SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

         (Mark One)

              X    Quarterly  Report  pursuant  to  Section  13 or  15(d) of the
                   Securities  Exchange  Act of 1934  for the  quarterly  period
                   ended September 30, 1999; 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 Number 0-18754
                                                -------

                          BLACK WARRIOR WIRELINE CORP.

         -------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

                 DELAWARE                              11-2904094
--------------------------------------------------------------------------------
    (State or other jurisdiction of                (I.R.S. employer
    incorporation of organization)               identification no.)

               3748 HIGHWAY 45 NORTH, COLUMBUS, MISSISSIPPI 39701
               --------------------------------------------------
               (Address of principal executive offices, zip code)

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

         Check whether the issuer (1) has filed all reports required to be filed
by  Section  13 or 15(d)  of the  Securities  Exchange  Act of 1934  during  the
proceeding 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.

                            YES    X           NO
                               --------          --------

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.

                                                        Outstanding at
          Class                                       November 18 , 1999
 ------------------------                             ------------------
 COMMON STOCK, PAR VALUE                              4,812,260  SHARES
  $.0005 PER SHARE


                  Transitional Small Business Disclosure Format

                            YES                 NO    X
                               --------           --------

<PAGE>

                          BLACK WARRIOR WIRELINE CORP.

                         QUARTERLY REPORT ON FORM 10-QSB

                                      INDEX

PART I - FINANCIAL INFORMATION

                                                                            Page
                                                                            ----
Item 1.      Financial Statements

             Condensed Balance Sheets - September 30, 1999
             and  December 31, 1998                                          3

             Condensed Statements of Operations -
             Three Months Ended September 30, 1999 and
             September 30, 1998                                              4

             Condensed Statements of Operations -
             Nine Months Ended September 30, 1999 and
             September 30, 1998                                              5

             Condensed Statements of Cash Flows -
             Nine Months Ended September 30, 1999 and
             September 30, 1998                                              6

             Notes to Condensed Financial Statements -
             Nine Months Ended September 30, 1999 and
             September 30, 1998                                              7


Item 2.      Management's Discussion and Analysis or Plan
             of Operations                                                  15

PART II - OTHER INFORMATION

Item 1.      Legal Proceedings                                              22

Item 3.      Defaults Upon Senior Securities                                23

Item 6.      Exhibits and Reports on Form 8-K                               24

                                       2
<PAGE>

PART I - FINANCIAL INFORMATION
         ITEM 1.  FINANCIAL STATEMENTS

BLACK WARRIOR WIRELINE CORP.
----------------------------
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                        SEPTEMBER 30, 1999  DECEMBER 31, 1998
                                                                                        ------------------  -----------------
                                                                                           (UNAUDITED)
<S>                                                                                       <C>                 <C>
                           ASSETS
Current assets:
    Cash and cash equivalents                                                             $    376,419        $  1,041,242
    Short-term investments                                                                      50,000              50,000
    Accounts receivable, less allowance for doubtful
      accounts of $1,195,379  and $2,157,421, respectively                                   4,022,551           3,596,004
    Prepaid expenses                                                                           224,782             110,579
    Other receivables                                                                          102,338             236,273
    Other current assets                                                                       543,283             498,812
                                                                                          ------------        ------------
                      Total current assets                                                   5,319,373           5,532,910

Land and building, held for sale                                                               400,000             400,000
Inventories                                                                                  4,405,339           4,278,601
Property, plant, and equipment, less accumulated
      depreciation of $12,593,360 and $8,986,893, respectively                              20,542,380          22,628,601
Other assets                                                                                   770,179             539,537
Goodwill, less accumulated amortization of $286,351
       and $215,678, respectively                                                            3,364,528           3,435,201
                                                                                          ------------        ------------
                      Total assets                                                        $ 34,801,799        $ 36,814,850
                                                                                          ============        ============

                           LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
    Accounts payable                                                                      $  7,162,514        $  5,964,266
    Accrued salaries and vacation                                                              224,921              91,275
    Accrued interest payable                                                                 2,960,151           1,527,674
    Other accrued expenses                                                                     679,738             826,366
    Deferred revenue                                                                           100,000             155,016
    Note payable to related party, net                                                      23,042,140          20,662,890
    Current maturities of long-term debt and capital
      lease obligations                                                                     17,406,540          18,923,719
                                                                                          ------------        ------------
                      Total current liabilities                                             51,576,004          48,151,206

Stockholders' deficit:
     Preferred stock, $.0005 par value, 2,500,000 shares authorized;
       none issued at September 30, 1999 and December 31, 1998,
       respectively

     Common stock, $.0005 par value, 12,500,000 shares authorized;
       4,812,260 and 3,897,451 shares issued and outstanding
          at September 30, 1999 and December 31, 1998, respectively                              2,406               1,948
     Additional paid-in capital                                                             13,172,581          12,107,551
     Accumulated deficit                                                                   (29,365,799)        (22,862,462)
    Treasury stock, at cost, 4,620 shares                                                     (583,393)           (583,393)
                                                                                          ------------        ------------
    Total stockholders' deficit                                                            (16,774,205)        (11,336,356)
                                                                                          ------------        ------------
                      Total liabilities and stockholders' deficit                          $34,801,799        $ 36,814,850
                                                                                          ============        ============
</TABLE>

          See accompanying notes to the condensed financial statements.

                                       3
<PAGE>


BLACK WARRIOR WIRELINE CORP.
----------------------------
CONDENSED STATEMENTS OF OPERATIONS
For the three months ended September 30, 1999 and September 30, 1998
<TABLE>
<CAPTION>

                                                                                          September 30, 1999     September 30, 1998
                                                                                          ------------------     ------------------
                                                                                              (Unaudited)            (Unaudited)
<S>                                                                                           <C>                    <C>
Revenues                                                                                      $ 7,379,236            $ 8,048,018

Operating costs                                                                                 5,600,718              7,607,565

Selling, general and administrative expenses                                                    1,150,576              1,524,085

Depreciation and amortization                                                                   1,244,405              1,651,343
                                                                                              -----------            -----------
   Net loss from operations                                                                      (616,463)            (2,734,975)

Interest expense and amortization of debt discount                                               (844,596)              (919,481)

Net gain (loss) on sale of fixed assets                                                               -0-                 59,817

Other income                                                                                       49,383                 14,093
                                                                                              -----------            -----------
    Net loss before benefit for
        income taxes                                                                           (1,411,676)            (3,580,546)

Benefit for income taxes                                                                              -0-                    -0-
                                                                                              -----------            -----------
    Net loss                                                                                   (1,411,676)            (3,580,546)
                                                                                              ===========            ===========
    Net loss per common share - basic                                                         $     (0.30)           $     (0.92)
                                                                                              ===========            ===========
    Net loss per common share - diluted                                                       $     (0.30)           $     (0.92)
                                                                                              ===========            ===========
Weighted average common shares outstanding                                                      4,758,319              3,892,831
                                                                                              ===========            ===========
Weighted average common share outstanding
   with dilutive securities                                                                     4,758,319              3,892,831
                                                                                              ===========            ===========
</TABLE>

          See accompanying notes to the condensed financial statements.

