U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
-------- OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly period ended Commission File
March 31, 2001 Number 0-5781
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
-------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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EMEX CORPORATION (formerly Hawks Industries, Inc.)
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(Exact name of small business issuer as specified
in its charter)
NEVADA 83-0211955
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
115 East 57th Street, Suite 1540
New York, NY 10022
(Address of principal executive offices)
(212) 593-2500
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address, and former fiscal year, if changed
since last report)
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
--- ---
Common stock, 23,328,364 shares having a par value of $.01 per share were
outstanding as of May 4, 2001.
Transitional Small Business Disclosure format (check one):
Yes No X
--- ---
EMEX CORPORATION AND SUBSIDIARIES
Index
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2001 and
December 31, 2000 1
Consolidated Statements of Operations and Comprehensive Income/
(loss) for the three months ended March 31, 2001 and 2000 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 2001 and 2000 3
Notes to Consolidated Financial Statements 4-8
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
March 31, December 31,
2001 2000
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 698,000 $ 2,279,000
Accounts receivable 18,000 35,000
Other current assets 93,000 80,000
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Total current assets 809,000 2,394,000
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PROPERTY AND EQUIPMENT, net 3,084,000 2,738,000
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INVESTMENTS AND OTHER ASSETS
Note receivable 23,000 24,000
Available for sale investment 36,000 5,000
Goodwill, net 363,000 373,000
Other assets 93,000 154,000
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515,000 556,000
------------ ------------
$ 4,408,000 $ 5,688,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 152,000 $ 152,000
Capital lease obligation 20,000 18,000
Accounts payable 730,000 437,000
Accrued liabilities 104,000 134,000
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Total current liabilities 1,006,000 741,000
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LONG TERM DEBT
Notes payable - related party 1,646,000 1,619,000
Capital lease obligation 51,000 55,000
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1,697,000 1,674,000
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COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST -- --
SHAREHOLDERS' EQUITY Capital stock:
Preferred stock, $.01 par value, authorized 997,000
shares: no shares issued -- --
Common stock, $.01 par value, 50,000,000 shares authorized
23,328,364 shares issued and outstanding 233,000 233,000
Capital in excess of par value of common stock 17,957,000 17,957,000
Accumulated other comprehensive loss (39,000) (11,000)
Accumulated deficit (16,446,000) (14,906,000)
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1,705,000 3,273,000
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$ 4,408,000 $ 5,688,000
============ ============
See notes to consolidated financial statements
1
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(unaudited)
2001 2000
---------------- --------------
OPERATIONS
Operating revenue:
Oil and gas sales $ 32,000 $ --
Consulting fees 5,000 4,000
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37,000 4,000
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Operating expenses:
Lease operating 14,000 --
Exploration 429,000 295,000
Research and development 337,000 113,000
Depreciation, depletion and amortization 59,000 17,000
General and administrative 721,000 459,000
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1,560,000 884,000
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Operating loss from continuing operations (1,523,000) (880,000)
Other income (expense):
Interest income 13,000 --
Interest expense (30,000) (170,000)
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Loss from continuing operations before taxes (1,540,000) (1,050,000)
Provision for taxes:
Current -- --
------------ ------------
Net loss $ (1,540,000) $ (1,050,000)
============ ============
Earnings per share:
Weighted average number of
common shares outstanding 23,328,364 22,171,875
Basic and diluted loss $ (0.07) $ (0.05)
============ ============
COMPREHENSIVE INCOME/(LOSS)
Net loss $ (1,540,000) $ (1,050,000)
Other comprehensive income/(loss):
Unrealized gain/(loss) on
available-for-sale securities (24,000) 6,000
Change in cumulative transaction adjustment (4,000) --
------------ ------------
Comprehensive loss $ (1,568,000) $ (1,044,000)
============ ============
See notes to consolidated financial statements
2
EMEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(formerly Hawks Industries, Inc.)
