<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 30, 1995
-------------------------------------------------
[ ] TRANSITION REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________________ to __________________________
Commission file number 0-18205
-----------------
HAWKINS ENERGY CORPORATION
- - --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Oklahoma 73-1345732
- - --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 South Boston, Suite 800 Tulsa, Oklahoma 74103
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
918-587-5815
- - --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
Number of Shares of Common Stock Outstanding on November 7, 1995 - 12,961,968
Transitional Small Business Issuer Format (Check one): Yes No X
--- ---
<PAGE>
HAWKINS ENERGY CORPORATION
TABLE OF CONTENTS
Page
----
PART I
Financial Information:
Item 1 -- Financial Statements
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994............................. 3
Consolidated Statements of Operations
Three and Nine Months Ended September 30,
1995 and 1994....................................................... 4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1995 and
1994................................................................ 5
Notes to Consolidated Financial Statements............................. 7
Item 2 -- Management's Discussion and Analysis
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 8
PART II
Other Information:
Item 6 - Exhibits and Reports on Form 8-K............................... 10
Signatures.............................................................. 11
2
<PAGE>
HAWKINS ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
UNAUDITED
------------- ------------
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.............. $ 381 $ 115
Accounts receivable, less allowance
for doubtful accounts of $75 and $158
in 1995 and 1994, respectively........ 1,026 760
Accounts receivable -- related party... 48 146
Notes receivable....................... 189 172
Notes receivable -- affiliate.......... 65 --
Income tax receivable.................. -- 42
Compressors and compressor parts
inventory............................. 1,513 1,261
Other.................................. 54 59
------- -------
Total current assets.................. 3,276 2,555
------- -------
Cash held for reinvestment in oil and
gas properties......................... -- 2,513
------- ------
Property and Equipment, net (Note 2).... 22,873 21,430
------- ------
Goodwill and other intangibles, net of
amortization of $1,711 in 1995 and
$1,657 in 1994......................... 806 850
Notes receivable........................ 450 503
Other assets............................ 59 63
------- -------
Total Assets............................ $27,464 $27,914
======= =======
Current Liabilities:
Current portion of long-term debt...... $ 691 $ 2,263
Accounts payable and accrued
liabilities........................... 1,415 1,828
Income tax payable..................... 190 --
------- -------
Total current liabilities............. 2,296 4,091
Long-term debt.......................... 8,794 6,967
Deferred income taxes................... 4,262 4,655
Other................................... 104 111
------- -------
Total Liabilities....................... 15,456 15,824
------- -------
Commitments (Note 4)
Stockholders' Equity:
Preferred stock, $1.00 par value,
1,000,000
shares authorized, none issued........ -- --
Common stock, $.01 par value,
20,000,000 shares authorized,
13,259,235 and 13,259,235 shares
issued and 12,952,568 and
12,862,568 outstanding in 1995 and
1994, respectively 132 130
Additional paid-in capital............. 12,390 12,114
Retained earnings (deficit)............ (125) 52
Treasury stock, at cost (306,667 and
186,667 shares in 1995 and 1994,
respectively)......................... (389) (206)
------- -------
Total stockholders' equity.............. 12,008 12,090
------- -------
Total Liabilities and Stockholders'
Equity................................. $27,464 $27,914
======= =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE>
HAWKINS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
(In thousands, except for per share amounts)
Revenues:
<S> <C> <C> <C> <C>
Oil & gas sales.............................. $ 396 $ 467 $ 1,124 $ 1,477
Compressor sales............................. 352 494 1,491 1,728
Compressor rentals........................... 1,669 1,942 5,224 5,767
Interest and other income.................... 16 19 87 58
Gain (loss) on sale of assets................ (25) 110 (18) 110
------- ------ ------- ------
Total revenues............................. 2,408 3,032 7,908 9,140
------- ------ ------- ------
Expenses:
Operating costs - oil and gas................ 171 137 442 439
Cost of sales - compressors.................. 141 380 1,071 1,344
Operating costs - compressors................ 871 846 2,641 2,716
Depreciation, depletion and amortization..... 608 639 1,770 1,846
General and administrative................... 437 602 1,377 1,768
Interest..................................... 262 184 784 566
Other........................................ -- 40 -- 40
------- ------ ------- ------
Total expenses.......................... 2,490 2,828 8,085 8,719
------- ------ ------- ------
Income (loss) before income taxes.............. (82) 204 (177) 421
Income tax benefit (expense)................... 20 (82) 53 (173)
------- ------ ------ ------
Net income (loss).............................. $ (62) $ 122 $ (124) $ 248
======= ====== ====== ======
Income (loss) per common share:................ $ -- $ .01 $ (.01) $ .02
======= ====== ====== ======
Weighted average number of shares outstanding.. 12,949 12,938 12,921 12,851
======= ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE>
