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 December 31, 1998 Commission File No. 0-6034 STANSBURY HOLDINGS CORPORATION ---------------------------------------- (Exact Name as Specified in Its Charter) STATE OF UTAH 87-0281239 - ------------------------ ---------------------- (State of Incorporation) (I.R.S. Employer Identification Number) 676 LOUIS DRIVE WARMINSTER, PA 18974 UNITED STATES --------------------- ------------- (Address of Principal (Country) Executive Offices) Registrant's telephone number, including area code: --------------------------------------------------- (215) 328-9566 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 10-Q PART 1 - FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements Condensed Balance Sheets December 31, 1998 and June 30, 1998 ....... 1 Condensed Statement of Operations and Accumulated Deficit .......... 2 Condensed Statement of Cash Flows .................................. 3 Notes to Condensed Financial Statements ............................ 4 PART II - OTHER INFORMATION Item 1. Description of Business ........................................... 17 Item 2. Description of Property ........................................... 21 Item 3. Legal Proceedings ................................................. 27 Item 4. Items For Submission to Shareholders .............................. 27 Item 5. Market For Common Stock and Related Shareholder Matters ........... 28 Item 6. Plan of Operations ................................................ 29 Item 7. Financial statements .............................................. 31 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures ...................................... 32 Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with section 16(a) of the Exchange Act .......... 32 Item 10. Executive Compensation ........................................... 33 Item 11. Security Ownership of Certain Beneficial Owners and Management .... 34 Item 12. Certain Relationships and Related Transactions .................... 34 Item 13. Exhibits and Reports on Form 8-K .................................. 35 Signatures ................................................................. 36 STANSBURY HOLDINGS CORPORATION BALANCE SHEET December 31, 1998 SIX MONTHS ENDED TWELVE MONTHS ENDED DECEMBER 31, 1998 JUNE 30, 1998 (UNAUDITED) (AUDITED) ASSETS Current Assets Cash $ 3,076 $ 1,685 Other Receivables 22,283 -- ------------ ------------ Total Current Assets 25,359 1,685 Property & Equipment Building 25,930 27,017 Mineral Property 11,833,355 11,833,355 Development Costs 3,139,105 3,139,105 ------------ ------------ Total Property and Equipment 14,998,390 14,999,477 Other Assets Other Assets 24,500 20,000 ------------ ------------ Total Other Assets 24,500 20,000 TOTAL ASSETS $ 15,048,249 $ 15,021,162 ============ ============ LIABILITIES AND CAPITAL Current Liabilities Notes Payable-Short Term $ 454,863 $ 169,863 Current Portion Long-Term Debt 1,605,100 1,605,100 Accounts Payable 347,659 276,898 Accrued Interest 1,151,372 2,597,820 ------------ ------------ Total Current Liabilities 3,558,994 4,649,681 Long-Term liabilities Notes Payable-Noncurrent 575,716 1,086,677 ------------ ------------ Total Notes Payable-Noncurrent 575,716 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 (3,723,578) (2,705,175) Net Income 1,288,775 (1,018,403) ------------ ------------ Total Capital 10,913,540 9,284,804 TOTAL LIABILITIES AND CAPITAL $ 15,048,249 $ 15,021,162 ============ ============ STANSBURY HOLDINGS CORPORATION STATEMENT OF OPERATIONS THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, 1998* DECEMBER 31, 1998* Revenues $ -- $ -- Cost of Sales -- -- ----------- ----------- Gross Profit -- -- Expenses Consulting Fees $ 33,376 $ 77,212 Legal 53,724 83,311 Accounting 28,060 48,764 Office Supplies 3,260 4,550 Other Office Expense 567 1,910 Mining Leases -- 17,400 Advertising and Promotion 34,888 74,963 Interest 429,226 417,146 License and Permits 517 1,257 Professional Fees 3,059 2,118 Depreciation Expense Building 1,087 1,087 Utilities 683 2,185 Transfer Agent Fees 1,129 1,629 Travel 15,909 34,166 ----------- ----------- Total Expenses 605,485 767,699 ----------- ----------- Operating Income (Loss) (605,485) (767,699) Other Income Cancellation of Debt 2,056,474 2,056,474 ----------- ----------- NET INCOME (LOSS) $ 1,450,989 $ 1,288,775 * Comparable figures for the corresponding period in 1997 are unavailable. STANSBURY HOLDINGS CORPORATION STATEMENT OF CASH FLOWS THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, 1998 DECEMBER 31, 1998 Cash Flows From Operating Activiities Net Income(Loss) $ 1,450,988 $ 1,288,775 Depreciation 1,087 1,087 Stock Issued for services and Interest 214,961 214,961 Increase (Decrease) in Short-Term Debt 206,437 285,000 Increase (Decrease) in Accounts Payable (4,293) 70,761 Increase (Decrease) in Accrued Interest (1,451,248) (1,446,448) ----------- ----------- Total Adjustments From Operating Activities (1,033,056) (874,639) ----------- ----------- Net Cash Provided by Operations 417,932 414,136 Cash Flow From Investing Activities Decrease (Increase) in Development Costs -- -- Decrease (Increase) in Other Receivables (22,283) (22,283) Decrease (Increase) in Other Assets (4,500) (4,500) ----------- ----------- Net Cash Used in Investing Activities (26,783) (26,783) Cash Flow From Financing Activiities Increase(Decrease) in Notes Payable, Non-Current (515,961) (510,962) Increase(Decrease) in Common Stock 125,000 125,000 ----------- ----------- Net Cash Used in Financing Activities (390,961) (385,962) Net Increase(Decrease) in Cash $ 187 $ 1,391 =========== =========== Summary Cash Balance End of Period 3,076 3,076 Cash Balance Beginning of Period 2,889 1,685 ----------- ----------- Net Increase(Decrease) in Cash $ 187 $ 1,391 =========== =========== STANSBURY HOLDINGS CORPORATION Notes to Financial Statements December 31, 1998 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-Q. 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-K 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. 4 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) 5 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 at December 31, 1998 and 24,039,290 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 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 significance of the settlement amount, the gain may be 6 Note 1: Summary of Significant Accounting Policies (Continued) 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). 