SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

 /X/     Quarterly Report pursuant to Section 13 or 15(d) of the
         Securities Exchange Act of 1934 for the quarterly period ended
         March 31, 2004;

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 registrant as specified in its charter)

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

                 100 ROSECREST LANE, COLUMBUS, MISSISSIPPI 39701
       -------------------------------------------------------------------
               (Address of principal executive offices, zip code)

                                 (662) 329-1047
       -------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

         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 preceding 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
                        -----            -----

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

         As of May 10, 2004, 12,499,528 shares of the Registrant's Common
Stock, $.0005 par value, were outstanding.

<PAGE>

                          BLACK WARRIOR WIRELINE CORP.

                          QUARTERLY REPORT ON FORM 10-Q

                                      INDEX

PART I - FINANCIAL INFORMATION

                                                                            Page
                                                                            ----

Item 1.  Financial Statements

         Condensed Balance Sheets - March 31, 2004 (unaudited)
         and December 31, 2003                                                 3

         Condensed Statements of Operations -
         Three Months Ended March 31, 2004 (unaudited) and
         March 31, 2003 (unaudited)                                            4

         Condensed Statements of Cash Flows -
         Three Months Ended March 31, 2004 (unaudited) and
         March 31, 2003 (unaudited)                                            5

         Notes to Condensed Financial Statements -
         Three Months Ended March 31, 2004 (unaudited) and
         March 31, 2003 (unaudited)                                            6


Item 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations                        15

Item 3.  Qualitative and Quantitative Disclosures About Market Risk           24

Item 4.  Controls and Procedures                                              25


PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K                                     25


                                       2
<PAGE>


PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

BLACK WARRIOR WIRELINE CORP.
----------------------------
CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                      MARCH 31,         DECEMBER 31,
                                                                                        2004                2003
                                                                                    (UNAUDITED)
                                                                                    -----------         -----------
                                       ASSETS

<S>                                                                                  <C>             <C>
Current assets:
     Cash and cash equivalents                                                       $    626,193    $  4,661,030
     Restricted cash                                                                      786,817         961,551
     Accounts receivable, less allowance of $701,505 and $588,101, respectively         6,263,274       8,952,348
     Accounts receivable held for sale                                                  3,181,218              --
     Other receivables                                                                    150,646         179,317
     Prepaid expenses                                                                   2,494,260          92,471
     Other current assets                                                               1,444,511       1,188,079
                                                                                     ------------    ------------
           Total current assets                                                        14,946,919      16,034,796

Inventories of tool components and sub-assemblies held for sale, net                    5,486,026       5,206,639
Property, plant and equipment, less accumulated depreciation                           12,368,704      18,219,437
Property, plant and equipment held for sale, less accumulated depreciation              4,174,000              --
Other assets                                                                              328,145         448,507
Other assets held for sale                                                                 20,095              --
Goodwill and other intangible assets                                                    1,590,970       1,492,050
                                                                                     ------------    ------------
           Total assets                                                              $ 38,914,859    $ 41,401,429
                                                                                     ------------    ------------

                       LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
     Accounts payable                                                                $  2,799,057    $  4,981,558
     Accounts payable held for sale                                                     2,024,142              --
     Accrued salaries and vacation                                                        802,318         866,267
     Accrued salaries and vacation held for sale                                          202,234              --
     Other accrued expenses                                                             1,046,480       1,523,447
     Other accrued expenses held for sale                                                 568,254              --
     Accrued interest payable                                                             181,007          94,981
     Current maturities of long-term debt                                              17,464,499      18,035,237
     Accrued interest payable to related parties                                       15,465,931      14,534,437
     Notes payable to related parties, net of unamortized discount                     24,443,645      24,402,569
                                                                                     ------------    ------------
           Total current liabilities                                                   64,997,567      64,438,496

Long-term debt, less current maturities                                                   302,792         356,952
Deferred revenue                                                                          109,975         109,975
                                                                                     ------------    ------------

           Total liabilities                                                           65,410,334      64,905,423
                                                                                     ------------    ------------

Stockholders' deficit:

     Preferred stock, $.0005 par value, 2,500,000 shares authorized,
        none issued at March 31, 2004 or December 31, 2003                                     --              --
     Common stock, $.0005 par value, 175,000,000 shares authorized,
         12,504,148 shares issued, 12,499,528 shares outstanding at
         March 31, 2004 and December 31, 2003                                               6,252           6,252
     Additional paid-in capital                                                        20,275,963      20,275,963
     Accumulated deficit                                                              (46,153,102)    (43,141,023)
     Treasury stock, at cost, 4,620 shares at March 31, 2004 and December 31, 2003       (583,393)       (583,393)
     Loan to shareholder                                                                  (41,195)        (61,793)
                                                                                     ------------    ------------
           Total stockholders' deficit                                                (26,495,475)    (23,503,994)
                                                                                     ------------    ------------
           Total liabilities and stockholders' deficit                               $ 38,914,859    $ 41,401,429
                                                                                     ------------    ------------
</TABLE>

          See accompanying notes to the condensed financial statements.


                                       3

<PAGE>

Black Warrior Wireline Corp.
----------------------------
CONDENSED STATEMENTS OF OPERATIONS

For the three months ended March 31, 2004 and March 31, 2003

<TABLE>
<CAPTION>

                                                               MARCH 31, 2004     MARCH 31, 2003
                                                                 (UNAUDITED)        (UNAUDITED)


<S>                                                               <C>             <C>
Revenues                                                          $ 10,539,320    $ 10,369,814

Operating costs                                                      7,614,350       7,399,504

Selling, general and administrative expenses                         2,111,883       2,294,411

Depreciation and amortization                                        1,199,134       1,197,911
                                                                  ------------    ------------
        Loss from continuing operations                               (386,047)       (522,012)

Interest expense and amortization of debt discount                  (1,350,266)     (1,306,246)

Net gain on sale of fixed assets                                        56,347         227,545

Other income                                                             4,344           8,762
                                                                  ------------    ------------

        Loss from continuing operations before income taxes         (1,675,622)     (1,591,951)

Provision for income taxes                                                  --              --
                                                                  ------------    ------------
        Loss before discontinued operations                         (1,675,622)     (1,591,951)

Discontinued operations (Note 6)

        Gain (loss) from operations of discontinued directional
              drilling segment (including estimated loss on
              disposal of $1,374,939)                               (1,336,457)        294,666

        Provision for income taxes                                          --              --
                                                                  ------------    ------------
         Net Loss                                                 $ (3,012,079)   $ (1,297,285)
                                                                  ============    ============

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

        Loss before discontinued operations                       $       (.13)   $       (.12)

        Discontinued operations                                           (.11)            .02
                                                                  ------------    ------------

Net loss per share - basic and diluted                            $       (.24)   $       (.10)
                                                                  ============    ============
</TABLE>

          See accompanying notes to the condensed financial statements.


<PAGE>

BLACK WARRIOR WIRELINE CORP.

CONDENSED STATEMENTS OF CASH FLOWS

For the three months ended March 31, 2004 and March 31, 2003
<TABLE>
<CAPTION>

                                                                               MARCH 31, 2004    MARCH 31, 2003
                                                                                 (UNAUDITED)       (UNAUDITED)

<S>                                                                                <C>            <C>
Cash flows provided by (used in) operating activities:                             $(2,008,557)   $ 1,917,393
                                                                                   -----------    -----------

Cash flows from investing activities:
     Acquisitions of property, plant and equipment                                  (1,895,798)      (767,778)
     Restricted cash                                                                   174,734             --
     Proceeds from sale of property, plant and equipment                               319,682        645,689
                                                                                   -----------    -----------
                    Cash used in investing activities                               (1,401,382)      (122,089)
                                                                                   -----------    -----------
Cash flows from financing activities:
     Proceeds from bank and other borrowings                                         2,438,971      2,264,058
     Principal payments on long-term debt, notes payable and
        capital lease obligations                                                   (1,818,177)    (1,597,795)
     Proceeds (payments) from (on) working revolver, net                            (1,245,692)       550,962
                                                                                   -----------    -----------
                    Cash provided by (used in) financing activities                   (624,898)     1,217,225
                                                                                   -----------    -----------
                    Net increase (decrease) in cash and cash equivalents            (4,034,837)     3,012,529
Cash and cash equivalents, beginning of year                                         4,661,030      2,388,866
                                                                                   -----------    -----------
Cash and cash equivalents, end of year                                             $   626,193    $ 5,401,395
                                                                                   -----------    -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
       Interest                                                                    $   332,982    $   408,071
                                                                                   -----------    -----------
        Income taxes                                                               $        --    $        --
                                                                                   -----------    -----------
</TABLE>

