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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

Mark One:
         |X| Annual Report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934. For the fiscal year ended December 31, 2003; or

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

                           Commission File No. 0-18754

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

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

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

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

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

           Securities Registered Pursuant to Section 12(g) of the Act:
                              (Title of Each Class)
                    COMMON STOCK, PAR VALUE $.0005 PER SHARE

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

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

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

         State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrant's most recently completed
second fiscal quarter.
                                   $2,919,800
         (Non-affiliates have been determined on the basis of holdings set forth
under Item 12 of this Annual Report on Form 10-K.)
         Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
                  Class:  COMMON STOCK, PAR VALUE $.0005 PER SHARE
                  Outstanding at March 5, 2004:  12,499,528 shares

                       DOCUMENTS INCORPORATED BY REFERENCE
 No documents are incorporated by reference into this Annual Report on Form 10-K



<PAGE>


                                TABLE OF CONTENTS

                                     PART I
                                     ------

Item Number                                                                 Page
-----------                                                                 ----

Item 1.  Business                                                            1

Item 2.  Properties                                                          17

Item 3.  Legal Proceedings                                                   17

Item 4.  Submission of Matters to a Vote of Security Holders                 17


                                     PART II
                                     -------

Item 5.  Market for Registrant's Common Equity and Related Stockholder
         Matters                                                             18

Item 6.  Selected Financial Data                                             19

Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                           21

Item 7A. Quantitative and Qualitative Disclosures About Market Risk          36

Item 8.  Financial Statements and Supplementary Data                         38

Item 9.  Changes in and Disagreements With Accountants on Accounting
         and Financial Disclosure                                            38

Item 9A. Controls and Procedures                                             39


                                    PART III
                                    --------

Item 10. Directors and Executive Officers of the Registrant                  40

Item 11. Executive Compensation                                              42

Item 12. Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters                                     47

Item 13. Certain Relationships and Related Transactions                      49


Item 14. Principal Accountant Fees and Services                              52


                                     PART IV
                                     -------

Item 16. Exhibits, Financial Statement Schedules and Reports on Form 8-K     53



<PAGE>

                                     PART I

         ITEM 1.  BUSINESS

GENERAL

         Black Warrior Wireline Corp. (the "Company") is an oil and gas well
service company currently providing various services to oil and gas well
operators. The Company's service area includes primarily the Black Warrior and
Mississippi Salt Dome Basins in Alabama and Mississippi, the Permian Basin in
West Texas and New Mexico, the San Juan Basin in New Mexico, Colorado and Utah,
the East Texas and Austin Chalk Basins in East Texas, the Powder River and Green
River Basins in Wyoming and Montana, the Williston Basin in North Dakota and
areas of the Gulf of Mexico offshore Louisiana and South Texas. The Company's
principal lines of business include (a) wireline services and (b) directional
oil and gas well drilling and downhole surveying services. In July 2001, the
Company sold its workover and completion line of business. As is further
described below, the Company is engaged in negotiations with respect to the sale
of the assets and business of its directional drilling and downhole surveying
division. The Company has been engaged in the oil and gas well service business
for more than the past five years.

WIRELINE SERVICES

         The Company's wireline logging service activities contributed revenues
of $45.8 million (approximately 69.9% of revenues) in 2003, $34.1 million
(approximately 60.3% of revenues) in 2002, and $39.7 million (approximately
52.1% of revenues) in 2001. At December 31, 2003, the Company owned 52
operational motor vehicle mounted wireline units, of which 38 are equipped with
a state-of-the-art computer system, six are equipped with an analog computer
system and eight are devoted exclusively to hoisting operations. In addition, as
of December 31, 2003, the Company owned 15 operational skid- mounted cased-hole
wireline units , all of which are equipped with state of the art computers, and
two skid-mounted units are devoted to providing services for the plug and
abandonment of wells. The skid-mounted units are able to be used for offshore
work by being hoisted aboard barges.

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



<PAGE>

received from downhole. The Company's wireline units are equipped with
state-of-the-art computerized systems 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, 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. After depletion of a well, the
operator is required to plug the well prior to its abandonment. The Company's
plug and abandonment equipment is utilized for this purpose by pumping cement
into the well and capping the well.

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

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

         Manufacturing. The Company operates a manufacturing facility located in
Laurel, Mississippi to assemble and install wireline service equipment, both
mounted on motor vehicles and on wireline skids, for internal use and for sale
to others. During the year ended December 31, 2003, the Company manufactured for
internal use two new wireline trucks, one new plug and abandonment skid-mounted
package and one new offshore wireline skid. The manufacturing facility also
totally refurbished for internal use two wireline trucks.

DIRECTIONAL DRILLING SERVICES

         The Company's directional drilling services contributed revenues of
$19.7 million (approximately 30.1% of revenues) in 2003, $22.5 million
(approximately 39.7% of revenues) in


                                      -2-
<PAGE>

2002, and $36.4 million  (approximately  47.8% of revenues) in 2001. The Company
has been engaged in the directional drilling service business since 1997 when it
acquired Diamondback Directional, Inc. and 1998 when it acquired Phoenix
Drilling Services.

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

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

         These services are provided throughout the Company's service area.

         Proposed Sale of Directional Drilling Services. The Company is engaged
in negotiations with respect to the sale of its directional drilling division.
The proposed transaction, which is subject to the negotiation and execution of a
definitive purchase and sale agreement, includes, among the other expected terms
and conditions, the sale of all the equipment, inventory, the net working
capital of the division and its owned real estate and leases. The net working
capital sold is expected to include current assets subject to current
liabilities assumed of the division. The purchase price is expected to be
approximately $11.0 million, less certain possible closing adjustments. Among
other matters, the closing of the transaction is expected to be subject to the
Company obtaining all necessary lender and other consents and approvals, the
absence of any event having a material adverse effect on the assets or business
sold, the buyer having obtained financing for the transaction, the receipt by
the Company of a fairness opinion from Simmons & Company International and
compliance with other legal requirements. It is expected that either party will
have the right to terminate the agreement prior to closing for any reason. Under
certain circumstances, the Company could be required to pay the buyer $50,000
upon a termination of the agreement. The purchaser is expected to be a newly
organized corporation in which Mr. Allen Neel and two other employees of the
directional drilling division are expected to be employees and hold minority
equity interests. The net proceeds from the sale, after payment of expenses of
the transaction, are intended to be applied in reduction of the Company's senior
secured indebtedness. There is no assurance that a definitive agreement can be
negotiated and executed on terms acceptable to the Company, that the transaction
will be completed or that it will be completed on the terms being negotiated by
management.

OTHER SERVICES

         The Company also engages in other oil and gas well service activities
including, primarily, the sale, rental and service of tools and equipment used
in the oil field services


                                      -3-
<PAGE>

industry and conducts tool and equipment inspection, maintenance and testing
services. These activities are not deemed by management to be material.

PRINCIPAL CUSTOMERS AND MARKETING

         There were no customers from which the Company earned in excess of 10%
of its revenues during the three years ended December 31, 2003. One customer,
Encore Operating, accounted for 19.9% and 20.2% of directional services
revenues, respectively in 2002 and 2003.

         The Company does not have any long-term agreements with its customers
and services are provided pursuant to short-term agreements negotiated by the
Company with the customer.

         The Company's services are marketed by its executive officers and a
sales staff of approximately 37 persons working from its district offices. The
Company relies extensively on its reputation in the industry to create customer
awareness of its services.

OPERATING HAZARDS AND INSURANCE

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

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

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


                                      -4-
<PAGE>

COMPETITION

         Most of the Company's competitors are divisions of larger diversified
corporations which offer a wide range of oilfield services. Its chief
competitors include Halliburton Company, Schlumberger, Ltd. and Baker Hughes
Incorporated, as well as a number of other companies active in the industry.
These competitors have substantially greater economic resources than the
Company. Recent business combinations involving oil and gas service companies
may have the effect of intensifying competition in the industry. Periods of
declines in oil and natural gas commodity prices result in reduced demand for
oil and natural gas well services and thereby intensified competition adversely
affecting the Company's revenues and financial condition. While competition at
the present time is intense, the levels of prices for oil and natural gas in the
first quarter of 2004 has resulted in increased demand for oil and gas well
services and the Company's ability to compete with other suppliers of services
has improved.

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

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

REGULATION

         The oil and gas business is a heavily regulated industry. The Company's
activities are subject to various licensing requirements and minimum safety
procedures and specifications, anti-pollution controls on equipment, waste
discharge and other environmental and conservation


                                      -5-
<PAGE>

requirements imposed by federal and state regulatory authorities. Numerous
governmental agencies issue regulations to implement and enforce laws which are
often difficult and costly to comply with, and the violation of which may result
in the revocation of permits, issuance of corrective action orders, assessment
of administrative and civil penalties and even criminal proceedings.

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

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

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

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

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

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


                                      -6-
<PAGE>

EMPLOYEES

         As of March 1, 2004, the Company employed approximately 349 persons on
a full-time basis. Of the Company's employees, 21 are management personnel, 16
are administrative personnel and 312 are operational personnel. The Company also
uses the services of approximately eight independent contract drillers and
directional guidance personnel. None of the Company's employees is represented
by a labor union, and the Company is not aware of any current activities to
unionize its employees. Management of the Company considers the relationship
between the Company and its employees to be good.

INCORPORATION

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


                                      -7-
<PAGE>

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

         With the exception of historical matters, the matters discussed in this
Report are "forward-looking statements" as defined under the Securities Exchange
Act of 1934, as amended, that involve risks and uncertainties. The Company
intends that the forward-looking statements herein be covered by the safe-harbor
provisions for forward-looking statements contained in the Securities Exchange
Act of 1934, as amended, and this statement is included for the purpose of
complying with these safe-harbor provisions. Forward-looking statements include,
but are not limited to, the matters described below as risk factors, as well as
under "Item 1. Business - General," "- Principal Customers and Marketing,"
"-Operating Hazards and Insurance," "--Competition," and "--Regulation." "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations - General," "-Twelve-Month Periods Ended December 31, 2003 and 2002",
"-Twelve-Month Periods Ended December 31, 2002 and 2001", "-Possible Future
Impairment of Long-Lived Assets," "- Liquidity and Capital Resources,"
"-Significant Accounting Policies" and "Item 7A. Quantitative and Qualitative
Disclosure About Market Risk." Such forward-looking statements relate to the
Company's ability to generate revenues and attain and maintain profitability and
cash flow, the stability and level of prices for oil and natural gas,
predictions and expectations as to the fluctuations in the levels of oil and
natural gas prices, pricing in the oil and gas services industry and the
willingness of customers to commit for oil and natural gas well services, the
ability of the Company to negotiate and enter into a definitive agreement on
terms acceptable to it for the sale of its directional drilling division and to
sell that division on the terms being negotiated by management or to sell that
division on any other terms, the belief of management that the sale of its
directional drilling division will facilitate a merger, sale, refinancing,
restructuring or reorganization of its wireline division after such a sale, the
ability of the Company to engage in any other strategic transaction, including
any possible merger, sale of all or a portion of the Company's assets or other
business combination transaction involving the Company, the ability of the
Company to raise additional debt or equity capital to meet its requirements and
to obtain additional financing when required, the ability of the Company to
restructure its outstanding indebtedness at or before maturity or refinance its
debt obligations as they come due on September 14, 2004 and December 31, 2004 or
to obtain extensions of the maturity dates for the payment of principal, or to
engage in another recapitalization or reorganization transaction, the Company's
ability to maintain compliance with the covenants of its various loan documents
and other agreements pursuant to which securities, including debt instruments,
have been issued and obtain waivers of violations that occur and consents to
amendments as required, the Company's ability to implement and, if appropriate,
expand a cost-cutting program, the ability of the Company to compete in the
premium oil and gas services market, the ability of the Company to re-deploy its
equipment among regional operations as required, and the ability of the Company
to provide services using state of the art tooling. The inability of the Company
to meet these objectives or requirements or the consequences on the Company from
adverse developments in


                                      -8-
<PAGE>

general economic conditions, changes in capital markets, adverse developments in
the  oil and gas  industry,  developments  in  international  relations  and the
commencement  or  expansion  of  hostilities  by  the  United  States  or  other
governments and events of terrorism, declines and fluctuations in the prices for
oil and natural gas, and other factors could have a material  adverse  effect on
the Company.  Material declines in the prices for oil and gas can be expected to
adversely  affect the  Company's  revenues.  The Company  cautions  readers that
various risk factors described below could cause the Company's operating results
and  financial  condition  to differ  materially  from  those  expressed  in any
forward-looking  statements made by the Company and could  adversely  affect the
Company's  financial  condition and its ability to pursue its business  strategy
and plans. Risk factors that could affect the Company's revenues,  profitability
and future business operations include, among others, the following:

                          RISKS RELATED TO THE COMPANY

         Current Maturities of Substantial Outstanding Secured Indebtedness
Could Lead to Foreclosure on the Company's Assets. At December 31, 2003, the
Company's total indebtedness, inclusive of accrued interest of $14.5 million,
was approximately $57.3 million. The Company had outstanding at March 31, 2004
total indebtedness, inclusive of accrued interest of $15.6 million, of $57.9
million. Its senior secured credit facility, pursuant to which $18.6 million of
indebtedness was outstanding as of December 31, 2003, expires on September 14,
2004 and indebtedness then outstanding under the credit facility will be due and
payable. In addition, $42.8 million of subordinated secured indebtedness,
including accrued interest, will be due and payable on December 31, 2004.
Defaults in the repayment of this indebtedness, either at maturity or prior
thereto by acceleration of the due date, could lead the creditors to foreclose
on substantially all of the Company's assets resulting in a possible loss to the
Company's stockholders of their entire investment.

         The Company's History of Net Losses May Impose Significant Impediments
to the Company's Ability to Repay or Refinance Its Outstanding Indebtedness at
Maturity in 2004. The Company had net income (loss) for the three years ended
December 31, 2003, 2002, and 2001 of approximately ($5.5 million), ($7.6
million), and $5.0 million, respectively. Cash flows provided by operations were
approximately $10.6 million, $5.4 million and $16.3 million for the years ended
December 31, 2003, 2002, and 2001, respectively. The Company is highly
leveraged. The Company's level of indebtedness and the potential defaults
thereunder, together with its history of losses for the years ended December 31,
2003 and December 31, 2002, as well as for the year ended December 31, 2000 and
prior years, and periodic covenant violations and events of default under loan
agreements, pose substantial risks to the Company and the holders of its
securities, including the possibility that the Company will not be able to
generate sufficient cash flow to pay the principal of and interest on the
indebtedness when due or to refinance such indebtedness at maturity. The
Company's history of losses and periodic covenant defaults can be expected to
make it more difficult to refinance its outstanding indebtedness.


                                      -9-
<PAGE>

         The Company's Plans to Recapitalize and Refinance Its Indebtedness May
Not Materialize. Commencing initially in 2001 and intensified thereafter in
2003, the Company has been pursuing efforts, utilizing the services of Simmons &
Company International, to enter into a possible merger, sale of its assets, or
other business combination transaction, a refinancing transaction or
restructuring of its balance sheet. The results of these efforts led management
to conclude in late 2003 that a sale of its directional drilling and downhole
surveying assets can be expected to facilitate a more favorable transaction
involving its remaining wireline activities. Accordingly, the Company is engaged
in negotiations to sell the assets of its directional drilling division. It
intends to use the net proceeds from the sale of these assets to reduce the
outstanding principal of its senior secured indebtedness. The Company intends
this transaction as a first step in the merger or sale of its remaining business
or a reorganization, restructuring or refinancing of its outstanding
indebtedness. The sale of the directional drilling assets is expected to be
subject to material conditions including the ability of the intended purchaser
to obtain financing for the transaction, the ability of the parties to negotiate
and execute a definitive purchase and sale agreement and the ability of the
parties to obtain all required consents and otherwise fulfill all of the closing
conditions under the definitive agreement expected to be entered into. Among
other closing conditions, consents and waivers from creditors of the Company to
various covenants under the terms of their credit and loan agreements with the
Company will be required to complete the sale. These necessary consents and
waivers may not be forthcoming or may only be forthcoming on terms the Company
is unable or unwilling to meet or fail to meet the terms and conditions of any
definitive agreement that is entered into. The failure to complete the sale of
the directional division may make impossible or impair the Company's ability to
seek to proceed further to attempt to engage in a merger or other sale of its
wireline assets, or to reorganize, restructure or refinance its outstanding
indebtedness.

         Restrictions On Operations Imposed by Lenders; Borrowings Secured by
Substantially All the Company's Assets. The Company has outstanding at December
31, 2003 senior secured indebtedness aggregating approximately $17.6 million
under its Credit Agreement with General Electric Capital Corporation ("GECC").
This indebtedness is collateralized by substantially all the Company's assets.
The instruments governing the Company's indebtedness to GECC impose significant
operating and financial restrictions on the Company. Failure to maintain
compliance with these covenants could result in the Company being unable to make
further borrowings under its revolving credit arrangement with GECC which
borrowings are necessary to enable the Company to fund its ongoing operations.
The financial covenants in the Credit Agreement that the Company is required to
comply with include: (a) limitations on capital expenditures to $8.0 million
during each of the years 2002 and 2003 and $5.0 million during the six-months
ended June 30, 2004, (b) having a fixed charge coverage ratio at the end of each
quarter, commencing with the quarter ended March 31, 2004, of not less than
1.3:1.0 for the preceding twelve-month period, (c) having an interest coverage
ratio at the end of each quarter, commencing with the quarter ended March 31,
2004, of not less than 3.0:1.0 for the preceding twelve-month period,


                                      -10-
<PAGE>

and d) commencing with the quarter ending March 31, 2004, having a ratio of
senior funded debt to earnings before interest, taxes, depreciation and
amortization ("EBITDA"), minus capital expenditures paid in cash, of not more
than 2:0:1.0 for the four fiscal quarters then ended. The Company is required to
maintain a cumulative operating cash flow at the end of each month, increasing
in monthly increments from $(500,000) for the month ended February 29, 2004 to
$2.0 million for the six months ended July 31, 2004. Such restrictions, as well
as various other affirmative and negative covenants in the Credit Agreement,
affect, and in many respects significantly limit or prohibit, among other
things, the ability of the Company to incur additional indebtedness, pay
dividends, repay indebtedness prior to its stated maturity, sell assets or
engage in mergers or acquisitions. These restrictions also limit the ability of
the Company to effect future financings, make certain capital expenditures,
withstand a downturn in the Company's business or economy in general, or
otherwise conduct necessary corporate activities. The Credit Agreement places
restrictions, and under certain circumstances prohibitions, on the Company's
ability to borrow money under the revolving credit provisions of the Credit
Agreement. The Company's ability to borrow under this revolving credit
arrangement is necessary to fund the Company's ongoing operations and a default
under the Credit Agreement could impair or terminate the Company's ability to
borrow funds under the revolving credit provisions. If the Company were to
default on its indebtedness owing to GECC and such indebtedness was accelerated,
so as to become due and immediately payable, there can be no assurance that the
assets of the Company would be sufficient to repay in full such indebtedness and
the Company's other liabilities. In addition, the acceleration of the Company's
indebtedness owing to GECC would constitute a default under other indebtedness
of the Company owing to other creditors, which may result in such other
indebtedness also becoming immediately due and payable. Under such
circumstances, the holders of the Company's Common Stock may realize little or
nothing on their investment in the Company.

