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, 1997Commission 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 March 31, 1997
- -------------------- ------------------------------
Capital Stock, $.01 par value 27,028,194
INDEX
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PAGE
PART I FINANCIAL INFORMATION 3
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 4
Consolidated Statements of Operations
Three months ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996 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, 1996.
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
---- ----
(unaudited)
ASSETS
------
CURRENT ASSETS
Cash (including certificate of deposit 1996
$2,000) $ 54,000 $ 48,000
Accounts receivable 309,000 320,000
Short-term investments 311,000 571,000
Costs in excess of billings 7,000 51,000
Other current assets 57,000 52,000
------------ ------------
Total current assets 738,000 1,042,000
------------ ------------
PROPERTY AND EQUIPMENT, net (successful efforts
method) 2,221,000 2,266,000
------------ ------------
NOTE RECEIVABLE 41,000 42,000
------------ ------------
LAND INVESTMENT 202,000 202,000
------------ ------------
OTHER ASSETS 215,000 213,000
------------ ------------
$ 3,417,000 $ 3,765,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable $ 320,000 $ 485,000
Current maturities of long-term debt 90,000 101,000
Accounts payable 337,000 402,000
Accrued liabilities 47,000 95,000
------------ ------------
Total current liabilities 794,000 1,083,000
------------ ------------
LONG-TERM DEBT 423,000 445,000
------------ ------------
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 1997 -
27,028,194 shares; 1996 - 26,788,858 shares 270,000 268,000
Capital in excess of par value of common stock 2,624,000 2,586,000
Retained earnings (deficit) (since elimination of
deficit at December 31, 1988) (694,000) (617,000)
---------- ------------
2,200,000 2,237,000
------------ ------------
$ 3,417,000 $ 3,765,000
============ ============
<FN>
See Notes to Consolidated Financial Statements
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31 1997 AND 1996
(UNAUDITED)
1997 1996
---- ----
Operating revenue:
Oil and gas $ 128,000 $ 44,000
Environmental 405,000 560,000
Gain on sale of assets 12,000 2,000
----------------- -----------------
545,000 606,000
----------------- -----------------
Operating expenses:
Oil and gas 41,000 22,000
Environmental 463,000 589,000
Depreciation, depletion and amortization 65,000 52,000
General and administrative 56,000 72,000
----------------- -----------------
625,000 735,000
----------------- -----------------
Operating loss from continuing operations (80,000) (129,000)
Other income (expense):
Other income 15,000 -
Interest income 6,000 14,000
Interest expense (18,000) (16,000)
----------------- -----------------
Loss from continuing operations before taxes (77,000) (131,000)
----------------- -----------------
Provision for taxes:
Current - -
Deferred - -
----------------- ------------------
- -
----------------- ------------------
Loss from continuing operations (77,000) (131,000)
Discontinued operations - (6,000)
----------------- -----------------
Net loss $ (77,000) $ (137,000)
================= =================
Weighted average number of common shares outstanding 27,006,920 26,788,858
================= =================
Loss per common share:
Loss from continuing operations $ (.00) $ (.01)
Discontinued operations - (.00)
----------------- -----------------
$ (.00) $ (.01)
================= =================
<FN>
See Notes to Consolidated Financial Statements
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
---- ----
Cash flows from operating activities:
Loss from continuing operations $ (77,000) $ (131,000)
Adjustment to reconcile net loss to net cash
provided:
Depreciation, depletion and amortization 65,000 52,000
Impairment of non producing oil and gas
property 2,000 1,000
Gain on sale of assets (12,000) (2,000)
Changes in operating assets and liabilities:
Decrease in accounts receivable 11,000 219,000
Decrease in short-term investments 260,000 5,000
Decrease (increase) in inventory and
other current assets 39,000 (64,000)
(Decrease) increase in accounts payable
and accrued expenses (113,000) 39,000
------------ ------------
175,000 119,000
Operating cash flow from discontinued
operations - 15,000
------------ ------------
Net cash flow provided by operating activities 175,000 134,000
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (33,000) (172,000)
Proceeds from sale of properties 23,000 2,000
Increase in other assets (2,000) -
Decrease in note receivable 1,000 1,000
------------ ------------
(11,000) (169,000)
Investing cash flow from discontinued
operations - 1,000
------------ ------------
Net cash flow used in investing activities (11,000) (168,000)
------------ ------------
Cash flows from financing activities:
Proceeds from debt obligations incurred 40,000 66,000
Reduction of debt obligations (238,000) (21,000)
Issuance of common stock 40,000 -
------------ ------------
(158,000) 45,000
Financing cash flow from discontinued
operations - -
Net cash provided by financing activities (158,000) 45,000
