1, 2003
through December 31, 2003, as the sum of EBITDA for such month minus capital
expenditures paid in

                                       27

<PAGE>

cash for such month plus EBITDA for each preceding month commencing on January
1, 2003 minus capital expenditures paid in cash for each preceding month
commencing January 1, 2003. Subsequent to December 31, 2003, cumulative
operating cash flow is defined to include the sum of EBITDA for such month minus
capital expenditures paid in cash for such month plus EBITDA for the preceding
eleven months minus capital expenditures paid in cash for the preceding eleven
months.

For the period ended December 31, 2002, the Company is in compliance with all
financial covenants.

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

         The Company has amended the terms of its Credit Facility with GECC on
five occasions the principal effects of which were to relax certain of the terms
of the financial covenants so as to be more favorable to the Company. There can
be no assurance that the Company will be able to obtain further amendments to
these financial covenants if required or that the failure to obtain such
amendments when requested may not result in the Company being placed in
violation of those financial covenants. Before reflecting amendments to the
Credit Facility made in June 2002, the Company was in violation of the financial
covenants relating to its fixed charge coverage ratio, minimum interest coverage
ratio, and ratio of senior funded debt to EBITDA. By amendment to the Credit
Facility entered into as of June 10, 2002, GECC waived these defaults



                                       28
<PAGE>

as well as violations relating to the Company's failure to timely deliver its
financial statements for the year ended December 31, 2001 as required by the
Credit Facility and selling certain assets in violation of the terms of the
Credit Facility. The Company agreed to pay GECC a fee of $100,000 in connection
with entering into the amendment.

         In connection with the April 2003 amendment to the Credit Facility, the
Company is required to provide GECC with weekly reports setting forth an aging
of its accounts payable and weekly cash budgets for the immediately following
thirteen week period. Also in connection with entering into that amendment, the
Company agreed to pay GECC an amendment fee of $100,000, of which $50,000 is
payable in June 2003 and $50,000 is payable on December 31, 2003, and a fee of
$300,000 in the event of a sale of all the assets or stock of the Company or
other event that results in a change of control of the Company. GECC consented
to a capex loan of $1.0 million to the Company at the time of entering into the
amendment.

         Reference is made to the Credit Agreement, filed as an Exhibit to the
Company's Current Report on Form 8-K for September 14, 2001, the First and
Second Amendments thereto, filed as exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 2001, the Third Amendment thereto,
filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002, and the Fourth Amendment and Fifth Amendment,
filed as Exhibits to this Annual Report on Form 10-K for the year ended December
31, 2002, for a complete statement of the terms and conditions.

         Note Extensions. In connection with the GECC refinancing, the Company
agreed with the holders to extend the maturity date from June 30, 2001 to
December 31, 2004 on $6.9 million of the $7.0 million principal amount of
promissory notes. The remainder of the outstanding principal was repaid. The
notes bear interest at 15% per annum and are convertible into shares of the
Company's common stock at a conversion price of $0.75 per share, subject to an
anti-dilution adjustment for certain issuances of securities by the Company at
prices per share of common stock less than the conversion price then in effect,
in which event the conversion price is reduced to the lower price at which the
shares were issued. The Company repaid approximately $83,000 to noteholders who
chose not to extend the maturity dates and St. James purchased $1.6 million from
noteholders who chose not to extend the maturity dates. As a condition to extend
the maturity date, holders of the notes are to receive additional five-year
common stock purchase warrants exercisable at $0.75 per share if the Company has
not entered into a purchase or merger agreement on or before certain dates.
Because such an agreement was not entered into by December 31, 2001, the Company
became obligated to issue approximately 2.4 million additional warrants. Because
such an agreement was not entered into by December 31, 2002, the Company became
obligated to issue approximately 5.2 million additional warrants. If such
agreement is not entered into by December 31, 2003 with a closing by March 31,
2004, the Company will be obligated to issue approximately 10.4 million
additional warrants. Under the terms of the note extensions, in the event that
the Company has not entered into a purchase or



                                       29
<PAGE>


merger agreement by December 31, 2003 with a closing date no later than March
31, 2004, an aggregate of 18.0 million additional warrants will have been
issued. The exercise price of the warrants that are to be issued are subject to
anti-dilution adjustments for certain issuances of securities by the Company at
prices per share of common stock less than the exercise price then in effect in
which event the exercise price is reduced to the lower price at which such
shares were issued.

         The Company also extended until December 31, 2004 the promissory notes
totaling $17.7 million owing to St. James which matured in March, 2001. The
notes bear interest at 15% per annum and are convertible into shares of the
Company's common stock at a conversion price of $0.75 per share, subject to an
anti-dilution adjustment for certain issuances of securities by the Company at
prices per share of common stock less than the conversion price then in effect,
in which event the conversion price is reduced to the lower price at which the
shares were issued.

         All of the debt and interest owed to St. James and its affiliates is
subordinated to the Company's Credit Facility and cannot be repaid until all the
amounts owed pursuant to the Credit Facility have been repaid. Consequently, all
of the related party debt and accrued interest has been classified on the
Company's balance sheet as non-current at December 31, 2002.

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

Recently Issued Accounting Pronouncements

         In July 2001, the Financial Accounting Standards Board ("FASB") issued
"Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations". SFAS No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. Goodwill and
certain intangible assets will remain on the balance sheet and has been
amortized through December 31, 2001 and accounted for under SFAS No. 142. On an
annual basis, and when there is reason to suspect that their values have been
diminished or impaired, these assets must be tested for impairment, and
write-downs may be necessary. The Company was required to implement SFAS No. 141
on July 1, 2001.

         In July 2001, the FASB issued SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 changes the accounting for goodwill and other
indefinite-lived intangible assets from an amortization method to an
impairment-only approach. Amortization of goodwill and other indefinite-lived
intangible assets ceased upon adoption of this statement. The Company
implemented SFAS No. 142 on January 1, 2002 and ceased amortization of goodwill
and indefinite-lived intangible assets. SFAS No. 142 requires an assessment of
potential impairment upon adoption and annually thereafter in the month the
Company elects to perform its analysis or more frequently if events or
circumstances indicate that an impairment may have occurred. The


                                       30
<PAGE>


Company has completed the step one valuation analysis as of the implementation
date. The step one analysis did not indicate any impairment of goodwill. The
Company has no material indefinite-lived intangible assets.

         In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires entities to record the fair value
of a liability for legal obligations associated with the retirement obligations
of tangible long-lived assets in the period in which it is incurred and the
corresponding cost capitalized by increasing the carrying amount of the related
asset. The liability is accreted to the fair value at the time of settlement
over the useful life of the asset, and the capitalized cost is depreciated over
the useful life of the related asset. If the liability is settled for an amount
other than the recorded amount, a gain or loss is recognized. The Company is
required to adopt this standard on January 1, 2003.

         In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets effective for years beginning after
December 15, 2001. This Statement supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, but
retains the fundamental provisions of SFAS No. 121 for recognition and
measurement of the impairment of long-lived assets to be held and used and
measurement of long-lived assets to be held for sale. The statement requires
that whenever events or changes in circumstances indicate that a long-lived
asset's carrying value may not be recoverable, the asset should be tested for
recoverability. The statement also requires that a long-lived asset classified
as held for sale should be carried at the lower of its carrying value or fair
value, less cost to sell. The Company adopted SFAS No. 144 effective January 1,
2002 and it did not have a material effect on its financial statements on
adoption.

         In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4,44, and 64, Amendment of FASB Statement No. 13 and Technical
Corrections as of April 2002", rescinds SFAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt", SFAS No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements." This Statement also rescinds SFAS No. 44,
"Accounting for Intangible Assets of Motor Carriers" and amends SFAS No. 13,
"Accounting for Leases", to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. This
statement eliminates the treatment of early extinguishments of debt as
extraordinary items. The provisions of this Statement related to the rescission
of Statement 4 shall be applied in fiscal years beginning after May 15, 2002.
The provisions Statement related to Statement 13 shall be effective for
transactions occurring after May 15, 2002. All other provisions of this
Statement shall be effective for financial statements issued on or after May 15,
2002. The Company does not believe that adoption of this statement will have a
material affect on its financial statements.



                                       31
<PAGE>

         In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94.3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." This Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred rather than at the date of
an entity's commitment as provided under Issue No. 94.3. This Statement also
establishes that fair value is the objective for initial measurement of the
liability. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company does not
believe adoption of the provisions of this statement will have a material impact
on its financial statements.

         In 2003, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123." The disclosure requirements of Statement No. 123, Accounting for
Stock-Based Compensation, which apply to stock compensation plans of all
companies, are amended to require certain disclosures about stock-based employee
compensation plans in an entity's accounting policy note. Those disclosures
include a tabular format of pro forma net income and, if applicable, earnings
per share under the fair value method if the intrinsic value method is used in
any period presented. Pro forma information in a tabular format is also required
in the notes to interim financial information if the intrinsic value method is
used in any period presented. The amendments to the disclosure and transition
provisions of Statement No. 123 are effective for fiscal years ending after
December 15, 2002.

         In November 2002, FASB Interpretation 45 (FIN 45), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others", was issued. FIN 45 requires a guarantor
entity, at the inception of a guarantee covered by the measurement provisions of
the interpretation, to record a liability for the fair value of the obligation
undertaken in issuing the guarantee. The Company previously did not record a
liability when guaranteeing obligations unless it became probable that the
Company would have to perform under the guarantee. FIN 45 applies prospectively
to guarantees the Company issues or modified subsequent to December 31, 2002,
but has certain disclosure requirements effective for interim and annual periods
ending after December 15, 2002. The Company does not anticipate FIN 45 will have
a material effect on its 2003 financial statements. Disclosures required by FIN
45 are included in the accompanying financial statements.

         In January 2003, the FASB issued FASB Interpretation 46 (FIN 46),
"Consolidation of Variable Interest Entities." FIN 46 clarifies the application
of Accounting Research Bulletin 51, "Consolidated Financial Statements", for
certain entities that do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other


                                       32
<PAGE>


parties or in which equity investors do not have the characteristics of a
controlling financial interest ("variable interest entities"). Variable interest
entities within the scope of FIN 46 will be required to be consolidated by their
primary beneficiary. The primary beneficiary of a variable interest entity is
determined to be the party that absorbs a majority of the entity's expected
losses, receives a majority of its expected returns, or both. FIN 46 applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after June
15, 2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The adoption of this
provision will not have a material effect on the financial condition or results
of operations of the Company.

         In November 2002, the Emerging Issues Task Force reached a consensus
opinion on EITF 00-21, "Revenue Arrangements with Multiple Deliverables." The
consensus provides that revenue arrangements with multiple deliverables should
be divided into separate units of accounting if certain criteria are met. The
consideration for the arrangement should be allocated to the separate units of
accounting based on their relative fair values, with different provisions if the
fair value of all deliverables are not known or if the fair value is contingent
on delivery of specified items or performance conditions. Applicable revenue
recognition criteria should be considered separately for each separate unit of
accounting. EITF 00-21 is effective for revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. Entities may elect to report the
change as a cumulative effect adjustment in accordance with APB Opinion 20,
Accounting Changes. The Company has not determined the effect of adoption of
EITF 00-21 on its financial statements or the method of adoption it will use.

         In November 2002, the Emerging Issues Task Force reached a consensus
opinion on EITF 02-16, "Accounting by a Customer (including a reseller) for
Certain Consideration Received from a Vendor." EITF 02-16 requires that cash
payments, credits, or equity instruments received as consideration by a customer
from a vendor should be presumed to be a reduction of cost of sales when
recognized by the customer in the income statement. In certain situations, the
presumption could be overcome and the consideration recognized either as revenue
or a reduction of a specific cost incurred. The consensus should be applied
prospectively to new or modified arrangements entered into after December 31,
2002. The Company has not yet determined the effects of EITF 02-16 on its
financial statements.

INFLATION

         The Company's revenues have been and are expected to continue to be
affected by fluctuations in the prices for oil and gas. Inflation did not have a
significant effect on the Company's operations in 2002.

                                       33

<PAGE>

SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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


                                       34
<PAGE>


of carrying amounts. Warrants are valued based upon an independent valuation.
The difference between the face value of the warrant issued and the value per
the valuation is amortized into income through interest expense over the life of
the related debt instrument.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         From time to time, the Company holds financial instruments comprised of
debt securities and time deposits. All such instruments are classified as
securities available for sale. The Company does not invest in portfolio equity
securities, or commodities, or use financial derivatives for trading or hedging
purposes. The Company's debt security portfolio represents funds held
temporarily pending use in its business and operations. The Company manages
these funds accordingly. The Company seeks reasonable assuredness of the safety
of principal and market liquidity by investing in rated fixed income securities
while, at the same time, seeking to achieve a favorable rate of return. The
Company's market risk exposure consists of exposure to changes in interest rates
and to the risks of changes in the credit quality of issuers. The Company
typically invests in investment grade securities with a term of three years or
less. The Company believes that any exposure to interest rate risk is not
material.

         Under the Credit Facility with GECC, the Company is subject to market
risk exposure related to changes in the prime interest rate. Assuming the
Company's level of borrowings from GECC at December 31, 2002 remained unchanged
throughout 2003, if a 100 basis point increase in interest rates under the
Credit Agreement from rates in existence at December 31, 2002 prevailed
throughout the year 2003, it would increase the Company's 2003 interest expense
by approximately $221,000.



                                       35
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

<TABLE>
<CAPTION>

         <S>                                                                     <C>
         Report of Independent Certified Public Accountants for the Year Ended
         December 31, 2002  ................................................     F-1

         Report of Independent Accountants for the Years Ended
         December 31, 2001 and 2000 ........................................     F-2

         Balance Sheets as of
         December 31, 2002, and 2001  ......................................     F-3

         Statements of Operations for the Years Ended
         December 31, 2002, 2001 and 2000 ..................................     F-4

         Statements of Stockholders (Deficit) for the
         Years Ended December 31, 2002, 2001, and 2000 .....................     F-5

         Statements of Cash Flows for the Years Ended
         December 31, 2002, 2001, and 2000  ................................     F-6

         Notes to Financial Statements......................................     F-8

</TABLE>


                                       36
<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
Black Warrior Wireline Corp.

We have audited the accompanying balance sheet of Black Warrior Wireline Corp.
(a Delaware corporation) as of December 31, 2002, and the related statements of
operations, stockholders' deficit, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Black Warrior Wireline Corp. as
of December 31, 2002, and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America.

As more fully described in Note 2, the Company is highly leveraged, has
experienced liquidity constraints and has accumulated a significant deficit. As
more fully described in Note 9, the Company entered into a new senior credit
facility on September 14, 2001. The senior credit facility has been amended five
times and the Company obtained a waiver of covenant violations in connection
with the June 2002 amendment. The Company's plans for providing liquidity during
2003 are set forth in Note 2.

As discussed in Note 8 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142) on January 1, 2002.

GRANT THORNTON LLP

Houston, Texas
April 14, 2003



                                      F-1
<PAGE>


REPORT OF INDEPENDENT ACCOUNTANTS


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

In our opinion, the accompanying balance sheets and related statements of
operations, stockholders' deficit, and cash flows present fairly, in all
material respects, the financial position of Black Warrior Wireline Corp. at
December 31, 2001, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As more fully described in Note 2, the Company is highly leveraged, has
experienced liquidity constraints and has accumulated a significant deficit. As
more fully described in Note 7, the Company entered into a new senior credit
facility on September 14, 2001. The Company was in default due to violations of
the covenants under this facility as well as those under related party notes
payable at December 31, 2001. The senior credit facility was amended on June 10,
2002 and the Company has obtained waivers of covenant violations in connection
therewith. The Company's plans for providing liquidity during 2002 are set forth
in Note 2.

