Edgar Filing: BOOTS & COOTS INTERNATIONAL WELL CONTROL INC

form10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

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Form 10-K

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For the fiscal year ended December 31, 2007

Commission file number 1-13817

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Boots & Coots

International Well Control, Inc.

(Name of Registrant as specified in Its Charter)

	Delaware		11-2908692
	(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

	7908 N. Sam Houston Parkway W., 5th Floor		77064
	Houston, Texas		(Zip Code)
	(Address of Principal Executive Offices)

281-931-8884

(Registrant's Telephone Number, Including Area Code)

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Securities registered under Section 12(b) of the Exchange Act:

	Title of Each Class		Name of Each Exchange on Which Registered
	Common Stock, $.00001 par value		American Stock Exchange

Securities registered under Section 12(g) of the Exchange Act: None

Indicate by check mark whether the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities act. Yes ¨ No x

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule (12b-2))

Large Accelerated Filer ¨ Accelerated Filer x Non-Accelerated Filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act. Yes ¨ No x

The aggregate market value of common stock held by non-affiliates as of June 30, 2007 was $115,894,000.

The number of shares of the issuer's common stock, par value $.00001, outstanding on March 11, 2007 was 75,776,581.

DOCUMENTS INCORPORATED BY REFERENCE

FORM 10-K

ANNUAL REPORT

For the Year Ended December 31, 2007

TABLE OF CONTENTS

		Page
PART I		3
Item 1.	Business	3
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	17
Item 2.	Properties	17
Item 3.	Legal Proceedings	17
Item 4.	Submission of Matters to a Vote of Security Holders	17
PART II		18
Item 5.	Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
Item 6.	Selected Financial Data	20
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 8.	Financial Statements and Supplementary Data	30
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	30
Item 9A.	Controls and Procedures	30
Item 9B.	Other Information	31
PART III		32
Item 10.	Directors, Executive Officers and Corporate Governace	32
Item 11.	Executive Compensation	34
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	50
Item 13.	Certain Relationships and Related Transactions, and Director Independence	51
Item 14.	Principal Accounting Fees and Services	51
PART IV
Item 15.	Exhibits, Financial Statement Schedules	52
SIGNATURES		55
CERTIFICATIONS
FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm on the Company’s Internal Control Over Financial Reporting		F-1
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements		F-2
Consolidated Balance Sheets		F-3
Consolidated Statements of Income		F-4
Consolidated Statements of Stockholders' Equity		F-5
Consolidated Statements of Cash Flows		F-6
Notes to Consolidated Financial Statements		F-7

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PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Included and incorporated by reference in this Form 10-K are certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included or incorporated by reference in this Form 10-K that address activities, events or developments that we expect or anticipate will or may occur in the future are forward-looking statements, including statements regarding our future financial position, growth strategy, budgets, projected costs, and plans and objectives of management for future operations. We use the words "may," "will," "expect," "anticipate," "estimate," "believe," "continue," "intend," "plan," "budget" and other similar words to identify forward-looking statements. You should read statements that contain these words carefully and should not place undue reliance on these statements. Although we believe our expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations or assumptions will prove to have been correct. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include, but are not limited to, the following factors and the other factors described in this Form 10-K under the caption "Risk Factors":

• competition;

• changes in economic or political conditions in the markets in which we operate; and

• the inherent risks associated with our operations, such as equipment defects, malfunctions and natural disasters.

We believe that it is important to communicate our expectations of future performance to our investors. However, events may occur in the future that we are unable to accurately predict or control. We do not undertake any obligation to publicly update or revise publicly any forward-looking statements. When considering our forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Form 10-K.

Item 1. Business.

General

We provide a suite of integrated pressure control and related services to onshore and offshore oil and gas exploration and development companies; principally in North America, South America, North Africa, West Africa and the Middle East. Our customers include major and independent oil and gas companies in the U.S. market and major international and foreign national oil and gas producers as well as other oilfield service companies. Our service lines are organized into two business segments; well intervention and response. Our well intervention segment consists of services that are designed to enhance production for oil and gas operators and to reduce the number and severity of critical events such as oil and gas well fires, blowouts or other incidences due to loss of control at the well. This business segment consists primarily of hydraulic workover and snubbing services, prevention and risk management services and pressure control equipment rental and services. Our response segment consists of personnel, equipment and emergency services utilized during a critical well event. We have a long history in the oil and gas industry and are widely recognized for our emergency response services.

Executive Offices. Our principal offices are located at 7908 N. Sam Houston Parkway W., 5th Floor, Houston, Texas 77064, and our telephone number is (281) 931-8884. Our website is located at www.boots-coots.com.

History of Boots & Coots

Boots & Coots International Well Control, Inc. was incorporated in Delaware in April 1988, and remained largely inactive until acquiring IWC Services, Inc., a Texas corporation ("IWC Services"), on July 29, 1997. IWC Services was a global-response oil and gas well control service company that specialized in responding to and controlling oil and gas well emergencies, including blowouts and well fires. IWC Services was organized in June 1995 by six former key employees of the Red Adair Company.

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On July 31, 1997, we acquired substantially all of the operating assets of Boots & Coots, L.P., a Colorado limited partnership, and the stock of our subsidiary corporations, Boots & Coots Overseas, Ltd., and Boots & Coots de Venezuela, S.A. Boots & Coots, L.P. and our subsidiaries were engaged in oil well fire fighting, snubbing and blowout control services. Boots & Coots, L.P. was organized by Boots Hansen and Coots Matthews, two former employees of the Red Adair Company who, like the founders of IWC Services, left that firm to form an independent company, which was a primary competitor of IWC Services. As a consequence of the acquisition of Boots & Coots, L.P., we became a worldwide leader in the oil well firefighting and blowout control industry, reuniting many of the former employees of the Red Adair Company.

Acquisitions

On March 3, 2006, we acquired the hydraulic well control business (HWC) of Oil States International, Inc. As consideration for HWC, we issued approximately 26.5 million shares of our common stock and subordinated promissory notes of $21.2 million. In April 2007, Oil States International, Inc. sold 14.95 million shares of our common stock and now owns approximately 15% of our common stock. Additionally, they hold the subordinated note of $21.2 million payable in September 2010, as of the date of this report. Our acquisition of hydraulic workover and snubbing equipment and services is reported in our well intervention business segment. This service line has significantly expanded and enhanced our pressure control services capabilities and further emphasizes our strategy of complementing our pressure control experience gained through our response service line. Well intervention services are routinely needed by oil and gas exploration and development companies.

On July 31, 2007, we acquired Rock Springs, Wyoming-based StassCo Pressure Control, LLC (StassCo) for $11.2 million, including direct acquisition costs of $0.1 million, a payable to the sellers of $0.5 million and less cash acquired of $0.8 million. This transaction was funded utilizing cash proceeds available from our underwritten public offering of common stock in April 2007. StassCo performs snubbing services in the Cheyenne basin, Wyoming and operates four hydraulic rig assist units. This acquisition is an entry point to the Rockies pressure control market, a key to our strategy to expand North America land operations.

Our Industry

Our business is primarily dependent on the condition of the oil and gas industry. Demand for our services is cyclical and dependent upon the level of capital expenditures by oil and gas companies for well intervention services in our operating areas. These expenditures are influenced by prevailing oil and gas prices, expectations about future demand and prices, the cost of exploring, producing and developing oil and gas reserves, the discovery rates of new oil and gas reserves, political and economic conditions, governmental regulation and the availability and cost of capital. Our well intervention business is directly impacted by the level of North American and international rig counts. Demand for oilfield products and services may indirectly impact the longer-term prospects for our well control and other event-driven services.

Business Strategy

We have endeavored to build upon our demonstrated strengths in providing pressure control services by growing more predictable revenues from our well intervention services business. During 2007, we were successful in expanding our pressure control services as we invested $5.9 million to launch our pressure control equipment rental and services business. These services are currently provided primarily in the Gulf Coast and central Texas regions, however, we plan to expand this business into other operating areas where we provide pressure control services, including international markets where we are able to secure contract commitments from our customers. We also expanded our geographic presence in the North American land market as we increased our hydraulic unit fleet with the acquisition of StassCo in the Rockies. We intend to continue to seek complementary business acquisitions that position us to attain more predictable levels of income, broaden our pressure control service capabilities and increase our geographic presence. The market for well control response services is finite, with services dependent upon the occurrence of blowouts that cannot be reasonably predicted; however, as we expand our well intervention services, we anticipate our response business will benefit from our well intervention business development efforts and increased geographic presence in the U.S. and international markets.

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Business Segments

Well Intervention

History. In 1999, we began to offer well intervention services in an effort to reduce the uncertainty of revenue in the response business. Well intervention services began with the introduction of our “Safeguard” prevention and risk management services in Alaska. We expanded these services into Venezuela in late 1999 and into Algeria in 2001. The Safeguard operations in Algeria were significantly expanded in 2004 when we entered into new long-term contracts with Algeria's national oil and gas company, Sonatrach, and ENSP, one of the Algeria national oil and gas service providers. In 1999, we introduced our WELLSURE® program, which provides oil and gas operators and insurance underwriters a medium for effective management of well control insurance costs. We expanded this program internationally into Canada in 2003 and Indonesia in 2004. The most substantial increase in our well intervention services business and our overall scope of services resulted from our March 3, 2006 acquisition of our hydraulic workover and snubbing services business. The acquisition significantly expanded our pressure control services to include hydraulic workover and snubbing operations and expanded our geographic presence in key international oil and natural gas markets. In 2007, we further expanded our pressure control services by commencing our pressure control equipment rental and services business primarily in the Gulf Coast, Central and East Texas regions.

Description. Our well intervention segment consists of services that are designed to enhance production for oil and gas operators and reduce the number and severity of critical well events such as oil and gas well fires, blowouts, or other incidents due to loss of control at the well. Our services include hydraulic workover and snubbing, prevention and risk management, and pressure control equipment rental and services. These services are available for both onshore and offshore operations for U.S. and international customers. Domestically, we generate revenue from these services on a "call-out" basis and charge a day rate for equipment and personnel. This contracting structure permits dynamic pricing based on market conditions, which are primarily driven by the price of oil and natural gas. Call out services range in duration from less than a week in the case of a single well cleanout procedure to more than one year for a multi-well plugging and abandonment campaign. Internationally, revenue is typically generated on a contractual basis, with contracts ranging between six months and three years in duration.

Trends. The advancement of under-balanced drilling techniques and well completion methods is being utilized to unlock the potential in unconventional resource recovery and is driving demand for hydraulic snubbing equipment. Underbalanced drilling can reduce lost circulation, minimize differential sticking, decrease time, and most importantly, complete more productive wells by avoiding formation damage. Similarly, completion techniques utilizing snubbing services have also advanced to drive the economics of these unconventional natural gas resource plays. This trend has gained acceptance in the North American shale resource play and we expect these techniques to expand into international natural gas producing markets.

In the international markets, national oil and gas companies and large international operators are aware of the risks associated with older, poorly maintained wells and wellheads, internal competency levels among core employees and service vendors and societal risks from fields positioned in high population areas. This awareness is leading to increased demand for prevention and risk management services to assess the magnitude of exposure, prevent catastrophic failures and mitigate damages in the event a loss occurs. We provide these risk management services in the form of training, risk analyses, contingency planning, audit programs and well inspections, as well as the prevention and control of blowouts and the mitigation of risks related to installations. These services are typical of those provided under our Safeguard programs to foreign national oil and gas companies and international oil and gas companies.

Demand for natural gas is expected to continue rising; driven by its cleaner burning property and by economics when compared to oil. As investments in LNG infrastructure are made, we believe that natural gas will be transformed from a regional resource to a commodity that can be readily traded and transported globally, increasing its commercial value in underdeveloped emerging markets of West Africa and the Middle East. We expect to benefit from increased international gas drilling as these wells typically have higher wellbore pressure and require pressure control services such snubbing and pressure control equipment rental and services.

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Our principal products and services of our well intervention business segment include:

Hydraulic Workover/Snubbing. This service line includes those services performed by hydraulic workover and snubbing units primarily to enhance production of oil and gas wells. We provide our hydraulic workover and snubbing units and services in various well intervention solutions involving workovers, well drilling, well completions, plugging and abandonment services and snubbing operations in pressure situations. Hydraulic units may be used for both routine and emergency well control situations in the oil and gas industry. Our hydraulic workover and snubbing units are specially designed for moving tubulars in and out of a wellbore using hydraulic pressure. When snubbing, the unit is pushing pipe or tubulars into the well bore against well bore pressures. Due to their small size and ability to work on wells under pressure, hydraulic units offer some advantages over larger conventional workover and drilling rigs in onshore and offshore applications, especially when performing workover services on wells with pressure. We operate a fleet of 33 hydraulic workover and snubbing units; 26 of which are “stand alone” units and 7 are rig assist units. We own all of the units except two of the “stand alone” units, which we operate on behalf of a customer. In 2007, we assembled a unit at our Louisiana facility and refurbished three underutilized snubbing units, which were deployed internationally and to U.S. onshore operations. Our units are deployed in various markets; nine in the Mid Continent and Rockies regions, nine in the Gulf Coast, three in Venezuela, six in Africa and six in the Middle East. The utilization rate for our total fleet of hydraulic units was 36.7% in 2007 compared to 35.5% in 2006. Utilization rates are impacted by the regional demand for hydraulic workover and snubbing units, the capabilities of the units in the region relative to the specific applications and capabilities desired by customers, and the nature of our contractual arrangements with customers. Our utilization rates are particularly affected by the concentration of our fleet in the U.S., where we are typically unable to obtain contractual utilization commitments from customers, our continuing efforts to upgrade and redeploy certain units to better position our fleet for opportunities in the U.S. gas drilling market, and the fact that we are required to stage units in specific international markets to service our regional customer base due to the particular application and capacity required. Utilization may increase as underutilized units in the U.S. are redeployed domestically and we continue to expand internationally, where service contracts typically have terms of six months to three years. In 2008, we plan to assemble new hydraulic units in order to supplement our most highly utilized unit class and to service our expanding international business.

Safeguard. Safeguard includes services that are designed to reduce the number and severity of critical well events by providing dedicated prevention and risk management services. Safeguard was specifically designed for international producers and operators, including foreign national oil and gas companies, through dedicated prevention and risk management services. These services include training, contingency planning, well plan reviews, audits, inspection services and engineering services. The growth of our Safeguard business reflects an industry trend moving operators towards a higher level of preventative and risk mitigation measures to protect against critical well events. These services typically generate revenue on a contractual basis dependent upon the breadth, scope, and duration of services performed. We provide these services to customers in the United States, Venezuela, the Middle East and North Africa, for both onshore and offshore applications

WELLSURE® Program. We and Global Special Risks, Inc., a managing general insurance agent located in Houston, Texas and New Orleans, Louisiana, have formed an alliance that offers oil and gas exploration and production companies, through retail insurance brokers, a program known as "WELLSURE®," which combines traditional well control and blowout insurance with our post-event response services and well control preventative services, including company-wide and/or well specific contingency planning, personnel training, safety inspections and engineering consultation. Insurance provided under WELLSURE® has been arranged with leading London insurance underwriters. WELLSURE® program participants are provided with the full benefit of having us as a safety and prevention partner. We generate service fees based upon the scope of prevention activity required.

Engineering Services. With greater pressure control engineering capabilities than our competitors, we provide pre-event engineering services that include consultation, well planning, dynamic kill modeling and intervention planning.

Firefighting Equipment Sales and Service. In this service line, we sell complete firefighting equipment packages, together with maintenance, monitoring, updating of equipment and ongoing consulting services.

Specialized Drilling Engineering. We have a highly specialized in-house engineering staff which provides engineering services, including planning and design of relief well drilling (trajectory planning, directional control and equipment specifications, and on-site supervision of drilling operations); planning and design of production facilities which are susceptible to well capping or other control procedures and mechanical and computer aided designs for well control equipment.

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Inspections. A cornerstone of our strategy of providing preventive well control services involves on-site inspection services for drilling and workover rigs, production platforms and field production facilities.

Training. We provide specialized training in well control procedures for drilling, exploration and production personnel for both U.S. and international operators. Additionally, we provide competency programs, blowout drills and evaluations as well as incident command training.

Pressure Control Equipment Rental and Servcies. This service line was added to our suite of pressure control services during 2007. Our pressure control equipment is utilized primarily during the drilling and completion phases of oil and gas producing wells. A typical job includes rental of equipment such as high pressure flow iron, valves, manifolds and chokes. Typically one or two technicians assemble, operate and maintain our equipment during the rental phase. We provide these services on a day rental and service basis with rates varying based on the type of equipment and length of time of rental and service. This business is currently operating in the Gulf Coast and Central and East Texas regions. We plan to expand this business into other operating areas where we provide pressure control services such as in the Rockies, North Texas and Oklahoma, including international markets where we are able to secure contractual commitments from our customers.

Response

History. The emergency response segment of the oil and gas services industry traces its roots to the late 1930's when Myron Kinley organized the Kinley Company; the first oil and gas well firefighting specialty company. Shortly after organizing the Kinley Company, Mr. Kinley hired Paul “Red” Adair, who learned the firefighting business under Mr. Kinley's supervision and remained with the Kinley Company until Mr. Kinley's retirement. When Mr. Kinley retired in the late 1950's, Mr. Adair organized the Red Adair Company and subsequently hired Boots Hansen, Coots Matthews and Raymond Henry as members of his professional firefighting staff. Mr. Adair later added Richard Hatteberg, Danny Clayton, Mike Foreman and Juan Moran to his staff, and the international reputation of the Red Adair Company grew to the point where it was a subject of popular films and the dominant competitor in the industry. Boots Hansen and Coots Matthews remained with the Red Adair Company until 1978 when they split off to organize Boots & Coots, an independent firefighting, snubbing and blowout control company.

The 1990's represented a period of rapid change in the oil and gas well control and firefighting business. The hundreds of oil well fires that were started by Iraqi troops during their retreat from Kuwait spurred the development of new firefighting techniques and tools that have now become industry standards. Moreover, after extinguishing the Kuwait fires, the entrepreneurs who created the oil and gas well firefighting industry, including Red Adair, Boots Hansen and Coots Matthews, retired, leaving our senior staff as the most experienced active oil and gas well firefighters in the world.

Historically, the well control emergency response segment of the oil and gas services industry has been reactive, rather than proactive, and a small number of companies have dominated the market. As a result, if an operator in West Africa, for example, experienced a well blowout and fire, he would likely call a well control emergency response company in Houston, Texas that would take the following steps:

• immediately dispatch a control team to the well location to assess the damage, supervise debris removal, local equipment mobilization and site preparation;

• gather and analyze the available data, including drilling history, geology, availability of support equipment, personnel, water supplies and ancillary firefighting resources;

• develop or implement a detailed fire suppression and well-control plan;

• mobilize additional well-control and firefighting equipment in Houston, Texas;

• transport equipment by air freight from Houston, Texas to the blowout location;

• extinguish the fire and bring the well under control; and

• transport the control team and equipment back to Houston, Texas.

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Description. Our response services consist of personnel, equipment and emergency services utilized during a critical well event, such as an oil and gas well fire, blowout, or other loss of control at the well. These services also include snubbing and pressure control services provided during a response which are designed to minimize response time, mitigate damage, and maximize safety. Revenue is generated through personnel time and material. Personnel time consists of day rates charged for working crews usually consisting of a team of four personnel. Day rates charged for personnel time vary widely depending upon the perceived technical, political, and security risks inherent in a project. Critical events are typically covered by our customers' insurance, lowering the risk of non-payment. The emergency response business is by nature episodic and unpredictable.

Our principal products and services for response segment include:

Well Control. This service line offers two distinct levels of service. A critical event response refers to a well control situation in which hydrocarbons are escaping from a well bore, regardless of whether a fire has occurred. Such an event frequently results in explosive fires, loss of life, damage to or destruction of drilling and production facilities, substantial environmental damage and the loss of significant production revenue. Because critical events ordinarily arise from equipment failures or human error, it is impossible to accurately predict the timing or scope of our critical event work. Critical events of catastrophic proportions can result in significant revenues to us in the year of the incident. Our professional firefighting staff has over 300 years of combined industry experience in responding to critical events, oil well fires and blowouts. Non-critical event response, on the other hand, is intended to address more common sub-surface operating problems that do not involve escaping hydrocarbons. These events typically occur in connection with workover operations or the drilling of new wells into high pressure reservoirs. In most non-critical events, the blowout prevention equipment and other safety systems on the drilling rig function according to design and in those instances, we are called upon to supervise and assist in the well control effort so that drilling operations can resume as promptly as safety permits. While non-critical events do not ordinarily have the revenue impact of a critical event, they are more frequent. Non-critical events sometimes escalate into critical events.

Firefighting Equipment Rentals. This service includes the rental of specialty well control and firefighting equipment primarily for use in conjunction with critical events; including firefighting pumps, pipe racks, athey wagons, pipe cutters, crimping tools and deluge safety systems. We charge for this equipment on a per diem basis.

WELLSURE® Program. Under the WELLSURE® program, we have formed an alliance with a managing general insurance agent that offers oil and gas exploration and production companies a program which combines traditional well control and blowout insurance with our post-event response services and well control prevention services. WELLSURE® program participants are provided with the full benefit of having us as a safety, prevention and emergency well control response partner in an emergency. We generate service fees based upon the scope of prevention and well control response services performed.

Snubbing Services. We provide hydraulic snubbing units for emergency well control situations to the oil and gas industry. A hydraulic snubbing unit is a specially designed rig used for moving tubulars in and out of a wellbore using hydraulic pressure. When a unit is snubbing, it is pushing pipe or tubulars into the well bore against well pressures. These units may also be used for blowout control and pipe recovery during a response event.

Customers

Our customers include major and independent oil and gas companies in the U.S. market, major international and foreign national oil and gas producers, as well as other oilfield service companies. While pressure control services in general are generated from a base of several hundred customers, a significant portion of the total revenue in recent years has been generated by less than five international clients. Approximately 37% of our consolidated revenues during the year ended December 31, 2007 were derived from two key customers. We generate revenue in Venezuela from one of these key customers. Unless we are able to retain our existing customers or secure new customers if we lose one or more of our significant customers, our revenue and results of operations would be adversely affected. We have a dedicated business development team in place to market our suite of pressure control services. In the U.S., services are primarily provided on a “call out” basis, with short lead time between ordering equipment and services and providing service and delivering equipment. In international markets, services and equipment are delivered based on service contracts with a term range of six months to three years.

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Regulation

Our operations are affected by numerous federal, state, and local laws and regulations relating to, among other things, workplace health and safety and the protection of the environment. The technical requirements of these laws and regulations are becoming increasingly complex and stringent, and compliance is becoming increasingly difficult and expensive. However, we do not believe that compliance with current laws and regulations is likely to have a material adverse effect on our business or financial statements. Nevertheless, we are obligated to exercise prudent judgment and reasonable care at all times and the failure to do so could result in liability under any number of laws and regulations.

Certain environmental laws provide for “strict liability” resulting from remediation of spills and releases of hazardous substances and some provide liability for damages to natural resources or threats to public health and safety. Sanctions for noncompliance may include revocation of permits, corrective action orders, administrative or civil penalties, and criminal prosecution. It is possible that changes in the environmental laws and enforcement policies hereunder, or claims for damages to persons, property, natural resources, or the environment could result in substantial costs and liabilities to us. Our insurance policies provide liability coverage for sudden and accidental occurrences of pollution and/or clean-up and containment of the foregoing in amounts which we believe are comparable to companies in the industry. To date, we have not been subject to any fines or penalties for violations of governmental or environmental regulations and have not incurred material capital expenditures to comply with environmental regulations.

Research and Development

We are not directly involved in activities that will require the expenditure of substantial sums on research and development.

Competition

We operate in highly competitive markets within the oilfield services industry. We compete with large and small oilfield industry competitors including larger integrated oilfield service providers in both business segments. Although we have a strong market share position in our well intervention service lines providing hydraulic workover and snubbing and prevention and risk management services, these markets are highly fragmented. Our main competitors in hydraulic workover include Halliburton Company, Cudd Pressure Control, a subsidiary of RPC, Inc., International Snubbing Services (ISS) and Warrior Energy Services (Bobcat) which are both subsidiaries of Superior Energy Services, Inc., and a number of local and regional oilfield service businesses.

The emergency response segment of the oil and gas services business is a dynamic market in which new technical developments could afford a service company a significant advantage. At present, the principal competitors in the oil and gas well firefighting business are Wild Well Control, Inc., a subsidiary of Superior Energy Services, Inc., and Cudd Pressure Control, a subsidiary of RPC, Inc. We believe that our growth in well intervention services has strengthened our competitive position in the industry by expanding both the scope of services that we offer to our customers as well as our geographic presence.

Our competitors may succeed in developing new techniques, products and services that are more effective than any that have been or are being developed by us or that render our techniques, products and services obsolete or noncompetitive. Our competitors may also succeed in obtaining patent protection or other intellectual property rights that might hinder our ability to develop, produce or sell competitive products or the specialized equipment used in our business.

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Employees

As of December 31, 2007, we and our operating subsidiaries collectively had 521 full-time employees and 5 part-time personnel. In addition, we have several part-time consultants and also employ part-time contract personnel who remain on-call for certain well intervention and response projects. We are not subject to any collective bargaining agreements and consider our relations with our employees, consultants and contract personnel to be good.