FOR THE THREE MONTHS ENDED MARCH,31,2001, AND 2000
(unaudited)
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,540,000) $(1,050,000)
Add: depreciation, depletion and amortization 59,000 17,000
accrued interest 27,000 170,000
Changes in assets and liabilities:
Accounts receivable (41,000) (4,000)
Other current assets (12,000) (1,000)
Other assets 61,000 1,000
Accounts payable 293,000 (100,000)
Accrued liabilities (31,000) (15,000)
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Cash used in operating activities (1,184,000) (982,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (395,000) (138,000)
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Cash used in investing activities (395,000) (138,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable -- 1,097,000
Capital lease payments (2,000) --
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Cash (used in) provided by financing activities (2,000) 1,097,000
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NET (DECREASE) IN CASH (1,581,000) (23,000)
CASH AT BEGINNING OF YEAR 2,279,000 47,000
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CASH AT END OF PERIOD $ 698,000 $ 24,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,000 $ --
Income taxes $ -- $ --
Schedule of Noncash Investing and Financing Transactions:
Marketable securites received in payment of
account receivable $ 53,000 $ --
Marketable securities received in payment for
option $ 5,000 $ --
See notes to consolidated financial statements
3
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION OF INTERIM PERIOD STATEMENTS:
The accompanying financial statements are unaudited and have been presented by
Emex Corporation and Subsidiaries (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
note disclosures typically included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of management,
the financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods presented. The preparation of financial statements in conformity
with generally accepted accounting principles require management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from such estimates
and assumptions. The financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's 2000
Annual Report on Form 10KSB pages F-1 to F-20. The results of operations for an
interim period are not necessarily indicative of the results of operations for a
full year.
The Company was incorporated under the name of Burton-Hawks, Inc. 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. Commencing in 1986, due to
market conditions in the oil and gas industry, the Company commenced a program
of diversification. In October 1988 the name of the Company was changed to Hawks
Industries, Inc.
Since September 2000 the business of the Company has been carried on principally
through two divisions, namely, the Company's Lands Division, which is engaged
primarily, through subsidiaries, in exploration for and development of gold and
other metal and mineral resources in Alaska, and the Company's Technologies
Division, which is primarily engaged, through a subsidiary, in the development
of environmentally friendly technologies related to the conversion of natural
gas into liquid fuels, specialty chemicals and waxes and other products, with
co-generation of electricity and production of potable water as additional
results of the process. In addition, the Company continues to hold working
interests in several oil and gas properties. In February 2001 the Company's name
was changed to Emex Corporation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Common Stock Issued and Outstanding and Loss Per Share
The Company uses the weighted average number of shares outstanding in
calculating loss per share data. Refer to the Company's Annual Report on form
10KSB, Note 2 for the computation of weighted number of shares outstanding.
There were no common stock equivalents for any of the periods presented.
4
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Risks and Uncertainties
Mining Activities
The Company is currently exploring for minerals and has yet to exercise any
options to lease prospects. The Company has therefore not produced any revenues
since inception and there can be no assurance that revenues will be generated
during the remainder of fiscal 2001.
The Company's operations will be significantly affected by the market price of
gold. Gold prices can fluctuate widely and are affected by numerous factors that
are beyond the Company's control. A further sustained period of low gold prices
could have a material adverse effect on the Company's financial position,
results of operations and its ability to raise additional financing.
Energy Technology
The Company is currently researching to develop new approaches for natural gas
utilization and has yet to generate any revenues from this research since
inception. There can be no assurance that revenues will be generated during the
remainder of fiscal 2001.
Oil and Gas Producing Activities
Historically, the market for oil and natural gas has experienced significant
price fluctuations. Prices for oil and natural gas in the Rocky Mountain region
have been particularly volatile in recent years. The price fluctuations can
result from variations in weather, levels of regional or national production,
availability of transportation capacity to other regions of the country and
various other factors. Increases or decreases in prices received could have a
significant impact on future results.
Investment in Money Market Mutual Fund
As of March 31, 2001 the Company held investments in a money market mutual fund
totaling $276,000. This investment is not FDIC insured and there is no assurance
that these funds will maintain a steady $1.00 share price in the future.
NOTE 3 - RELATED PARTY ACTIVITY
At March 31 2001 and December 31, 2000, the Company had advances from Equistar
totaling $1,548,000 and $1,549,000 respectively. The advances accrue interest at
7% per annum and are due to be repaid on July 31, 2002.
