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 June 30, 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
- -----------------------------------------------------------------
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 June 30, 1997
- -------------------- ------------------------------
Capital Stock, $.01 par value 27,028,194
INDEX
-----
PAGE
PART I FINANCIAL INFORMATION 3
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 4
Consolidated Statements of Operations
Three months and six months ended
June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows
Six months ended June 30, 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
June 30, December
31,
1997 1996
---- ----
(unaudited)
ASSETS
------
CURRENT ASSETS
Cash (including certificate of deposit 1996
$2,000) $ 18,000 $ 48,000
Accounts receivable 452,000 320,000
Short-term investments 300,000 571,000
Costs in excess of billings 13,000 51,000
Other current assets 53,000 52,000
------------ ------------
Total current assets 836,000 1,042,000
------------ ------------
PROPERTY AND EQUIPMENT, net (successful efforts
method) 2,201,000 2,266,000
------------ ------------
NOTE RECEIVABLE 40,000 42,000
------------ ------------
LAND INVESTMENT 202,000 202,000
------------ ------------
OTHER ASSETS 215,000 213,000
------------ ------------
$ 3,494,000 $ 3,765,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable $ 340,000 $ 485,000
Current maturities of long-term debt 227,000 101,000
Accounts payable 473,000 402,000
Accrued liabilities 41,000 95,000
------------ ------------
Total current liabilities 1,081,000 1,083,000
------------ ------------
LONG-TERM DEBT 271,000 445,000
------------ ------------
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 2,623,000 2,586,000
Retained earnings (deficit) (since elimination of
deficit at December 31, 1988) (751,000) (617,000)
------------ ------------
2,142,000 2,237,000
------------ ------------
$ 3,494,000 $ 3,765,000
============ ============
<FN>
See Notes to Consolidated Financial Statements
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
Operating revenue:
Oil and gas sales $ 71,000 $ 37,000 $ 199,000 $ 81,000
Environmental 486,000 515,000 891,000 1,075,000
Gain on sale of assets - 4,000 12,000 6,000
---------------- ----------------- ----------------- -----------------
557,000 556,000 1,102,000 1,162,000
----------------- ----------------- ----------------- -----------------
Operating expenses:
Oil and gas 42,000 18,000 83,000 40,000
Environmental 437,000 587,000 900,000 1,176,000
Depreciation, depletion and
amortization 64,000 56,000 129,000 108,000
General and administrative 67,000 65,000 123,000 137,000
----------------- ----------------- ----------------- -----------------
610,000 726,000 1,235,000 1,461,000
----------------- ----------------- ----------------- -----------------
Operating loss from continuing
operations (53,000) (170,000) (133,000) (299,000)
Other income (expense):
Other income 8,000 - 23,000 -
Interest income 5,000 11,000 11,000 25,000
Interest expense (17,00) (17,000) (35,000) (33,000)
----------------- ----------------- ----------------- -----------------
Loss from continuing operations before
taxes (57,000) (176,000) (134,000) (307,000)
---------------- ----------------- ----------------- -----------------
Provision for taxes:
Current - - - -
Deferred - - - -
---------------- ----------------- ----------------- -----------------
- - - -
---------------- ----------------- ----------------- -----------------
Loss from continuing operations (57,000) (176,000) (134,000) (307,000)
Discontinued operations - (2,000) - (8,000)
---------------- ----------------- ----------------- -----------------
Net loss $ (57,00) $ (178,000) $ (134,000) $ (315,000)
================= ================= ================= =================
Weighted average number of common
shares outstanding 27,028,194 26,788,858 27,017,616 26,788,858
================ ================= ================= =================
Loss per common share:
Loss from continuing operations $ (.00) $ (.01) $ (.00) $ (.01)
Discontinued operations - (.00) - (.00)
---------------- ----------------- ----------------- -----------------
$ (.00) $ (.01) $ (.00) $ (.01)
================= ================= ================= =================
<FN>
See Notes to Consolidated Financial Statements
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
1997 1996
---- ----
Cash flows from operating activities:
Loss from continuing operations $ (134,000) $ (307,000)
Adjustment to reconcile net loss to net cash
provided:
Depreciation, depletion and amortization 129,000 108,000
Impairment of non producing oil and gas 3,000 3,000
property
Gain on sale of assets (12,000) (6,000)
Changes in operating assets and liabilities:
Decrease (increase) in accounts
receivable (132,000) 224,000
Decrease (increase) in inventory, costs
in excess of billings and other current
assets 37,000 (79,000)
Increase (decrease) in accounts payable
and accrued expenses 17,000 (18,000)
------------ ------------
(92,000) (75,000)
Operating cash flow from discontinued
operations - 18,000
------------ ------------
Net cash flow provided by operating activities (92,000) (57,000)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (80,000) (238,000)
Proceeds from sale of properties 25,000 14,000
Increase in other assets (2,000) (4,000)
Decrease in note receivable 2,000 3,000
Decrease in short-term investments 271,000 253,000
------------ ------------
216,000 28,000
Investing cash flow from discontinued