Reliance upon Officers, Directors and Employees

Our services require highly specialized skilled personnel. Because of the unique nature of the industry and the small number of persons who possess the requisite skills and experience, we are highly dependent upon the personal efforts and abilities of our employees. In seeking qualified personnel, we may be required to compete with companies having greater financial and other resources than us. Our future success will be dependent upon our ability to attract and retain qualified personnel, and the inability to do so, or the loss of personnel, could have a material adverse impact on our business.

Contractual Obligations to Customers; Indemnification

We customarily enter into service contracts which contain provisions that hold us liable for various losses or liabilities incurred by the customer in connection with our activities, including, without limitation, losses and liabilities relating to claims by third parties, damage to property, violation of governmental laws, regulations or orders, injury or death to persons, and pollution or contamination caused by substances in our possession or control. We may also be responsible for any such losses or liabilities caused by contractors retained by us in connection with the provision of services. In addition, such contracts generally require us, our employees, agents and contractors to comply with all applicable laws, rules and regulations (which may include the laws, rules and regulations of various foreign jurisdictions) and to provide sufficient training and educational programs to such persons in order to enable them to comply with applicable laws, rules and regulations. In the case of emergency response services, we frequently enter into agreements with customers which limit our exposure to liability and/or require the customer to indemnify us for losses or liabilities incurred by us in connection with such services, except in the case of gross negligence or willful misconduct. There can be no assurance, however, that such contractual provisions limiting our liability will be enforceable in whole or in part under applicable law.

Item 1A. Risk Factors.

In addition to the other information set forth elsewhere or incorporated by reference in this report, the following factors relating to us and our common stock should be considered carefully.

Risks Relating to Our Business

Demand for our services and products depends on oil and natural gas industry activity and expenditure levels that are directly affected by trends in oil and natural gas prices.

Demand for our products and services is particularly sensitive to the level of exploration, development, and production activity of, and the corresponding capital spending by, oil and natural gas companies, including national oil companies. Prices for oil and natural gas are subject to large fluctuations in response to relatively minor changes in the supply of, and demand for, oil and natural gas, market uncertainty, and a variety of other factors that are beyond our control. Any prolonged reduction in oil and natural gas prices will depress the immediate levels of exploration, development, and production activity, often reflected as changes in rig counts. Perceptions of longer-term lower oil and natural gas prices by oil and gas companies may result in the reduction or deferral of major expenditures given the long-term nature of many large-scale development projects. Lower levels of activity result in a corresponding decline in the demand for our services that could have a material adverse effect on our revenue and profitability. Many factors affect the supply and demand for oil and natural gas and therefore influence product prices, including:

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• the level of production;

• the levels of oil and natural gas inventories;

• domestic and worldwide demand for oil and natural gas;

• the expected cost of developing new reserves;

• the actual cost of finding and producing oil and natural gas;

• the availability of attractive oil and gas field prospects, which may be affected by governmental actions and regulations or environmental activists;

• the availability of transportation infrastructure and refining capacity;

• the level of drilling activity;

• global weather conditions and natural disasters;

• worldwide political, military, and economic conditions and economic activity, including growth in underdeveloped countries;

• national government political objectives, including the ability of the Organization of Petroleum Exporting Countries (OPEC) to set and maintain production levels and prices for oil;

• the cost and timing of the development of alternate energy sources; and

• tax policies.

If demand for drilling services or drilling rig utilization rates decrease significantly then demand for our services will decrease, which will adversely affect our results of operations.

We may not successfully integrate the businesses we acquire or achieve the benefits we are seeking from acquisitions.

As part of our business strategy, we intend to evaluate potential acquisitions of other businesses or assets. However, there can be no assurance that we will be successful in consummating any such acquisitions. Successful acquisition of businesses or assets will depend on various factors, including, but not limited to, our ability to obtain financing and the competitive environment for acquisitions. In addition, we may not be able to successfully integrate any business or assets that we acquire in the future. The integration of acquired businesses is likely to be complex and time consuming and may place a significant strain on management resources.

Disruptions in the political and economic conditions of the foreign countries in which we operate expose us to risks that may have a material adverse effect on our business.

We derive a significant portion of our revenue from our operations outside of the United States, which exposes us to risks inherent in doing business in each of the countries in which we transact business. Our operations in countries other than the United States accounted for approximately 76% of our consolidated revenues during the year ended December 31, 2007. Our operations in Venezuela and Algeria accounted for approximately 19% and 20%, respectively, of our consolidated revenues during the year ended December 31, 2007. We anticipate that our revenues from foreign operations will increase in the future due to our international presence in key oil and gas markets. Operations in countries other than the United States are subject to various risks peculiar to each country. With respect to any particular country, these risks may include:

• expropriation and nationalization of our assets or those of our customers in that country;

• political and economic instability;

• civil unrest, acts of terrorism, force majeure, war, or other armed conflict;

• natural disasters, including those related to earthquakes and flooding;

• inflation;

• currency fluctuations, devaluations, conversion and expropriation restrictions;

• confiscatory taxation or other adverse tax policies;

• governmental activities that limit or disrupt markets, restrict payments, or limit the movement of funds;

• governmental activities that may result in the deprivation of contract rights; and

• trade restrictions and economic embargoes imposed by the United States and other countries.

Due to the unsettled political conditions in many oil-producing countries, our revenue and profits are subject to the adverse consequences of war, the effects of terrorism, civil unrest, strikes, currency controls, and governmental actions, which could impact the supply and pricing for oil and natural gas, disrupt our operations, and increase our costs for security worldwide. International areas where we operate that have significant amounts of political risk include parts of Africa, South America and the Middle East. Operations in these areas increase our exposure to the foregoing risks.

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For instance, the Venezuelan National Assembly has approved a system governing how the state oil company, Petróleos de Venezuela, could gain operating control of oil producing projects. Subsequently, the Venezuelan national oil company has seized control of at least a 60 percent stake in oil production projects where foreign oil companies previously had a majority stake and operated the production project. These actions have created uncertainty in the future business and investment activities of foreign oil and natural gas companies in Venezuela and have resulted in some companies withdrawing or curtailing activities in Venezuela. To the extent that these actions adversely affect our customers' activities in this region, they may adversely affect our revenues and profits.

We are subject to foreign exchange and currency risks, particularly with respect to Venezuela.

We operate internationally, giving rise to exposure to market risks from changes in foreign currency exchange rates to the extent that transactions are not denominated in U.S. Dollars. We typically endeavor to denominate our contracts in U.S. Dollars to mitigate exposure to fluctuations in foreign currencies. On December 31, 2007, we had a net working capital balance denominated in Bolivars of $ 671,937 and subject to market risks.

Effective March 1, 2005, the exchange rate in Venezuela devalued from 1,920 to 2,150 Venezuelan bolívars to the U.S. dollar. We have taken charges to equity under the caption "foreign currency translation loss" of $361,000 during the year ended December 31, 2005 to reflect devaluation of the Venezuelan bolívar for that period. There was no currency gain or loss attributable to Venezuela during the years ended December 31, 2007 and 2006. The Venezuelan government implemented a foreign currency control regime on February 5, 2003. This has resulted in currency controls that restrict the conversion of the Venezuelan currency, the Venezuelan bolívar, to U.S. Dollars. A subsidiary of ours has registered with the control board (CADIVI) in order to have a portion of total receivables paid in U.S. dollars directly to a United States bank account. Venezuela is also on the U.S. government's "watch list" for highly inflationary economies. Management continues to monitor the situation closely.

The cyclical nature of, or a prolonged downturn in, our industry, could affect the carrying value of our goodwill and negatively impact our earnings.

As of December 31, 2007 we had approximately $8.9 million of goodwill or 6.5% of total assets. We have recorded goodwill because we paid more for some our businesses than the fair market value of the tangible and measurable intangible net assets of those businesses. Upon our annual review of our goodwill balance, if management determines that the carrying value of our equipment may not be recoverable, our goodwill could be reduced and therefore adversely impact our earnings.

We must successfully compete for the services of highly trained technical personnel.

Many of the services that we provide are complex and require a high level of expertise and often must be performed in harsh conditions. Our success depends in part upon our ability to employ and retain technical personnel with the ability to provide and enhance these services. In addition, our ability to expand our operations depends in part on our ability to increase our skilled labor force. The demand for skilled workers is high and the supply is limited. A significant increase in the wages paid by competing employers could result in a reduction of our skilled labor force, increases in the wage rates that we must pay, or both. If these events were to occur, our cost structure could increase, our margins could decrease, and our growth potential could be impaired.

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Our hydraulic workover/snubbing business is susceptible to seasonal earnings volatility and may be adversely affected by severe weather.

Our hydraulic workover/snubbing operations are directly affected by seasonal differences in weather in the areas in which we operate, most notably in the Gulf of Mexico and the Gulf Coast region. Weather conditions in the Gulf of Mexico and the Gulf Coast region generally result in higher activity in the spring, summer and fall months, with the lowest activity in the winter months. In addition, summer and fall drilling activity and, therefore, the demand for our hydraulic workover/snubbing services can be restricted due to hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf Coast. Repercussions of severe weather conditions may include:

• evacuation of personnel and curtailment of services;

• weather-related damage to offshore equipment resulting in suspension of operations;

• weather-related damage to our facilities;

• increase in insurance cost and reduction in its availability;

• inability to deliver men or materials to jobsites; and

• loss of productivity.

For example, during 2005 one hydraulic workover unit was lost as a consequence of severe weather in the Gulf of Mexico.

We have borrowed, and may in the future borrow, money to fund our operations and growth, which exposes us to certain risks that may materially impact our operations.

As of December 31, 2007, we had outstanding subordinated promissory notes totaling approximately $21.2 million, the outstanding amount under our bank term credit facility was $5.9 million, the outstanding amount under our bank revolving credit facility was $1.1 million, and we had approximately $7.0 million in remaining borrowing capacity under our bank revolving credit facility. The borrowing base limitation under our revolving credit facility is subject to re-determination periodically at the discretion of the lender. Upon a re-determination, we could be required to repay a portion of our bank debt. We may not have sufficient funds to make such repayments, which could result in a default under the terms of the loan agreement and an acceleration of the loan. We intend to finance our operating expenses, capital expenditures and acquisitions with cash flow from operations, and borrowings under our credit facility. In addition, we may significantly alter our capitalization in order to make future acquisitions. These changes in capitalization may significantly increase our level of debt. If we incur additional debt for these or other purposes, the related risks that we face could intensify. A higher level of debt also increases the risk that we may default on our debt obligations. Our ability to meet our debt obligations and to reduce our level of debt depends on our future performance which is affected by general economic conditions and financial, business and other factors. Many of these factors are beyond our control. Our level of debt affects our operations in several important ways, including the following:

• a significant portion of our cash flow from operations must be used to pay interest on borrowings and is therefore not available to re-invest in our business;

• the covenants contained in the agreements governing our debt limit our ability to borrow additional funds, pay dividends, make capital expenditures, dispose of assets and issue shares of preferred stock and otherwise may affect our flexibility in planning for, and reacting to, changes in business conditions;

• a high level of debt may impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, or general corporate or other purposes;

• a highly leveraged financial position would make us more vulnerable to economic downturns and could limit our ability to withstand competitive pressures; and

• any debt that we incur under our term credit facility or revolving credit facility will be at variable rates which makes us vulnerable to increases in interest rates.

Our ability to finance our business activities will require us to generate substantial cash flow.

Our business activities require substantial capital. We intend to finance our operations and growth in the future through cash flows from operations, the incurrence of additional indebtedness and/or the issuance of additional equity securities. We cannot be sure that our business will continue to generate cash flow at or above current levels.

If we are unable to generate sufficient cash flow from operations to fund our business and service our debt, we may have to obtain additional financing through the issuance of debt and/or equity. We cannot be sure that any additional financing will be available to us on acceptable terms. Issuing equity securities to satisfy our financing requirements could cause substantial dilution to our existing stockholders.

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If our revenues were to decrease due to lower demand for our services as a result of lower oil and natural gas prices or for other reasons, and if we could not obtain capital through our revolving credit facility or otherwise, our ability to operate and grow our business could be materially adversely affected.

The loss of one or more of our current customers could adversely affect our results of operations.

Our business is dependent not only on securing new customers but also on maintaining current customers. Approximately 37% of our consolidated revenues during the year ended December 31, 2007 were derived from two key customers. Unless we are able to retain our existing customers, or secure new customers if we lose one or more of our significant customers, our revenue and results of operations would be adversely affected.

The intense competition in our industry could result in reduced profitability and loss of market share for us.

We compete with larger equipment and service providers in the oil and natural gas industry. Some of these companies have substantially greater financial resources and larger operations than we do. They may be better able to compete because of their broader geographic dispersion or their product and service diversity. As a result, we could lose customers and market share to those competitors. These companies may also be better positioned than we to successfully endure downturns in the oil and natural gas industry. Our operations may be adversely affected if our current competitors or new market entrants introduce new products or services with better prices, features, performance or other competitive characteristics than our products and services. Competitive pressures or other factors also may result in significant price competition that could harm our revenue and our business. Additionally, we may face competition in our efforts to acquire other businesses.

We could be subject to substantial liability claims that could harm our financial condition.

Our operations involve hazardous activities that involve an extraordinarily high degree of risk. Hazardous operations are subject to accidents resulting in personal injury and the loss of life or property, environmental mishaps and mechanical failures, and litigation arising from such events may result in our being named a defendant in lawsuits asserting large claims. We may be held liable in certain circumstances, including if we fail to exercise reasonable care in connection with our activities, and we may also be liable for injuries to agents, employees and contractors who are acting within the course and scope of their duties. However:

• we may not be able to secure insurance coverage for all of the claims or damages to which we are exposed

or such coverage may not be available on terms we consider commercially reasonable;

• we may be faced with types of liabilities that will not be covered by any insurance coverage that we do obtain, such as damages from environmental contamination; and

• the dollar amount of any damages may exceed our policy limits.

A successful claim for which we are not fully insured could have a material adverse effect on us. No assurance can be given that we will not be subject to future claims that are not covered by or are in excess of the amount of insurance coverage which we deem appropriate to maintain.

Risks Relating to Our Relationship with Oil States Energy Services, Inc.

Oil States Energy Services, Inc. owns a significant percentage of common stock in our company, which could limit your ability to influence the outcome of stockholder votes.

Oil States Energy Services, Inc., a wholly owned subsidiary of Oil States International, Inc., owns approximately 15.2% of our common stock outstanding as of March 11, 2008. In addition, Douglas E. Swanson, current Chairman of our board of directors, is a director of Oil States International Inc. Oil States Energy Services, Inc. has nominated, and our board subsequently appointed and shareholders elected Robert G. Croyle to our board of directors. As a result, Oil States will be able to exercise significant influence over the outcome of matters requiring a stockholder vote, including the election of directors, the adoption or amendment of provisions in our charter and bylaws, the approval of mergers and other significant corporate transactions, including transactions involving a change of control. The interests of Oil States may differ from yours, and Oil States may vote its common stock in a manner that may adversely affect you.

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We have renounced any interest in specified business opportunities, and Oil States International, Inc. and its director nominees on our board of directors generally have no obligation to offer us those opportunities.

Pursuant to our certificate of incorporation, we have renounced any interest or expectancy in specified business opportunities in which Oil States International, Inc., any of its affiliates or any of their respective officers, directors, employees or other agents serving as a member of our board of directors (collectively, the "Oil States Group") participates or desires or seeks to participate and that involves any aspect of the energy equipment or services business or industry. Our certificate of incorporation also provides that if any such business opportunity is presented to a person who is a member of the Oil States Group, including any of those individuals who also serve as a member of our board of directors:

• no member of the Oil States Group or any of those individuals has any obligation to communicate or offer the opportunity to us; and

• such entity or individual may pursue the opportunity as that entity or individual sees fit,

unless:

• it was presented to a member of the Oil States Group who also serves as a member of our board of directors solely in that person's capacity as a director of our company and no other member of the Oil States Group independently received notice of or otherwise identified such opportunity; or

• the opportunity was identified solely through the disclosure of information by or on behalf of our company.

We may amend these provisions of our certificate of incorporation only by an affirmative vote of holders of at least 80% of our outstanding common stock. As a result of these charter provisions, our future competitive position and growth potential could be adversely affected.

Risks Relating to Ownership of Our Common Stock

Future sales of our common stock by our existing stockholders may depress our stock price.

As of March 11, 2008, there were 75,776,581 shares of our common stock outstanding. We have filed a registration statement registering all of the shares owned by Oil States Energy Services, Inc. for resale, which will be available to Oil States Energy Services, Inc. for future sales. In addition, approximately 5.0 million shares of common stock underlying certain warrant agreements, employee stock option plans, and director stock option plans are eligible for immediate sale, and we may register for sale additional shares underlying these or other plans in the future. All of the common stock covered by current and any future registration statements may be sold by the selling security holders in market transactions from time to time. Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales may occur, could cause the market price of our common stock to decline.

Trading volumes of our shares of common stock have been comparatively low and, therefore, our common stock may suffer from limited liquidity and its prices will likely be volatile and its value may be adversely affected.

Because of our relatively low trading volumes, the trading price of our common stock will likely be subject to significant price fluctuations and limited liquidity. This may adversely affect the value of your investment. In addition, our common stock price could be subject to fluctuations in response to variations in quarterly operating results, changes in management, future announcements concerning us, general trends in the industry and other events or factors as well as those described above.

We have not paid, and do not anticipate paying, any dividends on our common stock in the foreseeable future.

We have never paid any cash dividends on our common stock. We do not expect to declare or pay any cash or other dividends in the foreseeable future on our common stock. Our existing credit facilities restrict our ability to pay cash dividends, and we may also enter into credit agreements or other borrowing arrangements in the future that further restrict our ability to declare or pay cash dividends on our common stock.

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You may experience dilution of your ownership interests due to the future issuance of additional shares of our common stock.

We may in the future issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests of our present stockholders. We are currently authorized to issue 125,000,000 shares of common stock and 5,000,000 shares of preferred stock with such designations, preferences and rights as determined by our board of directors. As of March 11, 2008, no shares of our preferred stock were outstanding, 75,776,581 shares of common stock were outstanding, and there were approximately 8.0 million shares of common stock underlying certain warrant agreements, employee stock option plans and director stock option plans, of which options and warrants to purchase 6.3 million shares were outstanding and of these shares, 5.1 million were exercisable within 60 days. The issuance of such additional shares of common stock would dilute the interests of our existing stockholders and issuance or potential issuance of such shares may create downward pressure on the trading price of our common stock. We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with the hiring of personnel, future acquisitions, future private placements of our securities for capital raising purposes, or for other business purposes. Any such issuances would further dilute the interests of our existing stockholders.

We may issue preferred stock, the terms of which could adversely affect the voting power or value of our common stock.

Our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such preferences, powers and relative participating, optional and other rights, including preferences over our common stock respecting dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we might afford holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of our common stock.

The ownership interest of Oil States Energy Services, Inc., the Rights Agreement by and between us and American Stock Transfer & Trust Company dated November 17, 2001 ("Rights Agreement"), provisions contained in our certificate of incorporation and bylaws and provisions of Delaware law could discourage a takeover attempt, which may reduce or eliminate the likelihood of a change of control transaction and, therefore, your ability to sell your shares for a premium.

The significant ownership position of Oil States Energy Services, Inc., our Rights Agreement, provisions contained in our certificate of incorporation and bylaws and provisions of Delaware law could make it more difficult for a third party to acquire control of our company. We have entered into a Rights Agreement that would cause extreme dilution to any person or group (other than Oil States Energy Services, Inc., its affiliates and certain of its direct transferees) who attempts to acquire a significant interest in us without advance approval of our board of directors. Our certificate of incorporation and bylaws include provisions for a classified board, limitations on the removal of directors and on stockholder proposals at meetings of stockholders and limitations on the right of stockholders to call special meetings. Our certificate of incorporation also authorizes our board of directors to issue preferred stock without stockholder approval. In addition, Section 203 of the Delaware General Corporation Law imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. Each of these factors could increase the difficulty for a third party to acquire us and therefore delay or prevent a change of control transaction, even if that change would be beneficial to our stockholders, which could affect the value of our common stock and reduce or eliminate your ability to sell your shares of common stock at a premium.

Lack of effective internal control over financial reporting could result in an inability to accurately report our financial results that could lead to a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

Effective internal control over financial reporting is essential for us to produce reliable financial reports. If we cannot provide reliable financial information or prevent fraud, our business and operating results could be harmed. We have in the past discovered, and may in the future discover, deficiencies in our internal control over financial reporting. In connection with the audit of our consolidated financial statements for the year ended December 31, 2005, our independent auditors, UHY LLP, issued a letter to our audit committee noting certain matters in our Venezuelan subsidiary that they considered to be material weaknesses in internal control. The matters listed in the letter included the lack of controls to mitigate the risk of fraud and the lack of controls over financial reporting; particularly, with respect to adjustments necessary to convert the Venezuelan financial statements from Venezuelan generally accepted accounting principles to accounting principles generally accepted in the United States.

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We enacted changes in policies and procedures during 2006 designed to remediate the material weaknesses identified in our internal control over financial reporting and at December 31, 2006 such material weaknesses were remediated. However, there can be no assurance that in the future other material weakness will not arise and failure to successfully implement and maintain effective internal control over financial reporting, including any ineffectiveness of the corrective actions that may be needed to address the control deficiencies, could result in a material misstatement of our financial statements or otherwise cause us to fail to meet our financial reporting obligations. This, in turn, could result in a loss of investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

We own or lease approximately 10 offices including operations facilities. The Company believes its current operating facilities are suitable and adequate to meet current and reasonably anticipated future needs although as our business continues to grow we are evaluating the need for additional facilities. Descriptions of the major facilities used in our operations are as follows:

Owned Locations

Houston, Texas – Office, manufacturing and warehouse building

Houma, Louisiana – Office, operations, fabrication and equipment storage facility

Leased Locations

Houston, Texas – Administrative office

Rock Springs, Wyoming – Office, operations and equipment storage facility

Algeria – Office, operations, and equipment storage facility

Republic of Congo – Office, operations, and equipment storage facility

Egypt – Office, operations, and equipment storage facility

Dubai – Office, operations, and equipment storage facility

Venezuela – Office operations, and equipment storage facility

Item 3. Legal Proceedings.

We are involved in or threatened with various legal proceedings from time to time arising in the ordinary course of business. We do not believe that any liabilities resulting from any such proceedings will have a material adverse effect on our operations or financial position.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to the shareholders during the fourth quarter of 2007.

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PART II

Item 5. Market for Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is listed on the American Stock Exchange (AMEX) under the symbol “WEL.” The following table sets forth the high and low sales prices per share of our common stock for each full quarterly period within the two most recent fiscal years as reported on the AMEX:

High and Low Sales Prices

	2007				2006
	High		Low		High		Low
First Quarter	$	2.77	$	1.98	$	1.86	$	1.08
Second Quarter		2.90		1.70		2.45		1.58
Third Quarter		1.73		1.21		1.97		1.56
Fourth Quarter		1.64		1.20		2.25		1.55

On March 11, 2008 the last reported sales price of our common stock as reported on AMEX was $ 1.62 per share.

As of March 11, 2008, our common stock was held by approximately 200 holders of record. We have a larger number of beneficial stockholders and much of our common stock is held by broker-dealers in street name for their customers.

We have not paid any cash dividends on our common stock to date. Our current policy is to retain earnings, if any, to provide funds for the operation and expansion of our business. Our credit facilities contain covenants prohibiting the payment of dividends.

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PERFORMANCE OF COMMON STOCK

The following graph compares our total stockholder return on an investment of $100 in our common stock at December 31, 2002 for the years ended December 31, 2003, 2004, 2005, 2006 and 2007 as compared to the Standard & Poors' 500, the Dow Jones Wilshire MicroCap, the PHLX Oil Service Sector and the DJ Wilshire MicroCap Oil Equipment & Services indices over the same period.

	12/02	12/03	12/04	12/05	12/06	12/07

Boots & Coots International Well Control	100.00	196.88	142.19	162.50	350.00	254.69
S&P 500	100.00	128.68	142.69	149.70	173.34	182.87
Dow Jones Wilshire MicroCap	100.00	183.20	214.67	217.28	249.62	228.34
PHLX Oil Service Sector	100.00	116.44	157.54	236.42	267.49	395.88
DJ Wilshire MicroCap Oil Equipment & Services	100.00	141.76	192.04	291.25	296.76	337.06

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Item 6. Selected Financial Data.

The following table sets forth certain historical financial data as of and for the years ended December 31, 2007, 2006, 2005, 2004 and 2003 which has been derived from our audited consolidated financial statements. The results of operations of ITS, Baylor Company, Abasco and Special Services are presented as discontinued operations. The data should be read in conjunction with the consolidated financial statements, including the notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.

