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 YEAR ENDED JUNE 30, 2000
[ ] 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.)
8801 EAST HAMPDEN, #200, DENVER, COLORADO 80231
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(Address Of Principal Executive Offices) (Zip Code)
ISSUER'S TELEPHONE NUMBER (720) 748-1407
Securities Registered under Section 12(b) of the Exchange Act: None
Securities Registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 Par Value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X ] Yes [ ] 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. [ ]
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The issuer's revenues for the year ended June 30, 2000, its most recent fiscal
year, were $ 17,513.
The aggregate market value of the voting stock held by non-affiliates computed
using $.17 per share, the closing price of the Common Stock on June 30, 2000,
was approximately $12,729,373.
As of June 30, 2000, 74,508,534 shares of the issuer's common stock were issued
and outstanding, and 5,000,000 warrants were issued and outstanding.
PART I
ITEM 1
DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
Stansbury Holdings Corporation ("Stansbury" or "the Company") is an
exploration stage mining company incorporated in the State of Utah on May 7,
1969, under the name Stansbury Mining Corporation. On June 10, 1985, the Company
was reorganized as part of an approved Plan of Reorganization under a Chapter 11
proceeding pursuant to the Federal Bankruptcy Act. At that time, the authorized
capital of the Company was also changed to 25,000,000 shares of common stock,
par value $.25 per share. The corporate name was changed to Stansbury Holdings
Corporation in March, 1990. At its annual shareholders meeting on April 30,
1999, the shareholders approved amendments to the Articles of Incorporation
which changed the authorized capital of the Company to 100,000,000 shares of
common stock, par value $0.001 per share, as well as amendments establishing a
classified board and providing for certain indemnities of liability for
directors.
In the fiscal year ended June 30, 1997, the Company decided to
reclassify Hamilton Vermiculite assets using, according to generally accepted
accounting principles, the "cost basis" of accounting for its assets that had
been previously reported on the basis of "fair market value." The Company made
this change to be effective as of June 30, 1996 so that the Company could
restate its asset value as of that date. As a result of this reclassification,
the assets of the Company previously stated as $36,811,743 as of June 30, 1996
under the former accounting practice, were reclassified and restated to be
$14,814,215 as of June 30, 1996. See the 10-KSB/A for the fiscal years ending
June 30, 1997 and 1998, for further discussion of the reclassification and
appraised value of the asset.
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In addition, the Company elected to write down, as of June 30, 1997,
certain accounts payable totaling $75,892 to 30 different vendors which had been
carried on the financial statements since 1991 for which the Company could
determine no documentary justification. Of that amount, 25% ($18,992) was
established as an accounts payable reserve and added back to accounts payable in
the event any of those creditors should make a valid claim. This reserve has
been written off in two equal installments in fiscal years 1998 and 1999. The
Company believes that some of the accounts payable eliminated by the procedure
were to defunct entities, and that other payables were paid, but were
erroneously continued to be reported as accounts payable. Due to prior changes
in management, accountants and physical file locations, these errors had gone
undetected. The age of the payables caused current management to question their
validity. The Company's due diligence procedures, corroborated by its
independent auditors, indicated that these payables should no longer be carried
on the Company's balance sheet. The Company believes that none of the entities
whose balances were so adjusted were affiliated with the Company, or any of its
present or past officers, directors, employees, consultants or affiliates.
The Company has 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 assets at cost rather than at appraised value, and the Company has no
intention to dispose of the assets.
On December 12, 1994, an election was held as a result of a proxy contest
by shareholders' committee. As a result of that election, management of the
Company was transferred to a new management group. The leadership of that
management group was changed by the Board of Directors on April 30, 1999, upon
the announced resignation of Edward C. Stanojev, Jr., as president. Mr. Aldine
J. Coffman, Jr., was elected president, chairman and Chief Executive Officer
effective May 15, 1999.
Other than the previously mentioned 1985 "Reorganization," the Company has
not been involved in any bankruptcy, receivership, or similar proceeding. In the
year ended June 2000 the Company completed the acquisition of the Dillon
Vermiculite Project in Madison and Beaverhead Counties, Montana, and the Los
Banos vermiculite exfoliating plant in Los Banos, California. The Company also
withdrew from its joint venture Nevada Vermiculite and became the sole operator
and profits entity in its vermiculite operations. On July 29, 2000, after the
end of the fiscal year, the Company closed on the acquisition of the Sweetwater
Garnet project in Madison and Beaverhead Counties, Montana.
BUSINESS OF ISSUER
The Company's business focuses upon the "boutique" industrial mineral
industry. "Boutique industrial minerals" are defined by the Company's management
as those industrial minerals with an annual worldwide production and consumption
of less than 2.5 million tons. This level of activity fails to attract major
industrial mining companies, and, partly as a consequence, enjoys very high
margins of profitability between the sales price of the product and the cost of
producing the product.
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With respect to vermiculite, the Company believes it will develop more
than a 60% share of the production worldwide, through its owned properties and
planned acquisitions in both the United States and abroad. Stansbury already
owns two of the three commercial deposits west of the Mississippi, and the only
one of these in production.
The development of downstream value added products built upon the core
of vermiculite and perlite, is already underway with the acquisition and
operation of the vermiculite exfoliating facility at Los Banos, California. With
this facility are two perlite expanding furnaces, and appropriate mixing
equipment for producing retail bedding plant and potting soils.
In the garnet market, Stansbury's initial entry (the acquisition of
Sweetwater Garnet, Inc., completed on July 29, 2000), is planned at 20% of the
world market, with a similar long term target of 60%. Perlite, a third candidate
product, is being assessed for the next suite of acquisitions.
About Vermiculite Generally
Vermiculite is a weathered mica-like biotite, which has the unusual
characteristic of expanding eight to thirty fold in volume (exfoliated), when
heated to about 1000 degrees centigrade. It occurs only as a surface
manifestation, to a depth generally less than 100 feet, and is friable to the
point of being similar to damp sand in extraction. No blasting or crushing is
required in extraction or processing.
Commercial deposits of vermiculite generally contain a grade of 25% to
50% contained vermiculite in the ore, and are concentrated, by either wet or dry
processes, to a grade of 90% contained vermiculite, sorted by size for market.
The Dillon mill uses a dry process for concentration, and currently produces
sizes for exfoliation at its Los Banos plant, for sale as a horticulture
product, and also produces products for sale to independent exfoliating plants
Horticulture and insulating coatings are the main use (70%) of the
product in the United States market. The United States consumes about 80% of
world production, while producing about 40% of world demand.
The average price for concentrated vermiculite, F.O.B. the producing
mine, is US$165 per ton. The exfoliated product sells to the horticulture market
at approximately US$1.60 per cubic foot, the equivalent of US$380-460 per ton.
The Stansbury mill at Dillon is expected to be producing concentrate at
an annualized rate of 30,000 tons per year, while the Los Banos exfoliating
plant is expected to produce 5000 tons per year of exfoliated product.
About Garnet Generally
Garnet, as an industrial mineral, is principally used as an abrasive
and water filtration medium. Worldwide production figures are confidential to
most producers, but government agency estimates vary around an average of
140,000 tons, with United States consumption of approximately 100,000 tons. As
an abrasive, garnet is used in sandblasting, as coatings on abrasive paper
("sandpaper"), and in water-jet cutting and polishing. In the United States,
garnet is now produced in New York, Idaho and Montana.
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Average prices for processed garnet (sized to specifications and over
99% pure) are between $150 per ton to $750 per ton, F.O.B., the processing
plant.
Recent Developments for Stansbury Holdings
Since June 30, 1999, Stansbury has:
(i) Completed the acquisition of the Dillon Vermiculite Mine and Mill,
near Dillon, Montana;
(ii) Acquired the Los Banos, California, vermiculite exfoliation plant;
(iii)Initiated the acquisition of the interest in International
Vermiculite not already held by Stansbury, and
(iv) Completed, after the current fiscal year, the acquisition of
Sweetwater Garnet, Inc.
EMPLOYEES
The Company has its corporate offices at 8801 East Hampden Avenue,
#200, Denver, Colorado 80231, and its operations centers near Dillon, Montana,
and Los Banos, California. During the fiscal year, an average of three full time
persons were employed at the corporate office. By the end of the fiscal year,
approximately ten people were employed in the Montana and California offices.
Senior Management in Montana consists presently of three persons, with a labor
force of seven.
At the annual shareholders meeting on April 30, 1999, the following
persons were elected directors of the company.
Class 1, consisting of Jeffrey L. Wertz and James R. Hindman, whose terms
will expire in 2000;
Class 2, consisting of Martin J. Peskin, whose term will expire in 2001;
Class 3, consisting of Aldine J. Coffman, Jr., and Edward C. Stanojev, Jr.,
whose terms will expire in 2002.
In January 2000, Mr. Daniel Yuengling and Mr. Dennis R. Staal were added to the
Board, with terms of office expiring in 2000 and 2001 respectively. In June
2000, Mr. Eldon W. Brickle was added to the Board with a term of office expiring
in 2001. In August 2000, Messrs: Peskin, Stanojev and Wertz resigned from the
Board, and Dr. Hindman resigned conditionally (see Item 9...)
