SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 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)
115 East 57th Street, Suite 1540, New York, New York 10022
(Address of principal executive offices)
Registrant's telephone number, including area code (212) 593-2500
N/A
Former name, former address and former fiscal year, if changes 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 registrants was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at September 30, 2000
Common Stock, $.01 par value 23,328,364
1
<PAGE>
INDEX
PAGE
PART I FINANCIAL INFORMATION
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 4
Consolidated Statements of Operations 5
Nine months and three months ended September 30, 2000
and 1999
Consolidated Statements of Cash Flows 6
Nine months ended September 30, 2000
and 1999
Notes to Consolidated Financial Statements 7-18
Management's Discussion and Analysis of 19-20
Financial Condition and Results
of Operation
PART II OTHER INFORMATION 21
2
<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/A-1 for the year ending December 31, 1999.
This quarterly report contains some forward-looking statements about future
operations and expectations of Hawks Industries, Inc. and its subsidiaries.
Management believes they are reasonable representations of Hawks Industries,
Inc. expected performance at this time. Actual results may vary from
management's stated expectations and projections.
3
<PAGE>
HAWKS INDUSTRIES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 4,730,770 $ 46,915
Accounts receivable 85,537 --
Other current assets 121,365 --
------------ ------------
Total current assets 4,937,672 46,915
------------ ------------
PROPERTY AND EQUIPMENT, net 2,345,951 936,386
------------ ------------
INVESTMENTS AND OTHER ASSETS
Note receivable 30,454 --
Available for sale investment 17,180 11,293
Goodwill, net 381,701 --
Other assets 116,252 5,778
------------ ------------
545,587 17,071
------------ ------------
$ 7,829,210 $ 1,000,372
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,740,150 $ 9,700,426
Accounts payable 595,590 306,802
Accrued liabilities 224,798 20,342
------------ ------------
Total current liabilities 2,560,538 10,027,570
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
MINORITY INTEREST -- --
SHAREHOLDERS' EQUITY Capital stock:
Preferred stock, $.01 par value, authorized 997,000
shares: no shares issued -- --
Common stock, $.01 par value, 50,000,000 shares authorized
23,328,364 and 11,959,375 shares issued
and outstanding 233,283 5,300
Capital in excess of par value of common stock 17,823,290 --
Accumulated deficit (12,787,901) (9,032,498)
------------ ------------
5,268,672 (9,027,198)
------------ ------------
$ 7,829,210 $ 1,000,372
============ ============
</TABLE>
See notes to Consolidated Financial Statements
4
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months and Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenue:
Oil and gas sales $ 14,751 $ -- $ 14,751 $ --
Consulting fees 2,761 -- 14,909 --
------------ ------------ ------------ ------------
17,512 -- 29,660 --
------------ ------------ ------------ ------------
Operating expenses:
Lease operating 110 -- 110 --
Exploration 741,964 481,389 1,356,807 1,974,733
Research and development 142,443 10,460 384,262 10,460
Depreciation, depletion and amortization 51,339 11,603 67,030 26,585
General and administrative 512,629 1,018,457 1,591,503 1,774,034
------------ ------------ ------------ ------------
1,448,485 1,521,909 3,399,712 3,785,812
------------ ------------ ------------ ------------
Operating loss from continuing operations (1,430,973) (1,521,909) (3,370,052) (3,785,812)
Other income (expense):
Other income 5,874 16,013 12,680 16,013
Interest income 44,776 -- 42,507 --
Interest expense (248,807) (127,150) (440,538) (303,426)
------------ ------------ ------------ ------------
Loss from continuing operations before taxes (1,629,130) (1,633,046) (3,755,403) (4,073,225)
Provision for taxes:
Current -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (1,629,130) $ (1,633,046) $ (3,755,403) $ (4,073,225)
============ ============ ============ ============
Weighted average number of
common shares outstanding 17,520,296 11,959,375 13,884,242 11,959,375
Basic and diluted loss per share $ (0.09) $ (0.14) $ (0.27) $ (0.34)
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,755,403) $ (4,073,225)