	Years Ended December 31,
	2007		2006		2005		2004			2003
	(in thousands except per share amounts)
INCOME STATEMENT DATA:
Revenues	$	105,296	$	97,030	$	29,537	$	24,175		$	35,935
Operating income		12,692		19,892		4,563		1,066			10,234
Income(loss) from continuing operations, net of income taxes		7,891		11,165		2,779		(290	)		6,609
Income from discontinued operations, net of income taxes		—		—		—		42			482
Net income (loss)		7,891		11,165		2,779		(248	)		7,091
Net income (loss) attributable to common stockholders		7,891		11,781		1,905		(996	)		5,868
BASIC INCOME (LOSS) PER COMMON SHARE:
Continuing operations	$	0.11	$	0.22	$	0.06	$	(0.04	)	$	0.25
Discontinued operations	$	—	$	—	$	—	$	—		$	0.02
Net income (loss)	$	0.11	$	0.22	$	0.06	$	(0.04	)	$	0.27
Weighted average common shares outstanding –Basic		70,039		53,772		29,507		28,142			21,878

DILUTED INCOME (LOSS) PER COMMON SHARE:
Continuing operations	$	0.11	$	0.21	$	0.06	$	(0.04	)	$	0.24
Discontinued operations	$	—	$	—	$	—	$	—		$	0.02
Net income (loss)	$	0.11	$	0.21	$	0.06	$	(0.04	)	$	0.26
Weighted average common shares outstanding - Diluted		72,114		55,036		31,374		28,142			22,218

	As of December 31,
	2007		2006		2005		2004		2003
	(in thousands)
BALANCE SHEET DATA:
Total assets	$	136,415	$	101,017	$	14,767	$	18,393	$	19,726
Long-term debt and notes payable, including current maturities (1)		28,091		31,432		6,448		7,680		12,398
Working capital (2)		34,712		25,512		3,565		2,553		9,375
Stockholders' equity (3)		77,043		38,422		3,795		1,180		380
Common shares outstanding		75,564		59,186		29,594		29,439		27,300

(1)

The improvement in long-term debt and notes payable including current maturities and working capital from 2003 to 2004 is a result of restructuring our obligations with Prudential in 2004. The increase in long term debt from 2005 to 2006 is a result of debt issued to Oil States Energy Services, Inc. and the credit agreement with Wells Fargo entered into in conjunction with the HWC acquisition.

(2)

Working capital is the dollar amount of current assets less current liabilities. The increase in working capital from 2005 to 2006 is a result of the HWC acquisition. In 2007, accounts receivable increased due to higher fourth quarter revenue in 2007 compared to 2006: additionally, foreign prepaid tax and prepaid expenses increased.

(3)

The increase in Stockholders’ equity from 2005 to 2006 is a result of the 26.5 million shares issued for the purchase of HWC from Oil States International, Inc. valued at $26.5 million. The increase from 2006 to 2007 is due to our April 2007 underwritten public offering of 14.95 million shares of our common stock which netted $28.8 million.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto and the other financial information contained in our periodic reports previously filed with the Securities and Exchange Commission and incorporated herein by reference.

Our summary consolidated operating results for the fiscal years ended December 31, 2007, 2006 and 2005 were:

	Years Ended December 31,
	2007		2006		2005
	(in thousands)
Revenues	$	105,296	$	97,030	$	29,537
Costs and expenses:
Cost of sales		62,581		52,281		14,488
Operating expenses		17,792		15,597		7,098
Selling, general and administrative		5,904		4,118		2,674
Other operating expense		276		259		—
Depreciation and amortization		6,051		4,883		714
Operating income		12,692		19,892		4,563
Interest expense and other, net		2,052		2,860		655
Income tax expense		2,749		5,867		1,129
Net income		7,891		11,165		2,779
Preferred dividends accrued		—		616		(874	)
Net income attributable to common stockholders	$	7,891	$	11,781	$	1,905

We operate in two business segments: well intervention and response. Intercompany transfers between segments were not material. Our accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. While cost of sales expenses are variable based upon the type of revenue generated, most of our operating expenses represent fixed costs for base labor charges, rent and utilities. For purposes of this presentation, operating expenses and depreciation and amortization have been charged to each segment based upon specific identification of expenses and a pro rata allocation of remaining non-segment specific expenses are assigned between segments based upon relative revenues. Selling, general and administrative and corporate expenses have been allocated between segments in proportion to their relative revenue. Business segment operating data from continuing operations is presented for purposes of management discussion and analysis of operating results.

Our well intervention segment consists of services that are designed to enhance production for oil and gas operators and reduce the number and severity of critical well events such as oil and gas well fires, blowouts, or other losses of control at the well. This segment includes services performed by hydraulic workover and snubbing units that are used to enhance production of oil and gas wells. These units are used for underbalanced drilling, workover, well completions and plugging and abandonment services. This segment also includes services that are designed to reduce the number and severity of critical well events offered through our prevention and risk management programs, including training, contingency planning, well plan reviews, audits, inspection services and engineering services. Additionally, this segment includes our pressure control equipment rental and service business, which was an expansion of the Company’s well intervention segment in 2007.

The response segment consists of personnel, equipment and services provided during a critical well event These services also include snubbing and pressure control services provided during a response which are designed to minimize response time and mitigate damage while maximizing safety. These services primarily utilize existing personnel to maximize utilization with only slight increases in fixed operating costs. In the past, during periods of few critical events, resources dedicated to emergency response were underutilized or, at times, idle, while the fixed costs of operations continued to be incurred, contributing to significant operating losses. To mitigate these consequences, we have concentrated in growing our well intervention business to provide more predictable revenues. The response business segment represented 12.6% of total revenues in 2007 compared 21% in 2006. We expect our response business segment to continue to benefit as a result of cross selling of our pressure control services by our well intervention business development team and our expanded geographic presence.

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	Year Ended December 31,
	2007		2006		2005
	(in thousands)
Revenues
Well Intervention	$	91,985	$	76,653	$	13,860
Response		13,311		20,377		15,677
	$	105,296	$	97,030	$	29,537
Cost of Sales
Well Intervention	$	58,422	$	46,562	$	6,226
Response		4,159		5,719		8,262
	$	62,581	$	52,281	$	14,488
Operating Expenses (1)
Well Intervention	$	14,477	$	10,104	$	3,531
Response		3,315		5,493		3,567
	$	17,792	$	15,597	$	7,098
Selling, General and Administrative (2)
Well Intervention	$	5,409	$	3,514	$	1,255
Response		771		863		1,419
	$	6,180	$	4,377	$	2,674
Depreciation and Amortization (1)
Well Intervention	$	5,750	$	4,637	$	310
Response		301		246		404
	$	6,051	$	4,883	$	714
Operating Income
Well Intervention	$	7,927	$	11,835	$	2,538
Response		4,765		8,057		2,025
	$	12,692	$	19,892	$	4,563

(1)

Operating expenses and depreciation and amortization have been charged to each segment based upon specific identification of expenses and an allocation of remaining non-segment specific expenses pro rata between segments based upon relative revenues.

(2)

Selling, general and administrative expenses have been allocated pro rata between segments based upon relative revenues.

Comparison of the Year ended December 31, 2007 with the Year ended December 31, 2006

Revenues

Well intervention revenues were $91,985,000 for the year ended December 31, 2007, compared to $76,653,000 for the year ended December 31, 2006, representing an increase of $15,332,000, or 20.0% in the current year. An increase of $5,309,000 in revenue is due to the inclusion of a full year of hydraulic workover revenue in the current year compared to 10 months in the year 2006, and $2,965,000 in revenue is due to the one time rig assist unit contract settlement in Qatar. The remaining increase in revenue is due to growth initiatives in our international prevention and risk management services, our pressure control equipment rental and services, our hydraulic workover and snubbing services in Wyoming, North Texas, the Middle East and Egypt which was offset by lower activity in the Gulf of Mexico and Venezuela.

Response revenues were $13,311,000 for the year ended December 31, 2007, compared to $20,377,000 for the year ended December 31, 2006, a decrease of $7,066,000, or 34.7% in the current year. The decrease was primarily due to a lower level of high risk, international emergency response activity.

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Cost of Sales

Well intervention cost of sales was $58,422,000 for the year ended December 31, 2007, compared to $46,562,000 for the year ended December 31, 2006, an increase of $11,860,000, or 25.5% in the current year. The increase was primarily the result of an additional cost of sales of $7,197,000 due to the inclusion of a full year of hydraulic workover cost of sales in the current year compared to ten months in the prior year. The increase was also due to start up costs of $1,370,000 related to our entry into the pressure control rental tool and North Texas snubbing businesses and our expansion of Middle East snubbing and North African prevention and risk management services. In addition, the cost of sales for areas experiencing revenue increases were not fully offset by cost reductions associated with revenue decreases due to the semi-fixed costs related to the hydraulic workover and snubbing services in the Gulf of Mexico and Venezuela as well as the reduction of non-recurring low cost Gulf of Mexico remediation work from the prior year period.

Response cost of sales was $4,159,000 for the year ended December 31, 2007, compared to $5,719,000 for the year ended December 31, 2006, a decrease of $1,560,000, or 27.3% in the current year. For the current year, cost of sales was 31.2% of revenue compared to 28.1% of revenue in the prior year. The 3.1% increase as a percentage of revenue is due primarily by the lower level of favorable international activity during 2007.

Operating Expenses

Consolidated operating expenses were $17,792,000 for the year ended December 31, 2007, compared to $15,597,000 for the year ended December 31, 2006, an increase of $2,195,000, or 14.1% in the current year. The increase was primarily the result of an additional $1,418,000 due to the inclusion of a full year of hydraulic workover operating expense in the current year compared to ten months in the prior year as well as additional support personnel costs which include start up expenses of $1,054,000 for our pressure control rental business, our prevention and risk management business in the Middle East and North Africa, and our hydraulic workover and snubbing business in North Texas and the Middle East.

Selling, General and Administrative Expenses

Consolidated selling, general and administrative (S,G&A) expenses were $6,180,000 for the year ended December 31, 2007, compared to $4,377,000 for the year ended December 31, 2006, an increase of $1,803,000, or 41.2% in the current year. The increase in total SG&A expense is primarily due to salaries, benefits, and marketing related expenses. The increases were offset by a decrease in incentive bonus expense. During the twelve months ended December 31, 2007, SG&A expense represented 5.9% of consolidated revenues compared to 4.5% of revenues in the prior year.

Depreciation and Amortization

Consolidated depreciation and amortization expense increased by $1,168,000 between the years ended December 31, 2007 and 2006. The increase was primarily due to an additional $704,000 resulting from the inclusion of a full year of hydraulic workover depreciation in the current year compared to ten months of hydraulic workover depreciation in the prior year, depreciation of current year property and equipment additions and the amortization of intangible assets related to the acquisition of StassCo Pressure Control LLC.

Interest Expense and Other, Net

Net interest and other expenses decreased by $808,000 in the year ended December 31, 2007 compared to the prior year period. The interest expense decrease was primarily due to capitalized interest expense of $376,000 in 2007. The interest income increase of $375,000 was due to earnings from funds received from the underwritten public offering of 14.95 million shares of our common stock in April 2007.

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Income Tax Expense

Income taxes for the year ended December 31, 2007 were $2,748,769 or 25.83% of pre-tax income compared to the year ended December 31, 2006 of $5,867,000, or 34.45% of pre-tax income. We have determined that as a result of the acquisition of HWC we have experienced a change of control pursuant to limitations set forth in Section 382 of the IRS rules and regulations. As a result, we are limited to utilizing approximately $2.1 million of U.S. net operating losses (NOL) to offset U.S. taxable income generated during the tax year ended December 31, 2007 and expect similar dollar limits in future years until our U.S. NOL’s are either completely used or expire. In 2007, the tax expense as a percent of pretax income was lower due to taxable income in foreign jurisdictions with lower tax rates compared to the U.S., a tax benefit related to the utilization of future Net Operating Losses (NOLs) against taxable income in future years which was partially offset by further FIN 48 assessments and related penalty and interest. All 2007 U.S. current tax expense was offset by utilization of NOL’s.

Comparison of the Year ended December 31, 2006 with the Year ended December 31, 2005

Revenues

Well intervention revenues were $76,653,000 for the year ended December 31, 2006, compared to $13,860,000 for the year ended December 31, 2005, representing an increase of $62,793,000, or 453.1% in 2006. The increase was primarily the result of the inclusion of $53,826,000 of HWC’s snubbing and hydraulic workover revenues for ten of the twelve months ended December 31, 2006. Safeguard revenues increased $6,298,000 or 88.1% during the year due to an increase in international revenues primarily in Algeria. The remaining increase in revenue for the year ended December 31, 2006 was primarily due to remediation work in the Gulf of Mexico.

Response revenues were $20,377,000 for the year ended December 31, 2006, compared to $15,677,000 for the year ended December 31, 2005, an increase of $4,700,000, or 30.0% in 2006. This increase was due to international activity which included extended jobs in Africa and Indonesia during the quarter ending December 31, 2006.

Cost of Sales

Well intervention cost of sales was $46,562,000 for the year ended December 31, 2006, compared to $6,226,000 for the year ended December 31, 2005, an increase of $40,336,000, or 647.9% in 2006. The increase was primarily the result of inclusion of $36,581,000 of HWC’s snubbing and hydraulic workover cost of sales for ten of the twelve months ended December 31, 2006. The remaining cost increase of $3,755,000 during the twelve months of 2006 compared to the same period in 2005 was primarily due to increases in activity attributable to our Safeguard international business (primarily in Algeria).

Response cost of sales was $5,719,000 for the year ended December 31, 2006, compared to $8,262,000 for the year ended December 31, 2005, a decrease of $2,543,000, or 30.8% in 2006. This decrease was the result of reduced subcontractor costs for third party field personnel security which were $5,087,000 during 2005. For the 2006 year, cost of sales was 28.1% of revenue which is more typical of direct costs associated with international response revenue.

Operating Expenses

Consolidated operating expenses were $15,597,000 for the year ended December 31, 2006, compared to $7,098,000 for the year ended December 31, 2005, an increase of $8,499,000, or 119.7% in 2006. This increase was primarily the result of inclusion of $3,951,000 related to support personnel and facility expense of the snubbing and hydraulic workover service line for ten of the twelve months ended December 31, 2006. The remaining operating cost increase during the twelve months ended December 31, 2006 was primarily due to business development expense associated with increased international business activities, incentive compensation expense and administrative costs. The year ended December 31, 2006 includes expense of $976,000 related to stock option expense pursuant to our adoption of SFAS No. 123R which requires the expensing of stock options beginning January 1, 2006.

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Selling, General and Administrative Expenses

Consolidated selling, general and administrative (SG&A) expenses were $4,377,000 for the year ended December 31, 2006, compared to $2,674,000 for the year ended December 31, 2005, an increase of $1,703,000, or 63.7% in 2006. This increase was primarily due to professional service fees, incentive compensation expense and $312,000 of stock option expense in 2006 pursuant to our adoption of SFAS No. 123R which requires the expensing of stock options beginning January 1, 2006. During the twelve months ended December 31, 2006, SG&A expense represented 4.5% of consolidated revenues compared to 9.1% of revenues in 2005.

Depreciation and Amortization

Consolidated depreciation and amortization expense increased by $4,169,000 for the year ended December 31, 2006 compared to 2005, due to the inclusion of depreciation expense of $4,363,000 associated with the snubbing and hydraulic workover service line for ten of the twelve months ended December 31, 2006.

Interest Expense and Other, Net

The increase in interest and other expenses, net, of $2,205,000 for the year ended December 31, 2006 as compared to the prior year is set forth in the table below:

	For the Years Ended December 31,
	2006			2005
	(in thousands)
Interest expense – senior debt	$	9		$	53
Interest on subordinated notes		102			666
Interest credit related to December 2000 subordinated debt restructuring		(598	)		(332	)
Interest expense – Term Note and Revolver		829			—
Interest expense – Subordinated Debt		1,752			—
Amortization of deferred finance cost on credit facility		41			—
Amortization of deferred finance cost on subordinated debt		809			202
Interest expense on financing agreements		85			56
Interest income on cash investments		(177	)		(49	)
Loss on foreign exchange		—			(14	)
Legal settlements and other		8			73
Total Interest and Other, Net	$	2,860		$	655

Income Tax Expense

Income taxes for the year ended December 31, 2006 were $5,867,000, or 34.45% of pre-tax income compared to the year ended December 31, 2005 of $1,129,000, or 28.9% of pre-tax income. We have determined that as a result of the acquisition of HWC we have experienced a change of control pursuant to limitations set forth in Section 382 of the IRS rules and regulations. As a result, we are limited to utilizing approximately $4.1 million of U.S. net operating losses (NOL) to offset U.S. taxable income generated during the tax year ended December 31, 2006 and expect lower dollar limits in future years until our U.S. NOL’s are either completely used or expire. In 2006, the tax expense was due to taxable income in foreign jurisdictions. All 2006 U.S. taxable income was offset by utilization of NOL’s.

Liquidity and Capital Resources

Liquidity

At December 31, 2007, we had working capital of $34,712,000 compared to $25,512,000 at December 31, 2006. Our cash balance at December 31, 2007 was $6,501,000 compared to $5,033,000 for the prior year. We ended the year with stockholders’ equity of $77,043,000 which increased $38,621,000 compared to $38,422,000 in the prior year primarily due to our 2007 equity offering proceeds of $28,847,000 and 2007 net income of $7,891,000.

In the year ended December 31, 2007, we generated net cash from operating activities of $2,146,000 compared to $4,673,000 in 2006. Our primary liquidity needs are working capital, capital expenditures such as assembling hydraulic units, expanding our pressure control fleet of equipment and replacing support equipment for our hydraulic workover and snubbing service line, debt service and acquisitions. Our primary sources of liquidity are cash flows from operations and borrowings under the revolver credit facility. We had cash and cash equivalents of $6,501,000 at December 31, 2007 compared to $5,033,000 at December 31, 2006.

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Cash used in investing activities during the years ended December 31, 2007 and 2006 in the amount of $27,065,000 and $1,687,000, respectively. Capital expenditures, including capitalized interest, totaled $21,309,000 and $6,882,000 during the years ended December 31, 2007 and 2006, respectively. Capital expenditures in 2007 consisted primarily of purchases of assets for our hydraulic workover and snubbing services and our pressure control rental equipment services, while our 2006 capital expenditures were primarily purchases of hydraulic workover and snubbing equipment. We received proceeds on sale or disposal of equipment generating cash of $4,938,000 in 2007 compared to $829,000 in 2006. In 2007, we realized insurance proceeds on two claims related to loss of hydraulic units lost offshore, one claim was related to a Gulf of Mexico claim incurred in 2005 during the Katrina hurricane which generated cash of $1,040,000 and the second claim generated cash of $3,565,000 resulting from our claim on the loss of a hydraulic unit operating offshore of the Republic of Congo, which resulted in a gain of $1,830,000 in the current year. This hydraulic unit and auxiliary equipment was lost as a consequence of a third party service vessel. Our cost to replace the equipment was approximately $2,500,000, which is included in our 2007 capital expenditures.

On March 3, 2006, we acquired the hydraulic well control business (HWC) of Oil States International, Inc. As consideration for HWC, we issued approximately 26.5 million shares of our common stock and subordinated promissory notes of $21,200,000 while the transaction netted cash to our company of $4,366,000. At the time of acquisition, this service line was operating in the Louisiana Gulf Coast, Venezuela, North Africa, West Africa and Middle East oil and gas markets.

On July 31, 2007, we acquired Rock Springs, Wyoming-based StassCo Pressure Control, LLC (StassCo) for cash consideration of $10,694,000, net of cash acquired and including transaction costs but excluding a payable to the former owners of $500,000. This transaction was funded utilizing cash proceeds available from our underwritten public offering of common stock in April 2007. StassCo performs snubbing services in the Cheyenne basin, Wyoming and operates four hydraulic rig assist units.

We increased our net cash of $26,387,000 due to financing activities during the year ended December 31, 2007 primarily as a result of an underwritten public offering of 14.95 million shares of our common stock in April of 2007, netting cash proceeds totaling approximately $28,847,000, net of underwriting discounts and offering expenses. The proceeds were used to reduce our debt, invest in the StassCo acquisition and capital expenditures, including hydraulic units and pressure control rental equipment.

In early April 2007, we were notified by a customer in Qatar that as a result of changes to its well completion plans, it would no longer require snubbing services. As a consequence, the customer no longer required the services of a rig assist unit that we had procured and deployed to the region. Under the terms of our contract with the customer, the customer had the option to either obtain ownership of the unit by paying us a lump cash sum of $4.2 million, which was approximately equal to our costs for procuring the rig assist unit and transporting it, or to make installment payments to us over a period of 24 months totaling approximately $4.0 million, in which case we would retain ownership of the unit. During the fourth quarter of 2007, we agreed to accept payment of $2,965,000 and retain ownership of the rig assist unit in satisfaction of the contract.

We operate internationally, giving rise to exposure to market risks from changes in foreign currency exchange rates to the extent that transactions are not denominated in U.S. Dollars. We typically endeavor to denominate our contracts in U.S. Dollars to mitigate exposure to fluctuations in foreign currencies. On December 31, 2007, we had cash of $138,000 denominated in Bolivars and residing in a Venezuelan bank. Venezuela trade accounts receivables of $2,992,000 were denominated in Bolivars and included along with cash in net working capital denominated in Bolivars of $ 671,937 and subject to market risks.

The Venezuelan government implemented a foreign currency control regime on February 5, 2003. This has resulted in currency controls that restrict the conversion of the Venezuelan currency, the Bolivar, to U.S. Dollars. The Company has registered with the control board (CADIVI) in order to have a portion of total receivables in U.S dollar payments made directly to a United States bank account. Venezuela is also on the U.S. government’s “watch list” for highly inflationary economies. Management continues to monitor the situation closely.

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Effective January 1, 2006, and related to our acquisition of the hydraulic well control business of Oil States International, Inc., we changed our functional currency in Venezuela from the Venezuelan Bolivar to the U.S. Dollar. This change allows us to have one consistent functional currency after the acquisition. Accumulated other comprehensive loss reported in the consolidated statements of stockholders’ equity before January 1, 2006 totaled $1.2 million and consisted solely of the cumulative foreign currency translation adjustment in Venezuela prior to changing our functional currency. In accordance with SFAS No. 52, “Foreign Currency Translation,” the currency translation adjustment recorded up through the date of the change in functional currency will only be adjusted in the event of a full or partial disposition of our investment in Venezuela.

Disclosure of on and off balance sheet debts and commitments:

Our known contractual obligations at December 31, 2007 are reflected in the table below.

Future commitments (000’s)
Description	TOTAL		Less than 1 year		1-3 years		3-5 years		After 5 years
Long and short term debt and notes payable
Term loan	$	5,867	$	1,940	$	3,880	$	47	$	—
Revolving credit Facility	$	1,058	$	—	$	1,058	$	—	$	—
Subordinated debt	$	21,166	$	—	$	21,166	$	—	$	—
Future minimum lease Payments	$	5,189	$	718	$	1,051	$	1,041	$	2,379
Total commitments	$	33,280	$	2,658	$	27,155	$	1,088	$	2,379

Off-Balance Sheet Arrangements

As of December 31, 2007 we had no off-balance sheet arrangements as defined in item 303(a)(4) of regulation S-K.

Tax Matters

Our primary deferred tax assets at December 31, 2007 are related to $28.8 million in available federal net operating loss carry forwards (NOL’s) and $3.6 million of foreign tax credits. The foreign tax credits will expire in varying amounts during the years 2009 through 2017. The NOL’s will expire in varying amounts during the years 2019 through 2027 if they are not first used to offset taxable income that we generate. Our ability to utilize a significant portion of the available NOL’s and foreign tax credits are currently limited due to a change in control that occurred during 2006.

Our income tax provision for the year-ended December 31, 2007 totaled $2.7 million or 25.8% of pretax income. Our income tax provision for the year ended December 31, 2006 totaled $5.9 million or 34.4% of pretax income.

Credit Facilities/Capital Resources

On March, 2006, we entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, which established a revolving credit facility capacity totaling $10.3 million, and a term credit facility totaling $9.7 million. The term credit facility is payable monthly over a period of sixty months and is payable in full on March 3, 2010, subject to extension under certain circumstances to March 3, 2011. The revolving credit facility is due and payable in full on March 3, 2010, subject to a year to year renewal thereafter. The loan balance outstanding on December 31, 2007 was $5.9 million on the term credit facility and $1.1 million on the revolving credit facility. The revolving credit facility borrowing base was $10.3 million at December 31, 2007, adjusted for $2.3 million outstanding under letters of credit and guarantees leaving $7.0 million available to be drawn under the facility. We believe that cash on hand, cash from operations and amounts available under our credit facilities will be sufficient to meet our liquidity needs in the coming twelve months.

At our option, borrowings under the Credit Agreement bear interest at either (i) Wells Fargo’s prime commercial lending rate plus a margin ranging, as to the revolving credit facility up to 1.00%, and, as to the term credit facility from 0.50% to 1.50% or (ii) the London Inter-Bank Market Offered Rate (LIBOR) plus a margin ranging, as to the revolving credit facility, from 2.50% to 3.00% per annum, and, as to the term credit facility, from 3.00% to 3.50%, which margin increases or decreases based on the ratio of the outstanding principal amount under the Credit Agreement to our consolidated EBITDA. The interest rate applicable to borrowing under the revolving credit facility and the term credit facility at December 31, 2007 was 7.25 % and 7.75%, respectively. Fees on unused commitments under the revolving credit facility are due monthly and range from 0.25% to 0.50% per annum, based on the ratio of the outstanding principal amount under the Credit Agreement to our consolidated EBITDA.