          See accompanying notes to the condensed financial statements.


<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 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-K for the fiscal year
ended December 31, 2003 should be read in conjunction with this document.

         Business of the Company. 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, and (b) directional oil and gas
well drilling and downhole surveying services. As discussed in Note 6, the
Company entered into an asset purchase agreement on June 3, 2004 with
Multi-Shot, LLC, a newly formed Texas limited liability company, with respect to
the sale of the Company's directional drilling division

         Liquidity. The Company reported net income (loss) for the three months
ended March 31, 2004 of approximately ($3,012,000) and for the years ended
December 31, 2003, December 31, 2002, and 2001, of approximately ($5,500,000),
($7,600,000), and $5,000,000, respectively. Cash flows provided by (used in)
operations were approximately ($2,009,000) for the three months ended March 31,
2004 and $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 $15.2 million at March 31, 2004, other indebtedness of
approximately $2.6 million and approximately $40.0 million (including
approximately $15.6 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 its Senior Credit Facility
with General Electric Capital Corporation ("GECC"). 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 to the Company's financial statements for the
year ended December 31, 2003, the Company's Senior Credit Facility is 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 events 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 April 14, 2003, 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

                                       6
<PAGE>

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 throughout 2004, the Company will be able to generate sufficient
cash flow to meet its working capital needs and comply with its debt covenants.
If market conditions decline, the Company may be required to obtain additional
amendments to its Senior Credit Facility, or obtain capital through equity
contributions or financing, including a possible merger or sale of assets, or
other business combination. The Company can give no assurances that adequate
financing could be obtained or that a suitable business combination or asset
sale could be consummated.

         On September 14, 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 $24.6 million of subordinated secured
indebtedness and $18.2 million of 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 repayment or refinancing of this
indebtedness include the sale of its directional drilling division and the
application of the net cash proceeds to the reduction of its senior secured
indebtedness. While the Company has no specific plans for the further
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 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 June 15, 2004, the Company has not
entered into any definitive agreements with respect to any such transactions,
other than the sale of its directional drilling division as discussed in Note 6,
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
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.


                                       7
<PAGE>

2.       STOCK-BASED COMPENSATION

         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 methods prescribed in
SFAS No. 123 and later in SFAS No. 148, the Company's net loss and loss per
share would have been increased to the pro forma amounts indicated as follows:

<TABLE>
<CAPTION>

                                                                             THREE MONTHS ENDED
                                                                        MARCH 31,        MARCH 31,
                                                                          2004             2003
                                                                       -------------    -----------

<S>                                                                     <C>            <C>
Net loss - as reported                                                  $(3,012,079)   $(1,297,285)

Less: Total stock-based employee compensation expense determined
   under fair value method for all awards, net of related tax effects        (3,000)        (3,219)
                                                                        -----------    -----------
Net loss - pro forma                                                    $(3,015,079)   $(1,300,504)
                                                                        -----------    -----------

Loss per share - as reported (basic and diluted):                       $      (.24)   $      (.10)
                                                                        -----------    -----------
Loss per share - pro forma (basic and diluted):                         $      (.24)   $      (.10)
                                                                        -----------    -----------
</TABLE>

3.       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 MARCH 31, 2004                             ENDED MARCH 31, 2003
                                         --------------------                             --------------------
                              Loss             Shares         Per Share        Income           Shares         Per Share
                              Numerator       Denominator        Amount        Numerator       Denominator        Amount
                              ---------       -----------        ------        ---------       -----------        ------