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 7 Note 2: Going Concern Statement (Continued) 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 charges were made by the New Management Team to the Company for services provided the Company for the fiscal year ending June 30, 1997. See Note 12 with respect to the financial arrangements with the New Management Team. 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 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. 8 Note 3: Related Party Transactions (Continued) 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 is issued for cash and non-cash consideration. Non-cash consideration includes debt discharge and debt assumption. Common Stock As of June 30, 1998, common stock consisted of authorized capital of 25,000,000 shares having a par value of US$0.25. Share 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 1997 Issued for cash - $ - Issued for property - - Issued for debt 1,193,764 298,441 9 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 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. 10 Note 6: Undeveloped Mineral Projects (Continued) 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. 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. 11 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. Notes Payable and Long Term Debts Notes payable and long term debts are summarized as follows: (a) Mortgages Payable: December 31, 1998 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 in part prepaid, past due and in default (Note 11) 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 ========== ========== 12 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 1,030,579 1,086,677 ----------- ---------- Total $ 2,635,679 $2,861,640 =========== ========== Accrued Interest Payable, Accrued interest payable, all current, is for: December 31, 1998 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. 13 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 $7000. A Judgement obtained by Martineau & Co., in Salt Lake County, Utah, for $8000. 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 at 23% cumulative instead of non-interest bearing. 14 Note 11: Corrections in Accounting Errors & Prior Period Adjustments (Continued) 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 Accrued Interest Interest Expense Long-term Payable (Accumulated Debt 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 funds has been allocated for that purpose. Insurance: The Company discontinued its insurance coverages during fiscal 1991 and has been uninsured since that time. 15 Note 12: Commitments and Contingencies (Continued) 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 75 claims, of which 64 are mining claims and 11 are mill site claims). In the opinion of New Management, the claims no longer leased by the Company, while containing a large quantity of low grade ore (at or below the cut-off grade for current vermiculite operations), do not impact the Company's financials, since the bulk of this ore was not within the bounds of the mining operation permitted by the EIS, and had no present commercial value. In September, 1998, the 22 claims were abandoned by the previous owners. The Company subsequently located 22 claims covering the same area and is now the owner of the entire claim group. (b) In July, 1998, 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. 16 PART II ITEM 1 DESCRIPTION OF BUSINESS Business Development Stansbury Holdings Corporation ("Stansbury" or "the Company") is a development stage mining company incorporated in the State of Utah on May 7, 1969, under the name Stansbury Mining Corporation. On June 10, 1985, the Company was reorganized as part of an approved Plan of Reorganization under a Chapter 11 proceeding pursuant to the Federal Bankruptcy Act. At that time, the authorized capital of the Company was also changed to 25,000,000 shares of common stock, par value $.25 per share. The corporate name was changed to Stansbury Holdings Corporation in March, 1990. Since December 12, 1994, the Company has obtained approximately $1,500,000 in loans from shareholders of the Company. Of this amount, approximately $400,000 has been obtained since June 30, 1998. Such loan proceeds have been used for developmental costs, operating expenses, taxes and fees, and to reduce preexisting debts. In the fiscal year ended June 30, 1997, the Company decided to reclassify its assets using, according to generally accepted accounting principles, the "cost basis" of accounting for its assets that had been previously reported on the basis of "fair market value." The Company made this change to be effective as of June 30, 1996 so that the Company could restate its asset value as of that date. As a result of this reclassification, the assets of the Company previously stated as $36,811,743 as of June 30, 1996 under the former accounting practice, were reclassified and restated to be $14,814,215 as of June 30, 1996. See Footnote 6 to the financial statements, set forth below, for further discussion of the reclassification and appraised value of the asset. The Company has also considered the carrying value of its assets in light of Financial Accounting Standards No. 121 ("SFAS 121"). SFAS 121 establishes accounting standards for the impairment of longlived 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 longlived assets, the Company believes that there were no material adverse changes that would cause an impairment in value. The Company has also classified its asset at cost rather at appraised value, and the Company has no intention to dispose of the asset. In addition, the Company elected to write down, as of June 30, 1997, certain accounts payable totaling $75,892 to 30 different vendors which had been carried on the financial statements since 1991 for which the Company could determine no documentary justification. Of that amount, 25% ($18,992) was established as an accounts payable reserve and added back to accounts payable in the event any of those creditors should make a valid claim. It is expected that this reserve will be written off in two equal installments in fiscal years 1998 and 1999, thereby allowing a contingency should further due diligence indicate any error in such writedowns. Accordingly, onehalf, or $9,496, was written off June 30, 1998, 17 Business Development (Continued) and the remaining portion will be written off at June 30, 1999. The Company believes that some of the accounts payable eliminated by the procedure were or to defunct entities, and that other payables were