SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 1999 Commission File No. 0-6034
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STANSBURY HOLDINGS CORPORATION
(Exact Name as Specified in Its Charter)
STATE OF UTAH 87-0281239
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(State of Incorporation) (I.R.S. Employer Identification Number)
676 LOUIS DRIVE, WARMINSTER, PA 18974 UNITED STATES
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(Address of Principal (Country)
Executive Offices)
Registrant's telephone number, including area code:
(215) 328-9566
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to the filing requirements for
at least the past 90 days.
YES____ NO X
Indicate the number of shares outstanding of the issuer's classes of common
stock as of the latest practicable date.
At February 9, 1999 there were outstanding: 24,899,585 common shares, $0.25 par
value.
STANSBURY HOLDINGS CORPORATION
INDEX TO FORM 10QSB
Page
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Plan of Operations 21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities 24
Item 3. Defaults Under Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 25
Item 6. Exhibits and Reports of Form 8-K 25
2
PART I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
3
STANSBURY HOLDINGS CORPORATION
BALANCE SHEET
March 31, 1999
NINE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, 1999 JUNE 30, 1998
(UNAUDITED) (AUDITED)
----------------- -------------------
ASSETS
Current Assets
Cash $ 35,612 $ 1,685
Other Receivables 21,198 --
------------ ------------
Total Current Assets 56,810 1,685
Property & Equipment
Building 25,386 27,017
Mineral Property 11,833,355 11,833,355
Development Costs 3,139,105 3,139,105
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Total Property and Equipment 14,997,846 14,999,477
Other Assets
Other Assets 26,000 20,000
------------ ------------
Total Other Assets 26,000 20,000
TOTAL ASSETS $ 15,080,656 $ 15,021,162
============ ============
LIABILITIES AND CAPITAL
Current Liabilities
Notes Payable-Short Term $ 765,870 $ 169,863
Current Portion Long-Term Debt 1,605,100 1,605,100
Accounts Payable 333,297 276,898
Accrued Interest 1,824,330 2,597,820
------------ ------------
Total Current Liabilities 4,528,597 4,649,681
Long-Term liabilities
NotesPayable-Noncurrent 641,371 1,086,677
------------ ------------
Total Notes Payable-Noncurrent 641,371 1,086,677
Capital
Common Stock 6,224,784 6,009,823
Common Stock to Issue 175,000 50,000
Capital in Excess of Par 7,535,330 7,535,330
Deferred Interest (586,771) (586,771)
Retained Earnings (2,434,804) (2,705,175)
Net Income (1,002,850) (1,018,403)
------------ ------------
Total Capital 9,910,689 9,284,804
TOTAL LIABILITIES AND CAPITAL $ 15,080,656 $ 15,021,162
============ ============
4
STANSBURY HOLDINGS CORPORATION
STATEMENT OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 1999* MARCH 31, 1999*
------------------ -----------------
Revenues $ -- $ --
Cost of Sales -- --
----------- -----------
Gross Profit -- --
Expenses
Consulting Fees $ 30,142 $ 107,354
Legal 49,588 132,899
Accounting 16,575 65,339
Office Supplies & Expense 5,511 10,061
Other Office Expense 6,344 8,005
Mining Leases -- 17,400
Advertising and Promotion 90,995 183,904
Interest 691,187 1,108,333
License and Permits 7,722 3,612
Professional Fees 59,254 61,372
Depreciation Expense Building 544 1,631
Utilities 683 2,868
Transfer Agent Fees 15,858 17,487
Travel & Entertaiment 28,447 44,666
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Total Expenses 1,002,850 1,764,932
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Operating Income (Loss) (1,002,850) (1,764,932)
Other Income
Cancellation of Debt -- 2,056,474
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NET INCOME ( LOSS) $(1,002,850) $ 291,543
* Comparable figures for the corresponding period in 1998 are unavailable.
5
STANSBURY HOLDINGS CORPORATION
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1999
------------------ -----------------
Cash Flows From Operating Activiities
Net Income(Loss) $(1,002,850) $ 285,925
Depreciation 544 1,631
Stock Issued for services and Interest -- 214,961
Increase (Decrease) in Short-Term Debt 311,007 596,007
Increase (Decrease) in Accounts Payable (14,362) 56,399
Increase (Decrease) in Accrued Interest 672,958 (773,490)
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Total Adjustments From Operating Activities 970,147 95,508
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Net Cash Provided by Operations (32,703) 381,433
Cash Flow From Investing Activities
Decrease (Increase) in Development Costs -- --
Decrease (Increase) in Other Receivables 1,085 (21,198)
Decrease (Increase) in Other Assets (1,500) (6,000)
----------- -----------
Net Cash Used in Investing Activities (415) (27,198)
Cash Flow From Financing Activiities
Increase(Decrease) in Notes Payable, Non-Current 65,655 (445,307)
Increase(Decrease) in Common Stock -- 125,000
----------- -----------
Net Cash Used in Financing Activities 65,655 (320,307)
Net Increase(Decrease) in Cash $ 32,536 $ 33,927
=========== ===========
Summary
Cash Balance End of Period 35,612 35,612
Cash Balance Beginning of Period 3,076 1,685
----------- -----------
Net Increase(Decrease) in Cash $ 32,536 $ 33,927
=========== ===========
6
STANSBURY HOLDINGS CORPORATION
Notes to Financial Statements
March 31, 1999 and June 30, 1998
Note 1: Summary of Significant Accounting Policies
Organization:
Stansbury Holdings Corporation (the "Company") was chartered as a business
corporation by the State of Utah on May 7, 1969, under the name Stansbury Mining
Corporation. The corporate name was changed to Stansbury Holdings Corporation by
a filing in the office of the Secretary of State of Utah on March 22, 1990.