------------ ------------
Increase in cash and cash equivalents 6,000 11,000
Cash and cash equivalents at beginning of year 48,000 197,000
------------ ------------
Cash and cash equivalents at end of year $ 54,000 $ 208,000
============ ============
<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, 1997 and December 31, 1996 consists of the
following:
1997 1996
---- ----
Nonproducing oil and gas properties, net of
valuation allowance of $3,000 in 1997 and $2,000
in 1996 $ 24,000 $ 26,000
Producing oil and gas properties 1,642,000 1,622,000
Furniture and fixtures 396,000 394,000
Transportation equipment 241,000 265,000
Buildings and leasehold improvements 816,000 816,000
Engineering and lab equipment 1,092,000 1,084,000
Other 118,000 118,000
------------ ------------
4,329,000 4,325,000
Less accumulated depreciation and depletion 2,108,000 2,059,000
------------ ------------
$ 2,221,000 $ 2,266,000
============ ============
Note 2. Notes Payable, Long-Term Debt and Pledged Assets
Notes payable at March 31, 1997 and December 31, 1996 are as follows:
1997 1996
---- ----
Short-term note payable due bank, interest at 11.5%
$40,000 maturing April 13, 1997 collateralized by
office building $ 40,000 $ -
Short-term notes payable due bank, interest at 8.0%
$50,000 maturing January 1, 1997 and $150,000
maturing June 23, 1997 collateralized by
certificate of deposit - 200,000
Revolving line of credit $300,000 interest at 6.25%
maturing June 23, 1997 collateralized by
certificate of deposit 280,000 285,000
------------ ------------
$ 320,000 $ 485,000
============ ============
Long-Term debt at March 31, 1997 and December 31, 1996 is as follows:
1997 1996
---- ----
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 March 31, 1997), payable
$1,471 per month including interest until April 1,
2003, collateralized by office building $ 82,000 $ 84,000
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 147,000 149,000
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 100,000 101,000
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Notes Payable, Long-Term Debt and Pledged Assets (cont.)
1997 1996
---- ----
Mortgage note payable to bank, interest set at 4%
above U.S. Treasury Bill index for one year each
April 1st, (9.5% at March 31, 1997) payable $1,222
per month including interest until March 22, 2009,
collateralized by office building 105,000 106,000
Lease payable, Eaton Financial Corporation, payable
$1,227 per month including interest,
collateralized by computer equipment with original
cost of $49,000, accumulated depreciation of
$19,000 and $17,000 at 1997 and 1996 9,000 11,000
Note payable, State of Wyoming, interest at 4%, due
in quarterly installments of approximately $4,000
including interest until May 14, 1998, unsecured 19,000 23,000
Installment loans payable, due at various times from
August 1997 to August 1999, interest rates from 7%
to 10%, secured by equipment 51,000 72,000
------------ ------------
513,000 546,000
Less current maturities 90,000 101,000
------------ ------------
$ 423,000 $ 445,000
============ ============
Aggregate maturities of long-term debt are as follows:
1997 71,000
1998 185,000
1999 25,000
2000 23,000
2001 26,000
Thereafter 183,000
-----------
$ 513,000
===========
Actual cash payments for interest during the periods ended March 31, 1997 and
1996 were $18,000 and $16,000 respectively.
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Financial Information Relating to Industry Segments
1997 1996
---- ----
Sales to unaffiliated customers:
Oil and gas industry $ 137,000 $ 45,000
Environmental testing and management industry 408,000 561,000
------------ ------------
$ 545,000 $ 606,000
============ ============
Discontinued operations $ - $ 17,000
============ ============
Operating profit or (loss):
Oil and gas industry $ 40,000 $ (23,000)
Environmental testing and management industry (82,000) (56,000)
Unallocated corporate expenses (38,000) (50,000)
------------ ------------
$ (80,000) $ (129,000)
============ ============
Discontinued operations $ - $ (6,000)
============ ============
Identifiable assets:
Oil and gas industry $ 845,000 $ 668,000
Environmental testing and management industry 878,000 1,129,000
Corporate assets 1,694,000 2,080,000
Discontinued operations - 85,000
------------ ------------
$ 3,417,000 $ 3,962,000
============ ============
Capital expenditures:
Oil and gas industry $ 24,000 $ 61,000
Environmental testing and management industry 9,000 110,000
Other capital expenditures - 1,000
------------ ------------
$ 33,000 $ 172,000
============ ============
Depreciation, depletion and amortization:
Oil and gas industry $ 29,000 $ 10,000
Environmental testing and management industry 26,000 28,000
Other depreciation, depletion and amortization 10,000 14,000
------------ ------------
$ 65,000 $ 52,000
============ ============
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 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 and 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 final disposal date was extended to December 31, 1996. The
assets of the navigational products segment were sold piece meal consisted
primarily of inventory and property and equipment.
