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 March 31, 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.


        Class                                        Outstanding at May 20, 1999
   -----------------------                           ---------------------------
   COMMON STOCK, PAR VALUE                                 3,947,451 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

           Consolidated Balance Sheets - March 31, 1999
           and  December 31, 1998                                         3

           Consolidated Statements of Operations -
           Three Months Ended March 31, 1999 and
           March 31, 1998                                                 4

           Condensed Consolidated Statements of Cash Flows -
           Three Months Ended March 31, 1999 and
           March 31, 1998                                                 5

           Notes to Consolidated Financial Statements -
           Three Months Ended March 31, 1999 and
           March 31, 1998                                                 6


Item 2.    Management's Discussion and Analysis or Plan of
           Operations                                                    10

PART II - OTHER INFORMATION

Item 1.    Legal Proceedings                                             16

Item 2.    Changes in Securities and Use of Proceeds                     17

Item 3.    Defaults Upon Senior Securities                               18

Item 6.    Exhibits and Reports on Form 8-K                              20

 

                                      2

<PAGE>


PART I - FINANCIAL INFORMATION

         ITEM 1.  FINANCIAL STATEMENTS

BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARY
-------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                              MARCH 31, 1999         DECEMBER 31, 1998
                           ASSETS                              (UNAUDITED)
<S>                                                             <C>                    <C>       
Current assets:
  Cash and cash equivalents                                     $ 369,214              $1,041,242
  Short-term investments                                           50,000                  50,000
  Accounts receivable, less allowance for doubtful            
    accounts of $ 1,788,723  and $ 2,157,421, respectively      3,393,424               3,596,004
  Prepaid expenses                                                170,749                 110,579
  Other receivables                                               425,487                 236,273
  Other current assets                                            439,714                 498,812
                                                                  -------                 -------
                  Total current assets                          4,848,588               5,532,910
Land and building held for sale                                   400,000                 400,000
Inventories                                                     4,249,445               4,278,601
Property, plant, and equipment, less accumulated
  depreciation of $ 10,270,115 and $ 8,986,893, respectively   21,594,985              22,628,601
Other assets                                                      637,791                 539,537
Goodwill, less accumulated amortization of $ 237,236
  and $ 215,678, respectively                                   3,412,223               3,435,201
                                                                ---------               ---------
                  Total assets                               $ 35,143,032            $ 36,814,850
                                                             ============            ============


                           LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:

  Accounts payable                                            $ 5,526,622             $ 5,964,266
  Accrued salaries and vacation                                   127,919                  91,275
  Accrued interest payable                                      1,873,151               1,527,674
  Other accrued expenses                                          732,875                 826,366
  Deferred revenue                                                                        155,016
  Current maturities of notes payable to banks                     78,501
  Note payable, related party                                  23,162,890              20,662,890
  Current maturities of long-term debt and capital   
    lease obligations                                          17,359,626              18,923,719
                                                               ----------              ----------
                  Total liabilities                            48,861,584              48,151,206
Stockholders' deficit:

  Preferred stock, $.0005 par value, 2,500,000 shares 
    authorized none issued at March 31, 1999 and 
    December 31, 1998
  Common stock, $.0005 par value, 12,500,000 shares 
    authorized; 3,947,451 and 3,897,451 shares issued 
    and outstanding at March 31, 1999 and December 31, 1998, 
    respectively                                                    1,973                   1,948
  Additional paid-in capital                                   12,193,276              12,107,551
  Accumulated deficit                                         (25,330,408)            (22,862,462)
  Treasury stock, at cost, 4,620 shares                          (583,393)               (583,393)
                                                                 ---------               ---------
    Total stockholders' deficit                               (13,783,552)            (11,336,356)
                                                              ------------            -----------

                  Total liabilities and stockholders' deficit $ 35,143,032           $ 36,814,850
                                                              ============           ============
</TABLE>


        See accompanying notes to the consolidated financial statements.

                                       3

<PAGE>


BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARY
-------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended March 31, 1999 and March 31, 1998

<TABLE>
<CAPTION>
                                                            March 31, 1999            March 31, 1998
                                                             (Unaudited)               (Unaudited)

<S>                                                         <C>                       <C>        
Revenues                                                    $ 6,072,282               $ 9,666,024

Operating costs                                               5,554,290                 7,265,888

Selling, general and administrative expenses                    830,002                   840,679

Depreciation and amortization                                 1,323,357                   809,690       
                                                           ------------                ----------

     Income (loss)  from operations                          (1,635,367)                  749,767

Interest expense and amortization of debt discount             (844,340)                 (434,760)

Net gain (loss) on sale of fixed assets                          (9,000)                    1,944

Other income                                                     20,761                    17,345
                                                           ------------                ----------

     Income (loss)  before provision for
          income taxes                                       (2,467,946)                  334,296

Provision for income taxes                                                                183,619
                                                           ------------                ----------
     Net income (loss)                                     $ (2,467,946)               $  150,677
                                                           =============               ==========

     Net income (loss) per common share- basic                   $(0.63)                    $0.05
                                                                 =======                    =====

     Net income (loss) per common share- diluted                 $(0.63)                    $0.03
                                                                 =======                    =====

Weighted average common shares outstanding                    3,914,109                 3,211,678
                                                              =========                 =========

Weighted average common shares outstanding
    with dilutive securities                                  3,914,109                 5,169,182
                                                              =========                 =========
</TABLE>


        See accompanying notes to the consolidated financial statements.