In June 10, 1985, as part of an approved Plan of Reorganization under a Chapter
11 proceeding pursuant to the Federal Bankruptcy Act, the authorized capital of
the Company was changed, by an Amendment of its Articles of Incorporation, to
$6,250,000, being 25,000,000 shares of one class having a par value of $0.25 per
share.
The principal business activity of the Company, since its reorganization under
Chapter 11 of the Federal Bankruptcy Code in 1985, has been vermiculite mineral
exploration and development. The principal project of the Company is the
Hamilton Vermiculite Project in Ravalli County, Montana, as to which the Company
commenced acquisition shortly prior to the Reorganization in 1985.
Basis of Presentation:
In management's opinion, the accompanying unaudited financial statements of
Stansbury Holdings Corporation contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the Company's
financial position and the results of its operations. (The results of operations
or cash flows which may be reported for the remainder of 1999.)
The accompanying unaudited interim condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for the reporting on Form 10-QSB. Pursuant to such rules and
regulations, certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The condensed financial
statements should be read in conjunction with the Audited Financial Statements
and the Notes to the Audited Financial Statements included in the Company's
Annual Report on Form 10-KSB/A for the year ended June 30, 1998. With the
exception of the gain from extinguishment on debt discussed below and in Note 3,
no material events, changes in operation or changes in accounting principles or
practices have occurred since the close of the Company's fiscal year ended June
30, 1998. All amounts included in these financial statements are expressed in
United States Dollars.
7
Note 1: Summary of Significant Accounting Policies (Continued)
In the past, the Company has issued financial statements showing the Hamilton
Vermiculite Project at the value established for it in the Chapter 11
proceedings in 1985, which was based upon an evaluation of the projects value by
an appraisal. The significant difference between those past financial statements
(1991 to 1996) and these financial statements is the restatement of the value of
the Hamilton Vermiculite Project in terms of historic costs of the project's
acquisition and development funds expended on the project subsequent to its
acquisition (see further this Note and Notes 6 & 12).
Principles of Consolidation:
In the past, the financial statements of the Company have been consolidated with
subsidiaries and affiliates. However, at the present the Company has no
subsidiaries and is involved with no affiliates.
Therefore, all assets material to this financial statement are held by the
Company.
Cash and Cash Equivalents:
The Company considers highly liquid investments with original maturities of
three months or less to be cash equivalents.
Undeveloped Vermiculite Mineral Projects:
The Company uses the full cost method of accounting for undeveloped mineral
projects. Accordingly, all costs associated with the acquisition of undeveloped
projects, including directly related overhead costs, are capitalized. Once
projects are developed, the capitalized costs will be amortized on the
unit-of-production method using estimates of proven reserves (See Notes 6 and
12).
In addition, the costs are separated into cost centers on a state-by-state
basis. The capitalized costs for each cost center are subject to "ceiling test",
which limits such costs to the lower of (i) cost, or (ii) estimated fair market
value, of the projects (see Note 6).
In cases where the exploration and production activities of the Company are
conducted jointly with others, the financial statements reflect only the
Company's and its consolidated subsidiaries' proportionate interest in such
activities.
Other Assets, Stock Listing and Issuance Costs:
Costs associated with stock issuance and the listing of the Company's common
stock on the NASDAQ Bulletin Board are charged against the proceeds derived from
the issuance of shares in the year of issuance (see Note 7).
8
Note 1: Summary of Significant Accounting Policies (Continued)
Income Taxes:
The Company has adopted the provisions of Statement of Accounting Standards No.
109, "Accounting for Income Taxes" which incorporates the use of asset and
liability approach of accounting for income taxes. The asset and liability
approach requires the recognition of deferred tax assets and liabilities for
future consequences of temporary differences between the financial reporting
basis and tax basis of assets and liabilities. Because the question as to going
concern as discussed in Note 2 and subsequent events as discussed in Note 12 and
the explanation in the next paragraph, no value of a possible net operating loss
is recognized on the financial statements.
No income tax returns have been filed since June 30, 1991. Federal income taxes
generally do not allow deductions of expenses not paid within 12 months. Most
debt has not been paid year after year. Most cash paid out has been for
capitalized development costs. Even though the majority of expenses are accrued
interest on notes, management is of the opinion that forgiveness of debt and
interest has been so frequent and of a nature that precludes most expenses and
interest from tax deduction. Consequently, management is of the opinion that the
probable net operating loss is under $2,000,000, expiring at various dates
through 2012.
Depreciation:
Depreciation of real estate improvements is calculated using the straight-line
method over the useful lives of the related assets. For the building at Victor
Siding, Montana, that is part of the Hamilton Vermiculite Project, a 20 year
useful life is used.
Net Income (Loss) Per Common Share:
Net Income (Loss) Per Common Share is based upon the fully diluted 24,899,585
shares at December 31, 1998 and 24,039,290 shares at June 30, 1998, the number
of common shares as of the last business day of the financial statement period,
assuming conversion of all outstanding options and warrants (see Note 4). The
Company had no revenues from operations. Operating income (loss) from operations
for the six months ended December 31, 1998 was ($767,699), or ($0.03) per share.