PricewaterhouseCoopers
Memphis, Tennessee
June 10, 2002



                                      F-2
<PAGE>


BLACK WARRIOR WIRELINE CORP.
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                2002                2001
                                          ASSETS
<S>                                                                                         <C>                 <C>
Current assets:
     Cash and cash equivalents                                                              $  2,388,866        $  2,819,236
     Accounts receivable, less allowance of $845,635 and $958,573, respectively               12,801,228          13,356,718
     Other receivables                                                                           130,540             450,808
     Prepaid expenses                                                                             15,320              98,552
     Other current assets                                                                        781,272             641,177
                                                                                            ------------        ------------

           Total current assets                                                               16,117,226          17,366,491

Land and building, held for sale                                                                      --             156,250
Inventories of tool components and sub-assemblies, net                                         4,936,347           4,279,133
Property, plant and equipment, less accumulated depreciation                                  24,569,343          24,634,846
Other assets                                                                                     888,411           1,083,713
Goodwill and other intangible assets                                                           3,159,782           2,960,442
                                                                                            ------------        ------------

           Total assets                                                                     $ 49,671,109        $ 50,480,875
                                                                                            ============        ============

                     LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
     Accounts payable                                                                       $  6,970,438        $  6,310,029
     Accrued salaries and vacation                                                             1,106,070             790,225
     Accrued interest payable                                                                    122,660             128,871
     Other accrued expenses                                                                    1,048,985             980,588
     Current maturities of long-term debt and capital lease obligations                       10,928,255           8,619,507
                                                                                            ------------        ------------

           Total current liabilities                                                          20,176,408          16,829,220

Long-term debt, less current maturities                                                       12,370,084          12,750,000
Notes payable to related parties, net of unamortized discount                                 24,238,263          24,387,044
Non current accrued interest payable to related parties                                       10,798,224           7,062,010
Deferred revenue                                                                                 136,575             100,000
                                                                                            ------------        ------------

           Total liabilities                                                                  67,719,554          61,128,274
                                                                                            ============        ============

Commitments and contingencies (Notes 4,6,7,8,14 and 15)

Stockholders' deficit:
     Preferred stock, $.0005 par value, 2,500,000 shares authorized,
        none issued at December 31, 2002 or December 31, 2001                                         --                  --
     Common stock, $.0005 par value, 175,000,000 shares authorized,
         12,504,148 and 12,496,408 shares issued and outstanding at
         December 31, 2002 and December 31, 2001, respectively                                     6,252               6,248
     Additional paid-in capital                                                               20,275,963          19,956,227
     Accumulated deficit                                                                     (37,603,083)        (30,026,481)
     Treasury stock, at cost, 4,620 shares at December 31, 2002 and December 31, 2001           (583,393)           (583,393)
     Loan to shareholder                                                                        (144,184)                 --
                                                                                            ------------        ------------

           Total stockholders' deficit                                                       (18,048,445)        (10,647,399)
                                                                                            ------------        ------------

           Total liabilities and stockholders' deficit                                      $ 49,671,109        $ 50,480,875
                                                                                            ============        ============
</TABLE>

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


                                       F-3
<PAGE>


BLACK WARRIOR WIRELINE CORP.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                    2002              2001             2000

<S>                                                             <C>              <C>              <C>
Revenues                                                        $ 56,583,161     $ 76,106,920     $ 44,554,536

Operating costs                                                   40,313,634       48,993,968       32,306,683

Selling, general and administrative expenses                      10,648,650        8,897,983        6,872,410

Depreciation and amortization                                      8,040,892        6,629,064        5,350,303
                                                                ------------     ------------     ------------
        Income (loss) from continuing operations                  (2,420,015)      11,585,905           25,140

Interest expense and amortization of debt discount                (5,417,096)      (5,902,006)      (5,002,295)


Loss from impairment of non-operating land
     and building held for sale                                           --               --         (150,000)

Net gain on sale of fixed assets                                     177,059           34,315           10,345

Other income                                                          83,450           91,655           90,418
                                                                ------------     ------------     ------------

        Income (loss) before provision for income taxes,
            discontinued operations and extraordinary items       (7,576,602)       5,809,869       (5,026,392)

Provision for income taxes                                                --               --               --
                                                                ------------     ------------     ------------

        Income (loss) before discontinued operations and
            extraordinary items                                   (7,576,602)       5,809,869       (5,026,392)

Discontinued Operations:

        Loss from operations of discontinued Drilling
           and Completion segment, net of income taxes
           of $0 and $0 (Note 22)                                         --          (98,839)        (126,421)

        Gain on disposal of Drilling and Completion segment,
           net of income taxes of $0 (Note 22)                            --          476,172               --
                                                                ------------     ------------     ------------

           Income (loss) before extraordinary items               (7,576,602)       6,187,202       (5,152,813)

Extraordinary loss on early debt extinguishments, net of
        income tax benefit of $0 (Note 16)                                --       (1,322,481)              --

Extraordinary gain on extinguishments of debt, net of
        income taxes of $0 and $0 (Note 16)                               --          175,003          968,576

                                                                ------------     ------------     ------------
           Net income (loss)                                    $ (7,576,602)    $  5,039,724     $ (4,184,237)
                                                                ============     ============     ============

Net income (loss) per share - basic and diluted:

        Income (loss) before discontinued operations and
           extraordinary items                                  $       (.61)    $        .46     $       (.66)

        Discontinued operations                                           --              .03             (.02)

        Extraordinary items                                               --             (.09)             .13
                                                                ------------     ------------     ------------
Net income (loss) per share - basic and diluted                 $       (.61)    $        .40     $       (.55)
                                                                ============     ============     ============

</TABLE>

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

                                       F-4

<PAGE>


BLACK WARRIOR WIRELINE CORP.
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                        COMMON STOCK                                         TREASURY STOCK
                                      LOAN TO     ------------------------    PAID-IN     ACCUMULATED   -------------------------
                                    SHAREHOLDER     SHARES      PAR VALUE     CAPITAL       DEFICIT       SHARES         COST
                                    ------------  ------------  ----------  -----------  -------------  -----------   -----------
<S>                                  <C>          <C>          <C>          <C>           <C>           <C>           <C>
Balance, December 31, 1999                          4,812,260        2,406   13,316,081    (30,881,968)       4,620     (583,393)

Conversion of note payable
     and accrued interest
     to related party (Note 6)                      5,017,481        2,509    3,760,602

Conversion of note payable
     to related party for
     settlement of
     litigation (Note 6)                            2,666,667        1,333    1,998,667

Issuance of stock

     options to non-employees                                                   246,041

Forgiveness of debt by
     related party (Note 4)                                                     300,000

Issuance of warrants                                                            143,500

Net loss for the year ended
     December 31, 2000                                                                      (4,184,237)
                                     ----------   -----------  -----------  -----------   ------------  -----------   ----------

Balance, December 31, 2000                   --    12,496,408        6,248   19,764,891    (35,066,205)       4,620     (583,393)

Issuance of stock

     options to non-employees                                                    11,498


Issuance of warrants                                                            179,838

Net income for the year ended
     December 31, 2001                                                                       5,039,724
                                     ----------   -----------  -----------  -----------   ------------  -----------   ----------

Balance, December 31, 2001                   --    12,496,408        6,248   19,956,227    (30,026,481)       4,620     (583,393)

Loan to Shareholder                    (144,184)

Conversion of employee options                         7,740             4        7,736

Extension of warrants related to
discount of                                                                     287,000
     notes payable to related
     parties

Issuance of warrants                                                             25,000

Net loss for the year ended
     December 31, 2002                                                                      (7,576,602)
                                     ----------   -----------  -----------  -----------   ------------  -----------   ----------

Balance, December 31, 2002           $ (144,184)  $12,504,148  $     6,252  $20,275,963   $(37,603,083) $     4,620   $ (583,393)
                                     ==========   ===========  ===========  ===========   ============  ===========   ==========

</TABLE>

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

                                       F-5
<PAGE>


BLACK WARRIOR WIRELINE CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                2002             2001              2000
                                                                            -------------    ------------     -------------
<S>                                                                         <C>              <C>              <C>
Cash flows from operating activities:
     Net income (loss)                                                      $ (7,576,602)    $  5,039,724     $ (4,184,237)
     Adjustments to reconcile net income (loss) to net cash
         provided by (used in) operating activities:
           Depreciation                                                        7,888,302        6,444,445        5,248,716
           Amortization                                                          152,590          184,619          171,063
           Amortization of debt issue costs                                      395,018          511,504        1,370,917
           Amortization of discount on notes payable                             138,223               --               --
           Amortization of loan to shareholder                                    45,816               --               --
           Provision for doubtful accounts                                      (112,938)         540,321         (671,859)
           Net gain on disposition of property, plant and equipment             (177,059)         (34,315)         (10,345)
           Gain on disposition of discontinued operations                             --         (476,172)              --
           Impairment loss                                                            --               --          150,000
           Issuance of shares as compensation for services                            --           11,498          246,041
           Extraordinary (gain) loss on extinguishment of debt                        --        1,147,478         (968,576)
           Loan to shareholder                                                  (190,000)              --               --
           Change in:
              Accounts receivable                                                668,428       (2,464,821)      (5,789,107)
              Prepaid expenses                                                     8,232          374,239         (297,523)
              Other receivables                                                  320,268         (405,681)           1,265
              Other current assets                                               (40,095)          87,070         (201,363)
              Inventories                                                       (657,214)         414,773         (408,700)
              Other assets                                                      (295,206)         160,568          (60,960)
              Accounts payable and accrued liabilities                         4,843,589        4,814,556        2,492,740
                                                                            ------------     ------------     ------------
                    Cash provided by (used in) operating activities            5,411,352       16,349,806       (2,911,928)
                                                                            ------------     ------------     ------------
Cash flows from investing activities:
     Acquisitions of property, plant and equipment                            (7,735,715)     (11,234,276)      (3,609,108)
     Proceeds from sale of property, plant and equipment                         218,851          108,065           15,450
     Proceeds from sale of discontinued operations                                    --          525,000               --
     Proceeds from sale of short-term investments                                     --           50,000               --
                                                                            ------------     ------------     ------------
                    Cash used in investing activities                         (7,516,864)     (10,551,211)      (3,593,658)
                                                                            ------------     ------------     ------------
Cash flows from financing activities:
     Proceeds from bank and other borrowings                                   5,650,206       18,184,796       31,144,947
     Principal payments on long-term debt, notes payable and
        capital lease obligations                                             (5,627,340)     (19,406,735)     (27,047,898)
     Proceeds (payments) from (on) working revolver, net                       1,905,962       (1,121,831)       2,495,178
     Debt issue costs                                                           (253,686)      (2,009,288)      (1,138,750)
                                                                            ------------     ------------     ------------
                    Cash provided by (used in) financing activities            1,675,142       (4,353,058)       5,453,477
                                                                            ------------     ------------     ------------
                    Net increase (decrease) in cash and cash equivalents        (430,370)       1,445,537       (1,052,109)
Cash and cash equivalents, beginning of year                                   2,819,236        1,373,699        2,425,808
                                                                            ------------     ------------     ------------
Cash and cash equivalents, end of year                                      $  2,388,866     $  2,819,236     $  1,373,699
                                                                            ------------     ------------     ------------
Supplemental disclosure of cash flow information:
     Cash paid during the year for:
        Interest                                                            $  1,687,093     $  2,471,434     $  2,685,452
                                                                            ------------     ------------     ------------
        Income taxes                                                        $         --     $    205,000     $         --
                                                                            ------------     ------------     ------------
</TABLE>

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

                                       F-6


<PAGE>


BLACK WARRIOR WIRELINE CORP.
STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                2002             2001              2000
                                                                            -------------    ------------     -------------
<S>                                                                         <C>              <C>              <C>
Supplemental schedule of noncash investing and financing activities:

     Stock warrants issued                                                  $      25,000    $    179,838     $   143,500
     Discount on extension of notes payable to related parties              $     287,000    $         --     $        --
     Conversion of notes and interest payable to related
       parties to equity (Note 9)                                           $          --    $         --     $ 5,763,111
     Forgiveness of related party debt (Note 6)                             $          --    $         --     $   300,000


</TABLE>



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

                                       F-7
<PAGE>


BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 1 - GENERAL INFORMATION

Black Warrior Wireline Corp. (the "Company"), a Delaware corporation, 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 San
Juan Basin in New Mexico, Colorado and Utah, the East Texas and Austin Chalk
Basins in East Texas, the Powder River and Green River Basins in Wyoming and
Montana, Williston Basin in North Dakota and the Gulf of Mexico offshore of
Louisiana and Texas. The Company's principal lines of business include (a)
wireline services and (b) directional oil and gas well drilling activities and
downhole surveying services. In July 2001, the Company sold its workover and
completion line of business. The Company has restated its operations for
December 31, 2000 for the discontinued operations (see Note 22). Further
discussion on business segments is located in Note 21.

NOTE 2 - LIQUIDITY

The Company reported net income (loss) for the years ended December 31, 2002,
2001, and 2000 of approximately ($7,600,000), $5,000,000 and ($4,000,000),
respectively. Cash flows provided by (used in) operations were approximately
$5,400,000, $16,350,000 and ($2,900,000) for the years ended December 31 2002,
2001, and 2000, respectively. The Company is highly leveraged. The Company's
outstanding indebtedness includes primarily senior indebtedness aggregating
approximately $22.1 million at December 31, 2002, other indebtedness of
approximately $1.2 million and approximately $35 million (including
approximately $10.8 million of accrued interest) owing to St. James Merchant
Bankers, L.P. ("SJMB") and St. James Capital Partners, L.P. ("SJCP")
(collectively "St. James") and its affiliates and directors, who are related
parties. The Company's debt and accrued interest owed to related parties is
convertible into common stock and is subordinate to the Senior Credit Facility
(see Note 9). In addition, no repayments of the related party debt or accrued
interest can be made until the Senior Credit Facility is completely
extinguished.

As discussed in Note 9, prior to June 10, 2002, the Senior Credit Facility was
subject to affirmative and general covenants and certain financial covenants.
The Company was in violation of certain of these covenants as of December 31,
2001, resulting in an event of default. These covenant violations also resulted
in violations and events of default of the subordinated debt under the cross
default provisions of the subordinated debt agreements. All covenant violations
and events of default were waived as of June 10, 2002 by the respective
debt-holders.

Through April 14, 2003, the Company has amended the terms of its Senior Credit
Facility with GECC on five occasions, the principal effects of which were to
relax certain of the terms of the financial covenants so as to be more favorable
to the Company. In connection with the April 2003 amendment to the Credit
Facility, the Company is required to maintain a cumulative operating cash flow
commencing with the month ended March 31, 2003 (see Note 9 for specified amounts
by month and period); limit capital expenditures to $8.0 million in 2003 and
$5.0 million during the six-months ended June 30, 2004; and comply with certain
fixed charges, interest coverage and senior funded debt to EBITDA ratios as
detailed further in Note 9.

Strong and stable market conditions and the Company's ability to meet intense
competitive pressures are essential to the Company's maintaining a positive
liquidity position and meeting debt covenant requirements. Decreases in market
conditions or failure to mitigate competitive pressures could result in
non-compliance with its debt covenants and the triggering of the prepayment
clauses of the Company's debt. The Company believes that if market conditions
remain stable throughout 2003, the Company will be able to generate sufficient
cash flow to meet its working capital needs and comply with its debt covenants.


                                       F-8
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

If market conditions decline significantly, the Company may be required to
obtain additional amendments to its Senior Credit Facility, or obtain capital
through equity contributions or financing, including a possible merger or sale
of assets, or other business combination. The Company can give no assurances
that adequate financing could be obtained or that a suitable business
combination or asset sale could be consummated.

Management may in the future seek to raise additional capital, which may be
either debt or equity capital or a combination thereof or enter into another
material transaction involving the Company, including a possible sale of the
Company. As of March 31, 2003, no specific plans or proposals have been made
with regard to any additional financing or any other transaction. The Company
may engage in other material corporate transactions.

In November 2001, the Company retained Simmons & Company International
("Simmons") as its financial advisor in connection with examining various
alternative means to maximize shareholder value including a possible merger,
sale of assets or other business combination involving the Company. At the
Company's request, Simmons intends to intensify its efforts in this connection
and it intends, during the second quarter of 2003, to renew its efforts in this
regard and will be soliciting the interest of persons with a strategic or other
possible interest in entering into a business combination transaction with the
Company. Any such transaction can be expected to result in a change of control
of the Company. At March 31, 2003, the Company had not entered into any
agreements or letters of intent regarding any such business combination and it
was not engaged in any substantive negotiations with any person in that regard.
Any such transaction will be dependent upon the ability of the Company to reach
an agreement on terms acceptable to its Board of Directors and principal
stockholders. There can be no assurance that the Company will enter into such a
transaction and no representation is made as to the terms on which any such a
transaction may be entered into or that such a transaction will occur.

In the event the Company should seek or be required to raise additional equity
capital, there can be no assurance that such a transaction can be effected in
the light of the Company's existing capital structure or that such a transaction
will not dilute the interests of the Company's existing security holders.
Fluctuations in interest rates may adversely affect the Company's ability to
raise capital.

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

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

ACCOUNTS RECEIVABLE - Included in accounts receivable are recoverable costs and
related profits not billed, which consist primarily of revenue recognized on
contracts for which billings had not been presented to the contract owners.
Unbilled amounts included in accounts receivable totaled $829,458 and $1,294,929
at December 31, 2002 and 2001, respectively.

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



                                       F-9
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

INVENTORIES OF TOOL COMPONENTS AND SUB-ASSEMBLIES, NET - Inventories consist of
tool components, subassemblies and expendable parts used in directional oil and
gas well drilling activities. Components, subassemblies and expendable parts are
capitalized as long-term inventory and expensed based on a per hour of motor use
calculation and then adjusted to reflect physical inventory counts. The
Company's classification and treatment is consistent with industry practice.

LAND AND BUILDING, HELD FOR SALE - Land and building held for sale is stated at
the lower of cost or estimated net realizable value. During 2000, it was
determined that the land and building held for resale was impaired. The Company
recorded a loss from impairment of the assets held for resale of $150,000 in the
statement of operations. During 2001, the Company sold land held for sale with a
cost of approximately $93,000 and recognized a gain of approximately $10,000.
The remaining land and building held for sale was reclassified back into
property, plant and equipment due to the absence of a sale since 2001.

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,
2002 and 2001, significantly all of the property, plant and equipment has been
pledged as collateral for the Company's borrowings (see Note 9).

GOODWILL AND OTHER INTANGIBLE ASSETS - Goodwill is stated at cost. The Company
implemented SFAS No. 142, "Goodwill and Other Intangible Assets" on January 1,
2002 and ceased amortization of goodwill and indefinite-lived intangible assets.
SFAS No. 142 requires an assessment of potential impairment upon adoption and
annually thereafter in the month the Company elects to perform its analysis or
more frequently if events or circumstances indicate that an impairment may have
occurred.

The Company's amortizable intangible assets consist of a non-compete agreement
associated with the purchase of Big Gun Perforating in February 2002. The
agreement is reported under goodwill and other intangible assets on the balance
sheet and is being amortized on a straight-line basis over five years, the life
of the contract.

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

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

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.



