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
                  June 30, 1999; or
         ----     Transition  report pursuant to Section 13 or  15(d) of the
                  Securities  Exchange  Act of  1934  for the  transition period
                  from_______to_______.

                         Commission File Number 0-18754
                                               ---------

                            BLACK WARRIOR WIRELINE CORP.
   -------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

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

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

                                 (662) 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
                                                    August 15, 1999
         -----------------------                   ------------------
         COMMON STOCK, PAR VALUE                   4,717,815  SHARES
           $.0005 PER SHARE


                  Transitional Small Business Disclosure Format

                       YES                       NO    X
                           ----                      ----

<PAGE>


                          BLACK WARRIOR WIRELINE CORP.
                                 AND SUBSIDIARY
                         QUARTERLY REPORT ON FORM 10-QSB

                                      INDEX


PART I - FINANCIAL INFORMATION
                                                                            Page


Item 1.   Financial Statements

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

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

          Condensed Consolidated Statements of Operations -
          Six Months Ended June 30, 1999 and
          June 30, 1998                                                        5

          Condensed Consolidated Statements of Cash Flows -
          Six Months Ended June 30, 1999 and
          June 30, 1998                                                        6

          Notes to Condensed Consolidated Financial Statements -
          Six Months Ended June 30, 1999 and
          June 30, 1998                                                        7

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


PART II - OTHER INFORMATION

Item 1.   Legal Proceedings                                                   21

Item 2.   Changes in Securities and Use of Proceeds                           22

Item 3.   Defaults Upon Senior Securities                                     23

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




                                       2



<PAGE>

PART I - FINANCIAL INFORMATION
         ITEM 1.  FINANCIAL STATEMENTS

BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>


                                                             JUNE 30, 1999       DECEMBER 31, 1998
                           ASSETS                             (UNAUDITED)
<S>                                                          <C>                   <C>
Current assets:
    Cash and cash equivalents                                $  210,412            $ 1,041,242
    Short-term investments                                       50,000                 50,000
    Accounts receivable, less allowance for doubtful
     accounts of $ 1,693,867  and $ 2,157,421, respectively   4,181,044              3,596,004
    Prepaid expenses                                             92,894                110,579
    Other receivables                                           138,846                236,273
    Other current assets                                        561,140                498,812
                                                           ------------           ------------
                      Total current assets                    5,234,336              5,532,910
Land and building, held for sale                                400,000                400,000
Inventories                                                   4,254,760              4,278,601
Property, plant, and equipment, less accumulated
    depreciation of $ 11,531,565 and $ 8,986,893             21,005,762             22,628,601
Other assets                                                    568,373                539,537
Goodwill, less accumulated amortization of $ 263,383
  and $ 215,678, respectively                                 3,387,496              3,435,201
                                                           ------------           ------------
                      Total assets                         $ 34,850,727           $ 36,814,850
                                                           ============           ============

                           LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
    Accounts payable                                        $ 6,380,306            $ 5,964,266
    Accrued salaries and vacation                               236,243                 91,275
    Accrued interest payable                                  2,416,981              1,527,674
    Other accrued expenses                                      632,924                826,366
    Deferred revenue                                            100,000                155,016
    Current maturities of notes payable to banks                 78,501
    Note payable to related party, net                       23,117,140             20,662,890
    Current maturities of long-term debt and capital
         lease obligations                                   17,316,092             18,923,719
                                                           ------------           ------------
                      Total current liabilities              50,278,187             48,151,206
Stockholders' deficit:
     Preferred stock, $.0005 par value, 2,500,000
        shares authorized none issued at June 30, 1999
        and December 31, 1998, respectively
     Common stock, $.0005 par value, 12,500,000
        shares authorized; 4,717,815 and 3,897,451
        shares issued and outstanding  at June 30, 1999
        and December  31,  1998,  respectively                    2,359                  1,948
     Additional paid-in capital                              13,107,697             12,107,551
     Accumulated deficit                                    (27,954,123)           (22,862,462)
    Treasury stock, at cost, 4,620 shares                      (583,393)              (583,393)
                                                           ------------           ------------
    Total stockholders' deficit                             (15,427,460)           (11,336,356)
                                                           ------------           ------------
               Total liabilities and stockholders' deficit $ 34,850,727           $ 36,814,850
                                                           ============           ============

</TABLE>


   See accompanying notes to the condensed consolidated financial statements.


                                       3



<PAGE>


BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED  STATEMENTS OF OPERATIONS
for the three months ended June 30, 1999 and June 30, 1998

<TABLE>
<CAPTION>


                                                           June 30, 1999             June 30, 1998
                                                            (Unaudited)                (Unaudited)
<S>                                                        <C>                       <C>
Revenues                                                    $ 7,261,416              $ 10,247,430

Operating costs                                               5,409,635                 8,493,603

Selling, general and administrative expenses                  2,503,561                 1,918,014

Depreciation and amortization                                 1,138,553                 1,246,109
                                                           ------------              ------------

     Net loss from operations                                (1,790,333)               (1,410,296)

Interest expense and amortization of debt discount             (842,987)                 (697,143)

Net gain (loss) on sale of fixed assets                           1,737                      (938)

Other income                                                      7,868                    18,950
                                                           ------------              ------------

     Net loss before benefit for
          income taxes                                       (2,623,715)               (2,089,427)

Benefit for income taxes                                         -0-                      833,017
                                                           ------------              ------------

     Net loss                                              $ (2,623,715)             $ (1,256,410)
                                                           =============             =============

     Net  loss per common share- basic                          $(0.62)                    $(0.32)
                                                           =============             =============

     Net loss per common share- diluted                         $(0.62)                    $(0.32)
                                                           =============             =============


Weighted average common shares outstanding                    4,199,619                 3,873,235
                                                           =============             =============

Weighted average common shares outstanding
    with dilutive securities                                  4,199,619                 3,873,235
                                                           =============             =============

</TABLE>


   See accompanying notes to the condensed consolidated financial statements.