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Substantially all of our assets are pledged as collateral under the Credit Agreement. The Credit Agreement contains various restrictive covenants and compliance requirements, including: (1) maintenance of a minimum book net worth through December 31, 2006 equal to 90% of the pro forma book net worth calculated on March 1, 2006, but in no event less than $25 million, or, for each fiscal year thereafter, equal to the greater of the minimum book net worth required for the preceding fiscal year or 85% of book net worth on the last day of the preceding fiscal year (for these purposes “book net worth” means the aggregate of our common and preferred stockholders’ equity on a consolidated basis); (2) maintenance of a minimum ratio of our consolidated EBITDA less unfinanced capital expenditures to principal and interest payments required under the Credit Agreement, on a trailing twelve month basis, of 1.50 to 1.00; (3) notice within five (5) business days of making any capital expenditure exceeding $500,000; and (4) limitation on the incurrence of additional indebtedness except for indebtedness arising under the subordinated promissory notes issued in connection with the HWC acquisition. Due to investments of our stock offering proceeds in April 2007, the credit agreement has been amended to increase the minimum book net worth to a constant $55 million for the purpose of the first (1) covenant above and to exclude unfinanced capital expenditures for the year 2007 for the purpose of the second (2) covenant above. We were in compliance with these covenants at December 31, 2007.

The $21,166,000 owing to Oil States Energy Services, Inc. is an unsecured subordinated debt which bears interest at a rate of 10% per annum, with a one time principal payment on September 9, 2010. Interest is accrued monthly and payable quarterly.

Critical accounting policies

In response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding Disclosure about Critical Accounting Policies,” we have identified the accounting principles which we believe are most critical to the reported financial statements by considering accounting policies that involve the most complex or subjective decisions or assessment. We have identified our most critical accounting policies to be those related to revenue recognition, allowance for doubtful accounts, share-based compensation and income taxes.

Revenue Recognition - Revenue is recognized on our service contracts primarily on the basis of contractual day rates as the work is completed. Revenue and cost from product and equipment sales is recognized upon customer acceptance and contract completion.

Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, related workman’s compensation insurance, supplies, tools, repairs and depreciation costs. General and administrative costs are charged to expense as incurred. Fixed assets are depreciated over their useful lives. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.

We recognize revenues under the WELLSURE® 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 our predetermined day rates and sub-contracted work as incurred.

Allowance for Doubtful Accounts - We perform ongoing evaluations of our customers and generally do not require collateral. We assess our credit risk and provide an allowance for doubtful accounts for any accounts which we deem doubtful of collection.

Share-based compensation - We have adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, consultants and directors; including employee stock options based on estimated fair values effective January 1, 2006. SFAS No. 123R supersedes our previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in fiscal 2006. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS No. 123R. We have applied the provisions of SAB 107 in our adoption of SFAS No. 123R.

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Income Taxes - We account 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 our 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. The domestic tax liabilities are offset by the usage of our net domestic operating loss carry forwards. The provision for tax expense includes foreign income taxes from Algeria and Venezuela (See “Note I” Income Taxes to the consolidated financial statements).

Effective January 1, 2007, we adopted FASB Interpretation Number 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), which is intended to clarify the accounting for income taxes by prescribing a minimum recognition threshold for a tax position before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. In accordance with the requirements of FIN 48, the Company evaluated all tax years still subject to potential audit under state, federal and foreign income tax law in reaching its accounting conclusions. As a result, the Company concluded it did not have any unrecognized tax benefits or any additional tax liabilities after applying FIN 48 as of the January 1, 2007 adoption date as of and for the twelve months ended December 31, 2007. The adoption of FIN 48 therefore had no material impact to the Company’s consolidated financial statements. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Tax years subsequent to 2005 remain open to examination by U.S. federal and state tax jurisdictions, tax years subsequent to 2003 remain open in Venezuela, and tax years subsequent to 2002 remain open in Algeria.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. SFAS No. 157 becomes effective for the fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Positions (“FSP”) No. 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” and FSP No. 157-2, “Effective Date of FASB Statement No. 157”. FSP No. 157-1 amends SFAS No. 157 to exclude SFAS No. 13, “Accounting for Leases,” and its related interpretive accounting pronouncements that address leasing transactions, while FSP No. 157-2 delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) until the beginning of the first quarter of 2009. The Company does not expect the adoption of SFAS 157 to have a material effect on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115.” SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. The Company has not yet determined the estimated impact on its financial condition or results of operations, if any, of adopting SFAS No. 159, which becomes effective for the fiscal years beginning after November 15, 2007.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS 141(R) established revised principles and requirements for how the Company will recognize and measure assets and liabilities acquired in a business combination. The objective of this Statement is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. The Statement is effective for business combinations completed on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, which begins January 1, 2009 for the Company. The adoption of SFAS 141(R) is not expected to have a material impact on the Company’s results from operation or financial position.

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In December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51". SFAS 160 establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. The objective of this Statement is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards. The Statement is effective on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, which begins January 1, 2009 for the Company. The adoption of SFAS 160 is not expected to have a material impact on the Company’s results from operation or financial position.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

The nature of our response revenue stream is unpredictable from quarter to quarter and from country to country such that any history of geographic split does not represent a trend. During the year 2007, foreign revenues were 76% of total revenue. Revenue generated by Venezuela and Algeria during the year 2007 was 19% and 20%, respectively. Revenue generated by Venezuela and Algeria during the year 2006 was 21% and 24%, respectively. See “– Liquidity and Capital Resources” for more information regarding our foreign currency risks.

Our debt consists of both fixed-interest and variable-interest rate debt; consequently, our earnings and cash flows, as well as the fair values of our fixed-rate debt instruments, are subject to interest-rate risk. We have performed sensitivity analyses on the variable-interest rate debt to assess the impact of this risk based on a hypothetical 10% increase in market interest rates.

We have a term loan and a revolving line of credit that are subject to the risk of loss associated with movements in interest rates. As of December 31, 2007, we had floating rate obligations totaling approximately $6.9 million. See “Liquidity and Capital Resources” for more information. These floating rate obligations expose us to the risk of increased interest expense in the event of increases in short-term interest rates. If the floating interest rate was to increase by 10% from the December 31, 2007 levels, our interest expense would increase by a total of approximately $62,000 annually.

Item 8. Financial Statements and Supplementary Data.

Attached following the Signature Pages and Exhibits.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2007. Our Chief Executive Officer and Chief Financial Officer concluded, based upon their evaluation, that our disclosure controls and procedures are effective to ensure that the information required to be disclosed in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

In connection with the audit of our consolidated financial statements for the year ended December 31, 2005, our independent auditors, UHY LLP, issued letters to our audit committee, dated March 27, 2006, noting certain matters in our Venezuelan subsidiary that they considered to be a material weakness in internal control. The matters listed in the letters included the lack of controls to mitigate the risk of fraud and the lack of controls over financial reporting; particularly with respect to adjustments necessary to convert the Venezuelan financial statements from Venezuelan generally accepted accounting principles to accounting principles generally accepted in the United States.

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During 2006, we made changes in policies and procedures to improve and enhance internal controls with regard to fraud prevention and detection and with respect to financial reporting in Venezuela intended to appropriately address the matters referred to in the letters. These changes included:

hiring a CFO with an International background and Sarbanes Oxley implementation experience;

revising and implementing the existing policies and procedures of the subsidiary;

restructuring the accounting department of the subsidiary and enhancing our corporate reporting requirements;

utilizing an in-country accounting manager to support the implementation of an integrated accounting system. The accounting manager is responsible for local internal controls and policies and procedures.

Based on these improvements, the material weaknesses were remediated as of December 31, 2006

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Integrated Framework. Based on this assessment, our management concluded that, as of December 31, 2007, our internal control over financial reporting is effective based on those criteria.

Our internal control over financial reporting as of December 31, 2007 has been audited by UHY LLP, an independent registered public accounting firm, as stated in their report which appears herein.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting identified in conjunction with our management’s evaluation of such control that occurred during our fourth fiscal quarter ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governace.

The following table lists the name, age, and office of each of our directors and executive officers. There are no family relationships between any director and any other director or executive officer.

NAME	AGE	POSITION

Douglas E. Swanson	69	Chairman of the Board

Jerry L. Winchester	48	President, Chief Executive Officer and Director

Gabriel Aldape	47	Chief Financial Officer

Dewitt H. Edwards	49	Executive Vice President

W. Richard Anderson (1)	54	Director

E. J. DiPaolo (1)(2)	55	Director

Robert S. Herlin (1)	52	Director

K. Kirk Krist (2)	49	Director

Robert G. Croyle (2)	65	Director

_____________________________

(1) Member of the Audit and Compensation Committees.

(2) Member of the Nominating and Corporate Governance Committee.

BIOGRAPHIES OF EXECUTIVE OFFICERS AND DIRECTORS

Douglas E. Swanson has served as a Class III director since March 2006. Mr. Swanson serves as a Class III director for a term that will expire on the date of our annual meeting of stockholders in 2009. Mr. Swanson was elected Chairman of the board by our board of directors on November 6, 2006. Mr. Swanson was appointed as president and chief executive officer of Oil States International, Inc. in January 2000. He resigned his position as president of Oil States in May 2006, and he resigned his position as chief executive officer of Oil States in April 2007. Oil States International, Inc., a diversified oilfield services company, that is a leading manufacturer of products for deepwater production facilities and subsea pipelines, and is a leading supplier of a broad range of services to the oil and gas industry, including production-related rental tools, work force accommodations and logistics, oil country tubular goods distribution and land drilling services. Oil States is a publicly traded company on the New York Stock Exchange under the symbol “OIS”. Mr. Swanson remains a director of Oil States. Prior to joining Oil States, Mr. Swanson served as president and chief executive officer of Cliffs Drilling Company, a contract drilling company, from January 1992 to August 1999. He holds a bachelor’s degree from Cornell College and is a Certified Public Accountant. Mr. Swanson is a director for Flint Energy Services, LTD (Toronto: FES.TO) a Canadian integrated midstream oil and gas production services provider.

Jerry Winchester has served as our President, Class II Director and Chief Operating Officer since 1998. In July 2002 he assumed the position of Chief Executive Officer. Mr. Winchester serves as a Class II Director for a term that will expire on the date of our annual meeting of stockholders scheduled in 2008. Prior to joining us in 1998, Mr. Winchester was employed by Halliburton Energy Services since 1981 in positions of increasing responsibility, most recently as Global Manager – Well Control, Coil Tubing and Special Services. He received his B.S. in Engineering Technology from Oklahoma State University in 1982 and is an active member of the Society of Petroleum Engineers and the International Association of Drilling Contractors.

Gabriel Aldape was appointed our Chief Financial Officer on March 3, 2006. From July 1998 to March2, 2006, Mr. Aldape served as Vice President–Finance of Hydraulic Well Control, LLC and in such capacity was responsible for directing investment analysis, cost analysis, general accounting, and finance management, including cash management and business planning, for Oil States land drilling operation, and for Capstar Drilling. Mr. Aldape also managed the Sarbanes-Oxley compliance effort for Hydraulic Well Control, LLC and Capstar Drilling. While at Hydraulic Well Control, LLC, Mr. Aldape directed the financial start up efforts in Dubai, the Republic of the Congo, Algeria and Egypt. Prior to that, his international experience includes five years as finance manager and controller of Hydraulic Well Control, LLC in Mexico and Venezuela. Mr. Aldape has spent 23 years in accounting and management in the oil field service industry.

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Dewitt H. Edwards has served as Executive Vice President since June 30, 2006. From April 2005 to June 2006, Mr. Edwards served as Senior Vice President—Finance and Principal Financial Officer. His primary responsibilities include the delivery of our services and the business development and geographic management of our domestic businesses. Prior to his employment, Mr. Edwards served as a consultant to the Company from May 2002 to April 2005. In that capacity, he had been engaged to work on initiatives to refinance our debt and improve our overall capital structure and liquidity. Prior to that time, Mr. Edwards had been employed by us as Executive Vice President since September 1998. Before joining us, Mr. Edwards had been employed by Halliburton Energy Services for 19 years where he served in positions of increasing authority, including Mid-Continent area manager and North America resource manager.

W. Richard Anderson has served as a Class I director since August 1999. Mr. Anderson also serves as chairman of the Audit Committee and is a member of the Compensation Committee. Mr. Anderson serves as a Class I Director for a term that will expire on the date of the annual meeting of stockholders scheduled for calendar year 2010. Prior to May 2007, Mr. Anderson was the President, Chief Executive Officer and a director of Prime Natural Resources, a closely-held exploration and production company. Prior to his employment at Prime in January 1999, he was employed by Hein & Associates LLP, a certified public accounting firm, where he served as a partner from 1989 to January 1995 and as a managing partner from January 1995 until October 1998. Mr. Anderson also serves on the boards of directors of Transocean Corporation and Calibre Energy, Inc.

E. J. DiPaolo served as a director from May 1999 to December 4, 2002 then was reappointed on September 30, 2003. Mr. DiPaolo serves as a Class II Director for a term that will expire on the date of our annual meeting of stockholders in 2008. Mr. DiPaolo also serves on the Audit, Compensation, and Nominating & Corporate Governance Committees. Since August of 2003, Mr. DiPaolo has provided consulting services to Growth Capital Partners, L.P., a company engaged in investments and merchant banking. Mr. DiPaolo was the Senior Vice President, Global Business Development of Halliburton Energy Services, having had responsibility for all worldwide business development activities until his retirement in 2002. Mr. DiPaolo was employed at Halliburton Energy Services from 1976 until his retirement in progressive positions of responsibility. Mr. DiPaolo also serves on the boards of directors of Superior Well Services, Inc, Evolution Petroleum Corporation, and Innicor Subsurface Technologies, Inc.

Robert S. Herlin was appointed a Class I director on September 30, 2003. Mr. Herlin serves on the Audit Committee and chairs the Compensation Committee. Mr. Herlin serves as a Class I Director for a term that will expire on the date of the annual meeting of stockholders scheduled for calendar year 2010. Since 2003, Mr. Herlin has served as the President, CEO and a Director of Evolution Petroleum Corporation, a public company involved in the acquisition and redevelopment of oil and gas properties. Since 2003, Mr. Herlin has served as a partner with Tatum Partners, a service company that provides principal executive and accounting officers to clients on a contract basis. Prior to his employment at Evolution Petroleum Corporation, Mr. Herlin was CFO of Intercontinental Tower Corporation, a wireless telecom infrastructure operation in South America from 2000 to 2003. Mr. Herlin earned his MBA from Harvard and engineering degrees from Rice University.

K. Kirk Krist has served as a Class III director since our acquisition of IWC Services on July 29, 1997. Mr. Krist serves on the Nominating & Corporate Governance Committee. Mr. Krist’s term as a class III director will expire on the date of our annual meeting of stockholders in 2009. Mr. Krist served as Chairman of the Board from December 2002 to December 2006. Mr. Krist is a graduate of the University of Texas with a B.B.A. in Business. He has been a self-employed oil and natural gas investor and venture capitalist since 1982.

Robert G. Croyle became a Class I director on January 1, 2007. He chairs the Nominating & Corporate Governance Committee. Mr. Croyle’s a term as a Class I director will expire on the date of the annual meeting of stockholders scheduled for calendar year 2010. From 2002 until December 31, 2006, when he retired, Mr. Croyle served as Vice Chairman and Chief Administrative Officer of Rowan Companies, Inc., a major international offshore and land drilling contractor traded on the New York Stock Exchange. Mr. Croyle held various positions with Rowan Companies, Inc. beginning in 1973, and was elected as a director of Rowan in 1998. From 1993 to 2002, he served as Executive Vice President with management responsibility for Rowan’s aviation and manufacturing divisions. Mr. Croyle is a director of Rowan Companies, Inc. and Magellan Midstream Holdings, GP, LLC.

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Security Holder Communications. Security holder communications intended for the board of directors or for particular directors (other than stockholder proposals submitted pursuant to Exchange Act Rule 14a-8 and communications made in connection with such proposals) may be sent in care of: Corporate Secretary, Boots & Coots International Well Control, Inc., 7908 N. Sam Houston Parkway West, 5th Floor, Houston, Texas 77064. The Secretary will forward all such communications to the board of directors or to particular directors as directed without screening such communications.

Code of Business Conduct and Ethics. We have adopted a Code of Business Conduct and Ethics that covers all employees, directors, and officers, and that relates to the honest and ethical conduct in all business dealings, full, fair, accurate, timely and understandable disclosures in all reports filed by us with, or submitted to, the U.S. Securities and Exchange Commission and in other public communications, compliance with applicable governmental rules and regulations, and avoidance of conflicts of interest. The Code of Business Conduct and Ethics is available on the ‘Company Info’ link at www.boots-coots.com. Copies of the Code of Business Conduct and Ethics may also be obtained upon written request of our corporate Secretary at our principal executive office address.

Audit Committee Independence and Financial Experts. The Audit Committee reviews our financial reporting processes, system of internal controls, and the audit process for monitoring compliance with laws and regulations. In addition, the committee reviews, with our auditors, the scope of the audit procedures to be applied in the conduct of the annual audit, as well as the results of that audit. Our board has determined that each of the Audit Committee members is independent, in accordance with the audit committee requirements of the American Stock Exchange and the Securities and Exchange Commission. Our board has also determined that Messrs. Anderson and Herlin are financial experts within the meaning of Item 401 (h) of Regulation S-K promulgated by the Securities and Exchange Commission.

Item 11. Executive Compensation.

The following discussion of executive compensation contains descriptions of various employment-related agreements and employee benefit plans. These descriptions are qualified in their entirety by reference to the full text of the referenced agreements and plans, which have been included as exhibits to our periodic reports on Forms 10-K, 10-Q and 8-K filed with the U.S. Securities and Exchange Commission.

COMPENSATION DISCUSSION AND ANALYSIS

Introduction

The following discussion provides an overview of the Compensation Committee of our board of directors, the background and objectives of our compensation programs for our executive management, and the material elements of the compensation of each of the executive officers identified in the following table, whom we refer to as our “named executive officers”:

Named Executive Officers	Title
Jerry Winchester	President and Chief Executive Officer (our principal executive officer)
Dewitt Edwards	Executive Vice President
Gabriel Aldape	Chief Financial Officer (our principal financial officer)
Don Cobb	Executive Vice President (resigned September 2007)

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Overview of the compensation committee

The Compensation Committee of our board of directors is comprised entirely of independent directors in accordance with Section 121 of the American Stock Exchange rules governing listed companies. Our Compensation Committee is composed of three members: E.J. DiPaolo, Robert S. Herlin and W. Richard Anderson.

The primary duties and responsibilities of our Compensation Committee are to establish and implement our compensation policies and programs for our executive management and employees, including compensation provided to the named executive officers. Our Compensation Committee has the authority to engage the services of outside advisors, experts and others to assist it and has done so from time to time.

The Compensation Committee works with our Secretary of the board of directors to establish an agenda for each meeting of the Compensation Committee. Our chief executive officer, general counsel and other members of our management and outside advisors may be invited to attend all or a portion of a Compensation Committee meeting depending on the nature of the matters to be discussed. Only members of the Compensation Committee vote on items before the committee; however, the Compensation Committee and board of directors often solicit the views of the chief executive officer on compensation matters, including as they relate to the compensation of other executives, including the other named executive officers.

Objectives of our compensation program

Our success depends on the continued contributions of our executive management and other key employees. Our compensation program is intended to attract, motivate and retain experienced and qualified personnel by providing compensation that is competitive in relation to our peers while recognizing overall business results and individual merit, and which supports the attainment of our strategic objectives by tying the interests of management and employees to those of our stockholders through the use of performance-based cash incentives and equity-based compensation.

Design of our compensation program

Our compensation program for executive management, including the named executive officers, is designed to:

provide compensation that is competitive with our compensation peer group;

balance short-term and long-term goals through the use of annual cash incentives and grants of long-term equity incentives; and

deliver a mix of fixed and at-risk compensation that directly relates to increasing stockholder value and our overall performance.

Each element of compensation is reviewed and considered with the other elements of compensation to ensure that it is consistent with the goals and objectives of both that particular element of compensation and our overall compensation program. In designing the compensation program and in determining senior management compensation, including the compensation of the named executive officers, we also consider the following:

the competitive challenges affecting our ability to attract and retain strong management;

our operating and financial performance compared with targeted goals;

each individual’s contributions to our overall results; and

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our size and performance relative to companies in our compensation peer group; and our available resources.

In establishing compensation, we utilize compensation data (“Survey Data”) regarding the practices of other companies, including our compensation peer group. During 2006, we engaged Longnecker & Associates to provide us with Survey Data regarding director compensation, which we utilized to establish director compensation for 2006. We also utilized survey data prepared by Longnecker & Associates in connection with establishing compensation for our chief executive officer in 2007. Longnecker & Associates provides no other services to us and is otherwise independent. We utilize Survey Data to ensure that our compensation programs are competitive with our compensation peer group. The Survey Data is a compilation of compensation and other data based upon the compensation consultants’ review of our compensation peer group and other companies that participate in industry surveys.

The Compensation Committee receives data on total compensation to named executive officers, which incorporates all three components of base pay, short term incentive pay and long term stock-based compensation. The Committee also compares total compensation of named executive officers and their relationship to other members of management, taking into consideration responsibilities, expertise, qualifications, past performance and expectations. Named executive officer compensation is not based upon a multiple or range of specified employee compensation. Total compensation to named executive officers is allocated across components of base pay, short term incentive pay, and long term stock-based compensation. The intent of the Committee is to weight compensation for executive management more towards annual incentive pay and long-term compensation in comparison to other employees in order to better align executive pay with corporate goals and shareholder interests.

In developing our compensation structure, we review the compensation and benefit practices, as well as levels of pay, of a compensation peer group of companies drawn from oil field service companies of a similar size. While we periodically review, evaluate and update our compensation peer group, for the compensation structure developed for 2007 the compensation peer group consisted of the following companies:

Allis-Chalmers Energy, Inc.

Basic Energy Services, Inc.

Ecology and Environment, Inc.

Gulfmark Offshore, Inc.

Infinity, Inc.

Mark West Energy Partners, L.P.

OMNI Energy Services Corp.

Pioneer Drilling Company

RPC, Inc.

Superior Well Services, Inc.

SYNERGX Systems, Inc.

T-3 Energy Services, Inc.

The Compensation Committee retained Longnecker and Associates to report on compensation of chief executive officers in the peer companies in January 2007 in connection with the increase in compensation awarded to Mr. Winchester in 2007.

We target total compensation for our management that falls at the 50th percentile of our compensation peer group, allowing for the fact that we are one of the smallest companies in our peer group. We believe compensation at this level is required for us to attract and retain talented management in a competitive environment.

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2007 compensation program

Elements of compensation

The principal elements of our executive compensation program are base salary, annual performance-based cash incentives, long-term equity incentives in the form of stock options and restricted stock grants and post-termination severance (under certain circumstances), as well as other benefits and perquisites, consisting of life and health insurance benefits, a qualified 401(k) savings plan, and the reimbursement of automobile expenses for our chief executive officer and chief financial officer.

Base salary

We review base salaries for our chief executive officer and other executives annually to determine if a change is appropriate. In reviewing base salaries, we consider several factors, including a comparison to base salaries paid for comparable positions in our compensation peer group as reflected in the Survey Data, the relationship among base salaries paid to executive officers within our company and each executive’s individual experience and contributions to our business. Our intent is to fix base salaries at levels that we believe are consistent with our objective of attracting, motivating and retaining individuals in a competitive environment.

Base salaries for our named executive officers in 2007 were as follows:

Name	2007 Base Salary
Jerry Winchester	$335,000(1)
Dewitt Edwards	$233,100
Gabriel Aldape	$173,250
Don Cobb	$210,000(2)

(1)

Mr. Winchester’s base salary for 2007 was increased effective January 1, 2007 to $335,000. See the discussion following this table for additional information.

(2)

Mr. Cobb resigned in September 2007.

Messrs. Winchester, Edwards and Aldape have each entered into employment agreements with us. Messrs. Edwards and Aldape entered into their employment agreements in April 2006 and March 2006, respectively. Mr. Winchester’s employment agreement was originally entered into on October 1, 2003 and on October 1, 2006 our Compensation Committee elected to renew the agreement for an additional two year period. For more information regarding the terms of these agreements, see “Employment contracts, termination of employment and change-in-control arrangements” below.

During 2006, Mr. Winchester’s employment agreement provided for a base salary of $250,000 per year and an automobile allowance of $18,000 per year. These amounts remained unchanged from October 1, 2003 until March 1, 2007, when we approved an increase in Mr. Winchester’s 2007 base salary to $335,000 per year and Mr. Winchester agreed to forego his automobile allowance, resulting in a net base salary increase of $67,000 per year (25%), all effective as of January 1, 2007. Our compensation committee approved this adjustment to Mr. Winchester’s base salary so as to maintain this component of his compensation at the median of our compensation peer group based upon the Survey Data and the analysis of our compensation consultant. Mr. Winchester’s base salary had not been adjusted since 1998.