                                       4
<PAGE>


BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARY
-------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended March 31, 1999 and March 31, 1998

<TABLE>
<CAPTION>
                                                            March 31, 1999            March 31, 1998
                                                            (Unaudited)                (Unaudited)

<S>                                                        <C>                          <C>      
Cash (used in) provided by operations:                     $ (1,413,212)                $ 766,649

Cash flows from investing activities:

     Acquisitions of property, plant, and equipment            (223,605)               (1,634,485)
     Proceeds from sale of property, plant and equipment         26,000                    28,970
     Acquisition of business, net of cash acquired                                       (397,485)
                                                           ------------                ----------
Cash used in investing activities:                             (197,605)               (2,003,000)

Cash flows from financing activities:
     Debt issuance costs                                        (37,868)                 (135,000)
     Proceeds from bank and other borrowings                  2,500,000                   520,373
     Principal payments on long-term debt, notes payable
         and capital lease obligations                         (394,209)                 (449,936)
     Payments on working revolver, net                       (1,129,134)
     Proceeds from issuance of common stock, net
         of offering costs                                                              2,813,255
                                                              ---------                ----------
 Cash provided  by financing activities:                        938,789                 2,748,692

Net (decrease) increase in cash and cash equivalents           (672,028)                1,512,341
Cash and cash equivalents, beginning of period                1,041,242                   435,845
                                                              ---------                   -------

Cash and cash equivalents, end of period                      $ 369,214               $ 1,948,186
                                                              =========               ===========

Supplemental disclosure of cash flow information:

       Interest paid                                          $ 498,862                 $ 329,663

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 & equipment                     $ 78,501                 $ 111,562
  Stock warrants issued in conjunction with notes payable      $ 20,750
  Stock issued as consideration for option to purchase     
    company (Note 4)                                           $ 65,000
</TABLE>
  
              See accompanying notes to the consolidated financial statements.

                                       5
<PAGE>
                  BLACK WARRIOR WIRELINE CORP. AND SUBSIDARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       GENERAL

          The  accompanying   consolidated   financial  statements  reflect  all
adjustments  that,  in the  opinion  of  management,  are  necessary  for a fair
presentation of the consolidated  financial position,  results of operations and
cash flows of Black Warrior Wireline Corp. and subsidiary (the "Company").  Such
adjustments are of a normal  recurring  nature.  The  accompanying  consolidated
financial  statements have been prepared assuming that the Company will continue
as a going concern.  The  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 on Form 10-KSB for the year ended  December 31,
1998.  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 activities,  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 consolidated  financial  statements since
the date of  acquisition.  The excess of the purchase  price of Phoenix 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 includes 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 writedowns of certain inventories and
property,  plant and  equipment.  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 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 consolidated  results
of operations  for the three months ended March 31, 1998 as if the  acquisitions
above had  occurred  at the  beginning  of the period  presented.  The pro forma
summary  information does not necessarily  reflect the  consolidated  results of
operations as they actually would have been if the  acquisitions had occurred at
the beginning of the period  presented.  The unaudited  consolidated  results of
operations  for the  three  months  ended  March  31,  1999  are  presented  for
comparative  purposes as both  acquisitions  are  included  in the  consolidated
operating results of this period.
<TABLE>
<CAPTION>
                                                   Three Months Ended         Three Months Ended
                                                     March 31, 1999             March 31, 1998
                                                       (Unaudited)                (Unaudited)
<S>                                                  <C>                        <C>         
Revenues                                             $  6,072,282               $    13,878,745
Income (loss) before income tax effect               $ (2,467,946)              $        59,571
Net income (loss)                                    $ (2,467,946)              $        39,317

Net income (loss) per common share - basic           $      (0.63)              $          0.01
                                                     ============               ===============

Net income (loss) per common share - diluted         $      (0.63)              $          0.01
                                                     ============               ===============
</TABLE>

                                       6

<PAGE>


         The unaudited pro forma consolidated results for the three months ended
March 31,  1998  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.

