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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 MARCH 31, 2003
_______________
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.)
11615 N. HOUSTON ROSSYLN
HOUSTON, TEXAS 77086
(Address of principal executive offices) (Zip Code)
(281) 931-8884
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 [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)
Yes [ ] No [X]
The number of shares of the Registrant's Common Stock, par value $.00001
per share, outstanding at May 13, 2003, was 82,767,293.
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
(UNAUDITED)
PAGE
-----
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations. . . . . . . . . . . . . 4
Condensed Consolidated Statements of Stockholders' Equity (Deficit). . . 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
Item 4. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . .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 . . . . . . . . . .21
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 21-24
2
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31, MARCH 31,
2002 2003
-------------- -------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . $ 261,000 $ 2,008,000
Receivables - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,868,000 3,960,000
Restricted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,000 -
Assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . 212,000 188,000
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . 620,000 444,000
-------------- -------------
Total current assets. . . . . . . . . . . . . . . . . . . . 4,030,000 6,600,000
-------------- -------------
PROPERTY AND EQUIPMENT - net. . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,395,000
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 5,000
-------------- -------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . $ 7,036,000 $ 10,000,000
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short term debt and current maturities of long-term debt and notes payable. $ 15,000,000 $ 14,706,000
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,939,000 2,426,000
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,897,000 1,921,000
Liabilities of discontinued operations. . . . . . . . . . . . . . . . . . . 1,188,000 1,047,000
-------------- -------------
Total current liabilities . . . . . . . . . . . . . . . . . 21,024,000 20,100,000
-------------- -------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 21,024,000 20,100,000
-------------- -------------
COMMITMENTS AND CONTINGENCIES . . . . . . . . . . . . . . . . . . . . . . . . - -
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock ($.00001 par, 5,000,000 shares authorized,
331,000 and 129,000 shares issued and outstanding
at December 31, 2002 and March 31, 2003, respectively) . . . . . . . . . - -
Common stock ($.00001 par, 125,000,000 shares authorized,
44,862,000 and 73,074,000 shares issued and outstanding
at December 31, 2002 and March 31, 2003, respectively) . . . . . . . . . - 1,000
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . 59,832,000 61,214,000
Accumulated other comprehensive loss. . . . . . . . . . . . . . . . . . . . (438,000) (514,000)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73,382,000) (70,801,000)
-------------- -------------
Total stockholders' equity (deficit). . . . . . . . . . . . (13,988,000) (10,100,000)
-------------- -------------
Total liabilities and stockholders' equity (deficit). . . . $ 7,036,000 $ 10,000,000
============== =============
See accompanying notes to condensed consolidated financial statements.
3
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2002 2003
-------------- ---------------
REVENUES
Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,010,000 $ 4,302,000
Equipment sales. . . . . . . . . . . . . . . . . . . . . . . . - 6,629,000
-------------- ---------------
Total Revenues. . . . . . . . . . . . . . . . . . . . . . . 4,010,000 10,931,000
COSTS OF SALES
Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,369,000 881,000
Equipment sales. . . . . . . . . . . . . . . . . . . . . . . . - 3,082,000
-------------- ---------------
Total Costs of Sales. . . . . . . . . . . . . . . . . . . . 1,369,000 3,963,000
Gross Margin. . . . . . . . . . . . . . . . . . . . . . . . 2,641,000 6,968,000
Operating expenses . . . . . . . . . . . . . . . . . . . . . . 1,626,000 1,859,000
Selling, general and administrative. . . . . . . . . . . . . . 679,000 837,000
Depreciation and amortization. . . . . . . . . . . . . . . . . 286,000 245,000
-------------- ---------------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . 50,000 4,027,000
INTEREST EXPENSE (INCOME) AND OTHER. . . . . . . . . . . . . . . 100,000 425,000
-------------- ---------------
(50,000) 3,602,000
INCOME (LOSS) FROM CONTINUING OPERATIONS, before income taxes
INCOME TAX EXPENSE . . . . . . . . . . . . . . . . . . . . . . . 15,000 304,000
-------------- ---------------
INCOME (LOSS) FROM CONTINUING OPERATIONS . . . . . . . . . . . . (65,000) 3,298,000
LOSS (INCOME) FROM DISCONTINUED OPERATIONS, net of income taxes. (1,765,000) 15,000
-------------- ---------------
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . . . . . . . (1,830,000) 3,313,000
PREFERRED DIVIDEND REQUIREMENTS & ACCRETIONS . . . . . . . . . . 830,000 732,000
-------------- ---------------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS. . . . . . $ (2,660,000) $ 2,581,000
============== ===============
Basic Earnings (Loss) per Common Share:
Continuing Operations . . . . . . . . . . . . . . . . . . . . $ (0.02) $ 0.05
============== ===============
Discontinued Operations . . . . . . . . . . . . . . . . . . . $ (0.04) $ 0.00
============== ===============
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . $ (0.06) $ 0.05
============== ===============
Weighted Average Common Shares Outstanding - Basic . . . . . . . 41,442,000 53,978,000
============== ===============
Diluted Earnings (Loss) per Common Share:
Continuing Operations . . . . . . . . . . . . . . . . . . . . $ (0.02) $ 0.04
============== ===============
Discontinued Operations . . . . . . . . . . . . . . . . . . . $ (0.04) $ 0.00
============== ===============
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . $ (0.06) $ 0.04
============== ===============
Weighted Average Common Shares Outstanding - Diluted . . . . . . 41,442,000 72,245,000
============== ===============
See accompanying notes to condensed consolidated financial statements.
4
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
THREE MONTHS ENDED MARCH 31, 2003
(UNAUDITED)
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER
--------------------- --------------------- PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT LOSS
--------- ---------- ---------- --------- ----------- ------------- ---------------
BALANCES, December 31, 2002 . . . . 331,000 $ - 44,862,000 $ - $59,832,000 $(73,382,000) $ (438,000)
Warrant discount accretion . . . - - - - 13,000 (13,000) -
Common stock options exercised. . - - 1,291,000 - 651,000 - -
Preferred stock conversion to
common stock. . . . . . . . . . (202,000) - 26,921,000 - - - -
Preferred stock
dividends accrued . . . . . . . - - - - 719,000 (719,000) -
Net income (loss) .. . . . . - - - - - 3,313,000 -
Foreign currency translation loss - - - - - - (76,000)
--------- ---------- ---------- --------- ----------- ------------- ---------------
Comprehensive income .. . . . . - - - - - 3,313,000 (76,000)
--------- ---------- ---------- --------- ----------- ------------- ---------------
BALANCES, March 31, 2003
129,000 $ - 73,074,000 $ 1,000 $61,214,000 $(70,801,000) $ (514,000)
========= ========== ========== ========= =========== ============= ===============
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
BALANCES, December 31, 2002 . . . . $(13,988,000)
Warrant discount accretion .
