UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY ENDED SEPTEMBER 30, 1999 COMMISSION FILE NUMBER
0-6034
STANSBURY HOLDINGS CORPORATION
------------------------------
(Name Of Small Business Issuer In Its Charter)
UTAH 87-0281239
---- ----------
(State Or Other Jurisdiction Of (I.R.S. Employer
Incorporation Or Organization) Identification No.)
8801 EAST HAMPDEN, #200, DENVER, COLORADO 80231
---------------------------------------------- -----
(Address Of Principal Executive Offices) (Zip Code)
ISSUER'S TELEPHONE NUMBER (720) 748-1407
Securities Registered under Section 12(b) of the Exchange Act: None
Securities Registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 Par Value
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
Check if there is no disclosure of delinquent filers in response to Items
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of the registrant'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. [ ]
The issuer's revenues for the year ended June 30, 1999, its most recent
fiscal year, and for the quarter ending September 30, 1999, were $ -0-.
The aggregate market value of the voting stock held by non-affiliates
computed using $.18 per share, the closing price of the Common Stock on
September 30, 1999, was approximately $8,908,023.
As of September 30, 1999, 49,489,017 shares of the issuer's common stock
were issued and outstanding, and 5,000,000 warrants were issued and outstanding.
<PAGE>
PART I
ITEM 1
DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
Stansbury Holdings Corporation ("Stansbury" or "the Company") is an
exploration stage mining company incorporated in the State of Utah on May 7,
1969, under the name Stansbury Mining Corporation. On June 10, 1985, the Company
was reorganized as part of an approved Plan of Reorganization under a Chapter 11
proceeding pursuant to the Federal Bankruptcy Act. At that time, the authorized
capital of the Company was also changed to 25,000,000 shares of common stock,
par value $.25 per share. The corporate name was changed to Stansbury Holdings
Corporation in March, 1990. At its annual shareholders meeting on April 30,
1999, the shareholders approved amendments to the Articles of Incorporation
which changed the authorized capital of the Company to 100,000,000 shares of
common stock, par value $0.001 per share, as well as amendments establishing a
classified board and providing for certain indemnities of liability for
directors.
Since December 12, 1994, the Company has obtained approximately $2,900,000
in loans from shareholders of the Company. Of this amount, approximately
$980,000 was obtained in the fiscal year ending June 30, 1999. Such loan
proceeds have been used for developmental costs, operating expenses, taxes and
fees, and to reduce pre-existing debts.
In the fiscal year ended June 30, 1997, the Company decided to reclassify
its assets using, according to generally accepted accounting principles, the
"cost basis" of accounting for its assets that had been previously reported on
the basis of "fair market value." The Company made this change to be effective
as of June 30, 1996 so that the Company could restate its asset value as of that
date. As a result of this reclassification, the assets of the Company previously
stated as $36,811,743 as of June 30, 1996 under the
former accounting practice, were reclassified and restated to be $14,814,215 as
of June 30, 1996. See the 10-KSB/A for the fiscal years ending June 30, 1997 and
1998, for further discussion of the reclassification and appraised value of the
asset.
The Company has also considered the carrying value of its assets in light
of Financial Accounting Standards No. 121 ("SFAS 121"). SFAS 121 establishes
accounting standards for the impairment of long-lived assets when events or
changes in circumstances indicate that the value of the asset as held by the
reporting entity may be lower than its fair market value. If the expected cash
flow to the reporting entity from the asset is less than the fair market value
of the asset, an impairment loss would be recognized. After reviewing its
long-lived assets, the Company believes that there were no material adverse
changes that would cause an impairment in value. The Company has also classified
its asset at cost rather than at appraised value, and the Company has no
intention to dispose of the asset.
In addition, the Company elected to write down, as of June 30, 1997,
certain accounts payable totaling $75,892 to 30 different vendors which had been
carried on the financial statements since 1991 for which the Company could
determine no documentary justification. Of that amount, 25% ($18,992) was
established as an accounts payable reserve and added back to accounts payable in
the event any of those creditors should make a valid claim. This reserve has
been written off in two equal installments in fiscal years 1998 and 1999. The
Company believes that some of the accounts payable eliminated by the procedure
were to defunct entities, and that other payables were paid, but were
erroneously continued to be reported as accounts payable. Due to prior changes
in management, accountants and physical file locations, these errors had gone
undetected. The age of the payables caused current management to question their
validity. The Company's due diligence procedures, corroborated by its
independent auditors, indicated that these payables should no longer be carried
on the Company's balance sheet. The Company believes that none of the entities
whose balances were so adjusted were affiliated with the Company, or any of its
present or past officers, directors, employees, consultants or affiliates.
On December 12, 1994, an election was held as a result of a proxy contest
by shareholders' committee. As a result of that election, management of the
Company was transferred to a new management group. The leadership of that
management group was changed by the Board of Directors on April 30, 1999, upon
the announced resignation of Edward C. Stanojev, Jr., as president. Mr. Aldine
J. Coffman, Jr., was elected president, chairman and Chief Executive Officer
effective May 15, 1999.
Other than the previously mentioned 1985 "Reorganization," the
reclassification of assets effective as of June 30, 1996, and the June 30, 1997,
1998 and the 1999 write off of accounts payable, the Company has not been
involved in any bankruptcy, receivership, or similar proceeding, or in any other
material reclassification, merger, consolidation, or sale of any significant
amount of assets. The Company is in the process of closing on the acquisition of
the Dillon Vermiculite Project in Madison and Beaverhead Counties, Montana, and
undertaking due diligence with respect to (1) a vermiculite exfoliating plant in
the western United States, (2) certain oil and gas properties and (3) electric
power generating projects overseas. The Company has also entered into a joint
venture (described below), which the Company believes will provide adequate
working and investment capital to commence certain vermiculite operations
through the joint venture.
BUSINESS OF ISSUER
The principal business activity of the Company since its 1985
reorganization has been vermiculite mineral exploration and corporate
development. Vermiculite is a mica-like mineral which exfoliates (expands upon
rapid heating) to produce an inert, low-density material with significant
thermal qualities - it does not burn and provides excellent heat resistance.
Untreated vermiculite is commonly used as an active component of wall
plasterboard. The exfoliated product is used extensively as a lightweight
aggregate in fireproofing, thermal insulation, acoustical plasters,
horticultural growth media, and as a fertilizer carrier. Another major use is in
cementitious coatings used to protect structural steel in commercial buildings.
Ground vermiculite is also used as a filler for brake linings. New uses for
vermiculite include high performance automotive seals and catalytic converter
mats, and high temperature coatings for woven glass and ceramic fiber products.
The United States represents the world's largest vermiculite market. The
United States and the Republic of South Africa each produce approximately
200,000 tons of vermiculite concentrate per year. Approximately 5% of the
domestic production is exported as concentrate and manufactured products.
Consumption exceeds production and approximately 25% of the domestic consumption
of vermiculite is supplied by imports from the Republic of South Africa and the
Peoples Republic of China.
(1) THE HAMILTON VERMICULITE PROJECT
The principal project of the Company has been the Hamilton Vermiculite
Project. Since 1985, the Company has spent in excess of $2 million to establish
the viability of the proposed vermiculite mine near Hamilton, Montana. The
property consists of mineral mining claims covering 1,750 acres, 10 air miles
east of Hamilton, on the western flank of Skalkaho Mountain within the
Bitterroot National Forest. The Company is of the opinion that the Hamilton site
represents a large drilled vermiculite deposit available for development in the
western United States, and believes that there is sufficient proven ore deposits
to support a mining and milling operation for a minimum of 12 years.
Mining operation proposed in a permit application in 1990 has been approved
by the U.S. Forest Service based on an Environmental Impact Statement (EIS)
prepared in 1994. Samples of the vermiculite ore at the Hamilton mining site
indicate that the vermiculite is asbestos-free and that there will be
substantial amounts of recoverable vermiculite concentrates.
(2) THE DILLON VERMICULITE PROJECT
In the fall of 1998, the Company commenced negotiations with Simon
Grant-Rennick, a former director, who was the principal of the entity owning the
vermiculite mining claims and mill known as the Dillon Vermiculite Project, a
group of 65 unpatented mining claims, with a concentrating pilot mill, lying in
Beaverhead and Madison Counties, Montana. The negotiations led to agreements for
the acquisition by the Company of Elk Creek Vermiculite, Inc., a Montana
corporation, and its wholly owned subsidiary Dillon Vermiculite Limited LLC, the
latter of whom is the owner of the unpatented mining claims and mill.
The Dillon Vermiculite Project is the subject of an approved mining and
milling plan of operations, approved in a Final Environmental Assessment issued
by the Bureau of Land Management and the Montana Department of State Lands, in
1999. This plan allows a mining and milling operation of up to 30,000 tons of
vermiculite concentrate per year. The mill, as presently configured, has the
potential of producing that quantity, although certain capital investments will
be required to achieve that level. The approved mining areas are estimated to be
mineral deposits adequate to supply the mill for twenty years ore more. The ore
grade of this identified mill feed is approximately two and one-half times
richer than the average ore grade presently identified in the Hamilton
Vermiculite Project.
The Company intends to lease the mining claims and mill to International
Vermiculite Limited LLC, a Delaware limited liability company, of which it is a
50% principal, and to conduct mining and milling operations through that entity
(see below)
(3) THE INTERNATIONAL VERMICULITE LIMITED JOINT VENTURE
The Company is proceeding to lease the mining claims and mill of the Dillon
Vermiculite Project to International Vermiculite Limited LLC, a Delaware limited
liability company, of which it is a 50% principal. The shareholders of the
Company approved the entry into this joint venture at the annual shareholders
meeting on April 30, 1999.
The other 50% principal of International Vermiculite Limited is Nevada
Vermiculite LLC, a Nevada limited liability company, composed of certain
individuals who are employees and principals of Channel and Basin Reclamation,
Inc. (owing 75% of Nevada Vermiculite), and Company directors James R. Hindman
and Aldine J. Coffman, Jr. (each owing 12.5% of Nevada Vermiculite). Under the
terms of the Operating Agreement governing International Vermiculite Limited,
the Company's primary responsibility is to acquire suitable vermiculite
resources for lease to International Vermiculite, while Nevada Vermiculite,
through its arrangements with Channel and Basin Reclamation, Inc., is to provide
working capital for mining and milling by way of a cost plus operating contract
from International Vermiculite to Channel and Basin.
Channel and Basin Reclamation, Inc., is a California based sand and gravel
operator, with annual sales over $12,000,000. Dan McDonald, chief financial
officer of Channel and Basin, is a director nominee to the Board of Directors of
the Company.
Final Closing on certain ancillary matters pertaining to the Company's
acquisition of the Dillon Vermiculite Project is anticipated to be completed in
October, 1999. Channel and Basin Reclamation Inc., has begun certain
improvements to the project, including rehabilitation of access roads and
repairs to the mill, which had been largely inactive for the last several years.
Production of vermiculite concentrate from the mill is anticipated in the fourth
calendar quarter of 1999.