                                       F-10
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

STOCK-BASED COMPENSATION - At December 31, 2002, the Company has three
stock-based employee compensation plans, which are described more fully in Note
15. The Company accounts for those plans under the recognition and measurement
principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees",
and related Interpretations. No stock-based employee compensation cost is
reflected in net income, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net income and
earnings per share if the company had applied the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", to
stock-based employee compensation.

<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31
                                                             ----------------------------------------------
                                                                    2002            2001             2000
                                                                    ----            ----             ----
          <S>                                                <C>               <C>            <C>
          Net income (loss), as reported                     $   (7,576,602)   $  5,039,724   $  (4,184,237)
          Deduct:  Total stock-based employee compensation
          expense determined under fair value based method
          for all awards, net of related tax effects               (201,289)     (2,181,199)     (1,879,178)
                                                             --------------    ------------   -------------
          Pro forma net income (loss)                        $   (7,777,891)   $  2,858,525   $  (6,063,415)
                                                             ==============    ============   =============
          Earnings (loss) per share:
              Basic - as reported                            $         (.61)   $        .40   $        (.55)
                                                             ==============    ============   =============
              Basic - pro forma                              $         (.62)   $        .23   $        (.80)
                                                             ==============    ============   =============
              Diluted - as reported                          $         (.61)   $        .40   $        (.55)
                                                             ==============    ============   =============
              Diluted - pro forma                            $         (.62)   $        .23   $        (.80)
                                                             ==============    ============   =============
</TABLE>

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

BASIS OF PRESENTATION - Certain prior year amounts have been reclassified to
conform to current year presentation.

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

EARNINGS PER SHARE - In accordance with SFAS No. 128, "Earnings per Share", the
Company presents basic and diluted earnings per share ("EPS") on the face of the
statement of operations and a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted EPS
computation.

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


                                      F-11
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

SEGMENT REPORTING - The Company reports its business segments in accordance with
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. Financial information is required to be reported on the basis
that 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 (see
Note 21).

RECENT ACCOUNTING PRONOUNCEMENTS - In July 2001, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 141, "Business Combinations." SFAS No.
141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Goodwill and certain intangible
assets will remain on the balance sheet and not be amortized. On an annual
basis, and when there is reason to suspect that their values have been
diminished or impaired, these assets must be tested for impairment, and
write-downs may be necessary. The Company implemented SFAS No. 141 on July 1,
2001.

In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill and other
indefinite-lived intangible assets from an amortization method to an
impairment-only approach. Amortization of goodwill and other indefinite-lived
intangible assets will cease upon adoption of this statement. The Company
implemented SFAS No. 142 on January 1, 2002 and it did not have a material
effect upon the financial statements upon adoption.

In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires entities to record the fair value of a
liability for legal obligations associated with the retirement obligations of
tangible long-lived assets in the period in which it is incurred and the
corresponding cost capitalized by increasing the carrying amount of the related
asset. The liability is accreted to the fair value at the time of settlement
over the useful life of the asset, and the capitalized cost is depreciated over
the useful life of the related asset. If the liability is settled for an amount
other than the recorded amount, a gain or loss is recognized. The Company is
required to adopt this standard on January 1, 2003 and it is not expected to
have a material effect on its financial statements.

In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," effective for years beginning after December 15,
2001. This Statement supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" but retains the
fundamental provisions of SFAS No. 121 for recognition and measurement of the
impairment of long-lived assets to be held and used and measurement of
long-lived assets to be held for sale. The statement requires that whenever
events or changes in circumstances indicate that a long-lived asset's carrying
value may not be recoverable, the asset should be tested for recoverability. The
statement also requires that a long-lived asset classified as held for sale
should be carried at the lower of its carrying value or fair value, less cost to
sell. The Company adopted SFAS No. 144 January 1, 2002 and it did not have a
material effect on the financial statements upon adoption.



                                      F-12
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4,44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections as of
April 2002", rescinds FASB Statement No. 4, "Reporting Gains and Losses from
Extinguishment of Debt", FASB Statement No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements." This Statement also rescinds FASB Statement
No. 44, "Accounting for Intangible Assets of Motor Carriers" and amends FASB
Statement No. 13, "Accounting for Leases", to eliminate an inconsistency between
the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. This Statement also amends other
existing authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed conditions. This
statement eliminates the treatment of early extinguishments of debt as
extraordinary items. The provisions of this Statement related to the rescission
of Statement 4 shall be applied in fiscal years beginning after May 15, 2002.
The provisions Statement related to Statement 13 shall be effective for
transactions occurring after May 15, 2002. All other provisions of this
Statement shall be effective for financial statements issued on or after May 15,
2002. The Company does not believe that adoption of this statement will have a
material affect on its financial statements.

In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with
Exit or Disposal Activities." This Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." This Statement requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred rather than at the date of an entity's
commitment as provided under Issue 94-3. This Statement also establishes that
fair value is the objective for initial measurement of the liability. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002. The Company does not believe adoption of
the provisions of this statement will have a material impact on its financial
statements.

In 2003, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123." The disclosure requirements of Statement No. 123, "Accounting for
Stock-Based Compensation", which apply to stock compensation plans of all
companies, are amended to require certain disclosures about stock-based employee
compensation plans in an entity's accounting policy note. Those disclosures
include a tabular format of pro forma net income and, if applicable, earnings
per share under the fair value method if the intrinsic value method is used in
any period presented. Pro forma information in a tabular format is also required
in the notes to interim financial information if the intrinsic value method is
used in any period presented. The amendments to the disclosure and transition
provisions of Statement No. 123 are effective for fiscal years ending after
December 15, 2002. The Company does not plan a change to the fair value base
method of accounting for stock-based employee compensation and has included the
disclosure requirements of SFAS No. 148 in the accompanying financial
statements.

In November 2002, FASB Interpretation 45 (FIN 45), "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others", was issued. FIN 45 requires a guarantor entity, at the
inception of a guarantee covered by the measurement provisions of the
interpretation, to record a liability for the fair value of the obligation
undertaken in issuing the guarantee. The Company previously did not record a
liability when guaranteeing obligations unless it became probable that the
Company would have to perform under the guarantee. FIN 45 applies prospectively
to guarantees the Company issues or modifies subsequent to December 31, 2002,
but has certain disclosure requirements effective for interim and annual periods
ending after December 15, 2002. The Company does not anticipate FIN 45 will have
a material effect on its 2003 financial statements. Disclosures required by FIN
45 are included in the accompanying financial statements.



                                      F-13
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

In January 2003, the FASB issued FASB Interpretation 46 (FIN 46), "Consolidation
of Variable Interest Entities." FIN 46 clarifies the application of Accounting
Research Bulletin 51, "Consolidated Financial Statements", for certain entities
that do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties
or in which equity investors do not have the characteristics of a controlling
financial interest ("variable interest entities"). Variable interest entities
within the scope of FIN 46 will be required to be consolidated by their primary
beneficiary. The primary beneficiary of a variable interest entity is determined
to be the party that absorbs a majority of the entity's expected losses,
receives a majority of its expected returns, or both. FIN 46 applies immediately
to variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date. It
applies in the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The adoption of this
provision will not have a material effect on the financial condition or results
of operations of the Company.

In November 2002, the Emerging Issues Task Force reached a consensus opinion on
EITF 00-21, "Revenue Arrangements with Multiple Deliverables." The consensus
provides that revenue arrangements with multiple deliverables should be divided
into separate units of accounting if certain criteria are met. The consideration
for the arrangement should be allocated to the separate units of accounting
based on their relative fair values, with different provisions if the fair value
of all deliverables are not known or if the fair value is contingent on delivery
of specified items or performance conditions. Applicable revenue recognition
criteria should be considered separately for each separate unit of accounting.
EITF 00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. Entities may elect to report the change as a
cumulative effect adjustment in accordance with APB Opinion 20, Accounting
Changes. The Company has not determined the effect of adoption of EITF 00-21 on
its financial statements or the method of adoption it will use.

In November 2002 the Emerging Issues Task Force reached a consensus opinion on
EITF 02-16, "Accounting by a Customer (including a reseller) for Certain
Consideration Received from a Vendor." EITF 02-16 requires that cash payments,
credits, or equity instruments received as consideration by a customer from a
vendor should be presumed to be a reduction of cost of sales when recognized by
the customer in the income statement. In certain situations, the presumption
could be overcome and the consideration recognized either as revenue or a
reduction of a specific cost incurred. The consensus should be applied
prospectively to new or modified arrangements entered into after December 31,
2002. The Company has not yet determined the effects of EITF 02-16 on its
financial statements.

NOTE 4 - OTHER INTANGIBLE ASSETS

Other intangible assets consist of a non-compete agreement associated with the
purchase of Big Gun Perforating, Inc. The agreement is reported under goodwill
and other intangible assets on the balance sheet and is being amortized on a
straight-line basis over five years, the life of the contract. The gross
carrying amount of the agreement was $249,175 on December 31, 2002. Accumulated
amortization totaled $49,835 as of December 31, 2002.



                                      F-14
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

       Aggregate amortization expense:
            For the year ended December 31, 2002                    $49,835

       Estimated amortization expense:
            For the year ended December 31, 2003                    $49,835
            For the year ended December 31, 2004                    $49,835
            For the year ended December 31, 2005                    $49,835
            For the year ended December 31, 2006                    $49,835

NOTE 5 - ACQUISITIONS


On March 1, 2000, the Company executed its option to purchase the assets of
Measurement Specialists, Inc. ("MSI"). The option to purchase and extensions to
the option called for the Company to pay approximately $75,000, issue 144,445
shares of the Company's common stock and pay outstanding notes payable related
to the acquired assets of approximately $385,000. The shares were issued during
1999. The acquisition was accounted for as a purchase. There was no goodwill or
other identifiable intangibles associated with this purchase.


In February 2002, the Company acquired the assets of Big Gun Perforating, Inc.
for $300,000. The acquisition will enable the Company to expand its tubing
conveyed perforating ("TCP") services to its existing onshore and offshore
customer base.

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

NOTE 6 - RELATED PARTY TRANSACTIONS

     During  1997,  the  Company  acquired  substantially  all of the assets and
certain of the liabilities of Diamondback Directional Drilling, Inc. ("DDI"). In
connection  with the  acquisition,  the  Company  issued  debt of  approximately
$3,200,000 to the former owners of DDI, hereinafter referred to as Bendover. One
of the  majority  stockholders  of Bendover  was an officer and  director of the
Company.  During the first  quarter of 2000,  the Company  executed a Compromise
Agreement  With  Release  with  Bendover   whereby  Bendover  agreed  to  settle
litigation  and  return  to  the  Company   promissory  notes  of  approximately
$3,200,000  principal  amount  plus  accrued  interest  and  receive in exchange
2,666,667  shares of the Company's  common stock,  valued in the  transaction at
$0.75 per share, and a promissory note in the principal amount of $1,182,890 due
on January 15,  2001,  bearing  interest at 10% per annum.  The  maturity of the
promissory note was  subsequently  extended to June 15, 2001 at an interest rate
of 20% per annum with 10% per annum paid monthly and the balance  deferred until
maturity. This note, as amended and extended, was not paid when due and Bendover
commenced a lawsuit on July 20, 2001 against the Company  seeking to collect the
principal  sum of  $1,182,890  plus accrued  interest.  In September  2001,  the
Company paid  approximately  $1.1 million to Bendover out of the proceeds of the
General Electric Capital Corporation ("GECC") financing, as more fully discussed
in Note 9, in full payment of all outstanding principal and interest obligations
owing to  Bendover  and the  lawsuit was  dismissed.  The payoff  resulted in an
extraordinary gain of approximately  $175,000, net of taxes. Interest expense on
this note totaled  $152,642  and $121,194 for the years ended  December 31, 2001
and 2000, respectively.



                                      F-15
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

The Company has executed notes payable to SJMB and SJCP, whose chairman and an
employee of SJMB both serve on the Company's Board of Directors, in connection
with acquisitions and to provide funding for operations. At December 31, 2002
and 2001, notes due to SJMB, SJCP and related parties totaled $24,238,263 and
$23,566,882, respectively. The notes bear interest at 15%. Interest expense and
accrued interest associated with these notes were as follows:

                           2002            2001            2000
                        -----------     -----------     -----------

Interest expense        $ 3,535,000     $ 3,216,000     $ 2,326,000
Accrued interest        $10,016,000     $ 6,432,000     $ 3,241,000

The Company borrowed $1,000,000 from Falcon Seaboard Investment Co., L.P.
("Falcon Seaboard"), which is affiliated with SJMP. The note bears interest at
15% with the principal and interest due in December 2004. Accrued interest
payable on this borrowing totaled approximately $508,000 and $356,000 as of
December 31, 2002 and 2001, respectively. Interest expense on this note
approximated $150,000, $140,000 and $80,000 for each of the three years ended
December 31, 2002, 2001 and 2000, respectively.

The Company has agreed to pay to SJMB a fee of approximately $274,000 in
consideration of SJMB providing cash collateral of $8.2 million deposited to
secure the performance of the continuing guaranty extended by SJMB of the
Company's former financing arrangement with Coast Business Credit ("Coast"), a
financial institution. In addition, SJMB, L.L.C., the general partner of SJMB,
received a fee in September 2001 of $200,000 for services provided by SJMB,
L.L.C. in connection with the Company acquiring a credit facility from GECC (see
Note 6). Under the terms of the Credit Facility, the Company is restricted from
paying any further sums to either of SJMB or SJMB, L.L.C. unless the Company's
quarterly report on Form 10-Q reflects that the Company had EBITDA of at least
$7.0 million for the quarter ended September 30, 2001 and the amount of such
payment is limited to no more than $150,000. The EBITDA sum was not met and the
$274,000 balance due SJMB was deferred. This payable is included in other
long-term liabilities at December 31, 2002, as a payment of this liability
cannot be made until the GECC credit facility has been repaid.

During 2000, the Company entered into three capital leases totaling $918,000
with MWD Technology Company ("MWD"). The principal owners of MWD include
employees of the Company. The outstanding balances of $136,000 of the leases
were paid in full in connection with the GECC refinancing (Note 9). The leases
had a stated interest rate of 52.72%. Interest expense for the leases totaled
approximately $196,000 and $81,000 for the years ended December 31, 2001 and
2000, respectively.

On November 20, 2000, the Company entered into a capital lease agreement for
approximately $539,000 with Big Foot Tool Rental Service, LLC, which is
partially owned by an officer and an employee of the Company. The outstanding
balance of $393,000 of the lease was paid in full in connection with the GECC
refinancing. The lease had a stated interest rate of 14.88%. Interest expense
for the lease totaled approximately $44,000 and $9,000, respectively, for the
years ended December 31, 2001 and 2000.

During the first quarter of 2000, Hub, Inc. purchased a note payable to Fleet
Capital Corporation ("Fleet") of approximately $800,000 for $500,000. In
connection with this transaction, Fleet released the Company from all
indebtedness to Fleet. Hub, Inc. agreed to cancel the note in exchange for a
payment of $500,000. A board member of the Company is a principal in Hub, Inc.
This note was paid in full in connection with the refinancing plan with Coast
Business Credit ("Coast") in 2000.



                                      F-16
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

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

At December 31, 1999 and through part of 2000, SJMB held a significant ownership
interest in Collins and Ware, Inc., which was a customer of the Company. Sales
to Collins and Ware, Inc. during 2000 were approximately $783,000.

On June 17, 1999, the Company sold approximately $329,000 of trade accounts
receivable, which was fully reserved due to the customer declaring bankruptcy,
to RJ Air, LLC, an entity affiliated with a member of the Company's Board of
Directors, for $200,000. As of December 31, 2002, the Company has collected
$100,000 of the sale price and the remaining $100,000 is included in deferred
revenue.

In connection with the five year employment agreement effective January 1, 2002
entered into with Mr. Jenkins to remain as the Company's President and Chief
Executive Officer, the Company agreed to loan Mr. Jenkins $190,000, bearing
interest at the applicable federal rate, to be repaid at the rate of one-third
of the principal, plus accrued interest on October 1 of each of the years 2002,
2003 and 2004. If Mr. Jenkins remains employed by the Company on September 30
preceding the date annual principal and interest is due on the loan, the sum due
and owing the following day is forgiven. In the event of a Change of Control, as
defined, the death or permanent disability of Mr. Jenkins or in the event his
employment is terminated without cause, the entire amount owing by Mr. Jenkins
is forgiven. The Company is amortizing the loan balance into compensation cost
over the life of the loan. Compensation expense for the year ended December 31,
2002 was approximately $82,000. The unamortized balance at December 31, 2002 was
$144,184.

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

NOTE 7 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment include the following at December 31, 2002 and
2001:

                                                2002          2001
                                            -----------   ------------

Land and building                           $   401,250   $   245,000
Vehicles                                     14,106,273    12,681,793
Operating equipment                          41,446,918    35,513,416
Office equipment                                986,457       816,780
                                            -----------   -----------
                                             56,940,898    49,256,989
Less: accumulated depreciation               32,371,555    24,622,143
                                            -----------   -----------

        Net property, plant and equipment   $24,569,343   $24,634,846
                                            -----------   -----------

Depreciation expense for the years ended December 31, 2002, 2001 and 2000 was
$7,888,302, $6,444,445 and $5,248,716, respectively.

