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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2002
_______________
COMMISSION FILE NUMBER 1-13817
BOOTS & COOTS INTERNATIONAL
WELL CONTROL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2908692
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 POST OAK BOULEVARD, SUITE 800
HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip Code)
(713) 621-7911
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the Registrant's Common Stock, par value $.00001
per share, outstanding at August 16, 2002, was
44,816,723.
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
(UNAUDITED)
PAGE
-----
Item 1. Financial Information . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations . . . . . . . 4
Condensed Consolidated Statements of Stockholders' Equity . . 5
Condensed Consolidated Statements of Cash Flows . . . . . . . 6
Notes to Condensed Consolidated Financial Statements. . . . . 7-12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . .12-19
Item 3. Quantitative and Qualitative Disclosures about Market Risk. . 19
PART II
OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 19
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . 20
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . 20
Item 4. Submissions of Matters to a Vote of Security Holders. . . . . 20
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . .20-23
2
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31, JUNE 30,
2001 2002
-------------- --------------
(UNAUDITED)
CURRENT ASSETS:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 303,000 $ 262,000
Receivables - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,557,000 3,323,000
Restricted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,353,000 905,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,000 -
Assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . 6,756,000 1,942,000
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . 843,000 289,000
-------------- --------------
Total current assets. . . . . . . . . . . . . . . . . . . . 12,950,000 6,721,000
-------------- --------------
PROPERTY AND EQUIPMENT - net. . . . . . . . . . . . . . . . . . . . . . . . . 4,613,000 3,996,000
OTHER ASSETS:
Deposits and other - net. . . . . . . . . . . . . . . . . . . . . . . . . . 191,000 67,000
-------------- --------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . $ 17,754,000 $ 10,784,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short term debt and current maturities of long-term debt and notes payable. $ 1,025,000 $ 1,994,000
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,155,000 2,624,000
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,481,000 4,059,000
Liabilities of discontinued operations. . . . . . . . . . . . . . . . . . . 3,004,000 2,940,000
-------------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . 9,665,000 11,617,000
-------------- --------------
LONG-TERM DEBT AND NOTES PAYABLE - net of current
maturities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,520,000 12,520,000
Total liabilities . . . . . . . . . . . . . . . . . . . . . 22,185,000 24,137,000
-------------- --------------
COMMITMENTS AND CONTINGENCIES . . . . . . . . . . . . . . . . . . . . . . . . - -
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock ($.00001 par, 5,000,000 shares authorized,
327,123 and 319,563 shares issued and outstanding
at December 31, 2001 and June 30, 2002, respectively). . . . . . . . . . - -
Common stock ($.00001 par, 125,000,000 shares authorized,
41,442,285 and 44,245,256 shares issued and outstanding
at December 31, 2001 and June 30, 2002, respectively). . . . . . . . . . - -
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . 56,659,000 58,319,000
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (61,090,000) ( 71,672,000)
-------------- --------------
Total stockholders' equity (deficit). . . . . . . . . . . . (4,431,000) (13,353,000)
-------------- --------------
Total liabilities and stockholders' equity (deficit). . . . $ 17,754,000 $ 10,784,000
============== ==============
See accompanying notes to condensed consolidated financial statements.
3
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------------
2001 2002 2001 2002
------------ ------------ ------------ -------------
REVENUES. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,087,000 $ 3,984,000 $ 9,210,000 $ 7,994,000
COSTS AND EXPENSES:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . 809,000 1,890,000 1,448,000 3,259,000
Operating expenses. . . . . . . . . . . . . . . . . . . . . . 1,177,000 1,747,000 2,299,000 3,373,000
Selling, general and administrative . . . . . . . . . . . . . 748,000 734,000 1,551,000 1,413,000
Depreciation and amortization . . . . . . . . . . . . . . . . 397,000 288,000 661,000 574,000
------------ ------------ ------------ -------------
3,131,000 4,659,000 5,959,000 8,619,000
------------ ------------ ------------ -------------
OPERATING INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . 1,956,000 (675,000) 3,251,000 (625,000)
INTEREST EXPENSE (INCOME) AND OTHER . . . . . . . . . . . . . . 531,000 905,000 508,000 1,005,000
------------ ------------ ------------ -------------
INCOME (LOSS) FROM CONTINUED OPERATIONS, before
income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 1,425,000 (1,580,000) 2,743,000 (1, 630,000)
INCOME TAX EXPENSE. . . . . . . . . . . . . . . . . . . . . . . - 158,000 - 173,000
------------ ------------ ------------ -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS. . . . . . . . . . . . 1,425,000 (1,738,000) 2,743,000 (1,803,000)
Loss from discontinued operations net of income taxes of zero. (449,000) (5,422,000) (1,000,000) (7,187,000)
------------ ------------ ------------ -------------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . 976,000 (7,160,000) 1,743,000 (8,990,000)
PREFERRED DIVIDEND REQUIREMENTS AND ACCRETIONS. . . . . . . . . 694,000 762,000 1,428,000 1,592,000
------------ ------------ ------------ -------------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS . . . . . $ 282,000 $(7,922,000) $ 315,000 $(10,582,000)
============ ============ ============ =============
Basic Earnings (Loss) per Common Share:
Continuing Operations . . . . . . . . . . . . . . . . . . . . $ 0.02 $ (0.06) $ 0.03 $ (0.08)
============ ============ ============ =============
Discontinued Operations . . . . . . . . . . . . . . . . . . . $ (0.01) $ (0.13) $ (0.02) $ (0.17)
============ ============ ============ =============
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . $ 0.01 $ (0.19) $ 0.01 $ (0.25)
============ ============ ============ =============
Weighted Average Common Shares Outstanding - Basic. . . . . . . 40,522,000 42,180,000 39,051,000 41,811,000
============ ============ ============ =============
Diluted Earnings (Loss) per Common Share:
Continuing Operations . . . . . . . . . . . . . . . . . . . . $ 0.02 $ (0.06) $ 0.03 $ (0.08)
============ ============ ============ =============
Discontinued Operations . . . . . . . . . . . . . . . . . . . $ (0.01) $ (0.13) $ (0.02) $ (0.17)
============ ============ ============ =============
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . $ 0.01 $ (0.19) $ 0.01 $ (0.25)
============ ============ ============ =============
Weighted Average Common Shares Outstanding - Diluted. . . . . . 41,344,000 42,180,000 40,650,000 41,811,000
============ ============ ============ =============
See accompanying notes to condensed consolidated financial statements.
4
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
SIX MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCKHOLDERS'
----------------- ------------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
-------- ------- ---------- ------- ----------- ------------- -------------
BALANCES, December 31, 2001 . . . . . 327,123 $ - 41,442,285 $ - $56,659,000 $(61,090,000) $ (4,431,000)
Warrant discount
Accretion . . . . . . . . . . . . - - - - 26,000 (26,000) -
Preferred stock
dividends accrued . . . . . . . . 13,024 - - - 1,566,000 (1,566,000) -
Preferred stock converted to
common. . . . . . . . . . . . . . (20,022) - 2,669,637 - - - -
Preferred stock cancelled . . . . . (750) - - - - - -
Preferred stock issued for
settlements . . . . . . . . . . . 188 - - - 19,000 - 19,000
Common stock issued . . . . . . . . - - 133,334 - 49,000 - 49,000
Net loss. . . . . . . . . . . . . . - - - - - (8,990,000) (8,990,000)
-------- ------- ---------- ------- ----------- ------------- -------------
BALANCES, June 30, 2002. . . . . . . 319,563 $ - 44,245,256 $ - $58,319,000 $(71,672,000) $(13,353,000)
======== ======= ========== ======= =========== ============= =============
See accompanying notes to condensed consolidated financial statements.
