SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1995Commission File Number: 0-5781
HAWKS INDUSTRIES, INC.
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 83-0211955
- --------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
913 Foster Road, Casper, Wyoming 82601
- -----------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (307) 234-1593
--------------------
Not Applicable
- -----------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at September 30, 1995
- -------------------- -----------------------------------
Capital Stock, $.01 par value 26,783,858
INDEX
-----
PAGE
PART I FINANCIAL INFORMATION 3
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994 4
Consolidated Statements of Operations
Three months and nine months ended
September 30, 1995 and 1994 5
Consolidated Statements of Cash Flows
Nine months ended September 30, 1995
and 1994 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operation 12
PART II OTHER INFORMATION 15
PART I: FINANCIAL INFORMATION
The accompanying unaudited Consolidated Financial Statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included.
These statements should be read in conjunction with the Financial Statements and
notes thereto included in the Company's Annual Report to Shareholders and Form
10-K for the year ending December 31, 1994.
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September December
30, 31,
1995 1994
---- ----
(unaudited)
ASSETS
------
CURRENT ASSETS
Cash (including certificates of deposit and other
short-term investments 1995 $127,000; 1994
$3,000) $ 294,000 $ 1,340,000
Marketable Securities and C.D. 795,000 -
Accounts receivable 674,000 647,000
Note receivable 3,000 -
Deferred income tax benefit 61,000 61,000
Inventory 54,000 121,000
Costs in excess of billings 46,000 43,000
Other current assets 40,000 51,000
------------ ------------
Total current assets 1,967,000 2,263,000
------------ ------------
PROPERTY AND EQUIPMENT, net (successful efforts
method) 1,923,000 2,405,000
------------ ------------
OTHER ASSETS 386,000 276,000
------------ ------------
$ 4,276,000 $ 4,944,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable $ 270,000 $ 157,000
Current maturities of long-term debt 101,000 150,000
Accounts payable 203,000 387,000
Accrued liabilities 96,000 209,000
Deferred loss on discontinued operations 60,000 128,000
------------ ------------
Total current liabilities 730,000 1,031,000
------------ ------------
LONG-TERM DEBT 515,000 677,000
------------ ------------
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock, $.01 par value; authorized
19,940,000
shares; no shares issued - -
Common stock, $.01 par value; authorized
100,000,000 shares; outstanding 1995 -
26,783,858; 1994 -
26,322,782 shares 268,000 263,000
Capital in excess of par value of common stock 2,752,000 2,727,000
Retained earnings (deficit) (since elimination of
deficit at
December 31, 1988) 11,000 246,000
------------ ------------
3,031,000 3,236,000
------------ ------------
$ 4,276,000 $ 4,944,000
============ ============
<FN>
See Notes to Consolidated Financial Statements
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30,1995 AND 1994
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
Operating revenue:
Oil and gas $ 46,000 $ 30,000 $ 142,000 $ 104,000
Environmental 988,000 616,000 2,290,000 1,664,000
Gain (loss) on sale of
assets (18,000) 2,000 (17,000) 6,000
-------------- ------------- -------------- --------------
1,016,000 648,000 2,415,000 1,774,000
-------------- ------------- -------------- --------------
Operating expenses:
Oil and gas 30,000 19,000 74,000 56,000
Environmental 825,000 658,000 1,982,000 1,722,000
Depreciation, depletion and
amortization 49,000 47,000 150,000 131,000
General and administrative 69,000 27,000 158,000 104,000
-------------- ------------- -------------- --------------
973,000 751,000 2,364,000 2,013,000
-------------- ------------- -------------- --------------
Operating income (loss) from
continuing operations 43,000 (103,000) 51,000 (239,000)
Other income (expense):
Interest income 16,000 1,000 51,000 1,000
Interest expense (19,000) (19,000) (60,000) (48,000)
Capital gains 42,000 - 42,000 -
-------------- ------------- -------------- --------------
Income (loss) from continuing
operations before taxes 82,000 (121,000) 84,000 (286,000)
-------------- ------------- -------------- --------------
