SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the fiscal year ended December 31, 1995
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 No.)
913 Foster Road, Casper, Wyoming 82601
- --------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (307) 234-1593
- ----------------------------------------------------------------------
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 Par Value
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
-----
The aggregate market value of the voting stock held by non-affiliates of the
Registrant computed by reference to the average bid and asked prices of the
Common Stock, $.01 Par Value, on March 6, 1996 was $3,279,390.
As of March 6, 1996, Registrant had 26,788,858 shares of Common Stock, $.01 Par
Value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Materials to be filed pursuant to Regulation 14 C into Part
III.
Annual Report Pursuant to Section 13 or 15 (d) of Securities Exchange Act of
1934 for the Fiscal Year Ended December 31, 1994, Form 10-K, dated April 13,
1995, filed April 13, 1995 into Part IV.
PART I.
ITEM 1 - BUSINESS
History - General
- -----------------
Except where the context otherwise requires, the term "the Company", as used in
this Report, refers to the Registrant and its subsidiaries.
The Company was incorporated on March 19, 1971 and through mid-1986 was solely
engaged in the business of oil and gas exploration, development and production,
and conducted its operations primarily in the Rocky Mountain region of the
United States.
In February, 1986, when the price of crude oil on the futures and spot markets
dropped below $12 per barrel, management determined that until such time as the
price of crude oil stabilized in the world markets and returned to higher
levels, exploration funds from industry and private investors would be further
curtailed and that economics, except in selected instances, would not justify
the drilling of further exploratory and development wells in the Rocky Mountain
area.
Consequently, the Company ceased the drilling of development wells on its
properties, the drilling of exploratory wells under which it would share in the
cost, and drastically reduced its exploration staff. Since that time the
Company has participated in one exploratory well and one development well. The
Company does not anticipate any significant development drilling on its
properties. In mid 1992, the Company further de-emphasized its oil and gas
activities and determined to restrict their oil and gas business to buying and
selling of producing properties. In conjunction with this decision, the Company
sold most of the oil and gas interests wherein it acted as operator and reduced
technical staff accordingly.
In 1986, due to the instability in the oil and gas industry a program of
diversification was commenced and the Company acquired a controlling interest in
International Aviation Publishers, Inc., ("IAP"), a publishing company, and in a
light manufacturing facility, SanTech, Inc., ("SanTech"), funded partially by
the State of Wyoming and by local government grants and assistance. That
diversification was highly successful and International Aviation Publishers grew
to be a source of steady cash flow and profitability for the Company.
In 1992, in a continuing mode of diversification, the Company acquired 100% of
the outstanding shares of Western Environmental Services & Testing, Inc.
("W.E.S.T."), a privately held environmental testing and consulting firm.
In 1993, due to a downturn in the aviation industry and specifically to a nearly
45% decrease in student enrollment in aviation maintenance schools, IAP's sales
declined. Accordingly, the Company's growth in 1993 was directed at the
environmental business. Additional "air quality" staff were employed to meet
the increasing demand for the Company's services.
The Company also expanded its range of services to include management of
projects on some carefully selected environmental cleanup projects.
During late 1994, the Company received an unsolicited offer to buy its aviation
publishing assets (IAP). Accordingly, as of December 31, 1994, substantially
all of the publishing assets were sold for approximately $1,800,000. In this
report and in the accompanying financial statement, the results of operations of
IAP will be shown as "discontinued operations" in accordance with generally
accepted accounting principles.
As a result of the sale of IAP, it became impractical to continue the
navigational supplies business (SanTech) and the printing business (Hawks Book
Company). They are also included in discontinued operations. During 1995, all
the assets of the printing company were sold and a significant amount of the
"navigational supplies" assets were also sold.
The industry segment information on the following page will give the reader a
financial overview of each of the Company's industry segments. A detailed
description of each segment follows thereafter.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales to unaffiliated customers:
Oil and gas industry $ 196,000 $ 171,000 $ 130,000
Environmental testing and
management industry 3,097,000 2,424,000 2,472,000
----------- ------------ ------------
$ 3,293,000 $ 2,595,000 $ 2,602,000
=========== ============ ============
Discontinued operations $ 28,000 $ 1,841,000 $ 2,266,000
=========== ============ ============
Operating profit or (loss):
Oil and gas industry $ (46,000) $ 44,000 $ (36,000)
Environmental testing and
management industry 323,000 (23,000) 72,000
Unallocated Corporate expenses (192,000) (213,000) (264,000)
----------- ------------ ------------
$ 85,000 $ (192,000) $ (228,000)
=========== ============ ============
Discontinued operations $ (330,000) $ (510,000) $ (135,000)
=========== ============ ============
Identifiable assets:
Oil and gas industry $ 619,000 $ 505,000 $ 525,000
Environmental testing and
management industry 1,203,000 940,000 815,000
Corporate assets 2,107,000 1,170,000 1,266,000
Discontinued operations 86,000 2,268,000 1,855,000
----------- ------------ ------------
$ 4,015,000 $ 4,883,000 $ 4,461,000
=========== ============ ============
Capital expenditures:
Oil and gas industry $ 189,000 $ 33,000 $ 5,000
Environmental testing and
management industry 214,000 299,000 187,000
Other capital expenditures 7,000 160,000 135,000
Discontinued operations 1,000 19,000 83,000
----------- ------------ ------------
$ 411,000 $ 511,000 $ 410,000
=========== ============ ============
Depreciation, depletion and
amortization:
Oil and gas industry $ 39,000 $ 19,000 $ 18,000
Environmental testing and
management industry 98,000 97,000 121,000
Other depreciation, depletion
and amortization 57,000 60,000 60,000
----------- ------------ ------------
$ 194,000 $ 176,000 $ 199,000
=========== ============ ============
Discontinued operations $ 61,000 $ 156,000 $ 154,000
=========== ============ ============
</TABLE>
OIL AND GAS
- -----------
To the date of this report the Company had participated in the drilling of 312
gross (63.0 net) wells of which 216 gross (38.70 net) have been successful. In
general terms, the Company has ceased its drilling and exploration activity.
The likelihood of the Company participating in additional wells in the near
future is remote. The Company does, however, have several oil and gas
properties which it will attempt to have drilling completed on where the Company
will have a nonoperating interest.
The Company's oil and gas activity will be predominantly in the buying and
selling of existing producing properties.
Competition
- -----------
The oil and gas industry is highly competitive. Domestic producers of oil and
gas must not only compete with each other, but must compete with producers of
imported oil and gas and alternative energy sources such as coal, atomic power
and hydroelectric power.
Markets
- -------
The availability of a ready market for oil and gas produced by the Company will
depend upon numerous factors beyond the control of the Company including the
extent of domestic production and importation of foreign oil and gas; the
proximity of the Company's properties to gas pipelines and other transportation
facilities; the availability, capacity and cost of such pipelines and other
transportation facilities; the marketing of other competitive fuels; fluctuation
in demand; state and federal governmental regulation of production, refining,
transportation and sales; general national and worldwide economic conditions,
pricing, and use; and allocation of oil and gas and their substitute fuels.
With the exception of brief periods when political and economic unrest in the
Mideast (such as the last half of 1990), or when short-term market
"interruptions" such as the Alaska oil spill caused prices to rise rapidly,
prices of crude oil and refined petroleum products generally have declined in
the last six years as a result of an oversupply of petroleum products,
particularly gasoline and fuel oils, relative to the demand for such products.
The prices received for oil production have become increasingly volatile. This
has resulted in great uncertainty in the oil and gas industry and has led many
companies engaged in oil and gas exploration and production to substantially
curtail their activities. This situation of substantial oversupply relative to
demand is due in part to increased production and lower rates of consumption
caused by voluntary conservation efforts as well as increased competition from
alternative fuels.
No certainty exists as to the length of time that this situation of
substantially reduced prices will exist. However, as long as the supply of oil
available on a worldwide basis exceeds demand by a substantial margin, it is
likely that oil prices will remain subject to downward pressure.
In response to the current oversupply of natural gas, many purchasers have
unilaterally reduced the quantities of gas purchased under existing contracts,
and a number of purchasers have stated their intentions not to honor their
contractual commitments to purchase specified quantities of gas from producers
at the prices set out in their respective purchase contracts. In many instances
buyers cannot readily be located for gas production resulting in gas wells being
shut-in or curtailed for various periods of time. In addition, many gas
purchasers are refusing to honor obligations under so-called "take-or-pay" gas
contracts. There can be no assurance that markets for gas and oil will not
continue to decline.
The Company's contracts with its gas purchasers generally provide that they are
not obligated to purchase all of the gas which the wells are capable of
producing, and the Company has experienced curtailment problems to date. There
is also no assurance that the Company will not experience significant
curtailment problems in the future.
Regulation
- ----------
The Company's operations will be affected from time to time in varying degrees
by political developments and federal and state laws and regulations. In
particular, oil and gas production operations and economics are affected by
price control, tax and other laws relating to the petroleum industry, by changes
in such laws and by constantly changing administrative regulations.
State statutory provisions relating to oil and gas generally require permits for
the drilling of wells and also cover the spacing of wells, the prevention of
waste, the rate of production, the prevention and clean-up of pollution and
other matters.
The wellhead sale of natural gas in the United States is subject, with certain
significant exceptions, to a regulatory scheme implemented pursuant to the
Natural Gas Policy Act of 1978 (the "NGPA") and overseen by the Federal Energy
Regulatory Commission (the "FERC"). The NGPA classified gas into various
categories in maximum permissible prices. However, none of the NGPA prices can
be collected unless purchasers willing to pay such prices can be located. As a
result of the general decline in prices for oil and gas, many of the contracts
for purchases of gas at NGPA maximum prices have been renegotiated. Contract
provisions allowing price reductions have been exercised or purchasers have
refused to accept production at such prices claiming, among other defenses,
force majeure and commercial impracticability. As a result, a larger and
increasing percentage of gas is sold at prices below NGPA maximum lawful rates.
Sales of gas at prices lower than such NGPA rates are common throughout the
natural gas industry.