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With the commencement of full scale operations in Montana at both the
vermiculite and garnet projects, employment at the operations centers is
expected to substantially increase.
SPECIAL NOTE ON FORWARD LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-KSB, under the captions
"Plan of Operations," "Description of Business," "Description of Property," and
elsewhere relate to future events and expectations, and as such constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. For this purpose, any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, the words
"believes," "assumes," "plans," "expects," "contemplates," and similar
expressions generally are intended to identify forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such risk
factors include, among other things, the following considerations:
Risk Factors
1. Going Concern Opinion: The independent auditors of the financial
statements of the Company for the year ending June 30,1999 and 2000,
included a "going concern" paragraph in their report, stating that
"the Company's recurring losses and negative working capital raise
substantial doubt about the Company's ability to continue as a going
concern..." See Auditor's Report accompanying June 30, 1999 and 2000,
financial statements and note 2 to such statement. There is no
assurance that the Company will be profitable or that it will be
successful in growing its business.
2. Unpatented Mining Claims: The Company's vermiculite mineral resources
are located upon unpatented mining claims located on the public
domain. Title to such minerals are subject to the paramount rights of
the United States, and are subject to compliance with State and
Federal laws respecting the locating, filing, claiming, and
maintenance of such claims, including the payment of an annual fee of
$100 per claim to the United States. Currently the Company owns and
maintains nearly 200 such claims, at an annual expense of nearly
$20,000. Failure to make such payments timely results in an immediate
forfeiture of such claims.
3. Litigation: The company had a number of lawsuits against it which have
been resolved on stipulated pay-out settlements. The sum of these
settled actions requires a pay-out of $380,000, without interest,
payable at approximately $38,000 per month for a period of ten months.
One other lawsuit has a judgment of record in the amount of
$100,000.00, plus accrued interest through August 30, 2000, of $1763.
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The Company also owes approximately $725,000 to a third party in
connection with the acquisition of the Dillon Vermiculite Project
("Elk Creek Acquisition"). The party to whom the funds are owed is
defunct; the company has procured the appointment of a receiver for
that creditor in a court action in Montana, and has paid funds to the
receiver on account of the debt. Currently, the Company owns an 11%
interest in the creditor and is preparing a petition to amend the
contract upon which the debt is founded, to reduce the debt by way of
a credit for certain assets not obtained, and to restructure the terms
of the reduced balance then owed.
Failure to meet all of these payment obligations could result in
further legal action and expense for the Company. Ultimately, the
Company or its assets could be liquidated.
4. Asbestos matters: W.R. Grace, which, prior to 1985, dominated the
vermiculite industry for nearly 50 years, produced most of its
vermiculite product from a mine in Libby, Montana. That mine has been
shown to have had a high asbestos content in both its ore and in its
shipped product, which has raised significant health risk issues with
respect to the mining, milling, and use of vermiculite. Stansbury
hired an independent mining engineering and consulting firm, Behre
Dolbear and Company, to conduct a health risk assessment with respect
to the asbestos issue at its Dillon, Montana mine and mill. The
assessment concluded that the health risk to residents of Dillon, from
the vermiculite operations, was the equivalent of smoking one
cigarette in a lifetime. The vermiculite at Dillon was not shown to
contain any asbestos, although certain asbestos forming minerals are
present in certain non-ore formations at depths on the Dillon site
which are not involved in the Dillon mining plan. While it seems
unlikely based on these studies, the finding of asbestos in
significant quantities could jeopardize the Company's potential
earnings and its ability to operate.
5. Loans from Shareholders: Stansbury's principal source of operating
funds has been from shareholder purchases of shares and convertible
debentures. The outstanding loans to shareholders from such programs
have been reduced primarily through debt conversion to common shares.
There is no assurance that the Company will be able to continue to
reduce its debt obligations by conversion.
6. Nevada Vermiculite Issue. Stansbury has recently negotiated the
dissolution of the International Vermiculite joint venture, by
acquiring 100% of International Vermiculite. It agreed to the
following terms: (1) a payment to Nevada Vermiculite of the sum of
$25,000 for its interest in International Vermiculite and 16 mining
claims at Mica Peak, (2) the repayment to Channel & Basin of the
$184,000 it had expended on the Dillon Project, (3) the creation of a
new schedule to repay the $130,000 note and interest, and (4)
obtaining an option to cancel the 5,000,000 warrants for the payment
of $500,000, of which $250,000 is to be paid upon cancellation, and
the balance in installments. There is no certainty that all of the
elements of this dissolution agreement will be completed or that the
required payments will be made or that the option will be exercised.
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7. Uncertainty of Profit. The operating margin of mining and milling
vermiculite is similar to bulk earth moving operations. Vermiculite is
produced by the weathering of biotite, a mica-like mineral. Such
weathering expands the biotite into vermiculite, an action which
cannot physically occur under the pressure of more than 100 feet of
overburden. Consequently, vermiculite is a surface occurring mineral
phenomena. Matured weather vermiculite is friable, and minable by bare
hands, so that no blasting is required. It is scooped out of the
ground, transported to a mill where it is separated from unweathered
biotite, and marketed as a 90% concentrate. The unweathered biotite is
then returned to the mine pit for contouring and reclamation. Total
product handling cost, assuming a 30% vermiculite ore grade in the
ground, is four tons to the mill, with three tons returned to the pit,
at a per ton cost of less than $1.00 each way, plus a milling cost of
less than $4.00 per ton throughput, or a total processing cost of
approximately $25.00 per ton. The concentrate sales price is between
$125 and $200 per ton, FOB Dillon.
The operating margin is subject to additional costs, such as
permitting, royalties, extraction taxes, air quality and asbestos
monitory, property taxes, insurance and an allocation of corporate
general and administrative taxes. Even though these costs are
comparatively low, profit cannot be assured, due to product price
risk, fuel and other cost escalations, competition, interruptions due
to weather and other natural phenomena.
8. Risks of Competition: The United States consumes approximately 75% of
the world's annual vermiculite production (estimated at 517,000 tons),
while producing, in the United States, only 200,000 tons. The
shortfall is principally made up from imports from South Africa and
China. The freight cost from South Africa and China provide a
significant margin to Stansbury in shipments to the Western United
States from Montana. For example, at a price in South Africa and at
Dillon, of $165.00 per ton FOB Mine, freight to California is $160 per
ton from South Africa, compared to $48 per ton from Montana, giving a
total cost advantage of $325 (South Africa) compared to $213
(Stansbury, Dillon). Competition in the form of other products to
substitute for vermiculite in horticultural uses comes from expanded
perlite ($225 per ton, FOB plant) and certain plastics. However,
vermiculite is the superior product, and price alone is not the sole
consideration in its choice. The only commercial deposit in the United
States not owned by Stansbury, or otherwise in operation (Virginia and
South Carolina) is the Mica Peak resource in southern Nevada. Should
the maximum amount be raised in this offering, the last $1,000,000
raised is earmarked for that acquisition. There is no assurance that
sufficient funds will be raised to complete these plans.
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9. Risk of Government Regulation: Permitting of mining operations on the
public domain faces growing resistance from environmental groups, and
in Montana, from an especially active and well-funded anti-mining
environmental lobby. Stansbury's operation at Dillon is being
conducted under a small miner's exclusion permit, which is fully
vested. However, there is no assurance that environmental groups will
not sue to enjoin mining operations which they oppose, or sue to
negate permits which they oppose. Stansbury has been able to continue
to obtain variances from closing orders issued this summer with
respect to closing operations on the public domain because of the fire
hazard in Western Montana. Should this situation change, the closing
of the Dillon operation would be seasonal only, and the fire hazard is
extinguished with the coming of winter snowfalls. The Dillon mine and
mill can operate year around. Any current suspension due to fire
hazard would be temporary. Expansion of operations beyond a
disturbance of five acres would require additional permitting, as to
which an Operating Permit was approved following an Environmental
Assessment completed in March, 1999. Public efforts to re-open that
permit for health risk assessment have been noted, but would be
legally contested by the Company. Any legal contest would require the
Company to expend legal fees in its defense.
ITEM 2
DESCRIPTION OF PROPERTIES
1. The Dillon Vermiculite Mine and Mill consist of approximately 100
unpatented lode mining claims located in Madison and Beaverhead Counties,
Montana, containing over two square miles of resources, and a vermiculite
concentration mill located upon several of the claims in Madison County,
Montana. The mine and mill are permitted for operation, and both mining and
milling are currently in process. The vermiculite concentrate at the
present is being shipped to the Company's Los Banos Exfoliating Plant and
to an independent buyer of concentrate. Production at the Dillon Mill is
expected to reach an annual rate of 30,000 tons of concentrate by late
fall, 2000.
2. The Hamilton Vermiculite comprises 96 unpatented mining and mill site
claims, of 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 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. Two drilled out ore bodies,
of modest commercial potential, have been defined on the claim group. An
extensive Environmental Impact Statement ("EIS) has been completed, and
several permits allowing operation are approved, although the permit
recommended by the EIS has not been bonded.
