SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITITES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2000 Commission File Number: 0-5781
HAWKS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Wyoming 83-0211955
- ---------------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
913 Foster Road, Casper, Wyoming 82601
---------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (307) 234-1593
--------------
N/A
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO_
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at March 31, 2000
----------------------------- -----------------------------
Capital Stock, $.01 par value 1,326,705
<PAGE>
INDEX
-----
PAGE
PART I FINANCIAL INFORMATION 3
Consolidated Balance Sheets
March 31,2000 and December 31, 1999 4
Consolidated Statements of Operations
Three months ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operation 12
PART II OTHER INFORMATION 14
<PAGE>
PART I: FINANCIAL INFORMATION
The accompanying unaudited Consolidated Financial Statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included.
These statements should be read in conjunction with the Financial Statements and
notes thereto included in the Company's Annual Report to Shareholders and Form
10K for the year ending December 31, 1999.
This quarterly report contains some forward-looking statements about future
operations and expectations of Hawks Industries, Inc. and its Subsidiaries.
Management believes they are reasonable representations of Hawks Industries,
Inc. expected performance at this time. Actual results may vary from
Management's stated expectations and projections.
<PAGE>
<TABLE>
<CAPTION>
HAWKS INDUSTRIES. INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash $ 43,000 $ 28,000
Accounts Receivable 264,000 655,000
Short-term investments 200,000 200,000
Cost on uncompleted contracts in excess of related billings 43,000 9,000
Other current assets 77,000 67,000
Total current assets 627,000 959,000
PROPERTY AND EQUIPMENT, net (successful efforts method) 1,659,000 1,672,000
INVESTMENTS AND OTHER ASSETS
Note receivable 29,000 29,000
Land investment 196,000 196,000
Available for sale investment 100,000 100,000
Investment in LLC 224,000 -
Other assets 228,000 261,000
777,000 586,000
$ 3,063,000 $ 3,217,000
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable $ 299,000 $ 283,000
Current maturities of long-term debt 78,000 72,000
Accounts payable 149,000 172,000
Accrued liabilities 54,000 49,000
Total current liabilities 580,000 576,000
LONG-TERM DEBT 359,000 279,000
CONTINGENT LIABILITY (See Note 4) - -
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock, $.01 par value, authorized 997,000
shares: no shares issued - -
Common stock, $.01 par value, authorized 5,000,000 shares
shares issued 1,351,513 in 2000 and 1999 13,000 13,000
Capital in excess of par value of common stock 3,046,000 3,046,000
Retained (deficit) (911,000) (673,000 )
Less Common Stock held in treasury at cost, 24,808
Shares in 2000 and 1999 respectively (24,000) (24,000 )
2,124,000 2,362,000
$ 3,063,000 $ 3,217,000
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2000 and 1999
(Unaudited)
2000 1999
---- ----
<S> <C> <C>
Operating Revenue:
Oil and gas $ 48,000 $ 34,000
Environmental 310,000 712,000
Gain on sale of assets 1,000 -
359,000 746,000
Operating expenses:
Oil and gas 10,000 12,000
Environmental 430,000 527,000
Deprecation, depletion and amortization 50,000 132,000
General and administrative 30,000 32,000
520,000 703,000
Operating Income (Loss) from operations (161,000 ) 43,000
Other income (expense):
Other income 2,000 2,000
Interest Income 3,000 3,000
Interest expense (14,000 ) (14,000 )
Loss from LLC (68,000 ) -
Income (loss) from operations Before Taxes (238,000 ) 34,000
Provision for taxes:
Current - -
Net Income (loss) $ (238,000 ) $ 34,000
Weighted average number of
Common shares outstanding 1,326,705 1,331,949
Income (loss) per common share $ (.18 ) $ .03
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999
(Unaudited)
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Income (loss) from operations $ (238,000 ) $ 34,000
Adjustment to reconcile net income to net cash provided:
Depreciation, depletion and amortization 50,000 132,000
Gain on sale of assets 1,000 -
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable 391,000 (302,000 )
Increase in short-term investments - (3,000 )
Increase in cost in excess of billings and other current
assets (44,000 ) (22,000 )
Decrease (increase) in accounts payable and accrued
expenses (18,000 ) 85,000
Net cash flow provided by (used in) operating activities 142,000 (76,000 )
Cash flows from investing activities:
Purchases of property and equipment (39,000 ) (59,000 )
Proceeds from sale of properties 1,000 -
Decrease in other assets 33,000 1,000
Decrease in notes receivable - 3,000
Increase investment in LLC (224,000 ) -
Net cash flow provided by (used in) investing activities (229,000 ) (55,000 )
Cash flows from financing activities:
Proceeds from debt obligations incurred 166,000 172,000
Reduction of debt obligations (64,000 ) (33,000 )
Purchase of common stock - (59,000 )
Net cash used in financing activities: 102,000 80,000
Increase (Decrease) in cash and cash equivalents 15,000 (51,000 )
Cash and cash equivalents at beginning of year 28,000 60,000
Cash and cash equivalents at end of quarter $ 43,000 $ 9,000
<FN>
See Notes of Consolidated Financial Statements
</TABLE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Property and Equipment
Property and equipment at March 31, 2000 and December 31, 1999 consists of the
following:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Nonproducing oil and gas properties, net of valuation allowance of
$2,000 in 2000 and $2,000 in 1999 $ 14,000 $ 14,000
Producing oil and gas properties 1,657,000 1,656,000
Furniture and fixtures 418,000 417,000
Transportation equipment 202,000 207,000
Building and leasehold improvements 416,000 397,000
Engineering and lab equipment 1,144,000 1,127,000
Other 45,000 45,000
3,896,000 3,863,000
Less accumulated depreciation and depletion 2,237,000 2,191,000
$ 1,659,000 $ 1,672,000
</TABLE>
Note 2. Notes Payable, Long-Term Debt and Pledged Assets
Notes payable at March 31, 2000 and December 31, 1999 are as follow:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Revolving line of credit $155,000 interest at Citibank Prime plus 3/4%, (9.75%
at March 31, 2000) maturing September 16, 2000, collateralized by oil and gas
properties $ 80,000 $ 65,000
Revolving line of credit $200,000, interest at 6.46% maturing April 19, 2000
collateralized by certificate of deposit 140,000 145,000
Short-term note payable due bank, interest at 9.75%, interest, only until March
16, 2000, when it will be converted to long-term debt, collateralized by
building 79,000 73,000
$ 299,000 $ 283,000
</TABLE>
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Notes Payable, Long-Term Debt and Pledged Assets (cont.)
Long-term debt at March 31, 2000 and December 31, 1999 is as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Mortgage notes payable to W.D. Hodges and Jim Ferris Properties, interest
at 9% payable $971 per month until September 17, 2013, collateralized by
building $ 91,000 $ 92,000
Mortgage note payable to bank, interest set at 4% above U.S. Treasury bill
index for one year each June 1st, (8.66% at March 31, 2000), payable
$1,181 per month including interest until April 1, 2009, collateralized
by office building 88,000 90,000
Installment loans payable, due at various times, interest rates from 9.0%
to 9.75% secured by equipment - 50,000
Note payable Wyoming Industrial Development Corporation, interest at
7.33%, payable $3,991 per month including interest until October 5,
2002, collateralized by equipment 110,000 119,000
Note payable Wyoming Industrial Development Corporation, interest at 6.5%,
payable $2,935 per month including interest until March 3, 2005
collateralized by equipment. 148,000 -
437,000 351,000
Less current maturities 78,000 72,000
$ 359,000 $ 279,000
</TABLE>
Aggregate maturities of long-term debt as follow:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 $ 58,000
2001 82,000
2002 77,000
2003 45,000
2204 48,000
Thereafter 127,000
$ 437,000
</TABLE>
Actual cash payment for interest during the periods ended March 31, 2000 and
1999 were $14,000 and $14,000 respectively.
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Financial Information Relating to Industry Segments
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Sales to unaffiliated customers:
Oil and gas industry $ 48,000 $ 34,000
Environmental testing and management industry 311,000 712,000
$ 359,000 $ 746,000
Operating profit (loss):
Oil and gas industry $ 14,000 $ (90,000)
Environmental testing and management industry (149,000 ) 157,000
Unallocated corporate expenses (26,000 ) (24,000)
$ (161,000 ) $ 43,000
Identifiable assets:
Oil and gas industry $ 569,000 $ 667,000
Environmental testing and management industry 1,365,000 1,448,000
Corporate assets 1,129,000 1,141,000
$ 3,063,000 $ 3,256,000
Capital expenditures:
Oil and gas industry $ 1,000 $ -
Environmental testing and management industry 38,000 59,000
$ 39,000 $ 59,000
Depreciation, depletion and amortization:
Oil and gas industry $ 15,000 $ 100,000
Environmental testing and management industry 30,000 28,000
Other depreciation, depletion and amortization 5,000 4,000
$ 50,000 $ 132,000
Interest Income:
Oil and gas industry $ - $ -
Environmental testing and management industry - -
Corporate interest 3,000 3,000
$ 3,000 $ 3,000
Interest Expense:
Oil and gas industry $ 2,000 $ 1,000
Environmental testing and management industry 8,000 8,000
Corporate interest 4,000 5,000
$ 14,000 $ 14,000
</TABLE>
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Significant Events
Effective February 1, 1998, Registrant, Hawks Industries, Inc. and a third party
investor, entered into an agreement with the Company's President, Joseph J.