GOVERNMENT REGULATION
The Hamilton Vermiculite Project is principally regulated by the United
States Forest Service, as to the land surface of the mining claims, the Bureau
of Land Management as to the mineral estate, and by the Montana Department of
State Lands.
The Dillon Vermiculite Projects is principally regulated by the Bureau of
Land Management both as to the land surface of the mining claims and as to the
mineral estate, and by the Montana Department of State Lands.
The Dillon Vermiculite Project is fully permitted, and the reclamation bond
is the process of being put into place.
COMPETITION
For a discussion of competition, please see ITEM 6 - PLAN OF OPERATIONS
"Current Market and Competition" of this Form 10-QSB.
EMPLOYEES
The Company has its corporate offices at 8801 East Hampden Avenue, #200,
Denver, Colorado 80231. The Company has three full time employees, Aldine J.
Coffman, Jr. (President and Chief Executive Officer), Jeff Wertz
(Vice-President, Secretary and Treasurer and Chief Financial Officer), and Dr.
James. R. Hindman (Vice-President and Chief Operating Officer), and one part
time employee, Carol A. Phillips, Chief Administrative Officer.
At the annual shareholders meeting on April 30, 1999, the following persons
were elected directors of the company.
Class 1, consisting of Jeffrey L. Wertz and James R. Hindman, whose terms will
expire in 2000;
Class 2, consisting of Martin J. Peskin, whose term will expire in 2001;
Class 3, consisting of Aldine J. Coffman, Jr., and Edward C. Stanojev, Jr.,
whose terms will expire in 2002.
Following the annual shareholders meeting, the Board of Directors at their
annual meeting on April 30, 1999, elected to the Board the following persons:
Daniel McDonald, as a Class 1 director, whose term will expire in 2000.
Albert N. Crawford, as a Class 2 director, whose term will expire in 2001.
Both Mr. McDonald and Mr. Crawford agreed to commence their terms upon the
effective date of certain insurance policies providing liability protection to
the Board. That policy is currently in the application stage.
The Company on occasion engages experts and consultants as independent
contractors.
SPECIAL NOTE ON FORWARD LOKING STATEMENTS
Certain statements in this Form 10-QSB, under the captions "Plan of
Operations," "Description of Business," "Description of Property," and elsewhere
relate to future events and expectations, and as such constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. For this purpose, any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, the words
"believes," "assumes," "plans," "expects," "contemplates," and similar
expressions generally are intended to identify forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the following considerations:
(1) The Company may find that the amount of vermiculite determined by
the analysis of site samples from the Hamilton Vermiculite Project or Dillon
Vermiculite Project were overestimated, or
(2) that the vermiculite contains more asbestos than anticipated, or is of
an inferior grade than assumed.
ITEM 2
DESCRIPTION OF PROPERTIES
Under the terms of the Operating Agreement of International Vermiculite
Limited, all vermiculite operations of either principal shall be conducted
through International Vermiculite Limited. International Vermiculite is
concentrating its efforts initially on the Dillon Vermiculite Project, where an
existing mill represents a significant capital investment that would have to be
replicated at the Hamilton Project.
(1) THE DILLON VERMICULITE PROJECT MINE AND MILL
(A) PRIVATE LAND AND IMPROVEMENTS: As part of the Dillon Vermiculite
Project, the Company's wholly owned subsidiary Dillon Resources Limited is
acquiring under a contract a warehouse and ancillary office space at a
railsiding in Dillon, Montana. The site is a lease from a Montana railroad to
the seller, who has the obligation to assign the land lease upon the completion
of payment for the improvements. The warehouse is currently used to store
equipment to be utilized in the mill located upon the unpatented mining claims,
and can be utilized as an assay laboratory, field office, and rail loading site
for vermiculite concentrate. The Company's Montana counsel has opened
negotiations with the railroad respecting the purchase of the land covered by
the land lease.
(B) UNPATENTED LODE MINING CLAIMS:
The mining property consists of 65 unpatented lode mining claims of
approximately 20 acres each, or a total of 1300 acres (slightly over two square
miles). The claims were originally located with respect to a nickel anomaly
identified on the property, and early exploration focused on that mineral. It
was during this effort that widespread occurrences of vermiculite were
encountered.
One of the original locators, Dr. Koehler P. Stout, professional engineer
and professor (retired) from Montana Tech in Butte, Montana, who supervised
exploratory drilling operations on the property as part of his annual assessment
work, has records of over 100 drill holes which encountered ore. Additional
exploration work done by companies which took options on the property include
nine 100 foot long trenches, all of which encountered vermiculite at commercial
grades.
About 1990, Lowell Thomas as principal of a lessee of the claims,
established a mining operation near a vermiculite surface manifestation on the
west end of the property, where he also built a concentration mill. During the
winter of 1991, he shipped several carload equivalents of concentrated product
which was well received by the industry. Thereafter, he brought in an investor
who enhanced the mill, and took product shipments to his exfoliating plant in
Canada. The operation remained undercapitalized, however, and reverted back to
Dr. Stout and his associates.
In 1996, an option on the project was granted to Resource Vermiculite LLC,
of which Company director James R. Hindman was then a member. A substantial
investment was made in rehabilitating the mill, and some vermiculite concentrate
was again shipped to the industry.
Resource Vermiculite assigned its option on the project to Dillon
Vermiculite LLC in 1998. Mr. Thomas was again involved in the project as a
principal, with Simon Grant-Rennick, a former Company director and others. In
1998, Dillon Vermiculite exercised its option and became the owner of the
project, following which it undertook a drilling program to identify ore sources
for a plan of operations. The Mining Permit (which included milling) was applied
for in 1998, and granted to Dillon Vermiculite in 1999. The permit application
indicated that drilling had confirmed sufficient ore at a 25% grade to support
the mill at 30,000 tons of concentrate output a year for a period of twenty
years.
(C) CONCENTRATION MILL: The concentration mill consist of a building
(former airplane hangar) of approximately 60 by 40 feet, with a thirty foot
ceiling. Outside the building, the mill "front-end" consists of certain gross
screening processes to remove large waste rock, a dryer to remove moisture, and
a pre-feed storage bin. Inside the mill are four double screened shaker screens
feeding six winnowing boxes. An additional six winnowing boxes are in storage at
the warehouse facility in Dillon, and will be re-installed in the mill.
Concentrated product from the winnowers is stored in three silos adjacent to
the mill. Fuel tanks and a power plant are located outside the mill building. As
designed, the mill is expected to be able to take up to 35 tons an hour of ore
feed, and yield 4 to 5 tons per hour of concentrate. Tailings are returned to
the open pit from whence the ore is mined, and reclaimed in place by contouring
and seeding the surface.
(2) THE HAMILTON VERMICULITE PROJECT
(A) FEE LAND AND IMPROVEMENTS: The Company owns a small office building
and surrounding land (1.25 acres) at Victor Siding, Montana (southwestern
Montana), which can be used for a field office (the "Field Office Property"),
and which building is adequate to use presently to expand exploration
activities. The Field Office Property is owned in fee simple. The Company
believes that the condition of the Field Office Property is acceptable for its
purpose, should the Company be able to commence construction activities.
(B) UNPATENTED LODE MINING CLAIMS AND MILL SITE CLAIMS:
Prior to November 1997, the Company leased 22 unpatented mining claims
in Ravalli County, Montana, which were a part of its 96 claim group that was
managed and developed under the name of "Western Vermiculite". Of the 96 claims,
the Company held 74 directly as the party of record staking the claim or as the
successor to the interest of the party of record.
In November 1997, the lessors of the 22 "leased claims" notified the
Company that the lease would not be renewed for a third ten-year term (the lease
having commenced in 1977). As a result, from November 1997 to September 1998,
the Western Vermiculite Project of the Company consisted of only the 74 claims
of which the Company was the locator.
In September 1998, the original lessors of the 22 "leased" claims abandoned
those claims, and the Company located 22 new claims covering the same ground and
mineral deposit as formerly embraced under the expired lease. The net result of
these events is that the Company is now the holder of all 96 claims free of all
former royalty obligations. This new set of claims and the development of a
mining and milling project to exploit the Skalkaho Mountain vermiculite deposit
covered by these claims is referred to as the "Hamilton Vermiculite Project". A
"mineral deposit" or "mineralized material" is a mineralized body which has been
delineated by appropriately spaced drilling and/or underground sampling to
support a sufficient tonnage and average grade of metal(s). Such a deposit does
not qualify as a reserve, until a comprehensive evaluation based upon unit cost,
grade, recoveries, and other material factors conclude legal and economic
feasibility.
Under the original Western Vermiculite Project, the Company proposed to
build an open pit vermiculite mine, haul road, ore beneficiation plant, host
rock waste stockpile, water storage tanks, sedimentation ponds and
administrative and maintenance buildings. The Company has commenced construction
on this original project proposed as part of the Environmental Impact Statement
study. At this current point in time, the Company's mining experts have
recommended that, as part of the new Hamilton Vermiculite Project, mining and
processing on the vermiculite property be commenced with a small mill designed
to produce the larger sized vermiculite concentrates (Sizes 0, 1, and 2).
The Company believes that the smaller scale of the Hamilton Vermiculite
Project's initial phase will allow for a more cost effective means to develop
the initial market for Hamilton vermiculite concentrates as well as to gather
critical data for the design of a larger mill. It is possible that the Hamilton
Vermiculite Project will be expanded in a stepwise manner until it eventually
achieves the overall size and production capacity originally proposed in the
Plan of Operation discussed in the Final Environmental Impact Statement . It is
expected that the smaller initial development of the property will fall within
the scope of the Environmental Impact Statement.
The Company's 96 unpatented mining and mill site claims, comprising
approximately 1,750 acres, are located about 11 air miles East and slightly
North of Hamilton, Montana. Access to the property is by an improved, private
road. The nearest rail siding, located on the Montana Rail Link Railroad, is an
additional 9 miles North of Hamilton, Montana, at Victor Crossing, Montana.
The mining and mill site claims lie near the crest of the south end of
the Sapphire Mountains at an elevation of approximately 7,000 feet. The area is
part of the Bitterroot National Forest. The claims are also found within the
Skalkaho igneous complex on the western flank of Skalkaho Mountain and in the
upper portion of the Saint Clair Creek drainage area. The Skalkaho igneous
complex is an elongated igneous body about four miles long and one mile wide
with its major axis tending East-West.
The zone of interest in the Skalkaho igneous complex consists of
biotite pyroxenite exposures which contain vermiculite. Biotite is a sheet
silicate mineral that alters to vermiculite during the geologic weathering
process. The altered mineral, vermiculite, has desirable properties of ion
exchange and thermal exfoliation which are not present in the original biotite
mineral. Principal exploration of the Company's claims to date has been
conducted on the ABM Ridge and Horse Ridge. These ridges are the most accessible
areas of the deposit and have outcrops of ore which were first studied. The
average depth of the vermiculite deposit thus far evaluated by drilling is 42
feet on the ABM Ridge and 62 feet on the Horse Ridge.