5
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------------
2001 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,743,000 $(8,990,000)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . 661,000 574,000
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . 286,000 -
Loss on sale of assets . . . . . . . . . . . . . . . . . . . . - 45,000
Equity issued for services and settlements . . . . . . . . . . 54,000 -
Loss on reserve for discontinued operations. . . . . . . . . . - 3,495,000
------------ ------------
Net cash provided by (used in) operating activities before
changes in operating assets and liabilities:. . . . . . . . 2,744,000 (4,876,000)
Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . (3,825,000) 234,000
Restricted Assets. . . . . . . . . . . . . . . . . . . . . . . - 448,000
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . - 138,000
Prepaid expenses and other current assets. . . . . . . . . . . 118,000 554,000
Net assets/liabilities of discontinued operations. . . . . . . 2,000 1,255,000
Deferred financing costs and other assets. . . . . . . . . . . - 124,000
Accounts payable and accrued liabilities . . . . . . . . . . . 503,000 1,170,000
------------ ------------
Net cash used in operating activities. . . . . . . . . . . . . (458,000) (953,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions . . . . . . . . . . . . . . . (4,000) (99,000)
Proceeds from sale of property and equipment . . . . . . . . . 1,000 42,000
------------ ------------
Net cash used in investing activities. . . . . . . . . . . . . (3,000) (57,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from pledging arrangement . . . . . . . . . . . . . . - 969,000
------------ ------------
Net cash provided by financing activities. . . . . . . . . . . - 969,000
------------ ------------
Net decrease in cash and cash equivalents. . . . . . . . . . . (461,000) (41,000)
CASH AND CASH EQUIVALENTS, Beginning of Period. . . . . . . . . . . 1,409,000 303,000
------------ ------------
CASH AND CASH EQUIVALENTS, End of Period. . . . . . . . . . . . . . $ 948,000 $ 262,000
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . $ 6,000 $ 21,000
Cash paid for income taxes . . . . . . . . . . . . . . . . . . - -
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Transaction costs of convertible debt financing. . . . . . . . 101,000 -
Common stock issued for services and settlements . . . . . . . 575,000 49,000
Stock and warrant accretions . . . . . . . . . . . . . . . . . 27,000 26,000
Preferred stock dividends accrued . . . . . . . . . . . . . . 1,401,000 1,566,000
See accompanying notes to condensed consolidated financial statements.
6
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
A. GOING CONCERN
During the first half of 2002, demand for the Company's services declined
as overall industry conditions weakened. In response, the Company discontinued
certain of its operations resulting in a loss from discontinued operations of
$7.2 million. The Company's continuing operations incurred a $1.8 million loss
for the six months ended June 30, 2002. These losses further impair the
Company's liquidity position and hamper the Company's capacity to pay vendors on
a timely basis, obtain materials and supplies, and otherwise conduct effective
or efficient operations. To date, however, the Company has not been limited in
its ability to respond to critical well events.
The Company continues to experience severe working capital constraints. As
of June 30, 2002, the Company's current assets totaled approximately $6,721,000
and current liabilities were $11,617,000, resulting in a net working capital
deficit of approximately $4,896,000 (compared to a beginning year working
capital of $3,285,000). The Company's highly liquid current assets, represented
by cash of $262,000 and receivables and restricted assets of $4,228,000 were
collectively $7,127,000 less than the amount of current liabilities at June 30,
2002 (compared to a beginning year deficit of $4,452,000). The Company is
actively exploring new sources of financing, including the establishment of new
credit facilities and the issuance of debt and/or equity securities. During
April and May 2002, the Company entered into loan participation agreements with
certain parties under which it borrowed an additional $1,000,000 under the
Senior Secured Loan Facility. The participation agreements have an initial
maturity of 90 days, which have been extended for an additional 90 days at the
Company's option.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. However, the
uncertainties surrounding the sufficiency and timing of its future cash flows
and the lack of firm commitments for additional capital raise substantial doubt
about the ability of the Company to continue as a going concern. The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset carrying amounts or the
amount and classification of liabilities that might result should the Company be
unable to continue as a going concern.
B. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all
information and notes required by generally accepted accounting principles for
complete annual financial statements. The accompanying consolidated financial
statements include all adjustments, including normal recurring accruals, which,
in the opinion of management, are necessary in order to make the consolidated
financial statements not be misleading. The unaudited consolidated financial
statements and notes thereto and the other financial information contained in
this report should be read in conjunction with the audited financial statements
and notes in the Company's annual report on Form 10-K for the year ended
December 31, 2001, and those reports filed previously with the Securities and
Exchange Commission ("SEC"). The results of operations for the three month and
six month periods ended June 30, 2001 and 2002 are not necessarily indicative of
the results to be expected for the full year. Certain reclassifications have
been made to the prior periods to conform to the current presentation.
C. RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets." Under SFAS No. 142, goodwill and intangible assets
with indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives (with no maximum life). The amortization
provisions of SFAS No. 142 apply to goodwill and intangible assets acquired
after June 30, 2001. With respect to goodwill and intangible assets
attributable to acquisitions prior to July 1, 2001, the amortization provisions
of SFAS No. 142 were effective January 1, 2002. The Company adopted SFAS No.
142, on January 1, 2002 and applied this accounting method in determining the
losses from operations at June 30, 2002.
7
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" which covers all legally enforceable obligations
associated with the retirement of tangible long-lived assets and provides the
accounting and reporting requirements for such obligations. SFAS No. 143 is
effective for the Company beginning January 1, 2003. Management has yet to
determine the impact that the adoption of SFAS No. 143 will have on the
Company's consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". SFAS No. 144 establishes a single accounting method for
long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired, and extends the presentation of discontinued operations to
include more disposal transactions. SFAS No. 144 also requires that an
impairment loss be recognized for assets held-for-use when the carrying amount
of an asset is not recoverable. The carrying amount of an asset is not
recoverable if it exceeds the sum of the undiscounted cash flows expected to
result from the use and eventual disposition of the asset, excluding interest
charges. Estimates of future cash flows used to test the recoverability of a
long-lived asset must incorporate the entity's own assumptions about its use of
the asset and must factor in all available evidence. The Company adopted SFAS
No. 144, on January 1, 2002 and applied this accounting method in determining
the losses from operations at June 30, 2002.
In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS No. 4, 44
and 64, Amendment of SFAS Statement No. 13, and Technical Corrections." This
statement rescinds the following statement of SFAS 4, "Reporting Gains and
Losses from Extinguishment of Debt," and its amendment SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking Fund Requirements," as well as,
SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers". The statement
also amends SFAS No. 13, "Accounting for Leases", by eliminating an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS No. 145 is
effective for fiscal years beginning after May 15, 2002. Management does not
believe that this statement will have a material impact on the results of
operations or financial conditions of the Company.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which nullifies Emerging Issues
Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring)." Under the terms of SFAS No. 146, the
statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred rather than at
the date an entity commits to an exit plan. The effective date of the statement
is for exit or disposal activities initiated after December 31, 2002 with early
application encouraged. The Company elected early adoption for its current
period disposal activities and the adoption had no significant impact on the
results of operation and financial position of the Company.
D. DISCONTINUED OPERATIONS
On September 28, 2000, the Company announced that it closed the sale of the
assets of the Baylor Company and its subsidiaries to National Oilwell, Inc. The
proceeds from the sale were approximately $29,000,000 in cash. Comerica
Bank-Texas, the Company's primary senior secured lender at the time, was paid in
full as a component of the transaction. For the six months ended June 30, 2001,
the Company recorded $300,000 of gain due to the subsequent collection of
receivables that were over 90 days old at the time of the sale.
On June 30, 2002, the Company made the decision and formalized a plan to
sell the assets of its Special Services and Abasco operations. The anticipated
sales proceeds will be approximately $700,000. The operations of these two
companies are reflected as discontinued operations on the condensed consolidated
statements of operations and as assets and liabilities of discontinued
operations on the condensed consolidated balance sheets. A non-cash charge of
$3,495,000 is included in the condensed consolidated financial statements to
write down the net assets of these operations to their estimated fair market
value less cost of sale.