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 March 31, 1999                        Ended March 31, 1998        
                                --------------------------------------------     -------------------------------------

                                     Loss            Shares         Per Share     Income         Shares        Per Share
                                   Numerator       Denominator       Amount      Numerator     Denominator      Amount
<S>                             <C>                                            <C>              <C>                <C>
Net income (loss)               $ (2,467,946)                                  $ 150,677
BASIC EPS
Income (loss) available
    to common shareholders      $ (2,467,946)        3,914,109      $ (0.63)   $ 150,677         3,211,678           $0.05
                                ==========================================================================================

EFFECT OF DILUTIVE SECURITIES
Stock warrants                                                                                     836,291
Stock options                                                                                      393,940
Convertible debt securities                                                     $ 27,945           727,273                
                                ------------------------------------------------------------------------------------------
DILUTED EPS
Income (loss) available
    to common shareholders      $ (2,467,946)        3,914,109      $ (0.63)   $ 178,622         5,169,182           $0.03
                                ==========================================================================================
</TABLE>

         Options and warrants to purchase  19,539,747  shares of common stock at
prices  ranging  from $1.50 to $8.01 were  outstanding  during the three  months
ended March 31, 1999 but were not  included  in the  computation  of diluted EPS
because the effect would be anti-dilutive.  Options to purchase 12,500 shares of
common stock at $8.01 per share were  outstanding  during the three months ended
March 31, 1998 but are 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 and 2,054,556 shares of common stock, if the conversion features were
exercised,  were  outstanding  during the three  months ended March 31, 1999 and
1998, 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 $1.50 per share and these  instruments  remained  outstanding at
March 31, 1999.

3.       INVENTORIES

          Inventories consist of tool components,  subassemblies, and expendable
parts used in directional oil and gas well drilling  activities.  Once tools are
manufactured and assembled they are transferred to property, plant and equipment
completed at the total cost of components,  subassemblies,  and expendable parts
of each tool. Components, subassemblies, and expendable parts are capitalized as
inventory  and expensed as tools are repaired and  maintained.  Inventories  are
classified  as a long-term  asset rather than a current  asset as is  consistent
with industry practice.

                                       7

<PAGE>
4.       COMMITMENTS AND CONTINGENCIES

          The  Board  of  Directors  has  authorized  the  Company  to  offer an
aggregate of 772,727  common shares to certain  persons who purchased  shares of
the Company's common stock at a price of $5.50 per share in private sales of the
Company's securities which occurred in March and April 1998. Such persons assert
excessive  delays were encountered in effecting the registration of their shares
under the  Securities  Act of 1933, as amended,  and that therefore such persons
were unable to liquidate  their  securities.  The Company  disagrees  with these
assertions  but has agreed to the  issuance of the shares to resolve any claims.
The shares are to be issued in consideration of the release of these claims. The
offering of shares of common stock to such persons was granted on April 27, 1999
and is scheduled to expire on May 28, 1999.

          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.
Both the alliance  and the option to purchase  were to expire on April 15, 1999.
The agreement was extended on April 15, 1999 to run thru September 30, 1999. The
alliance  between  the Company  and MSI was  effective  December 1, 1998 and was
created in order to pursue  Measurement  While Drilling services using the tools
and equipment owned or leased by the Company,  employees of the Company, and the
technology  of MSI.  During  the term of the  alliance,  the  Company  will rent
equipment and inventory  from MSI, with a monthly  rental payment of $12,206 and
$15,000,  respectively.  The agreement  grants the Company the option to acquire
substantially all of the assets of MSI. If the option is exercised,  the Company
agrees to pay MSI $74,982 in cash, 144,445 shares of common stock of the Company
of which 50,000 shares have been previously  advanced to MSI, 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 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.  The Company deems the  allegations of the
claimant  to be  without  merit and  intends  to  vigorously  contest  the case.
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.

         On July 9, 1998, Southwick Investments Inc.  ("Southwick")  commenced a
lawsuit  against the Company in the Superior  Court of Fulton  County,  Georgia,
based on a Professional  Services  Agreement dated March 26, 1997,  entered into
between Southwick and the Company pursuant to which Southwick was to develop and
implement a plan for raising  additional  capital and provide certain  financial
advisory services.  Southwick is seeking to be awarded damages in an unspecified
amount for breach of contract and the loss in value to Southwick of an option to
purchase  50,000 shares of the common stock of the Company at an exercise  price
of $4.00 per share,  together with court costs and attorney's  fees. The Company
intends to defend  this  action  vigorously  and  believes  that it has good and
meritorious defenses.  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 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. The Company intends
to interpose defenses to the lawsuit and to assert 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.

                                       8

<PAGE>


          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  intends to file an
answer in this action  interposing  defenses and  assetting  counterclaims.  The
Company is unable to state at this time  whether or not the  plaintiff is likely
to be successful in its action.

          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 some of
$156,534  plus  interest and  consequential  damages and  attorney's  fees.  The
Company is at present considering the claims asserted in this litigation.