<S>                        <C>              <C>               <C>            <C>             <C>               <C>
Net loss                   $(3,012,079)                                      $(1,297,285)
                           ============                                      ============
BASIC AND DILUTED EPS
Loss available to common
shareholders               $(3,012,079)     12,499,528        $(0.24)        $(1,297,285)    12,499,528        $(0.10)

</TABLE>

         Options and warrants to purchase 98,794,169 and 90,810,464 shares of
common stock at prices ranging from $0.75 to $8.01 were outstanding during the
three months ended March 31, 2004 and 2003, respectively, but were not included
in the computation of diluted EPS because the effect would be anti-dilutive (see
Note 9.).

          Convertible debt instruments, including convertible interest, which
would result in the issuance of 53,003,690 and 48,008,424 shares of common
stock, if the conversion features were exercised, were outstanding during the
three months ended March 31, 2004 and 2003, respectively, 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 $0.75 per share as of March 31,
2004 (see Note 9).

4. INVENTORIES OF TOOL COMPONENTS AND SUB-ASSEMBLIES HELD FOR SALE, 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.

5.       COMMITMENTS AND CONTINGENCIES

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


                                       8
<PAGE>


6.       DISCONTINUED OPERATIONS

         Contract to Sell Directional Drilling Services Division. On June 3,
2004, the Company entered into an asset purchase agreement with Multi-Shot, LLC,
a newly formed Texas limited liability company, with respect to the sale of the
Company's directional drilling division. The proposed transaction includes 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 includes
current assets subject to current liabilities assumed of the division. The
purchase price is $11.0 million consisting of $10.4 million in cash and
approximately $600,000 payable by assignment and release by the three key
Multi-Shot employees of their claims under their employment agreements with the
Company to a change of control payments that may be due in the aggregate of that
amount. The purchase price is subject to adjustment at and as of the closing of
the sale for increases and decreases in the division's net working capital of
$270,000 as of November 30, 2003 and increases and decreases in the division's
inventory of approximately $5,207,000 as of December 31, 2003. Among other
matters, the closing of the transaction is 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. 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 includes among its members Messrs. Allen Neel, Paul Culbreth and David
Cudd who will hold minority equity interests in Multi-Shot, LLC. The net cash
proceeds from the sale are estimated to be approximately a minimum of $10.1
million The foregoing estimate reflects


                                       9
<PAGE>



the payment of expenses of the transaction and recognition of receipt by the
Company of approximately $400,000 in working capital and inventory adjustments
under the terms of the agreement, as such adjustments have been estimated based
on the division's balance sheet at March 31, 2004 However, such adjustments are
subject to fluctuation through the closing of the transaction. The net cash
proceeds are intended to be applied in reduction of the Company's senior secured
indebtedness owing to General Electric Capital Corporation. The closing of the
transaction is to occur promptly after satisfaction of all of the conditions to
the closing set forth in the agreement, including the Company obtaining all
required lender consents and approvals, and the buyer confirming it has procured
financing for the transaction. The results of the directional drilling division
are summarized in Note 7.

7.         SEGMENT AND RELATED INFORMATION

       At March 31, 2004, 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 aggregated into two reportable
segments: wireline and directional drilling, since the long-term financial
performance of these reportable segments is affected by similar economic
conditions. As described in Note 6, the Company has signed a definitive
agreement for the sale of its directional drilling division. For comparison
purposes the directional drilling segment is shown in the segment information
below.

       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 ended March 31,
2004 included Burlington Resources, Apache Energy and Chevron.

       DIRECTIONAL DRILLING - This segment performs procedures to enter
hydrocarbon-producing zones directionally, using specialized drilling equipment,
and expand the area of interface of hydrocarbons and thereby greatly enhancing
recoverability. It also 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 ended March 31, 2004 included Encore Operating, Anadarko Petroleum and
Ergon Operating.