paid, but were erroneously continued to be reported as accounts payable. Due to prior changes in management, accountants and physical file locations, these errors had gone undetected. The age of the payables caused current management to question their validity. The Company's due diligence procedures, corroborated by its independent auditors, indicated that these payables should no longer be carried on the Company's balance sheet. The Company believes that none of the entities whose balances were so adjusted was affiliated with the Company, or any of its present or past officers, directors, employees, consultants or affiliates. On December 12, 1994, an election was held as a result of a proxy contest by shareholders' committee. As a result of that election, management of the Company was transferred to a new management group. Other than the previously mentioned 1985 "Reorganization," the reclassification of assets effective as of June 30, 1996, and the June 30, 1997, 1998 and the 1999 write off of accounts payable, the Company has not been involved in any bankruptcy, receivership, or similar proceeding, or in any other material reclassification, merger, consolidation, purchase or sale of any significant amount of assets. The Company is planning to enter into negotiations for additional vermiculite projects, and has in fact done so since the end of the last reporting period. The Company has also entered into negotiations for the formation of a joint venture (described below); if successfully consummated the Company believes that this joint venture will provide adequate working and investment capital would be assured to commence certain vermiculite operations through the joint venture. Business of Issuer The principal business activity of the Company since its reorganization has been vermiculite mineral exploration and development. The principal project of the Company has been the Hamilton Vermiculite Project. Since 1985, the Company has spent in excess of $2 million to establish the viability of the proposed vermiculite mine near Hamilton, Montana. The Company intends to develop and operate an open pit vermiculite mine and mill on 96 unpatented mineral claims owned by the Company in Montana. The property consists of mineral mining claims covering 1,750 acres, 10 air miles east of Hamilton, on the western flank of Skalkaho Mountain within the Bitterroot National Forest. The Company is of the opinion that the Hamilton site represents the largest known vermiculite deposit available for development in the western United States, and believes that there is sufficient proven ore reserves to support a mining and milling operation for a minimum of 12 years. The proposed mining operation has been approved by the U.S. Forest Service based on an Environmental Impact Statement (EIS) prepared in 1994. Samples of the vermiculite ore at the Hamilton mining site indicate that the vermiculite is asbestosfree and that there will be substantial amounts of recoverable vermiculite concentrates. Since the construction of the proposed mine and mill has not yet commenced, the Company has not engaged in operations nor has it derived revenue from any source during fiscal years ended June 30, 18 Business of Issuer (Continued) 1996, June 30, 1997, June 30, 1998, or yet during the current fiscal year. At the present time the Company does not have any principal products or services. The Company anticipates building and operating a vermiculite mine in calendar year 1999 if project financing and additional equity capital can be obtained. The Company anticipates that sufficient funding will be available, but there is no assurance that such capital will be obtained. Vermiculite is a micalike mineral which exfoliates (expands upon rapid heating) to produce an inert, lowdensity material with significant thermal qualities it does not burn and provides excellent heat resistance. Untreated vermiculite is commonly used as an active component of wall plasterboard. The exfoliated product is used extensively as a lightweight aggregate in fireproofing, thermal insulation, acoustical plasters, horticultural growth media, and as a fertilizer carrier. Another major use is in cementitious coatings used to protect structural steel in commercial buildings. Ground vermiculite is also used as a filler for brake linings. New uses for vermiculite include high performance automotive seals and catalytic converter mats, and high temperature coatings for woven glass and ceramic fiber products. The United States represents the world's largest vermiculite market. The United States and the Republic of South Africa each produce approximately 200,000 tons of vermiculite concentrate per year. Approximately 5% of the domestic production is exported as concentrate and manufactured products. Consumption exceeds production and approximately 25% of the domestic consumption of vermiculite is supplied by imports from the Republic of South Africa and the Peoples Republic of China. The Board of Directors of the Company has examined the factors that have contributed to the Company's inability to place its Hamilton Vermiculite Project into production. The Board has determined that it is in the best interest of the Company to enter into a cooperative joint venture with an entity which can provide adequate and timely working and investment capital for the mining and milling project. To this end, the Company has entered into negotiations to form a joint venture with Nevada Vermiculite LLC ("Nevada Vermiculite") for all vermiculite undertakings. Nevada Vermiculite is a Nevada limited liability company engaged in the exploration and development of vermiculite resources. Nevada Vermiculite LLC was formed on May 4, 1998, primarily for the purpose of the expected joint venture with the Company, and has no reported earnings to date. The Company anticipates that Nevada Vermiculite will provide the bulk of the working capital arrangements for the mining and milling operations of the joint venture, while the Company would acquire for the joint venture additional vermiculite ore properties in the United States and abroad. Negotiations with Nevada Vermiculite are ongoing with respect to two specific acquisitions, one domestic and one foreign. Additionally, Nevada Vermiculite is negotiating to acquire a domestic vermiculite resource for development by the joint venture. At present, all of the forgoing are under negotiation; however, no binding contract between the Company and Nevada Vermiculite has been reached. 