                                       4


<PAGE>



BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARY
CONDENSED  CONSOLIDATED  STATEMENTS OF OPERATIONS
for the six months ended June 30, 1999 and June 30, 1998

<TABLE>
<CAPTION>


                                                           June 30, 1999            June 30, 1998
                                                             (Unaudited)                (Unaudited)

<S>                                                        <C>                       <C>
Revenues                                                   $ 13,333,698              $ 19,913,453

Operating costs                                              10,963,925                15,759,491

Selling, general and administrative expenses                  3,333,563                 2,758,693

Depreciation and amortization                                 2,461,910                 2,055,799
                                                           ------------              ------------
     Net loss from operations                                (3,425,700)                 (660,530)

Interest expense and amortization of debt discount           (1,687,327)               (1,131,903)

Net gain (loss) on sale of fixed assets                          (7,263)                    1,006

Other income                                                     28,629                    36,296
                                                           ------------              ------------

     Net loss before benefit for
          income taxes                                       (5,091,661)               (1,755,131)

Benefit for income taxes                                        -0-                       649,398
                                                           ------------              ------------

     Net loss                                              $ (5,091,661)             $ (1,105,733)
                                                           ============              ============

     Net loss per common share- basic                           $(1.26)                    $(0.32)
                                                           ============              ============

     Net loss per common share- diluted                         $(1.26)                    $(0.32)
                                                           ============              ============


Weighted average common shares outstanding                    4,056,864                 3,466,634
                                                           ============              ============

Weighted average common shares outstanding
    with dilutive securities                                  4,056,864                 3,466,634
                                                           ============              ============

</TABLE>


   See accompanying notes to the condensed consolidated financial statements.




                                       5




<PAGE>



BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARY
CONDENSED  CONSOLIDATED  STATEMENTS  OF CASH FLOWS
For the six months ended June 30, 1999 and June 30, 1998

<TABLE>
<CAPTION>


                                                          June 30, 1999             June 30, 1998
                                                             (Unaudited)               (Unaudited)

<S>                                                          <C>                     <C>
Cash used in operations:                                     $ (663,514)             $ (1,130,129)

Cash flows from investing activities:
     Acquisitions of property, plant, and equipment            (883,977)               (5,520,789)
     Proceeds from sale of property, plant and equipment         30,400                    71,000
     Acquisition of business, net of cash acquired                                       (603,322)
                                                             ----------                ----------
Cash used in investing activities:                             (853,577)               (6,053,111)

Cash flows from financing activities:
     Debt issuance costs                                       (152,086)                 (467,521)
     Proceeds from bank and other borrowings                  3,149,371                 1,941,947
     Principal payments on long-term debt, notes payable
         and capital lease obligations                         (694,984)               (1,064,316)
     Net (payments) proceeds on working revolver             (1,616,040)                3,333,441
     Proceeds from issuance of common stock, net
         of offering costs                                                              3,718,355
                                                             ----------                ----------
 Cash provided  by financing activities:                        686,261                 7,461,906

Net (decrease) increase in cash and cash equivalents           (830,830)                  278,666
Cash and cash equivalents, beginning of period                1,041,242                   435,845
                                                             ----------                ----------

Cash and cash equivalents, end of period                     $  210,412                $  714,511
                                                             ==========                ==========

Supplemental disclosure of cash flow information:

       Interest paid                                         $  778,020                $  718,208
                                                             ==========                ==========

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             $ 107,527                 $ 111,562
     Stock warrants issued in conjunction with notes payable  $  20,750
           to related party
     Stock issued as compensation                             $ 914,807
     Stock issued as consideration for purchase of business   $  65,000

</TABLE>


   See accompanying notes to the condensed consolidated financial statements.





                                       6



<PAGE>



                   BLACK WARRIOR WIRELINE CORP. AND SUBSIDARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.       GENERAL

         The accompanying  condensed  consolidated  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.  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 Company's  violations of
various covenants in its loan agreements with its principal secured lender,  its
working capital  deficiency,  operating losses and its lack of liquidity,  raise
substantial  doubts about the Company's  ability to continue as a going concern.
The condensed  consolidated  financial statements do not include any adjustments
that  might  result  from the  outcome of this  uncertainty.  See Note 17 of the
Company's  Annual Report on Form 10KSB for the year ended December 31, 1998, and
the  related  report of  independent  accountants  dated  March 19,  1999  which
contains a paragraph referring to these uncertainties. The results of operations
for the  interim  period are not  necessarily  indicative  of the  results to be
expected for the full year.  The Company's  Annual Report on Form 10-KSB for the
fiscal year ended  December  31, 1998  should be read in  conjunction  with this
document.