Add: depreciation and depletion 67,030 26,585
Changes in assets and liabilities:
Accounts receivable (85,537) 42,736
Other current assets (121,365) 3,728
Notes receivable (30,454) --
Other assets (110,474) --
Accounts payable 288,788 (135,020)
Accrued liabilities 204,456 (177,571)
------------ ------------
Cash used in operating activities (3,542,959) (4,312,767)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (1,196,595) (225,079)
Land investment (300,000) (250,000)
Marketable securities - available for sale (5,887) (16,013)
Goodwill (381,701) --
------------ ------------
Cash used in investing activities (1,884,183) (491,092)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable 1,740,150 4,857,897
Sale of stock 8,350,847 3,500
------------ ------------
Cash provided by financing activities 10,090,997 4,861,397
------------ ------------
NET INCREASE IN CASH 4,663,855 57,538
CASH AT BEGINNING OF YEAR 46,915 10,936
------------ ------------
CASH AT END OF PERIOD $ 4,710,770 $ 68,474
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest -- --
Income taxes -- --
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
On August 15, 2000, a transaction (the "Transaction") was effected between Hawks
Industries, Inc. ("HI Inc.") and Universal Equities Consolidated, LLC, David H.
Peipers, The Cornerhouse Limited Partnership and The Winsome Limited Partnership
(collectively referred to as "Buyers"), which resulted in the Buyers securing a
controlling interest in the HI Inc.'s common stock. In the Transaction, the
Buyers acquired 22,171,876 shares, or approximately 95%, of the common stock of
HI Inc., in exchange for $5 million in cash, approximately 85% of the
outstanding shares of North Star Exploration, Inc. ("North Star") and Zeus
Consolidated Holdings, Inc ("Zeus") and the rights to $10.2 million of
indebtedness owed by North Star to the Buyers (a total purchase price valued at
approximately $33,000,000).
The Transaction was accounted for as a reverse acquisition and North Star and
Zeus, previously under common control, were considered the acquirers.
Consequently, the 1,156,489 outstanding shares of HI Inc. on the date of
acquisition were valued at the average trading price of the stock for the period
from two days before until two days after the announcement of the transaction,
or $1.18 per share, resulting in a purchase price of $1,364,657. The purchase
price was allocated $860,829 to oil and gas properties, $122,127 to other
current assets, and $381,701 to goodwill. Goodwill is being amortized over 10
years. The $5 million in cash and the $10.2 million in receivables contributed
by the Buyers, and the purchase price noted above of $1,364,657, resulted in
total additional capital from the Transaction of $16,564,657. Subsequent to the
Transaction, on September 8, 2000, the Buyers also contributed the assets of
Blue Star Sustainable Technologies, Inc. ("Blue Star") with a book value of
$129,089 to the combined company. Because of the previous common ownership of
North Star, Zeus and Blue Star, the historical financial statements presented
herein have been restated as a reorganization of entities under common control
to reflect the operations of North Star, Zeus and Blue Star as if the companies
had been combined for all periods presented. In addition, the statement of
operations for the three-month and the nine-month periods ended September 30,
2000 include the operations for HI Inc. for the period from August 15, 2000
through September 30, 2000. All references to "Hawks" or the "Company" refer to
North Star, Zeus and Blue Star prior to August 15, 2000 and to the three
companies and HI Inc. for the period subsequent to August 15, 2000.
North Star and Zeus, are primarily engaged in acquiring, exploring and
developing certain mineral properties in the State of Alaska. Blue Star is
primarily engaged in developing and deploying innovative energy technology
serving present and future global markets. HI Inc. is primarily engaged in oil
and gas producing activities in Wyoming.
7
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (continued)
PRO FORMA RESULTS OF OPERATIONS
The following table reflects the pro forma results of operations for the
nine-month period ended September 30, 2000 and 1999 as though the Transaction
had occurred as of January 1, 1999. The pro forma amounts are not necessarily
indicative of the results that may be reported in the future.