19 Governmental Regulation Final approval of the Company's Environmental Impact Statement (EIS) was obtained on January 3, 1994. An operating permit is available dependent on the Company posting a reclamation bond. The amount of the bond needed depends upon the extent of the mining operation, and may be offset to some extent by a development bond currently posted by the Company. The Company's mining experts have recommended an initial mining and milling operation to commence in calendar year 1999 which is significantly less in scale and cost than originally proposed in the EIS. The bonding requirement for this new mining operation has not yet been determined. The Company plans to develop the Hamilton vermiculite project on a joint venture basis and, if commenced, will be subject to regulation by the United States Forest Service, the United States Environmental Protection Agency, the Montana Department of Environmental Quality (formerly Department of State Lands), and the Mines Safety and Health Administration (MSHA). Pursuant to the EIS, the Company is subject to certain limitations and conditions as to the time of operation and the method of operation (e.g. the operation of the initially proposed mine is limited to a 150 day operating cycle from May through October 15). The Company expects that the Hamilton mining operation, if commenced, will continue to be subject to regulation by federal and state environmental, land, mining, and safety agencies. Changes in any or all of laws and regulations affecting these agencies could have a material, and possibly adverse impact on the Company's prospects and future operations. Competition For a discussion of competition, please see Item 6 - Plan of Operations "Current Market and Competition" of this Form 10-KSB. Employees The Company has its corporate offices at 676 Louis Drive, Warminster, Pennsylvania 18974. The Company also maintains a field office in Victor Crossing, Montana. From time to time, the Company has employed technical specialists on an "as needed" basis. All services to the Company were performed on an independent contractor basis, and the Company had no full time employees as of December 31, 1998 (See Item 9). 20 ITEM 2 DESCRIPTION OF PROPERTY The Company has no mining operations or processing plants at any location at the present time; however the Company does maintain a small field office and mining claims. Field Office The Company owns a small office building and surrounding land (1.25 acres) at Victor, Montana (southwestern Montana), which can be used for a field office (the "Field Office Property"). The Field Office Property is owned in fee simple. The Company believes that the condition of the Field Office Property is acceptable for its purpose should the Company be able to commence construction activities. The Company has no liability insurance on the field office, but is currently seeking such insurance. Vermiculite Claims Prior to November 1997, the Company leased 22 unpatented mining claims in Ravalli County, Montana, which were a part of its 96 claim group that was managed and developed under the name of "Western Vermiculite". Of the 96 claims, the Company held 74 directly as the party of record staking the claim or as the successor to the interest of the party of record. In November 1997, the lessors of the 22 "leased claims" notified the Company that the lease would not be renewed for a third ten-year term (the lease having commenced in 1977). As a result, from November 1997 to September 1998, the Western Vermiculite Project of the Company consisted of only the 74 claims of which the Company was the locator. In September 1998, the original lessors of the 22 "leased" claims abandoned those claims, and the Company located 22 new claims covering the same ground and mineral resource as formerly embraced under the expired lease. The net result of these events is that the Company is now the holder of all 96 claims free of all former royalty obligations. This new set of claims and the development of a mining and milling project to exploit the Skalkaho Mountain vermiculite deposit covered by these claims is referred to as the "Hamilton Vermiculite Project". Under the original Western Vermiculite Project, the Company proposed to build an open pit vermiculite mine, haul road, ore beneficiation plant, host rock waste stockpile, water storage tanks, sedimentation ponds and administrative and maintenance buildings. The Company has commenced construction on this original project proposed as part of the Environmental Impact Statement study. At this current point in time, the Company's mining experts have recommended that, as part of the new Hamilton Vermiculite Project, mining and processing on the vermiculite property be commenced with a small mill designed to produce the larger sized vermiculite concentrates (Sizes 0, 1, and 2). 21 Vermiculite Claims (Continued) The Company believes that the smaller scale of the Hamilton Vermiculite Project's initial phase will allow for a more cost effective means to develop the initial market for Hamilton vermiculite concentrates as well as to gather critical data for the design of a larger mill. It possible that the Hamilton Vermiculite Project will be expanded in a stepwise manner until it eventually achieves the overall size and production capacity originally proposed. It is expected that the smaller initial development of the property will fall within the scope of the Environmental Impact Statement. The Company's 96 unpatented mining and mill site claims, comprising approximately 1,750 acres, are located about 11 air miles East and slightly North of Hamilton, Montana. Access to the property is by an improved, private road. The nearest rail siding, located on the Montana Rail Link Railroad, is an additional 9 miles North of Hamilton, Montana, at Victor Crossing, Montana. The mining and mill site claims lie near the crest of the south end of the Sapphire Mountains at an elevation of approximately 7,000 feet. The area is part of the Bitterroot National Forest. The claims are also found within the Skalkaho igneous complex on the western flank of Skalkaho Mountain and in the upper portion of the Saint Clair Creek drainage area. The Skalkaho igneous complex is an elongated igneous body about four miles long and one mile wide with its major axis tending East-West. The zone of interest in the Skalkaho igneous complex consists of biotite pyroxenite exposures which contain vermiculite. Biotite is a sheet silicate mineral that alters to vermiculite during the geologic weathering process. The