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

         At December 31, 2003, before reflecting an amendment to the Credit
Facility entered into in March 2004, the Company was in violation of the
cumulative operating cash flow covenant. By amendment to the Credit Facility
entered into as of March 31, 2004, GECC waived this default and amended and
relaxed the covenant regarding the maintenance of a minimum cumulative operating
cash flow for the months of February 2004 through July 31, 2004.


                                      -11-
<PAGE>

         In addition to the June 2002 and March 2004 amendments, the Company and
GECC entered into further amendments to the financial covenants favorable to the
Company in January 2002, October 2002, February 2003 and April 2003 and January
2004.

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

         In 1998, the Company experienced a large decline in demand for its
services as a result of a substantial decrease in the price of oil and natural
gas, as well as the loss of a major customer. Consequently, management evaluated
the recoverability of its long-lived assets in relation to its business
segments. The analysis under SFAS No. 144 indicated impairment in its
directional drilling assets. The analysis resulted in a charge to operations for
the year ended December 31, 1998 of $11.1 million which consisted of a
write-down of approximately $8.1 million, approximately $2.4 million, and
approximately $624,000, to goodwill, property, plant and equipment, and
inventory, respectively. In 2003, in connection with the Company's plans to
dispose of its directional drilling division, management analyzed under SFAS No.
142 the carrying value of its goodwill carried on its balance sheet arising out
of the 1997 acquisition of Diamondback Directional, Inc and Phoenix Drilling
Services in 1998. This analysis resulted in a charge to operations for the year
ended December 31, 2003 in the amount of approximately $1.7 million.

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

         Substantial Dilution. The Company has outstanding as of February 29,
2004, common stock purchase warrants, options and convertible notes which,
including accrued interest that is also convertible, are entitled to purchase or
be converted into an aggregate of 151,361,114 shares of the Company's Common
Stock at exercise and conversion prices ranging from $0.75 to $8.01.
Accordingly, if all such securities were exercised or converted, the 12,499,528
shares of Common Stock issued and outstanding on February 29, 2004, would
represent 7.6% of the shares outstanding on a fully diluted basis. Of the
Company's outstanding common stock purchase warrants, options and convertible
notes, including interest, 151,296,114 shares of Common Stock are issuable at an
exercise or conversion price of $0.75 per share. At March 31, 2004, the


                                      -12-
<PAGE>

exercise price of the warrants exceeded the market price of the Company's Common
Stock on the OTCBB (Over the Counter Bulletin Board).

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

         Under the terms of agreements entered into by the Company with the
holders of outstanding convertible notes extending the maturity date of such
notes, the Company agreed that if it had not entered into a purchase or merger
agreement on or before certain dates, the holders would become entitled to
receive five-year common stock purchase warrants exercisable at $0.75 per share.
Because such an agreement was not entered into by December 31, 2003, the Company
became obligated to issue approximately 18.0 million additional warrants. As a
consequence, the holders of the Company's shares outstanding will experience
additional potential dilution by virtue of the terms of these agreements.

         Dependence on Major Customers. A large portion of the Company's
revenues has been generated from a relatively small number of companies. During
the year ended December 31, 2003, one customer (Encore Operating) accounted for
6.1% of the Company's revenues. During the year ended December 31, 2002, that
same customer accounted for 7.9% of the Company's revenues. A significant
reduction in business done by the Company with its principal customers, if not
offset by revenues from new or existing customers, could have a material adverse
effect on the Company's business, results of operations and prospects.

         Substantial Control by Principal Investor. As of February 29, 2004, St.
James Capital Partners, L.P. and its affiliated entity SJMB, L.P., and including
their affiliates and partners (the "St. James Affiliates"), held 5,017,481
shares of Common Stock, representing approximately 40.1% of the shares
outstanding, promissory notes of the Company, including accrued interest,
convertible at a per share conversion price of $0.75 of principal and interest
into 52,566,945 shares of Common Stock and warrants exercisable at $0.75 per
share to purchase an additional 80,854,169 shares of Common Stock. Upon
conversion of the principal and accrued interest of the notes and exercise of
the warrants, The St. James Affiliates, and its affiliates and partners, would
hold an aggregate of 138,438,595 shares representing 84.3% of the Company's
shares of


                                      -13-
<PAGE>

Common Stock then outstanding. In addition, The St. James Affiliates has certain
additional contractual rights which, among other things, give to The St. James
Affiliates the right to nominate one person for election to the Company's Board
of Directors, certain preferential rights to provide future financings for the
Company, subject to certain exceptions, prohibitions against the Company
consolidating, merging or entering into a share exchange with another person,
with certain exceptions, without the consent of The St. James Affiliates. As of
February 29, 2004, two of the Company's three Directors are a principal or
employee of The St. James Affiliates. The foregoing gives The St. James
Affiliates the ability to exert significant influence over the business and
affairs of the Company. The interests of The St. James Affiliates may not always
be the same as the interests of the Company's other securityholders.

         Dependence on Key Personnel. The Company's success depends on, among
other things, the continued active participation of William L. Jenkins,
President, Allen R. Neel, Executive Vice-President, Danny R. Thornton,
Vice-President, Wireline Services, and certain of the Company's other officers
and operating personnel. The loss of the services of any one of these persons
could have a material adverse effect on the Company. The Company has entered
into employment agreements with each of its executive officers, including
Messrs. Jenkins (through December 31, 2005) and Thornton and Neel (through April
1, 2006), and has purchased "key-man" life insurance with respect to each of
such persons.

             RISKS RELATED TO THE OIL AND GAS WELL SERVICE BUSINESS

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

         Fluctuations in Levels of Prices for Oil and Natural Gas; Possible
Adverse Impact on the Company's Revenues. The business environment for the
Company and its corresponding operating results are affected significantly by
petroleum industry exploration and production


                                      -14-
<PAGE>

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

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

         In 2003, industry activity in the form of active drilling rig activity
in the continental United States increased leading to the improved results in
the Company's wireline division. Because of reduced demand for the Company's
directional drilling services in the second half of 2003 and the loss of an
employee, revenues of the directional drilling division declined in 2003,
notwithstanding the increased rig count. The Company's revenues tend to increase
and decrease as the active drilling rig count increases and decreases. There can
be no assurance that there will be a continued improvement in oil and natural
gas prices and active rig counts, that prices will be maintained at their
current levels, that such improvement in prices as has occurred will enable the
Company to operate profitably or that the Company will continue to experience an
ongoing increase in the demand for and utilization of its services. Future
declines in oil and natural gas prices can be expected to adversely impact the
Company's revenues.


                                      -15-
<PAGE>

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

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

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


                                      -16-
<PAGE>

ITEM 2.  PROPERTIES

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

         The Company maintains District Offices at 23 locations throughout its
service area and a manufacturing facility in Laurel, Mississippi. The aggregate
annual rental for these facilities is $593,000. Of such facilities, three are
owned by the Company and the others are leased with rental periods of from a
month-to-month basis to five years. The Company also maintains executive offices
in its Conroe, Texas District Office. The Company believes that all of the
facilities are adequate for its current requirements.

ITEM 3.  LEGAL PROCEEDINGS

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

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matter was submitted during the fourth quarter of the fiscal year
ended December 31, 2003, to a vote of security holders of the Company, through
the solicitation of proxies, or otherwise.


                                      -17-
<PAGE>

                                     PART II

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

MARKET INFORMATION

         Quotations for the Company's Common Stock appeared in the OTC Bulletin
Board(R) under the trading symbol BWWL and BWWLE through May 14, 2004. The
following table sets forth the bid prices for the Company's Common Stock for the
periods indicated as provided by the OTC Bulletin Board:

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

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

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

First Quarter                 $0.40                      $0.10
Second Quarter                $0.50                      $0.24
Third Quarter                 $0.50                      $0.30
Fourth Quarter                $0.44                      $0.24

                                        BID PRICES
                       -------------------------------------------------
     2004                      HIGH                       LOW
------------------------------------------------------------------------

First Quarter                 $0.39                      $0.25
Second Quarter (through
May 14)                       $0.35                      $0.29

There can be no assurance that following the filing of this Annual Report, the
Company's Common Stock will again commence to be quoted on the OTC Bulletin
Board(R) or that there will be an active trading market for its Common Stock.

                                      -18-
<PAGE>

         The foregoing amounts represent inter-dealer quotations without
adjustment for retail markups, markdowns or commissions, and do not represent
the prices of actual transactions. On May 14, 2004, the closing bid quotation
for the Common Stock, as reported by the OTC Bulletin Board, was $0.31.

         As of March 8, 2004, the Company had approximately 426 shareholders of
record and believes it has in excess of 500 beneficial holders of its Common
Stock.

DIVIDENDS

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

RECENT SALES OF UNREGISTERED SECURITIES

         During the year ended December 31, 2003, the Company did not sell any
securities not registered under the Securities Act of 1933, as amended.

PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

         Neither the Company nor any "affiliated purchaser," as defined in Rule
10b-18(a)(3), repurchased any shares of the Company's Common Stock during the
quarter ended December 31, 2003.

ITEM 6.  SELECTED FINANCIAL DATA

         Set forth below is certain financial information for each of the five
years ended December 31, 2003 taken from the Company's audited financial
statements:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                          --------------------- -------------------- ----------------- ------------------ ------------------
                                      2003                 2002                2001              2000               1999
                                      ----                 ----                ----              ----               ----

<S>                                <C>                  <C>               <C>                <C>                <C>
Revenues(1)                        $65,449,154          $56,583,161       $76,106,920        $44,554,536        $28,037,403
Income (loss)
from continuing
operations                           $(558,717)         $(2,420,015)      $10,438,427            $25,140        $(4,828,759)
Net income (loss)
per common share-
diluted                                 $(0.44)              $(0.61)            $0.40             $(0.55)            $(1.81)
</TABLE>


                                      -19-
<PAGE>

<TABLE>
<CAPTION>
<S>                                <C>                  <C>               <C>                <C>                <C>
Current assets                     $16,034,796          $16,117,226       $17,366,491        $14,102,082         $8,195,603
Total assets                       $41,401,429          $49,671,109       $50,480,875        $42,874,974        $36,331,984
Current liabilities                $64,438,946          $20,176,408       $16,829,220        $58,653,433        $22,423,947
Total Liabilities(2)               $64,905,423          $67,719,554       $61,128,274        $58,753,433        $54,478,858
Cash Dividends                           - 0 -                - 0 -             - 0 -              - 0 -              - 0 -
</TABLE>

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

(1) See Note 5 to Notes to Financial Statements for information regarding
acquisitions made by the Company.
(2) See Note 9 to Notes to Financial Statements for information relating to the
Company's outstanding indebtedness.



                                      -20-
<PAGE>

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

GENERAL

         The Company's results of operations are affected primarily by the
extent of utilization and rates paid for its services and equipment. The energy
services sector is completely dependent upon the upstream spending by the
exploration and production side of the industry. A decline in oil and gas
commodity prices can be expected to result in a decline in the demand for the
Company's services and equipment. The Company showed improvement in revenues
during 2003 over 2002 reflecting the increased count of active drilling rigs;
however, directional drilling revenues declined because of decreased activity in
the Company's customer base and the loss of an employee. There can be no
assurance that the Company's revenues in 2004 will equal or exceed its revenues
in 2003 and prior years. There can be no assurance that the Company will
continue to experience any material increase in the demand for and utilization
of its services and its revenues and return to profitability.

         During the year ended December 31, 2004, the Company's Credit Facility
with General Electric Credit Corporation will expire. At that time, an estimated
$14.1 million in senior secured indebtedness will mature and be payable. In
addition, on December 31, 2004, an additional $42.8 million of subordinated
secured indebtedness, including accrued interest, will be repayable under the
terms of subordination agreements entered into between the Company and the
holders of that indebtedness. The Company's plans for the reorganization,
repayment or refinancing of this indebtedness include the sale of its
directional drilling division and the application of the net proceeds to the
reduction of its senior secured indebtedness. While the Company has no specific
plans for the further reorganization, restructuring or refinancing of its
outstanding indebtedness subsequent to that transaction, the Company intends to
continue its efforts commenced initially in late 2001 and intensified thereafter
in 2003, through Simmons & Company International as its financial advisor, to
examine various alternative means to maximize its value to shareholders and
repay, refinance or restructure its indebtedness. These efforts are expected to
include efforts regarding a possible merger, sale of the wireline business
assets or other business combination involving the Company. These efforts are
also expected to include efforts regarding a possible reorganization,
recapitalization, restructuring or refinancing of the Company's obligations on
its balance sheet in order to maximize its value to shareholders and repay its
existing obligations. At April 21, 2004, the Company has not entered into any
definitive agreements with respect to any such transactions and there can be no
assurance that any definitive agreements will be entered into or that the
Company will be successful in pursuing its plans for the reorganization,
repayment or refinancing of its outstanding indebtedness. In the event the
Company's plans are unsuccessful, the Company's secured creditors could assert
their rights to foreclose on the Company's assets and a stockholder's investment
in the Company


                                      -21-
<PAGE>

could be lost. The Company intends to engage in ongoing efforts to pursue its
plans, but there can be no assurance these efforts will be successful.

         As a result of the above factors, there is substantial doubt about the
Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments relating to the recoverability and
classification of the asset-carrying amounts or the amounts and classifications
of liabilities that might result should the Company be unable to continue as a
going concern.

OPERATING RESULTS

         The following table sets forth the Company's revenues from its two
principal lines of business for each of the years ended December 31, 2003, 2002,
and 2001 (in thousands). In July 2001, the Company sold its workover and
completion line of business.


                            2003                  2002                2001
-------------------------------------------------------------------------------

Wireline Services         $45,757               $34,094             $ 39,682

Directional Drilling      $19,692               $22,489               36,425

                       --------------------------------------------------------
                          $65,449               $56,583             $ 76,107

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

         As a consequence of the decline in levels of oil and natural gas prices
throughout 1999 from levels experienced in 1996 and 1997, producers of oil and
natural gas curtailed their utilization of oil and natural gas well service
activities. Increases in oil and natural gas prices subsequent to mid-1999
through 2000 resulted in an increase in demand for oil and natural gas well
services. This impacted favorably the utilization of the Company's services and
revenues through the third quarter of 2001. Oil and natural gas commodity prices
declined throughout much of 2001, impacting the Company's operations in the
fourth quarter of 2001 and into 2002. Throughout much of 2002, oil and gas
prices improved resulting in improved demand for the Company's services,
however, this improved demand and greater revenues to the Company were
insufficient to enable the Company to operate profitably. Revenues for 2003
increased by approximately 15.7% over the year 2002 levels. During 2003, the
Company benefited from increased oil and natural gas prices which resulted in an
increase in demand for the Company's wireline services, mainly in the second and
third quarters of 2003, this resulted in an approximately 34.2% increase in
wireline services revenues. Directional drilling revenues declined by
approximately 12.4% because of decreased demand for the Company's services in


                                      -22-
<PAGE>

the second half of 2003, as well as the loss of a sales employee. There can be
no assurance that there will be a continued improvement in oil and natural gas
prices, that such improvement in prices as has occurred will enable the Company
to maintain in 2004 the level of revenues realized in 2003, operate profitably
in 2004 or that the Company will experience an increase in the demand for and
utilization of its services that will enable it to operate again at the levels
experienced during 2001. Future declines in oil and natural gas prices can be
expected to adversely impact the Company's revenues. See "Cautionary Statement
for Purposes of the "Safe Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995" and the risk factors described thereunder.





TWELVE MONTH PERIODS ENDED DECEMBER 31, 2003 AND 2002

         Revenues increased by approximately $8.9 million or 15.7% to $65.4
million for the year ended December 31, 2003 as compared to revenues of $56.6
million for the year ended December 31, 2002. Wireline services revenues
increased by approximately $11.7 million in 2003 from 2002 primarily due to the
increased demand for the Company's services. Directional drilling revenues
decreased from 2002 by approximately $2.8 million mainly as a result of the
decreased demand for the Company's services in the second half of 2003.

         Operating costs increased by $4.3 million for the year ended December
31, 2003, as compared to 2002. This increase was due primarily to the increase
in corresponding revenues of the Company as compared to 2002. Salaries and
benefits increased by approximately $3.0 million for 2003 as compared to 2002.
This was due primarily to the Company's increased employee base as the Company
expanded its services to include tubing conveyed perforating and plugging and
well abandoning services in the second half of 2002. Operating costs as a
percentage of revenues decreased to 68.2% in 2003 from 71.2% in 2002 primarily
because of the increased utilization of the Company's assets as well as
increases in pricing of the Company's services.

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

         Selling, general and administrative expenses decreased by approximately
$65,000 to $10.6 million in 2003. As a percentage of revenues, selling, general
and administrative expenses decreased to 16.2% in 2003 from 18.8% in 2002,
primarily as a result of the increased revenue level generated in 2003 which did
not require a corresponding increase in selling, general and administrative
expenses.


                                      -23-
<PAGE>

         Depreciation and amortization decreased from $8.0 million in 2002, to
$7.7 million in 2003, primarily because of the decrease in capital expenditures
in 2003 of $3.1 million from $7.7 million in 2002, resulting in a decreased
asset base.

         Interest expense and amortization of debt discount decreased by
approximately $64,000 for 2003 as compared to 2002. This was directly related to
lower interest rates on outstanding senior debt in 2003 as well as the
amortization of senior debt in 2003.

         Net gain on sale of fixed assets increased in 2003 to a net gain of
$244,000 from a $177,000 net gain in 2002. Other income increased by
approximately $47,000 in 2003.

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

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



TWELVE MONTH PERIODS ENDED DECEMBER 31, 2002 AND 2001

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

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


                                      -24-
<PAGE>

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

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

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

          During 2001, the Company recognized a loss of $1,322,481 as a result
of the repayment of indebtedness owing to Coast Business Credit in September
2001 and a cash collateral fee agreement entered into with the St. James
Affiliates. The Company recorded a gain of $175,003 as a result of a negotiated
payment of promissory notes and related obligations.