3. The Los Banos Exfoliation Plant, located in the San Joaquin valley of
central California, consists of two rotary furnaces for the exfoliation of
vermiculite. The Plant is capable of processing 5000 tons of product per
year. All exfoliate product processed by the plant has been sold to
customers in the San Joaquin Valley.
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4. In May, 1999, Stansbury became a 50% member of International Vermiculite
LLC, the other 50% member of which is Nevada Vermiculite Limited LLC.
Recently, Stansbury entered into negotiations to acquire a 100% position in
International Vermiculite. International Vermiculite is the operational
entity for the various vermiculite projects owned and planned by Stansbury
(see Risk Factors in Part I, Item I, above, for further details).
5. The Sweetwater Garnet Mine and Mill consists of 1860 acre lease in Madison
County, Montana, upon which a garnet concentrating mine and mill are
located, and a finishing mill located on four acres of fee land in
Beaverhead County, Montana, about six miles south of the town of Dillon,
Montana, adjacent to Interstate15 and a rail siding. The acquisition was
completed on July 28, 2000.
The garnet facilities have a fully permitted capacity of at least 12,000
tons per year of finished garnet, which in the past has been sold to the
abrasives and water treatment industries. With modest expenditures, the
mine and two mills can be increased to 20,000 tons per year output, which
represents 20% of current United States demand. The Plant building can
house further capacity increase up to 50,000 tons per year. Industrial
grade garnet, used in the abrasives industry, and in water-jet cutting and
water treatment facilities, sells generally for $180 to $225 per ton,
depending on size. The facilities of Sweetwater Garnet, Inc., produce the
full suite of sizes used in the industry. The known ore body covers an
extensive area from the surface to an average depth of nine feet, with an
estimated resource able to supply 16 years of ore to the mills at a
production rate of 20,000 tons of finished garnet per year.
INVESTMENT POLICIES
The Company has no investments.
GOVERNMENTAL REGULATIONS & ENVIRONMENTAL MATTERS
Mineral exploration and production is subject to environmental regulations by
federal, state and county authorities. In most states, mineral exploration and
production is regulated by conservation laws and other statutes and regulations
relating to exploration procedures, reclamation, safety of mine operations,
employee health and safety, use of explosives, air and water quality standards,
noxious odors, noise, dust and other environmental protection
controls. See Item 1, "DESCRIPTION OF THE BUSINESS -- Governmental Regulation."
ITEM 3
LEGAL PROCEEDINGS
Pending actions against the Company include the following:
(1) An action against the Company 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. The matter has been
settled for $60,000, to be paid on a scheduled pay-out.
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(2) The Montana Department of Environmental Quality issued two Notices of
Noncompliance regarding disturbances at the Dillon Vermiculite Property and the
Hamilton Property with Civil penalties totaling $42,950. With respect to Dillon
Project, the Company is currently negotiating with the Department of
Environmental Quality to pay $20,000 and to complete $20,000 in reclamation work
on various abandoned mine sites around the State. With respect to the Hamilton
Project, the proposed penalty is $500.
(3) A Notice of default on the note with Nevada Vermiculite ,L.L.C. that the
Company has failed to make a $130,000 payment plus interest due October 28,1999.
Management is diligently pursuing financing to cure the default. No action as
been filed by the claiming party.
(4) A Notice of default on a contract between the Company and Bill and Helen
Hand Estate, Roger Pierce Trust and KPS Mining Company for failure to pay
$24,000 plus interest and $100,000 plus interest and $577.73 in expenses. The
Company is pursuing financing to cure the default. No action has been filed by
the claiming party.
(5) An action brought by Southampton Metals Ltd. for non-payment of two
promissory notes resulted in a judgment against the company in the amount of
$401,000. A settlement agreement resulted in payments and other credits leaving
a principal balance of $100,000 plus interest from June 20, 2000, and attorney's
fee, owing to Southampton. Management is seeking financing to cover this
obligation.
(5) An agreement between the Company and four other co-plaintiffs against
Resource Vermiculite, L.L.C.. The court has ordered that the Company be
substituted as plaintiff in place of all other plaintiffs as a result of that
agreement. The Company is currently in the process of seeking settlements with
the defendant.
(6) 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, 2000 a proposed settlement of $90,000 was
negotiated with agreement received subsequent to fiscal year end.
(7) A judgment obtained by Martineau & Co. in Salt Lake City, Utah, for $12,587,
(8) A judgment obtained by Bruce Blessington, in Salt Lake County, Utah, for
$14,674. These judgments remain due and payable by the Company as of June 30,
2000.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters have been submitted to the security holders for a vote
during the current fiscal year ending June 30, 2000.
PART II
ITEM 5
MARKET FOR COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is quoted on the Nasdaq Electronic Bulletin
Board under the symbol "STBY". The following table sets forth the "high" and
"low" price of the Company's Common Stock for the periods indicated in
1997,1998, 1999, and 2000.
Price Range (U.S.$)
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High Low
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1997
First Quarter .11 .14
Second Quarter .10 .105
Third Quarter .065 .09
Fourth Quarter .07 .22
1998
First Quarter .15 .07
Second Quarter .39 .05
Third Quarter .15 .07
Fourth Quarter .39 .05
1999
First Quarter .55 .25
Second Quarter .42 .23
Third Quarter .47 .16
Fourth Quarter .26 .10
2000
January .42 .16
February .37 .20
March .41 .22
April .40 .20
May .40 .26
June .38 .25
July .30 .20
August .25 .17
September .30 .15
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.
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On September 30, 2000, the last reported sale price of the Common Stock was
$0.17 per share. As of September 30, 2000, there were 3,849 holders of record of
the Common Stock, with 93,429,401 shares issued and outstanding (reflecting the
shares issued for the acquisition of Sweetwater Garnet, Inc.)
The Company has not paid any dividends on its Common Stock. The Company
intends to retain any earnings for use in its operations and to finance the
development and the expansion of its business, and does not anticipate paying
any dividends on the Common Stock in the foreseeable future. The payment of
dividends is within the discretion of the Company's Board of Directors. Any
future decision with respect to dividends will depend on future earnings, future
capital needs and the Company's operating and financial condition, among other
factors.
See "Plan of Operations."
ITEM 6
PLAN OF OPERATIONS
GENERAL
The Company is currently directing its efforts to:
(1) conduct mining and milling operations on the Dillon Vermiculite Project,
and on its Garnet project;
(2) initiate a re-assessment of its resources at its Hamilton Vermiculite
property, and through International Vermiculite, commence a high grade
mining operation with limited milling, utilizing if possible the Dillon
Project Mill for final grade concentration.
(3) continue the acquisition of other vermiculite deposits and related
businesses that will provide a significant market presence in the
vermiculite industry. Situations that are currently being investigated
include the acquisition of an active mine and mill in Brazil and the
expansion of its exfoliating plant in California. It is the intent of the
Company to engage in the exfoliation of vermiculite concentrates and the
preparation and marketing of vermiculite products.
(4) investigating non-vermiculite natural resource investment opportunities
with the goal of establishing a cash flow to support the general and
administrative overhead of the Company. Among these investigations are oil
and gas programs in Texas, and electric power projects abroad.
13
<PAGE>
CURRENT VERMICULITE MARKET AND COMPETITION
All of the vermiculite that is now being mined in the United States
comes from mines in Virginia and South Carolina. W.R. Grace & Company has a
large vermiculite operation near Enoree, South Carolina, which is capable of
producing approximately 100,000 short tons of vermiculite concentrate per year.
Virginia Vermiculite Ltd. produces vermiculite from a mine near Woodruff, South
Carolina, and from a mine near Louisa, Virginia. The Company believes that the
combined output of Virginia Vermiculite Ltd. is approximately 90,000 tons per
year. Both Grace and Virginia Vermiculite consider their reserve and production
data to be confidential so the Company's estimates of their production are
approximations.
There is one other small mining operation in South Carolina. This
operation was for many years known as Patterson Vermiculite and was recently
sold to Palmetto Vermiculite. This operation has historically produced
vermiculite at the rate of 15,000 tons per year. The sum total of all three
companies is an estimated maximum production capacity of 205,000 short tons per
year.
The Company believes that vermiculite produced from its joint venture
at the Dillon property will be competitive with South Carolina and Virginia
sources throughout the western United States and Canada. There is no other
vermiculite mine currently active in the western United States.
At one time, Grace also operated a mine and mill near Libby, Montana.
The Libby operation was the largest vermiculite mine and mill in the history of
commercial vermiculite and had annual production exceeding 225,000 tons of
concentrate. The Libby operation was terminated and the land reclaimed over 10
years ago.
Currently, substantially all of the vermiculite imported into the
United States and Canada comes from either the Peoples Republic of China or the
Republic of South Africa. The amount of vermiculite arriving at ports in
California and Washington is quite small and relatively high priced. Although
the possibility of larger and lower cost shipments of imported vermiculite
landing on the Pacific Coast is possible, the Company believes that the
information available at this time is insufficient to allow it to reasonably
predict its potential impact on the marketability of Dillon vermiculite.
