SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITITES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2000 Commission File Number: 0-5781
HAWKS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Wyoming 83-0211955
- ---------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
913 Foster Road, Casper, Wyoming 82601
(Address of principal executive offices)
Registrant's telephone number, including area code (307) 234-1593
N/A
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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, 2000
----- ----------------------------
Capital Stock, $.01 par value 1,501,699
INDEX
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PAGE
PART I FINANCIAL INFORMATION 3
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 4
Consolidated Statements of Operations
Three months and Six months
ended June 30, 2000 and 1999 5
Consolidated Statements of Cash Flows
Six months ended June 30, 2000
and 1999 6
Notes to Consolidated Financial
Statements 7
Management's Discussion and Analysis of
Financial Condition and Results
of Operation 11
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
10K/A-1 for the year ending December 31, 1999.
This quarterly report contains some forward-looking statements about future
operations and expectations of Hawks Industries, Inc. and its Subsidiaries.
Management believes they are reasonable representations of Hawks Industries,
Inc. expected performance at this time. Actual results may vary from
Management's stated expectations and projections.
HAWKS INDUSTRIES. INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999
---- ----
(unaudited)
ASSETS
------
CURRENT ASSETS
Cash $ 362,000 $ 23,000
Accounts Receivable 28,000 18,000
Other current assets 22,000 19,000
Total current assets 412,000 60,000
PROPERTY AND EQUIPMENT, net (successful efforts method) 595,000 632,000
INVESTMENTS AND OTHER ASSETS
Note receivable 26,000 29,000
Land investment 196,000 196,000
Available for sale investment 100,000 100,000
Other assets 67,000 36,000
Net assets from discontinued operations 1,021,000 1,161,000
1,410,000 1,522,000
$ 2,417,000 $ 2,214,000
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable $ 96,000 $ 65,000
Accounts payable 61,000 47,000
Accrued liabilities 32,000 32,000
Total current liabilities 189,000 144,000
CONTINGENT LIABILITY (See Note 4) - -
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock, $.01 par value, authorized 997,000
shares: no shares issued - -
Common stock, $.01 par value, authorized 5,000,000
shares issued 1,501,699 in 2000 and 1,351,513 in 1999 15,000 13,000
Capital in excess of par value of common stock 3,393,000 3,046,000
Retained (deficit) (1,180,000 ) (965,000 )
Less Common Stock held in treasury at cost, 24,808
Shares in 1999 - (24,000 )
2,228,000 2,070,000
$ 2,417,000 $ 2,214,000
<FN>
See Notes to Consolidated Financial Statements
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months and Six Months Ended June 30, 2000 and 1999
(Unaudited)
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
Operating Revenue:
Oil and gas $ 72,000 $ 37,000 $ 120,000 $ 71,000
Operating expenses:
Oil and gas 14,000 7,000 24,000 19,000
Deprecation, depletion and amortization 18,000 26,000 38,000 132,000
General and administrative 73,000 35,000 103,000 68,000
105,000 68,000 165,000 219,000
Operating Loss from continuing operations (33,000 ) (31,000 ) (45,000 ) (148,000 )
Other income (expense):
Other income - 1,000 2,000 3,000
Interest Income 4,000 3,000 7,000 6,000
Interest expense (3,000 ) (6,000 ) (9,000 ) (12,000 )
Loss from continuing operations before Taxes (32,000 ) (33,000 ) (45,000 ) (151,000 )
Provision for taxes:
Current - - - -
Net Loss from continuing operations (32,000 ) (33,000 ) (45,000 ) (151,000 )
Income (loss) from discontinued operations 57,000 194,000 (170,000 ) 346,000
Net Income (loss) $ 25,000 $ 161,000 $ (215,000 ) $ 195,000
Weighted average number of
Common shares outstanding 1,414,848 1,310,945 1,370,776 1,290,283
Loss from continuing operations per share $ (.02 ) $ (.03 ) $ (.03 ) $ (.12 )
Income (loss) from discontinued operations .04 .15 (.13 ) .27
Net Income (loss) per common share $ .02 $ .12 $ (.16 ) $ .15
<FN>