5
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY ACTIVITY (continued)
Accrued interest on the advances totaled $97,000 and $70,000 at March 31 2001
and December 31, 2000, respectively. Interest expense on advances were $27,000
and $170,000 for the three months ended March 31, 2001 and 2000 respectively.
The Company's funding agreement with Equistar expired on March 31, 2001.
Subsequent to March 31, 2001, the Company received written confirmation from
Universal Equities Consolidated LLC, and Thorn Tree Resources, L.L.C.,major
shareholders of the company through Equistar, of a commitment to provide the
bridge funding necessary to support Company operations until the debt and equity
financing currently being negotiated is finalized. Emex Corporation's ability to
continue as a going concern is dependent upon the continued support of Equistar
or obtaining an alternative source of financing. Subsequent to March 31, 2001,
Equistar also extended the due date of the existing notes payable to July 31,
2002.
The Company's corporate offices in New York City are occupied under a use and
occupancy agreement with Equistar Consolidated Holdings, LLC, a company owned
indirectly by the principals of Universal Equities Consolidated, LLC and Thorn
Tree Resources, L.L.C., the Company's major stockholders. Under the terms of the
agreement, payments of rent are made directly by the Company to the Landlord and
no payments are made to Equistar.
The Company's secretary, Stuart G. Schwartz, is counsel to the Company. He
received legal fees from the Company for the three months ended March 31, 2001
and 2000 in the amount $27,000 and $10,500 respectively.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Doyon Agreement
On May 27, 1997, the Company entered into an Option Agreement (the "Agreement")
with Doyon Limited ("Doyon") with respect to certain lands in Alaska. The
Agreement provides the Company with the exclusive right to explore for minerals
until January 1, 2002, to lease prospects identified thereon, and to develop and
produce minerals pursuant to such leases. The optioned lands encompass
approximately seven million acres comprised of 24 individually named blocks,
plus additional rights to surrounding lands within areas of interest. The
Agreement requires the Company to spend $9 million over the life of the
Agreement, with minimum commitments per year and with specific minimum
expenditures per block. Exploration expenditures in excess of the minimum amount
may be carried forward and credited to expenditure requirements for future years
with certain limitations. As of March 31, 2001, the Company had spent
approximately $7.9 million of the $9 million required to be spent over the life
of the agreement.
6
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMITMENTS AND CONTINGENCIES (continued)
At any time during the agreement term, the Company may, if it has conducted a
specified minimum amount of drilling, made a specified minimum amount of
exploration expenditures and received a positive pre-feasibility study with
respect to a particular mineral area, exercise its option to lease that area for
mineral development for a specified initial term. If the Company achieves
commercial production during the initial term, the lease will continue as long
as there is commercial production. The Company may obtain leases on an unlimited
number of areas currently owned by Doyon, and on areas from lands selected by
Doyon pursuant to the Alaska Native Claims Settlement Act, but not yet conveyed
to Doyon.
Each mining lease will provide for an annual payment to Doyon commencing upon
the execution of the lease of a specified amount per acre leased, but not less
than a specified annual minimum total, until a feasibility study is delivered to
Doyon. If a feasibility study is not delivered to Doyon before the fifth
anniversary of the execution of the lease, the annual per acre and minimum total
amounts increase. The Company must also incur minimum expenditures until the
feasibility study is delivered to Doyon. Starting on the date of submittal of a
feasibility study, North Star is required to pay Doyon a yearly advance royalty,
which is larger than the annual minimum total that was payable prior to
feasibility, and which is recoupable out of 50% of future royalties. From
commencement of commercial production the Company is required to pay Doyon the
larger of a specified percentage royalty of net Smelter returns or a specified
percentage of net profits, until payback, and the larger of an increased
percentage royalty of net Smelter returns or an increased percentage of net
profits, after payback. Doyon reserves the right to buy a fractional portion of
the equity in a project after deliverance of a positive feasibility study.
