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
June 30, 2002 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
(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.)
12600 West Colfax Avenue, Suite C-500
Lakewood, CO 80215
(Address of principal executive offices)
(303) 986-0100
(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, 25,739,929 shares having a par value of $.01 per share were
outstanding as of August 8, 2002.
Transitional Small Business Disclosure format (check one):
Yes |_| No |X|
EMEX CORPORATION AND SUBSIDIARIES
Index
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 1-3
Consolidated Balance Sheets as of June 30, 2002 and
December 31, 2001 1
Consolidated Statements of Operations and Comprehensive Loss
for the three months and six months ended June 30, 2002 and 2001 2
Consolidated Statements of Cash Flows for the six months
ended June 30, 2002 and 2001 3
Notes to Consolidated Financial Statements 4-7
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 7-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities; Recent Sales of Unregistered
Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9-10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
EMEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
2002 2001
------------ ------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 655,000 $ 558,000
Accounts receivable 22,000 11,000
Other current assets 384,000 263,000
------------ ------------
Total current assets 1,061,000 832,000
------------ ------------
PROPERTY AND EQUIPMENT, net 3,074,000 2,806,000
------------ ------------
INVESTMENTS AND OTHER ASSETS
Note receivable -- 18,000
Available for sale investments 9,000 10,000
Goodwill, net 315,000 334,000
Other assets 15,000 39,000
------------ ------------
339,000 401,000
------------ ------------
$ 4,474,000 $ 4,039,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 116,000 $ 146,000
Notes payable - related party -- 9,017,000
Capital lease obligation 29,000 28,000
Accounts payable 612,000 609,000
Accrued liabilities 73,000 123,000
------------ ------------
Total current liabilities 830,000 9,923,000
------------ ------------
LONG TERM DEBT
Notes payable - related party 13,270,000 --
Capital lease obligation 22,000 35,000
------------ ------------
13,292,000 35,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST -- --
SHAREHOLDERS' EQUITY Capital stock:
Preferred stock, $.01 par value, 997,000 shares
authorized , no shares issued -- --
Common stock, $.01 par value, 50,000,000 shares authorized,
25,739,929 and 25,111,590 shares issued and outstanding
in 2002 and 2001 respectively 257,000 251,000
Capital in excess of par value of common stock 31,307,000 29,377,000
Accumulated other comprehensive loss (65,000) (64,000)
Accumulated deficit (41,147,000) (35,483,000)
------------ ------------
(9,648,000) (5,919,000)
------------ ------------
$ 4,474,000 $ 4,039,000
============ ============
See notes to consolidated financial statements
1
EMEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Unaudited)
Three Months ended Six Months ended
------------------ ----------------
June 30, June 30,
-------- --------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Operating revenue:
Oil and gas sales $ -- $ 19,000 $ 2,000 $ 51,000
Consulting fees -- -- -- 5,000
Exploration 10,000 -- 10,000 --
------------ ------------ ------------ ------------
10,000 19,000 12,000 56,000
------------ ------------ ------------ ------------
Operating expenses:
Lease operating 6,000 8,000 16,000 22,000
Exploration 415,000 1,238,000 692,000 1,667,000
Research and development 418,000 282,000 843,000 619,000
Depreciation, depletion and amortization 49,000 67,000 135,000 126,000
General and administrative 854,000 785,000 1,545,000 1,506,000
------------ ------------ ------------ ------------
1,742,000 2,380,000 3,231,000 3,940,000
------------ ------------ ------------ ------------
Operating loss from continuing operations (1,732,000) (2,361,000) (3,219,000) (3,884,000)
Other income (expense):
Other Income 1,000 -- 15,000 --
Interest income -- 2,000 -- 15,000
Interest expense (252,000) (41,000) (454,000) (71,000)
Loss on disposal of assets (67,000) -- (70,000) --
------------ ------------ ------------ ------------
Loss from continuing operations before taxes (2,050,000) (2,400,000) (3,728,000) (3,940,000)
Provision for taxes:
Current -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (2,050,000) $ (2,400,000) $ (3,728,000) $ (3,940,000)
============ ============ ============ ============
Earnings per share:
Weighted average number of
common shares outstanding 25,739,929 25,739,929 25,739,929 25,739,929
Basic and diluted loss $ (0.08) $ (0.09)$ $ (0.14) $ (0.15)
============ ============ ============ ============
Comprehensive loss
Net loss $ (2,050,000) $ (2,400,000) $ (3,728,000) $ (3,940,000)
