UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For Quarterly period ended September 30, 1997
Transaction report under section 13 or 15(d) of the exchange act
For the transition period from _______________ to _______________
Commission file number __________________0-1519__________________
LEADVILLE CORPORATION
(Exact Name or Registrant as Specified in its Charter)
COLORADO 84-0388216
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
2851 S. PARKER ROAD, SUITE 610, AURORA, COLORADO 80014
------------------------------------------------ -----
(Address of Principal Executive Office) (Zip Code)
(303) 671-9792
(Issuer's telephone number)
N/A
- --------------------------------------------------------------------------------
(Former name, address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes _____ No _____
APPLICABLE ONLY TO CORPORATE ISSUERS
9,979,164
------------------------------------
State the number of Shares of the issuer's classes of
common equity, as of the latest practicable date:
Transitional Small Business Disclosure Format (Check one):
Yes _____ No __X__
<PAGE>
LEADVILLE CORPORATION
INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTARY INFORMATION
Page
----
PART I - FINANCIAL INFORMATION
FINANCIAL STATEMENTS
Balance sheets 3 - 4
Statements of operations 5
Statements of stockholders' equity 6
Statements of cash flows 7
Notes to financial statements 8 - 12
PLAN OF OPERATION 13 - 14
PART II - OTHER INFORMATION
Legal proceedings 15 - 16
Exhibits and reports on Form 8-K 17
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<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
----------------------------
LEADVILLE CORPORATION
Balance Sheets
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 41,773 $ 146,340
Prepaid expenses and other 14,013 7,834
---------- ----------
Total current assets 55,786 154,174
---------- ----------
PROPERTY AND EQUIPMENT, at cost
(Notes 2 and 3)
Mining properties, including assets
acquired under capital leases 7,356,979 7,356,979
Buildings and equipment:
Mine, including assets acquired
under capital leases 1,219,564 1,219,564
Mill 829,032 829,032
Other 108,143 108,143
Land 22,429 22,429
---------- ----------
9,536,147 9,536,147
Less accumulated depreciation and
depletion including amortization
applicable to assets acquired under
capital leases (2,853,772) (2,802,796)
---------- ----------
6,682,375 6,733,351
---------- ----------
OTHER ASSETS:
Investments - certificates of deposit 133,000 133,000
Inventories 329,314 363,289
---------- ----------
462,314 496,289
---------- ----------
$ 7,200,475 $ 7,383,814
========== ==========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Related parties: (Note 5)
Convertible debentures (Note 3) $ 440,000 $ 440,000
Notes payable, stockholders (Note 3) 400,500 368,000
Accrued interest payable 3,444,246 3,160,482
Due to officers and directors 4,426 10,276
Notes payable-other 55,000 55,000
Accounts payable 66,579 106,017
Accrued expenses 85,472 89,179
Capital lease obligations (Note 4) 836,702 796,040
---------- ----------
Total current liabilities 5,332,925 5,024,994
---------- ----------
SETTLEMENT OF LITIGATION (Note 4) 80,000 80,000
LONG-TERM DEBT:
Related parties - -
Other - -
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY
Capital stock, par value $1 per share;
authorized 15,000,000 shares; issued
and outstanding September 30, 1997
and December 31, 1996, 9,979,164
and 9,810,992 shares 9,979,164 9,810,992
Additional paid-in capital 8,444,982 8,450,682
---------- ----------
18,424,146 18,261,674
Accumulated deficit (16,636,596) (15,982,854)
---------- ----------
Total stockholders' equity 1,787,550 2,278,820
---------- ----------
$ 7,200,475 $ 7,383,814
========== ==========
</TABLE>
See Notes to Financial Statements and Accountant's Compilation Report.