Common stock options exercised. . 651,000
Preferred stock conversion to
common stock. . . . . . . . . . -
Preferred stock
dividends accrued . . . . . . . -
Net income (loss) .. . . . . 3,313,000
Foreign currency translation loss (76,000)
-------------
Comprehensive income .. . . . . 3,237,000
-------------
BALANCES, March 31, 2003
$(10,100,000)
=============
See accompanying notes to condensed consolidated financial statements.
5
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2002 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,830,000) $ 3,313,000
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . 286,000 245,000
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . 15,000 -
Gain on sale of assets . . . . . . . . . . . . . . . . . . . . . (3,000) -
Other non cash charges . . . . . . . . . . . . . . . . . . . . . - 392,000
------------ ------------
Net cash provided by operating activities before
changes in operating assets and liabilities:. . . . . . . . . (1,532,000) 3,950,000
Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . (127,000) (1,092,000)
Restricted Assets. . . . . . . . . . . . . . . . . . . . . . . . 513,000 69,000
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . (379,000) -
Prepaid expenses and other current assets. . . . . . . . . . . . 310,000 164,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 28,000 13,000
Accounts payable and accrued liabilities . . . . . . . . . . . . 1,019,000 (224,000)
Change in net assets and liabilities of discontinued operations. 813,000 (117,000)
------------ ------------
Net cash provided by operating activities. . . . . . . . . . . . 645,000 2,763,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions . . . . . . . . . . . . . . . . (36,000) (1,032,000)
Proceeds from sale of property and equipment . . . . . . . . . . 3,000 -
------------ ------------
Net cash used in investing activities. . . . . . . . . . . . . . (33,000) (1,032,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock options exercised. . . . . . . . . . . . . . . . . - 651,000
Proceeds from short term senior debt financing . . . . . . . . . - 200,000
Payments of short term senior debt financing. . . . . . . . . . - (700,000)
Repayments to pledging arrangements. . . . . . . . . . . . . . . (148,000) (59,000)
------------ ------------
Net cash provided by (used in) financing activities. . . . . . . (148,000) 92,000
------------ ------------
Impact of foreign currency on cash . . . . . . . . . . . . . . . - (76,000)
Net increase in cash and cash equivalents. . . . . . . . . . . . 464,000 1,747,000
CASH AND CASH EQUIVALENTS, Beginning of Period. . . . . . . . . . . . 303,000 261,000
------------ ------------
CASH AND CASH EQUIVALENTS, End of Period. . . . . . . . . . . . . . . $ 767,000 $ 2,008,000
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest. . . . . . . . . . . . . . . . . . . . . $ 94,000 60,000
Cash paid for income taxes. . . . . . . . . . . . . . . . . . . - 262,000
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock and warrant accretions. . . . . . . . . . . . . . . . . . 13,000 13,000
Preferred stock dividends accrued . . . . . . . . . . . . . . . 817,000 719,000
Preferred stock issued for settlement . . . . . . . . . . . . . 19,000 -
See accompanying notes to condensed consolidated financial statements.
6
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003
(UNAUDITED)
A. GOING CONCERN
At March 31, 2003, the Company had a working capital deficit of $13,500,000
and a total stockholders' deficit of $10,100,000. In addition, the Company is
currently in default under its loan agreements with The Prudential Insurance
Company of America and Specialty Finance Fund 1, LLC, and, as a consequence,
these lenders and the participants in the Specialty Finance credit facility may
accelerate the maturity of their obligations at any time. As of the date of this
quarterly report on Form 10-Q, the Company has not received notice from any
lender of acceleration nor any demand for repayment. All of these obligations
have been classified as current liabilities at March 31, 2003 in the
accompanying condensed consolidated balance sheet. See Note F for further
discussion of the Company's debt. The Company also has significant past due
vendor payables at March 31, 2003.
During the quarter ended March 31, 2003, the Company's short term liquidity
improved as a consequence of certain asset sales, which resulted in net proceeds
(after replacement costs) to the Company of approximately $2 million. A portion
of these proceeds were used to repay $700,000 plus interest owing under the
Company's credit facility with Checkpoint Business, Inc. (See Note F for further
discussion). The Company also applied $400,000 of the proceeds to settle the
Calicutt lawsuit (See Note G for further discussion) and to reduce payables
owing to certain of the Company's significant vendors.
The Company generates its revenues from prevention services and emergency
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 higher
operating margins for the Company, but the frequency of occurrence varies widely
and is inherently unpredictable. Non-event services typically have lower
operating margins, but the volume and availability of work is more predictable.
Historically the Company has relied on event driven revenues as the primary
focus of its operating activity, but more recently the Company's strategy has
been to achieve greater balance between event and non-event service activities.
While the Company has successfully improved this balance, event related services
are still the major source of revenues and operating income for the Company.
The majority of the Company's event related revenues are derived from well
control events (i.e., blowouts) in the oil and gas industry. 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. The Company's
reliance on event driven revenues in general, and well control events in
particular, impairs the Company's ability to generate predictable operating cash
flows.
During the first quarter of 2003, there was a significant increase in
demand for the Company's services and equipment, particularly internationally
and specifically in the Middle East in connection with the war in Iraq. Such
increase in activity resulted in the Company generating income from operations
of $4,027,000 for the first quarter of 2003. While these developments have
positively impacted the Company's near-term liquidity, there can be no assurance
that the cash flows generated from such activities will be sufficient to meet
the Company's near-term liquidity needs. In addition, while the Company has
recently been able to pay its critical vendors for current services and
materials, there remain significant overdue payables which the Company has been
unable to satisfy.
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,
the current defaults of certain debt agreements with its lenders, 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
consolidated 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 condensed consolidated financial statements of
the Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
7
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 condensed consolidated financial
statements include all adjustments, including normal recurring accruals, which,
in the opinion of management, are necessary in order to make the condensed
consolidated financial statements not be misleading. The unaudited condensed
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, 2002, and those reports filed previously
with the Securities and Exchange Commission ("SEC"). The results of operations
for the three-month periods ended March 31, 2002 and 2003 are not necessarily
indicative of the results to be expected for the full year.
C. STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation granted under it's the
long-term incentive plan using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Stock-based compensation expenses
associated with option grants were not recognized in the net income (loss) of
the three month periods ended March 31, 2003 and 2002, as all options granted
had exercise prices equal to the market value of the underlying common stock on
the dates of grant. The following table illustrates the effect on net income
(loss) and earnings per share if the Company had applied the fair value
recognition provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" to stock-based employee compensation:
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2002 2003
-------------- -------------
Net income (loss) to common
stockholders as reported . . . . . . $ (2,660,000) $ 2,581,000
Less total stock based employee
compensation expense determined
under fair value based method for all
awards, net of tax related effects. . 186,000 64,000
-------------- -------------
Pro forma net income (loss) to
common stockholders . . . . . . . $ (2,846,000) $ 2,517,000
-------------- -------------
Basic net income (loss) per share
As reported . . . . . . . . . . . $ (0.06) $ 0.05
Pro forma . . . . . . . . . . . . $ (0.07) $ 0.05
Diluted net income (loss) per share
As reported . . . . . . . . . . . $ (0.06) $ 0.04
Pro forma . . . . . . . . . . . . $ (0.07) $ 0.03
D. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations ("SFAS No. 143") 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. The Company adopted
SFAS No. 143 effective January 1, 2003, as required. The adoption of SFAS No.