                                       4
<PAGE>

BLACK WARRIOR WIRELINE CORP.
----------------------------
CONDENSED STATEMENTS OF OPERATIONS
for the nine months ended September 30, 1999 and September 30, 1998
<TABLE>
<CAPTION>


                                                                                           September 30, 1999     September 30, 1998
                                                                                           ------------------     ------------------
                                                                                              (Unaudited)             (Unaudited)
<S>                                                                                          <C>                   <C>
Revenues                                                                                     $ 20,712,934          $ 27,961,471

Operating costs                                                                                16,564,643            23,051,611

Selling, general and administrative expenses                                                    4,484,139             4,671,160

Depreciation and amortization                                                                   3,706,315             3,707,192
                                                                                             ------------          ------------
     Net loss  from operations                                                                 (4,042,163)           (3,468,492)

Interest expense and amortization of debt discount                                             (2,531,923)           (1,978,448)

Net gain (loss) on sale of fixed assets                                                            (7,263)               60,823

Other income                                                                                       78,012                50,389
                                                                                             ------------          ------------
     Net loss  before benefit for
          income taxes                                                                         (6,503,337)           (5,335,728)
Benefit for income taxes                                                                              -0-               649,398
                                                                                             ------------          ------------
     Net  loss                                                                               $( 6,503,337)        $  (4,686,330)
                                                                                             ============          ============
     Net  loss per common share - basic                                                      $      (1.52)         $      (1.32)
                                                                                             ============          ============
     Net loss per common share - diluted                                                     $      (1.52)         $      (1.32)
                                                                                             ============          ============
Weighted average common shares outstanding                                                      4,290,682             3,549,411
                                                                                             ============          ============
Weighted average common shares outstanding
    with dilutive securities                                                                    4,290,682             3,549,411
                                                                                             ============          ============
</TABLE>

          See accompanying notes to the condensed financial statements.


                                       5
<PAGE>

BLACK WARRIOR WIRELINE CORP.
----------------------------
CONDENSED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1999 and September 30, 1998
<TABLE>
<CAPTION>
                                                                                             September 30, 1999   September 30, 1998
                                                                                             ------------------   ------------------
                                                                                                 (Unaudited)          (Unaudited)
<S>                                                                                              <C>                 <C>
Cash provided by (used in) operations:                                                           $    515,329        $   (996,080)

Cash flows from investing activities:
     Acquisitions of property, plant, and equipment                                                (1,670,580)         (4,691,698)
     Proceeds from sale of property, plant, and equipment                                              34,820             205,781
     Acquisition of business, net of cash acquired                                                        -0-            (671,932)
                                                                                                 ------------        ------------
Cash used in investing activities:                                                                 (1,635,760)         (5,157,849)
                                                                                                 ------------        ------------
Cash flows from financing activities:
     Debt issuance costs                                                                             (319,687)           (437,164)
     Proceeds from bank and other borrowings                                                        3,266,678           1,336,471
     Principal payments on long-term debt, notes payable
         and capital lease obligations                                                             (1,194,264)         (1,379,733)
     Net (payments) proceeds on working revolver                                                   (1,297,119)          2,142,713
     Proceeds from issuance of common stock, net
         of offering costs                                                                                -0-           3,940,662
     Increase in cash overdraft                                                                           -0-             115,135
                                                                                                 ------------        ------------
Cash provided  by financing activities:                                                               455,608           5,718,084
                                                                                                 ------------        ------------

Net decrease  in cash and cash equivalents                                                           (664,823)           (435,845)
Cash and cash equivalents, beginning of period                                                      1,041,242             435,845
                                                                                                 ------------        ------------
Cash and cash equivalents, end of period                                                         $    376,419               $ -0-
                                                                                                 ============        ============
Supplemental disclosure of cash flow information:

       Interest paid                                                                             $  1,099,446        $  1,351,245
       Income taxes paid                                                                         $          0        $          0

Supplemental disclosure of  noncash investing and financing activities:
     Notes payable incurred in connection with
           business acquisition                                                                                      $ 19,000,000
     Notes payable and capital lease obligations incurred
           to acquire property, plant, and equipment                                             $    107,527        $    111,562
     Stock warrants issued in conjunction with notes payable                                     $     20,750
           to related party
     Stock issued as compensation                                                                $    914,807
     Stock issued as consideration for purchase of business                                      $    129,931

</TABLE>


          See accompanying notes to the condensed financial statements.

                                       6
<PAGE>

                          BLACK WARRIOR WIRELINE CORP.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS

1.       GENERAL

         The accompanying condensed financial statements reflect all adjustments
that, in the opinion of management, are necessary for a fair presentation of the
financial  position  of Black  Warrior  Wireline  Corp.  (the  "Company").  Such
adjustments  are  of a  normal  recurring  nature.  The  accompanying  condensed
consolidated  financial  statements have been prepared assuming that the Company
will continue as a going concern.  The Company's violations of various covenants
in its loan  agreements with its principal  secured lender,  its working capital
deficiency,  operating losses and its lack of liquidity, raise substantial doubt
about the  Company's  ability to  continue  as a going  concern.  The  condensed
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty. See Note 17 of the Company's Annual
Report of Form 10KSB for the year ended December 31, 1998 and the related report
of  independent  accountants  dated  March 19,  1999 which  contains a paragraph
referring  to these  uncertainties.  The results of  operations  for the interim
period are not necessarily indicative of the results to be expected for the full
year.  The  Company's  Annual  Report on Form  10-KSB for the fiscal  year ended
December 31, 1998 should be read in conjunction with this document.

         The  Company  is an oil and gas  service  company  currently  providing
various  services to oil and gas well  operators  primarily  in the  continental
United  States  and in the Gulf of  Mexico.  The  Company's  principal  lines of
business  include  (a)  wireline  services,  (b)  directional  oil and gas  well
drilling  and  downhole  surveying  services,  and (c)  workover  services.  The
Company's  recent growth has been  principally the result of seven  acquisitions
completed since November 1996, including two acquisitions in 1998.

         On March 16, 1998, the Company acquired from Phoenix Drilling Services,
Inc.,  ("Phoenix")  the  assets  of its  domestic  oil and gas well  directional
drilling  and downhole  survey  service  business  ("Phoenix  Acquisition")  for
approximately  $19  million.  For  financial  statement  purposes,  the  Phoenix
Acquisition was accounted for as a purchase and, accordingly,  Phoenix's results
are included in the condensed  consolidated  financial statements since the date
of acquisition. The excess of the purchase price of the Phoenix Acquisition over
net  assets  acquired,  goodwill,  approximated  $2.76  million  and  was  being
amortized over twenty-five years.

         During  the  fourth   quarter  of  1998,   the  Company   assessed  the
recoverability  of long-lived  assets,  which included  assets  purchased in the
Phoenix Acquisition.  The Company concluded the goodwill and certain inventories
and property,  plant, and equipment related to its directional drilling business
were  impaired.  As a  result  of  this  impairment,  the  Company  recorded  an
impairment charge of approximately  $11.1 million in the fourth quarter of 1998.
This  impairment  charge  included  reducing  the goodwill  associated  with the
Phoenix  Acquisition to $0, as well as the writedown of certain  inventories and
property,  plant, and equipment.  Of the $11.1 million

                                       7
<PAGE>

writedown,  $5.76  million was related to the Phoenix  Acquisition  goodwill and
fixed assets.  See Note 19 in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1998.

         On  June  1,  1998,  the  Company   acquired  Petro  Wireline   ("Petro
Acquisition")  which is engaged in the  wireline  business  in the four  corners
region of New Mexico,  Colorado,  Utah and Arizona for  $875,000.  For financial
statement  purposes,  the Petro Acquisition was accounted for as a purchase and,
accordingly, Petro Wireline's results are included in the condensed consolidated
financial  statements since the date of acquisition.  The excess of the purchase
price of Petro Wireline over net assets acquired, goodwill, approximated $87,000
and is being amortized over twenty-five years.

         The following table presents  unaudited pro forma results of operations
for the nine months  ended  September  30, 1999 and 1998 as if the  acquisitions
above had  occurred at the  beginning  of the periods  presented.  The pro forma
summary  information  does not necessarily  reflect the results of operations as
they actually would have been if the  acquisitions had occurred at the beginning
of the periods  presented.  The  unaudited  results of  operations  for the nine
months ended September 30, 1999 are presented for  comparative  purposes as both
acquisitions are included in the operating results of this period.

