SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
for the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF
1934
for the period from ___________ to _____________
Commission file number 0-5781
EMEX CORPORATION (formerly Hawks Industries, Inc.)
(Name of Small Business Issuer in its Charter)
Nevada 83-0211955
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
115 East 57th Street, Ste. 1540, New York, NY 10022
(Address of Principal Executive Offices) (Zip Code)
(212) 593-2500
(Issuer's Telephone Number, Including Area Code)
Securities Registered under Section 12(b) of the Exchange Act
Name of Each Exchange
Title of Each Class on Which Registered
None None
Securities Registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01
(Title of Class)
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 issuer was required to file such reports) and, and (2)
has been subject to such filing requirements for past 90 days.
Yes [x] N0 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for the year ended December 31, 2000 was $75,000
The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold or the average bid and asked price of such common equity, as of a
specified day within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.) was $14,353,576 as of March 30, 2001.
Note. If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ] Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. was 23,328,364 shares of Common Stock
as of March 30, 2001
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [x]
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit: Item 13 (c)(2)
Item 13 (c)(10)
PART I
This report on Form 10-KSB 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-KSB 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-KSB, including without limitation in
conjunction with the forward-looking statements contained in this report on Form
10-KSB.
Items 1 and 2. Description of Business and Properties.
Emex Corporation (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. Commencing in 1986, due to market
conditions in the oil and gas industry, the Company reduced and de-emphasized
its gas and oil activities and commenced a program of diversification. In 1992,
as part of its diversification
program, the Company acquired all of the shares of Western Environmental
Services & Testing, Inc. ("WEST"), a privately held environmental testing and
consulting firm. In exchange for the transfer of the shares of WEST to the
Company, the owners of WEST received a controlling interest amounting to more
than thirty percent of the outstanding shares of the Company. During the
succeeding six years the Company disposed of or discontinued the other
diversified businesses it had acquired or engaged in other than WEST, so that by
1999 the Company's principal operations consisted of Environmental Testing and
Management and Oil and Gas.
In August 2000 the Company entered into a two-part transaction. In the
first part of the transaction, the then controlling shareholders, including the
former owners of WEST, surrendered all of their shares of the Company for
cancellation in exchange for the transfer to them of all of the shares of WEST
and all the other material assets of the Company except for its working
interests in several oil and gas properties, which were retained by the Company.
In the second part of the transaction, the owners of more than eighty percent of
the outstanding shares of North Star Exploration, Inc. ("North Star") and Zeus
Consolidated Holdings, Inc. ("Zeus"), two companies with interests in mineral
resources in Alaska which are more fully described below, transferred those
shares to the Company, together with $5 million in cash and other assets, in
exchange for shares of the Company that after issuance constituted more than 95%
of its outstanding shares. The transaction was accounted for as a reverse
acquisition in which North Star and Zeus were considered the acquirers for
accounting purposes. (See Note 1 to the Company's Financial Statements.) In
September 2000, the same parties transferred to the Company for a nominal
consideration, 95% of the outstanding shares of Blue Star Sustainable
Technologies Corporation ("Blue Star"), a company engaged in the development of
certain clean energy technologies more fully described below.
The present business of the Company is carried on principally through two
divisions, namely, the Company's Lands Division, which is engaged primarily in
exploration for and development of gold and other metal and mineral resources
through North Star, Zeus and other subsidiaries, and the Company's Technologies
Division, which is engaged primarily, through Blue Star, in the development of
environmentally friendly technologies for use in connection with energy natural
resources. In addition, the Company holds working interests in several oil and
gas properties more fully described below.
The Lands Division
The business of the Lands Division started in May of 1997 when North Star,
which had been formed earlier that month, entered into an Option Agreement (the
"Agreement") with Doyon, Limited ("Doyon"), a corporation owned by native
Americans, with respect to lands as to which Doyon had received rights under the
Alaska Native Claims Settlement Act. Doyon granted North Star, which is owned 90
percent by the Company and 10 percent by Doyon, the exclusive right to explore
for minerals on certain of those lands until January 1, 2002, to lease prospects
identified in the course of such exploration, and to develop and produce
minerals pursuant to such leases. The optioned lands encompassed approximately
seven million acres comprised of 24 individually named blocks, plus additional
rights to surrounding lands within a defined area of interest.
In order to maintain its rights North Star is required to spend a total of
$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 are permitted to be carried forward and credited to
expenditure requirements for future years with certain limitations. As of
December 31, 2000, North Star had spent $ 7.5 million of the $ 9 million
required to be spent over the term of the Agreement.
At any time during the agreement term North Star 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 North Star achieves
commercial production during the initial
term, the lease will continue so long as there is commercial production. North
Star may obtain leases both on 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 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. North Star 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
(larger than the annual minimum total that was payable prior to feasibility),
which is recoupable out of 50% of future royalties. From commencement of
commercial production North Star is required to pay Doyon a specified percentage
royalty of net smelter returns (or a specified percentage of net profits,
whichever is greater) until payback, and a larger specified percentage royalty
or net smelter returns (or a larger specified percentage of net profits,
whichever is greater) 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 certain provisions of the
Agreement as of December 31, 2000. Negotiations are under way for waivers and
modifications to eliminate those variances and to extend the term of the
Agreement from January 1, 2002 to January 1, 2005. In addition, a payment of
$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.
North Star has not yet exercised its option to lease any mineral area for
development. It is North Star's intention to exercise such options at such time
that it can do so on behalf of a joint venture or partnership in which it and
another acceptable party will each have an interest. Meanwhile, North Star is
endeavoring to develop the properties that it regards as most attractive to a
point where there will be sufficient indications of future profitability to
induce a major mining company to enter into a joint venture under the terms of
which, in exchange for an interest in the property, the major mining company
will undertake responsibility for the substantial expenditures required in order
to bring the property to feasibility, after which North Star and the major
mining company will be joint venture partners in the commercial exploitation of
the property.
There are three such properties that North Star has scheduled for
development in 2001, namely, the Northway Village Block, the Takotna Village
Block and the Step Mountain Zinc Prospect. The three properties scheduled for
development by North Star in 2001 may be described as follows:
Northway Village Block
Road Metal Prospect
Location and Access. The Road Metal Prospect is located within the Northway
Village Block approximately 34 miles west of the Alaska - Yukon Territory
border. The prospect is located in Section 10, Township 14, North, Range 19
East, Tnacross A-2 quadrangle. East central Alaska. The area is accessed via the
Alaskan Highway southeast from Fairbanks, a distance of 260 miles. The Northway
Village Block comprises 231 acres of mineral lands held by Doyon. Surface rights
are held mostly by the
Northway Village Corporation.
History of Exploration. Regional exploration in the Northway Village Block
includes compilation of regional geochemical and geophysical data and a roadcut
sampling survey conducted in 1998 by North Star. In May and October 1999, North
Star discovered gold and polymetalic mineralization in altered road cuts in the
area of Northway Junction. This initial mineralization was further detailed by
geologic mapping, soil and rock geochemical surveys and ground magnetic surveys
in May and June of 2000. Five diamond drill holes were completed in the zone
based on the above ground data and
significant precious metal with base-metal mineralization was encountered in two
of the drill holes.
Geology and Property Description. The Road Metal prospect is hosted in a
mid-Cretaceous, poly-phased granitic intrusion, with near vertical
quartz-muscovite-tourmaline-sulfide veins and griesen zones. Structurally
controlled monzonite-lamprophyre dikes have intruded the granitic pluton.
Mineralization occurs in quartz tourmaline griesen zones associated with
disseminated to heavily disseminated sulfites and in zones of disseminated
sulfites in altered granite. Small zones of semi-massive sulfide and sulfosalt
mineralization are host to very high silver grades with associated polymetallic
mineralization. Known mineralization to date occurs within the area that extends
at least 4,200 feet in strike length and is located immediately adjacent to the
Alaska Highway on a low, wooded hillside.
Exploration Results and Proposed Program. Initial exploration consisted of
outcrop mapping and sampling along the Alaska Highway, which resulted in
significant geochemical results for gold, silver, copper, bismuth, lead and
antimony. The exploration target area was then expanded with a soil survey and
ground geophysical survey conducted in May and June 2000. A diamond drill
program was then conducted in September and October 2000, which totaled 2,953
feet in five holes. Major gold, silver, copper, lead, bismuth and antimony
mineralization was encountered in two diamond drill holes (RM-00-03 and 04).
This mineralization is summarized in the following table:
Hole No. Thickness AU opt Ag opt Cu% Ph% Bi% Sb%
- -------- --------- ------ ------ --- --- --- ---
RM-00-03 73.8 ft. 0.045 0.35
RM-00-04 15.7 ft. 0.030 48.5 0.06 4.73 0.92 2.80
17.8 ft. 0.272 14.7 0.86 0.37 0.34 0.29
North Star proposes to conduct further ground geophysical surveys early in
2001. A diamond drill program consisting of 8,000 feet will then be conducted in
May and June in order (1) to further define the mineralization in the initial
drill program and (2) to test extensions and other targets indicated by
geophysical and geochemical surveys. The cost of this program is estimated to be
$580,000. The Road Metal mineralization is hosted in granitic intrusions, which
indicates good potential for large tonnage occurrences.
The Company intends to spin off the Northway property into a subsidiary to
be known as Northway Holdings Corporation ("Northway Holdings"), which is to be
a separate company. This will be followed by distributing about 30% of the
outstanding shares of Northway Holdings as a dividend to the Company's
shareholders. The distribution will not take place until required filings are
made with the Securities and Exchange Commission and other regulatory
authorities.
Takotna Village Block
Goss Gulch and Telephone Hill Prospects.
Location and Access. The Takotna Village Block is located in south central
Alaska, approximately 280 miles southwest of Fairbanks within the Ophir, Medfra,
Iditarod and McGrath quadrangles. The village of Takotna is located in the
approximate center of the block, and the village of McGrath on the Kuskokwini
River is located near the eastern boundary of the Block. The area is accessible
by plane to McGrath and then on secondary dirt roads within the block, and by
barge to McGrath in the summer season on the Kuskokwini River. The Block
consists of 170,000 acres of mineral lands held by Doyon.
History of Exploration. The Goss Gulch and Telephone Hill prospects are
located adjacent to placer workings and an old lode mine known as the
Independence Mine (circa 1912; 495 ounces of gold). Westgold conducted
exploration in the immediate area in 1990 and 1991 and identified a large area
of anomalous gold, arsenic and antimony mineralization. North Star conducted
geologic reconnaissance, soil surveys and trenching in 1998 and 1999. These
surveys outlined significant gold-
antimony mineralization in veins and granite porphyries, as well as large soil
anomalies extending along strike from the outcropping mineralization.
Geology and Property Description. The Takotna Village Block lies along the
southeast limb of the Aniak-Ruby geoanticline and straddles the northeasterly
trending Iditarod-Nixon Fork fault. The area is underlain by folded sedimentary
clastic rocks of the Cretaceous Kuskokwini Group. The sedimentary units are
intruded by sub volcanic felsie to mafic dikes and granitic porphyries. The Goss
Gulch and Telephone Hill occurrences contain gold and antimony mineralization in
sheeted sulfide veins and as disseminated mineralization in granitic porphyries.
These occurrences are very similar to the Donlin Creek deposit of Placer Dome,
which is located 80 miles to the southwest on the south side of the
Iditarod-Nixon Fork fault in similar host rocks. Regional geologic mapping by
the State of Alaska suggests the two areas are fault offsets and have the same
host rocks.
Exploration Results and Proposed Program. Previous surveys by North Star
have outlined significant gold and antimony occurrences at Goss Gulch and
Telephone Hill. North Star proposes to drill test the two occurrences with 3,000
feet of diamond drilling during the 2001 program. Ground magnetic and soil
surveys will also be conducted on the Tatalina Mountain property as part of this
program. The cost of this program is estimated at $324,000.
Step Mountain Prospect.
Location and Access. The Step Mountain prospect is located within the Doyon
Block 7 and is 198 miles northeast of Fairbanks and 50 miles north of the
village of Eagle in east central Alaska. The occurrence is located in Sections
17 and 18, Township 8 North, Range 31 East, Fairbanks Meridian, within the
Charley River quadrangle. Access to the area is by helicopter from the village
of Eagle. Block 7 comprises 75,000 acres of mineral lands held by Doyon.
History of Exploration. The area was first explored for mineral deposits by
WGM as part of a consortium of companies including Doyon from 1975 to 1979.
Portions of Block 7 were explored and drill tested for oil and gas during the
late 1970's. The Step Mountain zinc prospect was explored by Patino, Inc.
(1981-1985) and Pasminico Exploration (1990). These programs included geologic
mappings, soil surveys, trenching and eight diamond drill holes. The trenching
and drill holes intersected zinc carbonate mineralization up to 17.4%Zn over 59
feet in Trench 7x and 18.8% Zn over 12 feet in drill hole SM-90-1.
Geology and Property Description. The Step Mountain area is underlain by a
thick sequence of Paleozoic sedimentary castic and platform carbonate units.
These marine sequences were formed along the North American continental margin,
a typical setting for carbonate hosted Mississippi Valley Type (MVT) zinc and
lead deposits. The Step Mountain occurrence is hosted in limestone breccia
within the Permian Tahkandik Limestone Formation. There are a number of other
zinc and lead occurrences within the Block 7 area in various carbonate units of
the marine section. This setting and the extensive zinc occurrences at Step
Mountain indicate good potential for the discovery of MVT zinc deposits.
Exploration Results and Proposed Program. Previous exploration surveys by
Patino and Pasminco have outlined several extensive soil anomalies and
intersected significant zinc mineralization in trenches and in drill holes in
one of the anomalous areas. North Star proposes to continue the exploration for
further drill targets by conducting geologic mapping, extending and confirming
the soil anomalies and conducting ground geophyscial surveys. These programs
will be designed to locate drill targets for MVT zinc deposits which range up to
50 million tons or larger with significant zinc grades. The initial explorations
are estimated to cost $140,000 and a follow up drill testing program is
estimated to cost $280,000.