Provision for taxes:
Current - - - -
Deferred - (3,000) - (12,000)
-------------- ------------- -------------- --------------
- (3,000) - (12,000)
-------------- ------------- -------------- --------------
Income (loss) from continuing
operations 82,000 (118,000) 84,000 (274,000)
Discontinued operations (145,000) 88,000 (319,000) (40,000)
-------------- ------------- -------------- --------------
Net loss $ (63,000) $ (30,000) $ (235,000) $ (314,000)
============== ============= ============== ==============
Weighted average number of
common shares outstanding 26,783,858 26,282,782 26,508,564 26,161,903
============== ============= ============== ==============
Income (loss) per common share:
Income (loss) from
continuing operations $ .00 $ (.00) $ .00 $ (.01)
Discontinued operations (.00) .00 (.01) (.00)
-------------- ------------- -------------- --------------
$ (.00) $ (.00) $ (.01) $ (.01)
============== ============= ============== ==============
<FN>
See Notes to Consolidated Financial Statements
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
1995 1994
---- ----
Operating Activities:
Income (loss) from continuing operations $ 84,000 $ (274,000)
Adjustment to reconcile net income (loss) to net cash
provided:
Depreciation, depletion and amortization 150,000 131,000
Impairment of non producing oil and gas property
10,000 7,000
(Gain) loss on sale of assets 17,000 (6,000)
Changes in operating assets and liabilities:
Increase in accounts receivable (227,000) (41,000)
Increase in inventory and other current assets
(3,000) (54,000)
Decrease in deferred taxes - (13,000)
Increase in deferred loss on discontinued
operations 1,000 -
Decrease (increase) in accounts payable and
accrued expenses (118,000) 160,000
------------- --------------
(86,000) (90,000)
Operating cash flow from discontinued operations (90,000) 104,000
------------- --------------
Net cash flow provided by (used in) operating activities (176,000) 14,000
------------- --------------
Investing activities:
Purchases of property and equipment (305,000) (469,000)
Proceeds from sale of properties 163,000 8,000
Increase in other assets (52,000) (9,000)
Decrease in note receivable - 91,000
Increase in marketable securities and certificates of
deposit (795,000) -
------------- --------------
(989,000) (379,000)
Investing cash flow from discontinued operations 187,000 (7,000)
------------- --------------
Net cash flow used in investing activities (802,000) (386,000)
------------- --------------
Financing activities:
Proceeds from debt obligations incurred 222,000 317,000
Reduction of debt obligations (285,000) (91,000)
Proceeds from sale of stock 30,000 -
------------- --------------
(33,000) 226,000
Financing cash flow from discontinued operations (35,000) 60,000
------------- --------------
Net cash provided by (used in) financing activities (68,000) 286,000
------------- --------------
Decrease in cash and cash equivalents (1,046,000) (86,000)
Cash and cash equivalents at beginning of year 1,340,000 107,000
------------- --------------
Cash and cash equivalents at end of year $ 294,000 $ 21,000
============= ==============
<FN>
See Notes to Consolidated Financial Statements.
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Property and Equipment
Property and equipment at September 30, 1995 and December 31, 1994 consists of
the following:
1995 1994
---- ----
Nonproducing oil and gas properties, net of
valuation allowance of $16,000 in 1995 and $21,000$ 60,000 $ 70,000
in 1994
Producing oil and gas properties 1,317,000 1,178,000
Furniture and fixtures 407,000 307,000
Transportation equipment 258,000 233,000
Buildings and leasehold improvements 808,000 928,000
Machinery and equipment 182,000 1,117,000
Engineering and lab equipment 962,000 946,000
Other 160,000 165,000
------------ ------------
4,154,000 4,944,000
Less accumulated depreciation and depletion 2,231,000 2,539,000
------------ ------------
$ 1,923,000 $ 2,405,000
============ ============
Note 2. Notes Payable, Long-Term Debt and Pledged Assets
Notes payable at September 30, 1995 and December 31, 1994 are as follows:
1995 1994
---- ----
Revolving line of credit $300,000 interest
at 6.5% due monthly, maturing June 23,
1996, collateralized by certificate of
deposit. $ 270,000 $ 157,000
========= ==========
Long-Term debt at September 30, 1995 and December 31, 1994 is as follows:
Hawks Industries, Inc.