                                       Nine Months Ended      Nine Months Ended
                                        September 30, 1999   September 30, 1998
                                        ------------------   ------------------
                                         (Unaudited)             (Unaudited)

Revenues                               $  20,712,934          $ 31,972,607
Loss  before  income tax effect        $ ( 6,503,337)         $ (5,530,446)
Net loss                               $ ( 6,503,337)         $ (4,953,183)

Net loss  per common share - basic     $       (1.52)         $      (1.40)
                                       =============          ============
Net loss  per common share - diluted   $       (1.52)         $      (1.40)
                                       =============          ============

         The  unaudited  pro forma results  include  historical  accounts of the
Company  and  historical  accounts  of  the  acquired  business  and  pro  forma
adjustments,  including the  amortization of the excess purchase price over fair
value of net assets  acquired,  applicable tax effects,  an increase in interest
expense,  and the increase in depreciation expense as a result of purchase price
adjustments.  The  unaudited pro forma  consolidated  results do not include the
impairment writedown that was recorded during the fourth quarter of 1998.

During  the third  quarter  1999 the  Company  dissolved  the its  wholly  owned
subsidiary,  Boone  Wireline Co.  ("Boone")  and merged the assets of Boone into
Black Warrior  Wireline Corp. The  dissolution had no effect on prior or current
year earnings or equity.

                                       8
<PAGE>

2.      EARNINGS PER SHARE

The calculation of basic and diluted earning per share ("EPS") is as follows:
<TABLE>
<CAPTION>
                                              For the Three Months                        For the Three Months
                                            Ended September 30, 1999                    Ended September 30, 1998
                                            ------------------------                    ------------------------
<S>                             <C>                  <C>            <C>     <C>                  <C>              <C>
                                     Loss            Shares         Per Share      Loss          Shares        Per Share
                                   Numerator       Denominator       Amount      Numerator     Denominator       Amount
                                   ---------       -----------       ------      ---------     -----------       ------
Net loss                        $ (1,411,676)                                  $ (3,580,546)
BASIC EPS
Loss available to common
    shareholders                $ (1,411,676)        4,758,319      $ (0.30)   $ (3,580,546)      3,892,831      $(0.92)
                                ------------         ---------      -------    ------------       ---------      ------

EFFECT OF DILUTIVE SECURITIES
Stock warrants
Stock options
Convertible debt securities
DILUTED EPS
Loss available to common
    shareholders                $ (1,411,676)        4,758,319      $ (0.30)   $ (3,580,546)      3,892,831      $(0.92)
                                ------------         ---------      -------    ------------       ---------      ------
<CAPTION>

                                              For the Nine Months                        For the Nine Months
                                            Ended September 30, 1999                    Ended September 30, 1998
                                            ------------------------                    ------------------------
<S>                             <C>                  <C>            <C>     <C>                  <C>              <C>
                                     Loss            Shares         Per Share      Loss          Shares        Per Share
                                   Numerator       Denominator       Amount      Numerator     Denominator      Amount
                                   ---------       -----------       ------      ---------     -----------      ------

Net loss                       $  (6,503,337)                                 $ (4,686,330)
BASIC EPS
Loss available to common
    shareholders               $  (6,503,337)       4,290,682       $(1.52)   $ (4,686,330)       3,549,411       $(1.32)
                               -------------        ---------       ------    ------------        ---------       ------

EFFECT OF DILUTIVE SECURITIES
Stock warrants
Stock options
Convertible debt securities
DILUTED EPS
Loss available to common
     shareholders             $   (6,503,337)       4,290,682       $(1.52)   $ (4,686,330)       3,549,41        $(1.32)
                              --------------        ---------       ------    ------------        --------        ------

</TABLE>

         Options and warrants to purchase  18,154,947  and  4,918,000  shares of
common stock at prices ranging from $1.50 to $8.01 were  outstanding  during the
three and nine months ended September 30, 1999 and 1998, respectively,  but were
not  included in the  computation  of diluted  EPS  because the effect  would be
anti-dilutive.

          Convertible  debt  instruments  which would  result in the issuance of
12,933,333  shares of common stock,  if the conversion  features were exercised,
were outstanding  during the three and nine months ended September 30, 1999, but
were not included in the computation of the diluted EPS because the effect would
be  anti-dilutive.  The conversion price of these instruments is $1.50 per share
and remained  outstanding at September 30, 1999.  Convertible  debt  instruments
which would result in the issuance of 615,385,  652,985 and 1,818,182  shares of
common stock, if the conversion features were exercised, were outstanding during
each of the three month and nine month  periods ended  September  30, 1998,  but
were not included in the computation of the diluted

                                       9
<PAGE>

EPS because the effect would be  anti-dilutive.  The  conversion  price of these
instruments was $3.25, $4.63 and $7.00, respectively and remained outstanding at
September 30, 1998.

3.       INVENTORIES

         Inventories consist of tool components,  subassemblies,  and expendable
parts and supplies used in all segments of the Company's operations. Inventories
are classified as a long-term asset rather than a current asset as is consistent
with industry practice.

4.       COMMITMENTS AND CONTINGENCIES

         On December  15,  1998,  the Company  entered  into an  agreement  with
Measurement  Specialists,  Inc.  (MSI) to create  an  alliance  between  the two
companies. This agreement contains an option for the Company to acquire MSI. The
alliance  between  the Company  and MSI was  effective  December 1, 1998 and was
created in order to pursue MSI,  while the Company used the tools and  equipment
owned or leased by MSI,  employees of MSI, and the technology of MSI. During the
term of the alliance,  the Company rents  equipment and MWD components from MSI,
with a monthly rental payment of $12,206.  The agreement  grants the Company the
option to  acquire  substantially  all of the  assets of MSI.  If the  option is
exercised,  the  Company  agreed to pay MSI $74,982 in cash,  144,445  shares of
common  stock  of  the  Company,  all  of  which  have  been  issued  to  MSI as
consideration  for the option,  and  payment of the notes  payable not to exceed
$479,416.  Under the original  agreement,  the owner of MSI would be employed by
the Company for four  months.  If the option to purchase  MSI is not  exercised,
then the employment  agreement  terminates.  The shares issued through September
30, 1999 are reflected in Other Assets. If the option is exercised,  this amount
will be allocated to the purchase price of the assets. Both the alliance and the
option to purchase were to expire on April 15, 1999.  The agreement was extended
on April 15, 1999 through  September 30, 1999.  While the agreement has not been
formally  extended beyond  September 30, 1999, both parties  continue to operate
under the general terms of the agreement.

         The Company and certain of its officers and directors  are  respondents
in an arbitration  proceeding commenced by Monetary Advancements  International,
Inc.  before the American  Arbitration  Association  in New York,  New York. The
claimant seeks to recompense against the Company and other named respondents for
the alleged  failure to pay  compensation  in the form of shares of stock of the
Company for services  allegedly  rendered.  The  respondents  have  submitted an
answer and counterclaims  and have initiated a Court proceeding  seeking partial
stay of the  arbitration  proceeding.  Management  does not believe the ultimate
outcome  of  these  actions  will  have  a  materially  adverse  effect  on  the
consolidated  financial  position,  results of  operations  or cash flows of the
Company.

         The  Company  and  Southwick  Investments,  Inc.  were  parties  in  an
arbitration  proceeding before the American Arbitration  Association arising out
of an agreement  entered into by the parties.  Southwick  was engaged to develop
and implement a plan for raising additional capital and provide certain advisory
services.  Southwick was seeking to be awarded damages in an unspecified  amount
for breach of the  contract  and the loss in value to  Southwick of an option to
purchase fifty thousand shares of the common stock of the Company at an exercise
price of $4 per share. In August,  1999, the arbitration  panel issued its award
requiring  that the Company pay Southwick  $100,000,  but  dismissing  all other
claims.  This  award  was  recognized  as  a  charge  to  selling,  general  and
administrative expenses in the third quarter of 1999.