Other comprehensive income/(loss):
Unrealized gain/(loss) on
available-for-sale securities (4,000) (7,000) (4,000) (31,000)
Change in currency translation 3,000 3,000 3,000 (1,000)
------------ ------------ ------------ ------------
Comprehensive loss $ (2,051,000) $ (2,404,000) $ (3,729,000) $ (3,972,000)
============ ============ ============ ============
See notes to consolidated financial statements
2
EMEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(unaudited)
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,728,000) $(3,940,000)
Add: Depreciation and depletion and amortization 135,000 126,000
Loss on disposal of fixed assets 70,000 --
Accrued interest 446,000 60,000
Bad Debt - Notes Receivable 12,000 --
Changes in assets and liabilities:
Accounts receivable (11,000) (37,000)
Other current assets (97,000) (50,000)
Other assets (11,000) 80,000
Accounts payable 3,000 1,268,000
Accrued liabilities (50,000) (30,000)
----------- -----------
Cash used in operating activities (3,231,000) (2,523,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (454,000) (820,000)
Collection of notes receivable 17,000 --
----------- -----------
Cash used in investing activities (437,000) (820,000)
----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Notes payable 3,777,000 1,285,000
Capital lease payments (12,000) (7,000)
----------- -----------
Cash provided by financing activities 3,765,000 1,278,000
----------- -----------
NET INCREASE (DECREASE) IN CASH 97,000 (2,065,000)
CASH AT BEGINNING OF YEAR 558,000 2,279,000
----------- -----------
CASH AT END OF PERIOD $ 655,000 $ 214,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 8,000 $ 11,000
Income taxes -- --
Schedule of Noncash Investing and Financing Transactions:
Stock dividend 1,935,000 --
Marketable securites received in payment of
account receivable -- 53,000
Marketable securities received in payment for
option -- 5,000
See notes to consolidated financial statements
3
EMEX CORPORATION AND SUBSIDIARIES
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 its subsidiaries (collectively, the "Company") pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC").
Certain information and note disclosures typically included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In the
opinion of management, the financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of the results for the interim periods presented. The preparation of financial
statements in conformity with generally accepted accounting principles require
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results may differ from
such estimates and assumptions. The financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's 2001 Annual Report on Form 10KSB pages F-1 to F-25. The results of
operations for an interim period are not necessarily indicative of the results
of operations for a full year.
The business of the Company is carried on principally through two divisions,
namely, the Company's Lands Division, which is engaged primarily, through
subsidiaries, in exploration for gold and other metal and mineral resources in
Alaska, and the Company's Technologies Division, which is primarily engaged,
through a subsidiary, in the research and development of environmentally
friendly technologies related to the conversion of natural gas into liquid fuels
and other products. In addition, the Company continues to hold working interests
in several oil and gas properties.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Risks and Uncertainties
Mineral Exploration
The Company, through its Lands Division, is currently exploring for minerals and
has yet to exercise any of its options to lease prospects or move beyond the
exploratory phase. Because the Lands Division remains in the exploratory phase,
the Lands Division has not produced any significant revenues from mineral
production since inception and there can be no assurance that revenues will be
generated during the next twelve months or at all.
The company received revenues of $10,000 in the form of an option payment for an
exploration, development and mining operating agreement with AngloGold North
America, Inc. during the quarter.
The Company's operations may be significantly affected by the market price of
gold and other metals. Gold and other metals prices can fluctuate widely and are
affected by numerous factors that are beyond the Company's control. A sustained
period of low gold and/or other metals 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, through its Technologies Division, is researching and attempting to
develop new approaches and technologies for natural gas utilization but, since
inception, the Technologies Division has not generated any revenues from this
research and development. There can be no assurance that revenues will be
generated during the next twelve months or at all.