altered mineral, vermiculite, has desirable properties of ion exchange and thermal exfoliation which are not present in the original biotite mineral. Principal exploration of the Company's claims to date has been conducted on the ABM Ridge and Horse Ridge. These ridges are the most accessible areas of the deposit and have outcrops of ore which were first studied. The average depth of the vermiculite deposit thus far evaluated by drilling is 42 feet on the ABM Ridge and 62 feet on the Horse Ridge. The maps on the following pages give the location of the property as follows: Map A, entitled "Project Location", indicates the geographical location of the proposed mine and mill in relation to Victor Crossing and Hamilton, Montana, and to the Montana Rail Link Railroad. Map B, entitled "Proposed Facilities Plan and Wetlands Areas of Interest", is a schematic showing the configuration of the mine site. The proposed mine would be located on ABM Ridge (see Map "B") and would involve disturbance of up to approximately 77 acres as described in the Environmental Impact Statement. A portion of the permit area is comprised of unreclaimed land disturbed by previous mining activities. Prior mining operations at the proposed project site are documented in the EIS, and remnants of these operations are evident on the site. At the request of the US Forest Service, the Company performed reclamation work at the proposed mine site in September 1995. 22 Vermiculite Claims (Continued) Elevations for the mine site and vicinity range from about 6,600 feet to 7,200 feet. Most of the surrounding area is forest. Ground water is likely to be encountered midway through the mining operation. The Company believes that its Hamilton vermiculite deposit has a significant advantage in that the risk of producing vermiculite concentrates containing fibrous asbestiform minerals is extremely small to non-existent. To date, periodic testing of drill hole samples and airborne dust samples had failed to identify any fibrous, asbestiform mineral particles as being present in the ore body. Asbestiform silicate minerals, which are generally referred to as Asbestos, can produce sever health effects when trapped in the lungs or ingested. Consequently, the Company's vermiculite deposit, if exploited, should offer a significant safety and marketing advantage over other domestic and foreign sources which may contain asbestos contamination. Reserves The Company's vermiculite deposit near Hamilton, Montana, was first identified as a potential resource in the 1930s. Sporadic attempts have been made to develop a mine at the property, with the most recent prior to the Company's involvement being in the late 1970s. Over the years, it has been referred to as the Mt. Skalaho deposit, the Western Vermiculite deposit, the Grid Creek deposit and, most recently, as the Stansbury Hamilton Vermiculite deposit. Since its discovery, a number of estimates have been made as to the mineral resource inventory in the deposit; but until 1986, estimates were based on visual observation of surface characteristics and the areal extent of the mineralization, limited trenching and some rotary drilling performed in the late 1970s. None of these estimates quantified the amount and grade of the vermiculite mineralization accurately. During the summer of 1986 the Company conducted a drilling program on the Hamilton vermiculite deposit. The drilling was performed by Boyles Brothers Drilling Company of Spokane, Washington, and consisted of 90 diamond core drill holes covering the ABM Ridge and Horse Ridge areas. The drilling program produced over 9,500 feet of core. The core was split and representative samples of each fivefoot section of core were analyzed by an independent laboratory for vermiculite content. Two estimates of the contained vermiculite resource in the Company's Hamilton property have been made based on the analyses of the drilling program samples. The first was made in 1987 by Western Resources Company and indicated proven and probable ore reserves of 6.3 million tons of ore containing 628,000 tons of vermiculite. The second estimate of vermiculite reserves based on the same drill hole and analytical data was made by Dr. James R. Hindman, a Director of the Company, in 1992. This estimate indicated proven and probable reserves of 6.5 million tons of ore containing 656,000 tons of vermiculite. The Company considers these two independent calculations to be essentially identical. 23 Reserves The Company is aware that there are a number of variables and assumptions that enter into the calculation of proven (verified by drilling) and probable (extrapolated from nearby drilling) ore reserves. These include assumptions of inground ore density and the limitation of an acceptable ore grade cutoff. There are other exposures of vermiculite ore outside ABM Ridge and Horse Ridge and the Company notes that the area covered by the 1986 drilling program was only 33 acres compared to a total 1,750 acres currently under claim. The Company assumes that additional drilling will verify additional reserves within the ore body. Investment Policies The Company has no investments. Description of Real Estate and Operating Data The Company has received various inquires from realtors regarding the possible sale of the Field Office Property; however, the Company has declined to list such property for sale. The Company's properties are not insured; however, the Company anticipates that it will obtain the necessary liability insurance prior to its commencement of construction. Governmental Regulations and Environmental Matters Mineral exploration and production is subject to environmental regulations by federal, state and county authorities. In most states, mineral exploration and production is regulated by conservation laws and other statutes and regulations relating to exploration procedures, reclamation, safety of mine operations, employee health and safety, use of explosives, air and water quality standards, noxious odors, noise, dust and other environmental protection controls. See Item 1, "DESCRIPTION OF THE BUSINESS -- Governmental Regulation." 