                                       10
<PAGE>

         The  Company is a defendant  in a lawsuit  served on the Company on May
10, 1999 instituted in the District Court,  Montgomery County, Texas by Bendover
Company (formerly known as Diamondback  Directional,  Inc.). In the action,  the
plaintiff  is  seeking  to  recover  the  sum  of  $3,070,301,   plus  interest,
post-default  interest and attorney's  fees, on a promissory note of the Company
dated  September  1, 1997.  The  promissory  note was executed by the Company in
connection  with the purchase of the assets of the  plaintiff and is included in
notes payable to related parties on the balance sheet.  The Company has filed an
answer  interposing  defenses to the lawsuit and  asserting  counterclaims.  The
Company is unable to state at this time  whether or not the  plaintiff is likely
to be  successful  in its  action,  or the  likelihood  that  the  counterclaims
asserted by the Company will be  successful.  The Company and the  plaintiff are
currently  engaged in negotiations to resolve this  litigation.  There can be no
assurance that these negotiations will be successful.

         The Company is a defendant in a lawsuit served on the Company on May 7,
1999 instituted in the District Court of Fort Bend County,  Texas by Dreco, Inc.
seeking to recover  payment  for goods and  services  allegedly  provided by the
plaintiff  to the  defendant.  The  plaintiff  is seeking to recover  the sum of
$876,802 plus interest and  attorney's  fees. The Company has filed an answer in
this action  interposing  defenses and asserting  counterclaims.  The Company is
unable  to state at this  time  whether  or not the  plaintiff  is  likely to be
successful  in its action or  whether  the  Company  will be  successful  on its
counterclaims.

         The  Company is a defendant  in a lawsuit  served on the Company on May
17, 1999 instituted in the District Court of Montgomery County,  Texas by Thomas
Tools,  Inc.  seeking to recover  payment  for tools  allegedly  provided by the
plaintiff  to the  defendant.  The  plaintiff  is seeking to recover  the sum of
$156,534  plus  interest and  consequential  damages and  attorney's  fees.  The
Company has filed an answer in this  litigation.  The Company is unable to state
at this time  whether or not the  plaintiff  is likely to be  successful  in its
action.

         Greenspan,  Inc. has filed suit against the Company on April 5, 1999 in
Harris County,  Texas,  seeking to recover $168,205,  plus interest,  attorney's
fees,  and court  costs.  The  Company  has filed an answer and a counter  claim
against Greenspan for defective  downhole wireline tools,  seeking the return of
approximately $100,000 previously paid by the Company to Greenspan. This case is
pending.  The  Company  is not  able to state at this  time  whether  or not the
plaintiff is likely to be  successful  in its action or whether the Company will
be successful in its counterclaims.

         The Company is defendant in an action filed by Saxon  Industries,  Inc.
in Harris County,  Texas,  seeking to collect $84,684. The Company is seeking to
resolve  this pending  action,  and is not able to state at this time whether or
not the plaintiff will be successful in its action.

         The Company has received  threats of  litigation by seven other vendors
seeking to recover  in the  aggregate  approximately  $135,000.  The  Company is
seeking to resolve these claims.  These amounts are included in amounts  payable
at September 30, 1999.

         The Company  receives demands from creditors for payment of outstanding
payables,  as well as other claims.  These  creditors  may institute  additional
lawsuits  against the Company.  There can be no assurance that judgments may not
be entered against the Company arising out of such lawsuits, if instituted.

                                       11
<PAGE>

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

         The  anticipated  liabilities  relating  to the  foregoing  claims  are
believed to have been adequately recorded in the Company's financial statements.

5.      SEGMENT AND RELATED INFORMATION

        At September 30, 1999,  the Company is organized  into,  and manages its
business based on the performance  of, five business  units.  The business units
have separate management teams and infrastructures  that offer different oil and
gas well services. The business units have been aggregated into three reportable
segments: wireline,  directional drilling, and workover and completion since the
long-term  financial  performance  of these  reportable  segments is affected by
similar economic conditions.

       WIRELINE - This  segment  consists  of two  business  units that  perform
various  procedures  to evaluate  and modify  downhole  conditions  at different
stages of the process of drilling  and  completing  oil and gas wells as well as
various times thereafter until the well is depleted and abandoned.  This segment
engages in onshore  and  offshore  servicing,  as well as other oil and gas well
service  activities  including  renting and repairing  equipment.  The principal
markets for this segment include all major oil and gas producing  regions of the
United States.  Major customers of this segment for the quarter ending September
30, 1999 included Collins and Ware Inc., Burlington Resources and Chevron USA.

       DIRECTIONAL  DRILLING - This segment  consists of two business units. One
unit performs  procedures to enter  hydrocarbon  producing  zone  directionally,
using  specialized  drilling  equipment,  and  expand the area of  interface  of
hydrocarbons and thereby greatly enhancing  recoverability.  The second business
unit engages in oil and gas well downhole  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 quarter ending September
30, 1999 included Jones Energy, Coastal Oil and Gas and Shell E&P.

       WORKOVER AND COMPLETION - This segment  consists of a business unit which
provides  services  performed  on wells when  originally  completed  or on wells
previously  placed in  production  and requiring  additional  work to restore or
increase production.  The principal market for this segment is the Black Warrior
Basin of  Alabama.  The major  customer of this  segment  for the quarter  ended
September 30, 1999 was Energen Resources.

The  accounting  policies  of the  reportable  segments  are the  same as  those
described in Note 2 of the Company's Annual Report of Form 10-KSB for the fiscal
year ended  December 31, 1998.  The Company  evaluates  the  performance  of its
operating segments based on earnings before interest, taxes,  depreciation,  and
amortization  (EBITDA),  which is derived from revenues less operating  expenses
and selling,  general, and administrative expenses.  Segment information for the
quarters ended September 30, 1999 and 1998 is as follows:

                                       12
<PAGE>

         Three months ended September 30, 1999
                                                        WORKOVER
                                         DIRECTIONAL       AND
                            WIRELINE      DRILLING     COMPLETION       TOTAL
                            --------      --------     ----------       -----
 Segment revenues          $ 4,839,942   $2,228,014    $  311,280    $7,379,236
 Segment EBITDA            $ 1,095,349   $   59,547    $   64,375    $1,219,271


Three months ended September 30, 1998

                                                        WORKOVER
                                         DIRECTIONAL       AND
                            WIRELINE      DRILLING     COMPLETION       TOTAL
                            --------      --------     ----------       -----
 Segment revenues          $ 2,831,291   $4,774,019    $  442,708    $8,048,018
 Segment EBITDA            $  (138,727)  $ (589,647)   $  (58,390)   $ (786,764)


Nine months ended September 30, 1999


                                                        WORKOVER
                                         DIRECTIONAL       AND
                            WIRELINE      DRILLING     COMPLETION       TOTAL
                            --------      --------     ----------       -----
Segment revenues          $ 13,100,512   $6,666,625    $  945,797   $20,712,934
Segment EBITDA            $  2,128,286   $   36,855    $  140,655   $ 2,305,796


Nine months ended September 30, 1998


                                                        WORKOVER
                                         DIRECTIONAL       AND
                            WIRELINE      DRILLING     COMPLETION       TOTAL
                            --------      --------     ----------       -----
Segment revenues          $8,215,653     $18,457,240    $1,288,578  $27,961,471
Segment EBITDA            $   85,144     $ 1,253,448    $  (81,441) $ 1,257,151




The Company has  certain  expenses  which are not  allocated  to the  individual
operating  segments.  A  reconciliation  of total  segment  EBITDA  to loss from
operations  for the three and nine months ended  September  30, 1999 and 1998 is
presented as follows:


Three months ended September 30:

                                    1999           1998
                                    ----           ----
Total segment EBITDA            $ 1,219,271    $  (786,764)
Depreciation and amortization    (1,244,405)    (1,651,343)
Unallocated corporate expense      (591,329)      (296,868)
                                -----------    -----------
     Loss from operations       $  (616,463)   $(2,734,975)
                                 ===========    ===========

                                       13
<PAGE>

Nine months ended September 30:

                                    1999            1998
                                    ----            ----
Total segment EBITDA            $ 2,305,796    $ 1,257,151
Depreciation and amortization    (3,706,315)    (3,707,192)
Unallocated corporate expense    (2,641,644)    (1,018,451)
                                -----------    -----------
      Loss from operations      $(4,042,163)   $(3,468,492)
                                ===========    ===========


6.       RELATED PARTY TRANSACTIONS

         The Company  opened a wireline  facility in South Texas in January 1999
primarily to service a customer who has some common  ownership with the Company.
During  the three and nine  months  ended  September  30,  1999,  this  customer
accounted for approximately 5.1% and 10.9% of total revenues, respectively.