1995 1994
---- ----
Mortgage note payable to bank, interest set
at 3.125% above U.S. Treasury Bill index
for one year each June 1st, (10.2% at
September 30, 1995), payable $1,511 per
month including interest until April 1,
2003, collateralized by office building $ 95,000 $ 102,000
Mortgage note payable to City of Casper,
interest at 4%, payable $859 per month
including interest until June 8, 1998
then balance due in lump sum,
collateralized by office building and
warehouse 154,000 157,000
Mortgage notes payable to W.D. Hodges and
Jim Ferris Properties, interest at 9%
payable $971 per month until September
17, 2013, collateralized by building 104,000 105,000
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Notes Payable, Long-Term Debt and Pledged Assets (cont.)
1995 1994
---- ----
Mortgage note payable to bank, interest set
at 4% above U.S. Treasury Bill index for
one year each April 1st, (10.375% at
September 30, 1995) payable $1,635 per
month including interest until March 22,
2009, collateralized by office building 114,000 146,000
Lease payable, Eaton Financial Corporation,
payable $1,169 per month including
interest, collateralized by computer
equipment 23,000 32,000
--------- ----------
490,000 542,000
--------- ----------
SanTech, Inc.
Note payable, State of Wyoming, interest at
4%, due in quarterly installments of
approximately $4,000 including interest
until May 14, 1998, unsecured 42,000 53,000
--------- ----------
Hawks Book Company
Note payable, bank, due in monthly
installments of approximately $7,580
including interest until April 10, 1995,
collateralized by equipment - 24,000
--------- ----------
Western Environmental Services and Testing, Inc.
Installment loans payable, due at various
times from September 1996 to June 1999,
interest rates from 7% to 10.5%, secured
by equipment 84,000 208,000
--------- ----------
616,000 827,000
Less current maturities 101,000 150,000
--------- ----------
$ 515,000 $ 677,000
========= ==========
Aggregate maturities of long-term debt are as follows:
1995 $ 24,000
1996 99,000
1997 64,000
1998 184,000
1999 30,000
Thereafter 215,000
---------
$ 616,000
=========
Actual cash payments for interest during the periods ended September 30, 1995
and 1994 were $63,000 and $81,000 respectively.
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Financial Information Relating to Industry Segments
1995 1994
---- ----
Sales to unaffiliated customers:
Oil and gas industry $ 151,000 $ 110,000
Environmental testing and management industry 2,264,000 1,664,000
------------ ------------
$ 2,415,000 $ 1,774,000
============ ============
Discontinued operations $ 165,000 $ 1,405,000
============ ============
Operating profit or (loss):
Oil and gas industry $ (74,000) $ (12,000)
Environmental testing and management industry 206,000 (132,000)
Corporate eliminations (81,000) (95,000)
------------ ------------
$ 51,000 $ (239,000)
============ ============
Discontinued operations $ (319,000) $ (14,000)
============ ============
Identifiable assets:
Oil and gas industry $ 605,000 $ 529,000
Environmental testing and management industry 1,232,000 991,000
Corporate assets 2,275,000 1,315,000
Discontinued operations 164,000 1,785,000
------------ ------------
$ 4,276,000 $ 4,620,000
============ ============
Capital expenditures:
Oil and gas industry $ 139,000 $ 25,000
Environmental testing and management industry 162,000 284,000
Other capital expenditures 4,000 18,000
Discontinued operations 1,000 160,000
------------ ------------
$ 306,000 $ 487,000
============ ============
Depreciation, depletion and amortization:
Oil and gas industry $ 39,000 $ 20,000
Environmental testing and management industry 76,000 73,000
Other depreciation, depletion and amortization 45,000 45,000
------------ ------------
$ 160,000 $ 138,000
============ ============
Discontinued operations $ 60,000 $ 118,000
============ ============
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Discontinued Operations
On December 23, 1994, the Company adopted a formal plan to sell its
publishing segment for $1,800,000. The disposal date for a substantial
portion of the operations was December 23, 1994. Assets and liabilities of
the publishing segment sold consisted of the following.