As more fully described in Note 6, all outstanding capital leases were paid off
during 2001 in connection with the GECC refinancing. The following is a summary
of the equipment under capital leases (included above) at December 31, 2000:




                                      F-17
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

                                                                 2000
                                                              ----------

                  Workover rigs and related equipment         $  158,909
                  Operating equipment                          1,657,235
                  Vehicles                                       403,959
                                                              ----------

                                                               2,220,103
                  Less: accumulated depreciation                 170,430
                                                              ----------

                          Net equipment under capital lease   $2,049,673
                                                              ----------

NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS - ADOPTION OF SFAS 142

In contrast to accounting standards in effect during 2001 and 2000, SFAS 142,
Goodwill and Other Intangible Assets, which became effective beginning in 2002,
provides that goodwill, as well as identifiable intangible assets with
indefinite lives, should not be amortized. Accordingly, with the adoption of
SFAS 142 in 2002, the Company discontinued the amortization of goodwill and
indefinite-lived intangibles. In addition, useful lives of intangible assets
with finite lives were reevaluated on adoption of SFAS 142. The information
presented below reflects adjustments to information reported in 2001 and 2000 as
if SFAS 142 had been applied in those years. The adjustments include the effects
of not amortizing goodwill and indefinite-lived intangible assets and the
modification in the estimated useful lives of intangible assets with finite
lives. The balance in unamortized goodwill was $2,960,442, $2,960,442 and
$3,118,102 at December 31, 2002, 2001 and 2000, respectively.

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                          -----------------------------------------------
                                               2002            2001             2000
                                          --------------   -------------   --------------
<S>                                       <C>              <C>             <C>
Reported net income (loss)                $  (7,576,602)   $   5,039,724   $  (4,184,237)
       Add:  Goodwill amortization                   --          157,660         171,063
                                          -------------    -------------   -------------
Adjusted net income (loss)                $  (7,576,602)   $   5,197,384   $  (4,013,174)
                                          =============    =============   =============
Basic and diluted earnings per share:
       Reported net income (loss)         $       (0.61)   $        0.40   $       (0.55)
       Goodwill amortization                         --             0.01            0.02
                                          -------------    -------------   -------------
Adjusted net income (loss)                $       (0.61)   $        0.41   $       (0.53)
                                          =============    =============   =============

</TABLE>



                                      F-18
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 9 - LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS

At December 31, 2002 and 2001, long-term debt and other financing arrangements
consisted of the following:

<TABLE>
<CAPTION>
                                                                                     2002          2001
                                                                                  -----------   -----------
<S>                                                                               <C>           <C>
Installment notes payable, monthly payments required in varying amounts through
June 2006, interest at rates ranging from 3.00% to 7.17%.                         $   993,423   $   610,949

Notes payable to General Electric Capital Corporation, monthly payments of
$283,333 through September 2004, interest at prime plus 2.50% (6.75% at
December 31, 2002).                                                                12,732,667    16,150,000

Revolving line of credit to General Electric Capital Corporation, interest at
prime plus 1.75%  (6.00% at December 31, 2002).                                     6,284,523     4,378,558

Capital expenditure line of credit to General Electric Capital Corporation,
interest at prime plus 2.50%  (6.75% at December 31, 2002).                         3,057,726            --


Note payable to former owner of Dyna Jet, Inc. due and payable in November 2003
with interest at the rate of the lesser of $1,500 per month or 8% per annum on
unpaid balance.                                                                       230,000       230,000

                                                                                  -----------   -----------
                                                                                   23,298,339    21,369,507
        Less:

           Current portion of long-term debt (see below)                           10,928,255     8,619,507
                                                                                  -----------   -----------

        Long-term debt, less current maturities                                   $12,370,084   $12,750,000
                                                                                  -----------   -----------
</TABLE>


                                      F-19
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

Notes payable to related parties consist of the following at December 31, 2002
and 2001:

<TABLE>
<CAPTION>
                                                                                            2002           2001
                                                                                         -----------   -----------
<S>                                                                                      <C>           <C>
7%, increased to 15% effective March 17, 2001, convertible note payable to SJCP,
principal and interest originally due October 1999, extended to December 2004
Convertible at $0.75 per share at any time up to 30 business days following maturity     $ 2,900,000   $ 2,900,000

9%, increased to 15% effective March 17, 2001, convertible note payable to SJCP,
principal and interest originally due June 2002, extended to December 2004
Convertible at $0.75 per share at any time up to 30 business days following maturity       2,000,000     2,000,000

8%, increased to 15% effective March 17, 2001, convertible note payable to SJMB,
principal and interest originally due June 2002, extended to December 2004
Convertible at $0.75 per share at any time up to 30 business days following maturity       7,250,000     7,250,000

8%, increased to 15% effective March 17, 2001, convertible note payable to
Falcon Seaboard, principal and interest originally due March 2001, extended to
December 2004 Convertible at $0.75 per share at any time up to 30 business days
following maturity                                                                         1,000,000     1,000,000

10%, increased to 15% effective March 17, 2001, convertible note payable to SJMB,
principal and interest originally due March 2001, extended to December 2004
Convertible at $0.75 per share at any time up to 30 business days following maturity       2,000,000     2,000,000

10% increased to 15% effective March 17, 2001, convertible note payable to SJMB,
principal and interest originally due March 2001, extended to December 2004
Convertible at $0.75 per share at any time up to 30 business days following maturity       2,500,000     2,500,000

15% convertible note payable to SJMB, principal and interest originally due January
2001, extended to December 2004.  Convertible at $0.75 per share at anytime up to 30 days
following maturity                                                                           750,000       750,000

15% convertible note payable to SJMB, principal and interest originally due January
2001, extended to December 2004.  Convertible at $0.75 per share at anytime up to 30 days
following maturity                                                                         1,000,000     1,000,000

15% convertible note payable to SJMB, principal and interest originally due January
2001, extended to December 2004.  Convertible at $0.75 per share at anytime up to 30 days
following maturity                                                                           200,000       200,000

15% convertible notes payable to affiliates of SJMB and ceratin employees, principal
and interest originally due January 2001, extended to December 2004.  Convertible at
$0.75 per share at anytime  up to 30 business days following maturity                      4,966,882     4,966,882
                                                                                         -----------   -----------
                                                                                          24,566,882    24,566,882
        Less:

           Current portion of notes payable to related parties (see below)
           Unamortized discount on notes payable                                             328,619       179,838
                                                                                         -----------   -----------

        Total long-term notes payable to related parties                                 $24,238,263   $24,387,044
                                                                                         -----------   -----------
</TABLE>


                                      F-20
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

On September 14, 2001, the Company entered into the Credit Facility with GECC
providing for the extension of revolving, term and capex credit facilities to
the Company aggregating up to $40.0 million. The Company and GECC entered into
amendments to the Credit Facility in January 2002, June 2002, October 2002,
February 2003 and April 2003. As amended, the Credit Facility includes a
revolving loan of up to $15.0 million, but not exceeding 85% of eligible
accounts receivable, a term loan of $17.0 million, and a capex loan of up to
$8.0 million, but not exceeding a borrowing base of the lesser of 70% of the
hard costs of acquired eligible equipment, 100% of its forced liquidation value
and the Company's EBITDA for the month then ended, less certain principal,
interest and maintenance payments. Eligible accounts are defined to exclude,
among other items, accounts outstanding of debtors that are more than 60 days
overdue or 90 days following the original invoice date and of debtors that have
suspended business or commenced various insolvency proceedings and accounts with
reserves established against them to the extent of such reserves as GECC may set
from time to time in its reasonable credit judgment. Borrowings under the capex
loan are at the sole and exclusive discretion of GECC. The interest rate on
borrowings under the revolving loan is 1.75% above a base rate and on borrowings
under the term loan and capex loan is 2.5% above the base rate. The base rate is
the higher of (i) the rate publicly quoted from time to time by the Wall Street
Journal as the base rate on corporate loans posted by at least 75% of the
nation's thirty largest banks, or (ii) the average of the rates on overnight
Federal funds transactions by members of the Federal Reserve System, plus 0.5%.
Subject to the absence of an event of default and fulfillment of certain other
conditions, , the Company can elect to borrow or convert any loan and pay
interest at the LIBOR rate plus applicable margins of 3.25% on the revolving
loan and 4.0% on the term loan and capex loan. If an event of default has
occurred, the interest rate is increased by 2%. Advances under the Credit
Facility are collateralized by a senior lien against substantially all of the
Company's assets. The Credit Facility expires on September 14, 2004.

Initial borrowings under the Credit Facility advanced on September 14, 2001
aggregated $21.6 million. Proceeds of the initial borrowings were used to repay
outstanding indebtedness aggregating $21.4 million to Coast Business Credit,
Bendover Company and certain other indebtedness. At December 31, 2002,
borrowings outstanding under the Credit Facility aggregated $22.1 million, of
which $6.3 million was outstanding under the revolving loan, $12.7 million was
outstanding under the term loan and $3.1 was outstanding under the capex loan.
Borrowings under the revolving loan are able to be repaid and re-borrowed from
time to time for working capital and general corporate needs, subject to the
Company's continuing compliance with the terms of the agreement, with the
outstanding balance of the revolving loan to be paid in full at the expiration
of the Credit Facility on September 14, 2004. The term loan is to be repaid in
35 equal monthly installments of $283,333 with a final installment of $7,083,333
due and payable on September 14, 2004. The capex loan is available to be
borrowed through September 14, 2003, at the discretion of GECC, and is to be
repaid in equal monthly installments of 1/60th of each of the amounts borrowed
from time to time with the remaining outstanding balance of the entire capex
loan due and payable on September 14, 2004

Borrowings under the Credit Facility may be prepaid or the facility terminated
or reduced by the Company at any time subject to the payment of an amount equal
to 2% of the prepayment or reduction occurring before September 14, 2003, and 1%
of the prepayment or reduction occurring thereafter but before September 14,
2004. In the event all the stock or substantially all the assets of the Company
are sold prior to September 14, 2003, and in connection therewith, the Company
pre-pays the Credit Facility, the amount of such payment is reduced to 1%. The
Company is required to prepay borrowings out of the net proceeds from the sale
of any assets, subject to certain exceptions, or the stock of any subsidiary,
the net proceeds from the sale of any stock or debt securities by the Company,
and any borrowings in excess of the applicable borrowing availability, including
borrowings under the term loan and capex loan in excess of 50% of the forced
liquidation value of the eligible capex and term loan equipment and borrowings
under the term loan in excess of 70% of the forced liquidation value of eligible
term loan equipment. The value of the term loan equipment is established by
appraisal.



                                      F-21
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

Initial borrowings under the Credit Facility were subject to the fulfillment at
or before the closing of a number of closing conditions, including among others,
the accuracy of the representations and warranties made by the Company in the
loan agreement, delivery of executed loan documents, officers' certificates, an
opinion of counsel, repayment of the Coast senior secured loan, the extension of
the maturity date of $24.6 million principal amount of the Company's outstanding
subordinated notes to December 31, 2004 with no payments of principal or
interest to be made prior to that date, and the completion of due diligence.
Future advances are subject to the continuing accuracy of the Company's
representations and warranties as of such date (other than those relating
expressly to an earlier date), the absence of any event or circumstance
constituting a "material adverse effect," as defined, the absence of any default
or event of default under the Credit Facility, and the borrowings not exceeding
the applicable borrowing availability under the Credit Facility, after giving
effect to such advance. A "material adverse effect" is defined to include an
event having a material adverse effect on the Company's business, assets,
operations, prospects or financial or other condition, on the Company's ability
to pay the loans, or on the collateral and also includes a decline in the
"Average Rig Count" (excluding Canada and international rigs) published by Baker
Hughes, Inc. falling below 675 for 12 consecutive weeks.

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

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

As amended through April 2003, the financial covenants the Company is required
to comply with include (a) limitations on capital expenditures to $7.7 million
during the year 2002 with an exclusion on the amount spent to replace and
restore plug and abandonment equipment lost due to weather in 2002, to $8.0



                                      F-22
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

million during the year 2003 and to $5.0 million during the six-months ended
June 30, 2004, (b) having a fixed charge coverage ratio at the end of each
quarter, commencing with the quarter ended March 31, 2004, of not less than
1.3:1.0 for the preceding twelve-month period, (c) having an interest coverage
ratio at the end of each quarter, commencing with the quarter ended March 31,
2004, of not less than 3.0:1.0 for the preceding twelve-month period, and (d)
commencing with the quarter ending March 31, 2004, having a ratio of senior
funded debt to EBITDA, minus capital expenditures paid in cash, of not more than
2:0:1.0 for the four fiscal quarters then ended. The Company is required to
maintain a cumulative operating cash flow at the end of each month, commencing
with the month ended March 31, 2003, increasing as follows:


<TABLE>
<CAPTION>
FISCAL MONTH                                              CUMULATIVE OPERATING CASH FLOW
------------                                              ------------------------------
<S>                                                                 <C>
For the 3 Months Ending March 31, 2003                              $ 800,000

For the 4 Months Ending April 30, 2003                              $1,350,000

For the 5 Months Ending May 31, 2003                                $2,000,000

For the 6 Months Ending June 30, 2003                               $2,700,000

For the 7 Months Ending July 31, 2003                               $3,500,000

For the 8 Months Ending August 31, 2003                             $4,200,000

For the 9 Months Ending September 30, 2003                          $5,000,000

For the 10 Months Ending October 31, 2003                           $6,000,000

For the 11 Months Ending November 30, 2003                          $7,100,000

For the 12 Months Ending December 31, 2003                          $8,200,000

For the 12 Months Ending January 31, 2004                           $8,900,000

For the 12 Months Ending February 28, 2004                          $9,500,000
</TABLE>


Cumulative operating cash flow is defined, for the period March 1, 2003 through
December 31, 2003, as the sum of EBITDA for such month minus capital
expenditures paid in cash for such month plus EBITDA for each preceding month
commencing on January 1, 2003 minus capital expenditures paid in cash for each
preceding month commencing January 1, 2003. Subsequent to December 31, 2003,
cumulative operating cash flow is defined to include the sum of EBITDA for such
month minus capital expenditures paid in cash for such month plus EBITDA for the
preceding eleven months minus capital expenditures paid in cash for the
preceding eleven months.


                                      F-23
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

For the period ended December 31, 2002, the Company is in compliance with all
financial covenants.

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

The Company has amended the terms of its Credit Facility with GECC on five
occasions, the principal effects of which were to relax certain of the terms of
the financial covenants so as to be more favorable to the Company. There can be
no assurance that the Company will be able to obtain further amendments to these
financial covenants if required or that the failure to obtain such amendments
when requested may not result in the Company being placed in violation of those
financial covenants. Before reflecting amendments to the Credit Facility made in
June 2002, the Company was in violation of the financial covenants relating to
its fixed charge coverage ratio, minimum interest coverage ratio, and ratio of
senior funded debt to EBITDA. By amendment to the Credit Facility entered into
as of June 10, 2002, GECC waived these defaults as well as violations relating
to the Company's failure to timely deliver its financial statements for the year
ended December 31, 2001 as required by the Credit Facility and selling certain
assets in violation of the terms of the Credit Facility. The Company agreed to
pay GECC a fee of $100,000 in connection with entering into the amendment.

In connection with the April 2003 amendment to the Credit Facility, the Company
is required to provide GECC with weekly reports setting forth an aging of its
accounts payable and weekly cash budgets for the immediately following thirteen
week period. Also in connection with entering into that amendment, the Company
agreed to pay GECC an amendment fee of $100,000, of which $50,000 is payable in
June 2003 and $50,000 is payable on December 31, 2003, and a fee of $300,000 in
the event of a sale of all the assets or stock of the Company or other event
that results in a change of control of the Company. GECC consented to a capex
loan of $1.0 million to the Company at the time of entering into the amendment.

Reference is made to the Credit Agreement, filed as an Exhibit to the Company's
Current Report on Form 8-K for September 14, 2001, the First and Second
Amendments thereto, filed as exhibits to the Company's Annual Report on Form
10-K for the year ended December 31, 2001, the Third Amendment thereto, filed as
an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002, and the Fourth Amendment and Fifth Amendment, filed as
Exhibits to this Annual Report on Form 10-K for the year ended December 31,
2002, for a complete statement of the terms and conditions.



                                      F-24
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

In connection with the GECC refinancing, the Company agreed with the holders of
the $7.0 million principal amount of promissory notes to extend the maturity
date from June 30, 2001 to December 31, 2004 on $6.9 million of the $7.0 million
promissory notes. The remainder of the outstanding principal was repaid. The
notes bear interest at 15% per annum and are convertible into shares of the
Company's common stock at a conversion price of $0.75 per share, subject to an
anti-dilution adjustment for certain issuances of securities by the Company at
prices per share of common stock less than the conversion price then in effect,
in which event the conversion price is reduced to the lower price at which the
shares were issued. The Company repaid approximately $83,000 to noteholders who
chose not to extend the maturity dates and St. James purchased $1.6 million from
noteholders who chose not to extend the maturity dates. As a condition to extend
the maturity date, holders of the notes are to receive additional five-year
common stock purchase warrants exercisable at $0.75 per share if the Company has
not entered into a purchase or merger agreement on or before certain dates.
Because such an agreement was not entered into by December 31, 2001, the Company
became obligated to issue approximately 2.4 million additional warrants. Because
such an agreement was not entered into by December 31, 2002, the Company became
obligated to issue approximately 5.2 million additional warrants. If such
agreement is not entered into by December 31, 2003 with a closing by March 31,
2004, the Company will be obligated to issue approximately 10.4 million
additional warrants. Under the terms of the note extensions, in the event that
the Company has not entered into a purchase or merger agreement by December 31,
2003 with a closing date no later than March 31, 2004, an aggregate of 18.0
million additional warrants will have been issued. The exercise price of the
warrants that are to be issued are subject to anti-dilution adjustments for
certain issuances of securities by the Company at prices per share of common
stock less than the exercise price then in effect in which event the exercise
price is reduced to the lower price at which such shares were issued.