HAWKINS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................ $ (124) $ 248
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Depletion, depreciation, and
amortization........................ 1,770 1,846
Loss (gain) on sale of equipment..... 18 (110)
Deferred taxes....................... (393) (36)
Changes in operating assets and
liabilities:
Accounts receivable and other........ (203) 388
Notes receivable..................... 53 157
Compressor and compressor parts
inventory........................... (252) (147)
Accounts payable and accrued
liabilities......................... (230) 116
------- ------
Net cash provided by operating
activities........................ 639 2,462
------- ------
Cash flows from investing activities:
Acquisitions of compressor and other
equipment............................... (1,021) (2,094)
Proceeds from dispositions of compressor
and other equipment..................... 358 12
Additions to oil and gas properties...... (2,512) (177)
Proceeds of disposition of oil and gas
properties.............................. -- 2
Cash held for reinvestment in oil and
gas properties.......................... 2,513 --
Increase in organization costs and other
intangibles............................. (6) (27)
------- ------
Net cash used in investing
activities........................ (668) (2,284)
------- ------
Cash flows from financing activities:
Proceeds of long-term debt............... 1,475 5,507
Payments on long-term debt............... (1,220) (2,507)
Principal payments under lease obligation -- (3,219)
Sale of treasury stock................... 40 48
------ ------
Net cash provided by (used in) financing
activities 295 (171)
------ ------
Net increase in cash
and cash equivalents..................... 266 7
Cash and cash equivalents,
beginning of period...................... 115 20
------ ------
Cash and cash equivalents,
end of period............................ $ 381 $ 27
======== ======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE>
HAWKINS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1995 1994
---- ----
(In thousands)
<S> <C>
Supplemental disclosure of cash flow information:
Interest paid................................ 784 530
======== =======
Income taxes paid............................ 150 376
======== =======
Supplemental disclosure of non-cash investing
and financing activities:
Compressor inventory and equipment acquired
through stock issuance...................... $ -- $ 124
======== =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
<PAGE>
HAWKINS ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 Organization and Basis of Presentation
The accompanying consolidated financial statements present the financial
position and results of operations of Hawkins Energy Corporation (the "Company")
and its wholly owned subsidiary, Equity Compressors, Inc. ("Equity
Compressors").
The Company is engaged in the production of natural gas and oil, and
in the leasing, remanufacturing and direct sale of gas compression equipment to
operators of producing natural gas wells and gas gathering systems as well as to
other equipment leasing companies. Its principal geographical operating areas
lie within the states of Alabama, Arkansas, Kansas, Mississippi, Louisiana,
Oklahoma and Texas.
In the opinion of the Company, the accompanying financial statements
contain all adjustments necessary (all of which are of a normal recurring
nature) to present fairly the financial position of Hawkins Energy Corporation
as of September 30, 1995, and the results of its operations and cash flows for
the periods ended September 30, 1995 and 1994.
The financial statements should be read in conjunction with the Company's
Form 10-KSB for the year ended December 31, 1994. The year end Consolidated
Balance Sheet data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
NOTE 2 Property and Equipment
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------ ------
(In thousands)
<S> <C> <C>
Land and building......................... $ 299 $ 299
Oil and gas properties, on the full cost
method................................... 35,846 32,010
Compressor equipment...................... 23,079 22,473
Other equipment........................... 444 451
------- -------
59,668 55,233
Less accumulated depreciation, depletion
and amortization......................... 36,795 33,803
------- -------
Net property and equipment................ $22,873 $21,430
======= =======
</TABLE>
During December 1994, the Company sold interests in fifty-seven (57) wells
with estimated proved reserves of 1,451,000 Mcf of gas in Arkansas for
$2,513,000. These sales proceeds were placed in trust until they were utilized
by the Company to fund the current year acquisitions in a like-kind exchange
that enabled the Company to defer all of the tax liability on the $1.88 million
pre-tax gain from the December 1994 sale.
The Company closed a series of production acquisitions during the second
quarter of 1995 involving interests in twelve gas and fourteen oil wells in
Arkansas, Oklahoma and Texas. The effective date of the purchases range from
January 1 to March 1, 1995, however, no revenues were recognized in the first
quarter because the closing dates of the purchases were during April and the
first week of May in the second quarter 1995. The Company estimates these
properties contain proved reserves of approximately 330,000 barrels of oil and
2,889,000 Mcf of gas which were added to the Company's year-end 1994 proved
reserve base of 18,000 barrels of oil and 2,501,000 Mcf of gas.
7
<PAGE>
NOTE 3 Transactions with Related Parties
Amounts paid in the nine months ended September 30 by the Company to an
affiliate for general and administrative overhead including rent and production
and drilling overhead totalled: $100,000 in 1995 and $119,000 in 1994.
