SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

Mark One:

          |X|  Annual Report  pursuant to Section 13 or 15(d) of the  Securities
               Exchange  Act of 1934.  For the fiscal  year ended  December  31,
               1996; or

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

                           COMMISSION FILE NO. 0-18754

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

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

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

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

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

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

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

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

          State Issuer's revenues for its most recent fiscal year: $7,582,021
          State  the  aggregate  market  value  of  the  voting  stock  held  by
          non-affiliates as of February 28, 1997:

              COMMON STOCK, PAR VALUE $.0005 PER SHARE, $4,247,730

         (Non-affiliates have been determined on the basis of holdings set forth
under Item 11 of this Annual Report on Form 10-KSB.)

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

                  Class:  COMMON STOCK, PAR VALUE $.0005 PER SHARE
                  Outstanding at March 25, 1997:  2,185,216 SHARES

                       DOCUMENTS INCORPORATED BY REFERENCE

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

            Transitional Small Business Issuer Format: |_| Yes |X| No


<PAGE>



                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

         Black Warrior  Wireline Corp. (the "Company") is an oil and gas service
company  currently  providing  various  services  to oil and gas well  operators
primarily in the Black  Warrior  Basin in Alabama and  Mississippi,  the Permian
Basin in Texas and New  Mexico,  the  Powder  River and  Green  River  Basins in
Wyoming and Montana,  and the  Williston  Basin in North  Dakota.  The Company's
principal sources of revenue include (a) providing electric wireline logging and
directional  drilling services,  (b) providing  completion and workover services
and (c)  sales,  rentals  and  service  of  wireline  and  completion  tools and
equipment.  At March 31, 1997,  the Company owned 27  operational  motor vehicle
mounted  wireline  units,  of which five are  equipped  with a  state-of-the-art
computer system, six are DRS computer equipped (an earlier  generation  computer
system) and 16 are analog  equipped.  Also as of March 31, 1997,  it owned seven
workover rigs.

         Since 1995,  the Company has undertaken a realignment of its activities
to provide  services  where it believes it maintains or will have a  competitive
advantage.  As a  result  of this  realignment,  the  Company,  in  addition  to
providing  wireline,  tool and workover  services in the Black  Warrior Basin of
Alabama  and  Mississippi,  also  provides  services  in the  Permian  Basin  in
northwest  Texas and New Mexico  and,  with the recent  acquisition  of DynaJet,
Inc., it has expanded into the Rocky Mountain  region.  The oil and gas industry
has experienced a significant  increase in drilling and workover  activity which
has stimulated this  realignment of the Company's  activities.  This increase is
the result of the  combination  of improved  oil and gas prices and  advances in
technology.  The technological  advances in 3-D seismic and directional drilling
in particular  have had an impact.  The Company  continues to seek to expand the
services it provides in other areas.

         The Company also continues to explore new markets and services which it
believes  will be  beneficial.  The  Company is  actively  seeking to expand its
directional  drilling services by providing  downhole steering tools in addition
to hoisting  services.  Directional  drilling  entails entering a producing zone
horizontally,  using specialized  drilling equipment,  which expands the area of
interface of hydrocarbons  and thereby greatly  enhancing  recoverability.  This
area of business is intended to enable the Company to enlarge its customer  base
by providing  steering services to other drilling  contractors which do not have
"in house" steering  tools.  Another area which the Company intends to expand is
tubing  conveyed  perforating.  The Company is providing this service in Alabama
and  Mississippi  and plans to expand this service  throughout  its  operational
areas.




                                       
<PAGE>



         In February 1996, the Company  established a capability to assemble and
install wireline service equipment on motor vehicles.  Initially this capability
was established to provide  equipment to fulfill the Company's  requirements and
is currently  intended to be utilized to make  available such equipment for sale
to others in the  industry.  The  Company is  equipping  these  vehicles  with a
state-of-the-art  computer system. Revenues from this business area to date have
not been material.

         On November  19, 1996,  pursuant to an  agreement  entered into on that
date, the Company  acquired all of the issued and  outstanding  capital stock of
DynaJet,  Inc., a Wyoming corporation  ("DynaJet").  DynaJet has been engaged in
the wireline and oil and gas well  services  business in the  Gillette,  Wyoming
area,  for more than  eighteen  years.  Its service area  includes the states of
Wyoming,  South Dakota,  Montana and New Mexico.  The capital stock was acquired
for an aggregate purchase price of approximately  $758,000.  DynaJet's operating
assets  consisted of eight wireline  trucks and related  equipment,  two 80-foot
mast trucks,  three pickup trucks,  a utility van and assorted  other  trailers,
tools and  equipment.  DynaJet's  assets also include two parcels of real estate
located in Gillette,  Wyoming  aggregating  approximately  7-1/2 acres presently
used for offices,  a workshop  and storage  which are intended to be sold by the
Company.

         On January 27,  1997,  the Company  entered  into a letter of intent to
acquire the  outstanding  stock of Production  Well Services Co., Inc.  ("PWS"),
which provides wireline services in southern Mississippi in the Mississippi Salt
Dome Basin. The letter of intent,  which is subject to, among other  conditions,
the completion of a due diligence  review by the Company and the preparation and
execution of a definitive  acquisition  agreement,  provides for a cash purchase
price of $540,000 plus the issuance of an option to purchase  100,000  shares of
Common Stock.  The letter of intent further  provides that PWS'  indebtedness at
the closing of the transaction  will not exceed  $112,500.  The letter of intent
provides the transaction is to be completed on or before May 28,1997.

         In addition,  the Company  entered into a letter of intent on March 26,
1997 to acquire all of the outstanding stock of Petro-Log,  Inc.  ("Petro-Log"),
which provides  wireline services in the states of Wyoming,  Montana,  and South
Dakota. The letter of intent,  which is subject to completion of a due diligence
review  by the  Company  and  the  preparation  and  execution  of a  definitive
agreement,  among  other  conditions,  provides  for a cash  purchase  price  of
$2,350,000,  including related expenses..  Excluded from the acquisition are the
cash and  receivables  and real estate of  Petro-Log.  The letter of intent also
excludes  Petro-Log's  payables from the transaction and provides that Petro-Log
will have no other  liabilities at the closing of the  transaction.  Petro-Log's
assets include 17 wireline trucks, one offshore wireline skid, grease injection,
mast, and crane trucks,  tool trucks,  trailers and forklifts,  pressure control
equipment, logging equipment


                                       2
<PAGE>



and  tools  and  other  equipment.  The  letter  of  intent  provides  that  the
transaction is to be completed on or before June 1, 1997.

         Both of the foregoing  transactions  are subject to the availability of
financing  for the cash  portion of the  purchase  price which  financing is not
currently available to the Company. See "Acquisition Financing".

         The Company  abandoned its efforts to establish a base of operations in
the  Middle  East in the first  half of 1995 and its  operations  are  currently
conducted exclusively in the continental United States.

         The Company was incorporated under the laws of the State of Delaware in
1987 under the name  Teletek,  Ltd.  and,  after  completing  an initial  public
offering  of  securities,  on June 22,  1989,  Teletek,  Ltd.  merged with Black
Warrior Wireline Corp.  ("Black Warrior  Alabama") and concurrently  changed its
name to Black Warrior  Wireline Corp. Black Warrior Alabama and its predecessors
were  engaged  primarily in  providing  electric  wireline and other oil and gas
support services since 1984.


ACQUISITION STRATEGY

         In  addition  to the  DynaJet  acquisition  and  the  proposed  PWS and
Petro-Log  acquisitions  described  above,  the Company is seeking to expand its
wireline  and  other  oil  and  gas  service  areas  by   completing   strategic
acquisitions of other companies  engaged in such activities.  Currently  several
such  acquisitions  are being  explored  and  negotiations  with respect to such
transactions are ongoing;  however, the Company has no definitive  agreements to
acquire any additional  wireline  companies.  There can be no assurance that the
Company will be able to acquire  additional  wireline companies or that any such
acquisitions  will be  beneficial  to the  Company.  The process of  integrating
acquired properties,  including the proposed acquisitions  described above, into
the Company's operations may result in unforeseen difficulties and may require a
disproportionate  amount of management's  attention and the Company's resources.
In connection with acquisitions, the Company could become subject to significant
contingent  liabilities arising from the activities of the acquired companies to
the extent the  Company  assumes,  or an  acquired  entity  becomes  liable for,
unknown or  contingent  liabilities  or in the event that such  liabilities  are
imposed on the Company under theories of successor liability.



                                       3
<PAGE>


ACQUISITION FINANCING

         The Company intends to fund its acquisition  activities,  including the
PWS and Petro-Log  acquisitions,  using cash flow from its current operations as
well  as the  possible  proceeds  from  secured  lending  from  banks  or  other
institutional  lenders  and the  private  or  public  sale of  debt  and  equity
securities. The Company is currently seeking to raise additional capital to fund
its  proposed  PWS and  Petro-Log  acquisitions  as well as its  other  proposed
acquisition  activities,but  it has not yet obtained  such  financing or entered
into any definitive  arrangements with respect thereto. Any such capital that is
raised will be on terms yet to be negotiated and may be on terms that dilute the
interests of current stockholders of the Company. Loans may be collateralized by
all or a substantial portion of the Company's assets.  There can be no assurance
that the Company will raise  additional  capital when it is required to complete
any  proposed  acquisitions  or that the  Company  will have or be able to raise
sufficient capital to fund its acquisition strategy.


RECENT DEBT RESTRUCTURING

         In November 1995, the Company executed  Reorganization  Agreements with
the  holders of an  aggregate  of  $1,922,130  principal  amount of  outstanding
debentures and  indebtedness  pursuant to which the debentures and  indebtedness
were agreed to be exchanged for an aggregate of 961,065  shares of the Company's
Common Stock. In addition,  pursuant to such  agreements,  Common Stock Purchase
Warrants of the Company were to be exchanged with the  debentureholders  for two
new classes of Common Stock Purchase Warrants. Each class of new warrants was to
represent the right to purchase an aggregate of 183,750  shares of Common Stock.
The Class A warrants were to be  exercisable  at $3.00 per share for a period of
four (4)  years  and the  Class B  warrants  were to be  exercisable  at  prices
increasing in annual  increments  over the first three (3) years after  issuance
from $3.00 per share to $5.00 per share and were to expire  five (5) years after
issuance. Through December 31, 1995, an aggregate of $1,353,380 principal amount
of debentures and  indebtedness was exchanged for 648,151 shares of Common Stock
and the  remaining  $568,750  of  debentures  to be  exchanged  pursuant  to the
agreements  executed in November 1995 was subject to the  fulfillment of certain
closing  conditions.  Issuance of the  warrants was not  completed  in 1995.  In
September and October  1996,  the holders of an  additional  $800,000  principal
amount of Debentures executed  Reorganization  Agreements and the Reorganization
Agreements  entered into in November  1995 were amended so as to provide that in
lieu of the issuance of the Class A warrants,  an aggregate of 101,250 shares of
Common  Stock  would be issued  and the  exercise  price of the Class B warrants
would be  reduced  to $2.00  per share  throughout  the  five-year  term of such
warrants. During 1996, $1,368,750 principal amount of indebtedness was exchanged
for an aggregate of 712,914 shares of Common Stock

                                       4
<PAGE>



and an  aggregate of 303,750  Class B warrants  were  issued.  In  addition,  an
aggregate  of 101,250  shares of Common  Stock were issued in  exchange  for the
Company's  obligation  to  issue  the  Class A  warrants.  Pursuant  to all such
agreements,  an aggregate of $2,071,357 of accrued  interest and penalties  were
waived by the debenture holders.

         In connection with the foregoing restructuring,  the Company effected a
1-for-200 reverse stock split on October 30, 1995.


GLOSSARY OF INDUSTRY TERMS

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

         "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.

         "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  guage  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.

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

                (b) Cased  Hole:   The  measurement  of  gamma  ray   (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.



                                       5
<PAGE>

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

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

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

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


ELECTRIC WIRELINE AND DIRECTIONAL DRILLING SERVICES

         The  Company's   electric  wireline  logging  service  and  directional
drilling activities contributed revenues of $5,584,754 (approximately 74% of net
revenues)  in 1996,  $4,625,744  (approximately  74% of net  revenues)  in 1995,
$4,275,433 (approximately 70% of net revenues) in 1994.

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

         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,


                                      6
<PAGE>



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

         The Company's cased hole wireline services include the following,  some
or all of which may be performed on an existing well from time to time:

                    (1)    Cement Bond Logs
                    (2)    Gamma Ray Logs
                    (3)    Neutron or Compensated Neutron Logs
                    (4)    Casing Collar Logs
                    (5)    Free-Point, Back-Off Services
                    (6)    Perforating
                    (7)    Plug and Packer Setting
                    (8)    Acid Spotting (with Bailer)
                    (9)    Sand Dumping (with Bailer)
                   (10)    Junk Catcher with Gauge Ring
                   (11)    Steering Tool Services
                   (12)    Casing Inspection Services
                   (13)    Segmented Cement Bond Logs
                   (14)    Correlating Tubing Conveyed Perforating


         These  services are routinely  provided to the Company's  customers and
are subject to the customers' time schedule, weather conditions, availability of
Company  personnel and complexity of the drilling.  These  procedures  generally
take approximately one to one-and-one-half days to perform.

         The  Company  currently  owns 27  wireline  units.  Of these,  five are
state-of-the-art  computer  equipped,  six are DRS computer equipped (an earlier
generation computer system) and 16 are analog equipped.  The Company anticipates
placing two more  state-of-the-art  computer  equipped units into service in the
first half of 1997.  In October the Company used  $310,000 of the proceeds  from
the private  placement to order the latest  generation of cement bond and casing
inspection  tools which it anticipates will be delivered in the first quarter of
1997. The


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<PAGE>



Company's state-of-the-art computer systems will enable the Company to take full
advantage of the capabilities of these tools.

         The Company also owns seven  truck-mounted  cranes which are  primarily
used for completion and remedial  services where a workover or completion rig is
not required. Charges for these cranes are on a per diem basis.

         Directional  drilling entails  entering a producing zone  horizontally,
using  specialized  drilling  equipment,  which expands the area of interface of
hydrocarbons and thereby greatly enhancing recoverability. This area of business
is  intended  to enable the  Company to enlarge is  customer  base by  providing
steering  services to other  drilling  contractors  which do not have "in house"
steering tools.


COMPLETION AND WORKOVER SERVICES

         The Company  provides  completion and workover  services to oil and gas
companies in the Black Warrior Basin. These activities  contributed  revenues of
$1,709,265   (approximately   22%  of  net   revenues)   in   1996,   $1,324,095
(approximately  21% of net revenues) in 1995, and $1,464,815  (approximately 24%
of net revenues) in 1994.  These  services are performed  primarily on an hourly
basis.

         Workover  services  include  those  operations  performed on wells when
originally  completed and on wells previously placed in production and requiring
additional work to restore or increase production.  A completion or workover rig
is used to position  tubing,  pumps and other  production  equipment  in a cased
hole.  The unit is used for the initial  completion  of the well and  subsequent
workover and remedial service.  A completion or workover rig is generally a four
to six axle  truck-mounted  hoist unit with a 60 to 90 foot  derrick  capable of
lowering  and  hoisting  up to 300,000  pound  loads.  The  Company  expects its
workover  equipment  to be fully  utilized by existing  customers in 1997 and is
exploring opportunities to expand this source of revenue.


TOOLS AND EQUIPMENT

         The Company's third current source of revenue involves the sale, rental
and  service of tools and  equipment  used in the oil field  services  industry.
These  activities  contributed  revenues  of $288,003  (approximately  4% of net
revenues) in 1996,  $229,379  (approximately  4% of net  revenues) in 1995,  and
$333,952 (approximately 6% of net revenues) in 1994. The division


                                       8
<PAGE>



began when the Company became the Black Warrior Basin  distributor for Arrow Oil
Tools.  The primary  products sold or rented by the Company  include Arrow tools
and packers. Other items sold or rented include high pressure valves, tubing and
tubing equipment and wireline set tools.

