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, 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|_|
As of November 11, 2002 there were 25,739,929 shares of the Company's $.01 par
value Common Stock issued and outstanding.
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 September 30, 2002 and
December 31, 2001 1
Consolidated Statements of Operations and Comprehensive Loss
for the three months and nine months ended September 30, 2002 and 2001 2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2002 and 2001 3
Notes to Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
Item 4. Controls and Procedures 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures and Certifications 10-12
EMEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
2002 2001
---- ----
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 414,000 $ 558,000
Accounts receivable 11,000 11,000
Other current assets 258,000 263,000
------------ ------------
Total current assets 683,000 832,000
------------ ------------
PROPERTY AND EQUIPMENT, net 1,772,000 2,806,000
------------ ------------
INVESTMENTS AND OTHER ASSETS
Note receivable -- 18,000
Available for sale investments 7,000 10,000
Goodwill, net 305,000 334,000
Other assets 15,000 39,000
------------ ------------
327,000 401,000
------------ ------------
$ 2,782,000 $ 4,039,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 103,000 $ 146,000
Notes payable - related party -- 9,017,000
Capital lease obligation 30,000 28,000
Accounts payable 588,000 609,000
Accrued liabilities 79,000 123,000
------------ ------------
Total current liabilities 800,000 9,923,000
------------ ------------
LONG TERM DEBT
Notes payable - related party 15,676,000 --
Capital lease obligation 14,000 35,000
------------ ------------
15,690,000 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 (67,000) (64,000)
Accumulated deficit (45,205,000) (35,483,000)
------------ ------------
(13,708,000) (5,919,000)
------------ ------------
$ 2,782,000 $ 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 NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)
Three Months ended Nine Months ended
------------------ -----------------
September 30, September 30,
------------- -------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Operating revenue:
Oil and gas sales $ -- $ 17,000 $ 2,000 $ 68,000
Consulting fees -- -- -- 5,000
Exploration -- -- 10,000 --
------------ ------------ ------------ ------------
-- 17,000 12,000 73,000
------------ ------------ ------------ ------------
Operating expenses:
Lease operating 4,000 13,000 20,000 35,000
Exploration 1,904,000 1,565,000 2,596,000 3,232,000
Research and development 557,000 288,000 1,400,000 907,000
Depreciation, depletion and amortization 78,000 69,000 213,000 195,000
General and administrative 1,197,000 579,000 2,742,000 2,085,000
------------ ------------ ------------ ------------
3,740,000 2,514,000 6,971,000 6,454,000
------------ ------------ ------------ ------------
Operating loss from continuing operations (3,740,000) (2,497,000) (6,959,000) (6,381,000)
Other income (expense):
Other Income -- -- 15,000 --
Interest income 1,000 -- 1,000 15,000
Interest expense (312,000) (103,000) (766,000) (174,000)
Loss on disposal of assets (7,000) -- (77,000) --
------------ ------------ ------------ ------------
Loss from continuing operations before taxes (4,058,000) (2,600,000) (7,786,000) (6,540,000)
Provision for taxes:
Current -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (4,058,000) $ (2,600,000) $ (7,786,000) $ (6,540,000)
============ ============ ============ ============
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 $ (0.16) $ (0.10) $ (0.30) $ (0.25)
============ ============ ============ ============
Comprehensive loss
Net loss $ (4,058,000) $ (2,600,000) $ (7,786,000) $ (6,540,000)
Other comprehensive income/(loss):
Unrealized gain/(loss) on
available-for-sale securities 1,000 (18,000) (3,000) (49,000)
Change in currency translation (3,000) (3,000) -- (4,000)
------------ ------------ ------------ ------------
Comprehensive loss $ (4,060,000) $ (2,621,000) $ (7,789,000) $ (6,593,000)
============ ============ ============ ============
See notes to consolidated financial statements
2
EMEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(unaudited)
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,786,000) $(6,540,000)
Add: Depreciation and depletion and amortization 213,000 195,000
Loss on disposal of fixed assets 77,000 --
Impairment and/or abandonment of unproved
properties 1,475,000 --