8
The following represents a condensed detail of assets and liabilities
adjusted for write downs:
DECEMBER 31, JUNE 30,
2001 2002
------------- ------------
(UNAUDITED)
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,000 $ 3,000
Receivables - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,637,000 686,000
Restricted assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,386,000 637,000
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283,000 200,000
Property, plant and equipment - net. . . . . . . . . . . . . . . . . . . . 1,599,000 416,000
Goodwill - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,845,000 -
------------- ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 6,756,000 $ 1,942,000
============= ============
Short term debt and current maturities of long-term debt and notes payable $ 1,178,000 $ 541,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,708,000 1,443,000
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,000 956,000
------------- ------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . $ 3,004,000 $ 2,940,000
============= ============
Charges to income related to the six month period ended June 30, 2002:
Goodwill write down $1,845,000
Property, plant and equipment write down to fair value 836,000
Inventory write down to fair value 65,000
Future lease costs, net of estimated sublease proceeds 486,000
Severance costs 143,000
Other accruals 120,000
----------
3,495,000
Six months loss from operations 3,692,000
----------
Total charge to discontinued operations $7,187,000
==========
E. LONG-TERM DEBT AND NOTES PAYABLE AND OTHER FINANCINGS
The Subordinated Note Restructuring Agreement between the Company and The
Prudential Insurance Company of America contains customary affirmative and
negative covenants, including that the Company not permit the ratio of its total
debt to earnings before interest, taxes, depreciation and amortization (EBITDA)
for the trailing twelve months to be greater than 3.25 to 1 or the ratio of its
EBITDA to consolidated interest expense to be less than 2.9 to 1. On March 29,
2002 and on June 29, 2002, Prudential agreed to waive compliance with the ratio
tests for the twelve months ended March 31, 2002 and June 30 2002, respectively.
Significant improvements in the Company's operating performance during the
current quarter, or a modification or waiver of the ratio tests, will be
required for the Company to regain compliance for the twelve months ended
September 30, 2002. The Company does not have a commitment from Prudential that
it will modify or waive compliance with these tests in the future.
Prudential also agreed to modifications to the Subordinated Note
Restructuring Agreement to accommodate up to $5 million in borrowings under the
KBK facility and an aggregate of $6 million under the Company's existing senior
credit facility or a new senior credit facility. The Company has agreed to pay
Prudential a fee of $100,000 in connection with the waiver of financial
covenants required with the recent participations in the existing credit
facility (as discussed below and in Note I). This amount has been charged to
interest expense for the six months ended June 30, 2002.
On April 9, 2002, the Company entered into a loan participation agreement
with certain parties under which it borrowed an additional $750,000 under its
existing Senior Secured Loan Facility with Specialty Finance Fund I, LLC. The
effective interest rate of the participation is 11% after taking into account
rate adjustment fees. The Company also paid 3% of the borrowed amount in
origination fees, paid closing expenses and issued 100,000 shares of common
stock to the participation lender at closing. The participation has an initial
maturity of 90 days, which may be extended for an additional 90 days at the
Company's option. On July 9, 2002, the Company exercised its option to extend
the participation 90 days and issued an additional 100,000 shares of common
stock to the participation lender.
On May 2, 2002, the Company borrowed $250,000 under the Senior Secured Loan
Facility upon similar terms, and issued 33,334 shares of common stock to the
participation lenders at closing. The Company has amended the Senior Secured
Loan Facility to reflect these additional participations in the facility. On
August 2, 2002, the Company exercised its option to extend the participation 90
days and issued an additional 33,334 shares of common stock to the participation
lenders.
9
F. COMMITMENTS AND CONTINGENCIES
The Company's subsidiary ITS Supply Corporation ("ITS") filed in Corpus
Christi, Texas on May 18, 2000, for protection under Chapter 11 of the U.S.
Bankruptcy Code. ITS is now proceeding to liquidate its assets and liabilities
pursuant to Chapter 7 of Title 11. At the time of the filing, ITS had total
liabilities of approximately $6,900,000 and tangible assets of approximately
$950,000. The Company had an outstanding guaranty on ITS debt upon which a
judgment against the Company was entered by a state district court in the amount
of approximately $1,833,000. The judgment was paid in full on August 31, 2001.
On April 27, 2001, in the United States Bankruptcy Court for the Southern
District of Texas, the Chapter 7 Trustee in the bankruptcy proceeding of ITS
Supply Corporation, the Company's subsidiary, filed a complaint against Comerica
Bank-Texas, the Company and various subsidiaries of the Company for a formal
accounting of all lockbox transfers that occurred between ITS and Comerica Bank,
et al and all intercompany transfers between ITS and the Company and its
subsidiaries to determine if any of the transfers are avoidable under Federal or
state statutes and seeking repayment to ITS of all such amounts. The Trustee
asserts that approximately $400,000 of lockbox transfers and $3,000,000 of
intercompany transfers were made between the parties.
The Company does not believe it is likely that an accounting of the
transactions between the parties will demonstrate there is a liability owing by
the Company to the ITS Chapter 7 estate. However, there is no assurance that the
Company will not be found liable. To provide security to Comerica Bank for any
potential claims by the Chapter 7 trustee, the Company has pledged a $350,000
certificate of deposit in favor of Comerica Bank. This amount has been
classified as a restricted asset on the balance sheet as of December 31, 2001
and June 30, 2002.
In September 1999, a lawsuit styled Jerry Don Calicutt, Jr., et al., v.
Larry H. Ramming, et al., was filed against the Company, certain of its
subsidiaries, Larry H. Ramming, certain other employees of the Company, and
several entities affiliated with Larry H. Ramming in the 269th Judicial District
Court, Harris County, Texas. The plaintiffs allege various causes of action,
including fraud, breach of contract, breach of fiduciary duty and mismanagement
relating to the acquisition of stock of a corporation by the name of Emergency
Resources International, Inc. ("ERI") by a corporation affiliated with Larry H.
Ramming and the circumstances relating to the founding of the Company. In July
2002, the Company agreed to pay $500,000 in cash in four installments, the last
installment being due in January 2003, in partial settlement of the plaintiff's
claims against all of the defendants. As to the remaining claims, the
defendants have filed motions for summary judgment that have been set for oral
argument on August 23, 2002. The Company intends to continue to vigorously
defend against the remaining claims.
The Company is involved in or threatened with various other legal
proceedings from time to time arising in the ordinary course of business. The
Company does not believe that any liabilities resulting from any such
proceedings will have a material adverse effect on its operations or financial
position.
G. EARNINGS PER SHARE
The weighted average number of shares used to compute basic and diluted
earnings per share for the three and six month periods ended June 30, 2001 and
2002, respectively, is illustrated below:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- --------------------------
2001 2002 2001 2002
----------- ------------ ----------- -------------
Numerator:
For basic and diluted earnings per share-
Net Income (Loss) Attributable to
Common Shareholders $ 282,000 $(7,922,000) $ 315,000 $(10,582,000)
=========== ============ =========== =============
Denominator:
For basic earnings per share-
Weighted-average shares 40,522,000 42,180,000 39,051,000 41,811,000
Effect of dilutive securities:
Preferred stock conversions, stock options
and warrants 822,000 - 1,599,000 -
----------- ------------ ----------- -------------
Denominator:
For diluted earnings per share -
Weighted-average shares and
assumed conversions 41,344,000 42,180,000 40,650,000 41,811,000
=========== ============ =========== =============
10
For the three and six months ended June 30, 2002, the Company incurred a
loss to common stockholders before consideration of the loss from discontinued
operations. At June 30, 2002, the exercise price of the Company's stock options
and stock warrants varied from $0.43 to $5.00 per share. The Company's
convertible securities have conversion prices that range from $0.75 to $2.75,
or, in certain cases, are based on a percentage of the market price for the
Company's common stock. Assuming that the exercise and conversions were made at
the lowest price provided under the terms of their agreements, the maximum
number of potentially dilutive securities at June 30, 2002 would include: (1)
7,660,000 common shares issuable upon exercise of stock options, (2) 35,533,000
common shares issuable upon exercise of stock purchase warrants, (3) 1,333,000
common shares issuable upon conversion of senior convertible debt, and (4)
37,354,000 common shares issuable upon conversion of convertible preferred
stock. The actual number may be substantially less depending on the market price
of the Company's common stock at the time of conversion. These securities were
not included in the calculation of diluted earnings per share, because to do so
would have been antidilutive for the periods presented.
For the three and six months ended June 30, 2001, there were (1) 7,913,000
common shares issuable upon exercise of stock options, (2) 34,226,000 and
33,441,000, respectively, of common shares issuable upon exercise of stock
purchase warrants, (3) 1,680,000 common shares issuable upon conversion of
senior convertible debt, and (4) 25,508,000 common shares issuable upon
conversion of convertible preferred stock that were not included in the
computation of earnings per share because to do so would have been antidilutive
for the periods presented.