Messrs. Edwards, Aldape and Cobb each commenced employment with us during 2006. Mr. Edwards was hired by us in April 2006 and had previously been engaged by us as a consultant to assist us with our then proposed acquisition of HWC and related financing transactions. Mr. Edwards’ base salary was established through mutual negotiations while taking into consideration the rates that we had been paying for his services as a consultant. Messrs. Aldape and Cobb were hired by us in March 2006 in connection with our acquisition of HWC. The base salaries for Messrs. Aldape and Cobb were also established through mutual negotiations while taking into consideration the salary paid to them by HWC at the time of our acquisition, the increased demands on their time associated with the integration of HWC with us and the increased responsibilities they would undertake as executive officers of a publicly-held company.

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Annual cash incentives

Annual cash incentive compensation is intended to focus and reward executives and other key employees for meeting performance objectives tied to increasing stockholder value. To further this objective, we implemented an annual performance-incentive plan, or APIP, in 2006 and annually thereafter. The annual performance-incentive plan provides for cash incentive payments tied to consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets established for each plan year, which are adjusted as necessary to account for the effects of acquisitions or dispositions of businesses and unusual events.

We believe that EBITDA is a key indicator of our financial and operational success and is the principal measure of performance utilized by investors in valuing our company and our competitors and in assessing the effectiveness of our management. We establish specific EBITDA threshold, goal and stretch targets under the APIP at the beginning of each fiscal year, as well as the award level, as a percentage of base salary, that may be earned by certain employees including the named executives if performance exceeds the threshold, goal or stretch targets. Performance must satisfy the threshold level before any incentive compensation is earned. EBITDA at or in excess of the threshold amount, but less than the APIP goal amount, entitles the executive to a pro rata percentage of the goal award. EBITDA at or in excess of the goal or stretch amount entitles the executive to compensation at the goal award percentage or the stretch award percentage, as applicable. Amounts earned, if any, are generally paid during February or March of the following year, when our results for the prior year become available upon completion of our annual audit.

EBITDA targets are set at levels that reflect our internal, confidential business plan at the time the awards were established. The threshold target is 80% of our EBITDA goal as reflected in our business plan. The stretch target is 120% of our EBITDA goal. The EBITDA goal and stretch target are intended to be challenging but achievable. The award levels (as a percentage of base salary) for Messrs. Winchester, Edwards, Aldape and Cobb were 60-120%, 50-100%, 50-100% and 50-100%, respectively for 2007. We believe that establishing specific attainable goals for management that are consistent with our business plan and that offer the executive the opportunity for meaningful additional cash compensation is the best method to incentivize management to achieve and exceed our business objectives.

In addition to the APIP, the Compensation Committee may award cash bonuses either during or after the fiscal year to reward individual performance or the achievement of other company goals. In 2007, the Compensation Committee, awarded discretionary cash bonuses to the named executives totaling $100,000 for initiating and implementing growth initiatives, such as start up of a rental equipment service line, geographic expansion of the Company’s markets and completion of a public offering of the Company’s equity securities.

The annual cash incentives awarded to the named executive officers for fiscal years 2006 and 2007 are included in the Summary Compensation Table below. The table reflects awards for 2006 performance that were paid under the APIP during March 2007, and discretionary bonuses for 2007 performance that were paid during February 2008.

Long-term incentives

Long-term incentives comprise a significant portion of an executive’s compensation package. Long-term incentives are intended to align the interests of our executives with our stockholders and retain the executives through the term of the awards. Long-term incentives are also consistent with our objective of providing an “at-risk” component of compensation. In establishing long-term incentive awards we endeavor to remain consistent with the Survey Data while taking into account each individual’s performance.

Our compensation committee utilizes both stock options and restricted stock to provide long-term incentives, each of which is discussed in more detail below. For 2006, our compensation committee utilized stock options to provide long term incentives to executives. For 2007, like many companies, our compensation committee utilized predominately restricted stock awards to provide long-term incentives, particularly to executives. The named executive officers received only restricted stock, not options, during 2007. In part, this was in response to the compensation practices of peers as reflected in the Survey Data and in part it was the result of judgements about the most effective method of utilizing the limited number of shares available for grants under our equity incentive plans, as discussed below. Our compensation committee approves the individual grants for each executive. Grants are generally made at the time of employment and during March of each year in accordance with procedures established by our compensation committee, which provide that awards are valued based upon the market price on the date of grant. The amounts granted vary each year and are based on management’s performance, the Survey Data and management’s total compensation package. Previous awards and grants, whether vested or unvested, may be considered by our compensation committee in establishing the current year’s awards and grants but generally do not limit the size of the award that may be received, as we do not wish to create any disincentive for an executive to hold shares of our common stock.

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Equity Incentive Plans

We may make awards to executives under our 2000 Long Term Incentive Plan (the “2000 Plan”) or our 2004 Long Term Incentive Plan (the “2004 Plan”). The 2000 Plan was approved by our stockholders on October 25, 2000, and the 2004 Plan was approved by our stockholders on April 8, 2004. On March 1, 2006, our stockholders approved an amendment to our 2004 Plan in conjunction with our acquisition of HWC that increased the number of shares available under it to 8,000,000. We refer to the 2000 Plan and the 2004 Plan collectively as the “Plans.”

Subject to certain adjustments that may be required from time to time to prevent dilution or enlargement of the rights of participants under the Plans, as of December 31, 2007, approximately 1.0 million shares were available for new grants under the Plans, and there were approximately 5.9 million shares subject to outstanding awards under these and predecessor plans.

The Plans facilitate the issuance of future long-term incentive awards as part of our comprehensive compensation structure and are administered by a committee of non-employee directors of our board of directors, currently our Compensation Committee. The Plans permit the granting of awards in the form of options to purchase our common stock, shares of restricted stock, as well as shares of phantom stock that are settled in cash and cash bonuses. The grant of a cash bonus does not reduce the number of shares of common stock with respect to which awards may be granted pursuant to the Plans.

Our Compensation Committee from time to time designates the employees and consultants who are granted awards and the amount and type of such award. Our Compensation Committee has full authority to administer the Plans, including authority to interpret and construe any provision of Plans and the terms of any awards issued under it and to adopt such rules and regulations for administering the Plans as the Compensation Committee may deem necessary. Our Compensation Committee may accelerate the date on which any option granted becomes exercisable, extend the date on which any option granted ceases to be exercisable, accelerate the vesting date or issue date of a restricted stock grant, or waive any condition imposed under the Plans with respect to any share of restricted stock granted under the Plans, and accelerate the vesting date or waive any condition imposed under the Plan with respect to any share of phantom stock granted under the Plan. No person is permitted to receive in any year stock options for more than 1,000,000 shares. The 2004 Plan will expire and no awards may be made after March 25, 2014. The 2000 Plan will expire and no awards may be made after September 2, 2010. Awards outstanding under the Plans at the time of termination of the Plans will remain outstanding until they expire under the terms of the agreement governing the award, which is not longer than ten years from the date of grant.

The long-term incentive information related to the named executive officers during fiscal year 2006 and 2007 is included in the Summary Compensation Table. Additional information relating to long-term incentive awards is shown in the Grants of Plan Based Awards Table and the Outstanding Equity Awards at Fiscal Year-End Table.

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Stock Options

An important objective of the long-term incentive program is to strengthen the relationship between the long-term value of our stock price and the potential financial gain for employees. Stock options provide executive management and key employees with the opportunity to purchase our common stock at a price fixed on the grant date regardless of future market price. A stock option becomes valuable only if our common stock price increases above the option exercise price and the holder of the option remains employed during the period required for the option to vest, thus providing an incentive for an option holder to remain employed by us. Stock options link a portion of the option holder’s compensation to stockholders’ interests by providing an incentive to increase the market price of our stock.

Option grants to senior management are generally considered annually, at the same time as grants are considered for the general eligible employee population, in March, after our year-end results become publicly available. Our practice is that the exercise price for each stock option is the market value on the date of grant, which is normally the date that our Compensation Committee approves the award at a meeting of the Compensation Committee. Generally, market value means the closing price for a share of common stock on the day of grant or, if such date is not a trading day, the last trading day preceding the day of the grant, as reported by the American Stock Exchange. With respect to employees who are not executive officers, the Compensation Committee may delegate its authority to make such grants to our chief executive officer by specifying the total number of shares that may be subject to grants and the circumstances under which grants may be made. All proposed stock options to new-hire employees are required to be approved by our Compensation Committee or chief executive officer pursuant to delegated authority. The grant date in this instance is the later date between the hire date and date of award.

The Plans provide that stock options may be either incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”). We refer to NSOs and ISOs collectively as “stock options.” The term of a stock option may not exceed 10 years. Consultants are not entitled to receive ISOs. The exercise price of any NSO granted under the Plans is not permitted to be less than 50% of the fair market value of a share of common stock on the date on which such NSO is granted or the price required by law, if higher. The exercise price of any ISO may not be less than 100% of the fair market value of a share of common stock on the date on which such ISO is granted. Although the Plans permit otherwise, as a matter of practice we grant NSO’s only at the fair market value of a share of common stock on the date of grant.

Stock options generally vest and become exercisable in annual increments after the original grant date. Our recent grants have included three year vesting periods. Different vesting periods may be utilized depending on the magnitude of the grant, the terms of the executives’ employment agreement, if any, the Survey Data and our compensation objectives. Under certain circumstances stock options may vest on an accelerated basis, such as in the event that we engage in a transaction that effects a change in the control of our company. In this event, all stock options held by the executive may automatically vest and become exercisable in accordance with the terms outlined in the stock option award agreement.

The exercise prices of the stock options granted to the named executive officers during fiscal year 2006 and 2007 are shown in the Grants of Plan-Based Awards Table below. Additional information on these grants, including the number of shares subject to each grant, also is shown in the Grants of Plan-Based Awards Table.

Restricted Stock Awards

Restricted stock awards are shares of our common stock that are awarded with the restriction that the executive remain with us through certain “vesting” dates. Prior to the restrictions thereon lapsing, the executive may not sell, transfer, pledge, assign or take any similar action with respect to the shares of restricted stock which he owns. Once the restrictions lapse with respect to shares of restricted stock, the executive owning such shares will hold freely-transferable shares, subject only to any restrictions on transfer contained in our certificate of incorporation, bylaws and insider trading policies, as well as any applicable federal or state securities laws. Despite the restrictions, each executive will have full voting rights and will receive any dividends or other distributions, if any, with respect to the shares of restricted stock which the executive owns.

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Restricted stock awards to senior management are generally considered annually, in March, after our year-end results become available, and at the same time as grants to the general eligible employee population are considered.

Restricted stock awards provide the opportunity for capital accumulation and more predictable long-term incentive value. The purpose of granting restricted stock awards is to encourage ownership, encourage retention of our executive management and to provide an incentive for business decisions that increase value to our shareholders. Recognizing that our business is subject to significant cyclical fluctuations that may cause the market value of our common stock to fluctuate, we also intended the awards to provide an incentive for executive management to remain with us throughout business cycles.

Restricted stock awards generally vest one-fourth annually after the original award date. As a consequence, the recipients do not become unconditionally entitled to retain any of the shares of restricted stock until one year following the date of grant, subject to certain exceptions related to acceleration of vesting in the event we engage in a change-in-control transaction. Under this circumstance all restricted stock awards held by the executive may automatically vest in accordance with the terms of the restricted stock award agreement. Any unvested restricted stock awards generally are forfeited if the executive terminates employment with us.

Change in Control Provisions

Upon the occurrence of a change in control, all options under the Plans vest and the restrictions on all shares of restricted stock outstanding on the date on which the change in control occurs automatically terminate. This provision is intended to ensure that executives are not unduly influenced by a potential loss of unvested awards during evaluation and negotiation of a potential strategic transaction.

For purposes of the Plans, the term “change in control” means that term as it is defined in the federal securities laws; or the occurrence of any of the following events:

any person becomes, after the effective date of the Plans the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934), directly or indirectly, of 50.1% or more of the combined voting power of our then outstanding securities; provided, that the acquisition of additional voting securities, after the effective date of the Plans, by any person who is, as of the effective date of the Plans, the beneficial owner, directly or indirectly, of 50.1% or more of the combined voting power of our then outstanding securities, will not constitute a “change in control” for purposes of the Plans;

a majority of individuals who are nominated by our board of directors for election to the board of directors on any date, fail to be elected to our board of directors as a direct or indirect result of any proxy fight or contested election for positions on the board of directors; or

the sale, lease, transfer or other disposition of all or substantially all of our assets (other than to one of our wholly owned subsidiaries).

The acquisition of our common stock by Oil States Energy Services, Inc., and its affiliates in connection with our acquisition of HWC in March 2006 did not constitute a change in control and therefore did not trigger vesting of awards outstanding at that time.

Retirement benefits

We do not maintain a defined benefit pension plan or retiree medical program that covers our executive officers. Retirement benefits to our executive officers are currently provided through a tax-qualified profit sharing and 401(k) plan (our “Savings Plan”), in which all eligible salaried employees may participate. Pursuant to the Savings Plan, employees may elect to reduce their current annual compensation up to the lesser of 15% or the statutorily prescribed limit of $15,500 in calendar year 2007 ($15,500 in 2008), plus up to an additional $5,000 in the form of “catch-up” contributions for participants near retirement age, and have the amount of any reduction contributed to the Savings Plan. Our Savings Plan is intended to qualify under sections 401(a) and 401(k) of the Internal Revenue Code, so that contributions by us or our employees to the Savings Plan and income earned on contributions are not taxable to employees until withdrawn from the Savings Plan and so that contributions will be deductible by us when made. We match 50% of the initial 6% contributed by an employee to the Savings Plan, subject to a 15% maximum based on the employee’s compensation as defined in the Savings Plan. Executives participate in the Savings Plan on the same basis as other employees.

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The Savings Plan provides for 14 different investment options, for which the participant has sole discretion in determining how both the employer and employee contributions are invested. The independent trustee of the Savings Plan then invests the assets of the Savings Plan as directed by participants. The Savings Plan does not provide our employees the option to invest directly in our securities. The Savings Plan offers in-service withdrawals in the form of after-tax account distributions and age 59.5 distributions.

We believe that the Savings Plan supports the objectives of our compensation structure, including the ability to attract and retain senior and experienced mid- to late-career executives for critical positions within our organization.

Perquisites

During 2006 and 2007, our chief financial officer received an automobile allowance for the use of his personal vehicle while on company business. Our use of perquisites as an element of compensation is limited and is largely based on historical practices and, in the case of our chief financial officer, because we require that he commute on a regular basis from his home in Louisiana to our corporate headquarters in Houston, Texas. Our chief executive officer received an automobile allowance for use of his personal vehicle while on company business in 2006 and two months in 2007 when he agreed to terminate his automobile allowance. We do not view perquisites as a significant element of our compensation structure but do believe that they can be used in conjunction with executive compensation packages to motivate and retain qualified individuals in a competitive environment. The compensation committee annually reviews the perquisites provided to determine if they are appropriate and if any adjustments are warranted.

Employment contracts, termination of employment and change-in-control arrangements

On October 1, 2003, we entered into an employment agreement with Jerry Winchester, which was renewed October 1, 2006. Effective March 1, 2006, we entered into an employment agreement with Gabriel Aldape, and on April 1, 2006, we entered into an employment agreement with Dewitt Edwards. The employment agreement with Mr. Aldape was negotiated in conjunction with our acquisition of HWC on March 3, 2006. Under certain circumstances, and particularly during periods when we are engaged in transactions that may significantly alter the nature and composition of our business, board of directors and stock ownership, we believe that employment agreements and change of control arrangements may be useful in allowing an executive to continue to focus his attention on our business objectives without undue regard for the consequences the attainment of those objectives may have on his individual compensation or role with our company.

Term of Employment Agreements

The initial term of Mr. Winchester’s employment agreement was three years, with automatic extensions of two years unless either party provides written notice six months prior to expiration of the initial term or any extension. Mr. Winchester’s employment was automatically extended for an additional two years on October 1, 2006. Mr. Edwards’s employment agreement provides for an initial term of two years, with automatic extensions of two years unless either party provides written notice three months prior to expiration of the initial term or any extension. Mr. Aldape’s employment agreement provides for an initial term of one year, with automatic extensions of one year unless either party provides written notice three months prior to expiration of the initial term or any extension.

Compensation and Benefits

The salary payable to each of the named executives is the amount set forth under the heading “2007 Base Salary” in the table above. The salary of each executive is subject to periodic review and may be increased from time to time by our compensation committee. Each executive is eligible to receive grants of stock options, restricted stock or other equity awards as determined in the discretion of our compensation committee from time to time. Each executive is entitled to participate in the APIP, to the extent that our compensation committee approves an APIP, subject to the targets established by our compensation committee and the award percentage established for each executive. Each of the executives is also entitled to reimbursement for reasonable business expenses and to participate in our medical, life, and disability insurance programs, and all other employee benefit plans which we may, from time to time, make available. Mr. Winchester’s agreement requires that we pay premiums on life insurance coverage with a benefit of not less than $1,500,000.

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In conjunction with the initial execution of his employment agreement on October 1, 2003, Mr. Winchester received an option to purchase 500,000 shares of our common stock at an exercise price of $1.20 per share which vested immediately upon award on October 1, 2003. At that time Mr. Winchester also received a grant of 300,000 shares of restricted common stock, 60,000 shares of which were issued to him upon his execution of the agreement and the remainder of which were issued to him in four equal annual installments on each succeeding anniversary of the agreement. These grants were made under the 2000 and 2004 Plans. Mr. Winchester was not awarded any equity compensation during 2006. On March 1, 2007, our compensation committee approved an award to Mr. Winchester of 145,632 shares of restricted common stock under the 2004 Plan, the amount of shares approximately equal to $300,000 of value as of the date of the award. The restricted stock will vest in four equal installments on each one-year anniversary of the date of grant, provided that Mr. Winchester has been continuously employed by us through each such anniversary date.

In conjunction with Mr. Edwards’s execution of his employment agreement on April 1, 2006, Mr. Edwards received an option to purchase 120,000 shares of our common stock at an exercise price of $1.71 per share, vesting in three equal annual installments. Mr. Edwards also holds an option to purchase 300,000 shares of common stock at $1.13 per share, which he received in October 2005 as a consequence of the services he performed on our behalf as a consultant. This option vests as to 50% on the first anniversary of the grant date and as to 25% on each of the two succeeding anniversaries of the grant date. These grants were made under the 2004 Plan.

In conjunction with Mr. Aldape’s execution of his employment agreement, on March 2, 2006, Mr. Aldape received an option to purchase 150,000 shares of our common stock at an exercise price of $1.43 per share, vesting in three equal annual installments. This grant was made under the 2004 Plan.

Termination Provisions and Severance Payments

We may terminate each executive’s employment upon his death or disability, or for cause or without cause. Cause is defined to mean generally that the executive has engaged in gross negligence or willful misconduct in the performance of his duties; has refused to perform his duties; has materially breached his employment agreement; commits or is arrested or charged with any felony or crime involving moral turpitude which would impair his ability to perform his duties or impair our business reputation; or misappropriates any of our funds or property. Each executive may terminate his employment based on uncured material breaches of the material provisions of his employment agreement by us, a substantial and material reduction in the scope of his office, duties or responsibilities, or the assignment to him of duties or responsibilities that are materially inconsistent with his office.

Additionally, Messrs. Winchester and Aldape may each terminate employment within twelve months following a change in control of our company, which is defined to include a merger, consolidation or reorganization in which we are not the surviving entity (other than a transaction involving our wholly-owned subsidiaries); any sale, lease, exchange or other transfer of all or substantially all of our assets; our dissolution or liquidation; or the acquisition of 30% or more of our voting securities by any person or group (as contemplated in Section 13(d)(3) of the Securities Exchange Act of 1934) or a contested election in which persons who were directors prior to such election cease to constitute a majority of our board of directors.

If the employment of any of the executives is terminated by us for cause, such executive is not entitled to any further pay or benefits from us.

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If the employment of any executive is terminated by us without cause or if we fail to renew such employment agreement at the expiration of the initial term or any renewal term, or if such executive terminates his employment with good reason or following a change of control, such executive will be entitled to a lump sum payment equal to the initial term of his agreement (i.e., two years for Mr. Winchester, one year for Mr. Edwards and one year for Mr. Aldape) multiplied by his then current base salary; a payment equal to any bonus which he would have been eligible to receive in the year in which termination occurs, and the continuation of his participation in our health insurance plans, at our expense, for a time period per his agreement (i.e. twelve months for Mr. Winchester and Mr. Edwards and six months for Mr. Aldape) or (if earlier) the date on which he secures coverage under another plan providing comparable coverage. In addition, Mr. Winchester and Mr. Aldape each is entitled to receive a payment equal to six months of the automobile allowance provided under his employment agreement.

Had each of these executives terminated employment as set forth above as of December 31, 2007, they would have received payments totaling $670,000, $233,100 and $173,250, respectively. In the event that we were to have terminated these executives without cause on such date, each would have also been entitled to receive the full amount of his payment under the APIP plan for 2007.

Each employment agreement provides that for a period of one year after termination the executive will not, directly or indirectly, solicit or induce our employees, customers, or suppliers to terminate their relationships with us. Further, each executive agrees not to directly or indirectly employ any person who was employed by us during the two years preceding the date of termination and who possesses or is reasonably likely to possess confidential information belonging to us.

In our view, having the change of control and severance protections helps to maintain the named executive officer’s objectivity in decision-making and provides another vehicle to align the interests of our named executive officer with the interests of our stockholders.

Indemnification Agreements

We have entered into an indemnification agreement with each of our directors and senior executives, including the named executive officers. These agreements provide for us to, among other things, indemnify such persons against certain liabilities that may arise by reason of their status or service as directors or officers, to advance their expenses incurred as a result of a proceeding as to which they may be indemnified and to cover such person under any directors’ and officers’ liability insurance policy we choose, in our discretion, to maintain. These indemnification agreements are intended to provide indemnification rights to the fullest extent permitted under applicable indemnification rights statutes in the State of Delaware and are in addition to any other rights such person may have under our Certificate of Incorporation, Bylaws and applicable law. We believe these indemnification agreements enhance our ability to attract and retain knowledgeable and experienced executives and independent, non-management directors.

Tax deductibility

Section 162(m) of the Internal Revenue Code limits the deductibility of compensation in excess of $1 million paid to our chief executive officer and our four other highest-paid executive officers unless certain specific and detailed criteria are satisfied. We believe that it is often desirable and in our best interests to deduct compensation payable to our executive officers. However, we also believe that there are circumstances where our interests are best served by maintaining flexibility in the way compensation is provided, even if it might result in the non-deductibility of certain compensation under the Code. In this regard, we consider the anticipated tax treatment to our company and our executive officers in the review and establishment of compensation programs and payments; however, we may from time to time pay compensation to our executives that may not be deductible, including discretionary bonuses or other types of compensation outside of our plans. Our goal is for compensation paid to our executive officers to be fully deductible under the code.

Although equity awards may be deductible for tax purposes by us, the accounting rules pursuant to FAS 123(R) require that the portion of the tax benefit in excess of the financial compensation cost be recorded to paid-in-capital.

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COMPENSATION COMMITTEE REPORT

The compensation committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

	Respectfully submitted,

	THE COMPENSATION COMMITTEE

	W. Richard Anderson
	E. J. DiPaolo
	Robert S. Herlin, Chairman

Compensation Committee Interlocks and Insider Participation

In the period covered by this report, none of our executive officers served as a board member or member of a compensation committee or similar body for another company that had an executive officer serving as a member of our board of directors or compensation committee.

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Summary Compensation Table

The Summary Compensation Table below sets forth certain summary information concerning the compensation earned by our named executive officers during the year ended December 31, 2007 and 2006.

Name and Principal Position	Year	Salary ($)	Bonus (1)($)	Stock Awards (2)($)	Option Awards (2)($)	Non-Equity Incentive Plan Compensation Earnings (3)($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation (4)($)	Total (%)($)
Jerry Winchester President and Chief Executive Officer	2007 2006	335,000 250,000	49,731 0	300,000 0	0 0	0 275,000		4,690 25,135	689,421 550,135
Dewitt Edwards Executive Vice President	2007 2006	233,100 216,250	28,837 0	45,777 0	76,476 171,323	0 222,000		8,492 6,668	392,682 616,241
Gabriel Aldape Chief Financial Officer	2007 2006	173,250 137,769(5)	21,433 0	45,777 0	30,317 126,127	0 165,000		29,083 16,977	299,860 445,873
Don Cobb Executive Vice President (6)	2007 2006	158,692 151,439(5)	0 0	45,777 0	73,768 252,253	0 180,000		16,231(7) 21,245(7)	294,468 604,937

(1)

For a discussion of the bonus compensation awarded to the named executive officers see “Compensation Discussion and Analysis – Annual Cash Incentives”.

(2)

Please see the discussion of the assumptions made in the valuation of these awards in the financial statements and footnotes to the financial statements. We adopted the fair value recognition provisions of SFAS No. 123(R) effective January 1, 2006. Under the SFAS No. 123(R), we recorded compensation expense in our Audited Consolidated Financial Statements for the year ended December 31, 2007 with respect to the awards included in this table. See “Note B Summary of Significant Accounting Policies" in the financial statements for further discussion of the accounting treatment for these options.

(3)

These amounts represent cash payments under the annual incentive performance plan (APIP).

(4)

Includes car allowances, life insurance premiums, moving expense and matching contributions to 401(k)plans.

(5)

Mr. Aldape and Mr, Cobb joined the company on March 3, 2006, and the salary amounts represent pro rata service.