Accrued interest 754,000 150,000
Bad Debt - Notes Receivable 12,000 --
Changes in assets and liabilities:
Accounts receivable -- (35,000)
Other current assets 5,000 (79,000)
Other assets 13,000 98,000
Accounts payable (21,000) 910,000
Accrued liabilities (45,000) (33,000)
----------- -----------
Cash used in operating activities (5,303,000) (5,334,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets 9,000 --
Land Investment (711,000) (995,000)
Collection of notes receivable 17,000 --
----------- -----------
Cash used in investing activities (685,000) (995,000)
----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Notes payable 5,862,000 4,139,000
Capital lease payments (18,000) (13,000)
----------- -----------
Cash provided by financing activities 5,844,000 4,126,000
----------- -----------
NET INCREASE (DECREASE) IN CASH (144,000) (2,203,000)
CASH AT BEGINNING OF YEAR 558,000 2,279,000
----------- -----------
CASH AT END OF PERIOD $ 414,000 $ 76,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 12,000 $ 24,000
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
us and our subsidiaries, 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 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 our 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.
Our business is carried on principally through two divisions: the Lands
Division, which is engaged primarily, through subsidiaries, in exploration for
gold and other metal and mineral resources in Alaska; and the Technologies
Division, which is primarily engaged, through a subsidiary, in the research of
environmentally friendly technologies related to the conversion of natural gas
into liquid fuels and other products. In addition, we continue to hold working
interests in several oil and gas properties.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Risks and Uncertainties
Mineral Exploration
Through our Lands Division, we explore for minerals. In general, we generate
little or no revenue from exploration. Rather, we spend significant amounts of
cash to explore our properties for mineralization. Because of our limited
financial resources, we attempt to generate revenues by selling our exploration
properties or partnering with others to develop our properties. The exploration
revenue of $10,000 reported on the operating statement is a joint venture
payment from AngloGold.
Because the Lands Division remains in the exploration phase, the Lands Division
has not produced any revenues from mineral production since inception and there
is no expectation that we will generate any revenues from mineral production
during the next twelve months, if ever.
Our operations may be significantly affected by our inability to fund
exploration and many other factors including 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 our control. A sustained period of low gold
and/or other metals prices could have a material adverse effect on our financial
position, results of operations and our ability to raise additional financing.
Energy Technology
Through our Technologies Division, we research new approaches and technologies
for natural gas utilization. Since inception, our Technologies Division has not
generated any revenues and we have no expectation that it will generate revenue
during the next twelve months, if ever.
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
$249,000 as of September 30, 2002.
NOTE 3 - RELATED PARTY ACTIVITY
As of September 30, 2002, we owed Thorn Tree Resources LLC ("Thorn Tree"), a
major shareholder of ours, a principal amount totaling $13,297,796.19 in
connection with and pursuant to the terms of that certain Amended and Restated
Grid Accretion Note by and between us and Thorn Tree, dated June 4, 2002 (the
"New Thorn Tree Note"), which New Thorn Tree Note consolidated all amounts due
and owing from us to Thorn Tree under: (i) the terms of the loans made by Thorn
Tree to us 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 and any additional advances
made thereunder, accrues 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 we may borrow up to $5,000,000, at the
discretion of Thorn Tree, to continue as a going concern and meet our 2002
budgeted funding requirements. As of September 30, 2002, we had borrowed
$3,609,810.74 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, we must
borrow additional funds from Thorn Tree and/or seek equity or debt financing
from other sources, including private investors or the public. We have not
entered into any agreements with Thorn Tree or others for additional funds.