          The  Company is a  defendant  in seven other  lawsuits  instituted  by
vendors and others  seeking to recover an aggregate of  approximately  $135,000.
Although  the Company is seeking to resolve  these  claims,  in the light of the
nature of the claims  asserted,  the Company  considers it likely that judgments
may be entered against it in these actions.

          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.

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

         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.
Both the alliance  and the option to purchase  were to expire on April 15, 1999.
The agreement was extended on April 15, 1999 to run thru September 30, 1999. The
alliance  between  the Company  and MSI was  effective  December 1, 1998 and was
created in order to pursue  Measurement  While Drilling services using the tools
and equipment owned or leased by the Company,  employees of the Company, and the
technology  of MSI.  During  the term of the  alliance,  the  Company  will rent
equipment and inventory  from MSI, with a monthly  rental payment of $12,206 and
$15,000,  respectively.  The agreement  grants the Company the option to acquire
substantially all of the assets of MSI. If the option is exercised,  the Company
agrees to pay MSI $74,982 in cash, 144,445 shares of common stock of the Company
of which 50,000 shares have been previously  advanced to MSI, and payment of the
notes  payable not to exceed  $479,416.  Under the  agreement,  the owner of MSI
shall be employed by the Company for four months.  If the option to purchase MSI
is not exercised, then the employment agreement terminates.

          At March 31,  1999,  the Company was not in  compliance  with  certain
financial  covenants  of its Amended and Restated  Loan and  Security  Agreement
dated October 30, 1998 and its  Forbearance  Agreement and Amendment to Loan and
Security Agreement dated February 17, 1999, both with Fleet Capital Corporation.
See Part II, Item 3. Defaults Upon Senior Securities in this Quarterly Report.

5.     SEGMENT AND RELATED INFORMATION

         At March 31,  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  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 March 31, 1999
included Collins & Ware, Inc., Burlington Resources,  and Chevron Corp.

         DIRECTIONAL DRILLING - This segment consists of two business units. One
unit  performs  procedures to enter a oil producing  zone  directionally,  using
specialized drilling equipment, and expand the area of interface of hydrocarbons
and thereby  greatly  enhances  recoverability  of oil. The second business unit
engages in oil and gas well surveying activities. The principal markets for this
segment  include all major oil and gas producing  regions of the United  States.
Major  customers of 


                                       9

<PAGE>

this segment for the quarter ending March 31, 1999 included Phillips  Petroleum,
Jones Energy, Arco Oil & Gas, and Chesapeake.

         WORKOVER AND  COMPLETION - This segment  consists of a business unit in
which  services  include  those  operations  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 March 31, 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 three months ended March 31, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                                            Workover
                                                        Directional            And
                                       Wireline          Drilling          Completion           Total
                                       --------------------------------------------------------------
<S>                                <C>              <C>                    <C>             <C>          
       1999
          Segment revenues         $   3,554,374    $   2,191,878          $ 326,030       $   6,072,282
          Segment EBITDA                  83,783          (35,052)            51,297            (100,028)

       1998

          Segment revenues         $   2,917,195    $   6,320,599          $ 428,230       $   9,666,024
          Segment EBITDA                 566,223        1,154,262              8,009           1,728,494
</TABLE>

The  Company has  certain  expenses  that are not  allocated  to the  individual
operating  segments.  A reconciliation  of total segment EBITDA to income (loss)
from  operations for the three months ended March 31, 1999 and 1998 is presented
as follows:

<TABLE>
<CAPTION>
                                                              1999                        1998   
                                                          -------------              ------------

<S>                                                      <C>                         <C>         
                Total segment EBITBA                     $     (100,028)             $  1,728,494
                Depreciation and amortization                (1,323,357)                 (809,690)
                Unallocated corporate expense                  (412,038)                 (169,037)
                                                              ----------            --------------

                Income (loss) from operations             $  (1,635,367)             $    749,767
                                                          ==============             ============
</TABLE>

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  months  ended March 31,  1999,  this  customer  accounted  for
approximately 6.25% of total revenues.

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  and rates paid for its  services  and
equipment. Revenues are also affected by the success of the Company's efforts to
increase its penetration of the market for its services by intensified marketing
of its services.  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


                                       10

<PAGE>

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 early 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 months ended March 31,
1999.  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.  A further material decline in oil or 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

RESULTS OF CONSOLIDATED  OPERATIONS.  THREE MONTHS ENDED MARCH 31, 1999 COMPARED
TO THREE MONTHS ENDED MARCH 31, 1998

         The following  table sets forth the  Company's  revenues from its three
principal lines of business for the three months ended March 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                        Three Months Ended       
                                                                   ------------------------------
                                                                     3/31/99           3/31/98  
                                                                   ------------------------------
<S>                                                               <C>                 <C>        
                           Wireline                               $ 3,554,374         $ 2,917,195
                           Directional Drilling                     2,191,878           6,320,599
                           Workover and Completion                    326,030             428,230  
                                                                ---------------------------------
                                                                  $ 6,072,282          $9,666,024
                                                                =================================
</TABLE>


         Total revenues  decreased by $3.6 million to $6.1 million for the three
months  ended March 31, 1999 as compared to total  revenues of $9.7  million for
the three  months ended March 31, 1998.  The  decrease in  directional  drilling
revenues  was 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.  The  Company's  wireline  revenues also 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 in the past year.