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

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

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


POSSIBLE FUTURE IMPAIRMENT OF LONG-LIVED ASSETS

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


                                      -25-
<PAGE>

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

         Cash provided by the Company's operating activities was $10.6 million
for the year ended December 31, 2003 as compared to cash provided by operating
activities of $5.4 million for the year ended December 31, 2002. Investing
activities of the Company used cash of approximately $3.1 million during the
year ended December 31, 2003 for the acquisition of property, plant and
equipment and was offset by proceeds from the sale of fixed assets of $684,000.
During the year ended December 31, 2002, acquisitions of property, plant and
equipment used cash of $7.7 million offset by proceeds of $219,000 from the sale
of fixed assets.


                                      -26-
<PAGE>

Financing activities during the year ended December 31, 2003 provided cash of
$5.4 million offset by principal payments on long-term notes and the Company's
working capital revolving loan of $10.3 million. Financing activities provided
cash of $7.6 million from borrowings during the year ended December 31, 2002
offset by principal payments on long-term notes and capital lease obligations of
$5.6 million.

         During the year ended December 31, 2003, the Company expended $3.3
million for the acquisition of property, plant and equipment financed under
notes payable. During the year ended December 31, 2002, the Company expended
$4.2 million for the acquisition of property, plant and equipment financed under
the capital expenditure credit facility with GECC and notes payable.

         The Company's outstanding indebtedness includes primarily senior
secured indebtedness aggregating approximately $17.6 million at December 31,
2003, other indebtedness of approximately $0.8 million, and $24.6 million of
principal and $14.5 million of accrued interest owing to the St. James
Affiliates. During the year ended December 31, 2003, an aggregate of $42.6
million of indebtedness will mature. In addition to the proposed sale of its
directional drilling assets, the Company presently intends to continue to
intensify its efforts regarding a possible merger, sale of assets or other
business combination involving the Company or a refinancing, recapitalization or
other reorganization involving the Company. Such efforts might also involve the
possible sale of a part of the Company's business.

         The following table sets forth information as of December 31, 2003 with
respect to the Company's known contractual obligations of the types specified
below:

<TABLE>
<CAPTION>
                                                      Payments Due By Period
                     ------------------------------------------------------------------------------------------
Contractual               Total         Prior to December        January 1,      January 1,      January 1,
Obligations                                  31, 2004              2005 to        2007 to         2008 and
                                                                 December 31,    December 31,    thereafter
                                                                    2007           2008
                     ------------------------------------------------------------------------------------------

<S>                     <C>               <C>                   <C>               <C>              <C>
Long Term Debt          $42,959,071       $42,602,119           $   356,952       $      --        $     --

Capital Leases          $        --       $        --           $        --       $      --        $     --

Operating Leases        $ 1,237,851       $   591,384           $   595,779       $  50,688        $     --
</TABLE>


                                      -27-
<PAGE>

<TABLE>
<CAPTION>
<S>                     <C>               <C>                   <C>               <C>              <C>
Purchase                $        --       $        --           $        --       $      --        $     --
Obligations

Other Long-term         $        --       $        --           $        --       $      --        $     --
Liabilities
</TABLE>


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

         Initial borrowings under the Credit Facility advanced on September 14,
2001 aggregated $21.6 million. Proceeds of the initial borrowings were used to
repay outstanding indebtedness aggregating $21.4 million to Coast Business
Credit, Bendover Company and certain other indebtedness. At December 31, 2003,
borrowings outstanding under the Credit Facility aggregated $17.6 million, of
which $3.2 million was outstanding under the revolving loan, $9.3 million was
outstanding under the term loan and $5.1 million was outstanding under the capex


                                      -28-

<PAGE>

loan. At March 31, 2004, borrowings outstanding under the Credit Facility
aggregated $15.2 million. Borrowings under the revolving loan are able to be
repaid and re-borrowed from time to time for working capital and general
corporate needs, subject to the Company's continuing compliance with the terms
of the agreement, with the outstanding balance of the revolving loan to be paid
in full at the expiration of the Credit Facility on September 14, 2004. The term
loan is to be repaid in 35 equal monthly installments of $283,333 with a final
installment of $7,083,333 due and payable on September 14, 2004. At December 31,
2003 the Company had available $2.4 million under the revolving loan. The capex
loan is available to be borrowed through June 30, 2004, as amended by the March
2004 amendment, at the discretion of GECC, and is to be repaid in equal monthly
installments of 1/60th of each of the amounts borrowed from time to time with
the remaining outstanding balance of the entire capex loan due and payable on
September 14, 2004

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

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


                                      -29-


<PAGE>

         Under the Credit Facility, the Company is obligated to maintain
compliance with a number of affirmative and negative covenants. Affirmative
covenants the Company must comply with include requirements to maintain its
corporate existence and continue the conduct of its business substantially as
conducted in September 2001, promptly pay all taxes and governmental assessments
and levies, maintain its corporate records, maintain insurance, comply with
applicable laws and regulations, provide supplemental disclosure to the lenders,
conduct its affairs without violating the intellectual property of others,
conduct its operations in compliance with environmental laws and provide a
mortgage or deed of trust to the lenders granting a first lien on the Company's
real estate upon the request of the lenders and provide certificates of title on
newly acquired equipment with the lender's lien noted.

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

         As amended through March 2004, the financial covenants require the
Company to maintain an increasing cumulative operating cash flow at the end of
each month, commencing with the month ended February 29, 2004, as follows:


                                      -30-
<PAGE>




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

      For the 1 Month Ending February 29, 2004               $(50,000)

      For the 2 Months Ending March 31, 2004                 $200,000

      For the 3 Months Ending April 30, 2004                 $500,000

      For the 4 Months Ending May 31, 2004                   $850,000

      For the 5 Months Ending June 30, 2004                $1,350,000

      For the 6 Months Ending July 31, 2004                $2,000,000

         Cumulative operating cash flow is defined, for the period February 29,
2004 through July 31, 2004, as the sum of EBITDA for such month minus capital
expenditures paid in cash for such month plus EBITDA for each preceding month
commencing on February 1, 2004 minus capital expenditures paid in cash for each
preceding month commencing February 1, 2004. For the period ended December 31,
2003 and January 31, 2004, the Company was not in compliance with the cumulative
operating cash flow covenant which was waived by GECC by the amendment of March
2004.

         Events of default under the Credit Facility include (a) the failure to
pay when due principal or interest or fees owing under the Credit Facility, (b)
the failure to perform the covenants under the Credit Facility relating to use
of proceeds, maintenance of a cash management system, maintenance of insurance,
delivery of certificates of title, delivery of required consents of holders of
outstanding subordinated notes, maintenance of compliance with the financial
covenants in the loan agreement and compliance with any of the loan agreement's
negative covenants, (c) the failure, within specified periods of 3 or 5 days of
when due, to deliver monthly unaudited and annual audited financial statements,
annual operating plans, and other reports, notices and information, (d) the
failure to perform any other provision of the loan agreement which remains
un-remedied for 20 days or more, (e) a default or breach under any other
agreement to which the Company is a party beyond any grace period that involves
the


                                      -31-
<PAGE>

failure to pay in excess of $250,000 or causes or permits to cause in excess of
$250,000 of indebtedness to become due prior to its stated maturity, (f) any
representation or warranty or certificate delivered to the lenders being untrue
or incorrect in any material respect, (g) a change of control of the Company,
(h) the occurrence of an event having a material adverse effect, and (i) the
attachment, seizure or levy upon of assets of the Company which continues for 30
days or more and various other bankruptcy and other events. Upon the occurrence
of a default or event of default, the lenders may discontinue making loans to
the Company. Upon the occurrence of an event of default, the lenders may
terminate the Credit Facility, declare all indebtedness outstanding under the
Credit Facility due and payable, and exercise any of their rights under the
Credit Facility which includes the ability to foreclose on the Company's assets.

         The Company has amended the terms of its Credit Facility with GECC on
seven occasions the principal effects of which were to relax certain of the
terms of the financial covenants so as to be more favorable to the Company.
There can be no assurance that the Company will be able to obtain further
amendments to these financial covenants if required or that the failure to
obtain such amendments when requested may not result in the Company being placed
in violation of those financial covenants. Before reflecting amendments to the
Credit Facility made in June 2002 and March 2004, the Company was in violation
of the financial covenants relating to its fixed charge coverage ratio, minimum
interest coverage ratio, and ratio of senior funded debt to EBITDA in 2001 and
cumulative operating cash flow in December 2003 and January 2004. By amendments
to the Credit Facility entered into as of June 10, 2002 and March 31, 2004, GECC
waived these defaults as well as violations relating to the Company's failure to
timely deliver its financial statements for the year ended December 31, 2001 as
required by the Credit Facility and selling certain assets in violation of the
terms of the Credit Facility. The Company agreed to pay GECC a fee of $100,000
in connection with entering into the amendment in 2001 and $35,000 in 2004.

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

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


                                      -32-

<PAGE>

filed as Exhibits to the Company's Annual Report on Form 10-K for the year ended
December 31, 2002, and the Sixth Amendment and the Seventh Amendment filed as
Exhibits to the Company's Annual Report on Form 10-K for the year ended December
31, 2003, for a complete statement of the terms and conditions.

         Note Extensions. In connection with the GECC refinancing, the Company
agreed with the holders to extend the maturity date from June 30, 2001 to
December 31, 2004 on $6.9 million of the $7.0 million principal amount of
promissory notes. The remainder of the outstanding principal was repaid. The
notes bear interest at 15% per annum and are convertible into shares of the
Company's common stock at a conversion price of $0.75 per share, subject to an
anti-dilution adjustment for certain issuances of securities by the Company at
prices per share of common stock less than the conversion price then in effect,
in which event the conversion price is reduced to the lower price at which the
shares were issued. The Company repaid approximately $83,000 to noteholders who
chose not to extend the maturity dates and the St. James Affiliates purchased
$1.6 million from noteholders who chose not to extend the maturity dates. As a
condition to extend the maturity date, holders of the notes are to receive
additional five-year common stock purchase warrants exercisable at $0.75 per
share, valued at $0.01, if the Company has not entered into a purchase or merger
agreement on or before certain dates. Because such an agreement was not entered
into by December 31, 2003, the Company became obligated to issue approximately
18.0 million additional warrants. The exercise price of the warrants that were
issued is subject to anti-dilution adjustments for certain issuances of
securities by the Company at prices per share of common stock less than the
exercise price then in effect in which event the exercise price is reduced to
the lower price at which such shares were issued.

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

         All of the debt and interest owed to the St. James Affiliates is
subordinated to the Company's Credit Facility and cannot be repaid until all the
amounts owed pursuant to the Credit Facility have been repaid.

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

Recently Issued Accounting Pronouncements


                                      -33-
<PAGE>

         In April 2002, the FASB issued FAS 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections", which is effective for transactions occurring after May 15, 2002.
FAS 145 rescinds FAS 4 and FAS 64, which addressed the accounting for gains and
losses from extinguishment of debt. FAS 44 set forth industry-specific
transitional guidance that did not apply to the Company. FAS 145 amends FAS 13
to require that certain lease modifications that have economic effects similar
to sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. FAS 145 also makes technical corrections to certain
existing pronouncements that are not substantive in nature. Due to the adoption
of FAS 145, the Company reclassified the early extinguishment of debt in 2001
from an extraordinary item to continuing operations in 2003.

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

         In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities."
FIN 46 addresses when a company should consolidate in its financial statements
the assets, liabilities and activities of a variable interest entity (VIE). It
defines VIEs as entities that either do not have any equity investors with a
controlling financial interest, or have equity investors that do not provide
sufficient financial resources for the entity to support its activities without
additional subordinated financial support. FIN 46 also requires disclosures
about VIEs that a company is not required to consolidate, but in which it has a
significant variable interest. The consolidation requirements of FIN 46 applied
immediately to variable interest entities created after January 31, 2003. The
Company has not obtained an interest in a VIE subsequent to that date. A
modification to FIN 46 (FIN 46(R)) was released in December 2003. FIN 46(R)
delayed the effective date for VIEs created before February 1, 2003, with the
exception of special-purpose entities, until the first fiscal year or interim
period ending after March 15, 2004. FIN 46(R) delayed the effective date for
special-purpose entities until the first fiscal year or interim period after
December 15, 2003. The Company is not the primary beneficiary of any SPEs at
December 31, 2003. The Company will adopt FIN 46(R) for non-SPE entities as of
March 31, 2004. The


                                      -34-
<PAGE>

adoption of FIN 46 did not result in the consolidation of any VIEs, nor is the
adoption of FIN 46(R) expected to result in the consolidation of any VIEs. The
Company is continuing to evaluate the impact FIN 46(R) will have on its
financial statements.

         In May 2003, the FASB issued Statement 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
Statement establishes standards for classifying and measuring certain financial
instruments that have characteristics of both liabilities and equity. The
guidance in Statement 150 became effective June 1, 2003, for all financial
instruments created or modified after May 31, 2003, and otherwise became
effective as of July 1, 2003. In November 2003, the FASB deferred for an
indefinite period the application of the guidance in Statement 150 to
non-controlling interests that are classified as equity in the financial
statements of a subsidiary but would be classified as a liability in the
parent's financial statements under Statement 150. The deferral is limited to
mandatorily redeemable non-controlling interests associated with finite-lived
subsidiaries. Management does not believe it has any involvement with such
entities as of December 31, 2003.


INFLATION

         The Company's revenues have been and are expected to continue to be
affected by fluctuations in the prices for oil and gas. Inflation did not have a
significant effect on the Company's operations in 2003.

SIGNIFICANT ACCOUNTING POLICIES

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


                                      -35-
<PAGE>

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

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

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

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

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         From time to time, the Company holds financial instruments comprised of
debt securities and time deposits. All such instruments are classified as
securities available for sale. The Company does not invest in portfolio equity
securities, or commodities, or use financial derivatives for trading or hedging
purposes. The Company's debt security portfolio represents funds held
temporarily pending use in its business and operations. The Company manages
these funds accordingly. The Company seeks reasonable assuredness of the safety
of principal and market liquidity by investing in rated fixed income securities
while, at the same time, seeking to achieve a favorable rate of return. The
Company's market risk exposure consists of exposure to


                                      -36-
<PAGE>

changes in interest rates and to the risks of changes in the credit quality of
issuers. The Company typically invests in investment grade securities with a
term of three years or less. The Company believes that any exposure to interest
rate risk is not material.

         Under the Credit Facility with GECC, the Company is subject to market
risk exposure related to changes in the prime interest rate. Assuming the
Company's level of borrowings from GECC at December 31, 2003 remained unchanged
throughout 2004, if a 100 basis point increase in interest rates under the
Credit Agreement from rates in existence at December 31, 2003 prevailed
throughout the year 2004, it would increase the Company's 2004 interest expense
by approximately $176,000. The Company's indebtedness to GECC matures on
September 14, 2004.


                                      -37-
<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


         Report of Independent Certified Public Accountants for the Years
         Ended December 31, 2003 and 2002  .............................   F-1

         Report of Independent Accountants for the Year Ended
         December 31, 2001  ............................................   F-2

         Balance Sheets as of
         December 31, 2003, and 2002  ..................................   F-3

         Statements of Operations for the Years Ended
         December 31, 2003, 2002 and 2001 ..............................   F-4

         Statements of Stockholders Deficit for the
         Years Ended December 31, 2003, 2002, and 2001 .................   F-6

         Statements of Cash Flows for the Years Ended
         December 31, 2003, 2002, and 2001  ............................   F-7

         Notes to Financial Statements..................................   F-9


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


                                      -38-
<PAGE>

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

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

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

ITEM 9A.  CONTROLS AND PROCEDURES

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

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


                                      -39-
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

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

          William L. Jenkins             50       President, Chief Executive
                                                     Officer and Director

            Allen R. Neel                46       Executive Vice-President
                                                        and Secretary

          Danny R. Thornton              52       Vice-President/Operations

        Charles E. Underbrink            49               Director

          James H. Harrison              35               Director


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

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


                                      -40-
<PAGE>

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

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

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

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

AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT

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

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


                                      -41-
<PAGE>

Board of Directors may in the future determine that a member elected to the
Board in the future has the attributes to be determined to be an Audit Committee
Financial Expert.


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

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

CODE OF ETHICS

         The Company has adopted a Code of Ethics that applies to its principal
executive officer and principal financial and accounting officer. A copy of the
Company's Code of Ethics has been filed as an exhibit to this annual report.


ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION - GENERAL

         The following table sets forth the compensation paid or awarded to the
President and Chief Executive Officer of the Company and each other executive
officer of the Company who received compensation exceeding $100,000 during 2003
for all services rendered to the Company in each of the years 2003, 2002, and
2001.


                                      -42-
<PAGE>

<TABLE>
<CAPTION>
                                                   SUMMARY COMPENSATION TABLE

                                     ANNUAL COMPENSATION                LONG-TERM COMPENSATION
                               -----------------------------------------------------------------------------
                                                                   Other       Securities    Long-Term         All Other
          Name and                                                 Annual      Underlying    Incentive        Compensation
     Principal Position         Year       Salary       Bonus   Compensation     Options      Payouts
         -----------------------------------------------------------------------------------------------------------------
<S>                             <C>       <C>         <C>                                                      <C>
William L. Jenkins              2003      $361,667     $73,555                                                 $86,607(1)(2)(3)
   President                    2002      $363,333                                                             $83,607(1)(2)(3)
                                2001      $225,000    $123,376                                                  $1,216(1)(2)(3)

Allen R. Neel                   2003      $154,167                                                              $9,000(2)
  Executive Vice President      2002      $139,000                                                              $9,000(2)
                                2001      $139,000                                                              $9,000(2)

Danny R. Thornton               2003      $115,000     $53,589                                                  $9,000(2)
   Vice President               2002      $115,000      $7,153                                                  $6,000(2)
                                2001      $100,208     $41,025                                                  $3,500(2)
</TABLE>

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

(1)      Includes the premiums  paid by the Company on a $1,000,000  insurance
         policy on the life of Mr. Jenkins which names his wife as beneficiary
         and owner of the policy.
(2)      Includes automobile allowance paid to Messrs. Jenkins, Neel and
         Thornton.
(3)      Includes loans forgiven under Mr. Jenkins' January 1, 2002 employment
         agreement.

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

STOCK OPTION EXERCISES AND HOLDINGS AT DECEMBER 31, 2003.

         The following table provides information with respect to the above
named executive officers regarding Company options exercised during the year
ended December 31, 2003 and options held at December 31, 2003 (such officers did
not exercise any options during the most recent fiscal year).