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<PAGE>
Part I
LEADVILLE CORPORATION
STATEMENTS OF OPERATIONS
Nine months ended September 30, 1997 and 1996
(Unaudited)
Three months Nine months
ended September 30, ended September 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
Operating revenue $ - $ - $ - $ -
-------- --------- -------- --------
Operating costs and expenses:
General and administrative 137,005 84,089 278,642 169,504
Depreciation 16,992 751 50,976 17,243
-------- -------- -------- --------
Total operating expenses 153,997 84,840 329,618 186,747
-------- -------- -------- --------
Operating loss (153,997) (84,840) (329,618) (186,747)
-------- -------- -------- --------
Financial income and expense:
Debt settlement - - (7,470) -
Interest income 2,158 1,597 5,804 4,422
Other income 1,025 315 1,025 1,515
Interest expense (111,506) (94,704) (323,483) (319,514)
-------- -------- -------- --------
Total financial income
(expense) (108,323) (92,792) (324,124) (313,577)
-------- -------- -------- --------
Net loss $(262,320) $(177,632) $(653,742) $(500,324)
======== ======== ======== ========
Net loss per capital
share $ (.03) $ (.02) $ (.07) $ (.05)
======== ======== ======== ========
Weighted average number of
capital shares outstanding
(total shares) 9,979,164 9,555,352 9,929,313 9,115,499
========= ========= ========= =========
See Notes to Financial Statements.
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<PAGE>
LEADVILLE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Nine months ended September 30, 1997
(Unaudited)
September 30, 1997 December 31, 1996
----------------------- ---------------------
Shares Amount Shares Amount
----------- ----------- ---------- ----------
Capital Stock 9,979,164 $ 9,979,164 9,810,992 $ 9,810,992
Additional
Paid-In Capital 8,444,982 8,450,682
Accumulated deficit,
December 31, 1996 (15,982,854) (15,982,854)
---------- ----------
2,441,292 $ 2,278,820
==========
Net Loss,
September 30, 1997 (653,742)
----------
$ 1,787,550
==========
See Notes to Financial Statements.
- 6 -
<PAGE>
LEADVILLE CORPORATION
STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1997 and 1996
1997 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (653,742) $ (500,324)
Adjustments to reconcile net loss
to net cash provided by (used) in
operating activities:
Depreciation 50,976 17,243
Provision for inventory obsolescence 33,975 11,325
Loss on debt settlements 7,470 -
Change in assets and liabilities:
(Increase) decrease in:
Prepaid expenses (6,179) (2,525)
Increase (decrease) in:
Accounts payable (19,065) (11,388)
Accrued expenses (3,707) (39,777)
Officer payables 18,450 5,174
Accrued interest 305,093 281,496
Capital lease obligations 40,662 40,662
-------- ---------
Net cash provided by (used
in) operating activities (226,067) (198,114)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing, related parties 121,500 45,000
Proceeds from sale of stock - 508,000
Repayment of loans and interest - (92,502)
-------- ---------
Net cash provided by financing
activities 121,500 460,498
-------- ---------
Increase (decrease) in cash and
cash equivalents (104,567) 262,384
Cash and cash equivalents:
Beginning 146,340 2,780
-------- --------
Ending $ 41,773 $ 265,164
======== ========
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Capital stock issued for
Conversion of notes payable,
interest and expenses $ 168,172 $ 336,515
========= ========
See Notes to Financial Statements.
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<PAGE>
LEADVILLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business - Leadville Corporation (the Company) is engaged in the
development and mining of hard rock mineral properties in Lake and Park
Counties, Colorado.
Inventories - Inventories are stated at the lower of cost (average method) or
market value. Inventories consist of operating and maintenance supplies. In
1995, the Company began amortizing the carrying value of inventory to recognize
a declining useful life and obsolescence.
Property and Equipment - Mining properties consist primarily of patented and
unpatented mining claims. Through ownership and claim control, the Company's
land holdings include nearly 4,500 acres of land. Mining properties include the
cost of acquisition and accumulated exploration and development expenditures
incurred in the pre-production stage.
In the event such mining properties are developed into producing properties,
depletion of these related costs will be computed on the unit-of-production
method, based on estimated tons of recoverable ore reserves. If the properties
are determined to be incapable of producing commercial quantities of ore, the
costs will be charged to operations in the period in which the determination is
made.
The Company provides for depreciation of buildings and equipment on the
straight-line method, to apportion costs over the estimated useful lives of the
assets which range principally from five to twenty years. During 1995, the
Company began to recognize depreciation on fixed assets which are not in service
in order to recognize the declining useful life of such assets.
Income Taxes - The Company accounts for income taxes under the liability method,
whereby deferred tax assets and liabilities are recorded for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statements and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.
Net Income (Loss) Per Capital Share - The net income (loss) per capital share is
based on the weighted average number of shares outstanding during the period.