H. BUSINESS SEGMENT INFORMATION
On January 1, 2001, the Company redefined the segments in which it operates
as a result of the discontinued operations of ITS and Baylor business operations
and further redefined the segments on June 30, 2002, as a result of the decision
to discontinue its Abasco and Special Services business operations. The current
segments are Prevention and Response. Intercompany transfers between segments
were not material. The accounting policies of the operating segments are the
same as those described in the summary of significant accounting policies. For
purposes of this presentation, general and corporate expenses have been
allocated between segments on a pro rata basis based on revenue. ITS, Baylor,
Abasco and Special Services are presented as discontinued operations in the
condensed consolidated financial statements and are therefore excluded from the
segment information for all periods presented.
The Prevention segment consists of "non-event" services that are designed
to reduce the number and severity of critical well events to oil and gas
operators. The scope of these services include training, contingency planning,
well plan reviews, services associated with the Company's Safeguard programs and
services in conjunction with the WELLSURE(R) risk management program. All of
these services are designed to significantly reduce the risk of a well blowout
or other critical response event.
The Response segment consists of personnel and equipment services provided
during an emergency response such as a critical well event or a hazardous
material response. These services are designed to minimize response time and
damage while maximizing safety. Response revenues typically provide high gross
profit margins.
Information concerning operations in the two business segments for the
three and six months ended June 30, 2001 and 2002 is presented below. General
and corporate are included in the calculation of identifiable assets and are
included in the Prevention and Response segments.
PREVENTION RESPONSE CONSOLIDATED
------------ ------------ --------------
Three Months Ended June 30, 2001:
Net Operating Revenues . . . . . $ 481,000 $ 4,606,000 $ 5,087,000
Operating Income (Loss). . . . . (75,000) 2,031,000 1,956,000
Identifiable Operating Assets. . 3,114,000 14,640,000 17,754,000
Capital Expenditures . . . . . . - 2,000 2,000
Depreciation and Amortization. . 33,000 364,000 397,000
Interest Expense . . . . . . . . 16,000 93,000 109,000
Three Months Ended June 30, 2002:
Net Operating Revenues . . . . . $ 2,537,000 $ 1,447,000 $ 3,984,000
Operating Income (Loss). . . . . (475,000) (200,000) (675,000)
Identifiable Operating Assets. . 5,775,000 5,029,000 10,784,000
Capital Expenditures . . . . . . - 61,000 61,000
Depreciation and Amortization. . 182,000 106,000 288,000
Interest Expense . . . . . . . . 170,000 120,000 290,000
11
PREVENTION RESPONSE CONSOLIDATED
------------ ------------ --------------
Six Months Ended June 30, 2001:
Net Operating Revenues . . . . $ 1,615,000 $ 7,595,000 $ 9,210,000
Operating Income . . . . . . . 251,000 3,000,000 3,251,000
Identifiable Operating Assets. 3,114,000 14,640,000 17,754,000
Capital Expenditures . . . . . - 4,000 4,000
Depreciation and Amortization. 102,000 559,000 661,000
Interest Expense . . . . . . . 24,000 115,000 139,000
Six Months Ended June 30, 2002:
Net Operating Revenues . . . . $ 4,266,000 $ 3,728,000 $ 7,994,000
Operating Income (Loss). . . . (370,000) (255,000) (625,000)
Identifiable Operating Assets. 5,775,000 5,029,000 10,784,000
Capital Expenditures . . . . . - 99,000 99,000
Depreciation and Amortization. 291,000 283,000 574,000
Interest Expense . . . . . . . 143,000 169,000 312,000
For the three month and six month periods ended June 30, 2001 the Company's
revenue from foreign sources included 35% and 20% foreign sales respectively,
while the three and six month periods ended June 30, 2002 included 41% and 34%,
respectively.
I. SUBSEQUENT EVENTS
On July 5, 2002, the Company entered into a loan participation agreement
with certain parties under which it borrowed an additional $100,000 under its
existing Senior Secured Loan Facility with Specialty Finance Fund I, LLC. The
effective interest rate of the participation is 25% after taking into account
rate adjustment fees. The Company also paid 3% of the borrowed amount in
origination fees, paid closing expenses and issued 130,000 shares of common
stock to the participation lender at closing. The participation has a maturity
of 90 days.
On July 8, 2002, the Company entered into a loan participation agreement
with certain parties under which it borrowed an additional $200,000 under its
existing Senior Secured Loan Facility with Specialty Finance Fund I, LLC. The
effective interest rate of the participation is 16% after taking into account
rate adjustment fees. The Company also paid 4% of the borrowed amount in
origination fees, paid closing expenses and issued 150,000 shares of common
stock to the participation lender at closing. The participation has a maturity
of 90 days.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ from those projected in any forward-looking
statements for the reasons detailed in this report. The forward-looking
statements contained herein are made as of the date of this report and the
Company assumes no obligation to update such forward-looking statements, or to
update the reasons why actual results could differ from those projected in such
forward-looking statements. Investors should consult the information set forth
from time to time in the Company's reports on Forms 10-K, 10-Q and 8-K, and its
Annual Report to Stockholders.
OVERVIEW
On January 1, 2001, the Company redefined the segments that it operates in
as a result of the discontinuation of ITS and Baylor, and on June 30, 2002,
Abasco and Special Services business operations. All of these operations are
presented as a discontinued operation in the consolidated financial statements
and therefore are excluded from the segment information for all periods. The
current segments are Prevention and Response. Intercompany transfers between
segments were not material. The accounting policies of the operating segments
are the same as those described in the summary of significant accounting
policies. For purposes of this presentation, selling, general and administrative
and corporate expenses have been allocated between segments on a pro rata basis
based on revenue. Business segment operating data from continuing operations is
presented for purposes of discussion and analysis of operating results.
12
Most of the Company's operating expenses represent fixed costs for base
labor charges, rent and utilities. Consequently, operating expenses increase
only slightly as a result of responding to a critical event. In the past, during
periods of few critical events, resources dedicated to emergency response were
underutilized or, at times, idle, while the fixed costs of operations continued
to be incurred, contributing to significant operating losses. To mitigate these
consequences, the Company is actively expanding its non-event service
capabilities. These services primarily utilize existing personnel resources to
maximize utilization with only slight increases in fixed operating costs.
The Prevention segment consists of "non-event" services that are designed
to reduce the number and severity of critical well events to oil and gas
operators. These services include training, contingency planning, well plan
reviews, services associated with the Company's Safeguard programs and service
fees in conjunction with the WELLSURE(R) risk management program. All of these
services are designed to significantly reduce the risk of a well blowout or
other critical response event.
The Response segment consists of personnel and equipment services provided
during an emergency, such as a critical well event or a hazardous material
response. The services provided are designed to minimize response time and
damage while maximizing safety. Response revenues typically provide high gross
profit margins.
AMERICAN STOCK EXCHANGE LISTING
The American Stock Exchange ("AMEX") by letter dated March 15, 2002,
required the Company to submit a reasonable plan to regain compliance with
AMEX's continued listing standards by December 31, 2002. On April 15, 2002, the
Company submitted a plan that included interim milestones that the Company would
be required to meet to remain listed. AMEX subsequently notified the Company
that its plan had been accepted; however, the Company subsequently submitted an
amendment to the plan to take into account, among other things, the Company's
recently announced restructuring initiatives. The Company believes its amended
plan, as submitted, meets AMEX requirements but has not yet been advised by AMEX
whether or not it approves of the amended plan.
If AMEX does not accept the Company's plan or the Company fails to meet the
milestones contained in the plan, AMEX has indicated that it may institute
immediate delisting proceedings. Similarly, if the Company otherwise fails to
achieve compliance with AMEX continued listing standards by December 31, 2002,
as reflected in its audited financial statements for the year then ended, AMEX
has indicated that it may institute immediate delisting proceedings.
AMEX continued listing standards require that listed companies maintain
stockholders equity of $2,000,000 or more if the Company has sustained operating
losses from continuing operations or net losses in two of its three most recent
fiscal years or stockholders equity of $4,000,000 or more if it has sustained
operating losses from continuing operations or net losses in three of its four
most recent fiscal years. Further, the AMEX will normally consider delisting
companies that have sustained losses from continuing operations or net losses in
their five most recent fiscal years or that have sustained losses that are so
substantial in relation to their operations or financial resources, or whose
financial resources, or whose financial condition has become so impaired, that
it appears questionable, in the opinion of AMEX, as to whether the company will
be able to continue operations or meet its obligations as they mature.