143 did not have a material impact on Company's condensed consolidated financial
position or results of operations.
In December 2002, the FASB issued Accounting for Stock-Based Compensation
("SFAS No. 148") amending SFAS No. 123, to provide alternative methods of
transition to the fair value method of accounting for stock-based employee
compensation. The three methods provided in SFAS No. 148 include (1) the
prospective method which is the method currently provided for in SFAS No. 123,
(2) the retroactive restatement method which would allow companies to restate
all periods presented and (3) the modified prospective method which would allow
companies to present the recognition provisions of all outstanding stock-based
employee compensation instruments as of the beginning of the fiscal year of
adoption. In addition, SFAS No. 148 amends the disclosure provisions of SFAS No.
123 to require disclosure in the summary of significant accounting policies of
the effects of an entity's accounting policy with respect to stock-based
employee compensation on reported net income and earnings per share in annual
and interim financial statements. SFAS No. 148 does not amend SFAS No. 123 to
require companies to account for their employee stock-based awards using the
fair value method. However, the disclosure provisions are required for all
8
companies with stock-based employee compensation, regardless of whether they
utilize the fair method of accounting described in SFAS No. 123 or the intrinsic
value method described in APB Opinion No. 25, Accounting for Stock Issued to
Employees. The Company does not currently intend to adopt the fair value method
of accounting for stock-based compensation, however it has adopted the
disclosure provisions of SFAS No. 148.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN No. 46), which addresses consolidation by
business enterprises of variable interest entities. FIN No. 46 clarifies the
application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements, to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN No. 46 applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after June
15, 2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The Company does not expect
to identify any variable interest entities that must be consolidated and thus
the Company does not expect the requirements of FIN No. 46 to have a material
impact on its financial condition or results of operations.
E. DISCONTINUED OPERATIONS
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 sales
proceeds were approximately $1,041,000. 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.
The following represents a condensed detail of assets and liabilities for
discontinued operations adjusted for write-downs:
DECEMBER 31, MARCH 31,
2002 2003
------------- ----------
Cash
Receivables - net. . . . . . . . . . . . . . . . . . . . . . 174,000 188,000
Restricted assets. . . . . . . . . . . . . . . . . . . . . . 38,000 -
------------- ----------
Total assets . . . . . . . . . . . . . . . . $ 212,000 $ 188,000
============= ==========
Short term debt and current maturities of long-term debt and
notes payable . . . . . . . . . . . . . . . . . . . . . . $ 32,000 $
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 801,000 715,000
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . 355,000 332,000
------------- ----------
Total liabilities. . . . . . . . . . . . . . $ 1,188,000 $1,047,000
============= ==========
Reconciliation of change in net asset value of discontinued operations:
Balance of net liability of discontinued
operations at December 31, 2002 $ (976,000)
Income from discontinued operations 15,000
Intercompany transfers 102,000
------------
Balance of net liability of discontinued operations
at March 31, 2003 $ (859,000)
============
F. LONG-TERM DEBT AND NOTES PAYABLE
As of March 31, 2003, the Company was not in compliance with the ratio
tests for the trailing twelve month period under its loan agreement with the
Prudential Insurance Company of America and the Company did not receive a waiver
from Prudential for this period. Under the Prudential loan agreement, failure to
comply with the ratio tests is an event of default and the note holder may, at
its option, by notice in writing to the Company, declare all of the Notes to be
immediately due and payable together with interest accrued thereon. Accordingly,
the Company has classified this obligation as a current liability on its balance
sheet. As of May 14, 2003, the Company has not received a written notice of
default from Prudential and the Company is in discussion with Prudential to
secure a forbearance agreement.
9
On April 9, 2002, the Company entered into a loan participation agreement
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 had an initial maturity of 90 days, which was
extended for an additional 90 days at the Company's option. The Company issued
an additional 100,000 shares of common stock to the participation lender to
extend the maturity date. On October 9, 2002, the loan extension period
matured. As of May 14, 2003, none of the loan participation has been repaid nor
has the Company received formal demand for payment from the loan participant.
However, in the loan documentation, the Company has waived the notices which
might otherwise be required by law and, as a consequence, the loan participants
have the current ability to post the collateral securing their notes for
foreclosure.
On May 2, 2002, the Company borrowed $250,000 under the Senior Secured Loan
Facility upon similar terms, except that the Company issued 33,334 shares of
common stock to the participating lenders at closing and issued an additional
33,334 shares of common stock to extend the maturity of those notes for an
additional 90 days. On October 25, 2002, the loan extension period matured. As
of May 14, 2003, none of the loan participations have been repaid nor has the
Company received formal demand for payment from the loan participants. However,
in the loan documentation the Company has waived the notices which might
otherwise be required by law and, as a consequence, the loan participants have
the current ability to post the collateral securing their notes for foreclosure.
On July 5, 2002, the Company entered into a loan participation agreement
under which it borrowed an additional $100,000 under its existing Senior Secured
Loan Facility. 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
had a maturity of 90 days. On September 28, 2002, the loan matured. As of May
14, 2003, none of the loan participation has been repaid nor has the Company
received formal demand for payment from the loan participant. However, in the
loan documentation the Company has waived the notices which might otherwise be
required by law and, as a consequence, the loan participants have the current
ability to post the collateral securing their notes for foreclosure.
On July 8, 2002, the Company entered into a loan participation agreement
with a certain party 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 had a maturity
of 90 days. On October 1, 2002, the loan matured. As of May 14, 2003, none of
the loan participation has been repaid nor has the Company received formal
demand for payment from the loan participant. However, in the loan
documentation the Company has waived the notices which might otherwise be
required by law and, as a consequence, the loan participants have the current
ability to post the collateral securing their notes for foreclosure.
On December 4, 2002, the Company entered into a loan agreement with
Checkpoint Business, Inc. ("Checkpoint") providing for short term working
capital up to $1,000,000. The effective interest rate of under the loan
agreement was 15% per annum. Checkpoint collateral included substantially all
of the assets of the Company, including the stock of the Company's Venezuelan
subsidiary. As of December 31, 2002 and March 28, 2003, the Company had borrowed
$500,000 and an additional $200,000, respectively, under this facility.