Convertible debt has not been included in the computation of fully diluted
earnings per share because its effect would be anti-dilutive.
Capitalization of Interest - The Company capitalizes interest expense as part of
the historical cost of acquiring certain assets which require an extended period
of time to prepare them for their intended use. Subsequent to 1988, interest has
been expensed due to the suspension of development activities on the Company's
properties.
Use of Estimates - The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
the Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes. The
Company makes significant assumptions concerning the realizability of its
investment in property and equipment, and the ultimate liabilities associated
with asserted claims, including the recently commenced foreclosure proceeding by
a judgement creditor of the Company. (See Part I, Note 3, Lease Commitment
Litigation, and Part II, Item 1, Legal Proceedings, Mining Equipment, Inc.)
Management believes that the interim financial statements include all
adjustments necessary in order to make the financial statements not misleading.
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<PAGE>
Continuing operations:
The accompanying financial statements have been prepared on a going-concern
basis which contemplates the realization of assets and liquidation of
liabilities in the ordinary course of business. At September 30, 1997, the
Company has a significant investment in non-producing mining properties,
recovery of which is dependent upon the production of ore reserves in commercial
quantities or sale of these properties at an amount equal to or in excess of
cost. In addition, the Company has suffered recurring losses from operations and
at September 30, 1997 has a working capital deficiency of approximately
$5,277,000 which includes approximately $4,289,000 due to related parties. The
Company also has significant inventories which the Company intends to utilize in
the start up and operation of its mining properties. As the ultimate realization
of the mining properties and related inventories depends on circumstances which
cannot currently be evaluated, it is not possible to determine whether any loss
will ultimately be realized from their disposition. All real properties are
collateral for convertible debentures. The Company has no property or liability
insurance coverage at September 30, 1997 or as of the date of this report. The
litigation concerning the environmental matters and certain mining equipment
(Note 4) has made it difficult for the Company to obtain significant working
capital through additional equity or debt financing. The Company has reached
agreement, in principal, with the EPA to reduce the $3,000,000 environmental
liability to $500,000 and to waive past due amounts due under the Consent
Decree. The Company is continuing its efforts to further improve terms of the
Consent Decree and to ultimately have its properties severed from Superfund Site
designation. Negotiations are continuing and no payments have been made to the
United States pending results of ongoing discussions.
The Company believes a substantial portion of the convertible debentures, notes
payable, and associated accrued interest may at some future time be converted
into capital shares. Management is continuing to investigate alternatives to
raise additional working capital which will be required to meet current and
future obligations and is vigorously attempting to settle outstanding litigation
matters without additional material impact to the Company's financial position.
If the Company cannot successfully resolve its current litigation, re-structure
its debt and continue to secure necessary working capital, there is substantial
doubt about the ability of the Company to continue as a going concern. The
financial statements do not include any adjustments which might result from the
outcome of these uncertainties. The Company's management is encouraged, however,
by recent negotiations with the EPA which could significantly modify the Consent
Decree and release part or all of Leadville's properties from Superfund
designation. A report requested by EPA to begin this process has been submitted
to the EPA for review.
2. MINING PROPERTIES:
As of September 30, 1997, the Company owns two mining properties, the
Sherman-Hilltop Consolidation, consisting of approximately 3,000 acres and the
Diamond-Resurrection Consolidation consisting of 1,180 acres. The Company also
owns the 340 acre Stringtown Mill Site which was a functioning milling facility
in 1989 and is still permitted for this use.
Activity at the Diamond-Resurrection property, primarily a gold property along
with other metals including silver, copper, lead and zinc in recoverable
quantities, has been suspended since 1989 due to insufficient cash resources to
finance further exploration and development work. The Company maintains a $5,000
reclamation bond for the site. Since May of 1987 and continuing into 1997,
Leadville's activities at the Sherman Mine, primarily a silver property with
other metals including gold, copper, lead and zinc, have been limited to care,
maintenance and permit related work, due to continuing low silver prices. During
1985, the Sherman Mine was placed in temporary cessation due to suspension of
mining activities. During 1995, the temporary cessation period expired and
Leadville will be required to conduct a program of study, exploration and
sampling to maintain existing regulatory permits. In the event the required work
is not performed, the Company may be required to reclaim the Sherman Mine site.