See Notes to Consolidated Financial Statements
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
Cash flows from operating activities:
Loss from continuing operations $ (45,000 ) $ (151,000 )
Adjustment to reconcile net income to net cash (used in)
operating activities:
Depreciation, depletion and amortization 38,000 133,000
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable (5,000 ) 7,000
Decrease in short-term investments - 2,000
Decrease (increase) in other assets (1,000 ) 1,000
Increase in accounts payable and accrued
expenses 14,000 -
Net cash flow provided by (used in) operating activities of
continuing operations 1,000 (8,000 )
Cash flows from investing activities:
Purchases of property and equipment (1,000 ) (1,000 )
Increase (decrease) in other assets (32,000 ) 15,000
Decrease in notes receivable 3,000 4,000
Net cash flow (used in) provided by investing activities
of continuing operations (30,000 ) 18,000
Cash flows from financing activities:
Proceeds from debt obligations incurred 36,000 -
Reduction of debt obligations - (11,000 )
Sale of common stock 350,000 -
Purchase of common stock - (47,000 )
Sale of treasury stock 24,000 -
Net cash flow provided by (used in) financing activities
of continuing operations 410,000 (58,000 )
381,000 (48,000 )
Cash (used in) provided by discontinued operations (2,000 ) 2,000
Increase (decrease) in cash and cash equivalents 379,000 (46,000 )
Cash and cash equivalents at beginning of year 28,000 60,000
Cash and cash equivalents at end of period $ 407,000 $ 14,000
<FN>
See Notes of Consolidated Financial Statements
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Property and Equipment
Property and equipment at June 30, 2000 and December 31, 1999 consists of the
following:
2000 1999
---- ----
Nonproducing oil and gas properties, net of valuation allowance of
$2,000 in 2000 and $2,000 in 1999 $ 14,000 $ 14,000
Producing oil and gas properties 1,526,000 1,525,000
Furniture and fixtures 51,000 51,000
1,591,000 1,590,000
Less accumulated depreciation and depletion 996,000 958,000
$ 595,000 $ 632,000
Note 2. Notes Payable, Long-Term Debt and Pledged Assets
Notes payable at June 30, 2000 and December 31, 1999 are as follow:
2000 1999
---- ----
Revolving line of credit $155,000 interest at Citibank Prime plus
3/4%, (10.25% at June 30, 2000) maturing September 16, 2000,
collateralized by oil and gas properties $ 96,000 $ 65,000
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Financial Information Relating to Industry Segments
2000 1999
---- ----
Sales to unaffiliated customers:
Oil and gas industry $ 120,000 $ 71,000
Discontinued operations $ 1,019,000 $ 1,499,000
Operating profit (loss):
Oil and gas industry $ 6,000 $ (93,000)
Unallocated corporate expenses (51,000 ) (58,000)
$ (45,000 ) $ (151,000)
Discontinued operations $ (60,000 ) $ 364,000
Identifiable assets:
Oil and gas industry $ 535,000 $ 567,000
Corporate assets 861,000 486,000
Discontinued operation, net of liabilities 1,021,000 1,161,000
$ 2,417,000 $ 2,214,000
Capital expenditures:
Oil and gas industry $ 1,000 $ 1,000
Discontinued operations $ 137,000 $ 112,000
Depreciation, depletion and amortization:
Oil and gas industry $ 32,000 $ 122,000
Corporate assets 6,000 10,000
$ 38,000 $ 132,000
Discontinued operations $ 65,000 $ 58,000
Interest Income:
Oil and gas industry $ - $ -
Corporate interest 7,000 6,000
$ 7,000 $ 6,000
Interest Expense:
Oil and gas industry $ 5,000 $ 3,000
Corporate interest 4,000 9,000
$ 9,000 $ 12,000
Discontinued operations $ 19,000 $ 19,000
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Contingent Liability
Effective February 1, 1998, Registrant, Hawks Industries, Inc. and a third party
investor, entered into an agreement with the Company's President, Joseph J.
McQuade, whereby Mr. McQuade and his immediate family's stockholdings were
purchased by a third party investor at $.10 per share ($2.00 post split). The
Company has entered into a severance agreement with Mr. McQuade which includes a
covenant not to compete. Under the terms of the Agreement, the Company will pay
$50,000 per year for four (4) years, payable in semi-monthly installments to
McQuade in exchange for the non-compete provision.