On December 23, 1994, the Company adopted a formal plan to sell its
printing segment. The disposal date was August 15, 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 and $13,000 in 1996, exceeding the
original estimates by $330,000. Accordingly, the accompanying consolidated
statements of operations for 1996 includes the additional loss.
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, 1997 and 1996 are as follows:
1997 1996
---- ----
Accounts receivable $ - $ 5,000
Inventory - 26,000
Property and equipment - 2,000
--------- ----------
Total assets $ - $ 33,000
========= ==========
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 statements.
Net sales of the discontinued segments for 1997 and 1996 were as follows:
1997 1996
---- ----
Publishing $ - $ -
Navigational products - 17,000
Printing - -
Environmental assembly - -
--------- ----------
$ - $ 17,000
========= ==========
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's current assets are approximately the
same as current liabilities. Included in current liabilities are $320,000 worth
of short term notes collateralized by receivables which are expected to be
refinanced during the second or third quarter of 1997. The Company provided
$175,000 of working capital from operations during the first quarter of 1997.
The Company purchased approximately $33,000 of property and equipment and used
working capital to retire $238,000 of debt obligations. $40,000 of new debt
obligations were incurred.
It is expected that during the second or third quarter of 1997, the Company will
finalize a sale on its former offices at 6WN Road in Casper. This transaction
should reduce long term debt by approximately $147,000 and provide an additional
$75,000 to $80,000 of working capital.
Results of Operations:
- ---------------------
In the first quarter of 1997, the Company reported a loss of $77,000 compared to
$137,000 in the first quarter of 1996. Included in this $77,000 loss are
approximately $20,000 of costs associated with the reduction of staff, including
severance pay, in the Texas and Salt Lake City offices. The primary reason for
the $60,000 loss reduction compared to the prior year is the increased
performance of the oil and gas business segment of the Company.
Oil and Gas:
Oil and gas revenues were $128,000 compared to $44,000 in 1996. This increase
is due primarily from the increased production levels at the Company's Brundage
Canyon Fields in Duchesne County, Utah. One new well and two worked over wells
have contributed to the bulk of this increase. It is estimated that additional
wells and revenues will occur to supplement this increase in the remaining
months of 1997. However, expenses from oil and gas operations increased only
$19,000 from $22,000 to $41,000. This $19,000 cost increase compares to $84,000
revenue increase and, as stated above, is the primary reason for improved
operating performance in the first quarter of 1997 as compared to the first
quarter of 1996.
Environmental Engineering :
Environmental engineering revenues declined from $560,000 in 1996 to $405,000 in
1997. Correspondingly, environmental expenses also declined from $589,000 in
the first quarter of 1996 to $463,000 in the first quarter of 1997. This
decline is due to a large part to the decreased demand level for the Company's
consulting services. It is estimated that the remaining quarters of 1997 will
be slightly better that corresponding quarters for 1996.
Additional Information:
The Company had depreciation, depletion and amortization of $65,000 during the
first quarter of 1997 compared to $52,000 during the first quarter of 1996.
This increase in total amortization costs is primarily due to increased
depletion at the Brundage Canyon Field in Duchesne County, Utah.
General and administrative costs were $56,000 during the quarter as opposed to
the $72,000 in the first quarter of 1996. The $16,000 decrease was due to
reduced levels of the Employee Stock Ownership Plan contribution and to
tightening of corporate budgets on all general administrative accounts.
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Results of Operations: continued
- ---------------------
Interest expense was $18,000 for the quarter as compared to $16,000 for the
first quarter of 1996. Although debt levels declined moderately, interest rates
increased from the levels of one year ago and the corresponding $2,000 increase
occurred.
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, 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 first quarter 1997 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 15, 1997 By: Joseph J. McQuade
------------------------------------
Joseph J. McQuade, President and
Chief Executive Officer
Date: May 15, 1997 By: Bill Ukele
------------------------------------
Bill Ukele, Controller and