The Company also extended until December 31, 2004 the promissory notes totaling
$17.7 million owing to St. James which matured in March, 2001. The notes bear
interest at 15% per annum and are convertible into shares of the Company's
common stock at a conversion price of $0.75 per share, subject to an
anti-dilution adjustment for certain issuances of securities by the Company at
prices per share of common stock less than the conversion price then in effect,
in which event the conversion price is reduced to the lower price at which the
shares were issued. The Company also extended the expiration date of 28.7
million warrants until December 31, 2004 in connection with the extension of the
St. James promissory notes.

All of the debt and interest owed to St. James and its affiliates is
subordinated to the Company's Credit Facility and cannot be repaid until all the
amounts owed pursuant to the Credit Facility have been repaid. Consequently, all
of the related party debt and accrued interest has been classified on the
Company's balance sheet as non-current at December 31, 2002.

During December 2000, SJMB converted $1,750,000 of its $9,000,000 note payable
and $2,013,111 of related accrued interest to equity in return for 5,017,481
shares of common stock.

Under the terms of the SJCP notes payable, SJCP has rights, which include the
right to nominate one person for election to the Company's board of directors
and has certain preferential rights to provide future financing. The note
agreement also contains prohibitions against consolidating, merging or entering
into a share exchange with another person without SJCP's consent.

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




                                      F-25
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

Maturities of debt are as follows:

FISCAL YEAR
-----------
2003                                                   $10,928,255
2004                                                    36,608,347
2005                                                            --
2006                                                            --
2007                                                            --
Thereafter                                                      --
                                                       -----------
                                                       $47,536,602
                                                       ===========

NOTE 10 - COMMITMENTS

The Company leases land, office space and equipment under various operating
leases. The leases expire at various dates through 2007. Rent expense was
approximately $2,763,000, $2,572,000 and $1,459,000 for the years ended December
31, 2002, 2001 and 2000, respectively.

The future minimum lease payments required under noncancelable leases with
initial or remaining terms of one or more years at December 31, 2002 were as
follows:

                                                          OPERATING
          FISCAL YEAR                                      LEASES
          -----------                                   -------------
          2003                                          $   721,192
          2004                                              553,194
          2005                                              366,730
          2006                                              206,728
          2007                                               50,688
          Thereafter                                             --
                                                        -----------
                Total minimum lease payments            $ 1,898,532
                                                        ===========

NOTE 11 - COMMON STOCK TRANSACTIONS

Pursuant to an agreement dated December 15, 1998, which was amended on April 15,
1999, through September 30, 1999, the Company issued 144,445 shares of common
stock to Measurement Specialists Inc. ("MSI"). The securities have been issued
in reliance upon Regulation D under the Securities Act of 1933, as amended. The
securities were issued in connection with an option granted by MSI to the
Company to acquire the assets of MSI. The Company completed the acquisition of
MSI, as more fully described in Note 5, during the first quarter of 2000.

As further discussed in Note 6, the Company issued 2,666,667 shares in the first
quarter of 2000 to the owners of Bendover in return for the dismissal of a
lawsuit between the former owner of DDI and the Company.

During December 2000, SJMB exercised its option and converted $1,750,000 of its
$9,000,000 note payable and $2,013,111 of related accrued interest to equity in
return for 5,017,481 shares of common stock.



                                      F-26
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                                         AMOUNT
   MONTH OF         MONTH OF                                                                         RECORDED TO
    BOARD           ISSUANCE/                                           NUMBER          AMOUNT       STOCKHOLDERS'
   APPROVAL         PURCHASE               DESCRIPTION                OF SHARES       PER SHARE        DEFICIT
--------------    ------------    -----------------------------     -------------    ----------    ---------------
 <S>              <C>              <C>                                 <C>            <C>            <C>
 June 1999        June 1999        Issuance to individuals in
                                   settlement of potential
                                   litigation                            770,364      $   1.19       $   914,421
 December 1999    January 2000     Issuance to Bendover in
                                   settlement of litigation            2,666,667      $    .75       $ 2,000,000

 December 2000    December 2000    Issuance to SJMB upon
                                   conversion                          5,017,481      $    .75       $ 3,763,111
</TABLE>


As of December 31, 2002, the Company's certificate of incorporation permits it
to issue up to 175,000,000 shares of common stock, of which 12,504,148 and
12,496,408 shares were issued and outstanding at December 31, 2002 and 2001,
respectively. The Company has outstanding as of December 31, 2002 and 2001
common stock purchase warrants, options and convertible debt securities entitled
to purchase or be converted into an aggregate of 132,402,882 and 122,699,852
shares, respectively, of the Company's common stock at exercise and conversion
prices ranging from $0.75 to $8.01.

NOTE 12 - STOCK WARRANTS

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

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

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

During 2000, the Company issued warrants to purchase shares of the Company's
common stock with the issuance of certain debt (see Note 9). The warrants gave
the holders the right to purchase up to 14,350,000 shares at $0.75. These
warrants expire December 31, 2004.

During 1999, the Company issued warrants to purchase shares of the Company's
common stock with the issuance of certain debt (see Note 9). The warrants gave
the holders the right to purchase up to 16,425,000 shares at $0.75. The warrants
expire December 31, 2004.

The warrants issued during 2002, 2001, 2000 and 1999 are subject to "Full
Ratchet" anti-dilution provisions. In December of 1999, the Company issued the
14,350,000 warrants at an exercise price of $0.75. Consequently, the
anti-dilution provisions on all warrants subject to the provision were
triggered. Upon each adjustment of the exercise price, the holder of the warrant
shall thereafter be entitled to purchase, at the exercise price resulting from



                                      F-27
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

the adjustment, the number of shares of common stock obtained by multiplying the
exercise price in effect immediately prior to the adjustment by the number of
shares purchasable prior to the adjustment and dividing the product thereof by
the exercise price resulting from the adjustment. The following table summarizes
information about warrants outstanding at December 31, 2002:



                                      F-28
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                        GUARANTOR
                                         DEBT                                           AFFILIATED
                                      CONVERSION     SJCP         SJCP          SJCP     WITH SJCP       SJMB          SJMB
                                        $2.00       $2.75        $4.6327        $0.75      $0.75        $6.75         $2.25
                                       EXPIRES     EXPIRES       EXPIRES       EXPIRES    EXPIRES      EXPIRES       EXPIRES
                                      09/30/01     12/31/04      12/31/04      02/28/07   02/28/07     12/31/04      12/31/04
                                  -----------------------------------------------------------------------------------------------
<S>                                  <C>          <C>           <C>            <C>         <C>       <C>            <C>
Balance, 12/31/99                      234,750     2,442,000     4,478,277                            16,200,000     3,499,999


2000 issuance
                                  -----------------------------------------------------------------------------------------------
Balance, 12/31/00                      234,750     2,442,000     4,478,277          --          --    16,200,000     3,499,999
                                  -----------------------------------------------------------------------------------------------

Exercise price, 12/31/00             $    2.00    $     0.75    $     0.75                           $      0.75    $     0.75

2001 expiration                       (234,750)


2001 issuance                                                                  400,000     700,000
                                  -----------------------------------------------------------------------------------------------
Balance, 12/31/01                           --     2,442,000     4,478,277     400,000     700,000     16,200,000     3,499,999
                                  -----------------------------------------------------------------------------------------------


Exercise price, 12/31/01                    --    $     0.75    $     0.75    $   0.75    $   0.75    $      0.75    $     0.75


2002 issuance
                                  -----------------------------------------------------------------------------------------------
Balance, 12/31/02                           --     2,442,000     4,478,277     400,000     700,000     16,200,000     3,499,999
                                  -----------------------------------------------------------------------------------------------

Exercise price, 12/31/02                    --    $     0.75    $     0.75    $   0.75    $   0.75    $      0.75    $     0.75



<CAPTION>
                                                                                LENDERS         LENDERS
                                                                               AFFILIATED      AFFILIATED     FALCON
                                        SJMB         SJMB           SJMB        WITH SJMB       WITH SJMB    SEABOARD
                                        $1.50        $0.75          $0.75        $0.75            $0.75        $6.75
                                       EXPIRES      EXPIRES        EXPIRES       EXPIRES         EXPIRES      EXPIRES
                                       12/31/04     12/31/04       12/31/06      12/31/04        12/31/06     12/31/04
                                  --------------------------------------------------------------------------------------
<S>                                   <C>           <C>            <C>         <C>            <C>           <C>
Balance, 12/31/99                      2,150,000     3,075,000                  13,775,000                   1,800,000


2000 issuance                                                                   14,350,000
                                  --------------------------------------------------------------------------------------
Balance, 12/31/00                      2,150,000     3,075,000           --     28,125,000            --     1,800,000
                                  --------------------------------------------------------------------------------------

Exercise price, 12/31/00              $     0.75    $     0.75                 $      0.75                  $     0.75

2001 expiration


2001 issuance
                                  --------------------------------------------------------------------------------------
Balance, 12/31/01                       2,150,000     3,075,000          --     28,125,000            --     1,800,000
                                  --------------------------------------------------------------------------------------


Exercise price, 12/31/01               $     0.75    $     0.75                $      0.75                  $     0.75


2002 issuance                                                       682,500                    1,738,409
                                  --------------------------------------------------------------------------------------
Balance, 12/31/02                       2,150,000     3,075,000     682,500     28,125,000     1,738,409     1,800,000
                                  --------------------------------------------------------------------------------------

Exercise price, 12/31/02               $     0.75    $     0.75    $   0.75    $      0.75    $     0.75    $     0.75


<CAPTION>

                                                      W. L. JENKINS
                                        HARRIS WEBB    EMPLOYMENT
                                         & GARRISON    AGREEMENT
                                           $6.05         $0.75
                                          EXPIRES       EXPIRES
                                          3/15/03       12/31/06     TOTAL
                                  ---------------------------------------------
<S>                                      <C>         <C>          <C>
Balance, 12/31/99                         384,618                  48,039,644


2000 issuance                                                      14,350,000
                                  ---------------------------------------------
Balance, 12/31/00                         384,618            --    62,389,644
                                  ---------------------------------------------

Exercise price, 12/31/00                 $   0.75

2001 expiration                                                      (234,750)


2001 issuance                                                       1,100,000
                                  ---------------------------------------------
Balance, 12/31/01                         384,618            --    63,254,894
                                  ---------------------------------------------


Exercise price, 12/31/01                 $   0.75


2002 issuance                                         2,500,000     4,920,909
                                  ---------------------------------------------
Balance, 12/31/02                         384,618     2,500,000    68,175,803
                                  ---------------------------------------------

Exercise price, 12/31/02                 $   0.75    $    0.75

</TABLE>


                                      F-29
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------


During 1996, the Company issued warrants to purchase shares of the Company's
common stock in connection with the conversion of certain debt. The warrants
give holders the right to purchase up to 303,750 shares of the Company's common
stock at $2 per share. A total of 69,000 of these warrants have been exercised.
No warrants were exercised during 2001, 2000 or 1999. The warrants expired on
September 30, 2001 and were cancelled.

NOTE 13 - INCOME TAXES

The (benefit)/provision for income taxes consists of the following for the years
ended December 31, 2002, 2001, and 2000:

                                            2002       2001       2000
                                          --------   -------   -------
Federal:
     Current                              $     --   $    --   $    --
     Deferred                                   --        --        --
                                          --------   -------   -------
                                                --        --        --
                                          --------   -------   -------
State:
     Current                                    --        --        --
     Deferred                                   --        --        --
                                          --------   -------   -------
                                                --        --        --
                                          --------   -------   -------
        Total                             $     --   $    --   $    --
                                          --------   -------   -------

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

<TABLE>
<CAPTION>
                                                          2002           2001           2000
                                                       -----------    -----------    -----------

<S>                                                    <C>            <C>            <C>
(Benefit)/provision at federal statutory rate          $(2,530,131)   $ 1,730,506    $(1,422,641)
State income taxes, net of federal benefit                (245,572)       185,081       (129,306)
Nondeductible tax expenses                                 110,924        176,383         90,394
Accrual to return timing differences and other            (396,313)            --             --
(Decrease)/increase in valuation allowance               3,061,092     (2,091,970)     1,461,553
                                                       -----------    -----------    -----------
        (Benefit) Provision for federal income taxes   $        --    $        --    $        --
                                                       -----------    -----------    -----------
</TABLE>


At December 31, 2002 and 2001, the Company has available federal tax net
operating loss carryforwards (NOL's) of approximately $31,823,000 and
$21,652,000, respectively, that unless previously utilized, expire at various
dates beginning 2010 through 2022. The Company's utilization of NOL's is subject
to a number of uncertainties, including the ability to generate future taxable
income. In addition, the Company has been subject to a number of "ownership
changes" as defined under Internal Revenue Code Section 382. As a result,
Section 382 imposes additional limitations on utilization of certain of the
Company's NOL's.



                                      F-30
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

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:

                                                      2002             2001
                                                  ------------    ------------

Gross deferred tax assets:
     Allowance for doubtful accounts receivable   $    315,422    $    357,548
     Accrued bonuses and other                         189,266         193,178
     Operating loss carryforwards                   11,869,987       8,076,210
     Goodwill                                        3,319,718       3,551,895
     Valuation allowance                           (11,989,707)     (8,928,615)
                                                  ------------    ------------
        Gross deferred tax asset                     3,704,686       3,250,216
                                                  ------------    ------------

Gross deferred tax liabilities:
     Depreciation                                   (3,592,018)     (3,137,548)
     Other                                            (112,668)       (112,668)
                                                  ------------    ------------
        Gross deferred tax liability                (3,704,686)     (3,250,216)
                                                  ------------    ------------
        Net deferred tax asset (liability)        $         --    $         --
                                                  ------------    ------------

The Company is required to record a valuation allowance when it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. At December 31, 2002 and 2001, the Company has recorded a valuation
allowance of $11,989,707 and $8,928,615 against the gross deferred tax asset.


                                      F-31
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

NOTE 14 - INCOME (LOSS) PER SHARE

The calculation of basic and diluted EPS is as follows:


<TABLE>
<CAPTION>
                                            FOR THE YEAR ENDED 2002                         FOR THE YEAR ENDED 2001
                                  --------------------------------------------    -----------------------------------------
                                    INCOME             SHARES        PER SHARE      INCOME          SHARES       PER SHARE
                                  (NUMERATOR)       (DENOMINATOR)     AMOUNT      (NUMERATOR)    (DENOMINATOR)     AMOUNT
                                  -----------       -------------    ---------    -----------    -------------    ---------
<S>                                <C>               <C>              <C>        <C>               <C>              <C>
NET LOSS PER SHARE - BASIC

Income (loss) before
discontinued operations
     and extraordinary items
     available to
     common stockholders           $(7,576,602)      $12,499,528      $  (.61)   $ 5,809,869       $12,491,788      $   .46

Discontinued operations                     --        12,499,528           --        377,333        12,491,788          .03

Net extraordinary items                     --        12,499,528           --     (1,147,478)       12,491,788         (.09)
                                   -----------                        -------    -----------                        -------
Net loss per share - basic         $(7,576,602)      $12,499,528      $  (.61)   $ 5,039,724       $12,491,788      $   .40
                                   -----------                        -------    -----------                        -------
EFFECT OF DILUTIVE SECURITIES

Stock warrants

Stock options

Convertible debt debenture

NET LOSS PER SHARE - DILUTED

Income (loss) before
     discontinued operations
     and extraordinary items
     available to
     common stockholders           $(7,576,602)      $12,499,528      $  (.61)   $ 5,809,869       $12,491,788      $   .46

Discontinued operations                     --        12,499,528           --        377,333        12,491,788          .03

Net extraordinary items                     --        12,499,528           --     (1,147,478)       12,491,788         (.09)
                                   -----------                        -------    -----------                        -------
Net loss per share - diluted       $(7,576,602)      $12,499,528      $  (.61)   $ 5,039,724       $12,491,788      $   .40
                                   -----------                        -------    -----------                        -------



<CAPTION>



                                          FOR THE YEAR ENDED 2000
                                  -----------------------------------------
                                    INCOME          SHARES        PER SHARE
                                  (NUMERATOR)    (DENOMINATOR)      AMOUNT
                                  -----------    -------------     --------
<S>                               <C>               <C>              <C>
NET LOSS PER SHARE - BASIC

Income (loss) before
discontinued operations
     and extraordinary items
     available to
     common stockholders          $(5,026,392)      $ 7,619,927      $  (.66)

Discontinued operations              (126,421)        7,619,927         (.02)

Net extraordinary items               968,576         7,619,927          .13
                                  -----------                        -------
Net loss per share - basic        $(4,184,237)      $ 7,619,927      $  (.55)
                                  -----------                        -------
EFFECT OF DILUTIVE SECURITIES

Stock warrants

Stock options

Convertible debt debenture

NET LOSS PER SHARE - DILUTED

Income (loss) before
     discontinued operations
     and extraordinary items
     available to
     common stockholders          $(5,026,392)      $ 7,619,927      $  (.66)

Discontinued operations              (126,421)        7,619,927         (.02)

Net extraordinary items               968,576         7,619,927          .13
                                  -----------                        -------
Net loss per share - diluted      $(4,184,237)      $ 7,619,927      $  (.55)
                                  -----------                        -------

</TABLE>
                                      F-32

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

Options issued to purchase 17,446,800 shares of common stock and warrants to
purchase 68,175,803 shares of common stock at price ranging from $0.75 to $8.01
were outstanding during 2002, but were not included in the computation of the
2002 diluted EPS because the effect would be anti-dilutive. There were 1,416,200
options to purchase common stock cancelled during 2002 that were not included in
the computation of 2002 diluted EPS because the effect would be anti-dilutive.