After other income of $2,056,474 from gain on forgiveness of debt, book income
(loss) was $1,288,775, or $0.05 per share.
Gain on Forgiveness of Debt:
Due to the cash flow shortages the Company has faced over the past several
fiscal periods, large portions of the accounts and notes payable have been
satisfied by negotiation at less than the face value and/or an issuance of the
Company's common stock. As the Company has employed this strategy on a recurring
basis, and the gain from the forgiveness of debt arising from these negotiated
settlements has not been characterized as extraordinary in the accompanying
financial statements. However, the Company has negotiated a settlement with its
largest creditor in November, 1998 through an Accord and Satisfaction with
Merwin U. Steward as Liquidator of Southern American
9
Insurance Company and Commercial Surety and Insurance Corporation
("Liquidator")(See Note 3). As a result of this settlement, the Company recorded
gain from the forgiveness of debt of $2,056,474. This is recorded as such in the
unaudited financial statements, however due to the significance of the
settlement amount, the gain may be reclassified as an extraordinary event in the
audited financial statements at June 30, 1999.
Reclassifications:
The asset value of the Hamilton Vermiculite Project has been reclassified to
reflect its cost basis and capitalized development costs (See Note 6).
Certain Accounts Payable in the amount of $75,892, which had been carried on the
financial statements since 1991 without backup data, were accordingly written
off at June 30, 1997. Of that amount, 25% ($18,992), was established as an
Accounts Payable reserve and added back to Accounts Payable in the event any of
those creditors should make valid claims. The reserve will be written down in
two installments over the next two fiscal years. Accordingly, one half, or
$9,496, was written off June 30, 1998 and the remaining portion will be written
at June 30, 1999. The Company had no data to establish or verify the propriety
of the claims eliminated, and determined that many of the listed claimants were
no longer de jure entities.
See also Note 11, Correction in accounting errors and prior period adjustments.
Note 2: Going Concern Statement
The Company has been inactive and non-operating for years; consequently, it is
questionable as to whether or not it can remain a going concern. The primary
activity in the past few years has been to preserve and maintain mineral leases
and claims. No actual mining has occurred since the Company acquired such
properties in 1984. Also, refer to Note 6 regarding the Hamilton Vermiculite
Project. Recovery of the carrying amount on the financial statements of
$14,972,460 as of June 30, 1997, of the mineral property and related development
costs is dependent upon the success of the future operations and the Company's
ability to obtain financing through borrowing and capital stock sales.
The Company has had no income since 1991, and has utilized proceeds of loans
from shareholders and the issuance of capital stock for meeting its operating
capital commitments.
In June of 1996, the Company's Board of Directors and management were changed
(Note 5 and Note 12). New management has recognized the need to place mineral
properties into production, in order to generate revenues, and is actively
seeking to acquire mineral properties that are either (i) in active production,
or (ii) permitted to the extent that active production can immediately commence.
Such a plan has lead to the identification of several properties for which
active negotiations for acquisition or participation by joint venture, are
currently being conducted (Note 12).
10
Note 2: Going Concern Statement (Continued)
The Company continues to evaluate the production potential of its mineral
property (the "Hamilton Vermiculite Project"), but has determined that certain
limitations imposed by the Environmental Impact Statement as approved and issued
for that project (Notes 6 and 10) limiting production to a six month season per
year, will sufficiently impact the profitability of such an operation that other
alternatives must be reviewed. Accordingly, the Company has considered dropping
certain mining claims and the costs associated with the maintenance thereof,
while preserving the core of the project as permitted by the EIS (Note 12). The
Hamilton Vermiculite Project is currently pledged as collateral for a number of
mortgages (Notes 8 and 12). The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts and the amount or classification of liabilities that might result should
the Company be unable to develop and operate the mineral property, or other
mineral properties.
The Company has not obtained the necessary financing to meet it working capital
requirements to operate the mineral property which is the Company's major asset,
and there can be no assurance that the Company will be successful in obtaining
the necessary financing.
The Company in is negotiations with a financially able entity as a prospective
joint venture partner for the development of the Company's vermiculite projects,
but if this joint venture is not consummated the Company will need to obtain
capital from other sources.
Note 3: Related Party Transactions
The New Management Team (see Note 5) was established during June of 1997, the
last month of the fiscal year ending June 30, 1997. No consulting or salary
payments were made to the New Management Team by the Company for services
provided the Company for the fiscal year ending June 30, 1997. These amounts
were accrued and partial payments have been made in calendar 1999. See Note 12
with respect to the financial arrangements with the New Management Team.
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, 1999, the Company raised the required $130,000 through a convertible
debenture issued to Nevada Vermiculite L.L.C., (See Item II Development Stage
Activities) which debenture, among other provisions, allowed Nevada Vermiculite
to substitute of record for the Liquidator with respect to certain security
interests, as collateral for the $130,000. This collateral included 500,000
shares
11
Note 3: Related Party Transactions (Continued)
and an option, subject to shareholder approval, of an additional 5 million
shares at par.
The $130,000 was paid into an escrow pending closing on the Accord and
Satisfaction in October, 1999, and funds were distributed to the Liquidator in
Closing on the Accord and Satisfaction in December, 1999, upon the Liquidator's
providing the Closing Agent all requisite documentation described in the Accord
and Satisfaction. As a result of the closing on the Accord and Satisfaction, the
Company was able to discharge debts of $2,056,474, principal and interest
inclusive, for the payment of $130,000. This discharged amount of $2,056,474 is
included in the gain on forgiveness of debt on the accompanying financial
statements on The Statement of Operations, and the $130,000 is included as a
long-term note payable on the Balance Sheet.