CRITICAL ACCOUNTING POLICIES
In response to the SEC's Release No. 33-8040, "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies," the Company has identified the
accounting principles which it believes are most critical to its reported
financial status by considering accounting policies that involve the most
complex or subjective decisions or assessment. The Company identified its most
critical accounting policies to be those related to revenue recognition,
allowance for doubtful accounts and income taxes.
Revenue Recognition - Revenue is recognized on the Company's service
contracts primarily on the basis of contractual day rates as the work is
completed. Revenue and cost from product and equipment sales is recognized upon
customer acceptance and contract completion.
13
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs and depreciation costs. General and administrative
costs are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.
The Company recognizes revenues under the WELLSURE(R) program as follows:
(a) initial deposits for pre-event type services are recognized ratably over the
life of the contract period, typically twelve months (b) revenues and billings
for pre-event type services provided are recognized when the insurance carrier
has billed the operator and the revenues become determinable and (c) revenues
and billings for contracting and event services are recognized based upon
predetermined day rates of the Company and sub-contracted work as incurred.
When the Company responds to a critical event under the WELLSURE(R) program, the
Company acts as a general contractor and engages third party service providers.
The Company records revenue related to general contracting services net of the
cost of third party service providers.
Allowance for Doubtful Accounts - The Company performs ongoing evaluations
of its customers and generally does not require collateral. The Company
assesses its credit risk and provides an allowance for doubtful accounts for any
accounts which it deems doubtful of collection.
Income Taxes - The Company accounts for income taxes pursuant to SFAS No.
109, "Accounting For Income Taxes," which requires recognition of deferred
income tax liabilities and assets for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. Deferred income tax liabilities and assets are determined based on the
temporary differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities and available tax carry forwards.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the unaudited consolidated financial statements and notes thereto and the other
financial information included in this report and contained in the Company's
periodic reports previously filed with the SEC.
Information concerning operations in different business segments for the
three and six months ended June 30, 2001 and 2002 is presented below. Certain
reclassifications have been made to the prior periods to conform to the current
presentation.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -----------------------
2001 2002 2001 2002
----------- ----------- ---------- -----------
REVENUES
Prevention . . . . . . . . . . . . $ 481,000 $2,537,000 $1,615,000 $4,266,000
Response . . . . . . . . . . . . . 4,606,000 1,447,000 7,595,000 3,728,000
----------- ----------- ---------- -----------
$5,087,000 $3,984,000 $9,210,000 $7,994,000
----------- ----------- ---------- -----------
COST OF SALES
Prevention . . . . . . . . . . . . $ 324,000 $1,172,000 $ 469,000 $1,588,000
Response . . . . . . . . . . . . . 485,000 718,000 979,000 1,671,000
----------- ----------- ---------- -----------
$ 809,000 $1,890,000 $1,448,000 $3,259,000
----------- ----------- ---------- -----------
OPERATING EXPENSES (1)
Prevention . . . . . . . . . . . . $ 148,000 $1,197,000 $ 521,000 $2,003,000
Response . . . . . . . . . . . . . 1,029,000 550,000 1,778,000 1,370,000
----------- ----------- ---------- -----------
$1,177,000 $1,747,000 $2,299,000 $3,373,000
----------- ----------- ---------- -----------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (2)
Prevention . . . . . . . . . . . . $ 51,000 $ 461,000 $ 272,000 $ 754,000
Response . . . . . . . . . . . . . 697,000 273,000 1,279,000 659,000
----------- ----------- ---------- -----------
$ 748,000 $ 734,000 $1,551,000 $1,413,000
----------- ----------- ---------- -----------
DEPRECIATION AND AMORTIZATION (3)
Prevention . . . . . . . . . . . . $ 33,000 $ 182,000 $ 102,000 $ 291,000
Response . . . . . . . . . . . . . 364,000 106,000 559,000 283,000
----------- ----------- ---------- -----------
$ 397,000 $ 288,000 $ 661,000 $ 574,000
----------- ----------- ---------- -----------
OPERATING INCOME (LOSS)
Prevention . . . . . . . . . . . . $ (75,000) $ (475,000) $ 251,000 $ (370,000)
Response . . . . . . . . . . . . . 2,031,000 (200,000) 3,000,000 (255,000)
----------- ----------- ---------- -----------
$1,956,000 $ (675,000) $3,251,000 $ (625,000)
----------- ----------- ---------- -----------
(1) Operating expenses have been allocated pro rata between segments based
upon relative revenues.
(2) Corporate selling, general and administrative expenses have been
allocated pro rata between segments based upon relative revenues.
(3) Corporate depreciation and amortization expenses have been allocated
pro rata between segments based upon relative revenues.
14
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2002 WITH THE THREE MONTHS ENDED
JUNE 30, 2001 (UNAUDITED)
Revenues
Prevention revenues were $2,537,000 for the three months ended June 30,
2002, compared to $481,000 for the three months ended June 30, 2001,
representing an increase of $2,056,000 (427%) in the current year. The increase
was primarily the result of service fee increases associated with the WELLSURE
program, increased project management work in Venezuelan operations and expanded
services and equipment sales provided under the Company's Safeguard program.
Response revenues were $1,447,000 for the three months ended June 30, 2002,
compared to $4,606,000 for the three months ended June 30, 2001, a decrease of
$3,159,000 (69%) in the current year. The decrease is primarily the result of a
lack of emergency response services as overall industry conditions weakened.
Moreover, the 2001 quarter contained two significant WELLSURE events while the
Company had no major critical well events during the 2002 period.
Cost of Sales
Prevention cost of sales were $1,172,000 for the three months ended June
30, 2002, compared to $324,000 for the three months ended June 30, 2001, an
increase of $848,000 (262%) in the current year. The increase was due to
manufacturing costs incurred from an international equipment sale under the
Safeguard program.
Response cost of sales were $718,000 for the three months ended June 30,
2002, compared to $485,000 for the three months ended June 30, 2001, an increase
of $233,000 (48%) in the current year. The increase was a result of higher than
usual third party costs associated with one response project during the first
quarter of 2002.
Operating Expenses
Consolidate operating expenses were $1,747,000 for the three months ended
June 30, 2002, compared to $1,177,000 for the three months ended June 30, 2001,
an increase of $570,000 (48%) in the current year. This increase was primarily
a result of expanding engineering staffing levels, increases in support staff
for the WELLSURE program and business development costs associated with the
Safeguard program. Also included were increases in operating overhead associated
with higher insurance premiums, professional fees and other personnel expenses.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses were $734,000 for
the three months ended June 30, 2002, compared to $748,000 for the three months
ended June 30, 2001, a decrease of $14,000 (2%) from the prior year. These
reductions were primarily a result of decreased payroll and rent requirements in
the continuing operation. As previously noted on the segmented financial table,
corporate selling, general and administrative expenses have been allocated pro
rata among segments on the basis of relative revenue.
Depreciation and Amortization
Consolidated depreciation and amortization expenses were $288,000 for the
three months ended June 30, 2002, compared to $397,000 for the three months
ended June 30, 2001, a decrease of $109,000 (28%) from the prior year due to a
lower asset base. As previously noted on the segmented financial table,
depreciation and amortization expenses on related corporate assets have been
allocated pro rata among segments on the basis of relative revenue.
Interest Expense and Other, Including Finance Costs
The increase in interest and other expenses of $374,000 for the three
months ended June 30, 2002, as compared to the prior year period is primarily a
result of legal settlements of $800,000, of which $234,000 was allocated to
discontinued operations during the current period. The three months ended June
30, 2001 included $350,000 for potential claims in the ITS bankruptcy proceeding
and $143,000 in financing costs related to the KBK financing that commenced
during the period.
