UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEARS ENDED JUNE 30, 1997 AND 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 0-6034
STANSBURY HOLDINGS CORPORATION
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
UTAH 87-0281239
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
676 LOUIS DRIVE, WARMINSTER, PENNSYLVANIA 18974
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER (215) 328-9566
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
COMMON STOCK, $.25 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, 1998, its most recent
fiscal year, were $ -0-.
The aggregate market value of the voting stock held by non-affiliates
computed using $.30 per share, the closing price of the Common Stock on February
4, 1999, was approximately $7,197,655.
As of June 30, 1998, 24,039,290 shares of the issuer's common stock
were issued and outstanding.
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PART I
ITEM 1
DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
Stansbury Holdings Corporation ("Stansbury" or "the Company") is a
development 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.
Since December 12, 1994, the Company has obtained approximately
$1,500,000 in loans from shareholders of the Company. Of this amount,
approximately $400,000 has been obtained since June 30, 1998. 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 Footnote 6 to the financial statements, set forth below,
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 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,
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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.
It is expected that this reserve will be written off in two equal installments
in fiscal years 1998 and 1999, thereby allowing a contingency should further due
diligence indicate any error in such write-downs. Accordingly, one-half, or
$9,496, was written off June 30, 1998, and the remaining portion will be written
off at June 30, 1999. The Company believes that some of the accounts payable
eliminated by the procedure were or 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 was 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.
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, purchase or sale of any
significant amount of assets. The Company is planning to enter into negotiations
for additional vermiculite projects, and has in fact done so since the end of
the last reporting period. The Company has also entered into negotiations for
the formation of a joint venture (described below); if successfully consummated
the Company believes that this joint venture will provide adequate working and
investment capital would be assured to commence certain vermiculite operations
through the joint venture.
BUSINESS OF ISSUER
The principal business activity of the Company since its reorganization
has been vermiculite mineral exploration and development. 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 Company intends to develop
and operate an open pit vermiculite mine and mill on 96 unpatented mineral
claims owned by the Company in 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 the largest known vermiculite
deposit available for development in the western United States, and believes
that there is sufficient proven ore reserves to support a mining and milling
operation for a minimum of 12 years.
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The proposed mining operation 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.
Since the construction of the proposed mine and mill has not yet
commenced, the Company has not engaged in operations nor has it derived revenue
from any source during fiscal years ended June 30, 1996, June 30, 1997, June 30,
1998, or yet during the current fiscal year. At the present time the Company
does not have any principal products or services. The Company anticipates
building and operating a vermiculite mine in calendar year 1999 if project
financing and additional equity capital can be obtained. The Company anticipates
that sufficient funding will be available, but there is no assurance that such
capital will be obtained.
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.
The Board of Directors of the Company has examined the factors that
have contributed to the Company's inability to place its Hamilton Vermiculite
Project into production. The Board has determined that it is in the best
interest of the Company to enter into a cooperative joint venture with an entity
which can provide adequate and timely working and investment capital for the
mining and milling project. To this end, the Company has entered into
negotiations to form a joint venture with Nevada Vermiculite LLC ("Nevada
Vermiculite") for all vermiculite undertakings. Nevada Vermiculite is a Nevada
limited liability company engaged in the exploration and development of
vermiculite resources. Nevada Vermiculite LLC was formed on May 4, 1998,
primarily for the purpose of the expected joint venture with the Company, and
has no reported earnings to date. The Company anticipates that Nevada
Vermiculite will provide the bulk of the working capital arrangements for the
mining and milling operations of the joint venture, while the Company would
acquire for the joint venture additional vermiculite ore properties in the
United States and abroad.
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Negotiations with Nevada Vermiculite are ongoing with respect to two
specific acquisitions, one domestic and one foreign. Additionally, Nevada
Vermiculite is negotiating to acquire a domestic vermiculite resource for
development by the joint venture. At present, all of the forgoing are under
negotiation; however, no binding contract between the Company and Nevada
Vermiculite has been reached.
GOVERNMENTAL REGULATION
Final approval of the Company's Environmental Impact Statement (EIS)
was obtained on January 3, 1994. An operating permit is available dependent on
the Company posting a reclamation bond. The amount of the bond needed depends
upon the extent of the mining operation, and may be offset to some extent by a
development bond currently posted by the Company. The Company's mining experts
have recommended an initial mining and milling operation to commence in calendar
year 1999 which is significantly less in scale and cost than originally proposed
in the EIS. The bonding requirement for this new mining operation has not yet
been determined.
The Company plans to develop the Hamilton vermiculite project on a
joint venture basis and, if commenced, will be subject to regulation by the
United States Forest Service, the United States Environmental Protection Agency,
the Montana Department of Environmental Quality (formerly Department of State
Lands), and the Mines Safety and Health Administration (MSHA). Pursuant to the
EIS, the Company is subject to certain limitations and conditions as to the time
of operation and the method of operation (e.g. the operation of the initially
proposed mine is limited to a 150 day operating cycle from May through October
15).
The Company expects that the Hamilton mining operation, if commenced,
will continue to be subject to regulation by federal and state environmental,
land, mining, and safety agencies. Changes in any or all of laws and regulations
affecting these agencies could have a material, and possibly adverse impact on
the Company's prospects and future operations.
COMPETITION
For a discussion of competition, please see ITEM 6 - PLAN OF OPERATIONS
"Current Market and Competition" of this Form 10-KSB.
EMPLOYEES
The Company has its corporate offices at 676 Louis Drive, Warminster,
Pennsylvania 18974. The Company also maintains a field office in Victor
Crossing, Montana. From time to time, the Company has employed technical
specialists on an "as-needed" basis. All services to the Company were performed
on an independent contractor basis, and the Company had no full time employees
as of June 30, 1998.
On December 12, 1994, in a proxy contest initiated by a shareholders'
committee, a new Board of Directors was elected. Subsequently, by resignations
and the filling of vacancies, that
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Board became constituted, as of April 1997, of Martin J. Peskin, D.D., Don
Sanford and Howard Pomeranz. On May 27, 1997, the Board, as then constituted,
elected Edward C. Stanojev, Jr. to the Board, appointed Mr. Stanojev President
and Chief Executive Officer, and accepted the resignation of Mr. Sanford. On May
27, 1997, the Board also elected James R. Hindman, Ph.D., Vice President, Chief
Operations Officer, and a Director of the Company; and accepted the resignation
of Mr. Pomeranz. On June 19, 1997, the Board elected Jeffrey L. Wertz to the
position of Secretary and Treasurer, Board Director and Chief Financial Officer.
The position of Secretary and Treasurer was filled as a result of the
resignation of Mr. David Racher in June of 1997.
On October 24, 1998, the Board of Directors elected Aldine J. Coffman,
Jr. to the Board, and appointed Mr. Coffman as Executive Vice President and
Chief Administrative Officer. See Item 10 - Executive Compensation, below.
ITEM 2
DESCRIPTION OF PROPERTY
The Company has no mining operations or processing plants at any
location at the present time; however the Company does maintain a small field
office and mining claims.
FIELD OFFICE
The Company owns a small office building and surrounding land (1.25
acres) at Victor, Montana (southwestern Montana), which can be used for a field
office (the "Field Office Property"). 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.
The Company has no liability insurance on the field office, but is
currently seeking such insurance.
VERMICULITE 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.
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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 resource 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".
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 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. 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.
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The maps on the following pages give the location of the property as
follows:
Map A, entitled "Project Location", indicates the geographical
location of the proposed mine and mill in relation to Victor
Crossing and Hamilton, Montana, and to the Montana Rail Link
Railroad.
Map B, entitled "Proposed Facilities Plan and Wetlands Areas
of Interest", is a schematic showing the configuration of the
mine site.
The proposed mine would be located on ABM Ridge (see Map "B") and would
involve disturbance of up to approximately 77 acres as described in the
Environmental Impact Statement. 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.
Elevations for the mine site and vicinity range from about 6,600 feet
to 7,200 feet. Most of the surrounding area is forest. Ground water is likely to
be encountered midway through the mining operation.
The Company believes that its Hamilton vermiculite deposit has a
significant advantage in that the risk of producing vermiculite concentrates
containing fibrous asbestiform minerals is extremely small to non-existent. To
date, periodic testing of drill hole samples and airborne dust samples had
failed to identify any fibrous, asbestiform mineral particles as being present
in the ore body. Asbestiform silicate minerals, which are generally referred to
as Asbestos, can produce sever health effects when trapped in the lungs or
ingested. Consequently, the Company's vermiculite deposit, if exploited, should
offer a significant safety and marketing advantage over other domestic and
foreign sources which may contain asbestos contamination.
RESERVES
The Company's vermiculite deposit near Hamilton, Montana, was first
identified as a potential resource 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.
Since its discovery, a number of estimates have been made as to the
mineral resource inventory in the deposit; but until 1986, estimates were based
on visual observation of surface characteristics and the areal extent of the
mineralization, limited trenching and some rotary drilling performed in the late
1970s. None of these estimates quantified the amount and grade of the
vermiculite mineralization accurately.
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MAP A INSERT
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MAP B INSERT
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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 resource 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 reserves based on the
same drill hole and analytical data was made by Dr. James R. Hindman, a Director
of the Company, in 1992. This estimate indicated proven and probable reserves 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 reserves. 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 reserves
within the ore body.
INVESTMENT POLICIES
The Company has no investments.
DESCRIPTION OF REAL ESTATE AND OPERATING DATA
The Company has received various inquires from realtors regarding the
possible sale of the Field Office Property; however, the Company has declined to
list such property for sale.
The Company's properties are not insured; however, the Company
anticipates that it will obtain the necessary liability insurance prior to its
commencement of construction.
GOVERNMENTAL REGULATIONS AND 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."
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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.
Michael LaFleur, a former officer and Director of the Company, had made
a claim with the Montana Department of Labor and Industry for $16,250 in back
pay. The Company satisfied this judgment in January 1998.
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 June 30, 1998 principal and accrued interest totaled
$121,977.
A judgment was obtained by Southampton Metals Ltd. ("Simon
Grant-Rennick"), under a settlement with the Company, upon which remains a
current unpaid balance of $5,600, which balance is included on the financial
statements as a note payable.
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 June 30, 1998.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company conducted no annual or special meeting if its shareholders
in fiscal years ended June 30, 1997 and 1998, and, therefore, there were no
matters submitted to a vote of security holders during the fiscal years ended
June 30, 1997 and 1998.
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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 and 1998.
<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
</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 December 5, 1998, the last reported sale price of the Common Stock
was $.29 per share. As of December 5, 1998, there were 3,695 holders of record
of the Common Stock.
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."
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ITEM 6
PLAN OF OPERATIONS
GENERAL
The Company is currently directing its efforts to (1) initiate a mining
and milling operation at its Hamilton Vermiculite property and (2) the
acquisition of other vermiculite resources 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 inactive
vermiculite mine and mill in southern Montana and the acquisition of an active
mine and mill in Brazil. It is the intent of the Company to engage in the
exfoliation of vermiculite concentrates and the preparation and marketing of
vermiculite products. To this end the Company is engaging in discussions with
potential joint venture partners to construct and operate one or more
exfoliation facilities.
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
reserve 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.
CURRENT 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.
14
<PAGE>
The Company believes that vermiculite produced from the Hamilton
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. One small operation near Dillon, Montana
has produced approximately 4,000 tons of concentrate during short periods of
operation in recent years. This operation has a production capacity estimated to
be only 6,000 short tons per year and it is currently inactive.
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, Stansbury 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 March 1999, and a
general term sheet has been exchanged.
While at the present stage of negotiations, the terms remain
non-binding on the parties; 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 reserves of
the project are in the range of 10 million tons of ore.
DEVELOPMENT STAGE ACTIVITIES
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, and released of record. 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.
15
<PAGE>
In December of 1998, the Company entered into negotiations to form a
joint venture with Nevada Vermiculite. The purpose of the joint venture is to
commence mining and milling operations of worldwide vermiculite concentrates
during 1999. The intended joint venture will be known as International
Vermiculite L.L.C., a Delaware limited liability company.
Nevada Vermiculite, of whom Stansbury directors Aldine J. Coffman and
James R. Hindman, are minority shareholders, is owned by Messrs. Coffman and
Hindman and the principals of Channel and Basin Reclamation, Inc. ("Channel &
Basin"). Channel & Basin owns and operates three large-scale sand and gravel
operations with revenues of approximately $12 million per year. The Company
believes that Nevada Vermiculite will bring the capital, equipment and
operational expertise to contribute to the mining and milling efforts of the
joint venture.
LIQUIDITY
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 not
obtained the necessary financing to meet its working capital requirements to
operate the mineral property which is the Company's major asset, and there can
be no assurance that the Company will be successful in obtaining the necessary
financing. The Company plans to enter into a joint venture to facilitate the
development of its assets, but if this joint venture does not occur, the Company
will be required to seek capital from other sources.
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 ended June 30, 1996, and for the prior four
fiscal years. Taylor replaced the former auditors, Arthur Anderson, LLP (see
below). Taylor's
16
<PAGE>
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 ended 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. Sellers will also be employed to prepare
the Company's federal and state tax filings.
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, will be recommending to
shareholders at the next shareholders' meeting, scheduled for March, 1999, to
approve changing the Company's Auditors to Haugen, Springer and Company,
Certified Public Accountants, Denver, Colorado ("Haugen") to replace Sellers.
Sellers will continue to perform federal and state tax filing services for the
Company. Haugen has expertise in the Company's industry, and will be able to
provide additional consultation services to management. Haugen is conveniently
located to Mr. Aldine J. Coffman, Chief Administrative 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. With respect to these financial periods, there have been no
disagreements with the Company's independent accountants 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 service 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
preceding 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
17
<PAGE>
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.
The report of the audit for the fiscal years ended June 30, 1997 and
1998 appears at Page F-1 of this Form 10-KSB.
18
<PAGE>
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:
Edward C. Stanojev, Jr., age 45, has served as a Director and President
of the Company since May 1997. He is also the President of 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.
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 offices and medical complexes. Mr. Wertz
received his Masters Degree in Accounting in, 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 1985,
Dr. Hindman has had his own consulting firm, Vermiculite Technologies, out of
Dillon, Montana. From 1978 to 1985 Dr. Hindman was
19
<PAGE>
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.