         On June 17,  1999,  the Company  sold  approximately  $329,000 of trade
accounts  receivable,  which was fully  reserved due to the  customer  declaring
bankruptcy,  to RJ Air, LLC, an entity affiliated with a member of the Company's
Board of  Directors,  for $200,000.  As of September  30, 1999,  the Company has
collected  $100,000 of the sale price and the remaining  $100,000 is included in
deferred revenue on the balance sheet.

7.       RECLASSIFICATIONS

         Certain reclassifications have been made to the 1998 amounts to conform
to the 1999 presentation.

8.       ISSUANCE OF COMMON STOCK

         Pursuant to an agreement dated December 15, 1998,  which was amended on
April 15,  1999,  through  September  30, 1999,  the Company has issued  144,445
shares of Common Stock to Measurement Specialists,  Inc. ("MSI"). The securities
have been issued in reliance upon Regulation D under the Securities Act of 1933,
as amended.  The securities  were issued in connection with an option granted by
MSI to the Company to acquire the assets of MSI.

         Commencing in April 1999,  the Company  offered to the  subscribers  in
private sales of the Company's securities which occurred in March and April 1998
the right to receive one additional share of the Company's Common Stock for each
share purchased in the private sale. In exchange,  the subscribers were asked to
release the Company from all claims arising out of subscribers' allegations that
the Company breached its agreement to register under the Securities Act of 1933,
as amended (the "Securities  Act"), the public offer and sale of the shares sold
to the  subscribers  in 1998.  Subscribers  alleged  that  they  were  unable to
liquidate their shares  purchased as they had expected  because of the breach of
this agreement.  The Company  disputed the claim on the basis that it had timely
filed a  registration  statement  relating to the shares in accordance  with the
terms of the agreement.  The registration  statement remains on file but has not
been declared  effective under the Securities Act. The Company made the offer to
the subscribers in order to resolve the matter.  The offering  terminated on May
28, 1999.

                                       14
<PAGE>

         Accordingly, during the quarter ended June 30, 1999, the Company issued
770,364  shares of Common Stock to the  subscribers  to its March and April 1998
private  placements in  consideration  of their release of their claims based on
the allegation  that the Company  breached its agreement to register the shares.
Two  subscribers  who had  purchased  an  aggregate  of 2,000 shares in the 1998
private  placements did not accept the offer.  Management is of the opinion that
if claims are presented by these shareholders, there would be no material impact
on the Company. No underwriter participated in the sale of the securities and no
compensation  was paid to any person in connection  with soliciting the issuance
of the  shares.  The shares of Common  Stock were  issued in  reliance  upon the
exemption from the  registration  requirements of the Securities Act afforded by
Section 4(2) and Regulation D thereunder.

9.       DEFAULTS UPON SENIOR SECURITIES

         At September 30, 1999,  the Company was not in compliance  with certain
general and financial  covenants of its loan and security  agreement  with Fleet
Capital Corporation ("Fleet"). Under the terms of the loan agreement, the breach
of these  covenants  constitutes  events of default and, at the option of Fleet,
the  obligations  of the Company to Fleet are subject to being declared by Fleet
to be immediately due and payable. Due to the indebtedness being callable at the
discretion of Fleet and normal cross default  provisions of all other debt,  all
of the Company's  debt at September  30, 1999 has been  classified as current on
the condensed consolidated balance sheet.

         At September 30, 1999, the Company was not in compliance  with its loan
and  security  agreement  with GECC and is  working  with GECC to  resolve  this
situation and to date GECC has not issued a notice of default.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

         The Company's consolidated results of operations are affected primarily
by the extent of  utilization  of and rates paid for its services and equipment.
Incremental  demand for the  Company's  services is affected by the level of oil
and natural gas well  drilling  activity and efforts by oil and gas producers to
improve  well  production  and  operating  efficiencies.   Both  short-term  and
long-term  trends in oil and natural gas prices  affect the  utilization  of the
Company's  services.  Declines  in 1998  and the  first  quarter  of 1999 in the
prevailing  prices for oil and  natural gas  adversely  impacted  the  Company's
operations.  These  lower  oil and  gas  prices  have  negatively  impacted  the
Company's  revenues for the three and nine months ended  September  30, 1999. In
the second and third quarter of 1999, oil and gas prices have improved; however,
management  of the Company  expects that prices for oil and gas will continue to
be volatile and to affect the demand for and pricing of the Company's  services.
Future  material  declines  in oil and gas prices or  industry  activity  in the
United States could have a material adverse effect on the Company's consolidated
results of operations, financial condition and cash flows.

                                       15
<PAGE>

RESULTS OF OPERATIONS.  THREE MONTHS ENDED  SEPTEMBER 30, 1999 COMPARED TO THREE
MONTHS  ENDED  SEPTEMBER  30,  1998 AND NINE  MONTHS  ENDED  SEPTEMBER  30, 1999
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1998

         The following  table sets forth the  Company's  revenues from its three
principal  lines of business for the three and nine months ended  September  30,
1999 and 1998 respectively:

                              Three Months Ended           Nine Months Ended
                              ------------------           -----------------
                            09/30/99      09/30/98      09/30/99       09/30/98
                            --------      --------      --------       --------
Wireline                  $ 4,839,942   $ 2,831,291   $13,100,512   $ 8,215,653
Directional Drilling        2,228,014     4,774,019     6,666,625    18,457,240
Workover and Completion       311,280       442,708       945,797     1,288,578
                          -----------   -----------   -----------   -----------
                          $ 7,379,236   $ 8,048,018   $20,712,934   $27,961,471


         Total revenues  decreased by  approximately  $669,000 to  approximately
$7.4  million  for the three  months  ended  September  30,  1999 as compared to
revenues of approximately  $8.0 million for the three months ended September 30,
1998. Total revenues  decreased by  approximately  $7.2 million to approximately
$20.7  million  for the nine  months  ended  September  30,  1999 as compared to
revenues of approximately  $28.0 million for the nine months ended September 30,
1998. The Company's  wireline revenues were adversely affected by reduced demand
and  downward  pressure  on  pricing,  however,  this was more  than  offset  by
increased  activity from wireline locations opened or acquired since July, 1998.
The  decrease in  directional  drilling  revenues was also the result of reduced
demand  for the  Company's  services  and  downward  pressure  on  pricing  that
primarily  resulted  from the  decline  in oil and gas  prices in 1998 and early
1999.  Revenues for Workover and Completion  decreased due to decreased activity
by the division's principle customer.

         Operating costs decreased by  approximately  $2.0 million for the three
months  ended  September  30,  1999,  as  compared  to the same  period of 1998.
Operating  costs were 75.9% of revenues for the three months ended September 30,
1999 as compared  with 94.5% of  revenues in the same period in 1998.  Operating
costs  decreased  by  approximately  $6.5  million  for the  nine  months  ended
September 30, 1999, as compared to the same period of 1998. Operating costs were
79.9% of revenues for the nine months ended  September 30, 1999 as compared with
82.4% of revenues in the same period in 1998.  The  decrease was  primarily  the
result of the lower  overall  level of  activities  in the three and nine months
ended  September 30, 1999 compared with 1998. The decrease in operating costs as
a percentage of revenues for the three and nine months ended  September 30, 1999
compared to September 30, 1998 was  primarily  the result of the Company's  cost
reduction  program  implemented  in the  first  quarter  of 1999.  Salaries  and
benefits  decreased  by  approximately  $765,000  for  the  three  months  ended
September  30, 1999, as compared to the same period in 1998, as the total number
of employees  decreased  from 357 at September  30, 1998 to 245

                                       16
<PAGE>

at September 30, 1999.  Salaries and benefits  decreased by  approximately  $2.1
million for the nine months ended  September  30, 1999,  as compared to the same
period in 1998.  This was due to layoffs and salary  reductions that the Company
initiated  in response to the reduced  demand for the  Company's  services  that
primarily  resulted from the decline in oil and gas prices in 1998 and the first
quarter of 1999.