operations - 1,000
------------ ------------
Net cash flow provided by investing activities 216,000 29,000
------------ ------------
Cash flows from financing activities:
Proceeds from debt obligations incurred - 126,000
Reduction of debt obligations (193,000) (46,000)
Proceeds from sale of stock 39,000 -
------------ ------------
(154,000) 80,000
Financing cash flow from discontinued
operations - (7,000)
------------ ------------
Net cash provided by (used in) financing
activities (154,000) 73,000
------------ ------------
Increase (decrease) in cash and cash equivalents (30,000) 45,000
Cash and cash equivalents at beginning of year 48,000 197,000
------------ ------------
Cash and cash equivalents at end of year $ 18,000 $ 242,000
============ ============
<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 June 30, 1997 and December 31, 1996 consists of the
following:
1997 1996
---- ----
Nonproducing oil and gas properties, net of
valuation allowance of $5,000 in 1997 and $2,000
in 1996 $ 23,000 $ 26,000
Producing oil and gas properties 1,686,000 1,622,000
Furniture and fixtures 396,000 394,000
Transportation equipment 243,000 265,000
Buildings and leasehold improvements 816,000 816,000
Engineering and lab equipment 1,092,000 1,084,000
Other 118,000 118,000
------------ ------------
4,374,000 4,325,000
Less accumulated depreciation and depletion 2,173,000 2,059,000
------------ ------------
$ 2,201,000 $ 2,266,000
============ ============
Note 2. Notes Payable, Long-Term Debt and Pledged Assets
Notes payable at June 30, 1997 and December 31, 1996 are as follows:
1997 1996
---- ----
Short-term note payable due bank, interest
at 11.5% $40,000 maturing October 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 7.25% maturing June 23, 1998
collateralized by certificate of deposit 300,000 285,000
--------- ----------
$ 340,000 $ 485,000
========= ==========
Long-Term debt at June 30, 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, (9.815% at
June 30, 1997), payable $1,490 per month
including interest until April 1, 2003,
collateralized by office building $ 80,000 $ 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 146,000 149,000
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 99,000 101,000
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, (9.9% at June
30, 1997) payable $1,251 per month
including interest until March 22, 2009,
collateralized by office building $ 104,000 $ 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 $20,000 and
$17,000 at 1997 and 1996 7,000 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 16,000 23,000
Installment loans payable, due at various
times from August 1997 to August 1999,
interest rates from 7% to 10%, secured by
equipment 46,000 72,000
--------- --------
498,000 546,000
Less current maturities 227,000 101,000
--------- ----------
$ 271,000 $ 445,000
========= ==========
Aggregate maturities of long-term debt are as follows:
1997 54,000
1998 186,000
1999 25,000
2000 23,000
2001 26,000
Thereafter 184,000
---------
$ 498,000
=========
Actual cash payments for interest during the periods ended June 30, 1997 and
1996 were $35,000 and $33,000 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 $ 208,000 $ 86,000
Environmental testing and management industry 894,000 1,076,000
------------ ------------
$ 1,102,000 $ 1,162,000
============ ============
Discontinued operations $ - $ 29,000
============ ============
Operating profit or (loss):
Oil and gas industry $ 15,000 $ (45,000)
Environmental testing and management industry (57,000) (157,000)
Unallocated corporate expenses (91,000) (97,000)
------------ ------------
$ (133,000) $ (299,000)
============ ============
Discontinued operations $ - $ (8,000)
============ ============
Identifiable assets:
Oil and gas industry $ 886,000 $ 631,000
Environmental testing and management industry 1,000,000 1,165,000
Corporate assets 1,608,000 1,895,000
Discontinued operations - 62,000
------------ ------------
$ 3,494,000 $ 3,753,000
============ ============
Capital expenditures:
Oil and gas industry $ 69,000 $ 33,000
Environmental testing and management industry 11,000 163,000
Other capital expenditures - 42,000
Discontinued operations - -
------------ ------------
$ 80,000 $ 238,000
============ ============
Depreciation, depletion and amortization:
Oil and gas industry $ 61,000 $ 21,000
Environmental testing and management industry 51,000 57,000
Other depreciation, depletion and amortization 20,000 33,000
------------ ------------
$ 132,000 $ 111,000
============ ============
Discontinued operations $ - $ -
============ ============
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
------------
$ 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 consolidated statements
of operations for 1996 included 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 June 30, 1997 and 1996 are as follows:
1997 1996
---- ----
Accounts receivable $ - $ 3,000
Inventory - 21,000
Property and equipment - 1,000
---------- ----------
Total assets $ - $ 25,000
========== =========
Assets are shown at their expected net realizable values.
Net sales of the discontinued segments for 1997 and 1996 were as follows:
1997 1996
---- ----
Publishing $ - $ -
Navigational products - 29,000
Printing - -
Environmental assembly - -
---------- ----------
$ - $ 29,000
========== =========
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 June 30, 1997, the Company had deficit working capital of $245,000. But
for the items which follow, this would be a concern.