On March 28, 2003, the Company paid in full the principal balance of
$700,000 and interest outstanding under its loan agreement with Checkpoint. On
May 7, 2003, the Company settled Checkpoint's option to purchase its Venezuelan
subsidiary and terminated Checkpoint's exclusivity rights. This settlement
consisted of $300,000 of cash and $100,000 in notes maturing in six months.
G. COMMITMENTS AND CONTINGENCIES
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, Charles Phillips, 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 alleged various
causes of action, including fraud, breach of contract, breach of fiduciary duty
10
and other intentional misconduct 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 plaintiffs' claims against all of the defendants. As
to the remaining claims, the defendants filed motions for summary judgment. On
September 24, 2002 the court granted the defendants' motions for summary
judgment. The Company had defaulted on the settlement after paying one
installment of $100,000, but has since resettled the case on behalf of all Boots
& Coots entities and all employees of the Company (but not on behalf of Larry H.
Ramming, Charles Phillips, and the other entities affiliated with Larry H.
Ramming) by paying the remaining unpaid $400,000 in March 2003 in exchange for
full and final release by all plaintiffs from any and all claims related to the
subject of the case.
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.
H. EARNINGS PER SHARE
Basic income (loss) per share is computed by dividing net income (loss)
attributable to common shareholders by the weighted average number of common
shares outstanding for the period. The computation of diluted net income (loss)
attributable to common shareholders per share reflects the potential dilution
that could occur if securities or other contracts to issue common stock that are
dilutive to net income attributable to common shareholders were exercised or
converted into common stock or resulted in the issuance of common stock that
would then share in the earnings of the Company.
The following table is a reconciliation of the basic and diluted weighted
average shares outstanding for the three months ended March 31, 2002 and 2003:
Three Months Ended
March 31,
-----------------------
2002 2003
---------- -----------
Weighted average common shares outstanding:
Basic. . . . . . . . . . . . . . . . . . . . 41,442,000 53,978,000
Senior convertible debt. . . . . . . . . . . - 1,333,000
Convertible preferred stock. . . . . . . . . - 16,931,000
Stock purchase warrants (a). . . . . . . . . - -
Stock options (b). . . . . . . . . . . . . . - 3,000
---------- -----------
Diluted. . . . . . . . . . . . . . . . . . . 41,442,000 72,245,000
---------- -----------
(a) Stock purchase warrants to purchase 35,471,000 shares and 31,595,000
shares of common stock were outstanding but not included in the computations of
diluted net income (loss) attributable to common shareholders per share for the
three months ended March 31, 2002 and 2003, respectively, because the exercise
prices of the warrants were greater than the average market price of the common
shares and would be anti-dilutive to the computations.
(b) Common stock options to purchase 7,848,000 shares and 1,443,000 shares
of common stock were outstanding but not included in the computations of diluted
net income (loss) attributable to common shareholders per share for the three
months ended March 31, 2002 and 2003, respectively, because the exercise prices
of the options were greater than the average market price of the common shares
and would be anti-dilutive to the computations.
I. 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 during 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.
11
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 months ended March 31, 2002 and 2003 is presented below.
PREVENTION RESPONSE CONSOLIDATED
----------- ----------- -------------
Three months Ended March 31, 2002:
Net Operating Revenues. . . . . . $ 1,729,000 $2,281,000 $ 4,010,000
Operating Income (Loss) . . . . . 105,000 (55,000) 50,000
Identifiable Operating Assets . . 3,034,000 4,002,000 7,036,000
Capital Expenditures. . . . . . . 16,000 20,000 36,000
Depreciation and Amortization . . 109,000 177,000 286,000
Interest Expense and Other. . . . 45,000 55,000 100,000
Three months Ended March 31, 2003:
Net Operating Revenues. . . . . . $ 8,659,000 $2,272,000 $ 10,931,000
Operating Income (Loss) . . . . . 2,978,000 1,049,000 4,027,000
Identifiable Operating Assets . . 7,922,000 2,078,000 10,000,000
Capital Expenditures. . . . . . . 817,000 215,000 1,032,000
Depreciation and Amortization . . 194,000 51,000 245,000
Interest Expense and Other. . . . 337,000 88,000 425,000
For the three-month periods ended March 31, 2002 and 2003, the Company's
revenue mix between domestic and foreign sales were (domestic 70%, foreign 30%)
and (domestic 80%, foreign 20%), respectively.
J. SUBSEQUENT EVENTS
From April 1, 2003 through May 13, 2003, the remaining 8,000 shares of the
12,000 total shares issued of the Company's Junior Redeemable Convertible
Preferred Stock ("Redeemable Preferred") were converted into 407,842 shares of
the Company's common stock.
From April 1, 2003 through May 13, 2003, 1,246 shares of 1,246 total
remaining shares of the Company's Series H Cumulative Convertible Preferred
Stock ("Series H Preferred Stock") were converted into 166,113 shares of the
Company's common stock. The converted Series H Preferred Stock conversion
included dividends which were paid in kind of 221 shares of Series H Preferred
Stock.
From April 1, 2003 through May 13, 2003, the were 1,598,026 shares of
common stock issued under various stock option plans and 7,146,344 shares of
common stock issued from the exercise of warrants.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides save harbor
provisions for forward-looking information. Forward-looking information is
based on projections, assumptions and estimates, not historical information.
Some statements in this Form 10 - Q are forward-looking and use words like
"may," "may not," "believes," "do not believe," "expects," "do not expect," "do
not anticipate," and other similar expressions. We may also provide oral or
written forward-looking information on other materials we release to the public.
Forward-looking information involves risks and uncertainties and reflects our
best judgment based on current information. Our results of operations can be
affected by inaccurate assumptions we make or by known or unknown risks and
uncertainties. In addition, other factors may affect the accuracy of our
forward-looking information. As a result, no forward-looking information can be
guaranteed. Actual events and results of operations may vary materially.
12
While it is not possible to identify all factors, we face many risks and
uncertainties that could cause actual results to differ from our forward-looking
statements including those contained in this 10-Q, our press releases and our
Forms 10-Q, 8-K and 10-K filed with to the United States Securities and Exchange
Commission. We do not assume any responsibility to publicly update any of our
forward-looking statements regardless of whether factors change as a result of
new information, future events or for any other reason.
OVERVIEW
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 during 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.
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, on June 28, 2002, the Company
submitted an amendment to the plan to take into account, among other things,
certain restructuring initiatives that the Company had undertaken. The Company
has not been advised by AMEX whether or not it approved the June 28, 2002,
amended plan. Since submitting the amended plan, the Company has been actively
pursuing alternatives that would allow it to fulfill the objectives outline in
the amended plan. However, the Company does not, at this time, have any
prospects or commitments for new financing or the restructuring of its existing
obligations that, if successfully completed, would result in compliance
with AMEX's continued listing standards.
AMEX may institute immediate delisting proceedings as a consequence of the
Company's failure to achieve compliance its continued listing standards. AMEX
recently requested that the Company submit a letter requesting that the AMEX
grant the company an additional two quarters to attain compliance as a
consequence of recent business improvements. The Company is preparing such a
request.
