SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A-1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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, 1999
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 (IRS 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 3, 2000, was $2,226,000.
As of March 3, 2000, Registrant had 1,326,705 shares of Common Stock, $.01 Par
Value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I.
ITEM 1 - BUSINESS
Forward-Looking Statements
--------------------------
This Form 10-K includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act Of 1933, as amended (the " Securities Act"),
and Section 21E of the Securities Exchange Act Of 1934, as amended ( the
"Exchange Act"). All statements other than statements of historical fact
included in this Form 10-K are forward looking statements. These forward-
looking statements include, without limitations, statements under "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS-Financial Condition, Liquidity and Capital Resources", and notes to
the Financial Statements located elsewhere herein regarding the Company's
financial position and liquidity, the amount of and its ability to make debt
service payments, its strategies, financial instruments, and other matters, are
forward looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the Company's
expectations are disclosed in this Form 10K, including without limitation in
conjunction with the forward-looking statements included in this Form 10-K.
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 four development wells.
The Company does anticipate development drilling on certain coal-bed methane
properties in the near future. 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.
<PAGE>2
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 environmental staff was employed to meet the
increasing demand for the Company's services.
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, the results of operations of IAP have been 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.
In 1996, the Company made a significant investment in undeveloped real estate.
The Company plans to hold this real estate as a long-term investment.
<PAGE>3
In 1999, the Company's principal operations consisted of Oil and Gas and
Environmental Testing and Management.
The following industry segment information 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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Sales to unaffiliated customers:
Oil and gas industry $ 169,000 $ 236,000 $ 333,000
Environmental testing and management industry 2,509,000 2,209,000 1,798,000
$ 2,678,000 $ 2,445,000 $ 2,131,000
Operating profit or (loss):
Oil and gas industry $ (94,000 ) $ 33,000 $ (36,000 )
Environmental testing and management industry 230,000 236,000 (61,000 )
Unallocated Corporate expenses (108,000 ) (151,000 ) (159,000 )
$ 28,000 $ 118,000 $ (256,000 )
Identifiable assets:
Oil and gas industry $ 584,000 $ 750,000 $ 854,000
Environmental testing and management industry 1,290,000 1,127,000 893,000
Corporate assets 1,051,000 1,123,000 1,400,000
$ 2,925,000 $ 3,000,000 $ 3,147,000
Capital expenditures:
Oil and gas industry $ - $ 3,000 $ 92,000
Environmental testing and management industry 222,000 213,000 30,000
Other capital expenditures 72,000 - -
$ 294,000 $ 216,000 $ 122,000
Depreciation, depletion and amortization:
Oil and gas industry $ 183,000 $ 79,000 $ 111,000
Environmental testing and management industry 130,000 116,000 113,000
Other depreciation, depletion and amortization 16,000 23,000 40,000
$ 329,000 $ 218,000 $ 264,000
Interest Income:
Oil and gas industry $ - $ 10,000 $ -
Environmental testing and management industry - - 2,000
Corporate interest 13,000 13,000 18,000
$ 13,000 $ 23,000 $ 20,000
Interest Expense:
Oil and gas industry $ 6,000 5,000 -
Environmental testing and management industry 36,000 36,000 29,000
Corporate Interest 17,000 29,000 43,000
$ 59,000 70,000 72,000
</TABLE>
<PAGE>4
OIL AND GAS
-----------
To the date of this report the Company had participated in the drilling of 315
gross (63.47 net) wells of which 219 gross (39.17 net) have been successful. In
general terms, the Company has ceased its drilling and exploration activity.
The Company plans to participate in drilling certain coal-bed methane wells in
the near future. The Company also has several oil and gas properties in the
Brundage Canyon Field that it will attempt to have drilling completed on where
the Company will have a non-operating 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
Middle East (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 eight 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.
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 that 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.
<PAGE>5
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.
Because 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, 1999, this carryover was $2,159,000.
<PAGE>6
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, 1999 had a net operating loss ("NOL") carryforward
of $7,286,000.
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 2000 and 2012.
ENVIRONMENTAL TESTING AND MANAGMENT
-----------------------------------
Competition
-----------
The Environmental Testing and Management 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, 1997, 1998 and 1999, the
company provided services for customers in 16, 14, and 14 different states
respectively, and one foreign country (Indonesia). 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 addition, the Company also provides industrial hygiene and indoor air quality
evaluations, as well as corrective planning with a full-time professional
certified industrial hygienist on staff.
<PAGE>7
In the area of water waste, the Company performs analysis for virtually all
kinds of discharge of water waste. The company also evaluates 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.
The following companies are considered major customers who accounted for ten
percent or more of total environmental testing and management revenue in 1999,
1998 and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Company Revenue Revenue Revenue
Newmont 2% - 9%
Arthur D. Little 26% - -
Owens 22% 28% 12%
Amoco 7% 8% 10%
Remediation Technologies 3% 16% -
</TABLE>
As noted under competition, the Environmental Testing and Management industry is
highly competitive. There are no relationships between the Company and its
customers. No adverse effects have been noted from the loss of any customers
noted above.
Regulation
----------
The Clean Drinking Water Act mandates certification requirements for
laboratories that 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 (EPA) and Nuclear Regulatory Commission
perform periodic audits in the form of on-site walk throughs at testing
facilities and direct observation of test procedures. In addition, the EPA
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. 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 profit or loss will be recognized on a
contract until such time as the contract is completed. In the environmental
testing business, there is no feasible way to determine the percentage of
completion for many types of contracts.
EMPLOYEES
---------
As of the date of this report, the Company has 23 full-time employees.
(Administration and Accounting 3, Environmental 18 and Corporate Management 2).
All employees are provided with the opportunity to participate in a
comprehensive health and benefits package. All eligible employees participated
in the Company's Employee Stock Ownership Plan until it was dissolved in June
1999. Employees do have the option of participating in the Company's 401 (K)
plan.
None of the employees are represented by a union and the Company believes that
its relationship with its employees is good.
<PAGE>8
ITEM 2 - PROPERTIES
PROPERTIES - REAL ESTATE
------------------------
The Company owns facilities consisting of three separate buildings located on
approximately seven acres.
On March 22, 1994, the Company purchased a 7,600 square foot office building and
3,000 square foot laboratory on 4 acres in an industrial park in Casper. In late
1999, the company added a 4,500 square foot addition to this facility for use in
their environmental testing and management business. This facility will
accommodate the expected growth of the Company's environmental business and now
houses the Corporate oil and gas, environmental testing, and accounting offices.
The Company also owns a 5,000 sq. ft. building in San Marcos, Texas, which
housed all environmental personnel and equipment for the Company's Texas
operations. This building has been listed for sale.
In addition, W.E.S.T. rents office space in Evanston, Wyoming on a month-to-
month basis from a third party.
Management believes that the existing facilities are adequate for current needs.
In late 1996, the Company purchased 33.7 acres of undeveloped commercial real
estate in Casper, Wyoming. The land is adjacent to and fronts Interstate 25 and
is dissected by East Second Street (the main business thoroughfare in Casper).
The land was purchased for less than 18 cents per square foot. There is no
announced timetable for development of the land.