Environmental Regulation
- ------------------------
Various federal, state and local laws and regulations covering the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, may affect the Company's operations and costs as a result of their
effect on oil and gas exploration, development and production activities.
Environmental protection laws to date have not required the Company to make any
significant additional capital outlays. It is not anticipated that the Company
will be required in the near future to expend amounts that are material in
relation to its total capital expenditure program by reason of environmental
laws and regulations. The Company believes that its operations comply with
environmental laws and regulations, but inasmuch as such laws and regulations
are constantly being revised and changed, the Company is unable to predict the
ultimate cost of complying with present and future environmental laws and
regulations.
Taxation
- --------
The Company's oil and gas operations are affected by certain provisions of the
federal income tax laws applicable to the petroleum industry. Current law
permits the Company to deduct currently, rather than capitalize, "intangible"
drilling and development costs incurred or borne by it. The Company, as an
independent producer, is also entitled to deduction for percentage depletion
with respect to the first 1,000 barrels per day of domestic crude oil (and/or
equivalent units of domestic natural gas) produced by it if such percentage
depletion exceeds cost depletion.
Generally, this deduction is a specified percentage (currently 15%) of gross
income from oil and gas property. Percentage depletion may not exceed 100% of
the net income, and is limited in the aggregate to 65% of the Company's taxable
income. Any depletion exceeding the 65% limitation, however, may be carried
over indefinitely. At December 31, 1995 this carryover was $2,131,000.
The Company's oil and gas activities are also subject to state and local income,
severance, property and other taxes. It is anticipated that the aggregate
burden of these taxes will increase in the future.
It is possible that subsequent legislation, court decisions and governmental
agency actions could further limit tax benefits and impose further tax burdens
on the oil and gas activities of the Company.
The Company at December 31, 1995 had a net operating loss ("NOL") carryforward
of approximately $10,163,000.
The Tax Reform Act of 1986 made substantial changes with regard to NOL
carryforwards. After an "ownership change" the taxable income of a loss
corporation available for offset by pre-change NOL carryforwards is limited
annually to a prescribed rate times the value of the loss corporation's stock
immediately before the ownership change. In general, an ownership change occurs
if ownership of more than 50% in value of the stock of the loss corporation
changes during the three year period preceding the test date. Under federal tax
law, the amount and availability of loss carryforwards are subject to a variety
of interpretations and restrictive tests applicable to the Company. Under the
Code, the utilization of such loss carryforward could be limited or effectively
lost upon certain changes in ownership. The net operating loss carryforwards
expire between 1996 and 2009.
DISCONTINUED OPERATIONS
- -----------------------
As of December 31, 1994 the Company sold substantially all of the assets of its
aviation publishing business for approximately $1,800,000. The Company had
purchased this business on July 1, 1986 for less than $300,000. During 1995,
the Company sold its printing assets for $221,000. Also the Company has
realized $36,000 from the sale of navigational supply assets and from furniture
and fixtures.
Additional sales proceeds will be realized as excess assets which were not
included in the sale are sold. It is expected that this total will be less than
$100,000 and will approximate the book value of those remaining assets yielding
little or no gain.
In conjunction with the sale of its aviation publishing business, the Company
has chosen to discontinue its navigational products business. This
discontinuance will involve the gradual liquidation of inventory and sale of
equipment. It is expected that in order to maximize sales of existing inventory
that this process may take another 12 months. It is anticipated that between
$30,000 and $50,000 will be realized from this process. Again it is expected
that sales will approximate book value of assets so that little gain or loss
will be realized.
ENVIRONMENTAL ENGINEERING
- -------------------------
Competition
- -----------
The Environmental Engineering industry is also highly competitive. Many of the
company's competitors both in its primary market areas and throughout the United
States are substantially larger and have significantly greater financial and
human resources.
Markets
- -------
The company concentrates its activities primarily in the Rocky Mountains, the
mid-continent area and in Texas. However, during 1993, 1994 and 1995, the
company provided services for customers in 18, 25 and 14 different states
respectively. In the area of air quality and air emissions the company provides
to its customers compliance testing for air emissions in accordance with certain
federal and state environmental standards. In addition, they perform
evaluations of process operations for the users of emissions equipment. And to
a lesser degree, the company performs "performance guarantees" for newly
purchased abatement equipment for some of its customers. The company also
provides ambient air surveys for new or renewable air emission permits.
In the area of water waste, the company performs analysis for virtually all
kinds of discharge of water waste. The company also evaluates all public and
private drinking water supplies for compliance with existing environmental
standards. The company performs environmental analysis of real property for
customers involved in the transfer of real property. This includes the analysis
for lending institutions prior to funding the purchase of real property.
Lastly, the company provides soil analysis primarily for the mining industry.
Regulation
- ----------
The Clean Drinking Water Act mandates certification requirements for
laboratories who are engaged in the analysis of public drinking water. In
addition, the company is subject to certain regulations of the Nuclear
Regulatory Commission governing testing standards for environmental
laboratories.
The Environmental Protection Agency and Nuclear Regulatory Commission perform
periodic audits in the form of on-site walk throughs at testing facilities. In
addition, the Environmental Protection Agency submits "blind samples" for which
the company analyzes and submits its test results. These results are measured
against standardized testing performed by the EPA on the same sample to
determine a lab's ability to analyze samples.
In addition, most state environmental agencies conduct on-site evaluations for
compliance with established professional testing standards and techniques.
Taxation
- --------
The company's environmental contracts are generally not individually
significant. However, to the degree that a contract is in process at year end,
the company employs the completed contract method of accounting for income
taxes. Generally this method provides that no income or expense will be
recognized on a contract until such time as the contract is completed.
EMPLOYEES
- ---------
As of the date of this report, the Company has 43 full-time employees.
(Administration and Accounting 6, Environmental 34 and Corporate Management 3).
All employees are provided with the opportunity to participate in a
comprehensive health and benefits package. All eligible employees participate
in the Company's Employee Stock Ownership Plan.
None of the employees are represented by a union and the Company believes that
its relationship with its employees is good.
PROPERTIES - REAL ESTATE
- ------------------------
The company owns facilities consisting of six separate buildings located on
approximately ten acres.
One building, an office building, has 10,600 square feet and housed the oil and
gas and publishing operations. The adjacent building has 6,000 square feet and
housed the SanTech shop and offices. Next to it is an 11,500 square foot
warehouse where all finished goods were held until shipped. It is anticipated
these 3 buildings will be sold or leased during 1996. The existing Corporate
offices have been relocated to W.E.S.T's offices at the Foster Road location in
Casper. That building is described below. It is anticipated that, if sold at
prevailing market prices, the sale of these 3 buildings would generate between
$150,000 and $250,000 after paying off all existing debt. It is not known at
this time how quickly a sale could be consummated.
In early 1990, the Company acquired a fourth building which has 6,000 square
feet. The printing equipment and operations were housed in this building, which
is located on the east side of the warehouse. This building was sold, in 1995,
as part of the sale of the printing business.
In September, 1993 the Company acquired a 5,000 sq. ft. building in San Marcos,
Texas which houses all environmental personnel and equipment for the Company's
Texas operations.
Western Environmental leased two buildings within 1/2 mile of the Company's
headquarters through 1993. The first building, an approximate 6,000 sq. ft.
metal building, housed W.E.S.T.'s administrative personnel, the Casper
laboratory and served as a base for field crews. The second building was used
as a storage facility for equipment and oil and water samples and was
approximately 2,800 sq. ft. Both buildings were on the same 1 acre lot. The
property is owned by two officers of W.E.S.T. and was leased for a one year term
at market rates. On March 22, 1994, the Company purchased a 10,600 square foot
building on 4 acres in an industrial park in Casper. The lease arrangement on
the former building terminated in 1994. This new facility will accommodate the
expected growth of the Company's environmental business and now houses the
Corporate and accounting offices.
In addition, W.E.S.T. rents office space in Evanston and Cheyenne, Wyoming on a
month-to-month basis from third parties.
Management believes that the existing facilities are now adequate for current
needs.
ITEM 2 - PROPERTIES
Disclosures of Oil and Gas Producing Activities
- -----------------------------------------------
The Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 69, Disclosures about Oil and Gas Producing Activities, requires
certain disclosures about an entity's oil and gas producing operations. Those
disclosures are applicable if any one of revenues, results of operations, or
assets, generated or attributable to the oil and gas activities, are more than
10% of total revenues, operations, or total assets. The Company in recent years
has acquired significant non oil and gas operating assets. These are primarily
assets in the environmental testing and analysis industries.
Consequently, the Company's oil and gas revenues are not 10% of total revenues.
The Company's oil and gas operations are not 10% of total operations. The
Company's oil and gas assets are less than 16% of total assets. It is expected
that with normal depreciation and depletion, and with the potential of selling
additional oil and gas assets in the coming months, that the Company will not
meet this test either.
Although technically required to do so, the Company has not presented the
required disclosure. Management feels that with the sale of its major oil and
gas producing property in 1992 and with the continually decreased emphasis on
oil and gas producing activities, the information is relatively meaningless. In
addition, based on costs of prior years, the estimated costs to obtain all of
such information would be at least $10,000. In addition, savings and costs of
printing annual reports alone would save over an additional $1,000. For these
reasons the disclosure has not been presented.
Net Quantities of Oil and Gas Produced
- --------------------------------------
The net quantities of oil and gas produced by the Company during each of the
last three fiscal years are as follows:
<TABLE>
<CAPTION>
Oil (bbls)Gas (Mcf)
-------------------
<S> <C> <C>
1993 4,300 28,000
1994 3,800 41,000
1995 6,500 52,000
</TABLE>
Average Sales Price and Production Costs
- ----------------------------------------
The following table reflects information concerning each of the last three
fiscal years:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Average sales price per bbl $17.50 $16.66 $17.44
Average sales price per Mcf 1.30 1.57 1.90
Average production cost per
net equivalent bbl* 5.38 6.45 11.17
</TABLE>
* Natural gas has been converted into equivalent bbls using a conversion ratio
of 6:1.