ACQUISITIONS
The Company acquired the Los Banos Vermiculite Exfoliating Plant on May
15, 2000. The plant produced, and sold production, from its date of acquisition
through June 30, 2000, in the amount of $17,513, all of which was subsequently
paid as invoiced.
Following the close of the Fiscal Year ending June 30, 2000, the
Company acquired on July 29, 2000, Sweetwater Garnet, Inc., and its Sweetwater
garnet mine and mills.
14
<PAGE>
EXPLORATION STAGE ACTIVITIES
Nevada Vermiculite LLC has located 16 unpatented mining claims in
Nevada, and has conducted exploratory drilling on the project. These claims are
scheduled to be acquired exclusively by the Company as part of the dissolution
of the International Vermiculite Joint Venture.
The Company also contemplates a re-evaluation of its ore reserve
position in Hamilton, and contemplates a drilling or other exploration program
outside the currently established ore deposits.
LIQUIDITY AND FINANCE
The Company has been inactive and non-operating for years;
consequently, it is questionable as to whether or not it can remain a going
concern. The primary activity in the past few years has been to preserve and
maintain mineral leases and claims. No actual mining has occurred since the
Company acquired such properties in 1984, until the company concluded the
acquisition of the Dillon Project and commenced its operation late in the Fiscal
Year ending June 30, 2000. The Company has had no income since 1991, until the
forth quarter the Fiscal Year ending June 30, 2000, and has utilized proceeds of
loans from shareholders and the issuance of capital stock for meeting its
operating capital commitments.
YEAR 2000 COMPLIANCE
The Company experienced no Y2K compliance problems
ITEM 7
FINANCIAL STATEMENTS
The financial statements are included herein beginning at page F-1.
15
<PAGE>
PART III
ITEM 8
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 date of service
with the Company are set forth next to their respective names:
Aldine J. Coffman, Jr., age 60, currently Chairman, President, and Chief
Executive Officer, since May 15, 1999, has served as Executive Vice President
and Chief Administrative Officer and as a Director of the Company since October,
1998. He served as the Chief Financial Officer of International Methane
Corporation, LTD., a Belize company, specializing in energy, with offices in
Denver, Colorado, from September 1993 to June 1995, and as such company's Chief
Executive Officer from June 1995 to March 1997. Mr. Coffman also served as a
Director of such company from September 1993 to the present. Mr. Coffman has
owned his own management services company, Far Country Management Services,
Inc., since 1992, for which he serves as Chief Executive Officer.
James R. Hindman, Ph.D., age 53, has served as a Director since June 1997.
He was Vice President, in charge of operations of the Company, from June 1997 to
October1999. Since 1995, Dr. Hindman has had his own consulting firm,
Vermiculite Technologies, out of Dillon, Montana. From 1978 to 1985 Dr. Hindman
was employed as the Senior Metallurgist by W.R. Grace & Company, at their Libby,
Montana vermiculite operation. Dr. Hindman received a Bachelor of Science degree
in Geological Sciences from the University of Southern California, and a Ph.D.
in Geological Sciences from the University of Utah. Dr. Hindman indicated in a
letter recently of his intent to resign from the Board, and from all positions
with the Company, effective September 15, 2000.
Dennis R. Staal, age 51, has served as Director and Chief Financial Officer
since January 31, 2000. He is an experienced public company Chief Financial
Officer, whose most recent stint in that role was as founder and CFO of Meteor
Industries, Inc., a NASDAQ traded petroleum products distribution company.
Meteor is currently averaging nearly $800,000 a day in sales, an annualized rate
of $250 million. Mr. Staal is currently a director and consultant to Meteor, in
charge of acquisitions. Prior to starting Meteor, Mr. Staal was the lead
financial arranger for a series of public companies, going back to the late
1970's, most of which were natural resource companies. On behalf of these
companies, he arranged IPO's, secondary PO's and numerous financings in the one
to five million dollar range, as well as prepared all relevant SEC filings, such
as 10-K's, 10-Q's, and Form 10. Mr. Staal is a 1970 graduate of the University
of Nebraska with Bachelor of Science Degree in Business Administration, and
received his CPA certificate in 1972. Mr. Staal is a Director and Officer of
Capco Energy, Inc. and Meteor Industries, Inc. which are publicly traded
companies.
Eldon W. Brickle, age 62, has served as Director and Chief Operating
Officer since July 25, 2000.
Daniel Yuengling age 44, has served as Director since January 31, 2000.
16
<PAGE>
ITEM 9
EXECUTIVE COMPENSATION
NAME COMPENSATION
Aldine J. Coffman, Jr. As a director and officer from July 1, 1999,
through June 30, 2000, a salary of $15,000
per month, including director's services.
Dennis R. Staal As a director and officer from
January 31, 2000, through June 30, 2000, at
a consulting fee of $50 per hour, which
totaled $2,500 through June 30, 2000.
Eldon W. Brickle As an Officer from June 1999, through June
30, 2000, paid as a consultant, a fee of
$30,834.
* James R. Hindman, Ph.D A sign-on bonus of 500,000 shares of
common stock, and a monthly compensation
thereafter as an independent contractor,
for services as an officer and director,
of $3,000 per month through March 31, 1999;
thereafter, as an employee, at $6000 per
month to October 31, 2000, which includes
compensation as director. Thereafter, as
a director only, $1,000 per month
* Martin J. Peskin, DDS As a director, $1,000 per month since
June 30, 1999. Dr. Peskin received
372,000 common shares of the Company for
services as director and officer for the
period prior to July 1, 1999.
* Edward C. Stanojev, Jr. As a director, $1,000 per month since June
30, 1999.
* Jeff Wertz As a director and officer from July 1, 1999,
through December 31, 1999, a salary of
$6,000 per month, including director's
services. Thereafter, consulting fees,
including director's compensation, of
$2,000 per month through June 30, 2000.
* Note: Messrs: Hindman, Peskin, Stanojev and Wertz each resigned at a board
meeting on August 18, 2000, to facilitate their exemption from certain
restrictions on the future sales of their stock that was being proposed by Merit
Capital Associates, Inc., of Westport, Connecticut in connection with a
$2,500,000 private placement offer. Their compensation for July and August,
2000, is a total of $2,000 each. Dr. Hindman's resignation was given as
conditional upon certain subsequent events which have not yet occurred.
Directors and officers are entitled to receive reimbursement of their
reasonable and necessary out-of-pocket expenses, as documented and submitted.
EXECUTIVE REMUNERATION
The following table provides information with respect to the
compensation paid to the above named directors and executive officers. There was
no executive officer whose salary was in excess of $100,000 for any period in
fiscal 2000, other than Mr. Coffman whose gross pay was $180,000.
17
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
(A) (B) (C) (D) (E) (F)
Name And Fiscal Year Salary($) Bonus($) Other Restricted
Principal Ended June 30 Annual Stock
Position Compen Award(s) ($)
sation ($)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aldine J 2000 $180,000 $ 30,000
Coffman,Jr. 1999 $ 77,500
President, CEO
-----------------------------------------------------------------------------------------------
Edward C. Stanojev,Jr 2000 $ 7,500(1) $ 12,000(2) $ 125,000
President 1999 $ 12,000(2)
(Resigned 1999)
-----------------------------------------------------------------------------------------------
Jeff Wertz 2000 $ 54,000 $ 3,000(2) $ 241,228
Secretary, 1999 $ 60,000 $ 12,000(2) $ 50,000
Treasurer and
Chief Financial Officer
-----------------------------------------------------------------------------------------------
James R. 2000 $ 24,000 $ 18,000 $ 8,000(2) $ 218,750
Hindman, 1999 $ 30,000 $ 12,000(2)
Vice President
-----------------------------------------------------------------------------------------------
Martin J. Peskin 2000 $ 12,000(2) $ 12,000
Outside Director 1999
-----------------------------------------------------------------------------------------------
Daniel Yuengling 2000 (3)
Outside Director 1999 $0
-----------------------------------------------------------------------------------------------
Dennis R. Staal 2000 $ 2,500 $ 30,000
Chief Financial Officer 1999 $0 $0
and Director
-----------------------------------------------------------------------------------------------
Raymond G. Becker (4)
Outside Director
-----------------------------------------------------------------------------------------------
Eldon W. Brickle 2000 $ 30,834 $0
Chief Operating 1999 $0 $0
Officer and Director
-----------------------------------------------------------------------------------------------
<FN>
(1) This amount reflects the salary earned but not paid to Mr. Stanojev; such
salary is due and owing to Mr. Stanojev.
(2) Each Director receives Director's Fees of $1,000 per month;however, the
Directors fees have not been paid to the Directors and such Directors fees are
due and owing each Director.
(3) Mr. Yuengling is serving as a non-compensated Director.
(4) Mr. Becker resigned upon appointment due to health reasons.
</FN>
</TABLE>
18
<PAGE>
ITEM 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the shares of the Company's Common Stock
beneficially owned at June 30,2000 by (I) each person known to management of the
Company to be the beneficial owner of more than 5% of the outstanding shares of
the Company's Common Stock, (ii) each Director of the Company, (iii) each
executive officer of the Company named under "Executive Remuneration," and (iv)
all executive officers and Directors of the Company as a group.