                                      -43-
<PAGE>

<TABLE>
<CAPTION>
                                                     NUMBER OF UNEXERCISED OPTIONS        VALUE OF UNEXERCISED
                                                         AT DECEMBER 31, 2003             IN-THE-MONEY OPTIONS
                                                                                        AT DECEMBER 31, 2003 (1)

         NAME              SHARES        VALUE       EXERCISABLE    UNEXERCISABLE     EXERCISABLE    UNEXERCISABLE
                          ACQUIRED      REALIZED
                        ON EXERCISE
-------------------------------------------------------------------------------------------------------------------

<S>                          <C>           <C>       <C>                <C>               <C>             <C>
William L. Jenkins           -0-           -0-       3,000,000          -0-               -0-             -0-
Allen R. Neel                -0-           -0-       1,050,000          -0-               -0-             -0-
Danny R. Thornton            -0-           -0-       1,250,000          -0-               -0-             -0-
</TABLE>

----------------------------
(1)      Based on the closing sales price on December 31, 2003 of $0.25.

No options were granted to the above named executive officers during 2003.

OTHER PLANS

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


EMPLOYMENT AGREEMENTS

         Mr. Jenkins serves as the Company's President, Chief Executive Officer
and a Director pursuant to an employment agreement, as amended effective January
1, 2002, expiring on December 31, 2005. Under the agreement, Mr. Jenkins
receives a base salary of not less than $350,000 per year. If the Company
achieves, during any calendar quarter beginning January 1, 2002, a ratio of
EBITDA to sales of 20% or more, Mr. Jenkins will be paid a bonus for the quarter
of 1% of the Company's EBITDA during the quarter. In January 2004, Mr. Jenkins
was paid $73,555 as a result of the Company exceeding the 20% EBITDA target in
the second and third quarters of 2003. As an incentive to retain Mr. Jenkins'
services, the Company loaned to Mr. Jenkins on March 22, 2002, the sum of
$190,000, bearing interest at the applicable federal rate, to be repaid at the
rate of one-third of the principal, plus accrued interest, on October 1 of each
of the years 2002, 2003 and 2004. If Mr. Jenkins remains employed by the Company
on September 30 preceding the date annual principal and interest is due on the
loan, the sum due and owing the following day is forgiven. Accordingly, on
October 1, 2002 and October 1, 2003, $61,793 and $61,793, respectively, of
principal and interest owing by Mr. Jenkins to the Company was forgiven. In the
event of a Change of Control, as defined, the death or permanent


                                      -44-
<PAGE>

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

         The Company has entered into a five-year employment agreement
terminating on May 31, 2008 with Allen R. Neel, Executive Vice-President of the
Company. Under his agreement, Mr. Neel is to receive base compensation of
$165,000 per year. The Company has entered into a five-year employment agreement
terminating on April 1, 2006 with Danny R. Thornton, Vice President, Operations,
of the Company. Under his agreement, Mr. Thornton receives base compensation of
$115,000 per year. On each anniversary date of the 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. The agreements also contain provisions, added by amendments in


                                      -45
<PAGE>

2002 as to Mr. Neel and 2003 as to Mr. Thornton, whereby in the event of a
change of control of the Company, such persons are to be paid a sum equal to
their total annual compensation as in effect for the twelve months preceding the
change of control. A change of control is defined under the agreements the same
as under Mr. Jenkins' contract described above with the addition of a provision
that if Mr. Jenkins ceases to be President, Chief Executive Officer, a Director
or an employee of the Company, a change of control will have occurred for the
purposes of the agreements.


DIRECTORS' COMPENSATION

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

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


                                      -46-
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

         The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 1, 2004 (a) by each person
who is known by the Company to own beneficially more than five percent (5%) of
the Company's Common Stock, (b) by each of the Company's Directors and officers,
and (c) by all Directors and officers as a group. As of March 1, 2004, the
Company had 12,496,408 shares of Common Stock outstanding.

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

<S>                                                    <C>                       <C>
       William L. Jenkins                                5,710,000(4)            31.4%

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

       Allen R. Neel                                     1,464,044(5)            10.5%

       Charles E. Underbrink                           119,159,795(6)            94.1%
       c/o St. James Capital Corp.
       4299 San Felipe
       Suite 120
       Houston, TX 77027

       James H. Harrison                               112,479,634(7)            93.8%
       c/o St. James Capital Corp.
       4299 San Felipe - Suite 120
       Houston, TX 77027

       St. James Capital Partners, L.P., SJMB,         112,479,634(8)            93.8%
       L.P., and affiliates
       4299 San Felipe - Suite 120
       Houston, Texas 77027

       All Directors and Officers as a Group
       (5 persons)                                     127,584,505               94.6%
</TABLE>


(1)   This tabular information is intended to conform with Rule 13d-3
      promulgated under the Securities Exchange Act of 1934 relating to the
      determination of beneficial ownership of securities. The tabular
      information gives effect to the exercise of warrants or options
      exercisable within 60 days of the date of this table owned in each case
      by the person or group whose percentage ownership is set forth opposite
      the respective percentage and is based on the assumption that no other
      person or group exercise their option.
(2)   Unless otherwise indicated, the address for each of the above is
      c/o Black Warrior Wireline Corp., 100 Rosecrest Lane, Columbus,
      Mississippi 39701.
(3)   The percentage of outstanding shares calculation is based upon 12,496,408
      shares outstanding as of March 1, 2004, except as otherwise noted.


                                      -47-
<PAGE>

(4)   Includes 3,000,000 shares issuable on exercise of options and 2,500,000
      shares issuable on exercise of warrants.
(5)   Includes 1,050,000 shares issuable on exercise of an option.
(6)   Includes an aggregate of 112,479,634 shares held directly by SJCP, SJMB
      and their affiliates and shares issuable on exercise of warrants and
      conversion of notes and accrued interest through March 1, 2004 deemed
      held beneficially by Mr.. Underbrink because of his relationships with
      SJCP and SJMB. Also includes 5,067,383 shares issuable on exercise of
      warrants and conversion of notes and accrued interest through
      March 1, 2004 held directly by Mr. Underbrink and 1,612,778 shares
      issuable on conversion of notes and accrued interest through March 1, 2004
      held by Mr. Underbrink and jointly with another person.
(7)   Includes shares issuable to SJCP, SJMB and their affiliates and shares
      issuable on exercise of warrants and conversion of notes and accrued
      interest through March 1, 2004 that may be deemed held beneficially by
      Mr. Harrison because of his relationships with SJCP and SJMB. Mr. Harrison
      disclaims a beneficial ownership of such securities. Other than the
      holdings of SJCP, SJMB and their affiliates in which Mr. Harrison
      disclaims a beneficial interest, Mr. Harrison holds no shares in which
      he has a direct or indirect beneficial interest.
(8)   Includes shares issuable to SJCP and SJMB and their affiliates on
      conversion of notes and accrued interest through March 1, 2004 and
      exercise of warrants. See "Item 13. Certain Relationships and Related
      Transactions."


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

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

         The following table provides information as of December 31, 2003 with
respect to compensation plans (including individual compensation arrangements),
under which securities are authorized for issuance aggregated as to (i)
compensation plans previously approved by stockholders, and (ii) compensation
plans not previously approved by stockholders:

Equity Compensation Plan Information

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

<S>                                 <C>                      <C>                     <C>
Equity compensation plans           18,800,000               $0.75                   3,360,000
approved by security holders

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

Total                               18,800,000               $0.75                   3,360,000
</TABLE>



                                      -48-
<PAGE>


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

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

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

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


                                      -49-
<PAGE>

issued. As a consequence of several transactions involving the Company and the
St. James Affiliates, the conversion and exercise prices of the securities when
initially issued were reduced pursuant to the anti-dilution adjustments to $0.75
per share. The shares issuable on conversion of the notes and exercise of the
warrants have demand and piggy-back registration rights under the Securities Act
of 1933. The Company agreed that one person designated by the St. James
Affiliates would be nominated for election to the Company's Board of Directors.
Mr. Charles E. Underbrink, Chairman of SJMB, L.L.C. and St. James Capital Corp.,
serves on the Company's Board of Directors. In addition, in February 2003,
subsequent to the resignation of John L. Thompson as a Director, Mr. James H.
Harrison, an employee of SJMB, L.L.C., was elected a Director. The agreements
grant the St. James Affiliates certain preferential rights to provide future
financings to the Company, subject to certain exceptions. The notes also contain
various affirmative and negative covenants, including a prohibition against the
Company consolidating, merging or entering into a share exchange with another
person, with certain exceptions, without the consent of the St. James
Affiliates. Events of default under the notes include, among other events, (i) a
default in the payment of principal or interest; (ii) a default under any of the
notes and the failure to cure such default for five days, which will constitute
a cross default under each of the other notes; (iii) a breach of the Company's
covenants, representations and warranties under any of the agreements; (iv) a
breach under any of the Agreements between the Company and the St. James
Affiliates, subject to certain exceptions; (v) any person or group of persons
acquiring 40% or more of the voting power of the Company's outstanding shares
who was not the owner thereof as of October 30, 1998, a merger of the Company
with another person, its dissolution or liquidation or a sale of all or
substantially all its assets; and (vi) certain events of bankruptcy. In the
event of a default under any of the notes, subject to the terms of an agreement
between the St. James Affiliates and GECC, the St. James Affiliates could seek
to foreclose against the collateral for the notes.

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

         During the years ended December 31, 2003 and 2002, $3.7 million and
$3.7 million, respectively, of interest accrued on loans owed by the Company to
the St. James Affiliates. At December 31, 2003, the total accrued interest on
such loans is convertible into an aggregate of 51.8 million shares.

         On June 17, 1999, the Company sold for $200,000 approximately $329,000
of trade accounts receivable, which was fully reserved due to the customer
declaring bankruptcy, to RJ Air, LLC, an entity partially owned by John L.
Thompson, a member of the Company's Board of Directors at the time. As of
December 31, 2000, the Company had collected $100,000 of the sale price. The
remaining $100,000 is represented by an unsecured promissory note executed by
Mr. Thompson dated March 1, 2002 in the principal amount of $100,000 bearing
interest at the rate


                                      -50-
<PAGE>

of 6% per annum from the inception of sale of the accounts receivable with
$50,000, plus one-half of the interest then accrued, due on December 31, 2002
and the balance of principal and interest due on June 30, 2003. Mr. Thompson
resigned as a Director on February 20, 2003. By letter dated December 20, 2002,
Mr. Thompson requested that the Company amend the note to extend each of the
principal payment dates by six months. The Company agreed to this extension as
of December 20, 2002. On March 21, 2003, Mr. Thompson agreed with the Company to
the rescission of this amendment of the note, the Company, having been advised
by counsel that such extension of the note was unlawful under the Securities
Exchange Act of 1934, as amended. As of December 31, 2003, $100,000 of principal
and $28,000 of accrued interest was outstanding.

         In connection with the GECC refinancing, the Company agreed with the
holders to extend the maturity date of $6.9 million of the $7.0 million
principal amount of promissory notes due on June 30, 2001 to December 31, 2004.
The remainder of $0.1 million of the outstanding principal was repaid. The notes
bear interest at 15% per annum and are convertible into shares of the Company's
common stock at a conversion price of $0.75 per share, subject to an
anti-dilution adjustment for certain issuances of securities by the Company at
prices per share of common stock less than the conversion price then in effect,
in which event the conversion price is reduced to the lower price at which the
shares were issued. As a condition to extend the maturity date, holders of the
notes are to receive additional five-year common stock purchase warrants
exercisable at $0.75 per share if the Company has not entered into a purchase or
merger agreement on or before certain dates. Because such an agreement was not
entered into by December 31, 2003, the Company is obligated to issue 18.0
million additional warrants to these noteholders. The exercise price of the
warrants is subject to anti-dilution adjustments for certain issuances of
securities by the Company at prices per share of common stock less than the
exercise price then in effect in which event the exercise price is reduced to
the lower price at which such shares were issued. As of March 31, 2004, Mr.
Underbrink held individually a direct or indirect interest in $3.5 million
principal amount of the promissory notes issued in connection with the GECC
refinancing.

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

         In connection with the extension of the maturity date of $6.9 million
and $17.7 million of indebtedness described above, the Company agreed to extend
the expiration date of warrants to


                                      -51-
<PAGE>

purchase an aggregate of 33,070,277 shares of the Company's common stock to
December 31, 2004.

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


ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

         The following sets forth fees incurred by the Company for services
provided by Grant Thornton LLP for the years ended December 31, 2003 and 2002,
the Company's independent public accountant at those year ends:

             Audit Fees    Audit Related Fees    Tax Fees      All Other Fees

    2003     $106,186           $5,000             $38,250         $8,206
    2002     $187,801


         The Company's Board of Directors believes that the provision of the
services during the two years ended December 31, 2003 is compatible with
maintaining the independence of Grant Thornton LLP. The Company's Audit
Committee approves before the engagement the rendering of all audit and
non-audit services provided to the Company by its independent auditor.
Engagements to render services are not entered into pursuant to any pre-approval
policies and procedures adopted by the Audit Committee.


                                      -52-
<PAGE>

                                     PART IV

ITEM 16.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)    Exhibits

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

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

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

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

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

        10.6           Agreement for Purchase and Sale dated June 6, 1997
                       between Black Warrior Wireline Corp. and St. James
                       Capital Partners, L.P. (Filed as an exhibit to the
                       Company's Current Report on Form 8-K for June 6, 1997)

         10.7          $2,000,000 Convertible Promissory Note dated June 6, 1997
                       issued to St. James Capital Partners, L.P.
                       (Filed as an exhibit to the Company's Current Report on
                       Form 8-K for June 6, 1997)

        10.8           $3,000,000 Bridge Loan Promissory Note dated June 6, 1997
                       issued to St. James Capital Partners, L.P. (Filed as an
                       exhibit to the Company's Current Report on Form 8-K for
                       June 6, 1997)

        10.9           Warrant dated June 6, 1997 to purchase 546,000 shares of
                       Common Stock issued to St. James Capital Partners, L.P.
                       (Filed as an exhibit to the


                                      -53-
<PAGE>

                       Company's Annual Report on
                       Form 10-KSB for the year ended December 31, 1997).

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

        10.11          Registration Rights Agreement between Black Warrior
                       Wireline Corp. and St. James Capital Partners, L.P. dated
                       June 6, 1997. (Filed as an exhibit to the Company's
                       Current Report on Form 8-K for June 6, 1997)

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

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

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

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

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

        10.17          Agreement for Purchase and Sale dated October 9, 1997
                       between Black Warrior Wireline Corp. and St. James
                       Capital Partners, L.P. (Filed as an exhibit to the
                       Company's Current Report on Form 8-K for October 9,
                       1997).

        10.18          $2,900,000 Convertible Promissory Note dated October 10,
                       1997 issued to St. James Capital Partners, L.P. (Filed as
                       an exhibit to the Company's Current Report on Form 8-K
                       for October 9, 1997).


                                      -54-
<PAGE>

        10.19          Warrant dated October 10, 1997 to purchase 725,000 shares
                       of Common Stock issued to St. James Capital Partners,
                       L.P. (Filed as an exhibit to the Company's Current Report
                       on Form 8-K for October 9, 1997).

        10.20          Amendment No. 1 to Registration Rights Agreement between
                       Black Warrior Wireline Corp. and St. James Capital
                       Partners, L.P. dated October 10, 1997. (Filed as an
                       exhibit to the Company's Current Report on Form 8-K for
                       October 9, 1997).

        10.21          Asset Purchase Agreement dated as of January 1, 1998
                       between Black Warrior Wireline Corp. and Phoenix Drilling
                       Services, Inc. (Filed as an exhibit to the Company's
                       Current Report on Form 8-K for January 23, 1998).

        10.22          Agreement for Purchase and Sale dated January 23, 1998
                       between Black Warrior Wireline Corp. and St. James
                       Capital Partners, L.P. (Filed as an exhibit to the
                       Company's Current Report on Form 8-K for January 23,
                       1998).

        10.23          $10,000,000 Convertible Promissory Note dated January 23,
                       1998 issued to St. James Capital Partners, L.P. Filed as
                       an exhibit to the Company's Current Report on Form 8-K
                       for January 23, 1998).

        10.24          Warrant dated January 23, 1998 to purchase 200,000 shares
                       of Common Stock issued to St. James Capital Partners,
                       L.P. (Filed as an exhibit to the Company's Current Report
                       on Form 8-K for January 23, 1998).

        10.25          Amendment No. 2 to Registration Rights Agreement between
                       Black Warrior Wireline Corp. and St. James Capital
                       Partners, L.P. dated January 23, 1998. (Filed as an
                       exhibit to the Company's Current Report on Form 8-K for
                       January 23, 1998).

        10.26          [intentionally omitted]

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

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


                                      -55-
<PAGE>

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

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

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

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

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

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

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

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

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

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

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


                                      -56-
<PAGE>

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

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

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

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

        10.37.11       Fourth Amendment to Credit Agreement with General
                       Electric Capital Corporation entered into as of February
                       14, 2003. (Filed as an exhibit to the Company's Annual
                       Report on Form 10-K for the year ended December 31,
                       2002).

        10.37.12       Fifth Amendment to Credit Agreement with General Electric
                       Capital Corporation entered into as of April 14, 2003.
                       (Filed as an exhibit to the Company's Annual Report on
                       Form 10-K for the year ended December 31, 2002.)

        10.37.13       Sixth Amendment to Credit Agreement with General Electric
                       Capital Corporation entered into as of January 15, 2004.*

        10.37.14       Seventh Amendment to Credit Agreement with General
                       Electric Capital Corporation entered into as of March 31,
                       2004.*

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

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


                                      -57-
<PAGE>

        10.40.1        Employment Agreement dated June 1, 2003 between the
                       Company and Allen R. Neel.*


        10.41.1        Employment Agreement dated April 1, 2001 between the
                       Company and Danny R. Thornton.*

        10.41.2        Amendment to Employment Agreement dated April 1, 2001
                       between the Company and Danny R. Thornton.*

        14             Code of Ethics*

        21             Subsidiaries. The Company has no subsidiaries.

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

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

------------------------
 * Filed or furnished with this Annual Report on Form 10-K
 (b) Reports on Form 8-K.

  The Company did not file any Current Reports on Form 8-K during the quarter
ended December 31, 2003.


                                      -58-
<PAGE>



                                   SIGNATURES

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

         Dated: May 19, 2004


                                  BLACK WARRIOR WIRELINE CORP.


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


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


<TABLE>
<CAPTION>
Signature                                            Capacity                                    Date
---------                                            --------                                    ----


<S>                                        <C>                                              <C>
/s/ William L. Jenkins                     President,  CEO and Director                     May 19, 2004
-----------------------------              (Principal Executive Officer)
William L. Jenkins


/s/ Ron E. Whitter                         Vice President - Finance                         May 19, 2004
-----------------------------              (Principal Financial and Accounting Officer)
Ron E. Whitter


/s/ Charles E. Underbrink                  Director                                         May 19, 2004
-----------------------------
Charles E. Underbrink


/s/ James H. Harrison                      Director                                         May 19, 2004
-----------------------------
James H. Harrison
</TABLE>


                                      -59-

<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




Board of Directors
Black Warrior Wireline Corp.