The Company remains liable to Nevada Vermiculite L.L.C. for the sum of $130,000,
plus interest accruing thereon from October 24, 1998, at 12% per annum, due July
5, 2000, as provided by the terms of the debenture issued to Nevada Vermiculite
L.L.C., by the Company. As mentioned above, the Debenture contains other terms
of inducement, and conversion rights of principal and accrued interest at par.
Mr. Aldine J. Coffman and Dr. James Hindman, directors and officers of the
Company, each have 12.5% interest in Nevada Vermiculite L.L.C.
Note 4: Stockholders' Equity
The Company was organized by the issuance of its common stock. Over the prior
years including 1998, stock was issued for cash and non-cash consideration.
Non-cash consideration includes debt discharge and debt assumption.
Common Stock
As of June 30, 1998, common stock consisted of authorized capital of 25,000,000
shares having a par value of US $0.25. Shares issued and outstanding were
24,899,585 and 24,039,290 on December 31, 1998 and June 30, 1998, respectively.
An analysis of common stock issued during fiscal years ending June 30, 1998 and
1997 follows:
Year Shares Value
1998
Issued for cash -- --
Issued for property -- --
Issued for debt 2,560,478 $ 640,120
12
Note 4: Stockholders' Equity (continued)
1997
Issued for cash -- --
Issued for property -- --
Issued for debt 1,193,764 $ 298,441
Note 5: Change in Management and Management Plans for the Company
In June, 1997, a group of investors and shareholders, generally denoted as the
"Committee for New Management", arranged a funding mechanism for the Management
of the Company to be directed by Edward J. Stanojev, Jr., and others associated
with him.
A new Board of Directors, comprising Mr. Stanojev, Dr. James R. Hindman, Jeffrey
L. Wertz, as new members, and Mr. Martin J. Peskin, as a continuing member, was
established.
This new Board of Directors appointed a "New Management Team", comprised of Mr.
Stanojev as Chairman, Chief Executive Officer, and President; James R. Hindman,
Ph.D., and a recognized expert in vermiculite exploration, mining and milling,
as Vice President and Chief Operating Officer; and Mr. Wertz, as Vice-President
and Chief Financial Officer. (see Note 12 for Compensation for the New
Management Team).
Certain secured creditors have agreed to subordinate their secured positions in
the Hamilton Project up to an amount equal to $1,000,000 of working capital
infusion. As of June 30, 1998, the funding through this facility had not been
drawn upon.
This New Management Team has sought to move the Company forward into the
production and marketing of vermiculite and its products (see Note 2).
Note 6: Undeveloped Mineral Projects
The Company has, since 1984, been focused upon the acquisition and development
of vermiculite ore reserves in mineral properties located primarily in the
western United States.
The Hamilton Vermiculite Project:
As of June 30, 1998, the Hamilton Vermiculite Project consisted of 64 owned
unpatented lode mining claims, 11 owned mill site claims, and a parcel of fee
land with improvements. The Mining Claims are located in the Gird's Creek
unorganized Mining District, Ravalli County, Montana. In the fall of 1998, the
Company located an additional 22 unpatented lode mining claims in Ravalli
13
Note 6: Undeveloped Mineral Projects (continued)
County, Montana, resulting in the Company obtaining control of all of the
surface vermiculite exposures and proven reserves associated with the Hamilton
Project.
The fee land (1.24 acres) and improvements are located at Victor Siding, Ravalli
County, Montana. The mining claims are administered by the Bureau of Land
Management, of the Department of the Interior, for the United States Forest
Service, of the Department of Agriculture. Surface matters are administered by
the US Forest Service.
In 1993, a final Environmental Impact Statement was issued to the Company under
its then trade name of Western Vermiculite Company in connection with the
Company's application for an operating permit for the Hamilton Vermiculite
Project. The costs of the EIS approached several million dollars of expenditures
from 1985 to 1991.
The project has been extensively drilled and assayed and two ore bodies, the ABM
Ridge Ore Body (defined in 41 drill holes) and the Horse Ridge Ore Body (defined
in 43 drill holes), have been delineated. Combined, the proven minable
vermiculite reserves in these two ore bodies is 6.5 million tons at a grade of
10.09% vermiculite.
The Hamilton Vermiculite Project was appraised in 1985 at $34,577,270 (and
again, in 1992, at $35,000,000). Through June 30, 1996, the value of $34,577,270
has been reflected on the Company's financial statements as the original asset
value of the Hamilton Vermiculite Project (in lieu of acquisition costs). In
1997, the Hamilton Vermiculite Project was appraised at $51,000,000, largely
reflecting the increase in market value of vermiculite concentrate from 1985 to
1997. From the foregoing, the Company has determined that the cost basis
accounting for the project (see below) does not exceed its estimated fair market
value of the Project.
Management is attempting to raise financing for the development of the Hamilton
Vermiculite Project, and is in discussions with several potential joint venture
development partners who would contribute the financing required.