<TABLE>
<CAPTION>
Name Position with Company Shares Beneficially Owned(1)
--------------------------------------------------------------------------------------------------------
Executive Officers and Number(2) Percent(2)
Directors:(8)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aldine J Coffman,Jr. President, CEO
Current (3);(4) 62,500 *
Potential (3);(4) 687,500 *
Edward C. Stanojev,Jr., President and Director 240,000 *
(Resigned 1999)
Jeff Wertz Secretary Treasurer and Chief 1,164,910 1.6%
Financial Officer
James R. Hindman Vice President
Current (3);(4) 875,000 1.2%
Potential (3);(4) 1,500,000 1.9%
Martin J. Peskin Outside Director 1,812,769 2.4%
Daniel Yuengling Outside Director 1,090,402 1.4%
Dennis R. Staal Chief Financial Officer 120,000 *
and Director
Eldon W. Brickle Chief Operating Officer 0 *
and Director
All Directors and executive
officers as a group( 8 persons)
Current (3);(4) 5,365,581 7.2%
Potential (3);(4) 6,615,581 8.3%
Beneficial Owners of
More than 5%
Nevada Vermiculite(3) 5,000,000 6.3%
* Less than 1%
<FN>
(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"), share that are not outstnading, 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) As 12.5% owners of Nevada Vermiculite, Messrs. Hindman and Coffman each may
receive 12.5% of the 5,000,000 warrants issued to Nevada Vermiculite.
(4) Current outstanding at June 30,2000 is 74,508,537: Potential outstanding
with exercise of all Nevada Vermiculite 5,000,000 warrants is 79,508,534.
(5) Unless otherwise indicated, the address for each Director is c/o Stansbury
Holdings Corporation, 8801 East Hampden Avenue, #200, Denver, Colorado
80231.
</FN>
</TABLE>
19
<PAGE>
ITEM 11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 25, 1998, the Company entered into an Accord and Satisfaction
with Merwin U. Steward as Liquidator of Southern American Insurance Company and
Commercial Surety and Insurance Corporation ("Liquidator"). At that time the two
companies in liquidation held interest in a first mortgage on the properties of
the Hamilton Vermiculite Project (fee lands and mining claims), with an amount
due in excess of $2,056,474 principal and interest inclusive.
Under the terms of the Accord and Satisfaction, the Company was to pay the
sum of $130,000 to the Liquidator, in consideration of the Liquidator releasing
all claims against the Company, including security interests in properties of
the Company.
In October, 1998, the Company raised the required $130,000 through a
convertible debenture issued to Nevada Vermiculite L.L.C., which debenture,
among other provisions, allowed Nevada Vermiculite to substitute of record for
the Liquidator with respect to certain security interests, as collateral for
the$130,000. The debenture also offered Nevada Vermiculite the additional
inducements of 500,000 common shares, and a warrant for an additional 5 million
shares exercisable at the then par of $0.25 per share.
The $130,000 was paid into an escrow pending closing on the Accord and
Satisfaction in October, 1998, and funds were distributed to the Liquidator in
Closing on the Accord and Satisfaction in December, 1998, upon the Liquidator's
providing the Closing Agent all requisite documentation described in the Accord
and Satisfaction.
As a result of the closing on the Accord and Satisfaction, the Company was
able to discharge debts of $2,056,474, principal and interest inclusive, for the
payment of $130,000. This discharged amount of $2,056,474 is included in the
gain on forgiveness of debt on the 1999 financial statements on The Statement of
Operations, and the $130,000 is included as a long-term note payable on the 1999
and 2000 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 each have
12.5% interest in Nevada Vermiculite L.L.C.
20
<PAGE>
The Company and Nevada Vermiculite L.L.C. entered into a joint venture,
the purpose of which was to develop the Company's asset at Dillon and eventually
Hamilton, as well as to locate and develop other profitable vermiculite-related
projects. This joint venture is International Vermiculite Limited L.L.C., a
Delaware limited liability company, of which the Company and Nevada Vermiculite
are each 50% participants.
Stansbury has recently negotiated the dissolution of the International
Vermiculite joint venture, by acquiring 100% of International Vermiculite. It
agreed to the following terms: (1) a payment to Nevada Vermiculite of the sum of
$25,000 for its interest in International Vermiculite and 16 mining claims at
Mica Peak, (2) the repayment to Channel & Basin of the $184,000 it had expended
on the Dillon Project, (3) the creation of a new schedule to repay the $130,000
note and interest, and (4) obtaining an option to cancel the 5,000,000 warrants
for the payment of $500,000, of which $250,000 is to be paid upon cancellation,
and the balance in installments. Closing on this transaction is contemplated in
September, 2000, utilizing proceeds from a proposed $2.5 million private
placement offered by Merit Capital Associates, Inc.
ITEM 12
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
23.1 Consent of Certified Public Accountants
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K FILED DURING THE THREE MONTHS ENDED JUNE 30, 2000
There were no reports on Form 8-K filed during the twelve months ended
June 30, 2000.
21
<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: October 30, 2000 STANSBURY HOLDINGS CORPORATION
BY: /S/ ALDINE J. COFFMAN, JR.
------------------------------
Aldine J. Coffman, Jr.
Chief Executive Officer And President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
------------------------------------------------------------------------------------------------
<S> <C> <C>
/S/Aldine J. Coffman, Jr. President And Chief Executive Officer October 30, 2000
--------------------------
Aldine J. Coffman, Jr. (principal executive officer) and Director
/S/Dennis R. Staal Vice President, Chief Financial Officer October 30, 2000
--------------------------
Dennis R. Staal (principal financial officer) and Director
/S/ Eldon W. Brickle Vice President, Chief Operating Officer October 30, 2000
--------------------------
Eldon W. Brickle Director
/S/Daniel Yuengling. Director October 30, 2000
--------------------------
Daniel Yuengling.
</TABLE>
<PAGE>
HAUGEN, SPRINGER & CO., P.C.
Certified Public Accountants
--------------------------------------------------------------------------------
9250 East Costilla Avenue - Suite 150 - Englewood, CO 80112
(303) 799-6969 - FAX (303) 799-6974
www.hsco.com - [email protected]
Robert S. Haugen, C.P.A.
Charles K, Springer, C.P.A.
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Stockholders and Board of Directors
Stansbury Holdings Corporation and Subsidiaries
We have audited the consolidated balance sheets of Stansbury Holdings
Corporation and Subsidiaries as of June 30, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. 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 audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Stansbury Holdings
Corporation and Subsidiaries as of June 30, 2000 and 1999, and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
(Continued)
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS, CONTINUED
--------------------------------------------
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has negative working capital that raises substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
HAUGEN, SPRINGER & CO., P.C.