The Company maintains a reclamation bond, in the amount of $128,000, which
relates to the Sherman and Stringtown Mill sites. Although the Sherman Mine is
not included as part of the California Gulch Superfund Site, the EPA is using
rock materials located on the property for use on Superfund designated
properties. Pending final earthwork by the EPA at the Sherman Mine, Leadville
has taken no action at the Sherman Mine. Discussions are underway with the state
of Colorado and EPA in an effort to reduce the bonding requirements based on the
EPA's restoration efforts at the site.
- 9 -
<PAGE>
3. NOTES PAYABLE AND CONVERTIBLE DEBENTURES:
The notes payable are summarized as follows:
September 30, December 31,
1997 1996
------------- ------------
Notes payable, at 10%, to
stockholders and/or officers/
directors, due dates range to
September 1998 $ 400,500 $ 368,000
========= ==========
Notes payable-other, at 10% due
dates ranging to 1998. $ 55,000 $ 55,000
========= ==========
The above notes payable are convertible to the Company's capital stock at the
option of note holders at conversion prices of $.80 to $1.00 per share during
the term of the notes.
The convertible debentures are summarized as follows:
September 30, December 31,
1997 1996
-------------- ------------
10% convertible debentures,
interest and principal due
December 1997, convertible to the
Company's Capital Stock at the
option of the debenture holders
at a conversion price of $1 per
share, collateralized by mining
properties. $ 440,000 $ 440,000
========= =========
Of the $440,000, $340,000 is due to stockholders. During 1996 and early 1997,
the Company secured extended due dates for the debentures to December 31, 1997.
4. COMMITMENTS AND CONTINGENCIES:
Lease Commitment Litigation - In December 1988, the Company sold and leased back
certain equipment from an unrelated entity. Proceeds of $415,000 were recorded
as a capital lease obligation. In addition, the Company leases several other
pieces of mining equipment which are classified as capital leases. The Company
was delinquent on certain of its lease obligation payments, and the lessor has
asserted that the Company was in default. In January 1991, the lessor won a
summary judgment in the amount of approximately $642,000, which represents all
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<PAGE>
unpaid past and future capital lease obligations (including interest). During
1994, in an appeal, the judgment amount of $642,000 was upheld, and additional
attorneys fees and interest of approximately $46,000 were awarded the lessor.
During the first nine months of 1997, the Company accrued an additional $40,600
of interest expense on this obligation. During 1992, the lessor also won a
summary judgment for possession of leased equipment with a net book value of
$525,000 and for interest and penalty charges on the unpaid summary judgments.
Leadville contests lessor's foreclosure assertions. The lessor has repossessed
approximately $402,000 of the leased equipment. Approximately $123,000 of
equipment the lessor has not repossessed remains recorded as an asset of the
Company.
On October 30, 1997, the Company received a Notice of Levy, along with a Notice
of Sheriff's Sale filed on September 29, 1997 relating to foreclosure procedures
concerning the Company's properties in Lake County, Colorado as a result of the
judgement in favor of Mining Equipment, Inc. In general, these properties
comprise the Company's inactive Diamond-Resurrection Mine as well as the
Stringtown Mill site. These properties consist primarily of patented and
unpatented mining claims covering approximately 2,000 of the 4,500 acres held by
the Company in the area (Covered Properties).
Under the foreclosure procedures, unless the judgment is satisfied or the
Company and Mining Equipment, Inc. reach a settlement, a sale of some or all of
the Covered Properties is scheduled for December 12, 1997, and the Company will
have 75 days after that date to redeem any sold properties by payment of the
sales price paid at sale. Management believes that the value of the Covered
Properties is significantly in excess of the judgment amount and, accordingly,
not all of the Covered Properties should be sold in the event a sale occurs.
However, this result cannot be assured. As disclosed previously in the Company's
Forms 10-KSB's and 10-QSB's, the Company is attempting to secure financing to
pay the judgment as well as provide for working capital.
Environmental Litigation - The Company has been named as one of several
defendants in certain legal actions involving environmental matters. The
plaintiffs in these actions, the State of Colorado and the Federal Government,
have alleged that the defendants are liable under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA) in
connection with mining and property ownership positions in the California Gulch
Superfund Site near Leadville, Colorado.