Accounts receivable $ 130,000
Inventory 293,000
Other current assets 205,000
Property and equipment 20,000
Book masters and
copyright 50,000
----------
$ 698,000
==========
In 1994, the Company had a net gain on the sale of the publishing segment
in the amount of $683,000. The gain was netted against a provision for
estimated losses of $44,000 on the disposal of the remaining assets, a
provision of $129,000 for expected operating losses during the phase-out
period from December 23, 1994 through September 30, 1995 and a deferred tax
provision of $350,000.
On December 23, 1994, the Company adopted a formal plan to sell its
navigational products segment. A portion of the product line was sold in
conjunction with the disposal of the publishing segment on December 23,
1994. The anticipated final disposal date is approximately December 31,
1995. The assets of the navigational products segment to be sold piece
meal consist primarily of inventory and property and equipment.
On December 23, 1994, the Company adopted a formal plan to sell its
printing segment. The anticipated disposal date is approximately September
30, 1995. The assets of the printing products segment to be sold as an
operating unit, consist primarily of inventory and property and equipment.
On December 31, 1994, the Company adopted a formal plan to dispose of its
environmental assembly segment. The disposal was completed on December 31,
1994 with disposition of equipment at a net loss of $4,000 and by
transferring remaining miscellaneous equipment to the environmental testing
segment.
Net assets to be disposed of for the discontinued segments on the balance
sheets at September 30, 1995 and 1994 are as follows:
1995 1994
---- ----
Accounts receivable $ 15,000 $ 267,000
Inventory 54,000 716,000
Other current assets 2,000 20,000
Property and equipment 57,000 674,000
Book masters and copyright - 60,000
Other assets 1,000 2,000
------------ ------------
Total assets $ 129,000 $ 1,739,000
============ ============
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Discontinued Operations (cont.)
Assets are shown at their expected net realizable values.
Operating results of the publishing, navigational products, printing, and
environmental assembly segments for the period prior to disposal are shown
separately in the accompanying consolidated income statement. The
consolidated income statement for 1994 has been restated and operating
results of the discontinued segments are also shown separately.
Net sales of the discontinued segments for 1995 and 1994 were as follows:
1995 1994
---- ----
Publishing $ 14,000 $ 1,174,000
Navigational products 70,000 121,000
Printing 81,000 95,000
Environmental assembly - 4,000
--------------- --------------
$ 165,000 $ 1,394,000
=============== ==============
These amounts are not included in net sales in the accompanying
consolidated statements of operations.
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
As of the date of this report the Company has working capital of $1,237,000
which is deemed adequate for all transactions due in the normal course of
business. Working capital declined $171,000 during the first quarter of 1995,
primarily due to the purchase of a producing oil property and increased $44,000
during the second quarter of 1995 due primarily to increased positive results
from operations and $132,000 in the third quarter due to continued favorable
operating results and the sale of the Company's printing assets.
The Company continues to negotiate for the sale of the remaining assets of its
aviation related companies and its printing company. It is still expected that
the Company realize nearly $50,000 from these sales proceeds. In addition, one
large piece of printing equipment not included in the sale, will be sold for
approximately $75,000 to $80,000.