Equity Compressors received compressor rental revenues from an affiliate
and a related party in the amount of $189,000 for the nine months ended
September 30, 1995. In June 1995, the Company received a promissory note from
the affiliated company in the amount of $108,829. Principal payments and
accrued interest of $6,637 per month at the rate of 12% began July 15, 1995, and
will continue until December 15, 1996, at which time the remaining unpaid
principal and interest shall be due in full.
NOTE 4 Commitments
The Company leases compressor equipment under contracts with terms ranging
from month to month to one year. The future revenues to be received under
contracts at September 30, 1995 are $248,000 through September 30, 1996.
The Company leases facilities for its corporate and field offices with
lease terms ranging from month to month to two years. A one-year lease for a
compressor remanufacturing facility contains renewal options through 1996. The
Company's rental expense amounted to $92,000 and $91,000 for the nine months
ended September 30, 1995 and 1994, respectively.
The Company has certain other operating leases for office equipment and
automobiles. Future minimum rental payments under these leases total $61,000,
$208,000, $118,000 and $12,000 for 1995, 1996, 1997 and 1998, respectively.
NOTE 5 Earnings per Share
Earnings per share is computed based on the weighted average number of
shares of common stock outstanding during the period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is Management's discussion and analysis of certain
significant factors which have affected the Company's earnings and financial
condition during the periods included in the accompanying Consolidated Balance
Sheets, Statements of Operations and Cash Flows.
Results of Operations
- - ---------------------
1995 versus 1994
In the three months ended September 30, 1995, the Company had a net loss of
$62,000 compared to net income of $122,000 in the three months ended September
30, 1994. For the nine months ended September 30, 1995, the Company reported a
net loss of $124,000 compared to net income of $248,000 for the same period
ended September 30, 1994, due principally to decreases in compressor rental and
oil and gas revenues and an increase in interest expense. The Company's cost
cutting efforts resulted in a $391,000 reduction in general and administrative
expenses during nine months ended September 30, 1995 from the same period in
1994.
Compressor rental revenues decreased 14% and 9% in the three and nine
months ended September 30, 1995 when compared to 1994, as the average overall
compressor utilization rate decreased to 71% for the nine months ended September
30, 1995 compared to 79% in the same period 1994. The average number of units
rented during the nine months ended September 30, 1995, decreased by 32 units
8
<PAGE>
when compared to the average number of units rented during the first nine months
of 1994, generally as a result of lagging demand related to the deterioration in
gas prices and aggressive marketing by competing rental companies. Compressor
operating costs incurred on rental units increased 3% and decreased 3% in the
three and nine months ended September 30, 1995 from the same periods in 1994
reflecting the fixed nature of a portion of operating expenses.
Revenues from the sale of compressors and remanufacturing services
decreased 29% and 14% in the three and nine months ended September 30, 1995,
when compared to the same periods in 1994 generally due to the gas price decline
previously discussed. The margins from sales were $211,000 and $420,000 in the
three and nine months ended September 30, 1995, compared to $114,000 and
$384,000 in the same periods in 1994, due to an increase in remanufacturing
activity where margins tend to be higher.
The average spot market gas prices received in the three and nine months
ended September 30, 1995 were $1.60 and $1.84 compared to $1.78 and $1.94
received in the same periods in 1994, which represents decreases of 10% and 5%,
respectively. This decline was offset somewhat through receipt of a $65,000
payment resulting from the Company's financial hedge which provided a price
floor of $2.00 per Mcf on approximately 50% of the Company's production since
May 1994. This price hedge expired in May 1995. Volumes produced in the nine
months ended September 30, 1995 and 1994, respectively, were 564,976 Mcfe and
733,643 Mcfe, a decrease of 23%. Volumes produced in the third quarter 1995 and
1994, respectively, were 209,663 Mcf on an equivalent basis (Mcfe) and 241,197
Mcfe, a decrease of 13%. In comparison to the 23% decrease for the nine months,
the lesser production decline in the third quarter of 13% reflects the
additional volumes produced from newly acquired properties. Oil and gas
operating costs for the three and nine months ended September 30, 1995 were 25%
and 1% higher than for the same periods in 1994, respectively, primarily due to
the initial operating costs related to the new acquired properties.
Depletion, depreciation and amortization of the composite cost of evaluated
oil and gas properties is computed on the units-of-production method based on
estimated proved reserves. The expense for the three and nine months ended
September 30, 1995 was $116,000 and $308,000 which is 11% and 22% lower than
$131,000 and $396,000 during the same periods in 1994, respectively, due to
lower production volumes and an upward revision of reserve estimates at year end
1994. Depreciation of the compressor fleet decreased to $477,000 and $1,420,000
in the three and nine months ended September 30, 1995 from $495,000 and
$1,408,000 in the same periods in 1994 due to equipment additions made in 1994.