In addition, through subsidiaries other than North Star, the Company has
conducted exploration and development activities on three Alaska properties,
which were staked on behalf of the
Company itself from inception and were not obtained from the Doyon, which are
scheduled for development in 2001. Two such properties, known as the Farewell
District: Roberts PGM & Chip Loy Prospects and the Dime Creek Prospect Property,
are held through the Company's subsidiary, Platinum-Palladium Holdings, Inc.,
which is owned 85 percent by the Company, 10 percent by the Doyon and 5 percent
by Walter W. Tyler, the Company's president and chief executive officer. The
third such property, known as the East Divide Prospect, is owned through the
Company's Zeus subsidiary, which is 89.9 % owned by the Company and 10.1% owned
by Doyon. Since the Company's rights in these properties were not acquired from
Doyon, they are not subject to separate mandatory spending requirements and the
Company may decide to accelerate or defer the scheduled exploration of one or
more of them.
These properties may be described as follows:
Farewell District: Roberts PGM
& Chip Loy Prospects
Location and Access. The Roberts PGM (PGE-NI-CU) and Chip Loy (Ni-Cu-Co)
Prospects are located 170 miles west of Anchorage in Section 8 and Section 15,
respectively, T24N,R28W,Seward Meridian, McGrath A-3 Quadrangle, Alaska.
Platinum-Palladium controls 13,300 acres of mineral rights on these prospects
and in the surrounding Farewell Region under Alaska State Claims and Prospecting
Sites. The State of Alaska hold surface rights.
The prospects are accessible by helicopter from the Farewell Lake Lodge, 33
miles to the northeast, which is served by chartered fixed-wing flights. The
area is in the northern foothills of the Western Alaska Range, with elevations
from 2,50 feet to 5,600 feet.
History of Exploration. The Roberts PGM Prospect was investigated by the
Alaska Division of Geological and Geophysical Surveys in 1982 and 1998. Grab
samples from within a 6.5 to 13-foot thick mineralized zone comprising
disseminated chalcopyrite-pyrite-magnetite in a gabbro sill containing up to
490ppb Pd, 350ppb Pt,90 ppb Au, 0.13% Cu, and O.15%Ni. Bench tests conducted by
the former U.S. Bureau of Mines in l984 indicate up to 7,700 ppb Pd, 6200 ppb
Pt, 4.71%Ni, 4.68%Cu, and 0. 16% Co in sulfide concentrate. The Chip Loy
Ni-Cu-Co Prospect was sampled as part of a mapping and resource evaluation
program conducted by the Alaska Division of Geological and Geophysical Surveys
in 1981. Grab samples from within a zone of disseminated to massive sulfides
ranging from 9 to 100 feet thick hosted by an olivine-gabbro sill returned
values up to 2% NI, 1% Cu and 0.1%Co.
Geology and Property Description. The Roberts PGM Prospect is hosted in a
differentiated gabbroic sill, 25 to 33 feet thick, exposed along a 1475-foot
strike length. Mineralization comprises disseminated and nettextured magmatic
sulfides in the lower half of the gently dipping sill.
At the Chip Loy Ni-Cu-Co Prospect, a gabbro hosted, disseminated to massive
sulfide body is exposed over an 1100-foot strike length. Measured widths of
disseminated sulfide zones reach 100 feet, while massive sulfide zones range up
to 11 feet across.
Exploration Results and Proposed Program. The Roberts PGM and Chip Loy
Ni-Cu-Co Prospects were the focus of initial geologic mapping and sampling
programs by Platinum-Palladium in 2000.
Seventeen of the 27 samples returned combined Pt-Pd assays ranging from 171
to 2,205 ppb. Planned follow-up exploration includes geologic mapping,
dense-spaced outcrop sampling and a ground magnetometer survey. A diamond
drilling program totaling 2500 feet is planned for 2001.
At Chip Loy, rock chip sampling during the 2000 field returned up to 3.3%
Ni, 2.1% Cu and 0.25% Co. The 2001 exploration program at Chip Loy will include
geologic mapping, rock chip sampling, and possibly an electromagnetic survey.
One 500-foot diamond drill hole is planned to test a massive sulfide position.
Estimated costs for the planned 2001 program in the Farewell district are
$365,000.
The style of mineralization at Robert PGM suggests potential for a moderate
to large tonnage gabbro-hosted Pt-Pd deposit. At Chip-Loy, there is potential
for a high-grade Ni-Cu-Co massive sulfide deposit of moderate tonnage.
Dime Creek Prospect.
Location and Access. The Dime Creek Prospect and surrounding Alaska State
Prospecting Sites and Claims and Federal Mining Claims are located in Sections
3, 4, 5, 8, 9, 16, 17, 20 and 21, T3S, R12W, Kateel River Meridian, Candle A-5
Quadrangle, Alaska. Platinum-Palladium controls an area comprising 8780 total
acres. Surface rights are held by the State of Alaska on the Alaska state claims
and prospecting sites and by the Federal Government on the Federal mining
claims.
The Dime Creek Prospect is 20 miles north of the village of Koyuk, which is
serviced by charter fixed wing flight from Nome, Alaska, located 125 miles to
the west. Local access to the Property is by helicopter. The region surrounding
Dime Creek is characterized by north-south trending mountains and low hills
ranging from 540 to 2900 feet in elevation.
History of Exploration. The Dime Creek placer mine in Section 20, T3 S, R
12W produced approximately 1 ounce of Pt for every 250 ounces of Au; in the
northerly part of the placer the ratio was nearly 1 ounce of Pt for every 100
ounces of AU produced. The bedrock source for platinum was not located, but
rather is the objective of the current exploration. Other drainages in the area
also have reported platinum occurrences.
Geology and Property Description. Regionally, the Dime Creek Prospect
straddles a major rift-related north-south suture that juxtaposes metamorphic
terrane of the Seward Peninsula to the west with Jurassic Cretaceous island arc
terrane to the east. Ma or intrusions along this suture include both alkalic and
mafic-ultramafic varieties. Jurassic-Cretaceous andesites are intruded by mafic
and utlramafic stocks, and peridotite is exposed locally along Dime Creek.
Exploration targets are Alaskan-type intrusive complexes, analogous to producing
PGE deposits in far east Russia.
Exploration Results and Proposed Program. Five pan concentrate samples from
the 2000 exploration program contain visible, or analytically detectable,
isoferroplatinum, up to 4.05 g/t Pt. Heavy mineral concentrates from bulk stream
sediment samples contain abundant chromite, chrome diopside, and forsterite,
supporting the local presence of an ultrarnafic source rock. The 201 field
program is designed to locate drill targets and includes a ground magnetic
survey and a mechanized auger soil-grid sampling survey. Estimated cost of the
program is $185,000.
East Divide Prospect.
Location and Access. The East Divide claim group is located 115 miles
east-southeast of Fairbanks, immediately east of the Healy Lake Block. The
prospect is located in Section 33, Township 7, Range 18 East, Big Delta
quadrangle, east central Alaska. The area is accessible via helicopter from
Delta Junction, a distance of 40 miles. The East Divide claim group comprises
168 claims (6,420 acres) held as Alaska State Mining Claims by Zeus. The State
of Alaska holds surface rights.
History of Exploration. Regional exploration in the area of the East Divide
property consisted of compilation of regional geochemical and geophysical data
from government sources and Landsat interpretation by North Star. In 1997 and
1998 North Star conducted reconnaissance and detailed mapping programs, soil and
rock chip geochemical surveys and channel sampling of outcrop within the
prospect area. This initial work located significant gold mineralization in
outcrop. The claim group was optioned to International Bravo Resources
Corporation ("Bravo") in 1999, which completed detailed mapping, rock chip and
channel sampling and two diamond drill holes in 2000. Significant gold and
silver mineralization was encountered in surface samples; however, drill results
were disappointing,
and Bravo elected not to exercise its option. The two drill holes may not have
penetrated the target horizons in the subsurface and thus did not test the high
gold targets outlined in surface sampling.
Geology and Property Description. The East Divide prospect occurs within
early Paleozoic metamorphic schists and gneisses intruded by Cretaceous
granodiorites and quartz monzonites. The same host rocks are present at the Pogo
gold deposit located 15 miles to the northwest. Mineralization at East Divide
consists of sheeted quartz-sulfide veins and stockworks that occur in an
east-west trending structural zone. Gold mineralization of up to 6 g/t Au with
associated arsenic, bismuth, copper and lead occurs extensively in the
outcropping veins and stockwork zones.
Exploration Results and Proposed Program. Initial and follow-up exploration
programs located a large area of alteration with significant gold values in
quartz stockwork veins and structures. Two diamond drill holes tested an area of
high gold values in surface samples but failed to intersect significant gold
mineralization in the subsurface. North Star proposes to locate two additional
diamond drill holes that are of significant alteration and high surface gold
values. These holes will be designed to test the entire zone as outlined on
surface. The cost of the 2001 program is projected to be $148,000.
At December 31, 2000, the Lands Division, had a staff of twelve persons,
consisting of three full time employees, who rendered primarily executive and
administrative services, and nine consultants, who rendered primarily geological
services and devoted an average of twenty hours per week to North Star.
Necessary reclamation work is done on a current basis as drilling and other
exploration activities are completed. Since the Company is involved only in
exploration and development rather than actual mining operations, reclamation
expense is not material.
The Technologies Division
The Company's Technologies Division is operated through its subsidiary,
Blue Star Sustainable Technologies Corporation, a Nevada corporation ("Blue
Star") that is owned 95 percent by the Company and 5 percent by Nicholas E.
Vandenborgh, Blue Star's president. Blue Star was organized in October 1999 and
is presently in the development stage of its business.
Blue Star is focused on the development of clean energy technology
utilizing a sophisticated and highly efficient method for the conversion of
natural gas into a variety of hydrocarbon-based products. These include clean
liquid fuels; high-quality solid waxes used in the pharmaceutical, food,
cosmetics, packaging, paper and construction industries; hydrogen gas, used as
the preferred feed stock for fuel cell technology; and, as by-products of the
conversion process, electricity and potable water.
Blue Star occupies leased facilities in Arvada, Colorado, including an
approximately 5,000 square foot engineering testing building and an
approximately 15,000 square foot building for research and development (together
with administrative offices), where it has developed a compact, small-scale,
prototype production plant; know as the "EMEX Blue Star Tripgen (TM) Plant". The
Tripgen (TM) Plant utilizes the "Fischer-Tropsch" process, which is a method for
the synthesis of liquid hydrocarbon products using natural energy resources, air
and catalysts. Blue Star uses this method to process natural gas with special
catalysts, air and steam to produce prototype demonstration quantities of
high-purity synthetic liquid fuels, waxes, hydrogen, heat and water.
Blue Star's Tripgen (TM) Plant utilizes widely available commercial
components, as well as highly sophisticated and proprietary computer control
software and special catalysts which are designed, fabricated and maintained at
Blue Star's facilities by Blue Star's professional staff, and are the subjects
of a number of Blue Star patent applications. The experimental demonstration
plant has been designed to produce between two and five barrels (approximately
85 to 200 gallons) per day of synthetic liquid fuel and/or high quality waxes
and hydrogen gas, depending upon how the plant is configured. Blue
Star has successfully used its Tripgen (TM) Plant to synthesize clean liquid
fuel and small quantities of high quality waxes. The waxes, unlike those
supplied by petroleum-based processes, are a high value product with no aromatic
components, a high degree of purity and a low melting temperature.
Since the natural gas refinement process always results in some fraction of
the total energy contained in the natural gas feed stream being released as high
temperature heat, the Tripgen (TM) Plant is designed to utilize that heat
together with the chemical waste stream for the production of electricity, which
can be used, in part, to supply the operating energy needs of the plant itself.
The Tripgen (TM) Plant is also designed so that it may be configured to
produce hydrogen gas, which the Company believes can provide an efficient
feedstock for advanced fuel cell technology. (Fuel cells are devices, which
manufacture electrical power from chemical processes, rather than combustion,
which run on a hydrocarbon based fuel source such as natural gas or other fuels
together with air.)
The goal of Blue Star's developmental efforts is to produce an efficient,
scalable, stand-alone plant in modules capable of producing approximately 500
barrels per day of liquefied synthetic fuel and/or high purity wax (plus
electricity and clean water) depending on the configuration of each plant
module. These Tripgen (TM) Plant modules could be sited at locations as varied
as stranded producing natural gas fields (too remote for connection to pipeline
systems) where a Tripgen (TM) Plant can produce clean liquid fuels and waxes at
lower cost for transport by truck, together with electricity for operating the
plant and potable water - or in an oil field flaring "waste" natural gas which
could feed the plant - or at an urban location served with natural gas where a
Tripgen (TM) Plant module could produce liquid fuel or hydrogen for fuel cell
based electricity, and heat and water, for a small apartment complex. Since the
Tripgen (TM) Plant has been designed to be "scalable", a number of 500 barrel
per day modules could be linked together for larger production facilities where
the natural gas feed stock is available in sufficient quantity.
Although the management of Blue Star believes that its prototype Tripgen
(TM) Plant is demonstrating the practicality and efficiency of this natural gas
refinement method, it is still in a developmental phase and there can be no
assurance that the Tripgen (TM) Plant or any later developments of the
technology will prove commercially viable.
There are other companies engaged in the production of synthetic fuels and
other products from natural gas, including, notably, the Shell Oil Company and
Sassoil Corporation of South Africa, with whose competition the Company will
have to deal when the Technologies Division commences commercial production.
Blue Star has fifteen employees, at least eight of whom hold Ph.D. degrees.
The total amount spent on research and development for the year ended December
31, 2000 was approximately $650,000 and $720,000 since inception in 1999.
Oil and Gas
The Company is also engaged to a limited extent in the oil and gas business
as a result of its ownership of working interests in several properties as set
forth below.
The Company's oil and gas reserves are located in three fields: (1)
Brundage Canyon, Duchesne County, Utah, (2) Yellow Creek Deep, Uinta County,
Wyoming, and (3) Recluse Field, Campbell County, Wyoming.
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.