(6)

Mr. Cobb resigned in September 2007.

(7)

Includes $9,608 and $9,798 in Algerian payroll taxes in 2007 and 2006, respectively.

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Grants of Plan Based Awards

The table below sets forth information regarding grants of plan-based awards made to our named executive officers during 2007.

		Estimated Future Payouts Under Equity Incentive Plan Awards			All Other Stock Awards: Number of Shares of Stock or Units (#)	All Other Option Awards: Number of Securities Underlying Options (#)		Grant Date Fair Value of Stock and Option Awards (1)($)
Name	Grant Date	Threshold (#)	Target (#)	Maxi-mum (#)			Exercise or Base Price of Option Awards ($ / Sh)
Jerry Winchester (2)	3/01/07		145,632					300,000
Dewitt Edwards (3)	5/03/07		22,222					45,777
Gabriel Aldape (4)	5/03/07		22,222					45,777
Don Cobb (5)	5/03/07		22,222					45,777

(1)	We adopted the fair value recognition provisions of SFAS No. 123(R) effective January 1, 2006. Accordingly, the grant date fair value for awards made in 2007 are calculated in accordance with SFAS 123(R).

(2)	Effective March 1, 2007 Mr. Winchester received an award of 145,632 restricted shares, pursuant to the 2004 Long Term Incentive Plan, vesting over four years, 25% on each grant anniversary date in each of 2008, 2009, 2010 and 2011.

(3)	Effective May 3, 2007 Mr. Edwards received an award of 22,222 restricted shares, pursuant to the 2004 Long Term Incentive Plan, vesting over four years, 25% on each grant anniversary date in each of 2008, 2009, 2010 and 2011.

(4)	Effective May 3, 2007 Mr. Aldape received an award of 22,222 restricted shares, pursuant to the 2004 Long Term Incentive Plan, vesting over four years, 25% on each grant anniversary date in each of 2008, 2009, 2010 and 2011.

(5)

Effective May 3, 2007 Mr. Cobb received an award of 22,222 restricted shares, pursuant to the 2004 Long Term Incentive Plan, vesting over four years, 25% on each grant anniversary date in each of 2008, 2009, 2010 and 2011. This award was forfeited as a consequence of his resignation in September 2007.

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Outstanding Equity Awards at Fiscal Year-End

The following table summarizes the number of securities underlying outstanding plan awards for each named executive officer as of December 31, 2007.

	Option Awards					Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date	Number of Shares of Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)

Jerry Winchester	500,000 37,500			1.20 3.00	10/01/13 02/15/10	145,632(1)	237,380(2)
Dewitt Edwards	225,000 40,000	75,000(3) 80,000(5)		1.13 1.71	10/12/11 5/22/12	22,222(4)	36,222(2)
Gabriel Aldape	100,000	50,000(6)		1.43	3/3/12	22,222(7)	36,222(2)
Don Cobb	—	—				—	—

(1)	Effective March 1, 2007 Mr. Winchester received a restricted stock award of 145,632 shares of common stock, pursuant to the 2004 Long Term Incentive Plan, of which 25% vest on each grant anniversary date in each of 2008, 2009, 2010 and 2011.

(2)	Market value calculation is the number of shares times the closing market value on the last trading day of 2007, which was $1.63.

(3)	Will vest as to 75,000 shares on October 12, 2008.

(4)	Effective May 3, 2007 Mr. Edwards received an award of 22,222 restricted shares, pursuant to the 2004 Long Term Incentive Plan, vesting over four years, 25% on each grant anniversary date in each of 2008, 2009, 2010 and 2011.

(5)	Will vest as to 40,000 shares on May 22, 2008 and as to 40,000 shares on May 22, 2009.

(6)	Will vest as to 50,000 shares on March 2, 2008.

(7)	Effective May 3, 2007 Mr. Aldape received an award of 22,222 restricted shares, pursuant to the 2004 Long Term Incentive Plan, vesting over four years, 25% on each grant anniversary date in each of 2008, 2009, 2010 and 2011.

Option exercises and stock vested

There were no options exercised by our named executive officers in 2007.

Name	Stock Awards
Name	Number of Shares Acquired on Vesting (#)	Value Realized on Vesting (1)($)
Jerry Winchester	60,000	83,400
Dewitt Edwards	—	—
Gabriel Aldape	—	—
Don Cobb	—	—

(1) Value realized calculation is the number of shares times the closing market value on the date of vesting.

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Equity Compensation Plan Information

The following table sets forth certain information as of December 31, 2007 with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights(a)	Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights(b)	Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a))(c)
Equity compensation plans approved by security holders(1)	6,285,000	$1.13	1,701,151

Equity compensation plans not approved by security holders

Total	6,285,000	$1.13	1,701,151

(1)	Represents shares under the Boots & Coots 2004 Long Term Incentive Plan, 2006 Non-Employee Director Stock Incentive Plan, 2000 Long Term Incentive Plan and Outside Directors Option Plan.

DIRECTOR COMPENSATION

2007 Director Compensation

The table below sets forth certain information concerning the compensation earned in 2007 by our non-employee directors who served in 2007.

Name	Fees Earned or Paid in Cash		Stock Awards		Option Awards		Non-Equity Incentive Plan Compensation		All Other Compensation		Total
Douglas Swanson(1)	$	46,925	$	8,571		—		—		—	$	55,496
Cindy Taylor(2)		—		—		—		—		—		—
Robert Croyle	$	48,500	$	30,000		—		—		—	$	78,500
K. Kirk Krist	$	48,000	$	30,000		—		—		—	$	78,000
Richard Anderson	$	63,000	$	30,000		—		—		—	$	93,000
Robert Herlin	$	58,000	$	30,000		—		—		—	$	88,000
E.J. DiPaolo	$	52,000	$	30,000		—		—		—	$	82,000

(1)

Mr. Swanson declined to receive payment for services on the board until May 1, 2007. He elected to begin receiving compensation for his board services commencing May 1, 2007 after his retirement from Oil States.

(2)

Mrs. Taylor declined to receive payment for service on the board during 2007 and resigned from the board on December 3, 2007.

COMPENSATION OF DIRECTORS

On May 31, 2006, the Board of Directors approved a compensation plan for outside directors that compensates each non-employee director with an annual retainer of $20,000, plus $30,000 of our common stock awarded annually under the Non-Employee Director stock incentive plan, $5,000 for each board meeting attended and $1,000 for each special board meeting and committee meeting attended. In addition, the Chairman of the Board receives an additional $25,000 annual fee, the Chairman of the Audit Committee will receive an additional $10,000 annual fee, and the Chairman of the Compensation Committee and the Chairman of the Nominating & Corporate Governance Committee will each receive an additional $5,000 annual fee. Mr Swanson elected not to receive compensation for his board service prior to May 1, 2007. He elected to begin receiving compensation for his board service commencing May 1, 2007 after his retirement from Oil States. Mrs. Taylor elected not to receive compensation for her board service for 2007.

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Non-Employee Director Stock Incentive Plan. In 2006, our board of directors adopted and our shareholders approved the amended Non-Employee Director Stock Incentive Plan (the "Directors' Plan"). The purpose of the Directors' Plan is to encourage the continued service of outside directors and to provide them with additional incentive to assist us in achieving our growth objectives. Shares of restricted stock are granted on an annual basis and vest in full on the first anniversary of issuance. As indicated above, our current compensation plans for non-employee directors utilizes annual restricted stock awards. Through December 31, 2007, there were 21,126 shares of restricted stock outstanding under the Directors Plan.

The Directors’ Plan also permits us to issue stock options. Options issued under the Director’s Plan may be exercised over a five-year period with the initial right to exercise starting one year from the date of the grant, provided the director has not resigned or been removed for cause by the board of directors prior to such date. After one year from the date of the grant, options outstanding under the Directors' Plan may be exercised regardless of whether the individual continues to serve as a director. Options granted under the Directors' Plan are not transferable except by will or by operation of law. Through December 31, 2007, there were 311,250 shares underlying options outstanding under the plan and 739,472 shares remaining available for issuance under the plan.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth, as of March 12, 2008 information regarding the ownership of our common stock owned by (i) each person (or "group" within the meaning of Section 13(d)(3) of the Security Exchange Act of 1934) known by us to own beneficially more than 5% of common stock; (ii) each or our directors, (iii) each of our named executive officers and (iv) all of our executive officers and directors of the Company as a group.

Name and Address of Beneficial Owner (1)	Amount and Nature of Beneficial Ownership	Percent of Class

Oil States Energy Services, Inc. 333 Clay Street, Suite 4620 Houston, Texas 77002	11,512,137 (2)	15.2%

Officers and Directors:
Douglas E. Swanson	21,126 (3)	*
Jerry L. Winchester	983,132 (4)	1.3%
W. Richard Anderson	176,912 (5)	*
E. J. DiPaolo	134,109 (6)	*
Robert S. Herlin	134,109 (6)	*
K. Kirk Krist	67,859 (7)	*
Robert G. Croyle	18,216	*
Gabriel Aldape	172,222 (8)	*
Dewitt H. Edwards	287,222 (9)	*
All executive officers and directors as a group (nine people)	1,994,907 (10)	2.6%

________________

* less than 1%

(1)

Unless otherwise noted, the business address for purposes hereof for each person listed is 7908 N. Sam Houston Parkway W., 5th Floor, Houston, Texas 77064. Beneficial owners have sole voting and investment power with respect to the shares unless otherwise noted.

(2)

Oil States Energy Services Inc. is a wholly owned subsidiary of Oil States International, Inc., which may be deemed to have shared voting and investment power over such shares.

(3)

Consists of restricted stock.

(4)

Includes options to purchase 537,500 shares of common stock exercisable within 60 days and 109,224 shares of restricted stock.

(5)

Includes options to purchase 141,250 shares of common stock exercisable within 60 days

(6)

Includes options to purchase 103,750 shares of common stock exercisable within 60 days

(7)

Includes options to purchase 37,500 shares of common stock exercisable within 60 days

(8)

Consists of options to purchase 150,000 shares of common stock exercisable within 60 days and 22,222 shares of restricted stock..

(9)

Consists of options to purchase 265,000 shares of common stock exercisable within 60 days and 22,222 shares of restricted stock.

(10)

Includes options to purchase 1,338,750 shares of common stock exercisable within 60 days and 174,794 shares of restricted common stock.

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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities and Exchange Act of 1934 requires our officers and directors to file reports of ownership and changes in ownership of our common stock with the U.S. Securities and Exchange Commission and the American Stock Exchange. Based upon a review of the Forms 3, 4, and 5 presented to us, we believe that all reports were filed on a timely basis except as follows:

Mr. Krist was late filing a Form 4 after exercising options to purchase 253,750 shares of the Company’s common stock on March 22, 2007, and the sale of the same shares on the same date.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

In connection with our acquisition of the hydraulic well control business of Oil States International, Inc. in March 2006, we issued a $21.2 million unsecured subordinated promissory note to Oil States Energy Services, Inc., a subsidiary of Oil States International, Inc. The note bears interest at a rate of 10% per annum, and requires a one-time principal payment on September 9, 2010. During 2007, we paid interest due on the note in the amount of approximately $2,117,000.

Item 14. Principal Accounting Fees and Services.

During 2007 and 2006, we incurred the following fees for services performed by UHY LLP (“UHY”):

Fee Type	2007		2006
Audit Fees	$	958,000	$	351,000
Audit Related fees		—		32,000
Tax Fees		—		—
Other Fees		—		149,000
Total Fees	$	958,000	$	532,000

AUDIT FEES

Audit fees represent the aggregate fees for professional services rendered by UHY for the audit of our annual financial statements for the fiscal years ended December 31, 2007 and December 31, 2006, and the reviews of our financial statements included in our Forms 10-Q for all quarters of fiscal 2007 and 2006.

Audit Related Fees - Audit-related fees include professional services rendered by UHY for audits of our employee benefit plans.

Tax Fees - We use an independent consultant other than UHY to perform all tax related consulting work.

All Other Fees - Other fees paid to UHY during 2006 were related to the acquisition of HWC, including the acquisition audit of HWC for the year ended December 31, 2005 that was performed in 2006.

Pre-Approval Policies and Procedures - The Audit Committee has established written pre-approval policies that require the approval by the Audit Committee of all services provided by UHY as the principal independent accountants and all audit services provided by other independent accountants. All of the services described above provided by UHY to us were approved in accordance with the policy.

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Work Performed by Principal Accountant’s Full Time, Permanent Employees - The firm of UHY LLP ("UHY") acts as our principal independent registered public accounting firm. Through December 31, 2007, UHY had a continuing relationship with UHY Advisors, Inc. (“Advisors”) from which it leased auditing staff who were full time, permanent employees of Advisors and through which UHY’s partners provide non-audit services. UHY has no full time employees and therefore, none of the audit services performed were provided by permanent full-time employees of UHY. UHY manages and supervises the audit services and audit staff, and is exclusively responsible for the opinion rendered in connection with its examination.

The Selection of Auditors - The Board of Directors appointed UHY as principal independent accountants to audit the financial statements of us for the years ending December 31, 2007, 2006, and 2005. The appointment was made upon the recommendation of the Audit Committee. UHY has advised that neither the firm nor any member of the firm has any direct financial interest or any material indirect interest in us. Also, during at least the past three years, neither the firm nor any member of the firm has had any connection with us in the capacity of promoter, underwriter, voting trustee, Director, officer or employee.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)

Consolidated financial statements for the three years in the period ended December 31, 2007, included after signature page.

Financial statement schedules included in consolidated financial statements.

Exhibit Index

(a)

Exhibits

Exhibit No.		Document
3.01	—	Amended and Restated Certificate of Incorporation (Incorporated herein by reference to exhibit 3.2 of Form 8-K filed August 13, 1997.)
3.02	—	Amendment to Certificate of Incorporation (Incorporated herein by reference to exhibit 3.3 of Form 8-K filed August 13, 1997.)
3.02(a)	—	Amendment to Certificate of Incorporation (Incorporated herein by reference to exhibit 3.02(a) of Form 10-Q filed November 14, 2001.)
3.03	—	Amended Bylaws ( Incorporated herein by reference to exhibit 3.4 of Form 8-K filed August 13, 1997.)
3.03	—	Amendment to Certificate of Incorporation ( Incorporated herein by reference to exhibit 3.1 of Form 8-K filed March 3, 2006.)
4.01	—	Specimen Certificate for the Registrant’s Common Stock (Incorporated herein by reference to exhibit 3.4 of Form 8-K filed August 13, 1997.)
4.02	—	Certificate of Designation of 10% Junior Redeemable Convertible Preferred Stock (Incorporated herein by reference to exhibit 4.08 of Form 10-QSB filed May 19, 1998.)
4.03	—	Certificate of Designation of Series A Cumulative Senior Preferred Stock (Incorporated herein by reference to exhibit 4.07 of Form 10-K filed July 17, 2000.)
4.04	—	Certificate of Designation of Series B Convertible Preferred Stock (Incorporated herein by reference to exhibit 4.08 of Form 10-K filed July 17, 2000.)
4.05	—	Certificate of Designation of Series C Cumulative Convertible Junior Preferred Stock (Incorporated herein by reference to exhibit 4.09 of Form 10-K filed July 17, 2000.)
4.06	—	Certificate of Designation of Series D Cumulative Junior Preferred Stock (Incorporated herein by reference to exhibit 4.10 of Form 10-K filed July 17, 2000. )
4.07	—	Certificate of Designation of Series E Cumulative Senior Preferred Stock (Incorporated herein by reference to exhibit 4.07 of Form 10-K filed April 2, 2001.)
4.08	—	Certificate of Designation of Series F Convertible Senior Preferred Stock (Incorporated herein by reference to exhibit 4.08 of Form 10-K filed April 2, 2001.)
4.09	—	Certificate of Designation of Series G Cumulative Convertible Preferred Stock (Incorporated herein by reference to exhibit 4.09 of Form 10-K filed April 2, 2001.)

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4.10	—	Certificate of Designation of Series H Cumulative Convertible Preferred Stock (Incorporated herein by reference to exhibit 4.10 of Form 10-K filed April 2, 2001.)
4.11	—	Registration Rights Agreement dated March 3, 2006 between Boots & Coots International Well Control, Inc. and HWC Energy Services, Inc. (Incorporated herein by reference to exhibit 4.1 to the Current Report on Form 8-K filed March 9, 2006.)
10.01	—	1997 Incentive Stock Plan (Incorporated herein by reference to exhibit 10.33 of Form 10-Q filed August 16, 1999.)
10.02	—	Outside Directors’ Option Plan (Incorporated herein by reference to exhibit 10.4 of Form 8-K filed August 13, 1997.)
10.03	—	Halliburton Center Sublease (Incorporated herein by reference to exhibit 10.17 of Form 10-KSB filed March 31, 1998.)
10.04	—	Executive Employment Agreement of Jerry Winchester (Incorporated herein by reference to exhibit 10.13 of Form 10-K filed March 30, 2004.)
10.05	—	Form of Warrant issued to Specialty Finance Fund I, LLC and to Turner, Voelker, Moore (Incorporated herein by reference to exhibit 10.47 of Form 10-Q filed November 14, 2000.)
10.06	—	2000 Long Term Incentive Plan (Incorporated herein by reference to exhibit 4.1 of Form 8-K filed April 30, 2001.)
10.07	—	2004 Long Term Incentive Plan (Incorporated herein by reference to exhibit 4.1 of Form S-8 filed September 28, 2004.)
10.08	—	2004 Long Term Incentive Plan (Incorporated herein by reference to exhibit 4.1 of Form S-8 filed September 28, 2004.)
10.09	—	Credit and Security Agreement dated March 3, 2006 by and between Boots & Coots International Well Control, Inc. and Wells Fargo Bank, National Association. (Incorporated herein by reference to exhibit 10.10 of Form 8-K filed March 9, 2006.)
10.10	—	Transaction Agreement by and among Boots & Coots International Well Control, Inc., HWC Acquisition, LLC, HWC Merger Corporation, Hydraulic Well Control, LLC and HWC Energy Services, Inc. dated as of November 21, 2005 (Incorporated herein by reference to exhibit 2.1 to the Current Report on Form 8-K filed March 9, 2006.)
10.11	—	Subordinated Note Agreement with HWC Energy Services dated March 3, 2006 (Incorporated herein by reference to exhibit 4.1 to the Current Report on Form 8-K filed March 9, 2006.)
10.12	—	Executive Employment Agreement of Gabriel Aldape (Incorporated herein by reference to exhibit 10.1 on Form 10-Q filed August 14, 2006.)
10.13	—	Executive Employment Agreement of Dewitt H. Edwards (Incorporated herein by reference to exhibit 10.1 on Form 8-K filed July 7, 2006.)
10.14	—	2004 Long Term Incentive Plan 2,000,000 Share Registration (Incorporated herein by reference to exhibit 4.1 of Form S-8 filed November 14, 2006.)
10.15	—	2006 Non-Employee Directors Stock Incentive Plan (Incorporated herein by reference to exhibit 4.1 of Form S-8 filed November 14, 2006.).
10.16	—	Amendment to Executive Employment Agreement of Jerry Winchester (Incorporated herein by reference to item 5.02 on Form 8-K filed March 7, 2007.)
10.17	—	Amendment 1 to the Credit and Security Agreement dated March 3, 2006 by and between Boots & Coots International Well Control, Inc. and Wells Fargo Bank, National Association. (Incorporated herein by reference to exhibit 10.17 on Form 10-K filed March 12, 2007.)
10.18	—	Amendment 2 to the Credit and Security Agreement dated March 3, 2006 by and between Boots & Coots International Well Control, Inc. and Wells Fargo Bank, National Association. (Incorporated herein by reference to exhibit 10.18 on Form 10-K filed March 12, 2007.)
10.19	—	Amendment 3 to the Credit and Security Agreement dated March 3, 2006 by and between Boots & Coots International Well Control, Inc. and Wells Fargo Bank, National Association. (Incorporated herein by reference to exhibit 10.19 on Form 10-K filed March 12, 2007.)
*10.20	—	Amendment 4 to the Credit and Security Agreement dated October 31, 2007 by and between Boots & Coots International Well Control, Inc. and Wells Fargo Bank, National Association.
*21.01	—	List of subsidiaries of the company.

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*23.1	—	Consent of UHY LLP
*31.1	—	§302 Certification by Jerry Winchester
*31.2	—	§302 Certification by Gabriel Aldape
*32.1	—	§906 Certification by Jerry Winchester
*32.2	—	§906 Certification by Gabriel Aldape

*Filed herewith

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant 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

Date: March 12, 2008

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

Signature	Title	Date

By: /s/ DOUGLAS E. SWANSON	Chairman of the Board of Directors	March 12, 2008
Douglas E. Swanson

By: /s/ JERRY WINCHESTER	Chief Executive Officer and Director	March 12, 2008
Jerry Winchester

By: /s/ GABRIEL ALDAPE	Chief Financial Officer	March 12, 2008
Gabriel Aldape

By: /s/ ROBERT HERLIN	Director	March 12, 2008
Robert Stevens Herlin

By: /s/ E.J. DIPAOLO	Director	March 12, 2008
E.J. DiPaolo

By: /s/ W. RICHARD ANDERSON	Director	March 12, 2008
W. Richard Anderson

By: /s/ K. KIRK KRIST	Director	March 12, 2008
K. Kirk Krist

By: /s/ ROBERT G. CROYLE	Director	March 12, 2008
Robert G. Croyle

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

of Boots & Coots International Well Control, Inc.:

We have audited Boots & Coots International Well Control, Inc. (“the Company”) internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Part II, Item 9A of this Form 10-K. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Boots & Coots International Well Control, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Boots & Coots International Well Control, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2007, and our report dated March 12, 2008, expressed an unqualified opinion on those consolidated financial statements.

/s/ UHY LLP

Houston, Texas

March 12, 2008

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Boots & Coots International Well Control, Inc.:

We have audited the accompanying consolidated balance sheets of Boots & Coots International Well Control, Inc. (“the Company”) as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Boots & Coots International Well Control, Inc. as of December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Boots & Coots International Well Control, Inc. internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 12, 2008 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ UHY LLP

Houston, Texas

March 12, 2008

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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands except share and per share amounts)

ASSETS

	December 31, 2007			December 31, 2006

CURRENT ASSETS:
Cash and cash equivalents	$	6,501		$	5,033
Restricted cash		29			303
Receivables — net of allowance for doubtful accounts of $247 and $356 at December 31, 2007 and 2006		45,044			41,319
Inventory		1,385			965
Prepaid expenses and other current assets		8,796			4,727
Total current assets		61,755			52,347
PROPERTY AND EQUIPMENT, net		60,753			43,790
GOODWILL		8,886			4,393
INTANGIBLE ASSETS, net		4,472			—
OTHER ASSETS		549			487
Total assets	$	136,415		$	101,017

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of long-term debt	$	1,940		$	1,940
Trade accounts payable		12,020			7,475
Foreign income tax payable		2,710			5,020
Accrued liabilities		10,373			12,400
Total current liabilities		27,043			26,835

LONG-TERM DEBT AND NOTES PAYABLE, net of current maturities…		4,985			8,326
RELATED PARTY LONG-TERM DEBT		21,166			21,166
DEFERRED TAXES		5,658			4,520
OTHER LIABILITIES		520			1,748

Total liabilities		59,372			62,595

COMMITMENTS AND CONTINGENCIES		—			—

STOCKHOLDERS' EQUITY:
Preferred stock ($.00001 par value, 5,000,000 shares authorized, zero shares issued and outstanding at both December 31, 2007 and 2006)		—			—
Common stock ($.00001 par value, 125,000,000 shares authorized, 5,564,000 and 59,186,000 shares issued and outstanding at December 31, 2007 and 2006, respectively)		1			1
Additional paid-in capital		125,209			94,479
Accumulated other comprehensive loss		(1,234	)		(1,234	)
Accumulated deficit		(46,933	)		(54,824	)
Total stockholders' equity		77,043			38,422
Total liabilities and stockholders' equity	$	136,415		$	101,017

See accompanying notes to consolidated financial statements.