Disclosures of Oil and Gas Producing Activities
-----------------------------------------------
In accordance with FASB Statement No. 69 "Disclosure About Oil and Gas
Activities", the Company presents estimates of oil and gas reserves in order to
assist the reader in making an evaluation of the Company's reserves. Inherent
in the reserve evaluation process are numerous risks associated with attempting
to quantify unknown volumes and unknown costs. The reader is reminded therefore
that the following information is not presented as actual, but rather as
estimates of future expectations. The following reserve information was based on
year-end prices. The reader is reminded that oil and gas prices have fluctuated
since year-end and management foresees further fluctuation, both up and down.
<TABLE>
<CAPTION>
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
(All Activities are in the United States)
DECEMBER 31,
------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Proved oil and gas properties $ 1,525,000 $ 1,655,000 $ 1,659,000
Unproved oil and gas properties 14,000 14,000 29,000
1,539,000 1,669,000 1,688,000
Accumulated depreciation, depletion
and amortization, and valuation
allowances 956,000 903,000 834,000
Net Capitalized costs $ 583,000 $ 766,000 $ 854,000
</TABLE>
<PAGE>9
<TABLE>
<CAPTION>
COST INCURRED IN OIL AND GAS ACQUISITION, EXPLORATION, AND DEVELOPMENT
ACTIVITIES (All Activities are in the United States)
Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Acquisition of properties
Proved $ - $ - $ -
Unproved - - -
Exploration costs - - -
Development costs 1,000 3,000 69,000
$ 1,000 $ 3,000 $ 69,000
</TABLE>
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
(All operations are in the United States)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Oil and gas sales $ 169,000 $ 236,000 $ 322,000
Gain on sale of assets - - 11,000
169,000 236,000 333,000
Expenses:
Production costs 40,000 46,000 129,000
Unsuccessful exploration 3,000 7,000 10,000
Depreciation, depletion valuation
provisions and impairments 183,000 84,000 111,000
226,000 137,000 250,000
(57,000 ) 99,000 83,000
Income Tax - - -
Results of operations from producing
activities (excluding corporate overhead
and interest costs) $ (57,000 ) $ 99,000 $ 83,000
</TABLE>
Change in reserves
The Company has not had reserve(1) reports prepared since 1991, because of the
cost to prepare and oil and gas sales being a minor amount on the Company's
Statements of Operations. When required to prepare a reserve report to present
information as required by FASB 69, the Company authorized a reserve study at
the end of 1999. The study was revised subsequent to the original filing of the
Company's Form 10-K to conform to SEC Rules on price and definition of proved
reserves.
The Company's major Reserves come from the Brundage Canyon Project in Duchesne
County, Utah. The Company is showing 67,000 barrels of oil and 52,000 mcf's gas
on this project of which 31,000 barrels of oil and 28,000 mcf's of gas are
proved undeveloped on a direct effect offset to a producing well. Other reserves
are 203,000 mcf's on the Yellow Creek Deep Prospect in Uinta County, Wyoming,
134,000 mcf's on the Recluse field in Campbell County, Wyoming and 109,000 mcf's
on the Red Eagle Property in Washakie County, Oklahoma
(1) The reserves were determined by an independent consulting geologist as of
December 31, 1999.
<PAGE>10
<TABLE>
<CAPTION>
RESERVE QUANTITY INFORMATION
<PAGE>
(All Reserves are in the United States)
1999 1998 1997
---- ---- ----
Bbls McF Bbls McF Bbls McF
<S> <C> <C> <C> <C> <C> <C>
Proved developed
and undeveloped reserves
(a) (b)
Beginning of year 49,336 478,745 89,508 601,936 100,508 650,936
Revision of previous estimates 32,272 97,365 (31,872) (55,191) - -
Purchase of minerals in place - - - - - -
Extension and discoveries - - - - - -
Production (5,300) (48,000) (8,300) (68,000) (11,000) (49,000)
Sales or exchange of minerals in place - - - - - -
76,308 528,110 49,336 478,745 89,508 601,936
Proved developed reserves:
Beginning of year 49,336 478,745 58,624 573,689 69,624 622,689
End of Year 45,424 500,217 49,336 478,745 58,624 573,689
<FN>
(a) The Company has no oil and gas applicable to long-term supply agreements
with Government or authorities in which the Company acts as producer.
(b) The Company does not file reserve reports with any Federal authority or
agency.
</TABLE>
<TABLE>
<CAPTION>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOW AND CHANGES THEREIN
RELATED TO PROVED OIL AND GAS RESERVES
(All Reserves are in the United States)
Standardized Measure is as follows:
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Future cash flows $ 2,862,000 $ 1,147,000 $ 2,223,000
Future production and development cost (832,000 ) (301,000 ) (542,000 )
Future Income taxes - - -
Future net cash flows 2,030,000 846,000 1,681,000
10% annual discount rate (936,000 ) (421,000 ) (778,000 )
Discounted future net cash flows $ 1,094,000 $ 425,000 $ 903,000
The following are the principal sources of
change in the standardized measure of
discounted future net cash flows:
Balance, beginning of the year $ 425,000 $ 903,000 $ 1,503,000
Sales, net of production cost (129,000 ) (179,000 ) (187,000 )
Net Changes in process and production
costs 269,000 30,000 (494,000 )
Discoveries and purchase of reserves in
place - - -
Development costs incurred - (3,000 ) (69,000 )
Revision of previous quantity estimates 486,000 (416,000 ) -
Accretion of discount 43,000 90,000 150,000
Balance, end of year $ 1,094,000 $ 425,000 $ 903,000
</TABLE>
<PAGE>11
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 follow:
<TABLE>
<CAPTION>
Oil (bbls) Gas (Mcf)
---------- ---------
<S> <C> <C>
1999 5,300 48,000
1998 8,300 68,000
1997 11,000 49,000
</TABLE>
Average Sales Price and Production Costs
----------------------------------------
The following table reflects information concerning each of the last three
fiscal years:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Average sales price per bbl 14.10 $12.03 $18.25
Average sales price per MCF 1.96 1.99 2.30
Average production cost per
net equivalent bbl* 3.30 2.32 6.55
<FN>
* Natural gas has been converted into equivalent bbls using a conversion ratio
of 6:1.
</TABLE>
Productive Wells
----------------
The following table reflects the total gross and net wells, expressed separately
for oil and gas as of December 31, 1999.
Gross Net
----- ---
Oil Gas Oil Gas
21 47 1.23 0.94
Drilling Activity
-----------------
The following reflects the exploratory and development wells drilled for the
past three years.
<TABLE>
<CAPTION>
Exploratory Wells
-----------------
Productive Dry Total Wells
---------- --- -----------
Gross Net Gross Net Gross Net
<S> <C> <C> <C> <C> <C> <C>
1999 0 0 0 0 0 0
1998 0 0 0 0 0 0
1997 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
Development Wells
-----------------
Productive Dry Total Wells
---------- --- -----------
<S> <C> <C> <C> <C> <C> <C>
1999 0 0 0 0 0 0
1998 0 0 0 0 0 0
1997 0 0 0 0 0 0
</TABLE>
The Company has not participated in the drilling of exploratory wells in 1999,
1998 nor 1997. The Company did not participate in drilling any development
wells in 1999, 1998 or 1997.
<PAGE>12
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. Before the commencement of drilling operations,
curative work determined to be appropriate because 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 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
No matters were submitted during the Fourth Quarter of the fiscal year covered
by this report to a vote of security holders.