         The  tool and  equipment  division  activities  are  incidental  to the
wireline  and workover  services  provided by the  Company.  Tool and  equipment
inventory is replenished on an as-needed basis. Most of the Company's  inventory
is purchased from a variety of manufacturers,  and some used tools and equipment
are purchased at auction.  The Company attempts to maintain in its inventory the
brands which are popular among operators in the geographic areas it serves.  The
Company's customers include,  among others,  Taurus  Exploration,  Inc., Chevron
USA, Amoco Production Co., and Kukui Operating Co.

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


PRINCIPAL CUSTOMERS AND MARKETING

         During the years ended  December 31, 1996 and December 31, 1995,  three
customers accounted for a total of approximately 63.8% and 61.6%,  respectively,
of the  Company's  net revenues.  During the year ended  December 31, 1994,  two
customers accounted for approximately  41.1% of the Company's net revenues.  The
Company  serviced  an average of 80  customers  per year  during the three years
ended December 31, 1996. The Company's principal customers and the percentage of
the Company's net revenues received from each of such customers during the three
years ended December 31, 1996 are as follows:

                                                  1996       1995      1994
                                                --------- ---------- ---------
Taurus Exploration, Inc.                          25.3%     31.1%      30.3%
Parker and Parsley Development Company            23.7%     12.5%      10.8%
Phoenix Drilling Services                         14.8%     18.0%        *
                                                --------- ---------- ---------
                           TOTALS                 63.8%     61.6%      41.1%
                                                ========= ========== =========
----------
*   Less than 10%

         The Company  does not have any  long-term  agreements  with any of such
customers and services are provided pursuant to short-term agreements negotiated
by the Company with the customer.  The Company  expects that its three principal
customers will each continue to provide

                                        9
<PAGE>



in excess of 10% of the  Company's net revenues  during the year ended  December
31,  1997.  Although  the Company has had a long-term  relationship  with Taurus
Exploration, Inc. and believes that it maintains satisfactory relationships with
each of these three  customers,  the loss of any of these customers could have a
material effect on the Company's revenues.

         The  Company's  services  are  marketed  principally  by its  executive
officers  and the Company  relies on its  reputation  in the  industry to create
customer  awareness of its services.  Generally,  the Company  experiences lower
revenues  during the first calendar  quarter of each year than it experiences in
other quarters due to adverse weather affecting working conditions.


SERVICES TO CONVENTIONAL AND NON-CONVENTIONAL FUEL SECTOR

         The Company  provides  its electric  wireline and workover  services to
both the conventional and  non-conventional  fuel sectors.  The non-conventional
fuel sector is generally considered to include hydrocarbon  production from coal
bed methane gas wells with the conventional fuel sector generally  considered to
be all other oil and gas  production.  The  Company is seeking to  increase  the
focus of its activities on providing  services to operators of conventional fuel
wells and has  implemented  a marketing  strategy to increase its revenues  from
this source in certain key market areas  including,  among  others,  the Permian
Basin in Texas and New Mexico. With the completion of the acquisition of DynaJet
in November  1996, the Company is expanding its  conventional  services into the
states of Wyoming,  South  Dakota,  Montana and New Mexico and will  continue to
seek other opportunities for expansion in other areas.

         The Company's revenues from the non-conventional fuel sector, which are
primarily  derived from  activities  in the Black  Warrior  Basin in Alabama and
Mississippi,  increased  in  activity  in  1989,  1990,  and most of 1991 due to
government  incentives in the form of tax credits associated with the production
of coal bed methane  gas.  Although  these tax  incentives  have expired for the
drilling and initial  completion of wells, the incentives  continue for remedial
services (on wells completed prior to the expiration  date) until the year 2011.
Since the curtailment of these incentives, activity in this area has declined to
a level which  management  believes  should remain stable for some time.  Prices
have  improved  and the  Company is  gaining  market  share as  smaller  service
suppliers  have  left the area.  The  Company  anticipates  that  revenues  from
services provided to the non-conventional  sector will remain stable in 1997 and
the foreseeable future.



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<PAGE>




         The percentage of the Company's net revenues from the  conventional and
non-conventional  fuel  sectors for each of the three years ended  December  31,
1996 were as follows:

                              1996       1995      1994
                            --------- --------- ----------
     Conventional             60%         58%      57%
     Non-Conventional         40%         42%      43%


OPERATING HAZARDS AND INSURANCE

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

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

         The Company maintains two policies  totaling  $2,000,000 on the life of
William L. Jenkins,  its President and Chief  Operating  Officer,  and maintains
$1,000,000  policies on the lives of each of Danny Thornton and Allen Neel, both
Vice-Presidents.  See Item 9,  "Directors,  Executive  Officers,  Promoters  and
Control  Persons;  Compliance  with  Section  16(a) of the  Exchange  Act."  The
benefits under such policies are payable to the Company.


BUSINESS ENVIRONMENT

         The  business of the  Company is affected by the general  demand in the
economy for petroleum products;  availability of drilling rigs, casing and other
necessary goods and services;  revision in governmental policies with respect to
oil and natural gas imports and other factors


                                       11
<PAGE>



affecting potential competition from foreign sources of oil and natural gas; and
state  conservation   commission   regulations   affecting  allowable  rates  of
production,  well spacing and other factors. Oil and gas prices continue to have
moderate fluctuations increasing the overall instability of the market.

         The low  prices for oil and gas that have  depressed  the  industry  in
recent years have moderated  recently.  With this stability has come an increase
in activity  throughout the industry.  The industry  continues to realign itself
with major oil companies selling properties to independent producers. While this
will  continue to provide new  opportunities  for the  Company,  there can be no
assurance  that these trends will continue or that the Company will benefit from
these developments.


COMPETITION

         Most of the Company's  competitors are divisions of larger  diversified
corporations  which  offer  a  wide  range  of oil  field  services.  Its  chief
competitors  include  Halliburton  Company and Schlumberger,  Ltd., as well as a
number  of other  companies  active  in the  industry.  These  competitors  have
substantially   greater  economic   resources  than  the  Company.   Competition
principally  occurs in the areas of  technology,  quality of products  and field
personnel,  equipment  availability,  facility locations and price. The industry
has seen an extended period of price competition. Deep discounts are commonplace
and are  expected in the  industry.  The Company  continues  to make a conscious
effort to  compete,  not just on price,  but on its  ability  to offer  advanced
technology, experienced personnel, and a safe working environment.

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


REGULATION

         The oil and gas business is a heavily regulated industry. The Company's
activities  are subject to various  licensing  requirements  and minimum  safety
procedures  and  specifications,  anti-pollution  controls on  equipment,  waste
discharge  and other  environmental  and  conservation  requirements  imposed by
federal  and  state  regulatory  authorities.  Serious  penalties  and fines are
imposed for violations from such  directives and violations  could result in the
loss of licenses and other penal proceedings.



                                       12
<PAGE>



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


EMPLOYEES

         As of March 28, 1997, the Company employed 110 persons, 98 of whom were
full-time employees and 12 of whom were part-time employees. Of the Company's 98
full-time  employees,  nine are management  personnel,  seven are administrative
personnel and 82 are operational personnel. Seven of the Company's employees are
employed  at  the  Company's  headquarters  in  Columbus,  Mississippi  and  the
Company's other  employees are located  primarily in the Black Warrior Basin and
the Permian Basin service areas. None of the Company's  employees is represented
by a labor  union,  and the  Company is not aware of any current  activities  to
unionize its  employees.  Management of the Company  considers the  relationship
between the Company and its employees to be good.

         The Company  has a  three-year  employment  agreement  with  William L.
Jenkins,  its President,  Chief Operating Officer and a Director and stockholder
of the  Company.  The  Company  also has  employment  agreements  with Danny Ray
Thornton and Allen Neel,  Vice-Presidents of the Company.  The Company's success
is currently  dependent upon the efforts of these  individuals,  and the loss of
the services of any of these individuals could have a material adverse effect on
the Company's  business,  unless a qualified  replacement can be obtained by the
Company.  See Item 9,  "Directors,  Executive  Officers,  Promoters  and Control
Persons;  Compliance with Section 16(a) of the Exchange Act." The Company relies
substantially  on their efforts to expand its services and for its marketing and
sales  activities.  If the Company is unable to  continue to contract  for these
services,  or if these  services  are lost for any  reason  in the  future,  the
Company will be substantially and adversely affected.


ITEM 2.  PROPERTIES

         The  Company  leases  6,500  square feet of office  space in  Columbus,
Mississippi  for a  five-year  term  expiring  on  September  30,  2001  for its
executive offices. The monthly rental is


                                       13
<PAGE>



$1,900,  plus electric and gas utilities.  The Company also leases a maintenance
area in Tuscaloosa,  Alabama of approximately 5,000 square feet under a one-year
lease at $1,700  per month.  In  addition,  the  Company  leases  shop sites and
maintenance  areas in Odessa,  Texas  (22,000  square feet at $2,750 per month),
Hobbs,  New Mexico (10,000 square feet at $1,800 per month),  Brownfield,  Texas
(6,500  square feet at $1,850 per month) and Laurel,  Mississippi  (8,000 square
feet at $1,750 per month).

         Included in the assets  acquired  from  DynaJet are two parcels of real
estate  located in  Gillette,  Wyoming  aggregating  approximately  7 1/2 acres,
presently  used for offices,  a workshop  and storage,  which are intended to be
sold by the Company.

         The Company owns 27 electrical  wireline  service trucks and 7 workover
rigs,  all of  which  are  operational.  The  Company  believes  that all of its
properties  and mobile  electric  wireline  equipment  are well  maintained  and
suitable for their intended uses.




ITEM 3.  LEGAL PROCEEDINGS

         The Company is not a party to, nor is its  property the subject of, any
material legal proceedings other than ordinary routine litigation  incidental to
its  business,  or  which  is  covered  by  insurance.  See  Note 17 to Notes to
Consolidated Financial Statements.




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, 1996, to a vote of security  holders of the Company,  through
the solicitation of proxies, or otherwise.






                                       14
<PAGE>


                                     PART II

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

MARKET INFORMATION

         The Company's  Common Stock is quoted in the NASDAQ 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 (adjusted for the 1-for-200
reverse  stock split of the  outstanding  shares of the  Company's  Common Stock
effectuated on October 30, 1995) as provided by the NASDAQ OTC Bulletin Board:


                                                 BID PRICES
                 1995                   HIGH                    LOW
----------------------------------------------------------------------------

         First Quarter                  $6.25                  $4.00
         Second Quarter                $10.00                  $4.00
         Third Quarter                  $8.00                  $6.00
         Fourth Quarter                 $6.00                  $6.00



                                                 BID PRICES
                 1996                   HIGH                    LOW
----------------------------------------------------------------------------

         First Quarter                  $6.50                  $2.00
         Second Quarter                 $6.50                  $4.00
         Third Quarter                  $6.50                  $1.06
         Fourth Quarter                 $4.55                  $1.75


         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  February  28,  1997,  the  closing  bid
quotation  for the Common Stock,  as reported by the NASDAQ OTC Bulletin  Board,
was $3.00.

         As of December 31, 1996, the Company had approximately 345 shareholders
of record.  The Company has never paid a cash  dividend on its Common  Stock and
management has no present intention of commencing to pay dividends.



                                       15
<PAGE>



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

INDUSTRY OVERVIEW AND ECONOMIC FACTORS IMPACTING COMPANY OPERATIONS

         The level of activity and  profitability  experienced by the Company is
directly  related to the demand for the  Company's  services by the domestic oil
and gas  industry.  The market  price of oil and  natural  gas is the  principal
factor  driving this demand.  In recent  years,  there have been some periods of
relative  price  stability  but only  isolated  areas of real  growth.  In 1996,
however,  most of the  industry  experienced  some growth in demand and pricing.
Management of the Company believes that the continuing stability of domestic oil
prices and relatively high gas prices should help continue this trend in 1997.

         Increased  demand for the  services  provided  by the  Company  and its
competitors  coupled  with a general  consolidation  in the  service  sector has
reduced downward pressure on pricing. This has led to a reduction in "predatory"
pricing  used by some  companies  to increase  market  share and helped  improve
overall margins.  The Company believes that further improvements in pricing will
be seen in 1997 as this trend  continues.  The  Company  plans to  continue  its
marketing policy which stresses the safety, reliability, technological advantage
and overall  quality of its  services.  Management  believes  that an increasing
number of customers  consider these factors foremost in their selection criteria
for a service company.

         The Company  intends,  as and if  opportunities  arise, to aggressively
seek to expand its wireline and other service areas through the  acquisition  of
other oil and gas service  companies that meet its strategic  goals. In addition
to the pending  transactions with PWS and Petro-Log  described  herein,  several
such transactions throughout the domestic market are currently being explored to
meet this goal.  The Company will continue to re-deploy its assets to areas that
are most beneficial to the long-term growth of the Company.

         The  Company is  actively  seeking to expand its  directional  drilling
services by providing  downhole steering tools in addition to hoisting services.
Directional  drilling  entails  entering a production zone  horizontally,  using
specialized  drilling  equipment,   which  expands  the  area  of  interface  of
hydrocarbons and thereby greatly enhancing recoverability. This area of business
is  intended to enable the Company to enlarge  its  customer  base by  providing
steering  services to other  drilling  contractors  which do not have "in house"
steering  tools.  Another  area  which the  Company  intends to expand is tubing
conveyed  perforating.  The  Company is  providing  this  service in Alabama and
Mississippi and plans to expand this service throughout its operational areas.


                                       16
<PAGE>

         The Company has purchased  state of the art downhole tools  including a
segmented bond and magnetic and 40-arm casing  inspection tools which it expects
to receive in the Spring of 1997.  This  acquisition  will enable the Company to
provide services unavailable from other smaller wireline company competitors and
thereby  enable  the  Company to provide  services  in a less price  competitive
environment.


TWELVE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1995

         The Company had income  before  extraordinary  gain of $427,438 for the
year ended December 31, 1996, as compared to a loss before extraordinary gain of
$545,562 in 1995. After reflecting the  extraordinary  gain on extinguishment of
debt, net of income taxes,  in both 1996 and 1995, the Company  experienced  net
income of $2,035,939  for the year ended  December 31, 1996, as opposed to a net
loss of $158,149 for 1995.

         Revenues  increased  by  $1,402,803  to  $7,582,021  for the year ended
December 31, 1996  primarily  as a result of the overall  increase in the market
and improved pricing.  Tools and packer sales are closely related to activity in
the Black Warrior Basin and showed an increase of $58,624 from 1995. Revenues by
business line are summarized below:

<TABLE>
<CAPTION>

                                                               YEAR ENDED DECEMBER 31
                                              1996                       1995                      1994
----------------------------------- -------------------------- ------------------------- -------------------------

<S>                                        <C>                        <C>                       <C>       
Wireline Services (logging,                $5,584,753                 $4,625,744                $4,275,433
   perforating, crane rental and
   directional drilling services)

Completion (workover and                   $1,709,265                 $1,324,095                $1,464,815
   pump sales)

Tools and Packers (sales and               $  288,003                 $  229,379                $  333,952
   rentals of bridge plugs and
   packers)

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

                                           $7,582,021                 $6,179,218                $6,074,200

                                    ========================== ========================= =========================
</TABLE>




                                       17
<PAGE>



        Wireline services in the Black Warrior Basin and Permian Basin increased
$959,009  during 1996.  The increase was  primarily in the Permian Basin and was
attributable  to  increased  sales  in  conventional  and  directional  drilling
services.  Revenues  from  completion  activities  increased by  $385,170.  This
increase  was  primarily  due  to  services  provided  in  connection  with  the
abandonment of unproductive wells.