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

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

         During  the  fourth   quarter  of  1998,   the  Company   assessed  the
recoverability  of long-lived  assets,  which 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

<PAGE>


charge of  approximately  $11.1  million  in the fourth  quarter  of 1998.  This
impairment  charge  included  reducing the goodwill  associated with the Phoenix
Acquisition to $0, as well as the writedown of certain inventories and property,
plant and equipment.  Of the $11.1 million writedown,  $5.76 million was related
to the  Phoenix  Acquisition  goodwill  and  fixed  assets.  See  Note 19 in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998.

         On  June  1,  1998,  the  Company   acquired  Petro  Wireline   ("Petro
Acquisition")  which is engaged in the  wireline  business  in the four  corners
region of New Mexico,  Colorado,  Utah and Arizona for  $875,000.  For financial
statement  purposes,  the Petro Acquisition was accounted for as a purchase and,
accordingly, Petro Wireline's results are included in the 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 six months  ended June 30,  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 six months ended June 30, 1999 are presented for  comparative
purposes as both acquisitions are included in the consolidated operating results
of this period.

                                     Six Months Ended           Six Months Ended
                                        June 30, 1999              June 30, 1998
                                         (Unaudited)                (Unaudited)

Revenues                               $ 13,333,698               $  23,893,839
Loss before income tax effect          $ (5,091,661)              $  (1,914,211)
Net loss                               $ (5,091,661)              $  (1,336,948)

Net loss per common share - basic      $      (1.26)              $       (0.35)
                                       ============               =============

Net loss per common share - diluted    $      (1.26)              $       (0.35)
                                       ============               =============


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






                                       8

<PAGE>


2.       EARNINGS PER SHARE

The calculation of basic and diluted earning per share ("EPS") is as follows:

<TABLE>
<CAPTION>


                                              For the Three Months                        For the Three Months
                                               Ended June 30, 1999                         Ended June 30, 1998
                                --------------------------------------------     -------------------------------------

                                     Loss            Shares         Per Share      Loss             Shares        Per Share
                                   Numerator       Denominator       Amount      Numerator        Denominator      Amount
                                -------------      -----------      ---------    ---------        -----------     ---------
<S>                             <C>                  <C>            <C>          <C>              <C>             <C>
Net loss                         $(2,623,715)                                     $(1,256,410)
                                 ============                                     ============
BASIC EPS
Loss available to common
    shareholders                 $(2,623,715)        4,199,619      $ (0.62)      $(1,256,410)     3,873,235       $(0.32)
                                --------------------------------------------------------------------------------------------
EFFECT OF DILUTIVE SECURITIES
Stock warrants
Stock options
Convertible debt securities
DILUTED EPS
                                --------------------------------------------------------------------------------------------
Loss available to common
    shareholders                 $(2,623,715)        4,199,619      $ (0.62)      $(1,256,410)     3,873,235       $(.032)
                                --------------------------------------------------------------------------------------------

                                               For the Six Months                          For the Six Months
                                               Ended June 30, 1999                         Ended June 30, 1998
                                --------------------------------------------     -------------------------------------

                                     Loss            Shares         Per Share      Loss             Shares        Per Share
                                   Numerator       Denominator       Amount      Numerator        Denominator      Amount
                                -------------      -----------      ---------    ---------        -----------     ---------

Net loss                         $(5,091,661)                                     $(1,105,733)
                                 ============                                     ============
BASIC EPS
Loss available to common
    shareholders                 $(5,091,661)        4,056,864      $ (1.26)      $(1,105,733)     3,466,634       $(0.32)
                                -------------------------------------------------------------------------------------------
Effect of dilutive securities
Stock warrants
Stock options
Convertible debt securities
Diluted EPS
Loss available to common
    shareholders                 $(5,091,661)        4,056,864      $ (1.26)      $(1,105,733)     3,466,634       $(0.32)
                                --------------------------------------------------------------------------------------------

</TABLE>


         Options and warrants to purchase  19,559,474  and  4,711,000  shares of
common stock at prices ranging from $1.31 to $8.01 were  outstanding  during the
three and six months  ended June 30, 1999 and 1998,  respectively,  but were not
included  in the  computation  of  diluted  EPS  because  the  effect  would  be
anti-dilutive.

         Convertible  debt  instruments  which would  result in the  issuance of
12,933,333  shares of common stock,  if the conversion  features were exercised,
were  outstanding  during the three and six months ended June 30, 1999, but were
not included in the  computation  of the diluted EPS because the effect would be
anti-dilutive.  The conversion price of these instruments is $1.50 per share and
remained outstanding at June 30, 1999.  Convertible debt instruments which would
result in the issuance of 615,385, 625,985 and 1,818,182 shares of common stock,
if the conversion  features were exercised,  were outstanding during each of the
three month and six month periods ended June 30, 1998,  but were not included in
the  computation  of the diluted EPS because the effect would be  anti-dilutive.
The  conversion  price  of  these  instruments  was  $3.25,   $4.63  and  $7.00,
respectively and remained outstanding at June 30, 1998.


                                       9


<PAGE>


3.       INVENTORIES

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

4.       COMMITMENTS AND CONTINGENCIES

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

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

         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
moved to have  this  dispute  resolved  by  arbitration  under  the rules of the
National  Association of Securities  Dealers,  Inc. which motion was granted.  A
hearing  was held on August 4 and 5, 1999 before a panel of  arbitrators;  as of
August 17, 1999 no award has been entered.