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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands except per share and share amounts)

	Year Ended December 31, 2007		Year Ended December 31, 2006		Year Ended December 31, 2005

REVENUES	$	105,296	$	97,030	$	29,537

COST OF REVENUES, excluding depreciation and amortization		62,581		52,281		14,488

Gross Margin		42,715		44,749		15,049

OPERATING EXPENSES		17,792		15,597		7,098
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		5,904		4,118		2,674
FOREIGN CURRENCY TRANSLATION		276		259		—
DEPRECIATION AND AMORTIZATION		6,051		4,883		714
		30,023		24,857		10,486

OPERATING INCOME		12,692		19,892		4,563

INTEREST EXPENSE & OTHER, NET		2,052		2,860		655

INCOME BEFORE INCOME TAXES		10,640		17,032		3,908

INCOME TAX EXPENSE		2,749		5,867		1,129

NET INCOME	$	7,891	$	11,165	$	2,779

PREFERRED DIVIDEND REQUIREMENTS		—		616		(874	)

NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	7,891	$	11,781	$	1,905

BASIC INCOME PER COMMON SHARE:
Continuing operations	$	0.11	$	0.22	$	0.06
Net income	$	0.11	$	0.22	$	0.06

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC		70,039,000		53,772,000		29,507,000

DILUTED INCOME PER COMMON SHARE:
Net income	$	0.11	$	0.21	$	0.06
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING DILUTED		72,114,000		55,036,000		31,374,000

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years Ended December 31, 2007, 2006 and 2005

(in Thousands)

																Accumulated
	Preferred Stock					Common Stock				Additional Paid in			Accumulated			Other Comprehensive			Deferred			Total Stockholder’s
	Shares			Amount		Shares		Amount		Capital			Deficit			Loss			Compensation			Equity
BALANCES at December 31, 2004		53		$	—		29,439	$	—	$	70,888		$	(68,510	)	$	(873	)	$	(325	)	$	1,180
Common stock options exercised		—			—		35		—		23			—			—			—			23
Restricted common stock issued		—			—		120		—		—			—			—			—			—
Preferred stock dividends accrued		—			—		—		—		874			(874	)		—			—			—
Stock Options and restricted stock grant expense		—			—		—		—		74			—			—			—			74
Amortization of deferred compensation		—			—		—		—		—			—			—			100			100
Net income		—			—		—		—		—			2,779			—			—			2,779
Foreign currency translation loss		—			—		—		—		—			—			(361	)		—			(361	)
Comprehensive income		—			—		—		—		—			—			—			—			2,418
BALANCES at December 31, 2005		53		$	—		29,594	$	—	$	71,859		$	(66,605	)	$	(1,234	)	$	(225	)	$	3,795
Common stock options exercised		—			—		836		—		639			—			—			—			639
Warrants exercised		—			—		64		—		—			—			—			—			—
Restricted common stock issued		—			—		129		—		120			—			—			—			120
Common stock issued for services		—			—		15		—		21			—			—			—			21
Common stock issued for acquisition of business		—			—		26,462		1		26,461			—			—			—			26,462
Preferred stock dividends reversed		—			—		—		—		(616	)		616			—			—			—
Reversal of deferred compensation with adoption of SFAS 123(R)		—			—		—		—		(225	)		—			—			225			—
Stock based compensation		—			—		150		—		1,519			—			—			—			1,519
Redemption of preferred stock and conversion of preferred stock to common stock		(53	)		—		1,936		—		(5,299	)		—			—			—			(5,299	)
Net income		—			—		—		—		—			11,165			—			—			11,165
BALANCES at December 31, 2006		—		$	—		59,186	$	1	$	94,479		$	(54,824	)	$	(1,234	)	$	—		$	38,422
Common stock options exercised		—			—		727		—		607			—			—			—			607
Restricted common stock issued		—			—		701		—		443			—			—			—			443
Stock based compensation		—			—		—		—		833			—			—			—			833
Issuance of common stock, net of offering costs		—			—		14,950		—		28,847			—			—			—			28,847
Net income		—			—		—		—		—			7,891			—			—			7,891
BALANCES, December 31, 2007		—		$	—		75,564	$	1	$	125,209		$	(46,933	)	$	(1,234	)	$	—		$	77,043

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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2007			2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	7,891		$	11,165		$	2,779
Adjustments to reconcile net income to net cash provided operating activities
Depreciation and amortization		6,051			4,883			714
Deferred tax provision (credit)		(878	)		(590	)		98
Stock based compensation		1,276			1,519			—
Bad debt recovery		(109	)		(230	)		(144	)
Reversal of troubled debt restructuring interest accrual		—			(598	)		—
Amortization of deferred loan cost		—			809			202
Other non-cash charges		—			143			174
Gain on sale or disposal of assets		(2,449	)		(516	)		(14	)
Changes in operating assets and liabilities:
Receivables		(3,353	)		(20,842	)		4,342
Inventory		(420	)		(128	)		—
Prepaid expenses and current assets		(4,069	)		(2,509	)		(42	)
Other assets		(504	)		412			(368	)
Trade accounts payable and accrued liabilities		(1,290	)		11,155			(5,077	)
Net cash provided by operating activities		2,146			4,673			2,664
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired (spent) in connection with acquisition		(10,694	)		4,366			—
Equipment additions		(21,309	)		(6,882	)		(306	)
Insurance proceeds from disposal of property and equipment		4,605			—			—
Proceeds from sale or disposal of property and equipment		333			829			16
Net cash used in investing activities		(27,065	)		(1,687	)		(290	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of senior debt		—			(750	)		—
Payment of subordinated debt		—			(5,100	)		(900	)
Payments of term loan		(2,482	)		(1,351	)		—
Revolving credit borrowings		(859	)		1,917			—
Proceeds from term loan		—			9,700			—
Redemption of preferred stock		—			(5,299	)		—
Net proceeds from issuance of common stock		28,847			—			—
Decrease (Increase) in restricted cash		274			(273	)		—
Proceeds from exercise of stock options		607			639			23
Net cash provided by (used in) financing activities		26,387			(517	)		(877	)
Impact of foreign currency on cash		—			—			(361	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		1,468			2,469			1,136
CASH AND CASH EQUIVALENTS, beginning of year		5,033			2,564			1,428
CASH AND CASH EQUIVALENTS, end of year	$	6,501		$	5,033		$	2,564
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest	$	2,916		$	2,874		$	593
Cash paid for income taxes		6,769			4,593			170
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Preferred stock dividends accrued (reversed)		—			(616	)		874
Common stock issued for acquisition of business		—			26,462			—
Conversion of preferred stock		—			1,936			—
Long-term notes issued for acquisition of business		—			21,166			—

See accompanying notes to consolidated financial statements.

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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.	Business and Organization

Boots & Coots International Well Control, Inc. and subsidiaries (the “Company”), provides a suite of integrated pressure control and related services to onshore and offshore oil and gas exploration and development companies; principally in North America, South America, North Africa, West Africa and the Middle East. Our customers include major and independent oil and gas companies in the U.S. market and major international and foreign national oil and gas producers as well as other oilfield service companies. Our service lines are organized into two business segments; well intervention and response. Our well intervention segment consists of services that are designed to enhance production for oil and gas operators and to reduce the number and severity of critical events such as oil and gas well fires, blowouts or other incidences due to loss of control at the well. This business segment consists primarily of hydraulic workover and snubbing services, prevention and risk management services and pressure control equipment rental and services. Our response segment consists of personnel, equipment and emergency services utilized during a critical well event. We have a long history in the oil and gas industry and are widely recognized for our emergency response services.

B.	Significant Accounting Policies

Consolidation - The accompanying consolidated financial statements include the financial transactions and accounts of us and our subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.

Cash and Cash Equivalents - We consider all unrestricted highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. At December 31, 2007, restricted cash totaled $29,000 compared to $303,000 at December 31, 2006, and both relate to letters of credit.

Inventories - Inventories consist of spare parts and commodities and are carried at the lower of cost or market. The cost of inventories is determined on an average cost or specific-identification method.

Property and Equipment - Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets as follows: buildings and leasehold improvements (15-31 years), equipment (3-10 years), firefighting equipment (3-5 years), furniture, fixtures and office furnishing (3-5 years) and vehicles (3-5 years). Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated useful life of the asset.

Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated over the remaining useful life of the equipment. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statement of operations.

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Impairment of Long Lived Assets - In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, we evaluate the recoverability of property and equipment, and other long-lived assets, if facts and circumstances indicate that any of those assets might be impaired. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if an impairment of such property is necessary. The effect of any impairment would be to expense the difference between the fair value of such property and its carrying value. Based on the Company’s review, no such impairment indicators exist for the periods presented.

Goodwill - In accordance with the requirements of SFAS No. 142, “Goodwill and Other Intangible Assets”, goodwill is not being amortized, but is being reviewed at least annually for impairment or more often if changes in facts and circumstances indicate a loss in value may have occurred. Goodwill is associated with the March 2006 acquisition of the hydraulic well control business (HWC) of Oil States International, Inc. and with the July 2007 acquisition of Stassco Pressure Control LLC (StassCo) and as is further described in Note F. The goodwill has been assigned to the well intervention segment which is deemed the reporting unit for this review. Fair value of the reporting unit is determined based on internal management estimates using a combination of discounted cash flows and market comparable companies. We perform the annual review for possible impairment in the fourth calendar quarter of each year. No goodwill impairment was recognized based on the evaluations performed.

Intangible Assets - The Company amortizes intangible assets over their estimated useful lives. The intangible assets consist of customer relationships of $3,600,000 being amortized over a 13 year period and management non-compete agreements of $1,085,000 being amortized over 5.5 and 3.5 year periods.

Foreign currency - Effective January 1, 2006, and related to our acquisition of the hydraulic well control business of Oil States International, Inc. (see “Note E–Business Combination” for more information), we changed our functional currency in Venezuela from the Venezuelan Bolivar to the U.S. Dollar. This change allows us to have one consistent functional currency after the acquisition. Accumulated other comprehensive loss reported in the consolidated statements of stockholders’ equity before January 1, 2006 totaled $1.2 million and consisted solely of the cumulative foreign currency translation adjustment in Venezuela prior to changing our functional currency. In accordance with SFAS No. 52, “Foreign Currency Translation,” the currency translation adjustment recorded up through the date of the change in functional currency will only be adjusted in the event of a full or partial disposition of our investment in Venezuela. The accounts of foreign subsidiaries have been translated into U.S. Dollars in accordance with SFAS No. 52, “Foreign Currency Translation.” Accordingly, foreign currency is translated to U.S. dollars for financial purposes by using the U.S. Dollar as the functional currency and exchange gains and losses, as well as translation gains and losses, are reported in income and expenses. These currency gains or losses are reported as other operating expenses. Monetary balance sheet accounts are translated using the current exchange rate in effect at the balance sheet date for assets and liabilities, and for non-monetary items, the accounts are translated at the historical exchange rate in effect when acquired. Revenues and expenses are translated at the average exchange rate for the period.

Capitalized Interest - Interest costs for the construction of certain long-term assets are capitalized and amortized over the related assets' estimated useful lives. For the year ended December 31, 2007, $376,000 was capitalized. No interest was capitalized in 2006 or 2005.

Income Taxes - We account 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 our 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 loss carry forwards. The domestic tax liabilities are offset by the usage of our net domestic operating loss carry forwards. The provision for tax expense includes foreign income taxes from Algeria and Venezuela (See Note I.).

Effective January 1, 2007, we adopted FASB Interpretation Number 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), which is intended to clarify the accounting for income taxes by prescribing a minimum recognition threshold for a tax position before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. In accordance with the requirements of FIN 48, the Company evaluated all tax years still subject to potential audit under state, federal and foreign income tax law in reaching its accounting conclusions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Tax years subsequent to 2005 remain open to examination by U.S. federal and state tax jurisdictions, tax years subsequent to 1996 remain open in Venezuela, and tax years subsequent to 2002 remain open in Algeria. During 2007, the Company recorded a charge of $616,000 relating to unrecognized tax benefits under FIN48.

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Earnings Per Share - Basic and diluted income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average common shares outstanding. Diluted income (loss) per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period increased by the number of additional common shares that would have been outstanding if the potential common shares had been issued.

The weighted average number of shares used to compute basic and diluted earnings per share for the years ended December 31, 2007, 2006 and 2005 is illustrated below:

	Years Ended December 31,
	2007		2006		2005
	(in thousands)
Numerator: For basic and diluted earnings per share: Net income attributable to common stockholders	$	7,891	$	11,781	$	1,905
Denominator: For basic earnings per share-Weighted-average shares		70,039		53,772		29,507
Effect of dilutive securities: Stock options and warrants (1)		2,075		1,264		1,867
Denominator: For diluted earnings per share – Weighted-average shares		72,114		55,036		31,374

(1) Excludes the effect of outstanding stock options and warrants that have an anti-dilutive effect on earnings per share.

The exercise price of our stock options and stock warrants varies from $0.67 to $3.00 per share. The maximum number of potentially dilutive securities at December 31, 2007, 2006 and 2005 would include: (1) 5,647,000, 6,435,200 and 5,814,690 common shares respectively, issuable upon exercise of stock options, and (2) 637,500, 713,245 and 2,582,033, common shares respectively, issuable upon exercise of stock purchase warrants.

Share-based compensation - We have adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, consultants and directors; including employee stock options, based on estimated grant date fair values. SFAS No. 123R supersedes our previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in fiscal 2006. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS No. 123R. We have applied the provisions of SAB 107 in our adoption of SFAS No. 123R.

We used the Black-Scholes option pricing model to estimate the fair value of options on the date of grant. The following weighted average assumptions were applied in determining the fair values of option grants:

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	Year Ended December 31,
	2007			2006			2005
Risk-free interest rate		4.60	%		4.64	%		3.6	%
Expected dividend yield		―			―			―
Expected option life	3.9		yrs	6.3		yrs	3.0yrs
Expected volatility		60.5	%		96.8	%		79.3	%
Weighted average fair value of options granted at market value	$	0.96		$	1.19		$	0.56
Forfeiture rate		6.94	%		3.04	%		0.0	%

Fair Value of Financial Instruments - The Company’s financial instruments consist of cash and cash equivalents, receivables, payables, and debt. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short term nature of those instruments. We use available market rates to estimate the fair value of debt.

Use of Estimates - The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Significant estimates made by management include the allowance for doubtful accounts, the valuation allowance for deferred tax assets and assumptions used in share based compensation valuation models.

Reclassifications - Certain reclassifications have been made to the prior period consolidated financial statements to conform to the current year presentation.

C.	Recently Issued Accounting Standards

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115.” SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. The Company has not yet determined the estimated impact on its financial condition or results of operations, if any, of adopting SFAS No. 159, which becomes effective for the fiscal years beginning after November 15, 2007.

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D.	Detail of Certain Balance Sheet Accounts(in thousands):

	December 31,
	2007			2006
Accounts receivable, net:
Trade	$	33,136		$	27,301
Unbilled Revenue		12,011			13,656
Other		144			718
Allowance for doubtful accounts		(247	)		(356	)
	$	45,044		$	41,319

	December 31,
	2007			2006
Property and equipment, net:
Land	$	571		$	571
Building and leasehold improvements		3,631			2,895
Equipment		47,551			35,840
Firefighting equipment		5,358			5,841
Furniture, fixtures and office		2,234			1,884
Vehicles		2,455			1,308
Construction in progress		9,954			5,995
Total property and equipment		71,754			54,334
Less: Accumulated depreciation		(11,001	)		(10,544	)
	$	60,753		$	43,790

Depreciation expense was $6,051,000, $4,883,000 and $714,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

	December 31,
	2007		2006
Prepaid expenses and other current assets:
Prepaid taxes	$	3,528	$	1,509
Prepaid insurance		2,092		1,794
Other prepaid expenses and current assets		3,176		1,424
	$	8,796	$	4,727

	December 31,
	2007		2006
Accrued liabilities:
Accrued compensation and benefits	$	3,244	$	4,914
Accrued insurance		392		1,046
Accrued taxes, other than foreign income tax		3,380		2,617
Other accrued liabilities		3,357		3,823
	$	10,373	$	12,400

E.	Business Combinations

On March 3, 2006, we acquired the hydraulic well control business (HWC) of Oil States International, Inc. The transaction was effective for accounting and financial purposes as of March 1, 2006. As consideration for HWC, we issued approximately 26.5 million shares of our common stock and subordinated promissory notes with an aggregate balance of $15 million, adjusted to $21.2 million during the quarter ended June 30, 2006 to reflect a $6.2 million adjustment for working capital acquired. In April 2007, Oil States International, Inc. sold 14.95 million shares of our common stock and owns approximately 15% of our common stock outstanding as of the date of this report.

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On July 31, 2007, we acquired StassCo Pressure Control, LLC (StassCo) for cash consideration of $10,694,000, net of cash acquired and including transaction costs plus a payable to the former owners of $500,000. StassCo performs snubbing services in the Cheyenne Basin, Wyoming and operates four hydraulic rig assist units based in Rock Springs, Wyoming. The transaction was effective for accounting and financial purposes as of August 1, 2007.

In accordance with SFAS No. 141, “Business Combinations”, we used the purchase method to account for our acquisitions of HWC and StassCo. Under the purchase method of accounting, the assets acquired and liabilities assumed from HWC and StassCo were recorded at the date of acquisition at their respective fair values. We engaged valuation firms to assist in the determination of the fair values of certain assets and liabilities of HWC and StassCo.

For HWC, the purchase price, including direct acquisition costs, exceeded the fair value of acquired assets and assumed liabilities, resulting in the recognition of goodwill of approximately $4.3 million. The total purchase price, including direct acquisition costs of $1.4 million and less cash acquired of $4.4 million, was $44.7 million. The operating results of HWC are included in the consolidated financial statements subsequent to the March 1, 2006 effective date.

The fair values of the assets acquired and liabilities assumed effective March 1, 2006 were as follows(in thousands):

Current assets (excluding cash)	$	15,299
Property and equipment		39,645
Goodwill		4,326
Total assets acquired		59,270

Current liabilities		9,505
Deferred taxes		5,110
Total liabilities assumed		14,615

Net assets acquired	$	44,655

For StassCo, the purchase price, including direct acquisition costs, exceeded the fair value of acquired assets and assumed liabilities, resulting in the recognition of goodwill of approximately $4.6 million. The total purchase price, including direct acquisition costs of $0.1 million, a $0.5 million payable earned as contingent consideration by the former owners, less cash acquired of $0.8 million, was $11.2 million. The operating results of StassCo are included in the consolidated financial statements subsequent to the August 1, 2007 effective date. The intangible assets consist of customer relationships of $3,600,000 being amortized over a 13 year period and management non-compete agreements of $1,086,000 being amortized over 5.5 and 3.5 year periods.

The preliminary fair values of the assets acquired and liabilities assumed effective August 1, 2007 were as follows(in thousands):

Current assets (excluding cash)	$	744
Property and equipment		3,491
Goodwill		4,560
Intangible assets		4,686
Total assets acquired		13,481

Current liabilities		270
Deferred taxes		2,017
Total liabilities assumed		2,287

Net assets acquired	$	11,194

The following unaudited pro forma financial information presents the combined results of operations of the Company, HWC, and StassCo as if the acquisitions had occurred as of the beginning of the periods presented. The unaudited pro forma financial information is not necessarily indicative of what our consolidated results of operations actually would have been had we completed the acquisition at the dates indicated. In addition, the unaudited pro forma financial information does not purport to project the future results of operations of the combined company.

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	Year Ended December 31,
	2007		2006
	(in thousands)
	(unaudited)
Revenue	$	108,101	$	107,958
Operating Income	$	13,881	$	22,371
Net Income	$	7,891	$	12,552
Basic Earnings Per Share	$	0.11	$	0.21
Diluted Earnings Per Share	$	0.11	$	0.21

Basic Shares Outstanding		70,039		58,569
Diluted Shares Outstanding		72,114		59,833

F. Intangible assets

Intangible assets were obtained in conjuction with the StassCo acquisition on July 31, 2007, and there were no intangible assets in prior years.

	December 31, 2007
	Gross Carrying		Accumulated
	Amount		Amortization		Net
	(in thousands)
Intangible assets
Customer Relationships	$	3,600	$	115	$	3,485
Non-compete agreements		1,085		98		987
	$	4,685	$	213	$	4,472

Amortization expense on intangible assets for the year ended December 31, 2007 was (in thousands) $213. Total amortization expense is expected to be (in thousands) $512, $512, $512, $417 and $408 in 2008, 2009, 2010, 2011 and 2012, respectively.

G.	Long-Term Debt

Long-term debt and notes payable consisted of the following:

	December 31,
	2007			2006
	(in thousands)
U.S. revolving credit facility, with available commitments up to $10.3 million, a borrowing base of $10.3 million and an average interest rate of 8.1% for the year ended December 31, 2007, and a borrowing base of $7.9 million and an average interest rate of 8.1% for the year ended December 31, 2006	$	1,058		$	1,917
U.S. term credit facility with initial borrowings of $9.7 million, payable over 60 months and average interest rates of 8.6% for the years ended December 31, 2007 and 2006		5,867			8,349
Total debt		6,925			10,266
Less: current maturities		(1,940	)		(1,940	)
Total long-term debt	$	4,985		$	8,326

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Scheduled maturities of long-term debt as of December 31, 2007, are as follows:

Year Ending December 31,	Amount
	(in thousands)
2008	$	1,940
2009		1,940
2010		2,998
2011		47
2012		-
Thereafter		-
	$	6,925

In conjunction with the acquisition of HWC on March 3, 2006, we entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, which established a revolving credit facility capacity totaling $10.3 million, subject to an initial borrowing base of $6.0 million, and a term credit facility totaling $9.7 million. The term credit facility is payable monthly over a period of sixty months and is payable in full on March 3, 2010, subject to extension under certain circumstances to March 3, 2011. The revolving credit facility is due and payable in full on March 3, 2010, subject to a year-to-year renewal thereafter. We utilized initial borrowings under the Credit Agreement totaling $10.5 million to repay senior and subordinated debt in full and to repurchase all of our outstanding shares of preferred stock and for other transaction related expenses. The loan balance outstanding on December 31, 2007 was $5.9 million on the term credit facility and $1.1 million on the revolving credit facility. The revolving credit facility borrowing base was $10.3 million at December 31, 2007, adjusted for $2.3 million outstanding under letters of credit and guarantees leaving $7.0 million available to be drawn under the facility.

At our option, borrowings under the Credit Agreement bear interest at either (i) Wells Fargo’s prime commercial lending rate plus a margin ranging, as to the revolving credit facility up to 1.00%, and, as to the term credit facility, from 0.50% to 1.50% or (ii) the London Inter-Bank Market Offered Rate plus a margin ranging, as to the revolving credit facility, from 2.50% to 3.00% per annum, and, as to the term credit facility, from 3.00% to 3.50%, which margin increases or decreases based on the ratio of the outstanding principal amount under the Credit Agreement to our consolidated EBITDA. The interest rate applicable to borrowings under the revolving credit facility and the term credit facility at December 31, 2007 was 7.25% and 7.75%, respectively. Interest is accrued and payable monthly for both agreements. Fees on unused commitments under the revolving credit facility are due monthly and range from 0.25% to 0.50% per annum, based on the ratio of the outstanding principal amount under the Credit Agreement to our consolidated EBITDA.

Substantially all of our assets are pledged as collateral under the Credit Agreement. The Credit Agreement contains various restrictive covenants and compliance requirements, including: (1) maintenance of a minimum book net worth through December 31, 2006 equal to 90% of the pro forma book net worth calculated on March 1, 2006, but in no event less than $25 million, or, for each fiscal year thereafter, equal to the greater of the minimum book net worth required for the preceding fiscal year or 85% of book net worth on the last day of the preceding fiscal year (for these purposes “book net worth” means the aggregate of our common and preferred stockholders’ equity on a consolidated basis); (2) maintenance of a minimum ratio of our consolidated EBITDA less unfinanced capital expenditures to principal and interest payments required under the Credit Agreement, on a trailing twelve month basis, of 1.50 to 1.00; (3) notice within five (5) business days of making any capital expenditure exceeding $500,000; and (4) limitation on the incurrence of additional indebtedness except for indebtedness arising under the subordinated promissory notes issued in connection with the HWC acquisition. Due to investments of our stock offering proceeds in April 2007, the credit agreement has been amended to increase the minimum book net worth to a constant $55 million for the purpose of the first (1) covenant above and to exclude unfinanced capital expenditures for the year 2007 for the purpose of the second (2nd) covenant above. We were in compliance with these covenants at December 31, 2007.

H.	Related Party Debt

A related party note of $15 million in unsecured subordinated debt was issued to Oil States Energy Services, Inc. in connection with the HWC acquisition and has been adjusted to $21.2 million after a $6.2 million adjustment for working capital acquired. The note bears interest at a rate of 10% per annum, and requires a one-time principal payment on September 9, 2010. Interest is accrued monthly and payable quarterly. The interest expense on the note was $2,117,000 and $1,752,000 for the years ended December 31, 2007 and 2006, respectively.