2000 1999
----------- -----------
Revenues $ 167,819 $ 203,277
Net loss (4,288,030) (4,295,660)
Basic and diluted loss per share (.18) (.18)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principle of Consolidation
The consolidated financial statements include the accounts of the Company and
its three subsidiaries, North Star (89.45% ownership), Zeus (89.47% ownership),
and Blue Star (95% ownership). All significant intercompany balances and
transactions have been eliminated in consolidation. The Company has recorded
100% of the losses attributable to the minority interest owners in North Star,
Zeus and Blue Star, as the cumulative losses for those companies has eliminated
minority interest owners' equity. Accordingly, minority interest has been
reduced to zero in the accompanying consolidated balance sheet.
Cash Equivalents
The Company considers all highly liquid instruments with original maturities of
three months or less to be cash equivalents.
Mineral Rights
Mineral exploration costs are expensed as incurred. When it has been determined
that a mineral property can be economically developed, the costs incurred to
develop the property will be capitalized. Significant payments related to the
acquisition of exploration interests are also capitalized. If a mineable ore
body is discovered, acquisition costs will be amortized using a
units-of-production method. If no mineable ore body is discovered, acquisition
costs will be expensed in the period in which it is determined the property has
no future economic value.
8
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Oil and Gas Properties
The Company uses the successful efforts method of accounting for oil and gas
producing activities as prescribed by Statement of Financial Accounting
Standards ("SFAS") 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.
Long-Lived Assets
The Company evaluates potential impairment of long-lived assets and long-lived
assets to be disposed of in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
SFAS No. 121 establishes procedures for review of recoverability, and
measurement of impairment if necessary, of long-lived assets held and used by
the Company. SFAS No. 121 requires that those assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be fully recoverable. SFAS No. 121 also requires any
long-lived assets to be disposed of to be reported at the lower of the carrying
amount or fair value less estimated selling costs. Fair value is determined
using an estimated future cash flow analysis. An impairment is considered to
exist if total estimated future cash flows on an undiscounted basis is less than
the carrying amount of the asset. An impairment loss is then measured and
recorded based on discounted estimated future cash flows.
Earnings Per Share
The Company uses the weighted average number of shares outstanding in
calculating earnings per share data. When dilutive, options and warrants are
included as share equivalents using the treasury stock method and are included
in the calculation of diluted per share data. Common stock issuable upon
conversion of convertible preferred securities is also included in the
calculation of diluted per share data if their effect is dilutive.
Fair Value of Financial Instruments
The carrying values of the Company's cash and cash equivalents, accounts
receivable, notes payable, accounts payable and accrued liabilities approximate
their estimated fair values due to the short-term maturities of these assets and
liabilities.
9
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Risks and Uncertainties
Mining Activities
The Company is currently exploring for minerals and has yet to exercise any
options to lease prospects. The Company has therefore not produced any revenues
since inception and there can be no assurance that revenues will be generated
during the remainder of fiscal 2000 or during fiscal 2001.
The Company's operations will be significantly affected by the market price of
gold. Gold prices can fluctuate widely and are affected by numerous factors that
are beyond the Company's control. In July 1999, the market price for gold
declined to its lowest level in 20 years. A further sustained period of low gold
prices could have a material adverse effect on the Company's financial position,
results of operations and its ability to raise additional financing.
Energy Technology
The Company is currently researching to develop new approaches for natural gas
utilization and has yet to generate any revenues from this research since
inception. There can be no assurance that revenues will be generated during the
remainder of fiscal 2000 or during fiscal 2001.
Oil and Gas Producing Activities
Historically, the market for oil and natural gas has experienced significant
price fluctuations. Prices for oil and natural gas in the Rocky Mountain region
have been particularly volatile in recent years. The price fluctuations can
result from variations in weather, levels of regional or national production,
availability of transportation capacity to other regions of the country and
various other factors. Increases or decreases in prices received could have a
significant impact on future results.
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.