Aldine J. Coffman, Jr., age 58, 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, Colorado, since 1992, for which he serves as Chief Executive
Officer.
ITEM 10
EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
NAME COMPENSATION
<S> <C>
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 .
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 $2,000 per month,
payable when available .
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.
</TABLE>
Dr. Martin J. Peskin continued to serve as a director without pay, but
with expenses incurred in serving as a director to be reimbursed.
20
<PAGE>
On October 24, 1998, Aldine J. Coffman, Jr., whom had been providing
certain legal services to the Company, was 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.
Commencing January 1, 1999, Mr. Coffman will be receiving a salary of $12,500
per month.
Directors 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 Martin J. Peskin, the Chairman of the Board of the Company
and the above named executive officers. There was no executive officer whose
salary was in excess of $100,000 for any period in fiscal 1998.
21
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
====================================================================================================================================
ANNUAL COMPENSATION LONG TERM
COMPENSATION
AWARDS
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
OTHER RESTRICTED
NAME AND ANNUAL STOCK
PRINCIPAL FISCAL YEAR COMPEN- AWARD(S)
POSITION ENDED JUNE 30 SALARY($) BONUS($) SATION($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Edward C. 1998 $72,000(1) - $12,000(2) -
Stanojev, Jr., 1997 $ 6,000(1) - $ 2,000(2) -
President 1996 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Jeff Wertz, 1998 $26,500(3) - $12,000(2) -
Secretary, 1997 - - - -
Treasurer and 1996 - - - -
Chief Financial
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
James R. 1998 $36,000 - $12,000(2) -
Hindman, Vice 1997 $ 3,000 - $ 1,000(2) -
President 1996 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Martin J. Peskin, 1998 - - $13,500(4)
Chairman of the 1997 - - $30,000(4)
Board 1996 - - $30,000(4)
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
- ---------------
(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)$14,000 of this amount has been earned but not paid to Mr. Wertz; the accrued
unpaid salary of $14,000 is due and owing to Mr. Wertz.
22
<PAGE>
(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.
23
<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 February 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)
- ---- --------------------- ----------------------------
NUMBER(2) PERCENT(2)
--------- ----------
<S> <C> <C>
EXECUTIVE OFFICERS AND
DIRECTORS:(3)
Edward C. Stanojev, Jr. President and Director 74,202 *
Jeffery L. Wertz Vice President, Chief -0- *
Financial Officer (principal
Financial officer) and
Director
James R. Hindman, Ph.D. Vice President, Chief Operating -0- *
Officer and Director
Dr. Martin J. Peskin Director 833,200 3.34%
Aldine J. Coffman, Jr. Executive Vice President, Chief -0- *
Administrative Officer and Director
All Directors and executive
officers as a group (5 persons) 907,402 3.64%
</TABLE>
- -----------------------
*Less than 1%
24
<PAGE>
BENEFICIAL OWNERS OF MORE
THAN 5%
- -------------------------
SHARES BENEFICIALLY OWNED(1)
NUMBER(2) PERCENT(2)
Dr. Sami Samini 2,171,392 8.72%
146 Ridge Road
North Arlington, New Jersey 07031
- --------------------------------
(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-KSB, 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) Unless otherwise indicated, the address for each Director is c/o
Stansbury Holdings Corporation, 676 Louis Drive, Warminster,
Pennsylvania.
25
<PAGE>
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., (See Item II -
Development Stage Activities) 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 an option for an additional 5 million shares exercisable at par, subject to
shareholder approval of an option plan.
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. plan to enter into a joint
venture, the purpose of which is to develop the Company's asset at Hamilton, as
well as to locate and develop other profitable vermiculite-related projects.
This joint venture will result in the formation of International Vermiculite
L.L.C. The Company expects that the Company and Nevada Vermiculite will each be
50% participants in International Vermiculite.
26
<PAGE>
ITEM 13
EXHIBITS AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS
The consolidated financial statements of the Company and its
subsidiaries filed as part of this Annual Report on Form 10-KSB are listed at
Page F-1 of this Annual Report on Form 10-KSB, which listing is hereby
incorporated by reference.
EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
10.1 Employment Agreement between the Company and James R.
Hindman, Ph.D., Dated June 25, 1997.
23.1 Consent of Certified Public Accountants
27 Financial Data Schedule
99 Resignation of Accountants dated Feb. 4, 1999
(b) REPORTS ON FORM 8-K FILED DURING THE THREE MONTHS ENDED JUNE
30, 1998
There were no reports on Form 8-K filed during the three
months ended June 30, 1998.
27
<PAGE>
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: FEBRUARY 9, 1999 STANSBURY HOLDINGS CORPORATION
BY: /S/ EDWARD J. STANOJEV, JR.
------------------------------
EDWARD J. STANOJEV, 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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/S/EDWARD J. STANOJEV, JR. PRESIDENT AND CHIEF EXECUTIVE OFFICER FEBRUARY 9, 1999
- ---------------------------- (PRINCIPAL EXECUTIVE OFFICER)
EDWARD J. STANOJEV, JR.
/S/JAMES R. HINDMAN, PH.D. VICE PRESIDENT, CHIEF OPERATING FEBRUARY 9, 1999
- ---------------------------- OFFICER AND DIRECTOR
JAMES R. HINDMAN, PH.D.
/S/JEFFREY L. WERTZ VICE PRESIDENT, CHIEF FINANCIAL OFFICER FEBRUARY 9, 1999
- ---------------------------- (PRINCIPAL FINANCIAL OFFICER) AND DIRECTOR
JEFFREY L. WERTZ
DIRECTOR FEBRUARY ___, 1999
- ----------------------------
MARTIN J. PESKIN
/S/ALDINE J. COFFMAN, JR. DIRECTOR FEBRUARY 9, 1999
- ----------------------------
ALDINE J. COFFMAN, JR.
</TABLE>
28
<PAGE>
STANSBURY HOLDINGS CORPORATION
TABLE OF CONTENTS
AUDITOR'S REPORT F-2
FINANCIAL STATEMENTS FOR THE YEARS ENDED
JUNE 30, 1998 AND 1997
BALANCE SHEET F-4
STATEMENTS OF OPERATIONS F-6
STATEMENTS OF SHAREHOLDERS' EQUITY F-7
STATEMENT OF CASH FLOWS F-9
NOTES OF FINANCIAL STATEMENTS F-11
AUDITOR'S REPORT F-27
FINANCIAL STATEMENTS FOR YEARS END JUNE 30, 1997
AND 1996 (RESTATED)
BALANCE SHEET F-29
STATEMENTS OF OPERATIONS F-31
STATEMENTS OF SHAREHOLDERS' EQUITY F-32
STATEMENTS OF CASH FLOWS F-33
NOTES OF FINANCIAL STATEMENTS F-35
F-1
<PAGE>
[SELLERS & ASSOCIATES LOGO]
CERTIFIED PUBLIC ACCOUNTANT FAX (801) 627-1639
3785 Harrison Blvd. Suite 101 - Ogden, Utah 84403 (801) 621-8128
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Stansbury Holdings Corporation
We have audited the accompanying balance sheets of Stansbury Holdings
Corporation (a Utah corporation) as of June 30, 1998 and 1997 (as restated) and
the related statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended June 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stansbury Holdings Corporation
as of June 30, 1998 and 1997 (as restated) and the results of their operations
and their cash flows for each of the two years in the period ended June 30, 1998
in conformity with generally accepted accounting principles.
During the fiscal year ending June 30, 1998, management determined there were
significant errors in accounting for accrued interest. Management identified an
overstatement of approximately $1,490,000 in accrued interest payable in the
financial statements as of June 30, 1997. This correction of accounting errors
is recognized as a prior period adjustment. The June 30, 1997 financial
statements are restated to properly report the prior period adjustments. See
also, Note 11 to the financial statements.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred cumulative losses after
adjustments of approximately $3,800,000 since April 27, 1985 (the effective date
of the plan of reorganization under Chapter 11 of the bankruptcy Reform Act of
1978). As of June 30, 1998, the Company's current liabilities exceeded its
current assets by $4,648,000. The foregoing factors raise substantial doubt
about the Company's ability to continue
F-2
<PAGE>
as a going concern. Management's plan in regard to these matters are discussed
in Notes 2, 5 and 13. The financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to develop and operate the mineral property and continue as a
going concern.
/s/ Sellers & Associates
- ------------------------
December 22, 1998
Ogden, Utah
F-3
<PAGE>
STANSBURY HOLDINGS CORPORATION
<TABLE>
<CAPTION>
BALANCE SHEETS
- ----------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,685 $ 7,988
Due from attorney's
escrow account - 23,795
- ----------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,685 31,783
- ----------------------------------------------------------------------------------------------
PROPERTY & EQUIPMENT, NET
Building - net of accumulated depreciation
of $22,983 & $20,800 at June 30, 1998
& 1997 respectively 27,017 29,191
Mineral property 11,833,355 11,833,355
Development costs 3,139,105 3,071,356
- ----------------------------------------------------------------------------------------------
NET PROPERTY & EQUIPMENT 14,999,477 14,933,902
OTHER ASSSETS
Deposits 20,000 20,000
- ----------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 20,000 20,000
- ----------------------------------------------------------------------------------------------
TOTAL ASSETS $ 15,021,162 $ 14,985,685
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-4
<PAGE>
STANSBURY HOLDINGS CORPORATION
<TABLE>
<CAPTION>
BALANCE SHEETS
- ----------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 169,863 $ -
Current portion-long term debt 1,605,100 1,605,100
Accounts payable 276,898 478,401
Accrued interest 2,597,820 2,275,588
- -------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,649,681 4,359,089
- -------------------------------------------------------------------------------------
LONG-TERM DEBT LIABILITIES
Notes payable 1,086,677 971,191
- -------------------------------------------------------------------------------------
TOTAL LONG TERM LIABILITIES 1,086,677 971,191
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,736,358 5,330,280
- -------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock $.25 par value, authorized
25,000,000 shares, issued and outstanding
24,039,290 and 21,478,812 shares at June 30, 1998
and 1997 respectively 6,009,823 5,369,703
Common stock to issue 50,000 -
Capital in excess of par value 7,535,330 7,655,830
Deferred interest (586,771) (664,953)
Retained earnings(accumulated deficit) (3,723,578) (2,705,175)
- -------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 9,284,804 9,655,405
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 15,021,162 $ 14,985,685
- -------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-5
<PAGE>
STANSBURY HOLDINGS CORPORATION
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $ - $ -
- ------------------------------------------------------------------------------------
GROSS PROFIT - -
- ------------------------------------------------------------------------------------
EXPENSES
Taxes 3,036 -
General and administrative 342,003 311,577
Interest 886,184 682,907
- ------------------------------------------------------------------------------------
TOTAL EXPENSES 1,231,223 994,484
- ------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (1,231,223) (994,484)
- ------------------------------------------------------------------------------------
OTHER INCOME
Cancellation of debt 212,820 56,900
- ------------------------------------------------------------------------------------
TOTAL OTHER INCOME 212,820 56,900
- ------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (1,018,403) $ (937,584)
- ------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE
OF COMMON STOCK $ (0.05) $ (0.05)
- ------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES
OUTSTANDING DURING
THE PERIOD 22,477,498 20,350,231
- ------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-6
<PAGE>
STANSBURY HOLDINGS CORPORATION
<TABLE>
<CAPTION>
STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS RETAINED
---------------------------------- COMMON CAPITAL IN (DEFERRED EARNINGS
NUMBER OF STOCK TO EXCESS OF INTEREST) (ACCUMULATED
SHARES AMOUNT ISSUE PAR VALUE DEFICIT)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE JUNE 30, 1996
AS PREVIOUSLY REPORTED 20,285,048 $ 5,071,262 $ - $ 7,655,830 $ (510,529) $ (2,607,967)
- --------------------------------------------------------------------------------------------------------------------------
ADJUSTMENT FOR
OVERSTATEMENT OF:
- -Interest accruals 791,376
- -Term debt 49,000
- --------------------------------------------------------------------------------------------------------------------------
BALANCE JUNE 30, 1996
(AS RESTATED) 20,285,048 5,071,262 - 7,655,830 (510,529) (1,767,591)
- --------------------------------------------------------------------------------------------------------------------------
Net (loss) as
previously reported (1,633,669)
Adjustment to net (loss) for
overstatement of
Interest accruals 696,085
----------------
Net (loss) June 30,1997
(as restated) (937,584)
Issuance of shares for
interest on long-term debt 1,193,764 298,441 (298,441)
Amortize deferred interest 144,017
</TABLE>
F-7
<PAGE>
STANSBURY HOLDINGS CORPORATION
<TABLE>
<CAPTION>
STATEMENTS OF SHAREHOLDERS' EQUITY CONT..