The New Thorn Tree Note is secured by all of our assets pursuant to a General
Security Agreement dated June 4, 2002 (the "General Security Agreement"). The
General Security Agreement includes provisions defining defaults under our other
agreements as defaults under the General Security Agreement that could allow
Thorn Tree to foreclose on our assets. The terms of the New Thorn Tree Note
provide that we 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 of our equity and/or debt securities; (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 our 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 us where the transaction is valued in excess of
$50,000; and (viii) issue any of our securities, with certain exceptions. The
outstanding balance under the New Thorn Tree Note may not be prepaid at any time
by us without 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 our Common Stock at a price equal to $2.30 per
share, subject to certain anti-dilution adjustments. We also issued to Thorn
Tree, in connection with the New Thorn Tree Note, warrants to purchase 416,666
shares of our Common
5
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 our future registration
statements.
As of September 30, 2002, we had the following total indebtedness to Thorn Tree
and other related parties: $15,675,534.00.
NOTE 4 - OTHER INFORMATION
Lands Division
The Lands Division, through our subsidiaries North Star Exploration, Inc.,
North Star Zeus, Inc. and North Star Platinum (collectively referred to as
"North Star") explores for mineral deposits in the United States, primarily in
Alaska. The mineral exploration business is extremely speculative and costly.
The risks involved in our business are extensive and many are beyond our
control. We lack the financial resources necessary to continue to conduct our
own exploration activities. Our outside lender has notified us that it has no
present intent to loan us funds to continue to conduct exploration activities on
our mineral properties. Companies of our size generally attempt to enter into
joint ventures or other sharing arrangements with larger better-capitalized
companies in order to spread the risks involved in mineral exploration. Such
larger companies must be convinced that the potential for a mineralized
discovery is outweighed by the costs and risks associated with the project. To
date, we have had very little joint venture interest in our projects.
For example, this summer we conducted exploration work, including a
drilling program, on several targets on our Doyon properties. In general, the
results were not sufficiently positive to warrant further major exploration
expenditures. We are required, in order to retain the Doyon lands, to conduct a
significant amount of exploration, which we are unable to fund with our existing
financial resources. If we cannot attract other partners, or otherwise attract
funding to conduct our operation, we will forfeit our rights to explore the
Doyon lands.
Some of our other projects in Alaska may be more promising. However, we
cannot fund their exploration. If we fail to attract a partner or an investor to
fund the exploration efforts on our properties, we will lose the rights to
explore these lands and we will not obtain a recovery of the funds we have spent
to date on their exploration.
Without funding we may be forced to liquidate or abandon all of our
mineral properties. We have hired a financial advisor to review our mineral land
portfolio and advise us on the strategic options available to North Star,
including a sale to a strategic or financial investor, merger with or into
another company, or a total or partial sale of our mineral assets. We cannot
assess the likelihood of finding and executing an appropriate strategy for the
Company at this time. It is possible that our properties will not merit
consideration for any transaction. Even if our properties merit consideration,
all of our properties are pledged to our existing lender, which lender must
consent to any transaction.
In September 2002, Teck Cominco American Incorporated quitclaimed their
Sun/Hot State of Alaska mining claims located in the Ambler District in Alaska
to North Star.
Technologies Division
The Technologies Division, through Blue Star Sustainable Technologies
Corporation ("Blue Star"), our 95%-owned subsidiary, has determined to focus its
available resources during the remainder of 2002 on completing and testing a
demonstration or prototype plant for an approximate production of two barrels
per day of clean diesel fuel. Our existing lender has indicated that it may not
provide the financing necessary to continue Blue Star's research or the testing
of our demonstration plant. With the aid of an outside consultant, we are
evaluating our options, including the possibility of obtaining outside funding,
which we have been searching for since June, 2002, without success to date. We
cannot assure you that we will be able to attract other financing for our
technology. All of our technology is pledged to secure the repayment of our
existing loans. If we fail to obtain funding, we may never recover our
investment in the development of the Blue Star technologies, and we may lose our
technology.