The mine proposed in the Environmental Impact Statement ("EIS") would
be located on ABM Ridge and would involve disturbance of up to approximately 77
acres. A portion of the permit area is comprised of unreclaimed land disturbed
by previous mining activities. Prior mining operations at the proposed project
site are documented in the EIS, and remnants of these operations are evident on
the site. At the request of the US Forest Service, the Company performed
reclamation work at the proposed mine site in September 1995.
The Company's vermiculite deposit near Hamilton, Montana was first
identified as a potential deposit in the 1930s. Sporadic attempts have been made
to develop a mine at the property, with the most recent prior to the Company's
involvement being in the late 1970s. Over the years, it has been referred to as
the Mt. Skalaho deposit, the Western Vermiculite deposit, the Grid Creek deposit
and, most recently, as the Stansbury Hamilton Vermiculite deposit.
During the summer of 1986 the Company conducted a drilling program on the
Hamilton vermiculite deposit. The drilling was performed by Boyles Brothers
Drilling Company of Spokane, Washington, and consisted of 90 diamond core drill
holes covering the ABM Ridge and Horse Ridge areas. The drilling program
produced over 9,500 feet of core. The core was split and representative samples
of each five-foot section of core were analyzed by an independent laboratory for
vermiculite content.
Two estimates of the contained vermiculite deposit in the Company's
Hamilton property have been made based on the analyses of the drilling program
samples. The first was made in 1987 by Western Resources Company and indicated
proven and probable ore reserves of 6.3 million tons of ore containing 628,000
tons of vermiculite. The second estimate of vermiculite deposits based on the
same drill hole and analytical data was made by Dr. James R. Hindman, now a
Director of the Company, in 1992. This estimate indicated proven and probable
deposits of 6.5 million tons of ore containing 656,000 tons of vermiculite. The
Company considers these two independent calculations to be essentially
identical.
The Company is aware that there are a number of variables and assumptions
that enter into the calculation of proven (verified by drilling) and probable
(extrapolated from nearby drilling) ore deposits. These include assumptions of
in-ground ore density and the limitation of an acceptable ore grade cutoff.
There are other exposures of vermiculite ore outside ABM Ridge and Horse Ridge
and the Company notes that the area covered by the 1986 drilling program was
only 33 acres compared to a total 1,750 acres currently under claim. The Company
assumes that additional drilling will verify additional deposits
within the ore body.
INVESTMENT POLICIES
The Company has no investments.
GOVERNMENTAL REGULATIONS & ENVIRONMENTAL MATTERS
Mineral exploration and production is subject to environmental regulations
by federal, state and county authorities. In most states, mineral exploration
and production is regulated by conservation laws and other statutes and
regulations relating to exploration procedures, reclamation, safety of mine
operations, employee health and safety, use of explosives, air and water quality
standards, noxious odors, noise, dust and other environmental protection
controls. See Item 1, "DESCRIPTION OF THE BUSINESS -- Governmental Regulation."
ITEM 3
LEGAL PROCEEDINGS
The only pending action against the Company is by Ellsworth, Wiles &
Chalphin, P.C., filed in the Court of Common Pleas, Bucks County, Pennsylvania,
on September 14, 1998. James G. Wiles ("Wiles") acted as former counsel to the
Company as partner in Ellsworth, Wiles & Chalphin, P.C. The complaint alleges
$69,654.95 is due for legal services rendered by Wiles on behalf of the Company.
However, a counterclaim has been filed against Wiles alleging that no amount is
due, and furthermore that Wiles failed to protect the best interest of the
Company by failure to have required tax returns filed timely.
Judgments of record affecting title to the Hamilton Project include: a
claim of lien filed by the State of Montana in January, 1993, for $658,
reflected on the financial statements as an account payable, and a judgment
obtained by Dorsey & Whitney, a general partnership, in December, 1994, for
$52,683 in principal, along with prejudgment interest of $32,527, the total
amount of which is $85,210 and is accruing interest at an annual rate of 12%
from December 1994; at September 30, 1999 principal and accrued interest totaled
$134,798.64 ( As of September 30, 1998).
Other judgments against the Company, which appear in the financial
statements as accounts payable, include a judgment obtained by Mike Bauernfiend,
in Bergen County, New Jersey for $7,000, a judgment obtained by Martineau & Co.,
in Salt Lake City, Utah, for $8,000, and a judgment obtained by Bruce
Blessington, in Salt Lake County, Utah, for $26,293. These judgments remain due
and payable by the Company as of September 30, 1999.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company conducted an annual meeting of its shareholders on April
30, 1999, and, submitted seven matters to a vote of security holders. Those
matters, and the results of the votes of the shareholders, were as follows:
1. Approval of the Company's entry in the Joint Venture with Nevada
Vermiculite L.L.C., to develop vermiculite projects through that joint venture
under the name of International Vermiculite Limited L.L.C.
2. Approval of the Amendment of the Articles of Incorporation to increase
the authorized capital of the company from 25,000,000 shares of common stock
having a par value of $0.25 to 100,000,000 shares of common stock having a par
value of $0.001 per share.
3. Approval of the Amendment of the Articles of Incorporation to provide for
the indemnification of directors and officers of the company in any proceeding
that may be brought by shareholders or third parties and pay for or reimburse
the reasonable expenses incurred by such proceeding .
4. Approval of the Amendment of the Articles of Incorporation to provide for
a classified board of directors (as stated in the language of the amendment
contained in the proxy statement).
5. The election of five members of the board of directors who will serve
until their respective class expires at the annual meetings of shareholders to
be held in 2000, 20001, and 2002, or until their earlier removal or resignation,
as follows:
Class 1, consisting of Jeffrey L. Wertz and James Hindman, whose terms will
expire in 2000;
Class 2, consisting of Martin J. Peskin, whose term will expire in 2001;
Class 3, consisting of Aldine J. Coffman, Jr., and Edward C. Stanojev, Jr.,
whose terms will expire in 2002.
6. Approval of the 1999 Stock Option Plan.
7. Approval of the selection of Haugen Springer & Co. P. C., as the
Independent Auditors of the Company.
<TABLE>
<CAPTION>
ISSUE IN FAVOR AGAINST ABSTAIN % IN FAVOR
OF VOTES CAST
EXCL. ABSTENTIONS
<S> <C> <C> <C> <C>
Item 1, International Vermiculite
LLC JV . . . . . . . . . . . . . 8,250,420 392 320 99.9952 %
Item 2, Amendment, Authorization . 7,662,541 247,151 341,440 96.7746 %
Item 3, Amendment, Dir. Indemnity. 7,717,372 501,282 32,478 93.5045 %
Item 4, Amendment, Dir Classified. 8,083,879 155,253 12,300 98.0794 %
Item 5, Election of Directors
Nominated in Proxy . . . . . . . 8,206,388 27,704 19,040 99.6868 &
Item 6, Employee Stock Option Plan 7,884,029 281,269 85,834 96.4324 %
Item 7, Selection of Auditor . . . 8,249,832 160 1,140 99.9981 %
</TABLE>
<PAGE>
PART II
ITEM 5
MARKET FOR COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is quoted on the Nasdaq Electronic Bulletin
Board under the symbol "STBY". The following table sets forth the "high" and
"low" price of the Company's Common Stock for the periods indicated in 1996,
1997, 1998 and 1999.
<TABLE>
<CAPTION>
CALENDAR OPEN HIGH LOW CLOSE
<S> <C> <C> <C> <C>
7/1/95-9/30/95 (1st Qtr) . .1875 .4375 .06 .487
10/1/95-12/31/95 (2nd Qtr) .31 .40 .06 .18
1/1/96-3/31/96 (3rd Qtr) . .147 .312 .05 .312
4/1/96-5/30/96 (4th Qtr) . .375 .50 .05 .437
7/1/96-9/30/96 (1st Qtr) . .125 .3125 .0625 .19
10/1/96-12/31/96 (2nd Qtr) .15 .18 .11 .11
1/1/97-3/31/97 (3rd Qtr) . .11 .14 .10 .10
4/1/97-6/30/97(4th Qtr). . .10 .105 .015 .06
7/1/97-9/30/97 (1st Qtr) . .065 .09 .0525 .07
10/1/97-12/31/97 (2nd Qtr) .07 .22 .0625 .14
1/1/98-3/31/98 (3rd Qtr) . .14 .15 .07 .07
4/1/98-6/30/98 (4th Qtr) . .07 .39 .05 .36
7/1/98-9/30/98 (1st Qtr) . .14 .15 .07 .07
10/1/98-12/31/98 (2nd Qtr) .07 .39 .05 .36
1/1/99-3/31/99 (3rd Qtr) . .38 .55 .25 .32
4/1/99-6/30/99 (4th Qtr) . .32 .42 .23 .29
7/1/99-9/30/99 (1st Qtr) . .29 .47 .16 .18
</TABLE>
The Company makes no representation as to whether there is an efficient
market for its stock; or that market prices reflect either the value of the
Company's shares or current and available information concerning the Company or
its prospects. Rather, the quotations represent prices in the over-the-counter
market between dealers in securities, and do not include or reflect markups,
markdowns or commissions, and do not necessarily represent actual transactions.
On September 30, 1999, the last reported sale price of the Common Stock
was $0.18 per share. As of September 30, 1999, there were 3,745 holders of
record of the Common Stock, with 48,159,234 shares issued and outstanding.
The Company has not paid any dividends on its Common Stock. The Company
intends to retain any earnings for use in its operations and to finance the
development and the expansion of its business, and does not anticipate paying
any dividends on the Common Stock in the foreseeable future. The payment of
dividends is within the discretion of the Company's Board of Directors. Any
future decision with respect to dividends will depend on future earnings, future
capital needs and the Company's operating and financial condition, among other
factors. See "Plan of Operations."
ITEM 6
PLAN OF OPERATIONS
GENERAL
The Company is currently directing its efforts to:
(1) through the International Vermiculite joint venture, conducting mining
and milling operations on the Dillon Vermiculite Project;
(2) on its own, initiate a re-assessment of its resources at its Hamilton
Vermiculite property, and through International Vermiculite, commence a high
grade mining operation with limited milling, utilizing if possible the Dillon
Project Mill for final grade concentration, The Company's mining experts have
recommended that mining and milling operations at the Hamilton property be
incrementally phased in with the first stage being a small pilot plant designed
to produce up to 1,000 tons per month of coarse-sized vermiculite concentrates.
The Company believes that this will allow for a much more rapid and cost
effective way to begin producing vermiculite concentrates to market and to use
as feed material at such time as the Company becomes involved in the processing
of vermiculite into end user products. It will be the Company's intent to
perform additional drilling programs on the claims on the Hamilton property as
part of the joint venture. Current ore deposit estimates are based solely on the
results of a drilling program performed in 1986. Although the results of this
program are considered valid, the area covered by the drilling program was only
a fraction of the mapped and inferred vermiculite deposit.
(3) on its own or through International Vermiculite, continue the
acquisition of other vermiculite deposits and related businesses that will
provide a significant market presence in the vermiculite industry. Situations
that are currently being investigated include the acquisition of an active mine
and mill in Brazil and the acquisition of an exfoliating plant in California. It
is the intent of the Company to engage, through International Vermiculite, in
the exfoliation of vermiculite concentrates and the preparation and marketing of
vermiculite products.