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 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.
13
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 the 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. On a small number of turnkey contracts, revenue may be recognized on
the percentage-of-completion method based upon costs incurred to date and
estimated total contract costs. Revenue and cost from equipment sales is
recognized upon customer acceptance and contract completion.
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.
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 the 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 condensed 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.
14
Information concerning operations in different business segments for the
three months ended March 31, 2002 and 2003 is presented below. Certain
reclassifications have been made to the prior periods to conform to the current
presentation.
THREE MONTHS ENDED
MARCH 31,
------------------------
2002 2003
----------- -----------
REVENUES
Prevention . . . . . . . . . . . . $1,729,000 $ 8,659,000
Response . . . . . . . . . . . . . 2,281,000 2,272,000
----------- -----------
$4,010,000 $10,931,000
----------- -----------
COST OF SALES
Prevention . . . . . . . . . . . . $ 416,000 $ 3,308,000
Response . . . . . . . . . . . . . 953,000 655,000
----------- -----------
$1,369,000 $ 3,963,000
----------- -----------
OPERATING EXPENSES(1)
Prevention . . . . . . . . . . . . $ 806,000 $ 1,516,000
Response . . . . . . . . . . . . . 820,000 343,000
----------- -----------
$1,626,000 $ 1,859,000
----------- -----------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (2)
Prevention . . . . . . . . . . . . $ 293,000 $ 663,000
Response . . . . . . . . . . . . . 386,000 174,000
----------- -----------
$ 679,000 $ 837,000
----------- -----------
DEPRECIATION AND AMORTIZATION (3)
Prevention . . . . . . . . . . . . $ 109,000 $ 194,000
Response . . . . . . . . . . . . . 177,000 51,000
----------- -----------
$ 286,000 $ 245,000
----------- -----------
OPERATING INCOME (LOSS)
Prevention . . . . . . . . . . . . $ 105,000 $ 2,978,000
Response . . . . . . . . . . . . . (55,000) 1,049,000
----------- -----------
$ 50,000 $ 4,027,000
----------- -----------
(1) Operating expenses have been allocated pro rata among segments based
upon relative revenues.
(2) Corporate selling, general and administrative expenses have been
allocated pro rata among segments based upon relative revenues.
(3) Corporate depreciation and amortization expenses have been allocated
pro rata among segments based upon relative revenues.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2003 WITH THE THREE MONTHS ENDED
MARCH 31, 2002
Revenues
Prevention revenues were $8,659,000 for the three months ended March 31,
2003, compared to $1,729,000 for the three months ended March 31, 2002,
representing an increase of $6,930,000 (400.8%) in the current year. Increases
during the first quarter of 2003 were the result of proceeds from certain
equipment sales.
Response revenues were $2,272,000 for the three months ended March 31,
2003, compared to $2,281,000 for the three months ended March 31, 2002, a
decrease of $9,000 (0.4%). During the first quarter of 2003 the company acted
as lead contractor in Iraq and billed for firefighters and engineers to be in
Kuwait or Iraq as needed. The first quarter of 2002 included a large well
control event also.
Cost of Sales
Prevention cost of sales were $3,308,000 for the three months ended March
31, 2003, compared to $416,000 for the three months ended March 31, 2002, an
increase of $2,892,000 (695.1%) in the current quarter. The increase was a
result of additional labor and travel costs and costs of equipment sales related
to the previously mentioned increase in revenue.
Response cost of sales were $655,000 for the three months ended March 31,
2003, compared to $953,000 for the three months ended March 31, 2002, a decrease
of $298,000 (31.3%) in the current year. The decrease in cost of sales is due
to the use of the Company's own workforce for the work in Kuwait and Iraq in
2003. The 2002 period include a less profitable large well control event that
required higher than usual third party costs.
15
Operating Expenses
Consolidated operating expenses were $1,859,000 for the three months ended
March 31, 2003, compared to $1,626,000 for the three months ended March 31,
2002, an increase of $233,000 (14.3%) in the current quarter. The increase was
a result of additional labor, insurance and travel costs related to the
previously mentioned increase in revenue. As previously footnoted on the
segmented financial table, corporate selling, general and administrative
expenses have been allocated pro rata among the segments on the basis of
relative revenue.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses were $837,000 for
the three months ended March 31, 2003, compared to $679,000 for the three months
ended March 31, 2002, an increase of $158,000 (23%) from the prior year. These
increases are due to the higher costs related to working in a war zone and to
costs related to the Company's restructuring initiatives. As previously
footnoted on the segmented financial table, corporate selling, general and
administrative expenses have been allocated pro rata among the segments on the
basis of relative revenue.
Depreciation and Amortization
Consolidated depreciation and amortization expenses decreased primarily as
a result of the reduction in the depreciable asset base between 2002 and 2003.
As previously footnoted on the segmented financial table, depreciation and
amortization expenses on related corporate assets have been allocated pro rata
among the segments on the basis of relative revenue.
Interest Expense and Other, Including Finance Costs
The increase in interest and other expenses of $325,000 for the three
months ended March 31, 2003, as compared to the prior year period is primarily a
result of increasing the face value of the Prudential debt at December 31, 2002,
per the loan agreement and was partially offset by the interest expense incurred
in connection with the pledging of receivables in the prior year and financing
fees related to the Prudential waiver discussed below as compared to nominal
interest expense in the prior year period.
Income Tax Expense
Income taxes for the three months ended March 31, 2002 and 2003 are a
result of taxable income in the Company's foreign operations.
LIQUIDITY AND CAPITAL RESOURCES/INDUSTRY CONDITIONS
LIQUIDITY
At March 31, 2003, the Company had a working capital deficit of $13,500,000
and a total stockholders' deficit of $10,100,000. In addition, the Company is
currently in default under its loan agreements with The Prudential Insurance
Company of America and Specialty Finance Fund 1, LLC, and, as a consequence,
these lenders and the participants in the Specialty Finance credit facility may
accelerate the maturity of their obligations at any time. As of the date of this
quarterly report on Form 10-Q, the Company has not received notice from any
lender of acceleration nor any demand for repayment. All of these obligations
have been classified as current liabilities at March 31, 2003 in the
accompanying condensed consolidated balance sheet. See Note F for further
discussion of the Company's debt. The Company also had significant past due
vendor payables at March 31, 2003.
During the quarter ended March 31, 2003, the Company's short term liquidity
improved as a consequence of certain asset sales, which resulted in net proceeds
(after replacement costs) to the Company of approximately $2 million. A portion
of these proceeds were used to pay $700,000 plus interest owing under the
Company's credit facility with Checkpoint Business, Inc. (See Note F for further
discussion). The Company also applied a portion of the proceeds to pay $400,000
to settle the Calicutt lawsuit (See Note G for further discussion) and to reduce
payables owing to certain of the Company's significant vendors.