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS RETAINED
---------------------------------- COMMON CAPITAL IN (DEFERRED EARNINGS
NUMBER OF STOCK TO EXCESS OF INTEREST) (ACCUMULATED
SHARES AMOUNT ISSUE PAR VALUE DEFICIT)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
BALANCE JUNE 30, 1997
(AS RESTATED) 21,478,812 $ 5,369,703 $ - $ 7,655,830 $ (664,953) $ (2,705,175)
- --------------------------------------------------------------------------------------------------------------------------
Issuance of shares for
interest on long-term debt 683,432 170,858 (170,858)
Amortize deferred interest 249,040
Issuance of shares for:
- -Interest on loan 6-98 24,592 6,148
- -settlement of lawsuit 9-97 350,000 87,500
- -settlement of lawsuit 9-97 30,000 7,500
- -conversion of debt for
equity 5-98 1,175,454 293,864
- -settlement of lawsuit 5-98 15,000 3,750
- -as part of loan
proceeds 5-98 282,000 70,500 (70,500)
Stock to issue-part
of loan proceeds 5-98 50,000 (50,000)
Net (loss) (1,018,403)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE JUNE 30, 1998 24,039,290 $ 6,009,823 $ 50,000 $ 7,535,330 $ (586,771) $ (3,723,578)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
STANSBURY HOLDINGS CORPORATION
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOW
- ---------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ (1,018,403) $ (937,584)
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 2,174 2,174
Amortization of deferred interest 249,040 144,017
Stock issued for services and interest 104,898 -
Changes in operating assets and liabilities:
(Increase) decrease in cash in attorney's
account 23,795 57,523
Increase (decrease) short-term debt 169,863 -
Increase (decrease) in accounts payable (201,503) 26,388
Increase (decrease) in accrued liabilities 322,232 538,890
- ---------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (347,904) (168,592)
- ---------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in development costs (67,749) (121,861)
- ---------------------------------------------------------------------------------------
NET CASH FLOWS PROVIDED (USED) BY
INVESTING ACTIVITIES (67,749) (121,861)
- ---------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 160,086 298,441
Payment of long-term debt (44,600) -
Sale of common stock as debt incentive 170,858 298,441
Common stock for debt conversion 293,864 -
(Increase) decrease in deferred interest (170,858) (298,441)
- ---------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 409,350 298,441
- ---------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (6,303) 7,988
CASH - BEGINNING OF PERIOD 7,988 -
- ---------------------------------------------------------------------------------------
CASH - END OF YEAR $ 1,685 $ 7,988
- ---------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-9
<PAGE>
STANSBURY HOLDINGS CORPORATION
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOW
- ------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITES
- ------------------------------------------------------------------------------------
Common Stock commitments
paid by reducing capital
in excess of par 120,000
- ------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-10
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND JUNE 30, 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION:
Stansbury Holdings Corporation (the "Company") was chartered as a business
corporation by the State of Utah on May 7, 1969, under the name Stansbury Mining
Corporation. The corporate name was changed to Stansbury Holdings Corporation by
a filing in the office of the Secretary of State of Utah on March 22, 1990.
In June 10, 1985, as part of an approved Plan of Reorganization under a Chapter
11 proceeding pursuant to the Federal Bankruptcy Act, the authorized capital of
the Company was changed, by an Amendment of its Articles of Incorporation, to
$6,250,000, being 25,000,000 shares of one class having a par value of $0.25 per
share.
The principal business activity of the Company, since its reorganization under
Chapter 11 of the Federal Bankruptcy Code in 1985, has been vermiculite mineral
exploration and development. The principal project of the Company is the
Hamilton Vermiculite Project in Ravalli County, Montana, as to which the Company
commenced acquisition shortly prior to the Reorganization in 1985.
BASIS OF PRESENTATION:
The consolidated financial statements have been prepared in conformity with
accounting principals generally accepted in the United States. All amounts
included in these financial statements are expressed in United States Dollars.
In the past, the Company has issued financial statements showing the Hamilton
Vermiculite Project at the value established for it in the Chapter 11
proceedings in 1985, which was based upon an evaluation of the project's value
by an appraisal. The significant difference between those past financial
statements (1991 to 1995) and these financial statements is the restatement of
the value of the Hamilton Vermiculite Project in terms of historic costs of the
project's acquisition and development funds expended on the project subsequent
to its acquisition (see further this Note and Notes 6 & 12).
PRINCIPLES OF CONSOLIDATION:
In the past, the financial statements of the Company have been consolidated with
subsidiaries and affiliates. However, at the present the Company has no
subsidiaries and is involved with no affiliates.
F-11
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND JUNE 30, 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Therefore, all assets material to this financial statement are held by the
Company.
CASH AND CASH EQUIVALENTS:
The Company considers highly liquid investments with original maturities of
three months or less to be cash equivalents.
UNDEVELOPED VERMICULITE MINERAL PROJECTS:
The Company uses the full cost method of accounting for undeveloped mineral
projects. Accordingly, all costs associated with the acquisition of undeveloped
projects, including directly related overhead costs, are capitalized. Once
projects are developed, the capitalized costs will be amortized on the
unit-of-production method using estimates of proven reserves (See Notes 6 and
12).
In addition, the costs are separated into cost centers on a state-by-state
basis. The capitalized costs for each cost center are subject to the "ceiling
test", which limits such costs to the lower of (I) cost, or (ii) estimated fair
market value, of the projects (see Note 6).
In cases where the exploration and production activities of the Company are
conducted jointly with others, the financial statements reflect only the
Company's and its consolidated subsidiaries' proportionate interest in such
activities.
OTHER ASSETS - STOCK LISTING AND ISSUANCE COSTS:
Costs associated with stock issuance and the listing of the Company's common
stock on the NASDAQ Bulletin Board are charged against the proceeds derived from
the issuance of shares in the year of issuance (see Note 7)
INCOME TAXES:
The Company has adopted the provisions of Statement of Accounting Standards No.
109, "Accounting for Income Taxes" which incorporates the use of asset and
liability approach of accounting for income taxes. The asset and liability
approach requires the recognition of deferred tax assets and liabilities for
future consequences of temporary differences between the financial reporting
basis and tax basis of assets and liabilities. Because the question as to going
concern as discussed in Note 2 and subsequent events as discussed in Note 12 and
the explanation in the next paragraph, no value of a possible net operating loss
is recognized on the financial statements.
F-12
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND JUNE 30, 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
No income tax returns have been filed since June 30, 1991. Federal income taxes
generally do not allow deductions of expenses not paid within 12 months. Even
though the majority of expenses are accrued interest on notes, management is of
the opinion that forgiveness of debt, including accrued interest, has been so
frequent and of a nature that it precludes most expenses, particularly interest,
from a current tax deduction. Consequently, management is of the opinion that
the probable net operating loss is under $2,000,000, expiring at various dates
through 2012.
DEPRECIATION:
Depreciation of real estate improvements is calculated using the straight-line
method over the useful lives of the related assets. For the building at Victor
Siding, Montana, which is part of the Hamilton Vermiculite Project, a 20 year
useful life is used.
NET INCOME (LOSS) PER COMMON SHARE:
Net Income (Loss) Per Common Share is based upon the fully diluted 24,039,290 at
June 30, 1998 and 21,478,812 at June 30, 1997 number of common shares as of the
last business day of the fiscal year of the financial statement period, assuming
conversion of all outstanding options and warrants (see Note 4).
RECLASSIFICATIONS:
The asset value of the Hamilton Vermiculite Project has been reclassified to
reflect its cost basis and capitalized development costs (See Note 6).
Certain Accounts Payable in the amount of $75,892, which had been carried on the
financial statements since 1991 without backup data, were accordingly written
off at June 30, 1997. 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 valid claims. The reserve will be written down in
two installments over the next two fiscal years. Accordingly, one half, or
$9,496, was written off June 30, 1998 & the remaining portion will be written
June 30, 1999. The Company had no data to establish or verify the propriety of
the claims eliminated, and determined that many of the listed claimants were no
longer de jure entities.
See also Note 11, Correction in accounting errors and prior period adjustments.
F-13
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND JUNE 30, 1997
NOTE 2: GOING CONCERN STATEMENT
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. Also, refer to Note 6 regarding the Hamilton Vermiculite
Project. Recovery of the carrying amount on the financial statements of
$14,972,460 as of June 30, 1997, of the mineral property and related development
costs is dependent upon the success of the future operations and the Company's
ability to obtain financing through borrowing and capital stock sales.
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.
In June of 1996, the Company's Board of Directors and management were changed
(Note 5 and Note 12). New management has recognized the need to place mineral
properties into production, in order to generate revenues, and is actively
seeking to acquire mineral properties that are either (i) in active production,
or (ii) permitted to the extent that active production can immediately commence.
Such a plan has lead to the identification of several properties for which
active negotiations for acquisition or participation by joint venture, are
currently being conducted (Note 12).
The Company continues to evaluate the production potential of its mineral
property (the "Hamilton Vermiculite Project"), but has determined that certain
limitations imposed by the Environmental Impact Statement as approved and issued
for that project (Notes 6 and 10) limiting production to a six month season per
year, will sufficiently impact the profitability of such an operation that other
alternatives must be reviewed. Accordingly, the Company has considered dropping
certain mining claims and the costs associated with the maintenance thereof,
while preserving the core of the project as permitted by the EIS (Note 12). The
Hamilton Vermiculite Project is currently pledged as collateral for a number of
mortgages (Notes 8 and 12). The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts and the amount or classification of liabilities that might result should
the Company be unable to develop and operate the mineral property, or other
mineral properties.
The Company has not obtained the necessary financing to meet its working capital
requirements to operate the mineral property, which is the Company's major
asset, and there can be no assurance that the Company will be successful in
obtaining the necessary financing.
F-14
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND JUNE 30, 1997
NOTE 2: GOING CONCERN STATEMENT (CONTINUED)
The Company expects to acquire the early part of 1999 an existing business
yielding sufficient positive cash flow to sustain the overhead of the Company in
the future. Additionally, the Company in is negotiations with a financially able
entity as a prospective joint venture partner for the development of the
Company's and other vermiculite projects.
NOTE 3: RELATED PARTY TRANSACTIONS
The New Management Team (see Note 5) was established during June of 1997, the
last month of the fiscal year ending June 30, 1997. No charges were made by the
New Management Team to the Company for services provided the Company for the
fiscal year ending June 30, 1997. See Note 12 with respect to the financial
arrangements with the New Management Team.
NOTE 4: STOCKHOLDERS' EQUITY
The Company was organized by the issuance of its common stock. Over the prior
years including 1998, stock is issued for cash and non-cash consideration.
Non-cash consideration includes debt discharge and debt assumption.
COMMON STOCK
As of June 30, 1998, common stock consists of authorized capital of 25,000,000
shares having a par value of US$0.25. Shares issued and outstanding are
24,039,290 and 21,478,812 on June 30, 1998 and 1997, respectively.
F-15
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND JUNE 30, 1997
NOTE 4: STOCKHOLDERS' EQUITY (CONTINUED)
An analysis of common stock issued during fiscal years ending June 30, 1998 and
1997 follows:
JUNE 30 SHARES VALUE
------------------ --------- -------
1998
Issued for cash - $ -
Issued for property - -
Issued for debt 2,560,478 640,120
1997
Issued for cash - $ -
Issued for property - -
Issued for debt 1,193,764 298,441
NOTE 5: CHANGE IN MANAGEMENT AND MANAGEMENT PLANS FOR THE COMPANY
In June, 1997, a group of investors and shareholders, generally denoted as the
"Committee for New Management", arranged a funding mechanism for the Management
of the Company to be directed by Edward J. Stanojev, Jr., and others associated
with him.
A new Board of Directors, comprising Mr. Stanojev, Dr. James R. Hindman, Jeffrey
L. Wertz, as new members, and Mr. Martin J. Peskin, as a continuing member, was
established.
This new Board of Directors appointed a "New Management", comprised of Mr.
Stanojev as Chairman, Chief Executive Officer, and President; James R. Hindman,
Ph.D., and a recognized expert in vermiculite exploration, mining and milling,
as Vice President and Chief Operating Officer; and Mr. Wertz, as Vice-President
and Chief Financial Officer. (see Note 12 for Compensation for New Management).
Certain secured creditors have agreed to subordinate their secured positions in
the Hamilton Project up to an amount equal to $1,000,000 of working capital
infusion. As of June 30, 1998, the funding through this facility had not been
drawn upon.
F-16
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND JUNE 30, 1997
NOTE 5: CHANGE IN MANAGEMENT AND MANAGEMENT PLANS FOR THE COMPANY (CONTINUED)
New Management has sought to move the Company forward into the production and
marketing of vermiculite and its products (see Note 2).
NOTE 6: UNDEVELOPED MINERAL PROJECTS
The Company has, since 1984, been focused upon the acquisition and development
of vermiculite ore reserves in mineral properties located primarily in the
western United States.
THE HAMILTON VERMICULITE PROJECT:
As of June 30, 1998, the Hamilton Vermiculite Project consisted of 64 owned
unpatented lode mining claims, 11 owned mill site claims, and a parcel of fee
land with improvements. The Mining Claims are located in the Gird's Creek
unorganized Mining District, Ravalli County, Montana. In the fall of 1998, the
Company located an additional 22 unpatented lode mining claims in Ravalli
County, Montana, resulting in the Company obtaining control of all of the
surface vermiculite exposures and proven reserves associated with the Hamilton
Project.
The fee land (1.24 acres) and improvements are located at Victor Siding, Ravalli
County, Montana. The mining claims are administered by the Bureau of Land
Management, of the Department of the Interior, for the United States Forest
Service, of the Department of Agriculture. Surface matters are administered by
the US Forest Service.
In 1993, a final Environmental Impact Statement (EIS) was issued to the Company
under its then trade name of Western Vermiculite Company in connection with the
Company's application for an operating permit for the Hamilton Vermiculite
Project. The costs of the EIS approached over two million dollars of
expenditures from 1985 to 1991 and are capitalized under development cost on the
balance sheet.
The project has been extensively drilled and assayed and two ore bodies, the ABM
Ridge Ore Body (defined in 41 drill holes) and the Horse Ridge Ore Body (defined
in 43 drill holes), have been delineated. Combined, the proven minable
vermiculite reserves in these two ore bodies is 6.5 million tons at a grade of
10.09% vermiculite.
The Hamilton Vermiculite Project was appraised in 1985 at $34,577,270 (and
again, in 1992, at $35,000,000). Through June 30, 1995, the value of $34,577,270
has been reflected on the Company's financial statements as the original asset
value of the Hamilton Vermiculite Project (in
F-17
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND JUNE 30, 1997
NOTE 6: UNDEVELOPED MINERAL PROJECTS (CONTINUED)
lieu of acquisition costs). In 1997, the Hamilton Vermiculite Project was
appraised at $51,000,000, largely reflecting the increase in market value of
vermiculite concentrate from 1985 to 1997. From the foregoing, the Company has
determined that the cost basis accounting for the project (see below) does not
exceed its estimated fair market value of the Project.
Management is attempting to raise financing for the development of the Hamilton
Vermiculite Project, and is in discussions with several potential joint venture
development partners who would contribute the financing required.
At present, the Company has not obtained the necessary financing to meet its
working capital requirements and to operate the Hamilton Vermiculite Project,
which is the Company's major asset. There can be no assurance that the Company
will be successful in obtaining the necessary financing. The Company has pledged
the Hamilton Vermiculite Project as collateral for a note payable to a former
affiliate. Also, as discussed in Note 10, the United States Forest Service
required that an Environmental Impact Statement ("EIS") be issued for the
Hamilton Vermiculite Project prior to granting an operating permit to the
Company. The EIS was completed in 1993. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts and the amount or classification of liabilities that might
result should the Company be unable to develop and operate the Hamilton
Vermiculite Project and continue as a going concern.