McQuade, whereby Mr. McQuade and his immediate family's stockholdings were
purchased by a third party investor at $.10 per share ($2.00 post split). The
Company has entered into a severance agreement with Mr. McQuade which includes a
covenant not to compete. Under the terms of the Agreement, the Company will pay
$50,000 per year for four (4) years, payable in semi-monthly installments to
McQuade in exchange for the non-compete provision. Mr. McQuade, effective on
the same date, resigned as President of the Company and Chairman of the Board of
Directors. Mr. Bruce A. Hinchey was elected by the Board of Directors to be
President of the Corporation and James E. Meador, Jr., was selected to be the
new Vice-President. No replacement for Mr. McQuade has been made as of the date
of this report.
The Third party investor, the Anne D. Zimmerman Revocable Trust dated November
14, 1991 (the Trust"), by acquiring Mr. McQuade's and his immediate family's
shares, has 153,167 shares and therefore has acquired 11.5% of the outstanding
shares of the Company. As such, the Trust is deemed to be a controlling person.
The Trustee of the Trust, Anne D. Zimmerman, will not sit on the Company's Board
of Directors, nor will she be an employee or officer of the Company.
Note 5. Write down of impaired oil and gas properties
For the year ended December 31, 1999, the Company recorded impairments of its
producing oil and gas properties in the amount of $95,000. The impairments were
recorded to depreciation, depletion and amortization expense. Using a Company
authorized reserve study, Company determined the fair value of the properties
using discounted future estimated cash flows. Earnings per share were twenty-
seven cents for the year ended December 31, 1999 prior to write down and twenty-
one after the write down. For the quarter ended March 31, 1999, $80,000 of the
$95,000 was taken as depreciation and depletion.
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Change in Control of Company
On June 10, 1999 Hawks Industries, Inc entered into an agreement with Universal
Equities LTD., David H. Piepers, The Cornerhouse Limited Partnership and Winsome
Limited Partnership (Collectively referred to as "Buyers") to secure a
controlling interest in Hawk's Common Stock through a private placement. The
value placed on Hawk's shares in the offer was $1.60 per share for a least
6,250,000 shares of common stock yielding the Company a consideration of
$10,000,000. The offer also included the right to buy an additional 14,375,000
shares at the same price. The maximum consideration to be received by Hawks is
$33,000,000 if all the additional shares are purchased.
The Terms of the offer require a payment of at least $5,000,000 in cash, with
the remainder of the considerations being paid in cash and/or transfer of buyers
rights to a debt obligation from North Star Exploration, Inc ("North Star"),
and/or North Star common stock, and/or Zeus Exploration, Inc. ("Zeus") common
stock. North Star is a private Nevada Corporation with options on mineral
rights covering approximately 7,000,000 acres in Alaska.
The Agreement also requires the redemption of shares in Hawks owned by Bruce A.
Hinchey, James E. Meador, Jr. and the Anne D. Zimmerman Revocable Trust in
exchange for certain assets of the Company.
The Private placement and redemption of shares described above will be subject
to Hawks Shareholders approval at its Annual Meeting in June or July 2000.
As a result of this transaction, the controlling interest in Hawks would be
owned by the Buyer Group which will focus on its mineral claims in Alaska.
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources:
- --------------------------------
During the first quarter of 2000, net cash flow from operating activities
increased to $142,000, compared to a negative $76,000 for 1999. This increase
was due to the collection of accounts receivable from the previous year. The
decrease in accounts receivable was due to decreased sales in the Company's
environmental testing and management segment in the first quarter of 2000. The
sales decrease was caused by a slow down in the customers testing through the
middle of March 2000.
Capital expenditures for the first quarter of 2000 were $39,000 compared to
$59,000 in 1999. During 1999 the Company was acquiring equipment during the
first quarter for a large job that was in process at the time.
Proceeds from debt obligations were $166,000 during the first quarter of 2000,
this was the result of acquiring a 6.5% $150,000 loan from a local lender and
then paying off some higher interest loans the Company had at the time.