General and administrative expense decreased $165,000 and $391,000, or 27%
and 22% in the three and nine months ended September 30, 1995 compared to the
same periods in 1994. This decrease resulted principally from merging the
operations of the Company's three wholly owned gas compression subsidiaries
which resulted in cost savings by centralizing certain administrative functions.
Interest expense increased by 42% and 39% in the three and nine months
ended September 30, 1995 compared to the same periods in 1994 as a result of
higher interest rates in 1995. The Company's average interest rate increased
12% and 23% in the three and nine months ended September 30, 1995 from the same
periods in 1994 to 10.63% and 10.82%, respectively.
Financial Condition and Liquidity
- - ---------------------------------
In September 1995, the Company refinanced its existing debt in order to
increase the amounts available for new investment and working capital. The debt
is structured as three separate notes and is collateralized by substantially all
of the assets of the Company. One note has an initial loan balance of $1.3
million and is being amortized at $35,000 per month, plus interest. Another
note, with an initial principal amount of $425,000 is amortized at $8,854 per
month, over 48 months, plus interest. A third note, an 18 month revolving line
of credit with a $12 million cap to allow for bank financing of asset
acquisition, has an initial borrowing base of $8.5 million available for general
business purposes. As of November 3, 1995, the Company's outstanding balance on
the credit line was $8.246 million.
9
<PAGE>
The Company's new loan agreement includes amounts due during the next
twelve months totalling $691,000. All of the Company's credit line debt
agreements have historically been renewed on an annual basis.
Net cash provided by operating activities decreased to $639,000 in the
first nine months of 1995 from approximately $2.5 million in the same period of
1994, primarily due to the loss incurred during the nine months, an increase in
accounts and notes receivable and a decrease in accounts payable. Net cash used
in investing activities was $668,000 in 1995 compared to approximately $2.3
million due to fewer additions to and increased sales of compressor equipment.
Net cash provided by financing activities increased to $295,000 in 1995 compared
to cash used in financing activities of $171,000 in 1994 as a result of bank
refinancing which replaced a capital lease obligation. At September 30, 1995,
the Company had current assets of $3.3 million and current liabilities of $2.3
million. The Company anticipates that 1995 cash flow from operations, together
with the credit line refinancing will be sufficient to fund the Company's
working capital and capital expenditure needs.
During December 1994, the Company sold interests in fifty-seven (57) wells
with estimated proved reserves of 1,451,000 Mcf of gas in Arkansas for
$2,513,000. These sales proceeds were placed in trust until they were utilized
by the Company to fund the current year acquisitions in a like-kind exchange
that enabled the Company to defer all of the tax liability on the $1.88 million
pre-tax gain from the December 1994 sale. The Company closed a series of
production acquisitions during the second quarter of 1995 involving interests in
twelve gas and fourteen oil wells in Arkansas, Oklahoma and Texas. The Company
estimates these properties contain proved reserves of approximately 330,000
barrels of oil and 2,889,000 Mcf of gas which were added to the Company's year-
end 1994 proved reserve base of 18,000 barrels of oil and 2,501,000 Mcf of gas.
At September 30, 1995, the Company estimates all properties to contain proved
reserves of approximately 332,000 barrels of oil and 4,921,000 Mcf of gas.
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- - ------- --------------------------------
(a) Exhibits: 27 - Financial Data Schedule
(b) The Company filed a current report on Form 8-K August 21, 1995,
with the Securities and Exchange Commission to report the
acquisition by the Company of certain oil and gas producing
properties and provide the unaudited proforma consolidated
statements of operations for the six months ended June 30, 1995 and
for the year ended December 31, 1994.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 of 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.
HAWKINS ENERGY CORPORATION
DATE: November 13, 1995 By: /s/ Thomas F. Ostrye
-------------------------------------
THOMAS F. OSTRYE, President
DATE: November 13, 1995 By: /s/ Clifford S. Lewis
-------------------------------------
CLIFFORD S. LEWIS
Vice President, Secretary and Treasurer
11
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
27 Financial Data Schedule
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 381
<SECURITIES> 0
<RECEIVABLES> 1,853
<ALLOWANCES> 75
<INVENTORY> 1,513
<CURRENT-ASSETS> 3,276
<PP&E> 22,873
<DEPRECIATION> 36,795
<TOTAL-ASSETS> 27,464
<CURRENT-LIABILITIES> 2,296
<BONDS> 0
<COMMON> 132
0
0
<OTHER-SE> 11,876
<TOTAL-LIABILITY-AND-EQUITY> 27,464
<SALES> 2,615
<TOTAL-REVENUES> 7,908
<CGS> 1,513
<TOTAL-COSTS> 7,301
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 784
<INCOME-PRETAX> (177)
<INCOME-TAX> 53
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (124)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