We have audited the accompanying balance sheets of Black Warrior Wireline Corp.
(a Delaware corporation) as of December 31, 2003 and 2002, and the related
statements of operations, stockholders' deficit, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Black Warrior Wireline Corp. as
of December 31, 2003 and 2002, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9, as of December
31, 2003, the Company was in default of certain debt covenants of its Senior
Credit Facility. By amendment to the Credit Facility entered into as of March
31, 2004, all defaults were waived by the lenders. In addition, the Company
incurred a net loss of $5,537,940 during the year ended December 31, 2003, and,
as of that date, the Company's current liabilities exceeded its current assets
by $48,403,700 and its total liabilities exceeded its total assets by
$23,503,994. These factors, among others, as discussed in Note 2 to the
financial statements, raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

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



Grant Thornton
Houston, Texas
May 11, 2004


<PAGE>

PRICEWATERHOUSECOOPERS
----------------------
                                                      PRICEWATERHOUSECOOPERS LLP
                                                      1000 Morgan Keegan Tower
                                                      Fifty North Front St.
                                                      Memphis TN 38103-1193
                                                      Telephone (901) 522-2000
                                                      Facsimile (901) 523-2045



                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors and Shareholders
of Black Warrior Wireline Corporation

In our opinion, the statements of operations, stockholders' deficit, and cash
flows for the year ended December 31, 2001 (appearing on pages 59 through 61 of
the Black Warrior Wireline Corporation 2001 Annual Report to Shareholders which
has been incorporated by reference in this Form 10-K) present fairly, in all
material respects, the results of operations and cash flows of Black Warrior
Wireline Corporation for the year ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.


PricewaterhouseCoopers LLP



PricewaterhouseCoopers LLP
Memphis, TN
June 10, 2002, except for Note 16,
as to which the date is May 18, 2004


                                       2
<PAGE>

<TABLE>
<CAPTION>

BLACK WARRIOR WIRELINE CORP.
BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
----------------------------------------------------------------------------------------------------------------------------------
                                                                                             DECEMBER 31,         DECEMBER 31,
                                                                                                 2003                 2002
<S>                                                                                        <C>                  <C>
                                     ASSETS
Current assets:
     Cash and cash equivalents                                                             $   4,661,030        $   2,388,866
     Restricted cash                                                                             961,551                   --
     Accounts receivable, less allowance of $588,101 and $845,635, respectively                8,952,348           12,801,228
     Other receivables                                                                           179,317              130,540
     Prepaid expenses                                                                             92,471               15,320
     Other current assets                                                                      1,188,079              781,272
                                                                                         ----------------    -----------------
           Total current assets                                                               16,034,796           16,117,226
Inventories of tool components and sub-assemblies, net                                         5,206,639            4,936,347
Property, plant and equipment, less accumulated depreciation                                  18,219,437           24,569,343
Other assets                                                                                     448,507              888,411
Goodwill and other intangible assets                                                           1,492,050            3,159,782
                                                                                         ----------------    -----------------
                Total assets                                                               $  41,401,429        $  49,671,109
                                                                                         ----------------    -----------------

                         LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
     Accounts payable                                                                      $   4,981,558           $6,970,438
     Accrued salaries and vacation                                                               866,267            1,106,070
     Other accrued expenses                                                                    1,523,447            1,048,985
     Accrued interest payable                                                                     94,981              122,660
     Current maturities of long-term debt                                                     18,035,237           10,928,255
     Accrued interest payable to related parties                                              14,534,437                   --
     Notes payable to related parties, net of unamortized discount                            24,402,569                   --
                                                                                         ----------------    -----------------
           Total current liabilities                                                          64,438,496           20,176,408

Long-term debt, less current maturities                                                          356,952           12,370,084
Notes payable to related parties, net of unamortized discount                                         --           24,238,263
Non current accrued interest payable to related parties                                               --           10,798,224
Deferred revenue                                                                                 109,975              136,575
                                                                                         ----------------    -----------------
           Total liabilities                                                                  64,905,423           67,719,554
                                                                                         ----------------    -----------------

Commitments and contingencies (Notes 6,9,10,11,17 and 18)

Stockholders' deficit:
     Preferred stock, $.0005 par value, 2,500,000 shares authorized,
        none issued at December 31, 2003 or December 31, 2002                                         --                   --
     Common stock, $.0005 par value, 175,000,000 shares authorized,
         12,504,148 shares issued and outstanding at
         December 31, 2003 and December 31, 2002                                                   6,252                6,252
     Additional paid-in capital                                                               20,275,963           20,275,963
     Accumulated deficit                                                                     (43,141,023)         (37,603,083)
     Treasury stock, at cost, 4,620 shares at December 31, 2003 and December 31, 2002           (583,393)            (583,393)
     Loan to shareholder                                                                         (61,793)            (144,184)
                                                                                         ----------------    -----------------

           Total stockholders' deficit                                                       (23,503,994)         (18,048,445)
                                                                                         ----------------    -----------------
               Total liabilities and stockholders' deficit                                 $  41,401,429        $  49,671,109
                                                                                         ----------------    -----------------
</TABLE>

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

                                       3

<PAGE>

<TABLE>
<CAPTION>

BLACK WARRIOR WIRELINE CORP.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002 AND 2001
---------------------------------------------------------------------------------------------------------------------------------
                                                                          2003                  2002                   2001
<S>                                                                <C>                   <C>                    <C>

Revenues                                                           $    65,449,154       $    56,583,161        $    76,106,920

Operating costs                                                         44,618,964            40,313,634             48,993,968

Selling, general and administrative expenses                            10,583,219            10,648,650              8,897,983

Depreciation and amortization                                            7,691,720             8,040,892              6,629,064

Asset impairment                                                         3,113,968                    --                     --

Net loss on early extinguishment of debt (Note 16)                              --                    --              1,147,478

                                                                 ------------------    ------------------    -------------------
         Income (loss) from continuing operations                         (558,717)           (2,420,015)            10,438,427

Interest expense and amortization of debt discount                      (5,353,427)           (5,417,096)            (5,902,006)

Net gain on sale of fixed assets                                           243,628               177,059                 34,315

Other income                                                               130,576                83,450                 91,655
                                                                 ------------------    ------------------    -------------------

         Income (loss) before provision for income taxes,
             discontinued operations                                    (5,537,940)           (7,576,602)             4,662,391

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

         Income (loss) before discontinued operations                   (5,537,940)           (7,576,602)             4,662,391

Discontinued operations:

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

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

            Net income (loss)                                      $    (5,537,940)      $    (7,576,602)       $     5,039,724
                                                                 ==================    ==================    ===================
Net income (loss) per share - basic and diluted:
         Income (loss) before discontinued operations              $          (.44)      $          (.61)       $           .37
         Discontinued operations                                   $            --       $            --        $           .03
                                                                 ------------------    ------------------    -------------------
Net income (loss) per share - basic and diluted                    $          (.44)      $          (.61)       $           .40
                                                                 ==================    ==================    ===================
</TABLE>

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

                                        4
<PAGE>

<TABLE>
<CAPTION>

BLACK WARRIOR WIRELINE CORP.
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
---------------------------------------------------------------------------------------------------------------------------------

                                 LOAN TO             COMMON STOCK           PAID-IN       ACCUMULATED        TREASURY STOCK
                                               -------------------------                                 ------------------------
                               SHAREHOLDER      SHARES       PAR VALUE      CAPITAL         DEFICIT      SHARES        COST
                               ------------   ----------    ------------  -------------   ------------   -------   -------------
<S>                             <C>           <C>             <C>          <C>            <C>              <C>       <C>
Balance, December 31, 2000      $        --   12,496,408      $    6,248   $ 19,764,891   $(35,066,205)    4,620     $  (583,393)

Issuance of stock
     options to non-employees                                                    11,498


Issuance of warrants                                                            179,838

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

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

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

Loan to Shareholder                (144,184)

Conversion of employee options                     7,740               4          7,736

Discount on extension of notes                                                  287,000
     payable to related parties

Issuance of warrants                                                             25,000

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

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

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

Loan to Shareholder                  82,391

Net loss for the year ended
     December 31, 2003                                                                      (5,537,940)
                               ------------    ---------    ------------  -------------   ------------   -------   -------------
Balance, December 31, 2003      $   (61,793)   12,504,14      $    6,252   $ 20,275,963   $(43,141,023)    4,620    $   (583,393)
                               ============    =========    ============  =============   ============   =======   =============
</TABLE>


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

                                        5
<PAGE>

<TABLE>
<CAPTION>

BLACK WARRIOR WIRELINE CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
----------------------------------------------------------------------------------------------------------------------------------
                                                                                 2003               2002             2001
                                                                             --------------    ---------------   -------------
<S>                                                                           <C>               <C>              <C>
Cash flows from operating activities:

     Net income (loss)                                                        $ (5,537,940)     $  (7,576,602)   $  5,039,724
     Adjustments to reconcile net income (loss) to net cash provided by
         operating activities:
           Depreciation                                                          7,608,379          7,888,302       6,444,445
           Amortization                                                             83,341            152,590         184,619
           Asset impairment                                                      3,113,968                 --              --
           Amortization of debt issue costs                                        494,548            395,018         511,504
           Amortization of discount on notes payable                               164,306            138,223              --
           Amortization of loan to shareholder                                      82,391             45,816              --
           Provision for doubtful accounts                                        (257,534)          (112,938)        540,321
           Net gain on disposition of property, plant and equipment               (243,628)          (177,059)        (34,315)
           Gain on disposition of discontinued operations                               --                 --        (476,172)
           Issuance of shares as compensation for services                              --                 --          11,498
           Net loss on extinguishment of debt                                           --                 --       1,147,478
           Change in:
              Accounts receivable                                                4,106,414            668,428      (2,464,821)
              Prepaid expenses                                                     (77,151)             8,232         374,239
              Other receivables                                                         --            320,268        (405,681)
              Other current assets                                                (455,584)           (40,095)         87,070
              Inventories                                                         (270,292)          (657,214)        414,773
              Other assets                                                        (172,125)          (295,206)        160,568
              Loan to shareholder                                                       --           (190,000)             --
              Accounts payable and accrued liabilities                           1,954,318          4,843,589       4,814,556
                                                                             --------------    ---------------   -------------
                    Cash provided by operating activities                       10,593,411          5,411,352      16,349,806
                                                                             --------------    ---------------   -------------
Cash flows from investing activities:
     Acquisitions of property, plant and equipment                              (3,089,588)        (7,735,715)    (11,234,276)
     Restricted cash                                                              (961,551)                --              --
     Proceeds from sale of property, plant and equipment                           684,499            218,851         108,065
     Proceeds for sale of discontinued operations                                       --                 --         525,000
     Proceeds for sale of short term investments                                        --                 --          50,000
                                                                             --------------    ---------------   -------------
                    Cash used in investing activities                           (3,366,640)        (7,516,864)    (10,551,211)
                                                                             --------------    ---------------   -------------
Cash flows from financing activities:
     Proceeds from bank and other borrowings                                     5,434,046          5,650,206      18,184,796
     Principal payments on long-term debt, notes payable and
        capital lease obligations                                               (7,215,600)        (5,627,340)    (19,406,735)
     Proceeds (payments) from (on) working revolver, net                        (3,124,596)         1,905,962      (1,121,831)
     Debt issue costs                                                              (48,457)          (253,686)     (2,009,288)
                                                                             --------------    ---------------   -------------
                    Cash provided by (used in) financing activities             (4,954,607)         1,675,142      (4,353,058)
                                                                             --------------    ---------------   -------------
                    Net increase (decrease) in cash and cash equivalents         2,272,164           (430,370)      1,445,537
Cash and cash equivalents, beginning of year                                     2,388,866          2,819,236       1,373,699
                                                                             --------------    ---------------   -------------
Cash and cash equivalents, end of year                                        $  4,661,030      $   2,388,866    $  2,819,236
                                                                             --------------    ---------------   ------------

Supplemental disclosure of cash flow information: Cash paid during the year for:
        Interest                                                              $  1,644,893      $   1,687,093    $  2,471,434
                                                                             --------------    ---------------   -------------
        Income taxes                                                          $         --      $          --    $    205,000
                                                                             --------------    ---------------   -------------
</TABLE>

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

                                        6

<PAGE>

<TABLE>
<CAPTION>

BLACK WARRIOR WIRELINE CORP.
STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
----------------------------------------------------------------------------------------------------------------------------------
                                                                                   2003            2002             2001
                                                                                -----------    -------------    -------------
<S>                                                                             <C>              <C>              <C>
Supplemental schedule of noncash investing and financing activities:
     Acquisition of property, plant and equipment financed under capital
       leases and notes payable                                                 $  3,259,382     $3,821,555       $ 1,184,796

     Stock warrants issued                                                      $         --     $   25,000       $   179,838

     Discount on extension of notes payable to related parties                  $         --     $  287,000       $        --

</TABLE>





















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

                                       7

<PAGE>


BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
-------------------------------------------------------------------------------

NOTE 1 - GENERAL INFORMATION

Black Warrior Wireline Corp. (the "Company"), a Delaware corporation, is an oil
and gas service company currently providing various services to oil and gas well
operators primarily in the Black Warrior and Mississippi Salt Dome Basins in
Alabama and Mississippi, the Permian Basin in West Texas and New Mexico, the San
Juan Basin in New Mexico, Colorado and Utah, the East Texas and Austin Chalk
Basins in East Texas, the Powder River and Green River Basins in Wyoming and
Montana, Williston Basin in North Dakota and the Gulf of Mexico offshore of
Louisiana and Texas. The Company's principal lines of business include (a)
wireline services and (b) directional oil and gas well drilling activities and
downhole surveying services. As is further described in Note 21, the Company is
proposing to sell the assets and business of its directional drilling division.

NOTE 2 - LIQUIDITY

The Company reported net income (loss) for the years ended December 31, 2003,
2002, and 2001 of approximately ($5,550,000), ($7,600,000) and $5,000,000,
respectively. Cash flows provided by operations were approximately $10,600,000,
$5,400,000 and $16,350,000 for the years ended December 31 2003, 2002, and 2001,
respectively. The Company is highly leveraged. The Company's outstanding
indebtedness includes primarily senior indebtedness aggregating approximately
$17.6 million at December 31, 2003, other indebtedness of approximately $0.8
million and approximately $39.1 million (including approximately $14.5 million
of accrued interest) owing to St. James Merchant Bankers, L.P. ("SJMB") and St.
James Capital Partners, L.P. ("SJCP") (collectively "St. James") and its
affiliates and directors, who are related parties. The Company's debt and
accrued interest owed to related parties is convertible into common stock and is
subordinate to the Senior Credit Facility (see Note 9). In addition, no
repayments of the related party debt or accrued interest can be made until the
Senior Credit Facility is completely extinguished.

As discussed in Note 9, prior to June 10, 2002 and March 31, 2004, the Senior
Credit Facility was subject to affirmative and general covenants and certain
financial covenants. The Company was in violation of certain of these covenants
as of December 31, 2001, December 31, 2003 and January 31, 2004 resulting in an
event of default. These covenant violations also resulted in violations and
events of default of the subordinated debt under the cross default provisions of
the subordinated debt agreements. All covenant violations and events of default
were waived as of June 10, 2002 and March 31, 2004 by the respective
debt-holders.

Through March 31, 2004, the Company has amended the terms of its Senior Credit
Facility with GECC on seven occasions, the principal effects of which were to
relax certain of the terms of the financial covenants so as to be more favorable
to the Company. In connection with the March 31, 2004 amendment to the Credit
Facility, the Company is required to maintain a cumulative operating cash flow
commencing with the month ended February 29, 2004 (see Note 9 for specified
amounts by month and period).

Strong and stable market conditions and the Company's ability to meet intense
competitive pressures are essential to the Company's maintaining a positive
liquidity position and meeting debt covenant requirements. Decreases in market
conditions or failure to mitigate competitive pressures could result in
non-compliance with its debt covenants and the triggering of the prepayment
clauses of the Company's debt. The Company believes that if market conditions
remain stable during 2004, the Company will be able to generate sufficient cash
flow to meet its working capital needs and comply with its debt covenants until
the maturity of its Senior Credit Facility on September 14, 2004. If market
conditions decline significantly, the Company may be required to obtain
additional amendments to its Senior Credit Facility, or obtain capital through
equity contributions or financing, including a possible merger or sale of
assets, or other business combination.

During the year ended December 31, 2004, the Company's Credit Facility with
General Electric Credit Corporation will expire. At that time, an estimated
$14.1 million in senior secured indebtedness will mature and be payable. In
addition, on December 31, 2004, an additional $42.8 million of subordinated
secured indebtedness, including accrued interest, will be repayable under the
terms of loan agreements entered into between the Company and the holders of
that indebtedness. The Company's plans for the reorganization, repayment or
refinancing of this indebtedness include the sale of its directional drilling
division and the application of the net proceeds to the reduction of its senior
secured indebtedness. While the Company has no specific plans for the further
reorganization, restructuring or refinancing of its outstanding indebtedness
subsequent to the consummation of the

                                       8
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
-------------------------------------------------------------------------------

sale of its directional drilling segment, the Company intends to continue its
efforts commenced initially in late 2001 and intensified thereafter in 2003,
through Simmons & Company International as its financial advisor, to examine
various alternative means to maximize its value to shareholders and repay,
refinance or restructure its indebtedness. These efforts are expected to include
efforts regarding a possible merger, sale of the wireline business assets or
other business combination involving the Company. These efforts are also
expected to include efforts regarding a possible reorganization,
recapitalization, restructuring and refinancing of the Company's obligations on
its balance sheet in order to maximize its value to shareholders and repay its
existing obligations. At April 8, 2004, the Company has not entered into any
definitive agreements with respect to any such transactions and there can be no
assurance that any definitive agreements will be entered into or that the
Company will be successful in pursuing its plans for the reorganization,
repayment or refinancing of its outstanding indebtedness. In the event the
Company's plans are unsuccessful, the Company's secured creditors could assert
their rights to foreclose on the Company's assets and a stockholder's investment
in the Company could be lost. The Company intends to engage in ongoing efforts
to pursue its plans.

As a result of the above factors, there is substantial doubt about the Company's
ability to continue as a going concern. The accompanying financial statements do
not include any adjustments relating to the recoverability and classification of
the asset-carrying amounts or the amounts and classifications of liabilities
that might result should the Company be unable to continue as a going concern.


NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

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

RESTRICTED CASH - Restricted cash refers to the cash receipts from customer
sales that are allocated to the repayment of the revolving line of credit,
therefore, these funds are not available to the Company for general corporate
use.

ACCOUNTS RECEIVABLE - Included in accounts receivable are recoverable costs and
related profits not billed, which consist primarily of revenue recognized on
contracts for which billings had not been presented to the contract owners.
Unbilled amounts included in accounts receivable totaled $468,696 and $829,458
at December 31, 2003 and 2002, respectively.

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

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

LAND AND BUILDING, HELD FOR SALE - Land and building held for sale is stated at
the lower of cost or estimated net realizable value. During 2001, the Company
sold land held for sale with a cost of approximately $93,000 and recognized a
gain of approximately $10,000. The remaining land and building held for sale was
reclassified back into property, plant and equipment due to the absence of a
sale since 2001.

PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is stated at cost.
The cost of maintenance and repairs is charged to expense when incurred; the
cost of betterments is capitalized. The cost of assets sold or otherwise
disposed of and the related accumulated depreciation are removed from the
accounts and the gain or loss on such disposition is included in income.
Depreciation is computed using the straight-line method over the

                                       9
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
-------------------------------------------------------------------------------

estimated useful lives of the assets, which range from two to ten years. At
December 31, 2003 and 2002, significantly all of the property, plant and
equipment has been pledged as collateral for the Company's borrowings (see
Note 9).

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

During 2003, management evaluated the recoverability of its long-lived assets
in relation to its business segments. The analysis was first performed on an
undiscounted cash flow basis, which indicated impairment in its directional
drilling segment. The impairment was then calculated using an analysis of
proposed sale prices for the directional drilling segment. As the value of
implied goodwill was zero, the amount of the impairment was limited to the
carrying amount for the directional drilling segment, or $1.7 million. The
assumptions used in this analysis represent management's best estimates of
future activity.

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

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

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

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

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

STOCK-BASED COMPENSATION - At December 31, 2003, the Company has three
stock-based employee compensation plans, which are described more fully in Note
17. The Company accounts for those plans under the recognition and measurement
principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees",
and related Interpretations. No stock-based employee compensation cost is
reflected in net income, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net income and
earnings per share if the company had applied the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", to
stock-based employee compensation.

                                       10

<PAGE>

<TABLE>
<CAPTION>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
---------------------------------------------------------------------------------------------------------------




                                                                          YEAR ENDED DECEMBER 31
                                                            ---------------------------------------------------

                                                                   2003              2002              2001
                                                                   ----              ----              ----
<S>                                                           <C>                <C>               <C>
         Net income (loss), as reported                       $ (5,537,940)      $(7,576,602)      $ 5,039,724
         Add (deduct):  Total stock-based employee
         compensation expense determined under fair value
         based method for all awards, net of related tax
         effects                                                   423,110          (201,289)       (2,181,199)
                                                            --------------       ------------      -----------
         Pro forma net income (loss)                          $ (5,114,830)      $(7,777,891)      $ 2,858,525
                                                            ==============       ============      ===========
         Earnings (loss) per share:
             Basic - as reported                                     $(.44)            $(.61)             $.40
                                                                     ======            ======             ====
             Basic - pro forma                                       $(.41)            $(.62)             $.23
                                                                     ======            ======             ====
             Diluted - as reported                                   $(.44)            $(.61)             $.40
                                                                     ======            ======             ====
             Diluted - pro forma                                     $(.41)            $(.62)             $.23
                                                                     ======            ======             ====
</TABLE>

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

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

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

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

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

SEGMENT REPORTING - The Company reports its business segments in accordance with
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", which establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports. Financial information is required to be reported on the basis
that is used internally for evaluating segment performance and deciding how to
allocate resources to segments. The financial information required includes a
measure of segment profit or loss, certain specific revenue and expense items,
segment assets and a reconciliation of each category to the general financial

                                       11

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
-------------------------------------------------------------------------------

statements. The descriptive information required includes the way that the
operating segments were determined, the products and services provided by the
operating segments, differences between the measurements used in reporting
segment information and those used in the general purpose financial statements
and changes in the measurement of segment amounts from period to period (see
Note 21).

RECENT ACCOUNTING PRONOUNCEMENTS - In April 2002, the FASB issued FAS 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections", which is effective for transactions
occurring after May 15, 2002. FAS 145 rescinds FAS 4 and FAS 64, which addressed
the accounting for gains and losses from extinguishment of debt. FAS 44 set
forth industry-specific transitional guidance that did not apply to the Company.
FAS 145 amends FAS 13 to require that certain lease modifications that have
economic effects similar to sale-leaseback transactions be accounted for in the
same manner as sale-leaseback transactions. FAS 145 also makes technical
corrections to certain existing pronouncements that are not substantive in
nature. Due to the adoption of FAS 145, the Company reclassified the early
extinguishment of debt in 2001 from an extraordinary item to continuing
operations in 2003.

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


In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities."
FIN 46 addresses when a company should consolidate in its financial statements
the assets, liabilities and activities of a variable interest entity (VIE). It
defines VIEs as entities that either do not have any equity investors with a
controlling financial interest, or have equity investors that do not provide
sufficient financial resources for the entity to support its activities without
additional subordinated financial support. FIN 46 also requires disclosures
about VIEs that a company is not required to consolidate, but in which it has a
significant variable interest. The consolidation requirements of FIN 46 applied
immediately to variable interest entities created after January 31, 2003. The
Company has not obtained an interest in a VIE subsequent to that date. A
modification to FIN 46 (FIN 46(R)) was released in December 2003. FIN 46(R)
delayed the effective date for VIEs created before February 1, 2003, with the
exception of special-purpose entities, until the first fiscal year or interim
period ending after March 15, 2004. FIN 46(R) delayed the effective date for
special-purpose entities until the first fiscal year or interim period after
December 15, 2003. The Company is not the primary beneficiary of any SPEs at
December 31, 2003. The Company will adopt FIN 46(R) for non-SPE entities as of
March 31, 2004. The adoption of FIN 46 did not result in the consolidation of
any VIEs, nor is the adoption of FIN 46(R) expected to result in the
consolidation of any VIEs. The Company is continuing to evaluate the impact FIN
46(R) will have on its financial statements.

In May 2003, the FASB issued Statement 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This Statement
establishes standards for classifying and measuring certain financial
instruments that have characteristics of both liabilities and equity. The
guidance in Statement 150 became effective June 1, 2003, for all financial
instruments created or modified after May 31, 2003, and otherwise became
effective as of July 1, 2003. In November 2003, the FASB deferred for an
indefinite period the application of the guidance in Statement 150 to
non-controlling interests that are classified as equity in the financial
statements of a subsidiary but would be classified as a liability in the
parent's financial statements under Statement 150. The deferral is limited to
mandatorily redeemable non-controlling interests associated with finite-lived
subsidiaries. Management does not believe it has any involvement with such
entities as of December 31, 2003, nor any financial instruments subject to this
statement.

                                       12
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
-------------------------------------------------------------------------------

NOTE 4 - OTHER INTANGIBLE ASSETS

Other intangible assets consist of a non-compete agreement associated with the
purchase of Big Gun Perforating, Inc. The agreement is reported under goodwill
and other intangible assets on the balance sheet and is being amortized on a
straight-line basis over five years, the life of the contract. The gross
carrying amount of the agreement was $386,425 on December 31, 2003 and $249,175
on December 31, 2002. Accumulated amortization totaled $131,792 as of December
31, 2003.


       Aggregate amortization expense:
            For the year ended December 31, 2002             $49,835
            For the year ended December 31, 2003             $81,956

       Estimated amortization expense:
            For the year ended December 31, 2004             $128,568
            For the year ended December 31, 2005             $128,568




NOTE 5 - ACQUISITIONS

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

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

NOTE 6 - RELATED PARTY TRANSACTIONS

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

The Company has executed notes payable to SJMB and SJCP. The chairman and an
employee of SJMB, L.L.C., the general partner of SJMB, both serve on the
Company's Board of Directors. At December 31, 2003 and 2002, notes due to SJMB,
SJCP and related parties totaled $23,566,882 and $23,566,882, respectively. The
notes bear interest at 15%. Interest expense and accrued interest associated
with these notes were as follows:

                                       13
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
-------------------------------------------------------------------------------



                                       2003           2002           2001
                                    -----------    -----------    ----------

Interest expense                    $ 3,535,000    $ 3,535,000    $3,216,000
Accrued interest                    $13,551,000    $10,016,000    $6,432,000



The Company borrowed $1,000,000 from Falcon Seaboard Investment Co., L.P.
("Falcon Seaboard"), which is affiliated with SJMB. The note bears interest at
15% with the principal and interest due in December 2004. Accrued interest
payable on this borrowing totaled approximately $660,000 and $508,000 as of
December 31, 2003 and 2002, respectively. Interest expense on this note
approximated $150,000, $150,000 and $140,000 for each of the three years ended
December 31, 2003, 2002 and 2001, respectively.

The Company has agreed to pay to SJMB a fee of approximately $274,000 in
consideration of SJMB providing cash collateral of $8.2 million deposited to
secure the performance of the continuing guaranty extended by SJMB of the
Company's former financing arrangement with Coast Business Credit ("Coast"), a
financial institution. In addition, SJMB, L.L.C., the general partner of SJMB,
received a fee in September 2001 of $200,000 for services provided by SJMB,
L.L.C. in connection with the Company acquiring a credit facility from GECC (see
Note 9). Under the terms of the Credit Facility, the Company is restricted from
paying any further sums to either SJMB or SJMB, L.L.C.. This payable is included
in current liabilities at December 31, 2003.

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

On June 17, 1999, the Company sold approximately $329,000 of trade accounts
receivable, which was fully reserved due to the customer declaring bankruptcy,
to RJ Air, LLC, an entity affiliated with a former member of the Company's Board
of Directors, for $200,000. As of December 31, 2003, the Company has collected
$100,000 of the sale price and the remaining $100,000 is included in deferred
revenue.

In connection with the five year employment agreement effective January 1, 2002
entered into with Mr. Jenkins to remain as the Company's President and Chief
Executive Officer, the Company agreed to loan Mr. Jenkins $190,000, bearing
interest at the applicable federal rate, to be repaid at the rate of one-third
of the principal, plus accrued interest on October 1 of each of the years 2002,
2003 and 2004. If Mr. Jenkins remains employed by the Company on September 30
preceding the date annual principal and interest is due on the loan, the sum due
and owing the following day is forgiven. In the event of a Change of Control, as
defined, the death or permanent disability of Mr. Jenkins or in the event his
employment is terminated without cause, the entire amount owing by Mr. Jenkins
is forgiven. The Company is amortizing the loan balance into compensation cost
over the life of the loan. Compensation expense related to the loan for the
years ended December 31, 2003 and 2002 was approximately $82,000. The
unamortized balance at December 31, 2003 was $61,793.

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

NOTE 7 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment include the following at December 31, 2003 and
2002:

                                       14
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
-------------------------------------------------------------------------------

                                                   2003               2002
                                              --------------    ---------------

Land and building                             $     401,250     $      401,250
Vehicles                                         14,672,731         14,106,273
Operating equipment                              41,758,200         41,446,918
Office equipment                                  1,081,500            986,457
                                              --------------    ---------------
                                                 57,913,681         56,940,898
Less: accumulated depreciation                   39,694,244         32,371,555
                                              --------------    ---------------

        Net property, plant and equipment     $  18,219,437     $   24,569,343
                                              ==============    ===============


Depreciation expense for the years ended December 31, 2003, 2002 and 2001 was
$7,608,383, $7,888,302 and $6,444,445, respectively.


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

In contrast to accounting standards in effect during 2001, SFAS 142, Goodwill
and Other Intangible Assets, which became effective beginning in 2002, provides
that goodwill, as well as identifiable intangible assets with indefinite lives,
should not be amortized. Accordingly, with the adoption of SFAS 142 in 2002, the
Company discontinued the amortization of goodwill and indefinite-lived
intangibles. In addition, useful lives of intangible assets with finite lives
were reevaluated on adoption of SFAS 142. In 2003, in connection with the
Company's plans to dispose of its directional drilling division, management
analyzed under SFAS 142 the carrying value of its goodwill carried on its
balance sheet arising out of the 1997 acquisition of Diamondback Directional,
Inc and the 1998 acquisition of Phoenix Drilling Services. This analysis
resulted in a charge to operations for the year ended December 31, 2003 in the
amount of approximately $1.7 million. The information presented below reflects
adjustments to information reported in 2001 as if SFAS 142 had been applied in
2001. The adjustments include the effects of not amortizing goodwill and
indefinite-lived intangible assets and the modification in the estimated useful
lives of intangible assets with finite lives. The balance in unamortized
goodwill was $1,237,417 and $2,960,442 at December 31, 2003 and 2002,
respectively.

<TABLE>
<CAPTION>
                                                        -----------------------------------------------------------
                                                                          Year ended December 31,
                                                        -----------------------------------------------------------
                                                               2003                 2002                2001
<S>                                                      <C>                    <C>                <C>
Reported net income (loss)                               $   (5,537,940)        $(7,576,602)       $   5,039,724
       Add:  Goodwill amortization, net of tax                                                           157,660
                                                        -------------------    ---------------    -----------------
Adjusted net income (loss)                                   (5,537,940)         (7,576,602)           5,197,384
                                                        ===================    ===============    =================
Basic and diluted earnings per share:
       Reported net income (loss)                        $        (0.44)        $     (0.61)       $        0.40
       Goodwill amortization, net of tax                             --                  --                 0.01
                                                        -------------------    ---------------    -----------------
Adjusted net income (loss)                               $        (0.44)        $     (0.61)       $        0.41
                                                        ===================    ===============    =================
</TABLE>






                                       15
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
-------------------------------------------------------------------------------

NOTE 9 - LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS

At December 31, 2003 and 2002, long-term debt and other financing arrangements
consisted of the following:

<TABLE>
<CAPTION>
                                                                                            2003            2002
                                                                                        ------------    -------------
<S>                                                                                     <C>             <C>
Installment notes payable, monthly payments required in varying amounts
 through March 2008, interest at rates ranging from 2.90% to 8.25%.                     $   814,337     $    993,423

Notes payable to General Electric Capital Corporation, monthly payments of
 $283,333 through September 2004, interest at prime plus 2.50% (6.50% at
 December 31, 2003).                                                                      9,332,667       12,732,667

Revolving line of credit to General Electric Capital Corporation, interest at prime
 plus 1.75%  (5.75% at December 31, 2003).                                                3,159,927        6,284,523

Capital expenditure line of credit to General Electric Capital Corporation, interest
at prime
plus 2.50%  (6.50% at December 31, 2003).                                                 5,085,258        3,057,726

Note payable to former owner of Dyna Jet, Inc. due and payable in November
2003 with interest at the rate of the lesser of $1,500 per month or 8% per
annum on unpaid balance.                                                                         --          230,000
                                                                                        ------------    -------------
                                                                                         18,392,189       23,298,339
        Less:
           Current maturities of long-term debt (see below)                              18,035,237       10,928,255
                                                                                        ------------    -------------


        Long-term debt, less current maturities                                         $   356,952     $ 12,370,084
                                                                                        ------------    -------------
</TABLE>








                                       16
<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
-------------------------------------------------------------------------------

Notes payable to related parties consist of the following at December 31, 2003
and 2002:

<TABLE>
<CAPTION>
                                                                                             2003            2002
                                                                                          ------------    -----------
<S>                                                                                       <C>            <C>
7%, increased to 15% effective March 17, 2001, convertible note payable to SJCP,
principal and interest originally due October 1999, extended to December 2004.
Convertible at $0.75 per share at any time up to 30 business days following maturity      $ 2,900,000    $ 2,900,000

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

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

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

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

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

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

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

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

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

                                                                                           24,566,882     24,566,882
        Less:
           Current maturities of notes payable to related parties (see below)              24,402,569             --
           Unamortized discount on notes payable                                              164,313        328,619
                                                                                          ------------   ------------

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


On September 14, 2001, the Company entered into the Credit Facility with GECC
providing for the extension of revolving, term and capex credit facilities to
the Company aggregating up to $40.0 million. The Company and GECC entered into
amendments to the Credit Facility in January 2002, June 2002, October 2002,
February 2003 and
                                       17

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------------------------------------------


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

Initial borrowings under the Credit Facility advanced on September 14, 2001
aggregated $21.6 million. Proceeds of the initial borrowings were used to repay
outstanding indebtedness aggregating $21.4 million to Coast Business Credit,
Bendover Company and certain other indebtedness. At December 31, 2003,
borrowings outstanding under the Credit Facility aggregated $17.6 million, of
which $3.2 million was outstanding under the revolving loan, $9.3 million was
outstanding under the term loan and $5.1 was outstanding under the capex loan.
Borrowings under the revolving loan are able to be repaid and re-borrowed from
time to time for working capital and general corporate needs, subject to the
Company's continuing compliance with the terms of the agreement, with the
outstanding balance of the revolving loan to be paid in full at the expiration
of the Credit Facility on September 14, 2004. The term loan is to be repaid in
35 equal monthly installments of $283,333 with a final installment of $7,083,333
due and payable on September 14, 2004. At December 31, 2003 the Company had
available $2.4 million under the revolving loan. No further advances are
permitted on the capex loan beyond June 2004 and it is to be repaid in equal
monthly installments of 1/60th of each of the amounts borrowed from time to time
with the remaining outstanding balance of the entire capex loan due and payable
on September 14, 2004.

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

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


                                       18

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------------------------------------------


decline in the "Average Rig Count" (excluding Canada and international rigs)
published by Baker Hughes, Inc. falling below 675 for 12 consecutive weeks.

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

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

As amended through March 2004, the financial covenant the Company is required to
maintain a cumulative operating cash flow at the end of each month, commencing
with the month ended February 29, 2004, increasing as follows:

<TABLE>
<CAPTION>
                       FISCAL MONTH                        CUMULATIVE OPERATING CASH FLOW
                       ------------                        ------------------------------

<S>                                                                  <C>
         For the 1 Months Ending February 29, 2004                    $(50,000)

         For the 2 Months Ending March 31, 2004                       $200,000

         For the 3 Months Ending April 30, 2004                       $500,000

         For the 4 Months Ending May 31, 2004                         $850,000

         For the 5 Months Ending June 30, 2004                       $1,350,000

         For the 6 Months Ending July 31, 2004                       $2,000,000
</TABLE>


                                       19

<PAGE>


BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------------------------------------------


Cumulative operating cash flow is defined, for the period February 29, 2004
through July 31, 2004, as the sum of earnings before interest, taxes
depreciation and amortization ("EBITDA") for such month minus capital
expenditures paid in cash for such month plus EBITDA for each preceding month
commencing on February 1, 2004 minus capital expenditures paid in cash for each
preceding month commencing February 1, 2004.