(4) investigating non-vermiculite natural resource investment
opportunities with the goal of establishing a cash flow to support the general
and administrative overhead of the Company. Among these investigations are oil
and gas programs in Texas, and electric power projects abroad.
CURRENT VERMICULITE MARKET AND COMPETITION
All of the vermiculite that is now being mined in the United States comes
from mines in Virginia and South Carolina. W.R. Grace & Company has a large
vermiculite operation near Enoree, South Carolina, which is capable of producing
approximately 100,000 short tons of vermiculite concentrate per year. Virginia
Vermiculite Ltd. produces vermiculite from a mine near Woodruff, South Carolina,
and from a mine near Louisa, Virginia. The Company believes that the combined
output of Virginia Vermiculite Ltd. is approximately 90,000 tons per year. Both
Grace and Virginia Vermiculite consider their reserve and production data to be
confidential so the Company's estimates of their production are approximations.
There is one other small mining operation in South Carolina. This operation
was for many years known as Patterson Vermiculite and was recently sold to
Palmetto Vermiculite. This operation has historically produced vermiculite at
the rate of 15,000 tons per year. The sum total of all three companies is an
estimated maximum production capacity of 205,000 short tons per year.
The Company believes that vermiculite produced from its joint venture at
the Dillon property will be competitive with South Carolina and Virginia sources
throughout the western United States and Canada. There is no vermiculite mine
currently active in the western United States.
At one time, Grace also operated a mine and mill near Libby, Montana. The
Libby operation was the largest vermiculite mine and mill in the history of
commercial vermiculite and had annual production exceeding 225,000 tons of
concentrate. The Libby operation was terminated and the land reclaimed over 10
years ago.
Currently, substantially all of the vermiculite imported into the United
States and Canada comes from either the Peoples Republic of China or the
Republic of South Africa. The amount of vermiculite arriving at ports in
California and Washington is quite small and relatively high priced. Although
the possibility of larger and lower cost shipments of imported vermiculite
landing on the Pacific Coast is possible, the Company believes that the
information available at this time is insufficient to allow it to reasonably
predict its potential impact on the marketability of Hamilton vermiculite.
ACQUISITIONS
On December 30, 1998, the Company announced that it has had discussions
with the principal owner and operator of a mining and milling operation in
Brazil, with a goal to conclude the proposed acquisition in 1999, and a general
term sheet has been exchanged. The understanding contemplates that the Company
will provide an initial mill expansion to increase the production of vermiculite
concentrate to 50,000 tons per year. The Company believes that the vermiculite
deposits of the project are in the range of 10 million tons of ore.
At the present stage of negotiations, the terms remain non-binding on the
parties. The establishment of the International Vermiculite joint venture has
compelled the Company to defer this project until the Dillon Vermiculite Project
is in operation.
EXPLORATION STAGE ACTIVITIES
Nevada Vermiculite LLC has located 16 unpatented mining claims in Nevada,
and has filed a plan of operations with the BLM to conduct exploratory drilling
on the project. The Company would expect to participate in this project should
the drilling program prove successful, since actual mining and milling would be
conducted through the International Vermiculite joint venture.
The Company also contemplates a re-evaluation of its ore reserve position
in Hamilton, and contemplates a drilling or other exploration program outside
the currently established ore deposits.
LIQUIDITY AND FINANCE
The Company has been inactive and non-operating for years;
consequently, it is questionable as to whether or not it can remain a going
concern. The primary activity in the past few years has been to preserve and
maintain mineral leases and claims. No actual mining has occurred since the
Company acquired such properties in 1984. The Company has had no income since
1991, and has utilized proceeds of loans from shareholders and the issuance of
capital stock for meeting its operating capital commitments. The Company has
entered into a joint venture to facilitate the development of its assets, and
the Company anticipates that the joint venture partner will provide the working
capital needed to fund mining and milling operations of the joint venture.
Funding for Company general and administrative expenses is not expected to be
satisfied by this source, and further funding from shareholders is expected to
be required in the 1999-2000 fiscal year.
In October of 1998, Nevada Vermiculite provided the funding to Stansbury to
discharge the debt to its largest creditor, Southern American Insurance
Corporation in Liquidation. The creditor Southern American Insurance Company had
been in liquidation under the supervision of the Utah State Insurance Commission
since 1991. The liability to this creditor from principal and accrued interest
were in excess of $2,056,474. This liability, which dates back to the late
1980s, had been secured by a first mortgage on the vermiculite claims at the
Hamilton site, the Company's major asset. The liability has been
settled. The amount of the settlement was $130,000, which the Company raised
through the issuance of a convertible note in that amount to Nevada Vermiculite,
secured by the equitable assignment of the secured position of creditor.
<PAGE>
YEAR 2000 COMPLIANCE
The Company is a participant in a joint venture pursuant which it expects
will commence active mining and milling operations during calendar 1999. The
Company has not yet begun to institute active operations, to select vendors, to
purchase equipment, including either information technology ("IT") equipment or
non-IT systems, nor secure customers; therefore, the Company cannot yet measure
the consequences of its not being prepared for the Year 2000, the cost of
becoming prepared, or the risks the Company faces from preparation for or
failure to be prepared for the Year 2000, nor is it yet able to devise any
contingency plans.
ITEM 7
FINANCIAL STATEMENTS
The financial statements are included herein beginning at page F-1.
ITEM 8
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
On May 13, 1996, the Company announced that it had engaged the services of
Taylor & Company ("Taylor"), a firm of independent certified public accountants
in Salt Lake City, Utah, to perform an audit of its financial statements for the
fiscal year ending June 30, 1996, and for the prior four fiscal years. Taylor
replaced the former auditors, Arthur Anderson, LLP (see below). Taylor's
engagement letter was signed on April 29, 1996 and the initial retainer was paid
on May 6, 1996. The report of the audit for the year ending June 30, 1996
appeared as Item 7 of the Form 10-KSB, as filed with the Securities and Exchange
Commission on March 17, 1997.
In August of 1997, the accounting and auditing practices of Taylor were
purchased, and consolidated into the Ogden, Utah certified public accounting
firm of Sellers & Associates, CPAs ("Sellers"). The Company agreed to continue
to use the surviving Sellers firm for the audit services for the fiscal periods
ending June 30, 1997 and June 30, 1998.
The Company's Board of Directors appointed Dr. Martin J. Peskin, who also
serves as an outside director, to serve as Chairman of the Audit Committee. Dr.
Peskin, after having consulted with the Board, recommended to shareholders at
the annual shareholders meeting on April 30, 1999, to approve changing the
Company's Auditors to Haugen, Springer and Company, Certified Public
Accountants, Denver, Colorado ("Haugen") to replace Sellers, which the
shareholders overwhelmingly approved. Haugen has expertise in the natural
resource industry, and will be able to provide additional consultation services
to management. Haugen is conveniently located to Mr. Aldine J. Coffman, Jr.,
President and Chief Executive Officer.
Sellers served as the Company's independent accountants to audit the
financial statements of the Company for the fiscal years ending June 30, 1997
and June 30, 1998. Sellers' audit reports on the Company for the last two fiscal
years (or Taylor's audit reports for the fiscal years ending June 30, 1992 -
1996) did not contain any adverse opinion, or disclaimer of opinion, nor were
any such reports modified as to uncertainty, audit scope or accounting
principles.
Haugen audited the financial statements of the Company for the fiscal year
ending June 30, 1999. Haugen's audit report on the Company did not contain any
adverse opinion, or disclaimer of opinion, nor were any such reports modified as
to uncertainty, audit scope or accounting principles.
With respect to these financial periods, there have been no disagreements
with the Company's independent accountants Sellers or Haugen on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which disagreement, if not resolved to the satisfaction of
such accountants, would have caused such accountants to make reference to the
subject matter of the disagreement(s) in connection with their reference
report(s) thereon during the Company's fiscal years of those periods. A copy of
the Sellers' resignation letter appears as Exhibit "16.1" hereto.
For the fiscal periods ending June 30, 1990 and June 30, 1991, the Company
had engaged Arthur Andersen as their independent accountant. An audit engagement
was not requested by the Company until the spring of 1995. In 1994 a proxy
solicitation was made to install a new board of directors. At that time, the new
board approached Arthur Andersen to consider accepting the engagement to audit
the fiscal years ending June 30, 1992, June 30, 1993, June 30, 1994 and June 30,
1995. Also at that time, Arthur Andersen was owed $20,050 for prior audit
services dating back four years to 1991. Arthur Andersen was paid in fiscal
1996, but declined to accept the engagement. Taylor was approached by the
Company and they did accept the audit engagement for those periods, as well as
June 30, 1996, and then, as Sellers, June 30, 1997 and June 30, 1998. Although
Arthur Andersen did not accept the engagement in 1995 to audit the four
identified fiscal periods, the audit reports for the fiscal periods ending June
30, 1990 and June 30, 1991 did not contain any adverse opinion, or disclaimer of
opinion, nor were any such reports modified as to uncertainty, audit scope or
accounting principles. Further there had been no known disagreements with Arthur
Andersen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which disagreement, if not
resolved to the satisfaction of such accountants, would have caused such
accountants to make reference to the subject matter of the disagreement(s) in
connection with their reference report(s) thereon during the Company's fiscal
years for the periods of those audit reports. The account payable to Arthur
Andersen was paid in 1995, and Taylor corresponded with Arthur Andersen
concerning work papers and other normal correspondence between successor and
predecessor auditors. A Form 8-K was filed in 1995 regarding a change in the
Company's auditors, and the accountants resignation letter was attached as an
exhibit to that Form 8-K. There is no reference in Taylor's audit reports to any
disagreements or adverse issues between the predecessor auditor and management.
There are no Company records to indicate that the selection of Taylor & Company
was recommended or approved by an audit or similar committee of the Company.
However, in the proxy solicitation in 1994 the new board of directors was
empowered to select a new auditor as deemed necessary by the Company.
PART III
ITEM 9
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT
The following persons are currently the executive officers and
directors of the Company as of the date of the filing of this report. Their
dates of service with the Company are set forth next to their respective names:
Aldine J. Coffman, Jr., age 59, currently Chairman, President, and Chief
Executive
Officer, since May 15, 1999, has served as Executive Vice President and Chief
Administrative Officer and as a Director of the Company since October, 1998. He
served as the Chief Financial Officer of International Methane Corporation,
LTD., a Belize company, specializing in energy, with offices in Denver,
Colorado, from September 1993 to June 1995, and as such company's Chief
Executive Officer from June 1995 to March 1997. Mr. Coffman also served as a
Director of such company from September 1993 to the present. Mr. Coffman has
owned his own management services company, Far Country Services, Inc., located
in Cherry Hills Village, Colorado, since 1992, for which he serves as Chief
Executive Officer.