         Cost and expenses increased by $708,951 for the year ended December 31,
1996,  as compared to 1995.  This  increase was due primarily to the increase in
the level of activities.  Salaries and benefits  increased by $365,804 for 1996,
as compared to 1995,  while the total number of employees  increased  from 82 at
December 31, 1995 to 110 at December 31, 1996. This was due to salary  increases
and  hiring of  additional  personnel.  Depreciation  and  amortization  expense
decreased by $116,201 for 1996 as compared to 1995.  These decreases were due to
several items of equipment being fully depreciated in 1996. In 1996, the Company
successfully   negotiated  a  reduction  in  worker's   compensation  rates  and
explosives costs. The Company  continues to monitor other expense  components to
minimize overall costs.

         Interest and amortization decreased by $283,793 for 1996 as compared to
1995. This was directly related to the conversion of debt into equity.  See Note
7 of Notes to Consolidated Financial Statements.

         The provision (benefit) for income taxes totaled $(65,715) for 1996 and
$(226,554) for 1995.  These totals contain Federal and State deferred as well as
current amounts. See Note 12 of Notes to Consolidated Financial Statements.  The
current  federal and state tax benefits in 1995 results from the  utilization of
the net  operating  losses  generated  in 1995 to offset the income tax  expense
associated with the  extraordinary  gain on  extinguishment of debt described in
Note 7 of Notes to Consolidated Financial Statements.


LIQUIDITY AND CAPITAL RESOURCES

         Cash provided by Company operating activities was $771,462 for the year
ended  December 31, 1996 as compared to $609,218 for the year ended December 31,
1995.  Investing activities of the Company used cash of $725,137 during the year
ended December 31, 1996 for the acquisition of property, plant and equipment and
another  business  offset by proceeds  from the sale of fixed assets of $95,071.
During the year ended  December 31, 1995,  acquisitions  of property,  plant and
equipment used cash of $299,306  offset by proceeds of $120,031 from the sale of
fixed  assets.  Financing  activities  provided  cash of  $643,382  from the net
proceeds from the sale of shares of common stock during the year ended  December
31,  1996 offset by  principal  payments on  long-term  notes and capital  lease
obligations of $342,149. During the year ended


                                       18
<PAGE>



December 31,  1995,  bank and other  borrowings  resulted in proceeds of $41,959
offset by principal  payments on long-term debt and capital lease obligations of
$227,530.

         Cash at  December  31,  1996 was  $727,454  as  compared  with  cash at
December 31, 1995 of $284,825.

         During the year ended December 31, 1996, $1,343,750 principal amount of
notes  payable and  subordinated  debentures  was  converted to common stock and
$1,514,468 of accrued interest was forgiven.  The Company expended  $796,930 for
the acquisition of property,  plant and equipment  financed under capital leases
and notes  payable and  incurred  an  additional  $380,000  of notes  payable in
connection  with the  acquisition of a business.  During the year ended December
31, 1995,  $1,296,302 of principal of notes payable and subordinated  debentures
was  converted to common stock and $57,078 of principal  and $556,889 of accrued
interest was forgiven.  In addition,  $52,962 of accrued  interest was converted
into common stock. The Company expended  $371,846 during 1995 on the acquisition
of  property,  plant and  equipment  financed  under  capital  leases  and notes
payable.

         In November 1995, the Company executed  Reorganization  Agreements with
the  holders of an  aggregate  of  $1,922,130  principal  amount of  outstanding
debentures and  indebtedness  pursuant to which the debentures and  indebtedness
were agreed to be exchanged for an aggregate of 961,065  shares of the Company's
Common Stock. In addition,  pursuant to such  agreements,  Common Stock Purchase
Warrants of the Company were to be exchanged with the  debentureholders  for two
new classes of Common Stock Purchase Warrants. Each class of new warrants was to
represent the right to purchase an aggregate of 183.750  shares of Common Stock.
The Class A warrants were to be  exercisable  at $3.00 per share for a period of
four (4)  years  and the  Class B  warrants  were to be  exercisable  at  prices
increasing in annual  increments  over the first three (3) years after  issuance
from $3.00 per share to $5.00 per share and were to expire  five (5) years after
issuance. Through December 31, 1995, an aggregate of $1,353,380 principal amount
of debentures and  indebtedness was exchanged for 648,151 shares of Common Stock
and the  remaining  $568,750  of  debentures  to be  exchanged  pursuant  to the
agreements  executed in November 1995 was subject to the  fulfillment of certain
closing  conditions.  Issuance of the  warrants was not  completed  in 1995.  In
September and October  1996,  the holders of an  additional  $800,000  principal
amount of Debentures executed  Reorganization  Agreements and the Reorganization
Agreements  entered into in November  1995 were amended so as to provide that in
lieu of the issuance of the Class A warrants,  an aggregate of 101,250 shares of
Common  Stock  would be issued  and the  exercise  price of the Class B warrants
would be  reduced  to $2.00  per share  throughout  the  five-year  term of such
warrants. During 1996, $1,368,750 principal amount of indebtedness was exchanged
for an aggregate  of 625,414  shares of Common Stock and an aggregate of 303,750
Class B warrants were issued. In addition, an aggregate of 101,250


                                       19
<PAGE>



shares of Common Stock were issued in exchange for the  Company's  obligation to
issue the Class A warrants.  Pursuant to all such  agreements,  an  aggregate of
$2,071,357  of accrued  interest  and  penalties  were  waived by the  debenture
holders.

         In  connection  with the  foregoing  restructuring,  the  Company  also
effected a 1-for-200 reverse stock split on October 30, 1995.

         In October 1996,  the Company  completed a private sale of an aggregate
of 600,000 shares of Common Stock for gross proceeds of $750,000,  or a price of
$1.25 per share.  Approximately  $288,000 of the net proceeds were used to pay a
portion of the  purchase  price for DynaJet and the balance was used to purchase
tools  and  equipment  and  complete  construction  of  a  wireline  truck.  The
purchasers  of the shares were given the right to have such  shares  included in
any  registration  statement  filed by the Company under the  Securities  Act of
1933, as amended,  relating to an offering of the Company's  securities provided
such persons agree,  if requested by the managing  underwriter of such offering,
not to sell such  securities for a period of one hundred eighty (180) days after
the effective date of such registration statement.

         In addition to the DynaJet acquisition  described above, the Company is
seeking  to  expand  its  wireline   service  areas  by   completing   strategic
acquisitions  of other  companies  engaged in providing  wireline  services.  On
January 27,  1997,  the Company  entered  into a letter of intent to acquire the
outstanding stock of Production Well Services Co., Inc. ("PWS"),  which provides
wireline  services in southern  Mississippi in the Mississippi  Salt Dome Basin.
The  letter  of  intent,  which is  subject  to,  among  other  conditions,  the
completion  of a due  diligence  review by the Company and the  preparation  and
execution of a definitive  acquisition  agreement,  provides for a cash purchase
price of $540,000 plus the issuance of an option to purchase  100,000  shares of
Common Stock.  The letter of intent further  provides that PWS'  indebtedness at
the closing of the transaction  will not exceed  $112,500.  The letter of intent
provides the transaction is to be completed on or before May 28,1997.

         In addition,  the Company  entered into a  letter of intent on April 1,
1997 to acquire all of the outstanding stock of Petro-Log,  Inc.  ("Petro-Log"),
which provides  wireline services in the states of Wyoming,  Montana,  and South
Dakota. The letter of intent,  which is subject to completion of a due diligence
review  by the  Company  and  the  preparation  and  execution  of a  definitive
agreement,  among  other  conditions,  provides  for a cash  purchase  price  of
$2,350,000,  including related expenses..  Excluded from the acquisition are the
cash and  receivables  and real estate of  Petro-Log.  The letter of intent also
excludes  Petro-Log's  payables from the transaction and provides that Petro-Log
will have no other  liabilities at the closing of the  transaction.  Petro-Log's
assets include 17 wireline trucks, one offshore wireline skid, grease injection,
mast, and crane trucks,  tool trucks,  trailers and forklifts,  pressure control
equipment, logging equipment


                                       20
<PAGE>



and  tools  and  other  equipment.  The  letter  of  intent  provides  that  the
transaction is to be completed on or before June 1, 1997.

         Both of the foregoing  transactions  are subject to the availability of
financing  for the cash  portion of the  purchase  price which  financing is not
currently available to the Company.

         Currently  several  additional  acquisitions  are  being  explored  and
negotiations with respect to such transactions are ongoing; however, the Company
has no definitive agreements to acquire any additional wireline companies. There
can be no assurance that the Company will be able to acquire additional wireline
companies,  including  the PWS and  Petro-Log  with  which it has  entered  into
letters of  intent,  or that any such  acquisitions  will be  beneficial  to the
Company.  The process of  integrating  acquired  properties  into the  Company's
operations   may  result  in   unforeseen   difficulties   and  may   require  a
disproportionate  amount of management's  attention and the Company's resources.
In connection with acquisitions, the Company could become subject to significant
contingent  liabilities arising from the activities of the acquired companies to
the extent the  Company  assumes,  or an  acquired  entity  becomes  liable for,
unknown or  contingent  liabilities  or in the event that such  liabilities  are
imposed on the Company under theories of successor liability.

         The Company  intends to fund its  acquisitions,  including the proposed
PWS and Petro-Log acquisitions described above, using cash flow from its current
operations as well as the possible  proceeds from secured  lending from banks or
other  institutional  lenders  and the private or public sale of debt and equity
securities. The Company is currently seeking to raise additional capital to fund
the PWS and Petro-Log  acquisitions well as its other acquisition activities but
has not entered into any definitive  arrangements with respect thereto. Any such
capital that is raised will be on terms yet to be negotiated and may be on terms
that dilute the interests of current  stockholders of the Company.  Loans may be
collateralized by all or a substantial  portion of the Company's  assets.  There
can be no assurance  that the Company will raise  additional  capital when it is
required  to  complete  the  PWS  and  Petro-Log   acquisitions   or  any  other
acquisitions  or that  the  Company  will  have or be able to  raise  sufficient
capital to fund its acquisition strategy.

         The  Company is  currently  engaged in  reviewing  the  acquisition  of
updated financial accounting computer systems which will, among other things, be
programmed for record  keeping in the year 2000 and beyond,  which the Company's
current system is unable to perform.  The Company  believes the expense involved
will not be material.




                                       21
<PAGE>




RECENTLY ISSUED ACCOUNTING STANDARDS

         In February  1997,  the  Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE.
SFAS No. 128  establishes  standards for computing and  presenting  earnings per
share (EPS) and applies to entities with publicly held common stock or potential
common stock. This statement simplifies the standards for computing earnings per
share  previously  found in APB Opinion 15,  EARNINGS PER SHARE,  and makes them
comparable to  international  EPS  standards.  It replaces the  presentation  of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income  statement  for  all entities
with complex capital  structures and requires a reconciliation  of the numerator
and  denominator of the basic EPS  computation  to the numerator and denominator
of the diluted EPS computation.

         Basic  EPS  excludes  dilution  and  is  computed  by  dividing  income
available to common stockholders by the weighted average number of common shares
outstanding  for the period.  Diluted EPS reflects the  potential  dilution that
could  occur  if  securities  or other  contracts  to issue  common  stock  were
exercised or  converted  into common stock or resulted in the issuance of common
stock that then shared in the  earnings  of the entity.  Diluted EPS is computed
similarly to fully diluted EPS pursuant to Opinion 15.

         This statement is effective for financial statements issued for periods
ending after December 15, 1997,  including interim periods;  earlier application
is not permitted.  This statement  requires  restatement of all prior period EPS
data presented.


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
commentary  and  elsewhere in this Report are  "forward-looking  statements"  as
defined  under the  Securities  Exchange Act of 1934,  as amended,  that involve
risks and uncertainties. Forward-looking statements include, but are not limited
to,  statements  under  the  following  headings:  "Description  of  Business  -
General," "-  Acquisition  Strategy,"  "-  Acquisition  Financing,"  "- Business
Environment," "- Competition,"  "Management's Discussion and Analysis or Plan of
Operations  -  Industry   Overview  and  Economic  Factors   Impacting   Company
Operations," "- Liquidity and Capital Resources."

         The Company wishes to caution readers that important  factors described
elsewhere  in this  Report,  or in  other  Securities  and  Exchange  Commission
filings,  among  others,  in some cases have  affected,  and in the future could
affect, the Company's actual results and could cause the


                                       22
<PAGE>



Company's  actual  consolidated  results  during  1997  and  beyond,  to  differ
materially from those expressed in any forward-looking statements made by, or on
behalf of,  the  Company.  Additionally,  the  factors  discussed  could  impact
materially the Company's  ability to achieve its business plans and  acquisition
strategy.




ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


                                                                            Page

Report of Independent Accountants for the Years Ended
December 31, 1996, 1995 and 1994..........................................   F-1

Consolidated Balance Sheets as of
December 31, 1996 and 1995................................................   F-2

Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994..........................................   F-3

Consolidated Statements of Stockholders' Equity (Deficit) for the
Years Ended December 31, 1996, 1995 and 1994..............................   F-4

Consolidated Statements of Cash Flows for the Year Ended
December 31, 1996, 1995 and 1994..........................................   F-5

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


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

         During the two fiscal years ended  December  31, 1996,  the Company has
not filed any Current  Report on Form 8-K reporting any change in accountants in
which there was a reported  disagreement on any matter of accounting  principles
or practices, financial statement disclosure or auditing scope or procedure.



                                       23
<PAGE>


                                    PART III

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

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


            NAME                  AGE                     POSITION
--------------------------------------------------------------------------------
     William L. Jenkins            43        President, Chief Operating Officer
                                                        and Director

     Danny Ray Thornton            45           Vice-President - Operations

         Allen Neel                39                  Vice-President

    John A. McNiff, Sr.            69              Secretary and Director

        Michael Brod               51                     Director



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

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

                                       24
<PAGE>



         ALLEN NEEL, is a Vice-President 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.

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

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


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,  except as follows: John A. McNiff, Sr., a Director
of the Company, is president of Pangaea Investment  Consultants,  Ltd. which was
approximately  118 and 97 days  late,  respectively,  in  filing  Form 4 Reports
during the year ended  December  31, 1996  reporting  eight  transactions  which
occurred in November  and  December  1996.  Mr.  McNiff  disclaims a  beneficial
interest in the shares held by Pangaea Investment Consultants, Ltd.



                                       25
<PAGE>



ITEM 10. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION - GENERAL

         The  following  table  sets forth  compensation  paid or awarded to the
President and Chief Executive  Officer of the Company for all services  rendered
to the Company in each of the years 1996,  1995 and 1994.  No executive  officer
received compensation exceeding $100,000 in any of those years.

<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

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

<S>                           <C>           <C>               <C>          <C>               <C>        <C>    <C>
William L. Jenkins,           1996          $95,000          -0-           100,000          -0-         $1,216 (1)
   President                  1995          $63,000          -0-             -0-            -0-             -0-
                              1994          $64,592          -0-             -0-            -0-             -0-

-----------------
</TABLE>

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


OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1996

         The  following   table  provides   information   with  respect  to  the
above-named  executive  officer  regarding options granted to such person during
the Company's year ended December 31, 1996.