                                       10


<PAGE>


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

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

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

         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 nature of
the claims  asserted,  the Company  considers it likely that  judgements  may be
entered  against it in these  actions.  These  amounts are  included in accounts
payable at June 30, 1999.

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

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

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





                                       11

<PAGE>


5.       SEGMENT AND RELATED INFORMATION

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

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

         DIRECTIONAL DRILLING - This segment consists of two business units. One
unit performs  procedures to enter an oil producing  zone  directionally,  using
specialised drilling equipment, and expand the area of interface of hydrocarbons
and thereby  greatly  enhance  recoverability  of oil. The second  business unit
engages in oil and gas well downhole surveying activities. The principal markets
for this segment  include all major oil and gas producing  regions of the United
States.  Major customers of this segment for the three and six months ended June
30,  1999  included  Phillips  Petroleum,  Jones  Energy,  Arco  Oil and Gas and
Chesapeake Energy Corporation.

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

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


<TABLE>
<CAPTION>



         Three months ended June 30, 1999
                                                                            WORKOVER
                                                      DIRECTIONAL             AND
                                  WIRELINE             DRILLING            COMPLETION            TOTAL
                               --------------------------------------------------------------------------
<S>                            <C>                  <C>                   <C>                <C>

          Segment revenues     $  4,706,198         $  2,246,731          $  308,487         $  7,261,416
          Segment EBITDA       $    949,154         $     12,360          $   24,983         $    986,497


</TABLE>


                                       12

<PAGE>

<TABLE>
<CAPTION>


         Three months ended June 30, 1998
                                                                           WORKOVER
                                                      DIRECTIONAL            AND
                                    WIRELINE          DRILLING             COMPLETION            TOTAL
                                 --------------------------------------------------------------------------
<S>                              <C>                 <C>                  <C>                 <C>

          Segment revenues       $   2,467,167       $   7,426,523        $  353,740          $  10,247,430
          Segment EBITDA         $    (342,352)      $     688,833        $  (31,060)         $     315,421


         Six months ended June 30, 1999
                                                                           WORKOVER
                                                      DIRECTIONAL             AND
                                    WIRELINE          DRILLING             COMPLETION           TOTAL
                                 --------------------------------------------------------------------------

          Segment revenues       $   8,260,572       $   4,438,609        $ 634,517           $  13,333,698
          Segment EBITDA         $   1,032,937       $     (22,692)       $  76,280           $   1,086,525

          Six months ended June 30, 1998
                                                                          WORKOVER
                                                       DIRECTIONAL           AND
                                    WIRELINE           DRILLING           COMPLETION            TOTAL
                                 --------------------------------------------------------------------------

          Segment revenues       $   5,384,362       $  13,747,121        $ 781,970           $  19,913,453
          Segment EBITDA         $     223,871       $   1,843,095        $ (23,051)          $   2,043,915

</TABLE>


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

Three months ended June 30:

                                                 1999                    1998
Total segment EBITDA                        $    986,497           $   315,421
Depreciation and amortization                 (1,138,553)           (1,246,109)
Unallocated corporate expense                 (1,638,277)             (479,608)
                                            ------------           ------------

     Loss from operations                   $ (1,790,333)          $(1,410,296)
                                            ============           ============

Six months ended June 30:

                                                1999                    1998
Total segment EBITDA                        $ 1,086,525            $ 2,043,915
Depreciation and amortization                (2,461,910)            (2,055,799)
Unallocated corporate expense                (2,050,315)              (648,646)
                                            ------------           ------------

     Loss from operations                   $(3,425,700)           $  (660,530)
                                            ============           ============

                                       13

<PAGE>


6.       RELATED PARTY TRANSACTIONS

         The Company  opened a wireline  facility in South Texas in January 1999
primarily to service a customer who has some common  ownership with the Company.
During the three and six months ended June 30, 1999, this customer accounted for
approximately 17.7% and 43.7% of total revenues, respectively.

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

7.       RECLASSIFICATIONS

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

8.       ISSUANCE OF COMMON STOCK

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

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

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




                                       14

<PAGE>


9.       DEFAULTS UPON SENIOR SECURITIES

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

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
         OPERATIONS

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

RESULTS OF CONSOLIDATED OPERATIONS. THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1998 AND SIX MONTHS ENDED JUNE 30, 1999  COMPARED TO
SIX MONTHS ENDED JUNE 30, 1998

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

<TABLE>
<CAPTION>


                                                    Three Months Ended                   Six Months Ended
                                            ------------------------------------    -----------------------------
                                              6/30/99               06/30/98           6/30/99           6/30/98
-----------------------------------------------------------------------------------------------------------------
<S>                                         <C>                  <C>                <C>               <C>
Wireline                                    $ 4,706,198          $   2,467,167      $  8,260,572      $ 5,384,362
Directional Drilling                          2,246,731              7,426,523         4,438,609       13,747,121
Workover and Completion                         308,487                353,740           634,517          781,970
                                            ---------------------------------------------------------------------
                                            $ 7,261,416           $ 10,247,430       $13,333,698      $19,913,453
                                            ===========           ============       ===========      ===========

</TABLE>


         Total revenues decreased by approximately $2.9 million to approximately
$7.3 million for the three months ended June 30, 1999 as compared to revenues of
approximately  $10.2  million for the three months  ended June 30,  1998.  Total
revenues decreased by approximately $6.6 million to approximately  $13.3 million
for the six months ended June 30, 1999 as compared to revenues of  approximately
$19.9 million for the six months ended June 30, 1998. The Company's wireline



                                       15


<PAGE>



revenues  were  adversely  affected by reduced  demand and downward  pressure on
pricing,  however, this was more than offset by increased activity from wireline
locations  opened or acquired  since July,  1998.  The  decrease in  directional
drilling  revenues  was also the  result of  reduced  demand  for the  Company's
services  and  downward  pressure on pricing that  primarily  resulted  from the
decline in oil and gas prices in 1998 and early 1999.  Revenues for Workover and
Completion  decreased  due to  decreased  activity by the  division's  principle
customer.