10
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Unaudited Consolidated Financial Statements
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position of the Company as of
September 30, 2000 and the results of operations and cash flows for the periods
presented. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission's rules and regulations. The results of operations for the
periods presented are not necessarily indicative of the results to be expected
for the full year. Management believes the disclosures made are adequate to
ensure that the information is not misleading, and suggests that these financial
statements be read in conjunction with the Company's December 31, 1999 audited
financial statements.
NOTE 3 - RELATED PARTY ACTIVITY
Advances From Affiliate
Prior to the Transaction, funding for operations of North Star, Zeus and Blue
Star was furnished by Equistar Consolidated Holdings, LLC ("Equistar"). Equistar
is owned by certain shareholders who own approximately 95% of the outstanding
shares of the Company.
At September 30, 2000, and December 31, 1999, the Company had advances from
Equistar totaling $1,544,250 and $9,071,587, respectively. The advances accrue
interest at 7% per annum and are due to be repaid on March 31, 2001.
Accrued interest on the advances totaled $43,275 and $628,839 at September 30,
2000, and December 31, 1999, respectively.
NOTE 4 - INDUSTRY SEGMENTS
Segment information has been prepared in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." Hawks has
three reportable industry segments: mineral resource exploration and mining,
energy resource technology and development and oil and gas producing activities.
The segments are strategic business units which operate in separate industries.
The segment data that follows was prepared on the same basis as Hawks's
consolidated financial statements. As discussed in Note 1, HI Inc. was acquired
in the third quarter of 2000. Accordingly, the segment disclosure presented
includes oil and gas producing activities of the Company for the period from
August 15, 2000 through September 30, 2000.
11
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4-INDUSTRY SEGMENTS (continued)
<TABLE>
<CAPTION>
Quarter Ended September 30, 2000
-----------------------------------------------------
Mineral Energy
Resource Resource
Exploration & Technology & Oil & Consolidated
Mining Development Gas Totals
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenue:
Oil and gas sales $ -- $ -- $ 14,751 $ 14,751
Option payment -- -- -- --
Consulting fees -- 2,761 -- 2,761
----------- ----------- ----------- -----------
-- 2,761 14,751 17,512
Operating expenses:
Lease operating -- -- 110 110
Exploration 741,964 -- -- 741,964
Research and development -- 142,443 -- 142,443
Depreciation and depletion
and amortization 20,636 22,538 8,165 51,339
General and administrative 27,857 392,019 92,753 512,629
----------- ----------- ----------- -----------
790,457 557,000 101,028 1,448,485
----------- ----------- ----------- -----------
Operating loss (790,457) (554,239) (86,277) (1,430,973)
Other income (expense)
Other income 5,874 -- -- 5,874
Interest income -- -- 44,776 44,776
Interest expense (275,133) 26,326 -- (248,807)
----------- ----------- ----------- -----------
Loss from continuing
operations before taxes (1,059,716) (527,913) (41,501) (1,629,130)
Income taxes -- -- -- --
----------- ----------- ----------- -----------
Net loss $(1,059,716) $ (527,913) $ (41,501) $(1,629,130)
=========== =========== =========== ===========
----------- ----------- ----------- -----------
Total assets $ 1,392,717 $ 361,393 $ 6,075,100 $ 7,829,210
=========== =========== =========== ===========
</TABLE>
12
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4-INDUSTRY SEGMENTS (continued)
<TABLE>
<CAPTION>
Quarter Ended September 30, 1999
------------------------------------------
Mineral Energy
Resource Resource
Exploration & Technology & Oil & Consolidated
Mining Development Gas Totals
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenue:
Oil and gas sales $ -- $ -- $ -- $ --
Consulting fees -- -- -- --
----------- ----------- ----------- -----------
-- -- -- --
Operating expenses:
Lease operating -- -- -- --
Exploration 481,389 -- -- 481,389
Research and development -- 10,460 -- 10,460
Depreciation and depletion
and amortization 10,483 1,120 -- 11,603
General and administrative 944,928 73,529 -- 1,018,457
----------- ----------- ----------- -----------
1,436,800 85,109 -- 1,521,909
----------- ----------- ----------- -----------
Operating loss (1,436,800) (85,109) -- (1,521,909)
Other income (expense)
Other income 16,013 -- -- 16,013
Interest income -- -- -- --