         Selling, general and administrative expenses decreased by approximately
$374,000 from  approximately  $1.52 million in the three months ended  September
30, 1998 to approximately  $1.15 million in the three months ended September 30,
1999. As a percentage of revenues,  selling, general and administrative expenses
decreased to 15.5% in the three months  ended  September  30, 1999 from 18.9% in
1998,  primarily as a result of the Company's cost reduction  measures initiated
in response to the reduced demand for the Company's services.  Selling,  general
and   administrative   expenses   decreased  by   approximately   $187,000  from
approximately  $4.67  million in the nine  months  ended  September  30, 1998 to
approximately  $4.48  million in the nine months ended  September 30, 1999. As a
percentage of revenues,  selling,  general and administrative expenses increased
from  16.7%  in the  nine  months  ended  September  30,  1998 to 21.6% in 1999,
primarily as a result of the $914,807  settlement  cost recognized in the second
quarter of 1999  relating to shares of common stock issued in  consideration  of
the  release of certain  claims  asserted  by these  persons  regarding  alleged
excessive  delays  in  effecting  the  registration  of their  shares  under the
Securities Act of 1933, as amended,  which allegedly prevented such persons from
being able to liquidate  their  securities.  Excluding  the $914,807  settlement
costs, selling, general and administrative expenses would have decreased by $1.1
million  for the nine months  ended  September  30,  1999 due to lower  activity
levels and the implementation of a cost reduction program.

         Depreciation and amortization decreased from approximately $1.7 million
in  the  three  months  ended  September  30,  1998,  or  20%  of  revenues,  to
approximately $1.2 million in 1999 or 17% of revenues,  primarily because of the
lower asset base of depreciable  properties  and lower  goodwill  balance in the
three  month  period  ended  September  30,  1999 over the same  period in 1998.
Depreciation and amortization  remained  relatively flat at $3.7 million for the
nine  months  ended  September  30,  1999  compared  to the same period in 1998.
Depreciation and amortization as a percentage of revenues  increased to 18% from
13% due to the reduced demand for the Company's services as described above.

         Interest  expense  and  amortization  of  debt  discount  decreased  by
approximately  $75,000 for the three months ended September 30, 1999 as compared
to the same  period  in 1998 due to a lower  revolver  balance  with  Fleet  and
increased by approximately $553,000 for the nine months ended September 30, 1999
as compared to the same period in 1998.  This  increase was directly  related to
the increased amounts of indebtedness outstanding in 1999, primarily a result of
the Phoenix  Acquisition that occurred in the first quarter of 1998. See "Note 6
of Notes to Consolidated Financial Statements" in the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1998.

         Net  gain on sale of  fixed  assets  was $0  compared  to a net gain of
$59,817 for the three months ended  September  30, 1999 and 1998,  respectively,
Net loss on sale of fixed assets was $7,263 for the nine months ended  September
30, 1999 as compared to a net gain of $60,823 for the same period in 1998. Other
income  increased by  approximately  $35,000 in three months ended September 30,
1999 as  compared  to the  same  period  in  1998.  Other  income  increased  by
approximately $28,000 in the nine months ended September 30, 1999 as compared to
the same period in 1998.

                                       17
<PAGE>

         The  Company  had  a  loss  before   provision   for  income  taxes  of
approximately  $1.4 million and $6.5 million for the three and nine months ended
September 30, 1999, respectively, compared to a loss before provision for income
taxes of  approximately  $3.6  million  and $4.7  million for the three and nine
months ended September 30, 1998, respectively.

         Income tax benefit  totaled  $-0- for the three and nine  months  ended
September 30, 1999 as compared to income tax benefit of  approximately  $-0- and
$649,000 for the three and nine months ended  September 30, 1998,  respectively.
These  totals  contain  Federal  and  State  deferred  taxes as well as  current
amounts.

         The  Company  had a net loss of  approximately  $1.4  million  and $6.5
million for the three and nine months ended  September  30, 1999,  respectively,
compared to a net loss of $3.6  million and $4.7  million for the three and nine
months ended September 30, 1998, respectively.

LIQUIDITY AND CAPITAL RESOURCES

         Cash  generated  by  Company  operating  activities  was  approximately
$515,000 for the nine months ended  September  30, 1999 as compared to cash used
of  approximately $1 million for the same period in 1998.  Investing  activities
used cash of  approximately  $1.6 million during the nine months ended September
30, 1999 for the  acquisition  of  property,  plant,  and  equipment,  including
proceeds from the sale of fixed assets of approximately $35,000. During the nine
months ended September 30, 1998, investing activities used cash of approximately
$5.2  million  for  the  acquisition  of  property,  plants  and  equipment  and
businesses,  net of cash acquired,  including proceeds of approximately $206,000
from  the  sale of  fixed  assets.  Financing  activities  provided  net cash of
approximately  $456,000  from the  proceeds  from bank and other  borrowings  of
approximately  $3.3  million  during the nine months  ended  September  30, 1999
offset by principal  payments on bank debt,  other borrowings and capital leases
of approximately $1.2 million,  net of payments on the working capital revolving
loan of approximately  $1.3 million and approximately  $320,000 of costs related
to debt issuance.  For the same period in 1998 financing activities provided net
cash of  approximately  $5.7 million from the net proceeds  from the issuance of
common stock of approximately $3.9 million and,  approximately $1.3 million from
the proceeds from bank and other borrowings offset by principal payments on bank
debt,  other borrowings and capital leases of  approximately  $1.4 million,  net
payments on the working capital revolving loan of approximately $2.1 million and
approximately $437,000 of costs related to debt issuances.

Cash at  September  30, 1999 was  $376,419 as compared  with cash  overdraft  at
September 30, 1998 of $115,135.

         During  1998 and the first  half of 1999,  the  Company  experienced  a
decline in the demand for its products and services as a result of a significant
decrease in the price of oil and natural gas.  The decline in demand  materially
impacted  the  Company's  revenues,  liquidity  and its  ability  to  remain  in
compliance with covenants in its loan agreements and meet its obligations during
the last half of 1998 and first three quarters of 1999.  While these  conditions
continued  throughout  much of the first  quarter  of 1999,  prices  for oil and
natural gas were  improving  significantly  in the second and third  quarters of
1999.  Management of the Company  believes that an  improvement  in its revenues
will be  dependent  upon a  continuing  period of  stabilized  pricing at levels
similar to those of the second and third  quarters of 1999 and  decisions by oil
and natural gas producers to make  commitments  to engage in oil and natural gas
well enhancements.

                                       18
<PAGE>

         The  Company's  outstanding   indebtedness  includes  primarily  senior
indebtedness aggregating  approximately $15.5 million at September 30, 1999 owed
to Fleet  Capital  Corporation  ("Fleet") and GE Capital  Corporation  ("GECC"),
other indebtedness of approximately $5.5 million, and $19.4 million owing to St.
James  Capital  Partners,  L.P.  ("SJCP")  and  its  affiliates.   All  of  this
indebtedness is shown as currently due and payable on the Company's consolidated
balance sheet at September 30, 1999.