The following reserve related information for the years ended December 31, 2000,
1999, 1998 was prepared by an outside consulting geologist using geological and
engineering data and interests and burdens information developed by the Company.
Reserve estimates are inherently imprecise and are continually subject to
revisions based on production history, results of additional exploration and
development, prices of oil and gas, and other factors.
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
(All Activities are in the United States)
December 31,
2000
------------
Proved oil and gas properties $ 881,000
Unproved oil and gas properties 13,000
------------
894,000
Accumulated depreciation, depletion
and amortization, and valuation
allowances 14,000
------------
Net Capitalized costs $ 880,000
============
COST INCURRED IN OIL AND GAS ACQUISITION, EXPLORATION, AND DEVELOPMENT
ACTIVITIES
(All Activities are in the United States)
For the period August 15,
2000 through December 31,
2000
----------
Acquisition of properties
Proved $ --
Unproved --
Exploration costs --
Development costs 33,000
----------
$ 33,000
==========
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
(All operations are in the United States)
2000
----------
Revenues:
Oil and gas sales $ 61,000
----------
61,000
----------
Expenses:
Production costs and taxes 24,000
Depreciation, depletion and impairments 14,000
----------
38,000
----------
23,000
Income Tax --
----------
Results of operations from producing
Activities (excluding corporate overhead
and interest costs) $ 23,000
==========
The Company's major reserves come from the Brundage Canyon Project in Duchesne
County, Utah. The Company is showing 61,000 barrels of oil and 74,000 mcf's of
gas on this project of which 39,000 barrels of oil and 63,000 mcf's of gas are
proved undeveloped on a direct effect offset to a producing well. Other reserves
are 41,000 mcf's on the Yellow Creek Deep Prospect in Uinta County, Wyoming, and
181,000 mcf's on the Recluse field in Campbell County.
RESERVE QUANTITY INFORMATION
(All Reserves are in the United States)
In accordance with FASB Statement No., 69, the Company is presenting required
oil and gas schedules, which reflect three years activities for the oil and gas
interests, which were acquired on August 15, 2000.
2000 1999 1998
---- ---- ----
Bbls Mcf Bbls Mcf Bbls Mcf
Proved developed
And undeveloped reserves
(a) (b)
Beginning of year 67,688 387,246 41,777 331,954 80,186 438,543
Revision of previous estimates (2,765) (76,778) 30,211 83,792 (44,709) (73,589)
Purchase of minerals in place -- -- -- -- -- --
Extension and discoveries -- -- -- -- -- --
Production (3,300) (14,500) (4,300) (28,500) (6,300) (33,000)
Sales or exchange of minerals
in place -- -- -- -- -- --
-----------------------------------------------------------------------------------
61,623 295,968 67,688 387,246 41,777 331,954
===================================================================================
Proved developed reserves:
Beginning of year 36,784 358,999 41,777 331,543 49,299 438,543
End of Year 23,216 188,102 36,784 358,999 41,777 331,543
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.
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:
2000 1999 1998
---- ---- ----
Future cash flows $ 3,050,000 $ 2,427,000 $ 688,000
Future production and development cost (868,000) (885,000) (230,000)
Future Income taxes -- -- --
----------- ----------- -----------
Future net cash flows 2,182,000 1,542,000 458,000
10% annual discount rate (891,000) (648,000) (209,000)
----------- ----------- -----------
Discounted future net cash flows $ 1,291,000 $ 894,000 $ 249,000
=========== =========== ===========
The following are the principal sources of
change in the standardized measure of
discounted future net cash flows:
Balance, beginning of the year $ 894,000 $ 249,000 $ 661,000
Sales, net of production cost (93,000) (74,000) (88,000)
Net Changes in process and production
Costs 539,000 485,000 76,000
Discoveries and purchase of reserves in
Place -- -- --
Development costs incurred -- (3,000) (69,000)
Revision of previous quantity estimates (138,000) 212,000 (397,000)
Accretion of discount 89,000 25,000 66,000
----------- ----------- -----------
Balance, end of year $ 1,291,000 $ 894,000 $ 249,000
=========== =========== ===========
Net Quantities of Oil and Gas Produced
The net quantities of oil and gas produced by the properties which were acquired
by the Company on August 15, 2000 for each of the last three fiscal years are as
follow:
Oil (bbls) Gas (Mcf)
---------- ---------
2000 3,300 14,500
1999 4,300 28,500
1998 6,300 33,000
Average Sales Price and Production Costs
The following table reflects information concerning average sales price and
production costs for the acquired properties for each of the last three fiscal
years:
2000 1999 1998
---- ---- ----
Average sales price per bbl $ 14.37 $ 14.10 $ 12.03
Average sales price per MCF 6.25 1.96 1.99
Average production cost per
Net equivalent bbl* 8.87 3.30 2.32
* Natural gas has been converted into equivalent bbls using a conversion
ratio of 6:1.
Productive Wells
The following table reflects the total gross and net wells, expressed separately
for oil and gas as of December 31, 2000.
Gross Net
----- ---
Oil Gas Oil Gas
4 2 0.51 0.51
Drilling Activity
The following reflects the exploratory and development wells drilled for the
past three years.
Exploratory Wells
-----------------
Productive Dry Total Wells
---------- --- -----------
Gross Net Gross Net Gross Net
1999 0 0 0 0 0 0
1998 0 0 0 0 0 0
1997 0 0 0 0 0 0
Development Wells
-----------------
1999 0 0 0 0 0 0
1998 0 0 0 0 0 0
1997 0 0 0 0 0 0
The Company has not participated in the drilling of exploratory wells in 2000,
1999 or 1998. The Company participated in drilling two development wells in 2000
but none in 1999 or 1998.
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.
Properties - Real Estate
The Company leases the buildings, which the Technology Division occupies in
Arvada, Colorado, and the office space occupied by the Lands Division in
Lakewood, Colorado. The Company's corporate headquarters are located in office
space in New York City, which is rented under the terms of a use and occupancy
agreement
Item 3. Legal Proceedings.
The Company is not a party to any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted for a vote or approval of security holders during
the fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters.
The principal market where the Company's common equity is traded is the
Small Cap Market of the Nasdaq Stock Exchange.
The high and low market bid prices of the Company's common stock during
each quarter of the last two fiscal years were as follows:
High Low
---- ---
1999, 1st quarter $ 1.31 $ 0.88
1999, 2nd Quarter 1.50 0.94
1999, 3rd quarter 1.44 1.00
1999, 4th quarter 1.38 0.81
2000, 1st quarter 8.50 1.06
2000, 2nd quarter 8.50 2.94
2000, 3rd quarter 8.63 5.63
2000, 4th quarter 7.00 3.63
On March 30, 2001 the closing price for the common stock as reported by
NASDAQ was $0 per share.
At December 31, 2000 there were 754 holders of record of the Company's
common stock.
No cash dividends have been paid in the past two years. Because the Lands
Division is in the exploration stage and the Technologies Division is in the
developmental stage, it is unlikely that cash dividends will be paid in 2001.
However, prior to the acquisition, Hawks Industries paid a 7-1/2 % stock
dividend on June 1, 2000 to holders of record on May 1, 2000. The Company has
declared a 5 % stock dividend payable May 14, 2001 to holders of record at the
close of business on April 16, 2001 and has stated that it has the intention of
declaring a regular 2-1/2 % stock dividend each quarter, commencing with the
quarter ending September 30, 2001, if the Company's business makes satisfactory
progress.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The Company's plan of operation for the next 12 months relates to both the
business of the Company's Lands Division and the business of the Company's
Technologies Division. In the case of the Lands Division, it is the Company's
plan to proceed with the development of the six properties referred
to in the discussion of the Lands Division's business in Item 1 above as being
scheduled for further development this year, and to continue to maintain the
Company's rights with respect to other properties which are the subject of the
agreement with Doyon referred to in said item. In the case of the Company's
Technologies Division, it is the Company's plan to proceed with the development
of the first 500 barrel per day modular plant of the kind described in the
discussion of the Technologies Division's business in Item 1 above.
The funding requirements of the Technologies Division for 2001 relate
primarily to the construction of the first 500 barrel a day plant module
referred to above, the estimated cost of which is expected to be in the
neighborhood of $20,000,000. The Company has accepted a proposal from a
financial institution to syndicate a combined debt and equity financing of $100
million to finance the construction of a 2,500 barrel a day plant consisting of
five 500 barrel a day plant modules. There can be no assurance that the
syndication will be successfully concluded.
The funding requirements of the Company's oil and gas operations have been
met in the past through a revolving credit agreement with and loan from a bank
to which working interests owned by the Company in oil and gas wells are pledged
as collateral. It is the Company's intention to continue that practice.
The funding requirements of the Lands Division for 2001 are estimated at
approximately $2,500,000. The Company plans to raise such funds, as well as
funds for the operation of the Technologies Division (apart from plant
construction), through the sale of common stock to the public for which a
registration statement is presently in preparation. The Company has received a
proposal from an underwriter for an underwritten offering of up to $20,000,000
to be raised over a period of 24 months subject to certain conditions that will
become determinable during that period. There can be no assurance that the
offering of common stock to the public will be successful.
Pending the completion of the above public offering of common stock, it
will be necessary for the Company to obtain "bridge" funding beyond its
immediate cash resources. Among other things, a payment of $300,000 that came
due on April 1, 2001 under the Agreement with Doyon has not yet been paid. The
Company's major shareholders, namely Universal Equities Consolidated, LLC, and
Thorn Tree Resources, L.L.C. have indicated that they are prepared to furnish
such bridge funding.
There are no expected purchases of plant and significant equipment except
for the Technologies Division's plant referred to above.
The Technologies Division intends to continue to do product research and
development on a continuous basis in order to improve the efficiency and
performance of its plants.
If the Company's current financial condition and operations are compared
with those North Star and Zeus over the past two years, which would appear to be
the appropriate comparison in view of the reverse acquisition treatment given
the August 2000 change in control discussed above, the principal changes are,
first, the elimination for practical purposes of North Star's substantial debt,
which is now internal as a result of having been assigned to the Company, and,
second, the incurring of expense for the Technologies Division research and
development, which was not a significant factor in prior years. As a result of
that increased expense, the net loss from operations incurred by the Company for
fiscal 2000 was $ 5,758,000 as compared with $ 5,261,000 for fiscal 1999.
Because the Lands Division is in the exploration stage and the Technologies
Division is in the developmental stage, the costs of operating those divisions
will have a negative impact on liquidity except to the extent that funds are
raised through equity and/or debt financing to meet those costs. While revenues
are expected to continue to be provided by the Company's oil and gas operations,
they are not likely to be substantial enough to materially offset the cash
requirements of the Lands and Technology Divisions. The ability to make
contractually required expenditures and payments is necessary for retention of
the Company's mineral rights.
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
ITEM 7. FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION
Index
Page
Number
------
Report of Independent Certified Public Accountants F-1
Financial Statement:
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-2
Consolidated Statements of Operations and
Comprehensive Loss for the Years Ended
December 31, 2000, 1999, and 1998 F-3
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 2000, 1999, and 1998 F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999, and 1998 F-5
Notes to Consolidated Financial Statements F-6 - F-20
F - 1(a)
LOVELETT, SKOGEN & ASSOCIATES, P.C.
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Emex Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of Emex Corporation
(formerly Hawks Industries, Inc.) and Subsidiaries as of December 31, 2000 and
1999 and the related consolidated statements of operations and comprehensive
loss, shareholders' equity, and cash flows for the years ended December 31,
2000, 1999 and 1998. These consolidated financial statements are the
responsibility of Emex Corporation'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 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.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Emex Corporation and
Subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for the years ended December 31, 2000, 1999 and
1998, in conformity with generally accepted accounting principles.
/s/ Lovelett, Skogen & Associates, P.C.