Note 5. Change in Control of Company
On June 10, 1999 Hawks Industries, Inc entered into an agreement with Universal
Equities LTD., David H. Piepers, The Cornerhouse Limited Partnership and Winsome
Limited Partnership (Collectively referred to as "Buyers") to secure a
controlling interest in Hawk's Common Stock through a private placement. The
value placed on Hawk's shares in the offer was $1.60 per share for a least
6,250,000 shares of common stock yielding the Company a consideration of
$10,000,000. The offer also included the right to buy an additional 14,375,000
shares at the same price. The maximum consideration to be received by Hawks is
$33,000,000 if all the additional shares are purchased.
The Terms of the offer require a payment of at least $5,000,000 in cash, with
the remainder of the considerations being paid in cash and/or transfer of buyers
rights to a debt obligation from North Star Exploration, Inc ("North Star"),
and/or North Star common stock, and/or Zeus Exploration, Inc. ("Zeus") common
stock. North Star is a private Nevada Corporation with options on mineral
rights covering approximately 7,000,000 acres in Alaska.
The Agreement also requires the redemption of shares in Hawks owned by Bruce A.
Hinchey, James E. Meador, Jr. and the Anne D. Zimmerman Revocable Trust in
exchange for certain assets of the Company.
The Private placement and redemption of shares described above was subject to
Hawks Shareholders approval at its Special Meeting on July 26,2000. The
Stockholders approved the private placement.
As a result of this transaction, the controlling interest in Hawks will be owned
by the Buyer Group which will focus on its mineral claims in Alaska.
Note 6. Summary Financial Information
Included in discontinued operations, the Company holds a 30% interest in a
Limited Liability Company. The investment is being accounted for by the equity
method. The Company has committed for future financial support of the LLC and
is a corporate guarantor on the LLC's $400,000 line of credit.
Unaudited summary financial information for Envirotest Laboratories, LLC as of
and for the three months ended June 30, 2000 follows:
Current assets $ 382,000
Noncurrent assets $ 791,000
Current liabilities $ 662,000
Noncurrent liabilities $ 350,000
Net sales $ 366,000
Gross profit (loss) $ (206,000 )
Loss from continuing operations $ (401,000 )
Net loss $ (401,000 )
Note 7. Discontinued Operations
On July 26, 2000 the Shareholders of Hawks Industries, Inc. approved a formal
plan to a private placement of shares (see Note 5 Change in Control of Company).
The agreement also requires the redemption of shares owned by Bruce A. Hinchey,
James E. Meador, Jr. and the Anne D. Zimmerman Revocable Trust in exchange for
certain assets of the Company. Assets of the environmental management and
testing segment are shown as discontinued operations as of June 30, 2000 and
December 31, 1999.
Assets and Liabilities of the discontinued operations consisted of the
following:
June 30, 2000 December 31,1999
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ASSETS
Cash $ 45,000 $ 5,000
Accounts receivable 616,000 411,000
Short-term investments 200,000 200,000
Cost on completed contracts in excess
of billings 68,000 9,000
Other current assets 47,000 48,000
Total current assets 976,000 673,000
Property and equipment (net) 992,000 1,041,000
Other assets, primarily goodwill 125,000 158,000
2,093,000 1,872,000
Liabilities
Notes payable 275,000 218,000
Current portion of Long-term debt 95,000 72,000
Accounts payable 318,000 125,000
Accrued expenses 18,000 17,000
Total current liabilities 706,000 432,000
Long term debt 332,000 279,000
Commitment for equity investment 34,000 -
1,072,000 711,000
Net assets from discontinued operations $ 1,021,000 $ 1,161,000
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources:
- --------------------------------
Subsequent to the end of the second quarter on July 26, 2000, at a Special
Meeting of Shareholders, a private placement of stock was approved by the
shareholders (see Note 5 Change of Control of Company.) Therefore, the
accompanying financial statements have been restated to reflect the planned
discontinuance of the environmental testing and management segment, which was
approved by the shareholders.
In addition, at the end of the second quarter an additional private placement
was approved by the Board of Directors resulting in the issuance of 50,000
shares of common stock for $350,000.