6
Although the management of Blue Star believes that its prototype or
demonstration plant will demonstrate Blue Star's concept of natural gas
refinement, it has yet to enter its initial testing, and there can be no
assurance that this demonstration plant will successfully complete its testing.
It is reasonably foreseeable that we may not have the funding necessary to
complete the testing of our demonstration plant.
Environmental Compliance
Our management believes that it is in compliance with environmental laws and
regulations as currently enacted. We believe that we have filed all necessary
permits to fulfill current environmental compliance requirements. However, the
exact nature of environmental compliance, which we 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 we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from our expectations are disclosed in this report on Form
10-QSB.
The principal changes in our financial condition from December 31, 2001 to the
date of our September 30, 2002 balance sheet were an increase of $218,000 in
assets and an increase of our long term liabilities of $15,655,000 (partly
offset by a decrease of $9,123,000 in current liabilities) due primarily to
certain loans made to us 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 our current liabilities were converted into long
term debt due June 4, 2007.
Our estimated revenues for the quarter ended September 30, 2002 are zero. We are
a non-operating holder of working interests in certain oil and gas properties.
For the corresponding quarter in 2001, our revenues were $17,000, consisting
entirely of our 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 us of our share of net revenues from our working
interests has been delayed, preventing a reasonable basis for accruing these
revenues for the quarter ended September 30, 2002.
The operating loss from continuing operations reported by us for the quarter
ended September 30, 2002 was $4,058,000 as compared to $2,600,000 for the
corresponding period of the preceding fiscal year. The difference was due to
decreases of $9,000 in lease operating expenses, which were partly offset by
increases of $9,000 in depreciation, depletion and amortization, $339,000 in
exploration due to an impairment of the Doyon Option properties, $269,000 in
research and development expenses, and $618,000 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, we reported for the
quarter ended September 30, 2002 an increase in interest expense of $209,000 as
compared with the corresponding period of the preceding fiscal year. The
increase in interest expense was due primarily to our obligation to pay interest
on loans from shareholder affiliates, including Thorn Tree that were not
outstanding during the corresponding period of the preceding fiscal year.
7
The operating loss from continuing operations reported by us for the quarter
ended September 30, 2002 was $2,008,000 more than for the preceding quarter
ending June 30, 2002. The difference was due to increases of $1,489,000 in
exploration expense, $139,000 in research & development expense, $29,000 in
depreciation, depletion and amortization expense and $343,000 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 a decrease of $2,000 in lease operating
expense, as compared with such corresponding period. However, with respect to
interest expense, we reported for the quarter ended September 30, 2002 an
increase in interest expense of $60,000 as compared with the corresponding
period of the preceding quarter. There was an increase of $1,999,000 in overall
expense and a resulting increase of $2,008,000 in net loss, as compared with the
corresponding period of the preceding quarter. The increase in interest expense
was due primarily to our obligation to pay interest on loans from shareholder
affiliates, including Thorn Tree, which loans were not outstanding during the
preceding quarter.
Our 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. We do not anticipate generating
material revenues in 2002. We plan 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. We have not entered into
any financing agreements, other than the New Thorn Tree Note, with either Thorn
Tree or other investors, and we can give no assurance that our efforts to obtain
equity or additional debt financing from Thorn Tree, other investors, or the
public will be successful. Thorn Tree has indicated that it may not make
additional loans to us beyond 2002. We are evaluating our options and have hired
financial advisors to assist us in attempting to solve our financial needs, but
there can be no assurance that our efforts to obtain equity or debt financing
from any sources, including our existing lenders, private investors or the
public, will be successful. If we are successful in obtaining financing, it may
not be on favorable terms and it may not be in amounts necessary to conduct
full-scale operations. Any additional financing will require the consent of
Thorn Tree, our existing lender. Operations in 2003 are likely to continue, if
at all, on a reduced scale, and we are developing a plan to reduce operating
expenses significantly. If we are unsuccessful in raising any funds, we may be
forced to discontinue operations.