Wells and Productive Acreage
- ----------------------------
The following table reflects the total gross and net wells, expressed separately
for oil and gas, and the total gross and net developed acres as of December 31,
1995:
<TABLE>
<CAPTION>
Productive Working Interest Developed Acres
--------------------------- ---------------
Wells
-----
Gross Net Gross Net
----- --- ----- ---
Oil Gas Oil Gas
<C> <C> <C> <C> <C> <C>
17 8 1.356 1.4999 11,245 1,098
</TABLE>
In addition, the Company holds overriding royalty interests ranging from
.000494% to 3.4722% in 28 oil and 28 gas wells. The Company's interests in
undeveloped acreage at December 31, 1995 are summarized in the following table.
Except as otherwise indicated, the interests reflected in the table are working
interests.
<TABLE>
<CAPTION>
Overriding
State Royalty
- ----- -------
Gross Acres Net Acres
----------- ---------
Interest
--------
<S> <C> <C> <C>
Colorado 1,600 26 -
New Mexico 8,047 8,047 -
New Mexico 21,254 - 6%-1%
Oklahoma 2,080 - .3%
Utah 570 213 -
Wyoming 6,833 3,389 -
Wyoming 1,640 - 3.5%-1.5%
------ -------
42,024 11,675
====== =======
</TABLE>
Drilling Activity
- -----------------
The Company has not participated in the drilling of exploratory wells in 1995,
1994 nor 1993. The Company has not participated in the drilling of development
wells in 1994 or 1993. In late 1995, the Company participated in the drilling
one development well which appears to be a productive well.
Title to Properties
- -------------------
As is customary in the oil and gas industry, a preliminary title check is
conducted at the time properties believed to be suitable for drilling operations
are acquired by the Company. Prior to the commencement of drilling operations,
curative work determined to be appropriate as a result of a title examination is
customarily performed with respect to significant defects before the Company
commences such operations. The Company believes that the title to its
properties is marketable in accordance with standards generally acceptable in
the oil and gas industry.
ITEM 3 - LEGAL PROCEEDINGS
The Company is not involved in any, or aware of any, pending or threatened
material legal proceedings, to which the Company is a party or which any of its
property is the subject.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not applicable. No matters were submitted during the Fourth Quarter of the
fiscal year covered by this report to a vote of security holders.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
The Company's Common Stock is traded in the over-the-counter market and is
quoted by NASDAQ under the symbol "HAWK". The high and low closing bid
quotations for the calendar period indicated, as reported by NASDAQ, are shown
in the following table:
<TABLE>
<CAPTION>
Bid Price
---------
HIGH LOW
---- ---
<S> <C> <C> <C>
1993:
First Quarter 1/8 3/32
Second Quarter 1/8 3/32
Third Quarter 7/32 3/32
Fourth Quarter 5/32 1/8
1994:
First Quarter 1/8 3/32
Second Quarter 1/8 1/16
Third Quarter 3/32 1/16
Fourth Quarter 1/16 1/16
1995:
First Quarter 1/16 1/16
Second Quarter 1/16 1/32
Third Quarter 9/32 1/16
Fourth Quarter 7/32 5/32
1996:
First Quarter 3/16 1/8
</TABLE>
Bid quotations represent prices between dealers, do not include retail markup,
markdown, or commissions and do not necessarily represent actual transactions.
Number of Shareholders
- ----------------------
As of March 6, 1996 there were 993 holders of record of the Company's Common
Stock.
Dividends
- ---------
The Company has never paid any dividends on its common stock and does not have
any current plans to pay any dividends in the foreseeable future. Should the
Company determine at some future date that the payment of dividends would be
desirable, any such dividends would be dependent upon the earnings and financial
condition of the Company.
ITEM 6 - FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenues
from continuing
operations $ 3,293,000 $ 2,595,000 $ 2,602,000 $ 2,709,000 $ 2,102,000
Net income (loss)
from continuing
operations 117,000 (250,000) (275,000) (102,000) (134,000)
Net income (loss) (213,000) 268,000 (410,000) (150,000) (249,000)
Income (loss) from
continuing
operations per
share .00 (.01) (.01) (.00) (.01)
Net income (loss) per
share (.01) .01 (.01) (.01) (.01)
Total assets 4,015,000 4,883,000 4,461,000 5,046,000 4,817,000
Long-term debt 493,000 677,000 554,000 569,000 683,000
Shareholder's equity 2,992,000 3,175,000 2,912,000 3,371,000 3,339,000
Dividends declared
per share - - - - -
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources:
- --------------------------------
On December 23, 1994, the Company adopted a formal plan to sell its publishing
segment, its navigational products segment, and its printing segment. The
Company's environmental assembly segment was also discontinued. Prior to
December 31, 1994, the sale of the Company's publishing segment was consummated.
Substantially all of the publishing assets including accounts receivable and
inventory were sold to a third party for approximately $1,800,000.
During 1995, the Company continued to liquidate the navigational products
assets, including inventory, and the printing company assets. As stated in
prior years reports, this transaction will have a significant effect on the
Company's financial condition and the form that its' operations take over the
next several years. These effects in 1995 operations and into the future will
be discussed below.
During 1995 the Company enjoyed its most liquid position in over 10 years. The
publishing segment of the Company's business had had declining sales for several
years. The Company was able to sell its publishing business on terms which the
Company believes were extremely beneficial. Selling the assets for approximately
$1,800,000 made a substantial improvement in the Company's ability to invest in
its growth oriented environmental subsidiary.
During 1995 the Company had the ability to hire additional staff and invest in
additional equipment for its environmental subsidiary. As shown on the
Consolidated Statement of Cash Flows, the Company invested in $410,000 of
equipment in 1995, most of which was to expand our capabilities to serve our
environmental clients. The result of these efforts was an increase of nearly
29% in total revenues in the environmental business. It is anticipated that
revenues will continue to grow in 1996 and 1997.
The Company's navigational supply business was also discontinued in late 1994.
After discontinuing its aviation publishing, the Company believed it to be
unproductive to continue a full fledged marketing effort to sustain the
navigational supplies company. During 1995, the Company realized $36,000 from
the sale of navigational supply assets and from furniture and fixtures. In
addition, the Company was able to sell finished goods inventory which remained
in stock for approximately $92,000 during the year. These revenues are shown in
discontinued operations. It is anticipated that the Company will continue to
sell finished goods inventory during 1996 and possibly into 1997. The estimated
realizable value of that inventory should be in the range of $30,000 to $50,000.
Similarly, it was also deemed in the best interest of the Company to sell the
printing assets that the Company had acquired in 1991. In mid 1995, the Company
was able to consummate a sale of the printing assets along with the building
that the assets were housed in. Those printing company assets were sold for
$221,000. In addition, the Company took a note for $50,000 which will be paid
over a ten year period from the purchaser of the printing business.
With the sale of these entities, the Company has focused on building its
environmental engineering and consulting business and on acquiring producing oil
and gas properties, primarily producing overriding royalties. As stated above,
the environmental engineering business had substantial growth in 1995. The
Company was also successful in purchasing several producing oil and gas
royalties. The full effect of these royalty purchases will not be seen in the
financial statements until 1996 when division orders can be processed and when
an entire years worth of production will be realized.
Also, the Company purchased the facilities on 6WN Road in Casper, Wyoming in
1987. This was shortly after the local economy had gone through a serious
recession and the price of real estate was abnormally low. Although the
buildings were not sold in 1995 and are presently listed with a local realtor,
we believe the buildings at the 6WN Road location in Casper can be sold at a
profit and provide significant additional cash assets for the Company. Various
local realtors have estimated that the Company may realize between $200,000 and
$250,000 cash above the $425,000 carry amounts of the debt that is against the
buildings presently. There is no way to determine if the buildings will be sold
at prices sufficient to yield that equity or when any such sale may occur.
The Statements of Operations included in the Financial Statements in this report
show only the continued operations on a line item basis. In accordance with
generally accepted accounting principles, the Results of Operations and the
effects of the sale of the discontinued operations are shown in a single
category called "discontinued Operations". Similarly, any information
regarding the Discontinued Operations which has previously been reported in
segment information has also been summarized in accordance with generally
accepted accounting principles.
In summary, the hoped for results as of December, 1994, (i.e., increased growth
in the environmental and oil and gas businesses), has come to pass. With its
additional cash assets and the ability to focus management's attention on its
predominant industry, the Company has experienced 29% growth in revenues in the
environmental business and has added to its oil and gas producing properties.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Working capital $ 1,289,000 $ 1,171,000
Working capital ratio 3.4:1 2.2:1
Long-term debt to equity 1:6.1 1:4.8
Cash provided (utilized) by operations $ (250,000) $ 365,000
Cash and short-term investments
available $ 1,004,000 $ 1,340,000
</TABLE>
Management believes that the carrying value of producing oil and gas properties
is not in excess of the future revenues which will be recovered. Carrying value
of producing properties, net of depletion is $587,000. Oil and gas revenues,
net of expenses were $63,000 for the year which includes $10,000 of workover
costs in the Company's Brundage Canyon field. As most of the Company's
producing properties are natural gas properties with lives in excess of twenty-
five years, we believe the carrying value of the assets is fully recoverable.
In addition, the Company has carrying value of $31,000 on non-producing
properties which is net of an allowance for impairment of $43,000. Management
believes the allowance is adequate and the remaining cost on the assets will be
recovered.
Management knows of no environmental assessment problems nor of the potential of
any such environmental assessment. All purchased real estate has had
environmental studies done prior to purchase and both our printing operation and
our environmental lab have been instructed on the appropriate procedures for
disposals of various kinds of waste. Such wastes (although relatively
insignificant in amount) are tested prior to disposal as part of an
environmental assurance program.
Results of Operations:
- ---------------------
This summarization of the Results of Operations will not include the activities
of the discontinued operations. The reader is referred to the section above
entitled Liquidity and Capital Resources and to Footnote No. 9 of the
Consolidated Financial Statement.