During the second quarter of 2000, net cash flow from continuing operations
showed a $1,000 increase compared to a $8,000 decrease for the corresponding six
months in 1999.
The Company also increased short-term debt by $36,000 in order to reduce certain
other liabilities.
The following information is provided for the six months ended June 30, 2000 and
1999:
2000 1999
---- ----
Working Capital $ 223,000 $ (84,000 )
Cash provided by (utilized by) continuing operations $ 1,000 $ (8,000 )
Cash and short-term investments available $ 362,000 $ 23,000
Results of operations:
- ----------------------
Oil and gas:
Oil and gas sales were $120,000 for the six months ended June 30, 2000 compared
to $71,000 for the six months ended June 30, 1999, this was a 69% increase
largely due to increased prices for oil and gas and more wells being produced
due to these higher prices. For the quarter ended June 30, 2000, the Company
had $72,000 in oil and gas sales compared to $37,000 in oil sales for the
quarter ended June 30, 1999. These increases were the same as noted for the
quarter ended June 20, 2000 and 1999. Oil and gas expenditures were $24,000 for
the six months ended June 30, 2000, compared to $19,000 for the comparable six
months in 1999. This increase was largely due to taxes on the increased sales
from higher prices and additional well being produced. This also was the same
for the quarter ended June 30, 2000 and 1999.
Discontinued Operations:
The environmental testing and management showed a net loss of $170,000 compared
to a $345,000 gain in the comparable six months of 1999. This was the result of
a very slow first quarter for 2000 compared to a very good first quarter for
1999 as certain large jobs the Company had during the first quarter of 1999 did
not start until late in the first quarter of 2000. Also reducing the six months
discontinued operations was a $115,000 loss from a lab the Company, along with
another partner formed late in 1999. For the quarter ended June 30, 2000, the
Company showed an $63,000 gain compared to a $196,000 gain in the second quarter
of 1999. The $57,000 gain in 2000 was again as noted above reduced by a $47,000
loss from the lab formed late in 1999. During the second quarter of 1999, the
Company had a large contract that they will have again in 2000, but it did not
start until late in the second quarter. Discontinued operations and expense
show the following:
2000 1999
---- ----
Revenue $ 1,019,000 $ 1,499,000
Expenses 1,189,000 1,153,000
$ (170,000 ) $ 346,000
Additional information:
Depreciation, depletion and amortization (DD&A) from continuing operations for
the six months ended June 30, 2000 was $38,000 compared to $122,000 for the six
months ended June 30, 1999. Eighty thousand dollars of the decrease from 1999
was from a write down of impaired oil and gas properties
General and administrative cost were $103,000 for six months ended June 30, 2000
compared to $68,000 for comparable quarter in 1999, this was due to $26,000
charge for the issuing a stock dividend in the second quarter of 2000 and proxy
and cost for the Special Meeting of Shareholders.
Income taxes:
The Company has significant net operating loss carryforwards, investment tax
credit carryforwards and other carryforward items, and accordingly should not be
liable for ordinary income taxes, regardless of the loss during the first six
months of 2000.
Overall, total revenues from continuing and discontinued operations decreased by
27% in 2000 from the comparative quarter in 1999, because of a slowdown in
testing for the environmental testing and management in the first six months of
2000. Although oil and gas sales were higher by 69%, this could not compensate
for the environmental testing segment. Total operating expenses were down by 7%,
as a result of less work in the environmental testing segment. Also increased
the Company's net loss for the period by $115,000 was the anticipated loss from
the newly formed LLC.
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Items filed on 8-K
April 26, 2000
Company reported 7/% stock dividend for the shareholders of record on May 1,
2000 payable June 1, 2000.
April 27, 2000
Company reported amendments to agreement with Universal Equities LTD., David H.
Piepers, the Cornerhouse Limited Partnership and Winsome Limited Partnership
concerning private placement of Hawks Industries, Inc common stock,
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 14, 2000 BY: /s/ Bruce A. Hinchey
-----------------------
Bruce A. Hinchey, President and
Chief Executive Officer
Date: August 14, 2000 BY: /s/ Bill Ukele
------------------
Bill Ukele, Controller and
Chief Financial Officer