Interest expense (125,361) (1,789) -- (127,150)
----------- ----------- ----------- -----------
Loss from continuing
operations before taxes (1,546,148) (86,898) -- (1,633,046)
Income taxes -- -- -- --
----------- ----------- ----------- -----------
Net loss $(1,546,148) $ (86,898) $ -- $(1,633,046)
=========== =========== =========== ===========
----------- ----------- ----------- -----------
Total assets $ 946,104 $ 55,866 $ -- $ 1,001,970
=========== =========== =========== ===========
</TABLE>
13
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4-INDUSTRY SEGMENTS (continued)
<TABLE>
<CAPTION>
Period Ended September 30, 2000
-----------------------------------------------------
Mineral Energy
Resource Resource
Exploration & Technology & Oil & Consolidated
Mining Development Gas Totals
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenue:
Oil and gas sales $ -- $ -- $ 14,751 $ 14,751
Option payment -- -- -- --
Consulting fees -- 14,909 -- 14,909
----------- ----------- ----------- -----------
-- 14,909 14,751 29,660
Operating expenses:
Lease operating -- -- 110 110
Exploration 1,356,807 -- -- 1,356,807
Research and development -- 384,262 -- 384,262
Depreciation and depletion
and amortization 30,955 27,910 8,165 67,030
General and administrative 811,473 687,277 92,753 1,591,503
----------- ----------- ----------- -----------
2,199,235 1,099,449 101,028 3,399,712
----------- ----------- ----------- -----------
Operating loss (2,199,235) (1,084,540) (86,277) (3,370,052)
Other income (expense)
Other income 12,680 -- -- 12,680
Interest income -- -- 42,507 42,507
Interest expense (440,538) -- -- (440,538)
----------- ----------- ----------- -----------
Loss from continuing
operations before taxes (2,627,093) (1,084,540) (43,770) (3,755,403)
Income taxes -- -- -- --
----------- ----------- ----------- -----------
Net loss $(2,627,093) $(1,084,540) $ (43,770) $(3,755,403)
=========== =========== =========== ===========
----------- ----------- ----------- -----------
Total assets $ 1,392,717 $ 361,393 $ 6,075,100 $ 7,829,210
=========== =========== =========== ===========
</TABLE>
14
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4-INDUSTRY SEGMENTS (continued)
<TABLE>
<CAPTION>
Period Ended September 30, 1999
-----------------------------------------------
Mineral Energy
Resource Resource
Exploration & Technology & Oil & Consolidated
Mining Development Gas Totals
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenue:
Oil and gas sales $ -- $ -- $ -- $ --
Consulting fees -- -- -- --
----------- ----------- ----------- -----------
-- -- -- --
Operating expenses:
Lease operating -- -- -- --
Exploration 1,974,733 -- -- 1,974,733
Research and development -- 10,460 -- 10,460
Depreciation and depletion
and amortization 25,161 1,424 -- 26,585
General and administrative 1,658,991 115,043 -- 1,774,034
----------- ----------- ----------- -----------
3,658,885 126,927 -- 3,785,812
----------- ----------- ----------- -----------
Operating loss (3,658,885) (126,927) -- (3,785,812)
Other income (expense)
Other income 16,013 -- -- 16,013
Interest income -- -- -- --
Interest expense (301,613) (1,813) -- (303,426)
----------- ----------- ----------- -----------
Loss from continuing
operations before taxes (3,944,485) (128,740) -- (4,073,225)
Income taxes -- -- -- --
----------- ----------- ----------- -----------
Net loss $(3,944,485) $ (128,740) $ -- $(4,073,225)
=========== =========== =========== ===========
----------- ----------- ----------- -----------
Total assets $ 946,105 $ 58,866 $ -- $ 1,004,971
=========== =========== =========== ===========
</TABLE>
15
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - COMMITMENTS AND CONTINGENCIES:
Doyon Agreement
On May 27, 1997, the Company entered into an Option Agreement (the "Agreement")
with Doyon, Limited ("Doyon") with respect to certain lands in Alaska. The
Agreement provides the Company with the exclusive right to explore for minerals
until January 1, 2002, to lease prospects identified thereon, and to develop and
produce minerals pursuant to such leases. The optioned lands encompass
approximately seven million acres comprised of 24 individually named blocks,
plus additional rights to surrounding lands within areas of interest. The
Agreement requires the Company to spend $9 million over the life of the
Agreement, with minimum commitments per year and with specific minimum
expenditures per block. Exploration expenditures in excess of the minimum amount
may be carried forward and credited to expenditure requirements for future years
with certain limitations. As of September 30, 2000, the Company had spent
approximately $6.8 million of the $9 million required to be spent over the life
of the agreement.