Casper, Wyoming
April 6, 2001, except for Notes 3, 5, and 10, as
to which the date is April 13, 2001
F - 1
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
2000 1999
---- ----
ASSETS
CURRENT ASSETS
Cash $ 2,279,000 $ 47,000
Accounts receivable 35,000 --
Other current assets 80,000 --
------------ ------------
Total current assets 2,394,000 47,000
------------ ------------
PROPERTY AND EQUIPMENT, net 2,738,000 936,000
------------ ------------
INVESTMENTS AND OTHER ASSETS
Note receivable 24,000 --
Available for sale investment 5,000 11,000
Goodwill, net 373,000 --
Other assets 154,000 6,000
------------ ------------
556,000 17,000
------------ ------------
$ 5,688,000 $ 1,000,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 152,000 $ --
Notes payable - related party -- 9,700,000
Capital lease obligation 18,000 --
Accounts payable 437,000 307,000
Accrued liabilities 134,000 20,000
------------ ------------
Total current liabilities 741,000 10,027,000
------------ ------------
LONG TERM DEBT
Notes Payable - related party 1,619,000 --
Capital lease obligation 55,000 --
------------ ------------
1,674,000 --
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
MINORITY INTEREST -- --
SHAREHOLDERS' EQUITY Capital stock:
Preferred stock, $.01 par value, authorized 997,000
shares: no shares issued -- --
Common stock, $.01 par value, 50,000,000 shares authorized
23,328,364 and 22,171,875 shares issued
and outstanding 233,000 5,000
Capital in excess of par value of common stock 17,957,000 --
Accumulated other comprehensive loss (11,000) (5,000)
Accumulated deficit (14,906,000) (9,027,000)
------------ ------------
3,273,000 (9,027,000)
------------ ------------
$ 5,688,000 $ 1,000,000
============ ============
See notes to Consolidated Financial Statements
F - 2
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999,1998
2000 1999 1998
---- ---- ----
OPERATIONS
Operating revenue:
Oil and gas sales $ 61,000 $ -- $ --
Consulting fees 14,000 -- --
------------ ------------ ------------
75,000 -- --
------------ ------------ ------------
Operating expenses:
Lease operating 24,000 -- --
Exploration 2,409,000 3,047,000 2,378,000
Research and development 649,000 68,000 --
Depreciation, depletion and amortization 115,000 38,000 10,000
General and administrative 2,252,000 1,662,000 435,000
------------ ------------ ------------
5,449,000 4,815,000 2,823,000
------------ ------------ ------------
Operating loss from continuing operations (5,374,000) (4,815,000) (2,823,000)
Other income (expense):
Other income (expense) -- 13,000 --
Interest income 96,000 -- --
Interest expense (474,000) (454,000) (153,000)
------------ ------------ ------------
Loss from continuing operations before taxes (5,752,000) (5,256,000) (2,976,000)
Provision for taxes:
Current -- -- --
------------ ------------ ------------
Net loss $ (5,752,000) $ (5,256,000) $ (2,976,000)
============ ============ ============
Earnings per share:
Weighted average number of
common shares outstanding 22,548,378 22,171,875 22,171,875
Basic and diluted loss $ (0.26) $ (0.24) $ (0.13)
============ ============ ============
COMPREHENSIVE LOSS
Net loss $ (5,752,000) $ (5,256,000) $ (2,976,000)
Other comprehensive loss:
Unrealized loss on available-for-sale securities (6,000) (5,000) --
------------ ------------ ------------
Comprehensive loss $ (5,758,000) $ (5,261,000) $ (2,976,000)
============ ============ ============
See Notes to Consolidated Financial Statements
F - 3
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999, 1998
Accumu-
Common Stock Issued Capital in Unrealized lated
---------------------------- Excess of Losses on Earnings
Shares Amount Par Value Securities (Deficit)
------------ ------------ ------------ ------------ ------------
Balance January 1, 1998 20,000,000 $ 1,000 $ -- $ -- $ (795,000)
Net Loss -- -- -- -- (2,976,000)
------------ ------------ ------------ ------------ ------------
Balance December 31, 1998 20,000,000 1,000 -- -- (3,771,000)
Common stock issued
for Zeus Consolidated Holdings, Inc
and Blue Star Sustainable Technologies
Corp 47,500 4,000 -- -- --
Net (loss) -- -- -- -- (5,256,000)
Other comprehensive (loss) -- -- -- (5,000) --
------------ ------------ ------------ ------------ ------------
Balance December 31, 1999 20,047,500 5,000 -- (5,000) (9,027,000)
Stock of subsidiaries acquired by Emex (20,047,500) (5,000) -- -- --
Stock of Emex outstanding prior to the
acquisition 1,156,489 11,000 1,353,000 -- --
Stock of Emex issued to shareholders in
acquisition 22,171,875 222,000 14,985,000 -- --
Contribution of subsidiary by affiliates -- -- 129,000 -- (127,000)
Foregiveness of debt - affiliate -- -- 1,490,000 -- --
Net (loss) -- -- -- -- (5,752,000)
Other comprehensive (loss) -- -- -- (6,000) --
------------ ------------ ------------ ------------ ------------
Balance December 31, 2000 23,328,364 $ 233,000 $ 17,957,000 $ (11,000) $(14,906,000)
============ ============ ============ ============ ============
See notes to Consolidated Financial Statements
F - 4
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999,1998
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,752,000) $ (5,256,000) $ (2,976,000)
Add: depreciation and depletion and amortization 115,000 38,000 10,000
Changes in assets and liabilities:
Accounts receivable (35,000) 46,000 (8,000)
Other current assets (75,000) 4,000 --
Other assets (149,000) (6,000) (4,000)
Accounts payable 130,000 (114,000) 368,000
Accrued interest 468,000 454,000 152,000
Accrued liabilities 114,000 6,000 10,000
------------ ------------ ------------
Cash used in operating activities (5,184,000) (4,828,000) (2,448,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (549,000) (104,000) (57,000)
Land investment (300,000) (400,000) (200,000)
Marketable securities - available for sale -- (17,000) --
------------ ------------ ------------
Cash used in investing activities (849,000) (521,000) (257,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable 3,302,000 5,381,000 2,702,000
Capital lease payments (8,000) -- --
Notes receivable (29,000) -- --
Sale of stock 5,000,000 4,000 --
------------ ------------ ------------
Cash provided by financing activities 8,265,000 5,385,000 2,702,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 2,232,000 36,000 (3,000)
CASH AT BEGINNING OF YEAR 47,000 11,000 14,000
------------ ------------ ------------
CASH AT END OF PERIOD $ 2,279,000 $ 47,000 $ 11,000
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 6,000 $ -- $ --
Income taxes $ -- $ -- $ --
Schedule of Noncash Investing and Financing Transactions:
Capital lease obligation incurred for
purchase of equipment $ 81,000 $ -- $ --
Exchange of shares for notes $ 10,200,000 $ -- $ --
Exchange of shares for stock of various
subsidiaries $ 7,000 $ -- $ --
Contribution to capital of shares of Blue Star $ 129,000 $ -- $ --
Acquisition of goodwill with shares $ 387,000 $ -- $ --
Acquisition of net assets with shares $ 973,000 $ -- $ --
Forgiveness of accrued interest due to Equistar $ 1,490,000 $ -- $ --
See notes to consolidated financial statements
F - 5
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
On August 15, 2000, a transaction (the "Transaction") was effected between Emex
Corporation (Emex)(formerly known as Hawks Industries, Inc.) and Universal
Equities Consolidated, LLC, David H. Peipers, The Cornerhouse Limited
Partnership and The Winsome Limited Partnership (collectively referred to as
"Buyers"), which resulted in the Buyers securing a controlling interest in Emex
Corporation's common stock. In the Transaction, the Buyers acquired 22,171,876
shares, or approximately 95%, of the common stock of Emex Corporation, in
exchange for $5 million in cash, approximately 85% of the outstanding shares of
North Star Exploration, Inc. ("North Star") and Zeus Consolidated Holdings, Inc
("Zeus") and the rights to $10.2 million of indebtedness owed by North Star to
the Buyers (a total purchase price valued at approximately $33,000,000).
The Transaction was accounted for as a reverse acquisition and North Star and
Zeus, previously under common control, were considered the acquirers.
Consequently, the 1,156,489 outstanding shares of Emex Corp. on the date of
acquisition were valued at the average trading price of the stock for the period
from two days before until two days after the announcement of the transaction,
or $1.18 per share, resulting in a purchase price of $1,364,657. The purchase
price was allocated $860,460 to oil and gas properties, $116,719 to other
current assets and $387,478 to Goodwill. The $5 million in cash and the $10.2
million in receivables contributed by the Buyers, and the purchase price noted
above of $1,364,657, resulted in total additional capital from the Transaction
of $16,564,657. Subsequent to the Transaction, on September 8, 2000, the Buyers
also contributed the assets of Blue Star Sustainable Technologies Corporation
("Blue Star") with a book value of $129,089 to the combined company. Because of
the previous common ownership of North Star, Zeus and Blue Star, the historical
financial statements presented herein have been restated as a reorganization of
entities under common control to reflect the operations of North Star, Zeus and
Blue Star as if the companies had been combined for all periods presented. In
addition, the statement of operations for the year ended December 31, 2000
include the operations for Emex Corp. for the period from August 15, 2000
through December 31, 2000. All references to "Emex" or the "Company" refer to
North Star, Zeus and Blue Star prior to August 15, 2000 and to the three
companies and Emex Corp. for the period subsequent to August 15, 2000. The
Company is incorporated in the State of Nevada.
North Star and Zeus are primarily engaged in acquiring, exploring and
developing certain mineral properties in the State of Alaska. Blue Star is
primarily engaged in developing and deploying innovative energy technology
serving present and future global markets. Blue Star has spent $649,000 and
$68,000 in Company sponsored research and development activities in 2000 and
1999, respectively. Emex Corp. is primarily engaged in oil and gas producing
activities in Wyoming.
F - 6
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (continued)
PRO FORMA RESULTS OF OPERATIONS
The following table reflects the pro forma results of operations for the years
ended December 31, 2000, 1999, and 1998 as though the Transaction had occurred
as of January 1, 1999. The pro forma amounts are not necessarily indicative of
the results that may be reported in the future.
2000 1999 1998
---------- ---------- ----------
Revenues $ 158,000 $ 102,000 $ 117,000
Net loss (5,751,000) (5,266,000) (2,921,000)
Basic and diluted loss per share (.25) (.23) (.13)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principle of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, North Star Exploration Inc.(90% ownership), Zeus Consolidated
Holdings, Inc.(89.9% ownership), Blue Star Sustainable Technologies Corporation
(95% ownership)and Platinum Palladium Holdings, Inc and their wholly owned
subsidiaries, Zeus Exploration, Inc. and Platinum Palladium Exploration,
Inc.(85% ownership). All significant intercompany balances and transactions have
been eliminated in consolidation. The Company has recorded 100% of the losses
attributable to the minority interest owners in North Star, Zeus Blue Star, and
Platinum Palladium, as the cumulative losses for those companies has eliminated
minority interest owners' equity. Accordingly, minority interest has been
reduced to zero in the accompanying consolidated balance sheet.
Cash Equivalents
The Company considers all highly liquid instruments with original maturities of
three months or less to be cash equivalents.
Mineral Rights
Mineral exploration costs are expensed as incurred. When it has been determined
that a mineral property can be economically developed, the costs incurred to
develop the property will be capitalized. Significant payments related to the
acquisition of exploration interests are also capitalized. If a mineable ore
body is discovered, acquisition costs will be amortized using a
units-of-production method. If no mineable ore body is discovered, acquisition
costs will be expensed in the period in which it is determined the property has
no future economic value.
F - 7
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Oil and Gas Properties
The Company uses the successful efforts method of accounting for oil and gas
producing activities as prescribed by Statement of Financial Accounting
Standards ("SFAS") Statement No. 19, "Financial Accounting and Reporting by Oil
and Gas Producing Companies". Under this method, the costs of unsuccessful
exploratory wells and delay rentals are expensed as incurred. Lease acquisition
costs and costs of drilling and equipping productive exploratory and all
development wells are capitalized. Depreciation and depletion of producing
properties and equipment is computed by the unit-of-production method using
Company estimates of unrecovered proved producing oil and gas reserves.
Long-Lived Assets
The Company evaluates potential impairment of long-lived assets and long-lived
assets to be disposed of in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
SFAS No. 121 establishes procedures for review of recoverability, and
measurement of impairment if necessary, of long-lived assets held and used by
the Company. SFAS No. 121 requires that those assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be fully recoverable. SFAS No. 121 also requires any
long-lived assets to be disposed of to be reported at the lower of the carrying
amount or fair value less estimated selling costs. Fair value is determined
using an estimated future cash flow analysis. An impairment is considered to
exist if total estimated future cash flows on an undiscounted basis is less than
the carrying amount of the asset. An impairment loss is then measured and
recorded based on discounted estimated future cash flows.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charges to operating expense as incurred, and expenditures for
additions and betterments are capitalized. The cost of assets sold or otherwise
disposed of and the related accumulated depreciation are eliminated from the
accounts, and any resulting gain of loss is reflected in the statements of
operations.
Depreciation of property and equipment is calculated using either straight-line
or accelerated methods over estimated useful lives, which range from 4.5 years
to 39 years.
F - 8
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
The Company follows the provisions of SFAS No. 109, "Accounting for Income
Taxes", which requires the use of the asset and liability method of computing
deferred income taxes. The objective of the asset and liability method is to
establish deferred tax assets and liabilities for the temporary differences
between the book basis and tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when those amounts are realized or
settled.
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. The common shares issued to the controlling
shareholders in the acquisition are considered outstanding for all periods
presented. The outstanding shares of the shareholders of Emex as of the
acquisition are deemed outstanding for the period August 15, 2000 through
December 31, 2000. There were no common stock equivalents for any of the periods
presented.
Fair Value of Financial Instruments
The carrying values of the Company's cash and cash equivalents, accounts
receivable, notes payable, accounts payable and accrued liabilities approximate
their estimated fair values due to the short-term maturities of these assets and
liabilities.
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 fiscal 2001.
The Company's operations will be significantly affected by the market price of
gold. Gold prices can fluctuate widely and are affected by numerous factors that
are beyond the Company's control. In July 1999, the market price for gold
declined to its lowest level in 20 years. A further sustained period of low gold
prices could have a material adverse effect on the Company's financial position,
results of operations and its ability to raise additional financing.
F - 9
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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
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 December 31, 2000 the Company held investments in a money market mutual
fund totaling $1,415,883. 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.
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.
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 the 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 10 years, the estimated economic useful life. This
life is based on the factors influencing the acquisition decision. Goodwill at
December 31, 2000 is reported on the balance sheet, net amortization of $14,500.
F - 10
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Bad debts
Accounts receivable consists of amounts due from oil and gas production from
three payers. 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.
Comprehensive Loss
The Company reports comprehensive income in accordance with FASB Statement No.
130 "Reporting Comprehensive Income." Accordingly, the consolidated statement of
comprehensive loss are included on page F-3, while accumulated other
comprehensive (loss) is included in the Shareholders' Equity section of the
balance sheet. Amounts include gains and losses on foreign currency translation
adjustments and unrealized gains and losses on marketable securities.
Marketable Securities
The Company accounts for marketable securities in accordance with provisions of
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115)
Available for Sale Securities are reported at fair market value, with unrealized
gains and losses excluded from earnings and reported separately as a component
of shareholders, equity.
The Company's marketable securities consist of listed common stocks with an
aggregate cost, based in specific identification, of $5,000 as of December 31,
2000. The gross unrealized holding losses as of December 31, 2000 were
$11,000.Under SFAS 115 all of the Company's securities have readily determinable
fair values and are classified as available for sale securities.
NOTE 3 - RELATED PARTY ACTIVITY
Advances From Affiliate
Prior to the Transaction, funding for operations of North Star, Zeus and Blue
Star was furnished by Equistar Consolidated Holdings, LLC ("Equistar"). Equistar
is owned by certain shareholders who own approximately 95% of the outstanding
shares of the Company.
F - 11
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY ACTIVITY (continued)
At December 31, 2000 and 1999, the Company had advances from Equistar totaling
$1,549,000 and $9,072,000 respectively. The advances accrue interest at 7% per
annum and are due to be repaid on March 31, 2002.