For the period ended December 31, 2003 and January 31, 2004, the Company was not
in compliance with the cumulative operating cash flow covenant which was waived
by GECC by the amendment of March 2004.

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

The Company has amended the terms of its Credit Facility with GECC on seven
occasions, the principal effects of which were to relax certain of the terms of
the financial covenants so as to be more favorable to the Company. There can be
no assurance that the Company will be able to obtain further amendments to these
financial covenants if required or that the failure to obtain such amendments
when requested may not result in the Company being placed in violation of those
financial covenants. Before reflecting amendments to the Credit Facility made in
March 2004, the Company was in violation of the financial covenant relating to
its cumulative operating cash flow. By amendment to the Credit Facility entered
into as of March 31, 2004, GECC waived this default as well. The Company agreed
to pay GECC a fee of $35,000 in connection with entering into the amendment.

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

Reference is made to the Credit Agreement, filed as an Exhibit to the Company's
Current Report on Form 8-K for September 14, 2001, the First and Second
Amendments thereto, filed as exhibits to the Company's Annual Report on Form
10-K for the year ended December 31, 2001, the Third Amendment thereto, filed as
an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002, the Fourth Amendment and Fifth Amendment, filed as Exhibits
to the Annual Report on Form 10-K for the year ended December 31, 2002, and the
Sixth and Seventh amendment filed as Exhibits to this Annual Report on Form 10-K
for the year ended December 31, 2003, for a complete statement of the terms and
conditions.

In connection with the GECC refinancing, the Company agreed with the holders of
the $7.0 million principal amount of promissory notes to extend the maturity
date from June 30, 2001 to December 31, 2004 on $6.9 million of the $7.0 million
promissory notes. The remainder of the outstanding principal was repaid. The
notes bear interest at 15% per annum and are convertible into shares of the
Company's common stock at a conversion price of $0.75 per share, subject to an
anti-dilution adjustment for certain issuances of securities by the Company at
prices per share of


                                       20

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------------------------------------------


common stock less than the conversion price then in effect, in which event the
conversion price is reduced to the lower price at which the shares were issued.
The Company repaid approximately $83,000 to noteholders who chose not to extend
the maturity dates and St. James purchased $1.6 million from noteholders who
chose not to extend the maturity dates. As a condition to extend the maturity
date, holders of the notes are to receive additional five-year common stock
purchase warrants exercisable at $0.75 per share, originally valued at $0.01, if
the Company has not entered into a purchase or merger agreement on or before
certain dates. Because such an agreement was not entered into by December 31,
2001, the Company became obligated to issue approximately 2.4 million additional
warrants. Because such an agreement was not entered into by December 31, 2002,
the Company became obligated to issue approximately 5.2 million additional
warrants. Because such agreement was not entered into by December 31, 2003 the
Company became obligated to issue approximately 10.4 million additional
warrants. Under the terms of the note extensions, because the Company did not
enter into a purchase or merger agreement by December 31, 2003 with a closing
date no later than March 31, 2004, an aggregate of 18.0 million additional
warrants are due to be issued. The exercise price of the warrants that are to be
issued are subject to anti-dilution adjustments for certain issuances of
securities by the Company at prices per share of common stock less than the
exercise price then in effect in which event the exercise price is reduced to
the lower price at which such shares were issued.

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

All of the debt and interest owed to St. James and its affiliates is
subordinated to the Company's Credit Facility and cannot be repaid until all the
amounts owed pursuant to the Credit Facility have been repaid.

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

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

Maturities of debt are as follows:

FISCAL YEAR
-----------

2004                                                                $42,602,119
2005                                                                    356,952
2006                                                                         --
2007                                                                         --
2008                                                                         --
Thereafter                                                                   --
                                                                    -----------
                                                                    $42,959,071
                                                                    -----------


NOTE 10 - COMMITMENTS

The Company leases land, office space and equipment under various operating
leases. The leases expire at various dates through 2007. Rent expense was
approximately $3,117,000, $2,763,000 and $2,572,000 for the years ended December
31, 2003, 2002 and 2001, respectively.


                                       21

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------------------------------------------


The future minimum lease payments required under noncancelable leases with
initial or remaining terms of one or more years at December 31, 2003 were as
follows:

                                                                   OPERATING
                                                                     LEASES
                                                                   ------------
FISCAL YEAR
-----------
2004                                                                 $  591,384
2005                                                                    381,743
2006                                                                    214,036
2007                                                                     50,688
2008                                                                         --
Thereafter                                                                   --
                                                                     ----------
           Total minimum lease payments                              $1,237,851
                                                                     ----------


NOTE 11 - COMMON STOCK TRANSACTIONS

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


<TABLE>
<CAPTION>
                                                                                                          AMOUNT
  MONTH OF           MONTH OF                                                                          RECORDED TO
    BOARD            ISSUANCE/                                           NUMBER          AMOUNT       STOCKHOLDERS'
  APPROVAL           PURCHASE                DESCRIPTION                OF SHARES       PER SHARE        DEFICIT
-------------        ---------               -----------                ---------       ---------     -------------

<S>                 <C>               <C>                               <C>              <C>           <C>
December 1999       January 2000      Issuance to Bendover in
                                      settlement of litigation          2,666,667        $  .75        $ 2,000,000
December 2000       December 2000     Issuance to SJMB upon
                                      conversion                        5,017,481        $  .75        $ 3,763,111
</TABLE>


As of December 31, 2003, the Company's certificate of incorporation permits it
to issue up to 175,000,000 shares of common stock, of which 12,504,148 shares
were issued and outstanding at December 31, 2003 and 2002. The Company has
outstanding as of December 31, 2003 and 2002 common stock purchase warrants,
options and convertible debt securities entitled to purchase or be converted
into an aggregate of 140,180,544 and 132,402,882 shares, respectively, of the
Company's common stock at exercise and conversion prices ranging from $0.75 to
$8.01.

NOTE 12 - STOCK WARRANTS

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

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

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


                                       22

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------------------------------------------


SJCP in connection with the Company's borrowings from Coast in 2000 and the
guarantees of the Chairman of SJMB, L.L.C. and SJCP of that indebtedness.

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

During 1999, the Company issued warrants to purchase shares of the Company's
common stock with the issuance of certain debt (see Note 9). The warrants gave
the holders the right to purchase up to 1,075,000 shares at $1.50 (2,150,000
shares at $0.75 as adjusted for anti-dilution) and 14,350,000 shares at $0.75.
The warrants expire December 31, 2004.

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


                                       23

<PAGE>

<TABLE>
<CAPTION>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
------------------------------------------------------------------------------------------------------------------------------------


                                                                          GUARANTOR
                              DEBT                                       AFFILIATED
                           CONVERSION     SJCP       SJCP        SJCP     WITH SJCP     SJMB        SJMB         SJMB        SJMB
                             $2.00       $2.75      $4.6327     $0.75       $0.75       $6.75       $2.25        $1.50       $0.75
                            EXPIRES     EXPIRES     EXPIRES    EXPIRES     EXPIRES     EXPIRES     EXPIRES      EXPIRES     EXPIRES
                            09/30/01    12/31/04   12/31/04   02/28/07    02/28/07    12/31/04    12/31/04     12/31/04    12/31/04
------------------------------------------------------------------------------------------------------------------------------------

<S>                         <C>        <C>         <C>         <C>         <C>       <C>          <C>          <C>         <C>
Balance, 12/31/00            234,750   2,442,000   4,478,277        --          --   16,200,000   3,499,999    2,150,000   3,075,000


2001 expiration             (234,750)


2001 issuance                                                  400,000     700,000
------------------------------------------------------------------------------------------------------------------------------------
Balance, 12/31/01                 --   2,442,000   4,478,277   400,000     700,000   16,200,000   3,499,999    2,150,000   3,075,000
------------------------------------------------------------------------------------------------------------------------------------


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


2002 issuance
------------------------------------------------------------------------------------------------------------------------------------
Balance, 12/31/02                 --   2,442,000   4,478,277   400,000     700,000   16,200,000   3,499,999    2,150,000   3,075,000
------------------------------------------------------------------------------------------------------------------------------------


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


2003 expiration


2003 issuance
------------------------------------------------------------------------------------------------------------------------------------
Balance, 12/31/03                 --   2,442,000   4,478,277   400,000     700,000   16,200,000   3,499,999    2,150,000   3,075,000
------------------------------------------------------------------------------------------------------------------------------------


Exercise price, 12/31/03          --       $0.75       $0.75     $0.75       $0.75        $0.75       $0.75        $0.75       $0.75
</TABLE>

<TABLE>
<CAPTION>

                                                 LENDERS     LENDERS     LENDERS                           W. L. JENKINS
                                                AFFILIATED  AFFILIATED  AFFILIATED  FALCON    HARRIS WEBB   EMPLOYMENT
                             SJMB       SJMB     WITH SJMB   WITH SJMB   WITH SJMB  SEABOARD   & GARRISON    AGREEMENT
                             $0.75      $0.75      $0.75       $0.75       $0.75     $6.75       $6.05         $0.75
                            EXPIRES    EXPIRES    EXPIRES     EXPIRES     EXPIRES   EXPIRES     EXPIRES       EXPIRES
                           12/31/06   12/31/07   12/31/04    12/31/06    12/31/07  12/31/04    3/15/03       12/31/06      TOTAL
-----------------------------------------------------------------------------------------------------------------------------------

<S>                         <C>      <C>        <C>         <C>         <C>        <C>          <C>          <C>         <C>
Balance, 12/31/00                --         --  28,125,000         --          --  1,800,000     384,618            --   62,389,644


2001 expiration                                                                                                            (234,750)


2001 issuance                                                                                                             1,100,000
-----------------------------------------------------------------------------------------------------------------------------------
Balance, 12/31/01                --         --  28,125,000         --          --  1,800,000     384,618            --   63,254,894
-----------------------------------------------------------------------------------------------------------------------------------


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


2002 issuance               682,500         --              1,738,409                                        2,500,000    4,920,909
-----------------------------------------------------------------------------------------------------------------------------------
Balance, 12/31/02           682,500         --  28,125,000  1,738,409          --  1,800,000     384,618     2,500,000   68,175,803
-----------------------------------------------------------------------------------------------------------------------------------


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


2003 expiration                                                                                 (384,618)                  (384,618)


2003 issuance                        1,462,500                          3,725,162                                         5,187,662
-----------------------------------------------------------------------------------------------------------------------------------
Balance, 12/31/03           682,500  1,462,500  28,125,000  1,738,409   3,725,162  1,800,000          --     2,500,000   72,978,847
-----------------------------------------------------------------------------------------------------------------------------------


Exercise price, 12/31/03      $0.75      $0.75       $0.75      $0.75       $0.75      $0.75                     $0.75
</TABLE>


                                       24

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------------------------------------------


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

NOTE 13 - INCOME TAXES

The (benefit)/provision for income taxes consists of the following for the years
ended December 31, 2003, 2002, and 2001:

                                               2003         2002         2001
                                            --------     ---------     --------

Federal:
     Current                                $     --     $      --     $     --
     Deferred                                     --            --           --
                                            --------     ---------     --------
                                                  --            --           --
                                            --------     ---------     --------
State:
     Current                                      --            --           --
     Deferred                                     --            --           --
                                            --------     ---------     --------
                                                  --            --           --
                                            --------     ---------     --------

        Total                               $     --     $      --     $     --
                                            --------     ---------     --------

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

<TABLE>
<CAPTION>
                                                       2003           2002           2001
                                                   -----------    -----------    -----------

<S>                                                <C>            <C>            <C>
(Benefit)/provision at federal statutory rate      $(1,409,979)   $(2,530,131)   $ 1,730,506
State income taxes, net of federal benefit            (136,851)      (245,572)       185,081
Nondeductible tax expenses                             105,180        110,924        176,383
Accrual to return timing differences and other        (117,993)      (396,313)            --
(Decrease)/increase in valuation allowance           1,559,643      3,061,092     (2,091,970)
                                                   -----------    -----------    -----------

    (Benefit) Provision for federal income taxes   $        --    $        --    $        --
                                                   -----------    -----------    -----------
</TABLE>


At December 31, 2003 and 2002, the Company has available federal tax net
operating loss carryforwards (NOL's) of approximately $33,332,000 and
$31,823,000, respectively, that unless previously utilized, expire at various
dates beginning 2010 through 2022. The Company's utilization of NOL's is subject
to a number of uncertainties, including the ability to generate future taxable
income. In addition, the Company has been subject to a number of "ownership
changes" as defined under Internal Revenue Code Section 382. As a result,
Section 382 imposes additional limitations on utilization of certain of the
Company's NOL's.


                                       25

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------------------------------------------


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

                                                       2003            2002
                                                  ------------    ------------

Gross deferred tax assets:
     Allowance for doubtful accounts receivable   $    219,362    $    315,422
     Accrued bonuses and other                         202,535         189,266
     Operating loss carryforwards                   12,432,884      11,869,987
     Goodwill                                        3,690,506       3,319,718
     Asset impairment                                  518,822
     Valuation allowance                           (13,549,350)    (11,989,707)
                                                  ------------    ------------
        Gross deferred tax asset                     3,514,759       3,704,686
                                                  ------------    ------------

Gross deferred tax liabilities:
     Depreciation                                   (3,402,091)     (3,592,018)
     Other                                            (112,668)       (112,668)
                                                  ------------    ------------
        Gross deferred tax liability                (3,514,759)     (3,704,686)
                                                  ------------    ------------

        Net deferred tax asset (liability)        $         --    $         --
                                                  ------------    ------------

The Company is required to record a valuation allowance when it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. At December 31, 2003 and 2002, the Company has recorded a valuation
allowance of $13,549,350 and $11,989,707 against the gross deferred tax asset.


                                       26

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------------------------------------------


NOTE 14 - INCOME (LOSS) PER SHARE

The calculation of basic and diluted EPS is as follows:

<TABLE>
<CAPTION>
                                                       FOR THE YEAR                                 FOR THE YEAR
                                                        ENDED 2003                                   ENDED 2002
                                        ----------------------------------------    -------------------------------------------
                                          INCOME        SHARES        PER SHARE        INCOME         SHARES        PER SHARE
                                        (NUMERATOR)  (DENOMINATOR)     AMOUNT       (NUMERATOR)    (DENOMINATOR)      AMOUNT
                                        -----------  -------------    ---------     -----------    -------------    ---------

<S>                                     <C>             <C>           <C>           <C>               <C>            <C>
NET LOSS PER SHARE - BASIC

Income (loss) before discontinued
  operations available to common
  stockholders                          $(5,537,940)    12,499,528    $  (.44)      $(7,576,602)      12,499,528     $  (.61)

Discontinued operations                          --     12,499,528         --                --       12,499,528          --
                                        -----------                   -------       -----------                      --------

Net loss per share - basic              $(5,537,940)    12,499,528    $  (.44)      $(7,576,602)      12,499,528     $  (.61)
                                        ===========                   =======       ===========                      ========

EFFECT OF DILUTIVE SECURITIES

Stock warrants

Stock options

Convertible debt debenture

NET LOSS PER SHARE - DILUTED

Income (loss) before discontinued
  operations available to common
  stockholders                          $(5,537,940)    12,499,528    $  (.44)      $(7,576,602)      12,499,528     $  (.61)

Discontinued operations                          --     12,499,528         --                --       12,499,528          --
                                        -----------                   -------       -----------                      --------

Net loss per share - diluted            $(5,537,940)    12,499,528    $  (.44)      $(7,576,602)      12,499,528     $  (.61)
                                        ===========                   =======       ===========                      ========
</TABLE>

<TABLE>
<CAPTION>
                                                        FOR THE YEAR
                                                         ENDED 2001
                                        --------------------------------------------
                                          INCOME          SHARES         PER SHARE
                                        (NUMERATOR)     (DENOMINATOR)      AMOUNT
                                        -----------     -------------    ---------

<S>                                      <C>             <C>              <C>
NET LOSS PER SHARE - BASIC

Income (loss) before discontinued
  operations available to common
  stockholders                           $4,662,391      12,491,788       $  .37

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

Net loss per share - basic               $5,039,724      12,491,788       $  .40
                                         ==========                       ======

EFFECT OF DILUTIVE SECURITIES

Stock warrants

Stock options

Convertible debt debenture

NET LOSS PER SHARE - DILUTED

Income (loss) before discontinued
  operations available to common
  stockholders                           $4,662,391      12,491,788       $  .37

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

Net loss per share - diluted             $5,039,724      12,491,788       $  .40
                                         ==========                       ======
</TABLE>

                                       27

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------------------------------------------


Options issued to purchase 15,440,000 shares of common stock and warrants to
purchase 73,363,465 shares of common stock at price ranging from $0.75 to $8.01
were outstanding during 2003, but were not included in the computation of the
2003 diluted EPS because the effect would be anti-dilutive. There were 2,006,800
options to purchase common stock cancelled during 2003 that were not included in
the computation of 2003 diluted EPS because the effect would be anti-dilutive.

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

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

Convertible debt instruments, including convertible interest, which would result
in the issuance of 51,761,698, 46,780,080 and, 42,084,458 shares of common
stock, if the conversion features were exercised, were outstanding during 2003,
2002 and 2001 respectively, but were not included in the computation of the
2003, 2002 or 2001 diluted EPS because the effect would be anti-dilutive. The
conversion price of these instruments was $0.75 per share at December 31, 2003,
2002 and 2001 and remained outstanding at December 31, 2003.

NOTE 15 - MAJOR CUSTOMERS

Most of the Company's business activity is with customers engaged in drilling
and operating oil and natural gas wells primarily in the Black Warrior and
Mississippi Salt Dome Basins in Alabama and Mississippi, the Permian Basin in
West Texas and New Mexico, the San Juan Basin in New Mexico, Colorado, and Utah,
the East Texas and Austin Chalk Basins in East Texas, the Powder River and Green
River Basins in Wyoming and Montana, the Williston Basin in North Dakota, and
the Gulf of Mexico offshore of Louisiana and Texas. Substantially all of the
Company's accounts receivable at December 31, 2003 and 2002 are from such
customers. Performance in accordance with the credit arrangements is in part
dependent upon the economic condition of the oil and natural gas industry in the
respective geographic areas. The Company does not require its customers to
pledge collateral on their accounts receivable.

There were no customers from whom the Company earned in excess of 10% of its
revenues during the years ended December 31, 2003, 2002 or 2001.