Jeffery L. Wertz, age 41, has served as a Director, Secretary, Treasurer
and Chief Financial Officer of the Company since June 1997, where he has
provided all aspects of accounting and compliance reporting services to the
Company. From January 1998 until December 1998, Mr. Wertz served as the Chief
Financial Officer of Auction Television Network, Inc., an Arizona corporation
located in Warminster, Pennsylvania, and its wholly owned subsidiary, Single
Source Technology, Inc. He served as the Corporate Accountant, providing
accounting and reporting services, for Penn Independent, an insurance company,
located in Hatboro, Pennsylvania from June 1995 to December 1997. Mr. Wertz also
served as the Property Management Accountant for Pacific Southwest Mortgage, a
property management company, located in San Diego, California, from December
1992 until May 1995, where he provided property accounting services for
professional Southern California office and medical complexes. Mr. Wertz
received his Masters Degree in Accounting, specializing in taxation, from San
Diego State University in 1991, where he also received his Bachelor's Degree in
Finance, Summa Cum Laude in 1989.
James R. Hindman, Ph.D., age 52, has served as a Director and Vice
President, in charge of operations of the Company, since June 1997. Since 1995,
Dr. Hindman has had his own consulting firm, Vermiculite Technologies, out of
Dillon, Montana. From 1978 to 1985 Dr. Hindman was employed as the Senior
Metallurgist by W.R. Grace & Company, at their Libby, Montana vermiculite
operation. Dr. Hindman received a Bachelor of Science degree in Geological
Sciences from the University of Southern California, and a Ph.D. in Geological
Sciences from the University of Utah.
Dr. Martin J. Peskin, age 61, has served as a Director of the Company
since February 1995, and as an outside Director of the Company since July 1997.
Prior to 1996 he served in various executive officer capacities of the Company.
Mr. Peskin retired from his dentistry practice in 1991 and since that time has
been managing his private investment portfolio.
Edward C. Stanojev, Jr., age 45, currently a director of the Company, has
served as a Director since May of 1997, and as President of the Company from May
1997 to May 15, 1999. He is also the President of Bidnow.com, Inc., formerly
Auction Television Network, Inc., an Arizona corporation located in Warminster,
Pennsylvania, specializing in Internet software technology, a position which he
has held since May 1997. Mr. Stanojev also served as President of AHS, Inc., a
Pennsylvania corporation, located in Warminster, Pennsylvania, specializing in
debt restructuring, a position which he has held since August 1994. From August
1980 until August 1994, Mr. Stanojev served as President of Accu-Weld, Inc., a
Pennsylvania corporation, located in Philadelphia, Pennsylvania, specializing in
window manufacturing and sales. In 1989 and 1990, Accu-Weld, Inc. Was involved
in a corporate consolidation during which accounting personnel were changed.
During this period, Accu-Weld, Inc. was accused of failing to properly file its
required tax reports with the State of Pennsylvania. As a result of this
failure, Mr. Stanojev and two other officers of Accu-Weld, Inc., in October
1995, pleaded nolo contendere to misdemeanor charges, including willful failures
to remit sales tax and willful failures to pay state income tax. Each of the
three officers were fined $56,000 plus court costs, and placed on probation for
six months, which probation was terminated after three months.
ITEM 10
EXECUTIVE COMPENSATION
NAME COMPENSATION
ALDINE J. COFFMAN, JR.
As a director and officer from January 1, 1999,
through June 30, 1999, a salary of $12,500 per month,
including director's services. From July 1, 1999, to
present, a salary of $15,000 per month, including
director's services. On October 24, 1998, appointed
a Director, and Chief Administrative Officer and
Executive Vice President of the company, at a compensation
From his appointment through the end of 1998, of $35,000.
EDWARD C. STANOJEV, JR.
A sign-on bonus of 500,000 shares of common stock,
no compensation for services prior to July 1, 1997,
and a monthly compensation thereafter as an
independent contractor, of $6,000 per month,
payable when available until December 31, 1998;
Thereafter, through May 30, 1999, as an employee at
$6,000 per month. currently, a director only, at $1000
per month.
JEFFREY L. WERTZ
A sign-on bonus of 200,000 shares, and a monthly
compensation thereafter as an independent contractor,
for services as an officer and director, of $5,250 per
month, June 1997, through December 1998, payable when
available. Thereafter, as an employee, at $6000 per
month to present, which includes compensation as
director.
JAMES R. HINDMAN, PH.D
A sign-on bonus of 500,000 shares of common stock, and a
monthly compensation thereafter as an independent
contractor, for services as an officer and director,
of $3,000 per month through March 31,1999; thereafter,
as an employee, at $6000 per month to present,
which includes compensation as director.
MARTIN J. PESKIN, DDS
As a director, $1000 per month since June 30, 1999.
Dr. Peskin received 372,000 common shares of the Company
for services as director and officer for the period
prior to July 1, 1999.
Directors and officers are entitled to receive reimbursement of their
reasonable and necessary out-of-pocket expenses, as documented and submitted.
EXECUTIVE REMUNERATION
The following table provides information with respect to the compensation
paid to the above named directors and executive officers. There was no executive
officer whose salary was in excess of $100,000 for any period in fiscal 1999,
although total compensation to Mr. Coffman in fiscal 1999 exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM
COMPENSATION
- ---------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
Restricted
Name And Annual Stock
Principal Fiscal Year Compen- Award(s)
Position Ended June 30 Salary ($) Bonus ($) sation ($) ($)
<S> <C> <C> <C> <C> <C>
Aldine J. 1999 77,500 $30,000
Coffman, Jr.
President, CEO
Edward C. 1999 $24,000(1) $12,000(2) $125,000
Stanojev, Jr. 1998 $60,000(1) $12,000(2)
President 1997 $6,000(1) $2,000(2)
(Resigned 1999) 1996
Jeff Wertz 1999 $60,000(3) $12,000(2) $50,000
Secretary, 1998 $39,000(3) $12,000(2)
Treasurer and 1997
Chief Financial 1996
Officer
James R. 1999 $30,000 18,000 $218,750
Hindman, Vice 1998 36,000 $12,000(2)
President 1997 3,000 1,000(2)
Martin J. Peskin 1999 $12,000(3)
Outside Director 1998 $18,000(3)
1997 $30,000(3)
1996 $30,000(3)
- -------------------------------------------------------------------------------------------------------------------
<FN>
(1) This amount reflects the salary earned but not paid to Mr. Stanojev;
such salary is due and owing to Mr. Stanojev.
(2) Each Director receives Director's Fees of $1,000 per month; however, the
Directors fees have not been paid to the Directors and such Directors fees are
due and owing to each Director .
(3) $62,000 of these amounts has been earned but not paid to Mr. Wertz; the
accrued unpaid salary of $62,000 is due and owing to Mr. Wertz.
(4) Mr. Peskin received Directors fees of $2,500 per month through July
1997, since such time Mr. Peskin receives Directors fees of $1,000 per month;
however, all such Directors fees have not been paid and are due and owing to Mr.
Peskin.
</TABLE>
<PAGE>
ITEM 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the shares of the Company's Common Stock
beneficially owned at September 1, 1999, by (i) each person known to management
of the Company to be the beneficial owner of more than 5% of the outstanding
shares of the Company's Common Stock, (ii) each Director of the Company, (iii)
each executive officer of the Company named under "Executive Remuneration," and
(iv) all executive officers and Directors of the Company as a group.
<TABLE>
<CAPTION>
NAME POSITION WITH COMPANY SHARES BENEFICIALLY OWNED (1)
- ---- -------------------------- ----------------------------------------
Executive Officers Number(2) Percent (2)
And Directors:(5)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aldine J. Coffman, Jr President and Director
Current (3);(4). . . . . . . . . . . . . . . 62,500 *
Potential (3);(4). . . . . . . . . . . . . . . 687,500 1.3%
Edward C. Stanojev, Jr.. . . . . . . . . . . . President and Director 574,202 1.2%
Jeffery L. WertZ Vice President, Chief 200,000 *
Financial Officer (principal
Financial officer) and
Director
James R. Hindman, Ph.D.. . . . . . . . . . . . Vice President, Chief
Operating Officer and
Director
Current (3);(4). . . . . . . . . . . . . . . 875,000 1.8%
Potential (3);(4). . . . . . . . . . . . . . . 1,500,000 2.8%
Dr. Martin J. Peskin Director. 1,582,659 3.3%
All Directors and executive
officers as a group (5 persons)
Current (3);(4). . . . . . . . . . . . . . . 3,294,361 6.9%
Potential (3);(4). . . . . . . . . . . . . . . 4,544,361 8.6%
Beneficial Owners Of More
Than 5%
Nevada Vermiculite (3) . . . . . . . . . . . . 5,000,000 9.5%
- ----------------------------------------------------------------------------------------------------------------------
<FN>
* Less than 1%
(1) Unless otherwise indicated, each shareholder has sole voting and
investment power with respect to the Common Stock indicated as beneficially
owned thereby.
(2) In accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), shares that are not outstanding, but that are
subject to warrants, options or conversion privileges exercisable or convertible
within 60 days of the date of this report on Form 10-QSB, have been deemed to be
outstanding for the purpose of computing the percentage of outstanding shares
owned by the individual having such right, but have not been deemed outstanding
for the purpose of computing the percentage for any other person.
(3) As 12.5% owners of Nevada Vermiculite, Messrs. Hindman and Coffman each
may receive 12.5% of the 5,000,000 warrants issued to Nevada Vermiculite.
(4) Current outstanding at September 10, 1999 is 47,282,702; Potential
outstanding with exercise of all Nevada Vermiculite 5,000,000 warrants is
52,282,702.
(5) Unless otherwise indicated, the address for each Director is c/o
Stansbury Holdings Corporation, 8801 East Hampden Avenue, #200, Denver, Colorado
80231.
</TABLE>
<PAGE>
26
ITEM 12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 25, 1998, the Company entered into an Accord and Satisfaction
with Merwin U. Steward as Liquidator of Southern American Insurance Company and
Commercial Surety and Insurance Corporation ("Liquidator"). At that time the two
companies in liquidation held interest in a first mortgage on the properties of
the Hamilton Vermiculite Project (fee lands and mining claims), with an amount
due in excess of $2,056,474 principal and interest inclusive.
Under the terms of the Accord and Satisfaction, the Company was to pay the
sum of $130,000 to the Liquidator, in consideration of the Liquidator releasing
all claims against the Company, including security interests in properties of
the Company.
In October, 1998, the Company raised the required $130,000 through a
convertible debenture issued to Nevada Vermiculite L.L.C., which debenture,
among other provisions, allowed Nevada Vermiculite to substitute of record for
the Liquidator with respect to certain security interests, as collateral for the
$130,000. The debenture also offered Nevada Vermiculite the additional
inducements of 500,000 common shares, and a warrant for an additional 5 million
shares exercisable at the then par of $0.25 per share.
The $130,000 was paid into an escrow pending closing on the Accord and
Satisfaction in October, 1998, and funds were distributed to the Liquidator in
Closing on the Accord and Satisfaction in December, 1998, upon the Liquidator's
providing the Closing Agent all requisite documentation described in the Accord
and Satisfaction.