The Company has answered the complaints and has vigorously defended the
consolidated action. Further, the Company and litigation counsel believe they
have substantial and meritorious defenses to the claims being made. However, in
an effort to expedite a conclusion and to minimize legal costs, the Company
agreed to a settlement of the cases.
During August 1993, a consent decree was entered by the Federal District Court
in Colorado whereby the United States agreed to settle the Company's alleged
liability, with the exception of natural resources damages, if any, in
consideration for $3,000,000. Under the original terms of the consent decree, a
total of $250,000 was to be paid by the Company over 15 years, with a contingent
liability of $2,750,000 to be paid based on profitable operations or sale of
properties. Minimum cash payments are to be $10,000 for years 1-5, $15,000 for
years 6-10, and $25,000 for years 11-15.
During October 1995, the Company reached agreement, in principle, with the
United States to reduce the consent decree obligation amount of $3,000,000 to
$500,000, with minimum annual cash payments to begin in April 1996. In effect,
the contingent liability of $2,750,000, under these proposed terms, was reduced
to $250,000. In consideration, the Company agreed to provide to the United
States certain soil materials for use by the Environmental Protection agency
(EPA) in remedial action work at the Superfund site. During late 1995, the EPA
began to use the dirt material. The Company's management is continuing efforts
to further improve terms of the Consent Decree and to ultimately have its
properties severed from Superfund Site designation. The Company has accrued a
$110,000 environmental settlement liability, which is the present value of the
$250,000 future minimum payments.
Recent discussions with EPA relative to de-listing some or all of Leadville's
properties from Superfund designation have been very favorable, as the EPA has
designated no work associated with the Diamond-Resurrection property and work
planned for the Stringtown Mill site is minimal.
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<PAGE>
Contract Mining Litigation - During March 1990, a subcontractor of the Company
filed an action in Lake County District Court for non-payment of approximately
$35,000 for mining services, plus associated costs. Leadville has filed a
counter-claim against the plaintiff for approximately $185,000 relating to the
same contract. No action has occurred in the case since 1993 and the Court
ordered a status report on the issues by August 1996. Since August of 1996, no
further action has occurred in this case.
Certificates of Deposit - The Company is required by the Mined Lands Reclamation
Board to maintain certificates of deposit for future reclamation costs. No
future reclamation costs have been accrued as of September 30, 1997. The State
of Colorado is considering raising the bond amounts. Discussions are continuing
with the EPA and the state of Colorado regarding changes in the bond amounts.
The EPA's use of clay and dolomite limestone at the Stringtown Mill site and
Sherman-Hilltop mine, respectively, will be beneficial to Leadville in
discussions with the State of Colorado.
5. RELATED PARTY TRANSACTIONS:
Certain officers, directors and stockholders have provided significant loans and
advanced expenses to the Company in recent years. The aggregate indebtedness,
including accrued interest and other payables, amounted to approximately
$4,289,000 at September 30, 1997. Substantially all of that indebtedness is
convertible in the Company's Capital Stock at a price of $1.00 per share.
The Company leases office space and facilities from its new President for a
quarterly operating stipend of $6,125. Terms of this agreement may be
renegotiated after one year. As of September 30, 1997, the Company owes its
President accrued compensation of $25,500. In addition, under terms of the
President's employment contract, he has the right to acquire 150,000 shares of
Leadville Corporation's $1.00 Par Value Capital Stock. As of September 30, 1997
and the date of this report, the President has not yet exercised that right in
an effort to conserve cash for the Company's operating expenses.
The Company leases office space on a month-to-month basis from a former officer
for $125 per month. This former officer is a principal in an accounting firm
which performs bookkeeping, accounting and other administrative services for the
Company. As of September 30, 1997, the Company owed the firm approximately
$4,300 for accrued fees and expenses.
6. INCOME TAXES:
At December 31, 1996, the Company has available tax net operating loss
carryforwards of approximately $7,700,000, which can be utilized to offset
future taxable income. Utilization of these loss carryforwards may be limited
due to changes in ownership of the Company, and expire from 1997 through 2011.
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<PAGE>
ITEM 2. PLAN OF OPERATION
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere herein.
The Company's results may be affected by various trends and factors which are
beyond the Company's control. These include factors discussed elsewhere herein.