          Operating  costs  decreased by $1.7 million for the three months ended
March 31,  1999,  as compared to the same period of 1998.  Operating  costs were
91.5% of revenues  for the three  months  ended March 31, 1999 as compared  with
75.2% of revenues in the same period in 1998.  The  decrease was  primarily  the
result of the lower  overall  level of  activities  in the first quarter of 1999
compared with 1998. The increase in operating  costs as a percentage of revenues
was  primarly  because of declining  billing  rates and  equipment  utilization.
Salaries and benefits increased by $505,960 for the three months ended March 31,
1999,  as  compared to the same period in 1998.  The total  number of  employees
decreased  from 317 at March 31, 1998 to 221 at March 31, 1999.  The increase in
salaries and benefits is  primarily  due to the March 1998 Phoenix  acquisition,
the June 1998 Petro Wireline acquisition,  and the establishment of the offshore
wireline  facility in July 1998. The number of employees was higher at March 31,
1998 than at March 31,  1999 due to the  significant  addition of  employees  in
connection with the March 1998 Phoenix acquisition.

          Selling, general and administrative expenses decreased by $10,677 from
$840,679  in the three  months  ended  March 31,  1998 to  $830,002 in the three
months ended March 31, 1999. As a percentage of revenues,  selling,  general and
administrative  expenses increased from 8.7% in the three months ended March 31,
1998 to 13.7% in 1999,  primarily as a result of lower than anticipated revenues
due to adverse  market  conditions  with an  increased  level of fixed  expenses
associated with the recent acquisitions.

                                       11

<PAGE>


         Depreciation  and  amortization  increased  from  $809,690 in the three
months ended March 31, 1998, or 8.4% of revenues,  to approximately $1.3 million
in 1999 or 21.8% of  revenues,  primarily  because of the  higher  asset base of
depreciable  properties  in the three month period ended March 31, 1999 over the
same period in 1998.

         Interest  expense  and  amortization  of  debt  discount  increased  by
$409,580  for the three  months  ended  March 31,  1999 as  compared to the same
period  in  1998.  This  was  directly  related  to  the  increased  amounts  of
indebtedness outstanding in 1999. 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 loss on sale of fixed  assets was $9,000 for the three months ended
March 31, 1999 as compared to a net gain of $1,944 for the same period in 1998.

         The  Company  had  a  loss  before   provision   for  income  taxes  of
approximately  $2.5  million  for the three  months  ended  March 31,  1999,  as
compared to income  before  provision  for income taxes of $344,296 for the same
period in 1998.

         Income tax expense totaled $0 for the three months ended March 31, 1999
as compared to income tax expense of $183,619  for the three  months ended March
31,  1998.  These totals  contain  Federal and State  deferred  taxes as well as
current amounts.

         The Company had a net loss of approximately  $2.5 million for the three
months  ended March 31,  1999,  as compared to a net income of $150,677  for the
same period in 1998.

LIQUIDITY AND CAPITAL RESOURCES

          Cash used by the Company's operating activities was approximately $1.4
million for the three months  ended March 31, 1999 as compared to cash  provided
of  $766,649  for the same  period in 1998.  Investing  activities  used cash of
$223,605  during the three  months ended March 31, 1999 for the  acquisition  of
property, plant and equipment,  offset by proceeds from the sale of fixed assets
of $26,000.  During the three months ended March 31, 1998,  investing activities
used cash of approximately  $2.0 million for the acquisition of property,  plant
and  equipment  and  businesses,  net of cash  acquired,  offset by  proceeds of
$28,970 from the sale of fixed assets. Financing activities provided net cash of
$938,789 from the proceeds from bank and other borrowings of approximately  $2.5
million  during  the three  months  ended  March 31,  1999  offset by  principal
payments on bank, other borrowings and capital leases of $394,209,  net payments
on the working  capital  revolver of  approximately  $1.1 million and $37,868 of
costs  related  to  debt  issuances.  For the  same  period  in  1998  financing
activities provided net cash of approximately $2.7 million from the net proceeds
from the  issuance of common  stock of  approximately  $2.8 million and $520,373
from the proceeds from bank and other borrowings offset by principal payments on
bank, other borrowings and capital lease obligations of $449,936 and $135,000 of
costs related to debt issuances.


