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 March 31, 1996Commission 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
--------------------
N/A
- - - -----------------------------------------------------------------
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 March 31, 1996
- - - -------------------- ------------------------------
Capital Stock, $.01 par value 26,788,858
INDEX
-----
PAGE
PART I FINANCIAL INFORMATION 3
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 4
Consolidated Statements of Operations
Three months ended March 31, 1996
and 1995 5
Consolidated Statements of Cash Flows
Three months ended March 31, 1996
and 1995 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results
of Operation 12
PART II OTHER INFORMATION 14
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, 1995.
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December
31,
1996 1995
---- ----
(unaudited)
- - - ---
ASSETS
------
CURRENT ASSETS
Cash (including certificates of deposit 1996
$3,000; 1995 $3,000) $ 208,000 $ 197,000
Accounts receivable 490,000 719,000
Short-term investments 802,000 807,000
Inventory 26,000 37,000
Costs in excess of billings 20,000 7,000
Other current assets 105,000 52,000
------------ ------------
Total current assets 1,651,000 1,819,000
------------ ------------
PROPERTY AND EQUIPMENT, net (successful efforts
method) 2,038,000 1,915,000
------------ ------------
NOTE RECEIVABLE 45,000 46,000
------------ ------------
OTHER ASSETS 228,000 235,000
------------ ------------
$ 3,962,000 $ 4,015,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable $ 240,000 $ 230,000
Current maturities of long-term debt 113,000 87,000
Accounts payable 169,000 148,000
Accrued liabilities 83,000 65,000
------------ ------------
Total current liabilities 605,000 530,000
------------ ------------
LONG-TERM DEBT 502,000 493,000
------------ ------------
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 1996 -
26,788,858 shares; 1995 - 26,788,858 shares 268,000 268,000
Capital in excess of par value of common stock 2,586,000 2,586,000
Retained earnings (deficit) (since elimination of
deficit at December 31, 1988) 1,000 138,000
------------ ------------
2,855,000 2,992,000
------------ ------------
$ 3,962,000 $ 4,015,000
============ ============
<FN>
See Notes to Consolidated Financial Statements
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31 1996 AND 1995
(UNAUDITED)
1996 1995
---- ----
Operating revenue:
Oil and gas $ 44,000 $ 48,000
Environmental 560,000 511,000
Gain on sale of assets 2,000 1,000
-------------- --------------
606,000 560,000
-------------- --------------
Operating expenses:
Oil and gas 22,000 24,000
Environmental 589,000 519,000
Depreciation, depletion and amortization 52,000 46,000
General and administrative 72,000 28,000
-------------- --------------
735,000 617,000
-------------- --------------
Operating loss from continuing operations (129,000) (57,000)
Other income (expense):
Interest income 14,000 17,000
Interest expense (16,000) (18,000)
-------------- --------------
Loss from continuing operations before taxes (131,000) (58,000)
-------------- --------------
Provision for taxes:
Current - -
Deferred - -
-------------- --------------
- -
-------------- --------------
Loss from continuing operations (131,000) (58,000)
Discontinued operations (6,000) (88,000)
-------------- --------------
Net loss $ (137,000) $ (146,000)
============== ==============
Weighted average number of common shares outstanding 26,788,858 26,322,782
============= ==============
Loss per common share:
Loss from continuing
operations $ (.01) $ (.00)
Discontinued operations (.00) (.01)
-------------- --------------
$ (.01) $ (.01)
============== ==============
<FN>
See Notes to Consolidated Financial Statements
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
1996 1995
---- ----
Cash flows from operating activities:
Loss from continuing operations $ (131,000) $ (58,000)
Adjustment to reconcile net loss to net cash provided:
Depreciation, depletion and amortization 52,000 46,000
Impairment of non producing oil and gas property 1,000 3,000
Gain on sale of assets (2,000) -
Changes in operating assets and liabilities:
Decrease in accounts receivable 219,000 24,000
Decrease (increase) in short-term investments 5,000 (1,086,000)
Decrease (increase) in inventory and other current
assets (64,000) 28,000
Decrease in deferred loss on discontinued - (24,000)
operations
(Decrease) increase in accounts payable and
accrued expenses 39,000 (72,000)
------------- --------------
119,000 (1,139,000)
Operating cash flow from discontinued operations 15,000 (62,000)
------------- --------------
Net cash flow provided by (used in) operating activities 134,000 (1,201,000)
------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (172,000) (155,000)
Proceeds from sale of properties 2,000 -
Increase in other assets - (19,000)
Decrease in note receivable 1,000 -
------------- --------------
(169,000) (174,000)
Investing cash flow from discontinued operations 1,000 16,000
------------- --------------
Net cash flow used in investing activities (168,000) (158,000)
------------- --------------
Cash flows from financing activities:
Proceeds from debt obligations incurred 66,000 125,000
Reduction of debt obligations (21,000) (32,000)
------------- --------------
45,000 93,000
Financing cash flow from discontinued operations - (30,000)
------------- --------------
Net cash provided by financing activities 45,000 63,000
------------- --------------
Increase (decrease) in cash and cash equivalents 11,000 (1,296,000)
Cash and cash equivalents at beginning of year 197,000 1,340,000
------------- --------------
Cash and cash equivalents at end of year $ 208,000 $ 44,000
============= ==============
<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 March 31, 1996 and December 31, 1995 consists of the
following:
1996 1995
---- ----
Nonproducing oil and gas properties, net of
valuation allowance of $14,000 in 1996 and $43,000
in 1995 $ 30,000 $ 31,000
Producing oil and gas properties 1,429,000 1,369,000
Furniture and fixtures 328,000 316,000
Transportation equipment 300,000 276,000
Buildings and leasehold improvements 819,000 818,000
Machinery and equipment - 3,000
Engineering and lab equipment 1,043,000 976,000
Other 118,000 124,000
------------ ------------
4,067,000 3,913,000
Less accumulated depreciation and depletion 2,029,000 1,998,000
------------ ------------
$ 2,038,000 $ 1,915,000
============ ============
Note 2. Notes Payable, Long-Term Debt and Pledged Assets
Notes payable at March 31, 1996 and December 31, 1995 are as follows:
1996 1995
---- ----
Revolving lines of credit $300,000 interest at 6.5%
maturing June 23, 1996 collateralized by
certificate of deposit $ 240,000 $ 230,000
============ ============
Long-Term debt at March 31, 1996 and December 31, 1995 is as follows:
1996 1995
---- ----
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 March 31, 1996), payable
$1,511 per month including interest until April 1,
2003, collateralized by office building $ 91,000 $ 93,000
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 152,000 153,000
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 102,000 103,000
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Notes Payable, Long-Term Debt and Pledged Assets (cont.)
1996 1995
---- ----
Mortgage note payable to bank, interest set at 4%
above U.S. Treasury Bill index for one year each
April 1st, (10.375% at March 31, 1996) payable
$1,635 per month including interest until March
22, 2009, collateralized by office building 111,000 112,000
$ $
Lease payable, Eaton Financial Corporation, payable
$1,227 per month including interest,
collateralized by computer equipment 19,000 22,000
Note payable, State of Wyoming, interest at
4%, due in quarterly installments of
approximately $4,000 including interest
until May 14, 1998, unsecured 38,000 38,000
Installment loans payable, due at various times from
October 1996 to August 1999, interest rates from
7% to 10%, secured by equipment 102,000 59,000
------------ ------------
615,000 580,000
Less current maturities 113,000 87,000
------------ ------------
$ 502,000 $ 493,000
============ ============
Aggregate maturities of long-term debt are as follows:
1996 $ 88,000
1997 94,000
1998 187,000
1999 30,000
2000 30,000
Thereafter 186,000
---------
$ 615,000
=========
Actual cash payments for interest during the periods ended March 31, 1996 and
1995 were $16,000 and $19,000 respectively.
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Financial Information Relating to Industry Segments
1996 1995
---- ----
Sales to unaffiliated customers:
Oil and gas industry $ 45,000 $ 49,000
Environmental testing and management industry 561,000 511,000
------------ ------------
$ 606,000 $ 560,000
============ ============
Discontinued operations $ 17,000 $ 69,000
============ ============
Operating profit or (loss):
Oil and gas industry $ (23,000) $ 2,000
Environmental testing and management industry (56,000) (31,000)
Unallocated corporate expenses (50,000) (28,000)
------------ ------------
$ (129,000) $ (57,000)
============ ============
Discontinued operations $ (6,000) $ (90,000)
============ ============
Identifiable assets:
Oil and gas industry $ 668,000 $ 620,000
Environmental testing and management industry 1,129,000 880,000
Corporate assets 2,080,000 2,378,000
Discontinued operations 85,000 708,000
------------ ------------
$ 3,962,000 $ 4,586,000
============ ============
Capital expenditures:
Oil and gas industry $ 61,000 $ 127,000
Environmental testing and management industry 110,000 28,000
Other capital expenditures 1,000 -
Discontinued operations - 1,000
---------- ------------
$ 172,000 $ 156,000
============ ============
Depreciation, depletion and amortization:
Oil and gas industry $ 10,000 $ 9,000
Environmental testing and management industry 28,000 23,000
Other depreciation, depletion and amortization 14,000 14,000
------------ ------------
$ 52,000 $ 46,000
============ ============
Discontinued operations $ - $ 22,000
============ ============
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
----------
Other assets $ 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 March 31, 1995. In 1995 the
publishing company had a $142,000 loss which was $100,000 operating loss
and $42,000 loss on the sale of the remaining equipment.