<TABLE>
<CAPTION>

                                                                               INDIVIDUAL GRANTS
                                                                 ----------------------------------------------
                   NUMBER OF SECURITIES  % OF TOTAL OPTIONS/
                     UNDERLYING SARS/      SARS GRANTED TO       EXERCISE OR
                   OPTIONS GRANTED (#)       EMPLOYEES IN        BASE PRICE                       MARKET PRICE ON
      NAME                                   FISCAL YEAR          ($/SHARE)     EXPIRATION DATE    DATE OF GRANT
------------------ --------------------- --------------------- ---------------- ----------------- ----------------
<S>                      <C>                     <C>                <C>                <C> <C>         <C>  
William Jenkins          100,000                 100%               $2.00        Sept. 13, 2006        $2.00

</TABLE>



                                       26
<PAGE>



STOCK OPTION HOLDINGS

         The  following  table  provides  information  with respect to the named
executive  officer regarding options held at December 31, 1996 (such officer did
not exercise any option during the most recent fiscal year).
<TABLE>
<CAPTION>

                              AGGREGATE OPTION EXERCISES IN 1996 AND OPTION VALUES AT DECEMBER 31, 1996
                              -----------------------------------------------------------------------------------
                              NUMBER OF UNEXERCISED OPTIONS AT              VALUE OF UNEXERCISED IN-THE-MONEY
                                      DECEMBER 31, 1996                      OPTIONS AT DECEMBER 31, 1996 (1)
                                  -------------------------------------------------------------------------------
         NAME                 EXERCISABLE           UNEXERCISABLE           EXERCISABLE           UNEXERCDISABLE
-----------------------------------------------------------------------------------------------------------------
<S>                           <C>     <C>                 <C>                 <C>                        <C>
William L. Jenkins            100,000 (2)                -0-                  $100,000                  -0-
</TABLE>

----------
(1)  Based on the average bid and asked prices on February 28, 1997.

(2)  Exercisable at $2.00 per share.


         No options were  granted,  exercised  or value  realized in 1996 by the
named executive officer.


EMPLOYMENT AGREEMENTS

         The Company has entered into an Employment  Agreement,  dated September
18, 1996,  with William L. Jenkins,  to serve as its President,  Chief Executive
Officer  and  a  Director  of  the  Company.  The  Employment  Agreement,  which
terminates  on  September  30,  1999,  provides  for an  annual  base  salary of
$110,000,  adjusted  annually  for  inflation.  Pursuant to the  agreement,  Mr.
Jenkins  was  granted  a  ten-year  option  to  purchase  100,000  shares of the
Company's  common stock at an exercise price of $2.00 per share, the fair market
value of the stock on September  13, 1996,  the date the option was granted.  In
addition,  provided  the  Company's  operating  results  equal or exceed  85% of
certain benchmark operating results agreed to by the Company and Mr. Jenkins, he
will be granted as of the last day of the  fiscal  year to which such  benchmark
operating  results  relate a ten-year  option to purchase an  additional  50,000
shares of Common Stock for each year of the agreement exercisable at the closing
bid price for the Company's  Common Stock on the last business day of such year.
With certain  exceptions,  the agreement  restricts Mr. Jenkins from engaging in
activities in  competition  with the Company  during the term of his  employment
and, in the event Mr. Jenkins terminates the agreement prior to its

                                       27
<PAGE>


termination  date, for a period of 18 months thereafter and also in the event he
terminates  the  agreement,  from  soliciting for employment any employee of the
Company for a period of two years after termination.

         The Company has entered into two-year employment agreements terminating
on  January  31,  1998  with  each  of  Danny  Ray   Thornton  and  Allen  Neel,
Vice-Presidents of the Company, pursuant to which they receive base compensation
of $75,000 per year. On each anniversary date of the agreements, the Company and
the employee agree to  renegotiate  the base salary taking into account the rate
of inflation,  overall  profitability and the cash position of the Company,  the
performance and profitability of the areas for which the employee is responsible
and other factors.  The agreements contain restrictions on such persons engaging
in  activities  in  competition  with  the  Company  during  the  term of  their
employment and for a period of two years thereafter. In addition, the agreements
provide for the grant to such employees of options to purchase  10,000 shares of
the Company's Common Stock on each of the first three  anniversary  dates of the
agreements,  provided  such  persons  continue to be  employed  by the  Company,
exercisable  at a price equal to 50% of the mean  between the highest and lowest
price  which the  shares  traded  during the three  months  prior to the date of
grant.









                                       28
<PAGE>



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding beneficial
ownership of the Company's  Common Stock as of March 31, 1997 (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:


                                                                   PERCENTAGE OF
                                               NUMBER OF SHARES      OUTSTANDING
           NAME AND ADDRESS (1)(2)                   OWNED            SHARES(3)
  ------------------------------------------- ------------------  --------------

  William L. Jenkins                              310,000 (4)            13.6%

  John A. McNiff, Sr.                             183,940 (5)             8.2%
  Pangaea Investment Consultants, Ltd.
  48 Par-la-ville Road - Suite 213
  Hamilton, HM11, Bermuda

  Michael Brod                                        -0-                 ---
  180 East 88th Street - #8
  New York, New York  10128

  Pangaea Investment Consultants, Ltd. (6)        183,940 (7)             8.2%
  48 Par-la-ville Road - Suite 213
  Hamilton, HM11, Bermuda

  Morgan Devin Everett & Co. Ltd.                 179,250 (7)             8.1%
  c/o International Trust Company of
     Bermuda Ltd.
  Bermuda Commercial Bank Building
  44 Church Street
  Hamilton, HM12, Bermuda

  International Trust Company of                  167,812 (7)             8.4%
     Bermuda Ltd.
  Bermuda Commercial Bank Building
  44 Church Street
  Hamilton, HM12, Bermuda

  Mansfield Soderberg & Co., Ltd.                 127,638 (7)             7.5%
  Bermuda Commercial Bank Building
  44 Church Street
  Hamilton, HM12, Bermuda

  Danny Ray Thornton                                  666                  *

                                       29
<PAGE>

                                                                   PERCENTAGE OF
                                               NUMBER OF SHARES      OUTSTANDING
           NAME AND ADDRESS (1)(2)                   OWNED            SHARES(3)
  ------------------------------------------- ------------------  --------------
  Allen Neel                                          -0-                 -0-

  All Directors and Officers as a Group          494,606 (4)(5)          21.3%
     (5 persons including the above)

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

*        Less than 1%.

(1)  This tabular information is intended to conform with Rule 13d-3 promulgated
     under the Securities  Exchange Act of 1934 relating to the determination of
     beneficial ownership of securities. The tabular information gives effect to
     the exercise of warrants or options  exercisable within 60 days of the date
     of this table  owned in each case by the person or group  whose  percentage
     ownership is set forth opposite the  respective  percentage and is based on
     the assumption that no other person or group exercise their option.

(2)  Unless otherwise indicated,  the address for each of the above is c/o Black
     Warrior Wireline Corp., 3748 Highway #45 North, Columbus, Mississippi
     39701.

(3)  The  percentage of outstanding  shares  calculation is based upon 2,185,216
     shares outstanding as of March 31, 1997, except as otherwise noted.

(4)  Includes  100,000  shares  issuable to Mr.  Jenkins at an exercise price of
     $2.00 per share on exercise of a ten-year stock option.

(5)  Includes  144,565  shares of Common Stock and  warrants to purchase  39,375
     shares of common stock held by Pangaea  Investment  Consultants,  Ltd. over
     which Mr.  McNiff may be deemed to share  investment  control.  Mr.  McNiff
     disclaims beneficial ownership of such securities.

(6)  Mr. McNiff is the President of Pangaea Investment Consultants, Ltd.

(7)  Includes 39,375 shares issuable on exercise of warrants at $2.00 per share.




ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  Company  executed  Reorganization  Agreements  with the holders of
certain debentures of the Company on November 30, 1995 (the "1995 Reorganization
Agreements"),  including  Pangaea  Investment  Consultants,  Ltd.,  Morgan Devin
Everett & Co. Ltd.,  International  Trust  Company of Bermuda Ltd. and Mansfield
Soderberg & Co. Ltd. (the "Shareholder  Group"),  principal  stockholders of the
Company,  pursuant to which such persons agreed to exchange the debentures  held
by them for shares of the Company's Common Stock In accordance with the terms of
the agreements, through December 31, 1995, the Shareholder


                                       30
<PAGE>


Group exchanged an aggregate of $656,250  principal  amount of debentures for an
aggregate of 299,586  shares of Common  Stock.  Morgan Devin Everett & Co. Ltd.,
International  Trust Company of Bermuda Ltd. and Mansfield  Soderberg & Co. Ltd.
continued to hold at December 31, 1995 an aggregate of $393,750 principal amount
of  debentures  which were to be exchanged in the  aggregate  for an  additional
225,414  shares of Common  Stock and two new  classes of Common  Stock  Purchase
Warrants.  Pursuant to the 1995 Reorganization  Agreements,  the first series of
warrants (the "Class A Warrants")  were to be exercisable at $3.00 per share for
a period of four (4) years and the  second  series  of  warrants  (the  "Class B
Warrants") were to be exercisable at prices increasing in annual increments over
the first three (3) years after issuance from $3.00 per share to $5.00 per share
and were to expire five (5) years after  issuance.  On September  20, 1996,  the
Company and the Shareholder Group, as well as certain other debtholders, amended
the terms of the 1995  Reorganization  Agreements to provide for the exchange of
the $393,750 of debentures  three members of the Shareholder  Group continued to
hold for an  aggregate  of  225,414  shares  of  Common  Stock and also so as to
provide that in lieu of the issuance of the Class A warrants to the  Shareholder
Group,  an  aggregate  of 52,500  shares of Common  Stock would be issued to the
Shareholder  Group  and the  exercise  price of the  Class B  warrants  would be
reduced to $2.00 per share  throughout the five-year term of such warrants.  See
"Item 1. Description of Business - Recent Debt Restructuring."

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

                                     AMOUNT OF                  NUMBER OF SHARES
NAME                               INDEBTEDNESS                 OF COMMON STOCK
----                               ------------                 ---------------

Danny Ray Thornton                   $127,342                         63,671

Allen Neel                           $ 42,447                         21,223

Reese James                          $127,342                         63,671


The 1995 Reorganization Agreements contained the agreement of the members of the
Employee  Group to sell the shares they received  through  Monetary  Advancement
International, Inc.


                                       31
<PAGE>



("MAII")  at a price of $2 per share  during the  twelve  months  following  the
closing  under the 1995  Reorganization  Agreements.  In addition,  the Employee
Group and the Company entered into a supplemental  agreement  pursuant to which,
among other things,  the Company guaranteed that MAII or another purchaser would
purchase the shares  issued to them at a price of $2 per share during the twelve
months  following  the  closing.  It was  further  agreed  in  the  supplemental
agreement that if the shares were not purchased within such twelve month period,
the Employee Group would suffer damages which were  stipulated to be $.71942 per
share with maximum  liquidated damages of $100,000.  The Company  collateralized
its guarantee  with a pledge of all its accounts  receivable  with the Company's
liability limited to the first $100,000 of receivables collected.  Subsequently,
the Employee Group delivered  certificates  and stock powers for an aggregate of
148,565  shares  to MAII to be sold in  accordance  with  the  terms of the 1995
Reorganization  Agreements and the  supplemental  agreement.  The Employee Group
received payment from MAII for an aggregate of 26,234 shares and an aggregate of
122,331  shares  were  transferred  by MAII  into  its  name  (and  subsequently
transferred into a street name) without paying for such shares. MAII has refused
to either return or pay for such shares.

         The Employee  Group has advised the Company that but for the  Company's
guarantee and the understanding  that MAII would purchase all their shares at $2
per  share  within  twelve  months  of the  closing  of the 1995  Reorganization
Agreements they would not have agreed to convert their secured indebtedness into
shares of the  Company's  Common  Stock and that  therefore  the Company  should
reimburse  them for the entire amount of their loss or an aggregate of $244,662.
The Company believes that the Employee Group has meritorious claims against MAII
to  recover  either  the shares  not paid for or their  value.  Inasmuch  as the
Employee Group, or the Company on their behalf,  intends to pursue those claims,
the Company has accrued no liability  to the  Employee  Group for any portion of
the claim on its financial statements for the year ended December 31, 1996.

         In October 1994, the Company  entered into an agreement with William L.
Jenkins, President of the Company, to lease 6,500 square feet of office space in
a building  owned by him. The Company  leased  these  premises  from  Mr.Jenkins
through  October 1996 when he sold the building to a  non-affiliated  person who
continues  to lease the space to the  Company at the same  rental.  See "Item 2.
Properties."  Before  its  termination,  the lease with Mr.  Jenkins  called for
monthly  rental  payments of $1,900.  During  1996,  the Company paid rentals of
$19,000 to Mr.  Jenkins  pursuant  to the  lease.  See Notes 4 and 7 of Notes to
Consolidated Financial Statements.

         In March 1995, the Company received a letter from the District Director
of the Internal  Revenue  Service (the "IRS") in which he formally  notified the
Company that the IRS had  preliminarily  calculated  deficiencies of $35,057 and
$541,727 in federal taxes for the years ended December 31, 1989 and December 31,
1990, respectively. The adjustments proposed by the IRS

                                       32
<PAGE>


included  the  valuation  of bonus  stock  compensation  to William L.  Jenkins,
President of the Company,  as well as certain other items. The Company agreed to
pay whatever  personal tax liability was  determined to be owing by Mr.  Jenkins
related to the bonus stock resulting from an unfavorable  resolution of the IRS'
proposed adjustment.  In June 1996, the Company settled this matter with the IRS
on terms which,  among other things,  resulted in an additional tax liability to
Mr. Jenkins in the amount of $98,524 for taxes,  penalties and interest  related
to the bonus stock.  The Company  reimbursed Mr. Jenkins for this sum on January
23, 1997 and has agreed to further  reimburse Mr.  Jenkins for the tax liability
resulting from this payment and any further tax  reimbursement  payments made to
Mr. Jenkins in future years.

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




                                       33
<PAGE>



                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

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

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

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

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

           3.4             Amendment to the Certificate of  Incorporation of the
                           Company  (incorporated  by reference to the Company's
                           Registration  Statement on Form S-18,  effective date
                           December 6, 1988).

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

           4.1             14% Debenture, dated August 10, 1990, issued to Henry
                           Hoffman,  in the initial principal amount of $450,000
                           (incorporated  by reference to the  Company's  Annual
                           Report  on  Form  10-K  for  the  fiscal  year  ended
                           December 31, 1990).

          4.2              14%  Debenture,  dated August 10, 1990,  issued to W.
                           Stewart  Cahn,  in the  initial  principal  amount of
                           $250,000  (incorporated by reference to the Company's
                           Annual  Report on Form 10-K for the fiscal year ended
                           December 31, 1990).



                                       34
<PAGE>


           4.3             14% Debenture,  dated  September 18, 1990,  issued to
                           Lorin Silverman,  in the initial  principal amount of
                           $100,000  (incorporated by reference to the Company's
                           Annual  Report on Form 10-K for the fiscal year ended
                           December 31, 1990).

           4.4             14%  Debenture,  dated  September 6, 1990,  issued to
                           Martha  Heyman,  in the initial  principal  amount of
                           $10,000  (incorporated  by reference to the Company's
                           Annual  Report on Form 10-K for the fiscal year ended
                           December 31, 1990).

           4.5             14% Debenture,  dated October 2, 1990, issued to Mark
                           G.  Flanders,  in the  initial  principal  amount  of
                           $5,000  (incorporated  by reference to the  Company's
                           Annual  Report on Form 10-K for the fiscal year ended
                           December 31, 1990).

           4.6             14%  Debenture,  dated  November  1, 1990,  issued to
                           Helen Margulies,  in the initial  principal amount of
                           $5,000  (incorporated  by reference to the  Company's
                           Annual  Report on Form 10-K for the fiscal year ended
                           December 31, 1990).

           4.7             14%  Debenture,  dated  November  8, 1990,  issued to
                           Selma  Seider,  in the  initial  principal  amount of
                           $5,000  (incorporated  by reference to the  Company's
                           Annual  Report on Form 10-K for the fiscal year ended
                           December 31, 1990).

           4.8             14%  Debenture,  dated  November  5, 1990,  issued to
                           Delaware Charter Guarantee,  in the initial principal
                           amount of $25,000  (incorporated  by reference to the
                           Company's  Annual  Report on Form 10-K for the fiscal
                           year ended December 31, 1990).

           4.9             14%  Debenture,  dated  November  7, 1990,  issued to
                           Henry A. Klein,  in the initial  principal  amount of
                           $10,000  (incorporated  by reference to the Company's
                           Annual  Report on Form 10-K for the fiscal year ended
                           December 31, 1990).