Options issued to purchase 17,358,000 shares of common stock and warrants to
purchase 63,254,894 shares of common stock at price ranging from $0.75 to $8.01
were outstanding during 2001, but were not included in the computation of the
2001 diluted EPS because the effect would be anti-dilutive.

Options issued to purchase 10,920,750 shares of common stock and warrants to
purchase 62,389,644 shares of common stock at prices ranging from $0.75 to $8.01
were outstanding during 2000, but were not included in the computation of the
2000 diluted EPS because the effect would be anti-dilutive.

Convertible debt instruments, including convertible interest, which would result
in the issuance of 46,780,080, 42,084,458 and, 37,550,290 shares of common
stock, if the conversion features were exercised, were outstanding during 2002,
2001 and 2000 respectively, but were not included in the computation of the
2002, 2001 or 2000 diluted EPS because the effect would be anti-dilutive. The
conversion price of these instruments was $0.75 per share at December 31, 2002,
2001 and 2000 and remained outstanding at December 31, 2002.

NOTE 15 - MAJOR CUSTOMERS

Most of the Company's business activity is with customers engaged in drilling
and operating oil and natural gas wells primarily in the Black Warrior and
Mississippi Salt Dome Basins in Alabama and Mississippi, the Permian Basin in
West Texas and New Mexico, the San Juan Basin in New Mexico, Colorado, and Utah,
the East Texas and Austin Chalk Basins in East Texas, the Powder River and Green
River Basins in Wyoming and Montana, the Williston Basin in North Dakota, and
the Gulf of Mexico offshore of Louisiana and Texas. Substantially all of the
Company's accounts receivable at December 31, 2002 and 2001 are from such
customers. Performance in accordance with the credit arrangements is in part
dependent upon the economic condition of the oil and natural gas industry in the
respective geographic areas. The Company does not require its customers to
pledge collateral on their accounts receivable.

There were no customers from whom the Company earned in excess of 10% of its
revenues during the years ended December 31, 2002, 2001 or 2000.

NOTE 16 - EXTRAORDINARY ITEMS

During 2001, the Company recognized an extraordinary loss of $1,322,481, net of
income taxes of $0 on fees relating to the early extinguishment of the Coast
debt and the SJMP Cash Collateral Fee Agreement. The Company recorded an
extraordinary gain of $175,003, net of income taxes of $0 as a result of a
negotiated payment of the Bendover promissory notes and related obligations.
During 2000 and 1999, the Company executed agreements with certain of its
vendors to discount the outstanding obligations due to these vendors. The
agreements provided for a decrease in the outstanding obligations of $968,576
and $127,671, respectively. Accordingly, the Company recognized an extraordinary
gain on extinguishments of debt of $968,576 and $127,671, respectively, net of
income taxes of $0.

NOTE 17 - STOCK OPTIONS

The 2000 Stock Incentive Plan ("2000 Incentive Plan") provides for the granting
of incentive stock options or non-qualified stock options to purchase shares of
the Company's common stock to key employees and non-employee directors or



                                      F-33
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

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

The Board and shareholders approved the 2000 Incentive Plan on February 11, 2000
and an amendment on February 9, 2001, respectively. At December 31, 2002,
19,532,500 shares had been granted, of which 2,686,000 shares were cancelled and
653,500 remained to be granted under this plan.

The 1997 Omnibus Incentive Plan ("1997 Omnibus Plan") provides for the granting
of either incentive stock options or nonqualified stock options to purchase
shares of the Company's common stock to key employees responsible for the
direction and management of the Company. The 1997 Omnibus Plan authorizes the
issuance of options to purchase up to an aggregate of 600,000 shares of common
stock, with maximum option terms of ten years from the date of grant. During
1998, the Board authorized an amendment to the 1997 Omnibus Plan to allow
additional issuances of options to purchase 400,000 shares of common stock. This
amendment increases the total aggregate number of shares under the 1997 Omnibus
Plan to 1,000,000. The amendment was approved by the shareholders on February 9,
2001. At December 31, 2002 and 2001, 600,300 and 672,200 options were
outstanding, respectively. At December 31, 2002, 399,700 options remain
available to be granted. Options to purchase 71,700 shares of common stock were
cancelled during 2002.

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



                                      F-34
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                                                    WEIGHTED
                                                                                                                     AVERAGE
                                                                                                     WEIGHTED       FAIR VALUE
                                                                              RANGE OF               AVERAGE         OF STOCK
                                                         NUMBER OF            EXERCISE               EXERCISE           AT
                                                          OPTIONS              PRICES                 PRICE         GRANT DATE
                                                       --------------    --------------------    ---------------   ------------
<S>                                                       <C>               <C>                       <C>               <C>
Options outstanding, December 31, 1999                    1,153,750         $1.50 - $8.01             $3.34
                                                        -----------
Options cancelled                                           (13,000)            $6.50                 $6.50
                                                            (25,000)            $4.63                 $4.63
                                                            (62,500)            $2.63                 $2.63
                                                           (275,500)            $0.75                 $0.75
                                                        -----------
                                                           (376,000)
                                                        -----------
Options granted

     Exercise price equals FMV of stock at grant date     3,579,500            $0.75                  $0.75             $0.75
                                                          2,820,000            $0.75                  $0.75             $0.75
                                                        -----------
                                                          6,399,500
                                                        -----------



<CAPTION>





                                                                  VESTING
                                                                PROVISIONS
                                                       ---------------------------
<S>                                                     <C>
Options outstanding, December 31, 1999

Options cancelled






Options granted
                                                        33% immediate; 33% per
     Exercise price equals FMV of stock at grant date   year
                                                        Immediate



</TABLE>




                                      F-35
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                     WEIGHTED
                                                                                     AVERAGE
                                                                        WEIGHTED    FAIR VALUE
                                                            RANGE OF     AVERAGE     OF STOCK
                                               NUMBER OF    EXERCISE    EXERCISE        AT                    VESTING
                                                OPTIONS      PRICES       PRICE     GRANT DATE              PROVISIONS
                                               ---------    --------    --------    ----------      ----------------------------
                                              <C>             <C>         <C>         <C>           <C>
     Exercise price greater than FMV
      of stock at grant date                                                                        125,000 immediate; 25,000
                                               1,000,000      $0.75       $0.75       $0.5625       per year
                                                                                                    50,000 immediate; 10,000
                                                 200,000      $0.75       $0.75       $0.5625       per year
                                                  30,000      $0.75       $0.75       $0.4063       3 year pro rata
                                                 200,000      $0.75       $0.75       $0.5313       25% immediate; 25% per year
                                                                                                    125,000 immediate; 25,000
                                                 250,000      $0.75       $0.75       $0.5313       per year
                                                                                                    79,000 immediate; 25,000
                                                 696,000      $0.75       $0.75       $0.5313       per year
                                                 317,500      $0.75       $0.75       $0.5625       33% immediate; 33% per year
                                                 100,000      $0.75       $0.75       $0.5625       Immediate
                                                                                                    50,000 immediate; 10,000
                                                 100,000      $0.75       $0.75       $0.5625       per year
                                                                                                    125,000 immediate; 25,000
                                                 250,000      $0.75       $0.75       $0.4375       per year
                                                 600,000      $0.75       $0.75       $0.4375       25% immediate; 25% per year
                                              ----------
                                               3,743,500
                                              ----------
Options outstanding, December 31, 2000        10,920,750
                                              ----------
Options cancelled                                (80,000)     $1.50       $1.50
                                                (258,750)     $2.63       $2.63
                                                 (20,000)     $3.00       $3.00
                                                 (10,000)     $3.38       $3.38
                                                (115,000)     $4.63       $4.63
                                                (140,000)     $6.50       $6.50
                                                (200,000)     $6.69       $6.69
                                                  (7,500)     $6.28       $6.28
                                                (155,000)     $7.50       $7.50
                                                  (4,500)     $8.00       $8.00
                                                (969,500)     $0.75       $0.75
                                              ----------
                                              (1,960,250)
                                              ----------
Options Granted:
     Exercise price greater than FMV of                                                             67% immediate, 33% in one
      stock at grant date                          5,000      $0.75       $0.75       $0.38         year
                                                  70,000      $0.75       $0.75       $0.48         33% immediate, 33% per year
                                                 110,000      $0.75       $0.75       $0.57         25% immediate, 25% per year
                                               8,212,500      $0.75       $0.75       $0.42         Immediate
                                              ----------
                                               8,397,500
                                              ----------
Options outstanding, December 31, 2001        17,358,000
                                              ----------
Options cancelled                             (1,416,200)     $0.75       $0.75
                                              ----------
                                              (1,416,200)
Options Granted:
     Exercise price greater than FMV of
      stock at grant date                      1,505,000      $0.75       $0.75       $0.40         Immediate
                                              ----------
                                               1,505,000
Options outstanding, December 31, 2002        17,446,800
                                              ----------

</TABLE>


                                      F-36


<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

The following table summarizes information about stock options outstanding at
December 31, 2002:

<TABLE>
<CAPTION>
                               OPTIONS OUTSTANDING                                  OPTIONS EXERCISABLE
                         -------------------------------                         -------------------------
                                              WEIGHTED
                                               AVERAGE          WEIGHTED                          WEIGHTED
                           NUMBER             REMAINING         AVERAGE             NUMBER        AVERAGE
   EXERCISE              OUTSTANDING         CONTRACTUAL        EXERCISE         EXERCISABLE      EXERCISE
    PRICES                12/31/02              LIFE             PRICE             12/31/02        PRICE
   --------              -----------         -----------       ----------        -----------      --------
     <S>                  <C>                   <C>              <C>              <C>               <C>
     $0.75                17,381,800            7.82             $0.75            15,687,333        $0.75
     $1.81                    15,000            6.09             $1.81                15,000        $1.81
     $2.63                     5,000            4.25             $2.63                 5,000        $2.63
     $4.63                    20,000            4.67             $4.63                20,000        $4.63
     $6.63                    25,000            5.45             $6.63                25,000        $6.63
                          ----------                                              ----------
                          17,446,800            7.81             $0.76            15,752,333        $0.76
                          ==========                                              ==========
</TABLE>


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

<TABLE>
<CAPTION>
                                                                                      2002             2001              2000
                                                                                  -------------    -------------    -------------
<S>                                                                               <C>              <C>              <C>
Income (loss) before discontinued operations and extraordinary gain - as
reported                                                                          $  (7,576,602)   $   5,809,869    $  (5,026,392)
Discontinued operations - as reported                                                        --          377,333         (126,421)
Extraordinary gain (loss) on extinguishment of debt - as reported                            --       (1,147,478)         968,576
                                                                                  -------------    -------------    -------------
Net income (loss) - as reported                                                   $  (7,576,602)   $   5,039,724    $  (4,184,237)
                                                                                  -------------    -------------    -------------
Income (loss) before discontinued operations and extraordinary gain (loss) -
pro forma                                                                         $  (7,777,891)   $   3,628,670    $  (6,905,570)
Discontinued operations - pro forma                                                          --          377,333         (126,421)
Extraordinary gain (loss) on extinguishment of debt - pro forma                              --       (1,147,478)         968,576
                                                                                  -------------    -------------    -------------
Net income (loss) - pro forma                                                     $  (7,777,891)   $   2,858,525    $  (6,063,415)
                                                                                  -------------    -------------    -------------
Income (loss) per share - as reported (basic and diluted):
Income (loss) before discontinued operations and extraordinary gain (loss) -
as reported                                                                       $        (.61)   $         .46    $        (.66)
Discontinued operations - as reported                                                        --              .03             (.02)
Extraordinary gain (loss) on extinguishment of debt - as reported                            --             (.09)             .13
                                                                                  -------------    -------------    -------------
Net income (loss) per share - as reported (basic and diluted)                     $        (.61)   $         .40    $        (.55)
                                                                                  -------------    -------------    -------------
Income (loss) per share - pro forma (basic and diluted):
Income (loss) before discontinued operations and extraordinary gain - pro
forma                                                                             $        (.62)   $         .29    $        (.91)
Discontinued operations - pro forma                                                          --              .03             (.02)
Extraordinary gain (loss) on extinguishment of debt - pro forma                              --             (.09)             .13
                                                                                  -------------    -------------    -------------
Net income (loss) per share - pro forma (basic and diluted)                       $        (.62)   $         .23    $        (.80)
                                                                                  -------------    -------------    -------------
</TABLE>


                                      F-38
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

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

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

                                                 2002      2001      2000
                                                ------    ------    ------
              Dividend yield                        0%        0%        0%
              Expected life (years)              3.08      4.00      3.78
              Expected volatility               100.0%    74.74%    69.14%
              Risk-free interest rate            3.30%     4.92%     6.43%


NOTE 18 - CONTINGENCIES

The Company is the subject of various legal actions in the ordinary course of
business. Management does not believe the ultimate outcome of these actions will
have a materially adverse effect on the financial position, results of
operations or cash flows of the Company.

NOTE 19 - 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 carrying value of the Company's long-term debt approximates
fair value due to the variable nature of the interest rate and the interest rate
reset periods.

NOTE 20 - EMPLOYEE BENEFIT PLAN

The Company maintains a Retirement Savings Plan (the 401(k) Plan) for its
employees, which allows participants to make contributions by salary reduction
pursuant to Section 401(k) of the Internal Revenue Code. The Company's
contributions to the 401(k) Plan are discretionary. Employees vest in their
contributions after 12 months and 1,000 hours of service and vest in the
Company's contributions ratably over six years. The Company made no
contributions to the 401(k) Plan for the years ended December 31, 2002, 2001,
and 2000.

NOTE 21 - SEGMENT AND RELATED INFORMATION

At December 31, 2002, the Company is organized into, and manages its business
based on the performance of two business units. The business units have separate
management teams and infrastructures that offer different oil and gas well
services. The business units have been divided into two reportable segments:
wireline and directional drilling, since the long-term financial performance of
these reportable segments is affected by similar economic conditions.



                                      F-39
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

At December 31, 2000, the Company was organized into three business units. As
more fully described in Note 22, the workover and completion segment was
discontinued during 2001. Accordingly, the results of its operations prior to
discontinuance have been presented as discontinued operations in the statement
of operations. Prior year financial statements and segment information have been
restated to reflect the discontinued operations.

WIRELINE - This segment consists of two business units that perform various
procedures to evaluate downhole conditions at different stages of the process of
drilling and completing oil and gas wells as well as various times thereafter
until the well is depleted and abandoned. This segment engages in onshore and
offshore servicing, as well as other oil and gas well service activities
including renting and repairing equipment. The principal markets for this
segment include all major oil and gas producing regions of the United States.
Major customers of this segment for the years ended December 31, 2002, 2001 and
2000 included Burlington Resources, Pioneer Natural Resources, Phillips
Petroleum, Apache Corp and Denbury Management.

DIRECTIONAL DRILLING SERVICES - This segment performs procedures to enter an
oil-producing zone horizontally, using specialized drilling equipment, and
expand the area of interface of hydrocarbons and thereby greatly enhances
recoverability of oil. The segment also engages in oil and gas well surveying
activities. The principal markets for this segment include all major oil and gas
producing regions of the United States. Major customers of this segment for the
years ended December 31, 2002, 2001 and 2000 included Encore Operating,
Chesapeake, Union Pacific, Texaco E&P, Clayton Williams Energy and Endeavor
Energy.

The accounting policies of the reportable segments are the same as those
described in Note 3 of Notes to Financial Statements. The Company evaluates the
performance of its operating segments based on earnings before interest, taxes,
depreciation and amortization ("EBITDA"), which is derived from revenues less
operating expenses and selling, general and administrative expenses. Segment
information for the years ended December 31, 2002, 2001 and 2000 is as follows:

                                      DIRECTIONAL
  2002                WIRELINE         DRILLING           TOTAL
----------           -----------      -----------      -----------
Segment revenues     $34,093,891      $22,489,270      $56,583,161
Segment EBITDA       $ 3,727,674      $ 2,346,695      $ 6,074,369
Segment assets       $27,513,052      $22,096,959      $49,610,011

                                      DIRECTIONAL
  2001                WIRELINE         DRILLING           TOTAL
----------           -----------      -----------      ------------

Segment revenues     $39,681,966      $36,424,954      $76,106,920
Segment EBITDA       $12,212,190      $ 7,278,633      $19,490,823
Segment assets       $24,647,035      $25,770,536      $50,417,571

                                      DIRECTIONAL
  2000                WIRELINE         DRILLING            TOTAL
----------           -----------      -----------      ------------

Segment revenues     $21,636,566      $22,917,970      $44,554,536
Segment EBITDA       $ 4,639,293      $ 3,836,494      $ 8,475,787
Segment assets       $17,975,321      $24,688,389      $42,663,710


                                      F-40
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

The Company has certain expenses and assets, which are not allocated to the
individual operating segments. A reconciliation of total segment EBITDA to
income (loss) from operations and total segment assets to total assets for the
years ended December 31, 2002, 2001 and 2000 is presented as follows:

<TABLE>
<CAPTION>
                                                                  2002              2001                2000
                                                              ------------       ------------       ------------
<S>                                                           <C>                <C>                <C>
EBITDA
Total segment EBITDA                                          $  6,074,369       $ 19,490,823       $  8,475,787
Depreciation and amortization                                   (8,040,892)        (6,629,064)        (5,350,303)
Unallocated corporate expense                                     (453,492)        (1,275,854)        (3,100,344)
                                                              ------------       ------------       ------------

     Income (loss) from operations                            $ (2,420,015)      $ 11,585,905       $     25,140
                                                              ------------       ------------       ------------

ASSETS
Total segment assets                                          $ 49,610,011       $ 50,417,571       $ 42,663,710
Assets of discontinued operations as previously reported                --                 --            139,649
Unallocated corporate assets                                        61,098             63,304             71,615
                                                              ------------       ------------       ------------

        Total assets                                          $ 49,671,109       $ 50,480,875       $ 42,874,974
                                                              ------------       ------------       ------------
</TABLE>

NOTE 22 - DISCONTINUED OPERATIONS

In July 2001, the Company sold all physical assets associated with its workover
and completion business unit for $525,000. The Company recorded a gain of
$476,172, net of income taxes of $0. This business unit had an operating loss of
approximately $99,000 and $126,000 for the years ended December 31, 2001 and
2000, respectively and an operating gain of approximately $5,000 for the year
ended December 31, 1999. Operating results for all previous years have been
restated to exclude the operating results of the Company's workover and
completion business unit.