F-18
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND JUNE 30, 1997
NOTE 7: OTHER ASSETS
The Company has on deposit with the Montana Department of Lands a refundable
balance of $20,000, in connection with its operating permit application for the
Hamilton Vermiculite Project.
NOTE 8: NOTES PAYABLE, LONG TERM DEBTS, AND ACCOUNTS PAYABLE
Certain unidentified obligations of the Company have been carried forward year
after year since before 1991, and are believed by the New Management of the
Company to have been, in fact, satisfied or otherwise no longer owing (in some
cases being barred by the statute of limitations). Management continues
investigating the circumstances of these payables and other liabilities in order
to take such action in the future to delete or correct such items where
appropriate from among the liabilities of the Company. Of such amounts $75,892
of Accounts Payable were identified by management as unlikely to be due and
payable. At June 30, 1997, New Management wrote off 75% of such amount, or
$56,900, with the remaining 25%, or $18,992, left in Accounts Payable. Of that
amount, one-half has been written off in the current year.
NOTES PAYABLE AND LONG TERM DEBTS
Notes payable and long term debts are summarized as follows:
(A) NOTES PAYABLE: 1998 1997
----------- ----------
90 day notes payable to
stockholders, bearing interest
at 12% per annum. Interest &
note convertible to stock $ 95,800 $ -
Due to a creditor 74,063 -
----------- ----------
Total Notes Payable $ 169,863 $ -
=========== ==========
F-19
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND JUNE 30, 1997
NOTE 8: NOTES PAYABLE, LONG TERM DEBTS, AND ACCOUNTS PAYABLE (CONTINUED)
(B) MORTGAGES PAYABLE: 1998 1997
----------- ----------
Mortgages payable to life insurance
company in liquidation, bearing
interest at 10% per annum,
past due and in default (Note 13) $ 550,000 $ 550,000
Mortgages payable to shareholders
of Company, interest in part prepaid,
past due and in default (Note 12) 449,000 449,000
----------- -----------
Total Mortgages Payable $ 999,000 $ 999,000
=========== ===========
(C) UNSECURED NOTES PAYABLE:
Notes payable to life insurance
company in liquidation (Note 11) $ 95,961 $ 95,961
Notes payable to corporations 304,968 304,968
Notes payable to shareholders,
including former officers
Note (11) 1,291,848 1,176,362
----------- -----------
Total Notes Payable $1,692,777 $1,577,291
=========== ===========
Total term debt $2,861,640 $2,576,291
=========== ===========
F-20
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND JUNE 30, 1997
NOTE 8: NOTES PAYABLE, LONG TERM DEBTS, AND ACCOUNTS PAYABLE (CONTINUED)
(D) SUMMARY NOTES & TERM DEBT 1998 1997
------------ -------------
Notes Payable $ 169,863 $ -
Current portion - long-term debt 1,605,100 1,605,100
Long-term portion - long-term debt 1,086,677 971,191
----------- ------------
Total $2,861,640 $2,576,291
=========== ============
ACCRUED INTEREST PAYABLE
Accrued interest payable, all current, is for:
1998 1997
------------ ------------
Mortgage payable $1,562,253 $1,167,279
Unsecured notes payable 1,035,567 1,108,309
Total $2,597,820 $2,275,588
=========== ============
NOTE 9: CLAIMS, LITIGATION AND JUDGMENTS:
CLAIMS AND POSSIBLE CLAIMS:
With respect to the EIS (see also notes 5 and 9), over 100 administrative
appeals were filed in opposition to the approval of the Final Draft of the EIS,
all of which were rejected by the Regional Office of the US Forest Service,
which decision of rejection further was upheld on appeal to the Chief Forester
of the US Forest Service. The time for administrative appeal of the EIS, or
further challenge to it, has expired.
F-21
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND JUNE 30, 1997
NOTE 9: CLAIMS, LITIGATION AND JUDGMENTS: (CONTINUED)
LITIGATION:
The claim of James G. Wiles (Now Ellsworth, Wiles, Carlton & Waldman, P.C.) vs.
the Company for $68,178, filed November 1998 is pending resolution. Management
is considering a counter claim. An amount of $74,063 is reflected on the
financial statement as a note payable, which allows for $5,885 in litigation and
interest costs in the event judgement rules in Wiles favor (See Note 12).
JUDGMENTS OF RECORD AFFECTING TITLE TO HAMILTON PROJECT:
A claim of lien filed by the State of Montana in January, 1993 for $658 is
reflected on the financial statements as an account payable.
A judgment obtained by Dorsey & Whitney, a general partnership, in December,
1994 for $52,683 is reflected on the financial statements as a note payable.
A judgment obtained by Southampton Metals Ltd. ("Simon Grant-Rennick"), under a
settlement with Company, upon which a current unpaid balance exists of $5,600 is
included on the financial statements as a note payable.
OTHER JUDGMENTS: (All included in the financial statements as accounts payable)
A Judgment obtained by Mike Bauernfiend, obtained in Bergen County, N.J. for
$7,000.
A Judgement obtained by Martineau & Co., in Salt Lake County, Utah, for $8,000.
A Judgment obtained by Bruce Blessington, for $26,293.
NOTE 10: OTHER INCOME
CANCELLATION OF DEBT:
From 1985 (year the Company filed Bankruptcy) to the present, the Company
continues efforts to raise sufficient funds to develop the Hamilton Vermiculite
Project. Creditors frequently were not paid off, or would settle for smaller
amounts or no payment at all. Or, a debt may ultimately be canceled because of
the statute of limitations. The amounts reported on the statements of operations
F-22
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND JUNE 30, 1997
NOTE 10: OTHER INCOME (CONTINUED)
as "Other Income - cancellation of debt" arise for these reasons. New Management
is of the opinion most all debt has been properly identified and classified in
the financial statements. Future cancellation of debt will be by settlement or
statute of limitations barring collections. If this happens, it may be material.
NOTE 11: CORRECTIONS IN ACCOUNTING ERRORS & PRIOR PERIOD ADJUSTMENTS
New Management identified three significant accounting errors in the financial
statements. These require prior period adjustments including fiscal year ending
June 30, 1997.
In 1989 the Company had a $447,000 offering of long-term debt due December, 1992
and secured with a second position in the mineral rights. Interest on the debt
was prepaid in full by issuing stock for interest. The financial statements,
however, accounted for the debt at $496,000 not $447,000. In addition, the
financial statements over the years reported the long-term debt as bearing
interest at 23% cumulative instead of non-interest bearing.
From 1988 forward, the Company continues borrowing funds. New Management has
determined the accrued interest on these loans should be computed on the basis
of simple interest. However, the Company had been compounding the interest
(interest on interest).
The total impact of these accounting errors on the financial statements as
restated are:
<TABLE>
<CAPTION>
CURRENT PORTION ACCRUED INTEREST INTEREST EXPENSE
LONG-TERM PAYABLE (ACCUMULATED
DEBT DEFICIT)
<S> <C> <C> <C>
JUNE 30, 1997 $ 0 $ 696,085 $ 696,085
PRIOR TO JUNE 30, 1997 49,000 791,376 791,376
--------------- ---------------- ----------------
TOTAL OVERSTATEMENT $ 49,000 $ 1,487,461 $ 1,487,461
=============== ================ ================
</TABLE>
F-23
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND JUNE 30, 1997
NOTE 12: COMMITMENTS AND CONTINGENCIES
ANNUAL CLAIM MAINTENANCE FEES:
In 1993, the federal government substituted a fee of $100 per claim in lieu of
the former requirement for labor assessments, to maintain title to the claims.
Responsible for the maintenance of 96 claims, the Company has an annual
obligation of $11,800 in order to preserve its title to the claims.
ENVIRONMENTAL IMPACT STATEMENT:
In May of 1993, the US Forest Service and the Montana Department of State Lands
issued a Final Environmental Impact Statement for the Western Vermiculite
Project (the "Hamilton Property"). The EIS was required in response to the
Company's application for an operator's permit to develop the Hamilton
Vermiculite Project. To date, no evaluation of the cost required to effect the
implementation of the Plan of Operations, from an administrative and permitting
perspective has been undertaken by the Company, and no reserve of funds has been
allocated for that purpose.
INSURANCE:
The Company discontinued its insurance coverages during fiscal 1991 and has been
uninsured since that time.
INCOME TAX:
The Company has not filed any federal or state income tax returns since June 30,
1990. The total amount due is estimated to be under $3,000. This is not
reflected on the financial statements.
SECURITIES MATTERS:
The Company's Common Shares were delisted from NASDAQ National Market System on
January 21, 1992. The Company shares currently trade on the Nasdaq Electronic
Bulletin Board.
F-24
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND JUNE 30, 1997
NOTE 13: SUBSEQUENT EVENTS (UNAUDITED)
(a) In November, 1998, James G. Wiles, former Company counsel,
filed a claim, Wiles vs. Stansbury Holdings Corporation,
seeking collection on an unsecured note payable dated March,
1998 of $68,178. The Company is considering a counter claim.
The outcome is pending. This debt plus an allowance to defend
have been recognized in the financial statements (See Note 9).
(b) In July, 1998, the Liquidator of the insurance company holding a first
lien upon the Hamilton Vermiculite Project has made an offer in
settlement of all claims, recognized in the financial statements at
June 30, 1998 of over $2,100,000 in debt, for $130,000, which offer the
Company has accepted. On October 28, 1998 it was fully funded and
closed. Certain other mortgagors and note holders (holding in the
aggregate principal balances of $447,000) have agreed to extend the
maturity until February 1, 2001.
(c) In September, 1998, the Company located 22 unpatented mining claims
in Ravalli County, Montana. The Company had leased the approximate area
of these new claims for 13 years from prior claimants, who refused to
renew the lease with the Company in November, 1997. On September 1,
1998, these prior claimants abandoned the claims, leaving the mineral
estate open to location, which the Company subsequently located.
(d) The New Management has arranged for the affairs of Stansbury to be
conducted from offices of another entity, for no charge in fiscal year
1997, but for 30% of that office's overhead (including use of office
space, equipment, telephones) in fiscal year 1998.
(e) The proposed and unrecorded compensation for New Management is:
Edward C. Stanojev, Jr., a bonus of 500,000 common shares of the
Company, and a fee of $6,000 per month, to serve as a director,
chairman of the board, chief executive officer and president; the fee
is accrued until cash flow is adequate to pay the same, and accrues
from July 1, 1997.
Jeff Wertz, a bonus of 200,000 common shares of the Company, and a fee
of $4,000 per month, to serve as a director, chief financial officer,
vice-president and secretary; the fee is accrued until cash flow is
adequate to pay the same, and accrues from October 1, 1997.
James R. Hindman, Ph.D., a bonus of 500,000 common shares of the
Company, and a fee of $3,000 per month, to serve as a director, chief
operating officer and vice-president; Dr. Hindman commenced service to
the Company under this arrangement in the fourth-quarter
F-25
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND JUNE 30, 1997
NOTE 13: SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
of 1997.
(f) In late 1998, Aldine J. Coffman, Jr., who had been providing certain
legal services to the Company, was appointed by the Board as a director
of the Company and Chief Administrative Officer and Executive Vice
President. Mr. Coffman is currently serving as a director of
International Methane Company Limited, a publicly held energy company,
and has served as its Chief Financial Officer and Chief Executive
Officer. It is anticipated that Mr. Coffman will assume further duties
for the Company in January, and will receive a salary of $12,500 per
month commencing January 1, 1999.
F-26
<PAGE>
Sellers & Associates Letterhead
3785 Harrison Blvd., Suite 101 * Ogden, Utah 84403 (801) 621-8128
* FAX (801) 627-1639
INDEPENDENT AUDITOR'S IMPORT
Board of Directors
Stansbury Holdings Corporation
We have audited the accompanying balance sheets of Stansbury Holdings
Corporation (a Utah corporation) as of June 30, 1997 and 1996 (as restated) and
the related statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended June 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stansbury Holdings Corporation
as of June 30, 1997 and 1996 (as stated) and the results of their operations and
their cash flows for each of the two years in the period ended June 30, 1997 in
conformity with generally accepted accounting principles.
As discussed further in Note 6 to the financial statements, in 1985 the Company
acquired a mineral property valued at $34,577,270. The mineral property was
reported on the financial statements at such value of $34,577,270 through June
30, 1996 as audited by prior auditors since 1985 to and including June 30, 1996.
Since then management has taken the position the mineral property was not
reported in the financial statements at cost. Cost was reconstructed, as
discussed in Note 6 to the financial statements, at $11,833,355. The financial
statements were restated at June 30, 1996 to reflect adjustment to cost of
mineral property. The Company has also capitalized related development costs of
$3,447,087 as of June 30, 1997, as discussed in Note 6 to the financial
statements.
Recovery of the carrying amount of mineral property and related development
costs is dependent on the success of future operations and the Company's ability
to obtain financing through borrowing or the sale of its common stock. As of
the date of this report, the Company
F-27
<PAGE>
has not obtained the necessary financing to meet its working capital
requirements and to operate the mineral property, which is the Company's major
asset. There can be no assurance that the Company will be successful in
obtaining the necessary financing or recover the costs associated with the
mineral property through successful future operations.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred cumulative losses after
adjustments of approximately $3,900,000 since April 27, 1985 (the effective date
of the plan of reorganization under Chapter 11 of the bankruptcy Reform Act of
1978). As of June 30, 1997, the Company's current liabilities exceeded its
current assets by $5,864,000. The foregoing factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plan in
regard to these matters also are discussed in Notes 2 and 5. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to develop and
operate the mineral property and continue as a going concern.
Sellers & Associates
October 28, 1998
Ogden, Utah
Setters & Associates CERTIFIED PUBLIC ACCOUNTANT 3785 Harrison Blvd.