The Company generates its revenues from prevention services and emergency
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 higher
16
operating margins for the Company, but the frequency of occurrence varies widely
and is inherently unpredictable. Non-event services typically have lower
operating margins, but the volume and availability of work is more predictable.
Historically the Company has relied on event driven revenues as the primary
focus of its operating activity, but more recently the Company's strategy has
been to achieve greater balance between event and non-event service activities.
While the Company has successfully improved this balance, event related services
are still the major source of revenues and operating income for the Company.
The majority of the Company's event related revenues are derived from well
control events (i.e., blowouts) in the oil and gas industry. 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. The Company's
reliance on event driven revenues in general, and well control events in
particular, impairs the Company's ability to generate predictable operating cash
flows.
During the first quarter of 2003, there was a significant increase in
demand for the Company's services and equipment, particularly internationally
and specifically in the Middle East in connection with the war in Iraq. Such
increase in activity resulted in the Company generating income from operations
of $4,027,000 for the first quarter of 2003. While these developments have
positively impacted the Company's near-term liquidity, there can be no assurance
that the cash flows generated from such activities will be sufficient to meet
the Company's near-term liquidity needs. In addition, while the Company has
recently been able to pay its critical vendors for current services and
materials, there remain significant overdue payables which the Company has been
unable to satisfy.
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,
the current defaults of certain debt agreements with its lenders, 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
consolidated 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.
Credit Facilities/Capital Resources
As of December 31, 2002, the Company was not in compliance with the ratio
tests for the trailing twelve-month period under its loan agreement with the
Prudential Insurance Company of America and the Company did not receive a waiver
from Prudential for this period. Under the Prudential loan agreement, failure to
comply with the ratio tests is an event of default and the note holder may, at
its option, by notice in writing to the Company, declare all of the Notes to be
immediately due and payable together with interest accrued thereon. Accordingly,
the Company has classified this obligation as a current liability on its balance
sheet. As of May 14, 2003, the Company has not received a written notice of
default from Prudential and the Company is discussing with Prudential to secure
a Forbearance agreement.
On June 18, 2001, the Company entered into an agreement with KBK Financial,
Inc. ("KBK") pursuant to which the Company pledged certain of its accounts
receivable to KBK for a cash advance against the pledged receivables. The
agreement allows the Company to, from time to time, pledge additional accounts
receivable to KBK in an aggregate amount not to exceed $5,000,000. The Company
paid certain fees to KBK for 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 two percent of the maximum amount of the facility. The facility provides
the Company an initial advance of eighty-five percent of the gross amount of
each receivable pledged to KBK. Upon collection of the receivable, the Company
receives an additional residual payment net of fixed and variable financing
charges. The Company's obligations for representations and warranties regarding
the accounts receivable pledged to KBK are secured by a first lien on certain
other accounts receivable of the Company. The facility also provides for
financial reporting and other covenants similar to those in favor of the senior
lender of the Company. The Company had $109,000 and $0 of its accounts
receivable pledged to KBK that remained uncollected as of December 31, 2002 and
March 31, 2003, respectively and, accordingly, these amounts have been
classified as restricted asset, on the balance sheet as of both dates. Included
in the December 31, 2002 and March 31, 2003 balance sheets is $38,000 and $0,
respectively of restricted assets related to discontinued operations. In
addition, as of December 31, 2002 and March 31, 2003 the Company's cash balances
include $9,000 and $0, respectively representing accounts receivable that had
been collected by KBK and were in-transit to the Company but which were
potentially subject to being held as collateral by KBK pending collection of
uncollected pledged accounts receivable.
On April 9, 2002, the Company entered into a loan participation agreement
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
17
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 had an initial maturity of 90 days, which was
extended for an additional 90 days at the Company's option. The Company issued
an additional 100,000 shares of common stock to the participation lender to
extend the maturity date. On October 9, 2002, the loan extension period
matured. As of May 14, 2003, none of the loan participation has been repaid nor
has the Company received formal demand for payment from the loan participant.
However, in the loan documentation the Company has waived the notices which
might otherwise be required by law and, as a consequence, the loan participants
have the current ability to post the collateral securing their notes for
foreclosure.
On May 2, 2002, the Company borrowed $250,000 under the Senior Secured Loan
Facility upon similar terms, except that the Company issued 33,334 shares of
common stock to the participating lenders at closing and issued an additional
33,334 shares of common stock to extend the maturity of those notes for an
additional 90 days. On October 25, 2002, the loan extension period matured. As
of May 14, 2003, none of the loan participations have been repaid nor has the
Company received formal demand for payment from the loan participants. However,
in the loan documentation the Company has waived the notices which might
otherwise be required by law and, as a consequence, the loan participants have
the current ability to post the collateral securing their notes for foreclosure.
On July 5, 2002, the Company entered into a loan participation agreement
under which it borrowed an additional $100,000 under its existing Senior Secured
Loan Facility. 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
had a maturity of 90 days. On September 28, 2002, the loan matured. As of May
14, 2003, none of the loan participation has been repaid nor has the Company
received formal demand for payment from the loan participant. However, in the
loan documentation the Company has waived the notices which might otherwise be
required by law and, as a consequence, the loan participants have the current
ability to post the collateral securing their notes for foreclosure.
On July 8, 2002, the Company entered into a loan participation agreement
under which it borrowed an additional $200,000 under its existing Senior Secured
Loan Facility. 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 had a maturity of 90 days. On October 1, 2002, the loan matured.
As of May 14, 2003, none of the loan participation has been repaid nor has the
Company received formal demand for payment from the loan participant. However,
in the loan documentation the Company has waived the notices which might
otherwise be required by law and, as a consequence, the loan participants have
the current ability to post the collateral securing their notes for foreclosure.
On December 4, 2002, the Company entered into a loan agreement with
Checkpoint Business, Inc. ("Checkpoint") providing for short term working
capital up to $1,000,000. The effective interest rate of under the loan
agreement was 15% per annum. Checkpoint collateral included substantially all
of the assets of the Company, including the stock of the Company's Venezuelan
subsidiary. As of December 31, 2002 and March 28, 2003, the Company had
borrowed $500,000 and an additional $200,000, respectively, under this facility.
On March 28, 2003, the Company paid in full the principal balance of
$700,000 and interest outstanding under its loan agreement with Checkpoint. On
May 7, 2003, the Company settled Checkpoint's option to purchase its Venezuelan
subsidiary and terminated Checkpoint's exclusivity rights. This settlement
consisted of $300,000 of cash and $100,000 in notes maturing in six months.