                                      F-41
<PAGE>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------


NOTE 23 - QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 2002 and December 31, 2001
---------------------------------------------------------------------------------------------------------------------------------
                                                                                 Income (loss)
                                                                                    before
                                                              Income (loss)      discontinued
                                           Net income     before discontinued   operations and                      Net income
                                          (loss) from       operations and       extraordinary       Net income       (loss),
                          Sales            operations     extraordinary items  items, per share        (loss)        per share
                       ------------       ------------    -------------------  ------------------   -------------   ------------
<S>                    <C>                <C>                <C>                 <C>                <C>             <C>
2002
      First Quarter    $ 12,649,603       $ (1,272,381)      $ (2,541,846)       $     (0.20)       $ (2,541,846)   $     (0.20)
      Second Quarter     13,451,814           (590,410)        (1,794,942)             (0.14)         (1,794,942)         (0.14)
      Third Quarter      15,428,797             12,266         (1,342,055)             (0.11)         (1,342,055)         (0.11)
      Fourth Quarter     15,052,947           (569,490)        (1,897,759)             (0.16)         (1,897,759)         (0.16)
                       ------------       ------------       ------------        -----------        ------------    -----------
                       $ 56,583,161       $ (2,420,015)      $ (7,576,602)       $     (0.61)       $ (7,576,602)   $     (0.61)
                       ------------       ------------       ------------        -----------        ------------    -----------
2001
      First Quarter    $ 18,131,297       $  3,228,216       $  1,889,556        $      0.15        $  1,889,556    $      0.15
      Second Quarter     21,365,502          5,192,251          3,761,287               0.30           3,761,287           0.30
      Third Quarter      21,414,345          4,331,219          2,559,820               0.20           1,901,514           0.15
      Fourth Quarter     15,195,776         (1,165,781)        (2,400,794)             (0.19)         (2,512,633)         (0.20)
                       ------------       ------------       ------------        -----------        ------------    -----------
                       $ 76,106,920       $ 11,585,905       $  5,809,869        $      0.46        $  5,039,724           0.40
                       ------------       ------------       ------------        -----------        ------------    -----------
</TABLE>


                                      F-42

<PAGE>

ITEM 9. CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING
AND FINANCIAL DISCLOSURE:

         On September 18, 2002, the Company dismissed PricewaterhouseCoopers,
LLP ("PWC") as its principal independent accountants. On October 31, 2002, the
Company engaged Grant Thornton LLP as its principal independent accountants to
audit its financial statements. Information required to be disclosed in response
to this Item and Item 304(a) of Regulation S-K was previously reported in the
Company's Current Report on Form 8-K for September 18, 2002.

         In connection with the audits of the fiscal years ended December 31,
2001 and December 31, 2000 and through September 18, 2002, the date of dismissal
of PWC, the Company had no disagreements with PWC with respect to accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to the satisfaction of PWC, would have caused
PWC to make reference to the subject matter of its disagreement in connection
with its opinion.

         During the two most recent fiscal years and through September 18, 2002,
the date of dismissal of PWC, there had been no reportable events (as defined in
Regulation S-K Item 304(a)(1)(v)) except, in a letter addressed to the President
of the Company relating to PWC's audit of the Company's financial statements as
of December 31, 2001 delivered to the Company over the Internet on September 25,
2002, PWC reported what it described as a "Reportable Condition" constituting "a
material weakness in the Company's internal control structure over the
safeguarding and financial reporting of the Company's inventory."



                                       37
<PAGE>




                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

               NAME              AGE                    POSITION
        ------------------------------------------------------------------------

          William L. Jenkins      49       President, Chief Executive Officer
                                                       and Director

          Allen R. Neel           45      Executive Vice-President and Secretary

          Danny R. Thornton       52             Vice-President/Operations

          Charles E. Underbrink   48                      Director

          James H. Harrison       34                      Director


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

         Allen R. Neel, is the Executive Vice-President and Secretary of the
Company and has been employed by the Company since August 1990. 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 R. Thornton is a Vice-President of the Company and has been
employed by the Company since March 1989. From 1982 to March 1989, Mr. Thornton
was the president and a principal stockholder of Black Warrior Mississippi, the
Company's operational predecessor. Mr.



                                       38
<PAGE>

Thornton has been engaged in the oil and gas services industry in various
capacities since 1978. His principal duties with the Company include supervising
and consulting on wireline. Mr. Thornton is Mr. Jenkins' brother-in-law.

         Charles E. Underbrink was elected a Director on April 1, 1998. For more
than the past five years, he has been employed as the Chairman of St. James
Capital Corp. and SJMB, L.L.C., Houston based merchant banking firms. From the
inception of St. James Capital Corp. and SJMB, L.L.C. until March 1, 2001 he
also served as the Chief Executive officer of each. Mr. Underbrink is also a
Director of Somerset House Publishing, HUB, Inc. and Imperial Credit Industries,
Inc.

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


COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

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

ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION - GENERAL

         The following table sets forth the compensation paid or awarded to the
President and Chief Executive Officer of the Company and each other executive
officer of the Company who received compensation exceeding $100,000 during 2002
for all services rendered to the Company in each of the years 2002, 2001, and
2000.


                                       39
<PAGE>

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                                                                    LONG-TERM
                                       ANNUAL COMPENSATION                         COMPENSATION
                         ------------------------------------------------------------------------------
                                                                 OTHER       SECURITIES     LONG-TERM
         NAME AND                                                ANNUAL      UNDERLYING     INCENTIVE    ALL OTHER
  PRINCIPAL POSITION       YEAR       SALARY       BONUS       COMPENSATION    OPTIONS      PAYOUTS     COMPENSATION
-----------------------------------------------------------------------------------------------------------------------
<S>                        <C>       <C>          <C>          <C>           <C>            <C>          <C>

William L. Jenkins         2002      $363,333     $                                                      $1,216 (1)
  President                2001      $225,000     $123,376                                               $1,216 (1)
                           2000      $195,650     $ 77,726                                               $1,216 (1)

Allen R. Neel              2002      $139,000                                                            $9,000 (2)
 Executive Vice President  2001      $139,000                                                            $9,000 (2)
                           2000      $119,000                                                            $8,400 (2)

Danny R. Thornton          2002      $115,000     $  7,153                                               $6,000 (2)
 Vice President            2001      $100,208     $ 41,025                                               $3,500 (2)
                           2000      $ 79,500     $  6,576                                                7,000

</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.
(2)      Automobile allowance paid to Messrs. Neel and Thornton.

         Compensation Decisions. The Company's full Board of Directors acts on
matters involving the compensation of the Company's executive officers and
employees and the grant of options under the Company's option plans other than
the 2000 Stock Incentive Plan. At the present time, a compensation committee of
the Board of Directors has not been appointed. Mr. Jenkins, the President and
Chief Executive Officer of the Company, and Messrs. Underbrink and Harrison
participate in deliberations concerning executive officer compensation. Messrs.
Jenkins and Harrison have been appointed to the option committee under the 2000
Stock Incentive Plan. Executive officers who are Directors whose compensation is
being considered do not participate in board or committee actions regarding
their compensation. The Board of Directors seeks to assure that the Company's
executive officers are adequately and fairly compensated and that their
compensation is competitive with other similar-sized companies in the oilfield
service industry and, at the same time, reflecting their individual performance
and responsibilities within the Company. Historically, the Board has compensated
executive officers primarily through the payment of salaries. In certain recent
years, the Company's ability to pay salaries has been impacted by its limited
financial resources.


                                       40
<PAGE>



STOCK OPTION EXERCISES AND HOLDINGS AT DECEMBER 31, 2002.
---------------------------------------------------------


         The following table provides information with respect to the above
named executive officers regarding Company options exercised during the year
ended December 31, 2002 and options held at December 31, 2002 (such officers did
not exercise any options during the most recent fiscal year).

<TABLE>
<CAPTION>


                                                     NUMBER OF UNEXERCISED OPTIONS        VALUE OF UNEXERCISED
                                                         AT DECEMBER 31, 2002             IN-THE-MONEY OPTIONS
                                                                                        AT DECEMBER 31, 2002 (1)

    NAME                   EXERCISE      REALIZED      EXERCISABLE   UNEXERCISABLE    EXERCISABLE     UNEXERCISABLE
---------------------------------------------------------------------------------------------------------------------
<S>                          <C>           <C>          <C>              <C>             <C>              <C>

William L. Jenkins           -0-           -0-          4,000,000        -0-              -0-             -0-
Allen R. Neel                -0-           -0-          1,050,000        -0-              -0-             -0-
Danny R. Thornton            -0-           -0-          1,250,000        -0-              -0-             -0-

</TABLE>


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

(1)  Based on the closing sales price on December 31, 2002 of $0.10.

No options were granted to the above named executive officers during 2002.

OTHER PLANS

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

EMPLOYMENT AGREEMENTS

         Mr. Jenkins serves as the Company's President, Chief Executive Officer
and a Director pursuant to an employment agreement, as amended effective January
1, 2002, expiring on December 31, 2005. Under the agreement, Mr. Jenkins
receives a base salary of not less than $350,000 per year. If the Company
achieves, during any calendar quarter beginning January 1, 2002, a ratio of
EBITDA to sales of 20% or more, Mr. Jenkins will be paid a bonus for the quarter
of 1% of the Company's EBITDA during the quarter. As an incentive to retain Mr.
Jenkins' services, the Company loaned to Mr. Jenkins on March 22, 2002, the sum
of $190,000, bearing interest at the applicable federal rate, to be repaid at
the rate of one-third of the principal, plus accrued interest, on October 1 of
each of the years 2002, 2003 and 2004. If Mr. Jenkins remains employed by the
Company on September 30 preceding the date annual principal and interest is due
on the loan, the sum due and owing the following day is forgiven. Accordingly,
on



                                       41
<PAGE>

October 1, 2002, $61,793 of principal and interest owing by Mr. Jenkins to
the Company was forgiven. In the event of a Change of Control, as defined, the
death or permanent disability of Mr. Jenkins or in the event his employment is
terminated without cause, the entire amount owing by Mr. Jenkins is forgiven. In
the event of a Change of Control, as defined, the Company agrees that the
employment agreement will terminate and Mr. Jenkins will be paid a sum equal to
three times the compensation paid to Mr. Jenkins during the twelve months
preceding the Change of Control. A Change of Control is defined in the agreement
as any person or group of persons acquiring 20% or more of the outstanding
shares of voting capital stock of the Company, the sale of more than 25% of the
assets of the Company in a single or series of related transactions, a merger of
the Company with any other person or firm, a change, during any period of twelve
consecutive calendar months, in the individuals who were Directors at the
beginning of such period (including Directors whose election or nomination for
election was approved by at least two-thirds of the Directors then in office who
were Directors at the beginning of the period or whose election was so approved)
and such persons cease for any reason other than death or disability to
constitute a majority of the Directors then in office, or St. James Capital
Corp. ceases to be the general partner, managing partner or otherwise ceases to
control St. James Capital Partners, L.P. or SJMB, L.P. The Company also agreed
to issue to Mr. Jenkins a five-year common stock purchase warrant to purchase
2.5 million shares of stock exercisable at $0.75 per share. In the event of Mr.
Jenkins' death, subject to any restrictions contained in the Company's agreement
with GECC, the Company agreed to repurchase the shares and options held by Mr.
Jenkins at the fair market value of the shares, as to shares repurchased, and
the difference between the fair market value and the option exercise price, as
to options repurchased. Under the agreement, the fair market value is the
average of the mid-point between the bid and asked prices for the Company's
common stock for the twenty trading days preceding death. The Company also
confirmed the prior agreement to pay to Mr. Jenkins in the event of a sale of
the Company, a sum equal to 1% of the gross sale proceeds or gross value of any
stock received, subject to a maximum payment of $500,000. The amended employment
agreement further provides that while in the employ of the Company and
thereafter Mr. Jenkins will not divulge or use any confidential information of
the Company and during the term of his employment will not engage in activities
in competition with the Company.

         The Company has entered into five-year employment agreements
terminating on April 1, 2006 with each of Allen R. Neel, Executive
Vice-President and Danny R. Thornton, Vice-President, Operations, of the
Company. Mr. Neel is to receive base compensation of $139,000 per year. Mr.
Thornton receives base compensation of $115,000 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. For the year commencing
January 1, 2002, such base salaries were set at $139,000 and $115,000,
respectively. 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


                                       42
<PAGE>


of two years thereafter. Mr. Neel's agreement also contains a provision, added
by amendment in 2002, whereby in the event of a change of control of the
Company, he is to be paid a sum equal to his total annual compensation as in
effect for the twelve months preceding the change of control. A change of
control is defined under Mr. Neel's contract the same as under Mr. Jenkins'
contract described above with the addition of a provision that if Mr. Jenkins
ceases to be President, Chief Executive Officer, a Director or an employee of
the Company, a change of control will have occurred for the purposes of Mr.
Neel's agreement.

DIRECTORS' COMPENSATION

         Non-employee Directors of the Company are authorized to receive
compensation in the amount of $5,000 each quarter commencing January 1, 2001. In
addition, the Company's Directors are reimbursed for their out-of-pocket
expenses in attending meetings of the Board of Directors and committees of the
Board.

         Under the Company's Stock Incentive Plan, on the date of each annual
meeting of stockholders held after January 1, 2000, each non-employee Director
automatically receives an option grant for 50,000 shares on the date such person
joins the Board of Directors and each individual who is to continue to serve as
a non-employee Board member is automatically granted a Non-Statutory Option to
purchase 5,000 shares of the Company's Common Stock, provided such individual
has served as a non-employee Board member for at least six (6) months.



                                       43
<PAGE>




ITEM 12. 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 1, 2003 (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 March 1, 2003, the
Company had 12,496,408 shares of Common Stock outstanding.


<TABLE>
<CAPTION>

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

              William L. Jenkins                            6,710,000 (4)             34.9%

              Danny R. Thornton                             1,250,666 (5)              9.1%

              Allen R. Neel                                 1,450,581 (5)             10.4%

              Charles E. Underbrink                       116,855,064 (6)             94.0%
              c/o St. James Capital Corp.
              4295 San Felipe
              Suite 200
              Houston, TX  77027

              James H. Harrison                           110,532,763 (7)             93.7%
              c/o St. James Capital Corp.
              4295 San Felipe - Suite 200
              Houston, TX  77027

              St. James Capital Partners, L.P., SJMB,     110,532,763 (8)             93.7%
              L.P.,  and affiliates
              4295 San Felipe - Suite 200
              Houston, Texas  77027

              All Directors and Officers as a Group
                 (5 persons)                              126,266,311                 94.69%

</TABLE>


(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., 100 Rosecrest Lane, Columbus, Mississippi
         39701.
(3)      The percentage of outstanding shares calculation is based upon
         12,496,408 shares outstanding as of March 1, 2003, except as otherwise
         noted.
(4)      Includes 4,000,000 shares issuable on exercise of options and 2,500,000
         shares issuable on exercise of warrants.
(5)      Includes 1,050,000 shares issuable on exercise of an option.

                                       44
<PAGE>

(6)      Includes an aggregate of 110,532,763 shares held directly by
         SJCP, SJMB and their affiliates and shares issuable on exercise of
         warrants and conversion of notes and accrued interest through March 1,
         2003 deemed held beneficially by Mr.. Underbrink because of his
         relationships with SJCP and SJMB. Also includes 6,460,032 shares
         issuable on exercise of warrants and conversion of notes and accrued
         interest through March 1, 2003 held directly by Mr. Underbrink and
         1,460,278 shares issuable on conversion of notes and accrued interest
         through March 1, 2003 held j by Mr. Underbrink and jointly with another
         person.
(7)      Includes an aggregate of 110,532,763 shares held directly by SJCP, SJMB
         and their affiliates and shares issuable on exercise of warrants and
         conversion of notes and accrued interest through March 1, 2003 that may
         be deemed held beneficially by Mr. Harrison because of his
         relationships with SJCP and SJMB. Mr. Harrison disclaims a beneficial
         ownership of such securities.
(8)      Includes shares issuable to SJCP and SJMB and their affiliates on
         conversion of notes and accrued interest through March 1, 2003 and
         exercise of warrants. See "Item 13. Certain Relationships and Related
         Transactions."