As a result of the closing on the Accord and Satisfaction, the Company was
able to discharge debts of $2,056,474, principal and interest inclusive, for the
payment of $130,000. This discharged amount of $2,056,474 is included in the
gain on forgiveness of debt on the accompanying financial statements on The
Statement of Operations, and the $130,000 is included as a long-term note
payable on the Balance Sheet.
The Company remains liable to Nevada Vermiculite L.L.C. for the sum of
$130,000, plus interest accruing thereon from October 24, 1998, at 12% per
annum, due July 5, 2000, as provided by the terms of the debenture issued to
Nevada Vermiculite L.L.C., by the Company. As mentioned above, the Debenture
contains other terms of inducement, and conversion rights of principal and
accrued interest at par. Mr. Aldine J. Coffman and Dr. James Hindman, directors
and officers of the Company, each have 12.5% interest in Nevada Vermiculite
L.L.C.
The Company and Nevada Vermiculite L.L.C. entered into a joint venture, the
purpose of which is to develop the Company's asset at Dillon and eventually
Hamilton, as well as to locate and develop other profitable vermiculite-related
projects. This joint venture is International Vermiculite Limited L.L.C., a
Delaware limited liability company, of which the Company and Nevada Vermiculite
are each 50% participants.
ITEM 13
EXHIBITS AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS
The unaudited consolidated financial statements of the Company and its
subsidiaries filed as part of this Quarterly Report on Form 10-QSB are listed at
Page F-1 of this Quarterly Report on Form 10-QSB, which listing is hereby
incorporated by reference.
EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K FILED DURING THE THREE MONTHS ENDED SEPTEMBER
30, 1998.
There were no reports on Form 8-K filed during the three months ended
September 30, 1999.
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.
DATED: October 28, 1999 STANSBURY HOLDINGS CORPORATION
BY: /S/ ALDINE J. COFFMAN, JR.
------------------------------
Aldine J. Coffman, Jr.
Chief Executive Officer And President
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.
SIGNATURES TITLE DATE
- --------------------------------------------------------------------------------
/s/ Aldine J. Coffman, Jr. President And Chief Executive October 28, 1999
- -------------------------- Officer(principal executive
Aldine J. Coffman, Jr. officer) and Director
/s/ Jeffrey L. Wertz Vice President, Chief Financial October 28, 1999
- -------------------------- Officer (principal financial
Jeffrey L. Wertz officer) and Director
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS AND NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDING SEPTEMBER 30, 1999
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED OPERATING STATEMENT
THREE MONTHS ENDING SEPTEMBER 30, 1999 AND SEPTEMBER 30. 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Revenues. . . . . . . . . . . . . . . $ - $ -
Expenses:
General and administrative. . . . . 352,809 221,511
Taxes . . . . . . . . . . . . . . . - -
Interest. . . . . . . . . . . . . . 593,428 130,203
------------ ------------
Total Expenses. . . . . . . . . . . . 946,237 351,714
Loss from operations. . . . . . . . . (946,237) (351,714)
Other income. . . . . . . . . . . . . 65 -
------------ ------------
Net Loss. . . . . . . . . . . . . . . $ (946,172) $ (351,714)
Basic and diluted earnings per share:
Loss from continuing operations . . (0.02) (0.01)
Net Loss. . . . . . . . . . . . . . (0.02) (0.01)
Basic and diluted weighted average
shares outstanding. . . . . . . . . 47,203,585 24,736,674
</TABLE>
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended September 30
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Net loss. . . . . . . . . . . . . . . . . . $(946,172) $(351,714)
Adjustment to reconcile net loss to
net cash (used in) operating activities
Stock issued for interest, debt
inducement and compensation . . . . . 711,854 270,960
Depreciation. . . . . . . . . . . . . . 670 -
Decrease in prepaid expenses. . . . . . 4,823 -
(Increase) in other assets. . . . . . . (3,500) -
Increase in accounts payable. . . . . . 44,289 46,149
(Decrease) in other current liabilities (6,353) 1,194
---------- ----------
Net cash (used in) operating activities . . (194,389) (33,411)
Cash flows from investing activities:
Investments in undeveloped mineral
claims and projects . . . . . . . . . . 25,833 4,385
Investments in other natural resource
claims and projects . . . . . . . . . . 53,854 -
Purchases of other property and
equipment . . . . . . . . . . . . . . . 2,307 -
---------- ----------
Net cash (used in) investing activities . . (81,994) (4,385)
Cash flows from financing activities
Payments on Elk Creek acquisition
obligations . . . . . . . . . . . . . . (67,000) -
Proceeds from convertible notes
payable to officers and shareholders. . 311,680 125,000
Satisfaction of convertible notes
payable to officers and shareholders. . (432,945) (86,000)
Increase in accrued interest on
convertible notes and notes payable . . 40,649 -
Stock issued for conversion of
term debt . . . . . . . . . . . . . . . 440,035 -
---------- ----------
Net cash provided by financing activities . 292,419 39,000
---------- ----------
Net increase (decrease) in cash . . . . . . 16,036 1,204
Cash at beginning of year . . . . . . . . . (7,648) 1,685
---------- ----------
Cash at end of year . . . . . . . . . . . . $ 8,388 $ 2,889
========== ==========
</TABLE>
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS. . . . . . . . . . . . . . . . . . . . . . . Sep 30, '99 Jun 30, '99
------------- -------------
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . $ 8,388 $ -
Prepaid expenses. . . . . . . . . . . . . . . . . 4,822 9,645
Due from related party. . . . . . . . . . . . . . 20,298 20,298
Other . . . . . . . . . . . . . . . . . . . . . . 7,631 4,130
------------- -------------
Total Current Assets. . . . . . . . . . . . . . 41,139 34,073
Property and Euipment at cost:
Undeveloped mineral claims and
projects, using the full-cost method. . . . . . 19,056,167 19,030,333
Buidlings . . . . . . . . . . . . . . . . . . . . 100,000 100,000
Other property and equipment. . . . . . . . . . . 4,107 1,800
Development costs other projects. . . . . . . . . 82,977 29,123
------------- -------------
19,243,251 19,161,256
Less: accumualted depreciation . . . . . . . . . (26,437) (25,767)
------------- -------------
Net Property and Equipment. . . . . . . . . . . 19,216,814 19,135,489
Deposits. . . . . . . . . . . . . . . . . . . . . . 20,000 20,000
------------- -------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . 19,277,953 19,189,562
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdraft. . . . . . . . . . . . . . . . . . - 7,648
Elk Creek acquisition obligations . . . . . . . . 1,355,500 1,422,500
Current Installment of long-term debt . . . . . . 1,434,123 1,607,739
Convertible notes payable to officers
and shareholders. . . . . . . . . . . . . . . . 506,500 460,500
Convertible note to related party . . . . . . . . 130,000 130,000
Accrued Interest. . . . . . . . . . . . . . . . . 989,155 948,507
Trade accounts payable. . . . . . . . . . . . . . 522,540 478,251
------------- -------------
Total Current Liabilities . . . . . . . . . . . 4,937,818 5,055,145
Long-Term Debt. . . . . . . . . . . . . . . . . . . - -
------------- -------------
Total Liabilities . . . . . . . . . . . . . . . . . 4,937,818 5,055,145
Stockholders' Equity:
Common stock, par value $0.001, authorized
100,000,000 , issued and outstanding 48,159,234
and 43,828,773 at September 30, 1999 and
June 30, 1999 respectively. . . . . . . . . . . 83,465 43,829
Paid-in capital . . . . . . . . . . . . . . . . 20,189,346 19,077,092
Deferred interest . . . . . . . . . . . . . . . (337,731) (337,731)
Accumulated deficit . . . . . . . . . . . . . . (5,594,945) (4,648,773)
------------- -------------
Total Stockholders' Equity. . . . . . . . . . . 14,340,135 14,134,417
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . $ 19,277,953 $ 19,189,562
============= =============
</TABLE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stansbury Holdings Corporation ("Stansbury") was incorporated in 1969 under the
name Stansbury Mining Corporation. In 1990, Stansbury changed its name to
Stansbury Holdings Corporation. During June 1999, Stansbury acquired Elk Creek
Vermiculite, Inc. ("Elk Creek"), and its wholly owned subsidiary, Dillon
Vermiculite, LLC ("Dillon"). Stansbury, Elk Creek, and Dillon are referred to
collectively herein as the "Company". The Company's business is the
acquisition, exploration, and development of vermiculite mineral sites.
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------
Basis of Presentation
-----------------------
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. These statements do not include any
adjustments that might result from the outcome of this uncertainty.
Principles of Consolidation
-----------------------------
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All intercompany balances and transactions are
eliminated in consolidation.
Cash and Cash Equivalents
----------------------------
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Undeveloped Mineral Claims and Projects
- -------------------------------------------
The Company follows the full-cost method of accounting for its mineral claims
and projects. Accordingly, all costs associated with the acquisition,
exploration, and development of mineral properties, including directly related
overhead costs, are capitalized. Once these properties are developed, the
capitalized costs will be amortized on the unit-of-production method using
estimates of proved reserves.
In addition, the capitalized costs are separated into cost centers on a
state-by-state basis. The capitalized costs for each cost center are subject to
a "ceiling test", which limits such costs to the aggregate of the estimated
present value of future net revenues from proved reserves, plus the lower of
cost or fair market value of undeveloped and unproved properties.
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------
Other Property and Equipment
-------------------------------
Other property and equipment, consisting of two buildings and office equipment,
are record at cost. Depreciation is calculated using the straight-line method
over the estimated useful lives of the assets, which are 20 years for the
buildings and 5 years for the office equipment.
Income Taxes
-------------
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. This method also requires the
recognition of future tax benefits such as net operating loss carryforwards, to
the extent that realization of such benefits is more likely than not. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled.
Earnings (Loss) Per Share
----------------------------
Basic earnings (loss) per share are based on the weighted average shares
outstanding. Outstanding stock options and convertible debt obligations are
generally treated as common stock equivalents for purposes of computing diluted
earnings per share. However, since the Company reported net losses for the
years ended June 30, 1999 and 1998, these common stock equivalents are excluded
from the computation of diluted earnings per share because their effect on net
loss per share would be anti-dilutive.
Use of Estimates
- ------------------
The preparation of consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------
Reclassifications
-----------------
Certain reclassifications were made to the June 30, 1998 financial statements to
conform to the June 30, 1999 classification. These reclassifications also
permitted comparability for the September 30, 1998 and September 30, 1999
statements presented herein.
Shares of Common Stock Issued for Prior Services
- -------------------------------------------------------
In settlement with two directors of the Company, stock was issued in the current
period in satisfaction of Directors' fees, or related expenses, a portion of
which had been incurred in prior periods but not recorded. One Director was a
former President of the Company, Mr. Donald Sanford. The other Director still
currently serves as an Outside Director, Dr. Martin Peskin.