It is further anticipated that the Company will lease or sell its facilities at
6WN Road in Casper sometime during the fiscal year 1995. In either case,
operating results will improve and sources of capital will be provided.
The following information is provided for the nine month period ending September
30, 1995 and year ending December 31, 1994.
1995 1994
---- ----
Working capital $ 1,237,000 $ 1,232,000
Working capital ratio 2.7:1 2.2:1
Long-term debt to equity 1:5.9 1:4.8
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Results of Operations:
- ---------------------
In the third quarter of 1995, the Company reported a loss of $63,000 as opposed
to a $30,000 in 1994. However, The Company reported a gain from continuing
operations of $82,000 and a loss from discontinued operations of $145,000 for
the third quarter. The loss from discontinued operations reflects the loss from
the printing company.
Oil and Gas:
Oil and gas revenues were $46,000 for the quarter as opposed to $30,000 for the
third quarter of 1994; bringing total oil and gas revenues for 1995 to $142,000
as opposed to $104,000 for 1994. Oil and gas expenditures were $30,000 for the
quarter, up from the $19,000 of the third quarter 1994 and were $74,000 for the
first nine months of 1995 as compared to $56,000 for the first nine months of
1994. This increased profitability from oil and gas operations reflects the
purchase of certain producing overriding royalty properties in the first half of
1995.
Environmental Engineering :
Environmental engineering revenues have increased from $616,000 in 1994 to
$988,000 in 1995 for the third quarter reporting period. This brings total
revenues to $2,290,000 in 1995 compared to $1,664,000 in 1994. This increase of
$372,000 for the quarter and $626,000 for the first nine months are attributable
to increased demand for the Company's services and the establishment of several
ongoing environmental engineering jobs.
Similarly, environmental expenses increased from $658,000 to $825,000 for the
quarter and from $1,722,000 to $1,982,000 for the nine months ending September
30, 1994 and 1995 respectively.
Additional Information:
The Company had depreciation, depletion and amortization of $49,000 in the third
quarter as compared to $47,000 for the third quarter of 1994. It is estimated
that depreciation and depletion will remain at approximately $50,000 per quarter
for the foreseeable future.
General and administrative costs were only $69,000 for the quarter as opposed to
$27,000 in 1994. This brings the nine month total to $158,000 as opposed to
$104,000 in 1994. General and administrative costs showed increases almost
exclusively from the absorption of certain overhead costs which were previously
paid by the aviation business and which were unable to be eliminated after the
sale of that company. General and administrative costs will remain constant for
the foreseeable future with the possible exception of a reduction in the
carrying cost of buildings when the facility at 6WN Road in Casper is sold,
hopefully sometime later in 1995.
Interest expense was $19,000 for the quarter and $60,000 for the nine months
ending September 30, 1995 compared to $19,000 and $48,000 for the quarter and
nine months ending in September 30, 1994. It is estimated that interest expense
will decrease gradually over the remainder of 1995, as short term debt is repaid
and the borrowing base upon which interest is calculated is reduced.
Income taxes:
Although the Company has significant net operating loss carryforwards,
investment tax credit carryforwards, and other carryforward items, and
accordingly will not be liable for ordinary income tax, the Company may be
liable for corporate alternative minimum tax. Therefore a provision for
alternative minimum tax may be made during the year. As of the end of the third
quarter no such provision was necessary.
In addition, should the Company utilize certain loss carryforwards which were
earned prior to the date of the Company's quasi reorganization at December 31,
1988, deferred taxes will be provided in accordance with Financial Accounting
Statement No. 109. As of the third quarter 1995 no such income tax provision
was necessary.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAWKS INDUSTRIES, INC.
(Registrant)
Date: November 13, 1995 By: Joseph J. McQuade
------------------------------------
Joseph J. McQuade, President and
Chief Executive Officer
Date: November 13, 1995 By: Bill Ukele
------------------------------------
Bill Ukele, Controller and
Chief Financial Officer