The following information is provided for the quarter ended March 31, 2000 and
1999:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Working Capital $ 47,000 $ 253,000
Long-term debt to equity 1:5.9 1:6.3
Cash provided by (utilized by) operations $ 142,000 $ (76,000)
Cash and short-term investments available $ 243,000 $ 214,000
</TABLE>
Results of operations:
- ----------------------
Environmental testing and management:
Environmental testing and management revenues decreased to $310,000 in the first
quarter of 2000 from $712,000 in the first quarter of 1999. This decrease was
the result of a slow down in testing by some of the Company's large clients in
2000 during the months of January and February. During the month of March 2000,
activity started to show signs of improving and all indications appear the
second quarter will be strong. During the first quarter of 1999 the Company had
a major contract, which was awarded again in 2000, with work scheduled to begin
in the second quarter. Environmental testing and management's operating
expenses were 18% less during the first quarter of 2000 compared to the first
quarter of 1999. This decrease was due to less work performed during 2000.
Shown below is a table showing revenue and operating expense for the Company's
environmental testing a management segments:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Sales $ 310,000 $ 712,000
Operating expenses 430,000 527,000
------- -------
$ (120,000) $ 185,000
========= =======
</TABLE>
Oil and gas:
Oil and gas revenues increased by 41% in the quarter ended March 31, 2000
compared to the first quarter of 1999. This increase was entirely due to
<PAGE>
increases in the price for gas and oil from the comparative quarter in 1999. Oil
and gas operating expenditures were also slightly lower (16%) as operators had
not started any repairs and maintenance during the winter months.
Below is a table showing revenues and operating expenses for the quarters ended
December 31, 2000 and 1999 for the Company's oil and gas segment:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Sales $ 48,000 $ 34,000
Operating 10,000 12,000
------ ------
expenses
$ 38,000 $ 22,000
====== ======
</TABLE>
Additional information:
The Company had depreciation, depletion and amortization (DD&A) of $50,000 in
the first quarter of 2000 compared to $132,000 in the first quarter of 1999.
Eighty thousand dollars of the decrease from 1999 was from a write down of
impaired oil and gas properties in the first quarter of 1999 (see Note 5-Write
down of impaired oil and gas properties).
General and administrative costs were lower by $2,000 in the first quarter of
2000 the comparative quarter in 1999 a 6% decline. Interest expense and interest
income were the same for the first quarter of 2000 and 1999.
In late 1999, the Company with another company formed Enviro Test Laboratories
LLC, to provide analytical services for air, soils and water for private,
industrial and government entities. This lab as anticipated showed losses for
the first quarter of 2000. The Company's proportionate share of this loss was
$68,000.
Income taxes:
The Company has significant net operating loss carryforwards, investment tax
credit carryforwards and other carryforward items, and accordingly should not be
liable for ordinary income taxes, regardless of the loss during the first
quarter of 2000.
Overall, total revenues decreased by 52% in 2000 from the comparative quarter in
1999, because of a slowdown in testing period for the environmental testing and
management in the first two months of 2000. Although oil and gas sales were
higher by 41%, this could not compensate for the environmental testing segment.
Total operating expenses were down by 26% as a result of less work in the
environmental testing segment; also reducing cost was the write down of impaired
oil and gas properties. Also increasing the Company's net loss for the period by
$68,000 was the anticipated loss from the newly formed LLC.
<PAGE>
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Items filed on 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAWKS INDUSTRIES, INC.
(Registrant)
Date: May 1, 2000 BY:/s/ Bruce A. Hinchey
--------------------
Bruce A. Hinchey, President and
Chief Executive Officer
Date: May 1, 2000 BY: /s/ Bill Ukele
-------------- ------------
Bill Ukele, Controller and
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 43,000
<SECURITIES> 200,000
<RECEIVABLES> 264,000
<ALLOWANCES> 0
<INVENTORY> 43,000
<CURRENT-ASSETS> 627,000
<PP&E> 3,896,000
<DEPRECIATION> 2,237,000
<TOTAL-ASSETS> 3,063,000
<CURRENT-LIABILITIES> 580,000
<BONDS> 0
0
0
<COMMON> 13,000
<OTHER-SE> 3,046,000
<TOTAL-LIABILITY-AND-EQUITY> 3,063,000
<SALES> 358,000
<TOTAL-REVENUES> 359,000
<CGS> 440,000
<TOTAL-COSTS> 520,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,000
<INCOME-PRETAX> (238,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (238,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (238,000)
<EPS-BASIC> (.18)
<EPS-DILUTED> (.18)
</TABLE>