With the exception of historical information, the matters discussed below under
the headings "Plan of Operations" may include forward-looking statements that
involve risks and uncertainties. The Company cautions the reader that a number
of important factors discussed herein, and in other reports filed with the
Securities and Exchange Commission, could affect the Company's actual results
and cause actual results to differ materially from those discussed in
forward-looking statements.
During June, 1997, the Company selected a new President to guide the Company
through its efforts to resolve its outstanding liabilities and re-start its
mining efforts. John H. Gasper, MSEM, P.E. replaced Dr. Robert G. Risk,
President and Chairman for forty-eight years, effective July 1, 1997. Mr. Gasper
is a registered professional engineer with a masters degree in mining
engineering. He has extensive experience in the restoration of lands impacted by
mining, including Superfund related projects. His efforts have produced award
winning designs and have included many areas of mining and civil construction.
Mr. Gasper has served as a lecturer at West Virginia University teaching mine
design, surveying and minerology. He has served as the chief mining engineer for
Atec Associates for over twelve years and President of EnviRestore Engineering,
LLP the past year. His efforts to date have led to favorable commitments from
the EPA and shareholders. In addition to Mr. Gasper, the Company is negotiating
terms with other highly capable individuals in order to bolster its management
team and Board of Directors.
The Company earned no operating revenues during 1995 and 1996 and incurred net
losses in those years of $617,069 and $633,057 respectively. Management does not
anticipate that any operating revenues will be generated during the year 1997.
The Company's most viable prospect for generating income from operations is by
achieving production at the Diamond-Resurrection property. The property should
be primarily a gold producer, with significant quantities of silver, copper lead
and zinc all present in the ores. In order to achieve production from the
Diamond property, the Company must secure significant financing for debt
reduction, further mine development and re-establishing milling capabilities.
Leadville is severely undercapitalized. As of September 30, 1997, the Company
has a working capital deficit of 5,277,000 and minimal operating cash. With the
exception of the $508,000 in proceeds received in 1996 from issuance of stock,
substantially all of Leadville's cash needs have been met by loans from the
Company's Chairman and by proceeds from short term notes. Management is hopeful
that cash needs for 1997 will be met from existing cash resources and short-term
borrowings until significant financing can be secured.
In 1996 and in the first nine months of 1997, the Company used cash to meet
general, administrative and property obligations. In addition, certain long
standing past due obligations were settled on terms favorable to Leadville. No
capital expenditures were made during the first nine months of 1997.
The Company's certificates of deposit, in the amount of $133,000, are held as
mining reclamation bonds and classified as long term assets. The Company has
received notice that the State of Colorado is considering raising the Company's
bond amounts. Discussions with the State relative to these issues are ongoing.
In order for Leadville to continue as a going concern and re-start its mining
operations, a significant amount of capital from sources outside the Company
will be required. Management is seeking to resume discussions with several
mining companies that previously expressed interest in the Diamond and Sherman
Mine properties. It is management's assessment that financing will be difficult
to obtain until the California Gulch Superfund site cleanup issues are more
clearly defined. The EPA Court action involving the Leadville Mining District,
for all practical purposes, eliminated Leadville's ability to obtain significant
outside financing over the past several years. Management cannot predict if or
when the litigation will be resolved to a point where outside parties will show
a serious interest and ability to provide financing to Leadville. However,
recent discussions with the EPA have been very encouraging and de-listing of
some or all of Leadville's properties impacted by the Superfund may take place
in the near future.
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<PAGE>
During 1997, management will continue its efforts to develop business and
operational plans and obtain financing for the Company's properties through
joint-venture, cash investment or a secondary offering of Leadville's stock. No
assurance can be given that Leadville will be successful in securing financing.
In order to improve the financing prospects for Leadville, managment is
continuing its efforts to lessen the financial and operating burdens of the
Consent Decree with the United States and negotiations with the EPA are
continuing.
The Company continues to incur significant interest charges associated with the
outstanding notes and debentures payable. Management believes that a substantial
amount of the note, debenture and associated accrued interest obligations will
ultimately be converted to Capital Stock by the holders. The holders of these
instruments have the right to convert principal and accrued interest to Capital
Stock at prices of $.80 to $1.00 per share. Substantially all holders of the
notes and debentures payable are stockholders of the Company.