       The accounting policies of the reportable segments are the same as those
described in Note 3 of the Company's Annual Report of Form 10-K for the fiscal
year ended December 31, 2003. 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
three months ended March 31, 2004 and 2003 is as follows:


                                       10

<PAGE>

          Three months ended March 31, 2004

<TABLE>
<CAPTION>

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

<S>                                                       <C>             <C>              <C>
           Segment revenues                               $10,539,320     $  3,908,741     $14,448,061
           Segment cost of sales and sg&a expenses        $ 9,254,617     $  3,575,030     $12,829,647
           Segment EBITDA                                 $ 1,284,703     $    333,711     $ 1,618,414
           Segment Assets                                 $25,898,990     $ 12,960,733     $38,859,723

          Three months ended March 31, 2003
</TABLE>
<TABLE>
<CAPTION>

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

<S>                                                       <C>             <C>              <C>
           Segment revenues                               $10,369,814     $  5,212,872     $15,582,686
           Segment cost of sales and sg&a expenses        $ 9,088,833     $  4,744,185     $13,833,018
           Segment EBITDA                                 $ 1,280,981     $    468,687     $ 1,749,668
           Segment Assets                                 $21,196,017     $ 20,147,476     $41,343,493
</TABLE>

         The Company has certain expenses that were not allocated to the
individual operating segments in 2003 but were restated in the tables above and
below to conform to the 2004 presentation. To fully assess the Company's
operating results, management believes that, although not prescribed under
generally accepted accounting principals ("GAAP"), EBITDA is an appropriate
measure of the Company's ability to satisfy capital expenditure obligations and
working capital requirements. EBITDA is a non-GAAP financial measure as defined
under SEC rules. The Company's EBITDA should not be considered in isolation or
as a substitute for other financial measurements prepared in accordance to GAAP
or as a measure of the Company's profitability or liquidity. As EBITDA excludes
some, but not all, items that affect net income and may vary among companies,
the EBITDA presented above and below may not be comparable to similarly titled
measures of other companies. Management believes that income (loss) from
operations calculated in accordance with GAAP is the most directly comparable
measure most similar to EBITDA. EBITDA is defined as net income (loss) plus
interest expense, depreciation and amortization, deferred income taxes and other
non-cash items. A reconciliation of total segment EBITDA to income (loss) from
continuing operations for the three months ended March 31, 2004 and 2003 is
presented as follows:

Three months ended March 31:
<TABLE>
<CAPTION>

                                                             2004             2003

<S>                                                      <C>             <C>
EBITDA
Total segment EBITDA                                     $  1,618,414    $  1,749,668
Discontinued segment EBITDA                                  (333,711)       (468,687)
Depreciation and amortization                              (1,199,134)     (1,197,911)
Corporate expense allocated to discontinued operations       (471,616)       (605,082)
                                                         ------------    ------------
     Loss from continuing operations                     $   (386,047)   $   (522,012)
ASSETS
Total segment assets                                     $ 38,859,723    $ 41,343,493
Unallocated corporate assets                                   55,136          57,936
                                                         ------------    ------------
     Total assets                                        $ 38,914,859    $ 41,401,429
</TABLE>


                                       11

<PAGE>

8.       RELATED PARTY TRANSACTIONS

         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 March 31, 2004, the Company
has collected $100,000 of the sale price and the remaining $100,000 is included
in deferred revenue.

         The Company has executed notes payable to SJMB and SJCP, whose chairman
and chief financial officer both serve on the Company's Board of Directors, in
connection with acquisitions and to provide funding for operations. At March 31,
2004 and 2003, notes due to SJMB, SJCP, their principal partners and affiliates
totalled $24,566,882. The notes bear interest at 15% and permit conversion to
equity, which would result in substantial dilutions to existing shareholders.

         In connection with the three year employment agreement effective
January 1, 2002 entered into with Mr. Jenkins to remain as the Company's
President and Chief Executive Officer, the Company agreed to loan Mr. Jenkins
$190,000, bearing interest at the applicable federal rate, to be repaid at the
rate of one-third of the principal, plus accrued interest on October 1 of each
of the years 2002, 2003 and 2004. If Mr. Jenkins remains employed by the Company
on September 30 preceding the date annual principal and interest is due on the
loan, the sum due and owing the following day is forgiven. In the event of a
Change of Control, as defined, the death or permanent disability of Mr. Jenkins
or in the event his employment is terminated without cause, the entire amount
owing by Mr. Jenkins is forgiven. The Company is amortizing the loan balance
into compensation cost over the life of the loan. Compensation expense for the
quarter ended March 31, 2004 was approximately $20,598.