At present, the Company has not obtained the necessary financing to meet its
working capital requirements and to operate the Hamilton Vermiculite Project,
which is the Company's major asset. There can be no assurance that the Company
will be successful in obtaining the necessary financing. Also, as discussed in
Note 12, the United States Forest Service required that an Environmental Impact
Statement ("EIS") be issued for the Hamilton Vermiculite Project prior to
granting an operating permit to the Company. The EIS was completed in 1993. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts and the amount or
classification of liabilities that might result should the Company be unable to
develop and operate the Hamilton Vermiculite Project and continue as a going
concern.
14
Note 7: Other Assets
The Company has on deposit with the Montana Department of Lands a refundable
balance of $20,000, in connection with its operating permit application for the
Hamilton Vermiculite Project.
Note 8: Notes Payable, Long Term Debts, and Accounts Payable
Certain unidentified obligations of the Company have been carried forward year
after year since before 1991, and are believed by the New Management of the
Company to have been, in fact, satisfied or otherwise no longer owing (in some
cases being barred by the statute of limitations). Management is investigating
the circumstances of these payables and other liabilities in order to take such
action in the future to delete such items where appropriate from the liabilities
of the Company. Of such amounts $75,892 of Accounts Payable were identified by
management as unlikely to be due and payable. At June 30, 1997, New Management
wrote off 75% of such amount, or $56,900, with the remaining 25%, or $18,992,
left in Accounts Payable as a reserve against any payables so written off to be
determined to be valid. Of that amount, one half, or $9,496 was written off at
June 30, 1998, with the remaining half to be written off $9,496 at June 30,
1999.
15
Note 8: Notes Payable, Long Term Debts, and Accounts Payable (continued)
Notes Payable and Long Term Debts
Notes payable and long term debts are summarized as follows:
(a) Mortgages Payable: March 31, 1999 June 30, 1998
Mortgages payable to life insurance
company in liquidation, bearing
interest at 10% per annum,
past due and in default (Note 11) $ -- $ 550,000
Mortgages payable to shareholders
of Company, interest prepaid 449,000 449,000
---------- ----------
Total Mortgages Payable $ 449,000 $ 999,000
========== ==========
(b) Unsecured Notes Payable:
Notes payable to life insurance
company in liquidation (Note 11) $ -- $ 95,961
Notes payable to corporations 434,968 304,968
Notes payable to shareholders
including former officers
(Note 11) 1,751,711 1,291,848
---------- ----------
Total Notes Payable $2,186,679 $1,692,777
========== ==========
Total term debt $2,635,679 $2,861,640
========== ==========
16
Note 8: Notes Payable, Long Term Debts, and Accounts Payable (Continued)
Summary Notes & Term Debt
Notes payable $ -- $ 169,863
Current portion-long-term debt 1,605,100 1,605,100
Long term portion-long-term debt 641,371 1,086,677
---------- ----------
Total $2,246,471 $2,861,640
========== ==========
Accrued Interest Payable,
Accrued interest payable, all current, is for:
March 31, 1999 June 30, 1998
Mortgage payable $ -- $1,562,253
Unsecured notes payable 1,151,372 1,035,567
---------- ----------
Total $1,151,372 $2,597,820
========== ==========
Note 9: Claims, Litigation and Judgments
Claims and Possible Claims:
(b) With respect to the EIS (see also notes 5 and 9), over 100 administrative
appeals were filed in opposition to the approval of the Final Draft of the EIS,
all of which were rejected by the Regional Office of the US Forest Service,
which decision of rejection further was upheld on appeal to the Chief Forester
of the US Forest Service. The time for administrative appeal of the EIS, or
further challenge to it, has expired.
Litigation:
The only pending litigation against the Company is by Ellsworth, Wiles &
Chalphin, P.C., filed in the Court of Common Pleas, Bucks County, Pennsylvania,
on September 14, 1998. James G. Wiles ("Wiles) acted as former counsel to the
Company through as a 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. This amount has been recorded as a liability of the Company in its
balance sheet, with an additional $4,408 allowed for litigation costs for a
total amount of $74,063 being recorded in the financial statements as a note
payable. However, a counter claim has been filed against Wiles alleging that no
amount is due, and furthermore that Wiles failed to protect the best interest of
the Company by failure to have required tax returns filed timely.
17
Note 9: Claims, Litigation and Judgments (Continued)
Judgments of Record affecting Title to Hamilton Project:
A claim of lien filed by the State of Montana in January, 1993 for $658 is
reflected on the financial statements as an account payable.
A judgment obtained by Dorsey & Whitney, a general partnership, in December,
1994 for $52,683 is reflected on the financial statements as a note payable.
A judgment obtained by Southampton Metals Ltd. ("Simon Grant-Rennick"), under a
settlement with Company, upon which a current unpaid balance exists of $5,600 is
included on the financial statements as a note payable.
Other Judgments: (All included in the financial statements as accounts payable)
A Judgment obtained by Mike Bauernfiend, obtained in Bergen County, N.J. for
$7,000.
A Judgement obtained by Martineau & Co., in Salt Lake County, Utah, for $8,000.
A Judgment obtained by Bruce Blessington, in Salt Lake County, Utah for $26,293.
Note 10: Other Income
Cancellation of Debt: From 1985 (year the Company filed Bankruptcy) to the
present, the Company continues efforts to raise sufficient funds to develop the
Hamilton Vermiculite Project. Creditors frequently were not paid off, or would
settle for smaller amounts or no payment at all. Or, a debt may ultimately be
canceled because of the statute of limitations. The amounts reported on the
statements of operations as "Other Income -cancellation of debt" arise for these
reasons. New Management is of the opinion there remain debts as of December 31,
1998 that may later on be identified as cancellation of debt (See Notes 1 and
3).
