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, 1997 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
- -----------------------------------------------------------------
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, 1997
- -------------------- -----------------------------------
Capital Stock, $.01 par value 27,028,194
INDEX
-----
PAGE
PART I FINANCIAL INFORMATION 3
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996 4
Consolidated Statements of Operations
Three months and nine months ended
September 30, 1997 and 1996 5
Consolidated Statements of Cash Flows
Nine months ended September 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
September December
30, 31,
1997 1996
---- ----
(unaudited)
- ---
ASSETS
------
CURRENT ASSETS
Cash (including certificate of deposit 1996
$2,000) $ 24,000 $ 48,000
Accounts receivable 464,000 320,000
Short-term investments 253,000 571,000
Costs in excess of billings 9,000 51,000
Other current assets 55,000 52,000
------------ ------------
Total current assets 805,000 1,042,000
------------ ------------
PROPERTY AND EQUIPMENT, net (successful efforts
method) 2,137,000 2,266,000
------------ ------------
NOTE RECEIVABLE 39,000 42,000
------------ ------------
LAND INVESTMENT 202,000 202,000
------------ ------------
OTHER ASSETS 216,000 213,000
------------ ------------
$ 3,399,000 $ 3,765,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable $ 240,000 $ 485,000
Current maturities of long-term debt 240,000 101,000
Accounts payable 360,000 402,000
Accrued liabilities 39,000 95,000
------------ ------------
Total current liabilities 879,000 1,083,000
------------ ------------
LONG-TERM DEBT 430,000 445,000
------------ ------------
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) (803,000) (617,000)
------------ ------------
2,090,000 2,237,000
------------ ------------
$ 3,399,000 $ 3,765,000
============ ============
<FN>
See Notes to Consolidated Financial Statements
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
Operating revenue:
Oil and gas sales $ 63,000 $ 51,000 $ 262,000 $ 132,000
Environmental 494,000 448,000 1,385,000 1,523,000
Gain on sale of assets 5,000 3,000 17,000 9,000
-------------------- -------------------- -------------------- --------------------
562,000 502,000 1,664,000 1,664,000
-------------------- -------------------- -------------------- --------------------
Operating expenses:
Oil and gas 29,000 12,000 112,000 52,000
Environmental 462,000 542,000 1,362,000 1,718,000
Depreciation, depletion and
amortization 65,000 60,000 194,000 168,000
General and administrative 52,000 60,000 175,000 197,000
-------------------- -------------------- -------------------- --------------------
608,000 674,000 1,843,000 2,135,000
-------------------- -------------------- -------------------- --------------------
Operating loss from continuing
operations (46,000) (172,000) (179,000) (471,000)
Other income (expense):
Other income 6,000 - 29,000 -
Interest income 6,000 9,000 17,000 34,000
Interest expense (18,000) (16,000) (53,000) (49,000)
-------------------- -------------------- -------------------- --------------------
Loss from continuing operations
before taxes (52,000) (179,000) (186,000) (486,000)
------------------- ------------------- ------------------- -------------------
Provision for taxes:
Current - - - -
Deferred - - - -
-------------------- -------------------- -------------------- --------------------
- - - -
-------------------- -------------------- -------------------- --------------------
Loss from continuing
operations (52,000) (179,000) (186,000) (486,000)
Discontinued operations - (3,000) - (11,000)
-------------------- -------------------- -------------------- --------------------
Net loss $ (52,000) $ (182,000) $ (186,000) $ (497,000)
==================== ==================== ==================== ====================
Weighted average number of common shares
outstanding 27,028,194 26,788,858 27,021,180 26,788,858
==================== ==================== ==================== ====================
Loss per common share:
Loss from continuing
operations $ (.00) $ (.01) $ (.01) $ (.02)
Discontinued operations - (.00) - (.00)
-------------------- -------------------- -------------------- --------------------
$ (.00) $ (.01) $ (.01) $ (.02)
==================== ==================== ==================== ====================
<FN>
See Notes to Consolidated Financial Statements
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
1997 1996
---- ----
Cash flows from operating activities:
Loss from continuing operations $ (186,000) $ (486,000)
Adjustment to reconcile net loss to net cash
provided:
Depreciation, depletion and amortization 194,000 168,000
Impairment of non producing oil and gas
property 4,000 5,000
Gain on sale of assets (17,000) (9,000)
Changes in operating assets and liabilities:
Decrease (increase) in accounts
receivable (144,000) 269,000
Decrease (increase) in inventory, costs
in excess of billings and other current
assets 39,000 (40,000)
Increase (decrease) in accounts payable
and accrued expenses (98,000) 88,000
------------ ------------
(208,000) (5,000)
Operating cash flow from discontinued
operations - 19,000
------------ ------------
Net cash flow provided by (used in) operating
activities (208,000) 14,000
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (85,000) (438,000)