Our environmental testing revenues grew between 1992 and 1993 reflecting the
expansion of the Company's business into Texas and by obtaining several new
customers in the Wyoming market place. In 1994 revenues remained virtually the
same as sales efforts declined while operating activities took most of the time
of the key employees. However, in 1995 the Company was able to successfully
acquire three large clients. It appears that these clients which provided
substantial revenues in 1995 will continue to do so in the foreseeable future.
It is also anticipated that revenues will continue to grow as the Company has
hired several well trained and competent employees to help manage the 29% growth
in revenues and to use that as a spring board for additional sales in 1996 and
1997. In addition, the small changes between 1993 and 1994 revenues are
reflective of the Company's ongoing effort to increase the profitability per
job. Because of the volume of requests the Company was receiving in comparison
to its size, the Company has turned down some jobs which would have been
insignificant to our profit margin in 1994. This was done in anticipation of
increasing the size and billing rates on certain jobs in 1995. Correspondingly
environmental costs went from $2,279,000 in 1993 to $2,351,000 in 1994 and
increased significantly to $2,674,000 with the addition of new staff and out of
pocket costs for increased number of jobs in 1995.
Oil and gas sales increased from $166,000 in 1994 to $186,000 in 1995. This
followed a $36,000 increase between 1993 and 1994. These increases are due
almost exclusively to the acquisition of certain producing but nonoperated
producing properties in the last two years. Oil and gas producing costs were
$146,000 in 1993, down to $107,000 in 1994 and slightly up in 1995 to $123,000.
The declines in production costs reflect the nature of the oil and gas
investments which the Company has made. Properties acquired have generally low
operating costs. A notable exception in 1995 were some workover costs in the
Brundage Canyon field of Utah.
Depreciation, depletion and amortization were $199,000 in 1993 which declined to
$176,000 in 1994 and increased in 1995 to $194,000. This increase in
depreciation between 1994 and 1995 reflects the acquisition of additional
environmental equipment and the beginning of production in the Company's Yellow
Creek field in Southwest Wyoming and hence the beginning of the amortization of
that cost base.
General and administrative costs were $206,000 in 1993, down to $153,000 in
1994, reflecting the streamlining of corporate management and corporate overhead
costs. In 1995 general and administrative costs increased $217,000 reflecting
increased number of staff and slightly higher consulting costs.
Interest expense was $48,000 in 1993, increasing to $70,000 in 1994 and $76,000
in 1995. The increases between 1993 and 1994 reflect the increased short-term
borrowing base used to finance some of the up front costs of the environmental
company's growth. The additional $6,000 increase between 1994 and 1995 reflects
a full year of interest expense on the purchase of a new office building in late
1994. Provisions for income tax expense reflect the amount of current income
taxes payable in 1994 and 1993. No provision has been made for deferred taxes
in 1993, 1994 and 1995.
Management believes that although disclosures mandated by SFAS No. 109 are
generally informative, that in the Company's case the application of SFAS No.
109 leads to disclosures which are confusing. To comply with SFAS No. 109 is to
record deferred income tax expense on the books of the Company, when in fact,
the Company has over $10,000,000 of net operating loss carryforwards, over
$2,000,000 of depletion carryforwards and over $180,000 of various income tax
credits. This issue is derived from the application of the provisions of SFAS
No. 109 to companies who have had quasi reorganizations in the past. (Hawks
Industries applied the quasi reorganization provisions ARB #43, effective in
1988.) Specifically, paragraphs 39 and 49 of SFAS No. 109 require that in cases
where there has been a quasi reorganization, that the tax benefits of loss
carryforwards and credits, earned prior to the date of the quasi reorganization,
be ignored when calculating deferred income tax benefits. Although management
believes that such obscure provisions may give rise to great fodder in the world
of academia, we believe that to apply the principles of SFAS No. 109, paragraphs
39 and 49, is at variance with the economic realities of the present case.
Accordingly, we have not applied the provisions of SFAS No. 109, paragraphs 39
and 49.
It is management's intent to attempt to reflect the economic reality of our
present tax situation. Given all of the future tax benefits which will be
available to the Company to offset future net income, management believes that
the financial statements presented have accomplished our goal.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Hawks Industries, Inc. and Subsidiaries
Index to Consolidated Financial Statements and Supplementary
Schedules
Report of Certified Public Accountants on
the Financial Statements 20
Consolidated Balance Sheets 21
Consolidated Statements of Operations 22
Consolidated Statements of Shareholders' Equity 23
Consolidated Statements of Cash Flows 24
Notes to Consolidated Financial Statements 25
Report of Certified Public Accountants on the Schedules 37
Schedule V - Property and Equipment 38
Schedule VI - Accumulated Depletion and Depreciation 39
Schedule VIII - Valuation and Qualifying Accounts and Reserves 40
Schedule IX - Short-term Borrowings 41
Schedule X - Supplementary Income Statement Information 41
HOCKER, LOVELETT, HARGENS & YENNIE, P.C.
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Hawks Industries, Inc.
Casper, Wyoming
We have audited the accompanying consolidated balance sheets of Hawks
Industries, Inc. and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the years ended December 31, 1995, 1994 and 1993. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As described in Note 4, Statement of Financial Accounting Standards No. 109,
`Accounting for Income Taxes'' requires that deferred taxes be reflected for
temporary differences resulting from differences between the financial statement
and tax basis of assets and liabilities. SFAS No. 109 also precludes the use
of tax benefits resulting from the carryforward of net operating losses which
originated prior to the Company's quasi-reorganization to increase net income
and specifically requires that they be treated as direct additions to paid-in-
capital. The Company has not provided for recognition of deferred taxes in
accordance with generally accepted accounting principles. If such a provision
were made, net income for 1995, 1994 and 1993 would be (decreased)/increased by
approximately $(61,000), $(89,000), and $42,000 respectively.
In our report dated March 15, 1995, we expressed an opinion that the 1994 and
1993 consolidated financial statements presented fairly, in all material
respects, the financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. As discussed in the
preceding paragraph, the Company has changed its method of accounting for
deferred taxes to a method that is not in conformity with generally accepted
accounting principles. Accordingly, our present opinion on the 1994 and 1993
financial statements, as presented herein, is different from that expressed in
our previous report.
In our opinion, except for the effects of omitting deferred income taxes, as
discussed in the third paragraph, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Hawks Industries, Inc. and subsidiaries as of December 31, 1995 and 1994 and the
results of their operations and their cash flows for the years ended December
31, 1995, 1994 and 1993, in conformity with generally accepted accounting
principles.
The Company has not presented the disclosures about oil and gas producing
activities that the Financial Accounting Standards Board has determined is
necessary to supplement, although not required to be part of, the basic
financial statements.
/s/ Hocker, Lovelett, Hargens & Yennie, P.C.
Casper, Wyoming
February 20, 1996
<TABLE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<CAPTION>
ASSETS 1995 1994
------ ---- ----
<S> <C> <C>
CURRENT ASSETS
Cash (including certificates of deposit 1995
$3,000; 1994 $3,000) $ 197,000 $ 1,340,000
Accounts receivable 719,000 647,000
Short-term investments 807,000 -
Inventory 37,000 121,000
Costs in excess of billings 7,000 43,000
Other current assets 52,000 51,000
------------ ------------
Total current assets 1,819,000 2,202,000
------------ ------------
PROPERTY AND EQUIPMENT, net
(successful efforts method) 1,915,000 2,405,000
------------ ------------
NOTE RECEIVABLE 46,000 -
------------ ------------
OTHER ASSETS 235,000 276,000
------------ ------------
$ 4,015,000 $ 4,883,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable $ 230,000 $ 157,000
Current maturities of long-term debt 87,000 150,000
Accounts payable 148,000 387,000
Accrued liabilities 65,000 209,000
Deferred loss on discontinued operations - 128,000
----------- ------------
Total current liabilities 530,000 1,031,000
------------ ------------
LONG TERM DEBT 493,000 677,000
------------ ------------
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 1995 -
26,788,858 shares; 1994 - 26,322,782 268,000 263,000
Capital in excess of par value of common stock 2,586,000 2,561,000
Retained earnings (since elimination of deficit
at December 31, 1988) 138,000 351,000
------------ ------------
2,992,000 3,175,000
------------ ------------
$ 4,015,000 $ 4,883,000
============ ============
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating revenue:
Oil and gas $ 186,000 $ 166,000 $ 130,000
Environmental 3,124,000 2,423,000 2,458,000
Gain (loss) on sale of assets (17,000) 6,000 14,000
-------------- -------------- ---------------
3,293,000 2,595,000 2,602,000
-------------- -------------- ---------------
Operating expenses:
Oil and gas 123,000 107,000 146,000
Environmental 2,674,000 2,351,000 2,279,000
Depreciation, depletion and amortization 194,000 176,000 199,000
General and administrative 217,000 153,000 206,000
-------------- -------------- ---------------
3,208,000 2,787,000 2,830,000
-------------- -------------- ---------------
Operating income (loss) from continuing
operations 85,000 (192,000) (228,000)
Other income (expense):
Interest income 67,000 15,000 1,000
Interest expense (76,000) (70,000) (48,000)
Sale of Marketable Securities 41,000 - -
-------------- -------------- ---------------
Gain (loss) from continuing operations
before taxes 117,000 (247,000) (275,000)
Provision for taxes:
Current - 3,000 -
------------- -------------- ---------------
Gain (loss) from continuing operations 117,000 (250,000) (275,000)
Discontinued operations (330,000) (510,000) (135,000)
Gain (loss) on sale of discontinued
(includes $128,000 deferred
costs on discontinued operations) - 1,028,000 -
-------------- ---------------- ---------------
Net income (loss) $ (213,000) $ 268,000 $ (410,000)
============== =============== ===============
Weighted average number of
common shares outstanding 26,578,295 26,203,330 25,497,251
-------------- --------------- ---------------
Earnings (loss) per common share:
Gain (loss) from continuing operations $ .00 $ (.01) $ (.01)
Discontinued operations (net) (.01) (.02) -
Gain (loss) on sale of discontinued - .04 -
operations
-------------- ---------------
$ (.01) $ .01 $ (.01)
============== =============== ===============
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
Capital in
Common Stock Issued Excess of Accumulated
-------------------
Shares Amount Par Value Earnings
------ ------ --------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1993 25,722,215 $ 257,000 $ 2,672,000 $ 442,000
Prior period restatement-deferred taxes - - - 51,000
Stock bonus granted employee 25,000 - 1,000 -
Stock issued for purchase of building 20,800 - 4,000 -
Stock issued in payment of legal fees 40,000 1,000 2,000 -
Stock retired on reverse split (525,233) (5,000) (46,000) -
Redemption of preferred stock - - (27,000) -
Additional WEST merger cost - - (30,000) -
Net loss - - - (410,000)
---------- --------- ------------ ----------
Balance, December 31, 1993 25,282,782 253,000 2,576,000 83,000
Additional shares issued- WEST merger 1,000,000 10,000 (10,000) -
Stock bonus granted employee 40,000 - 1,000 -
Recapture of paid in capital from sale of
assets involved in Quasi reorganization - - (6,000) -
Net Income - - - 268,000
---------- ---------- ------------ ----------
Balance December 31, 1994 26,322,782 263,000 2,561,000 351,000
Stock issued to Employee Stock Ownership
Plan Trust 461,076 5,000 24,000 -
Stock bonus granted employee 5,000 - 1,000 -
Net loss - - - (213,000)
---------- --------- ------------ ----------
Balance December 31, 1995 26,788,858 $ 268,000 $ 2,586,000 $ 138,000
========== ========== ============ ==========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating Activities:
Gain (loss) from continuing operations $ 117,000 $ (250,000) $ (276,000)
Adjustments to reconcile net earnings/loss
to net cash provided:
Depreciation, depletion and amortization 194,000 176,000 199,000
Gain on sale of assets (24,000) (6,000) -
Impairment of nonproducing oil and gas
property 37,000 34,000 34,000
Changes in operating assets and
liabilities:
Decrease (increase) in accounts
receivable (269,000) (47,000) 211,000
Decrease in inventory, costs in excess
of billings and other current assets 24,000 81,000 25,000
Increase (decrease) in accounts payable,
accrued expenses and billings in
excess of costs (202,000) 100,000 (108,000)
-------------- ------------- --------------
(123,000) 88,000 85,000
Operating cash flow from discontinued
operations. (127,000) 277,000 96,000
-------------- ------------- --------------
Net cash flows provided by (used in) oper.