FUTURE COMMITMENTS TO BE PAID IN THE YEAR ENDING DECEMBER 31,
- -------------------------------------------------------------------------------------
DESCRIPTION 2003 2004 2005 2006 THEREAFTER
- ----------------------------- ----------- -------- -------- -------- -----------
Long term debt and notes
payable including short term
debt (1) . . . . . . . . . . . $10,221,000 - - - -
- ----------------------------- ----------- -------- -------- -------- -----------
Future minimum lease
payments. . . . . . . . . . . $ 581,000 $640,000 $421,000 $208,000 $ 208,000
- ----------------------------- ----------- -------- -------- -------- -----------
Total commitments . . . . . . $10,802,000 $640,000 $421,000 $208,000 $ 208,000
- ----------------------------- ----------- -------- -------- -------- -----------
18
(1) Accrued interest totaling $4,485,000 is included in the Company's 12%
Senior Subordinated Note at March 31, 2003, due to the accounting for
a troubled debt restructuring during 2000, but has been excluded from
the above presentation. Accrued interest calculated through December
31, 2002, will be deferred for payment until December 30, 2005.
Payments on accrued interest after December 31, 2002, began 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 March 31, 2002 and March 31, 2003, and all
other factors affecting the Company's debt remained the same, pretax earnings
would have been lower by approximately $21,000 and $17,000, 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 March
31, 2002 and 2003 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 $232,000 and $57,000
at March 31, 2002 and 2003, 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.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this Report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and
Principal Accounting Officer, of the effectiveness of the design and operation
of the Company's disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under Securities Exchange Act of 1934). Based upon that
evaluation, the Chief Executive Officer and Principal Accounting Officer
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
PART II
ITEM 1. LEGAL PROCEEDINGS
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, Charles Phillips, 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 alleged various
causes of action, including fraud, breach of contract, breach of fiduciary duty
and other intentional misconduct 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 plaintiffs' claims against all of the defendants. As
to the remaining claims, the defendants filed motions for summary judgment. On
September 24, 2002 the court granted the defendants' motions for summary
judgment. The Company had defaulted on the settlement after paying one
installment of $100,000, but has since resettled the case on behalf of all Boots
& Coots entities and all employees of the Company (but not on behalf of Larry H.
19
Ramming, Charles Phillips, and the other entities affiliated with Larry H.
Ramming) by paying the remaining unpaid $400,000 in March, 2003.
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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Through March 31, 2003, 12,000 shares of the 12,000 total shares issued of
the Company's Junior Redeemable Convertible Preferred Stock ("Redeemable
Preferred") were converted into 161,924 shares of the Company's common stock.
The converted Jr. Preferred also included dividends which were paid in kind of
1,294 shares of preferred D.
Through March 31, 2003, 2,119 shares of 5,379 total remaining shares of the
Company's Series C Cumulative Convertible Preferred Stock ("Series C Preferred
Stock") were converted into 282,534 shares of the Company's common stock. The
converted Series C Preferred Stock conversion included dividends which were paid
in kind of 492 shares of Series C Preferred Stock.
Through March 31, 2003, 3,726 shares of 3,726 total shares of the Company's
Series D Cumulative Junior Preferred Stock ("Series D Preferred Stock") were
converted into 993,600 shares of the Company's common stock. The converted
Series D Preferred Stock conversion included dividends which were paid in kind
of 312 shares Series D Preferred Stock.
In March 2003, the Company's Subordinated Lender, Prudential, converted
83,232 shares of 97,240 total shares of the Company's series G cumulative
convertible preferred stock ("Series G") into 12,062,462 shares of the Company's
common stock. The converted series G consisted of the original 80,000 shares
issued at a $100 face value, along with dividends which were paid in kind of
3,232 shares. Prudential is the only holder of Series G.
Through March 31, 2003, 100,658 shares of 101,839 total remaining shares of
the Company's Series H Cumulative Convertible Preferred Stock ("Series H
Preferred Stock") were converted into 13,420,758 shares of the Company's common
stock. The converted Series H Preferred Stock conversion included dividends
which were paid in kind of 17,857 shares of Series H Preferred Stock.
Through March 31, 2003, the Company's former chairman exercised 900,000
shares of stock options. There were also 390,514 shares of common stock issued
under various stock option plans from January 1, 2003 through March 28, 2003.
These issuances were structured as exempt private placements pursuant to
Section 4(2) of the Securities Act of 1933.
ITEM 3. DEFAULT UPON SENIOR 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. As of March
31, 2003, the Company was not in compliance with the ratio tests for the
trailing twelve month period and the Company did not receive a waiver from
Prudential for this period. Under the Subordinated Note Restructuring
Agreement, failure to comply with the ratio tests is an event of default and the
note holder may, at its option, by notice in writing to the Company, declare all
of the Notes to be immediately due and payable together with interest accrued
thereon. As of May 14, 2003, the Company has not received a written notice of
default from Prudential As of May 14, 2003, the Company has not received a
written notice of default from Prudential and the Company is in discussion with
Prudential to secure a forbearance agreement. Accordingly, the Company has
classified this note as short term in the condensed consolidated balance sheet
at March 31, 2003.
On April 9, 2002, the Company entered into a loan participation agreement
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 had an initial maturity of 90 days, which was
extended for an additional 90 days at the Company's option. The Company issued
an additional 100,000 shares of common stock to the participation lender to
extend the maturity date. On October 9, 2002, the loan extension period matured.
As of May 14, 2003, none of the loan participation has been repaid nor has the
20
Company received formal demand for payment from the loan participant. However,
in the loan documentation the Company has waived the notices which might
otherwise be required by law and, as a consequence, the loan participants have
the current ability to post the collateral securing their notes for foreclosure.
On May 2, 2002, the Company borrowed $250,000 under the Senior Secured Loan
Facility upon similar terms, except that the Company issued 33,334 shares of
common stock to the participating lenders at closing and issued an additional
33,334 shares of common stock to extend the maturity of those notes for an
additional 90 days. On October 25, 2002, the loan extension period matured. As
of May 14, 2003, none of the loan participations have been repaid nor has the
Company received formal demand for payment from the loan participants. However,
in the loan documentation the Company has waived the notices which might
otherwise be required by law and, as a consequence, the loan participants have
the current ability to post the collateral securing their notes for foreclosure.
On July 5, 2002, the Company entered into a loan participation agreement
under which it borrowed an additional $100,000 under its existing Senior Secured
Loan Facility. 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
had a maturity of 90 days. On September 28, 2002, the loan matured. As of May
14, 2003, none of the loan participation has been repaid nor has the Company
received formal demand for payment from the loan participant. However, in the
loan documentation the Company has waived the notices which might otherwise be
required by law and, as a consequence, the loan participants have the current
ability to post the collateral securing their notes for foreclosure.
On July 8, 2002, the Company entered into a loan participation agreement
under which it borrowed an additional $200,000 under its existing Senior Secured
Loan Facility. 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 had a maturity of 90 days. On October 1, 2002, the loan matured.
As of May 14, 2003, none of the loan participation has been repaid nor has the
Company received formal demand for payment from the loan participant. However,
in the loan documentation the Company has waived the notices which might
otherwise be required by law and, as a consequence, the loan participants have
the current ability to post the collateral securing their notes for foreclosure.