         Operating costs decreased by  approximately  $3.1 million for the three
months  ended June 30, 1999,  as compared to the same period of 1998.  Operating
costs  were  74.5% of  revenues  for the three  months  ended  June 30,  1999 as
compared  with 82.9% of  revenues in the same  period in 1998.  Operating  costs
decreased by approximately  $4.8 million for the six months ended June 30, 1999,
as compared to the same period of 1998.  Operating  costs were 82.9% of revenues
for the six months ended June 30, 1999 as compared with 79.1% of revenues in the
same period in 1998.  The decrease was primarily the result of the lower overall
level of  activities  in the three and six months  ended June 30, 1999  compared
with 1998.  The increase in operating  costs as a percentage of revenues for the
six months ended June 30, 1999 compared to June 30, 1998 was  primarily  because
of declining  billing rates and equipment  utilization,  partially offset by the
Companies cost reduction program, in the first quarter of 1999 compared to 1998.
This increase was partially offset by the Company's cost reduction program.  The
decrease in  operating  costs as a  percentage  of revenues for the three months
ended June 30, 1999 as compared  to June 30, 1998 was  primarily  due to reduced
operating  costs  pursuant to cost reduction  measures the Company  initiated in
response  to the  reduced  demand  for the  Company's  services  that  primarily
resulted from the decline in oil and gas prices in 1998 and the first quarter of
1999.  Salaries and benefits  decreased  by  approximately  $2.3 million for the
three months ended June 30, 1999, as compared to the same period in 1998, as the
total number of employees decreased from 323 at June 30, 1998 to 226 at June 30,
1999.  Salaries and benefits decreased by approximately $2.7 million for the six
months ended June 30, 1999, as compared to the same period in 1998. This was due
to layoffs and salary  reductions that the Company  initiated in response to the
reduced  demand for the  Company's  services  that  primarily  resulted from the
recent decline in oil and gas prices in 1998 and the first quarter of 1999.

         Selling, general and administrative expenses increased by approximately
$586,000 from approximately $1.9 million in the three months ended June 30, 1998
to  approximately  $2.5 million in the three  months  ended June 30, 1999.  As a
percentage of revenues,  selling,  general and administrative expenses increased
from 18.7% in the three months  ended June 30, 1998 to 34.5% in 1999,  primarily
as a result of an expense of $914,807  recognized in the second  quarter of 1999
related to 770,364 common shares issued 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.  These shares
were issued in  consideration of the release of certain claims asserted by these
persons  regarding  alleged  excessive  delays in effecting the  registration of
their shares  under the  Securities  Act of 1933,  as amended,  which  allegedly
prevented such persons from being able to liquidate their  securities.  Selling,
general and  administrative  expenses  increased by approximately  $575,000 from
approximately   $2.8   million  in  the  six  months  ended  June  30,  1998  to
approximately  $3.3  million  in the  six  months  ended  June  30,  1999.  As a
percentage of revenues,  selling,  general and administrative expenses increased
from 13.9% in the six months ended June 30, 1998 to 25.0% in 1999,  primarily as
a result of the $914,807  settlement  cost  recognized in the second  quarter of
1999 as discussed above.  Excluding the $914,807  settlement costs from selling,
general and administrative  expenses would have decreased  selling,  general and
administrative  expenses by $329,260  and  $339,937 for the three and six months
ended June 30, 1999 due to lower  activity  levels and the  implementation  of a
cost reduction program.



                                       16


<PAGE>



         Depreciation and amortization decreased from approximately $1.2 million
in the three months ended June 30, 1998, or 12.2% of revenues,  to approximately
$1.1 million in 1999 or 15.7% of revenues,  primarily because of the lower asset
base of depreciable  properties  and lower  goodwill  balance in the three month
period  ended  June 30,  1999  over the same  period in 1998.  Depreciation  and
amortization  increased from approximately $2.1 in the six months ended June 30,
1998, or 10.3% of revenues,  to  approximately  $2.5 million in 1999 or 18.5% of
revenues  primarily due to the higher base of depreciable  properties in the six
month  period  ended June 30, 1999 over the same period in 1998.  The asset base
was higher  during  the six months  ended  June 30,  1999  primarily  due to the
Phoenix Acquisition which occurred on March 16, 1998.

         Interest  expense  and  amortization  of  debt  discount  increased  by
approximately  $146,000  for the three months ended June 30, 1999 as compared to
the same period in 1998 and  increased  by  approximately  $555,000  for the six
months  ended June 30, 1999 as  compared  to the same  period in 1998.  This was
directly related to the increased  amounts of indebtedness  outstanding in 1999,
primarily a result of the Phoenix Acquisition that occurred in the first quarter
of 1998.  See  "Note 6 of Notes to  Consolidated  Financial  Statements"  in the
Company's  Annual  Report on Form 10-KSB for the fiscal year ended  December 31,
1998.