At any time during the agreement term, the Company may, if it has conducted a
specified minimum amount of drilling, made a specified minimum amount of
exploration expenditures and received a positive pre-feasibility study with
respect to a particular mineral area, exercise its option to lease that area for
mineral development for a specified initial term. If the Company achieves
commercial production during the initial term, the lease will continue so long
as there is commercial production. The Company may obtain leases on an unlimited
number of areas currently owned by Doyon, and on areas from lands selected by
Doyon pursuant to the Alaska Native Claims Settlement Act, but not yet conveyed
to Doyon.
Each mining lease will provide for an annual payment to Doyon commencing upon
the execution of the lease of a specified amount per acre leased, but not less
than a specified annual minimum total, until a feasibility study is delivered to
Doyon. If a feasibility study is not delivered to Doyon before the fifth
anniversary of the execution of the lease, the annual per acre and minimum total
amounts increase. The Company must also incur minimum expenditures until the
feasibility study is delivered to Doyon. Starting on the date of submittal of a
feasibility study, North Star is required to pay Doyon a yearly advance royalty,
which is larger than the annual minimum total that was payable prior to
feasibility, and which is recoupable out of 50% of future royalties. From
commencement of commercial production until payback, the Company is required to
pay Doyon the larger of a specified percentage royalty of net Smelter returns or
a specified percentage of net profits, until payback, and the larger of an
increased percentage royalty of net Smelter returns or an increased percentage
of net profits, after payback. Doyon reserves the right to buy a fractional
portion of the equity in a project after deliverance of a positive feasibility
study.
16
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - COMMITMENTS AND CONTINGENCIES (continued)
The Company was not in technical compliance with several provisions of the
Agreement as of December 31, 1999. However, the Company received a waiver from
Doyon regarding these variances through June 30, 2000. Correction of certain of
those variances was accomplished prior to June 30, 2000, and negotiations are
under way for a further waiver or modification of the remaining ones, pending
which Doyon has refrained from giving any notice that would shorten or commence
the running of any period for their correction.
At September 30, 2000 the Company's required exploration expenditures under the
Agreement, were $300,000 for the remainder of 2000 and $2,000,000 for 2001.
In accordance with the Agreement the Company is required to make annual lease
maintenance payments of $31,500 for the period from September 1, 2000 to August
31, 2001.
Argonne National Laboratory Contract
Blue Star has entered into a contract with Argonne National Laboratory
("Argonne"). The Company is to receive $49,754 over a one-year period beginning
February 1, 2000 and ending January 31, 2001. The objective of this contract is
to augment the expertise of Argonne in providing technical support to the
Department of Energy program managers for fuel cells in transportation
technology development.
Environmental Compliance
The Company's management believes that it is in compliance with environmental
laws and regulations as currently enacted. The Company's management has filed
all necessary permits to fulfill current environmental compliance requirements.
However, the exact nature of environmental compliance, which the Company may be
exposed to in the future, cannot be predicted. This is primarily due to the
increasing number, complexity and changing character of environmental
requirements that may be enacted by federal and state authorities. Provisions
for reclamation will be made when mining begins.