Suite 101 Ogden, Utah 84403
FAX (801) 627-1639 (801) 621-8128
F-28
<PAGE>
STANSBURY HOLDINGS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1997 1996 1996
(PRIOR TO
(AS RESTATED) RESTATEMENT
- MEMO ONLY)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash Assets $ 7,988 $ - $ -
Due from attomey's
escrow account 23,795 81,318 81,318
- -------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 31,783 81,318 81,318
PROPERTY & EQUIPMENT, NET
Building - net of accumulated
depreciation of $20,809 & $18,635
at June 30, 1997 & 1996
respectively 29,191 31,365 31,365
Mineral property 11,833,355 11,833,355 34,577,270
Development costs 3,071,356 2,949,495 2,203,108
- -------------------------------------------------------------------------------
NET PROPERTY & EQUIPMENT 14,933,902 14,814,215 36,811,743
- -------------------------------------------------------------------------------
OTHER ASSETS
Deposits 20,000 20,000 20,000
- -------------------------------------------------------------------------------
TOTAL 0THER ASSETS 2Q,000 20,000 20,000
- -------------------------------------------------------------------------------
TOTAL ASSETS $ 14,985,685 $ 14,915,533 $ 36,913,061
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-29
<PAGE>
STANSBURY HOLDINGS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1997 1996 1966
(PRIOR TO
(AS RESTATED) RESTATEMENT
- MEMO ONLY)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities
Current portion-long term debt $ 1,654,100 $ 1,654,100 $ 1,654,100
Accounts payable 478,401 452,013 452,013
Accrued interest 3,763,049 2,528,074 2,528,O74
- -------------------------------------------------------------------------------
Total Current Liabilities 5,895,550 4,634,187 4,634,187
- -------------------------------------------------------------------------------
Long-Term Debt Liabilities
Notes payable 971,191 672 750 672 750
- -------------------------------------------------------------------------------
Total Long Term Liabilities 971,191 672,750 672,750
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 6,866,741 5,306,937 5,306,937
- -------------------------------------------------------------------------------
Shareholders' Equity
Common stock $.25 par value, authorized
25,000,000 shares, issued and outstanding
21,478,812 and 20,285,048 shares at
June 30, 1996 and 1995 respectively 5,369,703 5,071,262 5,071,262
Capital in excess of par value 7,655,830 7,655,830 30,399,745
Deferred interest (664,953) (510,529) (510,529)
Retained earnings
(accumulated deficit) (4,241,636) (2,607,967) (3,354,354)
- -------------------------------------------------------------------------------
Total Shareholders' Equity 8,118,944 9,608,596 31,606,124
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 14,985,685 $ 14,915,533 $ 36,913,061
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-30
<PAGE>
STANSBURY HOLDINGS CORPORATION
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Year Ended June 30, 1997 1996 1996
(AS RESTATED) RESTATEMENT
- MEMO ONLY)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ - $ - $ -
- -------------------------------------------------------------------------------
Gross Profit
- -------------------------------------------------------------------------------
Expenses
Taxes - 33 33
General and administrative 3111,577 225,996 564,990
Interest 1,378,992 704,976 704,976
- -------------------------------------------------------------------------------
Total Expenses 1,690,569 931,005 1,269,999
- -------------------------------------------------------------------------------
Operating Income (Loss) (1,690,569) (931,005) (1,269,999)
- -------------------------------------------------------------------------------
Other Income
Cancellation of debt 56,900 673,065 673,O65
- -------------------------------------------------------------------------------
Total Other Income 56,900 673,065 673,065
- -------------------------------------------------------------------------------
Net Income (Loss) $ (1,633,669) $ (257,940) $ (596,934)
- -------------------------------------------------------------------------------
Earnings (loss) per share
of common stock $ (.080) $ ( 013) $ (.031)
- -------------------------------------------------------------------------------
Weighted average shares
outstanding during
the period 20,350,231 19,522,250 19,522,250
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-31
<PAGE>
STANSBURY HOLDINGS CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCKS CAPITAL IN EARNINGS
NUMBER OF EXCESS OF (DEFERRED (ACCUMULATED
SHARES AMOUNT PAR VALUE INTEREST) DEFICIT)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE JUNE 30, 1996
(PRIOR TO RESTATEMENT) 20,285,048 5,071,262 30,399,745 (51O,529) 3,354,354)
- -------------------------------------------------------------------------------------------------------------------
Write down mineral
property to cost (22,743,915)
Capitalize additional
development costs:
July 1, 1991 to
June 30, 1995 407,393
Year ending June 30, 1996 338,994
- -------------------------------------------------------------------------------------------------------------------
Balance June 30, 1996
(As Restated) 20,285,O48 5,071,262 7,655,830 (510,529) (2,607,967)
- -------------------------------------------------------------------------------------------------------------------
Issuance of shares for
interest on long-term debt 1,193,764 298,441 (298,441)
Amortize deferred interest 144,017
Net (loss) (1,633,669)
- -------------------------------------------------------------------------------------------------------------------
Balance June 30, 1997 21,478,812 $5,369,703 $7,655,830 $(664,953) $(4,241,636)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-32
<PAGE>
STANSBURY HOLDINGS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1997 1996 1996
(PRIOR TO
(AS RESTATED) RESTATEMENT
- MEMO ONLY)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income (loss) $ (1,633,669) $ (257,940) $ (596,934)
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation 2,174 2,174 2,174
Amortization of deferred interest
related to stock options 144,017 69,599 69,599
Stock issued for services and interest - -
Changes in operating assets and liabilities:
(Increase) decrease in cash in attorney's
account 57,523 (81,318) (81,318)
Decrease in prepaid expenses - 15,000 15,000
Increase (decrease) in accounts payable 26,388 158,729 158,729
Increase (decrease) in accrued liabilities 1,234,975 544,755 544,755
- ---------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (168,592) 450,999 112,005
- ---------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in development costs (121,861) (342,599) (3,605)
- ---------------------------------------------------------------------------------------
NET CASH FLOWS PROVIDED (USED) BY
INVESTING ACTIVITIES (121,861) (342,599) (3,605)
- ---------------------------------------------------------------------------------------
CASH PLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 298,441 474,044 474,044
Payment of long-term debt (287,320) (287,320)
Sale of common stock 298,441 464,044 464,044
Stock canceled -- (464,044) (464,044)
{Increase) decrease in deferred interest (298,441) (295,124) (295,124)
- ---------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 298,441 (108,400) (108,400)
- ---------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 7,989
CASH - BEGINNING OF PERIOD - - -
- ---------------------------------------------------------------------------------------
CASH - END OF YEAR $ 7,989 $ - $ -
- ---------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-33
<PAGE>
STANSBURY HOLDINGS CORPORATION
STATEMENTS OF CASH PLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1997 1996 1996
(PRIOR TO
(AS RESTATED) RESTATEMENT
- MEMO ONLY)
- ---------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock issued for
services and interest
during the year 298,441 464,044 464,044
Increased (decreased) property
& equipment to cost:
Mineral property - (22,743,915) -
Development cost - 1,243,979 -
Reduced accumulated deficit
for capitalyzing development
costs expensed in prior years (1,243,979)
Decreased Capital in
excess of par value
for net restatement
of property & equipment
down to cost - 22,743,915 -
- ---------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-34
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and June 30, 1996
- --------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION:
Stansbury Holdings Corporation (the "Company") was chartered as a business
corporation by the State of Utah on May 7, 1969, under the name Stansbury Mining
Corporation. The corporate name was changed to Stansbury Holdings Corporation by
a filing in the office of the Secretary of State of Utah on March 22, 1990.
In June 10, 1985, as part of an approved Plan of Reorganization under a Chapter
11 proceeding pursuant to the Federal Bankruptcy Act, the authorized capital of
the Company was changed, by an Amendment of its Articles of Incorporation, to
$6,250,000, being 25,000,000 shares of one class having a par value of $0.25 per
share.
The principal business activity of the Company, since its reorganization under
Chapter 11 of the Federal Bankruptcy Code in 1985, has been vermiculite
mineral exploration and development. The principal project of the Company is the
Hamilton Vermiculite Project in Ravalli County, Montana, as to which the Company
commenced acquisition shortly prior to the Reorganization in 1985.
BASIS OF PRESENTATION:
The consolidated financial statements have been prepared in conformity with
accounting principals generally accepted in the United States. All amounts
included in these financial statements are expressed in United States Dollars.
In the past, the Company has issued financial statements showing the Hamilton
Vermiculite Project at the value established for it in the Chapter 11
proceedings in 1985, which was based upon an evaluation of the projects value by
an appraisal. The significant difference between those past financial statements
(1991 to 1996) is these financial statements is the restatement of the value of
the Hamilton Vermiculite Project in terms of historic costs of the project's
acquisition and development funds expended on the project subsequent to its
acquisition (see further this Note and Notes 6 & 11).
PRINCIPLES OF CONSOLIDATION:
In the past, the financial statements of the Company have been consolidated with
subsidiaries and affiliates. However, at the present the Company has no
subsidiaries and is involved with no affiliates.
F-35
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and June 30, 1996
- --------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
Therefore, all assets material to this financial statement are held by the
Company.
CASH AND CASH EQUIVALENTS:
The Company considers highly liquid investments with original maturities of
three months or less to be cash equivalents.
UNDEVELOPED VERMICULITE MINERAL PROJECTS:
The Company uses the full cost method of accounting for undeveloped mineral
projects. Accordingly, all costs associated with the acquisition of undeveloped
projects, including directly related overhead costs, are capitalized. Once
projects are developed, the capitalized costs will be amortized on the
unit-of-production method using estimates of proven reserves (See Notes 6 and
l1).
In addition, the costs are separated into cost centers on a state-by-state
basis. The capitalized costs for each cost center are subject to "ceiling test",
which limits such costs to the lower of (I) cost, or (ii) estimated fair market
value, of the projects (see Note 6).
In cases where the exploration and production activities of the Company are
conducted jointly with others, the financial statements reflect only the
Company's and its consolidated subsidiaries' proportionate interest in such
activities.
OTHER ASSETS - STOCK LISTING AND ISSUANCE COSTS:
Costs associated with stock issuance and the listing of the Company's common
stock on the NASDAQ Bulletin Board are charged against the proceeds derived from
the issuance of shares in the year of issuance (see Note 7)
INCOME TAXES:
The Company has adopted the provisions of Statement of Accounting Standards No.
109, "Accounting for Income Taxes" which incorporates the use of asset and
liability approach of accounting for income taxes. The asset and liability
approach requires the recognition of deferred tax assets and liabilities for
future consequences of temporary differences between the financial reporting
basis and tax basis of assets and liabilities. Because the question as to going
concern as discussed in Note 2 and subsequent events as discussed in Note 11 and
the explanation in the next paragraph, no value of a possible net operating loss
is recognized on the financial statements.
F-36
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and June 30, 199G
- --------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
No income tax returns have been filed since June 30, 1991. Federal income taxes
generally do not allow deductions of expenses not paid within 12 months. Most
debt has not been paid year after year. Most cash paid out has been for
capitalized development costs. Even though the majority of expenses are accrued
interest on notes, management is of the opinion that forgiveness of debt and
interest has been so frequent and of a nature that precludes most expenses and
interest from tax deduction. Consequently, management is of the opinion that the
probable net operating loss is under $2,000,000, expiring at various dates
through 2012.
DEPRECIATION:
Depreciation of real estate improvements is calculated using the straight-line
method over the useful lives of the related assets. For the building at Victor
Siding, Montana, that is part of the Hamilton Vermiculite Project, a 20 year
useful life is used.
NET INCOME (LOSS) PER COMMON SHARE:
Net Income (Loss) Per Common Share is based upon the fully diluted 21,478,812 at
June 30, 1997 and 20,285,048 at June 30, 1996 number of common shares as of the
last business day of the fiscal year of the financial statement period, assuming
conversion of all outstanding options and warrants (see Note 4).
RECLASSIFICATIONS:
The asset value ofthe Hamilton Vermiculite Project has been reclassified to
reflect its cost basis could capitalized development costs (See Note 6).
Certain Accounts Payable in the amount of $75,892, which had been carried on the
financial statements since 1991 without backup data, were accordingly written
off. 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 valid claims. The reserve will be written down in two installments
over the next two fiscal years. The Company had no data to establish or verify
the propriety of the claims eliminated, and determined that many of the listed
claimants were no longer de jure entities.
F-37
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and June 30, 1996
- --------------------------------------------------------------------------------
NOTE 2: GOING CONCERN STATEMENT
- --------------------------------------------------------------------------------
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. Also, refer to Note 6 regarding the Hamilton Vermiculite
Project. Recovery of the canrrying amount on the financial statements of
$14,904,711 as of June 30, 1997, of the mineral property and related development
costs is dependent upon the success of talc future operations and the Company's
ability to obtain financing through borrowing and capital stock sales.
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.
In June of 1996, the Company's Board of Directors and management were changed
(Note 5 and Note 11). New management has recognized the need to place mineral
properties into production, in order to generate revenues, and is actively
seeking to acquire mineral properties that are either (I) in active production,
or (ii) permitted to the extent that active production can immediately commence.
Such a plan has lead to the identification of several properties for which
active negotiations for acquisition or participation by joint venture, are
currently being conducted (Note 11).
The Company continues to evaluate the production potential of its mineral
property (the "Hamilton Vermiculite Project"), but has determined that certain
limitations imposed by the Environmental Impact Statement as approved and
issued for that project (Notes 6 and 10) limiting production to a six month
season per year, will sufficiently impact tile profitability of such an
operation that other alternatives must be reviewed. Accordingly, the Company has
considered dropping certain mining claims and the costs associated with the
maintenance thereof, while preserving the core of the project as permitted by
the EIS (Note 11). The Hamilton Vermiculite Project is currently pledged as
collateral for a number of mortgages (Notes 8 and 11). The financial statements
do not include any adjustments relating to the recoverability and classification
of asset carrying amounts and the amount or classification of liabilities that
might result should the Company be curable to develop and operate the mineral
property, or other mineral properties.
The Company has not obtained the necessary financing to meet it working capital
requirements to operate the mineral property which is the Company's major asset,
and there can be no assurance that the Company will be successful in obtaining
the necessary financing.
