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, 1996 Commission 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
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(Address of principal executive offices)
Registrant's telephone number, including area code (307) 234-1593
--------------------
N/A
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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, 1996
- -------------------- -----------------------------------
Capital Stock, $.01 par value 26,788,858
INDEX
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PAGE
PART I FINANCIAL INFORMATION 3
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 4
Consolidated Statements of Operations
Three months and nine months ended
September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows
Nine months ended September 30,
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 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, 1995.
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September December
30, 31,
1996 1995
---- ----
(unaudited)
ASSETS
------
CURRENT ASSETS
Cash (including certificates of deposit 1996
$3,000; 1995 $3,000) $ 121,000 $ 197,000
Accounts receivable 439,000 719,000
Short-term investments 561,000 807,000
Inventory 16,000 37,000
Costs in excess of billings 27,000 7,000
Other current assets 72,000 52,000
------------ ------------
Total current assets 1,236,000 1,819,000
------------ ------------
PROPERTY AND EQUIPMENT, net (successful efforts
method) 2,170,000 1,915,000
------------ ------------
NOTE RECEIVABLE 43,000 46,000
------------ ------------
OTHER ASSETS 221,000 235,000
------------ ------------
$ 3,670,000 $ 4,015,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable $ 300,000 $ 230,000
Current maturities of long-term debt 107,000 87,000
Accounts payable 211,000 148,000
Accrued liabilities 88,000 65,000
------------ ------------
Total current liabilities 706,000 530,000
------------ ------------
LONG-TERM DEBT 469,000 493,000
------------ ------------
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) (359,000) 138,000
------------ ------------
2,495,000 2,992,000
------------ ------------
$ 3,670,000 $ 4,015,000
============ ============
<FN>
See Notes to Consolidated Financial Statements
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Operating revenue:
Oil and gas $ 51,000 $ 46,000 $ 132,000 $ 142,000
Environmental 448,000 988,000 1,523,000 2,290,000
Gain (loss) on sale of
assets 3,000 (18,000) 9,000 (17,000)
-------------- ------------- -------------- --------------
502,000 1,016,000 1,664,000 2,415,000
-------------- ------------- -------------- --------------
Operating expenses:
Oil and gas 12,000 30,000 52,000 74,000
Environmental 542,000 825,000 1,718,000 1,982,000
Depreciation, depletion and
amortization 60,000 49,000 168,000 150,000
General and administrative 60,000 69,000 197,000 158,000
-------------- ------------- -------------- --------------
674,000 973,000 2,135,000 2,364,000
-------------- ------------- -------------- --------------
Operating income (loss) from
continuing operations (172,000) 43,000 (471,000) 51,000
Other income (expense):
Interest income 9,000 16,000 34,000 51,000
Interest expense (16,000) (19,000) (49,000) (60,000)
Sale of marketable securities - 42,000 - 42,000
-------------- ------------- -------------- --------------
Income (loss) from continuing
operations before taxes (179,000) 82,000 (486,000) 84,000
-------------- ------------- -------------- --------------
Provision for taxes:
Current - - - -
Deferred - - - -
-------------- ------------- -------------- --------------
- - - -
-------------- ------------- -------------- --------------
Income (loss) from continuing
operations (179,000) 82,000 (486,000) 84,000
Discontinued operations (3,000) (145,000) (11,000) (319,000)
-------------- ------------- -------------- --------------
Net loss $ (182,000) $ (63,000) $ (497,000) $ (235,000)
============== ============= ============== ==============
Weighted average number of
common shares outstanding 26,788,858 26,783,858 26,788,858 26,508,564
============== ============= ============== ==============
Income (loss) per common share:
Income (loss) from
continuing operations $ (.01) $ .00 $ (.02) $ .00
Discontinued operations (.00) (.00) (.00) (.01)
-------------- ------------- -------------- --------------
$ (.01) $ (.00) $ (.02) $ (.01)
============== ============= ============== ==============
<FN>
See Notes to Consolidated Financial Statements
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
---- ----
Cash flows from operating activities:
Income (loss) from continuing operations $ (486,000) $ 84,000
Adjustment to reconcile net earnings/loss to net cash
provided:
Depreciation, depletion and amortization 168,000 150,000
Impairment of non producing oil and gas property 5,000 10,000
(Gain) loss on sale of assets (9,000) 17,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 269,000 (227,000)
Increase in inventory, costs in excess of billings
and other current assets (40,000) (3,000)
Increase in deferred loss on discontinued - 1,000
operations
Increase (decrease) in accounts payable and
accrued expenses 88,000 (118,000)
------------- --------------
(5,000) (86,000)
Operating cash flow from discontinued operations 19,000 (90,000)
------------- --------------
Net cash flow provided by (used in) operating activities 14,000 (176,000)
------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (438,000) (305,000)
Proceeds from sale of properties 39,000 163,000
Increase in other assets (11,000) (52,000)
Decrease in note receivable 3,000 -
Decrease (increase) in short-term investments 246,000 (795,000)
------------- --------------
(161,000) (989,000)
Investing cash flow from discontinued operations 1,000 187,000
------------- --------------
Net cash flow used in investing activities (160,000) (802,000)
------------- --------------
Cash flows from financing activities:
Proceeds from debt obligations incurred 146,000 222,000
Reduction of debt obligations (65,000) (285,000)
Proceeds from sale of stock - 30,000
------------- --------------
81,000 (33,000)
Financing cash flow from discontinued operations (11,000) (35,000)
------------- --------------
Net cash provided by (used in) financing activities 70,000 (68,000)
------------- --------------
Increase (decrease) in cash and cash equivalents (76,000) (1,046,000)
Cash and cash equivalents at beginning of year 197,000 1,340,000
------------- --------------
Cash and cash equivalents at end of year $ 121,000 $ 294,000
============= ==============
<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, 1996 and December 31, 1995 consists of
the following:
1996 1995
---- ----
Nonproducing oil and gas properties, net of
valuation allowance of $1,000 in 1996 and $43,000
in 1995 $ 27,000 $ 31,000
Producing oil and gas properties 1,464,000 1,369,000
Furniture and fixtures 377,000 316,000
Transportation equipment 294,000 276,000
Buildings and leasehold improvements 821,000 818,000
Machinery and equipment - 3,000
Engineering and lab equipment 1,084,000 976,000
Other 119,000 124,000
------------ ------------
4,186,000 3,913,000
Less accumulated depreciation and depletion 2,016,000 1,998,000
------------ ------------
$ 2,170,000 $ 1,915,000
============ ============
Note 2. Notes Payable, Long-Term Debt and Pledged Assets
Notes payable at September 30, 1996 and December 31, 1995 are as follows:
1996 1995
---- ----
Revolving lines of credit $300,000 interest at 6.25%
maturing June 23, 1997 collateralized by
certificate of deposit $ 300,000 $ 230,000
============ ============
Long-Term debt at September 30, 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, (9.325% at September 30, 1996),
payable $1,471 per month including interest until
April 1, 2003, collateralized by office building $ 87,000 $ 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 150,000 153,000
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 101,000 103,000
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, (9.5% at September 30, 1996) payable
$1,222 per month including interest until March
22, 2009, collateralized by office building 107,000 112,000
$ $
Lease payable, Eaton Financial Corporation, payable
$1,227 per month including interest,
collateralized by computer equipment 14,000 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 27,000 38,000
Installment loans payable, due at various times from
October 1996 to August 1999, interest rates from
7% to 10%, secured by equipment 90,000 59,000
------------ ------------
576,000 580,000
Less current maturities 107,000 87,000
------------ ------------
$ 469,000 $ 493,000
============ ============
Aggregate maturities of long-term debt are as follows:
1996 $ 30,000
1997 101,000
1998 188,000
1999 25,000
2000 23,000
Thereafter 209,000
-----------
$ 576,000
===========
Actual cash payments for interest during the periods ended September 30, 1996
and 1995 were $49,000 and $63,000 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 $ 138,000 $ 151,000
Environmental testing and management industry 1,526,000 2,264,000
------------ ------------
$ 1,664,000 $ 2,415,000
============ ============
Discontinued operations $ 39,000 $ 165,000
============ ============
Operating profit or (loss):
Oil and gas industry $ (55,000) $ (74,000)
Environmental testing and management industry (279,000) 206,000
Unallocated corporate expenses (137,000) (81,000)
------------ ------------
$ (471,000) $ 51,000
============ ============