First: The Company is currently negotiating for, and has every reason to
believe that, $200,000 of long term financing will be put into place
shortly after the date of this report. The payments on this debt will be
approximately $4,000 per month. Other debt with payments in cumulative
monthly amounts of nearly $7,000 will be satisfied by year end. The $7,000
per month which had been used to meet loan payments which will soon be paid
will produce more than enough to meet the $4,000 debrt service on this new
note. The effect of this transaction will be to reduce short-term
liabilities and therefore, increase working capital by approximately
$200,000 (ignoring the current portion of the debt retirement).
Second: On one of the buildings which the Company owns, and which is for
sale, there is a balloon payment due the end of June, 1998. The amount of
that note at June 30, 1997, was $146,000. Consequently, during this
quarter $146,000 of long-term debt must now be classified as short-term in
accordance with generally accepted accounting principles. Although the
Company has had preliminary discussions with the lender and had been given
assurance that a refinancing can be arrived at, the negotiations have not
progressed enough to reclassify the debt in accordance with accounting
pronouncements. When refinanced this amount would also reduce current
liabilities and therefore, increase working capital by a corresponding
amount.
Third: The Company's office building in San Marcos, Texas has been listed
for sale at $190,000. Existing debt at June 30, 1997, is $99,000. The
listing agent is extremely confident that the building will be sold in a
relatively short period of time. Such a sale would reduce long-term debt
by $99,000 and increase cash by an additional $91,000.
Fourth: The Company's office facility at 6WN Road in Casper, Wyoming has
also been listed for sale. The total listing price on the three pieces of
property is $490,000. Total debt against the properties is $266,000
($146,000 of which was discussed above). Should the entire facility be
sold, an additional reduction of long and short-term debt of $266,000 will
occur and additional cash reserves of $224,000, minus applicable
commissions, fees and discounts, will be added to working capital.
Fifth: The Company's environmental business has shown encouraging signs of
increasing its business and correspondingly its income. If maintained,
this will also have positive impacts on working capital.
Management is concerned about the working capital position, but believes it has
taken all available steps to insure that an improvement will be seen in its
financial position by year end of 1997 and particularly after its various office
buildings have been sold.
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations:
- ---------------------
In the second quarter of 1997, the Company reported a loss of $57,000. This
loss represents less than the non-cash expenses of depreciation, depletion and
amortization and has indicated that the Company has begun operating on a
positive cash flow basis.
Oil and Gas:
Oil and gas revenues were $71,000 compared to $37,000 for the same quarter in
1996. This brings the six month oil and gas sales to $199,000 as compared to
only $81,000 in 1996. Significantly, oil and gas expenses have not increased as
dramatically and although were $42,000 during the quarter as compared to $18,000
in 1996, and $83,000 for six months as compared to $40,000 in six months in
1996, the net oil and gas operating profit has continued to escalate. It is
expected that oil and gas revenues will remain higher than the 1996 results
throughout the remainder of this year.
Environmental Engineering :
Environmental engineering revenues declined only $29,000 during the second
quarter of 1997 as compared to the second quarter of 1996. This followed a
$155,000 decline in the first quarter of 1997 as compared to the same quarter of
1996. Management is optimistic that with new contracts, increased summer work
and the addition of a large contract in Indonesia, that environmental revenues
will be approximately the same as or greater than revenues for 1996 for the
remainder of the year. Environmental expenses were down from $587,000 in 1996
to $437,000 in 1997. The $150,000 decline in expenses corresponds with only a
$29,000 decline in revenues for the first quarter of 1997 as compared to 1996.
Similar declines are noted for the six months ending June 30, 1997.
Additional Information:
The Company had depreciation, depletion and amortization of $64,000 during the
second quarter of 1997 bringing the total to $129,000 for six months. These
numbers are slightly larger than similar amounts in 1996. It is expected that
depreciation and depletion will remain relatively constant through the remainder
of the year.
General and administrative costs were $67,000 for the quarter and $123,000 for
the six months, compared to $65,000 for the quarter and $137,000 for the six
months in 1996. The decrease in the six month numbers is primarily in the
reduced levels of the Employee Stock Ownership Plan contribution.
Interest expense was $17,000, the same as it was in 1996 and $35,000 for the six
months, approximately the same as the $33,000 in the prior year. Although debt
levels continue to decline moderately, interest rates have increased slightly
from the levels of one year ago. As the Company's unused building facilities
are sold, debt levels will be reduced significantly and interest expense will be
reduced in a corresponding manner.
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 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: August 15, 1997 By: Joseph J. McQuade
------------------------------------
Joseph J. McQuade, President and
Chief Executive Officer
Date: August 15, 1997 By: Bill Ukele
------------------------------------
Bill Ukele, Controller and Chief
Financial Officer