24 MAP A INSERT 25 MAP B INSERT 26 ITEM 3 LEGAL PROCEEDINGS The only pending action against the Company is by Ellsworth, Wiles & Chalphin, P.C., filed in the Court of Common Pleas, Bucks County, Pennsylvania, on September 14, 1998. James G. Wiles ("Wiles") acted as former counsel to the Company as partner in Ellsworth, Wiles & Chalphin, P.C. The complaint alleges $69,654.95 is due for legal services rendered by Wiles on behalf of the Company. However, a counterclaim has been filed against Wiles alleging that no amount is due, and furthermore that Wiles failed to protect the best interest of the Company by failure to have required tax returns filed timely. Judgments of record affecting title to the Hamilton Project include: a claim of lien filed by the State of Montana in January, 1993, for $658, reflected on the financial statements as an account payable, and a judgment obtained by Dorsey & Whitney, a general partnership, in December, 1994, for $52,683 in principal, along with prejudgment interest of $32,527, the total amount of which is $85,210 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 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company conducted no annual or special meeting if its shareholders in fiscal years ended June 30, 1997 and 1998, and, therefore, there were no matters submitted to a vote of security holders during those fiscal years ended June 30, 1997 and 1998. 27 ITEM 5 MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS The Company's Common Stock is quoted on the Nasdaq Electronic Bulletin Board under the symbol "STBY". The following table sets forth the "high" and "low" price of the Company's Common Stock for the periods indicated in 1996, 1997 and 1998. CALENDAR OPEN HIGH LOW CLOSE -------- ---- ---- --- ---- 7/1/95-9/30/95 (1st Qtr) .1875 .4375 .06 .487 10/1/95-12/31/95 (2nd Qtr) .31 .40 .06 .18 1/1/96-3/31/96 (3rd Qtr) .147 .312 .05 .312 4/1/96-5/30/96 (4th Qtr) .375 .50 .05 .437 7/1/96-9/30/96 (1st Qtr) .125 .3125 .0625 .19 10/1/96-12/31/96 (2nd Qtr) .15 .18 .11 .11 1/1/97-3/31/97 (3rd Qtr) .11 .14 .10 .10 4/1/97-6/30/97(4th Qtr) .10 .105 .015 .06 7/1/97-9/30/97 (1st Qtr) .065 .09 .0525 .07 10/1/97-12/31/97 (2nd Qtr) .07 .22 .0625 .14 1/1/98-3/31/98 (3rd Qtr) .14 .15 .07 .07 4/1/98-6/30/98 (4th Qtr) .07 .39 .05 .36 7/1/98-9/30/98 (1st Qtr) .13 .15 .055 .085 10/1/98-12/31/98 (2nd Qtr) .08 .39 .05 .06 The Company makes no representation as to whether there is an efficient market for its stock; or that market prices reflect either the value of the Company's shares or current and available information concerning the Company or its prospects. Rather, the quotations represent prices in the over-the-counter market between dealers in securities, and do not include or reflect markups, markdowns or commissions, and do not necessarily represent actual transactions. On December 5, 1998, the last reported sale price of the Common Stock was $.29 per share. As of December 5, 1998, there were 3,695 holders of record of the Common Stock. The Company has not paid any dividends on its Common Stock. The Company intends to retain any earnings for use in its operations and to finance the development and the expansion of its business, and does not anticipate paying any dividends on the Common Stock in the foreseeable future. The payment of dividends is within the discretion of the Company's Board of Directors. Any future decision with respect to dividends will depend on future earnings, future capital needs and the Company's operating and financial condition, among other factors. See "Plan of Operations." 28 ITEM 6 PLAN OF OPERATIONS General The Company is currently directing its efforts to (1) initiate a mining and milling operation at its Hamilton Vermiculite property and (2) acquire of other vermiculite resources and related businesses that will provide a significant market presence in the vermiculite industry. Situations that are currently being investigated include the acquisition of an inactive vermiculite mine and mill in southern Montana and the acquisition of an active mine and mill in Brazil. It is the intent of the Company to engage in the exfoliation of vermiculite concentrates and the preparation and marketing of vermiculite products. To this end the Company is engaging in discussions with potential joint venture partners to construct and operate one or more exfoliation facilities. The Company's mining experts have recommended that mining and milling operations at the Hamilton property be incrementally phased in with the first stage being a small pilot plant designed to produce up to 1,000 tons per month of coarsesized vermiculite concentrates. The Company believes that this will allow for a much more rapid and cost effective way to begin producing vermiculite concentrates to market and to use as feed material at such time as the Company becomes involved in the processing of vermiculite into end user products. It will be the Company's intent to perform additional drilling programs on the claims on the Hamilton property as part of the joint venture. Current ore reserve estimates are based solely on the results of a drilling program performed in 1986. Although the results of this program are considered valid, the area covered by the drilling program was only a fraction of the mapped and inferred vermiculite deposit. Current Market and Competition All of the vermiculite that is now being mined in the United States comes from mines in Virginia and South Carolina. W.R. Grace & Company has a large vermiculite operation near Enoree, South Carolina, which is capable of producing approximately 100,000 short tons of vermiculite concentrate per year. Virginia Vermiculite Ltd. produces vermiculite from a mine near Woodruff, South Carolina, and from a mine near Louisa, Virginia. The Company believes that the combined output of Virginia Vermiculite Ltd. is approximately 90,000 tons per year. Both Grace and Virginia Vermiculite consider their reserve and production data to be confidential so the Company's estimates of their production are approximations. There is one other small mining operation in South Carolina. This operation was for many years known 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. 