NOTE 6 - AVAILABLE FOR SALE INVESTMENT
An agreement granting International Bravo Resource Corp. ("Bravo") an option to
acquire a 51 percent interest in certain properties held by Zeus was terminated
on August 31, 2000. Under the provisions of the agreement, Bravo owes Zeus
$53,332 for reimbursement of certain expenses, and is still obligated to
transfer to Zeus 150,000 shares of Bravo stock, which is traded on the Canadian
Venture Exchange. Zeus has offered to accept payment of the $53,332 in stock in
lieu of cash, and Bravo has indicated willingness to make payment in that form
at a deemed price of $0.16 per share, but has requested an option to buy the
stock back at the same price (together with 150,000 additional shares that have
previously been issued to Zeus under the agreement) at any time prior to October
31, 2001. Zeus has declined to grant Bravo that option, and the matter has not
yet been concluded.
17
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2000 and December 31, 1999 consist of
the following:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Unproved oil and gas properties $ 14,579 $ --
Proved oil and gas properties 846,250 --
Mining lease rights 950,000 650,000
Furniture and fixtures 650,621 334,855
2,461,450 984,855
Less: accumulated depreciation
and depletion 115,499 48,469
---------- ----------
$2,345,951 $ 936,386
========== ==========
</TABLE>
NOTE 8 - NOTES PAYABLE
Notes payable at September 30, 2000 and December 31, 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Revolving line of credit $155,000;
interest at Citibank Prime plus 3/4%
(10.25% at September 30, 2000) maturing
December 16, 2000, collatteralized
by oil and gas properties $ 152,625 $ --
Due to affiliate - Equistar Consolidated
Holdings LLC (includes accrued interest of
$43,275 for September 30, 2000 and
$628,839 for December 31, 1999) 1,587,525 9,700,426
---------- ----------
$1,740,150 $9,700,426
========== ==========
</TABLE>
18
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition And Results Of Operations.
At the date of the issuer's most recent interim balance sheet there are
material changes in the issuer's financial condition from the end of the
preceding fiscal year primarily as a result of the closing, during the most
recent fiscal quarter, of the proposed private placement referred to in Notes 5
and 7 to the financial statements contained in the issuer's previous quarterly
report on Form 10-Q for the quarter ended June 30, 2000. In that private
placement, a group of investors acquired 22,171,876 shares of the issuer,
constituting approximately 95 percent of its outstanding shares, in exchange for
assets valued at $33,000,000 consisting of $5,000,000 in cash, over 85 percent
of the outstanding shares of two companies controlled by the buyers, and an
assignment of indebtedness owed by one of those companies to the buyers. After
the acquisition, the buyers contributed to the capital of the issuer 95 percent
of the outstanding shares of a third company controlled by the buyers.
Under generally accepted accounting principles, the transaction is required
to be treated for financial reporting purposes as though the three companies had
acquired 95 percent of the outstanding shares of the issuer so that, for
purposes of this report and discussion, the assets of those three companies
together with those of the issuer as of their most recent interim balance sheet
are required to be compared with the assets of those three companies as of the
end of the preceding fiscal year. Similarly, the results of the operations of
those three companies, together with the results of the operations of the issuer
after the date of the private placement, for the most recent fiscal year-to-date
period and the most recent fiscal quarter are required to be compared with the
results of the operations of those three companies for the corresponding fiscal
year-to-date period of the preceding fiscal year and the corresponding fiscal
quarter of the preceding fiscal year.
Making the above comparisons, the net assets of the three companies
together with those of the issuer in their most recent interim balance sheet
showed an increase of $14,295,870 over the net assets of the three companies as
of the end of the preceding fiscal year, comprised of an increase of $6,828,838
in assets and a decrease of $7,467,032 in liabilities. The increase in assets
was primarily due to the infusion of the $5,000,000 paid in by the buyers
pursuant to the private placement. The decrease in liabilities was primarily due
to the elimination in consolidation for financial reporting purposes, because
the debtor corporation became a more than 80 percent owned subsidiary of the
issuer, of the assigned indebtedness from the corporation formerly controlled by
the buyers.