4
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.
Concentration of Credit Risk
Cash accounts at banks are insured by the FDIC for up to $100,000. Bank account
statements indicate that amounts in excess of insured limits were approximately
$622,000 as of June 30, 2002.
NOTE 3 - RELATED PARTY ACTIVITY
As of June 30, 2002, the Company owed Thorn Tree Resources, LLC ("Thorn Tree"),
a major shareholder of the Company, a principal amount totaling $11,269,861.04
in connection with and pursuant to the terms of that certain Amended and
Restated Grid Accretion Note by and between the Company and Thorn Tree, dated
June 4, 2002 (the "New Thorn Tree Note"), which New Thorn Tree Note consolidated
all amounts due and owing from the Company to Thorn Tree under: (i) the terms of
the loans made by Thorn Tree to the Company from April to June 2001 in the
principal amount of $1,085,040.00, plus accrued interest to the date of the New
Thorn Tree Note in the amount of $74,392.19; (ii) the Secured Grid Note dated as
of October 17, 2001 in the principal amount of $6,000,000.00, plus accrued
interest to the date of the New Thorn Tree Note in the amount of $361,036.77;
(iii) the Secured Grid Note dated as of January 23, 2002 in the principal amount
of $628,000.00, plus accrued interest to the date of the New Thorn Tree Note in
the amount of $16,634.82; (iv) the Secured Grid Note dated as of February 11,
2002 in the principal amount of $2,034,100.00, plus accrued interest to the date
of the New Thorn Tree Note in the amount of $39,255.18; and (v) the Secured Note
dated as of May 1, 2002 in the principal amount of $600,000.00, together with
certain additional discretionary advances, into a single note. The principal
amount outstanding under the New Thorn Tree Note, which amount may increase from
time to time in accordance with the terms of the New Thorn Tree Note up to a
maximum of approximately $15,200,000 and any additional advances made
thereunder, accrues in Thorn Tree's discretion, interest at a rate of the prime
rate plus 4% per annum (adjusted annually), which interest and principal are
compounded monthly. The New Thorn Tree Note becomes due and payable on June 4,
2007. The New Thorn Tree Note contains a loan facility under which the Company
may borrow up to $5,000,000, at the discretion of Thorn Tree, to continue as a
going concern and meet its 2002 budgeted funding requirements. As of June 30,
2002 the Company had borrowed $1,019,401.72 under the $5,000,000 loan facility.
To continue as a going concern beyond 2002, or in the event operating and other
costs exceed budget, the Company must borrow additional funds from Thorn Tree
and/or seek equity or debt financing from other sources, including private
investors or the public. The Company has not entered into any agreements with
Thorn Tree or others, and there can be no assurance that Thorn Tree will make
additional loans to the Company or that the Company's efforts to obtain equity
or debt financing from other sources, including private investors or the public,
will be successful. If the Company is successful in obtaining financing, it may
not be on favorable terms.
The New Thorn Tree Note is secured by all the assets of the Company and its
subsidiaries pursuant to a General Security Agreement dated June 4, 2002 (the
"General Security Agreement"). The General Security Agreement includes
provisions defining defaults under other agreements of the Company as defaults
under the General Security Agreement that could allow Thorn Tree to foreclose on
the Company's or its subsidiaries' assets. The terms of the New Thorn Tree Note
provide that the Company will not, among other things, perform the following
actions without the consent of Thorn Tree: (i) liquidate or dissolve; (ii) 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; (iii) purchase, redeem or retire, or make any dividend or
distribution on account of, any equity and/or debt securities of the Company;
(iv) create, incur, assume or suffer to exist any indebtedness, with certain
exceptions; (v) 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; (vi) purchase, own, invest in or acquire any stock or other
securities, with certain exceptions; (vii) enter into any transaction with any
person or entity affiliated with the Company where the transaction is valued in
excess of
5
$50,000; and (viii) issue any securities of the Company, with certain
exceptions. The outstanding balance under the New Thorn Tree Note may be prepaid
by the Company or its subsidiaries at any time and from time to time, in whole
or in part, without premium or penalty. The terms of the New Thorn Tree 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 New Thorn Tree Note, and
any accrued interest thereon, into shares of the Common Stock of the Company at
a price equal to $2.30 per share, subject to certain anti-dilution adjustments.