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)
21
Exhibit No. Document
- ------------ --------
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)
10.02 - Executive Employment Agreement of Larry H. Ramming(16)
10.03 - Executive Employment Agreement of Brian Krause(17)
10.04 - 1997 Incentive Stock Plan(18)
10.05 - Outside Directors' Option Plan
10.06 - Executive Compensation Plan
10.07 - Halliburton Center Sublease(19)
10.08 - Registration Rights Agreement dated July 23, 1998,
between Boots & Coots International Well Control, Inc. and
The Prudential Insurance Company of America(20)
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.(21)
10.10 - Common Stock Purchase Warrant dated July 23, 1998, issued to The Prudential Insurance
Company of America (22)
10.11 - Loan Agreement dated October 28, 1998, between Boots &
Coots International Well Control, Inc. and Comerica
Bank - Texas(23)
10.12 - Security Agreement dated October 28, 1998, between
Boots & Coots International Well Control, Inc. and Comerica
Bank - Texas(24)
10.13 - Executive Employment Agreement of Jerry Winchester(25)
10.14 - Executive Employment Agreement of Dewitt Edwards(26)
10.15 - Office Lease for 777 Post Oak(27)
10.16 - Open
10.17 - Open
10.18 - Third Amendment to Loan Agreement dated April 21, 2000 (28)
10.19 - Fourth Amendment to Loan Agreement dated May 31, 2000(29)
10.20 - Fifth Amendment to Loan Agreement dated May 31, 2000(30)
10.21 - Sixth Amendment to Loan Agreement dated June 15, 2000(31)
10.22 - Seventh Amendment to Loan Agreement dated December 29,2000(32)
10.23 - Subordinated Note Restructuring Agreement with The Prudential Insurance Company of
America dated December 28, 2000 (33)
10.25 - Preferred Stock and Warrant Purchase Agreement, dated April 15, 1999, with Halliburton
Energy Services, Inc. (34)
10.27 - Form of Warrant issued to Specialty Finance Fund I, LLC and to Turner, Voelker, Moore (35)
10.28 - Amended and Restated Purchase and Sale Agreement with National Oil Well, L.P.(36)
10.29 - KBK Financial, Inc. Account Transfer and Purchase Agreement(37)
10.30 - 2000 Long Term Incentive Plan(38)
10.31 - Eighth Amendment to Loan Agreement dated April 12, 2002(39)
10.32 - Ninth Amendment to Loan Agreement dated May 1, 2002(40)
10.33 - 1st Amendment to Subordinated Note Restructuring Agreement with The Prudential Insurance
Company of America dated March 29, 2002(41)
10.34 - 2nd Amendment to Subordinated Note Restructuring Agreement with The Prudential Insurance
Company of America dated June 29, 2002(42)
*21.01 - List of subsidiaries
*99.1 Certification by Jerry Winchester
*99.2 Certification by Kevin Johnson
22
*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.
(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 10.33 of Form 10-Q filed August
16, 1999.
(17) Incorporated herein by reference to exhibit 10.4 of Form 8-K filed August
13, 1997.
(18) Incorporated herein by reference to exhibit 10.14 of Form 10-KSB filed
March 31, 1998.
(19) Incorporated herein by reference to exhibit 10.17 of Form 10-KSB filed
March 31, 1998.
(20) Incorporated herein by reference to exhibit 10.22 of Form 8-K filed August
7, 1998.
(21) Incorporated herein by reference to exhibit 10.23 of Form 8-K filed August
7, 1998.
(22) Incorporated herein by reference to exhibit 10.24 of Form 8-K filed August
7, 1998.
(23) Incorporated herein by reference to exhibit 10.25 of Form 10-Q filed
November 17, 1998.
(24) Incorporated herein by reference to exhibit 10.26 of Form 10-Q filed
November 17, 1998.
(25) Incorporated herein by reference to exhibit 10.29 of Form 10-K filed April
15, 1999.
(26) Incorporated herein by reference to exhibit 10.30 of Form 10-K filed April
15, 1999.
(27) Incorporated herein by reference to exhibit 10.31 of Form 10-K filed April
15, 1999.
23
(28) Incorporated herein by reference to exhibit 10.38 of Form 10-K filed July
17, 2000.
(29) Incorporated herein by reference to exhibit 10.39 of Form 10-K filed July
17, 2000.
(30) Incorporated herein by reference to exhibit 10.40 of Form 10-K filed July
17, 2000.
(31) Incorporated herein by reference to exhibit 10.41 of Form 10-K filed July
17, 2000.
(32) Incorporated herein by reference to exhibit 99.1 of Form 8-K filed January
12, 2001.
(33) Incorporated herein by reference to exhibit 10.23 of Form 10-K filed April
2, 2001.
(34) Incorporated herein by reference to exhibit 10.42 of Form 10-K filed July
17, 2000.
(35) Incorporated herein by reference to exhibit 10.47 of Form 10-Q filed
November 14, 2000.
(36) Incorporated herein by reference to exhibit 2 of Form 8-K filed October 11,
2000.
(37) Incorporated herein by reference to exhibit 10.29 of Form 10-Q filed August
13, 2001.
(38) Incorporated herein by reference to exhibit 4.1 of Form S-8 filed April 30,
2001.
(39) Incorporated herein by reference to exhibit 10.32 of Form 10-Q filed
November 14, 2002.
(40) Incorporated herein by reference to exhibit 10.33 of Form 10-Q filed
November 14, 2002.
(41) Incorporated herein by reference to exhibit 10.34 of Form 10-Q filed
November 14, 2002.
(42) Incorporated herein by reference to exhibit 21.01 of Form 10-Q filed May
14, 2002.
(b) Reports on Form 8-K
The Company filed an 8-K on April 1, 2003 , filing its fiscal 2002 earnings
release
The Company filed an 8-K on May 2, 2003 , filing its first quarter 2003
earnings release
24
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/ KEVIN JOHNSON
---------------------------------
Kevin Johnson
Principal Accounting Officer
Date: May 15, 2003
25
CERTIFICATION BY JERRY WINCHESTER PURSUANT TO
SECURITIES EXCHANGE ACT RULE 13A-14
I, Jerry Winchester, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Boots & Coots
International Well Control, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have significant role in the registrants internal
controls; and
6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weakness.
Date: May 15, 2003
/s/ Jerry Winchester
Jerry Winchester
Chief Executive Officer
26
CERTIFICATION BY KEVIN JOHNSON PURSUANT TO
SECURITIES EXCHANGE ACT RULE 13A-14
I, Kevin Johnson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Boots & Coots
International Well Control, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have significant role in the registrants internal
controls; and
6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weakness.
Date: May 15, 2003
/s/ Kevin Johnson
Kevin Johnson
Principal Accounting Officer
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