<PAGE>13
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 and then
restated to reflect the February, 1998, 20 for 1 reverse stock split, are shown
in the following table:
<TABLE>
<CAPTION>
Bid Price
---------
HIGH LOW
---- ---
<S> <C> <C> <C>
1997: First Quarter 3 1/2 3 1/8
Second Quarter 3 1/8 1 1/4
Third Quarter 4 3/8 1 7/8
Fourth Quarter 3 1/8 1 1/4
1998: First Quarter 2 1/2 5/8
Second Quarter 1 5/8 7/8
Third Quarter 1 11/16 1
Fourth Quarter 1 29/32 1 1/8
1999: First Quarter 7/8 7/8
Second Quarter 1 1/2 1 1/2
Third Quarter 1 1/8 1
Fourth Quarter 1 1/8 1 1/32
</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 3, 2000, there were 815 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.
<PAGE>14
ITEM 6 - FINANCIAL DATA
All data as retroactively restated to conform to Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes and APB 17 regarding
amortization of goodwill.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenues from
continuing operations $ 2,678,000 $ 2,445,000 $ 2,131,000 $ 2,146,000 $ 3,293,000
Net income (loss) from
continuing operations (11,000 ) 140,000 (285,000 ) $ (741,000 ) $ 100,000
Net income (loss) (11,000 ) 140,000 (285,000 ) (754,000 ) (284,000)
Income (loss) from continuing
operations per share* (.01 ) .10 (.21 ) (.55 ) .08
Net income (loss per share:) (.01 ) .10 (.21 ) (.56 ) (.21)
Total assets 2,925,000 3,000,000 3,147,000 3,739,000 3,988,000
Long-term debt 279,000 340,000 415,000 445,000 493,000
Shareholders' equity 2,070,000 2,098,000 1,965,000 2,211,000 2,965,000
Dividends declared per share - - - - -
<FN>
* As restated for 20:1 reverse stock split.
</TABLE>
<PAGE>15
ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
-------------------------------
During 1999, management continued to make positive steps to improve the
financial position of the Company. During the first six months of the year the
Company negotiated two large contracts that helped increase total revenues by
$233,000.
The Company through local banks has still been able to use accounts receivable
as collateral for short-term borrowings for current cash demands in its
environmental engineering business. These short-term borrowings, along with a
$200,000 revolving line of credit, has enabled the Company to perform on large
contracts in its environmental engineering segment. At December 31, 1999 the
Company had borrowed $145,000 from the line of credit. The Company still has a
$155,000 line of credit for its oil and gas operations. At December 31, 1999,
the Company had borrowed $65,000 from this line of credit.
During 1999, the Company purchased $294,000 in property and equipment compared
to $216,000 in 1998. Of the $294,000 purchased in 1999, $73,000 was for an
addition to its building located at 913 Foster Road in Natrona County, Wyoming.
This addition was to aid its environmental engineering segment. The remainder
of the additions was mainly for the environmental engineering segment, as the
Company needed additional equipment to handle several large contracts. The
Company also used part of the $294,000 to purchase a computer networking and
accounting system for the Company's offices.
Shown in current liabilities, notes payable, is a $73,000 building loan, which
is in the process of being negotiated into a long-term loan with a local bank.
The Company reduced short and long-term debt by $37,000 during the year;
excluding the building loan the Company would have reduced debt by $110,000.
The Company continues to attempt to sell or lease its facilities in San Marcos,
Texas. The sale of this property would have a significant positive impact on
the Company's liquidity and capital resources.
The Company continues to hold 33.7 acres of undeveloped commercial real estate
outside Casper, Wyoming, which it purchased in late 1996. The land is adjacent
to, and fronts, Interstate 25 and will be bisected by Second Street (the main
business thoroughfare in Casper) if future city expansion continues. The land
was purchased for less than 18 cents per square foot. Business real estate
development has increased at adjoining properties, with major corporations
moving into the area. There is no announced timetable for development of this
land.
The following information is provided for the years ending December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Working Capital $ 157,000 * $ 204,000 *
Long-term debt to equity 1:7.4 1:6.1
Cash provided by operations 297,000 136,000
Cash and short-term investments available 228,000 262,000
<FN>
* $73,000 and $140,000 loan on office building listed as current liability in
1999 and 1998.
</TABLE>
After impairment, Management believes that the carrying value of producing oil
and gas properties is not in excess of the fair value. Carrying value of
producing properties, net of depletion and depreciation, is $584,000. Oil and
gas revenues, net of expenses, were $125,000 for the year before depreciation,
depletion, and impairment. As many of the Company's producing properties are
natural gas properties, with lives in excess of twenty-five years, we believe
the carrying value is fully recoverable.
<PAGE>16
In addition, the Company has carrying value of $14,000 on non-producing
properties, which is net of an allowance for impairment of $2,000. Management
believes, since the majority of the non-producing properties are mineral
interests, the allowance is adequate and the remaining costs in the assets will
be recovered.
Management knows of no environmental assessment problems or of the potential of
any such environmental assessment. All purchased real estate had environmental
studies performed prior to purchase and our environmental laboratory has been
instructed on the appropriate procedures for disposal of various kinds of wastes
(although relatively insignificant in amount). Wastes are tested prior to legal
disposal as part of an environmental assurance program.
Results of operations
---------------------
Environmental revenues increased to $2,499,000 in 1999 from $2,211.000 in 1998
and $1,792,000 in 1997, demonstrating a 13% increase from 1998 and a 39%
increase above 1997. These increases were the result of the Company acquiring
several large clients in 1999 and 1998 while maintaining the Company's regular
clients. Environmental expenses increased from $1,856,000 in 1998 to $2,148,000
in 1999, a 16% increase. This increase was the result of increased costs due to
increased work. Environmental expenses increased by $110,000 from 1997 to 1998.
This was also the result of increased work. Below is a table illustrating net
revenues and operating expenses for the Company's environmental industry:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Sales $ 2,499,000 $ 2,211,000 $ 1,792,000
Operating Expenses 2,148,000 1,856,000 1,746,000
$ 351,000 $ 355,000 $ 46,000
</TABLE>
Oil and gas sales declined from $236,000 in 1998 to $169,000 in 1999. This was a
28% decline between 1998 and 1999. This decline was the result of declining
production largely caused by operator's shutting-in oil and gas wells due to low
oil and gas prices for most of the years of 1998 and 1999. Oil and gas sales
declined from $322,000 in 1997 to $236,000 in 1998. This was a 27% decline.
This decline from 1997 to 1998 was the result of falling prices in 1998 and
flush production from three wells drilled in late 1996, benefitting 1997 sales.
Oil and gas expenses decreased from $53,000 in 1998 to $44,000 in 1999, a 17%
decrease. This was the result of fewer wells being operated due to low oil and
gas prices. Oil and gas expenses also decreased from $139,000 in 1997 to
$53,000 in 1998. This decline was largely due to less maintenance being
performed due to lower prices received for oil during 1998. Below is a table
showing revenues and operating expenses per year for the Company's oil and gas
industry:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Sales $ 169,000 $ 236,000 $ 322,000
Operating Expenses 44,000 53,000 139,000
$ 125,000 $ 183,000 $ 183,000
</TABLE>
Depreciation, depletion and amortization were $329,000 in 1999 compared to
$218,000 in 1998. This was a 57% increase caused by impairments of oil and gas
properties in the amount of $130,000 (see Note 14 write down of impaired oil and
gas properties). Using the provisions of FASB No. 121 " Impairment of Long Lived
Assets", the company decided due to low prices and declining production the
properties were not worth the carrying value on the books. Other than this
impairment, depreciation, depletion, and amortization was fairly stable for the
two years. Depreciation, depletion and amortization was $264,000 in 1997
compared to $218,000 in 1998. This decrease from 1997 to 1998 was a result of a
decline in production from prior years in the Brundage Canyon Field and the sale
of the buildings located at 6WN Road in Natrona County, Wyoming.