Leadville intends to use the proceeds from significant financing to settle
existing obligations, to finance an exploration and development program and to
begin production from the Diamond properties. The objective of the exploration
program is to identify reserves in addition to the 700,000 tons already
identified at the Diamond-Resurrection. In anticipation of settling the
environmental litigation, Leadville completed three studies of the Diamond
property during 1992, 1993 and early 1997. The studies included verification of
known mineralization, evaluation of mine development, and surface geo-physics
intended to indicate potential exploration targets. Conclusions of these studies
are very encouraging and provide additional evidence that the
Diamond-Resurrection property may hold significant deposits of gold, silver and
base metals.
Full production at the Diamond-Resurrection Mine will require a significant
capital expenditure to acquire surface plant and underground equipment.
Realizing operating revenues from the Diamond-Resurrection Mine production will
require that the Company re-establish milling capabilities at the Stringtown
Mill site, construct a new milling facility or make other milling arrangements.
No significant capital expenditures are anticipated to be made until such time
as the Company secures significant financing or participation on the Diamond
properties. Management does not anticipate that there will be any significant
change in the number of Company employees, until such time as significant
financing can be obtained. The Company's Board of Directors is in the process of
expanding its number of members beyond three. In addition to retaining Mr.
Gasper as President, the Company is seeking new members for senior management
positions. In recent months, management has been involved in discussion with
several mining companies who have expressed preliminary interest in the
Diamond-Resurrection and Sherman-Hilltop properties. To date, no agreements have
been reached.
-14-
<PAGE>
PART II
Item 1. LEGAL PROCEEDINGS
UNITED STATES (ENVIRONMENTAL PROTECTION AGENCY)
In 1983, Leadville was named as one of several defendants in an action (United
States of America vs. Apache Energy and Mineral Company, et al) brought by the
United States in Federal District Court in Colorado under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") in
connection with the approximately 11.5 square mile California Gulch Superfund
site in Lake County, Colorado. In 1986, Leadville was also named as a third
party defendant in a suit (State of Colorado vs. Asarco, Inc., et al) involving
the same site. The cases were subsequently consolidated.
From 1983 through 1988, Leadville negotiated with the United States to have its
involvement in the consolidated case dismissed or settled on a de minimis basis.
That effort was ultimately unsuccessful. During the years 1989 and continuing
into 1993, Leadville attempted to negotiate a settlement of its alleged
liability to the United States. Management believed that financing might be
obtained by Leadville if the claims asserted by the United States were settled
and the financial exposure limited.
During August, 1993, a consent decree was entered by the Federal District Court
in Colorado whereby the United States agreed to settle Leadville's alleged
liability, with the exception of natural resources damages, if any, in
consideration for $3,000,000. Under the original terms of the consent decree, a
total of $250,000 was to be paid by Leadville over 15 years, with a contingent
liability of $2,750,000 to be paid based on profitable operations or sale of
properties. Minimum cash payments are to be $10,000 for years 1-5, $15,000 for
years 6-10 and $25,000 for years 11-15.
During October 1995, Leadville reached agreement, in principle, with the United
States to reduce the consent decree obligation amount of $3,000,000 to $500,000,
with minimum annual cash payments to begin in April 1996. In effect, the
contingent liability of $2,750,000 was reduced to $250,000. In consideration,
Leadville agreed to provide to the United States certain dirt and rock material
for use by the Environmental Protection Agency (EPA) in remedial action work at
the Superfund site. During late 1995, the EPA began to use the dirt material.
Leadville management is continuing efforts to improve terms of the consent
decree and ultimately, to sever the Company's properties from Superfund Site
designation. Leadville has made no payments to the United States, pending
resolution of current negotiations with the EPA. In early August 1997, Leadville
submitted a report requested by the EPA. This report, which focuses on
controlling water quality in the Yak drainage tunnel, was required by the EPA to
begin the de-listing process.
The report is currently under review.
MINING EQUIPMENT, INC.
During December 1988, Leadville raised financing for operations through the sale
and lease back of certain mining and milling equipment. In late 1989, due to
Leadville's inability to raise financing, scheduled payments under the agreement
could not be made and the lessor of the equipment sued in the District Court of
Lake County, Colorado to obtain financial relief and possession of the
equipment. (Mining Equipment, Inc. vs. Leadville Corporation).