                                       12

<PAGE>


         Cash  at March 31, 1999 was $369,214 as compared with cash at March 31,
1998 of approximately $1.9 million.

         During 1998 and the first  quarter 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  quarter  of 1999.  While  these  conditions
continued  throughout  much of the first  quarter  of 1999,  prices  for oil and
natural  gas had  improved  significantly  by the middle of the second  quarter.
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 at the end of the first  quarter of 1999 and  decisions by oil and natural
gas  producers  to make  commitments  to  engage  in oil and  natural  gas  well
enhancements.

          The  Company's  outstanding  indebtedness  includes  primarily  senior
indebtedness aggregating  approximately $15.8 million at March 31, 1999, owed to
Fleet Capital Corporation ("Fleet") and GE Capital Corporation  ("GECC"),  other
indebtedness of approximately $9.7 million,  and $19.4 million owed 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 March 31,  1999.  In  addition,  the Company is  currently  in default on its
indebtedness  owing  to  Fleet.  See  Part  II,  Item 3.  Defaults  Upon  Senior
Securities in this Quarterly Report.

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

o    In March 1999 the  Company  borrowed an  additional  $2.5  million  from an
     affiliate of SJCP, the Company's principal investor.

o    The  Company is engaged in  efforts to  refinance  its senior  indebtedness
     which is intended to provide,  among other things, more favorable terms and
     thereby improve liquidity.

o    In March 1999, the Company entered into a forbearance  agreement with Fleet
     Capital Corp.  which,  among other  things,  permitted the Company to defer
     payments of principal to Fleet through June 30, 1999.

o    In April 1999, GECC agreed to defer payments of interest on an aggregate of
     $3.9 million of secured indebtedness through June 30, 1999.

o    The Company  has  continued  through  the first  quarter of 1999 to further
     implement a cost  reduction  program first  implemented in the last half of
     1998 and  intends to  continue  its focus on cost  reduction  opportunities
     through 1999.

         Management also intends 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  SJCP  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 at the end of the first  quarter of
1999, the foregoing plan together with the cost 


                                       13

<PAGE>
reduction  program  implemented in 1998, which included  reductions in personnel
and salaries of existing personnel,  closing and consolidating  certain district
offices,  together  with  other cost  reduction  activities,  should  enable the
Company  to  operate,  commencing  with the second  quarter  of 1999,  without a
further deterioration of its liquidity condition.

         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.  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.

          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. The Company intends
to interpose defenses to the lawsuit and to assert 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 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  intends to file an
answer in this action  interposing  defenses.  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 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 is at present considering the claims asserted in this litigation.

          The  Company is a  defendant  in seven other  lawsuits  instituted  by
vendors and others  seeking to recover an aggregate of  approximately  $135,000,
the  largest of which  seeks to recover  approximately  $156,500.  Although  the
Company is seeking to resolve  these  claims,  in the light of the nature of the
claims asserted,  the Company  considers it likely that judgments may be entered
against it in these actions.

          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.

          With the  exception  of the MSI Option the Company  has no  definitive
agreements  to  acquire  any  additional  companies.  However,  there  can be no
assurance that the Company will not acquire additional  companies 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  arising from the activities of the acquired companies to the extent
the  Company  assumes,  or an acquired  entity  becomes  liable for,  unknown or
contingent  liabilities or in the event that such liabilities are imposed on the
Company under theories of successor liability.


                                       14

<PAGE>


         The Company intends to fund its  acquisitions  using cash flow from its
current  operations as well as the possible  proceeds from secured  lending from
banks or other institutional  lenders and the private or public sale of debt and
equity  securities.  Any such  capital that is raised will be on terms yet to be
negotiated and may be on terms that dilute the interests of current stockholders
of the Company.  Subject to the restrictions contained in the Company's existing
loan agreement with Fleet Capital  Corporation,  loans may be  collateralized by
all or a substantial portion of the Company's assets.  There can be no assurance
that the Company will raise  additional  capital when it is required or that the
Company will have or be able to raise sufficient capital to fund its acquisition
strategy.

YEAR 2000 COMPUTER ISSUES

         Computer  hardware and software  often denote the year using two digits
rather than four;  for example,  the year 1998 is often denoted by such hardware
and software as "98." It is probable  that such  hardware  and/or  software will
interpret  "00" as  representing  the year 1900 rather than the year 2000.  This
"Year 2000" issue potentially affects all individuals and companies. The Company
has and continues to evaluate its information  technology systems,  hardware and
non-information  technology systems to assess  modifications needed for the Year
2000.  These systems  include those  utilized for  financial  recordkeeping  and
certain  oil and gas  service  equipment.  A member  of  senior  management  was
selected to oversee the Year 2000  project.  The project work plan  involves the
following phases:  inventory of critical and non-critical  systems and hardware,
assessment and  certification of third party systems.  The Company has completed
its  inventory of systems and  hardware.  All critical  systems are supported by
third party vendors. The Company is currently in the process of certifying these
systems with the vendors.  With respect to other third party relationships,  the
Company is inquiring of certain vendors, customers, and other third parties that
supply critical services to determine their preparedness and ability to continue
normal operations.