29 Current Market and Competition (Continued) The Company believes that vermiculite produced from the Hamilton property will be competitive with South Carolina and Virginia sources throughout the western United States and Canada. There is no vermiculite mine currently active in the western United States. One small operation near Dillon, Montana has produced approximately 4,000 tons of concentrate during short periods of operation in recent years. This operation has a production capacity estimated to be only 6,000 short tons per year and it is currently inactive. At one time, Grace also operated a mine and mill near Libby, Montana. The Libby operation was the largest vermiculite mine and mill in the history of commercial vermiculite and had annual production exceeding 225,000 tons of concentrate. The Libby operation was terminated and the land reclaimed over 10 years ago. Currently, substantially all of the vermiculite imported into the United States and Canada comes from either the Peoples Republic of China or the Republic of South Africa. The amount of vermiculite arriving at ports in California and Washington is quite small and relatively high priced. Although the possibility of larger and lower cost shipments of imported vermiculite landing on the Pacific Coast is possible, the Company believes that the information available at this time is insufficient to allow it to reasonably predict its potential impact on the marketability of Hamilton vermiculite. Acquisitions On December 30, 1998, Stansbury announced that it has had discussions with the principal owner and operator of a mining and milling operation in Brazil, with a goal to conclude the proposed acquisition in March 1999, and a general term sheet has been exchanged. While at the present stage of negotiations, the terms remain 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 Nevada Vermiculite. 30 Development Stage Activities (Continued) 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 largescale 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 loans from shareholders and the issuance of capital stock for meeting its operating capital commitments. The Company has not obtained the necessary financing to meet its working capital requirements to operate the mineral property which is the Company's major asset, and there can be no assurance that the Company will be successful in obtaining the necessary financing. The Company plans to enter into a joint venture to facilitate the development of its assets, but if this joint venture does not occur, the Company will be required to seek capital from other sources. ITEM 7 FINANCIAL STATEMENTS The financial statements are included herein beginning at page 1. 31 ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES The Company's Board of Directors appointed Dr. Martin J. Peskin, who also serves as an outside director, to serve as Chairman of the Audit Committee. Dr. Peskin, after having consulted with the Board, will be recommending to shareholders at the next shareholders' meeting, scheduled for March, 1999, to approve changing the Company's Auditors to Haugen, Springer and Company, Certified Public Accountants, Denver, Colorado ("Haugen") to replace Sellers and Associates of Ogden, Utah ("Sellers"). Sellers will continue to perform federal and state tax filing services for the Company. Haugen has expertise in the Company's industry, and will be able to provide additional consultation services to management. Haugen is conveniently located to Mr. Aldine J. Coffman, Chief Administrative Officer. ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The following persons are currently the executive officers and directors of the Company as of the date of the filing of this report. Their dates of service with the Company are set forth next to their respective names: Edward C. Stanojev, Jr., age 45, has served as a Director and President of the Company since May 1997. He is also the President of Auction Television Network, Inc., an Arizona corporation located in Warminster, Pennsylvania, specializing in Internet software technology, a position which he has held since May 1997. Mr. Stanojev also served as President of AHS, Inc., a Pennsylvania corporation, located in Warminster, Pennsylvania, specializing in debt restructuring, a position which he has held since August 1994. From August 1980 until August 1994, Mr. Stanojev served as President of Accu-Weld, Inc., a Pennsylvania corporation, located in Philadelphia, Pennsylvania, specializing in window manufacturing and sales. Jeffery L. Wertz, age 41, has served as a Director, Secretary, Treasurer and Chief Financial Officer of the Company since June 1997, where he has provided all aspects of accounting and compliance reporting services to the Company. From January 1998 until December 1998, Mr. Wertz served as the Chief Financial Officer of Auction Television Network, Inc., an Arizona corporation located in Warminster, Pennsylvania, and its wholly owned subsidiary, Single Source Technology, Inc. He served as the Corporate Accountant, providing accounting and reporting services, for Penn Independent, an insurance company, located in Hatboro, Pennsylvania from June 1995 to December 1997. Mr. Wertz also served as the Property Management Accountant for Pacific Southwest Mortgage, a property management company, located in San Diego, California, from December 1992 until May 1995, where he provided property accounting services for professional Southern California offices and medical complexes. Mr. Wertz received his Masters Degree in Accounting in, specializing in taxation, from San Diego State University in 1991, where he also received his Bachelor's Degree in Finance, Summa Cum Laude in 1989. 32 ITEM 9 Directors (Continued) James R. Hindman, Ph.D., age 52, has served as a Director and Vice President, in charge of operations of the Company, since June 1997. Since 1985, Dr. Hindman has had his own consulting firm, Vermiculite Technologies, out of Dillon, Montana. From 1978 to 1985 Dr. Hindman was employed as the Senior Metallurgist by W.R. Grace & Company, at their Libby, Montana vermiculite operation. Dr. Hindman received a Bachelor of Science degree in Geological Sciences from the University of Southern California, and a Ph.D. in Geological Sciences from the University of Utah. Dr. Martin J. Peskin, age 61, has served as a Director of the Company since February 1995, and as an outside Director of the Company since July 1997. Prior to 1996 he served in various executive officer capacities of the Company. Mr. Peskin retired from his dentistry practice in 1991 and since that time has been managing his private investment portfolio. Aldine J. Coffman, Jr., age 58, has served as Executive Vice President and Chief Administrative Officer and as a Director of the Company since October 1998. He served as the Chief Financial Officer of International Methane Corporation, LTD., a Belize company, specializing in energy, with offices in Denver, Colorado, from September 1993 to June 1995, and as such company's Chief Executive Officer from June 1995 to March 1997. Mr. Coffman also served as a Director of such company from September 1993 to the present. Mr. Coffman has owned his own management services company, Far Country Services, Inc., located in Cherry Hills, Colorado, since 1992, for which he serves as Chief Executive Officer. ITEM 10 EXECUTIVE COMPENSATION Edward C. Stanojev, Jr. A sign-on bonus of 500,000 shares of common stock, no compensation for services prior to July 1, 1997, and a monthly compensation thereafter as an independent contractor, of $6,000 per month, payable when available . Jeffrey L. Wertz A sign-on bonus of 200,000 shares, and a monthly compensation thereafter as an independent contractor, for services as an officer and director, of $2,000 per month, payable when available . James R. Hindman, Ph.D. A sign-on bonus of 500,000 shares of common stock, and a monthly compensation thereafter as an independent contractor, for services as an officer and director, of $3,000 per month. Dr. Martin J. Peskin continued to serve as a director without pay, but with expenses incurred in serving as a director to be reimbursed. 