15
Income Tax Expense
Income taxes for the three months ended June 30, 2002 are a result of
taxable income in the Company's foreign operations.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2002 WITH THE SIX MONTHS ENDED JUNE
30, 2001 (UNAUDITED)
Revenues
Prevention revenues were $4,266,000 for the six months ended June 30, 2002,
compared to $1,615,000 for the six months ended June 30, 2001, representing an
increase of $2,651,000 (164%) in the current year. The increase was primarily
the result of service fee increases associated with the WELLSURE program,
increased project management work in Venezuelan operations and expanded services
and equipment sales provided under the Company's Safeguard program.
Response revenues were $3,728,000 for the six months ended June 30, 2002,
compared to $7,595,000 for the six months ended June 30, 2001, a decrease of
$3,867,000 (51%) in the current year. The decrease is primarily the result of a
lack of emergency response services as overall industry conditions weakened.
Moreover, the 2001 period contained three significant WELLSURE events while
the Company had no major critical well events during the 2002 period.
Cost of Sales
Prevention cost of sales were $1,588,000 for the six months ended June 30,
2002, compared to $469,000 for the six months ended June 30, 2001, an increase
of $1,119,000 (238%) in the current year. The increase was due to manufacturing
costs incurred from an international equipment sale under the Safeguard program.
Response cost of sales were $1,671,000 for the six months ended June 30,
2002, compared to $979,000 for the six months ended June 30, 2001, an increase
of $692,000 (71%) in the current year. The increase was a result of higher than
usual third party costs associated with one response project during the first
six months of 2002.
Operating Expenses
Consolidate operating expenses were $3,373,000 for the six months ended
June 30, 2002, compared to $2,299,000 for the six months ended June 30, 2001, an
increase of $1,074,000 (47%) in the current year. This increase was primarily a
result of expanding engineering staffing levels, increases in support staff for
the WELLSURE program and business development costs associated with the
Safeguard program. Also included were increases in operating overhead associated
with higher insurance premiums, professional fees and other personnel expenses.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses were $1,413,000
for the six months ended June 30, 2002, compared to $1,551,000 for the six
months ended June 30, 2001, a decrease of $138,000 (9%) from the prior year.
These reductions were primarily a result of decreased payroll and rent
requirements in the continuing operation. As previously noted on the segmented
financial table, corporate selling, general and administrative expenses have
been allocated pro rata among segments on the basis of relative revenue.
Depreciation and Amortization
Consolidated depreciation and amortization expenses were $574,000 for the
six months ended June 30, 2002, compared to $661,000 for the six months ended
June 30, 2001, a decrease of $87,000 (13%) from the prior year due to a lower
asset base. As previously noted on the segmented financial table, depreciation
and amortization expenses on related corporate assets have been allocated pro
rata among segments on the basis of relative revenue.
Interest Expense and Other, Including Finance Costs
The increase in interest and other expenses of $497,000 for the six months
ended June 30, 2002, as compared to the prior year period is primarily a result
of legal settlements of $800,000, of which $234,000 was allocated to
discontinued operations during the current period. The six months ended June
30, 2001 included $350,000 for potential claims in the ITS bankruptcy proceeding
and $143,000 in financing costs related to the KBK financing that commenced
during the period.
16
Income Tax Expense
Income taxes for the six months ended June 30, 2002 are a result of taxable
income in the Company's foreign operations.
LIQUIDITY AND CAPITAL RESOURCES/INDUSTRY CONDITIONS
On June 30, 2002, the Company discontinued certain of its operations
associated with downstream service activities. Demand for these services had
weakened during the first half of the year and the Company incurred a loss on
discontinued operations of $7.2 million. (See note D to Financial Statements.)
The Company's continuing operations generate revenues from prevention
services and response activities. Response activities are generally associated
with a specific emergency or "event" whereas prevention activities are generally
"non-event" related services. Event related services typically produce high
operating margins for the Company, but the frequency of occurrence varies widely
and is inherently unpredictable. "Non-event" service revenues vary according to
the type of services provided. Typically, well control related prevention
services have operating margins that are comparable to those in the Response
segment, however, equipment sales, which are also captured under the Prevention
segment, may have lower operating margins. Historically, the Company has relied
on event driven revenues as the primary focus of its operating activity. The
Company's strategy is to achieve a greater balance between "event" and
"non-event" service activities and to attain profitability's absent significant
contributions from the Response segment. While the Company has successfully
improved this balance through the June 30, 2002 report, event related services
are still the major source of revenues and operating income for the Company.
The Company's event-related capabilities are primarily derived from well
control events (i.e., blowouts) in the oil and gas industry. Additionally, the
Company provides project management services during critical events that add
additional revenue for the Response segment. However, demand for the Company's
well control services is impacted by the number and size of drilling and work
over projects, which fluctuate as changes in oil and gas prices affect
exploration and production activities, forecasts and budgets. Despite
consistent progress in generating "non-event" revenues, the Company's reliance
on event driven revenues impairs the Company's ability to generate predictable
operating cash flows.
Most of the Company's operating expenses represent fixed costs for base
labor charges, rent and utilities. Consequently, operating expenses increase
only slightly as a result of responding to a critical event. During periods of
few critical events, resources dedicated to emergency response may be
underutilized or, at times idle, while the fixed costs of operations continue to
be incurred, contributing to significant operating losses. To mitigate these
consequences, the Company is actively expanding its non-event service
capabilities. These services primarily utilize existing personnel resources to
maximize utilization of fixed operating costs.
Prevention services include engineering activities, well plan reviews, site
audits, and rig inspections and the Company's WELLSURE(R) program, which is now
providing more predictable and increasing service fee income, and the Safeguard
program, which provides a full range of prevention services domestically and
internationally.
The Company's strategy also includes plans to provide other high value and
high operating margin services, including snubbing operations, redrilling
applications and project management services. However, proper development of
these higher operating margin activities requires significantly greater capital
than what is currently available to the Company. Consequently, the Company has
been unable to exploit these higher margin opportunities.
The Company will continue its efforts toward increasing its non-event
services with the objective of covering all of the Company's fixed operating
costs and administrative overhead from these more predictable services,
offsetting the risks of unpredictable event-driven emergency response business,
but maintaining the benefit of the high operating margins that such events
offer. Although the Company has made significant progress towards this goal, it
has been difficult to achieve because of the Company's weakened financial
position and severe capital constraints.
The Company has been unable to pay certain vendors in a timely manner. This
reduced liquidity may hamper the Company's ability to hire sub-contractors,
obtain materials and supplies, and otherwise conduct effective or efficient
operations. To date, however, the Company has not been limited in its ability to
respond to critical well events.
17
On June 18, 2001, the Company entered into a facility with KBK Financial,
Inc. in which it pledged certain accounts receivable for a cash advance. The
facility allows the Company to pledge additional accounts receivable up to an
aggregate amount of $5,000,000. In 2001, the Company paid $135,000 for loan
origination fees, finder's fees and legal fees related to the facility and will
pay additional fees of one percent per annum on the unused portion of the
facility and a termination fee of up to 2% of the maximum amount of the
facility. The Company receives an initial advance of 85% of the gross amount of
each receivable pledged. Upon collection of the receivable, the Company receives
an additional residual payment from which is deducted (i) a fixed fee equal to
2% of the gross pledged receivable and (ii) a variable financing charge equal to
KBK's base rate plus 2% calculated over the actual length of time the advance
was outstanding from KBK prior to collection. The Company's obligations under
the facility are secured by a first lien on certain other accounts receivable of
the Company. As of June 30, 2002, the Company had $1,184,000 of its accounts
receivable pledged to KBK (including the receivables related to discontinued
operations), representing the substantial majority of the Company's receivables
that were eligible for pledging under the facility.
On April 9, 2002, the Company entered into a loan participation agreement
with certain parties under which it borrowed an additional $750,000 under its
existing Senior Secured Loan Facility with Specialty Finance Fund I, LLC. The
effective interest rate of the participation is 11% after taking into account
rate adjustment fees. The Company also paid 3% of the borrowed amount in
origination fees, paid closing expenses and issued 100,000 shares of common
stock to the participation lender at closing. The participation has an initial
maturity of 90 days, which has been extended for an additional 90 days at the
Company's option. The Company has issued an additional 100,000 shares of common
stock to the participation lender to extend the maturity.
On May 2, 2002, the Company borrowed $250,000 under the Senior Secured Loan
Facility upon similar terms, except that it issued 33,334 shares of common stock
and will be required to issue an additional 33,334 shares of common stock to
extend the maturity of that note for an additional 90 days. The Company has
amended the Senior Secured Loan Facility to reflect these additional
participations in the facility.