Accrued interest on the advances totaled $70,000 and $629,000 at December 31,
2000 and 1999, respectively.
The diminution in advances and accrued interest payable to Equistar is a result
of forgiveness of an amount of advances and accrued interest at the time of the
August 15, 2000 reverse acquisition discussed in Note 1.
The Company funding agreement with Equistar expired on March 31, 2001.
Subsequent to year end, 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 year end, Equistar,
also extended the due date of the existing notes payable to March 31, 2002.
In November 2000 Equistar and The Cornerhouse Limited Partnership paid $45,000
in interest to the Company on $4,000,000, 45 day 9% notes issued in connection
with the acquisition transaction described in Note 1. The note was paid in full
on September 26, 2000.
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 years ended December 31, 2000 and
1999 in the amount $58,000 and $17,500 respectively.
NOTE 4 - INDUSTRY SEGMENTS
Segment information has been prepared in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." Emex has
three reportable industry segments: mineral resource exploration and mining,
energy resource technology and
F - 12
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INDUSTRY SEGMENTS (continued)
development and oil and gas producing activities. The segments are strategic
business units which operate in separate industries. The segment data that
follows was prepared on the same basis as Emex's consolidated financial
statements. As discussed in Note 1, Emex Corp. was acquired in the third quarter
of 2000. Accordingly, the segment disclosure presented includes oil and gas
producing activities of the Company for the period from August 15, 2000 through
December 31, 2000.
2000 1999 1998
----------- ----------- -----------
Operating Revenue:
Oil and gas $ 61,000 $ -- $ --
Energy resource technology & development 14,000 -- --
----------- ----------- -----------
$ 75,000 $ -- $ --
=========== =========== ===========
Operating profit (loss):
Oil and gas $ 23,000 $ -- $ --
Energy resource technology & development (1,577,000) (324,000) --
Mineral resource exploration (3,149,000) (4,491,000) (2,823,000)
Unallocated corporate expense (671,000) -- --
----------- ----------- -----------
$(5,374,000) $(4,815,000) $(2,823,000)
=========== =========== ===========
Total assets:
Oil and gas $ 878,000 $ -- $ --
Energy resource technology & development 795,000 106,000 --
Mineral resource exploration 1,423,000 894,000 579,000
Corporate assets 2,592,000 -- --
----------- ----------- -----------
$ 5,688,000 $ 1,000,000 $ 579,000
=========== =========== ===========
Capital expenditures
Oil and gas $ 896,000 $ -- $ --
Energy resource technology & development 673,000 84,000 --
Mineral resource exploration 303,000 420,000 257,000
Corporate assets 30,000 -- --
----------- ----------- -----------
$ 1,902,000 $ 504,000 $ 257,000
=========== =========== ===========
F - 13
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INDUSTRY SEGMENTS (continued)
Depreciation, depletion and amortization:
Oil and gas $ 14,000 $ -- $ --
Energy resource technology & development 45,000 4,000 --
Mineral resource exploration 41,000 34,000 10,000
Corporate assets 15,000 -- --
----------- ----------- -----------
$ 115,000 $ 38,000 $ 10,000
=========== =========== ===========
Intereest Expense:
Oil and gas $ 6,000 $ -- $ --
Energy resource technology & development -- 7,000 --
Mineral resource exploration 468,000 447,000 153,000
Corporate assets -- -- --
----------- ----------- -----------
$ 474,000 $ 454,000 $ 153,000
=========== =========== ===========
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Doyon Agreement
On May 27, 1997, the Company entered into an Option Agreement (the "Agreement")
with Doyon Limited ("Doyon") with respect to certain lands in Alaska. The
Agreement provides the Company with the exclusive right to explore for minerals
until January 1, 2002, to lease prospects identified thereon, and to develop and
produce minerals pursuant to such leases. The optioned lands encompass
approximately seven million acres comprised of 24 individually named blocks,
plus additional rights to surrounding lands within areas of interest. The
Agreement requires the Company to spend $9 million over the life of the
Agreement, with minimum commitments per year and with specific minimum
expenditures per block. Exploration expenditures in excess of the minimum amount
may be carried forward and credited to expenditure requirements for future years
with certain limitations. As of December 31, 2000, the Company had spent
approximately $7.5 million of the $9 million required to be spent over the life
of the agreement.
At any time during the agreement term, the Company may, if it has conducted a
specified minimum amount of drilling, made a specified minimum amount of
exploration expenditures and received a positive pre-feasibility study with
respect to a particular mineral area, exercise its option to lease that area for
mineral development for a specified initial term. If the Company achieves
commercial production during the initial term, the lease will continue so long
as there is commercial production. The Company may obtain leases on an unlimited
number of areas currently owned by Doyon, and on areas from lands selected by
Doyon pursuant to the Alaska Native Claims Settlement Act, but not yet conveyed
to Doyon.
F - 14
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - COMMITMENTS AND CONTINGENCIES (continued)
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 December 31, 2000 and 1999. 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 December 31, 2000 the Company's required exploration expenditures commitment
under the Agreement is $2,000,000 for 2001.
In accordance with the Agreement the Company made the annual lease maintenance
payments of $31,500 for the period from September 1, 2000 to August 31, 2001.
Argonne National Laboratory Contract
Blue Star has entered into a contract with Argonne National Laboratory
("Argonne"). The Company is to receive $49,754 over a two-year period beginning
February 1, 2000 and ending January 31, 2002. The objective of this contract is
to augment the expertise of Argonne in providing technical support to the
Department of Energy program managers for fuel cells in transportation
technology development.
Environmental Compliance
The Company's management believes that it is in compliance with environmental
laws and
F - 15
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - COMMITMENTS AND CONTINGENCIES (continued)
regulations as currently enacted. The Company's management has filed all
necessary permits to fulfill current environmental compliance requirements.
However, the exact nature of environmental compliance, which the Company may be
exposed to in the future, cannot be predicted. This is primarily due to the
increasing number, complexity and changing character of environmental
requirements that may be enacted by federal and state authorities. Provisions
for reclamation will be made when mining begins.
Capital Lease
The Company is the lessee of analysis equipment under a capital lease expiring
in the year 2003. The asset and liability under capital lease is recorded at the
fair value of the asset. The asset is depreciated over the estimated productive
life. Depreciation of the asset under capital lease is included in depreciation
expense for 2000.
Operating Leases
The Company has certain operating leases for office space and laboratory
facilities expiring in various years through 2007.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of 1 year as of December 31, 2000 for each of the next
5 years and in aggregate are:
Year ended December 31,
2001 $ 579,000
2002 584,000
2003 588,000
2004 568,000
2005 456,000
Subsequent to 2005 496,000
----------
Total minimum future rental payments $3,271,000
==========
Bridge Financing
The Company funding agreement with Equistar expired on March 31, 2001.
Subsequent to year end, the Company received written confirmation from Universal
Equities Consolidated LLC, and Thorn Tree Resources, L.L.C. majors 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 year end,
Equistar, also extended the due date of the existing notes payable to March 31,
2002.
F - 16
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - NOTE RECEIVABLE
The note receivable on December 31, 2000, consisted of $34,000 due from the sale
of printing equipment, building and other assets in 1995, part of which is shown
in current assets. The note receivable is secured by the above noted assets and
has an interest rate of 9%.
Maturities on this note are as follow:
2001 $ 5,000
2002 6,000
2003 6,000
2004 7,000
2005 5,000
--------
$ 29,000
========
NOTE 7 - OTHER ASSETS
An agreement granting International Bravo Resource Corp. ("Bravo") an option to
acquire a 51 percent interest in certain properties held by Zeus was terminated
on August 31, 2000. Under the provisions of the agreement, Bravo owes Zeus
$53,332 for reimbursement of certain expenses, and is still obligated to
transfer to Zeus 150,000 shares of Bravo stock, which is traded on the Canadian
Venture Exchange. This is included in other assets. Zeus offered to accept
payment of the $53,332 in stock, in lieu of cash, and Bravo indicated
willingness to make payment in that form at a deemed price of $0.16 per share.
The transaction was concluded on that basis after year end.
NOTE 8 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2000 and 1999 consist of the following:
2000 1999
---- ----
Unproved oil and gas properties $ 13,000 $ --
Proved oil and gas properties 880,000 --
Mining lease rights 950,000 650,000
Equipment, furniture and fixtures 1,038,000 334,000
---------- ----------
2,881,000 984,000
Less: accumulated depreciation
and depletion 143,000 48,000
---------- ----------
$2,738,000 $ 936,000
========== ==========
F - 17
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - SHORT TERM BORROWINGS
Short term borrowings at December 31, 2000 follows:
Maximum Average Weighted
Weighted Amount Amount Average
Average outstanding Outstanding Rate
Rate at During the During the During
Balance Period-end Period Period The Period
------- ---------- ------ ------ ----------
Revolving line of credit $155,000;
American National Bank, interest at
Citibank Prime plus .75%(10.25% at
December 31, 2000) requires
quarterly payments of accrued
interest, maturing September 16,
2001, collateralized by certain oil
and gas properties and $100,000 in
the money market fund $ 152,000 10.25% $ 153,000 $ 152,000 10.25%
========= ========= =========
NOTE 10 - NOTES PAYABLE-related party
The balance sheet at December 31, 1999 reflects notes payable by the Company's
subsidiary, North Star, to Equistar Consolidated Holdings LLC ("Equistar") in
the amount of $9,700,000. These notes were assigned to Emex Corporation in the
August 15, 2000 acquisition transaction discussed in Note 1.
At December 31, 2000, the Company had notes due to Equistar totaling
$1,608,000(including $70,000 of accrued interest). The notes are due to be
repaid on March 31, 2002 together with interest accruing at the rate of 7% per
annum. Also see Note 3 regarding Equistar's commitment for necessary bridge
financing.
Equistar is owned by the Company's controlling shareholders.
F - 18
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL LEASE OBLIGATION
Minimum future lease payments under the Linc Quantum Analytics, Inc capital
lease as of December 31, 2000 are as follows:
2001 $ 28,000
2002 30,000
2003 34,000
---------
Total minimum lease payments 92,000
Less: Amount representing interest 19,000
---------
Present value of net minimum lease payment 73,000
Less: Current Maturities 18,000
---------
$ 55,000
=========
The terms of the lease include monthly installments of $2,550 with a final
payment of $7,515 at the conclusion of the lease. The lease has an annual
imputed interest rate of 15.15%.
NOTE 12 - EMPLOYEE BENEFIT PLAN
Two of the company subsidiaries provide for a 401K plan to their employees.
Employer contribution for the years ended December 31, 2000, 1999, and 1998 were
$5,000, $10,000 and $2,000 respectively.
NOTE 13 - MAJOR CUSTOMERS
For the year ended December 31, 2000 two customers accounted for approximately
49% and 27% of the Company's net oil & gas sales. The Company does not have
long-term contracts with these customers. Also, Argonne National Laboratories
Contract discussed in Note 5 accounted for 100% of the consulting revenue.
Note 13 - Deferred Taxes
The components of deferred tax assets and liabilities as of December 31, 2000
and 1999 were as follows :
F - 19
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 - Deferred Taxes (continued)
2000 1999
----------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 7,384,000 $ 3,005,000
Tax basis over book basis - exploration
costs 852,000 359,000
----------- -----------
Total deferred tax assets 8,236,000 3,364,000
Deferred tax liabilities:
Book basis over tax basis - depreciation 7,000 27,000
Book basis over tax basis - oil and gas
properties -- 36,000
----------- -----------
Total deferred tax liabilities 7,000 63,000
----------- -----------
Net deferred tax assets 8,229,000 3,301,000
Asset valuation allowance (8,229,000) (3,301,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
SFAS No. 109 requires a valuation allowance to be recorded when it is more
likely than not that some or all of the deferred tax assets will not be
realized. At December 31, 2000 and 1999, a valuation allowance for the full
amount of the net deferred tax assets was recorded because of the history of
losses and uncertainties as to the amount of taxable income that would be
generated in future years. Goodwill recorded in the acquisition is being
amortized over the straightline method over 10 years. In accordance with SFAS
No. 109, the recognition in 2000 of the tax benefits of the acquired deductible
temporary differences and carryforwards served to reduce goodwill to zero. When
realized, the benefit of additional deferred tax benefits resulting from net
operating losses acquired of approximately $2,500,000 will be recorded against
additional paid in capital.
In accordance with the provisions of Internal Revenue Code Section 382,
utilization of the previous Hawks Industries' net operating loss carryforward,
applicable to oil and gas operations is estimated to be limited to approximately
$79,000 per year. The Company also has net operating loss carryforwards
available from subsidiary operations. The net operation loss carryforward
expires in varying amounts from 2001 through 2020. Because of the Section 382
limitation, the portion of the Company's total net operating loss carryforward
which may be utilized through expiration is estimated to be approximately
$14,000,000.
F - 20
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16 (a)
of the Exchange Act.
Walter W. Tyler, President and Chief Executive Officer of the Company ,
received a professional degree as a geological engineer from the Colorado School
of Mines in 1957 and has over 40 years of experience as an exploration manager
and geologist, including conducting and supervising exploration, feasibility,
economic and production studies of mineral properties in the lower forty-eight
states, Alaska, Canada, Mexico and a number of South American and African
countries. In addition to performing technical duties, his responsibilities have
included administration of technical personnel and coordination of staff and
contractors. During approximately the last year, since June 2000, his principal
occupation has been to serve the Company and its predecessors, serving first as
president of North Star starting in June of 2000, and then, starting October 1,
2000, also as President and Chief Executive Officer of the Company. During the
preceding four years his principal occupation was to serve as a consultant and
advisor in the mining industry, including serving as a director of Etruscan
Ventures, Ltd. a company whose shares are listed on the Toronto Stock Exchange,
as a director of Magma Consolidated Ventures Ltd., a company whose shares are
listed on the Canadian Venture Exchange, and as a senior advisor to three
private international exploration companies having millions of dollars in
assets.