The Company expects to acquire in the last calendar quarter 1998 an existing
business yielding sufficient positive cash flow to sustain the overhead of the
Company in the future. Additionally, the Company in is negotiations with a
financially able entity as a prospective joint venture partner for
F-38
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30,1997 and Juile 30,1996
- --------------------------------------------------------------------------------
NOTE 2: GOING CONCERN STATEMENT (CONTINUED)
- --------------------------------------------------------------------------------
the development of the Company's and other vermiculite project.
- --------------------------------------------------------------------------------
NOTE 3: RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
The New Management Team (see Note 5) was established during June of 1997, the
last month of the fiscal year ending June 30, 1997. No charges were made by the
New Management Team to the Company for services provided the Company for the
fiscal year ending June 30, 1997.
See Note 11 with respect to the financial arrangements with the New Management
Team.
- --------------------------------------------------------------------------------
NOTE 4: STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
The Company was organized by the issuance of its common stock. Over the years
prior to 1996, stock was issued for cash and non-cash consideration. Non-cash
consideration included debt discharge and debt assumption.
COMMON STOCK
As of June 30, 1997, common stock consisted of authorized capital of 25,OOO,OOO
shares having a par value of US$0.25. Share issued and outstanding were
21,478,812 and 2O,285,048 on June 30, 1997 and June 30, 1996, respectively.
F-39
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and June 30, l 996
- --------------------------------------------------------------------------------
NOTE 4: STOCKHOLDERS' EQUITY (CONTINUED)
- --------------------------------------------------------------------------------
An analysis of common stock issued during fiscal years ending June 30, 1997 and
1996 follows:
YEAR SHARES VALUE
- ------------------------------------------------------------------
1997
Issued for cash 0 $ 0
Issued for property 0 0
Issued for debt 1,193,764 298,441
1996
Issued for cash 0 $ 0
Issued for property 0 0
Issued for debt 1,856,176 464,044
Shares Canceled (1,180,496) (295,124)
- --------------------------------------------------------------------------------
NOTE 5: CHANGE IN MANAGEMENT AND MANAGEMENT PLANS FOR THE COMPANY
- --------------------------------------------------------------------------------
In June, 1997, a group of investors and shareholders, generally denoted as the
"Committee for New Management", arranged a funding mechanism for the Management
of the Company to be directed by Edward J. Stanojev, Jr., and others associated
with him.
A new Board of Directors, comprising Mr. Stanojev, Dr. James R. Hindman, Jeffrey
L. Wertz, as new members, and Mr. Martin J. Peskin, as a continuing member, was
established.
This new Board of Directors appointed a "New Management Team", comprised of Mr.
Stanojev as Chairman, Chief Executive Officer, and President; James R. Hindman,
Ph.D., and a recognized expert in vermiculite exploration, mining and milling,
as Vice President and Chief Operating Officer; and Mr. Wertz, as Vice-President
and Chief Financial Officer. (see Note ll for Compensation for the New
Management Team).
Certain secured creditors have agreed to subordinate their secured positions in
the Hamilton Project up to an amount equal to $1,000,000 of working capital
infusion. As of June 30, 1997, the funding through this facility had not been
drawn upon.
F-40
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and June 30, 1996
- --------------------------------------------------------------------------------
NOTE 5 CHANGE IN MANAGEMENT AND MANAGEMENT PLANS FOR THE COMPANY (CONTINUED!)
- --------------------------------------------------------------------------------
This New Management Team has sought to move the Company forward into the
production and marketing of vermiculite and its products (see Note 2).
- --------------------------------------------------------------------------------
NOTE 6: UNDEVELOPED MINERAL PROJECTS
- --------------------------------------------------------------------------------
The Company has, since 1984, been focused upon the acquisition and development
of vermiculite ore reserves in mineral properties located primarily in the
western United States.
THE HAMILTON VERMICULITE PROJECT:
As of June 30, 1997, the Hamilton Vermiculite Project consisted of 22 leased
unpatented lode mining claims (the "Chamberlain Lease", see Notes 10 and 11), 64
owned unpatented lode mining claims, 11 owned mill site claims, and a parcel of
fee land with improvements. The Mining Claims are located in the Gird's Creek
unorganized Mining District, Ravalli County, Montana. The fee land (1.24 acres)
and improvements are located at Victor Siding, Ravalli County, Montana. The
mining claims are administered by the Bureau of Land Management, of the
Department of the Interior, for the United States Forest Service, of the
Department of Agriculture. Surface matters are administered by the US Forest
Service.
In 1993, a final Environmental Impact Statement was issued to the Company under
its then trade name of Western Vermiculite Company in connection with the
Company's application for an operating permit for the Hamilton Vermiculite
Project. The costs of the EIS approached several million dollars
of expenditures from 1985 to 1991.
The project has been extensively drilled and assayed and two ore bodies, the ABM
Ridge Ore Body (defined in 41 drill holes) and the Horse Ridge Ore Body (defined
in 43 drill holes), have been delineated. Combined, the proven minable
vermiculite reserves in these two ore bodies is 6.5 million tons at a grade of
10.09% vermiculite.
The Hamilton Vermiculite Project was appraised in 1985 at $34,577,270 (and
again, in 1992, at $35,000,000). Through June 30, 1996, the value of $34,577,270
has been reflected on the Company's financial statements as the original asset
value of the Hamilton Vermiculite Project (in lieu of acquisition costs). In
1997, the Hamilton Vermiculite Project was appraised at $51,000,000, largely
reflecting the increase in market value of vermiculite concentrate from 1985 to
1997. From
F-41
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and June 30, 1996
- --------------------------------------------------------------------------------
NOTE 6: UNDEVELOPED MINERAL PROJECTS (CONTINUED)
- --------------------------------------------------------------------------------
the foregoing, the Company has determined that the cost basis accounting for
the project (see below) does not exceed its estimated fair market value of the
Project.
In 1997, the Management of the Company determined that the Hamilton Vermiculite
Project should be recorded in the financial statements at its costs of
acquisition plus the capitalized expenditures which should be allocated to it.
As a result, the following data was utilized to reclassify the Asset value of
the Hamilton Vermiculite Project:
The Company in 1984 acquired the Hamilton Vermiculite Project from
Northland Mills, Inc. At that time, the Hamilton Vermiculite Project
consisted of 22 leased unpatented lode mining claims, and 64 claims
located in the names of National Vermiculite Corporation and its Joint
Venture Western Vermiculite Company. The Agreement with Northland
Mills, Inc., provided that the Company acquire:
100% of the issued and outstanding stock of National
Vermiculite Corporation, a Montana corporation, which was a
100% subsidiary Northland Mills, Inc. National Vermiculite
Corporation owned 40% of the Hamilton Project; and,
Northlands Mills, Inc.'s option to acquire 60% of the
Hamilton Project from a "Trust" (Green International, Inc.,
Shareholders Liquidation Trust), plus fee land and a
building at Victor Siding, Montana.
As a consideration for this acquisition, the Company agreed to pay
Northland Mills, inc., the sum of $7,805,277. The Company thereafter,
in exercising the option to acquire the additional 60% of the Project,
assumed or purchased from the Trust, notes having a face value of
$3,050,077.63 (for an agreed amount to the Trust of $3,250,000 to be
paid by October 19,1985), and for the issuance to the trust on that
date of 4,112,000 common shares of the Company (at which date, the par
value of the shares was $0.25 per share, for a consideration of
$1,028,000). Thus, the cost basis for the acquisition of 100% the
Hamilton Vermiculite Project and the fee land and improvements (the
"Building") was:
Payment to Northland Mills $ 7,805,277
Debts assumed fiom the Trust 3,050,078
Common shares issued to the Trust 1,028,000
-----------
Total Consideration ("Purchase Price"): $11,883,355
===========
F-42
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and June 30, 1996
- --------------------------------------------------------------------------------
NOTE 6: UNDEVELOPED MINERAL PROJECTS (CONTINUED)
- --------------------------------------------------------------------------------
From 1984 through June 30, 1991, the Company capitalized costs expended in
connection with the development of the Hamilton Vermiculite Project of
$2,133,542. An additional $815,953 is determined to be development costs, of
which only $69,566 had been capitalized. Upon restating the June 30, 1996
financial statements the remaining $746,387 in development costs were
reclassified out of retained earnings (accumulated deficit) into development
costs. All of these development costs are allocated to the Hamilton Vermiculite
Project.
Of the Purchase Price, $50,000 was allocated to the Building, which is being
depreciated annually at $2,174 (See Note 1).
The lease of the 22 leased claims expires, if not renewed, on the 15th day of
November, 1997, according to counsel for the Lessor. Expiration of lease also
terminates the Lessor's royalties on 18 other claims of the Company.
Management is attempting to raise financing for the development of the Hamilton
Vermiculite Project, and is in discussions with several potential joint venture
development partners who would contribute the financing required.
At present, the Company has not obtained the necessary financing to meet its
working capital requirements and to operate the Hamilton Vermiculite Project,
which is the Company's major asset. There can be no assurance that the Company
will be successful in obtaining the necessary financing. The Company has pledged
the Hamilton Vermiculite Project as collateral for a note payable to a former
affiliate. Also, as discussed in Note 10, the United States Forest Service
required that an Environmental Impact Statement ("EIS") be issued for the
Hamilton Vermiculite Project prior to granting an operating permit to the
Company. The EIS was completed in 1993. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts and the amount or classification of liabilities that might
result should the Company be unable to develop and operate the Hamilton
Vermiculite Project and continue as a going concern.
F-43
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and June 30, 1996
- --------------------------------------------------------------------------------
NOTE 7: OTHER ASSETS
- --------------------------------------------------------------------------------
The Company has on deposit with the Montana Department of Lands a refundable
balance of $20,000, in connection with its operating permit application for the
Hamilton Vermiculite Project.
- --------------------------------------------------------------------------------
NOTE 8: NOTES PAYABLE, LONG TERM DEBTS, AND ACCOUNTS PAYABLE
- --------------------------------------------------------------------------------
Certain unidentified obligations of the Company have been carried forward year
after year since before 1991, and are believed by the New Management of the
Company to have been, in fact, satisfied or otherwise no longer owing (in some
cases being barred by the statute of limitations). Management is investigating
the circumstances of these payables and other liabilities in order to take such
action in the future to delete such items where appropriate from the
liabilities of the Company. Of such amounts $75,892 of Accounts Payable were
identified by management as unlikely to be due and payable. At June 30, 1997,
New Management wrote off 75% of such amount, or $56,900, with the remaining 25%,
or $18,992, left in Accounts Payable.
- --------------------------------------------------------------------------------
NOTES PAYABLE AND LONG TERM DEBTS
- --------------------------------------------------------------------------------
Notes payable and long term debts are summarized as follows:
(A) MORTGAGES PAYABLE: 1997 1996
----------- ----------
Mortgages payable to life insurance
company in liquidation, bearing
interest at 10% per annum
past due and in default (Note 11) $ 550,000 $ 550,000
Mortgages payable to shareholders
of Company, interest in part prepaid,
past due and in default (Note 11) 496,000 496,000
----------- ----------
Total Mortgages Payable $1,046,000 $1,046,000
=========== ==========
F-44
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and June 30, 1996
- --------------------------------------------------------------------------------
NOTE 8: NOTES PAYABLE, LONG TEEN DEBTS, AND ACCOUNTS PAYABLE (CONTINUED)
- --------------------------------------------------------------------------------
(B) UNSECURED NOTES PAYABLE:
Notes payable to life insurance
company in liquidation (Note 11) $ 95,961 $ 95,961
Notes payable to corporations 310,568 310,568
Notes payable to shareholders
(Note 11) 1,091,765 793,324
Notes payable to former officers 80,991 80,997
----------- ----------
Total Notes Payable $ 1,579,291 $1,280,850
=========== ==========
Total term debt $ 2,625,291 $2,326,850
Current portion $ 1,654,100 $1,654,100
Long term portion 971 191 672,750
----------- ----------
Total $ 2,625,291 $2,326,850
=========== ==========
ACCRUED INTEREST PAYABLE,
Accrued interest payable, all current, is for:
1997 1996
----------- ----------
Mortgage payable $ 2,219,926 $1,472,781
Unsecured notes payable 1,543,123 1,055,293
----------- ----------
Total $ 3,763,049 $2,528,074
=========== ==========
F-45
<PAGE>
STANSBURY HOLDINGS CATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and June 30, 1996
- --------------------------------------------------------------------------------
NOTE 9: CLAIMS, LITIGATION AND JUDGMENTS:
- --------------------------------------------------------------------------------
CLAIMS AND POSSIBLE CLAIMS:
(a) The claim of Michael F. LaFleur, filed with and adjudicated by, the
Wage and Unit of the Montana Department of Labor and Industry, approved
in the amount of $11,250 is reported on the financial statements as a
note payable. Any possible penalties are not reflected inl the
financial statements.
(b) With respect to the EIS (see also notes 5 and 9), over 100
administrative appeals were filed in opposition to the approval of the
Final Draft of the EIS, all of which were rejected by the Regional
Office of the US Forest Service, which decision of rejection further
was upheld on appeal to the Chief Forester of the US Forest Service.
The time for administrative appeal of the EIS, or further challenge to
it, has expired.
LITIGATION:
There is no pending litigation against the Company.
JUDGMENTS OF RECORD AFFECTING TITLE TO HAMILTON PROJECT:
A claim of lien filed by the State of Montana in January, 1993 for $658 is
reflected on the financial statements as an account payable.
A judgment obtained by Dorsey & Whitney, a general partnership, in December,
1994 for $52,683 is reflected on the financial statements as a note payable.
A judgment obtained by Southampton Metals Ltd. ("Simon Grant-Rennick"),
under a settlement with Company, upon which a current unpaid balance
exists of $5,600 is included on the financial statements as a note payable.
OTHER JUDGMENTS: (All included in the financial statements as accounts payable)
A Judgment obtained by Mike Bauernfiend, obtained in Bergen County, N.J. for
$7000.
A Judgement obtained by Martineau & Co., in Salt Lake County, Utah, for
$8000.
A Judgment obtained by Bruce Blessington, for $26,293.