The Company continues to experience severe working capital constraints. As
of June 30, 2002, the Company's current assets totaled approximately $6,721,000
and current liabilities were $11,617,000, resulting in a net working capital
deficit of approximately $4,896,000 (compared to a beginning year working
capital of $3,285,000). The Company's highly liquid current assets, represented
by cash of $262,000 and receivables and restricted assets of $4,228,000 were
collectively $7,127,000 less than the amount of current liabilities at June 30,
2002 (compared to a beginning year deficit of $4,452,000). The Company is
actively exploring new sources of financing, including the establishment of new
credit facilities and the issuance of debt and/or equity securities.
The Subordinated Note Restructuring Agreement between the Company and The
Prudential Insurance Company of America contains customary affirmative and
negative covenants, including that the Company not permit the ratio of its total
debt to earnings before interest, taxes, depreciation and amortization (EBITDA)
for the trailing twelve months to be greater than 3.25 to 1 or the ratio of its
EBITDA to consolidated interest expense to be less than 2.9 to 1. On March 29,
2002 and on June 29, 2002, Prudential agreed to waive compliance with the ratio
tests for the twelve months ended March 31, 2002 and June 30, 2002,
respectively. Significant improvements in the Company's operating performance
during the current quarter, or a modification or waiver of the ratio tests, will
be required for the Company to regain compliance for the twelve months ended
September 30, 2002. The Company does not have a commitment from Prudential that
it will modify or waive compliance with these tests in the future.
Prudential also agreed to modifications to the Subordinated Note
Restructuring Agreement to accommodate up to $5 million in borrowings under the
KBK facility and an aggregate of $6 million under the Company's existing senior
credit facility or a new senior credit facility. The Company has agreed to pay
Prudential a fee of $100,000 in connection with the recent participations in the
existing credit facility. This amount has been charged to expense and credited
against fees required to be paid to Prudential under the Subordinated Note
Restructuring Agreement in the event the Company enters into a new credit
facility with a commercial lender.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. However, the
uncertainties surrounding the sufficiency and timing of its future cash flows
and the lack of firm commitments for additional capital raises substantial doubt
about the ability of the Company to continue as a going concern. The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset carrying amounts or the
amount and classification of liabilities that might result should the Company be
unable to continue as a going concern.
18
DISCLOSURE OF ON AND OFF BALANCE SHEET DEBTS AND COMMITMENTS
FUTURE COMMITMENTS TO BE PAID IN THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------
DESCRIPTION 2002 2003 2004 2005 2006 THEREAFTER
---------------------------- ---------- ---------- -------- ---------- -------- -----------
Long term debt and notes
payable including short term
debt (1) . . . . . . . . . . $1,300,000 $1,000,000 - $7,200,000 - -
All future minimum lease
payments . . . . . . . . . . $ 517,000 $ 902,000 $640,000 $ 421,000 $208,000 $ 208,000
---------- ---------- -------- ---------- -------- -----------
Total commitments. . . . . . $1,656,000 $1,902,000 $640,000 $7,621,000 $208,000 $ 208,000
========== ========== ======== ========== ======== ===========
(1) Accrued interest totaling $4,320,000 is included in the Company's 12%
Senior Subordinated Note at June 30, 2002, due to the accounting for a
troubled debt restructuring during 2000, but has been excluded from
the above presentation. Accrued interest calculated through June 30,
2002, will be deferred for payment until December 30, 2005. Payments
on accrued interest after December 31, 2002, will begin on March 31,
2003, and will continue quarterly until December 30, 2005.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion of the Company's market sensitive financial
instruments contains "forward-looking statements".
The Company's debt consists of both fixed-interest and variable-interest
rate debt; consequently, the Company's earnings and cash flows, as well as the
fair values of its fixed-rate debt instruments, are subject to interest-rate
risk. The Company has performed sensitivity analyses to assess the impact of
this risk based on a hypothetical 10% increase in market interest rates. Market
rate volatility is dependent on many factors that are impossible to forecast,
and actual interest rate increases could be more severe than the hypothetical
10% increase.
The Company estimates that if prevailing market interest rates had been 10%
higher during the three months ended June 30, 2001 and June 30, 2002 and the six
months ended June 30, 2001 and 2002, and all other factors affecting the
Company's debt remained the same, pretax earnings would have been lower by
approximately $11,000, $29,000, $14,000 and $31,000 respectively. With respect
to the fair value of the Company's fixed-interest rate debt, if prevailing
market interest rates had been 10% higher at the quarter ended June 30, 2001 and
2002 and all other factors affecting the Company's debt remained the same, the
fair value of the Company's fixed-rate debt, as determined on a present-value
basis, would have been lower by approximately $248,000 and $242,000 at June 30,
2001 and 2002, respectively. Given the composition of the Company's debt
structure, the Company does not, for the most part, actively manage its interest
rate risk.
The Company operates internationally, giving rise to exposure to market
risks from changes in foreign exchange rates to the extent that transactions are
not denominated in U.S. dollars. The Company typically denominates its contracts
in U.S. dollars to mitigate the exposure to fluctuations in foreign currencies.
PART II
ITEM 1. LEGAL PROCEEDINGS
On April 27, 2001, in the United States Bankruptcy Court for the Southern
District of Texas, the Chapter 7 Trustee in the bankruptcy proceeding of ITS
Supply Corporation, the Company's subsidiary, filed a complaint against Comerica
Bank-Texas, the Company and various subsidiaries of the Company for a formal
accounting of all lockbox transfers that occurred between ITS and Comerica Bank,
et al and all intercompany transfers between ITS and the Company and its
subsidiaries to determine if any of the transfers are avoidable under Federal or
state statutes and seeking repayment to ITS of all such amounts. The Trustee
asserts that approximately $400,000 of lockbox transfers and $3,000,000 of
intercompany transfers were made between the parties.
The Company does not believe it is likely that an accounting of the
transactions between the parties will demonstrate there is a liability owing by
the Company to the ITS Chapter 7 estate. However, there is no assurance that the
Company will not be found liable. To provide security to Comerica Bank for any
potential claims by the Chapter 7 trustee, the Company has pledged a $350,000
certificate of deposit in favor of Comerica Bank. This amount has been
classified as a restricted asset on the balance sheet as of December 31, 2001
and June 30, 2002.
19
In September 1999, a lawsuit styled Jerry Don Calicutt, Jr., et al., v.
Larry H. Ramming, et al., was filed against the Company, certain of its
subsidiaries, Larry H. Ramming, certain other employees of the Company, and
several entities affiliated with Larry H. Ramming in the 269th Judicial District
Court, Harris County, Texas. The plaintiffs allege various causes of action,
including fraud, breach of contract, breach of fiduciary duty and mismanagement
relating to the acquisition of stock of a corporation by the name of Emergency
Resources International, Inc. ("ERI") by a corporation affiliated with Larry H.
Ramming and the circumstances relating to the founding of the Company. In July
2002, the Company agreed to pay $500,000 in cash in four installments, the last
installment being due in January 2003, in partial settlement of the plaintiff's
claims against all of the defendants. As to the remaining claims, the
defendants have filed motions for summary judgment that have been set for oral
argument on August 23, 2002. The Company intends to continue to vigorously
defend against the remaining claims.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 2002, the Company issued an aggregate of
2,802,971 shares of common stock in transactions that were not registered under
the Securities Act of 1933, as amended. Of these shares, 2,669,637 were issued
upon conversion by an existing stockholder of shares of the Company's Preferred
Stock. No consideration other than the surrender of shares of Preferred Stock
previously owned by the stockholder was paid in connection with the conversion
and, therefore, the transaction did not constitute a sale of securities for
purposes of the Securities Act.