Nicholas E. Vanderborgh, who holds a Ph. D degree in chemistry, is the
President of Blue Star, and has held that position for the past approximately
eighteen months. Prior to that time his principal occupation for over 24 years
was to be employed as a scientist by the United States Government at its
laboratory facilities in Los Alamos, New Mexico. where he rose to the position
of chief of the team of scientists in charge of the development of fuel cell
technology. He also served as President and Chief Executive Officer of the
Company for a short time prior to Walter W. Tyler's accession to that position.
Milton E. Stanson has been Vice President, Treasurer and a Director of the
Company since August 2000. His principal occupation during the preceding five
years was to act as an investor in and founder of several companies that were
engaged in the development of natural resources, including North Star, of which
he has served as Vice President, Treasurer and a Director since its inception in
1997. He is a principal of Universal Equities Consolidated, LLC, which holds
more than 45 percent of the outstanding shares of the Company. Earlier in his
career he was engaged in the securities business and served as a Senior Vice
President and Investment Account Executive at Gruntal & Company in New York for
eight years. During that time he handled several special projects for the
Federal Deposit Insurance Corporation. His activities also included being a
lecturer in advanced courses on the American economic system that were offered
by the Manhattan Institute of Management, the New York division of L'Ecole
Superieure de Gestion of Paris, France. He has also served as a consultant to
the United Nations on environmental matters. He is a graduate of Rollins
College, where he majored in accounting.
Stuart G. Schwartz has served as Secretary of and legal counsel to the
Company since August 2000 and has served in those same positions at North Star
since its inception in May 1997. He has been engaged in the practice of law in
New York for more than forty years and early in his career served as an
Assistant District Attorney of New York County. He received his law degree from
the Law School of Columbia University, where he was articles editor of the law
review.
James H. Feldhake, a Director of the Company and Chairman of its Audit
Committee, has been principally occupied for more than the past five years in
practicing as a Certified Public Accountant in Denver, Colorado, as the head of
Feldhake & Associates, P.C., an accounting firm of which he is the sole
owner and which has a professional staff of four persons. Prior to that time he
practiced as one of three partners in another firm in the Denver area, and
earlier in his career was a partner at Fox & Company, a national accounting
firm. He has been responsible for audits ranging from single location small
audits to large multi-location engagements. His industry experience includes
extractive industries, resort operations, real estate, construction, restaurant,
retail and not-for-profit organizations. He received his Bachelor of Science
degree in accounting from Regis College.
Frank J. Hagan, Jr., a Director of the Company and a member of its Audit
Committee, is principally engaged in serving as the head of Perfectly Frank
Productions, Inc., a corporation engaged in the business of producing and
financially packaging international and domestic television. In the course of
his career, which spans more than twenty years, he has achieved a reputation for
skill at controlling costs and not permitting projects to go over budget. Among
others, he has worked with or developed and budgeted productions for VH-1,
Multimedia, Buena Vista, Tribune Entertainment and a number of international
companies in Malaysia, Germany and France.
Dr. Noel J. Brown, a Director of the Company and a member of its Audit
Committee, is President of the Friends of the United Nations, a non-governmental
organization dedicated to advancing the cause of the United Nations by
mobilizing public support on its behalf and directing public attention to its
major programs and achievements. Earlier, he served as Regional Director, United
Nations Environment Programme North America (UNEP), New York City. He has served
the United Nations in various capacities over a period of more than thirty
years, including serving as a representative at a number of major international
conferences on environment and development issues and as a founding member of
various organizations in that field, including the Aspen Global Change
Institute, the International Council for Local Environmental Initiatives, the
Rene Dubos Center for Human Environment, of which he is chairman. He received
his Ph.D. degree in International Law and Relations from Yale University.
David H. Peipers, a Director of the Company, has been principally occupied
for the past five years investing, directly and through other entities in
various enterprises. Among other activities, he was a co-founder and, until its
sale to Liz Claiborne Inc. in 1999, chairman of Segrets, Inc., a women's
sportsweat company selling primarily under the Sigrid Olsen label. He is the
sole manager of Thorn Tree Resources, L.L.C., which owns over 45% of the
outstanding shares of the Company. He was a founder, and has been a director of
North Star and Blue Star since their respective inceptions. He graduated from
Harvard College and received his law degree from Harvard Law School, where he
presently serves on the University Committee on the Environment
Vincent P. Iannazzo, a Director of the Company and chairman of its
Executive Committee, has been principally engaged over the past five years in
acting as a founder and creator of, and investing in, companies the business of
which is to explore and develop natural resources in an environmentally friendly
way. He has made a proposal, which has been accepted, to Oxford University for
the establishment of a center for sustainable development. He was a founder of
Blue Star and North Star and had a primary role in enabling North Star to obtain
the agreement of May 1997 with Doyon. Together with Milton E. Stanson he is a
principal of Universal Equities, LLC. which owns more than 45 percent of the
outstanding shares of the company. Earlier in his career he was active in
several facets of the real estate business. He received his bachelor's degree
from Pace University in New York and attended Western State College of Law in
California.
Reports on Form 3 and 5 were filed after their due dates by officers,
directors and persons owning more than 10% of the company's outstanding shares,
as follows: Walter W. Tyler, Stuart G. Schwartz Frank J. Hagan, Jr., James H.
Feldhake and Nicholas E. Vanderborgh, reported that they did not own any shares
of the Company; Milton E. Stanson, Vincent P. Iannazzo, David H.
Peipers, Universal Equities Consolidated, LLC and Thorn Tree Resources L.L.C.
reported share ownership that (except for 2,200 shares reported by Mr.
Iannazzo) was the same as had been disclosed in previous filings; and Noel J.
Brown, who reported ownership of 1,362 shares.
Item 10. Executive Compensation.
The following table sets forth the compensation of all individuals serving
as the Company's Chief Executive Officer ("CEO") during the fiscal year, each of
the Company's four most highly compensated executive officers other than the CEO
who were serving as executive officers at the end of the fiscal year, and up to
two additional individuals for whom such disclosure would have been required but
for the fact that the individual was not serving as an executive at the end of
the fiscal year.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Other Annual
Name and Principal Position Year Salary Bonus Compensation
- --------------------------- ---- ------ ----- ------------
Walter W. Tyler 1998 $ -- $ -- $ --
President & CEO 1999 $ -- $ -- $ --
10/1/00 to present 2000 $ 26,000 $ -- $ 45,000
Nicholas E. Vanderborgh 1998 $ -- $ -- $ --
President & CEO 1999 $100,000 $ -- $ --
8/15/00 to 10/1/00 2000 $148,000 $ -- $ --
Harry B. Noyes 1998 $120,000 $ -- $ --
Officer of subsidiary 1999 $120,000 $ -- $ --
2000 $ 57,000 $ -- $ --
Item 11. 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 December 31, 2000 of each person known to
the Company to be the beneficial owner of more than 10 percent of any class of
the Company's voting securities:
Name Amount
and Address and Nature of
Title of of Beneficial Beneficial Percent
Class Owner Ownership of Class
- -------- ------------- ------------- --------
Common Universal Equities Consolidated, LLC 11,110,938 sh. 47.63 %
Stock 115 East 57th St., N.Y., N.Y. 10022 See Note 1
Common Thorn Tree Resources, L.L.C. 11,110,938 sh.
Stock 888 7th Ave., N.Y., N.Y. 10606 See Note 2. 47.63 %
The following table shows the beneficial ownership of shares of each class
of equity securities of the Company by directors, by executive officers, and by
directors and executive officers as a group as of March 31, 2001:
Amount
Name of and Nature of
Title of of Beneficial Beneficial Percent
Class Owner Ownership of Class
- -------- ------------- ------------- --------
Common Noel J. Brown 1,362 sh. 0.01 %
Stock Director
Common Vincent P. Iannazzo See Note 1 See Note 1
Stock Director
Common Milton E. Stanson See Note 1 See Note 1
Stock Vice Pres., Treas. & Dir.
Common David H. Peipers 6,477,121 sh. 27.77
Stock Director See Note 2 See Note 2
Common Rick J. Turturro 64,430 sh. 0.21 %
Stock Past Chief Financial Officer See Note 3 See Note 3
Common All directors and executive 17,659,301 sh. 75.70 %
Stock officers as a group See Note 3 See Note 3
- ----------
(1) Universal Equities Consolidated, LLC is 100 % owned by Stanson & Iannazzo, a
New York partnership of which Milton E. Stanson and Vincent P. Iannazzo are the
sole members. In addition, Mr. Stanson individually is the beneficial owner of
3,250 shares of the Company, constituting 0.01 % of the Company's outstanding
shares, and Mr. Iannazzo individually is the sole member of The Buckingham
Management Group, a Nevada limited liability company which holds 13,200 shares
of the Company, constituting 0.06 % of the Company's outstanding shares, as to
which he disclaims beneficial ownership.
(2) Thorn Tree Resources, L.L.C. is owned (a) 50% by David H. Peipers
individually, (b) 30% by The Cornerhouse Limited Partnership, a Delaware limited
partnership of which Mr. Peipers is the general partner and of which he
beneficially owns 12.27%, and (c) 20% by The Winsome Limited Partnership, a
Delaware limited partnership of which Mr. Peipers is the general partner and of
which he beneficially owns 23.07%. The figure of 6,477,121 shares shown in the
second table constitutes the total of the above direct and indirect beneficial
interests of Mr. Peipers in Thorn Tree Resources, L.L.C.
(3) Includes 57,442 shares held by or in custody for members of Mr. Turturro's
family, as to which he disclaims beneficial ownership.
Walter W. Tyler, President and Chief Executive Officer of the Company, owns
5% of the outstanding shares of two of the Company's subsidiaries in its Lands
Division, namely Platinum-Palladium Holdings, Inc. and Alaska Energy Fuels, Inc.
Nicholas E. Vanderborgh, president of Blue Star (and past President of the
Company) owns 5% of the outstanding shares of Blue Star.
Item 12. Certain Relationships and Related Transactions.
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.
Several of the Company's subsidiaries that comprise the Company's Lands
Division are indebted in the aggregate amount of $1,614,000 to Equistar
Consolidated Holdings, LLC, which is controlled by the Company's major
stockholders, Universal and Thorn Tree, primarily for funds which were advanced
to or expended for such subsidiaries by Equistar before they became subsidiaries
of the Company. Such indebtedness bears interest at the rate of 7 % per annum
and will mature on March 31, 2002.
The Company's secretary, Stuart G. Schwartz, is counsel to the Company. He
received legal fees from the Company for the years ended December 31 ,2000 and
1999 of $58,000 and $17,500 respectively.
Item 13. Exhibits, List and Reports on Form 8-K.
a) Financial data schedule, filed as an exhibit for EDGAR
b) No reports on Form 8-K were filed during the last quarter of the period
covered by the report
c) Exhibits
2. Agreement of June 10, 1999, as amended, relating to the reverse
acquisition referred to in Description of Properties and Business, is
incorporated by reference to Exhibits 1 and 3 to the Company's report
on Form 8-K filed October 14, 1999 and to Item 1 of the Company's
report on Form 8-K filed April 27, 2000 (the second of two reports on
Form 8-K filed by the Company on that date).
3(1) Articles of Incorporation
10. Agreement between the Company and Doyon dated as of May 27, 1997 (is
incorporated by reference. Previously filed with request for
confidential treatment as per letter dated May 25, 2000 of which copy
is submitted herewith)
21. List of subsidiaries
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EMEX CORPORATION (formerly Hawks Industries, Inc.)
By /s/ Walter W. Tyler (President and Chief Executive Officer)
-----------------------------------------------------------------------
Date April 13,2001
---------------------------------------------------------------------
By /s/ Milton E. Stanson (Treasurer and Chief Financial Officer)
-----------------------------------------------------------------------
Date April 13,2001
---------------------------------------------------------------------
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ Milton E. Stanson (Director)
-----------------------------------------------------------------------
Date April 13, 2001
---------------------------------------------------------------------
By /s/ David H. Peipers (Director)
-----------------------------------------------------------------------
Date April 13, 2001
---------------------------------------------------------------------
By /s/ Vincent P. Iannazzo (Director)
-----------------------------------------------------------------------
Date April 13, 2001
---------------------------------------------------------------------
By /s/ Noel J. Brown (Director)
-----------------------------------------------------------------------
Date April 13, 2001
---------------------------------------------------------------------
EXHIBIT 3(1)
SECOND AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
HAWKS INDUSTRIES, INC.
The undersigned, James L. Kelly, as the sole incorporator of Hawks
Industries, Inc., does hereby certify that:
1. He is the original incorporator of Hawks Industries, Inc., a Nevada
corporation.
2. The Articles of Incorporation of this corporation were originally filed
with the Secretary of State of Nevada on August 9, 2000.
3. Amended and Restated Articles of Incorporation of this corporation were
filed with the Secretary of State of Nevada on August 15, 2000.
4. No stock has been issued as of this date.
5. The Articles of Incorporation of this corporation shall be amended and
restated in full as follows:
ARTICLE 1. NAME. The name of the corporation is Hawks Industries, Inc.
ARTICLE 2. RESIDENT AGENT. The initial resident agent of the corporation is
Jams L. Kelly, Esq., whose address is 1000 West Liberty Street, Tenth Floor,
Reno, Nevada 89501.
ARTICLE 3. CAPITALIZATION. The total number of shares that may be issued by
the corporation shall be 50,000,000 shares of Common Stock, having a par value
of $0.01 per share, and 997,000 shares of Preferred Stock having a par value of
$0.01 per share.
The Board of Directors is expressly authorized by resolution or resolutions
from time to time adopted, subject to any limitations and requirements
prescribed by Chapter 78 of Nevada Revised Statutes, to provide for the issuance
of the shares of Preferred Stock I one or more series and establish from time to
time the number of shares to be included in each series, and to fix the
designations, powers, preferences, and relative, participating, optional, or
other special rights, if any, of the shares of each such series and the
qualifications, limitations, and restrictions thereof, if any, with respect to
such series of Preferred Stock.