Note 11: Corrections in Accounting Errors & Prior Period Adjustments
New Management identified three significant accounting errors in the financial
statements. These require prior period adjustments including fiscal year ending
June 30, 1997.
In 1989 the Company had a $447,000 offering of long-term debt due December, 1992
and secured with a second position in the mineral rights. Interest on the debt
was prepaid in full by issuing stock for interest. The financial statements,
however, accounted for the debt at $496,000 not $447,000. In addition, the
financial statements over the years reported the long-term debt as bearing
interest
18
Note 11: Corrections in Accounting Errors & Prior Period Adjustments (continued)
at 23% cumulative instead of non-interest bearing.
From 1988 forward, the company continues borrowing funds. New Management has
determined the accrued interest on these loans should be computed on the basis
of simple interest. However, the Company had been compounding the interest
(interest on interest). The total impact on the financial statements, which are
restated are:
CURRENT PORTION INTEREST EXPENSE
LONG-TERM ACCRUED INTEREST (ACCUMULATED
DEBT PAYABLE DEFICIT)
--------------- ---------------- ----------------
June 30, 1997 $ 0 $ 696,085 $ 696,085
Prior to June 30, 1997 49,000 791,376 791,376
Total Overstatement $ 49,000 $1,487,461 $1,487,461
========== ========== ==========
Note 12: Commitments and Contingencies
Royalty and Lease Agreements: 22 of the unpatented lode mining claims are leased
to the Company under a lease assigned to the Company during June, 1986 (the
"Chamberlain Lease") in connection with the settlement of obligations owed to
the Green International, Inc., Shareholders Liquidation Trust. The lease
contains an option to purchase the claims at a purchase price of $1,000,000
during the term of the lease and any extension. The current lease expires on
November 15, 1997, and is renewable for an additional consecutive ten year term
upon five days' notice. The lease provides for a royalty payment to the Lessors
of $2.00 per ton of vermiculite concentrate, or 3 1/3 percent of the selling
price, whichever is greater, of vermiculite ore mined from the 22 claims. An
addendum to the lease extends this royalty to another 18 claims held by the
Company. A minimum royalty of $1,500 per quarter is provided for in the lease.
All royalty payments attributable to the 22 claims are to be a credit on the
purchase price of the option to purchase the claims [See note 11(a)].
Annual Claim Maintenance Fees: In 1993, the federal government substituted a fee
of $100 per claim in lieu of the former requirement for labor assessments, to
maintain title to the claims. Responsible for the maintenance of 96 claims, the
Company has an annual obligation of $9,600 in order to preserve its title to the
claims.
Environmental Impact Statement: In May of 1993, the US Forest Service and the
Montana Department of State Lands issued a Final Environmental Impact Statement
for the Western Vermiculite Project (the "Hamilton Property"). The EIS was
required in response to the Company's application for an operator's permit to
develop the Hamilton Vermiculite Project. To date, no evaluation of the cost
required to effect the implementation of the Plan of Operations, from an
administrative and permitting perspective has been undertaken by the Company,
and no reserve of
19
Note 12: Commitments and Contingencies (Continued)
funds has been allocated for that purpose.
Insurance: The Company discontinued its insurance coverages during fiscal 1991
and has been uninsured since that time.
Income Tax: The company has not filed any federal or state income tax returns
since June 30, 1990. The total amount due is estimated to be under $3,000. This
is not reflected on the financial statements.
Securities Matters: The Company's Common Shares were delisted from NASDAQ
National Market System on January 21, 1992. The Company shares currently trade
on the NASDAQ Electronic Bulletin Board.
Note 13: Subsequent Events
(a) In November, 1997, the Chamberlain Lease of 22 unpatented lode mining claims
in Hamilton Vermiculite Project expired, and was not renewed; the Company holds
the remaining claims (numbering 74 claims, of which 63 are lode mining claims
and 11 are mill site claims). In the opinion of New Management, the claims no
longer leased by the Company, while containing a large quantity of low grade ore
(at or below the cut-off grade for current vermiculite operations), do not
impact the Company's financial position, since the bulk of this ore was not
within the bounds of the mining operation permitted by the EIS, and had no
present commercial value. In September, 1998, the 22 claims were abandoned by
the previous owners. The Company subsequently located 22 claims covering the
same area and is now the owner of the entire claim group.
(b) In July, 1998, the Liquidator of the first mortgagee insurance company
holding a lien upon the Hamilton Vermiculite Project has made an offer in
settlement of all claims, for $130,000, which offer the Company has accepted,
and on October 28, 1998 it was fully funded and closed (See Note 1). Certain
other mortgagors and note holders (holding in the aggregate principal balances
of $496,000) have agreed to accept common stock of the Company for accrued
interest on their notes through February 1, 2001, and to extend the maturity
until February 1, 2001.
20
PART I
ITEM 2 - PLAN OF OPERATIONS
PLAN OF OPERATIONS
General
The Company is currently directing its efforts to (i) initiating a
mining and milling operation at its Hamilton Vermiculite property, (ii)
acquiring other vermiculite resources and related businesses that will provide a
significant market presence in the vermiculite industry, and (iii) exploring
other power and mining acquisitions or joint ventures. Situations that are
currently being investigated include the acquisition of an inactive vermiculite
mine and mill in southern Montana, the acquisition of an active mine and mill in
Brazil, and the acquisition and relocation of small electric plants. It is the
intent of the Company to engage in the exfoliation of vermiculite concentrates
and the preparation and marketing of vermiculite products, and perhaps to expand
into energy production and distribution. To this end the Company is engaging in
discussions with potential joint venture partners to construct and operate one
or more vermiculite exfoliation facilities, with potential sellers of energy
plants, and with banks regarding financing.