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 has been extended to September
30, 1996. 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 was approximately June 30,
1995. The assets of the printing products segment to be sold as an
operating unit, consist primarily of inventory and property and equipment.
The printing company assets were sold during 1995 resulting in a loss of
$113,000 in addition the company had a loss from operations of $80,000
prior to the sale.
On December 31, 1994, the Company adopted a formal plan to dispose of its
envrionmental 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.
In 1994, the Company estimated an additional loss on the disposal of all
discontinued operations of $128,000 to be incurred during the phase-out
period of January 1, 1995 through December 31, 1995. Due to the additional
operating losses incurred during the phase-out period and unanticipated
losses on the disposition of certain equipment sales, actual losses of
$458,000 were incurred during 1995, exceeding the original estimates by
$330,000.
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Discontinued Operations (cont.)
Net assets to be disposed of for the discontinued segments on the balance
sheets at March 31, 1996 and December 31, 1995 are as follows:
1996 1995
---- ----
Accounts receivable $ 5,000 $ 15,000
Inventory 26,000 37,000
Other current assets - 1,000
Property and equipment 2,000 2,000
---------- ----------
Total assets $ 33,000 $ 55,000
========== ==========
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 1996 and 1995 were as follows:
1996 1995
---- ----
Publishing $ - $ 6,000
Navigational products 17,000 33,000
Printing - 30,000
Environmental assembly - -
---------- ----------
$ 17,000 $ 69,000
========== ==========
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 $1,046,000
which is deemed adequate for all transactions due in the normal course of
business. The Company generated $134,000 in cash flow from operations during
the first quarter of 1996. The Company purchased approximately $169,000 worth
of equipment and other assets and financed $66,000 of those purchases. In
addition, long term debt was reduced by $21,000. This yields an approximate
$11,000 increase in cash flows over the quarter.
It is expected that $30,000 to $50,000 proceeds will be received from the sale
of the SanTech navigational supplies business during 1996. It is further
anticipated that the Company will lease or sell its facilities at 6WN Road in
Casper, sometime during the fiscal year 1996. Such a sale would have
significant positive impacts on the Company's liquidity and capital resources.
Long term debt would be reduced approximately $250,000 and a sale should also
yield $150,000 to $250,000 in additional cash.
The following information is provided for the three month period ending March
31, 1996 and year ending December 31, 1995.
1996 1995
---- ----
Working capital $ 1,046,000 $ 1,289,000
Working capital ratio 2.7:1 3.4:1
Long-term debt to equity 1:5.7 1:6.0
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Results of Operations:
- - - ---------------------
In the first quarter of 1996, the Company reported a loss of $137,000 compared
to a loss of $146,000 in 1995. It is expected that more profitable earnings
will incur in the peak seasons of the Company's business in second, third and
fourth quarters of the year.
Oil and Gas:
Oil and gas revenues were $44,000 during the first quarter of 1996 compared to
$48,000 in the first quarter of 1995. Decreased production levels at the Cedar
Rim Field in Utah accounted for this slight decline. Correspondingly, oil and
gas costs were $22,000 for the quarter as opposed to $24,000 in the same period
in 1995.
Environmental Engineering :
Environmental engineering revenues have increased from $511,000 in 1995's first
quarter to $560,000 in the first quarter of 1996. Demand for the Company's
services continues to increase and at the writing of this report the Company's
crews are gearing up for what appears to be a very busy summer season.
Correspondingly, the costs of generating environmental engineering revenues have
also increased in approximately the same ratio from $519,000 in 1995 to $589,000
in 1996.
Additional Information:
The Company had depreciation, depletion and amortization of $52,000 in the first
quarter of 1996, similar to the $46,000 in the same quarter of 1995. It is
estimated that depreciation and depletion will remain relatively constant for
each successive quarter during 1996.
General and administrative costs were $72,000 for the quarter as opposed to
$28,000 for the first quarter in 1995. This increase does not reflect increase
in spending, but rather, costs which were absorbed by discontinued subsidiaries
in the past which the Company has been unable to eliminate are now being
absorbed by the parent company in its general and administrative expenses.
Interest expense was $16,000 for the quarter as opposed to $18,000 for the same
quarter in 1995. This decrease reflects the relatively low interest rates on a
declining principle balance.
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 first
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 are required to be provided in accordance with Financial
Accounting Statement No. 109. The Company has taken the position that to
provide such disclosure is not only meaningless but somewhat distortive. As of
the first quarter 1996 no such income tax provision would have been 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: May 14, 1996 By: Joseph J. McQuade
------------------------------------
Joseph J. McQuade, President and
Chief Executive Officer
Date: May 14, 1996 By: Bill Ukele
------------------------------------
Bill Ukele, Controller and