NOTE 16 - EARLY EXTINGUISHMENT OF DEBT

During 2001, the Company recognized a loss of $1,322,481 on fees relating to the
early extinguishment of the Coast debt and the SJMP Cash Collateral Fee
Agreement. The Company recorded a gain of $175,003 as a result of a negotiated
payment of the Bendover promissory notes and related obligations. Due to the
adoption of FAS 145, the Company reclassified the early extinguishment of debt
in 2001 from an extraordinary item to continuing operations in 2003.

NOTE 17 - STOCK OPTIONS

The 2000 Stock Incentive Plan ("2000 Incentive Plan") provides for the granting
of incentive stock options or non-qualified stock options to purchase shares of
the Company's common stock to key employees and non-employee directors or
consultants. The 2000 Incentive Plan authorizes the issuance of options to
purchase up to an aggregate of 17,500,000 shares of common stock with maximum
option terms of ten years from the date of the grant. There are five types of
grants that can be made under the 2000 Incentive Plan. The Discretionary Option
Grant Program allows eligible individuals in the Company's employ or service
(including officers and consultants) to be granted options to purchase shares of
common stock at an exercise price equal to not less than the fair market value
of the stock at the date of the grant. All grants made in 2000 were made under
this program. The Stock Issuance Program is a non-compensatory program under
which individuals in the Company's employ or service may be issued shares of
common stock directly through the purchase of such shares at a price not less
than the fair market value at the time of issuance or as a bonus tied to
performance. The Salary Investment Option Grant Program is a compensatory
program that, if


                                       28

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------------------------------------------


activated by the plan administrator, will allow executive officers and other
highly compensated employees the opportunity to apply a portion of their base
salary to the acquisition of special below market stock grants. The Automatic
Option Grant Program causes options to be granted automatically at periodic
intervals to eligible non-employee members of the Board of Directors to purchase
shares of common stock at an exercise price equal to their fair market value at
the date of the grant. The Director Fee Option Grant Program is a compensatory
program that, if activated by the plan administrator, would allow non-employee
Board members the opportunity to apply a portion of any annual retainer fee
otherwise payable to them in cash each year to the acquisition of special below
market option grants.

The Board and shareholders approved the 2000 Incentive Plan on February 11, 2000
and an amendment on February 9, 2001, respectively. At December 31, 2003,
19,532,500 shares had been granted, of which 4,523,000 shares were cancelled and
2,490,500 remained to be granted under this plan.

The 1997 Omnibus Incentive Plan ("1997 Omnibus Plan") provides for the granting
of either incentive stock options or nonqualified stock options to purchase
shares of the Company's common stock to key employees responsible for the
direction and management of the Company. The 1997 Omnibus Plan authorizes the
issuance of options to purchase up to an aggregate of 600,000 shares of common
stock, with maximum option terms of ten years from the date of grant. During
1998, the Board authorized an amendment to the 1997 Omnibus Plan to allow
additional issuances of options to purchase 400,000 shares of common stock. This
amendment increases the total aggregate number of shares under the 1997 Omnibus
Plan to 1,000,000. The amendment was approved by the shareholders on February 9,
2001. At December 31, 2003 and 2002, 430,500 and 600,300 options were
outstanding, respectively. At December 31, 2003, 569,500 options remain
available to be granted. Options to purchase 169,800 shares of common stock were
cancelled during 2003.

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


                                       29

<PAGE>

<TABLE>
<CAPTION>
BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
-------------------------------------------------------------------------------------------------------------------------------


                                                                                      WEIGHTED
                                                                                      AVERAGE
                                                                         WEIGHTED    FAIR VALUE
                                                           RANGE OF       AVERAGE     OF STOCK
                                          NUMBER OF        EXERCISE      EXERCISE        AT                VESTING
                                           OPTIONS          PRICES         PRICE     GRANT DATE           PROVISIONS
                                          ---------        --------      --------    ----------           ----------

<S>                                       <C>           <C>               <C>          <C>        <C>
Options outstanding, December 31, 2000   10,920,750     $0.75 - $8.01     $1.92
                                         ==========

Options cancelled                           (80,000)         $1.50         $1.50
                                           (258,750)         $2.63         $2.63
                                            (20,000)         $3.00         $3.00
                                            (10,000)         $3.38         $3.38
                                           (115,000)         $4.63         $4.63
                                           (140,000)         $6.50         $6.50
                                           (200,000)         $6.69         $6.69
                                             (7,500)         $6.28         $6.28
                                           (155,000)         $7.50         $7.50
                                             (4,500)         $8.00         $8.00
                                           (969,500)         $0.75         $0.75
                                         ----------
                                         (1,960,250)
                                         ----------

Options Granted:
     Exercise price greater than FMV of
     stock at grant date                      5,000          $0.75         $0.75       $0.38      67% immediate, 33% in one year
                                             70,000          $0.75         $0.75       $0.48      33% immediate, 33% per year
                                            110,000          $0.75         $0.75       $0.57      25% immediate, 25% per year
                                          8,212,500          $0.75         $0.75       $0.42      Immediate
                                         ----------
                                          8,397,500
                                         ----------

Options outstanding, December 31, 2001   17,358,000
                                         ==========


Options cancelled                        (1,416,200)         $0.75         $0.75
                                         ----------
                                         (1,416,200)

Options Granted:
     Exercise price greater than FMV of
     stock at grant date                  1,505,000          $0.75         $0.75       $0.40      Immediate
                                         ----------
                                          1,505,000

Options outstanding, December 31, 2002   17,446,800
                                         ----------


Options cancelled                        (2,006,800)         $0.75         $0.75
                                         ----------
                                         (2,006,800)

Options outstanding, December 31, 2003   15,440,000
                                         ==========
</TABLE>


                                       30

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------------------------------------------


The following table summarizes information about stock options outstanding at
December 31, 2003:

<TABLE>
<CAPTION>
                                 OPTIONS OUTSTANDING                           OPTIONS EXERCISABLE
                   ----------------------------------------------           --------------------------
                                         WEIGHTED
                                         AVERAGE         WEIGHTED                             WEIGHTED
                     NUMBER             REMAINING         AVERAGE             NUMBER          AVERAGE
EXERCISE           OUTSTANDING         CONTRACTUAL       EXERCISE           EXERCISABLE       EXERCISE
 PRICES             12/31/03               LIFE            PRICE             12/31/03          PRICE
---------          -----------         -----------       --------           -----------       --------
<S>                  <C>                    <C>            <C>              <C>                 <C>
   $0.75             15,375,000             6.94           $0.75            14,944,800          $0.75
   $1.81                 15,000             5.09           $1.81                15,000          $1.81
   $2.63                  5,000             3.25           $2.63                 5,000          $2.63
   $4.63                 20,000             3.63           $4.63                20,000          $4.63
   $6.63                 25,000             4.45           $6.63                25,000          $6.63
                     ----------                                             ----------

                     15,440,000             6.93           $0.76            15,009,800          $0.76
                     ==========                                             ==========
</TABLE>


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

<TABLE>
<CAPTION>
                                                                     2003             2002             2001
                                                                -------------    -------------    -------------

<S>                                                             <C>              <C>              <C>
Income (loss) before discontinued operations - as reported      $  (5,537,940)   $  (7,576,602)   $   4,662,391
Discontinued operations - as reported                                      --               --          377,333
                                                                -------------    -------------    -------------
Net income (loss) - as reported                                 $  (5,537,940)   $  (7,576,602)   $   5,039,724
                                                                -------------    -------------    -------------

Income (loss) before discontinued operations - pro forma        $  (5,114,830)   $  (7,777,891)   $   2,481,192
Discontinued operations - pro forma                                        --               --          377,333
                                                                -------------    -------------    -------------
Net income (loss) - pro forma                                   $  (5,114,830)   $  (7,777,891)   $   2,858,525
                                                                -------------    -------------    -------------

Income (loss) per share - as reported (basic and diluted):
Loss before discontinued operations - as reported               $        (.44)   $        (.61)   $         .37
Discontinued operations - as reported                                      --               --              .03
                                                                -------------    -------------    -------------
Net income (loss) per share - as reported (basic and diluted)   $        (.44)   $        (.61)$            .40
                                                                -------------    -------------    -------------

Income (loss) per share - pro forma (basic and diluted):
Loss before discontinued operations - pro forma                 $        (.41)   $        (.62)   $         .20
Discontinued operations - pro forma                                        --               --              .03
                                                                -------------    -------------    -------------
Net loss per share - pro forma (basic and diluted)              $        (.41)   $        (.62)   $         .23
                                                                =============    =============    =============
</TABLE>

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

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

                                       31

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------------------------------------------


                                     2003          2002             2001
                                   -------       -------           ------

Dividend yield                          0%            0%               0%
Expected life (years)                2.09          3.08             4.00
Expected volatility                100.00%       100.00%           74.74%
Risk-free interest rate              2.98%         3.30%            4.92%


NOTE 18 - CONTINGENCIES

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

NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS

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

CASH AND CASH EQUIVALENTS, RESTRICTED CASH, SHORT-TERM INVESTMENTS, ACCOUNTS
RECEIVABLE, CURRENT PORTION OF LONG-TERM DEBT AND ACCOUNTS PAYABLE - The
carrying amount is a reasonable estimate of the fair value because of the short
maturity of these instruments.

LONG-TERM DEBT - The carrying value of the Company's long-term debt approximates
fair value due to the variable nature of the interest rate and the interest rate
reset periods.

RELATED PARTY DEBT - Management is unable to estimate the fair value of the
Company's related party debt. This debt is due within one year but is subject to
subordination to the Company's senior debt. The debt and accumulated accrued
interest in aggregate is carried at a book value of $38.8 million in the
statement of financial position at December 31, 2003.

NOTE 20 - EMPLOYEE BENEFIT PLAN

The Company maintains a Retirement Savings Plan (the 401(k) Plan) for its
employees, which allows participants to make contributions by salary reduction
pursuant to Section 401(k) of the Internal Revenue Code. The Company's
contributions to the 401(k) Plan are discretionary. Employees vest in their
contributions immediately and vest in the Company's contributions ratably over
six years. The Company made no contributions to the 401(k) Plan for the years
ended December 31, 2003, 2002, and 2001.

NOTE 21 - SEGMENT AND RELATED INFORMATION

At December 31, 2003 and 2002, the Company is organized into, and manages its
business based on the performance of two business units. The business units have
separate management teams and infrastructures that offer different oil and gas
well services. The business units have been divided into two reportable
segments: wireline and directional drilling, since the long-term financial
performance of these reportable segments is affected by similar economic
conditions.

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

WIRELINE - This segment consists of two business units that perform various
procedures to evaluate downhole conditions at different stages of the process of
drilling and completing oil and gas wells as well as various times thereafter
until the well is depleted and abandoned. This segment engages in onshore and
offshore servicing, as well as other oil and gas well service activities
including renting and repairing equipment. The principal markets for this


                                       32

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------------------------------------------


segment include all major oil and gas producing regions of the United States.
Major customers of this segment for the years ended December 31, 2003, 2002 and
2001 included Burlington Resources, Anadarko Petroleum, Chevron, Apache Corp and
Denbury Management.

DIRECTIONAL DRILLING SERVICES - This segment performs procedures to enter an
oil-producing zone horizontally, using specialized drilling equipment, and
expand the area of interface of hydrocarbons and thereby greatly enhances
recoverability of oil. The segment also engages in oil and gas well surveying
activities. The principal markets for this segment include all major oil and gas
producing regions of the United States. Major customers of this segment for the
years ended December 31, 2003, 2002 and 2001 included Encore Operating, Anadarko
Petroleum, Cortez Operating, Ergon Operating, and Lewis Petroleum.

Proposed Sale of Directional Drilling Services. The Company is engaged in
negotiations with respect to the sale of its directional drilling division. The
proposed transaction, which is subject to the negotiation and execution of a
definitive purchase and sale agreement, includes, among the other expected terms
and conditions, the sale of all the equipment, inventory, the net working
capital of the division and its owned real estate and leases. The net working
capital sold is expected to include current assets subject to current
liabilities assumed of the division. The purchase price is expected to be
approximately $11.0 million, less certain possible closing adjustments. Among
other matters, the closing of the transaction is expected to be subject to the
Company obtaining all necessary lender and other consents and approvals, the
absence of any event having a material adverse effect on the assets or business
sold, the buyer having obtained financing for the transaction, the receipt by
the Company of a fairness opinion from Simmons & Company International and
compliance with other legal requirements. It is expected that either party will
have the right to terminate the agreement prior to closing for any reason. Under
certain circumstances, the Company could be required to pay the buyer $50,000
upon a termination of the agreement. The purchaser is expected to be a newly
organized corporation in which Mr. Allen Neel and two other employees of the
directional drilling division are expected to be employees and hold minority
equity interests. The net proceeds from the sale, after payment of expenses of
the transaction, are intended to be applied in reduction of the Company's senior
secured indebtedness. There is no assurance that a definitive agreement can be
negotiated and executed on terms acceptable to the Company, that the transaction
will be completed or that it will be completed on the terms being negotiated by
management.


                                       33

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                               DIRECTIONAL
2003                                                        WIRELINE             DRILLING              TOTAL
----                                                        ---------          -----------             -----

<S>                                                      <C>                 <C>                  <C>
Segment revenues                                         $  45,756,892       $  19,692,262        $ 65,449,154
Segment cost of sales and sg&a expenses                  $  37,430,470       $  20,885,681        $ 58,316,151
Segment EBITDA                                           $   8,326,422       $  (1,193,419)       $  7,133,003
Segment assets                                           $  27,857,652       $  13,487,342        $ 41,344,994
</TABLE>


<TABLE>
<CAPTION>
                                                                               DIRECTIONAL
2002                                                        WIRELINE             DRILLING              TOTAL
----                                                        ---------          -----------             -----

<S>                                                      <C>                 <C>                  <C>
Segment revenues                                         $  34,093,891       $  22,489,270        $ 56,583,161
Segment cost of sales and sg&a expenses                  $  30,366,217       $  20,142,575        $ 50,508,792
Segment EBITDA                                           $   3,727,674       $   2,346,695        $  6,074,369
Segment assets                                           $  27,513,052       $  22,096,959        $ 49,610,011
</TABLE>


<TABLE>
<CAPTION>
                                                                               DIRECTIONAL
2001                                                        WIRELINE             DRILLING              TOTAL
----                                                        ---------          -----------             -----

<S>                                                      <C>                 <C>                  <C>
Segment revenues                                         $  39,681,966       $  36,424,954        $ 76,106,920
Segment cost of sales and sg&a expenses                  $  27,469,776       $  29,146,321        $ 56,616,097
Segment EBITDA                                           $  12,212,190       $   7,278,633        $ 19,490,823
Segment assets                                           $  24,647,035       $  25,770,536        $ 50,417,571
</TABLE>


                                       34

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------------------------------------------


The Company has certain expenses and assets, which are not allocated to the
individual operating segments. A reconciliation of total segment EBITDA to
income (loss) from operations and total segment assets to total assets for the
years ended December 31, 2003, 2002 and 2001 is presented as follows:

<TABLE>
<CAPTION>
                                                     2003            2002           2001
                                                ------------    ------------    ------------
<S>                                             <C>             <C>             <C>
EBITDA
Total segment EBITDA                            $  7,133,003    $  6,074,369    $ 19,490,823
Depreciation and amortization                     (7,691,720)     (8,040,892)     (6,629,064)
Unallocated corporate expense                             --        (453,492)     (1,275,854)
                                                ------------    ------------    ------------

     Income (loss) from continuing operations   $   (558,717)   $ (2,420,015)   $ 10,438,427
                                                ============    ============    ============

ASSETS
Total segment assets                            $ 41,344,994    $ 49,610,011    $ 50,417,571
Unallocated corporate assets                          56,435          61,098          63,304
                                                ------------    ------------    ------------

        Total assets                            $ 41,401,429    $ 49,671,109    $ 50,480,875
                                                ============    ============    ============
</TABLE>


NOTE 22 - DISCONTINUED OPERATIONS

In July 2001, the Company sold all physical assets associated with its workover
and completion business unit for $525,000. The Company recorded a gain of
$476,172, net of income taxes of $0. This business unit had an operating loss of
approximately $99,000 for the year ended December 31, 2001.


                                       35

<PAGE>

BLACK WARRIOR WIRELINE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------------------------------------------


NOTE 23 - QUARTERLY FINANCIAL DATA (UNAUDITED)

--------------------------------------------------------------------------------
Years ended December 31, 2003 and December 31, 2002
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                   INCOME (LOSS)                      NET INCOME
                                         NET INCOME (LOSS)    INCOME (LOSS)     BEFORE DISCONTINUED                (LOSS),BASIC AND
                                          FROM CONTINUING  BEFORE DISCONTINUED       OPERATIONS       NET INCOME       DILUTED
                             REVENUES       OPERATIONS          OPERATIONS           PER SHARE          (LOSS)         PER SHARE
                             --------    ----------------- -------------------  -------------------   ----------   ----------------
<S>                        <C>           <C>                  <C>                     <C>           <C>                <C>
2003
     First Quarter         $ 15,582,686  $   (236,233)        $ (1,297,285)           $(0.10)       $ (1,297,285)      $(0.10)
     Second Quarter          19,023,013     1,924,854              603,229              0.05             603,229         0.05
     Third Quarter           17,085,968     1,366,940              (49,876)            (0.00)            (49,876)       (0.00)
     Fourth Quarter          13,757,487    (3,614,278)          (4,794,008)            (0.39)         (4,794,008)       (0.39)
                           --------------------------------------------------------------------------------------------------

                           $ 65,449,154  $   (558,717)        $ (5,537,940)           $(0.44)       $ (5,537,940)      $(0.44)
                           ==================================================================================================


2002
     First Quarter         $ 12,649,603  $ (1,272,381)        $ (2,541,846)           $(0.20)       $ (2,541,846)      $(0.20)
     Second Quarter          13,451,814      (590,410)          (1,794,942)            (0.14)         (1,794,942)       (0.14)
     Third Quarter           15,428,797        12,266           (1,342,055)            (0.11)         (1,342,055)       (0.11)
     Fourth Quarter          15,052,947      (569,490)          (1,897,759)            (0.16)         (1,897,759)       (0.16)
                           --------------------------------------------------------------------------------------------------
                           $ 56,583,161  $ (2,420,015)        $ (7,576,602)           $(0.61)       $ (7,576,602)      $(0.61)
                           ==================================================================================================
</TABLE>


                                       36


<PAGE>


          INDEX TO EXHIBITS FILED WITH THIS ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 2003


10.40.1     Employment Agreement dated June 1, 2003 between the Company and
            Allen R. Neel.

10.41.1     Employment Agreement dated April 1, 2001 between the Company and
            Danny R. Thornton.

10.41.2     Amendment to Employment Agreement dated April 1, 2001 between the
            Company and Danny R. Thornton.

14          Code of Ethics

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

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






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