All of our assets are pledged as collateral to secure the New Thorn Tree Note
pursuant to the terms of the General Security Agreement.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of
our management, including the Chief Executive Officer and Chief Financial
Officer of the effectiveness of the design and operation of the our disclosure
controls and procedures within 90 days before the filing date of this quarterly
report. Based on that evaluation, our management, including the CEO and CFO,
concluded that our disclosure controls and procedures were effective. There have
been no significant changes in our internal controls or in other factors that
could significantly affect internal controls subject to their evaluation.
8
EMEX CORPORATION AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 4, 2001, June 7, 2001 and July 11, 2001 three purported class actions
were filed in the United States District Court for the Southern District of New
York against the Company, and on October 30, 2001, one purported class action
against the Company, Walter W. Tyler, Milton E. Stanson, Vincent P. Iannazzo,
David H. Peipers, Universal Equities Consolidated, LLC and Thorn Tree Resources
LLC. The four actions were consolidated into a single action. On November 2,
2001, a consolidated amended complaint was filed. The complaint alleges
generally that we and the individual defendants manipulated the market of our
stock by making materially false statements in press releases during April and
May of 2001 concerning project financing for the construction of a 2500 barrel
per day natural gas conversion plant for Blue Star. More specifically, the
complaint alleged that the press release overstated the role of Credit Suisse
First Boston Corporation in the potential project financing and was therefore
false and misleading.
We filed a motion to dismiss all of the claims on behalf of all the defendants
on December 17, 2001. On September 17, 2002, the Court denied our motion to
dismiss on all matters as they related to us and the individual defendants.
However, the court dismissed the controlling person claims against the entities
of Stanson & Iannazzo, Universal Equities Consolidated, LLC and Thorn Tree
Resources LLC. Messrs. Tyler, Peipers, Stanson and Iannazzo remain in the case
as individual defendants. The Company and the remaining defendants filed an
answer on November 8, 2002.
On July 1, 2002, the SEC issued a formal order of investigation that made formal
the informal investigation that commenced in the summer of 2001. The
investigation relates to the statements we have made since November 2000 in our
press releases, public statements and current and periodic reports concerning
our actual or potential products, contracts or business prospects. We are
cooperating fully with the SEC.
ITEM 5. OTHER INFORMATION
During the quarter, the NASDAQ de-listed our stock.
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.
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.
9
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)
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Date: November 19, 2002
By /s/ Joy K. Moseley (Acting Treasurer and Chief Financial Officer)
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Date: November 19, 2002
CERTIFICATIONS
I, Walter W. Tyler, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Emex
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's signing officers and I:
a) are responsible for establishing and maintaining internal controls;
b) have designed such internal controls to ensure that material
information relating to the issuer and its consolidated subsidiaries is made
known to such officers by others within those entities, particularly during the
period in which the periodic reports are being prepared;
c) have evaluated the effectiveness of the issuer's internal controls as
of a date within 90 days prior to the report; and
d) have presented in the report their conclusions about the effectiveness
of their internal controls based on their evaluation as of that date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
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b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 19, 2002
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/s/ Walter W. Tyler
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Walter W. Tyler
President and Chief Executive Officer
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I, Joy K. Moseley, Acting Treasurer and Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Emex
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's signing officers and I:
a) are responsible for establishing and maintaining internal controls;
b) have designed such internal controls to ensure that material
information relating to the issuer and its consolidated subsidiaries is made
known to such officers by others within those entities, particularly during the
period in which the periodic reports are being prepared;
c) have evaluated the effectiveness of the issuer's internal controls as
of a date within 90 days prior to the report; and
d) have presented in the report their conclusions about the effectiveness
of their internal controls based on their evaluation as of that date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 19, 2002
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/s/ Joy K. Moseley
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Joy K. Moseley
Acting Treasurer and Chief Financial Officer
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