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

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

         The following table provides information as of December 31, 2002 with
respect to compensation plans (including individual compensation arrangements),
under which securities are authorized for issuance aggregated as to (i)
compensation plans previously approved by stockholders, and (ii) compensation
plans not previously approved by stockholders:

Equity Compensation Plan Information

<TABLE>
<CAPTION>

                                      (A)                      (B)                        (C)
PLAN CATEGORY                                                                       NUMBER OF SECURITIES
                                                                                  REMAINING AVAILABLE FOR
                               NUMBER OF SECURITIES      EXERCISE PRICE OF         FUTURE ISSUANCE UNDER
                                 TO BE ISSUED UPON       WEIGHTED-AVERAGE           EQUITY COMPENSATION
                                    EXERCISE OF             OUTSTANDING                 PLANS (EXCLUDING
                               OUTSTANDING OPTIONS,      OPTIONS, WARRANTS          SECURITIES REFLECTED IN
                               WARRANTS AND RIGHTS          AND RIGHTS                    COLUMN (A))
-----------------------------------------------------------------------------------------------------------
<S>                                <C>                        <C>                         <C>

Equity compensation                18,800,000                 $0.75                       1,439,500
plans approved by
security holders

Equity compensation                    -0-                                                   -0-
plans not approved by
security holders

Total                              18,800,000                 $0.75                       1,439,500

</TABLE>


                                       45
<PAGE>


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Commencing in June 1997 through February, 2000, the Company entered
into a series of transactions whereby it sold to St. James and their affiliates
for an aggregate purchase price of $26.4 million its 15% Convertible Promissory
Notes and common stock purchase warrants as follows:

        DATE OF               PRINCIPAL AMOUNT             NUMBER OF SHARES
      TRANSACTION                    OF               PURCHASABLE ON EXERCISE OF
                               NOTES (SOLD)(1)               WARRANTS (5)
      ------------         -----------------------------------------------------


     June 6, 1997                $ 2.0 million (2)            2,442,000
     October 9, 1997             $ 2.9 million                4,478,277
     January 23, 1998            $10.0 million (3)           18,000,000
     October 30, 1998            $ 2.0 million                4,000,000
     February 18, 1999           $ 2.5 million                4,150,000
     December 17, 1999           $ 3.5 million               14,350,000
     February 14, 2000           $ 3.5 million (4)           14,350,000
                           -----------------------------------------------------
                           Total $26.4 million       Total   61,770,277

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

(1)      Convertible at a current conversion price of $0.75 per share, as
         adjusted through December 17, 1999 pursuant to anti-dilution
         adjustments, subject to further possible adjustment as provided in the
         terms of the warrants.
(2)      Excludes an additional $3.0 million borrowed in June 1997 that was
         repaid in October 1997.
(3)      On December 14, 2000 $1,750,000 of this note was converted into
         2,333,333 shares of Common Stock, leaving a remaining principal balance
         of $8,250,000 convertible into an aggregate of 11,000,000 shares of
         Common Stock.
(4)      On September 14, 2001, $83,118 of this principal balance was repaid,
         leaving a remaining principal balance of $3,416,882 convertible into an
         aggregate of 4,555,843 shares of Common Stock.
(5)      Each warrant represents the right to purchase one share of Common Stock
         at $0.75 per share, subject to possible further anti-dilution
         adjustments. In March 2002, in connection with the extension of the
         maturity date of $17.7 million of indebtedness, the Company agreed to
         extend the expiration date of all these warrants to December 31, 2004.

         Except for those terms relating to the amounts of securities purchased,
maturity and expiration dates, interest rates, and conversion and exercise
prices, each of such transactions contained substantially identical terms and
conditions relating to the purchase of the securities involved. Payment of
principal and interest on all the notes is collateralized by substantially all
the assets of the Company, subordinated to borrowings by the Company from GECC
in the maximum aggregate amount of $40.0 million. The principal and accrued
interest on the notes are convertible into shares of the Company's Common Stock
at the conversion prices set forth in the table above. The conversion price of
the Notes and the exercise price of the Warrants is subject to anti-dilution
adjustments for certain issuances of securities by the Company at prices per
share


                                       46
<PAGE>


of Common Stock less than the conversion or exercise price then in effect
in which event the conversion price and exercise price are reduced to the lower
price at which such shares were issued. As a consequence of several transactions
involving the Company and St. James, the conversion and exercise prices have
been reduced pursuant to the anti-dilution adjustments to $0.75 per share. The
shares issuable on conversion of the notes and exercise of the warrants have
demand and piggy-back registration rights under the Securities Act of 1933. The
Company agreed that one person designated by St. James would be nominated for
election to the Company's Board of Directors. Mr. Charles E. Underbrink, a
principal of St. James, serves on the Company's Board of Directors. In addition,
in February 2003, subsequent to the resignation of John L. Thompson as a
Director, Mr. James H. Harrison, an employee of SJMB, L.L.C., was elected a
Director. Mr. Thompson had served as a St. James designee on the Board. 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 October 30, 1998, a merger of the Company with another person, its
dissolution or liquidation or a sale of all or substantially all its assets; and
(vi) certain 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 GECC, St.
James could seek to foreclose against the collateral for the notes.

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

         During the years ended December 31, 2002 and 2001, $3.5 million and
$3.2 million, respectively, of interest accrued on such loans. At December 31,
2002, the total accrued interest on such loans is convertible into an aggregate
of 14.0 million shares.

         In February 2001, the Company issued to Mr. Underbrink and St. James
five-year warrants to purchase 700,000 and 400,000 shares, respectively, of the
Company's Common Stock at exercise prices of $0.75 per share. The warrants were
issued in consideration of guarantees extended to the Company by Mr. Underbrink
and St. James in connection with the Company's borrowings from Coast Business
Credit in 2000. The holders of the warrants have the right to include the shares
issuable on exercise included in any registration statement filed by the Company
under the Securities Act of 1933, as amended, subject to certain limitations.


                                       47
<PAGE>


         On June 17, 1999, the Company sold for $200,000 approximately $329,000
of trade accounts receivable, which was fully reserved due to the customer
declaring bankruptcy, to RJ Air, LLC, an entity partially owned by John L.
Thompson, a member of the Company's Board of Directors at the time. As of
December 31, 2000, the Company had collected $100,000 of the sale price. The
remaining $100,000 is represented by an unsecured promissory note executed by
Mr. Thompson dated March 1, 2002 in the principal amount of $100,000 bearing
interest at the rate of 6% per annum from the inception of sale of the accounts
receivable with $50,000, plus one-half of the interest then accrued, due on
December 31, 2002 and the balance of principal and interest due on June 30,
2003. Mr. Thompson resigned as a Director on February 20, 2003. By letter dated
December 20, 2002, Mr. Thompson requested that the Company amend the note to
extend each of the principal payment dates by six months. The Company agreed to
this extension as of December 20, 2002. On March 21, 2003, Mr. Thompson agreed
with the Company to the rescission of this amendment of the note, the Company,
having been advised by counsel that such extension of the note was unlawful
under the Securities Exchange Act of 1934, as amended.

         In connection with the GECC refinancing, the Company agreed with the
holders to extend the maturity date of $6.9 million of the $7.0 million
principal amount of promissory notes due on June 30, 2001 to December 31, 2004.
The remainder of $0.1 million of the outstanding principal was repaid. The notes
bear interest at 15% per annum and are convertible into shares of the Company's
common stock at a conversion price of $0.75 per share, subject to an
anti-dilution adjustment for certain issuances of securities by the Company at
prices per share of common stock less than the conversion price then in effect,
in which event the conversion price is reduced to the lower price at which the
shares were issued. As a condition to extend the maturity date, holders of the
notes are to receive additional five-year common stock purchase warrants
exercisable at $0.75 per share if the Company has not entered into a purchase or
merger agreement on or before certain dates. Because such an agreement was not
entered into by December 31, 2001, the Company became obligated to issue
approximately 2.4 million additional warrants to these noteholders. In addition,
because an agreement was not entered into by December 31, 2002, the Company
became obligated to issue approximately 5.2 million additional warrants to these
noteholders. If such agreement is not entered into by December 31, 2003 with a
closing by March 31, 2004, the Company will be obligated to issue approximately
10.4 million additional warrants. Accordingly, under the terms of the note
extensions, in the event that the Company has not entered into a purchase or
merger agreement by December 31, 2003 with a closing date no later than March
31, 2004, an aggregate of 18.0 million additional warrants will have been issued
to these noteholders. The exercise price of the warrants is subject to
anti-dilution adjustments for certain issuances of securities by the Company at
prices per share of common stock less than the exercise price then in effect in
which event the exercise price is reduced to the lower price at which such
shares were issued.



                                       48
<PAGE>

         The Company also extended until December 31, 2004 the promissory notes
totaling $17.7 million owing to St. James which matured in March, 2001. The
notes bear interest at 15% per annum and are convertible into shares of the
Company's common stock at a conversion price of $0.75 per share, subject to an
anti-dilution adjustment for certain issuances of securities by the Company at
prices per share of common stock less than the conversion price then in effect,
in which event the conversion price is reduced to the lower price at which the
shares were issued.

         In connection with the extension of the maturity date of $6.9 million
and $17.7 million of indebtedness described above, the Company agreed to extend
the expiration date of warrants to purchase an aggregate of 33,070,277 shares of
the Company's common stock to December 31, 2004.

         The Company has agreed to pay to SJMB, L.P. a fee of approximately
$274,000 in consideration of SJMB, L.P. providing cash collateral of $8.2
million deposited to secure the performance of a continuing guaranty extended by
SJMB, L.P. of the Company's borrowing from Coast Business Credit in 2000. In
addition, SJMB, L.L.C. received a fee in September, 2001 of $200,000 for
services provided by SJMB, L.L.C. in connection with the Company's borrowing
from GECC. Under the terms of the Credit Facility, the Company is restricted
from paying any further sums to either of SJMB, L.P. or SJMB, L.L.C. unless the
Company's quarterly report on Form 10-Q reflected that the Company had EBITDA of
at least $7.0 million for the quarter ended September 30, 2001 and the amount of
such payment is limited to no more than $150,000. The EBITDA sum was not met and
payment of the $274,000 balance due SJMB, L.P. is deferred.

         On November 20, 2000, the Company entered into an equipment lease with
Big Foot Rental Tool Service, L.L.C., a Louisiana limited liability company of
which Mr. Neel is an approximately 20% owner. The Company leased for a term of
twenty-four months oil and gas well service equipment with an original cost of
approximately $539,000 for a monthly rental of approximately $24,200 over the
term of the lease. At the expiration of the lease, the Company had the option to
purchase the equipment for approximately $54,000. The Company entered into the
lease with Big Foot Rental Tool Service, L.L.C. to provide needed well service
equipment at times when other sources of financing to acquire the equipment was
unavailable. The rental agreement was terminated in September 2001 and the
Company purchased the equipment for $393,000.

ITEM 14.   CONTROLS AND PROCEDURES

         Under the supervision and with the participation of the Company's
management, including William Jenkins, its President and Chief Executive
Officer, and Ronald Whitter, its


                                       49
<PAGE>


Chief Financial Officer, the Company has evaluated the effectiveness of the
design and operation of its disclosure controls and procedures within 90 days of
the filing date of this annual report, and, based on their evaluation, Mr.
Jenkins and Mr. Whitter have concluded that these controls and procedures are
effective. There were no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation.

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



                                       50
<PAGE>



                           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.

         "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).



                                       51
<PAGE>

                (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 implies,
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.



                                       52
<PAGE>



                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (a)      Exhibits

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

         Exhibit           Designation
         -------           -----------

           3.2             Restated Certificate of Incorporation of the Company,
                           as filed with the Secretary of State of the State of
                           Delaware on June 21, 1989 (incorporated by reference
                           to the Company's Annual Report on Form 10-KSB for the
                           fiscal year ended December 31, 1990).

           3.2.1           Certificate of Amendment to the Company's Certificate
                           of Incorporation as filed with the Secretary of State
                           of the State of Delaware on February 13, 2001.
                           (incorporated by reference to the Company's
                           Registration Statement on Form S-8, effective date
                           March 21, 2001.)

           3.3             By-Laws of the Company (incorporated by reference to
                           the Company's Registration Statement on Form S-18,
                           effective date December 6, 1988).

           10.6            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)

           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. (Filed as an exhibit to the Company's Annual
                           Report on Form 10-KSB for the year ended December 31,
                           1997).


                                       53
<PAGE>


           10.10           Warrant dated June 6, 1997 to purchase 120,000 shares
                           of Common Stock issued to St. James Capital Partners,
                           L.P. (Filed as an exhibit to the Company's Annual
                           Report on Form 10-KSB for the year ended December 31,
                           1997).

           10.11           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).



                                       54
<PAGE>

           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).

           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).

           10.26           [intentionally omitted]

           10.30           Letter dated April 12, 2000 to the Company from SJCP,
                           SJMB and Charles Underbrink (Filed as an exhibit to
                           the Company's Annual Report on Form 10-KSB for the
                           year ended December 31, 1999).

           10.31           Agreement for Purchase and Sale dated February 9,
                           2001 between the Company and Charles E. Underbrink.



                                       55
<PAGE>

           10.32           Warrant dated February 9, 2001 to purchase 700,000
                           shares of Common Stock issued to Charles E.
                           Underbrink.

           10.33           Registration Rights Agreement dated February 9, 2001
                           between the Company and Charles E. Underbrink.

           10.34           Agreement for Purchase and Sale dated February 9,
                           2001 between the Company and St. James Capital
                           Partners, L.P.

           10.35           Warrant dated February 9, 2001 to purchase 400,000
                           shares of Common Stock issued to St. James Capital
                           Partners, L.P.

           10.36           Registration Rights Agreement dated February 9, 2001
                           between the Company and St. James Capital Partners,
                           L.P.

           10.37.1         Credit Agreement dated as of September 14, 2001 among
                           the Company and General Electric Capital Corporation,
                           as agent and lender. (Filed as an exhibit to the
                           Company's Current Report on Form 8-K for September
                           14, 2001).

           10.37.2         Revolving Note in the principal amount of $15.0
                           million dated September 14, 2001. (Filed as an
                           exhibit to the Company's Current Report on Form 8-K
                           for September 14, 2001).

           10.37.3         Term Note in the principal amount of $17.0 million
                           dated September 14, 2001. (Filed as an exhibit to the
                           Company's Current Report on Form 8-K for September
                           14, 2001).

           10.37.4         Form of Capex Note. (Filed as an exhibit to the
                           Company's Current Report on Form 8-K for September
                           14, 2001).

           10.37.5         Security Agreement dated September 14, 2001 between
                           the Company and General Electric Capital Corporation.
                           (Filed as an exhibit to the Company's Current Report
                           on Form 8-K for September 14, 2001).

           10.37.6         Annex A to Credit Agreement - Definitions. (Filed as
                           an exhibit to the Company's Current Report on Form
                           8-K for September 14, 2001).


                                       56
<PAGE>

           10.37.7         Annex F to Credit Agreement - Financial Covenants.
                           (Filed as an exhibit to the Company's Current Report
                           on Form 8-K for September 14, 2001).

           10.37.8         First Amendment to Credit Agreement entered into as
                           of January 26, 2002. (Filed as an exhibit to the
                           Company's Annual Report on Form 10-K for the year
                           ended December 31, 2001).

           10.37.9         Second Amendment to Credit Agreement entered into as
                           of June 10, 2002. (Filed as an exhibit to the
                           Company's Annual Report on Form 10-K for the year
                           ended December 31, 2001).

           10.37.10        Third Amendment to Credit Agreement with General
                           Electric Capital Corporation entered into as of
                           October 31, 2002. (Filed as an exhibit to the
                           Company's Quarterly Report on Form 10-Q for the
                           quarter ended September 30, 2002).

           10.37.11        Fourth Amendment to Credit Agreement with General
                           Electric Capital Corporation entered into as of
                           February 14, 2003.

           10.37.12        Fifth Amendment to Credit Agreement with General
                           Electric Capital Corporation entered into as of April
                           14, 2003.

           10.38           Amended and Restated Employment Agreement effective
                           as of January 1, 2002 with William L. Jenkins. (Filed
                           as an exhibit to the Company's Annual Report on Form
                           10-K for the year ended December 31, 2001).

           10.39           Promissory Note dated March 1, 2002 made by John L.
                           Thompson. (Filed as an exhibit to the Company's
                           Annual Report on Form 10-K for the year ended
                           December 31, 2001).

           21              Subsidiaries. The Company has no subsidiaries.

           23              (a) Consent of Grant Thornton LLP
                           (b) Consent of PricewaterhouseCoopers, LLP

           99.1            Certification of President and Chief Executive
                           Officer pursuant to Rule 13a-14(a)

           99.2            Certification of Chief Financial Officer Pursuant to
                           Rule 13a-14(a)

           99.3            Certification of President and Chief Executive
                           Officer Pursuant to Section 1350



                                       57
<PAGE>

           99.4            Certification of Chief Financial Officer Pursuant to
                           Section 1350

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

          (b) Reports on Form 8-K.

         During the quarter ended December 31, 2002, the Company filed the
following Current Reports on Form 8-K:

                        Date of Report                   Item Numbers
                        --------------                   ------------

                        September 18, 2002,              Item 7 (c)
                        Amendment No. 1

                        October 31, 2002                 Item 4



                                       58
<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 15 , 2003

                                                 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, CEO and Director                     April 15, 2003
--------------------------------            (Principal Executive Officer)
William L. Jenkins


/s/ Ron E. Whitter                          Vice President - Finance                        April 15, 2003
--------------------------------            (Principal Financial and Accounting Officer)
Ron E. Whitter



/s/ Charles E. Underbrink                   Director                                        April 15, 2003
--------------------------------
Charles E. Underbrink


/s/ James H. Harrison                       Director                                       April 15, 2003
-------------------------------
James H. Harrison

</TABLE>

                                       59