9.       ISSUANCE OF COMMON STOCK

         During the first quarter of 2000, the Company executed a Compromise
Agreement With Release with Bendover Company whereby Bendover agreed to return
to the Company promissory notes aggregating $3,200,000 principal amount and
receive in exchange 2,666,667 shares of the Company's common stock 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. In September
2001, the Company paid $1.1 million to Bendover out of the proceeds of the GECC
financing in full payment of all outstanding principal and interest obligations
owing to Bendover.

         The Company has outstanding at March 31, 2004 common stock purchase
warrants, options and convertible debt securities entitled to purchase or to be
converted into an aggregate 151,797,859 shares of the Company's common stock at
exercise and conversion prices ranging from $0.75 to $6.63. Accordingly, if all
such securities were exercised or converted, the

                                       12

<PAGE>

12,499,528 shares of Common Stock issued and outstanding on March 31, 2004,
would represent 7.6% of the shares outstanding on a fully diluted basis.

10.      INCOME TAXES

         The difference between the statutory rate and the effective rate
relates to federal tax net operating loss carryforwards (NOL's) 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. Accordingly, full valuation
allowances have been provided for NOL's generated in each period with no
benefits recognized.

11.      RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         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 adopted FIN 46(R) for non-SPE entities as of
March 31, 2004. The adoption of FIN 46(R) did not result in the consolidation of
any VIEs.

         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 March 31, 2004, nor any financial instruments subject to this
statement.


                                       13
<PAGE>


         On March 31, 2004, the FASB issued a proposed Statement, Share-Based
Payment an Amendment of FASB Statements No. 123 and APB No. 95, that addresses
the accounting for share-based payment transactions in which an enterprise
receives employee services in exchange for (a) equity instruments of the
enterprise or (b) liabilities that are based on the fair value of the
enterprise's equity instruments or that may be settled by the issuance of such
equity instruments. Under the FASB's proposal, all forms of share-based payments
to employees, including employee stock options, would be treated the same as
other forms of compensation by recognizing the related cost in the income
statement. The expense of the award would generally be measured at fair value at
the grant date. Current accounting guidance requires that the expense relating
to so-called fixed plan employee stock options only be disclosed in the
footnotes to the financial statements. The proposed Statement would eliminate
the ability to account for share-based compensation transactions using APB
Opinion No. 25, Accounting for Stock Issued to Employees. The Company is
currently evaluating this proposed statement and its effects on its results of
operations.

         ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS GENERAL

         The Company's results of operations are affected primarily by the
extent of utilization and rates paid for its services and equipment. 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. 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 experience any increase in the
demand for and utilization of its services with corresponding increase in its
revenues and return to profitability.

         On September 14, 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 $24.6 million of subordinated secured
indebtedness and $18.2 million of 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 repayment or
refinancing of this indebtedness include the sale of its directional drilling
division and the application of the net cash proceeds to the reduction of its
senior secured indebtedness. While the Company has no specific plans for the
further 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 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 June 15, 2004, the Company has not
entered into any definitive agreements with respect to any such transactions,
other than for the sale of its directional drilling division as discussed below
and there can be no


                                       14


<PAGE>

assurance that any definitive agreements will be entered into or that the
Company will be successful in pursuing its plans for the 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, but there can be no assurance these efforts will be successful.