         To date,  the Company has incurred  minimal  costs  related to the Year
2000 project and does not  anticipate any  significant  additional  costs.  Such
costs are expensed as incurred.

         Management  expects  that  Year  2000  issues  will be  addressed  on a
schedule  and in a manner that will  prevent  such issues from having a material
effect  on the  Company's  consolidated  results  of  operations,  liquidity  or
financial condition. While the Company has and will continue to pursue Year 2000
compliance,  there  can be no  assurance  that  the  Company  and  its  vendors,
customers  and other  third  parties  which  supply  critical  services  will be
successful in identifying  and  addressing all material Year 2000 issues.  It is
possible  that  the  Company's  consolidated  financial  position,   results  of
operations,  or cash flows could be disrupted by Year 2000 problems  experienced
by its vendors and customers, that utilize its services,  financial institutions
or other parties.  The Company is unable to quantify the effect, if any, of Year
2000 computer problems that may be experienced by these third parties.

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, 1999.

RECENTLY ISSUED ACCOUNTING STANDARDS

                                       15

<PAGE>


          In June 1998, the Financial Accounting Standards Board issued SFAS No.
133,  Accounting for Derivative  Instruments  and Hedging  Activities  (SFAS No.
133).  SFAS No. 133  requires all  derivatives  to be measured at fair value and
recognized as either assets or liabilities on the balance sheet. Changes in such
fair value are required to be recognized immediately in net income (loss) to the
extent the  derivatives  are not effective as hedges.  SFAS No. 133 is effective
for fiscal  years  beginning  after June 15, 1999 and is  effective  for interim
periods in the initial year of adoption. The Company does not currently hold any
derivative financial instruments.

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
implement its plan for the  restructuring  and  refinancing  of its  outstanding
indebtedness,   to  maintain,   implement  and,  if   appropriate,   expand  its
cost-reduction  program  instituted in 1998, to generate revenues and attain and
maintain  profitability  and cash flow,  improvement in,  stability and level of
prices for oil and natural gas, 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 compete in the  premium  services  market,  the
ability of the Company to redeploy its equipment among regional operations,  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 maintain  compliance with the covenants of its various loan
documents and other agreements pursuant to which securities have been issued and
obtain waivers of breaches of covenants  where  necessary and the ability of the
Company to successfully  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,  declines  in the  levels of oil and gas  prices  from those that
existed at the middle of the second quarter of 1999 and other factors could have
a material  adverse  effect on the Company.  The Company  cautions  readers that
various risk factors  described above as well as in the Company's  Annual Report
on Form 10-KSB for the year ended  December  31, 1998 could cause the  Company's
consolidated  operating results,  financial condition and ability to fulfill its
restructuring   plan  to  differ   materially   from  those   expressed  in  any
forward-looking  statements  made  by the  Company  in  this  Report  and  could
adversely affect the Company's financial condition and its ability to pursue its
business  strategy and plans.  Readers should refer to the Annual Report on Form
10-KSB and the risk  factors  discussed  therein in addition to the risk factors
discussed herein.

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
dated September 1, 1997. The promissory note was executed by the Company in

                                       16

<PAGE>
connection with the purchase of the assets of the plaintiff. The Company intends
to interpose defenses to the lawsuit and to assert 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 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  intends to file 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 is at present considering the claims asserted in this litigation.

          The  Company is a  defendant  in seven other  lawsuits  instituted  by
vendors and others  seeking to recover an aggregate of  approximately  $135,000.
Although  the Company is seeking to resolve  these  claims,  in the light of the
nature of the claims  asserted,  the Company  considers it likely that judgments
may be entered against it in these actions.

         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.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         On February 18, 1999,  at a time when the Company was not in compliance
with the terms of its Amended and Restated  Loan  Agreement  with Fleet  Capital
Corp.  ("Fleet")  and was  seeking to enter  into a  Forbearance  Agreement  and
Amendment to Loan and Security  Agreement  (the  "Forbearance  Agreement")  with
Fleet,  as a condition to Fleet  entering into the  Forbearance  Agreement,  the
Company  entered  into an  agreement  with an  affiliate  of St.  James  Capital
Partners,  L.P.,  a principal  investor of the  Company,  to purchase up to $2.5
million  principal  amount of the Company's  convertible  promissory note due on
March 16, 2001.  The note is  convertible  into shares of the  Company's  Common
Stock at a  conversion  price of  $1.50  per  share,  subject  to  anti-dilution
adjustment  for certain  issuances  of  securities  by the Company at prices per
share of Common Stock less than the  conversion  price then in effect,  in which
event the  conversion  price is reduced to the lower  price at which such shares
are issued.  The Company also issued  warrants to purchase  2,075,000  shares of
Common Stock exercisable at a price of $1.50 per share, subject to anti-dilution
adjustment  for certain  issuances  of  securities  by the Company at prices per
share of Common  Stock less than the  exercise  price  then in effect,  in which
event the exercise  price is reduced to the lower price at which such shares are
issued and the number of shares issuable is adjusted upward.