The remaining 133,334 shares of common stock were issued to three
participants in the Company's senior secured loan in connection with a loan to
the Company of an aggregate of $1,000,000. The Company believes that each
participant is an accredited investor and that no general solicitation occurred
in connection with the loan. Accordingly, the Company is relying on the
exemption contained in Section 4(2) of the Securities Act in connection with
these issuances.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Document
------------ --------------------------------------------------------
3.01 - Amended and Restated Certificate of Incorporation(1)
3.02 - Amendment to Certificate of Incorporation(2)
3.02(a) - Amendment to Certificate of Incorporation(3)
3.03 - Amended Bylaws(4)
4.01 - Specimen Certificate for the Registrant's Common Stock(5)
4.02 - Certificate of Designation of 10% Junior Redeemable Convertible Preferred Stock(6)
4.03 - Certificate of Designation of Series A Cumulative Senior Preferred Stock(7)
4.04 - Certificate of Designation of Series B Convertible Preferred Stock(8)
4.05 - Certificate of Designation of Series C Cumulative Convertible Junior Preferred Stock(9)
4.06 - Certificate of Designation of Series D Cumulative Junior Preferred Stock(10)
4.07 - Certificate of Designation of Series E Cumulative Senior Preferred Stock(11)
4.08 - Certificate of Designation of Series F Convertible Senior Preferred Stock(12)
4.09 - Certificate of Designation of Series G Cumulative Convertible Preferred Stock(13)
4.10 - Certificate of Designation of Series H Cumulative Convertible Preferred Stock(14)
10.01 - Alliance Agreement between IWC Services, Inc. and
Halliburton Energy Services, a division of Halliburton Company(15)
20
Exhibit No. Document
------------ --------------------------------------------------------
10.03 - Executive Employment Agreement of Brian Krause(16)
10.04 - 1997 Incentive Stock Plan(17)
10.05 - Outside Directors' Option Plan(18)
10.06 - Executive Compensation Plan(19)
10.07 - Halliburton Center Sublease(20)
10.08 - Registration Rights Agreement dated July 23, 1998,
between Boots & Coots International Well Control, Inc. and
The Prudential Insurance Company of America(21)
10.09 - Participation Rights Agreement dated July 23, 1998, by
and among Boots & Coots International Well Control, Inc.,
The Prudential Insurance Company of America and certain
stockholders of Boots & Coots International Well Control, Inc.(22)
10.10 - Common Stock Purchase Warrant dated July 23, 1998, issued to The Prudential Insurance
Company of America (23)
10.11 - Loan Agreement dated October 28, 1998, between Boots &
Coots International Well Control, Inc. and Comerica Bank - Texas(24)
10.12 - Security Agreement dated October 28, 1998, between
Boots & Coots International Well Control, Inc. and Comerica Bank - Texas(25)
10.13 - Executive Employment Agreement of Jerry Winchester(26)
10.14 - Executive Employment Agreement of Dewitt Edwards(27)
10.15 - Office Lease for 777 Post Oak(28)
10.16 - Open
10.17 - Open
10.18 - Third Amendment to Loan Agreement dated April 21, 2000 (29)
10.19 - Fourth Amendment to Loan Agreement dated May 31, 2000(30)
10.20 - Fifth Amendment to Loan Agreement dated May 31, 2000(31)
10.21 - Sixth Amendment to Loan Agreement dated June 15, 2000(32)
10.22 - Seventh Amendment to Loan Agreement dated December 29,2000(33)
10.23 - Subordinated Note Restructuring Agreement with The Prudential Insurance Company of
America dated December 28, 2000 (34)
10.25 - Preferred Stock and Warrant Purchase Agreement, dated April 15, 1999, with Halliburton
Energy Services, Inc. (35)
10.27 - Form of Warrant issued to Specialty Finance Fund I, LLC and to Turner, Voelker, Moore (36)
10.28 - Amended and Restated Purchase and Sale Agreement with National Oil Well, L.P.(37)
10.29 - KBK Financial, Inc. Account Transfer and Purchase Agreement(38)
10.30 - 2000 Long Term Incentive Plan(39)
21.01 - List of subsidiaries(40)
*99.01 - Certification by Chief Executive Officer
*99.02 - Certification by Principal Financial and Accounting Officer
*Filed herewith
(1) Incorporated herein by reference to exhibit 3.2 of Form 8-K filed
August 13, 1997.
(2) Incorporated herein by reference to exhibit 3.3 of Form 8-K filed
August 13, 1997.
(3) Incorporated herein by reference to exhibit 3.02(a) of Form 10-Q filed
November 14, 2001.
(4) Incorporated herein by reference to exhibit 3.4 of Form 8-K filed
August 13, 1997.
(5) Incorporated herein by reference to exhibit 4.1 of Form 8-K filed
August 13, 1997.
(6) Incorporated herein by reference to exhibit 4.08 of Form 10-QSB filed
May 19, 1998.
21
(7) Incorporated herein by reference to exhibit 4.07 of Form 10-K filed July
17, 2000.
(8) Incorporated herein by reference to exhibit 4.08 of Form 10-K filed July
17, 2000.
(9) Incorporated herein by reference to exhibit 4.09 of Form 10-K filed July
17, 2000.
(10) Incorporated herein by reference to exhibit 4.10 of Form 10-K filed July
17, 2000.
(11) Incorporated herein by reference to exhibit 4.07 of Form 10-K filed April
2, 2001.
(12) Incorporated herein by reference to exhibit 4.08 of Form 10-K filed April
2, 2001.
(13) Incorporated herein by reference to exhibit 4.09 of Form 10-K filed April
2, 2001.
(14) Incorporated herein by reference to exhibit 4.10 of Form 10-K filed April
2, 2001.
(15) Incorporated herein by reference to exhibit 10.1 of Form 8-K filed August
13, 1997.
(16) Incorporated herein by reference to exhibit 10.4 of Form 8-K filed August
13, 1997.
(17) Incorporated herein by reference to exhibit 10.14 of Form 10-KSB filed
March 31, 1998.
(18) Incorporated herein by reference to exhibit 10.05 of Form 10-Q filed May
14, 2002.
(19) Incorporated herein by reference to exhibit 10.06 of Form 10-Q filed May
14, 2002.
(21) Incorporated herein by reference to exhibit 10.22 of Form 8-K filed August
7, 1998.
(22) Incorporated herein by reference to exhibit 10.23 of Form 8-K filed August
7, 1998.
(23) Incorporated herein by reference to exhibit 10.24 of Form 8-K filed August
7, 1998.
(24) Incorporated herein by reference to exhibit 10.25 of Form 10-Q filed
November 17, 1998.
(25) Incorporated herein by reference to exhibit 10.26 of Form 10-Q filed
November 17, 1998.
(26) Incorporated herein by reference to exhibit 10.29 of Form 10-K filed April
15, 1999.
(27) Incorporated herein by reference to exhibit 10.30 of Form 10-K filed April
15, 1999.
(28) Incorporated herein by reference to exhibit 10.31 of Form 10-K filed April
15, 1999.
(29) Incorporated herein by reference to exhibit 10.38 of Form 10-K filed July
17, 2000.
(30) Incorporated herein by reference to exhibit 10.39 of Form 10-K filed July
17, 2000.
(31) Incorporated herein by reference to exhibit 10.40 of Form 10-K filed July
17, 2000.
(32) Incorporated herein by reference to exhibit 10.41 of Form 10-K filed July
17, 2000.
(33) Incorporated herein by reference to exhibit 99.1 of Form 8-K filed January
12, 2001.
(34) Incorporated herein by reference to exhibit 10.23 of Form 10-K filed April
2, 2001.
(35) Incorporated herein by reference to exhibit 10.42 of Form 10-K filed July
17, 2000.
22
(36) Incorporated herein by reference to exhibit 10.47 of Form 10-Q filed
November 14, 2000.
(37) Incorporated herein by reference to exhibit 2 of Form 8-K filed October 11,
2000.
(38) Incorporated herein by reference to exhibit 10.29 of Form 10-Q filed August
13, 2001.
(39) Incorporated herein by reference to exhibit 4.1 of Form S-8 filed April 30,
2001.
(40) Incorporated herein by reference to exhibit 21.01 of Form 10-Q filed May
14, 2002.
(b) Reports on Form 8-K
None
23
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.
BOOTS & COOTS INTERNATIONAL WELL
CONTROL, INC.
By: /s/ Jerry Winchester
----------------------------------
Jerry Winchester
(Chief Executive Officer)
By: /s/ Kendal Glades
-----------------------------------
Kendal Glades
(Principal Financial and Accounting Officer)
Date: August 19, 2002
24