activities (250,000) 365,000 181,000
-------------- ------------- --------------
Cash flow from investing activities:
Purchases of property and equipment (410,000) (342,000) (177,000)
Proceeds from sale of properties 216,000 9,000 -
Decrease (increase) in other assets 13,000 10,000 (2,000)
Decrease (increase) in note receivable (46,000) 91,000 93,000
Purchase of short-term investments (807,000) - -
-------------- ------------- --------------
(1,034,000) (232,000) (86,000)
Investing cash flow from discontinued
operations 285,000 1,256,000 (119,000)
-------------- ------------- ---------------
Net cash provided by (used in) investing
activities (749,000) 1,024,000 (205,000)
-------------- ------------- ---------------
Cash flows from financing activities:
Purchase of common stock - - (51,000)
Additional paid in capital-merger costs - - (30,000)
Proceeds from sale of stock 30,000 1,000 8,000
Proceeds from debt obligations incurred 182,000 210,000 128,000
Reduction of debt obligations (307,000) (175,000) (129,000)
-------------- ------------- --------------
(95,000) 36,000 (74,000)
Financing cash flow from discontinued
operations (49,000) (192,000) 24,000
-------------- ------------- --------------
Net cash used in financing activities (144,000) (156,000) (50,000)
-------------- ------------- ---------------
Increase (decrease) in cash and cash
equivalents (1,143,000) 1,233,000 (74,000)
Cash and cash equivalents at beginning of year 1,340,000 107,000 181,000
-------------- ------------- ---------------
Cash and cash equivalents at end of year $ 197,000 $ 1,340,000 $ 107,000
============== ============= ===============
Supplemental disclosure of non cash investing
and financing activities:
Purchase of property by issuance of debt
obligation $ - $ 150,000 $ 122,000
============== ============= =============
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business:
The Company is engaged in the environmental testing business through its
subsidiary, Western Environmental Services & Testing, Inc. (WEST), acquired
in 1992. During 1993, WEST formed a new subsidiary, Western Environmental
Services, Inc. which manages environmental clean ups. The environmental
service and testing company's emphasis is on air quality testing, but
soils, water and asbestos testing are also performed. The Company provides
services to the general public although, most clients are industrial
entities. Fees for services are due upon receipt of invoice.
The Company is also presently engaged in investing in oil and gas producing
properties with an emphasis on nonoperating interests. Previously the
Company had been involved in exploration and production activity but has
de-emphasized this part of the oil and gas business in the last four years.
Sales of oil and gas are made to domestic petroleum purchasing and refining
companies with payment normally received within thirty to sixty days of
date of sale.
The Company had also been engaged in the business of aviation publishing
and navigational products assembly and sales through its subsidiary
International Aviation Publishers, Inc., acquired in 1986. During 1990 IAP
formed a new subsidiary, Hawks Books Company, which acquired printing
equipment to print IAP books and also to provide outside printing services.
Substantially all of the assets of IAP were sold as of December 31, 1994
and operations of IAP, Hawks Book Company and SanTech, Inc. are showed as
"Discontinued Operations".
On December 31, 1988 the Company effected a quasi-reorganization whereby
all of its assets (primarily those in the oil and gas industry segment)
were revalued to their estimated fair market value and the retained
earnings deficit was eliminated.
This summary of significant accounting policies of Hawks Industries, Inc.
and subsidiaries (the Company) is presented to assist in understanding the
Company's financial statements. The financial statements and notes are
representations of the Company's management. These accounting policies,
with the exception of the adoption of SFAS No. 109, conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
Principles of consolidation:
The Consolidated Financial Statements include the accounts of the Company
and its subsidiaries. The Company's proportionate share of partnership and
joint venture assets, liabilities, revenue and expenses is consolidated in
the financial statements. In consolidation, all significant intercompany
accounts and transactions have been eliminated.
The Company has one wholly-owned oil and gas subsidiary, Burton/Hawks
Exploration Co., Ltd. The Company had one wholly-owned subsidiary, Hawks
Environmental Instrumentation, Inc. which manufactured environmental
testing instruments, this portion of the Company was also discontinued at
December 31, 1994 and all assets were either sold or transferred to
W.E.S.T.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company also owned 100% of IAP. (All assets have been sold or
transferred to Hawks Industries, Inc. at December 31, 1995 and operations
have been discontinued). IAP had two wholly-owned subsidiaries, SanTech,
Inc., which assembled and sold navigational products, and Hawks Book
Company, formed to own and operate printing equipment. All of Hawks Book
Company's assets have been sold at December 31, 1995 and operations have
been discontinued. The Company still has a minimal amount of inventory in
navigational products and will continue to operate SanTech, Inc. until this
inventory is gone.
The Company also owns 100% of W.E.S.T. which does environmental services
and testing. W.E.S.T. has one wholly owned subsidiary, Western
Environmental Services, Inc. which manages environmental clean-up projects
and performs site evaluations.
Cash Equivalents:
For purposes of the Statement of Cash Flows, the Company considers highly
liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Concentration of Credit Risk for Cash Held at Banks:
At December 31, 1995, the Company's cash balances temporarily exceeded the
$100,000 insurance provided by the Federal Deposit Insurance Corporation.
Inventory:
Finished products inventories consist of printed materials and navigational
products; raw materials inventory consists of materials for the manufacture
of navigational products and paper used for printing. The printed
materials and finished navigational products are carried at the lower of
cost (moving average method) or market and the navigational products raw
materials are carried at lower of cost or market determined on the first-
in, first-out method. At December 31, 1995 the inventories consist of the
following:
<TABLE>
<CAPTION>
Navigational
Products
--------
<S> <C> <C>
Finished products $ 37,000
=============
</TABLE>
At December 31, 1994 the inventories consist of the following:
<TABLE>
<CAPTION>
Printed Navigational Raw Paper
Materials Products Stock
--------- -------- -----
<S> <C> <C> <C>
Finished products $ 17,000 $ 90,000 $ -
Raw Materials - - 14,000
----------------- ----------------- ----------------
$ 17,000 $ 90,000 $ 14,000
================= ================= ================
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and equipment:
The Company uses the successful efforts method of accounting for oil and
gas producing activities as prescribed by FASB Statement No. 19, "Financial
Accounting and Reporting by Oil and Gas Producing Companies". Under this
method, the costs of unsuccessful exploratory wells and delay rentals are
expensed as incurred. Lease acquisition costs and costs of drilling and
equipping productive exploratory and all development wells are capitalized.
Depreciation and depletion of producing properties and equipment is
computed by the unit-of-production method using Company estimates of
unrecovered proved producing oil and gas reserves. Total capitalized costs
for individual proved oil and gas properties are limited to the estimated
future net revenues from production of proved reserves. An allowance for
impairment has been established and expense charged for the estimated
impairment of non-producing leasehold interests.
Buildings and leasehold improvements, furniture and fixtures,
transportation equipment, engineering and lab equipment, and machinery and
equipment are stated at cost and depreciated over their estimated useful
lives ranging from three to forty-one years principally by the straight-
line method.
The costs of maintenance and repairs are charged to operating expenses as
incurred. The costs of significant additions, renewals and betterment of
properties are capitalized and depreciated over the remaining or extended
useful lives of the properties.
Environmental testing revenue and cost recognition:
Income from environmental testing contracts is reflected in the financial
statements by the completed contract method whereby income and costs are
recognized when the testing has been completed and a report has been
issued. The Company is in the environmental testing business. Due to the
process involved, there is no way feasible to accurately determine the
percentage of completion at any time during the process.