<PAGE>17
General and administrative costs decreased from $200,000 in 1998 to $129,000 in
1999; this decrease was caused by certain cost cutting activities such as the
Company decreasing staff and the costs related to those employees. General and
administrative costs declined from $238,000 in 1997 to $200,000 in 1998, which
was also the result of cuts in employees and their related expenses.
Interest expense decreased from $70,000 in 1998 to $59,000 in 1999. This
decrease was the result of lower borrowing base for most of the year and low
interest rates on most of the Company's loans. Also decreasing interest expense
in 1999 was the sale of the Company's properties on 6WN Road in Natrona County,
Wyoming and no longer having the associated notes payable on these properties in
1999. Interest expense was approximately the same for years 1997 and 1998.
Interest income was $13,000 in 1999 compared to $23,000 in 1998. The 1998
interest income was aided by a one time collection of interest on royalties that
were not paid in the period allowed, otherwise interest income would have been
the same. Interest income for 1998 compared to 1997 was $3,000 higher. This as
noted above in 1998, was the result of interest collected on royalties not paid
in the period allowed.
Overall, total revenues increased by 10% during 1999, because of acquiring
several large contracts in the environmental testing and management industry.
This increase more than compensated for the decline in oil and gas prices and
production. Total operating expenses increased by 14%, primarily the result of
higher costs in the environmental testing and management industry, and
impairments in oil and gas properties which more than offset declines in general
and administrative costs and lower operating costs in the oil and gas industry.
Year 2000 Compliance
--------------------
Year 2000 compliance is the ability of computer hardware and software to respond
to the problems posed by the fact that computer programs traditionally have used
two digits rather than four digits to define an applicable year. As a
consequence, any of the Company's computer programs that have date-sensitive
software may recognize a date using the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing interruption of
operations, including temporary inability to perform accounting functions and
delays in the receipt of payments from purchasers of oil and gas production and
environmental testing customers. The company identified and is in the process of
correcting applications. New software systems were fully operational in December
1999. We are also working with our vendors and suppliers to assess their
compliance. Costs to modify such applications remain immaterial to our results
of operations or financial condition. Letters have been accumulated from
significant customers regarding year 2000 compliance. Assurance letters have
also been received from all financial institutions. The relationships with third
parties have been evaluated based on assurances presented. Failure of customers
to be year 2000 compliant may lead to delays in payments and lost revenue to the
Company. Although the Company believes its major customers are year 2000
complaint, there is no assurance that this is the case. In the event of
disruptions caused by failure of customers to be year 2000 compliant, the
Company believes there will be alternative purchases of the Company's production
and the Environmental testing services and the Customer base is diversified over
enough customers to avoid Company hardship.
No problems have been encountered as a result of Year 2000.
<PAGE>18
ITEM 8 - FINANCIAL STATEMENTS
Hawks Industries, Inc. and Subsidiaries
Index to Consolidated Financial Statements
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 25-37
<PAGE>19
------------------------------------------------------------
LOVELETT, HARGENS & SKOGEN, P.C.
------- --------- ------- ------
Certified Public Accountants
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, 1999 and 1998 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the years ended December 31, 1999, 1998 and 1997. 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 more fully described in Note 17, subsequent to the issuance of the Company's
1999 financial statements and our report thereon dated March 2, 2000, we became
aware that those financial statements were prepared using a reserve report which
was incorrect, incorrectly reflected gains and earnings for assets transfer to
an LLC in which the Company has a minority interest, and failed to reflect
amortization of goodwill. Accordingly, the 1999, 1998, and 1997 financial
statements have been restated. In our original report, we expressed an
unqualified opinion on the 1999, 1998, and 1997 financial statements, and our
opinion on the revised statements, as expressed herein, remains unqualified.
In our report dated February 12, 1999, we expressed an opinion that the 1998 and
1997 financial statements did not fairly present financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles because the Company had not provided for recognition of deferred
taxes in accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. As described in Note 4, the Company has changed its
method of accounting for that item and has restated its 1998 and 1997 financial
statements to conform with generally accepted accounting principles.
Accordingly, our present opinion on the 1998 and 1997 financial statements, as
presented herein, is different from that expressed in our previous report.
In our opinion, 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, 1999 and 1998 and the results of their
operations and their cash flows for the years ended December 31, 1999, 1998 and
1997, in conformity with generally accepted accounting principles.
/s/ Lovelett, Hargens & Skogen, P.C.
Casper, Wyoming
March 2, 2000, except as to the third paragraph above
and Note 17, which are as of June 9, 2000
<PAGE>20
<TABLE>
<CAPTION>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
ASSETS 1999 1998
------ ---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 28,000 $ 60,000
Accounts receivable 429,000 425,000
Short-term investments 200,000 202,000
Costs on uncompleted contracts in excess of related billings 9,000 15,000
Other current assets 67,000 64,000
Total current assets 733,000 766,000
PROPERTY AND EQUIPMENT, net
(successful efforts method) 1,673,000 1,703,000
INVESTMENTS AND OTHER ASSETS
Note Receivable 29,000 35,000
Land Investment 196,000 196,000
Available for sale investment 100,000 100,000
Goodwill, net of amortization 128,000 138,000
Equity investment 30,000 -
Other Assets, net 36,000 62,000
519,000 531,000
$ 2,925,000 $ 3,000,000
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable $ 283,000 $ 203,000
Current maturities of long-term debt 72,000 128,000
Accounts payable 172,000 195,000
Accrued liabilities 49,000 36,000
Total current liabilities 576,000 562,000
LONG TERM DEBT 279,000 340,000
CONTINGENT LIABILITY ( See Note 13) - -
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 1999 and 1998 13,000 13,000
Capital in excess of par value of common stock 3,046,000 3,046,000
Retained (deficit) (965,000) (954,000)
Less Common Stock held in treasury at cost, 24,808 and 6,175
shares in 1999 and 1998, respectively (24,000) (7,000)
2,070,000 2,098,000
$ 2,925,000 $ 3,000,000
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>21
<TABLE>
<CAPTION>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating revenue:
Oil and gas $ 169,000 $ 236,000 $ 322,000
Environmental testing and management 2,499,000 2,211,000 1,792,000
Gain (loss) on sale of assets 10,000 (2,000 ) 17,000
2,678,000 2,445,000 2,131,000
Operating expenses:
Oil and gas 44,000 53,000 139,000
Environmental testing and management 2,148,000 1,856,000 1,746,000
Depreciation, depletion and amortization 329,000 218,000 264,000
General and administrative 129,000 200,000 238,000
2,650,000 2,327,000 2,387,000
Operating income (loss) 28,000 118,000 (256,000 )
Other income (expense):
Other income 7,000 21,000 34,000
Interest income 13,000 23,000 20,000
Interest expense (59,000 ) (70,000 ) (72,000 )
Sale of buildings - 48,000 -
Loss (Gain) before taxes (11,000 ) 140,000 (274,000 )
Provision for taxes:
Current - - -
Deferred - - (11,000 )
- - (11,000 )
Net Loss (Income) $ (11,000 ) $ 140,000 $ (285,000 )
Weighted average number of
common shares outstanding 1,314,593 1,351,451 1,351,147
Loss (earnings)per common share $ (.01 ) $ .10 $ (.21 )