October 30, 2000
Denver, Colorado
F-2
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBISIDARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999
Assets 2000 1999
------ ---- ----
Current Assets:
Inventory $ 18,960 $ 0
Prepaid expenses 11,640 9,645
Due from related party 0 20,298
Other 9,916 4,130
------------ ------------
Total Current Assets 40,516 34,073
------------ ------------
Property and Equipment, at cost:
Undeveloped mineral claims and
projects, using full-cost method 19,349,198 19,059,456
Los Banos exfoliation plant 569,102 0
Buildings 100,000 100,000
Other property and equipment 6,219 1,800
------------ ------------
20,024,519 19,161,256
Less: accumulated depreciation (35,233) (25,767)
------------ ------------
Net Property and Equipment 19,989,286 19,135,489
------------ ------------
Other Assets:
Reclamation bonds 45,100 0
Investment in Resource Vermiculite LLC 126,088 0
Deposits 0 20,000
------------ ------------
Total Other Assets 171,188 20,000
------------ ------------
Total Assets $ 20,200,990 $ 19,189,562
============ ============
(Continued)
See Accompanying Notes to Consolidated Financial Statements
F-3
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBISIDARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
JUNE 30, 2000 AND 1999
Liabilities and Stockholders' Equity 2000 1999
------------------------------------ ---- ----
Current Liabilities:
Bank overdrafts $ 52,227 $ 7,648
Elk Creek acquisition obligations 1,072,500 1,422,500
Los Banos acquisition obligation 350,000 0
Current installments of long-term debt 820,718 1,607,739
Convertible notes payable to officers
and shareholders 195,750 460,500
Convertible note payable to related party 130,000 130,000
Accrued interest 694,717 948,507
Trade accounts payable 587,916 478,251
------------ ------------
Total Current Liabilities 3,903,828 5,055,145
Long-Term Debt 0 0
------------ ------------
Total Liabilities 3,903,828 5,055,145
------------ ------------
Commitments and Contingencies
(Notes 2 and 16)
Stockholders' Equity:
Common stock, par value $0.001,
authorized 100,000,000, issued
and outstanding 74,508,534 and
43,828,773 at June 30, 2000 and
1999, respectively 74,509 43,829
Paid-in capital 26,716,353 19,077,092
Deferred interest (88,691) (337,731)
Accumulated deficit (10,405,009) (4,648,773)
------------ ------------
Total Stockholders' Equity 16,297,162 14,134,417
------------ ------------
Total Liabilities and Stockholders' Equity $ 20,200,990 $ 19,189,562
============ ============
See Accompanying Notes to Consolidated Financial Statements
F-4
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBISIDARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
2000 1999
---- ----
Sales $ 17,513 $ 0
Cost of sales (4,879) (0)
------------ ------------
Gross profit 12,634 0
------------ ------------
Expenses:
Operating 235,656 13,351
Property abandonment 230,233 0
General and administrative 2,215,352 1,339,610
Interest, conversion premiums,
and equity inducements 3,087,629 1,655,254
------------ ------------
Total Expenses 5,768,870 3,008,215
------------ ------------
Loss from operations (5,756,236) (3,008,215)
Other income 0 26,546
------------ ------------
Loss before extraordinary item (5,756,236) (2,981,669)
Extraordinary gain from debt restructuring 0 2,056,474
------------ ------------
Net Loss $ (5,756,236) $ (925,195)
============ ============
Basic and diluted earnings per share:
Loss from continuing operations $ (0.10) $ (0.12)
Extraordinary gain 0.00 0.08
------------ ------------
Net Loss $ (0.10) $ (0.04)
============ ============
Basic and diluted weighted average
shares outstanding 57,875,660 25,729,832
============ ============
See Accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
<TABLE>
<CAPTION>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
Common
Number Of Common Stock Paid-In Deferred
Shares Stock To Issue Capital Interest
------------ ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balances 06/30/98 24,039,290 $ 6,009,823 $ 50,000 $ 7,535,330 $ (586,771)
Change in par value 0 (5,985,783) 0 5,985,783 0
Issued for debt 4,168,649 4,169 (50,000) 1,148,993 0
Issued for interest on debt 1,532,502 1,532 0 383,991 0
Issued for debt inducement 3,985,312 3,985 0 992,343 0
Issued for Elk Creek acquisition 7,850,000 7,850 0 2,469,650 0
Issued for loan proceeds 500,000 500 0 124,500 0
Issued for compensation 1,540,000 1,540 0 383,460 0
Issued for trade accounts payable 213,020 213 0 53,042 0
Amortization of deferred interest 0 0 0 0 249,040
Net loss 0 0 0 0 0
Balances 06/30/99 43,828,773 43,829 0 19,077,092 (337,731)
Issued for debt 10,137,884 10,138 0 2,524,333 0
Issued for interest on debt 2,759,841 2,760 0 687,200 0
Issued for debt inducement 9,378,334 9,378 0 2,335,206 0
Issued for Los Banos acquisition 525,000 525 0 130,725 0
Issued for investment in
Resource Vermiculite LLC 504,351 504 0 125,584 0
Issued for other costs of
undeveloped mineral properties 100,000 100 0 24,900 0
Issued for compensation 1,523,573 1,524 0 379,369 0
Issued for trade accounts payable 1,434,969 1,435 0 357,307 0
Issued for other general and
administrative expenses 4,290,397 4,290 0 1,068,309 0
Other stock issuances 25,412 26 0 6,328 0
Amortization of deferred interest 0 0 0 0 249,040
Net loss 0 0 0 0 0
Balances 06/30/00 74,508,534 $ 74,509 $ 0 $ 26,716,353 $ (88,691)
============ ============ ========== ============ =============
Total
Accumulated Stockholders'
Deficit Equity
------------- -------------
Balances 06/30/98 $ (3,723,578) $ 9,284,804
Change in par value 0 0
Issued for debt 0 1,103,162
Issued for interest on debt 0 385,523
Issued for debt inducement 0 996,328
Issued for Elk Creek acquisition 0 2,477,500
Issued for loan proceeds 0 125,000
Issued for compensation 0 385,000
Issued for trade accounts payable 0 53,255
Amortization of deferred interest 0 249,040
Net loss (925,195) (925,195)
------------- -------------
Balances 06/30/99 (4,648,773) 14,134,417
Issued for debt 0 2,534,471
Issued for interest on debt 0 689,960
Issued for debt inducement 0 2,344,584
Issued for Los Banos acquisition 0 131,250
Issued for investment in
Resource Vermiculite LLC 0 126,088
Issued for other costs of
undeveloped mineral properties 0 25,000
Issued for compensation 0 380,893
Issued for trade accounts payable 0 358,742
Issued for other general and
administrative expenses 0 1,072,599
Other stock issuances 0 6,354
Amortization of deferred interest 0 249,040
Net loss (5,756,236) (5,756,236)
------------- -------------
Balances 06/30/00 $(10,405,009) $ 16,297,162
============= =============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-6
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBISIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
2000 1999
---- ----
Net cash (used in) operating activities
(Note 17) $ (551,807) $ (708,051)
----------- -----------
Cash flows from investing activities:
Investments in undeveloped mineral
claims and projects (494,975) (96,996)
Investment in Los Banos exfoliation plant (87,852) 0
Purchases of other property and equipment (4,419) (1,800)
----------- -----------
Net cash (used in) investing activities (587,246) (98,796)
----------- -----------
Cash flows from financing activities:
Payments on Elk Creek acquisition
obligations (137,500) (140,000)
Proceeds from convertible notes payable
to officers and shareholders 1,250,700 933,162
Repayments of convertible notes payable
to officers and shareholders (5,000) (57,000)
Proceeds from convertible notes payable
to related party 0 130,000
Proceeds from long-term debt 0 5,000
Repayments of long-term debt (17,000) (66,000)
Other 47,853 0
----------- -----------
Net cash provided by financing activities 1,139,053 805,162
----------- -----------
Net decrease in cash 0 (1,685)
Cash at beginning of year 0 1,685
----------- -----------
Cash at end of year $ 0 $ 0
=========== ===========
Supplemental disclosure of cash information:
Cash paid for interest $ 31,148 $ 24,364
=========== ===========
Cash paid for taxes $ 2,181 $ 7,701
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
F-7
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stansbury Holdings Corporation ("Stansbury") was incorporated in 1969 under the
name Stansbury Mining Corporation. In 1990, Stansbury changed its name to
Stansbury Holdings Corporation. During June 1999, Stansbury acquired Elk Creek
Vermiculite, Inc. ("Elk Creek"), and its wholly owned subsidiary, Dillon
Vermiculite, LLC ("Dillon"). Stansbury has also formed and wholly owns
International Vermiculite (Montana), Inc. ("IVM"), International Vermiculite
(California), Inc. ("IVC"), and Stansbury Petroleum Corporation ("Petroleum").
Collectively, these entities are referred to as the "Company". The Company's
business is the acquisition, exploration, and development of vermiculite mineral
sites.
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------
Basis of Presentation
---------------------
The consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. These statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All intercompany balances
and transactions are eliminated in consolidation.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Inventory
---------
Inventory is stated at the lower of cost or market.
Undeveloped Mineral Claims and Projects
---------------------------------------
The Company follows the full-cost method of accounting for its mineral
claims and projects. Accordingly, all costs associated with the
acquisition, exploration, and development of mineral properties,
including directly related overhead costs, are capitalized. Once these
properties are developed, the capitalized costs will be amortized on
the unit-of-production method using estimates of proved reserves.
F-8
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In addition, the capitalized costs are separated into cost centers on a
state-by-state basis. The capitalized costs for each cost center are
subject to a "ceiling test", which limits such costs to the aggregate
of the estimated present value of future net revenues from proved
reserves, plus the lower of cost or fair market value of undeveloped
and unproved properties.
Other Plant, Property, and Equipment
------------------------------------
Other plant, property and equipment, consisting of the Los Banos
exfoliation plant, two buildings, and office equipment, are recorded at
cost. Depreciation is calculated using the straight-line method over
the estimated useful lives of the assets, which are 20 years for the
plant and buildings, and 5 years for the office equipment.
Revenue Recognition
-------------------
Revenue is recognized when products are shipped to customers.
Income Taxes
------------
The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets
and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. This method also requires the recognition of
future tax benefits such as net operating loss carryforwards, to the
extent that realization of such benefits is more likely than not.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
Earnings (Loss) Per Share
-------------------------
Basic earnings (loss) per share are based on the weighted average
shares outstanding. Outstanding stock options and convertible debt
obligations are generally treated as common stock equivalents for
purposes of computing diluted earnings per share. However, since the
Company reported net losses for the years ended June 30, 2000 and 1999,
these common stock equivalents are excluded from the computation of
diluted earnings per share because their effect on net loss per share
would be anti-dilutive.
F-9
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
----------------------------------------------
Use of Estimates
----------------
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications
-----------------
Certain reclassifications have been made to the June 30, 1999 financial
statements to conform to the June 30, 2000 classification.
NOTE 2 - GOING CONCERN STATEMENT
-----------------------
The Company emerged from Chapter 11 bankruptcy proceedings during 1985
and has been non-operating since that time. At June 30, 2000, its
negative working capital was approximately $3.9 million and accumulated
deficit was approxi-mately $10.4 million.
During 1999, the Company hired a new president who also now serves as
chairman of the Board of Directors and chief executive officer.