The Company also issued to Thorn Tree, in connection with the New Thorn Tree
Note, warrants to purchase 416,666 shares of Common Stock at any time until June
4, 2007, at a purchase price of $1.15 per share, subject to certain
anti-dilution adjustments. Thorn Tree was granted the right to include the
shares underlying the warrants in the Company's future registration statements.
The Company, as of June 30, 2002 had the following total indebtedness to Thorn
Tree and other related parties: $13,270,000.
Lands Division
Doyon Agreement
In May of 1997, North Star Exploration, Inc. ("North Star"), our subsidiary,
entered into an Option Agreement (the "Option Agreement") with Doyon, Limited
("Doyon"), a regional Alaska Native Corporation, with respect to lands that
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
(approximately 7 million acres). The Option Agreement expired by its terms on
January 31, 2002.
On July 1, 2002, but effective as of January 1, 2002, Doyon and North Star
entered into an Amended and Restated Exploration Option Agreement (the "New
Option Agreement"). Under the New Option Agreement Doyon has granted North Star
the exclusive right to continue mineral exploration and development on
approximately 1.2 million acres of Doyon Lands in Central Alaska on lands
identified by NorthStar. The New Option Agreement has a term of three years and
calls for annual payments to Doyon of up to $225,000 depending on the number of
land blocks retained during such term and the expenditure of up to $2,500,000 in
exploration expenditures. In addition, the New Option Agreement contains a
sliding scale royalty schedule based on commodity prices, a reduced
area-of-interest for each of the Doyon land blocks, and provisions concerning
the conversion of specific properties into mining leases.
AngloGold Agreement
On June 28, 2002, the Company, through its subsidiary, Zeus Exploration, Inc.
("Zeus"), entered into an Exploration, Development, and Mine Operating Agreement
(the "AngloGold Agreement") with AngloGold North America, Inc. ("AngloGold").
Under the terms of the AngloGold Agreement, AngloGold may earn up to a 65%
vested interest in Zeus' West Pogo properties located in Alaska by making
certain minimum exploration expenditures within six years of the date of the
AngloGold Agreement, and also by making certain minimal cash payments to Zeus
over the same period. Upon AngloGold's notice of vesting at 65%, Zeus has the
option to be financed through to production by AngloGold. Under this option,
AngloGold would be responsible to fund Zeus' proportionate share of all ensuing
expenditures to production and AngloGold would be granted an additional 10%
vested ownership interest in Zeus. AngloGold's contribution of Zeus' share of
the production expenditures will be considered a non-recourse loan between the
parties, and AngloGold would be repaid out of Zeus' net proceeds from
production. The AngloGold Agreement also provides AngloGold with the right to
withdraw and cease funding exploration expenses and payments to Zeus at any time
without obligation, other than the obligation to complete any reclamation
obligations resulting from exploration operations and to protect title to the
properties against any liens or encumbrances created by such exploration
operations.
6
Technologies Division
One of our goals through the Technologies Division, through Blue Star
Sustainable Technologies Corporation ("Blue Star"), our subsidiary, was the
construction of an efficient, scalable, stand-alone plant to be made up of one
or more modules, each capable of producing approximately 500 barrels per day of
liquefied synthetic fuel and/or high purity wax, plus electricity and clean
water from natural gas. Even if such a goal is technologically feasible, of
which there is no assurance, obtaining it is an expensive process that requires
more funding than we have available.