           4.10            14%  Debenture,  dated  November  8, 1990,  issued to
                           Selma  Seider,  in the  initial  principal  amount of
                           $5,000  (incorporated  by reference to the  Company's
                           Annual  Report on Form 10-K for the fiscal year ended
                           December 31, 1990).


                                       35
<PAGE>



           4.11            14%  Debenture,  dated  November  9, 1990,  issued to
                           Rebecca Goldman,  in the initial  principal amount of
                           $10,000  (incorporated  by reference to the Company's
                           Annual  Report on Form 10-K for the fiscal year ended
                           December 31, 1990).

           4.12            14%  Debenture,  dated  November 12, 1990,  issued to
                           Cary and Judith  Fishman,  in the  initial  principal
                           amount of $5,000  (incorporated  by  reference to the
                           Company's  Annual  Report on Form 10-K for the fiscal
                           year ended December 31, 1990).

           4.13            14%  Debenture,  dated  November 16, 1990,  issued to
                           Rebecca Plevinsky, in the initial principal amount of
                           $10,000  (incorporated  by reference to the Company's
                           Annual  Report on Form 10-K for the fiscal year ended
                           December 31, 1990).

           4.14            14%  Debenture,  dated  November 19, 1990,  issued to
                           Lena  Giordano,  in the initial  principal  amount of
                           $5,000  (incorporated  by reference to the  Company's
                           Annual  Report on Form 10-K for the fiscal year ended
                           December 31, 1990).

           4.15            14%  Debenture,  dated  November 22, 1990,  issued to
                           Robert M. Runyon,  in the initial principal amount of
                           $10,000  (incorporated  by reference to the Company's
                           Annual  Report on Form 10-K for the fiscal year ended
                           December 31, 1990).

           4.16            14%  Debenture,  dated  November 26, 1990,  issued to
                           June Prall, in the initial principal amount of $5,000
                           (incorporated  by reference to the  Company's  Annual
                           Report  on  Form  10-K  for  the  fiscal  year  ended
                           December 31, 1990).

           4.17            14%  Debenture,  dated  October  3,  1990,  issued to
                           Robert C. Loeb,  in the initial  principal  amount of
                           $5,000  (incorporated  by reference to the  Company's
                           Annual  Report on Form 10-K for the fiscal year ended
                           December 31, 1990).

           4.18            14%  Debenture,  dated  November  1, 1990,  issued to
                           Martha  Heyman,  in the initial  principal  amount of
                           $5,000  (incorporated  by reference to the  Company's
                           Annual  Report on Form 10-K for the fiscal year ended
                           December 31, 1990).


                                       36
<PAGE>



          4.19             Form of Debenture  Purchase Agreement relating to the
                           Company's 13% Convertible Subordinated Debentures due
                           August 31, 1995  (incorporated  by  reference  to the
                           Company's  Annual  Report on Form 10-K for the fiscal
                           year ended December 31, 1991).

           4.20            Form of 13%  Convertible  Subordinated  Debenture due
                           August  31,  1995  (contained   within  Exhibit  4.19
                           above).

           4.21            Warrant,  dated July 1, 1991,  pursuant  to which the
                           Company  granted  John A.  McNiff,  Sr., the right to
                           acquire  34,996 shares of Common Stock of the Company
                           (incorporated  by reference to the  Company's  Annual
                           Report  on  Form  10-K  for  the  fiscal  year  ended
                           December 31, 1991).

         10.1 *            Employment  Agreement,   dated  September  18,  1996,
                           between William L. Jenkins and the Company.

         10.2              Accounts Receivable Factoring and Security Agreement,
                           dated August 29, 1991, among Rhonda J. Jenkins, Reese
                           James,  Danny Ray  Thornton,  Lanelle A. Neel and the
                           Company  (incorporated  by reference to the Company's
                           Annual  Report on Form 10-K for the fiscal year ended
                           December 31, 1991).

         10.3              Reorganization  Agreement,  dated as of November  30,
                           1995,  between the  Company  and  Pangaea  Investment
                           Consultants,  Ltd.,  and  Mansfield  Soderberg & Co.,
                           Ltd.,  William L.  Jenkins,  Reese  James,  Allen and
                           Lanelle Neel, and Danny Ray Thornton,  Henry Hoffman,
                           W. Stewart Cahn, Lorin Silverman, and B. and E. Deeds
                           (incorporated  by  reference  to the  Current  Report
                           filed  on  Form  8-K on  December  15,  1995,  by the
                           Company).

         10.4              Supplemental  Agreement,  dated  as of  November  30,
                           1995,  between the Company and Reese James, Allen and
                           Lanelle Neel, and Danny Ray Thornton.

         10.5              Security  Agreement,  dated as of December  21, 1995,
                           between  the  Company  and Rhonda J.  Jenkins,  Reese
                           James, Danny Ray Thornton, and Lanelle A. Neel.



                                       37
<PAGE>



         10.6              Business Consulting  Agreement,  dated as of November
                           1, 1995, between the Company and Monetary Advancement
                           International, Inc.

         10.7 **           Employment Agreement, dated January 31, 1997, between
                           Danny Ray Thornton and the Company.

         10.8 **           Employment Agreement,  dated January 31,1997, between
                           Allen Neel and the Company.

         10.9 *            Letter Agreement,  dated September 20, 1996,  between
                           the Company and Morgan Devin Everett & Co. Ltd.,  and
                           amendment thereto.

         10.10 *           Letter Agreement,  dated September 20, 1996,  between
                           the  Company  and  International   Trust  Company  of
                           Bermuda Ltd., and amendment thereto.

         10.11 *           Letter Agreement,  dated September 20, 1996,  between
                           the Company and Mansfield  Soderberg & Co. Ltd.,  and
                           amendment thereto.

         10.12 *           Letter Agreement,  dated September 20, 1996,  between
                           the Company and Pangaea Investment Consultants, Ltd.,
                           and amendment thereto.

         21                Subsidiaries.

                               NAME                   STATE OF INCORPORATION

                               Boone Wireline Co.             Alabama

         27                Financial Data Schedule.

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

*        Filed herewith

**       To be filed by amendment.

         (b)      Reports on Form 8-K.

                  The  Company filed a Current Report on Form 8-K dated November
19, 1996 in response to Item 2 thereof reporting the DynaJet acquisition.



                                       38
<PAGE>



                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

         Dated:  April 14, 1997


                                            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.


Signature                        Capacity                            Date
---------                        --------                            ----



/s/ William L. Jenkins     President (Principal Executive,       April 14, 1997
------------------------   Financial and Accounting Officer)
William L. Jenkins         and Director



/s/ John A. McNiff, Sr.    Director                              April 14, 1997
------------------------
John A. McNiff, Sr.


/s/ Michael Brod           Director                              April 14, 1997
------------------------
Michael Brod



<PAGE>

                          BLACK WARRIOR WIRELINE CORP.

                                AND SUBSIDARIES
                       CONSOLIDATED FINANCIAL STATEMENTS

             FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<PAGE>

Report of Independent Accountants


The Stockholders and Board of Directors

Black Warrior Wireline Corp.
Columbus, Mississippi

We have audited the  accompanying  consolidated  balance sheets of Black Warrior
Wireline Corp. and subsidiaries  (the Company) as of December 31, 1996 and 1995,
and the related  consolidated  statements of  operations,  stockholders'  equity
(deficit),  and cash flows for the three years in the period ended  December 31,
1996.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards  require that we plan and perform an 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 audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  consolidated  financial  position of Black Warrior
Wireline  Corp.  and  subsidiaries  as of December  31,  1996 and 1995,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended  December 31, 1996 in conformity  with generally
accepted accounting principles.


                                                  COOPERS & LYBRAND L.L.P.


Birmingham, Alabama

March 21, 1997, except Note 19,
as to which the date is April 1, 1997

                                      F-1
<PAGE>


                 Black Warrior Wireline Corp. and Subsidiaries
                          Consolidated Balance Sheets
                           December 31, 1996 and 1995

<TABLE>
<CAPTION>
                                                                                             1996             1995
                                                                                             ----             ----
<S>                                                                                    <C>              <C>   
ASSETS                                                                                        
Current assets:
     Cash and cash equivalents                                                         $    727,454     $    284,825
     Accounts receivable, less allowance for doubtful accounts of 
       $136,959 and $130,115                                                               136,9306          830,384
     Inventories                                                                            183,467          185,813
     Prepaid expenses                                                                        53,424           31,917
     Federal income tax receivable                                                           14,636           80,432
     Deferred tax asset                                                                     138,071
     Other receivables                                                                                           178
                                                                                        ------------     ------------
          Total current assets                                                            2,486,358        1,413,549
Land and building, held for sale                                                            400,000
Property, plant, and equipment, less accumulated depreciation of $3,729,370
     and $3,311,919                                                                       2,194,591        1,306,126
Other assets                                                                                  5,420            5,405
Goodwill                                                                                    224,305
                                                                                        ------------     ------------
          Total assets                                                                 $  5,310,674     $  2,725,080
                                                                                        ============     ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
     Accounts payable                                                                  $    808,832     $    821,254
     Accounts payable, related parties                                                       89,733
     Accrued salaries and vacation                                                           25,085           15,839
     Income taxes payable                                                                    52,548
     Accrued interest payable                                                                29,530        1,214,422
     Other accrued expenses                                                                 381,396          229,446
     Current maturities of notes payable to banks                                            18,272           60,225
     Mortgage notes payable, related party                                                  150,000
     Current maturities of long-term debt and capital lease obligations                     307,806        1,526,127
                                                                                        ------------     ------------
          Total current liabilities                                                       1,863,202        3,867,313
Deferred tax liability                                                                      214,355
Notes payable to banks, less current maturities                                              31,486            8,350
Mortgage notes payable, related party                                                       230,000
Long-term debt and capital lease obligations, less current maturities                       713,873          385,696
                                                                                        ------------     ------------
          Total liabilities                                                               3,052,916        4,261,359
                                                                                        ------------     ------------

Commitments and contingencies (Notes 7, 8, 15, 16, 17, and 19)

Common  stock,  par  value  $.0005  per  share,  50,000,000  shares  authorized,
     2,185,216 and 759,052 shares issued at December 31, 1996 and 1995,
     respectively                                                                             1,093              380
Additional paid-in capital                                                                5,133,087        3,375,702
Accumulated deficit                                                                      (2,293,029)      (4,328,968)
Treasury stock, at cost, 4,073 shares at 1996 and 1995respectively                         (583,393)        (583,393)
                                                                                        ------------     ------------
          Total stockholders' equity (deficit)                                            2,257,758       (1,536,279)
                                                                                        ------------     ------------
          Total liabilities and stockholders' equity (deficit)                         $  5,310,674     $  2,725,080
                                                                                        ============     ============
</TABLE>

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

                                      F-2
<PAGE>



                 Black Warrior Wireline Corp. and Subsidiaries
                     Consolidated Statements of Operations
             for the years ended December 31, 1996, 1995, and 1994

<TABLE>
<CAPTION>
                                                                          1996              1995             1994
                                                                          ----              ----             ----

<S>                                                               <C>               <C>                <C>          
Revenues                                                          $    7,582,021    $    6,179,218     $   6,074,200
Operating costs                                                        5,116,777         4,522,920         4,813,755
Selling, general, and administrative expenses                          1,302,994         1,187,900         1,283,991
Depreciation and amortization                                            574,400           690,601           820,743
                                                                   -------------     -------------     -------------

        Income (loss) from operations                                    587,850          (222,203)         (844,289)
Interest expense and amortization of debt discount                      (342,197)         (625,990)         (585,886)
Net gain on sale of fixed assets                                          76,645            65,450           201,933
Other income                                                              39,425            10,627             5,692
                                                                   -------------     -------------     -------------
        Income (loss) before benefit for income taxes
          and extraordinary gain                                         361,723          (772,116)       (1,222,550)
Benefit for income taxes                                                 (65,715)         (226,554)          (80,432)
                                                                   -------------     -------------     -------------

        Income (loss) before extraordinary gain                          427,438          (545,562)       (1,142,118)
Extraordinary gain on extinguishment of debt, net of income
     taxes of $-0- and $226,554 in 1996 and 1995,
     respectively (Note 7)                                             1,608,501           387,413
                                                                   -------------     -------------     -------------
        Net income (loss)                                         $    2,035,939    $     (158,149)     $ (1,142,118)
                                                                   =============     =============     =============
Income (loss) per average common share*:
     Income (loss) before extraordinary gain                      $         0.41    $        (6.14)     $     (17.30)
     Extraordinary gain, net of income taxes                                1.55              4.36
                                                                   -------------     -------------     -------------
     Net income (loss)                                            $         1.96    $        (1.78)     $     (17.30)
                                                                   =============     =============     =============
Average common and common equivalent shares outstanding*               1,040,192            88,905,           66,008
                                                                   =============     =============     =============

</TABLE>

*    1994 loss per average common share and average common and common equivalent
     shares  outstanding have been restated to reflect a 1 for 200 reverse stock
     split effected during 1995. See Note 10.


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


                                      F-3
<PAGE>

                 Black Warrior Wireline Corp. and Subsidiaries
           Consolidated Statements of Stockholders' Equity (Deficit)
             for the years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>


                                          Common Stock            Paid-In     Accumulated       Treasury Stock
                                       Shares      Par Value      Capital       Deficit       Shares        Cost
                                    ------------   ----------   -----------   -----------   -----------  -----------

<S>                                 <C>            <C>          <C>          <C>              <C>         <C>        
Balance, December 31, 1993          $13,869,252    $   6,935    $41,955,345  $ (3,028,701)    $814,626    $ (583,393)
Shares issued in settlement of
     accrued liability                  300,000          150         37,350
Net loss for the year ended
     December 31, 1994                                                         (1,142,118)
                                     -----------    ---------    ----------    ----------    ----------   ----------
Balance, December 31, 1994           14,169,252        7,085      1,992,695    (4,170,819)      814,626     (583,393)
Effect of 1 for 200 reverse
     stock split                    (14,098,351)      (7,049)         7,049                    (810,553)
Conversion of notes payable and
     subordinated debentures
     to common stock                    648,151          324      1,295,978
Shares issued in consideration
     for consulting services             40,000           20         79,980
Net loss for the year ended
     December 31, 1995                                                          (158,149)
                                      ----------    ---------    ----------    ----------    ----------   ----------
Balance, December 31, 1995              759,052          380      3,375,702   (4,328,968)         4,073     (583,393)
Shares issued in private                600,000          300        643,080
     placement
Conversion of subordinated
     debentures to common stock
     and stock warrants                 814,164          407      1,099,311
Shares issued to related party in
     consideration for services
     performed                           12,000            6         14,994
Net income for the year ended
     December 31, 1996                                                         2,035,939
                                     -----------    ---------    ----------    ----------    ----------   ----------
Balance, December 31, 1996            2,185,216    $    1,093  $  5,133,087 $ (2,293,029)         4,073   $ (583,393)
                                     ===========    =========    ==========    ==========    ==========   ==========

</TABLE>

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



                                      F-4
<PAGE>
                  Black Warrior Wireline Corp. and Subsidiaries
                      Consolidated Statements of Cash Flows
              for the years ended December 31, 1996, 1995, and 1994