Mr. Sanford had incurred expenses during his tenure as President, which had been
recorded but not paid. During the period ending June 30, 1998, these expenses
were converted to a Note and recorded as a Note Payable. The Note called for
periodic partial payments. Except for the original interest payment, these
payments were not made. In satisfaction of the Note, Mr. Sanford received 27,986
shares. The agreement satisfied the Note principal of $6,353.14 plus $643.32 in
additional interest.
In April of 1999, Dr. Peskin presented to the current Board of Directors his
proposal to satisfy prior years' Directors' Fees owed to him. These fees went
back to the beginning of calendar 1994. These fees had not been charged to the
Company during that or any of the subsequent reporting periods. During the
current period, the Board reviewed Dr. Peskin's claims and issued the following
shares:
Periods of Service During Period
---------------------- ---------------
1/1/1994 - 6/30/1997 252,000 shares
7/1/1997 - 6/30/1998 72,000 shares
7/1/1998 - 6/30/1999 48,000 shares
----------------
Total 372,000 shares
These issuances resulted in a total of $93,000 in Directors' Fees incurred in
prior periods being recognized in the current period. Restatement of the
financial statements as a result of this treatment is not anticipated.
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stansbury Holdings Corporation ("Stansbury") was incorporated in 1969 under the
name Stansbury Mining Corporation. In 1990, Stansbury changed its name to
Stansbury Holdings Corporation. During June 1999, Stansbury acquired Elk Creek
Vermiculite, Inc. ("Elk Creek"), and its wholly owned subsidiary, Dillon
Vermiculite, LLC ("Dillon"). Stansbury, Elk Creek, and Dillon are referred to
collectively herein as the "Company". The Company's business is the
acquisition, exploration, and development of vermiculite mineral sites.
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------
Basis of Presentation
-----------------------
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. These statements do not include any
adjustments that might result from the outcome of this uncertainty.
Principles of Consolidation
-----------------------------
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All intercompany balances and transactions are
eliminated in consolidation.
Cash and Cash Equivalents
----------------------------
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Undeveloped Mineral Claims and Projects
- -------------------------------------------
The Company follows the full-cost method of accounting for its mineral claims
and projects. Accordingly, all costs associated with the acquisition,
exploration, and development of mineral properties, including directly related
overhead costs, are capitalized. Once these properties are developed, the
capitalized costs will be amortized on the unit-of-production method using
estimates of proved reserves.
In addition, the capitalized costs are separated into cost centers on a
state-by-state basis. The capitalized costs for each cost center are subject to
a "ceiling test", which limits such costs to the aggregate of the estimated
present value of future net revenues from proved reserves, plus the lower of
cost or fair market value of undeveloped and unproved properties.
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------
Other Property and Equipment
-------------------------------
Other property and equipment, consisting of two buildings and office equipment,
are record at cost. Depreciation is calculated using the straight-line method
over the estimated useful lives of the assets, which are 20 years for the
buildings and 5 years for the office equipment.
Income Taxes
-------------
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. This method also requires the
recognition of future tax benefits such as net operating loss carryforwards, to
the extent that realization of such benefits is more likely than not. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled.
Earnings (Loss) Per Share
----------------------------
Basic earnings (loss) per share are based on the weighted average shares
outstanding. Outstanding stock options and convertible debt obligations are
generally treated as common stock equivalents for purposes of computing diluted
earnings per share. However, since the Company reported net losses for the
years ended June 30, 1999 and 1998, these common stock equivalents are excluded
from the computation of diluted earnings per share because their effect on net
loss per share would be anti-dilutive.
Use of Estimates
- ------------------
The preparation of consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------
Reclassifications
-----------------
Certain reclassifications were made to the June 30, 1998 financial statements to
conform to the June 30, 1999 classification. These reclassifications also
permitted comparability for the September 30, 1998 and September 30, 1999
statements presented herein.
Shares of Common Stock Issued for Prior Services
- -------------------------------------------------------
In settlement with two directors of the Company, stock was issued in the current
period in satisfaction of Directors' fees, or related expenses, a portion of
which had been incurred in prior periods but not recorded. One Director was a
former President of the Company, Mr. Donald Sanford. The other Director still
currently serves as an Outside Director, Dr. Martin Peskin.
Mr. Sanford had incurred expenses during his tenure as President, which had been
recorded but not paid. During the period ending June 30, 1998, these expenses
were converted to a Note and recorded as a Note Payable. The Note called for
periodic partial payments. Except for the original interest payment, these
payments were not made. In satisfaction of the Note, Mr. Sanford received 27,986
shares. The agreement satisfied the Note principal of $6,353.14 plus $643.32 in
additional interest.
In April of 1999, Dr. Peskin presented to the current Board of Directors his
proposal to satisfy prior years' Directors' Fees owed to him. These fees went
back to the beginning of calendar 1994. These fees had not been charged to the
Company during that or any of the subsequent reporting periods. During the
current period, the Board reviewed Dr. Peskin's claims and issued the following
shares:
Periods of Service During Period
---------------------- ---------------
1/1/1994 - 6/30/1997 252,000 shares
7/1/1997 - 6/30/1998 72,000 shares
7/1/1998 - 6/30/1999 48,000 shares
----------------
Total 372,000 shares
These issuances resulted in a total of $93,000 in Directors' Fees incurred in
prior periods being recognized in the current period. Restatement of the
financial statements as a result of this treatment is not anticipated.
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------
Summary of Share Issuances
-----------------------------
The following amounts represent shares issued by the Company in satisfaction of
convertible notes, accrued interest and other obligations.
Expenses Interest Expense Debt Reduction Accrued Interest
-------- ---------------- -------------- -----------------
$159,594 $ 544,930 $ 440,036 $ 7,330
Shares: 638,376 2,179,720 1,760,144 29,320
Interest Expense
-----------------
Of the $593,428 in total interest expense reported in the period, $219,495 was
a result of note conversion agreements made with investors whose investments
were made prior to June 30, 1999. These conversion agreements resulted in the
issuance of 877,980 shares in the current period. Interest expense of $13,834
was recorded in the current period as a result of vendors' accounts payable.
Interest expense associated with investments made or outstanding in the current
period was $360,099.
NOTE 2 - GOING CONCERN STATEMENT
-------------------------
The Company emerged from Chapter 11 bankruptcy proceedings during 1985, and has
been non-operating since that time. At September 30, 1999, its negative working
capital was approximately $4.909 million and accumulated deficit was
approximately $5.6 million.
During 1999, the Company hired a new president who also now serves as chairman
of the Board of Directors and chief executive officer.
The Company's current management team recognizes the need to develop its mineral
properties and place those properties into production. To accomplish these
goals, management has been attempting to secure long-term financing for the
development of its properties and form joint ventures with established mining
companies.
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - GOING CONCERN STATEMENT (CONTINUED)
--------------------------------------
For example, the Company's shareholders approved participation in a new joint
venture company, International Vermiculite Limited LLC, during April 1999. As
currently structured, the Company will be a 50% participant in the new company.
The other 50% partner will be Nevada Vermiculite LLC; see Notes 7 and 10.
Nevada Vermiculite has undertaken the primary responsibility of obtaining the
working capital necessary to develop the Company's mineral claims.
During June 1999, the Company acquired Elk Creek and its subsidiary in a stock
and cash transaction. The Company believes that the mineral claims held by Elk
Creek and Dillon, which are also located in the State of Montana, enhance the
Company's ability to obtain long-term development financing and its ability to
participate in joint venture arrangements with major mining interests.
Management is also reviewing several additional proposals regarding long-term
financing and participation in other joint venture arrangements. In the
interim, management is in the process of acquiring other producing natural
resource properties for purposes of providing cash flow to fund general and
administrative costs. In the past, these costs have generally been funded by
loans from the Company's officers, directors and shareholders.
During August 1998, the Company successfully restructured the debt with its
largest single creditor. That creditor held a first mortgage on the Company's
mineral claims and projects. In recent years, the Company also has converted a
significant amount of its other debt to common stock. As a result of these
efforts, total liabilities decreased approximately $2.1 million from June 30,
1998 to June 30, 1999, exclusive of the Elk Creek acquisition obligations which
the Company incurred during June of 1999.
There can be no assurances that the Company or its joint venture partner will be
successful in obtaining the financing necessary to develop its mineral reserves.
Nor can there be any assurances that other sources of funds can be obtained to
cover general and administrative costs.
The Company's independent public accountants have included a "going concern"
emphasis paragraph in their audit report accompanying the June 30, 1999
consolidated financial statements, and reported the Company's 10K-SB for that
reporting period. The paragraph states that the Company's recurring losses and
negative working capital raise substantial doubt about the Company's ability to
continue as a going concern and cautions that the financial statements do not
include adjustments that might result from the outcome of this uncertainty.
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - GOING CONCERN STATEMENT (CONTINUED)
--------------------------------------
Management believes that, despite the financial and funding difficulties going
forward, it now has a business plan that, if successfully funded and executed,
will result in the development of its mining claims thereby improving operating
results.
NOTE 3 - UNDEVELOPED MINING CLAIMS AND PROJECTS
------------------------------------------
The Company's undeveloped mining claims and projects are located in the state of
Montana. Substantially all of these assets are subject to security interests
granted in favor of various creditors of the Company.
During June 1999, the Company capitalized $3.99 million of undeveloped mining
claims and projects related to its acquisition of Elk Creek and Dillon (see Note
4). Additionally, the Company capitalized approximately $97,000 and $68,000
during the years ended June 30, 1999 and 1998, respectively, for mine
development costs.
NOTE 4 - ACQUSITION OF ELK CREEK VERMICULITE, INC.
------------------------------------------------
During June 1999, Stansbury acquired all of the outstanding shares of Elk Creek
Vermiculite, Inc. and its wholly-owned subsidiary, Dillon Vermiculite, LLC. The
acquisition was accounted for as a purchase and the results of Elk Creek's
operations (and its subsidiary) were included in the Company's 1999 consolidated
statements of operations from the date of acquisition.
Total consideration included the issuance of 5.75 million common shares valued
at $2.05 million, the assumption of $1,752,500 in debt, and a commission of
$37,500. As of September 30, 1999, the $1,752,500 in debt assumed has been
reduced by $595,000 by a combination of stock and cash payments, leaving a
balance of $1,357,500. As of September 30, 1999, Stansbury was liable to the
seller for an additional $200,000, to be paid either in cash or shares of the
Company's common stock.
The assets of Elk Creek and Dillon represent various undeveloped mining
claims and projects, and an office and warehouse building, located in the state
of Montana. The total consideration of $4.04 million was allocated $50,000 to
the office and warehouse building, and the remainder to the undeveloped mining
claims and projects.
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACQUSITION OF ELK CREEK VERMICULITE, INC. (CONTINUED)
-------------------------------------------------------------
Elk Creek was acquired from an entity that is controlled by an individual who
was a former officer and director of Stansbury. At September 30, 1999, this
individual also owned 30,050 shares of the Company's common stock.
The $37,500 commission was paid by the issuance of 150,000 shares of the
Company's common stock to an individual who is the vice-president, chief
operating officer, a director and shareholder of Stansbury. Additionally, this
individual received a commission from the seller in the amount of $90,000. The
seller paid its commission by transferring to this individual 225,000 shares of
the Company's common stock it received for the sale of Elk Creek.