Therefore, the Company has determined to focus its resources during the
remainder of 2002 on testing its existing technology relating to the scalability
of a two to five barrel per day module and to evaluate more completely the
prospect of commercialization of its existing technology. The Company may seek
financing to build a two to five barrel per day plant to further its
commercialization goals, however, there can be no assurance that such financing
will be available at all or on favorable terms, or that the plant will work. Our
existing lender, Thorn Tree has indicated that it will not provide the financing
to build such a plant. There can be no assurance that the Company will be able
to attract other financing in 2002, or at all, to attempt to construct a plant.
Although the management of Blue Star believes that a prototype plant will
demonstrate the practicality and efficiency of Blue Star's natural gas
refinement method, it is still in a developmental phase, and there can be no
assurance that the two to five barrel per day plant under consideration, or any
of Blue Star's technologies will prove commercially viable or feasible from an
engineering perspective.
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.
EMEX CORPORATION AND SUBSIDIARIES
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 report on Form
10-KSB for the period ended December 31, 2001.
The principal changes in the Company's financial condition from December 31,
2001, to the date of its June 30, 2002 balance sheet were an increase of
$435,000 in assets (the Doyon option accounted for $225,000) and an increase of
the Company's long term liabilities of $13,257,000 (partly offset by a decrease
of $9,093,000 in current liabilities) due primarily to certain loans made to the
Company by related parties and the renegotiation of certain debt to Thorn Tree,
a related party, under the terms of the New Thorn Tree Note, pursuant to which a
majority of the Company's current liabilities were converted into long term debt
due June 4, 2007.
The Company's estimated revenues for the quarter ended June 30, 2002 are
approximately $10,000, consisting entirely of revenues generated from
exploration consulting activities by the Lands Division. The Company is a non-
7
operating holder of working interests in certain oil and gas properties. For the
corresponding quarter in 2001, the Company's revenues were $19,000, consisting
entirely of its share of net revenues from these oil and gas working interests.
Due to the acquisition of the principal operator of these properties by another
entity, timely reporting to the Company of its share of net revenues from its
working interests has been delayed, preventing a reasonable basis for accruing
these revenues for the quarter ended June 30, 2002.
The operating loss from continuing operations reported by the Company for the
quarter ended June 30, 2002 was $2,050,000 as compared to $2,400,000 for the
corresponding period of the preceding fiscal year. The difference was due to
decreases of $2,000 in lease operating expenses, $823,000 in exploration
expenses (due to dropping properties from the Doyon Agreement which required
less exploration), and $18,000 in depreciation, depletion and amortization (due
to the disposal of fixed assets in regards to leasehold improvements on the New
York office where the lease has been terminated), which were partly offset by
increases of $136,000 in research and development expenses, and $69,000 in
general administrative expenses (primarily due to increased consulting expenses
evaluating corporate structure as well as subsidiary activities) as compared
with such prior corresponding period. With respect to interest expense, the
Company reported for the quarter ended June 30, 2002 an increase in interest
expense of $211,000 as compared with the corresponding period of the preceding
fiscal year. Notwithstanding the increase in general administrative, research,
and development expenses, there was a decrease of $350,000 in net loss, as
compared with the corresponding period of the preceding fiscal year. The
increase in interest expense was due primarily to the obligation of the Company
to pay interest on loans to the Company from shareholder affiliates, including
Thorn Tree that were not outstanding during the corresponding period of the
preceding fiscal year.
The operating loss from continuing operations reported by the Company for the
quarter ended June 30, 2002 was $250,000 more than for the preceding quarter
ending March 31, 2002. The difference was due to increases of $138,000 in
exploration expense (there is more exploration activity in the second quarter
due to more favorable weather conditions in Alaska) and $160,000 in general and
administration expense (due to increased consulting expenses evaluating
corporate structure and subsidiary activities, and an increase in corporate
legal fees), which were partly offset by decreases of $4,000 in lease operating
expense, $7,000 in research and development expense and $37,000 in depreciation,
depletion and amortization expense, as compared with such corresponding period.