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>22
<TABLE>
<CAPTION>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
Accumu-
Capital in lated Common Stock
Common Stock Issued Excess of Earnings Held in Treasury
------------------- ----------------
Shares Amount Par Value (Deficit) Shares Amount
------ ------ --------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997,
As originally reported 1,339,443 $ 13,000 $ 3,007,000 $ (772,000) - $ -
Prior period adjustment - - - (37,000) - -
Balance January 1, 1997,
As restated 1,339,443 $ 13,000 $ 3,007,000 $ (809,000) - $ -
Stock issued to Employee
Stock Ownership Plan Trust 11,967 - 39,000 - - -
Net loss, as restated - - - (285,000) - -
Balance December 31, 1997 1,351,410 13,000 3,046,000 (1,094,000) - -
Purchase of Treasury Stock - - - - 6,175 7,000
Additional Shares issued
in 20 for 1 Reverse Split 103 - - - - -
Net Income, as restated - - - 140,000 - -
Balance December 31, 1998 1,351,513 13,000 3,046,000 (954,000) 6,175 7,000
Purchase of Treasury Stock - - - - 60,000 59,000
Sale of Treasury Stock - - - - (10,000 (10,000)
Transfer to ESOP - - - - (31,367 (32,000)
Net income, as restated - - - (11,000) - -
Balance December 31, 1999 1,351,513 $ 13,000 $ 3,046,000 $ (965,000) 24,808 $ 24,000
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>23
<TABLE>
<CAPTION>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) from operations $ (11,000) $ 140,000 $ (285,000 )
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation, depletion and amortization 199,000 218,000 264,000
Deferred tax adjustment - - 11,000
Net gain on sale of assets (10,000 ) (46,000 ) (17,000 )
Impairment of oil and gas
property 130,000 5,000 6,000
Changes in operating assets and liabilities:
Increase in accounts receivable (4,000 ) (95,000 ) (10,000 )
Decrease (increase) in costs in excess of
billings and other current assets 3,000 (17,000 ) 41,000
Decrease in accounts payable and
accrued expenses (10,000 ) (69,000 ) (158,000 )
Net cash flows provided by (used in) oper. activities 297,000 136,000 (148,000 )
Cash flow from investing activities:
Purchases of property and equipment (294,000 ) (216,000 ) (122,000 )
Proceeds from sale of properties 15,000 358,000 33,000
Decrease (Increase) in other assets 26,000 (42,000 ) (2,000 )
Equity investment (30,000 ) - -
Decrease in land investment - 6,000 -
Decrease in note receivable 6,000 3,000 4,000
Decrease in short-term investments 2,000 3,000 366,000
Net cash (used in) provided by investing activities (275,000 ) 112,000 279,000
Cash flows from financing activities:
Purchases of Treasury Stock (60,000 ) (7,000 ) -
Sale of Treasury Stock 43,000 - -
Proceeds from debt obligations incurred 152,000 137,000 200,000
Reduction of debt obligations (189,000 ) (348,000 ) (349,000 )
Net cash (used in) financing activities (54,000 ) (218,000 ) (149,000 )
(Decrease) increase in cash and cash equivalents (32,000 ) 30,000 (18,000 )
Cash and cash equivalents at beginning of year 60,000 30,000 48,000
Cash and cash equivalents at end of year $ 28,000 $ 60,000 $ 30,000
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>24
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business:
The Company, through its subsidiary, Western Environmental Services and Testing,
Inc. (WEST), acquired in 1992, is engaged in the environmental testing and
management business. WEST's emphasis and area of greatest expertise is in air
quality testing. Professional air quality evaluations are performed to
determine the emissions of pollutants into the atmosphere from industrial
sources. Industrial hygiene, along with indoor air quality for the general
public and private business sectors, is also provided.
The chemical laboratory, with analytical services for air, soils and water is
located at the Casper facility. During 1993, WEST formed a subsidiary, Western
Environmental Services, Inc. to manage environmental remediation and clean-ups.
Due to the decline in the funding of clean-ups nationwide, this subsidiary was
closed in 1999.
The Company provides services to the general public, although most clients are
industrial entities. Fees for services are due upon receipt of invoice and
normally collected within sixty to ninety days.
In December of 1999, through its wholly owned subsidiary, Western Environmental
Services & Testing, Inc., the Company and an outside laboratory, sold lab
equipment to a limited liability company, Enviro Test Laboratories, LLC. This
laboratory was formed to provide analytical services for air, soils and water
for private, industrial, and government entities. The Company will be a member
with a 30% interest in the LLC. At December 31, 1999 the LLC was still in the
formation stage and had no activities.
The Company is also presently engaged in investing in oil and gas producing
properties with an emphasis on non-operating 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 five 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 formed Central Wyoming Properties, Inc. (a wholly owned subsidiary)
in 1996 to acquire real estate investments. The Company, through a joint
venture with outside parties, to date, has acquired an ownership share of one
property. Hawks and Central Wyoming Properties, Inc. have an undivided interest
in the land investment.
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 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. In consolidation, all significant intercompany accounts and
transactions have been eliminated. Enviro Test Laboratories, LLC is being
reported on the equity method.
<PAGE>25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies (continued)
The Company has one wholly owned oil and gas subsidiary, Burton/Hawks
Exploration Co., Ltd.
The Company also owns 100% of W.E.S.T. which provides environmental testing and
management services. W.E.S.T. has one wholly owned subsidiary, Western
Environmental Services, Inc. which managed environmental clean-up projects and
performs site evaluations.
The Company also owns 100% of Central Wyoming Properties, Inc. which has real
estate investments.
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:
The Federal Deposit Insurance Corporation insures up to $100,000 of deposits
maintained at any one financial institution. On December 31, 1999, the Company
had approximately $128,000 in excess of insured levels.
Accounts receivable:
Accounts receivable consist of regular receivables from customers.
Property and equipment:
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. An
allowance for impairment has been established and expense charged for the
estimated impairment of non-producing (unproved) leasehold interests. The
allowance is determined based on future expiration of leases and information
obtained by management regarding possible drilling activity.
In addition, unamortized capital costs of proved oil and gas properties at a
field level are reduced to fair value if the sum of expected undiscounted future
cash flows is less than net book value. In accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", fair value is determined by discounting expected future cash
flows from proved reserves using 10% and 15% discount rates commensurate with
the risks involved.
Buildings and leasehold improvements, furniture and fixtures, transportation
equipment, and engineering and lab equipment are stated at cost and depreciated
over their estimated useful lives ranging from three to forty years principally
by the straight-line method.
<PAGE>26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies (continued)
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.
An average contract takes two weeks to complete. Jobs are billed when complete
with payment usually received within 30 to 60 days. Occasionally contracts
extend longer than two weeks. Contracts are then broken into components and
billed as components are completed.
Income taxes:
As described in Note 4, the Company has retroactively restated the financial
statements for deferred taxes as required by SFAS No. 109, Accounting for Income
Taxes.
Investment tax credits will be reflected in the Statements 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 they have no effect for 1999. On January 8, 1998, at the
Company's Annual meeting, a proposal was submitted to effect a 20 for 1 reverse
stock split which reduced the company's outstanding shares from 27,028,194 to
1,351,513. Therefore, throughout these financial statements, earnings per share
have been restated to reflect the reverse split.