The decrease in net loss to $3,755,403 reported by the three companies and
the issuer (limited in the case of the issuer to the results of its operations
after the date of the private placement) for the most recent fiscal
year-to-date, as compared with the net loss of $4,073,225 reported by the three
companies for the corresponding interim period of the previous fiscal year, was
primarily the result of decreases of $617,926 in exploration expense and
$182,531 in general and administrative expense, which were partially offset by
increases of $373,802 in research and development expense and $94,605 in
interest expense (net of interest income). The net loss of $1,629,130 reported
by the three companies and the issuer (limited in the case of the issuer to the
results of its operations after the date of the private placement) for the most
recent fiscal quarter was not materially different from the net loss of
$1,633,046 reported by the three companies for the corresponding fiscal quarter
of the preceding fiscal year, but the components were different in that there
were increases of $131,983 in research and development expense and $76,881 in
interest expense (net of interest income) that were offset by a decrease of
$505,828 in general and administrative expense.
19
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition And Results Of Operations. (continued)
The issuer's cash position improved from $57,538 at the end of the previous
fiscal year to $4,710,770 at the end of the most recent fiscal year-to-date
period, primarily as a result of the $5,000,000 received in the private
placement. Operating revenues of $29,660 were derived for the current fiscal
year-to-date period and $17,512 for the most recent fiscal quarter, as compared
with no operating revenue for the corresponding periods of the preceding fiscal
year, as a result of the commencement of oil and gas sales and consulting fees.
Operating expenses of $3,399,712 in the current fiscal year-to-date period, as
compared with $3,785,812 in the corresponding period of the preceding fiscal
year, and $1,448,485 in the most recent fiscal quarter, as compared with
$1,521,909 in the corresponding quarter of the preceding fiscal year,
substantially exceeded operating revenues.
20
<PAGE>
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were submitted to the shareholders at a special
meeting held on July 26, 2000 in lieu of the annual meeting:
1. Gerald E. Moyle was elected a director of the issuer. The other
directors whose terms of office continued after the meeting were Bruce A.
Hinchey, James E. Meador, Jr. and Dwight B. Despain.
2. A proposal to increase the authorized number of shares of common stock
of the issuer from five million shares to fifty million shares was approved by a
vote of 489,221 for, 33,011 against and 396,552 abstentions.
3. A proposed private placement of up to 22,171,875 shares of common stock
of the issuer with Universal Equities Consolidated, LLC, David H. Peipers, The
Cornerhouse Limited Partnership and The Winsome Limited Partnership was approved
by a vote of 490,195 for, 34,055 against and 394,534 abstentions.
4. A proposed redemption of common stock through a disposition of assets of
the issuer to principal shareholders Bruce A Hinchey, James E. Meador, Jr. and
the Anne D. Zimmerman Revocable Trust dated November 14, 1991 was approved by a
vote of 488,985 for, 25,164 against and 404,635 abstentions.
5. A proposed change of corporate domicile of the issuer from Wyoming to
Nevada was approved by a vote of 498,413 for, 18,358 opposed and 402,011
abstentions.
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K:
On August 18, 2000 the issuer reported (1) the change in control on August
15, 2000 that resulted from the private placement referred to in Item 2 of this
report, in which 22,171,876 unregistered shares of common stock of the issuer
were acquired by Universal Equities Consolidated, LLC and Thorn Tree Resources,
L.L.C. for assets valued at a total of $33,000,000, and (2) the disposition of
certain assets on August 15, 2000 to Bruce A. Hinchey, James E. Meador, Jr. and
Anne D. Zimmerman Revocable Trust dated November 14, 1991, in exchange for
shares of common stock of the issuer.
On July 6, 2000 the issuer reported an earlier private placement, in which
50,000 unregistered shares of the common stock of the issuer were sold by it to
Universal Equities Consolidated, LLC and Thorn Tree Resources, L.L.C. for cash
in the amount of $350,000 that was paid on June 30, 2000.
21
<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: November 17, 2000 By: /s/ Milton E. Stanson
-------------------------------
Milton E. Stanson
Vice President
Date: November 17, 2000 By: /s/ Rick Turturro
-------------------------------
Rick Turturro
Chief Financial Officer