During 2000, the Company hired a new vice-president and chief operating
officer, and a new vice-president and chief financial officer. These
two individuals also serve on the Board of Directors.
The Company's current management team recognizes the need to develop
its mineral properties and place those properties into production. To
accomplish these goals, management has been attempting to secure
long-term financing for the development of its properties and form
joint ventures with established mining companies.
F-10
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - GOING CONCERN STATEMENT (CONTINUED)
-----------------------------------
During June 1999, the Company acquired Elk Creek and its subsidiary in
a stock and cash transaction. The Company believes that the mineral
claims held by Elk Creek and Dillon, which are also located in the
State of Montana, enhance the Company's ability to obtain long-term
development financing and its ability to participate in joint venture
arrangements with major mining interests.
During May of 2000, the Company purchased an exfoliation plant located
in Los Banos, California.
During the second half of 2000, the Company purchased the Sweetwater
Garnet mine and mill located near Dillon, Montana.
Also during the second half of 2000, the Company began shipping ore
mined from its Dillon mine and mill to its Los Banos plant to be
processed for sale to customers.
Management is also reviewing several additional proposals regarding
long-term financing and the acquisition of other operating facilities
and producing natural resource properties for purposes of providing
cash flow to fund general and administrative costs. In the past, these
costs have generally been funded by loans from the Company's officers,
directors and shareholders.
During August 1998, the Company successfully restructured the debt with
its largest single creditor. That creditor held a first mortgage on the
Company's mineral claims and projects. In recent years, the Company
also has converted a significant amount of its other debt to common
stock. As a result of these efforts, total liabilities decreased
approximately $1.2 million from June 30, 1999 to June 30, 2000, and
$2.1 million from June 30, 1998 to June 30, 1999, exclusive of the Los
Banos and Elk Creek acquisition obligations.
There can be no assurances that the Company will be successful in
obtaining the financing necessary to develop its mineral reserves. Nor
can there be any assurances that other sources of funds can be obtained
to cover general and administrative costs.
F-11
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - GOING CONCERN STATEMENT (CONTINUED)
-----------------------------------
The Company's independent public accountants have included a "going
concern" emphasis paragraph in their audit report accompanying the June
30, 2000 and 1999 consolidated financial statements. The paragraph
states that the Company's recurring losses and negative working capital
raise substantial doubt about the Company's ability to continue as a
going concern and cautions that the financial statements do not include
adjustments that might result from the outcome of this uncertainty.
Management believes that, despite the financial and funding
difficulties going forward, it now has a business plan that, if
successfully funded and executed, will result in the development and
production of its mining claims and products, thereby improving
operating results.
NOTE 3 - UNDEVELOPED MINING CLAIMS AND PROJECTS
--------------------------------------
The Company's undeveloped mining claims and projects are located in the
state of Montana. Substantially all of these assets are subject to
security interests granted in favor of various creditors of the
Company.
During June 1999, the Company capitalized $3.99 million of undeveloped
mining claims and projects related to its acquisition of Elk Creek and
Dillon (see Note 4). Additionally, the Company capitalized
approximately $290,000 and $97,000 during the years ended June 30, 2000
and 1999, respectively, for mine development costs.
NOTE 4 - ACQUSITION OF ELK CREEK VERMICULITE, INC.
-----------------------------------------
During June 1999, Stansbury acquired all of the outstanding shares of
Elk Creek Vermiculite, Inc. and its wholly-owned subsidiary, Dillon
Vermiculite, LLC. The acquisition was accounted for as a purchase and
the results of Elk Creek's operations (and its subsidiary) are included
in the Company's consolidated statements of operations from the date of
acquisition. Elk Creek was acquired from an entity that is controlled
by an individual who was a former officer and director of Stansbury.
F-12
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACQUISITION OF ELK CREEK
VERMICULITE, INC. (CONTINUED)
----------------------------
The assets of Elk Creek and Dillon represent various undeveloped mining
claims and projects, and an office and warehouse building, located in
the state of Montana. The total consideration of $4.04 million was paid
by the issuance of 7.85 million of the Company's common shares, and
various debt obligations as described below. The purchase price was
allocated $50,000 to the office and warehouse building, and the
remainder to the undeveloped mining claims and projects.
Debt obligations arising from the purchase were as follows:
1. Purchase debt obligations represented by four promissory notes with an
original principal balance of $450,000, bearing interest at 12%. The
principal balances outstanding were $100,000 and $450,000 at June 30,
2000 and 1999, respectively.
2. A note payable to Resource Vermiculite LLC ("Resource") that Elk Creek
incurred to acquire its interests in the mining claims and projects.
The outstanding principal balance of this note on the date of
Stansbury's acquisition of Elk Creek was $940,000. The outstanding
principal balance at June 30, 2000 and 1999 was $772,500. As described
in Note 5, Stansbury acquired an 11% interest in Resource during the
year ended June 30, 2000.
3. An obligation to the seller with an original balance of $200,000 that
was outstanding at June 30, 2000 and 1999.
At June 30, 2000, the Company was in default with respect to these debt
obligations.
F-13
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACQUISITION OF ELK CREEK
VERMICULITE, INC. (CONTINUED)
-----------------------------
The following unaudited pro forma information for the year ended June
30, 1999 reflects the consolidated results of operations as if the
acquisition had taken place as of July 1, 1998. This information
utilizes audited information for Stansbury and unaudited information
for Elk Creek and its subsidiary.
Revenues $ 0
================
Loss before extraordinary items $ (3,354,664)
================
Net loss $ (1,298,190)
================
Loss per share $ (0.04)
================
NOTE 5 - INVESTMENT IN RESOURCE VERMICULITE LLC
--------------------------------------
During the year ended June 30, 2000, the Company acquired an 11%
interest in Resource Vermiculite LLC. This entity, as described in Note
4, is a creditor of the Company. The Company acquired its interest by
issuing 504,351 shares of its common stock at 25 cents per share,
totaling $126,088.
NOTE 6 - LOS BANOS EXFOLIATION PLANT
---------------------------
During May 2000, the Company acquired a vermiculite exfoliation plant
located near Los Banos, California. The total purchase price was
$581,250, consisting of a $100,000 cash payment, issuance to the seller
of 525,000 shares of the Company's common stock valued at $131,250, and
a note payable in the amount of $350,000. The plant was acquired from
an entity controlled by the same individual described in Note 4.
The purchase price was allocated $28,839 to inventory and $552,411 to
the plant.
F-14
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - LOS BANOS EXFOLIATION PLANT (CONTINUED)
---------------------------------------
The note payable bears interest at 12%, and principal and accrued
interest are due November 15, 2000. The note is secured by the Los
Banos assets.
The buildings which house the exfoliation plant, and the underlying
land, are subject to a lease that the seller assigned to the Company.
The term of the sublease is for one year, effective May 2000, and
monthly rental payments of $800 are required. The Company can elect to
terminate the sublease after six months.
Revenue and cost of sales for the year ended June 30, 2000 represent
sales of inventory acquired in the purchase.
NOTE 7 - CONVERTIBLE NOTES PAYABLE
TO OFFICERS AND SHAREHOLDERS
----------------------------
Convertible notes payable to officers and shareholders at June 30, 2000
and 1999 consisted of the following:
2000 1999
---- ----
90-Day Notes $ 0 $ 49,000
180-Day Notes 195,750 411,500
---------- ----------
$ 195,750 $ 460,500
========== =========
The 90-day notes bore interest at 12% and principal and accrued
interest was due 90 days after the date of issuance. The 180-day notes
bear interest at 10% and principal and accrued interest are due 180
days after the date of issuance. Both classes of notes are unsecured.
NOTE 8 - NOTE PAYABLE TO RELATED PARTY
-----------------------------
The convertible note payable, issued in connection with the debt
restructuring described in Note 11, was dated August 25, 1998 and bears
interest at 10%. Principal and accrued interest are due on demand.
F-15
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - LONG-TERM DEBT
Long-term debt at June 30, 2000 and 1999 consisted of the following:
2000 1999
---- ----
Officers, directors and shareholders:
-------------------------------------
Promissory notes, unsecured, bearing
interest at rates from 12% to 15% $ 57,667 $ 779,688
Mortgages payable, bearing interest
at 23% 394,000 449,000
Other:
Other promissory notes and
obligations payable 369,051 379,051
---------- ----------
Long-term debt 820,718 1,607,739
Less current installments 820,718 1,607,739
---------- ----------
Long-term portion $ 0 $ 0
========== ==========
The promissory notes and mortgages payable to officers, directors, and
shareholders were past due as of June 30, 2000. Interest on the
mortgages payable was prepaid and has been fully amortized in prior
years.
Other notes payable and obligations represent amounts payable to former
trade creditors of the Company. The Company is in default on these
amounts, and interest accrues on the outstanding principal balances at
rates that average approximately 12%.
F-16
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - STOCKHOLDERS' EQUITY
---------------------
On April 30, 1999, the Company's stockholders approved an increase in
the number of authorized common shares from 25 million to 100 million,
and restated the par value of each common share from $0.25 to $0.001.