<TABLE>
<CAPTION>
                                                                              1996            1995            1994
                                                                        -------------     ------------   ------------
<S>                                                                     <C>               <C>            <C>
Cash flows from operating activities:
     Net income (loss)                                                  $   2,035,939     $ (158,149)    $(1,142,118)
     Adjustments   to  reconcile  net  income  (loss)  to  net  cash
     provided by
        operating activities:
          Depreciation                                                        574,400        690,601         787,543
          Amortization                                                                                        33,200
          Amortization of deferred gain                                                                     (141,637)
          Allowance for doubtful accounts                                       6,844         12,575          26,286
          Net gain on disposition of assets                                   (76,645)       (65,450)        (60,296)
          Compensation, consulting, and management expenses paid
             by issuance of common stock                                       15,000         80,000
          Gain on extinguishment of debt                                   (1,608,501)      (613,967)
          Deferred tax benefit                                               (118,263)
          Benefit for income taxes                                                                           (80,432)
          Change in:
             Accounts receivable                                             (456,033)        32,052          57,341
             Inventories                                                        3,556         42,381         137,984
             Prepaid expenses                                                 (18,284)        41,838          11,870
             Other receivables                                                 65,974         20,257         (16,135)
             Other assets                                                         (15)        (1,563)            991
             Accounts payable and accrued liabilities                         347,490        528,643         613,080
                                                                          -----------     ------------    ------------
                  Cash provided by operating activities                       771,462        609,218         227,677
                                                                          -----------     ------------    -----------
Cash flows from investing activities:
     Acquisitions of property, plant, and equipment                         (468,354)       (299,306)       (104,818)
     Proceeds from sale of fixed assets                                       95,071         120,031          178,260
     Acquisition of business, net of cash acquired                          -256,783
                                                                         -----------     ------------    ------------
                  Cash (used in) provided by investing activities           (630,066)       (179,275)          73,442
                                                                         -----------     ------------    ------------
Cash flows from financing activities:
     Proceeds from bank and other borrowings                                                  41,959           56,561
     Proceeds from issuance of common stock, net                             643,382
     Principal payments on long-term debt, notes payable, and
        capital lease obligations                                           (342,149)       (227,530)        (378,043)
                                                                         -----------     ------------    ------------
                  Cash provided by (used in) financing activities            301,233        (185,571)        (321,482)
                                                                         -----------     ------------    ------------
                  Net   increase   (decrease)   in  cash   and  cash         442,629         244,372          (20,363)
                  equivalents
Cash and cash equivalents, beginning of year                                 284,825          40,453           60,816
                                                                         -----------     ------------    ------------

Cash and cash equivalents, end of year                                  $    727,454    $    284,825    $      40,453
                                                                         ===========     ============    ============

Supplemental disclosure of cash flow information: Cash paid during
   the year for:
        Interest                                                        $     74,746    $     78,392    $      59,444
                                                                         ===========     ============    ============
        Income taxes                                                    $         0     $          0    $           0
                                                                         ===========     ============    ============

Supplemental schedule of noncash investing and financing activities:
     Notes payable and subordinated debentures converted to common
        stock and stock warrants (Note 7)                               $   1,343,750     $1,296,302
     Principal forgiven                                                                       57,078
     Accrued interest forgiven (Note 7)                                     1,514,468        556,889
     Accrued interest converted to notes payable                                              52,962
     Shares issued in settlement of accrued liability                                                   $      37,500
     Acquisition of property,  plant,  and equipment  financed under
     capital
        leases and notes payable                                              796,930        371,846          361,244
     Vehicles  sold to  officer  for  reduction  in  notes  payable,                                            5,300
     related parties
     Accounts payable to legal counsel converted to notes payable                                              81,404
     Accrued salaries and loans converted to notes payable,  related                                          113,037
     parties
     Notes  payable  incurred  in  connection  with  acquisition  of          380,000
     business
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
                                      F-5
<PAGE>


                 Black Warrior Wireline Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements


  1.   GENERAL INFORMATION

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

  2.   SIGNIFICANT ACCOUNTING POLICIES

       Principles  of  Consolidation  - The  consolidated  financial  statements
       include the accounts of Black Warrior Wireline Corp. and its wholly-owned
       subsidiary,  Boone Wireline Co., and the following inactive subsidiaries:
       Black Warrior International, Inc., Black Warrior International (Bermuda),
       Ltd., Black Warrior Oil and Gas, Ltd., and Black Warrior Syria, Ltd. (the
       Company).  All significant  intercompany  accounts and transactions  have
       been eliminated.

       Cash and Cash  Equivalents  - The  Company  considers  all highly  liquid
       investments with an original  maturity of three months or less to be cash
       equivalents.

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

       Land and building,  held for sale - Land and building,  held for sale are
       stated at the lower of cost or estimated net realizable value.

       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.

       Long-Lived  Assets - During the year ended December 31, 1996, the Company
       adopted  Statement  of  Financial  Accounting  Standards  (SFAS) No. 121,
       Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
       Assets to be Disposed Of. In  accordance  with SFAS 121, the Company will
       recognize  impairment losses on long-lived assets used in operations when
       indicators  of  impairment  are present and the  undiscounted  cash flows
       estimated  to be  generated  by those  assets  are less than the  asset's
       carrying  amount.  There are no such impairments at December 31, 1996 and
       management  does  not  anticipate  any  material  future  impact  to  the
       Company's financial statements as a result of this new pronouncement.

       Investment in Partnerships - The Company has a 50% ownership  interest in
       two partnerships,  Black Warrior Mideast Partnership (inactive) and Black
       Warrior  Mideast Company (BWMC) (see Note 5). The investments are carried
       at cost and  adjusted for equity in  undistributed  earnings or losses of
       the  partnerships.  The  investment  is not reduced below zero for losses
       because  the  underlying  debt is  nonrecourse.  Equity  income  from the
       partnerships  will not be recognized until the cumulative  income exceeds
       the cumulative unrecognized losses.

                                      F-6

<PAGE>

Notes to Consolidated Financial Statements, Continued

                                     
       Goodwill  -  Goodwill  is  stated  at cost  and is being  amortized  on a
       straight-line   basis  over  ten  years.   The   Company   assesses   the
       recoverability and the amortization period of the goodwill by determining
       whether the amount can be recovered  through  undiscounted  cash flows of
       the businesses  acquired,  excluding  interest expense and  amortization,
       over the remaining  amortization  period.  If impairment was indicated by
       this analysis,  measurement of the loss would be based on the fair market
       value of the business  acquired.  The Company considers  external factors
       relating to the acquired business,  including local market  developments,
       regional and national trends, regulatory developments and other pertinent
       factors in making its  assessment.  The Company  does not  believe  there
       currently  are any  indicators  that would  require an  adjustment to the
       carrying  value of the goodwill or its remaining  life as of December 31,
       1996.

       Income  Taxes - The  Company  uses an asset and  liability  approach  for
       financial accounting and reporting for income taxes.  Deferred tax assets
       are recognized only to the extent of their anticipated realization.

       Stock-Based Compensation - In 1996, the Company adopted the provisions of
       SFAS No. 123,  Accounting for Stock-Based  Compensation,  which defines a
       fair  value  based  method  of  accounting   for   stock-based   employee
       compensation  plans.  In accordance  with the provisions of SFAS No. 123,
       the Company has chosen to continue to apply the accounting  provisions of
       Accounting  Principles Board (APB) No. 25, Accounting for Stock Issued to
       Employees,   to  its  stock-based  employee  compensation   arrangements.
       Implementing  the disclosure  provisions of SFAS No. 123, which supercede
       the  disclosure  requirements  of APB No. 25,  did not have any  material
       effect on the consolidated  financial position,  results of operations or
       cash flows of the Company (see Note 16).

       Use of Estimates - The preparation of financial  statements in conformity
       with generally accepted accounting principles 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.

       Recently  Issued  Accounting  Standards - In February 1997, the Financial
       Accounting  Standards  Board issued  Statement  of  Financial  Accounting
       Standards  (SFAS) No. 128,  Earnings per Share.  SFAS No. 128 establishes
       standards  for  computing  and  presenting  earnings  per share (EPS) and
       applies to entities with  publicly held common stock or potential  common
       stock. This statement simplifies the standards for computing earnings per
       share  previously  found in APB Opinion 15, Earnings per Share, and makes
       them  comparable  to  international   EPS  standards.   It  replaces  the
       presentation  of primary  EPS with a  presentation  of basic EPS. It also
       requires  dual  presentation  of basic and diluted EPS on the face of the
       income  statement for all entities with complex  capital  structures  and
       requires a  reconciliation  of the numerator and denominator of the basic
       EPS  computation  to the  numerator  and  denominator  of the diluted EPS
       computation.

       Basic EPS excludes  dilution and is computed by dividing income available
       to common  stockholders by the  weighted-average  number of common shares
       outstanding for the period.  Diluted EPS reflects the potential  dilution
       that could occur if securities  or other  contracts to issue common stock
       were exercised or converted into common stock or resulted in the issuance
       of common stock that then shared in the  earnings of the entity.  Diluted
       EPS is computed similarly to fully diluted EPS pursuant to Opinion 15.

       This statement is effective for financial  statements  issued for periods
       ending after  December  15,  1997,  including  interim  periods;  earlier
       application is not permitted.  This statement requires restatement of all
       prior-period  EPS data  presented.  The  adoption  of SFAS No. 128 is not
       anticipated to have a material effect on the Company's earnings per share
       data as previously presented.

       Reclassifications - Certain  reclassifications have been made to the 1995
       financial statements to conform to the 1996 presentation.

  3.   ACQUISITION

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

       For financial statement purposes,  the acquisition was accounted for as a
       purchase  and,  accordingly,  Dyna  Jet's  results  are  included  in the
       consolidated  financial  statements  since the date of  acquisition.  The
       aggregate  purchase  price  was  approximately  $758,000,  consisting  of
       approximately  $288,000 in cash, funded by a portion of the proceeds from
       the issuance of common stock  pursuant to a private  placement  (see Note
       10) and $470,000 in promissory notes and payables. The aggregate purchase
       price has been  allocated to the assets of the Company,  based upon their

                                       F-7
<PAGE>

       respective  fair market  values.  The excess of the  purchase  price over
       assets acquired,  goodwill,  approximated $224,000 and is being amortized
       over ten years.

       The following  table  presents  unaudited pro forma results of operations
       for the years ended December 31, 1996 and 1995, as if the acquisition and
       private  placement  of common  stock  (see Note 10) had  occurred  at the
       beginning of the years presented.  The pro forma summary information does
       not necessarily  reflect the results of operations as they actually would
       have been, if the acquisition  and private  placement had occurred at the
       beginning of the years presented.

<TABLE>
<CAPTION>
                                                                                              1996              1995
                                                                                              ----              ----
<S>                                                                                    <C>                <C>          
                Revenues                                                               $    8,001,537     $   6,689,778
                                                                                        -------------     -------------
                Income (loss) before extraordinary gain                                $      275,880     $    (803,184)
                                                                                        -------------     -------------
                Net income (loss)                                                      $    1,884,381     $    (415,771)
                                                                                        -------------     -------------
                Income (loss) per common share:
                  Income (loss) before extraordinary gain                              $         0.18     $       (1.16)
                  Extraordinary gain                                                             1.04              0.56
                                                                                        -------------     -------------
                     Net income (loss) per common share                                $         1.22     $       (0.60)
                                                                                        =============     =============
</TABLE>


       The unaudited pro forma results  include the  historical  accounts of the
       Company,  and historical  accounts of the acquired business and pro forma
       adjustments  including the amortization of the excess purchase price over
       the fair value of the net assets  acquired,  the  elimination of interest
       expense on a note payable to the former stockholder of Dyna Jet which was
       repaid prior to closing, the reduction of depreciation expense to reflect
       the sale of certain  nonoperating assets to the former owner of Dyna Jet,
       and the increase of  depreciation  expense as a result of purchase  price
       adjustments.


                                      F-8
<PAGE>
  4.   RELATED PARTY TRANSACTIONS

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

       At December 31,  1996,  the Company has a note payable of $380,000 and an
       accounts  payable  of $89,733  to the  former  owner of Dyna Jet,  now an
       employee of the Company.  These payables are  collateralized  by the land
       and  building  held for  sale and  accounts  receivable  acquired  in the
       acquisition of Dyna Jet.

       The Company  had an  outstanding  balance of  $289,293  included in notes
       payable,  related  parties,  at December  31,  1994 and accrued  interest
       payable of $2,497 at December 31, 1994 relating to a financing  agreement
       with RABAD,  a partnership  comprised of officers and spouses of officers
       of  the  Company,  whereby  RABAD  advanced  funds  to  the  Company  for
       operations. These advances were collateralized by accounts receivable and
       bore interest at a rate of prime plus 2%. Interest expense  recognized on
       these  advances for 1995 and 1994 was $20,954 and $27,353,  respectively.
       On December 20, 1995,  RABAD  accepted  148,565 shares of common stock of
       the Company in full  satisfaction of advances totaling $297,131 (see Note
       7).

       The Company had an  outstanding  balance of $334,237 in notes payable and
       $8,976 in accrued  interest at December 31, 1994 to the  president of the
       Company and his spouse.  Interest expense recognized on the notes payable
       for 1995 and 1994 was $28,611 and $31,491,  respectively. On December 20,
       1995, the president of the Company and his spouse accepted 200,000 shares
       of the Company's  common stock in full  satisfaction  of the  outstanding
       balance of notes payable totaling $400,000 (see Note 7).

       During  1994,  the  Company  sold two  vehicles  with a net book value of
       $7,500 to the president of the Company in exchange for a $5,300 reduction
       in notes payable due him.

       During  October 1994,  the Company  began  leasing  office space from the
       president of the Company.  The Company  leased this office space from the
       president of the Company  through  October 1996 when he sold the building
       to a  non-affiliated  person  who  continues  to lease  the  space to the
       Company at the same rental. The total amount paid to the president during
       the years ended December 31, 1996,  1995, and 1994 was $17,264,  $22,262,
       and $3,200, respectively.

       See Note 9 for a description of the sale of fixed assets to BWMC.

       See Note 10 for common stock transactions with related parties.

  5.   INVESTMENT IN BLACK WARRIOR MIDEAST COMPANY

       BWMC ceased  operations  during the year ended December 31, 1993, and the
       Company  anticipates  dissolving the partnership when BWMC's  obligations
       have  been  settled.  The  anticipated  dissolution  has no impact on the
       Company's  consolidated  financial  statements since substantially all of
       the liabilities of the partnership are non-recourse.  BWMC's  non-current
       assets consist primarily of drilling and other operating  equipment.  The
       equipment is in the possession of the Company's Middle East agent,  which
       has impaired BWMC's ability to remove the equipment from the Middle East.

       As described in Note 2, the Company has reported the  investment  in BWMC
       using the  equity  method.  However,  since  substantially  all of BWMC's
       liabilities are  non-recourse  to the Company,  losses are not recognized
       which would reduce the Company's  investment basis below zero.  Financial
       information for the years ended December 31, 1996,  1995, and 1994 is not
       available.  Therefore, no impact of the investment in BWMC is included in
       the accompanying consolidated balance sheets, statement of operations, or
       cash flows of the Company.

  6.   PROPERTY, PLANT, AND EQUIPMENT

       Property,  plant,  and  equipment  includes the following at December 31,
1996 and 1995:
                                                 1996              1995
                                                 ----              ----
Vehicles                                    $    2,913,175    $     2,078,292
Drilling rigs and related equipment                322,109            312,231
Operating equipment                              2,401,397          1,989,420
Office equipment                                   287,280            238,102
                                             --------------    --------------
                                                 5,923,961          4,618,045
Less accumulated depreciation                    3,729,370          3,311,919
                                             --------------    --------------
Net property, plant, and equipment          $    2,194,591    $     1,306,126
                                             ==============    ==============
                                       F-9
<PAGE>


       The Company had equipment with a net book value of $67,942 and $58,803 at
       December  31,  1996 and 1995,  respectively,  that is not  being  used in
       operations but is being maintained for future service.
<TABLE>
<CAPTION>

                                                                                            1996               1995

<S>                                                                                <C>           
          Drilling rigs and related equipment                                       $      158,909
          Vehicles                                                                          55,122     $       15,600
          Operating equipment                                                                4,814             28,834
          Office equipment                                                                                      9,955
                                                                                     --------------     -------------
                                                                                           218,845             54,389
          Less accumulated depreciation                                                     34,432             43,434
                                                                                     --------------     -------------

               Net equipment under capital lease                                    $      184,413     $       10,955
                                                                                     ==============     =============

</TABLE>
                                       F-10
<PAGE>
<TABLE>
<CAPTION>

  7.   LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS

                                                                                          1996              1995
<S>                                                                                   <C>               <C>    
          Note payable to Trustmark  National  Bank,  interest and principal due
          January  1997,  interest at prime as reported  by  Trustmark  National
          Bank,  collateralized  by three vehicles and equipment with a net book
          value of $5,178 at December 31, 1996.  Prime rate at December 31, 1996
          was 8.25%.