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.
Covenant not to compete:
The covenant not to compete is being amortized over the four year life of the
agreement on the straight-line method.
Goodwill:
Goodwill represents the excess of the cost of a company acquired over the fair
value of its net assets at the date of acquisition and is being amortized by the
straight-line method over 20 years.
<PAGE>27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies (continued)
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, 1999 and 1998, no liabilities have been recorded as the Company
believes they have no such liabilities. In addition, the Company has some
bonding and insurance coverage in place in the event reclamation costs incur in
the future.
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.
Fair value of financial instruments:
The carrying value of cash, receivables and accounts payable approximates fair
value due to the short maturity of these instruments. The carrying value of
short and long-term debt approximates fair value based on discounting the
projected cash flows using market rates available for similar maturities. None
of the financial instruments are held for trading purposes.
The carrying value of the available for sale investment is the guaranteed
redemption price of the 4% preferred stock.
Advertising costs:
The Company expenses advertising costs as incurred. Advertising costs are
deemed immaterial in amount.
Note 2. Property and Equipment
Property and equipment at December 31, 1999 and 1998 consists of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Non-producing oil and gas properties, net of valuation
allowance of $2,000 in 1999 and $2,000 in 1998 $ 14,000 $ 14,000
Producing oil and gas properties 1,525,000 1,655,000
Furniture and fixtures 417,000 369,000
Transportation equipment 207,000 200,000
Buildings and leasehold improvements 397,000 371,000
Engineering and lab equipment 1,127,000 1,258,000
Other 45,000 59,000
3,732,000 3,926,000
Less accumulated depreciation and depletion 2,059,000 2,223,000
$ 1,673,000 $ 1,703,000
</TABLE>
<PAGE>28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Notes Payable, Long-Term Debt and Pledged Assets
<TABLE>
<CAPTION>
Notes payable were as follow at December 31, 1999 and 1998:
1999 1998
---- ----
<S> <C> <C>
Revolving line of credit $155,000, interest at Citibank Prime
plus /%, (9.25% at December 31, 1999) Maturing
September 16, 2000, collateralized by oil and gas properties $ 65,000 $ 65,000
Revolving line of credit $200,000, interest at 6.46%
maturing April 19, 2000 collateralized by certificates of
deposit 145,000 138,000
Short-term note payable due bank, interest at 9.25%, interest,
only until March 16, 2000, when it will be converted to long-
term debt, collateralized by building 73,000 -
$ 283,000 $ 203,000
</TABLE>
<TABLE>
<CAPTION>
Long-term debt at December 31, 1999 and 1998 is as follows:
1999 1998
---- ----
<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 $ 92,000 $ 95,000
Mortgage note payable to bank, interest set at 4% above U.S.
Treasury Bill index for one year each April 1st, (8.66% at
December 31, 1999) payable $1,181 per month including
interest until March 22, 2009, collateralized by office
building 90,000 96,000
Note payable, State of Wyoming, interest at 4%, unsecured - 6,000
Installment loans payable, due at various times from
December 1999 to August 2002, interest rates from 9.0% to
9.75%, secured by equipment 50,000 37,000
Note payable Wyoming Industrial Development Corporation,
interest at 7.33%, payable $3,991 per month including
interest until October 5, 2002, collateralized by equipment 119,000 157,000
Note payable Wyoming Industrial Development Corporation,
interest at 6.96%, collateralized by equipment - 77,000
351,000 468,000
Less current maturities 72,000 128,000
$ 279,000 $ 340,000
</TABLE>
<PAGE>29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Notes Payable, Long-Term Debt and Pledged Assets (continued)
<TABLE>
<CAPTION>
Aggregate maturities of long-term debt are as follow:
<S> <C> <C>
2000 $ 72,000
2001 78,000
2002 52,000
2003 13,000
2004 15,000
Thereafter 121,000
$ 351,000
</TABLE>
Actual cash payments for interest during the years ended December 31, 1999, 1998
and 1997 were $60,000, $70,000 and $72,000 respectively.
Note 4. Income Taxes, Accounting Change, Prior Period Restatement
Under SFAS No.109, "Accounting for Income Taxes" 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.
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax (assets) liabilities were as follow at December 31, 1999,
1998 and 1997:
<TABLE>
<CAPTION>
Tax effects of temporary differences for: 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Accounting for oil & gas properties $ 17,000 $ 54,000 $ 57,000
Total deferred tax liabilities 17,000 54,000 57,000
Tax loss carryforwards (2,477,000 ) (2,896,000 ) (3,514,000 )
Tax credit carryforwards (55,000 ) (62,000 ) (86,000 )
Total deferred tax assets (2,532,000 ) (2,958,000 ) (3,600,000 )
Net deferred asset (2,515,000 ) (2,904,000 ) (3,543,000 )
Asset valuation allowances 2,515,000 2,904,000 3,543,000
Net deferred tax asset $ - $ - $ -
</TABLE>
When subsequently recognized, approximately $1,953,000 of the 1999 deferred tax
assets' tax benefits will be allocated directly to contributed capital as a
result of the Company's quasi reorganization in 1988.
<PAGE>30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Income Taxes, Accounting Change, Prior Period Restatement (continued)
At December 31, 1999, 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 follow:
<TABLE>
<CAPTION>
Net
Operating Investment
Year Ending December 31, Losses Tax Credits
------------------------ ------ -----------
<S> <C> <C>
<PAGE>
2000 $ 1,713,000 $ 12,000
2001 3,767,000 -
2003 101,000 -
2004 96,000 -
2009 265,000 -
2010 359,000 -
2011 744,000 -
2012 241,000 -
$ 7,286,000 $ 12,000
</TABLE>
The Company also has approximately $43,000 in unused jobs tax credits and
$2,159,000 in percentage depletion carryforwards available to offset future
income tax liabilities. These items do not expire.
Note 5 Stockholders' Equity
The Company had an Incentive Stock Option Plan for key employees and had
reserved 50,000 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 ($2.80) 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 2,500 options outstanding and
exercisable at December 31, 1999 and 1998. SFAS No. 123, "Accounting for Stock
Based Compensation", has no effect on the Consolidated Statement of Operations
as there have been no changes in the outstanding options.
The Company had 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 ESOP contribution
provided by the Company and its subsidiaries was $19,000, $19,000, and $8,000 in
1999, 1998 and 1997, respectively. The compensation expense used to compute the
ESOP contribution was $425,000, $806,000, and $901,000 in 1999, 1998 and 1997,
respectively.
On June 30, 1999 the Board of Directors decided to dissolve the Employee Stock
Ownership Plan and Trust and all of the assets of the plan were distributed to
the employees.
On November 9, 1998, the Board of Directors of Hawks Industries, Inc. authorized
the repurchase of up to forty thousand shares of Hawks Industries. Inc. common
stock on the open market or in negotiated transactions, depending upon market
conditions. On February 16, 2000, the Company holds 24,808 shares or 1.7% of the
issued common shares.
<PAGE>31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Related Parties
During 1997, the former CEO, Joseph J. McQuade made multiple personal
transactions at various times on the corporate credit card issued to him. All
transactions were accounted for, and full reimbursement to the Company had been
made as of January 31, 1998. On other occasions CEO, Joseph J. McQuade advanced
funds to the Company for operations. Full reimbursement to Mr. McQuade had been
made as of January 31, 1998.