Income taxes:
By restatement of 1993 and 1994, the Company has elected to omit deferred
taxes as required by Statement of Financial Accounting Standards Number
109, "Accounting for Income Taxes" (SFAS No. 109).
Investment tax credits will be reflected in the Statement of Operations as
a reduction of income taxes in the year in which they become available for
use.
Earnings per share:
Earnings per common share were computed by dividing net earnings (loss) by
the weighted average number of shares outstanding during the year.
Computation of the weighted average number of outstanding shares excludes
common stock equivalents because their effect would be antidilutive.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bad Debt:
Uncollectible accounts receivable are charged directly against earnings
when they are determined to be uncollectible. Use of this method does not
result in a material difference from the valuation method required by
generally accepted accounting principles.
Environmental Costs:
Environmental expenditures that relate to current operations are expensed
or capitalized in accordance with generally accepted accounting principles.
Liabilities for these expenditures are recorded when it is probable that
obligations have been incurred and the amounts can be reasonably estimated.
At December 31, 1995 and 1994, no material liabilities have been recorded
as a range of loss cannot be reasonably estimated.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The Company uses estimates to compute depreciation and
depletion on oil and gas properties and on other depreciable assets.
Note 2. Property and Equipment
Property and equipment at December 31, 1995 and 1994 consists of the
following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Nonproducing oil and gas properties, net of
valuation allowance of $43,000 in 1995 and
$21,000 in 1994 $ 31,000 $ 70,000
Producing oil and gas properties 1,369,000 1,178,000
Furniture and fixtures 316,000 307,000
Transportation equipment 276,000 233,000
Buildings and leasehold improvements 818,000 928,000
Machinery and equipment 3,000 1,117,000
Engineering and lab equipment 976,000 946,000
Other 124,000 165,000
----------- -----------
3,913,000 4,944,000
Less accumulated depreciation and depletion 1,998,000 2,539,000
----------- -----------
$ 1,915,000 $ 2,405,000
=========== ===========
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Notes Payable, Long-Term Debt and Pledged Assets
<TABLE>
Notes payable were as follows at December 31, 1995 and 1994
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revolving line of credit $300,000,
interest at 6.5% maturing June 23,
1996 collateralized by certificate of
deposit $ 230,000 $ 157,000
========= ==========
</TABLE>
<TABLE>
<CAPTION>
Long-term debt at December 31, 1995 and 1994 is as follows:
1995 1994
---- ----
<S> <C> <C>
Mortgage note payable to bank, interest
set at 3.125% above U.S.Treasury Bill
index for one year each June 1st,
(10.2% at December 31, 1995), payable
$1,511 per month including interest
until April 1, 2003, collateralized
by office building $ 93,000 $ 102,000
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 153,000 157,000
Mortgage notes payable to W.D. Hodges
and Jim Ferris Properties, interest
at 9% payable $971 per month until
September 17, 2013, $14,200 at 10%
interest payable in lump sum on
September 17, 1994 collateralized by
building 103,000 105,000
Mortgage note payable to bank, interest
set at 4% above U.S. Treasury Bill
index for one year each April 1st,
(10.375% at December 31, 1995)
payable $1,635 per month including
interest until March 22, 2009,
collateralized by office building 112,000 146,000
Lease payable, Eaton Financial
Corporation, payable $1,227 per month
including interest, collateralized by
computer equipment 22,000 32,000
Note payable, State of Wyoming,
interest at 4%, due in quarterly
installments of approximately $4,000
including interest until May 14,
1998, unsecured 38,000 53,000
Note payable, bank, interest at 9%, due
in monthly installments of
approximately $7,580 including
interest until April 10, 1995,
collateralized by equipment - 24,000
Installment loans payable, due at
various times from March 1994 to
August, 1999, interest rates from
7.0% to 10%, secured by equipment 59,000 208,000
--------- ----------
580,000 827,000
Less current maturities 87,000 150,000
--------- ----------
$ 493,000 $ 677,000
========= ==========
</TABLE>
<TABLE>
<CAPTION>
Aggregate maturities of long-term debt are as follows:
<S> <C>
1996 $ 87,000
1997 64,000
1998 184,000
1999 30,000
2000 30,000
Thereafter 185,000
---------
$ 580,000
=========
</TABLE>
Actual cash payments for interest during the years ended December 31, 1995,
1994 and 1993 were $78,000, $114,000 and $85,000 respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Income Taxes, Accounting Change, Prior Period Restatement
Under SFAS 109 deferred income taxes arise from temporary differences
resulting from differences between the financial statement and tax basis of
assets and liabilities. In financial reporting for oil and gas properties,
the Company uses differing methods to compute depreciation on certain
equipment for financial statement purposes and tax purposes; the tax
depreciation deductions are larger than those for financial statement
purposes primarily due to accelerated depreciation methods and shorter
lives for tax purposes; for financial statement purposes, an allowance for
impairment is established for estimated impairment of non-producing leases;
however, no deduction is taken for taxes until the lease has expired or is
dropped; intangible drilling costs are capitalized for financial statement
purposes and may be expensed for tax purposes as the expenses are incurred;
and, the carrying value of certain equipment has been reduced to
approximate market value, but the loss will be recognized for tax purposes
upon disposition. The Company recognizes income and expense from some
investments on the accrual basis, but uses the cash basis for tax purposes.
Deferred taxes are classified as current and noncurrent depending on the
classification of the assets and liabilities to which they relate.
Deferred taxes arising from timing differences that are not related to an
asset or liability are classified as current or noncurrent depending on the
periods in which the timing differences are expected to reverse.
Management believes that although disclosures mandated by SFAS No. 109 are
generally informative, that in the Company's case the application of SFAS
No. 109 leads to disclosures which are confusing. To comply with SFAS No.
109 is to record deferred income tax expense on the books of the Company,
when in fact, the Company has over $10,000,000 of net operating loss
carryforwards, over $2,000,000 of depletion carryforwards and over $180,000
of various income tax credits. This issue is derived from the application
of the provisions of SFAS No. 109 to companies who have had quasi
reorganizations in the past. (Hawks Industries applied the quasi
reorganization provisions ARB #43, effective in 1988.) Specifically,
paragraphs 39 and 49 of SFAS No. 109 require that in cases where there has
been a quasi reorganization, that the tax benefits of loss carryforwards
and credits, earned prior to the date of the quasi reorganization, be
ignored when calculating deferred income tax benefits. Although management
believes that such obscure provisions may give rise to great fodder in the
world of academia, we believe that to apply the principles of SFAS No. 109,
paragraphs 39 and 49, is at variance with the economic realities of the
present case. Accordingly, we have not applied the provisions of SFAS No.
109, paragraphs 39 and 49.
The following disclosures are provided to show a condensed version of the
financial statements had SFAS No. 109 been implemented. The 1994 balance
sheet and 1994 and 1993 statements of income reflect those presented before
the restatement to remove the effect of deferred taxes.
<TABLE>
<CAPTION>
Balance Sheet 1995 1994
------------- ---- ----
<S> <C> <C>
Current assets $ 1,819,000 $ 2,263,000
Other assets 2,196,000 2,681,000
----------- -----------
Total assets $ 4,015,000 $ 4,944,000
=========== ===========
Current liabilities $ 530,000 $ 1,031,000
Other liabilities 493,000 677,000
----------- -----------
Total liabilities 1,023,000 1,708,000
----------- -----------
Capital stock 268,000 263,000
Capital in excess of par value 2,752,000 2,727,000
Retained earnings (deficit) (28,000) 246,000
----------- -----------
Total equity 2,992,000 3,236,000
----------- -----------
Total liabilities and equity $ 4,015,000 $ 4,944,000
=========== ===========
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Income Statement 1995 1994 1993
---------------- ---- ---- ----
<S> <C> <C> <C>
Gain (loss) from
continuing operations
before taxes $ 117,000 $ (247,000) $ (275,000)
---------- ---------- ----------
Provision for taxes:
Current - 3,000 -
Deferred (17,000) (87,000) (47,000)
---------- ---------- ----------
(17,000) (84,000) (47,000)
---------- ---------- ----------
Gain (loss) from 100,000 (163,000) (228,000)
continuing operations
Discontinued operations
(net of taxes) (374,000) (337,000) (135,000)
Gain (loss) on sale of
discontinued operations
(net of taxes) - 679,000 -
Cumulative effect of
change in accounting
method - - (12,000)
---------- ---------- ----------
Net income (loss) $ (274,000) $ 179,000 $ (375,000)
========== ========== ==========
</TABLE>
If SFAS No. 109 was implemented, deferred tax (assets) liabilities would be
comprised of the following at December 31:
<TABLE>
<CAPTION>
Tax effects of temporary differences for: 1995 1994
---- ----
<S> <C> <C>
Accounting for oil & gas properties $ 75,000 $ 85,000
-------------- --------------
Total deferred tax liabilities 75,000 85,000
-------------- --------------
Other liabilities - (17,000)
Tax loss carryforwards (3,452,000) (3,333,000)
Allowance for loss on discontinued operations - (44,000)
Tax credit carryforwards (181,000) (206,000)
-------------- --------------
Total deferred tax assets (3,633,000) (3,600,000)
-------------- --------------
Net deferred asset (3,558,000) (3,515,000)
Asset valuation allowances 3,558,000 3,454,000
-------------- --------------
Net deferred tax asset $ - $ (61,000)
============== ==============
</TABLE>
When subsequently recognized, approximately $3,300,000 of the 1994 deferred
tax assets' tax benefits will be allocated directly to contributed capital
as a result of the Company's quasi reorganization in 1988.