                                                                                      $   2,429         $  28,829

          Note payable to Trustmark  National Bank,  monthly  payments of $1,733
          required   through   August   1996,   including   interest   at   8.8%
          collateralized  by a vehicle  and  equipment  with a net book value of
          $26,813 at December 31, 1995.

                                                                                                           13,477

          Note payable to Trustmark  National Bank,  monthly  payments of $1,502
          required through April 1997, including interest at 9.5%.
                                                                                          5,921            22,488

          Note  payable to Trustmark  National  Bank,  monthly  payments of $717
          through June 1996 including interest at prime as reported by Trustmark
          National  Bank,  collateralized  by equipment with a net book value of
          $11,273 at December  31,  1995.  Prime rate at  December  31, 1995 was
          8.5%.


                                                                                                            3,781

          Note  payable to Trustmark  National  Bank,  monthly  payments of $578
          required  through  November  2000,  including  interest  fixed  at 8%,
          collateralized  by a  vehicle  with a net  book  value of  $22,665  at
          December 31, 1996.

                                                                                         23,231

          Note  payable to Trustmark  National  Bank,  monthly  payments of $503
          required  through  June  2000,   including  interest  fixed  at  8.5%,
          collateralized  by a  vehicle  with a net  book  value of  $21,657  at
          December 31, 1996.


                                                                                         18,177
                                                                                     -------------     -------------
                                                                                         49,758            68,575
               Current portion of notes payable to banks                                (18,272)          (60,225)
                                                                                     -------------     -------------

               Total notes payable to banks                                           $  31,486         $   8,350
                                                                                     =============     =============
</TABLE>

                                       F-11
<PAGE>
<TABLE>
<CAPTION>
                                                                                              1996             1995
                                                                                              ----             ----
<S>                                                                                   <C>               <C>    
          Installment  notes  payable,  monthly  payments  required  in  varying
          amounts through December 2001,  interest at rates ranging from 7.4% to
          13.24%, collateralized by vehicles and equipment with a net book value
          of $899,587 at December 31, 1996.

                                                                                      $      834,380     $      510,929

          Capitalized  leases,  monthly  payments  required  in varying  amounts
          through  June  2000,  interest  at rates  ranging  from  6.25% to 16%,
          collateralized  by  vehicles  and  equipment  with a net book value of
          $184,413 at December 31, 1996.

                                                                                             170,895             8,240

          Note  payable to Haskell,  Slaughter,  Young & Johnston,  Professional
          Association,   monthly  principal  payments  of  $2,500  plus  accrued
          interest  required  through August 1997,  interest at prime plus 1% as
          reported by First Alabama Bank, collateralized by $34,481 in inventory
          and  miscellaneous  equipment  with an  approximate  net book value of
          $23,938 at December  31,  1996.  Prime rate at  December  31, 1996 was
          8.25%.

                                                                                              16,404            48,904

          14%  subordinated   debentures,   original  terms  include   quarterly
          principal  payments of $115,625  beginning  November  30, 1991 through
          August 31, 1993 and interest payable quarterly

                                                                                                              900,000

          13%  convertible  subordinated  debentures,   original  terms  include
          quarterly  interest payments of $35,750 beginning  September 30, 1991,
          with the principal balance due on August 31, 1995

                                                                                                              443,750
                                                                                       -------------    -------------
                                                                                           1,021,679        1,911,823
               Current portion of long-term debt                                            (307,806)      (1,526,127)
                                                                                       -------------    -------------

               Total long-term debt and capital lease obligations                     $      713,873    $     385,696
                                                                                       =============    =============

          Mortgage  note  payable  to former  owner of Dyna Jet,  Inc.,  due and
          payable upon the earlier of sale of mortgaged  property by the Company
          or one year from November 1996, including interest at 8% per annum.

                                                                                      $      150,000

          Mortgage  note  payable  to  former  owner of Dyna Jet,  Inc.  due and
          payable  at  earlier  of six  years  from  November  1996  or  sale of
          mortgaged  property  by the Company  with  interest at the rate of the
          lesser of $1,500 per month or 8% per annum on unpaid balance.

                                                                                             230,000
                                                                                       -------------
               Total mortgage notes payable, related party                            $      380,000
                                                                                       =============
</TABLE>

       The two mortgage notes totaling $380,000,  payable to the former owner of
       Dyna Jet, are collateralized by the land and building held for sale.

       During  September and October 1996, the Company executed a Reorganization
       Agreement  with the holders of certain  debt of the  Company  whereby the
       Company   converted  the  remaining   portion  of  the  13%   convertible
       subordinated  debentures  and all of the 14%  subordinated  debentures to
       common stock and warrants to purchase common stock.  In conjunction  with
       the  conversion,  accrued  interest  was  forgiven  by the debt  holders,
       resulting in recognition of an extraordinary  gain on  extinguishment  of
       debt of $1,608,501, net of income taxes of $-0- (see Note 12).

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

                                      F-12
<PAGE>

<TABLE>
<CAPTION>

                                                                            1995
                                               ----------------------------------------------------------------
                                                                                        Shares        
                                                                                          of          Accrued   
                                               Principal     Principal                  Common        Interest
                                               Converted     Forgiven      Total        Stock         Forgiven  
                                               ----------    ----------   ----------   ----------    ----------

<S>                                            <C>           <C>          <C>             <C>        <C>      
 13% Convertible subordinated debentures       $  599,172     $   57,078    $  656,250   299,586     $  535,344

 Notes  payable  to  the  president  of the
 Company and his spouse                           400,000                      400,000   200,000         21,545

 Notes payable to RABAD                           297,130                      297,130   148,565
                                                ---------     ----------   -----------  --------     -----------

                                               $ 1296,302     $   57,078   $ 1,353,380   648,151     $  556,889
                                                =========     ==========   ===========  ========     ===========
</TABLE>
<TABLE>
<CAPTION>

                                                                      1996
                                  -----------------------------------------------------------------------------
                                                                                                      Warrants 
                                                                                                         to    
                                                                            Shares      Shares        Purchase 
                                                                              of           of         Accrued  
                                  Principal     Principal                   Common       Common       Interest 
                                  Converted     Forgiven      Total         Stock        Stock        Forgiven 
                                  ----------   ----------   ----------    ----------   ----------    ----------
<S>                               <C>                       <C>              <C>          <C>        <C>      
 13% Convertible
 subordinated
    debentures                    $  443,750                $  443,750       305,414      165,000     $  512,868

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

                                  $1,343,750    $       0   $1,343,750       814,164      303,750     $1,514,468
                                   =========    =========   ==========     =========   ==========     =========
</TABLE>


       The Company  guaranteed that RABAD would be able to sell its common stock
       received in the 1995  conversion for $2 per share within one year of this
       conversion. This agreement is collateralized by $100,000 of the Company's
       accounts  receivable.  The  collateral  will be  utilized  to  cover  any
       deficiencies between the actual selling price and the guaranteed price of
       $2 per share,  limited to a maximum  deficiency  guaranteed  of $100,000.
       RABAD engaged Monetary Advancement International, Inc. (MAII) to sell the
       shares  received in this  conversion.  Due to a dispute  with the Company
       that is more fully described in Note 17, MAII has refused to pay RABAD or
       return any unsold  shares.  As stated in Note 17, the Company  intends to
       vigorously defend itself against any claims asserted by MAII and does not
       believe the aforementioned  guarantee will result in any liability to the
       Company as RABAD has meritorious  claims against MAII.  Consequently,  no
       provision for loss has been made in the Company's  consolidated financial
       statements because management  believes this contingency will be resolved
       without any payment of the guarantee by the Company.

                                      F-13

<PAGE>

       At December 31, 1995, the Company was in default of its 14%  subordinated
       debenture and 13% convertible  subordinated  debenture  agreements due to
       its failure to make scheduled principal and interest payments.  Debenture
       holders  representing   $800,000  of  the  14%  subordinated   debentures
       outstanding  at December 31, 1995 had notified the Company of default and
       requested  immediate  payment  of  the  entire  outstanding  balance.  In
       accordance with the default provisions in the 14% subordinated  debenture
       and  13%  convertible  subordinated  debenture  agreements,   the  stated
       interest rate was increased to 2% per month  effective  November 30, 1991
       and June 30, 1992, respectively.

       In  addition,  the Company was in violation  of several  other  covenants
       related to the 14% and 13% convertible subordinated debenture agreements,
       including,  but not limited to,  timely  payment of taxes and  compliance
       with  provisions and terms of all material  agreements  and  commitments.
       Although  the 14%  debenture  holders  and the  remaining  13%  debenture
       holders had not notified the Company  regarding  acceleration of payment,
       the  debenture  holders  had the  right  to  require  immediate  payment.
       Accordingly,  the entire  balances of the debentures  were  classified as
       current liabilities.

       Under  the  covenants  of  the  debenture  agreements,  the  Company  was
       prohibited from declaring or paying any dividends to shareholders as long
       as the debentures were in default.

       The 13% convertible  subordinated  debentures were originally convertible
       into  shares of common  stock of the  Company  with the  number of shares
       issuable  upon  conversion  being  determined  by dividing the  principal
       amount of the  debentures  to be  converted  by the  conversion  price in
       effect on the  conversion  date.  Giving  effect to the 1 for 200 reverse
       stock split,  the debentures were convertible into 2,500 shares of common
       stock at the price per share of $440 at  December  31,  1995 based on the
       conversion feature as defined in the debenture agreement.

       As noted previously,  all of the 14% and 13% debenture holders negotiated
       the  conversion  of  principal to common stock at a price of $2 per share
       subsequent  to the effective  date of the 1-for-200  reverse stock split,
       during the years ended December 31, 1996 and 1995.

       At December 31, 1996, aggregate maturities of notes payable and long-term
       debt and  future  minimum  lease  payments  under  capital  leases are as
       follows:

<TABLE>
<CAPTION>
                                        Capital           Other
                                        Leases            Debt                   Total
                                        ---------------   ---------------   ---------------
<S>                                     <C>               <C>               <C>           
 1997                                   $       55,312    $      431,852    $      487,164
 1998                                           56,179           256,261           312,440
 1999                                           55,904           234,465           290,369
 2000                                           27,520           122,056           149,576
 2001                                                              5,908             5,908
 Thereafter                                                      230,000           230,000
                                        ---------------   ---------------   ---------------
                                               194,915         1,280,542         1,475,457
 Less amounts representing interest             24,020                              24,020
                                        ---------------   ---------------   ---------------

                                        $      170,895    $    1,280,542    $    1,451,437
                                        ===============   ===============   ===============

</TABLE>


                                      F-14
<PAGE>
  8.   Commitments

       The Company leases land and office space under various  operating leases.
       The  leases  generally  are for terms of five  years  and do not  contain
       purchase options. Rent expense was approximately $202,333,  $173,000, and
       $142,000  for  the  years  ended  December  31,  1996,  1995,  and  1994,
       respectively.

       The future minimum lease payments required under noncancelable  operating
       leases with initial or  remaining  terms of one or more years at December
       31, 1996 were as follows:

             1997                $     119,400
             1998                      119,400
             1999                      119,400
             2000                      112,200
             2001                       59,050
                                 ---------------

                                 $     529,450
                                 ===============

  9.   Deferred Gain

       During November 1991, the Company sold drilling equipment with a net book
       value of  approximately  $394,000  to BWMC for  $1,250,000.  The  Company
       included  $427,800 of the gain in 1991 income and recorded  $427,800 as a
       deferred gain to be amortized  into income over the  estimated  remaining
       useful life of the drilling  equipment of  approximately  four years. The
       Company recognized income of approximately  $142,000 from amortization of
       the  deferred  gain  during  the  year  ended   December  31,  1994.  The
       amortization  is included in gain on sale of fixed  assets.  The deferred
       gain was fully amortized at December 31, 1994.

 10.   Common Stock Transactions

       On  September  18,  1996,  the  Company  offered  800,000  shares  of the
       Company's common stock, in 20 units of 40,000 shares each, at an offering
       price of $1.25 per share, pursuant to a private placement memorandum.  Of
       the 800,000  shares  offered,  600,000  shares were sold by the Company's
       placement  agent,  and the Company received net proceeds (after deducting
       issuance costs) of $643,382.  Approximately $288,000 in proceeds from the
       offering  was used to acquire  Dyna Jet,  Inc.  and the  remainder of the
       proceeds will be used for possible future  acquisitions and other general
       corporate  purposes.  Options to purchase  80,000 shares of the Company's
       common  stock at an exercise  price of $1.50 per share were issued to the
       Company's  placement  agent,  as  additional  compensation  for  services
       rendered. The options are exercisable for a period of five years from the
       date of the private placement.  None of the options had been exercised at
       December 31, 1996.

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

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

                                      F-15
<PAGE>

<TABLE>
<CAPTION>
                                                                                                 Amount       
 Month of            Month of                                         Recorded      Amount       to           
 Board               Issuance/                                        Number        Per          Stockholders'
 Approval            Purchase                Description              of Shares     Share        Equity       
 --------------      -------------     ---------------------------    ----------    --------     -----------
<S>                  <C>               <C>                               <C>        <C>          <C>
 January 1994        January 1994      Issued      to      settle          
                                         litigation                        1,500     $ 37.00      $    37,500

 November 1995         December        Issued to debt holders in
                         1995            satisfaction   of  notes                                          
                                         payable                                                           
                                         subordinated debentures         648,151        2.00        1,296,302
                                         
 November 1995         December        Issued in satisfaction of
                         1995            consulting fees                  40,000        2.00           80,000
                                         
 October 1996        October 1996      Issuance  to debt  holders in
                                         Issuance to satisfaction
                                         of subordinated
                                         debentures                      689,375        1.25          861,719
                                         
 October 1996          November        Issuance  to debt  holders
                         1996            in satisfaction of
                                         subordinated debentures          96,250        1.25          120,312
                                         
 December 1996         December        Issued  to  related  party
                         1996            in Issued in  satisfaction
                                         of satisfaction of
                                         consulting fees                  12,000        1.25           15,000
                                         
 October 1996          December        Issuance  to debt  holders
                         1996            in satisfaction of
                                         subordinated debentures          28,539        1.25           35,674
</TABLE>
 11.   Stock Warrants

       During  1996,  the Company  issued  warrants  to  purchase  shares of the
       Company's  common stock in connection with the conversion of certain debt
       (see Note 7). The  warrants  give  holders  the right to  purchase  up to
       303,750  shares  of the  Company's  common  stock  at $2 per  share.  The
       warrants expire on September 30, 2001 and may be redeemed,  at the option
       of the Company,  at the price of $.50 per warrant,  provided that the bid
       price of common stock has exceeded $5 per share ending on the trading day
       prior to the date on which the notice of redemption is given.

       The  Company had  warrants  outstanding  at December  31, 1994 giving the
       holders  the right to purchase up to  1,800,000  shares of the  Company's
       common stock at $2.50 per share. The warrants expired  unexercised during
       1995.

       In conjunction with the 1990 issuance of the 14% subordinated debentures,
       the  Company  issued  warrants  to  purchase,  at a  nominal  amount,  an
       aggregate  of 2.842% of the issued and  outstanding  common  stock of the
       Company,  but in no event less than 396,162 shares.  The warrants expired
       on August 10, 1995 as set forth in the  debenture  and  warrant  purchase
       agreements.