As presented in the Consolidated Statements of Stockholders' Equity and
as described in these Notes to the Consolidated Financial Statements,
the Company has issued a significant number of its common shares for
various purposes during the years ended June 30, 2000 and 1999. All
such transactions have been recorded at 25 cents per share, which
approximates the fair market value of the shares during those two
years.
NOTE 11 - DEBT RESTRUCTURING
-------------------
On August 25, 1998, the Company entered into an agreement with one of
its creditors, a liquidator for a corporation in receivership, to
satisfy amounts owed by the Company. Pursuant to the terms of the
agreement, the creditor agreed to cancel all debt owed, relinquish
ownership of 760,556 shares of the Company's common stock, and release
all collateral it held, in exchange for a $130,000 cash payment.
The Company obtained the $130,000 by issuing a convertible note payable
(see Note 8) to Nevada Vermiculite, LLC, a limited liability company
owned 25% by two of the Company's officers and directors. In addition,
the Company issued 500,000 of its common shares and granted an option
to obtain 5 million additional common shares to Nevada Vermiculite as
an inducement to make the loan. The option expires October 26, 2004,
and the option price is 25 cents per share. The Company valued the
stock and option issued to Nevada Vermiculite at $125,000.
The shares relinquished by the creditor were issued to persons who
assisted the Company in this debt restructuring. The Company has
recorded these shares at their approximate fair market value of 25
cents per share. The relinquishment of the shares represented
additional gain from the debt restructuring, while the issuance of the
shares represented an additional cost thereof.
F-17
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - DEBT RESTRUCTURING (CONTINUED)
------------------------------
The gain from the restructuring was as follows:
Principal amount of mortgages and
other promissory notes payable
cancelled $ 645,961
Accrued interest on debt cancelled 1,665,513
Value of shares relinquished by the
creditor 190,139
----------
Subtotal 2,501,613
----------
Cash payment by Company 130,000
Stock issued to Nevada Vermiculite 125,000
Value of relinquished shares issued 190,139
----------
Subtotal 445,139
----------
Gain from restructuring $2,056,474
==========
NOTE 12 - INTEREST, CONVERSION PREMIUMS,
AND EQUITY INDUCEMENTS
----------------------
Substantially all interest expense paid during the years ended June 30,
2000 and 1999 was in the form of shares of the Company's common stock.
In addition, the Company issued shares of its common stock for payment
of conversion premiums and equity inducements. These forms of payments
are made to induce other parties to loan funds to the Company, or to
convert existing debt into equity. All such premiums and inducements
are charged to expense when the shares are issued, and for the years
ended June 30, 2000 and 1999, the amount is so charged to expense
totaled approximately $ 2,344,600 and $ 966,300, respectively. The
substantial portion of these expenses were related to convertible notes
payable to officers and shareholders as described in Note 7.
NOTE 13 - INCOME TAXES
-------------
The Company incurred net operating losses for the years ended June 30,
2000 and 1999. At June 30, 2000, the Company has approximately $11.7
million of net operating loss carryforwards which expire in varying
amounts through the year ending June 30, 2020.
F-18
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - INCOME TAXES (CONTINUED)
-------------------------
A deferred tax asset resulting from the benefit of current and
carryforward net operating losses is offset by a valuation allowance
because realization of that asset is not assured. Realization of a
deferred tax asset is dependent on generating sufficient taxable income
prior to the expiration of the loss carryovers. Accordingly, no current
or deferred tax benefit for the years ended June 30, 2000 and 1999 has
been recognized.
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
------------------------------------
The debt obligations of the Company represent the financial instruments
for which fair value disclosure is required under SFAS 107. Management
does not believe it is practicable to estimate the fair value of its
debt.
A substantial portion of the Company's debt obligations at June 30,
2000 was owed directly to its officers, directors, and shareholders (or
to entities controlled by them). All other debt is owed to
non-financial institutions. Accordingly, there is no market available
to estimate the fair value of this debt.
NOTE 15 - RELATED PARTIES
-----------------
Substantially all of the creditors who have converted their debt and
interest into shares of the Company's stock have been officers,
directors, or shareholders of the Company. These individuals also
received shares of the Company's stock as an inducement for conversion
of their debt.
NOTE 16 - COMMITMENTS AND CONTINGENCIES
------------------------------
Effective June 1, 1999, the Company entered into a 37-month lease
agreement for office space in Denver, Colorado. Rent is payable in
advance in six-month increments. Rent expense was approximately $21,000
and $2,000 for the years ended June 30, 2000 and 1999, respectively.
Minimum future annual rent payments are $24,000 for the year ending
June 30, 2001, and $22,000 for the year ending June 30, 2002.
The Company is obligated to the federal government for approximately
$21,100 per year to maintain the ownership of its mineral claims.
F-19
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
------------------------------------------
Various legal proceedings and claims are pending against the Company.
Some of the plaintiffs in these matters are certain of the Company's
shareholders and former officers, and others are trade creditors.
Actions brought by shareholders and former officers generally pertain
to default in the repayment terms of amounts loaned to the Company. The
Company is accruing interest on these amounts pursuant to the terms of
the underlying obligations. At June 30, 2000 and 1999, the principal
amount of these obligations is included in long-term debt under the
caption "officers, directors and shareholders" (see Note 9).
Actions brought by certain trade creditors and others have resulted in
the Company issuing promissory notes payable to those creditors. The
Company is accruing interest on these amounts pursuant to the terms of
the promissory notes. At June 30, 2000 and 1999, the principal amount
of these promissory notes is included in long-term debt under the
caption "other" (see Note 9).
Amounts due other trade creditors who have brought actions against the
Company are included in the balance of trade accounts payable.
Actions have also been brought with respect to the debt obligations
that arose from the Elk Creek acquisition. Management believes that the
matters will be settled for amounts not greater than the recorded
amounts at June 30, 2000.
F-20
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - RECONCILIATION OF NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES
-------------------------------------
The reconciliation of net loss to net cash used in operating activities for
the years ended June 30, 2000 and 1999 is as follows:
2000 1999
---- ----
Net loss $(5,756,236) $ (925,195)
----------- -----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Property abandonment 230,233 0
Bad debt expense 20,298 0
Depreciation 9,466 2,784
Amortization of deferred interest 249,040 249,040
Stock issued for interest, debt
inducement, and compensation 4,161,294 1,766,851
Extraordinary gain 0 (2,186,474)
Changes in operating assets and liabilities:
(Increase) in inventory (18,960) 0
(Increase) in prepaid expenses (1,995) (9,645)
(Increase) in other current assets (5,786) (4,130)
(Increase) in other assets (25,100) 0
Increase in bank overdraft 44,580 7,648
Increase in accrued interest 72,952 16,200
Increase in accounts payable 468,407 415,818
Decrease in due to/from related party 0 (40,948)
----------- -----------
Total adjustments 5,204,429 217,144
----------- -----------
Net cash (used in) operating activities $ (551,807) $ (708,051)
=========== ===========
F-21
<PAGE>
STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - NONCASH INVESTING AND FINANCING ACTIVITIES
-------------------------------------------
The Consolidated Statements of Stockholders' Equity present shares of
the Company's common stock issued for various noncash transactions.
See Note 6 for debt issued in connection with the Los Banos
exfoliation plant acquisition.
NOTE 19 - RECENTLY ISSUED ACCOUNTING STANDARDS
------------------------------------
In June 1998, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 requires that all derivatives be recorded as either assets or
liabilities in the balance sheet and marked-to-market on an ongoing
basis. SFAS No. 133 applies to all derivatives including stand-alone
instruments, such as forward currency exchange contracts and interest
rate swaps, or embedded derivatives, such as call options contained in
convertible debt investments. Along with the derivatives, the
underlying hedged items are also to be marked-to-market on an ongoing
basis. These market value adjustments are to be included either in the
statement of operations or as a component of comprehensive income,
depending on the nature of the transaction. Implementation of SFAS No.
133 is required by the first quarter of fiscal 2001. The adoption of
this statement is expected to have no impact on results of operations,
financial position, or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial
Statements". The SAB summarizes certain staff views in applying
generally accepted accounting principles to revenue recognition in
financial statements. Adoption is currently required in fiscal 2001,
and early adoption is permitted. The Company does not expect this
Bulletin to have any affect on its results of operations, financial
condition or cash flows.
In April 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 (FIN 44), Accounting for Certain Transactions
Involving Stock Compensation - an interpretation of APB Option No. 25.
FIN 44 clarifies and modifies APB Opinion No. 25, Accounting for Stock
Issued to Employees. The provisions of FIN 44 became effective in 2000
and did not have any affect on the Company's results of operations,
financial condition or cash flows.
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STANSBURY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - SUBSEQUENT EVENTS
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During July of 2000, the Company acquired the Sweetwater Garnet mine
and mill located in Madison County, Montana. The Company issued
approximately 15 million shares of its common stock for the
acquisition, and agreed to pay the seller a production royalty of
$10,000 per month. The Sweetwater Garnet asset includes a 1,860-acre
leasehold interest upon which a garnet concentrating mine and mill are
located, and a finishing mill located on a separate four acre tract of
land.
F-23