F-46
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and June 30, 1996
- --------------------------------------------------------------------------------
NOTE 10: OTHER INCOME
- --------------------------------------------------------------------------------
CANCELLATION OF DEBT: From 1985 (year the Company filed Bankruptcy) to the
present, the Company continues efforts to raise sufficient funds to develop
the Hamilton Venniculite Project. Creditors frequently were not paid off,
or would settle for smaller amounts or no payment at all. Or, a debt may
ultimately be canceled because of the statute of limitations. The amounts
reported on the statements of operations as "Other Income - cancellation of
debt" arise for these reasons. New Management is of the opinion there remain
debts as of June 30, 1997 that may later on be identified as cancellation of
debt. If so, the total amount of debt cancellation may be material.
- --------------------------------------------------------------------------------
NOTE 11: COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
ROYALTY AND LEASE AGREEMENTS: 22 of the unpatented lode mining claims are
leased to the Company under a lease assigned to the Company during June,
1986 (the "Chamberlain Lease") in connection with the settlement of
obligations owed to the Green International, Inc., Shareholders
Liquidation Trust. The lease contains an option to purchase the claims at a
purchase price of $1,000,000 during the term of the lease and any extension.
The current lease expires on November 15, 1997, and is renewable for an
additional consecutive ten year term upon five days' notice. The lease
provides for a royalty payment to the Lessors of $2.00 per ton of
vermiculite concentrate, or 3 1/3 percent of the selling price, whichever is
greater, of vermiculite ore mined frown the 22 claims. An addendum to the
lease extends this royalty to another 18 claims held by the Connpany. A
minimum royalty of $1,500 per quarter is provided for in the lease. All
royalty payments attributable to the 22 claims are to be a credit on the
purchase price of the option to purchase tile claims [See note ll(a)].
ANNUAL CLAIM MAINTENANCE FEES: In 1993, the federal government substituted
a fee of $100 per claim in lieu of the former requirement for labor
assessments, to maintain title to the claims. Responsible for the
maintenance of 96 clahns, the Company has an annual obligation of $9,600 in
order to preserve its title to the claims.
ENVIRONMENTAL IMPACT STATEMENT: In May of 1993, the US Forest Service and
the Montana Department of State Lands issued a Final Environmental Impact
Statement for the Western Vermiculite Project (the "Hamilton Property"). The
EIS was required in response to the Company's application for an operator's
permit to develop the Hamilton Vermiculite Project. To date, no evaluation
of the cost required to effect the implementation of the Plan of
Operations, from an administrative and permitting perspective has been
undertaken by the Company, and no reserve of
F-47
<PAGE>
STANSBURY HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and June 30, 1996
- --------------------------------------------------------------------------------
NOTE 11: COMMITMENTS AND CONTINGENCIES (CONTINUED)
- --------------------------------------------------------------------------------
funds has been allocated for that purpose.
INSURANCE: The Company discontinued its insurance coverages during fiscal 1991
and has been uninsured since that time.
INCOME TAX: The company has not filed any federal or state income tax returns
since June 30, 1990. The total amount due is estimated to be under $3,000. This
is not reflected on the financial statements.
SECURITIES MATTERS: The Company's Common Shares were delisted from NASDAQ
National Market System on January 21, 1992 The Company shares currently trade on
the Nasdaq Electronic Bulletin Board.
- --------------------------------------------------------------------------------
NOTE 12: SUBSEQUENT EVENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(a) In November, 1997, the Chamberlain Lease of 22 unpatented lode mining
claims in Hamilton Vermiculite Project expired, and was not renewed;
the Company holds the remaining claims (numbering 75 claims, of which
64 are mining claims and 11 are mill site claims). In the opinion of
New Management, the claims no longer leased by the Company, while
containing a large quantity of low grade ore (at or below the cut-off
grade for current vermiculite operations), do not impact the Company's
financials, since the bulk of this ore was not within the bounds of the
mining operation permitted by the EIS, and had no present commercial
value. In September, 1998, the 22 claims were abandoned by the previous
owners. The Company subsequently located 22 claims covering the same
area and is now the owner of the entire claim group.
(b) In July, 1998, tile Liquidator of the first mortgagee insurance company
holding a lien upon the Hamilton Vermiculite Project has made an offer
in settlement of all claims, for $130,000, which offer the Company has
accepted, and on October 28, 1998 it was fully funded and closed.
Certain other mortgagors and note holders (holding in the aggregate
principal balances of $496,000) have agreed to accept common stock of
the Company for accrued interest on their notes through February l,
2001, and to extend the maturity until February 1, 2001.
(c) The New Management has arranged for the affairs of Stansbury to be
conducted from offices of another entity, for no charge in fiscal year
1997, but for 30% of that office's overhead
F-48
<PAGE>
STANSBURY HOLDINGS
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and June 30, 1996
- --------------------------------------------------------------------------------
NOTE 12: SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
(including use of office space, equipment, telephones) in fiscal
year 1998.
(d) The proposed and unrecorded compensation for the New Management group
is as follows:
Edward C. Stanojev, Jr., a bonus of 500,000 common shares of the
Company, and a fee of $6,000 per month, to serve as a director,
chairman of the board, chief executive officer and president; the fee
is accrued until cash flow is adequate to pay the same, and accrues
from July 1, 1997.
Jeff Wertz, a bonus of 200,000 common shares of the Company, and a fee
of $2,000 per month, to serve as a director, chief financial officer,
vice-president and secretary; the fee is accrued until cash flow is
adequate to pay the same, and accrues from October 1, 1997.
James R. Hindman, Ph.D., a bonus of 500,000 common shares of the
Company, and a fee of $3,000 per month, to serve as a director, chief
operating officer and vice-president; Dr. Hindman commenced service
to the Company under this arrangement in the fourth quarter of 1997.
(e) In late 1998, Aldine J. Coffman, Jr., who had been providing certain
legal services to the Company, was nominated to become a director of
the Company and an officer with the title of Vice President and Chief
Administrative Officer. Mr. Coffman is currently serving as a director
of International Methane Company Limited, a publicly held energy
company, and has served as its Chief Financial Officer and Chief
Executive Officer.
F-49
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.1 Employment Agreement between the Company and James R. Hindman, Ph.D.,
Dated June 25, 1997.
23.1 Consent of Certified Public Accountants
27 Financial Data Schedule
99 Accountants Resignation Letter dated Feb. 4, 1999
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of the 25th day
of June, 1997, by and between Stansbury Holdings Corporation, a Utah corporation
(the "Company"), and James R. Hindman Ph.D. (the "Executive").
PRELIMINARY STATEMENTS:
A. The Executive has been approveed by the Board of Directors (the
"Board") as Vice President of the Company.
B. The Executive is widely regarded as an international expert in the
field of commercial vermiculite and possesses extensive knowledge of the
vermiculite industry and the ability to apply this knowledge to the business and
affairs of the Company, its policies, methods and personnel and industry.
C. The Board recognizes that the Executive will contribute to the
growth and success of the Company and desires to assure the Company of the
Executive's employment and to compensate him therefor.
D. The Board has determined that this Agreement will reinforce and
encourage the Executive's attention and dedication to the Company.
E. The Company acknowledges that the Executive possesses specific
intellectual property and assets which are not to be included within the scope
of this agreement. These include, but are not limited to, (i) proprietary
information, ideas and concepts for new and improved vermiculite products and
applications, conceived and considered as part of the Executive's business known
as Vermiculite Technologies; (ii) proprietary information obtained, distributed,
or documented in the Executive's publication Vermiculite Technology Newsletter;
and (iii) interests and ownership positions in certain developmental companies
including Resource Vermiculite LLC.
F. The Executive is willing to make his services available to the
Company on the terms and conditions hereinafter set forth.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT
1.1 GENERAL. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to serve the Company, on the terms and subject to
the conditions set forth herein.
Page 1
<PAGE>
1.2 DUTIES OF EXECUTIVE. During the term of this Agreement, the
Executive shall serve as the Vice President of the Company, shall diligently
perform all services as may be assigned to him by the Board, and shall exercise
such power and authority as may from time to time be delegated to him by the
Board. The Executive shall devote at least twenty (20) hours per week of his
time, energy and attention to the business and affairs of the Company, render
such services to the best of his ability, and use his best efforts to promote
the interests of the Company.
2. TERM
2.1 INITIAL TERM. The initial term of this Agreement and the
employment of the Executive hereunder shall be for theperiod from the date
hereof through December 31, 1997 (the "Initial Term"), unless sooner terminated
in accordance with the terms and conditions hereof.
2.2 RENEWAL TERMS. The Initial Term of this Agreement, and the
employment of the Executive hereunder, may be renewed and extended for such
period or periods as may be mutually agreed to by the Company and the Executive
in a written supplement to this Agreement signed by the Executive and the
Company (the "Written Supplement). If this Agreement is not so renewed and
extended the employment of the Executive, hereunder, shall automatically
terminate uon the expiration of the Initial Term.
3. COMPENSATION
3.1 BASE SALARY. The Executive shall receive a base salary at the
following annual rates (the "Base Salary") during the Initial Term of this
Agreement.
Period Base Salary
6/1/97-12/31/97 $36,000
The Base Salary shall be payable in equal installments consistent with the
Company's normal monthly payroll schedule, subject to applicable withholding and
other taxes. If the term of this Agreement shall be renewed and extended as
provided in Section 2.2 hereof, then during such renewal term of this employment
hereunder the Executive shall be paid a base salary as set forth in the Written
Supplement.
3.2 INCENTIVE COMPENSATION--STOCK PARTICIPATION PROGRAM
(a) In addition to the Base Salary, the Executive shall be entitled
to receive as additional compensation (the "Incentive Compensation - Stock
Participation Program") for the attainment of specific goals, as specific goals,
as set forth in Exhibit "A" attached hereto, during the term of the Executive's
employment hereunder, a total of 500,000 shares of the Company's common stock
(the "Shares") to be issued in increments of 100,000 each upon the completion of
each of the following criteria: (i) the execution of the employment agreement;
(ii) entering into an agreement directly with the claim owners or through
Resource Vermiculite LLC which will allow Stansbury immediate access to the mine
and mill for the production of vermiculite concentrates; (iii) commencement of
production from the Elk Gulch mine and mill by Stansbury Holdings, with
Page 2
<PAGE>
"production" being defined as the mining and milling of vermiculite ore to
produce sufficient concentrated and sized vermiculite to be marketed in truck
load and rail car load quantities; (iv) entering into an agreement with the HPS
claim owners which will allow for the long term access to the Elk Gulch mine and
mill; and (v) the successful modification of mill circuitry to allow for a
potential mill production capacity of 25,000 tons per year based on a full year
production schedule.
(b) For purposes of this Agreement, the Shares (Incentive
Compensation) shall be deemed earned by the Executive as of the completion dates
of tasks (i) through (v) in Section 3.2(a), all of such being Shares duly
authorized, validly issued, fully paid and non-assessable. The Company agrees to
register the Shares within a period of 90 days subsequent to the date the Shares
are so issued. The Company further agrees to remain in good standing pursuant to
Section 12(g) of the Securities Exchange Act of 1934, and to keep all reports
and filings required to be made with the Securities and Exchange Commission
current. Any termination of this Agreement by the Company prior to the
expiration of its stated term as provided in paragraph 2 hereof shall not affect
or in any way impair the Executive's right (or those of his transferees to sell
or otherwise dispose of such Shares.
(c) The Company shall permit the Executive or his designated
representative, on reasonable advance notice, form time to time to review the
Company's books and records relevant to the calculation of the Incentive
Compensation. The Executive shall bear the entire cost of such review.
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS
4.1 EXPENSE REIMBURSEMENT. The Executive shall be entitled to
reimbursement by the Company for all reasonable business expenses incurred by
him in connection with the performance of his duties hereunder, provided,
however, that such entitlement is conditioned upon the Executive providing the
Company with appropriate documentation of such expenses in accordance with
Company policy.
4.2 OTHER BENEFITS. The Executive shall be entitled to participate
in all medical, hospitalization, disability and group life insurance plans, and
any and all other employee benefit plans, as are presently and hereafter
provided by the Company to its executives. The Executive shall be entitled to
four weeks paid vacation per year in accordance with the Company's prevailing
policy for its executives; provided, however, that in no event may a vacation be
taken when to do so could reasonably be expected to materially and adversely
affect the Company's business and unused vacation time shall not be carried over
to any subsequent year. Notwithstanding the foregoing, the Executive shall be
entitled to employee benefits which are no less favorable than those currently
provided to him by the Company.
4.3 WORKING FACILITIES. The Company shall utilize the Executive's
existing office, secretarial help and other facilities and services currently
available to him; the Company shall not be required to provide rent, additional
staff wages or utilities at this time. It is contemplated that as the Company
moves from the developmental stage to an operation phase (defined as the
Page 3
<PAGE>
commencement of vermiculite mining and milling to produce saleable product),
existing facilities will change and the Company will assume the expense thereof.
5. TERMINATION
5.l TERMINATION FOR CAUSE. The Company shall at all times have the
right, upon written notice to the Executive, to terminate the Executive's
employment hereunder for Cause (as hereinafter defined). For purposes of this
Agreement, the term "Cause" shall mean (a) a willful breach by the Executive of
any of the material terms or provisions of this Agreement, (b) the conviction of
the Executive of a felony, (c) commission by the Executive of an act or acts
involving fraud, embezzlement, misappropriation, theft, breach of fiduciary duty
or dishonesty against the property or personnel of the Company, or (d) willful
or reckless conduct by the Executive which the Board in good faith determines
could reasonably be expected to have a material adverse effect on the business,
assets, properties, results of operations, financial condition or prospects of
the Company. Upon any termination pursuant to this Section 5.1, the Executive
shall be entitled to be paid any unpaid amounts of his Base Salary or $72,000
per year, whichever is greater, which accrued through the date of termination
and the Company shall have no further liability under this Agreement (other than
for reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however to the provisions of Section 4.1).
5.2 DISABILITY. The Company shall at all times have the right, upon
written notice to the Executive, to terminate the Executive's employment
hereunder, if the Executive shall, as the result of mental or physical
incapacity, illness or disability, become unable to perform his duties hereunder
for in excess of 60 consecutive calendar days or 90 calendar days in any
12-month period. Upon any termination pursuant to this Section 5.2, (a) the
Company shall pay to the Executive (i) immediately any unpaid amounts of his
Base Salary or $72,000 per year, whichever is greater, accrued through the
effective date of termination, plus (ii) in accordance with Section 3.2 (b), an
amount earned through the date of termination but unpaid pursuant to the
Incentive Compensation - Stock Participation Program, and (b) the Company shall
have no further liability under this Agreement (other than for reimbursement for
reasonable business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 4.1).