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I.	Income Taxes

The amounts of income before income taxes attributable to domestic and foreign operations are as follows:

	Year Ended December 31,
	2007		2006		2005
	(in thousands)
Domestic		458		11,487		3,171
Foreign		10,182		5,545		737
	$	10,640	$	17,032	$	3,908

The provision (benefit) for income taxes shown in the consolidated statements of operations is made up of current and deferred taxes as follows:

	Year Ended December 31,
	2007			2006			2005
	(in thousands)
Current
Domestic	$	—		$	1,533		$	—
State		(121	)		412			—
Foreign		3,570			4,512			1,031
Total		3,449			6,457			1,031
Deferred Domestic		(1,316	)		(590	)		98
Unrecognized Tax Benefits		616			—			—
	$	2,749		$	5,867		$	1,129

The provision for income taxes differs from the amount that would be computed if net income before income taxes were multiplied by the federal income tax rate (statutory rate) as follows:

	Year Ended December 31,
	2007			2006			2005
	(in thousands)
Income tax provision at statutory rates	$	3,724		$	5,961		$	1,328
State tax expense benefit, net of federal benefits		(79	)		267			—
Net change in foreign tax rates		—			(466	)		—
Return to provision adjustment		657			1,559			—
Foreign income tax rate differential		(2,612	)		(806	)		80
Adjustment to net operating loss from continuing operations		—			—			(978	)
Nondeductible expenses		614			950			28
Repatriation of certain foreign earnings		90			—-			—-
Unrecognized Tax Benefits		616			0			0
Change in valuation allowance		(261	)		(1,598	)		671
Net income tax provision	$	2,749		$	5,867		$	1,129

The Financial Accounting Standards Board (“FASB”) issued the revised SFAS No. 123, Share-Based Payment (“SFAS No. 123(R)”). SFAS 123(R) is a revision of SFAS No. 123 and supersedes APB No. 25. The revised provisions of SFAS No. 123(R) were effective January 1, 2006. For companies that have NOL carryforwards, SFAS No. 123R affects the manner in which stock-based compensation tax deductions are treated for financial reporting purposes. We may claim share-based compensation deductions in our federal corporate income tax returns in an amount equal to the related income that is included in our employees’ reported federal taxable income subject to any other applicable limitations. Under SFAS No. 123R, tax benefits generated in 2006 and subsequent reporting periods related to the excess of tax deductible stock-based compensation over the amount recognized for financial accounting purposes, may not be recorded to additional paid-in-capital (“APIC”) for financial reporting purposes until the share-based compensation deductions actually reduce our cash income tax liability. Any tax benefits attributable to these deductions will not be recorded to APIC for financial reporting purposes until such time as all existing and future NOL carryforwards have been fully utilized. As a result of the provisions of SFAS No. 123R, at December 31, 2007, we have excluded $949,343 of share-based compensation deductions from our NOL carryforwards for financial reporting purposes

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In addition, prior to the effective date of SFAS No. 123R, the Company was permitted to record the tax benefit associated with the excess of tax deductible stock-based compensation over the amount recognized for financial accounting purposes in its financial statement NOL, subject to SFAS No. 109’s realization criteria. Accordingly, the tax return reporting and financial statement NOL carryforward amounts described above include excess tax benefits recognized in 2005 and prior years related to the exercise of non-qualified employee stock options and vested stock awards. The full amount of the related tax benefits have been offset through our deferred tax asset valuation allowance. The associated excess tax benefits will be charged to equity upon the reversal of the associated valuation allowances in future periods.

We have determined that as a result of the acquisition of HWC we have experienced a change of control pursuant to limitations set forth in Section 382 of the IRS rules and regulations. As a result, we will be limited to utilizing approximately $2.1 million of U.S. net operating losses (“NOL’s”) to offset taxable income generated by us during the tax year ended December 31, 2007 and expect similar dollar limits in future years until our U.S. NOL’s are either completely used or expire.

In each period, the Company assesses the likelihood that its deferred taxes will be recovered from the existing deferred tax liabilities or future taxable income in each jurisdiction. To the extent that the Company believes that it does not meet the test that recovery is “more likely than not,” it established a valuation allowance. We have recorded valuation allowances for certain net deferred tax assets since management believes it is more likely than not that these particular assets will not be realized. The Company has determined that a portion of its deferred tax asset related to the U.S. NOL’s will be realized. Accordingly in 2007, $0.7 million of valuation allowance was released, which represents one year of the company’s NOL limitation ($2.1 million). As of December 31, 2007, we had net domestic operating loss carry forwards of approximately $28,827,000 expiring in various amounts beginning in 2019 and ending in 2027. The net operating loss carry forwards, along with the other timing differences, generate a net deferred tax asset in each year. The foreign tax credits will expire in varying amounts during the years 2009 through 2017.

The temporary differences representing deferred tax assets and liabilities are as follows:

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	December 31,
	2007			2006
	(in thousands)
Deferred tax assets
Net operating loss carry forward	$	9,757		$	12,878
Allowance for doubtful accounts		87			124
Share based compensation		80			461
Accruals		40			40
Foreign tax credit		3,613			2,176
Alternative minimum tax credit		141			98
Intercompany transfers		170			—
Total gross deferred tax assets	$	13,888		$	15,777

Deferred tax liabilities
Depreciation		85			59
Merger and acquisition costs		98			98
Repatriation of foreign earnings		90			—
Property and equipment, purchase accounting		6,548			4,520
Total gross deferred tax liabilities		6,821			4,677
Net deferred tax assets		7,067			11,100
Valuation allowance	$	(12,725	)	$	(15,620	)
Net deferred income tax liabilities	$	(5,658	)	$	(4,520	)

The Company has not provided deferred taxes on the unremitted earnings of its foreign subsidiaries, other than $1.8 million of earnings from its Venezuela subsidiary, as it considers all other amounts to be permanently reinvested.

Accounting for Uncertainity in Income Taxes

On January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Interpretation FIN No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 “(FIN No. 48)”. Fin No. 48 requires application of a more likely than not threshold to the recognition and derecognition of uncertain tax positions. FIN No. 48 requires the recognition of the amount of unrecognized tax benefit that has a greater than 50 percent likelihood of being ultimately realized upon settlement. It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the quarter of such changes. As a result of adoption, the Company recognized no charge in the liability for unrecognized tax benefits related to tax positions taken in accumulated deficit.

The following is a rollforward of total unrecognized tax benefit liabilities for 2007 (in thousands):


Balance as of January 1, 2007	$	—
Tax positions related to current year:
Additions		616
Reductions		—

Balance as of December 31, 2007	$	616

All additions or reductions to the above liability affects the Company’s effective tax rate in the respective period of change. The Company accounts for any applicable interest and penalties on uncertain tax positions as a component of income tax expense which were $111,000 and $74,000 respectively for the year ended December 31, 2007.

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The following table summarizes the tax years that remain subject to examination by major tax jurisdiction:

Country of Operation	Open Tax Years
Algeria	2005 - 2007
Venezeula	1997 – 2007
Congo	2000 - 2007
United States	2006– 2007

J.	Stockholders’ Equity

Common and Preferred Stock

Under our Amended and Restated Certificate of Incorporation, the board of directors has the power, without further action by the holders of common stock, to designate the relative rights and preferences of our preferred stock, when and if issued. Such rights and preferences could include preferences as to liquidation, redemption and conversion rights, voting rights, dividends or other preferences, over shares of common stock. The board of directors may, without further action by our stockholders, issue shares of preferred stock which it has designated. The rights of holders of common stock will be subject to, and may be adversely affected by or diluted by, the rights of holders of preferred stock.

On April 15, 1999, we completed the sale of 50,000 shares of $.00001 par value per share with a face value of $100 of Series A Cumulative Senior Preferred Stock ("Series A Stock") to Halliburton Energy Services, Inc. ("Halliburton"), a wholly-owned subsidiary of Halliburton Company. The Series A Stock had a dividend requirement of 6.25% per annum payable quarterly until the fifth anniversary at the date of issuance, whereupon the dividend requirement increased to the greater of prime plus 6.25% or 14% per annum, which was subject to adjustment for stock splits, stock dividends and certain other events. At December 31, 2005 there were 50,000 shares of our Series A preferred stock issued and outstanding. This preferred stock was paid in full in connection with closing the HWC acquisition.

On April 28, 2000, we adopted the Certificate of Designation of Rights and Preferences of the Series B Preferred Stock, which designates this issue to consist of 100,000 shares of $.00001 par value per share with a face value of $100 per share; have a dividend requirement of 10% per annum, payable semi-annually at the election of us in additional shares of our Series B Preferred Stock in lieu of cash; have voting rights equivalent to 100 votes per share; and, may be converted at the election of us into shares of our common stock on the basis of a $3.00 per share conversion rate. Since December 31, 2005, there have been no shares of series B preferred stock issued and outstanding.

On May 30, 2000 we adopted the Certificate of Designation of Rights and Preferences of the Series C Cumulative Convertible Preferred Stock (“Series C Preferred Stock”) that designates this issue to consist of 50,000 shares of $.00001 par value per share with a face value of $100 per share; have a dividend requirement of 10% per annum, payable quarterly at the election of us in additional shares of our Series C Preferred Stock in lieu of cash; have voting rights excluding the election of directors equivalent to one vote per share of common stock into which preferred shares are convertible, and may be converted at the election of us into shares of our common stock on the basis of a $3.00 per share conversion rate. After eighteen months from the issuance date a holder of Series C Preferred Stock may elect to have future dividends paid in cash. At December 31, 2005 there were 2,943 shares of series C preferred stock issued and outstanding. This preferred stock was paid in full in connection with closing the HWC acquisition.

On December 29, 2000, we adopted the Certificate of Designation of Rights and Preferences of Series H Cumulative Convertible Preferred Stock (“Series H Preferred Stock”) that designates this issue to consist of 89,117 shares of $.00001 par value per share with a face value of $100 per share; have a dividend requirement of 10% per annum compounded, payable semi-annually at the election of the company in additional shares of our Series H Preferred Stock in lieu of cash; have voting rights excluding the election of directors equivalent to one vote per share of common stock into which preferred shares are convertible, and may be converted at the election of us into shares of our common stock on the basis of a $3.00 per share conversion rate. Since December 31, 2005, there have been no shares of series H preferred stock outstanding.

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For the years ended December 31, 2007, 2006 and 2005, we accrued $0, $(616,000) and $874,000, respectively, for dividends relating to all series of preferred stock. All 5,000,000 shares of the authorized Preferred stock are available for any future issue in any class of preferred stock.

In April 2007, we increased our common stock by 14.95 million shares as a result of an underwritten public offering, netting cash proceeds totaling approximately $28,847,000, net of underwriting discounts and offering expenses.

Stockholder Rights Plan:

On November 29, 2001 we adopted a stockholder rights plan in order to provide protection for the stockholders in the event of an attempted potential acquisition of us. Under the plan, we have declared a dividend of one right on each share of our common stock. Each right will entitle the holder to purchase one one-hundredth of a share of a new Series I Junior Participating Preferred Stock of us at an exercise price of $20.00. The rights are not currently exercisable and will become exercisable only after a person or group acquires 15% or more of the outstanding common stock of us or announces a tender offer or exchange offer which would result in ownership of 15% or more of the outstanding common stock. The rights are subject to redemption by us for $0.001 per right at any time, subject to certain limitations. In addition, the Board of Directors is authorized to amend the Rights plan at any time prior to the time the rights become exercisable. The rights will expire on December 17, 2011.

If the rights become exercisable, each right will entitle its holder (other than such person or members of such group) to purchase, at the right’s then current exercise price, a number of our shares of common stock having a market value of twice such price or, if we are acquired in a merger or other business combination, each right will entitle its holder to purchase, at the right’s then current exercise price, a number of the acquiring Company’s shares of common stock having a market value of twice such price. Prior to an acquisition of ownership of 50% or more of the common stock by a person or group, the Board of Directors may exchange the rights (other than rights owned by such person or group, which will have become null and void and nontransferable) at an exchange ratio of one share of common stock (or one one-hundredth of a share of Series I Preferred Stock) per right. The Board of Directors waived this requirement for the HWC acquisition.

A summary of warrants outstanding as of December 31, 2007 is as follows:

Expiration Date	Exercise Price Per Share		Number of Shares

07/18/2008	$	1.40		37,500
10/03/2008		0.88		600,000
				637,500

Stock Options:

A summary of stock option plans under which stock options remain outstanding as of December 31, 2007 follows:

1997 Incentive Stock Plan authorizing the Board of Directors to provide key employees with incentive compensation commensurate with their positions and responsibilities. The 1997 Incentive Stock Plan permits the grant of incentive equity awards covering up to 368,750 shares of common stock. Grants may be in the form of qualified or non qualified stock options, restricted stock, phantom stock, stock bonuses and cash bonuses. As of December 31, 2007, stock options covering an aggregate of 368,750 shares of common stock have been granted under the 1997 Incentive Stock Plan. Such options vest ratably over a five-year period from the date of grant. These incentive stock options are exercisable for a period of 10 years from the original date of grant at an exercise price of ranging from $1.72 to $3.00 per share. As of December 31, 2007, there were 5,000 stock options outstanding under the plan.

1997 Outside Directors’ Option Plan authorizing the issuance each year of an option to purchase 3,750 shares of common stock to each member of the Board of Directors who is not an employee. The purpose of the Directors’ Plan is to encourage the continued service of outside directors and to provide them with additional incentive to assist us in achieving our growth objectives. Options may be exercised over a five-year period with the initial right to exercise starting one year from the date of the grant, provided the director has not resigned or been removed for cause by the Board of Directors prior to such date. After one year from the date of the grant, options outstanding under the Directors’ Plan may be exercised regardless of whether the individual continues to serve as a director. Options granted under the Directors’ Plan are not transferable except by will or by operation of law. Through December 31, 2007, grants of stock options covering an aggregate of 454,750 shares of common stock have been granted under the 1997 Outside Directors’ Option Plan. At December 31, 2007, there were 311,250 stock options outstanding under the plan.

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2000 Long-Term Incentive Plan authorizes the Board of Directors to provide full time employees and consultants (whether full or part time) with incentive compensation in connection with their services to us. The plan permits the grant of incentive equity awards covering up to 1,500,000 shares of common stock. Grants may be in the form of qualified or non qualified stock options, restricted stock, phantom stock, stock bonuses and cash bonuses. As of the date hereof, stock option grants covering an aggregate of 783,125 shares of common stock have been granted under the 2000 Long-Term Incentive Plan. Such options vest ratably over a five-year period from the date of grant. Options granted to consultants are valued using the Black Scholes pricing model and expensed over the vesting period. At December 31, 2007, there were 655,850 stock options outstanding under the plan.

In April 2000, we voided stock options covering an aggregate of 752,000 shares of common stock by agreement with the option holders with the understanding that the stock options would be repriced and reissued. During the third quarter of 2000, options covering an aggregate of 710,250 shares of common stock were reissued at an exercise price of $3.00. No compensation expense was required to be recorded at the date of issue. However, the reissuance of these options was accounted for as a variable plan, and we were subject to recording compensation expense if our stock price rose above $3.00. In April 2001, Messrs. Ramming, Winchester and Edwards agreed to voluntarily surrender 522,000 of these options at the request of the Compensation Committee of the Board, because of the potential variable plan accounting associated with these options. In October 2001 these individuals received fully vested options to purchase 522,000 shares at an exercise price of $2.20 per share.

On October 1, 2003 we granted 500,000 options at market price on that day, vesting immediately, as a result of the new employment agreement with our Chief Executive Officer. We also granted 300,000 shares of restricted stock at no cost, vested over a four year period with 20% vesting immediately. This resulted in a compensation expense of $54,000 in 2007 and $72,000 in 2006 and 2005.

On July 15, 2004 we granted 400,000 options at market price on that day, of which 250,000 vested immediately and the remaining 150,000 vested over a two year period, as a result of the new contract agreement with our Chairman of the Board. We also granted 300,000 shares of restricted stock at no cost with 150,000 shares vesting on August 13, 2004, 37,500 shares vesting on in 2005 pursuant to the vesting schedule and the remaining balance vesting upon the acquisition of HWC in March of 2006. This resulted in a compensation expense of $0, $102,000 and $58,000 in 2007, 2006 and 2005, respectively.

2004 Long-Term Incentive Plan authorizes the Board of Directors to provide full time employees and consultants (whether full or part time) with incentive compensation in connection with their services to us. The plan permits the grant of incentive equity awards covering up to 6,000,000 shares of common stock. Grants may be in the form of qualified or non qualified stock options, restricted stock, phantom stock, stock bonuses and cash bonuses. As of the date hereof, stock option grants covering an aggregate of 5,812,000 shares of common stock have been made under the 2004 Long-Term Incentive Plan. Such options vest ratably over a five-year period from the date of grant. Options granted to consultants are valued using the Black Scholes pricing model and expensed over the vesting period. At December 31, 2007, there were 4,658,792 stock options outstanding under the plan. An additional 2,000,000 of our stock options were authorized by the Board of Directors and approved by a majority vote of the stockholders on March 1, 2006. In connection with the acquisition of HWC on March 3, 2006, an additional 895,000 of our stock options, priced at $1.50 per option were approved to be issued to employees of HWC.

Stock option activity for the years ended December 31, 2007, 2006 and 2005 was as follows:

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	Number of Shares (in thousands)			Weighted Average Exercise Price Per Share
Outstanding December 31, 2004		5,202		$	0.90
Granted		873			1.10
Exercised		(35	)		0.67
Cancelled		(225	)		1.34
Outstanding December 31, 2005		5,815		$	1.02
Granted		1,630			1.57
Exercised		(836	)		0.77
Cancelled		(174	)		1.01
Outstanding December 31, 2006		6,435		$	1.09
Granted		386			1.92
Exercised		(727	)		0.86
Cancelled		(447	)		1.51
Outstanding December 31, 2007		5,647		$	1.16

Summary information about our stock options outstanding at December 31, 2007 follows:

Outstanding								Exercisable
Range of Exercise Prices		Number Outstanding at December 31, 2007 (in thousands)		Weighted Average Remaining Contractual Life in Years		Weighted Average Exercise Price		Number Exercisable At December 31, 2007 (in thousands)		Weighted Average Exercise Price
$	0.25 – 0.69		2,390		2.81	$	0.67		2,390	$	0.67
$	0.70 – 1.14		494		3.71	$	1.10		349	$	1.10
$	1.15 – 1.59		1,753		4.26	$	1.31		1,206	$	1.26
$	1.60 – 2.04		560		4.78	$	1.80		186	$	1.80
$	2.05 – 3.00		450		4.07	$	2.43		177	$	3.00
$	0.25 – 3.00		5,647		3.63	$	1.16		4,308	$	1.02

Share-based compensation pre-tax expense recognized under SFAS 123R in the year ended December 31, 2007 totaled $833,000, or $0.01 per basic and diluted share. Stock based compensation pre-tax expense recognized under SFAS 123R in the year ended December 31, 2006 totaled $1,288,000, or $0.02 per basic and diluted share. For the year ended December 31, 2005, our stock compensation expense related primarily to restricted stock awards and totaled $173,000. At December 31, 2007, $1,999,000 of compensation cost related to unvested stock options and restricted stock awards attributable to future performance had not yet been recognized.

The pro forma effect on net earnings (loss) and net earnings (loss) per share as if we had applied the fair value recognition provision of SFAS No. 123R, to stock-based employee compensation for the year ended December 31, 2005 is illustrated below(in thousands, except per share data):

	Year ended
	December 31, 2005
Net income (loss) attributable to common stockholders as reported	$	1,905
Less total stock based employee compensation expense determined under fair value based method for all awards, net of tax related effects		(929	)
Pro forma net (loss) attributable to common stockholders	$	976
Basic net income (loss) per share:
As reported	$	0.06
Pro forma	$	0.03
Diluted net income (loss) per share:
As reported	$	0.06
Pro forma	$	0.03

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K.	Employee Benefit Plans

401(k) Plan:

The Company sponsors a 401(k) Plan adopted in 2007 for eligible employees being at least eighteen years of age. Employees can make elective contributions of 1% to 50% of compensation up to 15,500 for the year ending December 31, 2007. Employees over fifty years old may contribute an additional $5,000, $4,000 and $5,000 in 2007, 2006, and 2005 respectively. During the years ended December 31, 2007, 2006 and 2005, we contributed approximately $632,000, $401,000 and $88,000, respectively, under the Plan.

Commitments and Contingencies

Leases

We lease vehicles, equipment, office and storage facilities under operating leases with terms in excess of one year.

At December 31, 2007, future minimum lease payments, under these non-cancelable operating leases are as follows:

Year Ending December 31,	Amount
	(in thousands)
2008	$	718
2009		428
2010		623
2011		591
2012		450
Thereafter		2,379
	$	5,189

Rent expense for the years ended December 31, 2007, 2006 and 2005 was approximately $904,000, $418,000 and $32,000, respectively.

Litigation

Employment Contracts

We have employment contracts with executives and other key employees with contract terms that include lump sum payments up to two years of compensation including salary, benefits and incentive pay upon termination of employment or following a change in control.

M.	Business Segment Information, Revenues from Major Customers and Concentration of Credit Risk

Segments:

We operate in two business segments: well intervention 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. While cost of sales expenses are variable based upon the type of revenue generated, most of our operating expenses represent fixed cost for base labor charges, rent and utilities. For purposes of this presentation, operating expenses and depreciation and amortization have been charged to each segment based upon specific identification of expenses and a pro-rata allocation of remaining non segment specific expenses are assigned to segments based upon relative revenues. Selling, general and corporate expenses have been allocated between segments pro rata based on relative revenues. Business segment operating data from continuing operations is presented for purposes of management discussion and analysis of operating results.

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Our well intervention segment consists of services that are designed to enhance production for oil and gas operators and reduce the number and severity of critical well events such as oil and gas well fires, blowouts, or other incidents due to loss of control at the well. Our services include hydraulic workover and snubbing, prevention and risk management, and pressure control equipment rental and services. Our hydraulic workover and snubbing units that are used to enhance production of oil and gas wells. These units are used for underbalanced drilling, workover, well completions and plugging and abandonment services. This segment also includes services that are designed to reduce the number and severity of critical well events offered through our prevention and risk management programs, including training, contingency planning, well plan reviews, audits, inspection services and engineering services. Additionally, this segment includes our pressure control and flowback rental and service business, which was an expansion of the Company’s well intervention segment in 2007.

The response segment consists of personnel, equipment and services provided during an emergency response such as a critical well event or a hazardous material response. These services also include snubbing and pressure control services provided during a response which are designed to minimize response time and mitigate damage while maximizing safety. In the past, during periods of few critical events, resources dedicated to emergency response were underutilized or, at times, idle, while the fixed costs of operations continued to be incurred, contributing to significant operating losses. To mitigate these consequences, we have concentrated in growing our well intervention business to provide more predictable revenues. The response business segment represented 12.6% of total revenues 2007 compared to 21% in 2006. We expect our response business segment to continue to benefit as a result of cross selling our pressure control services driven by our well intervention business development team as well as our expanded geographic presence.

Information concerning operations in our two different business segments for the years ended December 31, 2007, 2006 and 2005 is presented below. Certain reclassifications have been made to the prior periods to conform to the current presentation. General and corporate are included in the calculation of identifiable assets and are included in the well intervention and response segments.

	Well Intervention		Response		Consolidated
	(In thousands)
As of and for the year Ended December 31, 2007
Net operating revenue	$	91,985	$	13,311	$	105,296
Operating income		7,927		4,765		12,692
Identifiable operating assets		113,416		22,999		136,415
Capital expenditures		18,713		2,596		21,309
Depreciation and amortization		5,750		301		6,051

As of and for the year Ended December 31, 2006
Net operating revenues	$	76,653	$	20,377	$	97,030
Operating income		11,835		8,057		19,892
Identifiable operating assets		89,334		11,683		101,017
Capital expenditures		6,279		603		6,882
Depreciation and amortization		4,637		246		4,883

As of and for the year Ended December 31, 2005
Net operating revenues	$	13,860	$	15,677	$	29,537
Operating income		2,538		2,025		4,563
Identifiable operating assets		6,929		7,838		14,767
Capital expenditures		—		306		306
Depreciation and amortization		310		404		714

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Revenue from major customers and concentration of credit risk:

During the years presented below, the following customers represented significant concentrations of consolidated revenues:

	Year Ended December 31,
	2007	2006	2005
Customer A	—	—	45%
Customer B	18%	18%	18%
Customer C	19%	19%	11%

Our revenues are generated geographically as follows:

	Year Ended December 31,
	2007	2006	2005
United States	24%	26%	19%
Foreign	76%	74%	81%

We attribute revenue to various countries based on the location services are performed or destination of the sale of equipment. Of the 2007 foreign revenues presented above, 20% and 19% were generated from Algeria and Venezuela, respectively. Of the 2006 foreign revenues presented above, 24% and 21% were generated from Algeria and Venezuela, respectively. Of the 2005 foreign revenues presented above, 41% and 12% were generated from Iraq and Venezuela, respectively.

Accounts Receivable:

Three of our customers at December 31, 2007 accounted for 51% of outstanding accounts receivable. Three of our customers at December 31, 2006 accounted for 71% of outstanding accounts receivable.

Cash:

We maintain deposits in banks which may exceed the amount of federal deposit insurance available. Management believes that any possible deposit loss is minimal.

N.	Quarterly Financial Data (Unaudited)

The table below summarizes the unaudited quarterly results of operations for 2007 and 2006(in thousands, except for per share data):

	Quarter Ended
2007	March 31, 2007		June 30, 2007		September 30, 2007		December 31, 2007
Revenues	$	22,257	$	21,955	$	24,973	$	36,111
Gross margin		8,262		8,117		10,197		16,139
Net income		464		274		1,331		5,822
Net income attributable to common stockholders		464		274		1,331		5,822
Net income per common share:
Basic	$	0.01		0.00		0.02		0.08
Diluted	$	0.01		0.00		0.02		0.08

	Quarter Ended
2006	March 31, 2006		June 30, 2006		September 30, 2006		December 31, 2006
Revenues	$	11,520	$	23,472	$	28,293	$	33,745
Gross margin		6,220		10,664		12,964		14,901
Net income		678		2,632		3,369		4,486
Net income attributable to common stockholders		1,294		2,632		3,369		4,486
Net income per common share:
Basic	$	0.03		0.05		0.06		0.08
Diluted	$	0.03		0.04		0.05		0.07

Gross margin does not include operating expenses. Basic and diluted earnings per common share for each of the quarters presented above is based on the respective weighted average number of common and dilutive potential common shares outstanding for each period and the sum of the quarters may not necessarily be equal to the full year basic and diluted earnings per common share amounts.

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