The Company was not in technical compliance with several provisions of the
Agreement as of March 31, 2001 and December 31, 2000. The Company received a
waiver from Doyon regarding these variances through June 30, 2000. Correction of
certain of those variances was accomplished prior to June 30, 2000, and
negotiations are under way for a further waiver or modification of the remaining
issues, pending which Doyon has refrained from giving any notice that would
shorten or commence the running of any period for their correction. In addition,
a payment if $300,000 that came due under the agreement on April 1, 2001 has not
been made. No notice has been received from Doyon to start the running of the
contractual cure period.
At March 31, 2001 the Company's required exploration expenditures commitment
under the Agreement is approximately $2,000,000 for the next twelve months.
Environmental Compliance
The Company's management believes that it is in compliance with environmental
laws and regulations as currently enacted. The Company's management has filed
all necessary permits
7
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMITMENTS AND CONTINGENCIES (continued)
to fulfill current environmental compliance requirements. However, the exact
nature of environmental compliance, which the Company may be exposed to in the
future, cannot be predicted. This is primarily due to the increasing number,
complexity and changing character of environmental requirements that may be
enacted by federal and state authorities. Provisions for reclamation will be
made when mining begins.
Bridge Financing
The Company funding agreement with Equistar expired on March 31, 2001.
Subsequent to March 31, 2001, the Company received written confirmation from
Universal Equities Consolidated LLC, and Thorn Tree Resources, L.L.C. major
shareholders of The Company through Equistar of a commitment to provide the
necessary bridge funding necessary to support Company operations until the debt
and equity financing currently being negotiated is finalized. Emex Corporation's
ability to continue as a going concern is dependent upon the continued support
of Equistar or obtaining an alternative source of financing. Subsequent to March
31, 2001, Equistar, also extended the due date of the existing notes payable to
July 31, 2002.
8
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This report on Form 10-QSB 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 report on Form 10-QSB 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 report on Form 10-QSB, including without limitation in
conjunction with the forward-looking statements contained in this report on Form
10-QSB.
The principal changes in the Company's financial condition from the end of the
preceding fiscal year to the date of its March 31, 2001 balance sheet, i.e. a
reduction of $1,581,000 in its cash on hand and an increase of $265,000 in
current liabilities, are primarily due to the Company's two principal divisions,
namely, its Lands Division and its Technology Division, still being in,
respectively, the exploration and development stages, as a result of which both
of those divisions have yet to generate material revenues.
As compared with the corresponding quarter of the preceding fiscal year, the
increase of $490,000 in losses from continuing operations was due primarily to
increases of $134,000 in exploration expenses, $224,000 in research and
development expense and $262,000 in general and administrative expense, which
were partially offset by a decrease of $153,000 in net interest expense.
The Company intends to raise funds for continuing operations through a public
offering of its common stock, for which purpose a registration statement is
presently in preparation. The exact form of such offering has not yet been
determined, and there can be no assurance that it will be successful. Among
other things, the Company is considering a "rights offering" pursuant to which
public shareholders, i.e. shareholders other than the two major shareholders,
would be given the right to subscribe at a discount from the market price for
additional shares in a specified proportion to shares already held.
To supply partial bridge funding pending the public offering, after the end of
the fiscal period being reported on a loan of $200,000 was made to the Company
by one of the major stockholders, and the major shareholders have stated that it
is their intention to continue to furnish such bridge funding.
There has been no change in the Company's plans with respect to project
financing for its Technologies Division referred to in Item 6 of its report on
Form 10-KSB for the last fiscal year.
9
PART II: OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A change in the Company's name from Hawks Industries, Inc. to Emex Corporation
was approved by the written consent of the holders of 22,221,876 shares of the
Company's common stock, constituting a majority of all outstanding shares of the
Company's common stock, on February 13, 2001.
Item 6. EXHIBITS AND REPORTS ON 8-K
No reports on form 8-K were filed during the fiscal period reported on.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMEX CORPORATION (formerly Hawks Industries, Inc.)
(Registrant)
By /s/ Walter W. Tyler (President and Chief Executive Officer)
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Date May 11, 2001
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By /s/ Milton E. Stanson (Treasurer and Chief Financial Officer)
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Date May 11, 2001
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