ARTICLE 4. DIRECTORS. The members of the governing board shall be styled
directors. The corporation shall not have less than three (3) nor more than (9)
directors. The initial number of directors shall be four (4). The number of
directors may be increased or reduced subject to this Article 4 in the manner
provided for in the Bylaws of the Corporation.
ARTICLE 5. CLASSES OF DIRECTORS; FIRST BOARD. The directors of the
corporation shall be divided into three classes. The term of office of the
directors) of Class I shall expire qat the first annual meeting of the
stockholders. The term of office of the director(s) of Class II shall expire one
year thereafter. The term of the director(s) of Class III shall expire two years
thereafter. Directors elected any annual election of directors shall serve for
three year terms, unless any director's term is earlier
terminated by death, resignation or removal. The initial classes of directors
and their class designations are as follows.
Class I Milton E. Stanson Noel J. Brown
24 Fifth Avenue 739 Owenoke Ridge
New York, NY 10011 New Canaan, CT 06840
Class II David H. Peipers
888 7th Avenue
New York, NY 10606
Class III Vincent P. Iannazzo
115 E. 57th Street
New York, NY 10022
Election of directors need not be by written ballot unless otherwise
provided in the Bylaws
Cumulative voting for the election of directors shall be permitted.
ARTICLE 6. LIABILITY OF DIRECTORS AND OFFICERS. No director of the
corporation shall be liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty; provided, however, that this limitation of
liability shall not act to limit liability for:
(a) any breach of the director's duty of loyalty to the corporation or its
stockholders;
(b) any act or omission not in good faith or which involves intentional
misconduct or a knowing violation of law;
(c) the payment of unlawful distributions under Chapter 78 of the Nevada
Revised Statutes; or
(d) any transaction from which the director received an improper benefit.
ARTICLE 7. AMENDMENT OF BYLAWS. The board of directors shall have
concurrent power with the stockholders to make, alter, amend, change, add to or
repeal the Bylaws of the Corporation.
ARTICLE 8. INCORPORATOR. The name and address of the incorporator is:
James L. Kelly, Esq., 100 West Liberty Street, Tenth Floor Reno, Nevada
89501
Dated: December 6, 2000
/s/ James L. Kelly
------------------
JAMES L. KELLY, INCORPORATOR
EXHIBIT 10.0
Letter of May 25, 2000 referring to Exhibit 10.
STUART G. SCHWARTZ
ATTORNEY AT LAW
299 BROADWAY, SUITE 1600
NEW YORK, N.Y. 10007
TELEPHONE (212) 385-0668
May 25, 2000
Steven C. Duvall, Esq.
Assistant Director
Division of Corporate Finance
Securities and Exchange Commission
Washington, D.C. 20549-0404
Re: Hawks Industries, Inc. - Proxy Statement
Dear Mr. Duvall:
At the request of Dwight B. Despain, Esq., counsel to Hawks Industries,
Inc. ("Hawks"), there are submitted herewith, as supplemental material, three
copies of the agreement dated May 27, 1997 between Doyon, Limited and North Star
Exploration, Inc., (to which I am counsel), as requested in comment 3 of your
(per Timothy Levenberg) letter of comment dated May 12, 2000 addressed to Bruce
A. Hinchey, president of Hawks.
Since the agreement contains private information the disclosure of which to
the public could prove harmful to the parties, it is respectfully requested that
the documents submitted herewith be granted confidential treatment.
Yours very truly,
/s/ Stuart G. Schwartz
Stuart G. Schwartz
Encls.
Via Federal Express
EXHIBIT 21.0
LIST OF SUBSIDIARIES IF REGISTRANT
EMEX CORPORATION SUBSIDIARIES - STATE OF INCORPORATION
Company Parent State
Universal Equities Ltd. Emex Corp. Delaware
North Star Exploration, Inc. Emex Corp. Nevada
Zeus Consolidated Holdings, Inc. Emex Corp. Nevada
Blue Star Sustainable Technologies Corp. Emex Corp. Nevada
Platinum Palladium Holdings, Inc. Emex Corp. Nevada
Alaska Energy Fuels, Inc. Emex Corp. Nevada
Zeus Exploration, Inc Zeus Consolidated Holding, Inc Alaska
Platinum Palladium Exploration, Inc Platinum Palladium Holdings, Inc. Alaska
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
September 30, 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
---------------------- ---------------------
EMEX CORPORATION (formerly Hawks Industries, Inc.)
(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, 24,498,327 shares having a par value of $.01 per share were
outstanding as of November 8, 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 September 30, 2001 and
December 31, 2000 1
Consolidated Statements of Operations and
Comprehensive Income/ (Loss) for the nine months
and three months ended September 30, 2001 and 2000 2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2001 and 2000 3
Notes to Consolidated Financial Statements 4-9
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 10-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds: Recent
Sales Of Unregistered Securities 12-13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
September 30, December 31,
2001 2000
---- ----
(Unaudited)
ASSETS
------
CURRENT ASSETS
Cash $ 76,000 $ 2,279,000
Accounts receivable 12,000 35,000
Other current assets 164,000 80,000
------------ ------------
Total current assets 252,000 2,394,000
------------ ------------
PROPERTY AND EQUIPMENT, net 3,567,000 2,738,000
------------ ------------
INVESTMENTS AND OTHER ASSETS
Note receivable 19,000 24,000
Available for sale investment 10,000 5,000
Goodwill, net 344,000 373,000
Other assets 56,000 154,000
------------ ------------
429,000 556,000
------------ ------------
$ 4,248,000 $ 5,688,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable $ 152,000 152,000
Notes payable - related party 3,014,000 --
Capital lease obligation 23,000 18,000
Accounts payable 1,347,000 437,000
Accrued liabilities 101,000 134,000
------------ ------------
Total current liabilities 4,637,000 741,000
------------ ------------
LONG TERM DEBT
Notes payable - related party 2,894,000 1,619,000
Capital lease obligation 37,000 55,000
------------ ------------
2,931,000 1,674,000
------------ ------------
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
24,498,327 shares issued and outstanding 245,000 245,000
Capital in excess of par value of common stock 17,945,000 17,945,000
Accumulated other comprehensive loss (64,000) (11,000)
Accumulated deficit (21,446,000) (14,906,000)
------------ ------------
(3,320,000) 3,273,000
------------ ------------
$ 4,248,000 $ 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 AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)
Three Months ended Nine Months ended
September 30, September 30,
------------------------------ ------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Operating revenue:
Oil and gas sales $ 17,000 $ 15,000 $ 68,000 $ 15,000
Consulting fees -- 3,000 5,000 15,000
------------ ------------ ------------ ------------
17,000 18,000 73,000 30,000
------------ ------------ ------------ ------------
Operating expenses:
Lease operating 13,000 -- 35,000 --
Exploration 1,565,000 742,000 3,232,000 1,357,000
Research and development 288,000 143,000 907,000 384,000
Depreciation, depletion and amortization 69,000 51,000 195,000 67,000
General and administrative 579,000 513,000 2,085,000 1,592,000
------------ ------------ ------------ ------------
2,514,000 1,449,000 6,454,000 3,400,000
------------ ------------ ------------ ------------
Operating loss from continuing operations (2,497,000) (1,431,000) (6,381,000) (3,370,000)
Other income (expense):
Interest income -- 45,000 15,000 50,000
Interest expense (103,000) (249,000) (174,000) (441,000)
------------ ------------ ------------ ------------
Loss from continuing operations before taxes (2,600,000) (1,635,000) (6,540,000) (3,761,000)
Provision for taxes:
Current -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (2,600,000) $ (1,635,000) $ (6,540,000) $ (3,761,000)
============ ============ ============ ============
Loss per share:
Weighted average number of
common shares outstanding 24,498,327 23,889,399 24,498,327 23,485,677
Basic and diluted loss $ (0.11) $ (0.07) $ (0.27) $ (0.16)
============ ============ ============ ============
COMPREHENSIVE INCOME/(LOSS)
Net loss $ (2,600,000) $ (1,635,000) $ (6,540,000) $ (3,761,000)
Other comprehensive income/(loss):
Unrealized gain/(loss) on
available-for-sale securities (18,000) 6,000 (49,000) 6,000
Change in currency translation (3,000) -- (4,000) --
------------ ------------ ------------ ------------
Comprehensive (loss) $ (2,621,000) $ (1,629,000) $ (6,593,000) $ (3,755,000)
============ ============ ============ ============
See notes to consolidated financial statements
2
EMEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(formerly Hawks Industries, Inc.)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001, AND 2000
(unaudited)
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,540,000) $ (3,761,000)
Add: depreciation, depletion and amortization 195,000 67,000
accrued interest 150,000 441,000
Changes in assets and liabilities:
Accounts receivable (35,000) (86,000)
Other current assets (79,000) (150,000)
Other assets 98,000 (110,000)
Accounts payable 910,000 289,000
Accrued liabilities (33,000) 204,000
----------- ------------
Cash used in operating activities (5,334,000) (3,106,000)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (695,000) (199,000)
Land investment (300,000) (300,000)
----------- ------------
Cash used in investing activities (995,000) (499,000)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable 4,139,000 3,289,000
Sale of stock -- 5,000,000
Capital lease payments (13,000) --
----------- ------------
Cash (used in) provided by financing activities 4,126,000 8,289,000
----------- ------------
NET (DECREASE) INCREASE IN CASH (2,203,000) 4,684,000
CASH AT BEGINNING OF YEAR 2,279,000 47,000
----------- ------------
CASH AT END OF PERIOD $ 76,000 4,731,000
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 24,000 $ --
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 $ --
Exchange of shares for notes $ -- $ 10,200,000
Exchange of shares for stock of various subsidiaries $ -- $ 7,000
Contribution to capital of shares of Blue Star $ -- $ 129,000
Acquition of goodwill with shares $ -- $ 387,000
Acquisition of net assets with shares $ -- $ 973,000
Foregiveness of accrued interest due Equistar $ -- $ 1,490,000
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 requires 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
10-KSB, Note 2 for the computation of weighted number of shares outstanding.
There were no common stock equivalents for any of the periods presented.
Stockholders' Equity as of December 31, 2000 and Earnings per share for the
periods presented have been restated to give effect to the 1,169,963 stock
dividend effective May 18, 2001.
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 next twelve months.
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
next twelve months.
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.
NOTE 3 - RELATED PARTY ACTIVITY
At September 30, 2001 and December 31, 2000, the Company had advances from
Equistar Consolidated Holdings, LLC ("Equistar"), a Nevada limited liability
company, the members of which are Thorn Tree Resources, LLC ("Thorn Tree") and
Universal Equities, LLC ("Universal"), major shareholders of the company,
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.
Accrued interest on the advances totaled $151,000 and $70,000 at September 30
2001 and December 31, 2000, respectively. Interest expense on advances were
$81,000 and $43,000 for the nine months ended September 30, 2001 and 2000
respectively.
5
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY ACTIVITY (continued)
The Company's funding agreement with Equistar expired on March 31, 2001.
Subsequent thereto, the Company received written confirmation from Universal,
and Thorn Tree that they were prepared to furnish the necessary bridge funding
referred to in the management discussion and analysis and plan of operation in
the Company's report on Form 10-KSB for the year ended December 31, 2000. Thorn
Tree has advised the Company that Thorn Tree believes it will have satisfied
that obligation when it has made the advances pursuant to the Note described
below. The Company's ability to continue as a going concern is dependent upon
continued support of that kind or obtaining an alternative source of financing.
As part of the bridge financing, during the quarter ended June 30, 2001, the
Company received loan proceeds in the amount of $1,085,000 from Thorn Tree
Resources and $200,000 from Universal Equities. These loans accrue interest at
7% per annum and are due to be repaid on July 31 2002. Prior to maturity, these
loans can be converted at the lender's election, into shares of common stock, at
the rate of one share of common stock for each ten dollars of the loan
principal.
Accrued interest and interest expense as of September 30, 2001 for these loans
totaled $24,000 to Thorn Tree Resources, L.L.C. and $6,000 to Universal Equities
Consolidates, LLC.
On October 17, 2001 the Company entered into a formal bridge financing
arrangement with Thorn Tree. Pursuant to the terms and conditions contained in a
Secured Grid Note ("Note"), Thorn Tree agreed to loan the Company up to an
aggregate principal amount of six million dollars through December 31, 2001, of
which $2,854,000 has been loaned as of September 30, 2001, with interest on the
unpaid principal amount due at maturity at an annual rate of 3% over the prime
rate of JP Morgan Chase & Co., compounded monthly.(Subsequent to that date,
through November 13, 2001 Thorn Tree has loaned the Company an additional
$1,419,000 under the Note.) The Note is secured by all the assets of the Company
pursuant to a general security agreement (the "General Security Agreement"). All
principal and interest under the Note is due on December 31, 2002. The
outstanding balance under the Note may be prepaid by the Company at any time
without penalty. The terms of the Note allow Thorn Tree to elect, in its sole
discretion, to convert at any time some or all of the principal amount
outstanding under the Note and any accrued interest thereon into shares of the
Company's common stock, $.01 par value per share (the "Common Stock"), at a
price equal to $7 per share of Common Stock, subject to certain anti-dilution
adjustments.
Accrued interest and interest expense as of September 30,2001 for these loans
totaled $40,000.
The Company's corporate offices in New York City are occupied under a use and
occupancy agreement with Equistar. Under the terms of the agreement, payments of
rent are to be made directly by the Company to the Landlord and no payments are
made to Equistar. As of September 30, 2001 the Company owes $54,000 in rent.
6
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY ACTIVITY (continued)
The Company's secretary, Stuart G. Schwartz, is counsel to the Company. For the
nine months ended September 30, 2001 he received legal fees from the Company of
$61,000 and is owed $16,000. For the nine months ended September 30, 2000 he
received $36,000.
Frank J. Hagan, Jr., one of the company's Directors and a member of the Audit
Committee has been performing public relations, media, and stockholders relation
services for the Company as an independent contractor. As of September 30, 2001
he has billed the Company for $21,000 which has not been paid.