Discontinued operations $ (11,000) $ (319,000)
============ ============
Identifiable assets:
Oil and gas industry $ 756,000 $ 605,000
Environmental testing and management industry 1,096,000 1,232,000
Corporate assets 1,761,000 2,275,00
Discontinued operations 57,000 164,000
------------ ------------
$ 3,670,000 $ 4,276,000
============ ============
Capital expenditures:
Oil and gas industry $ 199,000 $ 139,000
Environmental testing and management industry 194,000 162,000
Other capital expenditures 45,000 4,000
Discontinued operations - 1,000
------------ ------------
$ 438,000 $ 306,000
============ ============
Depreciation, depletion and amortization:
Oil and gas industry $ 38,000 $ 39,000
Environmental testing and management industry 87,000 76,000
Other depreciation, depletion and amortization 48,000 45,000
------------ ------------
$ 173,000 $ 160,000
============ ============
Discontinued operations $ 1,000 $ 60,000
============ ============
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 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 December
31, 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, consisted 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 September 30, 1996 and December 31, 1995 are as follows:
1996 1995
---- ----
Accounts receivable $ 3,000 $ 15,000
Inventory 16,000 37,000
Other current assets - 1,000
Property and equipment 1,000 2,000
------------ ------------
Total assets $ 20,000 $ 55,000
============ ============
Assets are shown at their expected net realizable values.
Net sales of the discontinued segments for 1996 and 1995 were as follows:
1996 1995
---- ----
Publishing $ - $ 14,000
Navigational products 39,000 70,000
Printing - 81,000
Environmental assembly - -
------------ ------------
$ 39,000 $ 165,000
============ ============
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 $530,000 which
(although it has decreased substantially since year end) is still deemed
adequate for all transactions due in the normal course of business in the
foreseeable future. The Company has a loss of $497,000 for the first nine
months of 1996 which includes $182,000 in the current quarter. In the latter
part of 1994, the Company made a decision to expand its environmental operations
by opening an office in San Marcos, Texas and then in early 1996, another office
in Salt Lake City, Utah. In hindsight, those decisions have proved to be
unproductive and poorly timed. The Company's Texas operation has lost money and
the Company has made the decision to close that office (a few technical people
may remain to monitor extisting clients' ongoing needs). In addition, the
Salt Lake City office has been reorganized and streamlined. It is anticipated
that the $250,000 in losses anually from the Texas operation will cease
immediately and that the cost of the Salt Lake office will be decreased by
nearly 50%, netting an additional $100,000 in savings. In addition, there has
been an industry-wide reduction in demand for environmental engineering
services.
It is our belief that this decrease in demand for services was based on
industry's "wait and see" attitude about the 1996 national election. Many
clients of both ours and our competitors delayed or postponed environmental
service work throughout the spring and summer of 1996. Consequently, revenues
for the nine months are down $700,000. In 1995, the volume of revenues seemed
sufficient to continue our experiments with the branch offices. In 1996, a very
quick decline in revenues has generated substantial losses.
The Company purchased approximately $438,000 of property and equipment in 1996
as compared to $305,000 in 1995. It is not anticipated that these purchases
will be repeated in 1997 or 1998 and the utilization of cash proceeds will not
be depleted with such future purchases.
It is expected that an additional $10,000 to $20,000 in proceeds will be
received from the sale of the final amounts of the SanTech navigational supplies
business during the remainder of 1996 and into 1997. The Company continues to
attempt to sell its' facility at 6WN Road in Casper and has leased one-half of
those facilities at amounts approximately equal to the debt service on the
building. It is also estimated that upon closing the Texas office the building
purchased to house those offices will be sold. Property values have escalated
substantially in the San Marcos/Austin area and it is anticipated that the
building will sell relatively quickly. The sale of either the Casper or San
Marcos buildings will have a significant positive impact on the Company's
liquidity and capital resources. Long term debt would be reduced by nearly
$300,000 and sales of all the buildings would yield between $150,000 and
$250,000 in additional cash.