                                      F-16
<PAGE>
 12.   Income Taxes

       The provision  (benefit)  for income taxes  consists of the following for
       the years ended December 31, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
                                 1996              1995              1994
                           --------------    --------------    --------------
<S>                        <C>               <C>               <C>
Federal:
   Current                 $      39,841     $    (20,5065)    $     (80,432)
   Deferred                     (112,096)                0                 0
                           --------------    --------------    --------------
                                 (72,255)         (20,5065)          (80,432)
                           --------------    --------------    --------------
State:
   Current                        12,706           (21,489)                0
   Deferred                       (6,166)                0                 0
                           --------------    --------------    --------------
                                   6,540           (21,489)                0
                           --------------    --------------    --------------
     Total                 $     (65,715)    $    (226,554)    $     (80,432)
                           ==============    ==============    ==============
</TABLE>

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

       The  current  federal  and state tax  benefits  in 1995  result  from the
       utilization of the net operating  losses  generated in 1995 to offset the
       income  tax   expense   associated   with  the   extraordinary   gain  on
       extinguishment of debt described in Note 7.

       The current  federal tax benefit in 1994 results from the  utilization of
       net operating losses generated in 1994 to recover taxes previously paid.

       The benefit for federal income taxes differs from the amount  computed by
       applying the federal  income tax  statutory  rate of 34% to income (loss)
       before benefit for income taxes and extraordinary gain, as follows:
<TABLE>
<CAPTION>
                                                                1996             1995              1994
                                                           -------------    -------------    --------------
<S>                                                        <C>              <C>              <C>
Provision (benefit) at federal statutory rate              $    12,2986      $   (262,520)     $   (415,667)
Nondeductible tax penalties                                      27,669                              22,941
(Decrease) increase in valuation allowance                     (230,828)           35,966           312,294
Other                                                            14,458
                                                            ------------     ------------     -------------
     Benefit for federal income taxes                      $    (65,715)     $   (226,554)     $    (80,432)
                                                            ============     ============     =============
</TABLE>

       At December 31, 1996,  the Company has available  loss  carryforwards  of
       approximately  $1,080,000 for federal tax purposes that expire at various
       dates  through  2010.  Additionally,  the Company has state net operating
       loss carryforwards of $1,462,000 which expire at various dates to 2010.

       Deferred income taxes reflect the impact of temporary differences between
       amounts  of assets  and  liabilities  recorded  for  financial  reporting
       purposes and such  amounts as measured in  accordance  with tax laws.  In
       general,  these  temporary  differences  are more  inclusive  than timing
       differences recognized under previously applicable accounting principles.
       The items which comprise a significant portion of the deferred tax assets
       and liabilities are as follows:

                                      F-17
<PAGE>

<TABLE>
<CAPTION>
                                                                    1996              1995
                                                               -------------     -------------
<S>                                                           <C>               <C>          
Gross deferred tax assets:
   Allowance for doubtful accounts receivable                 $       51,086     $     35,243
   Accrued bonuses and other                                          86,985              397
   Operating loss carryforwards                                      402,753        1,126,930
   Alternative minimum tax credit carryforwards                       39,842
                                                               -------------     -------------
     Gross deferred tax asset                                        580,666        1,162,570
                                                               -------------     -------------
Gross deferred tax liabilities:
   Depreciation                                                     (656,950)        (389,130)
                                                               -------------     -------------
     Gross deferred tax liability                                   (656,950)        (389,130)
                                                               -------------     -------------
     Net deferred tax asset (liability)                              (76,284)         773,440
Less:  valuation allowance                                                           (773,440)
                                                               -------------     -------------
     Net deferred tax asset (liability)                       $      (76,284)     $         0
                                                               =============     =============
</TABLE>

       The net change in the valuation  allowance  for the years ended  December
       31, 1996 and 1995 was a decrease of $773,440  and an increase of $35,966,
       respectively.  The net decrease in the valuation allowance in the current
       year  primarily   relates  to  the  utilization  of  net  operating  loss
       carryforwards   and   origination   and   reversal  of  other   temporary
       differences.  The net increase in the  valuation  allowance  for the year
       ended December 31, 1995 was primarily  attributable to an increase in net
       operating  loss   carryforwards  and  the  reversal  and  origination  of
       temporary differences.

       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, 1996,  the Company has recorded in its
       consolidated balance sheet a net deferred tax liability as future taxable
       amounts  exceed future  deductible  amounts.  Consequently,  no valuation
       allowance has been recorded at December 31, 1996. At December 31, 1995, a
       valuation allowance was established for the entire net deferred tax asset
       due to substantial doubt as to its realizability.

 13.   Earnings (Loss) Per Share

       Earnings (loss) per share has been computed based on the weighted average
       number of shares of common stock  actually  outstanding  and common stock
       equivalents,  which  include  shares  issuable  upon  exercise  of  stock
       warrants.  For  1996,  1995,  and 1994  stock  warrants  and  convertible
       debentures  have  been  excluded  from  the  earnings  (loss)  per  share
       calculation  since  they  are  anti-dilutive.   Treasury  shares  and  an
       additional 547 shares  surrendered to the Company have also been excluded
       from the 1996, 1995, and 1994 earnings (loss) per share computations. All
       1994 share and per share  amounts  have been  restated  to  retroactively
       reflect the 1-for-200 reverse stock split.

                                      F-18
<PAGE>

 14.   Major Customers

       Most of the  Company's  business  activity is with  customers  engaged in
       drilling and operating  natural gas wells  primarily in the Black Warrior
       Basin in Alabama and  Mississippi,  the Permian  Basin in Texas,  and the
       Powder River Basin in the Rocky Mountain region. Substantially all of the
       Company's accounts receivable at December 31, 1996 and 1995 are from such
       customers.  Performance in accordance with the credit  arrangements is in
       part dependent upon the economic condition of the natural gas industry in
       the  respective  geographic  areas.  The  Company  does not  require  its
       customers to pledge collateral on their accounts receivable.

       The Company  earned  revenues in excess of 10% of its total revenues from
       the following  customers for the years ended December 31, 1996, 1995, and
       1994, as follows:
<TABLE>
<CAPTION>
                                                             1996              1995              1994
                                                        --------------    --------------    --------------
<S>                                                     <C>               <C>               <C>           
Taurus Exploration, Inc.                                $   1,916,074    $   1,921,808      $  1,940,710
Parker and Parsley Development Company                      1,793,411          772,383           655,447
Becfield Drilling Company                                   1,120,898        1,114,473
</TABLE>

 15.   Employment Agreements

       On September 30, 1996, the Company  entered into an employment  agreement
       with its  president,  which expires on September 30, 1999,  calling for a
       base salary of $110,000 per annum,  to be adjusted for inflation for each
       of the two years ending  September  30, 1998 and 1999.  In addition,  the
       agreement  gives the president the option to purchase  100,000  shares of
       the Company's  common stock.  The options are exercisable for a period of
       ten years from the date of this  agreement at an exercise price of $2 per
       share. Also, provided the Company's operating results equal or exceed 85%
       of the benchmark  operating results agreed to between the Company and the
       president,  the  president  shall be  granted,  as of the last day of the
       fiscal year as to which such  benchmark  operating  results  related,  an
       option to purchase an additional  50,000  shares of the Company's  common
       stock.  Such options shall be exercisable  for a period of ten years at a
       price equal to the closing bid price of the Company's common stock on the
       last business day of such fiscal year.

       The Company paid the president a discretionary  bonus of $375,000 through
       the issuance of 600,000 shares of common stock valued at $0.625 per share
       for the year ended  December  31, 1991 and agreed to pay the  president's
       tax liability  related to the bonus. The Company had a remaining  accrual
       of approximately  $98,500 at December 31, 1996 relating to the payment of
       the president's tax liability.

       The Company has two-year  employment  agreements with two vice presidents
       of the  Company,  which  expire on  February  1, 1998,  calling  for base
       salaries of $6,250 per month, to be adjusted  annually for inflation.  In
       addition, if they remain employed pursuant to the employment  agreements,
       the  agreements  give  the two vice  presidents  the  option  for each to
       purchase 10,000 shares of the Company's common stock on each of the first
       three  anniversary  dates of the  agreement.  The  purchase  price of the
       common stock under the options, which is fixed on the date each option is
       granted, will be 50% of the mean between the highest and lowest price per
       share for  transactions  in common stock during the three months prior to
       the dates the options are  granted.  The  options are  exercisable  for a
       period of 15 years  from the date of this  agreement,  or a period of one
       year from the date the employees cease to be employed, if sooner.

 16.   Stock Options
       Pursuant to employment  contracts  with certain key  employees  (see Note
       15),  the Company has issued  options to purchase  160,000  shares of the
       Company's common stock.  Additionally,  options to purchase 80,000 shares
       of the Company's common stock have been issued to the Company's placement
       agent in connection with the private  placement (see Note 10).  Pertinent
       information regarding stock options are as follows:

                                      F-19

<PAGE>

<TABLE>
<CAPTION>
                                                                                      Weighted
                                                                                       Average
                                                   Number of         Range of  fff     Exercise                 Vesting
                                                   Options        Exercise Prices       Price                  Provisions
                                                   -----------    ----------------    ---------   ----------------------------------
<S>                                                <C>            <C>           <C>         <C>      
Options outstanding, December 31, 1993                   2,000     $3.75 - 22.27         $10.24    33.3%/yr.

Options granted                                          5,500     $3.47 -  6.25          $4.29    1,250 in 1994;
                                                   -----------    ---------------      ---------   ---------------------------------
Options outstanding, December 31, 1994 and 1995          7,500     $3.46 - 22.27          $7.24    1,750 in 1995; and 2,500 in 1996.
                                                   -----------    ---------------      ---------   ---------------------------------
Options canceled                                        (7,500)    $3.46 - 22.27         $7.24

Options granted                                         60,000     $1.66                 $1.66    33.3%/yr.

Options granted                                        180,000     $1.50 -  2.00         $1.78    immediate
                                                   -----------    ---------------      ---------  ----------------------------------
Options outstanding, December 31, 1996                 240,000     $1.50 -  2.00         $1.75
                                                   ===========    ===============      =========
</TABLE>

       The  following   table   summarizes   information   about  stock  options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>

                    Options Outstanding                         Options Exercisable    
                    ---------------------------------------     -----------------------
                    Weighted       Average        Weighted                     Weighted
Range of            Number         Remaining      Average       Number         Average
Exercise            Outstanding    Contractual    Exercise      Exercisable    Exercise
  Prices            12/31/96       Life           Price         12/31/96       Price
----------          -----------     ----------     ---------     ----------     --------
<S>                 <C>            <C>            <C>           <C>            <C>
$1.66                   60,000          14.08         $1.66             0
$2.00                  100,000           9.75         $2.00        100,000        $2.00
$1.50                   80,000           4.75         $1.50         80,000        $1.50
                    -----------     ----------     ----------    ----------     ---------
                       240,000           9.17         $1.75        180,000        $1.77
                    ===========     ==========     =========     ==========     ========
</TABLE>

       At December 31, 1996, the Company has stock options outstanding under the
       aforementioned  compensation agreements.  The Company applies APB Opinion
       No. 25 and related  interpretations  in accounting for its stock options.
       Accordingly,  no  compensation  expense has been recognized for its fixed
       stock options to the president,  as they were issued at fair market value
       or above. Compensation expense of $43,885 has been recognized for options
       granted to the two vice presidents, as such options were granted at below
       fair market value. Had compensation  cost for the Company's stock options
       issued  been  determined  based on the fair value at the grant  dates for
       awards  consistent  with  the  method  prescribed  in SFAS No.  123,  the
       Company's  net income and  earnings  per share would have been reduced to
       the pro forma amounts indicated below:
                                                                 1996
                                                           ---------------
Net income - as reported                                   $     2,035,939
Net income - pro forma                                     $     2,006,094
Earnings per share - as reported                           $          1.96
Earnings per share - pro forma                             $          1.93

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

                                      F-20
<PAGE>

       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.

                                                               1996
                                                           -------------
Dividend yield                                                    0%
Expected life (years)                                             3
Expected volatility                                              70%
Risk-free interest rate                                        6.46%

 17.   Contingencies

       On  November  1, 1995,  the Company  entered  into a Business  Consulting
       Agreement  with  MAII  pursuant  to  which  MAII was to  provide  certain
       services,  including, among others, providing assistance in preparing and
       distributing press releases for a period of six months with an option for
       renewal and in equity raising  transactions through the private placement
       of common stock and the restructuring of the Company's indebtedness.  The
       Agreement  stated  that the  compensation  for these  services  was to be
       200,000  shares of freely  traded common stock of the Company with 40,000
       shares due upon execution of the Agreement and the balance due during the
       term of the  Agreement  as  needed by MAII.  It was  agreed  that  MAII's
       services would not include any services that constituted the rendering of
       legal  opinions or that were within the  ordinary  purview of a certified
       public accountant or an NASD registered broker/dealer. The Company issued
       the 40,000  shares to MAII and has taken the position  that the Agreement
       has  expired  and no further  compensation  is due and  owing,  that MAII
       failed to perform in accordance with the Agreement and that the intent of
       the  Agreement  and  understanding  of the  parties  was that the 160,000
       shares  would only be issued in  conjunction  with a private  sale of the
       Company's  securities.  On September  24, 1996,  MAII  demanded  that the
       Company issue the 160,000  shares to it which the Company  refuses to do.
       Management  of  the  Company   believes  that  is  has   substantial  and
       meritorious  defenses to the claim  asserted  by MAII,  intends to defend
       itself  vigorously  in any  litigation  instituted by MAII and intends to
       assert counterclaims  against MAII for the return of the 40,000 shares or
       their value and for other damages.  Although MAII has asserted the claim,
       no litigation or arbitration  proceeding  has been commenced  against the
       Company.  Management  of the Company  believes that it will not incur any
       material  liability  to MAII in  connection  with this claim nor will the
       claim  have a  material  adverse  effect  on the  consolidated  financial
       position,  results  of  operations,  or cash  flows  of the  Company.  In
       addition,  the Company is reviewing the  advisability  of it  instituting
       litigation or an  arbitration  proceeding  against MAII.  There can be no
       assurance  that the Company will be  successful  in an action that may be
       instituted  against  the  Company  by MAII or that  the  Company  will be
       successful in any action it may institute against MAII.

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

                                      F-21
<PAGE>

 18.   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,  accounts  receivable,  current  portion  of
       long-term  debt,  and  accounts  payable  -  The  carrying  amount  is  a
       reasonable  estimate of the fair value  because of the short  maturity of
       these instruments.

       Long-term  Debt - The fair value is estimated by  discounting  the future
       cash flows using rates  currently  available to the Company for debt with
       similar  terms and  remaining  maturities.  The carrying  amount and fair
       value of  long-term  debt was  $975,359 and  $870,359,  respectively,  at
       December 31, 1996, and $394,046 and $367,694,  respectively,  at December
       31, 1995.

 19.   Subsequent Events

       On January 28, 1997, the Company entered into an agreement to acquire the
       outstanding  stock of  Production  Well Service Co.,  Inc., a Mississippi
       based integrated oil and gas well servicing  company,  for  approximately
       $540,000 in cash and 100,000  options to purchase shares of the Company's
       common stock.  The  transaction is contingent  upon,  among other things,
       satisfactory  due diligence of all parties and the  Company's  ability to
       obtain adequate financing to complete the transaction.

       In addition,  on April 1, 1997, the Company  entered into an agreement to
       acquire all of the outstanding stock of Petro-Log,  Inc., a Wyoming based
       integrated  oil  and  gas  well  servicing  company,   for  approximately
       $2,250,000.  The  transaction  is  contingent  upon,  among other things,
       satisfactory  due diligence of all parties and the  Company's  ability to
       obtain adequate financing to complete the transaction.

                                      F-22
<PAGE>

                                  EXHIBITS TO

                          BLACK WARRIOR WIRELINE CORP.

                              REPORT ON FORM 10-KSB