The Company's mining experts have recommended that mining and milling
operations at the Hamilton property be incrementally phased in with the first
stage being a small pilot plant designed to produce up to 1,000 tons per month
of coarse sized vermiculite concentrates. The Company believes that this will
allow for a much more rapid and cost effective way to begin producing
vermiculite concentrates to market and to use as feed material at such time as
the Company becomes involved in the processing of vermiculite into end user
products.
The Company intends to perform additional drilling programs on the
claims on the Hamilton property as part of the joint venture. Current ore
reserve estimates are based solely on the results of a drilling program
performed in 1986. Although the results of this program are considered valid,
the area covered by the drilling program was only a fraction of the mapped and
inferred vermiculite deposit.
Current Market and Competition
All of the vermiculite that is now being mined in the United States
comes from mines in Virginia and South Carolina. W.R. Grace & Company has a
large vermiculite operation near Enoree, South Carolina, which is capable of
producing approximately 100,000 short tons of vermiculite concentrate per year.
Virginia Vermiculite Ltd. produces vermiculite from a mine near Woodruff, South
Carolina, and from a mine near Louisa, Virginia. The Company believes that the
combined output of Virginia Vermiculite Ltd. is approximately 90,000 tons per
year. Both Grace and Virginia Vermiculite consider their reserve and production
data to be confidential so the Company's estimates of their production are
approximations.
There is one other small mining operation in South Carolina. This
operation was for many
21
years known and 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 the Hamilton
property will be competitive with the South Carolina and Virginia mines, which
source vermiculite throughout the western United States and Canada. There is no
vermiculite mine currently active in the western United States. One small
operation near Dillon, Montana has produced approximately 4,000 tons of
concentrate during short periods of operation in recent years. This operation
has a production capacity estimated to be only 6,000 short tons per year and it
is currently inactive.
At one time, Grace also operated a mine and mill near Libby, Montana.
The Libby operation was the largest vermiculite mine and mill in the history of
commercial vermiculite and had annual production exceeding 225,000 tons of
concentrate. The Libby operation was terminated and the land reclaimed over 10
years ago.
Currently, substantially all of the vermiculite imported into the
United States and Canada comes from either the Peoples Republic of China or the
Republic of South Africa. The amount of vermiculite arriving at ports in
California and Washington is quite small and relatively high priced. Although
the possibility of larger and lower cost shipments of imported vermiculite
landing on the Pacific Coast is possible, the information available to the
Company at this time is insufficient to allow it to reasonably predict its
potential impact on the marketability of Hamilton vermiculite.
Acquisitions
On December 30, 1998, Stansbury announced that it has had discussions
with the principal owner and operator of a mining and milling operation in
Brazil, with a goal to conclude the proposed acquisition in March 1999, and a
general term sheet had been exchanged.
While at the present stage of negotiations, the terms remain nonbinding
on the parties; the understanding contemplates that the Company will provide an
initial mill expansion to increase the production of vermiculite concentrate to
50,000 tons per year. The Company believes that the reserves of the project are
in the range of 10 million tons of ore.
Development Stage Activities
In October of 1998, Nevada Vermiculite provided the funding to
Stansbury to discharge the debt to its largest creditor, Southern American
Insurance Corporation in Liquidation. The creditor Southern American Insurance
Company had been in liquidation under the supervision of the Utah State
Insurance Commission since 1991. The liability to this creditor from principal
and accrued interest were in excess of $2,056,474. This liability, which dates
back to the late 1980s, had been secured by a first mortgage on the vermiculite
claims at the Hamilton site, the Company's major asset. The liability has been
settled, and released of record. The amount of the settlement was $130,000,
which the Company raised through the issuance of a convertible note in that
amount to
22
Nevada Vermiculite.
In December of 1998, the Company entered into negotiations to form a
joint venture with Nevada Vermiculite. The purpose of the joint venture is to
commence mining and milling operations of worldwide vermiculite concentrates
during 1999. The intended joint venture will be known as International
Vermiculite L.L.C., a Delaware limited liability company.
Nevada Vermiculite, of whom Stansbury directors Aldine J. Coffman and
James R. Hindman, are minority shareholders, is owned by Messrs. Coffman and
Hindman and the principals of Channel and Basin Reclamation, Inc. ("Channel &
Basin"). Channel & Basin owns and operates three large-scale sand and gravel
operations with revenues of approximately $12 million per year. The Company
believes that Nevada Vermiculite will bring the capital, equipment and
operational expertise to contribute to the mining and milling efforts of the
joint venture.
Liquidity
The Company has been inactive and nonoperating for years; consequently,
it is questionable as to whether or not it can remain a going concern. The
primary activity in the past few years has been to preserve and maintain mineral
leases and claims. No actual mining has occurred since the Company acquired such
properties in 1984. The Company has had no income since 1991, and has utilized
proceeds of the issuance of debt securities and the issuance of capital stock
for meeting its operating capital commitments. The Company has not obtained the
necessary financing to meet its working capital requirements, and there can be
no assurance that the Company will be successful in obtaining the necessary
financing. The Company has entered into a joint venture to facilitate the
development of its vermiculite mining assets. The Company intends to issue
additional debt securities for working capital and for the cash portion of
acquisitions it is currently negotiating. The Company expects to issue capital
stock for the majority of the purchase price of these possible acquisitions.