The following information is provided for the three month period ending
September 30, 1996 and year ending December 31, 1995.
1996 1995
---- ----
Working capital $ 530,000 $ 1,289,000
Working capital ratio 1.8:1 3.4:1
Long-term debt to equity 1:5.3 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 third quarter of 1996, the Company reported a loss of $182,000 compared
to a loss of $63,000 in the prior year. Although it was anticipated that the
third quarter would be more profitable, the Company was plagued with
postponement and delays from many of its' clients. This trend was explained in
the Liquidity and Capital Resources section of this report. In addition, the
Company lost one significant client which it had done work for almost every
month in 1995. Accordingly, the overall effect on the Company has been a
significant downward trend in environmental revenues.
Environmental Engineering :
For the three months ending September 30, 1996, the environmental engineering
revenues declined from $988,000 in 1995 to $448,000 in the current year. As
explained above, this revenue decrease was due to significant numbers of
postponements and deferrals and the loss of one large contract as compared to
the 1995 revenues. This brings the revenues to $1,523,000 for the nine month
period as compared to $2,290,000 the year before. There is a corresponding
decline in environmental expenses from $825,000 in the prior year to $542,000 in
1996 for the three months ended September 30, 1996. The nine month expense
numbers show a decline from $1,982,000 in 1995 to $1,718,000 in 1996. The
decline in expenses was not as great as the decline in revenues as the amount of
fixed costs in terms of employees and operating costs at the various offices
were unable to be curtailed as fast as postponements and delays in the billings
of clients occurred.
Oil and Gas:
Oil and gas revenues were $51,000 as compared to $46,000 in 1995 which brings
the 1996 totals to $132,000 as compared to $142,000 the prior year. This
moderate increase in the third quarter reflects certain additional oil and gas
producing properties which have been drilled and completed in the Brundage
Canyon area, but had only moderate production during the quarter. It is
anticipated that there will be significant additional production of oil and gas
during the coming year with moderate increases during the fourth quarter. Oil
and gas expenses had significant declines in 1996 third quarter of $12,000
compared to $30,000 in the same quarter 1995. Similar declines for the nine
months are indicated in the financial statements showing a decline from $74,000
in expenses to $52,000 from 1995 to 1996.
Additional Information:
The Company had depreciation, depletion and amortization of $60,000 in the third
quarter compared to $49,000 in the third quarter of 1995. It is estimated that
depreciation and depletion will remain relatively constant for each successive
quarter in the remainder of 1996 and throughout 1997.
General and administrative costs were $60,000 as compared to $69,000 in 1995.
This brings the total administrative costs to $197,000 for the year for the nine
months ending September 30, 1996 compared to $158,000 for the same period in
1995.
With cash being utilized to fund operations the amount of investments has
declined and accordingly interest income has declined from $16,000 in the third
quarter of 1995 to $9,000 in the third quarter of 1996. Year to date numbers
also show a similar decline from $51,000 in 1995 to $34,000 in 1996.
Interest expense has also declined as the Company has reduced its' borrowing
base and interest expense in 1995 was $19,000 for the third quarter compared to
$16,000 in 1996. Similar declines from $60,000 to $49,000 are reflected for the
nine month period ending September 30, 1996.
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Results of Operations: continued
- ---------------------
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, Financial Accounting Statement No. 109 requires that deferred taxes be
provided. The Company has taken the position that to provide such disclosure is
not only meaningless but somewhat distortive. As of the third 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: December 3, 1996 By: Joseph J. McQuade
------------------------------------
Joseph J. McQuade, President and
Chief Executive Officer
Date: December 3, 1996 By: Bill Ukele
------------------------------------
Bill Ukele, Controller and
Chief Financial Officer