At December 31, 1995, the Company's net operating loss and tax credits
available for carryforward to offset future taxable income and tax
liabilities for income tax reporting purposes expire as follows:
<TABLE>
<CAPTION>
Net
Operating Investment
Losses Tax Credits
------ -----------
Year Ending December 31,:
-------------------------
<S> <C> <C>
1996 $ 812,000 $ 55,000
1997 1,653,000 40,000
1998 1,397,000 24,000
1999 1,713,000 7,000
2000 3,767,000 12,000
2002 101,000 -
2006 96,000 -
2008 265,000 -
2009 359,000 -
--------------- --------------
$ 10,163,000 $ 138,000
=============== ==============
</TABLE>
The Company also has approximately $43,000 in unused jobs tax credits and
$2,131,000 in percentage depletion carryforwards available to offset future
income tax liabilities. These items do not expire.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Stockholders' Equity
The Company had an Incentive Stock Option Plan for key employees and had
reserved 1,000,000 shares of unissued common stock to be issued thereunder.
The plan expired on November 19, 1991. The option price was the market
value of the shares on the date the option ($.14) is granted except for
beneficial holders of more than ten percent of the total outstanding shares
of the Company, whose option price was one hundred ten percent of said
market price. No option may be exercised by any employee until all
previously granted options still outstanding to the same employee are
exercised. There were 50,000 options outstanding and exercisable at
December 31, 1995
The Company has an Employee Stock Ownership Plan-Trust. To be eligible to
participate, employees must be 21 years of age and have had at least one
year of continuous employment with the Company. The Company, at the
discretion of the board of directors, may contribute to the plan an amount
not to exceed 25 percent of total qualified compensation in any given year
for any individual to a maximum of $30,000. On occasion, when the Company
has contributed less than the amount allowed, the Company has made
additional contributions under the carryover provisions of the plan in
subsequent years. The total cost to the Company and its subsidiaries was
$63,000, $88,000 and $126,000 in 1995, 1994 and 1993, respectively. The
ESOP compensation expense was $1,140,000, $1,173,000 and $1,260,000 in
1995, 1994 and 1993 respectively.
Note 6. Related Parties
During the years ended December 31, 1995, 1994 and 1993 the Company's
printing segment had $81,000, $226,000 and $352,000 in sales of which $0,
$98,000 and $247,000 were intercompany and were eliminated during
consolidation.
The Company, through its subsidiary W.E.S.T., rented an office and
laboratory in Casper, Wyoming from a company affiliated with two directors
of the Company. Rents paid were $12,000, $15,000 and $18,000 in 1995, 1994
and 1993, respectively.
Note 7. Lease Commitments and Total Rental Expense
The Company rents equipment under various operating lease agreements. The
total minimum rental commitments at December 31, 1995 under the agreements
are $33,000 which is due as follows:
<TABLE>
<CAPTION>
During the year ending
December 31:
<S> <C>
1996 $ 15,000
1997 15,000
1998 3,000
1999 -
---------
$ 33,000
=========
</TABLE>
The total equipment rental expense included in the Statements of Operations
for the years ended December 31, 1995, 1994 and 1993 is $198,000, $76,000
and $91,000 respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Note 8. Financial Information Relating to Industry Segments
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales to unaffiliated customers:
Oil and gas industry $ 196,000 $ 171,000 $ 130,000
Environmental testing and
management industry 3,097,000 2,424,000 2,472,000
----------- ----------- ------------
$ 3,293,000 $ 2,595,000 $ 2,602,000
=========== ============ ============
Discontinued operations $ 28,000 $ 1,841,000 $ 2,266,000
=========== ============ ============
Operating profit or (loss):
Oil and gas industry $ (46,000) $ 44,000 $ (36,000)
Environmental testing and
management industry 323,000 (23,000) 72,000
Unallocated Corporate expenses (192,000) (213,000) (264,000)
----------- ------------ ------------
$ 85,000 $ (192,000) $ (228,000)
=========== ============ ============
Discontinued operations $ (330,000) $ (510,000) $ (135,000)
=========== ============ ============
Identifiable assets:
Oil and gas industry $ 619,000 $ 505,000 $ 525,000
Environmental testing and
management industry 1,203,000 940,000 815,000
Corporate assets 2,107,000 1,170,000 1,266,000
Discontinued operations 86,000 2,268,000 1,855,000
----------- ------------ ------------
$ 4,015,000 $ 4,883,000 $ 4,461,000
=========== ============ ============
Capital expenditures:
Oil and gas industry $ 189,000 $ 33,000 $ 5,000
Environmental testing and
management industry 214,000 299,000 187,000
Other capital expenditures 7,000 160,000 135,000
Discontinued operations 1,000 19,000 83,000
----------- ------------ ------------
$ 411,000 $ 511,000 $ 410,000
=========== ============ ============
Depreciation, depletion and
amortization:
Oil and gas industry $ 39,000 $ 19,000 $ 18,000
Environmental testing and
management industry 98,000 97,000 121,000
Other depreciation, depletion
and amortization 57,000 60,000 60,000
----------- ------------ ------------
$ 194,000 $ 176,000 $ 199,000
=========== ============ ============
Discontinued operations $ 61,000 $ 156,000 $ 154,000
=========== ============ ============
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 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.
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable $ 130,000
Inventory 293,000
Other current assets 205,000
Property and equipment 20,000
Book masters and copyright 50,000
----------
Total assets $ 698,000
==========
</TABLE>
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 anticipated final disposal date has been extended to September
30, 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 is approximately May 15,
1995. The assets of the printing products segment to be sold as an
operating unit, consist 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
environmental 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. Accordingly, the accompanying consolidated statements of
operations for 1995 includes the additional loss.
Net assets to be disposed of for the discontinued segments on the balance
sheets at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <S>
Accounts receivable $ 15,000 $ 212,000
Inventory 37,000 132,000
Other current assets 1,000 2,000
Property and equipment 2,000 608,000
---------- ----------
Total assets $ 55,000 $ 954,000
========== ==========
</TABLE>
Assets are shown at their expected net realizable values.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1995, 1994, and 1993 were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Publishing $ 14,000 $ 1,533,000 $ 1,816,000
Navigational products 92,000 176,000 330,000
Printing 81,000 128,000 105,000
Environmental assembly - 4,000 15,000
------------ ------------ ------------
$ 187,000 $ 1,841,000 $ 2,266,000
============ ============ ============
</TABLE>
These amounts are not included in net sales in the accompanying
consolidated statements of operations.
Note 13. Short-term Investments
Short-term investments consisted of treasury bills and certificates of
deposits which are intended to be held until maturity. The following
schedule summarizes investment activity for the years ended December 31,
1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Beginning balance, at cost $ - $ -
Purchase of investments 1,550,000 -
Redemption of investments (750,000) -
Earnings on investments 7,000 -
------------ -------------
Ending balance, at cost $ 807,000 $ -
============ =============
Approximate market value $ 807,000 $ -
============ =============
At December 31, 1995 the investments are
scheduled to mature as follows:
Year ended December 31, 1996 $ 807,000
============
</TABLE>
Note 14. Major Customers
The following companies are considered major customers which accounted for
ten percent or more of total revenues in 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Percentage Service
---------- -------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C> <C>
Newmont Gold 23% - - Environmental
testing
Dames and Moore 10% - - Environmental
testing
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Note Receivable
The note receivable on December 31, 1995, consisted of $49,000 due from
the sale of printing equipment, building and other assets, part of which
is shown in current assets. The note receivable is secured by above
assets. The note has an interest rate of 9%.
<TABLE>
<CAPTION>
Maturities on this note are as follows:
<S> <S>
1996 $ 3,000
1997 4,000
1998 4,000
1999 4,000
2000 5,000
Thereafter 29,000
-----------
$ 49,000
===========
</TABLE>
HOCKER, LOVELETT, HARGENS & YENNIE, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Hawks Industries, Inc.
Casper, Wyoming
In connection with our audits of the consolidated financial statements of Hawks
Industries, Inc. as of December 31, 1995 and 1994 and for the years ended
December 31, 1995, 1994 and 1993, which report thereon dated February 20, 1996
is incorporated by reference in this annual report on Form 10-K, we also audited
the financial statement schedules listed in the accompanying index at Item
14(a)(2) as of and for the years ended December 31, 1995, 1994 and 1993. In our
opinion these financial statement schedules present fairly, when read in
conjunction with the related consolidated financial statements, the financial
data required to be set forth therein.
/s/ Hocker, Lovelett, Hargens & Yennie, P.C.