          Contract to Sell Directional Drilling Services Division. On June 3,
2004, the Company entered into an asset purchase agreement with Multi-Shot, LLC,
a newly formed Texas limited liability company, with respect to the sale of the
Company's directional drilling division. The proposed transaction includes 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 includes
current assets subject to current liabilities assumed of the division. The
purchase price is $11.0 million consisting of $10.4 million in cash and
approximately $600,000 payable by assignment and release by the three key
Multi-Shot employees of their claims under their employment agreements with the
Company to a change of control payments that may be due in the aggregate of that
amount. The purchase price is subject to adjustment at and as of the closing of
the sale for increases and decreases in the division's net working capital of
$270,000 as of November 30, 2003 and increases and decreases in the division's
inventory of approximately $5,207,000 as of December 31, 2003. Among other
matters, the closing of the transaction is 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. 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 includes among its members Messrs. Allen Neel, Paul Culbreth and David
Cudd who will hold minority equity interests in Multi-Shot, LLC. The net cash
proceeds from the sale are estimated to be approximately a minimum of $10.1
million The foregoing estimate reflects the payment of expenses of the
transaction and recognition of receipt by the Company of approximately $400,000
in working capital and inventory adjustments under the terms of the agreement,
as such adjustments have been estimated based on the division's balance sheet at
March 31, 2004 However, such adjustments are subject to fluctuation through the
closing of the transaction. The net cash proceeds are intended to be applied in
reduction of the Company's senior secured indebtedness owing to General Electric
Capital Corporation. The closing of the transaction is to occur promptly after
satisfaction of all of the conditions to the closing set forth in the agreement,
including the Company obtaining all required lender consents and approvals, and
the buyer confirming it has procured financing for the transaction. The results
of the directional drilling division are summarized in Note 7.

RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE
MONTHS ENDED MARCH 31, 2003

         The following table and discussion of results of operations include the
Company's directional drilling division for comparison purposes.

         The following table sets forth the Company's revenues from its two
principal lines of business for the three months ended March 31, 2004 and 2003,
respectively:


                                       15
<PAGE>

                                                       THREE MONTHS ENDED
                                                    3/31/04        3/31/03

              Wireline                            $10,539,320     $10,369,814
              Directional Drilling                  3,908,741       5,212,872
                                                 --------------- ---------------
                                                  $14,448,061     $15,582,686

         Total revenues decreased by approximately $1.1 million to approximately
$14.5 million for the three months ended March 31, 2004 as compared to total
revenues of approximately $15.6 million for the three months ended March 31,
2003. Wireline services revenues increased by approximately $170,000 in 2004
while directional drilling revenues decreased by approximately $1.3 million as a
consequence of a decrease in the demand for the Company's services and the loss
of a sales employee in August 2003.

         Operating costs decreased by approximately $785,000 for the three
months ended March 31, 2004, as compared to the same period of 2003. Operating
costs were 71.8% of revenues for the three months ended March 31, 2004 as
compared with 71.6% of revenues in the same period in 2003. The decrease in
operating costs was primarily the result of the lower overall level of
activities in directional drilling in the three months ended March 31, 2004
compared with 2003. Salaries and benefits decreased by approximately $300,000
for the three months ended March 31, 2004, as compared to the same period in
2003, with a corresponding decrease in the total number of employees from 369 at
March 31, 2003 to 348 at March 31, 2004. The decrease in salaries and benefits
is primarily due to the decrease in employee levels from 2003.

         Selling, general and administrative expenses decreased by approximately
$218,000 to $2.5 million in the three months ended March 31, 2004 from $2.7
million in the three months ended March 31, 2003. As a percentage of revenues,
selling, general and administrative expenses decreased to 17.0% in the three
months ended March 31, 2004 from 17.2% in 2003.

         Depreciation and amortization decreased by approximately $19,000 in the
three months ended March 31, 2004 to $2.0 million or 13.6% of revenues, from
approximately $2.0 million or 12.7% of revenues for 2003.

         Interest expense and amortization of debt discount increased by
approximately $44,000 for the three months ended March 31, 2004 as compared to
the same periods in 2003. See "Note 9 of Notes to Financial Statements" in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2003.