33 ITEM 10 Executive Compensation (Continued) On October 24, 1998, Aldine J. Coffman, Jr., whom had been providing certain legal services to the Company, was appointed a Director, and Chief Administrative Officer and Executive Vice President of the Company, at a compensation from his appointment through the end of 1998, of $35,000. Commencing January 1, 1999, Mr. Coffman will be receiving a salary of $12,500 per month. Directors are entitled to receive reimbursement of their reasonable and necessary out-of- pocket expenses, as documented and submitted. There was no executive officer whose salary was in excess of $100,000 for any period in fiscal 1998. ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the shares of the Company's Common Stock beneficially owned at February 1, 1999, by (i) each person known to management of the Company to be the beneficial owner of more than 5% of the outstanding shares of the Company's Common Stock, (ii) each Director of the Company, (iii) each executive officer of the Company named under "Executive Remuneration," and (iv) all executive officers and Directors of the Company as a group. ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On August 25, 1998, the Company entered into an Accord and Satisfaction with Merwin U. Steward as Liquidator of Southern American Insurance Company and Commercial Surety and Insurance Corporation ("Liquidator"). At that time the two companies in liquidation held interest in a first mortgage on the properties of the Hamilton Vermiculite Project (fee lands and mining claims), with an amount due in excess of $2,056,474 principal and interest inclusive. Under the terms of the Accord and Satisfaction, the Company was to pay the sum of $130,000 to the Liquidator, in consideration of the Liquidator releasing all claims against the Company, including security interests in properties of the Company. In October, 1998, the Company raised the required $130,000 through a convertible debenture issued to Nevada Vermiculite L.L.C., (See Item II - Development Stage Activities) which debenture, among other provisions, allowed Nevada Vermiculite to substitute of record for the Liquidator with respect to certain security interests, as collateral for the $130,000. The debenture also offered Nevada Vermiculite the additional inducements of 500,000 common shares, and an option for an additional 5 million shares exercisable at par, subject to shareholder approval of an option plan. 34 ITEM 12 Cetain Relationships and Related Transactions (Continued) The $130,000 was paid into an escrow pending closing on the Accord and Satisfaction in October, 1998, and funds were distributed to the Liquidator in Closing on the Accord and Satisfaction in December, 1998, upon the Liquidator's providing the Closing Agent all requisite documentation described in the Accord and Satisfaction. As a result of the closing on the Accord and Satisfaction, the Company was able to discharge debts of $2,056,474, principal and interest inclusive, for the payment of $130,000. This discharged amount of $2,056,474 is included in the gain on forgiveness of debt on the accompanying financial statements on The Statement of Operations, and the $130,000 is included as a longterm note payable on the Balance Sheet. The Company remains liable to Nevada Vermiculite L.L.C. for the sum of $130,000, plus interest accruing thereon from October 24, 1998, at 12% per annum, due July 5, 2000, as provided by the terms of the debenture issued to Nevada Vermiculite L.L.C., by the Company. As mentioned above, the Debenture contains other terms of inducement, and conversion rights of principal and accrued interest at par. Mr. Aldine J. Coffman and Dr. James Hindman, directors and officers of the Company, each have 12.5% interest in Nevada Vermiculite L.L.C. The Company and Nevada Vermiculite L.L.C. plan to enter into a joint venture, the purpose of which is to develop the Company's asset at Hamilton, as well as to locate and develop other profitable vermiculiterelated projects. This joint venture will result in the formation of International Vermiculite L.L.C. The Company expects that the Company and Nevada Vermiculite will each be 50% participants in International Vermiculite. ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K 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-QSB are listed at Page 1 of this Annual Report on Form 10-QSB, which listing is hereby incorporated by reference. REPORTS ON FORM 8 - K There were no reports on Form 8 - K filed during the six months ended June 30, 1998. 35 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: February 9, 1999 STANSBURY HOLDINGS CORPORATION By: /s/ EDWARD C. STANOJEV, JR. --------------------------- Edward C. Stanojev, Jr. Chief Executive Officer and President In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURES TITLE DATE - ---------- ----- ----- /s/ EDWARD C. STANOJEV, JR. President and Chief Executive February 9, 1999 ------------------------- Officer (principal executive Edward C. Stanojev, Jr. officer) /s/ JAMES R. HINDMAN, PH.D. Vice President, Chief February 9, 1999 ------------------------- Operating Officer and James R. Hindman, Ph.D. Director /s/ JEFFREY L. WERTZ Vice President, Chief February 9, 1999 ------------------------- Financial Officer Jeffrey L. Wertz (principal financial officer) and Director /s/ MARTIN J. PESKIN Director February 9, 1999 ------------------------- Martin J. Peskin /s/ ALDINE J. COFFMAN, JR. Director February 9, 1999 ------------------------- Aldine J. Coffman, Jr. EXHIBIT INDEX EXHIBIT DESCRIPTION - ------- ----------- 27 Financial Data Schedule