Debt obligations assumed by Stansbury included a $940,000 note payable due to a
creditor of Elk Creek and a $812,500 purchase debt obligation to a third-party
entity. Simultaneous with the acquisition, Stansbury entered into a settlement
agreement with the holder of the note payable. Pursuant to the agreement, the
note holder agreed to cancel the note payable in exchange for $100,000 cash, the
issuance of 1.95 million shares of the Company's common stock valued at
$390,000, and the issuance of four promissory notes from the Company with an
aggregate principal of $450,000.
The following unaudited pro forma information reflects the consolidated
results of operations as if the acquisition had taken place as of the beginning
of the respective periods. This information utilizes audited information for
Stansbury and unaudited information for Elk Creek and its subsidiary.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
<S> <C> <C>
1999 1998
------------ ------------
Revenues. . . . . . . . . . . . $ 0 $ 0
============ ============
Loss before extraordinary items $(3,354,664) $(1,399,176)
============ ============
Net loss. . . . . . . . . . . . $(1,298,190) $(1,399,176)
============ ============
Loss per share. . . . . . . . . $ (0.04) $ (0.05)
============ ============
</TABLE>
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - ELK CREEK ACQUISITION OBLIGATIONS
--------------------------------------
Obligations remaining from the Elk Creek acquisition (see Note 4) at September
30, 1999 consisted of the following:
Four promissory notes payable $ 400,000
Purchase debt obligation 762,500
Due to Elk Creek seller 200,000
------------
$1,422,500
==========
The four promissory notes each bear interest at the rate of 12%, and are due as
follows: $50,000 plus accrued interest on June 30, 1999; $150,000 plus accrued
interest on August 12, 1999; and $200,000 plus accrued interest on November 24,
1999. As of September 30, 1999, $7,000 had been paid towards the June 30 Note.
The purchase debt obligation assumed in the Elk Creek acquisition is evidenced
by an asset purchase agreement by which Elk Creek acquired its interests in
mining claims and projects. Elk Creek was in default of the payment terms of
this agreement as of the date of Stansbury's acquisition. The original
principal balance of the obligation was $812,500, and the Company had made
payments totaling $50,000 through September 30, 1999.
NOTE 6 - CONVERTIBLE NOTES PAYABLE
TO OFFICERS AND SHAREHOLDERS
-------------------------------
Convertible notes payable to officers and shareholders at September 30, 1999 and
1998 consisted of the following:
1999 1998
---- ----
90-Day Notes (12%) $ 24,000 $ 255,800
180-Day Notes (10%) 482,200 10,000
---------- ---------
$ 506,200 $ 265,800
========== ==========
Both classes of notes provide that the Company, at its option, can convert the
principal and accrued interest to shares of its common stock. The Company
issued common shares to the holders of both classes of notes as an inducement to
make the loans. The value of such inducement shares charged to interest expense
during the year ended June 30, 1999 was $996,328, and $312,500 for the three
months ending September 30, 1999.
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - CONVERTIBLE NOTE PAYABLE TO RELATED PARTY
The convertible note payable, issued in connection with the debt restructuring
described in Note 10, was dated August 25, 1998 and bears interest at 10%.
Principal and accrued interest are due on demand after October 28, 1999.
The holder (Nevada Vermiculite LLC; see Notes 2 and 10) has the option at any
time prior to October 28, 1999 to convert the entire amount due into common
shares of the Company's common stock on the basis of one share for each $0.25 of
debt.
NOTE 8 - LONG-TERM DEBT
---------------
Long-term debt at September 30, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
---------- ----------
Officers, directors and shareholders:
- ----------------------------------------
Promissory notes bearing interest
at rates from 12% to 15%. . . . . . . $1,107,792 $1,200,348
Mortgages payable, interest
Prepaid. . . . . . . . . . . . . . . 429,000 449,000
Other:
- ---------
Mortgages and other promissory
notes payable to liquidator
(see Note 10 ) . . . . . . . . . . . 0 0
Other promissory notes and
obligations payable. . . . . . . . . 379,051 379,031
---------- ----------
Long-term debt. . . . . . . . . . . . 1,915,843 2,028,379
Less current installments . . . . . . 1,915,843 2,028,379
---------- ----------
Long-term portion . . . . . . . . . . $ 0 $ 0
========== ==========
</TABLE>
The promissory notes and mortgages payable to officers, directors, and
shareholders were past due as of September 30,1999. Interest on the mortgages
payable was prepaid, and amortization of that prepaid interest was complete
prior to July 1, 1997.
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LONG-TERM DEBT (CONTINUED)
----------------------------
Other notes payable and obligations represent amounts payable to former trade
creditors of the Company. The Company is in default of these amounts, and
interest accrues on the outstanding principal balances at rates that average
approximately 12%.
NOTE 9 - STOCKHOLDERS' EQUITY
---------------------
On April 30, 1999, the Company's stockholders approved an increase in the number
of authorized common shares from 25 million to 100 million, and restated the par
value of each common share from $0.25 to $0.001.
NOTE 10 - DEBT RESTRUCTURING
-------------------
On August 25, 1998, the Company entered into an agreement with one of its
creditors, a liquidator for a corporation in receivership, to satisfy amounts
owed by the Company. Pursuant to the terms of the agreement, the creditor
agreed to cancel all debt owed, relinquish ownership of 760,556 shares of the
Company's common stock, and release all collateral it held, in exchange for a
$130,000 cash payment.
The Company obtained the $130,000 by issuing a convertible note payable (see
Note 7) to Nevada Vermiculite, LLC, a limited liability company owned 25% by two
of the Company's officers and directors. In addition, the Company issued
500,000 of its common shares and granted an option to obtain 5 million
additional common shares to Nevada Vermiculite as an inducement to make the
loan. The option expires October 26, 2004, and the option price is 25 cents per
share. The Company valued the stock and option issued to Nevada Vermiculite at
$125,000.
The shares relinquished by the creditor were issued to persons who assisted the
Company in this debt restructuring. The Company has recorded these shares at
their approximate fair market value of 25 cents per share. The relinquishment
of the shares represented additional gain from the debt restructuring, while the
issuance of the shares represented an additional cost thereof.
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - DEBT RESTRUCTURING (CONTINUED)
--------------------------------
The gain from the restructuring was as follows:
<TABLE>
<CAPTION>
<S> <C>
Principal amount of mortgages and
other promissory notes payable
cancelled . . . . . . . . . . . . . . $ 645,961
Accrued interest on debt cancelled. 1,665,513
Value of shares relinquished by the
creditor. . . . . . . . . . . . . . . 190,139
----------------------------------
Subtotal. . . . . . . . . . . . . . 2,501,613
----------------------------------
Cash payment by Company . . . . . . 130,000
Stock issued to Nevada Vermiculite. 125,000
Value of relinquished shares issued 190,139
----------------------------------
Subtotal. . . . . . . . . . . . . . 445,139
----------------------------------
Gain from restructuring . . . . . . $ 2,056,474
==================================
</TABLE>
NOTE 11 - INCOME TAXES
-------------
The Company incurred net operating losses for the years ended June 30, 1999 and
1998. At June 30, 1999, the Company has approximately $9.9 million of net
operating loss carry-forwards, which expire in varying amounts through the year
ending June 30, 2019.
A deferred tax asset resulting from the benefit of current and carryforward net
operating losses is offset by a valuation allowance because realization of that
asset is not assured. Realization of a deferred tax asset is dependent on
generating sufficient taxable income prior to the expiration of the loss
carryovers. Accordingly, no current or deferred tax benefit for the years ended
June 30, 1999 and 1998 was recognized, nor for the current period.
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
---------------------------------------
The debt obligations of the Company represent the financial instruments for
which fair value disclosure is required under SFAS 107. Management does not
believe it is practicable to estimate the fair value of its debt.
A substantial portion of the Company's debt obligations at September 30, 1999
was owed directly to its officers, directors, and shareholders (or to entities
controlled by them). All other debt is owed to non-financial institutions.
Accordingly, there is no market available to estimate the fair value of this
debt.
NOTE 13 - RELATED PARTIES
----------------
For the years ended June 30, 1999 and 1998, the Company shared office space and
certain personnel with a company controlled by one of the Company's officers,
directors, and shareholders. Common costs are allocated to the Company based on
actual usage and allocable overhead. At June 30, 1999, the related entity owed
the Company $20,298, and at June 30, 1998, the Company owed this entity $20,650.
The September 30, 1999 balance remained at $20,298.
Substantially all of the creditors who have converted their debt and interest
into shares of the Company's stock have been officers, directors, or
shareholders of the Company. These individuals also received shares of the
Company's stock as an inducement for conversion of their debt.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
-------------------------------
Effective June 1, 1999, the Company entered into a 37-month lease agreement
for office space in Denver, Colorado. Rent is payable in advance in six-month
increments. Rent expense for the year ended June 30, 1999 was $2,000. Minimum
future annual rent payments are $24,000 for each of the years ending June 30,
2000 and 2001, and $22,000 for the year ending June 30, 2002.
The Company is obligated to the federal government for approximately
$16,100 per year to maintain the ownership of its mineral claims.
Various legal proceedings and claims are pending against the Company. Some
of the plaintiffs in these matters are certain of the Company's shareholders and
former officers, and others are trade creditors.
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - COMMITMENTS AND CONTINGENCIES CONTINUED)
-------------------------------------------
Actions brought by shareholders and former officers generally pertain to
default in the repayment terms of amounts loaned to the Company. The Company is
accruing interest on these amounts pursuant to the terms of the underlying
obligations. At September 30, 1999, the principal amount of these obligations
is included in long-term debt under the caption "officers, directors and
shareholders" (see Note 8).
Actions brought by certain trade creditors and others have resulted in the
Company issuing promissory notes payable to those creditors. The Company is
accruing interest on these amounts pursuant to the terms of the promissory
notes. At September 30, 1999, the principal amount of these promissory notes is
included in long-term debt under the caption "other" (see Note 8).
Amounts due other trade creditors who have brought action against the
Company are included in trade accounts payable. The total of these amounts
included in the balance of accounts payable at September 30, 1999 was
approximately $42,000.
An action has also been brought with respect to the purchase debt
obligation that resulted from the Elk Creek acquisition. Management believes
that the matter will be settled for an amount not greater than the recorded
amount of that obligation at September 30, 1999 ($772,500; see Note 5).
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8388
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41139
<PP&E> 19243251
<DEPRECIATION> 26437
<TOTAL-ASSETS> 19277953
<CURRENT-LIABILITIES> 4937818
<BONDS> 0
0
0
<COMMON> 83465
<OTHER-SE> 14256670
<TOTAL-LIABILITY-AND-EQUITY> 19277953
<SALES> 0
<TOTAL-REVENUES> 65
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 352809
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 593428
<INCOME-PRETAX> (946172)
<INCOME-TAX> 0
<INCOME-CONTINUING> (946172)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (946172)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