     Management's  plans  with  respect  to  addressing  its  current  financial
situation include primarily the following:

o    The  Company  is  engaged  in  efforts  to  refinance  its  senior  secured
     indebtedness  which is  intended  to  provide,  among  other  things,  more
     favorable terms and thereby improve liquidity. Negotiations with respect to
     refinancing this indebtedness are ongoing,  however, no written commitments
     have been received from any prospective lenders.

o    In October 1999, the Company entered into a forbearance  agreement with its
     primary secured lender, Fleet Capital  Corporation,  in which, Fleet agreed
     to forebear  through  October 31, 1999 taking action on defaults  under the
     Company's  loan  agreement.  This  agreement  has  since  expired  and been
     replaced by a  forbearance  agreement  in which Fleet has agreed to forbear
     through December 10, 1999 taking any action on defaults under the Company's
     loan  agreement.  The Company  anticipates  that it will  require a further
     forbearance agreement with Fleet. There can be no assurance that Fleet will
     enter into such an agreement.

o    The Company  has  continued  through  the third  quarter of 1999 to further
     implement a cost  reduction  program first  implemented in the last half of
     1998 and  intends to  continue  to focus on cost  reduction  opportunities.
     These cost  reductions  have  included,  among other  things,  reduction in
     personnel,   reductions  in   compensation   levels  and   curtailment   of
     expenditures.  The Company continues to make personnel decisions and reduce
     expenditures  to meet its  current  levels of  activities.  There can be no
     assurance  that the Company will be successful in attracting  new employees
     to replace discharged personnel at such time as its operations may require.

o    The Company is currently in negotiations to restructure a note payable to a
     former owner of Diamondback Directional, Inc.

         Management  also  intends  to  seek  to  raise  additional  capital  in
conjunction  with the foregoing plan, which may be either debt or equity capital
or a combination  thereof,  which,  together with the  renegotiations of certain
outstanding  indebtedness,  will be used to meet  the  Company's  other  current
liquidity  requirements.  Management  expects that, upon conclusion of the plan,
its indebtedness  owing to St. James Capital  Partners,  L.P. and its affiliates
will be long-term or converted into equity securities.

         Management  believes  that,  provided oil and natural gas prices remain
relatively  stable with prices that  existed in the third  quarter of 1999,  the
implementation  of the foregoing plan together with the  cost-reduction  program
implemented  in 1998,  should  enable the  Company to operate  without a further
deterioration   of  its   liquidity   condition   and   capitalize   on  current
opportunities.

         Management  of the  Company  is unable to assure  that its  efforts  to
implement the plan  described  above will be successful or state the terms under
which or when the  proposed  transactions  will be  completed.  In the event the
Company is  unsuccessful  in raising  additional  capital  and  refinancing  its
currently due  indebtedness,  the Company  believes that its operations  will be

                                       19
<PAGE>

significantly  affected,  including,  possibly, the foreclosure by the Company's
secured  creditors  against  virtually all of the Company's  assets.  Under such
circumstances, the Company's equity investors may loose their entire investment.
Management  expects  that in order to  complete  such  transactions  substantial
amounts of equity  securities  may be required to be issued which may materially
dilute the Company's existing stockholders.

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

YEAR 2000 COMPUTER ISSUES

         The Year 2000 computer  issue is the result of computer  programs being
written  to use two  digits to define  year  dates.  Computer  programs  running
date-sensitive  software may recognize a date using "00" as the year 1900 rather
than the year 2000.  This  could  result in system  failure  or  miscalculations
causing disruptions of operations.

         We initiated a comprehensive  assessment of our information  technology
and non-information technology systems to ensure that our systems either will be
unaffected by the Year 2000 issue or will be upgraded to enable  compliance with
Year 2000 standards.  In general,  our information  technology  computer systems
consist of our office computer network and financial  management  software.  Our
other computer systems, which are non-information technology, consist of certain
office  equipment  and other  systems  associated  with oil and gas well service
activities. We are also evaluating the Year 2000 compliance by our customers and
suppliers to ascertain the potential impact on us of the extent of our customers
and suppliers compliance with Year 2000 issues.

         We began an in-house  assessment  of our Year 2000 problem with respect
to our information  technology  systems in the fall of 1998. Since that time, we
have upgraded all of our financial  management  software to newer versions which
are Year  2000  compliant.  In  addition,  we have  replaced  nearly  all of our
information  technology  hardware  so  that  this  hardware  is  now  Year  2000
compliant. To date the cost of the upgrade and of this software and hardware has
been approximately $6,000.

         Additionally,  we have assessed our non-information  technology systems
which consist primarily of embedded  technology at our field offices and certain
of the  equipment  used  at  wellsites.  We  believe  that  our  non-information
technology systems are now Year 2000 compliant.

         We are conducting an assessment of Year 2000  exposures  related to our
suppliers and customers.  We have identified our key customers and suppliers and
have  requested  information as to the Year 2000  compliance of such  customers.
With key  vendors we have  requested  written  assurances  as to their Year 2000
compliance. In both cases we have received no negative responses

                                       20
<PAGE>

to date. In the event any of these vendors should become  unavailable to provide
goods or services to us, we believe  there are  alternate  sources.  Although no
contingency  plans or  alternative  sources have been developed to date, we will
begin to formulate such plans as we ascertain the  preparedness of our customers
and suppliers. In the event any of our vendors should be Year 2000 noncompliant,
we believe it is likely that we have no legal remedies against them.

         We believe that all of our internal systems and equipment are Year 2000
compliant as of October 15, 1999. Nonetheless, notwithstanding our belief to the
contrary,  if all  Year  2000  issues  are  not  adequately  assessed  or if the
necessary  remedial efforts are not implemented on a timely basis, we may not be
Year 2000 compliant  which, in turn, could have a material adverse effect on our
business,  operating results of financial condition. In addition, our operations
may be disrupted in the event our  suppliers or service  providers  are not Year
2000  compliant  and such failure  could have a material  adverse  effect on our
business,  operating  results or financial  condition.  We believe that the most
likely worst-case  scenario arising out of any possible Year 2000 non-compliance
will relate to the operation of well site  equipment.  If this equipment  should
become  inoperable  for  reasons  related  to  its  inability  to be  Year  2000
compliant, which is not presently anticipated, our operations and revenues could
be materially adversely affected.

INFLATION

         The  Company's  revenues  have been and are  expected to continue to be
affected by fluctuations in the prices for oil and gas.  Inflationary  pressures
did not have a significant  effect on the  Company's  operations in the three or
nine months ended September 30, 1999.

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

         With the exception of historical matters, the matters discussed in this
Report are "forward-looking statements" as defined under the Securities Exchange
Act of 1934, as amended,  that involve risks and uncertainties.  Forward-looking
statements  include,  but are not  limited  to, the  matters  described  herein,
including  Management's  Discussion  and  Analysis or Plan of  Operations.  Such
forward-looking  statements  relate  to the  Company's  ability  to  attain  and
maintain profitability and cash flow, the stability of and future prices for oil
and gas, the maintenance of current price levels for oil and gas, pricing in the
oil and gas  services  industry,  the  ability of the  Company to compete in the
premium  services  market,  the  decisions  by oil  and  gas  producers  to make
commitments to engage in oil and natural gas well  enhancements,  the ability of
the Company to expand through  acquisitions  and to redeploy its equipment among
regional operations, the ability of the Company to upgrade, modernize and expand
its  equipment,  including  its  wireline  fleet,  the ability of the Company to
expand its tubing conveyed perforating  services,  the ability of the Company to
provide services using the newly acquired state of the art tooling,  the ability
of the  Company  to raise  additional  capital to meet its  requirements  and to
obtain  additional  financing,  the  ability  of  the  Company  to  successfully
implement  its  business  strategy,  the  ability  of the  Company  to  maintain
compliance with the covenants of its various loan documents and other agreements
pursuant to which  securities  have been  issued,  the ability of the Company to
obtain and extend the forbearance of its secured lenders in seeking to foreclose
against the  Company's  assets,  and the ability of the Company to  successfully
assess and address Year 2000 issues.  The inability of the Company to meet these
objectives  or the  consequences  on the Company  from adverse  developments  in
general economic  conditions,  adverse developments in the oil and gas industry,
or the absence of the forbearance by the Company's  secured  lenders,  and other
factors  could have a

                                       21
<PAGE>

material adverse effect on the Company.  The Company is substantially  dependent
upon its ability to implement its plans for addressing its financial  situation,
as  described  above,  for its ability to continue its  operations  as presently
constituted. The Company cautions readers that various risk factors described in
the Company's  Annual Report on Form 10-KSB for the year ended December 31, 1998
could cause the  Company's  operating  results to differ  materially  from those
expressed  in any  forward-looking  statements  made by the  Company  and  could
adversely affect the Company's financial condition and its ability to pursue its
business strategy.  Readers should refer to the Annual Report on Form 10-KSB and
the risk factors discussed therein.

PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

         The  Company is a defendant  in a lawsuit  served on the Company on May
10, 1999 instituted in the District Court,  Montgomery County, Texas by Bendover
Company (formerly known as Diamondback  Directional,  Inc.). In the action,  the
plaintiff  is  seeking  to  recover  the  sum  of  $3,070,301,   plus  interest,
post-default  interest and attorney's  fees, on a promissory note of the Company
date  September  1, 1997.  The  promissory  note was  executed by the Company in
connection  with the  purchase of the assets of the  plaintiff.  The Company has
filed an answer interposing defenses to the lawsuit and asserting counterclaims.
The  Company  is unable to state at this time  whether or not the  plaintiff  is
likely to be successful in its action or the likelihood  that the  counterclaims
intended to be asserted by the Company will be  successful.  The Company and the
plaintiff  are currently  engaged in  negotiations  to resolve this  litigation.
There can be no assurance that these negotiations will be successful.

         The Company is a defendant in a lawsuit served on the Company on May 7,
1999 instituted in the District Court of Fort Bend County,  Texas by Dreco, Inc.
seeking to recover  payment  for goods and  services  allegedly  provided by the
plaintiff  to the  defendant.  The  plaintiff  is seeking to recover  the sum of
$876,802 plus interest and  attorney's  fees. The Company has filed an answer in
this action  interposing  defenses and asserting  counterclaims.  The Company is
unable  to state at this  time  whether  or not the  plaintiff  is  likely to be
successful  in  this  action  or  whether  the  Company  will be  successful  on
counterclaims.

         The  Company is a defendant  in a lawsuit  served on the Company on May
17, 1999 instituted in the District Court of Montgomery County,  Texas by Thomas
Tools,  Inc.  seeking to recover  payment  for tools  allegedly  provided by the
plaintiff  to the  defendant.  The  plaintiff  is seeking to recover  the sum of
$156,534  plus  interest and  consequential  damages and  attorney's  fees.  The
Company has filed an answer in this  litigation.  The Company is unable to state
at this time  whether or not the  plaintiff  is likely to be  successful  in its
action.

         The  Company  and  Southwick  Investments,  Inc.  were  parties  in  an
arbitration  proceeding before the American Arbitration  Association arising out
of an agreement  entered into by the parties.  Southwick  was engaged to develop
and implement a plan for raising additional capital and provide certain advisory
services.  Southwick was seeking to be awarded damages in an unspecified  amount
for breach of the  contract  and the loss in value to  Southwick of an option to
purchase fifty thousand shares of the common stock of the Company at an exercise
price of $4 per share. In August,  1999, the arbitration  panel issued its award
requiring  that the Company pay Southwick  $100,000,  but  dismissing  all other
claims.  This  award  was  recognized  as  a  charge  to  selling,  general  and
administrative expenses in the third quarter of 1999.

                                       22
<PAGE>

         Greenspan,  Inc.  filed suit  against  the  Company on April 5, 1999 in
Harris County,  Texas,  seeking to recover $168,205,  plus interest,  attorney's
fees,  and court cost.  The Company has filed a counter claim against  Greenspan
for  defective  downhole  wireline  tools,  seeking the return of  approximately
$100,000.00  previously paid by the Company to Greenspan.  This case is pending.
The Company is not able to state at this time  whether or not the  plaintiff  is
likely to be  successful in its action or whether the Company will be successful
in its counterclaims.

         The Company is a defendant in an action filed by Saxon Industries, Inc.
in Harris County,  Texas,  seeking to collect $84,684. The Company is seeking to
resolve  this pending  action,  and is not able to state at this time whether or
not the plaintiff will be successful in its action.

         The Company has received  threats of  litigation by seven other vendors
seeking to recover  in the  aggregate  approximately  $135,000.  The  Company is
seeking to resolve these claims.  These amounts are included in amounts  payable
at September 30, 1999.

         The Company  receives demands from creditors for payment of outstanding
payables,  as well as other claims.  These  creditors  may institute  additional
lawsuits against the Company.  There can be no assurance that judgements may not
be entered against the Company arising out of such lawsuits, if instituted.

         The  anticipated  liabilities  relating  to the  foregoing  claims  are
believed to have been adequately recorded in the Company's financial statements.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

         The   Company  has   outstanding   secured   indebtedness   aggregating
approximately  $11.1  million as of  September  30,  1999  under an Amended  and
Restated Loan and Security  Agreement (the "Loan  Agreement") with Fleet Capital
Corporation  ("Fleet")  dated  October 30,  1998,  From time to time,  including
various  times in 1999,  the Company  has not been in  compliance  with  various
covenants  in the Loan  Agreement.  In  September  1999,  the  Company and Fleet
entered into a Fourth Forbearance Agreement, Fourth Amendment and Waiver to Loan
and Security  Agreement (the  "Forbearance  Agreement")  whereby Fleet agreed to
forebear  through October 31, 1999 taking action on defaults under the Company's
Loan  Agreement.  This  agreement  has  since  expired  and been  replaced  by a
forbearance agreement in which Fleet agrees to forbear through December 10, 1999
in taking  any  action on  defaults  under the  Company's  loan  agreement.  The
instruments  governing the Company's  indebtedness  to Fleet impose  significant
operating and financial  restrictions on the Company.  Such restrictions 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 financing, make needed capital expenditures,  withstand a downturn in the
Company's  business  or economy  in  general,  or  otherwise  conduct  necessary
corporate  activities.  The Loan Agreement places  restrictions on the Company's
ability  to borrow  money  under the  revolving  credit  provisions  of the Loan
Agreement.   The  Company's  ability  to  borrow  under  this  revolving  credit
arrangement  is  necessary  to fund  the  Company's  ongoing  operations.  If no
extension  of the  forbearance  term is reached  with  Fleet and the  Company is
unable to refinance the Fleet debt or agree to modified terms with Fleet,  Fleet
will  have the  right  to  elect to  declare  all of the  funds  borrowed  to be
immediately  due and payable  together  with accrued and unpaid  interest and to
refuse to make additional  advances under the revolving credit  arrangement.  In
such event,  there can be no  assurance  that the

                                       23
<PAGE>

Company  would be able to make such  payment  or borrow  sufficient  funds  from
alternative sources to make any such payment. If the Company was unable to repay
all amounts  declared  due and  payable  under the Loan  Agreement,  Fleet could
proceed  against the collateral  granted to satisfy the  indebtedness  and other
obligations due and payable.  This collateral includes  substantially all of the
Company's  assets,  not already pledged as collateral for other  indebtedness of
the Company. If the indebtedness owing to Fleet was to be accelerated, 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 Fleet would  constitute a
default under other  indebtedness  of the Company which may result in such other
indebtedness   also   becoming   immediately   due  and   payable.   Under  such
circumstances,  the holders of the Company's  Common Stock may realize little or
nothing on their investment in the Company.  Even if additional  financing could
be  obtained,  there  can be no  assurance  that it would  be on terms  that are
favorable  or  acceptable  to the Company or its equity  security  holders.  The
Company is seeking to  refinance  its  indebtedness  owing to Fleet with another
lender.

         At September 30, 1999, the Company was not in compliance  with its loan
and  security  agreement  with GECC and is  working  with GECC to  resolve  this
situation and to date GECC has not issued a notice of default.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

                27.   Financial Data Schedule

(b)      Reports on Form 8-K

                None

                                   SIGNATURES

         Pursuant to the requirements 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.

                                            BLACK WARRIOR WIRELINE CORP.
                                            ----------------------------
                                                    (Registrant)


Date:  November 18, 1999                       /S/  William L. Jenkins
                                        ----------------------------------------
                                                    William L. Jenkins
                                           President and Chief Operating Officer


                                       24