However, with respect to interest expense, the Company reported for the quarter
ended June 30, 2002 an increase in interest expense of $50,000 as compared with
the corresponding period of the preceding quarter, notwithstanding the decreases
in operating, research and development and depreciation, depletion and
amortization expenses. There was an increase of $367,000 in overall expense, and
a resulting increase of $367,000 in net loss, as compared with the corresponding
period of the preceding quarter. The increase in interest expense was due
primarily to the obligation of the Company to pay interest on loans to the
Company from shareholder affiliates, including Thorn Tree, which loans were not
outstanding during the preceding quarter.
The Company's total funding requirements for 2002 are expected to be
approximately $6.9 million, which includes approximately $2.0 million for the
Lands Division and $4.0 million for the Technologies Division. The Company does
not anticipate generating material revenues in 2002. The Company plans to meet
the remaining 2002 funding requirements by borrowing additional funds from Thorn
Tree and/or seeking equity or debt financing from other investors or the public.
As the Company has not entered into any financing agreements, other than the New
Thorn Tree Note, with either Thorn Tree or other investors, there can be no
assurance that the Company's efforts to obtain equity or additional debt
financing from Thorn Tree, other investors, or the public will be successful. In
addition, all of the Company's assets are already pledged as collateral to
secure the New Thorn Tree Note pursuant to the terms of the General Security
Agreement. If the Company does obtain financing, it may not be on favorable
terms.
8
EMEX CORPORATION AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 1, 2002, after the end of the period covered by this report, but prior
to the date upon which this report was prepared, the Company learned that the
SEC is conducting a private, non-public, formal investigation of us.
ITEM 2. CHANGES IN SECURITIES; RECENT SALES OF UNREGISTERED SECURITIES
On June 4, 2002 the Company issued the Amended and Restated Secured Grid Note
(the "New Thorn Tree Note"), payable to the order of Thorn Tree in the amount of
$10,232,308.25 and bearing interest at a rate equal to the Prime Rate plus 4%
per annum, which interest rate is subject to adjustment annually, and compounded
monthly. The Company has pledged all of its assets as collateral to secure the
New Thorn Tree Note. The New Thorn Tree Note was issued to amend and consolidate
certain loans made by Thorn Tree to the Company prior to the date of the New
Thorn Tree Note (see "Note 3 - Related Party Activity," above) and also includes
a loan facility of up to an additional $5,000,000, which additional advances may
be made by Thorn Tree to the Company at the discretion of Thorn Tree, to fund
the Company's 2002 operating expenses. As of June 30, 2002, the aggregate
principal amount outstanding under the New Thorn Tree Note, including all
advances made pursuant to the $5,000,000 loan facility, was $11,269,861.04. The
New Thorn Tree Note has a maturity date of June 4, 2007. The terms of the New
Thorn Tree 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 New Thorn
Tree Note and any accrued interest thereon into shares of the Common Stock of
the Company, at a price equal to $2.30 per share of Common Stock, subject to
certain anti-dilution adjustments. The Company also issued to Thorn Tree, in
connection with the New Thorn Tree Note, warrants to purchase 416,666 shares of
Common Stock, at any time until June 4, 2007, at a price of $1.15 per share,
subject to certain anti-dilution adjustments. Thorn Tree was granted the right
to include the shares underlying the warrants in the Company's future
registration statements.
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) On February 22, 2002 we held a Special Meeting of Shareholders (the
"Meeting"), the purposes of which were to elect directors and to approve of a
proposed Employees' Incentive Stock Option Plan (the "Plan") for our employees
and the employees of our subsidiaries.
(b) At the Meeting, we elected Noel J. Brown, James H. Feldhake, Walter W.
Tyler, Jr. and Milton E. Stanson as directors. David H. Peipers and Vincent P.
Iannazzo were not voted upon for reelection as directors at the Meeting as their
terms of office had not expired. Frank J. Hagan, Jr. was initially nominated for
re-election as a director, but declined to stand for re-election at the Meeting.
Our shareholders, in place of Mr. Hagan, elected Walter W. Tyler as a director
at the Meeting. There were a total of 24,856,489 shares of Common Stock
represented in person or by proxy at the Meeting.