Proceeds from sale of properties 33,000 39,000
Increase in other assets (3,000) (11,000)
Decrease in note receivable 3,000 3,000
Decrease in short-term investments 318,000 246,000
------------ ------------
266,000 (161,000)
Investing cash flow from discontinued
operations - 1,000
------------ ------------
Net cash flow provided by (used in) investing
activities 266,000 (160,000)
------------ ------------
Cash flows from financing activities:
Proceeds from debt obligations incurred 200,000 146,000
Reduction of debt obligations (321,000) (65,000)
Proceeds from sale of stock 39,000 -
------------ ------------
(82,000) 81,000
Financing cash flow from discontinued
operations - (11,000)
------------ ------------
Net cash provided by (used in) financing
activities (82,000) 70,000
------------ ------------
Decrease in cash and cash equivalents (24,000) (76,000)
Cash and cash equivalents at beginning of year 48,000 197,000
------------ ------------
Cash and cash equivalents at end of year $ 24,000 $ 121,000
============ ============
<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, 1997 and December 31, 1996 consists of
the following:
1997 1996
---- ----
Nonproducing oil and gas properties, net of
valuation allowance of $6,000 in 1997 and $2,000
in 1996 $ 21,000 $ 26,000
Producing oil and gas properties 1,636,000 1,622,000
Furniture and fixtures 391,000 394,000
Transportation equipment 235,000 265,000
Buildings and leasehold improvements 816,000 816,000
Engineering and lab equipment 1,096,000 1,084,000
Other 118,000 118,000
------------ ------------
4,313,000 4,325,000
Less accumulated depreciation and depletion 2,176,000 2,059,000
------------ ------------
$ 2,137,000 $ 2,266,000
============ ============
Note 2. Notes Payable, Long-Term Debt and Pledged Assets
Notes payable at September 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 $200,000 interest at 7.25%
maturing June 23, 1998 collateralized by
certificate of deposit 200,000 285,000
------------ ------------
$ 240,000 $ 485,000
============ ============
Long-Term debt at September 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 September 30, 1997),
payable $1,490 per month including interest until
April 1, 2003, collateralized by office building $ 77,000 $ 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 145,000 149,000
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 September 30, 1997) payable
$1,251 per month including interest until March
22, 2009, collateralized by office building $ 102,000 $ 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
$21,000 and $17,000 at 1997 and 1996 4,000 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 27,000 72,000
Note payable, Wyoming Industrial Development
Corporation, interest at 7.33%, payable $3,991 per
month including interest until September 13, 2002,
collateralized by equipment 200,000 -
------------ ------------
670,000 546,000
Less current maturities 240,000 101,000
------------ ------------
$ 430,000 $ 445,000
============ ============
Aggregate maturities of long-term debt are as follows:
1997 35,000
1998 221,000
1999 62,000
2000 64,000
2001 69,000
Thereafter 219,000
-----------
$ 670,000
===========
Actual cash payments for interest during the periods ended September 30, 1997
and 1996 were $53,000 and $49,000 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 $ 273,000 $ 138,000
Environmental testing and management industry 1,391,000 1,526,000
------------ ------------
$ 1,664,000 $ 1,664,000
============ ============
Discontinued operations $ - $ 39,000
============ ============
Operating profit or (loss):
Oil and gas industry $ 1,000 $ (55,000)
Environmental testing and management industry (48,000) (279,000)
Unallocated corporate expenses (132,000) (137,000)
------------ ------------
$ (179,000) $ (471,000)
============ ============
Discontinued operations $ - $ (11,000)
============ ============
Identifiable assets:
Oil and gas industry $ 859,000 $ 756,000
Environmental testing and management industry 1,005,000 1,096,000
Corporate assets 1,535,000 1,761,000
Discontinued operations - 57,000
------------ ------------
$ 3,399,000 $ 3,670,000
============ ============
Capital expenditures:
Oil and gas industry $ 70,000 $ 199,000
Environmental testing and management industry 15,000 194,000
Other capital expenditures - 45,000
Discontinued operations - -
------------ ------------
$ 85,000 $ 438,000
============ ============
Depreciation, depletion and amortization:
Oil and gas industry $ 89,000 $ 38,000
Environmental testing and management industry 73,000 87,000
Other depreciation, depletion and amortization 36,000 48,000
------------ ------------
$ 198,000 $ 173,000
============ ============
Discontinued operations $ - $ 1,000
============ ============
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
--------------
$ 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 September 30, 1997 and 1996 are as follows:
1997 1996
---- ----
Accounts receivable $ - $ 3,000
Inventory - 16,000
Property and equipment - 1,000
---------- ----------
Total assets $ - $ 20,000
========== ==========
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 - 39,000
Printing - -
Environmental assembly - -
---------- ----------
$ - $ 39,000
========== =========
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 September 30, 1997, the Company had deficit working capital of $74,000.