During 1999, Officer and Board of Director, Dwight B. Despain provided legal
services to the Company. Total billings to the Company from Mr. Despain in 1999
were $4,598. Total payments to Mr. Despain during 1999 were $1,485. Included in
accounts payable is $34,000 payable to Mr. Despain for past years services.
Note 7. Lease Commitments and Total Rental Expense
At times the Company rents equipment under various operating lease agreements,
however at December 31, 1999 there were no outstanding lease agreements.
The total equipment rental expenses included in the Statements of Operations for
the years ended December 31, 1999, 1998 and 1997 were $46,000, $29,000 and
$43,000, respectively.
Note 8. Sales of Buildings
On May 26, 1998, the Company signed an agreement to sell its buildings located
at 7345 6WN Road and 7383 6WN Road in Natrona County, Wyoming to WERCS, a non-
public Wyoming Corporation. As set forth in the agreement, the closing date was
June 1, 1998 and the total sales price for both buildings was $417,000.
The Company's cost in the buildings was $506,000. The Company's basis in the
buildings was $367,000. Therefore, the Company had an approximate $50,000 gain
resulting from the transaction.
The $417,000 was received as $317,000 cash and 10,000 shares WERCS 4% preferred
convertible stock, with a guaranteed resale value of $100,000.
The majority owner of WERCS, a Wyoming Corporation, is Dr. Gail D. Zimmerman
whose spouse, through the Anne D. Zimmerman Revocable Trust, owns 11.5% of the
outstanding shares of Hawks Industries, Inc.
<PAGE>32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Financial Information Relating to Industry Segments
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Sales to unaffiliated customers:
Oil and gas industry $ 169,000 $ 236,000 $ 333,000
Environmental testing and management
industry 2,509,000 2,209,000 1,798,000
$ 2,678,000 $ 2,445,000 $ 2,131,000
Operating profit or (loss):
Oil and gas industry $ (94,000 ) $ 33,000 $ (36,000)
Environmental testing and management
industry 230,000 236,000 (61,000)
Unallocated Corporate expenses (108,000 ) (151,000) (159,000)
$ 28,000 $ 118,000 $ (256,000)
Identifiable assets:
Oil and gas industry $ 584,000 $ 750,000 $ 854,000
Environmental testing and management
industry 1,290,000 1,127,000 893,000
Corporate assets 1,051,000 1,123,000 1,400,000
$ 2,925,000 $ 3,000,000 $ 3,147,000
Capital expenditures:
Oil and gas industry $ - $ 3,000 $ 92,000
Environmental testing and management
industry 222,000 213,000 30,000
Other capital expenditures 72,000 - -
$ 294,000 $ 216,000 $ 122,000
Depreciation, depletion and amortization:
Oil and gas industry $ 183,000 $ 79,000 $ 111,000
Environmental testing and management
industry 130,000 116,000 113,000
Other depreciation, depletion and
amortization 16,000 23,000 40,000
$ 329,000 $ 218,000 $ 264,000
Interest Income:
Oil and gas industry $ - $ 10,000 $ -
Environmental testing and management
industry - - 2,000
Corporate interest 13,000 13,000 18,000
$ 13,000 $ 23,000 $ 20,000
Interest Expense:
Oil and gas industry $ 6,000 $ 5,000 $ -
Environmental testing and management
industry 36,000 36,000 29,000
Corporate Interest 17,000 29,000 43,000
$ 59,000 $ 70,000 $ 72,000
</TABLE>
<PAGE>33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Short-term Investments
Short-term investments consisted of certificates of deposits, which are intended
to be held until maturity. The following schedule summarizes investment
activity for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Beginning balance, at cost $ 202,000 $ 205,000
Purchase of investments - -
Redemption of investments (11,000 ) (12,000 )
Earnings on investments 9,000 9,000
Ending balance, at cost $ 200,000 $ 202,000
Approximate market value $ 200,000 $ 202,000
</TABLE>
At December 31, 1999 the investments are scheduled to mature during the year
ending December 31, 2000.
Note 11. Major Customers
The following companies are considered major customers that accounted for ten
percent or more of total revenue or accounts receivable in 1999, 1998 and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Accounts Accounts Accounts
Company Revenue Receivable Revenue Receivable Revenue Receivable
------- ------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C>
A 2% 1% - 2% 9% -
B 26% - - - - -
C 22% 25% 28% 18% 12% 12%
D 7% 12% 8% 4% 10% 17%
E 3% 1% 16% 22% - -
</TABLE>
<PAGE>34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Note Receivable
The note receivable on December 31, 1999, consisted of $34,000 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 the above noted assets. The
note has an interest rate of 9%.
<TABLE>
<CAPTION>
Maturities on this note are as follow:
<S> <C> <C>
2000 $ 5,000
2001 5,000
2002 6,000
2003 6,000
2004 7,000
Thereafter 5,000
$ 34,000
</TABLE>
Note 13. 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 the 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, the Company's Vice President, was elected by
the Board of Directors to be the President of the Corporation and James E.
Meador, Jr., was elected to be the new Vice-President. No replacement for Mr.
McQuade, on the Board of Directors, 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 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.
Reverse Stock Split
At the Company's Annual Meeting held on January 8, 1998, the Company submitted
to a vote of security holders, through the solicitation of proxies or otherwise,
a proposal to effect a 20 for 1 reverse split which was approved. The reverse
split changed the number of shares outstanding from 27,028,194 to 1,351,513.
Note 14. 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 $130,000. The impairments
were recorded to depreciation, depletion and amortization expense. Using a
Company authorized reserve study; the Company determined the fair value of the
properties using discounted future estimated cash flows. Earnings per share
were ten cents for the year ended December 31, 1999 prior to write down and a
Loss per share of less than one cent after the write down.
<PAGE>35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. 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 Hawks' shares in the offer was $1.60 per share for at 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 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 consideration 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 May or June of 2000.
As a result of this transaction, the controlling interest in Hawks will be owned
by the Buyer Group, which will focus on its mineral claims in Alaska.
Note 16. Supplemental Disclosure
Noncash Financing and Investing Activities As reported in Note 8, in the sale
------------------------------------------
of corporate assets, the Company received 10,000 shares of preferred stock
valued at $100,000.
Other Disclosures The Company paid no income taxes during the years ended
-----------------
December 31, 1999, 1998 and 1997.
Note 17. Subsequent Event, Prior Period Adjustment and Reissuance of Financial
Statements
Subsequent to the issuance of the Company's 1999 financial statements,
management became aware that the reserve report relied upon for the calculation
of depreciation, depletion and impairment of oil and gas properties was not
accurate. As a result to the correction, the combination of depreciation,
depletion, and amortization for 1999 decreased $1,000. Management also restated
the 1999 financial statements to reflect the transfer of the customer list and
equipment to Enviro Test Laboratories, LLC. The transfer was not deemed to be
the culmination of the earnings process and accordingly must be reflected at the
Company's historical basis in said assets The gain on sale of equipment
decreased $76,000 and other income decreased $150,000, with the total $226,000
removed from accounts receivable. The total effect of the corrections was a
decrease in 1999 net income, total assets, and shareholders' equity of $225,000.
Earning per common share were $.17 before the correction and the loss per common
share was less than $.01 after the correction.