         Net gain on sale of fixed  assets was $1,737  compared to a net loss of
$938 for the three months ended June 30, 1999 and 1998,  respectively.  Net loss
on sale of fixed  assets was $7,263  for the six months  ended June 30,  1999 as
compared  to a net gain of  $1,006  for the same  period in 1998.  Other  income
decreased  by  approximately  $11,000 in three  months  ended  June 30,  1999 as
compared to the same period in 1998.  Other income  decreased  by  approximately
$7,600 in the six months  ended June 30,  1999 as compared to the same period in
1998.

         The  Company  had  a  loss  before   provision   for  income  taxes  of
approximately  $2.6  million and $5.1 million for the three and six months ended
June 30,  1999,  respectively,  compared to a loss before  provision  for income
taxes of  approximately  $2.1  million  and $1.8  million  for the three and six
months ended June 30, 1998, respectively.

         Income tax benefit totaled $-0- for the three and six months ended June
30, 1999 as compared to income tax  benefit of  $833,017  and  $649,398  for the
three and six months ended June 30,  1998,  respectively.  These totals  contain
Federal and State deferred taxes as well as current amounts.

         The  Company  had a net loss of  approximately  $2.6  million  and $5.1
million for the three and six months ended June 30, 1999, respectively, compared
to a net loss of $1.3  million  and $1.1  million  for the three and six  months
ended June 30, 1998, respectively.

LIQUIDITY AND CAPITAL RESOURCES

         Cash used by Company operating  activities was  approximately  $664,000
for the six months ended June 30, 1999 as compared to cash used of approximately
$1.1  million for the same  period in 1998.  Investing  activities  used cash of
approximately  $854,000  during  the six  months  ended  June  30,  1999 for the
acquisition of property,  plant and equipment,  including proceeds from the sale
of fixed assets of approximately  $30,000.  During the six months ended June 30,
1998,  investing  activities  used cash of  approximately  $6.1  million for the
acquisition  of  property,  plant  and  equipment  and  businesses,  net of cash
acquired, including proceeds of $71,000 from the sale of fixed assets. Financing
activities  provided net cash of  approximately  $686,000 from the proceeds from
bank and other  borrowings of  approximately  $3.2 million during the six months
ended June



                                       17


<PAGE>


30, 1999 offset by principal payments on bank debt, other borrowings and capital
leases of approximately  $695,000, net payments on the working capital revolving
loan of approximately  $1.6 million and approximately  $152,000 of costs related
to debt issuance.  For the same period in 1998 financing activities provided net
cash of  approximately  $7.5 million from the net proceeds  from the issuance of
common stock of approximately $3.7 million,  approximately $1.9 million from the
proceeds  from bank and  other  borrowings  and net  proceeds  from the  working
capital  revolving  loan of  approximately  $3.3  million  offset  by  principal
payments  on bank debt,  other  borrowings  and  capital  lease  obligations  of
approximately  $1.1 million and approximately  $467,000 of costs related to debt
issuances.

         Cash at June 30, 1999 was  $210,412  as compared  with cash at June 30,
1998 of $714,511.

         During  1998 and the first  half of 1999,  the  Company  experienced  a
decline in the demand for its products and services as a result of a significant
decrease in the price of oil and natural gas.  The decline in demand  materially
impacted  the  Company's  revenues,  liquidity  and its  ability  to  remain  in
compliance with covenants in its loan agreements and meet its obligations during
the last half of 1998 and first half of 1999. While these  conditions  continued
throughout  much of the first  quarter of 1999,  prices for oil and  natural gas
were improving  significantly  in the second quarter of 1999.  Management of the
Company  believes that an  improvement  in its revenues will be dependent upon a
continuing period of stabilized pricing at levels similar to those of the second
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
secured  indebtedness  aggregating  approximately $15.5 million at June 30, 1999
owed to Fleet Capital Corporation ("Fleet') and GE Capital Corporation ("GECC"),
other indebtedness of approximately $5.5 million, and $19.4 million owing to St.
James  Capital  Partners,  L.P.  ("SJCP")  and  its  affiliates.   All  of  this
indebtedness is shown as currently due and payable on the Company's consolidated
balance sheet at June 30, 1999.

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

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

o    In July 1999,  the Company  entered into a forbearance  agreement  with its
     primary  secured  lender,  Fleet Capital  Corporation,  which,  among other
     things,  permitted  the Company to make  reduced  payments of  principal to
     Fleet through August 31, 1999. In the event the Company is  unsuccessful in
     refinancing  this  indebtedness  by August 31, 1999, the Company intends to
     seek a further forbearance agreement with Fleet,  however,  there can be no
     assurance that such further forbearance agreement will be forthcoming.

o    The Company  has  continued  through the second  quarter of 1999 to further
     implement a cost  reduction  program first  implemented in the last half of
     1998 and intends to focus on cost  reduction  opportunities  through  1999.
     These cost  reductions  have  included,  among other things,  reductions in
     personnel,   reductions  in   compensation   levels  and   curtailment   of
     expenditures. The Company continues to make personnel reductions and reduce
     expenditures


                                       18


<PAGE>



     to meet its current  levels of  activities.  There can be no assurance that
     the Company  will be  successful  in  attracting  new  employees to replace
     discharged personnel at such time as its operations may require.

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

         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 St.  James  Capital  Corp.  and its  affiliates  will be
long-term or converted into equity securities.