          The proceeds from the sale of the note were used for general corporate
purposes,  including the payment of outstanding  accounts payable. The notes and
warrants  were  sold in  reliance  upon  the  exemption  from  the  registration
requirements of the Securities Act of 1933, as amended, afforded by Section 4(2)
thereof.

         As a consequence of the issuance of the convertible note and warrant to
the affiliate of St. James in February 1999 with  conversion and exercise prices
of $1.50 per share, under the terms of the anti-dilution provisions of the other
outstanding  convertible notes and warrants held by St. 


                                       17

<PAGE>

James, including certain of its affiliates and assignees,  the conversion prices
and exercise prices of those securities were reduced to $1.50 per share with the
total number of shares issuable on conversion and exercise being adjusted upward
to 29,468,471 shares.

          On February 18, 1999 the Company  entered  into a Purchase  Agreement,
and related notes,  warrants and security  documents (the "Agreements") with the
affilliate  of St.  James  regarding  the purchase of the  securities  described
above. Pursuant to such agreement, payment of principal and interest on the $2.5
million note is  collateralized  by substantially all the assets of the Company,
subordinated,  as of March 31, 1999,  to the senior  secured  borrowings  of the
Company from Fleet Capital Corporation ("Fleet") in the maximum aggregate amount
of  approximately  $11.5 million.  The shares issuable on conversion of the note
and  exercise of the warrants  have demand and  piggy-back  registration  rights
under  the  Securities  Act of 1933.  The  Agreements  grant St.  James  certain
preferential  rights to provide  future  financings  to the Company,  subject to
certain  exceptions.  The note also contains  various  affirmative  and negative
covenants, including a prohibition against the Company consolidating, merging or
entering into a share  exchange with another  person,  with certain  exceptions,
without  the consent of St.  James.  Events of default  under the note  include,
among other events, (i) a default in the payment of principal or interest;  (ii)
a default under any of the notes held by St. James or any of its  affiliates and
the failure to cure such  default for five days,  which will  constitute a cross
default  under  each of the other  notes held by St.  James and its  affiliates;
(iii) a breach of the Company's covenants,  representations and warranties under
the agreement; (iv) a breach under any of the agreements between the Company and
St.  James,  subject to certain  exceptions;  (v) any person or group of persons
acquiring  40% or more of the voting power of the Company's  outstanding  shares
who was not the owner  thereof as of February  18, 1999, a merger of the Company
with  another  person,  its  dissolution  or  liquidation  or a  sale  of all or
substantially  all its assets;  and (vi) certain  events of  bankruptcy.  In the
event of a default  under any of the notes held by St. James or its  affiliates,
subject to the terms of an  agreement  between St.  James and Fleet,  St.  James
could seek to foreclose against the collateral for the notes.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         The   Company  has   outstanding   secured   indebtedness   aggregating
approximately  $11.5  million  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 in early 1999,  the Company has
not been in compliance with various covenants in the Loan Agreement. In February
1999,  the Company and Fleet entered into a Forbearance  Agreement and Amendment
to Loan and Security  Agreement  (the  "Forbearance  Agreement")  whereby  Fleet
agreed,  among other things,  to forebear through June 30, 1999 taking action on
defaults  under the Company's  Loan  Agreement.  Subject to the Company  meeting
certain conditions and complying with certain  covenants,  Fleet agreed to defer
the  payments of  principal  due on its loan during the months of March  through
June 1999. At March 31 1999,  the Company was in default of certain of the terms
of  the  Forbearance   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  financings,  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 


                                       18

<PAGE>

          under this  revolving  credit  arrangement  is  necessary  to fund the
Company's ongoing operations.  Because the Company is currently in default under
a number of provisions  of its Loan  Agreement and  Forbearance  Agreement  with
Fleet.  Fleet has 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 Company  would be able to repay
such  indebtedness  owing to Fleet or borrow  sufficient  funds from alternative
sources to repay such indebtedness owing to Fleet. If the Company were 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.  If the  indebtedness  owing to Fleet were 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.


                                       19

<PAGE>



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:  May 20,  1999                       /S/  William L. Jenkins            
                                         --------------------------------------
                                                 William L. Jenkins
                                         President and Chief Operating Officer
                                         (Principal Executive, Financial and
                                         Accounting Officer)


                                       20