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The tabulation of votes with respect to each nominee was as follows:
% of % of
Shares Withhold Shares
For Represented Authority Represented
--- ----------- --------- -----------
Noel J. Brown 24,828,202 99.89% 27,137 0.11%
James H. Feldhake 24,828,202 99.89% 27,137 0.11%
Walter W. Tyler 23,916,296 96.22% 0 0%
Milton E. Stanson 24,824,266 99.87% 31,073 0.13%
Under our Articles of Incorporation, which provide for three classes of
directors, the terms of Messrs. Peipers and Tyler will expire at the first
annual meeting after the Meeting, the terms of Messrs. Iannazzo and Feldhake
will expire at the second annual meeting after the Meeting; and the terms of
Messrs. Brown and Stanson will expire at the third annual meeting after the
Meeting, upon their successors being duly elected and qualified.
(c) The other matters voted on at the shareholders' meeting and the number of
votes cast for, against or withheld as well as the number of abstentions are set
forth as follows:
Approval of the Employees' Incentive Stock Option Plan (the "Plan") pursuant to
which 1,000,000 shares of Common Stock are reserved for granting under the Plan.
All of our employees or any employees of our subsidiaries are eligible to
participate in the Plan. The Board of Directors plans to appoint a stock option
committee with authority to recommend the granting of options to specific
eligible employees with the final decisions as to whether to grant options being
reserved to the Board of Directors. Each option granted under the Plan will not
vest and may not be exercised until the expiration of three years after it is
granted.
% of % of % of
Shares Shares Shares
FOR Represented AGAINST Represented ABSTAIN Represented
---------- ----------- ------- ----------- ------- -----------
24,815,362 99.84% 37,139 0.15% 2,838 0.01%
ITEM 5. OTHER INFORMATION
On and effective April 19, 2002, Vincent P. Iannazzo resigned as a member of the
board of directors of Emex Corporation.
On July 9 2002, after the end of the period covered by this report, but prior to
the date upon which this report was prepared, we received a Nasdaq staff
determination indicating that our listed securities would be delisted from the
Nasdaq Small Cap Market. On July 17, 2002, our Common Stock was delisted from
the Nasdaq Small Cap Market. Our securities must now be traded in the over the
counter market, on an electronic bulletin board, by way of what are commonly
referred to as the "pink sheets," or in privately negotiated transactions.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Second Amended and Restated Articles of Incorporation of Hawks Industries,
Inc, are incorporated by reference to Exhibit 3(c) to the Company's Report
on Form 10-KSB for the year ended December 31, 2000.
3.2 Amended and Restated Bylaws of Emex Corporation are incorporated by
reference to Exhibit 3(ii) to the Company's Report on Form 10-KSB for the
year ended December 31, 2001.
10.1 Amended and Restated Secured Grid Note dated June 4, 2002 issued by Emex
Corporation in favor of Thorn Tree Resources LLC is incorporated by
reference to Exhibit 2 to Amendment No. 3 filed June 12, 2002 to Schedule
13-D of Thorn Tree Resources LLC.
10.2 Amended and Restated General Security Agreement dated as of June 4, 2002
between Emex Corporation and Thorn Tree Resources LLC, is incorporated by
reference to Exhibit 3 to Amendment No. 3 filed June 12, 2002 to Schedule
13-D of Thorn Tree Resources LLC.
10.3 Warrant Agreement dated June 4, 2002 between Emex Corporation and Thorn
Tree Resources LLC, is incorporated by reference to Exhibit 4 to Amendment
No. 3 filed June 12, 2002 to Schedule 13-D of Thorn Tree Resources LLC.
10.4 Doyon Exploration Option Agreement by and between the Company and Doyon
Limited, effective as of January 1, 2002, filed herewith.
99.1 Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
99.2 Certification of CFO Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
(b) Reports on Form 8-K
None.
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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
(Registrant)
By: /s/ Walter W. Tyler (President and Chief Executive Officer)
-----------------------------------------------------------
Date: August 19, 2002
By /s/ Joy K. Moseley (Acting Treasurer and Chief Financial Officer)
-----------------------------------------------------------
Date: August 19, 2002
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