Casper, Wyoming
February 20, 1996
<TABLE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY AND EQUIPMENT
<CAPTION>
Balance At Impairments, Other Balance at
Beginning Additions Retirements and End of
Classification Of Period At Cost And Sales Transfers Period
- -------------- --------- ------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Nonproducing oil and gas
properties $ 70,000 $ - $ (37,000)$ (2,000) $ 31,000
Producing oil and gas properties 1,178,000 189,000 - 2,000 1,369,000
Furniture and fixtures 267,000 30,000 (98,000) 117,000 316,000
Transportation equipment 233,000 61,000 (18,000) - 276,000
Buildings and lsehold. imp. 887,000 6,000 (87,000) 7,000 813,000
Engineering and lab equip. 946,000 124,000 (94,000) - 976,000
Other 121,000 - (10,000) 13,000 124,000
Discontinued operations 1,242,000 1,000 (1,098,000) (137,000) 8,000
-------------- ------------- --------------- ------------ --------------
$ 4,944,000 $ 411,000 $ (1,442,000)$ - $ 3,913,000
============== ============= =============== =========== ==============
Year ended December 31, 1994:
Nonproducing oil and gas
properties $ 104,000 $ - $ (34,000)$ - $ 70,000
Producing oil and gas
properties 1,155,000 33,000 (10,000) - 1,178,000
Furniture and fixtures 257,000 12,000 (2,000) - 267,000
Transportation equipment 214,000 46,000 (27,000) - 233,000
Buildings and lsehold. imp. 697,000 190,000 - - 887,000
Engineering and lab equip. 747,000 191,000 - 8,000 946,000
Other 155,000 20,000 (54,000) - 121,000
Discontinued operations 1,298,000 19,000 (67,000) (8,000) 1,242,000
-------------- ------------- --------------- ------------ --------------
$ 4,627,000 $ 511,000 $ (194,000)$ - $ 4,944,000
============== ============= ============================ ==============
Year ended December 31, 1993:
Nonproducing oil and gas
properties $ 139,000 $ - $ (35,000)$ - $ 104,000
Producing oil and gas properties 1,150,000 5,000 - -
Furniture and fixtures 244,000 10,000 - 3,000 257,000
Transportation equipment 170,000 44,000 - - 214,000
Buildings and lsehold. imp. 585,000 112,000 - - 697,000
Engineering and lab equip. 644,000 106,000 - (3,000) 747,000
Other 146,000 24,000 (15,000) - 155,000
Discontinued operations 1,194,000 109,000 (5,000) - 1,298,000
-------------- ------------- --------------- ------------ --------------
$ 4,272,000 $ 410,000 $ (55,000)$ - $ 4,627,000
============== ============= =============== ============ ==============
</TABLE>
Depreciation and depletion are provided by the following methods:
Producing properties - unit-of-production
Furniture and fixtures - straight-line
Transportation equipment - straight-line and declining balance
Building and leasehold improvements - straight-line
Machinery and equipment - straight-line
Engineering and lab equipment - straight line and declining balance
<TABLE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPLETION AND DEPRECIATION
<CAPTION>
Balance At Charges Balance At
Beginning To Retirements End Of
Classification Of Period Expenses And Sales Other Period
- -------------- --------- -------- --------- ----- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Producing oil and gas
properties $ 743,000 $ 39,000 $ - $ - $ 782,000
Furniture and fixtures 232,000 13,000 (95,000) 44,000 194,000
Transportation equipment 160,000 25,000 (16,000) - 169,000
Buildings and lsehold. imp. 165,000 27,000 (14,000) - 178,000
Engineering and lab equip. 600,000 66,000 (12,000) - 654,000
Other 5,000 1,000 - 9,000 15,000
Discontinued operations 634,000 76,000 (651,000) (53,000) 6,000
------------ ----------- ------------ ---------- -----------
$ 2,539,000 $ 247,000 $ (788,000) $ - $ 1,998,000
============ =========== ============ ========== ============
Year ended December 31, 1994:
Producing oil and gas
properties $ 734,000 $ 19,000 $ (10,000) $ - $ 743,000
Furniture and fixtures 225,000 8,000 (1,000) - 232,000
Transportation equipment 163,000 21,000 (24,000) - 160,000
Buildings and lsehold. imp. 139,000 25,000 1,000 - 165,000
Engineering and lab equip. 524,000 75,000 1,000 - 600,000
Other 59,000 - (54,000) - 5,000
Discontinued operations 539,000 116,000 (21,000) - 634,000
------------ ----------- ------------ ---------- ------------
$ 2,383,000 $ 264,000 $ (108,000) $ - $ 2,539,000
============ =========== ============ ========== ============
Year ended December 31, 1993:
Producing oil and gas
properties $ 716,000 $ 18,000 $ - $ - $ 734,000
Furniture and fixtures 212,000 11,000 - 2,000 225,000
Transportation equipment 142,000 21,000 - - 163,000
Buildings and lsehold. imp. 118,000 21,000 - - 139,000
Engineering and lab equip. 418,000 99,000 - 7,000 524,000
Other 73,000 2,000 (16,000) - 59,000
Discontinued operations 432,000 113,000 (6,000) - 539,000
------------ ----------- ------------ ---------- ------------
$ 2,111,000 $ 285,000 $ (22,000) $ 9,000 $ 2,383,000
============ =========== ============ ========== ============
</TABLE>
Depreciation and depletion are provided by the following methods:
Producing properties - unit-of-production
Furniture and fixtures - straight-line
Transportation equipment - straight-line and declining balance
Buildings and leasehold improvements - straight-line
Machinery and equipment - straight-line
Engineering and lab equipment - straight line and declining balance
<TABLE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<CAPTION>
Balance At Charged Charged Balance At
Beginning To To Other End Of
Classification Of Period Expense Accounts Deduction Period
- -------------- --------- ------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for impairments,
nonproducing oil and gas
properties $ 21,000 $ 37,000 $ 15,000 $ - $ 43,000
Allowance for doubtful accounts
receivable - - - - -
Year ended December 31, 1994
Allowance for impairments,
nonproducing oil and gas
properties $ 4,000 $ 34,000 $ 17,000 $ - $ 21,000
Allowance for doubtful accounts
receivable - - - - -
Year ended December 31, 1993:
Allowance for impairments,
nonproducing oil and gas
properties $ 22,000 $ 34,000 $ 52,000 $ - $ 4,000
Allowance for doubtful accounts
receivable - - - - -
</TABLE>
<TABLE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
<CAPTION>
Weighted
Maximum Average Average
Weighted Amount Amount Interest
Balance Average Outstanding Outstanding Rate
At End Interest During The During The During The
Short-Term Borrowings Of Period Rate (A) Period Period (B) Period (C)
- --------------------- --------- -------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
bank $ 230,000 8.41% $ 300,000 $ 203,000 6.83%
Year ended December 31, 1994
bank $ 157,000 8.85% $ 592,000 $ 492,000 8.95%
Year ended December 31, 1993,
bank $ 369,000 8.00% $ 465,000 $ 346,000 7.78%
</TABLE>
(A) Weighted average interest rate is computed by adding the interest rates for
each loan and dividing by the number of loans outstanding.
(B) Average amount outstanding during the period is computed by dividing the
total of the month-end balances by twelve.
(C) Weighted average interest rate during the year is computed by dividing the
actual short-term interest expense by the average short-term balance
outstanding during the year.
<TABLE>
SCHEDULE X - SUPPLEMENTARY
INCOME STATEMENT INFORMATION
<CAPTION>
Item
----
<S> <C> <C>
For the year ended December 31, 1995:
Maintenance and repairs $ 89,000
==========
Taxes other than income taxes:
Production taxes $ 10,000
Payroll taxes 132,000
Property taxes 8,000
Other 18,000 $ 168,000
--------- ==========
For the year ended December 31, 1994:
Maintenance and repairs $ 120,000
==========
Taxes other than income taxes:
Production taxes $ 12,000
Payroll taxes 156,000
Property taxes 11,000
Other 19,000 $ 198,000
--------- ==========
For the year ended December 31, 1993:
Maintenance and repairs $ 151,000
==========
Taxes other than income taxes:
Production taxes $ 8,000
Payroll taxes 163,000
Property taxes 4,000
Other 18,000 $ 193,000
--------- ==========
</TABLE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
-NONE-
PART III
The information called for by Items 10, 11, 12, and 13 is incorporated by
reference from the Company's Definitive Proxy Materials to be filed pursuant to
Regulation 14 A.
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
(a) The following documents are filed as part of this Report:
1. Financial Statements:
Report of Certified Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedules and Exhibits
required to be filed by Item 8 of this form and by paragraph (d) of this
Item:
Report of Certified Public Accountants on Schedules
Schedule V - Property and Equipment
Schedule VI - Accumulated Depletion and Depreciation
Schedule VIII - Valuation and Qualifying Accounts and Reserves
Schedule IX - Short-Term Borrowings
Schedule X - Supplementary Income Statement Information
(b) Reports on Form 8-K
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) 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.
Joseph J. McQuade, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf and in the capacities
and on the dates indicated.
Signatures Date
- ---------- ----
Joseph J. McQuade March 26, 1996
- ----------------------------------------------
Joseph J. McQuade, President,
Principal Executive Officer
and Director
Bill Ukele March 26, 1996
- ----------------------------------------------
Bill Ukele
Chief Financial Officer
Dwight B. Despain March 26, 1996
- ----------------------------------------------
Dwight B. Despain
Director
James E. Meador, Jr. March 26, 1996
- ----------------------------------------------
James E. Meador, Jr.
Director
Bruce A. Hinchey March 26, 1996
- ----------------------------------------------
Bruce A. Hinchey
Director
Gerald E. Moyle March 26, 1996
- ----------------------------------------------
Gerald E. Moyle
Director
HOCKER, LOVELETT, HARGENS & YENNIE, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
EXHIBIT 18.0
LETTER REGARDING CHANGE IN ACCOUNTING PRINCIPLES
Board of Directors
Hawks Industries, Inc.
Casper, Wyoming
Please refer to our Independent Auditors' Report for a description of the
qualification of our opinion based on the financial statements not being
prepared in conformity with generally accepted accounting principles. The
Company has elected to forego application of SFAS 109, "Accounting for Income
Taxes."
/s/ Hocker, Lovelett, Hargens & Yennie, P.C.
Casper, Wyoming
February 20, 1996
EXHIBIT 21.0
LIST OF SUBSIDIARIES OF REGISTRANT
<TABLE>
HAWKS INDUSTRIES, INC. SUBSIDIARIES-STATE OF INCORPORATION
DECEMBER 31, 1995
<CAPTION>
Company Parent State
<S> <C> <C>
Burton-Hawks Exploration Co., Ltd (Hawks Colorado
Ind.)
SanTech, Inc. (IAP, Wyoming
Inc.)
Western Environmental Services Inc. (WEST, Colorado
Inc.)
Western Environmental Services and (Hawks Wyoming
Testing, Inc. Ind.)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 10K for year
ended December 31, 1995 and is qualified in its entirety by reference to such
10K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 197,000
<SECURITIES> 807,000
<RECEIVABLES> 719,000
<ALLOWANCES> 0
<INVENTORY> 37,000
<CURRENT-ASSETS> 1,819,000
<PP&E> 3,913,000
<DEPRECIATION> 1,998,000
<TOTAL-ASSETS> 4,015,000
<CURRENT-LIABILITIES> 530,000
<BONDS> 0
<COMMON> 268,000
0
0
<OTHER-SE> 2,724,000
<TOTAL-LIABILITY-AND-EQUITY> 4,015,000
<SALES> 3,310,000
<TOTAL-REVENUES> 3,293,000
<CGS> 3,208,000
<TOTAL-COSTS> 3,208,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,000
<INCOME-PRETAX> 117,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 117,000
<DISCONTINUED> (330,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (213,000)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