In October 1994, Leadville and Mining Equipment, Inc. reached an agreement to
settle the case for $678,000. The plaintiff has obtained possession of
substantially all mining and milling equipment subject to the lease agreements,
with the exception of the Diamond Mine hoist and certain other equipment. The
plaintiff's right to possession of the hoist is subordinate to Leadville's
debenture holders' first mortgage position.
As of September 30, 1997, Leadville is obligated to Mining Equipment, Inc. in
the amount of $836,700 including accrued interest. The plaintiff asserts that it
has the right to foreclose on Leadville's properties to satisfy the obligation.
-15-
<PAGE>
On October 30, 1997, the Company received a Notice of Levy, along with a Notice
of Sheriff's Sale filed on September 29, 1997, relating to foreclosure
procedures concerning the Company's properties in Lake County, Colorado as a
result of the judgment in favor of Mining Equipment, Inc. In general, these
properties comprise the Company's inactive Diamond-Resurrection Mine as well as
the Company's Stringtown Mill site. These properties consist primarily of
patented and unpatented mining claims covering approximately 2,000 of the 4,500
acres held by the Company in the area (Covered Properties).
Under the foreclosure procedures, unless the judgment is satisfied or the
Company and Mining Equipment, Inc. reach a settlement, a sale of some or all of
the Covered Properties is scheduled for December 12, 1997 and the Company will
have 75 days after that date to redeem any sold properties by payment of the
sales price paid at the sale. Management believes that the value of the Covered
Properties is significantly in excess of the judgment amount and, accordingly,
not all of the Covered Properties should be sold in the event a sale occurs.
However, this result cannot be assured. As disclosed previously in the Company's
Forms 10-KSB and 10-QSB, the Company is attempting to secure financing to pay
the judgment as well as provide for working capital. In the event the Company is
not successful in raising capital to satisfy the judgment, it could lose a
significant portion of its properties.
COWIN & COMPANY, INC.
In 1990, Cowin & Company, Inc. Mining Engineers and Contractors filed suit
against Leadville in Lake County, Colorado District Court asserting that
Leadville was obligated to Cowin & Company, Inc. for approximately $45,000 for
contract mining fees and costs. Cowin & Company, Inc. is requesting damages,
equipment possession and general relief relating to a contract mining agreement
entered into March 3, 1987.
Leadville counter-claimed for damages resulting from improper construction of
the Diamond Mine shaft and damages resulting from Cowin & Company activities at
the site. Since no action had been taken in the case since October 1993, the
Court ordered a Status Report be filed on the matter by August 30, 1996. The
status report was filed with the Court, however, no action has occurred since
then.
- 16 -
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed herewith or incorporated by reference to previous filings
with the Securities and Exchange Commission.
Exhibit
Number Description
- ------- -----------
(2) Plan of Acquisition, reorganization, arrangement, liquidation
or succession
(3) Articles of Incorporation and By-laws
(4) Instruments defining the rights of security holders, including
indentures
(9) Voting Trust Agreement
(10) Material Contracts
(11) Statement Regarding Computation of Earning Per Share is not required
since the information is ascertainable from Leadville's financial
statements filed herewith.
(13) Annual Report to security holders, Form 10-Q or quarterly report
to security holders
(16) Letter re: change in accounting principles
(19) Documents not previously filed
(21) Subsidiaries of the Registrant
(22) Published report regarding matters submitted to vote of security
holders
(23) Consents of experts and counsel
(24) Power of Attorney
(27) Financial Data Schedule
(28) Information from reports furnished to state insurance
authorities
(29) Additional Exhibits
- -------------------
(3) The Articles of Incorporation of Leadville were filed with its Form 10-K on
May 6, 1965; the By-laws of Leadville were filed with its Report on Form 10-K
for the year ended December 31, 1980.
(4) Filed with Form 10-K for year ended December 31, 1987.
(28) Consent Decree, State of Colorado vs. Asarco, Inc., et al, Defendants
and Third Party Plaintiffs vs. Leadville Corporation, et al, Third Party
Defendants: United States of America vs. Apache Energy and Minerals
Company, et al.
(b) Reports on Form 8-K filed during the Registrant's third quarter of 1997.
NONE
- 17 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
LEADVILLE CORPORATION
- ---------------------
(Registrant)
/s/JOHN GASPER
----------------------------------------------
John Gasper, President,
Dated: November 14, 1997
-------------------------------------------
- 18 -
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