         The Company's net loss for the quarter ended March 31, 2004 was $3.0
million, compared with a net loss of $1.3 million for the quarter ended March
31, 2003. The increase in the net loss for the quarter ended March 31, 2004 was
the result of a the recognition of the estimated loss of $1.4 million on the
sale of the Company's directional drilling division as well as decreased demand
for the Company's directional drilling services coupled with the loss of a sales
employee which was partially offset by a slight increase in demand for the
Company's Wireline services


                                       16

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         Cash used by the Company's operating activities was approximately $2.0
million for the three months ended March 31, 2004 as compared to cash provided
of approximately $1.9 million for the same period in 2003. Cash flows from
operating activities decreased by approximately $3.9 million during the three
months ended March 31, 2004 mainly as a result in the change in the Company's
prepaid assets associated with the financing of insurance premiums as well as
the timing of other current assets and current liabilities. Investing activities
used cash of approximately $1.9 million during the three months ended March 31,
2004 for the acquisition of property, plant and equipment and was partially
offset by approximately $320,000 of proceeds from the sale of assets. During the
three months ended March 31, 2003, investing activities used cash of
approximately $768,000 for the acquisition of property, plant and equipment.
Financing activities used cash of approximately $3.1 million for net payments on
working capital revolving loans and principal payments on debt offset from
proceeds from bank and other borrowings of approximately $2.4 million. For the
same period in 2003, financing activities provided cash of approximately $2.8
million from proceeds from bank and other borrowings and net draws on working
capital revolving loans offset by principal payments on debt of approximately
$1.6 million.

         The Company's outstanding indebtedness includes primarily senior
secured indebtedness aggregating approximately $15.2 million at March 31, 2004,
owed to GECC, other indebtedness of approximately $2.6 million, and $24.6
million of principal and $15.6 million of accrued interest owed to St. James and
its affiliates.

GECC LOAN DESCRIPTION

         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


                                       17
<PAGE>

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 March 31, 2004,
borrowings outstanding under the Credit Facility aggregated $15.2 million, of
which $1.9 million was outstanding under the revolving loan, $8.5 million was
outstanding under the term loan and $4.8 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 March 31, 2004 the Company had
available $4.0 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 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"


                                       18
<PAGE>

(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
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, 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:

                                                            CUMULATIVE OPERATING
                   FISCAL MONTH                                  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


                                       19
<PAGE>

         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 a prior
cumulative operating cash flow covenant which was waived by GECC by the
amendment of March 2004.

         For the period ended March 31, 2004, the Company is in compliance with
all financial covenants.

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

         The Company has amended the terms of its Credit Facility with GECC on
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

                                       20
<PAGE>

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 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 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.

         The Company continues to be highly leveraged and has an accumulated
deficit of $46.2 million. The Company is subject to certain debt covenants
requiring minimal operational and cash flow levels. Failure to comply with these
debt covenants and or generate sufficient cash flow from operations could
significantly impair the Company's liquidity position and could result in the
lender exercising prepayment options under the Company's credit facility. While
the Company believes that it will have adequate borrowing base and cash flows,
it can make no assurances that it will comply with its debt covenants or
generate sufficient cash flows to service its debt and fund operations. Should
the Company be unable to borrow funds under its current credit facility or if
prepayment of those borrowings were required, it can make no assurances that
alternative funding could be obtained.

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
months ended March 31, 2004.

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


                                       21
<PAGE>

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

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

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

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

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

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


                                       22
<PAGE>

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 herein, including Management's Discussion and Analysis of
Financial Condition and Results of Operations. 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 sell its directional drilling division, the belief
of management that the sale of its directional drilling division will facilitate
a merger, sale, refinancing or restructuring 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 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 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 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. Readers should refer to the Company's Annual Report on Form 10-K and
the risk factors disclosed therein.

         ITEM 3.  QUALITATIVE AND QUANTITATIVE 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


                                       23
<PAGE>

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

         Under the Credit Facility with GECC, the Company is subject to market
risk exposure related to changes in the prime interest rate. Assuming the
Company's level of borrowings from GECC at March 31, 2004 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 $152,000.

         ITEM 4.  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.


                                       24
<PAGE>

PART II - OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)   Exhibits

               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)

         (b)   Reports on Form 8-K

                   None


                                       25
<PAGE>


                                   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:  June 17,  2004                     /S/  William L. Jenkins
                                          --------------------------------------
                                                William L. Jenkins
                                          President and Chief Executive Officer

                                          /S/  Ronald Whitter
                                          --------------------------------------
                                                Ronald Whitter
                                           Chief Financial Officer


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