There can be no guarantee that the Company will consummate any acquisitions of
additional vermiculite mines or any power plants; however, the Company has begun
discussions with banks regarding financing necessary for certain acquisitions.
There can be no guarantee any such bank financing will be available to the
Company, or, if it is available, that it will be at interest rates and terms
acceptable to the Company.
YEAR 2000 COMPLIANCE
The Company is currently negotiating a joint venture pursuant to which
it expects that it will commence active mining and milling operations during
calendar 1999. The Company has not yet begun to institute active operations, to
select vendors, to purchase equipment, including either information technology
("IT") equipment or non-IT systems, nor secure customers; therefore, the Company
cannot yet measure the consequences of its not being prepared for the Year 2000,
the cost of its not being prepared for the year 2000, the cost of its becoming
prepared, or the risks the Company faces from preparation for or failure to be
prepared for the Year 2000, nor is it yet able to devise any contingency plans.
23
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The only pending action against the Company is by Ellsworth, Wiles &
Chalphin, P.C., filed in the Court of Common Pleas, Bucks County, Pennsylvania,
on September 14, 1998. James G. Wiles ("Wiles") acted as former counsel to the
Company as partner in Ellsworth, Wiles & Chalphin, P.C. The complaint alleges
$69,654.95 is due for legal services rendered by Wiles on behalf of the Company.
However, a counterclaim has been filed against Wiles alleging that no amount is
due, and furthermore that Wiles failed to protect the best interest of the
Company by failure to have required tax returns filed timely.
Judgments of record affecting title to the Hamilton Project include: a
claim of lien filed by the State of Montana in January, 1993, for $658,
reflected on the financial statements as an account payable, and a judgment
obtained by Dorsey & Whitney, a general partnership, in December, 1994, for
$52,683 in principal, along with prejudgment interest of $32,527, the total
amount of which is $85,210 is accruing at 12% interest from December 1994; at
June 30, 1998 principal and accrued interest totaled $121,977.
A judgment was obtained by Southampton Metals Ltd. ("Simon
Grant-Rennick"), under a settlement with the Company, upon which remains a
current unpaid balance of $5,600, which balance is included on the financial
statements as a note payable.
Other judgments against the Company, which appear in the financial
statements as accounts payable, include a judgment obtained by Mike Bauernfiend,
in Bergen County, New Jersey for $7,000, a judgment obtained by Martineau & Co.,
in Salt Lake City, Utah, for $8,000, and a judgment obtained by Bruce
Blessington, in Salt Lake County, Utah, for $26,293. These judgments remain due
and payable by the Company as of June 30, 1998.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
24
ITEM 5 - OTHER INFORMATION
During 1999, the Company's management conducted a review of the
Company's past sales of promissory notes ("Notes"). Management concluded that
although the Company sought to comply with applicable federal and state
securities laws in its sale of these Notes, the attempts to comply may not have
met the obligations imposed on the Company by the Securities Act of 1933, as
amended and certain state securities laws (collectively, the "Securities Laws").
Based on the foregoing, and Management's ongoing efforts to bring the
Company into compliance with the Securities Laws and to limit the potential
liability of the Company in connection with the sale of the Notes, the Company
will be offering all purchasers of the Notes ( the "Note Holders") the right to
rescind their purchase of the Notes.
The Company had granted to each Note Holder for each dollar in
principal amount of the purchased Notes, the purchased Notes plus four shares of
the Company's common stock (the "Associated Stock").
The right to rescind is set forth in, and referred to as, the
"Rescission Offering" (the Rescission Offering is attached for filing as an
Exhibit to this Form 10-QSB). Under the Rescission Offering, the Company will
pay to each Note Holder who chooses to accept the Rescission Offer and rescind
his or her purchase of the Notes and any shares of the Company's common stock
received in connection with the sale of the Notes an amount equal to the
consideration paid for the Note, adjusted by the Interest Adjustment. The
"Interest Adjustment" is the amount of the interest the Company has paid on the
Note less the interest at the applicable statutory rate in the state in which
the Note Holder resides from the date of the purchase of the Note.
The Company will also be making a matched Note Offering to the Note
Holders. This Note Offering will be made to the previous purchasers of the
Company's promissory notes under the same terms as the original Note. The
current aggregate amount of promissory notes outstanding, and which the
Rescission Offering and matched Note Offering include, is $2,047,710.31. The
Company plans to solicit additional investment through the Note Offering in
compliance with the relevant federal and state securities laws.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) 27.1 Financial Data Schedule
99.4 Recession Offering
99.5 Notes Offering
(b) There were no reports on Form 8 -K filed during the three
months ended March 31, 1999.
25
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: MAY 14, 1999 STANSBURY HOLDINGS CORPORATION
BY: /s/ ALDINE J. COFFMAN, JR.
--------------------------------------
ALDINE J. COFFMAN, JR., CHIEF
EXECUTIVE OFFICER AND PRESIDENT
BY: /s/ JEFFERY L. WERTZ
--------------------------------------
JEFFERY L. WERTZ, CHIEF
FINANCIAL OFFICER AND VICE PRESIDENT
26
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
99.4 Recession Offering
99.5 Notes Offering