5.3 DEATH. In the event of the death of the Executive during the
term of this employment hereunder, (a) the Company shall pay to the deceased
Executive's designated beneficiary, or, if no beneficiary has been designated,
the deceased Executive's estate (i) immediately any unpaid amounts of his Base
Salary accrued through the effective date of termination, plus (ii) in
accordance with Section 3.2 (b), an amount earned through the date of
termination but unpaid pursuant to the Incentive Compensation - Stock
Participation Program, and (b) the Company shall have no further liability under
this Agreement (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1).
5.4 TERMINATION WITHOUT CAUSE. Effective at any time at least one
year after the commencement of the Executive's employment hereunder, the Company
shall have the right to terminate the Executive's employment hereunder without
cause upon at least 90 days' prior
Page 4
<PAGE>
written notice to the Executive; provided, however, that the Company shall pay
to the Executive (i) on the effective date of termination specified in the
notice any unpaid Base Salary accrued through the effective date of termination,
(ii) if the Company has selected a Non-competition Period (as defined in Section
6.1) in its notice of termination, his then-effective Base Salary or $72,000 per
year, whichever is greater, in equal installments consistent with the Company's
normal payroll practices, from such termination date until the end of the
Non-competition Period, and (iii) in accordance with Section 3.2 (b), an amount
earned through the date of termination but unpaid pursuant to the incentive
Compensation - Stock Participation Program, and (b) the Company shall have no
further liability under this Agreement (other than for reimbursement for
reasonable business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 4.1).
5.5 TERMINATION BY THE EXECUTIVE. Effective at any time at least one
year after the commencement of the Executive's employment hereunder, the
Executive shall have the right to terminate his employment hereunder upon at
least 90 days' prior written notice to the Company. In the event of such
termination, the Company shall pay to the Executive (i) on the effective date of
termination specified in the notice any unpaid Base Salary accrued through the
effective date of termination, plus (ii) in accordance with Section 3.2 (b), an
amount earned through the date of termination but unpaid pursuant to the
Incentive Compensation - Stock Participation Program, and (b) the Companny shall
have no further liability under this Agreement (other than for reimbursement for
reasonable business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 4.1).
5.6 EXPIRATION OF INITIAL TERM AND NON-COMPETITION PERIOD. In the
event that the Executive's employment hereunder is terminated by reason of the
expiration of the initial Term, the Company may, pursuant to written notice to
the Executive given at least 90 days prior to the expiration of the Initial
Term, require the Executive to submit to a Non-competition Period of up to one
year, in which case the Company shall continue to pay to the Executive his
then-effective Base Salary or $72,000 per year, whichever is greater, fiom the
expiration of the Initial Term until the end of the Non-competition Period, in
equal installments consistent with the Company's normal payroll practices. Upon
such expiration and receipt of such payments described in the preceding
sentence, together with the payment of any unpaid amounts pursuant to the
Incentive Compensation - Stock Participation Program through the expiration of
the Initial Term, the Company shall have no further liability under this
Agreement (other than for reimbursement for reasonable business expenses
incurred prior to the date of expiration, subject, however, to the provisions of
Section 4.1).
6. RESTRICTIVE COVENANTS
6.1 NON-COMPETITION. While employed by the Company and during the
Non-competition Period (as hereinafter defined) and with the exception(s)
specified in Section E of the Preliminary Statements, the Executive shall not,
directly or indirectly, engage in or have any interest in any sole
proprietorship, partnership, corporation or business or any other person or
entity other than the Company, its subsidiaries or affiliates (whether as an
employee, officer, director, partner, agent, security holder, creditor,
consultant or otherwise) unless the Executive
Page 5
<PAGE>
receives appropriate written authorization from the Company allowing such
interest or employment, and that directly or indirectly engages in the
manufacture, import, design, merchandising and/or marketing of products
competitive with the products then offered for sale by the Company anywhere the
Company's products are then offered for sale (as may reasonably be determined by
the Company to be the appropriate geographical market(s) for such products);
provided, however, that nothing contained herein shall be deemed to prevent or
restrict the Executive from owning up to 4.9% of the shares of any class of
capital stock of any corporation whose shares are listed on a national
securities exchange or are regularly traded in the over-the-counter market;
provided further that the Executive does not actively participate or engage in
the conduct of the business of any such other corporation. For purposes of this
Section 6.1, the term "Non-competition Period" shall mean (a) in the event the
Executive's employment is terminated pursuant to Section 5.2, 5.4 or 5.6, the
non-competition period, if any, selected by the Company in its notice to the
Executive, which period may not exceed one year following the effective date of
such termination, (b) in the event the Executive's employment is terminated
pursuant to Section 5.5, the period beginning on the effective date of such
termination and ending one year thereafter, or (c) in the event the Executive's
employment hereunder is terminated pursuant to Section 5.1 a period of two years
following the date his employment is terminated. The Company specifically
acknowledges exceptions of those interests disclosed by employee in Section E of
the Preliminary Statements.
6.2 NONDISCLOSURE. The Executive shall not divulge, communicate, or
use to the detriment of the Company or for the benefit of any other person or
persons, or misuse in any way, any confidential information pertaining to the
business of the Company. For purposes hereof, "confidential information" means
information, including but not limited to, technical or non-technical data, a
formula, pattern, compilation, program, device, method, technique, drawing,
process, financial data, or list of actual or potential customers or suppliers,
that (i) is sufficiently secret to derive economic value, actual or potential,
from not being generally known to other persons who can obtain economic value
from its disclosure or use; and (ii) is the subject of efforts that re
reasonable under the circumstances to maintain its secrecy or confidentiality.
Any confidential information now known which was provided by the Company or
hereafter acquired by the Executive with respect to the business of the Company
shall be deemed a valuable, special and unique asset of the Company that is
received by the Executive in confidence and as a fiduciary, and the Executive
shall remain a fiduciary to the Company with respect to all of such information.
6.3 NON-SOLICITATION OF EMPLOYEES AND CUSTOMERS. While employed by
the Company and for two years following the termination of his employment for
any reason, the Executive shall not, directly or indirectly, for himself or for
any other person, firm, corporation, partnership, association or other entity,
attempt to employ or enter into any contractual arrangement with any employee or
former employee of the Company, unless such employee or former employee has not
been employed by the Company for a period in excess of one year.
6.4 BOOKS AND RECORDS. All books, records and accounts relating in
any manner to the business, customers, suppliers or clients of the Company and
all other documents, disks, sftware or other items containing confidential
information relating to the Company, whether
Page 6
<PAGE>
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned
immediately, together with any copies, to the Company on termination of the
Executive's employment hereunder or on the Company's request at any time.
7. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Section 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
in Section 6 of this Agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess.
8. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Montana.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between and among the Executive and the
Company (or any of their affiliates) with respect to such subject matter. Except
for the obligation to pay any accrued but unpaid salary and expense
reimbursements in the ordinary course of business due the Executive, all such
prior agreements, understandings and arrangements for the provision of services
by the Executive to the Company and/or any of its affiliates and the
compensation of the Executive in any form shall automatically terminate upon the
execution of this Agreement, and each party shall thereupon and thereby, without
any further action, release and forever discharge the other (and the other's
affiliates) from any and all liabilities and obligations of any nature arising
out of or in connection with any and all such prior agreements, understandings
or arrangements. This Agreement may not be modified in any way unless by a
written instrument signed by both the Company and the Executive.
10. NOTICES. Any notice required or permitted to be given hereunder
shall be deemed given when delivered by hand, by facsimile or three business
days after being deposited in the United States mail, by registered or certified
mail, return receipt requested, postage prepaid (i) if to the Company, to the
address of its principal offices in Virginia Beach, Virginia, and (ii) if to the
Executive, to his address as reflected on the payroll records of the Company, or
to such other address as either party hereto may from time to time give notice
of to the other.
11. BENEFITS: BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representative, legal representatives, successors and, any successor to the
Company, whether by merger, consolidation, sale of stock, sale of assets or
otherwise, provided, however, that under no circumstances may the Executive
delegate his employment obligations hereunder or any portion thereof.
Page 7
<PAGE>
12. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
effect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clause or sections contained in this Agreement shall be declared invalid, this
Agreement, shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
13. WAIVER. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
14. DAMAGES: PREVAILING PARTY. Nothing construed herein shall be
construed to prevent the Company or the Executive from seeking and recovering
from the other damages sustained by either or both of them as a result of its or
his breach of any term or provision of this Agreement. If there is any legal
action or proceeding to enforce or interpret any provision of this Agreement or
to enforce or interpret any provision of this Agreement or to protect or
establish any right or remedy of any party, the nonprevailing party to such
action or proceeding shall pay to the prevailing party all costs and expenses,
including reasonable attorneys' fees and costs, incurred by such prevailing
party in such action or proceeding, in enforcing its judgment, and in connection
with any appeal from such judgment. Reasonable attorneys' fees and costs
incurred in enforcing any judgment or in connection with any appeal shall be
recoverable separately from and in addition to any other amount included in such
judgment. The prevailing party's rights under this Section 14 shall not merge
into any judgment and shall survive until all such fees and costs have been
paid. The parties consent and agree to submit to the exclusive jurisdiction of
the courts located in Beaverhead County, Montana, with respect to any litigation
arising hereunder, and each party hereby waives any objection it might have to
venue in any such court.
15. SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this agreement.
16. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
17. SUBSIDIARIES. All references to the "Company" in this Agreement,
including but not limited to those in Section 6, shall be deemed to include any
and all of the Company's direct and indirect subsidiaries to the extent the
context may require.
Page 8
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
(COMPANY)
STANSBURY HOLDINGS CORPORATION
By:
----------------------------------------
Dr. Martin Peskin
(EXECUTIVE)
-------------------------------------------
James R. Hindman, Ph.D.
Page 9
<PAGE>
EXHIBIT A
INCENTIVE COMPENSATION - STOCK PARTICIPATION PROGRAM
In addition to the Base Salary, the Executive shall be entitled to
receive additional compensation; a total of 500,000 shares to be issued in
increments of 100,000 each upon the following completion of each of the
following goals, i.e., (i) the execution of the employment agreement; (ii)
entering into an agreement directly with the claim owners or through Resource
Vermiculite LLC which will allow Stansbury immediate access tothe mine and mill
for the production of vermiculite concentrates with "production" being defined
as the mining and milling of vermiculite ore to produce sufficient concentrated
and sized vermiculite to be marketed in truck load and rail car load quantities;
(iii) commencement of production from the Elk Gulch mine and mill by Stansbury
Holdings; (iv) entering into an agreement with the HPS claim owners for which
will allow for the long term access to the Elk Gulch mine and mill; and (v) the
successful modification of mill circuitry to allow for a potential mill
production capacity of 25,000 tons per year based on a normal yearly production
schedule.
For purposes of this Agreement, the Shares (Incentive Compensation)
shall be deemed earned by the Executive as of the date issued, all of such being
Shares duly athorized, validly issued, fully paid and non-assessable. The
Company agrees to register the Shares within a period of 90 days subsequent to
the date the shares are so issued. The Company further agrees to remain in good
standing pursuant to Section 12(g) of the Securities Exchange Act of 1934, and
to keep all reports and filings required to be made with the Securities and
Exchange Commission current. Any termination of this Agreement by the Company
prior to the expiration of its stated term as provided in paragraph 2 hereof
shall not affect or in any way impair the Executive's right (or those of his
transferees) to sell or otherwise dispose of such Shares.
The Company shall permit the Executive or his designated
representative, on a reasonable advance notice, from time to time to review the
Company's books and records relevant to the calculation of the Incentive
Compensation. The Executive shall bear the entire cost of such a review.
Page 10
EXHIBIT 23.1
SELLERS & ASSOCIATES LOGO
3785 Harrison Blvd., Suite 101 - Ogden, Utah 84403
(801) 621-8128 /bullet/ FAX (801) 627-1639
Securities and Exchange Commission
340 Fifth Street, N.W.
Washington, D.C. 20549
February 4, 1999
Commissioners:
We have read the statements made by Stansbury Holdings Corporation (Stansbury)
at item 8 of Form 10-KSB annual report for the fiscal years ending June 30,
1998 and 1997. We agree with the statements concerning our firm in such Form
10-KSB.
Sincerely,
/s/ Richard E. Sellers, CPA
-----------------------
Richard E. Sellers, CPA
Sellers and Associates
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 1,685
<SECURITIES> 0
<RECEIVABLES> 20,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,685
<PP&E> 15,001,651
<DEPRECIATION> (2,174)
<TOTAL-ASSETS> 15,021,162
<CURRENT-LIABILITIES> 4,649,681
<BONDS> 1,086,677
0
0
<COMMON> 6,009,823
<OTHER-SE> 9,011,339
<TOTAL-LIABILITY-AND-EQUITY> 15,021,162
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 345,039
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 886,184
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,231,223)
<DISCONTINUED> 0
<EXTRAORDINARY> 212,820
<CHANGES> 0
<NET-INCOME> (1,018,403)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
EXHIBIT 99
SELLERS & ASSOCIATES LOGO
3785 Harrison Blvd., Suite 101 - Ogden, Utah 84403
(801) 621-8128 /bullet/ FAX (801) 627-1639
Securities and Exchange Commission
340 Fifth Street, N.W.
Washington, D.C. 20549
February 4, 1999
Commissioners:
This is to confirm that the client-auditor relationship between Stansbury
Holdings Corporation (Stansbury) and Sellers and Associates has ceased.
We have no disagreements with Stansbury regarding accounting policies or
practices, nor with their internal controls, nor with any representations made
to us by Stansbury. The choice to change auditors was Stansbury's based on
business reasons and convenience of the new auditors to Stansbury's Chief
Administrative Officer.
We will continue providing Stansbury management with advisory and tax services.
Sincerely,
/s/ Richard E. Sellers, CPA
-----------------------
Richard E. Sellers, CPA
Sellers and Associates