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 31, 2002, to lease prospects identified thereon, and to develop
and produce minerals pursuant to such leases. The optioned lands encompass
approximately seven million acres comprised of 24 individually named blocks,
plus additional rights to surrounding lands within areas of interest. The
Agreement requires the Company to spend $9 million over the life of the
Agreement, with minimum commitments per year and with specific minimum
expenditures per block. Exploration expenditures in excess of the minimum amount
may be carried forward and credited to expenditure requirements for future years
with certain limitations. As of September 30, 2001, the Company had spent over
$8 million of the $9 million required to be spent over the life of the
agreement.
At any time during the agreement term, the Company may, if it has conducted a
specified minimum amount of drilling, made a specified minimum amount of
exploration expenditures and received a positive pre-feasibility study with
respect to a particular mineral area, exercise its option to lease that area for
mineral development for a specified initial term. If the Company achieves
commercial production during the initial term, the lease will continue as long
as there is commercial production. The Company may obtain leases on 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, the Company is required to pay Doyon a yearly advance
7
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMITMENTS AND CONTINGENCIES (continued)
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 on 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 delivery of a positive feasibility study.
The Company has continued its negotiations with Doyon with a view to modifying
the option agreement to eliminate certain technical non-compliances by the
Company and so as to extend the agreement's term for an additional three years
beyond its present expiration date, which is January 31, 2002. There can be no
assurance such negotiations will be successful. Failure to extend the Doyon
agreement could have a material adverse effect on the Company's business.
At September 30, 2001 the Company's required exploration expenditures commitment
under the Agreement is less than $1,000,000 through January 31, 2002.
Legal Actions
Three class actions have been instituted against the Company in the United
States District Court for the Southern District of New York during the reporting
period ended June 30, 2001 by stockholders who allegedly purchased shares during
a portion of the period and who claim they were induced to do so by a press
release issued by the Company concerning the project financing for the Blue Star
natural gas conversion plant. The amount of damages sought is not set forth in
any of the complaints. The factual basis for each of the actions is a claim that
the press release in question over-stated the role of a company known as Credit
Suisse First Boston Corporation in the matter and was therefore false and
misleading. The Company believes that the claim is without merit and intends to
resist it vigorously. The three class actions have been consolidated into a
single action.
Environmental Compliance
The Company's management believes that it is in compliance with environmental
laws and regulations as currently enacted. The Company's management has filed
all necessary permits to fulfill current environmental compliance requirements.
However, the exact nature of environmental compliance, which the Company may be
exposed to in the future, cannot be predicted. This is primarily due to the
increasing number, complexity and changing character of environmental
requirements that may be enacted by federal and state authorities. Provisions
for reclamation will be made when mining begins.
8
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMITMENTS AND CONTINGENCIES (continued)
Bridge Financing
The Company's funding agreement with Equistar expired on March 31, 2001.
Subsequent thereto, the Company received written confirmation from Universal and
Thorn Tree, that they were prepared to furnish the necessary bridge funding
referred to in the management discussion and analysis and plan of operation in
the Company's Form 10-KSB for the year ended December 31, 2000. The Company's
ability to continue as a going concern is dependent upon continued support of
that kind or obtaining an alternative source of financing. Thorn Tree has
advised the Company that Thorn Tree believes that its obligation to furnish such
bridge financing will be satisfied when it has made the advances pursuant to the
Note.
9
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 and in the Company's prior filings with
the Securities and Exchange Commission and include, without limitation,
difficulties encountered in obtaining permanent financing and risks as to the
continuation of the Company's mining rights in Alaska.
The principal changes in the Company's financial condition from the end of the
preceding fiscal year to the date of its September 30,2001 balance sheet, i.e. a
reduction of $2,203,000 in its cash on hand and an increase of $3,896,000 in
current liabilities, are due primarily to three factors: (1) the reduction in
cash and the part of the increase in current liabilities consisting of a
$910,000 increase in accounts payable are due primarily to the fact that the
Company's two principal divisions, namely, its Lands Division and its Technology
Division, are still in, respectively, the exploration and development stages, as
a result or which both of those divisions continue to incur expense but have yet
to generate material revenues; (2) approximately $1,690,000 of the increase in
current liabilities is due to the fact that a note payable to an affiliated
party in the sum of $1,619,000 shown as a long term liability at December 31,
2000 has, as a result of the passage of time, became a short term liability (its
maturity date is July 31, 2002) and accrued additional interest; and (3)
approximately $1,285,000 of the increase in current liabilities consists of
borrowings that were made from affiliated parties in that aggregate amount
during May and June of 2001 that were reported as long term debt in the report
on Form 10-QSB for the period ended June 30, 2001 but which have become current
liabilities as a result of the passage of time (their maturity date is July 31,
2002).
As compared with the corresponding fiscal year-to-date period of the preceding
fiscal year, the $2,779,000 increase in losses for the nine months period ended
September 30, 2001 was due primarily to increases of $1,875,000 in exploration
expense, $523,000 in research and development expense, $493,000 in general and
administrative expense and $128,000 in depreciation, depletion and amortization,
which were partially offset by a decrease of $239,000 in net interest expense.
As compared with the corresponding quarter of the preceding fiscal year, the
$965,000 increase in losses for the three months period ended September 30, 2001
was due primarily to increases of $823,000 in exploration expense, $145,000 in
research and development expense $66,000 in general and administrative expense
and $18,000 in depreciation, depletion and amortization, which were partially
offset by a decrease of $101,000 in net interest expense.
10
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
In order to obtain funds for operations, the Company borrowed funds from one of
its major shareholders, Thorn Tree Resources, L.L.C. ("Thorn Tree") aggregating
approximately $2,854,000 during the period reported on, which were in addition
to approximately $1,085,000 lent by Thorn Tree to the Company during the quarter
ended June 30, 2001. Thorn Tree has continued to lend the Company funds pursuant
to the Note for operations since the end of the period reported on, and through
November 13, 2001 had lent the Company approximately an additional $1,419,000.
With respect to the loans made by Thorn Tree during and after the period
reported on, Thorn Tree and the Company entered into a formal bridge financing
arrangement setting forth the terms and conditions for the making of loans by
Thorn Tree to the Company, from tine to time through December 31, 2001, of up to
an aggregate principal amount of $6,000,000, with a maturity date for repayment
of December 31, 2002. At November 13,2001, approximately $4,273,000 has been
lent by Thorn Tree to the Company pursuant to the Note, which does not include
$1,085,000 of loans outside of and in addition to the Note that were made by
Thorn Tree to the Company during the quarter ended June 30, 2001.
The terms of the bridge financing are contained in a Secured Grid Note, a
General Security Agreement and a Warrant Agreement signed October 17, 2001 which
are described below in Item 2 of Part II.
With respect to the Company's efforts to arrange more permanent financing,
negotiations for the private placement referred to in the Company's report on
Form 10-QSB for the quarter ended June 30, 2001 (the "June 10-Q") were not
successful and have come to a halt. Also, in the light of market conditions, the
public rights offering referred to in the June 10-Q is not going forward. The
Company's agreement with a financial institution to use its diligent and good
faith efforts to provide commitments for project financing for the Blue Star
natural gas conversion plant is still in place but not expected to proceed until
a marketing structure and marketing arrangements are completed. In light of the
recent state of progress in that regard, the Company now believes such marketing
arrangements will not be completed earlier than the first quarter of 2002. Even
if such marketing arrangements are completed by the Company as planned, there
can be no assurance that such project financing will be consummated.
After December 31, 2001 the Company will continue to be dependent on outside
financing to fund its operations. While Thorn Tree has advised the Company that
Thorn Tree will have no further financing obligation to the Company after
fulfilling Thorn Tree's commitments under the Note, the Company believes Thorn
Tree may consider additional funding of the Company's operations beyond December
31, 2001. There can be no assurance that such additional financing by Thorn Tree
or any other investor will be consummated.
11
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
After the end of the period being reported on, the three purported class actions
against the Company in the United States District Court for the Southern
District of New York that were previously reported in the Company's report on
Form 10-QSB for the period ended June 30, 2001, were consolidated into a single
action under the caption: In re Emex Corp. Securities Litigation, Civil Action
No. 01-CV 4886 (SWK), and a consolidated complaint was filed to which response
is to be made by December 17, 2001.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS; RECENT SALES OF
UNREGISTERED SECURITIES
Effective October 17, 2001, the Company entered into a bridge financing
arrangement (the "Bridge Financing") with Thorn Tree Resources LLC ("Thorn
Tree") pursuant to which Thorn Tree agreed to loan up to six million dollars to
the Company pursuant to a Secured Grid Note (the "Note"). Repayment of the Note
is secured by all the assets of the Company pursuant to a General Security
Agreement. The General Security Agreement includes provisions that make defaults
under other agreements of the Company defaults under the General Security
Agreement that could allow Thorn Tree to foreclose on the Company's assets. In
connection with the Bridge Financing, the Company also issued warrants to
purchase Common Stock to Thorn Tree pursuant to a Warrant Agreement. The Note
and the Warrant Agreement are described below.
The sole manager of Thorn Tree is David H. Peipers, a director of the Company.
Prior to entering into the Note and the Warrant Agreement, Thorn Tree owned
approximately 47 percent of the outstanding shares of the Company. The Note and
the warrants were issued pursuant to an exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended.
The Note
Pursuant to the terms and conditions contained in the Note, Thorn Tree agreed to
loan the Company up to an aggregate principal amount of six million dollars
through December 31, 2001, of which $2,854,000 has been loaned as of September
30, 2001, with interest on the unpaid principal amount due at maturity at an
annual rate of 3% over the prime rate of JP Morgan Chase & Co., compounded
monthly. The Note is secured by all the assets of the Company pursuant to a
general security agreement (the "General Security Agreement").
All principal and interest under the Note is due on December 31, 2002. The
outstanding balance under the Note may be prepaid by the Company at any time
without penalty. The terms of the Note allow Thorn Tree to elect, in its sole
discretion, to convert at any time some or all of the principal amount
outstanding under the Note and any accrued interest thereon into shares of the
Company's common stock, $.01 par value per share (the "Common Stock"), at a
price equal to $7 per share of Common Stock, subject to certain anti-dilution
adjustments.
12
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
The terms of the Note provide that the Company will not perform the following
actions without the consent of Thorn Tree: (1) liquidate or dissolve, (2) sell,
transfer, lease or otherwise dispose of its assets and properties or grant
options, warrants or other rights with respect to its property or assets, with
certain exceptions, (3) purchase, redeem or retire, or make any dividend or
distribution on account of, any equity and/or debt securities of the Company,
except for certain dividends payable in Common Stock until June 30, 2002, (4)
create, incur, assume or suffer to exist any indebtedness, with certain
exceptions, (5) create, incur, assume or suffer to exist any mortgage, pledge,
hypothecation, assignment, security interest, encumbrance, lien, preference,
priority or preferential arrangement on its property, revenues or assets, with
certain exceptions, (6) purchase, own, invest in or acquire any stock or other
securities, with certain exceptions, (7) enter into any transaction with any
person or entity affiliated with the Company where the transaction is valued in
excess of $50,000, and (8) issue any securities of the Company, with certain
exceptions. Additionally, the Company must obtain the written consent of Thorn
Tree before taking the following actions: (a) amending or extending the Option
Agreement, effective as of May 27, 1997, between Doyon Limited and North Star
Exploration, Inc., (b) committing to any new material expenditures in excess of
$100,000, (c) settling any material litigation, and (d) hiring any new executive
officers of the Company.
The Warrants
In connection with the Bridge Financing, the Company issued to Thorn Tree
warrants (the "Warrants") to purchase 500,000 shares of Common Stock exercisable
at any time until October 17, 2006 at an exercise price of $7.00 per share,
subject to certain anti-dilution adjustments. The Warrant Agreement grants Thorn
Tree registration rights to include shares underlying Warrants in future
registration statements filed by the Company.
Through November 13, 2001, Thorn Tree had advanced an aggregate of $4,272,942 to
the Company under the Note, all of which was outstanding as of that date. If
this entire unpaid principal amount were converted by Thorn Tree into shares of
the Company's Common Stock, the Company would issue a total of 610,420 shares of
common stock to Thorn Tree. This would be in addition to 108,504 shares issuable
upon conversion of the $1,085,040 of indebtedness the Company owed Thorn Tree
for the advances made in May and June 2001.
ITEM 5. OTHER INFORMATION
Effective October 17, 2001, the Company entered into a Bridge Financing
arrangement (the "Bridge Financing") with Thorn Tree Resources, LLC ("Thorn
Tree") pursuant to which Thorn Tree agreed to loan the Company up to an
aggregate principal amount of Six million dollars through December 31, 2001. The
terms of the Bridge Financing are described above under Item 2, Changes in
Securities and Use of Proceeds; Recent Sales of Unregistered Securities.
13
EMEX CORPORATION AND SUBSIDIARIES
(formerly Hawks Industries, Inc.)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are incorporated by reference into this Quarterly Report
on Form 10-QSB:
1.Secured Grid Note, dated October 17, 2001, issued by Emex Corporation in favor
of Thorn Tree Resources LLC is incorporated by reference from Exhibit 1 of the
Schedule 13D/A1 filed by Thorn Tree Resources LLC with the SEC on October 26,
2001.
2 General Security Agreement, dated as of October 17, 2001, between Emex
Corporation and Thorn Tree Resources LLC is incorporated by reference from
Exhibit 2 of the Schedule 13D/A1 filed by Thorn Tree Resources LLC with the SEC
on October 26, 2001.
3.Warrant Agreement, dated October 17, 2001, by and between Emex Corporation and
Thorn Tree Resources LLC is incorporated by reference from Exhibit 3 of the
Schedule 13D/A1 filed by Thorn Tree Resources LLC with the SEC on October 26,
2001.
(b) Reports on Form 8-K
A report on Form 8-K was filed for the month of June 2001 in which the Company
reported the $860,040 of loans that were made by Thorn Tree to the Company
during that month.
14
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 November 16, 2001
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By /s/ Milton E. Stanson (Treasurer and Chief Financial Officer)
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Date November 16, 2001
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15