This is an improvement of $171,000 during the quarter.
As explained in the June 30, 1997 report, the Company has a short term working
capital deficit, primarily due to the classification of certain debt. During
the third quarter, the Company made significant strides towards improving that
position and it is expected that other steps outlined in the June 30, 1997
report will be accomplished before year end and the Company will show continued
improvement in its working capital position.
For example, 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 September 30, 1997, was $145,000. Consequently, the entire amount of
long term debt must now be classified as short term in accordance with generally
accepted accounting principles. Although the Company continues to have
preliminary discussions with the lender and has been given assurance that
refinancing can be arrived at, the negotiations have not progressed enough to
classify the debt in accordance with accounting pronouncements. In addition,
the existing debt carries only a 4% interest rate and the Company does not see
any significant advantage to restructuring the debt until near June of 1998.
In addition, both the Company's office building in San Marcos, Texas and the
Company's office facility at 6WN Road in Casper, Wyoming have been listed for
sale. Should either one of them or both sell in the forthcoming quarter, there
will be a significant addition to working capital and income for the period.
Lastly, the Company's environmental business continues to show encouraging signs
and has helped provide the ability to generate cash flow in the last several
months.
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations:
- ---------------------
In the third quarter of 1997, the Company reported a loss of $52,000. This loss
represents less than the non-cash expenses of depreciation, depletion and
amortization and indicates that the Company has begun operating on a positive
cash flow basis. The loss compares to $182,000 in the prior year showing
$130,000 improvement and bringing the year to date earnings to an improvement of
$311,000 over the prior year.
Oil and Gas:
Oil and gas revenues were $63,000 compared to $51,000 for the respective third
quarter of 1996. This brings the nine month oil and gas sales to $262,000 as
compared to only $132,000 in the prior year. Oil and gas expenses were $29,000
as opposed to $12,000 in the prior year. For the nine months gross profit from
oil operations is $150,000 as opposed to only $80,000 for the nine month period
in 1996.
Environmental Engineering :
Environmental engineering revenues increased from $448,000 in 1996 to $494,000
in 1997. This is the first increase in revenues after several quarters of
revenue declines. Management is encouraged by this trend. Correspondingly,
environmental expenses were $462,000 as opposed $542,000 for the same period in
1996. For both the third quarter and the year to date numbers, it is
significant that the Company is showing gross profit from environmental
operations and has reversed the losses from operations in the prior period.
Additional Information:
The Company had depreciation, depletion and amortization of $65,000 for the
quarter compared to $60,000 in 1996. Corresponding numbers for the nine month
period ending September 30, 1997 and 1996, were $194,000 and $168,000
respectively. It is estimated that the Company will continue to have
approximately $64,000 of depreciation and depletion each quarter for the next
several years.
General and administrative costs were $52,000, down from $60,000 in the same
three month period in 1996. Also, nine month general and administrative costs
were $175,000, down from $197,000 for the same period in 1996.
Interest expense was $18,000, approximately the same as 1996. And the nine
month interest expense was $53,000, also only slightly up from $49,000 in the
prior year. There will be no significant changes in interest expense until the
Company is successful in selling its Texas property and the former office
properties at 6WN Road in Casper.
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 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 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: November 13, 1997 By: Joseph J. McQuade
---------------------------------------
Joseph J. McQuade, President and
Chief Executive Officer
Date: November 13, 1997 By: Bill Ukele
---------------------------------------
Bill Ukele, Controller and Chief Financial
Officer