         Management  believes  that,  provided oil and natural gas prices remain
relatively  stable with prices that existed in the second  quarter of 1999,  the
foregoing  plan together with the  cost-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  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.  In the event the
Company is  unsuccessful  in raising  additional  capital  and  refinancing  its
currently due  indebtedness,  the Company  believes that its operations  will be
significantly  affected,  including,  possibly, the foreclosure by the Company's
secured  creditors  against  virtually all of the Company's  assets.  Under such
circumstances, the Company's equity investors may loose their entire investment.
Management  expects  that in order to  complete  such  transactions  substantial
amounts of equity  securities  may be required to be issued which may materially
dilute the Company's existing stockholders.

         With the  exception of the option to acquire  Measurement  Specialists,
L.L.C.,  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 or assets in the future, or that any such acquisitions,  if
made,  will be beneficial to the Company.  The process of  integrating  acquired
properties into the Company's  operations may result in unforeseen  difficulties
and may require a  disproportionate  amount of  management's  attention  and the
Company's resources.  In connection with acquisitions,  the Company could become
subject to significant  contingent the Company  assumes,  or an acquired  entity
becomes  liable  for,  unknown or  contingent  liabilities  or in the event such
liabilities are imposed on the Company under theories of successor liability.

         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 or any successor  lender,  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.

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<PAGE>



YEAR 2000 COMPUTER ISSUES

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

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

         We began an in-house  assessment  of our Year 2000 problem with respect
to our information  technology  systems in the fall of 1998. Since that time, we
have upgraded all of our financial  management  software to newer versions which
are Year  2000  compliant.  In  addition,  we have  replaced  nearly  all of our
information  technology  hardware  so  that  this  hardware  is  now  Year  2000
compliant. To date the cost of the upgrade and of this software and hardware has
been approximately $5,000.

         Additionally,  we have assessed our non-information  technology systems
which consist primarily of embedded  technology at our field offices and certain
of the  equipment  used  at  wellsites.  We  believe  that  our  non-information
technology systems will be Year 2000 compliant by September 30, 1999 without any
material cost.

         We are conducting an assessment of Year 2000  exposures  related to our
suppliers and customers.  We have identified our key customers and suppliers and
have  requested  information as to the Year 2000  compliance of such  customers.
With key  vendors we have  requested  written  assurances  as to their Year 2000
compliance.  In the event any of these  vendors  should  become  unavailable  to
provide  goods or  services  to us,  we  believe  there are  alternate  sources.
Although no  contingency  plans or  alternative  sources have been  developed to
date, we will begin to formulate such plans as we ascertain the  preparedness of
our customers and suppliers. In the event any of our vendors should be Year 2000
noncompliant,  we believe it is likely  that we have no legal  remedies  against
them.

         We anticipate  that all of our internal  systems and equipment  will be
Year 2000 compliant by the end of the third quarter of 1999. We believe that the
total costs  associated  with  modifying  our  existing  systems will not have a
material  adverse  effect on our results of operations  or financial  condition.
Nonetheless,  if all Year 2000  issues  are not  adequately  assessed  or if the
necessary  remedial efforts are not implemented on a timely basis, we may not be
Year 2000 compliant  which, in turn, could have a material adverse effect on our
business,  operating results of financial condition. In addition, our operations
may be disrupted in the event our  suppliers or service  providers  are not Year
2000  compliant  and such failure  could have a material  adverse  effect on our
business,  operating  results or financial  condition.  We believe that the most
likely worst-case  scenario arising out of any possible Year 2000 non-compliance
will relate to the operation of well

                                       20

<PAGE>


site equipment.  If this equipment should become  inoperable for reasons related
to its inability to be Year 2000 compliant,  which is not presently anticipated,
our operations and revenues could be materially adversely affected.

INFLATION

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


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

         With the exception of historical matters, the matters discussed in this
Report are "forward-looking statements" as defined under the Securities Exchange
Act of 1934, as amended,  that involve risks and uncertainties.  Forward-looking
statements  include,  but are not  limited  to, the  matters  described  herein,
including  Management's  Discussion  and  Analysis or Plan of  Operations.  Such
forward-looking  statements  relate  to the  Company's  ability  to  attain  and
maintain profitability and cash flow, the stability of and future prices for oil
and gas, the maintenance of current price levels for oil and gas, pricing in the
oil and gas  services  industry,  the  ability of the  Company to compete in the
premium  services  market,  the  decisions  by oil  and  gas  producers  to make
commitments to engage in oil and natural gas well  enhancements,  the ability of
the Company to expand through  acquisitions  and to redeploy its equipment among
regional operations, the ability of the Company to upgrade, modernize and expand
its  equipment,  including  its  wireline  fleet,  the ability of the Company to
expand its tubing conveyed perforating  services,  the ability of the Company to
provide services using the newly acquired state of the art tooling,  the ability
of the  Company  to raise  additional  capital to meet its  requirements  and to
obtain  additional  financing,  the  ability  of  the  Company  to  successfully
implement  its  business  strategy,  the  ability  of the  Company  to  maintain
compliance with the covenants of its various loan documents and other agreements
pursuant to which  securities have been issued 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,
and other  factors  could have a material  adverse  effect on the  Company.  The
Company  cautions  readers that various risk factors  described in the Company's
Annual  Report on Form 10-KSB for the year ended  December  31, 1998 could cause
the Company's operating results to differ materially from those expressed in any
forward-looking  statements made by the Company and could  adversely  affect the
Company's  financial  condition and its ability to pursue its business strategy.
Readers  should  refer to the Annual  Report on Form 10-KSB and the risk factors
discussed therein.


PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         The  Company is a defendant  in a lawsuit  served on the Company on May
10, 1999 instituted in the District Court,  Montgomery County, Texas by Bendover
Company (formerly known as Diamondback  Directional,  Inc.). In the action,  the
plaintiff  is  seeking  to  recover  the  sum  of  $3,070,301,   plus  interest,
post-default interest and attorney's fees, on a promissory note of the

                                       21


<PAGE>


Company date September 1, 1997. The promissory  note was executed by the Company
in connection with the purchase of the assets of the plaintiff.  The Company has
filed an answer interposing defenses to the lawsuit and asserting counterclaims.
The  Company  is unable to state at this time  whether or not the  plaintiff  is
likely to be successful in its action or the likelihood  that the  counterclaims
intended to be asserted by the Company will be  successful.  The Company and the
plaintiff  are currently  engaged in  negotiations  to resolve this  litigation:
there can be no assurance that these negotiations will be successful.

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

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

         The  Company 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  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 judgements may not
be entered against the Company arising out of such lawsuits, if instituted.

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

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

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

         Commencing in April 1999,  the Company  offered to the  subscribers  in
private sales of the Company's securities which occurred in March and April 1998
the right to receive one additional share of the Company's Common Stock for each
share purchased in the private sale. In exchange,  the subscribers were asked to
release the Company from all claims arising out of subscribers' allegations that
the Company breached its agreement to register under the Securities Act of 1933,
as

                                       22


<PAGE>


amended (the  "Securities  Act") the public offer and sale of the shares sold to
the subscribers in 1998.  Subscribers alleged that they were unable to liquidate
their  shares  purchased  as they had  expected  because  of the  breach of this
agreement.  The Company disputed the claim on the basis that it had timely filed
a registration  statement relating to the shares in accordance with the terms of
the  agreement.  The  registration  statement  remains  on file but has not been
declared  effective  under the Securities Act. The Company made the offer to the
subscribers in order to resolve the matter.  The offering  terminated on May 28,
1999.

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


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  various  times in 1999,  the
Company has not been in compliance with various covenants in the Loan Agreement.
In July 1999, the Company and Fleet entered into a Second Forbearance Agreement,
Second  Amendment and Waiver to Loan and Security  Agreement  (the  "Forbearance
Agreement") whereby Fleet agreed, among other things, to forebear through August
31, 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 reduced  payments of principal due on its loan during the months
of July and August 1999. The instruments governing the Company's indebtedness to
Fleet impose  significant  operating and financial  restrictions on the Company.
Such restrictions affect, and in many respects  significantly limit or prohibit,
among other things, the ability of the Company to incur additional indebtedness,
pay dividends,  repay indebtedness prior to its stated maturity,  sell assets or
engage in mergers or acquisitions.  These restrictions also limit the ability of
the  Company to effect  future  financing,  make  needed  capital  expenditures,
withstand  a downturn  in the  Company's  business  or economy  in  general,  or
otherwise  conduct  necessary  corporate  activities.  The Loan Agreement places
restrictions on the Company's ability to borrow money under the revolving credit
provisions of the Loan  Agreement.  The  Company's  ability to borrow under this
revolving  credit  arrangement  is  necessary  to  fund  the  Company's  ongoing
operations.  Upon the end of the  forbearance  term  (August 31,  1999),  if the
Company is unable to  refinance  the Fleet debt or agree to modified  terms with
Fleet,  Fleet will have the right to elect to declare all of the funds  borrowed
to be immediately due and payable  together with accrued and unpaid interest and
to refuse to make additional advances under the revolving credit arrangement. In
such event,  there can be no  assurance  that the Company  would be able to make
such payment or borrow  sufficient  funds from  alternative  sources to make any
such  payment.  If the Company was unable to repay all amounts  declared due and
payable under the Loan  Agreement,  Fleet could proceed  against the  collateral
granted to satisfy the indebtedness and other

                                       23


<PAGE>


obligations due and payable.  This collateral includes  substantially all of the
Company's  assets,  not already pledged as collateral for other  indebtedness of
the Company. If the indebtedness owing to Fleet was to be accelerated, there can
be no assurance  that the assets of the Company  would be sufficient to repay in
full such  indebtedness and the Company's other  liabilities.  In addition,  the
acceleration  of the Company's  indebtedness  owing to Fleet would  constitute a
default under other  indebtedness  of the Company which may result in such other
indebtedness   also   becoming   immediately   due  and   payable.   Under  such
circumstances,  the holders of the Company's  Common Stock may realize little or
nothing on their investment in the Company.  Even if additional  financing could
be  obtained,  there  can be no  assurance  that it would  be on terms  that are
favorable  or  acceptable  to the Company or its equity  security  holders.  The
Company is seeking to  refinance  its  indebtedness  owing to Fleet with another
lender.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)      Exhibits

                       27.      Financial Data Schedule

     (b)      Reports on Form 8-K

                       None















                                       24

<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:  August 19,  1999                        /S/  William L. Jenkins
                                    --------------------------------------------
                                                    William L. Jenkins
                                          President and Chief Operating Officer
                                           (Principal Executive, Financial and
                                                  Accounting Officer)









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