<PAGE>36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17. Subsequent Event, Prior Period Adjustment and Reissuance of Financial
Statements (continued)
Also, the Company had not reflected amortization of goodwill relating to the
1993 acquisition. The 1999, 1998, and 1997 financial statements have been
restated to record the annual amortization as well as the decrease in
shareholders' equity as of January 1, 1997 to reflect prior amortization. The
adjustment resulted in an increase in net loss of $10,000 (.01) per share for
1999, decrease in net income of $10,000 (.01) per share for 1998, and increase
in net loss of $10,000 (.01) per share for 1997.
<PAGE>37
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
-NONE-
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS
The following information is furnished as of February 29, 2000, with respect to
the nominee and the other Directors whose terms in office will continue after
the meeting.
<TABLE>
<CAPTION>
Principal Occupation Year Since Share of
During the Last Five Years which Common Stock Percent
and Position with Company Continuously Beneficially of
Name/Age (In Addition to Director) A Director Owned Class
-------- ------------------------- ---------- ----- -----
<S> <C> <C> <C> <C>
Dwight B. Despain/ 46 Appointed as a Class III 1992 2,050 .2
Director August 24, 1992.
Attorney with Dixon &
Despain, Casper, WY since
1990; Warnick & Blood Law
Offices from 1985-1990.
Bruce A. Hinchey/ 51 Appointed as a Class III 1993 115,928(a) 8.7
Director May 12, 1993;
President of Western
Environmental Services and
Testing, Inc. 1981 to 1997.
President of Hawks
Industries, Inc. and Vice-
President of Western
Environmental Services &
Testing, Inc. since 1998.
James E. Meador, Jr./ 47 Appointed as a Class I 1993 120,545(a) 9.1
Director May 12, 1993; Vice
President of Western
Environmental Services and
Testing, Inc. 1981 to 1997.
President of Western
Environmental Services &
Testing, Inc. and Vice-
President of Hawks
Industries, Inc. since 1998.
Gerald M. Moyle/ 45 Appointed as Class II 1994 8 -0-
Director June 30, 1994; Land
Manager of Brown Operating,
Inc. since 1984.
<FN>
(a) Included are 1,675 shares Mr. Meador and Mr. Hinchey own through H & M
Properties.
</TABLE>
<PAGE>38
ITEM 11 - EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
Annual compensation Long term compensation
Awards Payouts
Name and principal Year Salary Bonus Other annual Restricted Securities LTIP All other
position ($) ($) Compensation Stock Under- payouts Compen-
($) Award(s) Lying ($) sation
Option
SARS (#)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CEO-Bruce A. Hinchey 1999 104,000 -0- (a,b) -0- -0- -0- -0-
President and 1998 80,000 -0- (a,b) -0- -0- -0- -0-
Director of Hawks 1997 87,800 -0- (a,b) -0- -0- -0- -0-
Industries, Inc.,
Vice President of
Western Environmental
Services & Testing,
Inc.
James E. Meador, Jr. 1999 103,000 -0- (a,b) -0- -0- -0- -0-
Vice President and 1998 80,000 -0- (a,b) -0- -0- -0- -0-
Director of Hawks 1997 87,800 -0- (a,b) -0- -0- -0- -0-
Industries, Inc.,
President of Western
Environmental
Services & Testing,
Inc.
Joseph J. McQuade 1998 37,320 -0- (a) -0- -0- -0- -0-
President, CEO and 1997 98,280 -0- (a) -0- -0- -0- -0-
Director of Hawks
Industries.
All Executive 1999 207,000 -0- -0- -0- -0- -0-
Officers as a Group 1998 197,320 -0- -0- -0- -0- -0-
(Two in number) 1997 273,880 -0- -0- -0- -0- -0-
(a)
<FN>
(a) Messrs. Hinchey, Meador and McQuade received other compensation valued at
less than 10% of the compensation reported in this table.
(b) Pursuant to employment agreements expiring 2004, Messrs. Hinchey and Meador
would receive a lump sum payment of approximately four years' salary and each
would receive approximately $100,000 in consideration of receiving a reduced
salary in past years if employment should be terminated by the Company without
cause.
</TABLE>
<PAGE>39
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the beneficial ownership of the shares of the Company
as of the close of business on February 29, 2000, of each person known to the
company to be the beneficial owner of more than 5% of the Company's issued and
outstanding Common Stock and of all Officers and Directors as a group. Unless
noted to the contrary, each person or entity has direct ownership and sole
voting dispositive power.
<TABLE>
<CAPTION>
Percent
Of Class
Name and Address Shares Owned Outstanding
<S> <C> <C>
Bruce A Hinchey 115,928 (a) 8.7
913 Foster Road
Casper, Wyoming 82601
James E. Meador, Jr. 120,545 (a) 9.1
913 Foster Road
Casper, Wyoming 82601
Anne D. Zimmerman 153,167 11.5
Revocable Trust
400 East 1st Street
Casper, Wyoming 82601
All Officers and 389,640 29.3
Directors and 5%
Shareholders as a Group
(three in number)
<FN>
(a) Included are 1,675 shares Mr. Meador and Mr. Hinchey own through H & M
Properties.
</TABLE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Transactions:
During 1998, the Company sold its properties on 6WN Road in Natrona County,
Wyoming to WERCS, a Wyoming Corporation. The majority owner of WERCS is Dr.
Gail D. Zimmerman whose spouse, through the Anne D. Zimmerman Revocable Trust,
owns 11.4% of the outstanding stock of Hawks Industries, Inc. (See Note 8 of the
consolidated financial statements).
<PAGE>40
PART IV
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 as required by Item 8 above
The following documents are incorporated by reference:
3. Exhibits
21.List of Subsidiaries of Registrant
3.1a Certificate of Incorporation filed with the Delaware Secretary of
State on December 20, 1988.
3.1b Certificate of Registration and Articles of Continuance filed with
the Wyoming Secretary of State on April 15, 1998.
(b) Reports on Form 8-K
On October 11, 1999, the Company filed an 8K/A-1 providing the public with more
information on the proposed agreement with Universal Equities, LTD., David H.
Peipers, The Cornerhouse Limited Partnership and the Winsome Limited Partnership
which would allow the Buyers to secure a controlling interest in Hawks
Industries, Inc. common stock through a private placement.
<PAGE>41
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.
_/s/ Bruce A. Hinchey____________
---------------------
Bruce A. Hinchey, 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
---------- ----
/s/ Bruce A. Hinchey June 12, 2000
------------------------------
Bruce A. Hinchey, President,
Principal Executive Officer
and Director
/s/ James E. Meador Jr. June 12, 2000
------------------------------
James E. Meador, Jr.
Vice President and Director
/s/ Bill Ukele June 12, 2000
-------------------------
Bill Ukele
Chief Financial Officer
/s/ Dwight B. Despain June 12, 2000
------------------------------
Dwight B. Despain
Secretary/Treasurer and Director
/s/ Gerald E. Moyle June 12, 2000
-------------------------
Gerald E. Moyle
Director
<PAGE>42
EXHIBIT 21.0
LIST OF SUBSIDIARIES OF REGISTRANT
HAWKS INDUSTRIES, INC. SUBSIDIARIES-STATE OF INCORPORATION
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Company Parent State
------- ------ -----
<S> <C> <C>
Burton-Hawks Exploration Co., Ltd. (Hawks Ind.) Colorado
Western Environmental Services Inc. (WEST, Inc.) Colorado
Western Environmental Services and Testing, Inc. (Hawks Ind.) Wyoming
Central Wyoming Properties, Inc. (Hawks Ind.) Wyoming
</TABLE>
<PAGE>43
